<PAGE> 1
Registration Nos. 2-98326
811-4323
--------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ____ / /
Post-Effective Amendment No. 33 /X/
--
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY /X/
ACT OF 1940
Amendment No. 34 /X/
--
(Check appropriate box or boxes)
--------------------
NEW ENGLAND FUNDS TRUST I
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices, including Zip Code)
(617) 578-1388
(Registrant's Telephone Number, including Area Code)
--------------------
Robert P. Connolly, Esq.
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
Copy to:
Edward A. Benjamin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
--------------------
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on (date) 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
/X/ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant filed on February 29, 1996 the Rule
24f-2 Notice for the Registrant's fiscal year ended December 31, 1995.
<PAGE> 2
NEW ENGLAND FUNDS TRUST I
(Prospectus and Statement of Additional Information)
CROSS-REFERENCE SHEET
Items required by Form N-1A
Item No. of
Form N-1A Caption in Prospectus
--------- ---------------------
1 ..................... Cover page
2 .................... Schedule of Fees
3 .................... Not Applicable
4 .................... Cover page; Additional Facts About the
Funds; Investment Objectives; How the Fund
Pursues Its Investment Objective;
Subadvisers' Investment Styles; Investment
Risks
5 .................... Fund Management; Additional Facts About
the Funds
6 .................... Cover page; Additional Facts About
the Funds; 6 Ways to Buy Fund Shares;
Fund Dividend Payments; Income Tax
Considerations
7 .................... Cover page; Schedule of Fees; 6 Ways
to Buy Fund Shares; Minimum Investment;
How Fund Share Price is Determined;
Sales Charges; Reduced Sales Charges;
Additional Facts About the Funds;
The Funds' Expenses;
8 .................... 4 Ways to Sell Fund Shares; Repurchase
Option; Exchanging Among New England Funds;
Additional Facts About the Funds
9 .................... None
<PAGE> 3
Item No. of Caption in Statement of
Form N-1A Additional Information
--------- ----------------------
10 .................... Cover page
11 .................... Table of Contents
12 .................... Description of the Trust and
Ownership of Shares
13 .................... Miscellaneous Investment Practices;
Investment Restrictions
14 .................... Management of the Trust
15 .................... Management of the Trust
16 .................... Management of the Trust; Fund Charges and
Expenses;
17 .................... Portfolio Transactions and Brokerage
18 .................... Description of the Trusts and
Ownership of Shares
19 .................... How to Buy Shares; Net Asset Value
and Public Offering Price; Reduced
Sales Charges; Shareholder Services;
Redemptions
20 .................... Income Dividends, Capital Gain
Distributions and Tax Status
21 .................... Fund Charges and Expenses; Management
of the Trusts
22 .................... Performance Criteria (in Prospectus);
Standard Performance Measures
23 .................... Not Applicable
<PAGE> 4
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
NEW ENGLAND STAR SMALL CAP FUND
Prospectus and Application
[Date]
New England Star Small Cap Fund (the "Fund") is a newly organized,
multi-manager, diversified mutual fund that will allocate its investment capital
equally among its multiple segments advised by investment management
organizations that employ different investment styles and strategies. The Fund
is a series of New England Funds Trust I (the "Trust"), a registered open-end
management investment company. Other series of the Trust are described in
separate prospectuses.
The Fund's investment objective is capital appreciation. There can be no
assurance that the Fund will achieve its objective, which may be changed without
shareholder approval.
The Fund offers three classes of shares to the general public (Classes A, B and
C). The offering price is based on the net asset value per share next determined
after an order is received. Class A share purchases generally involve a sales
charge at the time of purchase. No initial sales charge applies to Class B share
purchases. A contingent deferred sales charge (a "CDSC"), however, is imposed
upon certain redemptions of Class B shares. Class B shares automatically convert
to Class A shares eight years after purchase. No initial sales charge or CDSC
applies to purchases or redemptions of Class C shares, which do not have a
conversion feature. Class B shares and Class C shares bear higher annual 12b-1
fees than Class A shares. See "Buying Fund Shares -- Sales Charges."
This prospectus sets forth information you should know before investing in the
Fund. Please read it carefully and keep it for future reference. A statement of
additional information (the "Statement") about the Fund dated [date] has been
filed with the Securities and Exchange Commission (the "SEC") and is available
free of charge. Write to New England Funds, L.P. (the "Distributor"), SAI
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116 or call toll free at
1-800-225-5478. The Statement contains more detailed information about the Fund
and is incorporated into this prospectus by reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[SET IN RIGHT HAND COLUMN:
For general
information on
the Fund or any
of its services
and for assis-
tance in opening
an account,
contact your
investment
dealer or call
the Distributor
toll free at
1-800-225-5478.]
<PAGE> 5
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1 SCHEDULE OF FEES Sales charges, yearly operating expenses.
-----------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
2 How the Fund Pursues Its Investment Objective
-----------------------------------------------------------------------------------------------------
3 SUBADVISERS' INVESTMENT STYLES
-----------------------------------------------------------------------------------------------------
5 INVESTMENT RISKS It is important to understand the risks
inherent in
the Fund before you invest.
-----------------------------------------------------------------------------------------------------
PERFORMANCE INFORMATION
13 Subadvisers' Past Performance
-----------------------------------------------------------------------------------------------------
15 FUND MANAGEMENT
-----------------------------------------------------------------------------------------------------
17 TELE#FACTS INFORMATION
-----------------------------------------------------------------------------------------------------
BUYING FUND SHARES
17 Minimum Investment Everything you need to know to open and add to a
17 6 Ways to Buy Fund Shares New England Star Small Cap Fund account.
[Bullet]Through your investment dealer
[Bullet]By mail
[Bullet]By wire transfer
[Bullet]By Investment Builder
[Bullet]By electronic purchase through ACH
[Bullet]By exchange from another New England Fund
18 Sales Charges
21 Reduced Sales Charges
(Class A Shares Only)
-------------------------------------------------------------------------------------------------------
OWNING FUND SHARES
23 Exchanging Among New England Funds New England Funds offers three convenient ways
24 Fund Dividend Payments to exchange Fund shares.
-------------------------------------------------------------------------------------------------------
SELLING FUND SHARES
25 4 Ways to Sell Fund Shares How to withdraw money or close your account.
[Bullet]Through your investment dealer
[Bullet]By telephone
[Bullet] By mail
[Bullet]By Systematic Withdrawal Plan
26 Repurchase Option An opportunity to reinvest your redemption
(Class A Shares Only) proceeds within 120 days for no sales charge.
-------------------------------------------------------------------------------------------------------
FUND DETAILS
27 How Fund Share Price Is Determined Additional information you may find important.
27 Income Tax Considerations
28 The Fund's Expenses
29 Performance Criteria
29 Additional Facts About the Fund
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
- --------------------------------------------------------------------------------
FUND EXPENSES AND FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Fund. The
following table summarizes your maximum transaction costs from investing in the
Fund and estimated annual expenses for each class of the Fund's shares. The
Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in each class of shares of the Fund for the periods specified.
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a percentage of offering
price)(1)(2)................................................................................ 5.75% None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)(2)...................................................... (3) 4.00% None
Redemption Fee................................................................................ None None None
Exchange Fee.................................................................................. None None None
<FN>
(1) A reduced sales charge on Class A shares applies in some cases. See "Buying
Fund Shares -- Reduced Sales Charges (Class A Shares Only)."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any portion
of certain purchases of Class A shares greater than $1,000,000 redeemed
within approximately 1 year after purchase, but not to any other purchases
or redemptions of Class A shares. See "Buying Fund Shares -- Sales Charges."
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management Fees............................................................................... 1.05% 1.05% 1.05%
12b-1 Fees.................................................................................... 0.25% 1.00%* 1.00%*
Other Expenses**.............................................................................. 0.75% 0.75% 0.75%
Total Expenses................................................................................ 2.05% 2.80% 2.80%
- ------------
<FN>
* Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
** Other Expenses are based on estimated expenses for the Fund's first full
fiscal year.
</TABLE>
<TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of actual
or expected Fund performance or expenses, both of which will vary.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(1) (2)
<S> <C> <C> <C> <C>
1 year......................................................................... $ 77 $ 68 $28 $28
- ------------------------------------------------------------------------------------------------------------------------
3 years........................................................................ $118 $117 $87 $87
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
</TABLE>
The purpose of this fee schedule is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly if you invest in
the Fund.
Please keep in mind that the Example shown above is hypothetical. The
information above should not be considered a representation of past or future
return or expenses; actual return or expenses may be more or less than those
shown.
A wire fee (currently $5.00) will be deducted from your proceeds if you elect to
transfer redemption proceeds by wire.
For additional information about the Fund's fees and other expenses, please see
"Fund Management," "The Fund's Expenses" and "Additional Facts About the Fund."
- --------------------------------------------------------------------------------
1
<PAGE> 7
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The Fund's investment objective is capital appreciation.
HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE
The Fund seeks to attain its objective of capital appreciation by investing
primarily in equity securities of small capitalization companies which the Fund
currently considers to be companies having total market capitalization (shares
outstanding times market price), at the time of purchase, of under $1 billion
("Small Cap Companies"). Under normal market conditions, at least 65% of the
Fund's net assets will be invested in Small Cap Companies. The Fund may also
invest its assets in companies having larger market capitalization and in other
securities including foreign and fixed income securities. Foreign securities,
including equity securities that are traded over-the-counter or on foreign
exchanges, may comprise up to 25% of the Fund's net assets. There are no
geographic limits on the Fund's foreign investments. For more information about
investment in foreign securities see "Risk Factors -- Foreign Securities" and
for information on fixed income securities see "Risk Factors -- Fixed Income
Securities".
New England Funds Management L.P. ("NEFM"), the Fund's adviser, intends to
allocate the Fund's investment capital on an equal basis among four different
subadvisers. Each of these subadvisers will manage its segment of the Fund's
assets with an objective of capital appreciation in accordance with that
subadviser's own investment style and strategy.
- --------------------------------------------------------------------------------
2
<PAGE> 8
- --------------------------------------------------------------------------------
SUBADVISERS' INVESTMENT STYLES
- --------------------------------------------------------------------------------
The four subadvisers that manage the Fund are Robertson, Stephens & Company
Investment Management, L.P., Montgomery Asset Management, L.P., Loomis, Sayles &
Company, L.P. and Harris Associates, L.P. The investment styles described below
will be those applied by each subadviser to the segment of the Fund that the
subadviser manages. See also "Special Consideration Regarding Multi-Adviser
Approach."
ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P. ("ROBERTSON STEPHENS")
Under normal market conditions, Robertson Stephens will invest at least 65% of
its segment of the Fund's portfolio in Small Cap Companies. Robertson Stephens'
approach for selecting securities for its segment is defined by a flexible,
bottom up approach based on value recognition and trend analysis. Stock
selection focuses on a growth catalyst that is expected to drive earnings and
valuations higher over a 1 to 3 year time horizon. The catalyst may be a new
product launch, a new management team, expansion into new markets, realization
of undervalued assets, or some other change expected to result in growth. Once
identified, that catalyst becomes the primary reason for owning the stock.
MONTGOMERY ASSET MANAGEMENT, L.P. ("MONTGOMERY") Under normal market conditions,
Montgomery will invest at least 65% of its segment of the Fund's portfolio in
Small Cap Companies. Montgomery seeks to identify companies at an early stage or
a transitional point of the companies' development, such as the introduction of
new products, favorable management changes, new marketing opportunities or
increased market share for existing product lines. Using fundamental research,
Montgomery targets businesses having positive internal dynamics that can
outweigh unpredictable macro-economic factors, such as interest rates, commodity
prices, foreign currency rates and overall stock market volatility. Montgomery
searches for companies with potential to gain market share within their
respective industries; achieve and maintain high and consistent profitability;
produce increased quarterly earnings; and provide solutions to current and
pending problems in their respective industries or society at large.
LOOMIS, SAYLES & COMPANY, L.P. ("LOOMIS SAYLES") Under normal market conditions,
Loomis Sayles will invest at least 65% of its segment of the Fund's portfolio in
Small Cap Companies. Most of these companies will have market capitalizations
between $100 million and $1 billion at the time of initial purchase. Typically,
Loomis Sayles seeks companies that offer distinctive products, services or
technologies. These companies are expected to exhibit the potential for dynamic
earnings growth as a result of rising sales and improving profitability. Loomis
Sayles also places a significant amount of importance on the quality of
management of these smaller companies because it is Loomis Sayles' belief that
ultimately it is the skill of the management team that will enable these small
companies to mature into large, successful companies. Loomis Sayles employs a
fundamental research approach to identify and invest in these companies. Some of
the factors evaluated include historical results, competitive position including
market share gains and losses, the impact of technology, secular trends in the
economy and management history. Projections are made for both current and the
following year's results and for longer term (3-5 years) growth rates.
Typically, only companies with a projected long term earnings growth rate in
excess of 20% per year are purchased for the portfolio. Positions are typically
eliminated from the portfolio when the company begins to evidence slowing growth
trends usually associated with larger companies.
HARRIS ASSOCIATES, L.P. ("HARRIS ASSOCIATES") Under normal market conditions,
Harris Associates will invest at least 65% of its segment of the Fund's
portfolio in Small Cap Companies. Harris Associates' approach in selecting
investments for its segment of the Fund is oriented to individual stock
selection and is driven by the size of the discount of the security's market
price relative to the economic value of the security as determined by Harris
Associates. Harris Associates' investment philosophy is predicated on the belief
that over time market price and value converge and that investment in securities
priced significantly below long-term value presents the best opportunity to
achieve long-term capital appreciation. In managing its segment, Harris
Associates uses several qualitative and quantitative methods in analyzing
economic value, but considers the primary determinant of value to be the
company's long-term ability to generate cash for its owners. Once Harris
Associates has determined that a security is undervalued, it will be considered
for purchase
- --------------------------------------------------------------------------------
3
<PAGE> 9
===============================================================================
taking into account the quality and motivation of the management, the firm's
market position within its industry and its degree of purchasing power. Harris
Associates believes that the risks of equity investment are often reduced if
management's interests are strongly aligned with the interests of stockholders.
Under unusual market conditions as determined by any of the four subadvisers,
all or any portion of the segment of the portfolio managed by that subadviser
may be invested, for temporary, defensive purposes, in short-term debt
instruments or in cash. In addition, under normal conditions, a portion of each
segment's assets may be invested in short-term assets for liquidity purposes or
pending investment in other securities. Short-term investments may include U.S.
Government securities, certificates of deposit, commercial paper and other
obligations of corporate issuers rated in the top two rating categories by a
major rating agency or, if unrated, determined to be of comparable quality by
the subadviser, and repurchase agreements that are fully collateralized by cash,
U.S. Government securities or high-quality money market instruments.
Although each segment of the Fund's portfolio will normally be invested
primarily in equity securities (including, but not limited to, common and
preferred stocks, warrants and options), each segment may also engage in various
other investment techniques and practices. See "Investment Risks" below.
- --------------------------------------------------------------------------------
4
<PAGE> 10
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
It is important to understand the following risks inherent in the Fund before
you invest.
[Solid Black Square]SMALL COMPANIES
The Fund invests primarily in securities of companies with market
capitalization of under $1 billion. Investments in companies with relatively
small capitalization may involve greater risk than is usually associated with
more established companies. These companies often have sales and earnings
growth rates which exceed those of companies with larger capitalization. Such
growth rates may in turn be reflected in more rapid share price appreciation.
However, companies with smaller capitalization often have limited product
lines, markets or financial resources and they may be dependent upon a
relatively small management group. The securities may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of companies with larger capitalization or the market
averages in general. The net asset values of funds that invest in companies
with smaller capitalization therefore may fluctuate more widely than market
averages.
[Solid Black Square]EQUITY SECURITIES
Equity securities are securities that represent an ownership interest (or the
right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock).
While offering greater potential for long-term growth, equity securities are
more volatile and more risky than some other forms of investment. Therefore,
the value of your investment in the Fund may sometimes decrease instead of
increase. The Fund's investments may include securities traded
over-the-counter as well as those traded on a securities exchange. Some
over-the-counter securities may be more difficult to sell under some market
conditions.
The Fund may invest in convertible securities, including corporate bonds,
notes or preferred stocks that can be converted into common stocks. Because
convertible securities can be converted into equity securities, their values
will normally increase or decrease as the values of the underlying common
stock increase or decrease. The movements in the prices of con-
vertible securities, however, may be smaller than the movements in the value
of the underlying common stock. The value of convertible debt securities that
pay interest, like the value of other fixed-income securities, generally
fluctuates inversely with changes in interest rates.
The Fund may invest in equity securities either by purchasing such securities
directly or by purchasing "depository receipts." Depository receipts are
instruments issued by a bank that represent an interest in equity securities
held by arrangement with the bank. Depository receipts can be either
"sponsored" or "unsponsored." Sponsored depository receipts are issued by
banks in cooperation with the issuer of the underlying equity securities.
Unsponsored arrangements do not involve participation by the issuer of the
underlying equity security. Less information about the issuer of the
underlying equity security may be available in the case of unsponsored
depository receipts.
[Solid Black Square]WARRANTS
The Fund may invest in warrants. A warrant is an instrument that gives the
holder a right to purchase a given number of shares of a particular security
at a specified price until a stated expiration date. Buying a warrant
generally can provide a greater potential for profit or loss than an
investment of equivalent amounts in the underlying common stock. The market
value of a warrant does not necessarily move with the value of the underlying
securities. If a holder does not sell the warrant, it risks the loss of its
entire investment if the market price of the underlying security does not,
before the expiration date, exceed the exercise price of the warrant plus the
cost thereof. Investment in warrants is a speculative activity. Warrants pay
no dividends and confer no rights (other than the right to purchase the
underlying securities) with respect to the assets of the issuer.
- --------------------------------------------------------------------------------
5
<PAGE> 11
================================================================================
[Solid Black Square]WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase U.S. Government or other securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" or
"delayed delivery" basis. In these transactions, the price is fixed at the
time the commitment is made, but delivery and payment for the securities
("settlement") takes place at a later date. When-issued securities and
forward commitments may be sold prior to settlement date, but the Fund
normally will enter into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be. No income accrues on securities that have been purchased pursuant to a
forward commitment or on a when-issued basis prior to delivery to the Fund.
There is a risk that the securities may not be delivered and the Fund may
incur a loss. If the Fund disposes of the right to acquire a when-issued
security prior to acquisition or disposes of its right to deliver or receive
against a forward commitment, the Fund may incur a gain or loss.
In connection with transactions on a when-issued or forward commitment basis,
the Fund maintains in a segregated account with its custodian at all times
liquid assets with a value (monitored each day) equal to the amount of the
Fund's settlement obligation.
[Solid Black Square]FOREIGN SECURITIES
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate or
governmental issuer than about a U.S. issuer, and foreign corporate issuers
are not generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
securities custody costs are often higher than those in the United States,
and judgments against foreign entities may be more difficult to obtain and
enforce. With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value
of investments in those countries. The receipt of interest on foreign
government securities may depend on the availability of tax or other revenues
to satisfy the issuer's obligations.
The Fund's investments in foreign securities may include investments in
emerging or developing countries, whose economies or securities markets are
not yet highly developed. Special considerations associated with these
investments (in addition to the considerations regarding foreign investments
generally) may include, among others, greater political uncertainties, an
economy's dependence on revenues from particular commodities or on
international aid or development assistance, currency transfer restrictions,
highly limited numbers of potential buyers for such securities and delays and
disruptions in securities settlement procedures.
[Solid Black Square]FOREIGN CURRENCY
Most foreign securities in the Fund's portfolio will be denominated in
foreign currencies or traded in securities markets in which settlements are
made in foreign currencies. Similarly, any income on such securities is
generally paid to the Fund in foreign currencies. The value of these foreign
currencies relative to the U.S. dollar ("dollar") varies continually, causing
changes in the dollar value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and changes in the dollar
value of the Fund's income available for distribution to its shareholders.
The effect of changes in the dollar value of a foreign currency on the dollar
value of the Fund's assets and on the net investment income available for
distribution may be favorable or unfavorable.
The Fund may incur costs in connection with conversions between various
currencies. In addition, the Fund may be required to liquidate portfolio
assets, or may incur increased currency conversion costs, to compensate for a
decline in the dollar value of a foreign currency occurring between the time
when the Fund declares and pays a dividend, or between the
- --------------------------------------------------------------------------------
6
<PAGE> 12
===============================================================================
time when the Fund accrues and pays an operating expense in U.S. dollars.
[Solid Black Square]PRIVATIZATIONS
In a number of countries around the world, governments have undertaken to
sell to investors interests in enterprises that the government has
historically owned or controlled. These transactions are known as
"privatizations" and may in some cases represent opportunities for
significant capital appreciation. In some cases, the ability of U.S.
investors, such as the Fund, to participate in privatizations may be limited
by local law, or the terms of participation may be less advantageous than for
local investors. Also, there is no assurance that privatized enterprises will
be successful, or that an investment in such an enterprise will retain its
value or appreciate in value.
[Solid Black Square]FIXED-INCOME SECURITIES
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of
various types. Some fixed income securities represent uncollateralized
obligations of their issuers; in other cases, the securities may be backed by
specific assets (such as mortgages or other receivables) that have been set
aside as collateral for the issuer's obligation. Fixed-income securities
generally involve an obligation of the issuer to pay interest on either a
current basis or at the maturity of the security, as well as the obligation
to repay the principal amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk. Credit risk
is the risk that the security's issuer will fail to fulfill its obligation to
pay interest or principal on the security. Market risk is the risk that the
value of the security will fall because of changes in market rates of
interest. (Generally, the value of fixed-income securities falls when market
rates of interest are rising.) Some fixed-income securities also involve
prepayment or call risk. This is the risk that the issuer will repay the Fund
the principal on the security before it is due, thus depriving the Fund of a
favorable stream of future interest payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period.
Fluctuations in the value of the Fund's investments in fixed-income
securities will cause the Fund's net asset value to increase or decrease.
[Solid Black Square]OWER RATED FIXED-INCOME SECURITIES
The Fund may invest in lower rated fixed-income securities. Fixed income
securities rated Ba or lower by Moody's or BB or lower by S&P and comparable
unrated securities are of below "investment grade" quality. Lower quality
fixed-income securities generally provide higher yields, but are subject to
greater credit and market risks, than higher quality fixed-income securities,
including U.S. Government and many Foreign Government Securities. Lower
quality fixed-income securities are considered predominantly speculative with
respect to the ability of the issuer to meet principal and interest payments.
The market for lower quality fixed-income securities may be more severely
affected than some other financial markets by economic recession or
substantial interest rate increases, by changing public perceptions of this
market and by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. This lack of liquidity
at certain times may affect the valuation of these securities and may make
the valuation and sale of these securities more difficult. Securities of
below investment grade quality are considered high yield, high risk
securities and are commonly referred to as "junk bonds." For more
information, including a detailed description of the ratings assigned by
Moody's and S&P, please refer to the Statement "Appendix A -- Description of
Bond Ratings."
[Solid Black Square]ASSET-BACKED SECURITIES
The Fund may invest up to 25% of its total assets in asset-backed securities,
which represent a direct or indirect participation, or are secured by and
payable from, pools of assets, such as motor vehicle installment sales
contracts, installment loan contracts, leases on various types of real and
personal property and receivables from revolving credit (e.g., credit card)
agreements. Payments or distributions of principal and interest on
asset-backed securities may be
- --------------------------------------------------------------------------------
7
<PAGE> 13
===============================================================================
supported by credit enhancements, such as various forms of cash collateral
accounts or letters of credit.
[Solid Black Square]STRUCTURED NOTES AND INDEXED SECURITIES
Structured notes are debt securities, the interest and principal of which is
determined by an unrelated indicator. Indexed securities include structured
notes, as well as securities other than debt securities, the interest or
principal of which is determined by an unrelated indicator. Index securities
may include a multiplier that multiplies the indexed element by a specified
factor, with the result that the value of such securities may be more
volatile.
[Solid Black Square]REPURCHASE AGREEMENTS
In repurchase agreements, the Fund buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will
repurchase the securities at a higher price at a later date. Such
transactions afford an opportunity for the Fund to earn a return on available
cash at minimal market risk, although the Fund may be subject to various
delays and risks of loss if the seller is unable to meet its obligation to
repurchase.
[Solid Black Square]INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Because of restrictions on direct investment by U.S.
entities in certain countries, investing indirectly in such countries (by
purchasing shares of another fund that is permitted to invest in such
countries) may be the most practical or efficient way for the Fund to invest
in such countries. In other cases, where the subadviser of a segment desires
to make only a relatively small investment in a particular country, investing
through a fund that holds a diversified portfolio in that country may be more
effective than investing directly in issuers in that country. As an investor
in another investment company, the Fund will indirectly bear its share of the
expenses of that investment company. These expenses are in addition to the
Fund's own costs of operations. In some cases, investing in an investment
company may involve the payment of a premium over the value of the assets
held in that investment company's portfolio.
[Solid Black Square]SHORT-TERM TRADING
The Fund may, consistent with its investment objective, engage in portfolio
trading in anticipation of, or in response to, changing economic or market
conditions and trends. These policies may result in higher turnover rates in
the Fund's portfolio which may produce higher transaction costs and a higher
level of taxable capital gains. Portfolio turnover considerations will not
limit any subadviser's investment discretion in managing the Fund's assets.
[Solid Black Square]OPTIONS, FUTURES, SWAP CONTRACTS AND CURRENCY TRANSACTIONS
The Fund may buy, sell or write options on securities, securities indexes,
currencies or futures contracts. The Fund may buy and sell futures contracts
on securities, securities indexes or currencies. The Fund may also enter into
swap contracts. The Fund may engage in these transactions either for the
purpose of enhancing investment return, or to hedge against changes in the
value of other assets that the Fund owns or intends to acquire. The Fund may
also conduct foreign currency exchange transactions on a spot (i.e. cash)
basis at the spot rate prevailing in the foreign currency exchange market.
Options, futures and swap contracts fall into the broad category of financial
instruments known as "derivatives" and involve special risks. Use of options,
futures or swaps for other than hedging purposes may be con-
sidered a speculative activity, involving greater risks than are involved in
hedging.
Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the
"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option the right to sell a security or other asset to, the option writer at a
specified price, on or before a specified date. The buyer of an option pays a
premium when purchasing the option, which reduces the return on the
underlying security or other asset if the option is exercised, and results in
a loss if the option expires unexercised. The writer of an
- --------------------------------------------------------------------------------
8
<PAGE> 14
================================================================================
option receives a premium from writing an option, which may increase the
return if the option expires or is closed out at a profit. If the Fund writes
a put option, it must maintain, in a segregated account with its custodian,
liquid assets with a value (monitored daily) equal to its obligations under
the option (or it must hold a call option that, if exercised, would provide
the Fund with the assets needed to satisfy its obligations under the put).
Similarly, if the Fund as the writer of a call option is unable to close out
an unexpired option, it must continue to hold the underlying security or
other asset until the option expires, to "cover" its obligations under the
option.
A futures contract creates an obligation by the seller to deliver and the
buyer to take delivery of the type of instrument or cash at the time and in
the amount specified in the contract. Although many futures contracts call
for the delivery (or acceptance) of the specified instrument, futures are
usually closed out before the settlement date through the purchase (or sale)
of a comparable contract. If the price of the sale of the futures contract by
the Fund exceeds (or is less than) the price of the offsetting purchase, the
Fund will realize a gain (or loss). A Fund may not purchase or sell futures
contracts or purchase related options if immediately thereafter the sum of
the amount of deposits for initial margin or premiums on the existing futures
and related options positions would exceed 5% of the market value of the
Fund's net assets. Transactions in futures and related options involve the
risk of (1) imperfect correlation between the price movement of the contracts
and the underlying securities, (2) significant price movement in one but not
the other market because of different trading hours in the two markets, (3)
the possible absence of a liquid secondary market at any time, and (4) if the
subadviser's prediction on interest rates, stock market movements or other
economic factors is inaccurate, the Fund may be worse off than if it had not
hedged. Futures transactions involve potentially unlimited risk of loss.
The Fund may enter into interest rate, currency and securities index swaps.
The Fund will enter into these transactions primarily to seek to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or
to protect against an increase in the price of securities the Fund
anticipates purchasing at a later date. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating rate payments
for fixed rate payments with respect to a notional amount of principal). A
currency swap is an agreement to exchange cash flows on a notional amount
based on changes in the relative values of the specified currencies. An index
swap is an agreement to make or receive payments based on the different
returns that would be achieved if a notional amount were invested in a
specified basket of securities (such as the Standard & Poor's Composite Index
of 500 Stocks) or in some other investment (such as U.S. Treasury
securities).
The value of options purchased by the Fund, futures contracts held by the
Fund and the Fund's positions in swap contracts may fluctuate up or down
based on a variety of market and economic factors. In some cases, the
fluctuations may offset (or be offset by) changes in the value of securities
held in the Fund's portfolio. All transactions in options, futures or swaps
involve the possible risk of loss to the Fund of all or a significant part of
the value of its investment. In some cases, the risk of loss may exceed the
amount of the Fund's investment. The Fund will be required, however, to set
aside with its custodian bank certain assets in amounts sufficient at all
times to satisfy its obligations under options, futures and swap contracts.
The successful use of options, futures and swaps will usually depend on the
subadvisers' ability to forecast stock market, currency or other financial
market movements correctly. The Fund's ability to hedge against adverse
changes in the value of securities held in its portfolio through options,
futures and swap transactions also depends on the degree of correlation
between changes in the value of futures, options or swap positions and
changes in the values of the portfolio securities. The
- --------------------------------------------------------------------------------
9
<PAGE> 15
================================================================================
successful use of futures and exchange traded options also depends on the
availability of a liquid secondary market to enable the Fund to close its
positions on a timely basis. There can be no assurance that such a market
will exist at any particular time. Trading hours for options may differ from
the trading hours for the underlying securities. Thus, significant price
movements may occur in the securities markets that are not reflected in the
options market. This may limit the effectiveness of options as hedging
devices. In the case of swap contracts and of options that are not traded
on an exchange and not protected by the Options Clearing Corporation
("over-the-counter" options), the Fund is at risk that the other party to
the transaction will default on its obligations, or will not permit the Fund
to terminate the transaction before its scheduled maturity. As a result of
these characteristics, the Fund will treat most swap contracts and
over-the-counter options (and the assets it segregates to cover its
obligations thereunder) as illiquid. Certain provisions of the Internal
Revenue Code (the "Code") and other regulatory requirements may limit the
Fund's ability to engage in futures, options and swap transactions.
The options and futures markets of foreign countries are small compared to
those of the United States and consequently are characterized in most cases
by less liquidity than are the U.S. markets. In addition, foreign markets may
be subject to less detailed reporting requirements and regulatory controls
than U.S. markets. Furthermore, investments by the Fund in options and
futures in foreign markets are subject to many of the same risks as are the
Fund's other foreign investments. See "Foreign Securities" above. For further
information, see "Miscellaneous Investment Practices -- Futures, Options and
Swap Contracts" in Part II of the Statement.
[Solid Black Square]CURRENCY HEDGING TRANSACTIONS
The Fund may, at the discretion of its subadvisers, engage in foreign
currency exchange transactions, in connection with the purchase and sale of
portfolio securities, to protect the value of specific portfolio positions or
in anticipation of changes in relative values of currencies in which current
or future Fund portfolio holdings are denominated or quoted. Currency hedging
transactions may include forward contracts (contracts with another party to
buy or sell a currency at a specified price on a specified date), futures
contracts (which are similar to forward contracts but are traded on an
exchange) and swap contracts. For more information on foreign currency
hedging transactions, see Part II of the Statement.
[Solid Black Square]SECURITIES LENDING
The Fund may lend its portfolio securities to broker-dealers or other parties
under contracts calling for the deposit by the borrower with the Fund's
custodian of cash collateral equal to at least the market value of the
securities loaned, marked to market on a daily basis. The Fund will continue
to benefit from interest or dividends on the securities loaned and will also
receive interest through investment of the cash collateral in short-term
liquid investments. No loans will be made if, as a result, the aggregate
amount of such loans outstanding at any time would exceed 33 1/3% of the
Fund's total assets (taken at current value). Any voting rights, or rights to
consent, relating to securities loaned pass to the borrower. However, if a
material event affecting the investment occurs, such loans will be called so
that the securities may be voted by the Fund. The Fund pays various fees in
connection with such loans, including shipping fees and reasonable custodial
or placement fees.
Securities loans must be fully collateralized at all times, but involve some
credit risk to the Fund if the borrower defaults on its obligation and the
Fund is delayed or prevented from recovering the collateral.
[Solid Black Square]SHORT SALES
A short sale is a transaction in which the Fund would sell securities it does
not own (but has borrowed) in anticipation of a decline in the market price
of the securities. When a Fund makes a short sale, the proceeds it receives
from the sale will be held on behalf of the broker until the Fund replaces
the borrowed securities. To deliver the securities to the buyer, the Fund
will need to arrange through the broker to borrow the securities and, in
doing so, the Fund will be obligated to replace the securities borrowed at
their market value at the time of replacement, whatever that price may be.
The
- --------------------------------------------------------------------------------
10
<PAGE> 16
Fund may have to pay a premium to borrow
the securities and must pay any dividends or interest payable until the
securities are replaced. For further information, see "Short Sales" in Part
II of the Statement.
All short sales must be fully collaterized, and each segment of the Fund will
not sell securities short if, immediately after and as a result of the sale,
the value of all securities sold short by the subadviser to that segment
exceeds 25% of that segment's total assets. Each segment of the Fund limits
short sales of any one issuer's securities to 2% of that segment's total
assets and to 2% of any one class of the issuer's securities.
- -- MISCELLANEOUS
The Fund will not invest more than 15% of its net assets in "illiquid
securities," that is, securities which are not readily resalable, which may
include securities whose disposition is restricted by federal securities
laws.
The Fund may purchase Rule 144A securities. These are privately offered
securities that can be resold only to certain qualified institutional buyers.
The Fund may also purchase commercial paper issued under Section 4(2) of the
Securities Act of 1933. Rule 144A securities and Section 4(2) commercial
paper are treated as illiquid, unless the subadviser of the relevant segment
has determined, under guidelines established by the Trust's trustees, that
the particular issue of Rule 144A securities or commercial paper is liquid.
Investment in restricted or other illiquid securities involves the risk that
the Fund may be unable to sell such a security at the desired time. Also, the
Fund may incur expenses, losses or delays in the process of registering
restricted securities prior to resale.
Although it is not possible to predict the Fund's portfolio turnover rate
with certainty, the four subadvisers expect their respective segments not to
exceed an annual turnover rate of 200%. High levels of portfolio turnover can
result in higher brokerage costs and realization of taxable capital gains.
Special Consideration
Regarding Multi-Adviser
Approach
NEFM believes that a multi-adviser approach to small cap investing -- one that
combines the varied styles of the subadvisers in selecting securities for the
Fund's portfolio -- offers a different investment opportunity than small cap
funds managed by a single adviser using a single style. NEFM believes that
assigning portfolio management responsibility for the Fund to several
subadvisers, whose varying management styles have resulted in records of
success, may increase the likelihood that the Fund may produce superior results
for its shareholders, with less variability of return and less risk of
persistent under-performance than a single-advised fund. Of course, past results
should not be considered a prediction of future performance, and there is no
assurance that the Fund will in fact achieve superior results over any period of
time.
On a daily basis, investment capital will be allocated equally by NEFM among the
four segments of the Fund. However, NEFM may, subject to review of the Fund's
Board of Trustees, allocate new investment capital differently among any of the
subadvisers. This action may be necessary, if, for example, a subadviser
determines that it desires no additional investment capital. Similarly, because
each segment of the Fund will perform differently from the other segments
depending upon the investments it holds and changing market conditions, one
segment may be larger or smaller at various times than other segments. Although
it reserves the right to do so, subject to the review of the Trust's trustees,
NEFM does not intend to reallocate its assets among the segments to reduce these
differences in size.
NEFM oversees the portfolio management services provided to the Fund by each of
the four sub-
advisers. NEFM does not, however, determine what investments will be purchased
or sold for any segment of the Fund. Because each subadviser will be managing
its segment of the portfolio
11
<PAGE> 17
===============================================================================
independently from the others, the same security may be held in two different
segments of the Fund or may be acquired for one segment of the Fund at a time
when the subadviser of another segment deems it appropriate to dispose of the
security from that other segment. Similarly, under some market conditions, one
or more of the subadvisers may believe that temporary, defensive investments in
short-term instruments or cash are appropriate when another subadviser or
subadvisers believe continued exposure to the equity markets is appropriate for
their segment of the Fund. Because each subadviser directs the trading for its
own segment of the Fund, and does not aggregate its transactions with those of
the other subadvisers, the Fund may incur higher brokerage costs than would be
the case if a single adviser or subadviser were managing the entire Fund.
NEFM, subject to the approval of the Fund's Board of Trustees, may terminate any
subadvisory agreement without shareholder approval. Moreover, the Fund has
applied for an exemptive order from the SEC seeking to permit the Fund, subject
to certain conditions, to enter into subadvisory agreements with other
subadvisers approved by the Fund's Board of Trustees without shareholder
approval. The exemptive request also seeks to permit the Fund, subject to the
approval of the Fund's Board of Trustees, to change the terms of an existing
subadvisory agreement or to continue the employment of existing subadvisers
after events that would otherwise cause an automatic termination of a
subadvisory agreement. Shareholders will be notified of any subadviser changes.
- --------------------------------------------------------------------------------
12
<PAGE> 18
PERFORMANCE INFORMATION
Subadvisers' Past Performance
The graphs are based on performance data provided by Montgomery and Harris
relating to accounts managed by their respective portfolio management personnel,
while at the respective subadvisers, and by Loomis Sayles relating to accounts
which prior to July 11, 1996 were managed by Loomis Sayles' portfolio management
personnel while associated with another advisory firm (collectively referred to
as the "Accounts"). Each of the Accounts has an investment objective
substantially similar to the Fund and is managed using investment styles and
strategies substantially similar (although not necessarily identical) to those
to be employed by the subadviser in managing its segment of the Fund's
portfolio. The total return data presented below for the Montgomery Accounts is
a composite of Montgomery separately managed small cap accounts, and two mutual
funds, Montgomery Small Cap Fund and Montgomery Small Cap Opportunities Fund,
all of which have investment objectives and policies similar to the Fund and
were managed by Montgomery for the periods shown. For the Accounts managed by
the portfolio management personnel who will manage the Loomis Sayles' segment of
the Fund, the total return data presented below is a blended rate comprised of
two separately managed accounts (the "Small Cap Accounts"), which have
investment objectives and policies similar to those of the Fund. Except for the
periods noted in the footnotes for the Small Cap Accounts graph, the Small Cap
Accounts were managed, for the period shown, by the same portfolio management
personnel who will be responsible for managing Loomis Sayles' segment of the
Fund. In addition, the footnote shows the total returns for the Keystone
Institutional Small Cap Growth Fund and the Keystone Small Company Growth Fund
II, which were managed from their respective inception until July 11, 1996 by
the same portfolio management personnel who will manage the Loomis Sayles'
segment of the Fund, and which have investment objectives and policies
substantially similar to the Fund. The information presented below for Harris
Accounts represents the total return of The Oakmark Small Cap Fund, a mutual
fund managed by Harris Associates that has an investment objective and policies
substantially similar to the investment objective and policies of the Fund, for
which Harris Associates serves as the investment adviser. Although Robertson
Stephens has managed Accounts investing in Small Cap Companies, the Accounts may
not have been managed using substantially similar investment styles and
strategies as the Fund. Thus, no performance data is presented for Robertson
Stephens. THE FOLLOWING INFORMATION DOES NOT REPRESENT THE FUND'S PERFORMANCE.
THE FUND IS NEWLY ORGANIZED AND HAS NO PERFORMANCE RECORD OF ITS OWN. THE
FOLLOWING INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF THE FUTURE
PERFORMANCE OF THE FUND. The Fund's performance may be higher or lower than that
shown below.
The following graphs show the total returns for the one year period ended
September 30, 1996 of the Accounts managed by Montgomery and the Small Cap
Accounts and for the three and five year periods ended September 30, 1996 of the
Accounts managed by Montgomery. In addition, the graphs also show the total
returns for the Accounts managed by Montgomery, Harris Associates and the Small
Cap Accounts for the period from January 1, 1996 to September 30, 1996 (year to
date) and from the inception period to September 30, 1996. The graphs also show
the total return of the Lipper Small Cap Mutual Funds Index and the Russell 2000
Index for the period from January 1, 1996 to September 30, 1996 and for the one,
three and five year periods ended September 30, 1996. All performance
information shown below is adjusted to give effect to the annualized expenses
projected for the Fund's Class A shares during its first full fiscal year. The
following information has not been adjusted to reflect deduction of the sales
charge payable on the Fund's Class A shares, nor does it give effect to the
higher expense levels of the Fund's Class B and Class C shares or any contingent
deferred sales charges. Performance would be lower if it were adjusted for these
charges and expenses.
During the period that Harris Associates was managing their Accounts, there were
no changes in the portfolio management personnel for the Accounts. In the case
of the Small Cap Accounts, there were no changes in the portfolio management
personnel; however, prior to July 11, 1996, the portfolio management personnel
were affiliated with another advisory firm. For the Montgomery
13
<PAGE> 19
Accounts, Michael Carmen joined the team managing the Accounts in 1996 at which
time he took an active role in the management of the Accounts.
The Accounts are not subject to the same types of expenses to which the Fund is
subject, nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the Fund by the Investment Company Act of
1940, as amended ( the "1940 Act") or Subchapter M of the Code. The performance
results for the Accounts shown in the graphs might be less favorable had the
Accounts been subject to regulations as investment companies under the relevant
federal laws.
As explained more fully in the preceding section, capital that is available for
investment by the Fund is allocated equally among the Fund's four subadvisers.
Due to a variety of factors, the relative performance of the four segments is
likely to vary, which in turn will affect their relative size. Thus, a
particular subadviser's performance (expressed as a percentage) may have a
greater or lesser impact on the total return of the Fund depending on the size
of the subadviser's segment relative to the other three segments.
A bar graph appears here, illustrating total returns for the period from January
1, 1996 to September 30, 1996 and for one, three and five year periods ended
September 30, 1996 for the Accounts of Montgomery, the Lipper Small Cap Mutual
Funds Index and the Russell 2000 Index (1). The data points from the chart are
as follows:
<TABLE>
<CAPTION>
LIPPER SMALL
MONTGOMERY CAP MUTUAL RUSSELL
ACCOUNTS FUNDS INDEX 2000 INDEX
---------- ------------ ----------
<S> <C> <C> <C>
January 1, 1996 to
September 30,
1996 % % %
October 1, 1995 to
September 30,
1996 % % %
October 1, 1993 to
September 30,
1996 % % %
October 1, 1991 to
September 30,
1996 % % %
</TABLE>
(1) The total return for the Montgomery Accounts for the period [ ]
(inception date) to September 30, 1996 was [ ]%.
A bar graph appears here, illustrating total returns for the periods from
January 1, 1996 to September 30, 1996, for the period October 1, 1995 to
September 30, 1996 for Small Cap Accounts, the Lipper Small Cap Mutual Funds
Index and the Russell 2000 Index (2). The data points from the chart are as
follows:
<TABLE>
<CAPTION>
LIPPER SMALL
SMALL CAPS CAP MUTUAL RUSSELL
ACCOUNTS FUNDS INDEX 2000 INDEX
---------- ------------ ----------
<S> <C> <C> <C>
January 1, 1996 to
September 30,
1996 % % %
October 1, 1995 to
September 30,
1996 % % %
</TABLE>
* The Small Cap Accounts were managed by the same management personnel
throughout the period shown, except for the period July 11, 1996 through
September 16, 1996 when the management of the separately managed Accounts was
in transition from the former adviser to Loomis Sayles. In the case of
Keystone Institutional Small Cap Growth Fund, the total return of [ ]% is for
the period January 1, 1996 (inception date) to July 11, 1996 (date the
management personnel ceased managing the fund), and for the Keystone Small Cap
Growth Fund II, the total return of [ ]% is for the period February 20, 1996
(inception date) to July 11, 1996 (date the management personnel ceased
managing the fund). The total returns for the Keystone Institutional Small Cap
Growth Fund and the Keystone Small Company Growth Fund II were not included in
the calculation of the total returns for the Small Cap Accounts.
(2) The total returns for the Small Cap Accounts managed by the portfolio
managers who will manage the Loomis Sayles' segment of the Fund for the
period June 24, 1994 (inception date) to September 30, 1996 was [ ]%.
A bar graph appears here, illustrating the total returns for the period from
January 1, 1996 to September 30, 1996 for The Oakmark Small Cap Fund, which is a
mutual fund managed by Harris Associates, the Lipper Small Cap Mutual Funds
Index and the Russell 2000 Index (3). The data points from the chart are as
follows:
<TABLE>
<CAPTION>
LIPPER SMALL
THE OAKMARK CAP MUTUAL RUSSELL
SMALL CAP FUND FUNDS INDEX 2000 INDEX
-------------- ------------ ----------
<S> <C> <C> <C>
January 1, 1996
to
September 30,
1996 % % %
</TABLE>
(3) The total returns for The Oakmark Small Cap Fund for the period October 31,
1995 (Inception date) to September 30, 1996 was [ ]%.
14
<PAGE> 20
- -------------------------------------------------------------------------------
FUND MANAGEMENT
- -------------------------------------------------------------------------------
New England Funds Management, L.P., 399 Boylston Street, Boston, Massachusetts
02116, serves as the Fund's adviser. NEFM oversees, evaluates and monitors the
subadvisers' provision of subadvisory services to the Fund and provides general
business management and administration to the Fund. The Fund pays NEFM a
management fee at the annual rate of 1.05% of the Fund's average daily net
assets. This fee rate payable by the Fund is higher than that paid by most other
mutual funds, but is believed to be appropriate for the services received by the
Fund and to be comparable to fees paid by some other mutual funds investing in a
manner similar to the Fund. The higher fee rate is partially due to the multi-
adviser format. NEFM pays Robertson Stephens and Loomis Sayles a sub-advisory
fee at an annual rate of 0.55% of the first $50 million of the average daily
assets of the segment of the Fund that each such subadviser manages, and 0.50%
of such assets in excess of $50,000,000. NEFM pays Montgomery a sub-advisory fee
at an annual rate of 0.65% of the first $50,000,000 of the average daily net
assets of the segment that Montgomery manages, and 0.50% of such assets in
excess of $50,000,000. NEFM pays Harris Associates a sub-advisory fee at the
annual rate of 0.70% of the average daily net assets of the segment that Harris
Associates manages.
Subject to the supervision of NEFM, each subadviser manages its segment of the
Fund's portfolio in accordance with the Fund's investment objective and
policies, makes investment decisions for its segment of the Fund, places orders
to purchase and sell securities for its segment of the Fund and employs
professional advisers and securities analysts who provide research services
relating to its segment of the Fund. The Fund pays no direct fees to any of the
subadvisers. Below is a brief description of the subadvisers.
ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P., 555 California
Street, San Francisco, California 94111, was formed in 1993 and provides
advisory services to both private and public investment funds. The sole general
partner of Robertson, Stephens & Company Investment Management, L.P. is
Robertson Stephens & Company, Inc.
The portfolio manager for the segment of the Fund managed by Robertson, Stephens
& Company Investment Management, L.P. is John Wallace. Mr. Wallace joined
Robertson, Stephens & Company Investment Management, L.P. in 1995 and has been
responsible for managing Robertson Stephens' Growth & Income Fund since its
inception in July 1995 and The Robertson Stephens' Diversified Growth Fund since
its inception in August 1996. Prior to joining Robertson Stephens, he was Vice
President of Oppenheimer Management Corp. where he was portfolio manager of the
Oppenheimer Main Street Income and Growth Fund.
MONTGOMERY ASSET MANAGEMENT, L.P., 101 California Street, San Francisco,
California 94111, was formed in 1990 and since then has advised private accounts
and mutual funds. Its sole general partner is Montgomery Asset Management, Inc.
and its sole limited partner is Montgomery Securities, an investment banking
firm founded in 1969.
The portfolio manager for the segment of the Fund managed by Montgomery is
Michael Carmen. Mr. Carmen joined Montgomery in 1996. He is currently a member
of Montgomery's growth equity team that manages the Montgomery Growth Fund, the
Montgomery Micro Cap Fund and the Montgomery Small Cap Opportunities Fund. From
1993 until he joined Montgomery, he was a Vice President and Associate Portfolio
Manager with State Street Research and Management Company where he assisted with
the management of capital appreciation and growth portfolios. Prior to that, he
was a Senior Equity Analyst with State Street and, from 1991 to 1992, with Cigna
Investments.
LOOMIS SAYLES & COMPANY, L.P., One Financial Center, Boston, Massachusetts
02111, is one of the country's oldest and largest investment counsel firms.
Messrs. Christopher Ely, Phil Fine and David Smith have day to day management
responsibilities for the segment of the Fund managed by Loomis Sayles, with Mr.
Ely as the lead manager. Messrs. Ely, Fine and Smith joined Loomis Sayles in
July 1996.
Mr. Ely is a Vice President of Loomis Sayles. Prior to July 1996, he was Senior
Vice President and Portfolio Manager with Keystone Investment Management Co.,
Inc.
- --------------------------------------------------------------------------------
15
<PAGE> 21
===============================================================================
Messrs. Smith and Fine are Vice Presidents of Loomis Sayles. Prior to July 1996,
Mr. Smith and Mr. Fine were each a Vice President and Portfolio Manager at
Keystone Investment Management Co., Inc.
HARRIS ASSOCIATES, L.P., Two North LaSalle Street, Chicago, Illinois 60602,
together with its predecessors, has advised and managed mutual funds since 1970.
Harris Associates also serves as investment adviser to individuals, trusts,
retirement plans, endowments and foundations, and manages several private
partnerships.
Steven Reid is the portfolio manager for the segment of the Fund managed by
Harris Associates. Mr. Reid joined Harris Associates as a Accountant in 1980 and
has been an investment analyst since 1985. He is currently the portfolio manager
to The Oakmark Small Cap Fund.
The general partners of NEFM, Loomis Sayles, Harris Associates and the
Distributor are special purpose corporations that are wholly-owned subsidiaries
of New England Investment Companies, L.P. ("NEIC"). NEIC's sole general partner,
New England Investment Companies ("NEIC Inc."), is a wholly-owned subsidiary of
Metropolitan Life Insurance Company ("MetLife").
Subject to applicable regulatory restrictions and such policies as the Trust's
trustees may adopt, each subadviser may consider sales of shares of the Fund and
other mutual funds they manage as a factor in the selection of broker-dealers to
effect portfolio transactions for the Fund. Subject to procedures adopted by the
trustees of the Trust, Fund brokerage transactions may be executed by brokers
that are affiliated with NEIC or any subadviser. See "Portfolio Transactions and
Brokerage" in Part II of the Statement.
The Trust's Board of Trustees supervises the affairs of the Trust as conducted
by NEFM and the subadvisers.
- --------------------------------------------------------------------------------
16
<PAGE> 22
- -------------------------------------------------------------------------------
BUYING FUND SHARES
- -------------------------------------------------------------------------------
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in the Fund and $50 is the
minimum for each subsequent investment. There are special initial investment
minimums for the following plans:
[Solid Black Square]$25 (for initial and subsequent investments) for payroll
deduction investment programs for 401(k), SARSEP, 403(b) retirement plans
and certain other retirement plans.
[Solid Black Squar]$50 for automatic investing through the Investment Builder
program.
[Solid Black Square]$250 for retirement plans with tax benefits such as
corporate pension and profit sharing plans, IRAs and Keogh plans.
[Solid Black Square]$1,000 for accounts registered under the Uniform Gifts to
Minors Act or the Uniform Transfers to Minors Act.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Fund in the
following ways:
[LOGO]Through your investment dealer:
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[LOGO]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 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 such checks should be
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 invested in the account for a minimum of
ten calendar days.
[LOGO]By wire transfer of Federal Funds:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) on a day when the Fund is open for business to obtain an
account number and wire transfer instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street
Bank and Trust Company, ABA #011000028, DDA #99011538, Credit New England Star
Small Cap Fund, Class of shares, Shareholder Name, Shareholder Account Number.
Funds may be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time) on a day
when the Fund is open for business. Your bank may charge a fee for this service.
[LOGO]By Investment Builder:
Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $50 or more from your bank checking or
savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder on the enclosed
application. Indicate the amount of the monthly investment and enclose a check
marked "Void" or a deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at
1-800-225-5478 for a Service Options Form.
TELE#FACTS
INFORMATION
USING TELE#FACTS
1-800-346-5984
Tele#Facts is
New England
Funds'
automated
service system
that gives
you 24-hour
access to
your account.
Through your
touch-tone tele-
phone, you can
receive your
current account
balance, your
account trans-
actions, Fund
prices and
recent
performance
information.
Subject to the
conditions set
forth in the
following
sections, you
can also
purchase, sell
or exchange
shares of
your New
England Fund.
For a free
brochure about
Tele#Facts
including a
convenient
wallet card,
call us at
1-800-225-
5478.
- --------------------------------------------------------------------------------
17
<PAGE> 23
===============================================================================
[LOGO]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 Fund is open for business. You may also
purchase shares through ACH by calling Tele#Facts at 1-800-346-5984 twenty-four
hours a day. Under normal circumstances, the New York Stock Exchange (the
"Exchange") closes at 4:00 p.m. (Eastern time). Purchase orders through ACH or
Tele#Facts will be complete only upon the receipt by New England Funds of funds
from your bank. The funds will be processed at the net asset value, as
determined by the valuation on the next day's close of regular trading on the
Exchange on days when 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.
[LOGO]By exchange from another New England Fund:
You may also purchase shares of the Fund by exchanging shares from another New
England Fund. Please see "Owning Fund Shares -- Exchanging Among New England
Funds" for complete details.
GENERAL
All purchase orders are subject to acceptance by the Fund and will be effected
at the net asset value next determined after the order is received in proper
form by State Street Bank and Trust Company ("State Street Bank") (except orders
received by your investment dealer before the close of trading on the Exchange
and transmitted to the Distributor by 5:00 p.m. [Eastern time] on the same day,
which will be effected at the net asset value determined on that day). Although
the Fund does not anticipate doing so, it reserves the right to suspend or
change the terms of sales of shares.
Class B shares and certain shareholder features may not be available to persons
whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless you request
them in writing from New England Funds, L.P. The Fund's "open account" system
for recording your investment eliminates the problems and expense of handling
and safekeeping certificates. Certificates will not be issued for Class B shares
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.
SALES CHARGES
CLASS A SHARES
<TABLE>
Shares are offered at net asset value plus a sales charge which varies depending
on the size of your purchase. They are also subject to a 0.25% annual service
fee. Class A shares are offered subject to the following initial sales charges:
<CAPTION>
SALES CHARGES AS A % OF DEALER'S
----------------------- CONCESSION
PUBLIC AS A % OF
OFFERING AMOUNT OFFERING
PRICE INVESTED PRICE
-------- -------- ----------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.15%
$500,000 - $999,999 2.00% 2.04% 1.70%
$1,000,000 or more None None *
- ----------
<FN>
* The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases (except investment by plans under
Section 401 (a) and 401(k) of the Internal Revenue Code whose total
investments amount to $1 million or more or that have 100 or more eligible
employees ["Retirement Plans"]) a commission of up to the following amounts:
1% on the first $3 million invested; .50% on the next $2 million; and .25% on
the excess over $5 million. For investments by Retirement Plans, the
Distributor may, at its discretion, pay investment dealers who initiate and
are responsible for such purchases a commission of up to the following
amounts: 1% on the first $3 million invested; and .50% on amounts over $3
million and up to $10 million. These commissions are not payable if the
purchase represents the reinvestment of a redemption made during the previous
12 calendar months.
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE> 24
================================================================================
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more of Class A shares of the Fund or purchases by Retirement
Plans as defined above, a CDSC, at the rate of 1% of the lesser of the purchase
price or the net asset value at the time of redemption, applies to redemptions
of shares within one year after purchase. If an exchange is made to Class A
shares of any of New England Cash Management Trust Money Market Series or U.S.
Government Series or New England Tax Exempt Money Market Trust (the "Money
Market Funds"), then the one-year holding period for purposes of determining the
expiration of the CDSC will stop and will resume only when an exchange is made
back into Class A shares of a series of New England Funds Trust I or New England
Funds Trust II (the "Trusts"). If the Money Market Fund shares are redeemed
rather than exchanged back into the Trusts, then a CDSC applies to the
redemption. For purposes of the CDSC, it is assumed that the shares held the
longest are the first to be redeemed. No CDSC applies to a redemption of shares
followed by a reinvestment effected within 30 days after the date of the
redemption.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales charge,
subject to a 0.25% annual service fee, a 0.75% annual distribution fee for 8
years (at which time they automatically convert to Class A shares) and a CDSC if
they are redeemed within 5 years of purchase. The holding period for purposes of
timing the conversion to Class A shares and determining the CDSC will continue
to run after an exchange to Class B shares of any series of the Trusts. If the
exchange is made to Class B shares of a Money Market Fund, then the holding
period stops and will resume only when an exchange is made back into Class B
shares of a series of the Trusts. If the Money Market Fund shares are redeemed
rather than exchanged back into the Trusts, then a CDSC applies on the
redemption, at the same rate as if the Class B shares of the Fund had been
redeemed at the time they were exchanged for Money Market Fund shares. For
purposes of the CDSC, it is assumed that the shares held the longest are the
first to be redeemed.
<TABLE>
The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
Fund purchased with reinvested dividends or capital gains distributions. The
amount of the CDSC, if any, will vary depending on the number of years from the
time of payment for the purchase of Class B shares until the time of redemption
of such shares. The CDSC equals the following percentages of the dollar amounts
subject to the charge:
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHANGE
- ------------------- ------------------------
<S> <C>
1st.............................. 4%
2nd.............................. 3%
3rd.............................. 3%
4th.............................. 2%
5th.............................. 1%
thereafter....................... 0%
</TABLE>
Year one ends one year after the day on which the purchase was accepted, and so
on.
The CDSC is deducted from the proceeds of the redemption, unless otherwise
requested, and is paid to the Distributor. The CDSC may be eliminated for
certain persons and organizations. See "Sales Charges -- General" below. At the
time of sale, the Distributor pays investment dealers a commission of 3.75% and
advances the first year's service fee (up to 0.25%) on purchases of Class B
shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial sales charge
or CDSC; are subject to a 0.25% annual service fee and a 0.75% annual
distribution fee; and do not convert into another class.
CLASS Y SHARES
The Fund may in the future offer a fourth class of shares, which is not
currently available for sale. See "Additional Facts About the Fund" below.
A, B OR C SHARES-
WHICH SHOULD
YOU CHOOSE?
Your choice
of share class
depends on the
size of your
investment and
how long you
intend to hold
your shares.
In general,
there are only
minor differences
in performance
results for the
different classes
if held for
the long term.
Consult your
financial
representative
for help in
deciding which
class is
appropriate
for you.
- --------------------------------------------------------------------------------
19
<PAGE> 25
Deciding Which Class
to Purchase
The decision as to whether Class A, Class B or Class C shares are more
appropriate for an investor depends on the amount and intended length of the
investment. Investors making large investments, qualifying for a reduced initial
sales charge, might consider Class A shares because Class A shares have lower
12b-1 fees and pay correspondingly higher dividends per share. For these
reasons, the Distributor will treat any order of $1 million or more for Class B
shares as a Class A order. Any order of $1 million or more for Class C shares
will be treated as an order for Class A shares, unless you indicate on the
relevant section of your application that you have been informed of the relative
advantages and disadvantages of Class A and Class C shares. Investors making
smaller investments might consider Class B or Class C shares because 100% of the
purchase is invested immediately. Investors making smaller investments who
anticipate redeeming their shares within five years may find Class C shares more
favorable than Class B shares, because Class B shares are subject to a CDSC on
redemptions made within five years after purchase. Class B shares are more
favorable than Class C shares for investors who anticipate holding their
investment for more than eight years, since Class B shares convert to Class A
shares (and thus bear lower ongoing fees) after eight years. Consult your
investment dealer for advice applicable to your particular circumstances.
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions by
retirement plans qualified under Code Sections 401(a) or 403(b)(7) when such
redemptions are necessary to make distributions to plan participants; (2)
distributions from an IRA due to death, disability or a tax-free return of an
excess contribution; (3) distributions by other employee benefit plans to pay
benefits; and (4) distributions by a Section 401(a) plan due to death. For
403(b)(7) and IRA accounts established before January 3, 1995, the CDSC is
waived for redemptions made after attainment of age 59 1/2. The CDSC is waived
for redemptions made to make required minimum distributions after attainment of
age 70 1/2 for 403(b)(7) and IRA accounts established on or after January 3,
1995. There is also no CDSC on redemptions following the death or disability (as
defined in Section 72(m)(7) of the Internal Revenue Code) of a shareholder if
the redemption is made within one year after the shareholder's death or
disability. Also, there is no CDSC on certain withdrawals pursuant to a
Systematic Withdrawal Plan. See "Selling Fund Shares -- 4 Ways to Sell Fund
Shares -- By Systematic Withdrawal Plan" below.
The Fund receives the net asset value next determined after an order is received
on sales of each class of shares. The sales charge is allocated between the
investment dealer and the Distributor. The Distributor receives the CDSC. For
purposes of the CDSC, an exchange from one series of one of the Trusts to
another series of one of the Trusts is not considered a redemption or a
purchase. For federal tax purposes, however, such an exchange is considered a
redemption and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or a loss.
The Distributor may, at its discretion, reallow the entire sales charge imposed
on the sale of Class A shares to investment dealers from time to time. The staff
of the SEC is of the view that dealers receiving all or substantially all of the
sales charge may be deemed underwriters of a fund's shares.
For new amounts invested, the Distributor may, at its expense, pay investment
dealers who sell shares of the Fund at net asset value to an eligible
governmental authority .025% of the average daily net assets of an account at
the end of each calendar quarter for up to one year. These commissions are not
payable if the purchase represents the reinvestment of redemption proceeds from
any series of the Trusts or if the account is registered in street name.
The Distributor may, at its expense, provide additional promotional incentives
or payments to dealers who sell shares of the Fund (including in some cases,
exclusively to New England Securities and MetLife). In some instances additional
compensation are provided to certain dealers who achieve certain sales goals or
who may sell significant amount of shares. Such compensation may include (i)
full re-allowance of the front-end
20
<PAGE> 26
sales charge on the Class A shares; (ii) additional compensation with respect to
the sale of Class A and B shares; or (iii) financial assistance programs to
dealers in connection with conferences, sales or training programs, seminars,
advertising and sales campaigns and/or shareholder services arrangements.
Certain dealers who have sold or may sell significant amounts of shares also may
receive compensation in the form of payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives to locations, within or outside of the U.S., for educational
seminars or meetings of a business nature.
Reduced Sales Charges (Class A Shares Only)
- -- LETTER OF INTENT -- if aggregate purchases of all series and classes of the
Trusts over a 13-month period will reach a breakpoint (a dollar amount at
which a lower sales charge applies), smaller individual amounts can be
invested at the sales charge applicable to that breakpoint.
- -- COMBINING ACCOUNTS -- purchases by all qualifying accounts of all series and
classes of the Trusts (which do not include the Money Market Funds unless the
shares were purchased through an exchange from a series of the Trusts) may be
combined with purchases of qualifying accounts of a spouse, parents,
children, siblings, grandparents or grandchildren, individual fiduciary
accounts, sole proprietorships and/or single trust estates. The values of all
accounts are combined to determine the sales charge.
- -- ENDOWMENTS, FOUNDATIONS AND CHARITABLE ORGANIZATIONS -- no sales charge
applies to purchases of Class A shares by endowments, foundations and
charitable organizations. (Note that endowments and foundations investing
more than $1 million will be eligible to purchase Class Y shares when such
shares become available for purchase. Class Y shares have a lower expense
ratio than Class A shares because of the absence of 12b-1 fees.)
- -- UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust distributions
of less than $1 million may be invested in Class A shares of the Fund at a
reduced sales charge of 1.50% of the public offering price (or 1.52% of the
net amount invested).
- -- ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC applies to
investments by any state, county or city or any instrumentality, department,
authority or agency thereof that has determined that the Fund is a legally
permissible investment and that is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of any registered investment company.
- -- CLIENTS OF AN ADVISER OR SUBADVISER -- no sales charge or CDSC applies to
investments of $25,000 or more in the Fund by (1) clients of an adviser or
subadviser to any series of the Trusts; any director, officer or partner of a
client of an adviser or subadviser to any series of the Trusts; and the
parents, spouses and children of the foregoing; (2) any individual who is a
participant in a Keogh or IRA Plan under a prototype Plan document of an
adviser or subadviser to any series of the Trusts if at least one participant
in the plan qualifies under category (1) above; and (3) an individual who
invests through an IRA and is a participant in an employee benefit plan that
is a client of an adviser or subadviser to any series of the Trusts. Any
investor eligible for these arrangements should so indicate in writing at the
time of the purchase.
- -- Shares of the Fund may be purchased at net asset value by investment
advisers, financial planners or other intermediaries who place trades for
their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisers, financial planners or other intermediaries who place
trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary
on the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Section 401(a), 401(k), 403(b) or 457 of the
Internal Revenue Code and rabbi trusts. Investors may be
21
<PAGE> 27
charged a fee if they effect transactions through a broker or agent.
- -- There is no sales charge, CDSC or initial investment minimum related to
investments by certain current and retired employees of the Trusts'
investment advisers or subadvisers, the Distributor or any other company
affiliated with [MetLife]; current and former directors and trustees of the
Trusts or their predecessor companies; agents and general agents of [MetLife]
and its insurance company subsidiaries; current and retired employees of such
agents and general agents; registered representatives of broker-dealers that
have selling arrangements with the Distributor; the spouse, parents,
children, siblings, grandparents or grandchildren of the persons listed
above; any trust, pension, profit sharing or other benefit plan for any of
the foregoing persons; and any separate account of [MetLife] or of any
insurance company affiliated with [MetLife].
- -- Shareholders of Reich & Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of any series of the Trusts at net
asset value and without the imposition of a sales charge.
- -- Shares of the Fund are available at net asset value for investments by
non-discretionary and non-retirement accounts of bank trust departments or
trust companies, but are unavailable if the trust department or institution
is part of an organization not principally engaged in banking or trust
activities.
- -- Shares of the Fund are available at net asset value for investments in
participant-directed 401(a) and 401(k) plans that have 100 or more eligible
employees.
- -- Shares of the Fund also may be purchased at net asset value through certain
broker-dealers and/or financial services organizations without any
transaction fee. Such organizations may receive compensation, in an amount of
up to 0.35% annually of the average value of the Fund shares held by their
customers. This compensation may be paid by NEFM and/or the Fund's
subadvisers out of their own assets, or may be paid indirectly by the Fund in
the form of servicing, distribution or transfer agent fees.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses associated
with such sales.
22
<PAGE> 28
- -------------------------------------------------------------------------------
OWNING FUND SHARES
- -------------------------------------------------------------------------------
EXCHANGING AMONG NEW ENGLAND FUNDS
CLASS A SHARES. Except as indicated in the next two sentences, you may exchange
Class A shares of any series of the Trusts (and Class A shares of the Money
Market Funds acquired through exchanges from any of the series of the Trusts)
for the Class A shares of any other series of the Trusts (except New England
Growth Fund, which is subject to special eligibility restrictions) without
paying a sales charge; such exchanges will be made at the next-determined net
asset value of the shares. Class A shares of New England Intermediate Term Tax
Free Fund of California and New England Intermediate Term Tax Free Fund of New
York (the "California and New York Funds") (and shares of the Money Market Funds
acquired through exchanges of such shares) may be exchanged for Class A shares
of another series of the Trusts at net asset value only if you have held
California or New York Fund shares for at least six months; otherwise, you will
pay the difference between any sales charge you have already paid on your
California or New York Fund shares and the higher sales charge of the series
into which you are exchanging. If you exchange your Class A shares of New
England Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund") (and
shares of the Money Market Funds acquired through exchanges of such shares) for
shares of another series of the Trusts that has a higher sales charge, you will
pay the difference between any sales charge you have already paid on your
Adjustable Rate Fund shares and the higher sales charge of the series into which
you are exchanging. In addition, you may redeem Class A shares of any Money
Market Fund that were not acquired through exchanges from any series of the
Trusts and have the proceeds directly applied to the purchase of shares of a
series of the Trusts at the applicable sales charge.
CLASS B SHARES. You may exchange Class B shares of the Fund or any series of the
Trusts (and Class B shares of the Money Market Funds or Class A shares of the
Money Market Funds which have not been subject to a previous sales charge) for
Class B shares of any other series of the Trusts (except New England Growth
Fund, which does not offer Class B shares). Such exchanges will be made at the
next determined net asset value of the shares. Class B shares will automatically
convert on a tax-free basis to Class A shares eight years after they are
purchased (excluding the time the shares are held in a Money Market Fund). See
"Sales Charges -- Class B Shares" above.
CLASS C SHARES. You may exchange Class C shares of the Fund or any other series
of the Trusts for Class C shares of any other series of the Trusts which offers
Class C shares or for Class A shares of the Money Market Funds.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Fund is open for business, call Tele#Facts at
1-800-346-5984 twenty-four hours a day or write to New England Funds. Exchange
requests accepted after 4:00 p.m. (Eastern time), or after the Exchange closes
if it closes earlier than 4:00 p.m., will be processed at the net asset value
determined at the close of regular trading on the next day that the Exchange is
open. The exchange must be for a minimum of $500 (or the total net asset value
of your account, whichever is less), except that under the Automatic Exchange
Plan the minimum is $50. All exchanges are subject to the eligibility
requirements of the series into which you are exchanging. In connection with any
exchange, you must receive a current prospectus of the series into which you are
exchanging. The exchange privilege may be exercised only in those states where
shares of such other series may be legally sold.
You have the automatic privilege to exchange your Fund shares by telephone. New
England Funds, L.P. will employ reasonable procedures to confirm that your
telephone instructions are genuine, and, if it does not, it may be liable for
any losses due to unauthorized or fraudulent instructions. New England Funds,
L.P. will require a form of personal identification prior to acting upon your
telephone instructions, will provide you with written confirmations of such
transactions and will record your instructions.
Except as otherwise permitted by SEC rule, shareholders will receive at least 60
days' advance notice of any material change to the exchange privilege.
AUTOMATIC
EXCHANGE
PLAN
The Fund has
an automatic
exchange plan
under which
shares of a
class of the
Fund are
automatically
exchanged each
month for
shares of the
same class of
other series of
the Trusts
(other than
New England
Growth Fund,
which is
available only
to certain
eligible
investors). The
minimum
monthly
exchange
amount under
the plan is $50.
There is no fee
for exchanges
made pursuant
to this
program, but
there may be a
sales charge as
described on
this page.
- --------------------------------------------------------------------------------
23
<PAGE> 29
================================================================================
FUND DIVIDEND PAYMENTS
The Fund pays dividends annually. The Fund pays as dividends substantially all
net investment income (other than long-term capital gains) each year and
distributes annually all net realized long-term capital gains (after applying
any available capital loss carryovers). The trustees of the Trust may adopt a
different schedule as long as payments are made at least annually. If you intend
to purchase shares of the Fund shortly before it declares a dividend, you should
be aware that a portion of the purchase price may be returned to you as a
taxable dividend.
You have the option to reinvest all distributions in additional shares of the
same class of the Fund or in shares of the same class of other series of the
Trusts, to receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares of the same
class of the Fund or the same class of shares of other series of the Trusts, or
to receive all distributions in cash. Income distributions and capital gains
distributions will be reinvested in shares of the same class of the Fund at net
asset value (without a sales charge or CDSC) unless you select another option.
You may change your distribution option by notifying New England Funds in
writing or by calling 1-800-225-5478. If you elect to receive your dividends in
cash and the dividend checks sent to you are returned undeliverable to the Fund
or remain uncashed for six months, your cash election will automatically be
changed and your future dividends will be reinvested.
- -------------------------------------------------------------------------------
DIVIDEND DIVERSIFICATION
PROGRAM
- -------------------------------------------------------------------------------
You may also establish a dividend diversification program that allows you
to have all dividends and any other distributions automatically invested
in shares of the same class of another New England Fund, subject to the
investor eligibility requirements of that other fund and to state
securities law requirements. Shares will be purchased at the selected
fund's net asset value (without a sales charge or CDSC) on the dividend
record date. A dividend diversification account must be in the same
registration (shareholder name) as the distributing fund account and, if a
new account in the purchased fund is being established, the purchased
fund's minimum investment requirements must be met. Before establishing a
dividend diversification program into any other New England Fund, you must
obtain and carefully read a copy of that fund's prospectus.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
24
<PAGE> 30
- --------------------------------------------------------------------------------
SELLING FUND SHARES
- --------------------------------------------------------------------------------
4 WAYS TO SELL FUND SHARES
You may sell Class A, Class B and Class C shares of the Fund in the following
ways:
[LOGO]Through your investment dealer:
Call your authorized investment dealer for information.
[LOGO]By telephone:
You or your investment dealer may redeem (sell) shares by telephone using any of
the three methods described below:
Wired to Your Bank Account -- If you have previously selected the telephone
redemption privilege on your account, shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
fund is open for business. Class A and Class C shares only may also be redeemed
by calling Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds
(LESS ANY APPLICABLE CDSC) generally will be wired on the next business day to
the bank account previously chosen by you on your application. A wire fee
(currently $5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have a correspondent
bank that is a member. If your account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
Mailed to Your Address of Record -- Shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
Fund is open for business and requesting that a check for the proceeds (LESS ANY
APPLICABLE CDSC) be mailed to the address on your account, provided that the
address has not changed over the previous month and that the proceeds are for
$100,000 or less. Generally, the check will be mailed to your address of record
on the business day after your redemption request is received.
Through ACH -- Shares may be redeemed electronically through the ACH system,
provided that you have an approved ACH application on file with the Fund. To
redeem through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern
time) on a day when the Fund is open for business or for Class A and C shares
call Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds (LESS
ANY APPLICABLE CDSC) generally will arrive at your bank within three business
days; their availability will depend on your bank's particular rule.
Redemption requests accepted after 4:00 p.m. (Eastern time), or after the
Exchange closes if it closes before 4:00 p.m., will be processed at the net
asset value determined at the close of regular trading on the next day that the
Exchange is open.
[LOGO]By mail:
You may redeem your shares at their net asset value (LESS ANY APPLICABLE CDSC)
next determined after receipt of your request in good order by sending a written
request (including any necessary special documentation) to New England Funds,
P.O. Box 8551, Boston, MA 02266-8551.
The request must include the name of the Fund, your account number, the exact
name(s) in which your shares are registered, the number of shares or the dollar
amount to be redeemed and whether you wish the proceeds mailed to your address
of record, wired to your bank account or transmitted through ACH. All owners of
the shares must sign the request in the exact names in which the shares are
registered (this appears on your confirmation statement) and indicate any
special capacity in which you are signing (such as trustee, custodian 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 New England Funds, L.P. Signature guarantees by
notaries public are not acceptable.
Additional written information may be required for redemptions by certain
benefit plans and IRAs. Contact the Distributor or your investment dealer for
details.
If you hold certificates for your Class A shares, you must enclose them with
your redemption request or your request will not be honored. The
- --------------------------------------------------------------------------------
25
<PAGE> 31
================================================================================
Fund recommends that certificates be sent by registered mail.
[LOGO]By Systematic Withdrawal Plan:
You may establish a Systematic Withdrawal Plan (the "Plan") that allows you to
redeem shares and receive payments on a regular schedule. In the case of shares
subject to a CDSC, the amount or percentage you specify may not exceed, on an
annualized basis, 10% of the value of your Fund account (based on the day you
establish your plan). Redemption of shares pursuant to the Plan will not be
subject to a CDSC. For information, contact the Distributor or your investment
dealer. Since withdrawal payments may have tax consequences, you should consult
your tax adviser before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset value next
determined after your redemption request is received in proper form by State
Street Bank or your investment dealer (except that orders received by your
investment dealer before the close of regular trading on the Exchange and
transmitted to the Distributor by 5:00 p.m. Eastern time on the same day will
receive that day's net asset value). Redemption proceeds (LESS ANY APPLICABLE
CDSC) will normally be mailed to you within seven days after State Street Bank
or the Distributor receives your request in good order. However, in those cases
where you have recently purchased your shares by check or an electronic funds
transfer through the ACH system and you make a redemption request within 10 days
after such purchase or transfer, the Fund may withhold redemption proceeds until
the Fund knows that the check or funds have cleared.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If you are unable to contact the Distributor by
telephone, shares may be redeemed by delivering the redemption request in person
to the Distributor or by mail as described above. Requests are processed at the
net asset value next determined after the request is received.
Special rules apply with respect to redemptions under powers of attorney. Please
call your investment dealer or the Distributor for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares held in certificate form. If certificates have been issued for
your investment, you must send them to New England Funds along with your request
before a redemption request can be honored. See the instructions for redemption
by mail above.
The Fund may suspend the right of redemption and may postpone payment for more
than seven days when the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the SEC when trading on the Exchange is
restricted or during an emergency which makes it impracticable for the Fund to
dispose of its securities or to determine fairly the value of its net assets, or
during any other period permitted by the SEC for the protection of investors.
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your Class A share redemption proceeds (without a sales charge) to
the repurchase of Class A shares of any series of the Trusts. To qualify, you
must reinvest some or all of the proceeds within 120 days after your redemption
and notify New England Funds or your investment dealer at the time of
reinvestment that you are taking advantage of this privilege. You may reinvest
the proceeds either by returning the redemption check or by sending your check
for some or all of the redemption amount. Please note: For federal income tax
purposes, a redemption is a sale that involves tax consequences (even if the
proceeds are later reinvested). Please consult your tax adviser.
- --------------------------------------------------------------------------------
26
<PAGE> 32
- --------------------------------------------------------------------------------
FUND DETAILS
- --------------------------------------------------------------------------------
HOW FUND SHARE PRICE IS DETERMINED
The net asset value of the Fund's shares is determined as of the close of
regular trading (normally 4:00 p.m. Eastern time) on the Exchange each day it is
open. The Fund's holdings of equity securities are valued at the most recent
sales prices on an applicable exchange or NASDAQ, or, in the case of unlisted
securities (or listed securities which were not traded during the day), at the
last quoted bid prices. Price information on listed securities is generally
taken from the closing price on the exchange where the security is primarily
traded. Securities traded primarily on an exchange outside the United States,
except equity securities traded on the London Stock Exchange ("British
Equities"), which closes before the close of the Exchange generally will be
valued for purposes of calculating the Fund's net asset value at the last sale
or bid price on that non-U.S. exchange, except that when an occurrence after the
closing of that exchange is likely to have materially changed such a security's
value, such security will be valued at fair value as of the close of regular
trading on the Exchange. British Equities will be valued at the mean between the
last bid and last ask price. An option that is written by the Fund generally
will be valued at the last sale price or, in the absence of the last sale price,
the last offer price. An option that is purchased by the Fund is generally
valued at the last sale price or, in the absence of the last sale price, at the
last bid price. The value of a futures contract will be equal to the unrealized
gain or loss on the contract that is determined by marking the contract to the
current settlement price. A settlement price may not be used if the market
makes a limit move with respect to a particular futures contract or if the
securities underlying the futures contract experience significant price
fluctuations after the determination of the settlement price. When a settlement
price is not used, futures contracts will be valued at their fair value as
determined by or under the direction of the Trust's Board of Trustees.
Short-term notes are valued at cost, or, where applicable, amortized cost,
which method is intended to approximate market value. All other securities and
assets of each segment of the Fund's portfolio are valued at their fair market
value as determined in good faith by the subadviser of that segment (or a
pricing service selected by the subadviser) under the supervision of the
Trust's Board of Trustees. The value of any assets for which the market price
is expressed in terms of a foreign currency will be translated into U.S.
dollars at the prevailing market rate on the date of net asset value
computation, or, if no such rate is quoted at such time, at such other
appropriate rate as may be determined by or under the direction of the Trust's
Board of Trustees.
The net asset value per share of each class is determined by dividing the value
of each class's securities (determined as explained above) plus any cash and
other assets (including dividends and interest receivable but not collected)
less all liabilities (including accrued expenses), by the number of shares of
such class outstanding. The public offering price of the Fund's Class A shares
is determined by adding the applicable sales charge to the net asset value. See
"Buying Fund Shares -- Sales Charges" above. The public offering price of Class
B and Class C shares is the net asset value per share.
The price you pay for a share will be determined using the next set of
calculations made after your order is accepted by New England Funds, L.P. In
other words, if, on a Tuesday morning, your properly completed application is
received, your wire is received or your dealer places your trade for you, the
price you pay will be determined by the calculations made as of the close of
regular trading on the Exchange on Tuesday. If you buy shares through your
investment dealer, the dealer must receive your order by the close of regular
trading on the Exchange and transmit it to the Distributor by 5:00 p.m. (Eastern
time) to receive that day's public offering price.
INCOME TAX CONSIDERATIONS
The Fund intends to meet all requirements of the Code necessary to qualify as a
"regulated investment company" and thus does not expect to pay any federal
income tax on investment income and capital gains distributed to shareholders in
cash or in additional shares. Unless you are a tax-exempt entity, your
distributions derived from the Fund's short-term capital gains and ordinary
income are taxable to you as ordinary income. (A portion of these distributions
may qualify for the dividends-
- --------------------------------------------------------------------------------
27
<PAGE> 33
================================================================================
received deduction for corporations.) Distributions derived from the Fund's
long-term capital gains ("capital gains distributions"), if designated as such
by the Fund, are taxable to you as long-term capital gains, regardless of how
long you have owned shares in the Fund. Both income distribution and capital
gains distributions are taxable whether you elected to receive them in cash or
additional shares.
To avoid an excise tax, the Fund intends to distribute prior to calendar year
end virtually all the Fund's ordinary income and net capital gains earned during
that calendar year. If declared in December to shareholders of record in that
month, and paid the following January, these distributions will be considered
for federal income tax purposes to have been received by shareholders on
December 31.
The Fund is required to withhold 31% of all income dividends and capital gains
distributions it pays to you if you do not provide a correct, certified taxpayer
identification number, if the Fund is notified that you have under reported
income in the past or if you fail to certify to the Fund that you are not
subject to such withholding. In addition, the Fund will be required to withhold
31% of the gross proceeds of Fund shares you redeem if you have not provided a
correct, certified taxpayer identification number. If you are a tax-exempt
shareholder, however, these back-up withholding rules will not apply so long as
you furnish the Fund with an appropriate certification.
Annually, if you earn more than $10 in taxable income from the Fund, you will
receive a Form 1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should consult your tax
adviser about any state or local taxes that may apply to such distributions. Be
sure to keep the Form 1099 as a permanent record. A fee may be charged for any
duplicate information requested.
The Fund may be liable to foreign governments for taxes relating primarily to
investment income or capital gains on foreign securities in the Fund's
portfolio. The Fund may in some circumstances be eligible to, and in its
discretion may, make an election under the Internal Revenue Code which would
allow Fund shareholders who are U.S. citizens or U.S. corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax return.
If the Fund makes the election, the amount of each shareholder's distribution
reported on the information returns filed by the Fund with the Internal Revenue
Service must be increased by the amount of the shareholder's portion of the
Fund's foreign tax paid.
The foregoing is a summary of certain federal income tax consequences of an
investment in the Fund for shareholders who are U.S. citizens or corporations.
Shareholders should consult a competent tax adviser as to the effect of an
investment in the Fund on their particular federal, state and local tax
situations and about consequences of their investment under foreign laws.
THE FUND'S EXPENSES
In addition to the management fee paid to NEFM and certain accounting and
administrative fees paid to the Distributor, the Fund pays all expenses not
borne by NEFM, the subadvisers or the Distributor, including, but not limited
to, the charges and expenses of the Fund's custodian and transfer agent,
independent auditors and legal counsel for the Fund and the Trust's independent
trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection
with portfolio transactions, all taxes and filing fees, the fees and expenses
for registration or qualification of its shares under federal or state
securities laws, all expenses of shareholders' and trustees' meetings,
preparing, printing and mailing prospectuses and reports to shareholders and the
compensation of trustees of the Trust who are not directors, officers or
employees of The New England or its affiliates, other than affiliated registered
investment companies. Certain expenses are allocated differently between the
Fund's Class A, Class B and Class C shares, on the one hand, and its Class Y
shares, if any, on the other hand. (See "Additional Facts about the Fund,"
below.)
Under a Service Plan in the case of Class A shares, and Service and Distribution
Plans in the case of Class B and Class C shares, adopted pursuant to Rule 12b-1
under the 1940 Act, the Fund pays the Distributor a monthly service fee at an
annual rate not to exceed 0.25% of the Fund's average daily net assets
attributable to the Class A, Class B and Class C shares. The Distributor may pay
up to the
- --------------------------------------------------------------------------------
28
<PAGE> 34
================================================================================
entire amount of this fee to securities dealers who are dealers of record with
respect to the Fund's shares, for providing personal services to investors in
shares of the Fund and/or the maintenance of shareholder accounts. In the case
of the Class B shares, the Distributor pays investment dealers at the time of
sale the first year's service fee, in the amount of up to 0.25% of the amount
invested. The Class A service fee is payable only to reimburse the Distributor
for amounts it pays or expends in connection with the provision of personal
services to investors and/or the maintenance of shareholder accounts. To the
extent that the Distributor's reimbursable expenses in any year exceed the
maximum amount payable under the relevant Service Plan for that year, such
expenses may be carried forward for reimbursement in future years in which the
Plan remains in effect. The Class B and C service fees are payable regardless of
the amount of the Distributor's related expenses.
The Fund's Class B and Class C shares also pay the Distributor a monthly
distribution fee at an annual rate not to exceed 0.75% of the average net assets
of the Fund's Class B and Class C shares. The Distributor may pay up to the
entire amount of this fee to securities dealers who are dealers of record with
respect to the Fund's shares, as distribution fees in connection with the sale
of the Fund's shares. The Distributor retains the balance of the fee as
compensation for its services as distributor of the Class B and Class C shares.
PERFORMANCE CRITERIA
The Fund may include total return information for each class of shares in
advertisements or other written sales material. The Fund may show each class's
average annual total return for the one-, five- and ten-year periods (or the
life of the class, if shorter) through the end of the most recent calendar
quarter. Total return is measured by comparing the value of a hypothetical
$1,000 investment in a class at the beginning of the relevant period to the
value of the investment at the end of the period (assuming deduction of the
current maximum sales charge on Class A shares, automatic reinvestment of all
dividends and capital gains distributions and, in the case of Class B shares,
imposition of the CDSC relevant to the period quoted). Total return may be
quoted with or without giving effect to any voluntary expense limitations in
effect for the class in question during the relevant period. The class may also
show total return over other periods, on an aggregate basis for the period
presented, or without deduction of a sales charge. If a sales charge is not
deducted in calculating total return, the class's total return will be higher.
Total return will generally be higher for Class A shares than for Class B and
Class C shares, because of the higher levels of expenses borne by the Class B
and Class C shares. An investor should balance this expected lower total return
against the benefit gained by 100% immediate investment of the purchase price of
Class B or Class C shares.
All performance information is based on past results and is not an indication of
likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
[Solid Black Square]New England Funds Trust I was organized in 1985 as a
Massachusetts business trust and is authorized to issue an unlimited number
of full and fractional shares in multiple series. The Fund is a newly
organized series of the Trust.
[Solid Black Square]When you invest in the Fund, you acquire freely
transferable shares of beneficial interest that entitle you to receive
dividends as determined by the Trust's trustees and to cast a vote for each
share you own at shareholder meetings. Shares of the Fund vote separately
from shares of other series of the Trust, except as otherwise required by
law. Shares of all classes of the Fund vote together, except as to matters
relating to a class's Rule 12b-1 plan, on which only shares of that class
are entitled to vote.
[Solid Black Square]Except for matters that are explicitly identified as
fundamental in this prospectus or the Statement, the investment policies of
the Fund may be changed without shareholder approval or, in most cases,
prior notice. The investment objective of the Fund is not fundamental. If
there is a change in the Fund's objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
- --------------------------------------------------------------------------------
29
<PAGE> 35
================================================================================
[Solid Black Square]If Class Y shares are offered, they will be identical to
Class A, Class B and Class C shares, except that Class Y shares will have
no sales charge or CDSC and will bear no Rule 12b-1 fees. Class Y will bear
its own transfer agency and prospectus printing costs and will not bear any
portion of those costs relating to other classes of shares.
[Solid Black Square]The Trust does not generally hold regular shareholder
meetings and will do so only when required by law. Shareholders of the Trust
may remove the trustees of the Trust from office by votes cast at a
shareholder meeting or by written consent.
[Solid Black Square]The transfer and dividend paying agent for the Fund is New
England Funds, L.P., 399 Boylston Street, Boston, MA 02116. New England
Funds, L.P. has subcontracted certain of its obligations as such to State
Street Bank, 225 Franklin Street, Boston, MA 02110.
[Solid Black Square]If the balance in your account with the Fund is less than a
minimum amount set by the trustees of the Trust from time to time (currently
$500 for all accounts, except for those indicated below and for individual
retirement accounts, which have a $25 minimum), the Fund may close your
account and send the proceeds to you. Shareholders who are affected by this
policy will be notified of the Fund's intention to close the account and
will have 60 days immediately following the notice to bring the account up
to the minimum. The minimum does not apply to Keogh, pension and profit
sharing plans or accounts that have fallen below the minimum solely because
of fluctuations in the Fund's net asset value per share.
[Solid Black Square]The Fund's annual report contains additional performance
information and is available upon request and without charge. Each Fund will
send a single copy of its annual and semi-annual reports to an address at
which more than one shareholder of record with the same last name has
indicated that mail is to be delivered. Shareholders may request additional
copies of any annual or semi-annual report in writing or by telephone.
[Solid Black Square]The Class A, Class B and Class C structure could be
terminated should certain IRS rulings be rescinded.
[Solid Black Square]Summit Cash Reserve Fund (the "Cash Fund"), a series of
Financial Institutions Series Trust, is related to the Fund for purposes of
investment and investor services. Shares of all classes of the Fund may be
exchanged for shares of the Cash Fund at net asset value. If shares of the
Fund that are exchanged for shares of the Cash Fund are subject to CDSC, the
holding period for purposes of determining the expiration of the CDSC will
stop and resume only when an exchange is made back into shares of the Fund.
If Fund shares subject to a CDSC are exchanged for Cash Fund shares and the
Cash Fund shares are later redeemed rather than being exchanged back into
shares of any series of the Trusts, then a CDSC will apply at the same rate
as if the Fund shares were redeemed at the time of the exchange.
[Solid Black Square]The Trust's trustees have the authority without shareholder
approval to issue other classes of shares of the Fund that represent
interests in the Fund's portfolio but that have different sales load and fee
arrangements.
- --------------------------------------------------------------------------------
30
<PAGE> 36
[GRAPHIC OMITTED]
NEW ENGLAND FUNDS
Where The Best Minds Meet (TM)
NEW ENGLAND STAR SMALL CAP FUND
STATEMENT OF ADDITIONAL INFORMATION
[DATE]
This Statement of Additional Information (the "Statement") contains
information which may be useful to investors but which is not included in the
prospectus of New England Star Small Cap Fund (the "Fund"). This Statement is
not a prospectus and is only authorized for distribution when accompanied or
preceded by the prospectus of the Fund dated [Date] for Class A, B, or C
shares (the "prospectus"). The Statement should be read together with the
prospectus. Investors may obtain a free copy of the prospectus from New England
Funds, L.P., Prospectus Fulfillment Desk, 399 Boylston Street, Boston, MA 02116.
This Statement contains information about the Class A, B, or C
shares of the Fund. The Fund is a series of New England Funds Trust I (the
"Trust"), a registered investment company that offers a total of twelve series.
T a b l e o f C o n t e n t s
Page
PART I
Investment Restrictions 2
Fund Charges and Expenses 4
PART II
Miscellaneous Investment Practices 4
Management of the Trust 13
Portfolio Transactions and Brokerage 20
Description of the Trust and Ownership of Shares 24
How to Buy Shares 27
Net Asset Value and Public Offering Price 27
Reduced Sales Charges 28
Shareholder Services 30
Redemptions 34
Standard Performance Measures 36
Income Dividends, Capital Gain Distributions and Tax Status 39
Financial Statements 41
Appendix A - Description of Bond Ratings 42
Appendix B - Publications That May Contain Fund Information 44
Appendix C - Advertising and Promotional Literature 46
1
<PAGE> 37
PART I
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments to be
made by the Fund, some of which restrictions (those restrictions marked with an
asterisk) may not be changed without the approval of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act of 1940 [the "1940 Act"]). Except in the case of restriction (15) below, the
percentages set forth below and the percentage limitations set forth in the
prospectus will apply at the time of the purchase of a security and shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
The Fund may not:
(1) With respect to 75% of its total assets, invest in the securities of any
one issuer (other than the U.S. Government and its agencies and
instrumentalities) if immediately after and as a result of such investment
more than 5% of the total assets of the Fund would be invested in such
issuer;
*(2) Purchase any security (other than U.S. Government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category, gas,
electric, water and telephone companies will be considered as being in
separate industries, and each foreign country's government (together with
all subdivisions thereof) will be considered to be a separate industry);
(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).
(For this purpose, the deposit or payment by the Fund of initial or
variation margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin);
(4) Acquire more than 10% of any class of securities of an issuer (other than
U.S. Government securities and taking all preferred stock issues of an
issuer as a single class and all debt issues of an issuer as a single
class) or acquire more than 10% of the outstanding voting securities of an
issuer;
*(5) Borrow money in excess of 33 1/3% of its total assets, and then only as a
temporary measure for extraordinary or emergency purposes;
(6) Pledge more than 33 1/3% of its total assets (taken at cost). (For the
purpose of this restriction, reverse repurchase agreements, collateral
arrangements with respect to options, futures contracts, options on
futures contracts, forward contracts, swap contracts, short sales and
other similar instruments and with respect to initial and variation
margin are not deemed to be a pledge of assets);
*(7) Make loans, except by entering into repurchase agreements or by purchase of
bonds, debentures, commercial paper, corporate notes and similar evidences
of indebtedness, which are a part of an issue to the public or to financial
institutions, or through the lending of the Fund's portfolio securities;
2
<PAGE> 38
*(8) Buy or sell oil, gas or other mineral leases, rights or royalty contracts,
real estate or commodities or commodity contracts, except that the Fund
may buy and sell futures contracts and related options, swap contracts,
currency forward contracts, structured notes and other similar
instruments. (This restriction does not prevent the Fund from purchasing
securities of companies investing in the foregoing);
*(9) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
(10) Make investments for the purpose of exercising control or management;
(11) Except to the extent permitted by rule or order of the Securities and
Exchange Commission (the "SEC"), participate on a joint or joint and
several basis in any trading account in securities. (The "bunching" of
orders for the purchase or sale of portfolio securities with a subadviser
or accounts under its management to reduce brokerage commissions, to
average prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.);
(12) Purchase any illiquid security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in such securities
(excluding Rule 144A securities deemed to be liquid under guidelines
established by the Trust's trustees and certain Section 4(2) commercial
paper);
(13) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers' commissions
or no commissions. Under the 1940 Act, the Fund may not (a) invest more
than 10% of its total assets (taken at current value) in such securities,
(b) own securities of any one investment company having a value in excess
of 5% of the total assets of the Fund (taken at current value), or (c) own
more than 3% of the outstanding voting stock of any one investment
company;
*(14) Issue senior securities. For the purpose of this restriction none of the
following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options or futures contracts, and with respect to initial and
variation margin; the purchase or sale of options, forward contracts,
futures contracts, swap contracts or other similar instruments; and the
issuance of shares of beneficial interest permitted from time to time by
the provisions of the Trust's Declaration of Trust and by the 1940 Act,
the rules thereunder, or any exemption therefrom. (The Fund is required,
under regulatory provisions applicable to it as interpreted by the staff
of the SEC, to set aside in a segregated account with its custodian bank
liquid, high grade assets in amounts sufficient at all times to satisfy
its obligations under options, futures contracts, forward contracts, swap
contracts and other similar instruments); or
(15) Lend its portfolio securities if, as a result, the aggregate amount of
such loans outstanding at any one time would exceed 33 1/3% of the Fund's
total assets (taken at current value).
The staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are subject to restriction (12) above.
3
<PAGE> 39
FUND CHARGES AND EXPENSES
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES
Pursuant to an Advisory Agreement dated December __, 1996 New England
Funds Management, L.P. ("NEFM") has agreed, subject to the supervision of the
board of trustees of the Trust, to manage the investment and reinvestment of the
assets of the Fund and to provide a range of administrative services to the
Fund. For the services described in the Advisory Agreement, the Fund pays NEFM a
fee at the annual rate of 1.05% of the Fund's average daily net assets.
The Advisory Agreement provides that NEFM may delegate its
responsibilities thereunder to other parties. NEFM has delegated responsibility
for the investment and reinvestment of the assets of four individual segments
of the portfolio to four different investment advisers (the "subadvisers"). The
subadvisers are Montgomery Asset Management, L.P., Robertson Stephens & Company
Investment Management, L.P., Loomis Sayles & Company, L.P. and Harris
Associates, L.P., each of which manage one of the four segments. NEFM pays
Robertson Stephens and Loomis Sayles a separate sub-advisory fee at an annual
rate of 0.55% of the first $50 million of the average daily assets of the
segment of the Fund that each subadviser manages, and 0.50% of such assets in
excess of $50,000,000. NEFM pays Montgomery a sub-advisory fee at an annual rate
of 0.65% of the first $50,000,000 of the average daily net assets of the segment
that Montgomery manages, and 0.50% of such assets in excess of $50,000,000. NEFM
pays Harris Associates a sub-advisory fee at the annual rate of 0.70% of the
average daily net assets of each segment of the Fund that Harris Associates
manages.
For more information about the Fund's investment advisory and
subadvisory agreements, see "Management of the Trust" in Part II of this
Statement.
PART II
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to certain investment practices in
which the Fund may engage.
Loans of Portfolio Securities. The Fund may lend its portfolio securities to
broker-dealers under contracts calling for cash collateral equal to at least
the market value of the securities loaned, marked to the market on a daily
basis. The Fund will continue to benefit from interest or dividends on the
securities loaned and will also receive interest through investment of the cash
collateral in short-term liquid investments, which may include shares of money
market funds subject to any investment restriction listed in Part I. Any voting
rights, or rights to consent, relating to securities loaned pass to the
borrower. However, if a material event affecting the investment occurs, such
loans will be called so that the securities may be voted by the Fund. The Fund
pays various fees in connection with such loans, including shipping fees and
reasonable custodian and placement fees approved by the board of trustees of the
Trust or persons acting pursuant to the direction of the board.
4
<PAGE> 40
These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default on its
obligation and the Fund is delayed in or prevented from recovering the
collateral.
U.S. Government Securities. The Fund may invest in some or all of the following
U.S. Government securities:
- - U.S. Treasury Bills - Direct obligations of the United States Treasury which
are issued in maturities of one year or less. No interest is paid on Treasury
bills; instead, they are issued at a discount and repaid at full face value when
they mature. They are backed by the full faith and credit of the United States
Government.
- - U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with interest
normally payable every six months. These obligations are backed by the full
faith and credit of the United States Government.
- - "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee
which represent an interest in a pool of mortgages insured by the Federal
Housing Administration or the Farmer's Home Administration or guaranteed by the
Veterans Administration. The Government National Mortgage Association ("GNMA")
guarantees the timely payment of principal and interest when such payments are
due, whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. An assistant attorney general of the
United States has rendered an opinion that the guarantee by GNMA is a general
obligation of the United States backed by its full faith and credit. Mortgages
included in single family or multi-family residential mortgage pools backing an
issue of Ginnie Maes have a maximum maturity of up to 30 years. Scheduled
payments of principal and interest are made to the registered holders of Ginnie
Maes (such as the Fund) each month. Unscheduled prepayments may be made by
homeowners, or as a result of a default. Prepayments are passed through to the
registered holder (such as the Fund, which reinvests any prepayments) of Ginnie
Maes along with regular monthly payments of principal and interest.
- - "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers. Fannie
Maes are pass-through securities issued by FNMA that are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
- - "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
U.S. Government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may, for temporary defensive
purposes, accept lower current income from short-term investments rather than
investing in higher yielding long-term securities.
When-Issued Securities. The Fund may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when the Fund anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued later. When the Fund purchases securities in this manner (i.e., on a
when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid
assets, including equity securities and debt securities of any grade in an
amount equal to or greater than, on a daily basis, the amount of the Fund's
when-issued or
5
<PAGE> 41
delayed-delivery commitments. The Fund will make commitments to purchase on a
when-issued or delayed-delivery basis only securities meeting the Fund's
investment criteria. The Fund may take delivery of these securities or, if it is
deemed advisable as a matter of investment strategy, the Fund may sell these
securities before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Fund will meet its obligations
from the then available cash flow or the sale of securities, or from the sale of
the when-issued or delayed- delivery securities themselves (which may have a
value greater or less than the Fund's payment obligation).
Repurchase Agreements. The Fund may enter into repurchase agreements by which
the Fund purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed-upon price and date. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the United States Government, the obligation of the seller is not guaranteed by
the United States Government and there is a risk that the seller may fail to
repurchase the underlying security. In such event, the Fund would attempt to
exercise rights with respect to the underlying security, including possible
disposition in the market. However, the Fund may be subject to various delays
and risks of loss, including (a) possible declines in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto, (b) possible reduced levels of income and lack of access to income
during this period and (c) inability to enforce rights and the expenses involved
in the attempted enforcement.
Zero Coupon Securities. Zero coupon securities are debt obligations that do not
entitle the holder to any periodic payments of interest either for the entire
life of the obligation or for an initial period after the issuance of the
obligations. Such securities are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the time
remaining until maturity of the securities, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
securities having similar maturities and credit quality. In order to satisfy a
requirement for qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund must distribute
each year at least 90% of its net investment income, including the original
issue discount accrued on zero coupon securities. Because the Fund will not on a
current basis receive cash payments from the issuer of a zero coupon security in
respect of accrued original issue discount, in some years the Fund may have to
distribute cash obtained from other sources in order to satisfy the 90%
distribution requirement under the Code. Such cash might be obtained from
selling other portfolio holdings of the Fund. In some circumstances, such sales
might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
Fund to sell such securities at such time.
Convertible Securities. The Fund may invest in convertible securities including
corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can
be converted into (that is, exchanged for) common stocks or other equity
securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
Short Sales. The Fund may make short sales of securities. In a short sale, the
Fund does not deliver from its portfolio the securities sold and does not
receive immediately the proceeds from the short sale. Instead, the Fund borrows
the securities sold short from a broker-dealer through which the short sale is
executed, and the broker-dealer delivers such securities, on behalf of the Fund,
to the purchaser of such securities. The broker-dealer is entitled to retain the
proceeds from
6
<PAGE> 42
the short sale until the Fund delivers to the broker-dealer the
securities sold short. In addition, the Fund is required to pay to the
broker-dealer the amount of any dividends paid on shares sold short. To secure
its obligation to deliver to such broker-dealer the securities sold short, the
Fund must deposit and continuously maintain in a separate account with the
Fund's custodian an equivalent amount of the securities sold short or securities
convertible into or exchangeable for such securities without the payment of
additional consideration. The Fund is said to have a short position in the
securities sold until it delivers to the broker-dealer the securities sold, at
which time the Fund receives the proceeds of the sale. The Fund may close out a
short position by purchasing on the open market and delivering to the
broker-dealer an equal amount of the securities sold short, rather than
delivering portfolio securities.
Short sale transactions involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a loss, and there
can be no assurance that the Fund will be able to close out the position at any
particular time or at an acceptable price. If the price declines during this
period, the Fund will realize a short-term capital gain. Any realized short-term
capital gain will be decreased, and any incurred loss increased, by the amount
of transaction costs and any premium, dividend or interest which the Fund may
have to pay in connection with such short sale. The Fund will also incur
transaction costs in connection with short sales. Certain provisions of the Code
may limit the degree to which the Fund is able to enter into short sales. There
is no limitation on the amount of the Fund's assets that, in the aggregate, may
be deposited as collateral for the obligation to replace securities borrowed to
effect short sales and allocated to segregated accounts in connection with short
sales. The Fund currently expects that no more than 20% of its total assets
would be involved in short sales.
Futures, Options and Swap Contracts
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a particular commodity (e.g., an interest-bearing security) for a
specified price on a specified future date. In the case of futures on an index,
the seller and buyer agree to settle in cash, at a future date, based on the
difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For example, Standard
& Poor's 500 Composite Index of 500 Stocks (the "S&P 500") futures trade in
contracts equal to $500 multiplied by the S&P 500 Index.
When a trader, such as the Fund, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker as "initial margin"
an amount of cash or short-term high-quality securities (such as U.S. Treasury
Bills or high-quality tax exempt bonds acceptable to the broker) equal to
approximately 2% to 5% of the delivery or settlement price of the contract
(depending on applicable exchange rules). Initial margin is held to secure the
performance of the holder of the futures contract. As the value of the contract
changes, the value of futures contract positions increases or declines. At the
end of each trading day, the amount of such increase and decline is received and
paid respectively by and to the holders of these positions. The amount received
or paid is known as "variation margin." If the Fund has a long position in a
futures contract it will establish a segregated account with the Fund's
custodian containing cash or certain liquid assets equal to the purchase price
of the contract (less any margin on deposit). For short positions in futures
contracts, the Fund will establish a segregated account with the custodian with
cash or other liquid assets that, when added to the amounts deposited as
margin, equal the market value of the instruments or currency underlying the
futures contracts.
Although futures contracts by their terms require actual delivery and
acceptance of securities (or cash in the case of index futures), in most cases
the contracts are closed out before settlement. A futures sale is closed
7
<PAGE> 43
by purchasing a futures contract for the same aggregate amount of the specific
type of financial instrument or commodity and with the same delivery date.
Similarly, the closing out of a futures purchase is closed by the purchaser
selling an offsetting futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
OPTIONS. An option on a futures contract obligates the writer, in return for the
premium received, to assume a position in a futures contract (a short position
if the option is a call and a long position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying contract, the remaining term of
the option, supply and demand and interest rates. Options on futures contracts
traded in the United States may only be traded on a United States board of trade
licensed by the Commodity Futures Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the case of
a call option) or to sell (in the case of a put option) a particular security at
a specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by the Fund is considered
by the Fund to be covered if the Fund owns the security subject to the
underlying futures contract or other securities whose values are expected to
move in tandem with the values of the securities subject to such futures
contract, based on historical price movement volatility relationships. A call
option on a security written by the Fund is considered to be covered if the Fund
owns a security deliverable under the option. A written call option is also
covered if the Fund holds a call on the same futures contract or security as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash
or other liquid assets in a segregated account with its custodian.
A put option on a futures contract written by the Fund, or a put option
on a security written by the Fund, is covered if the Fund maintains cash or
other liquid assets with a value equal to the exercise price in a segregated
account with the Fund's custodian, or else holds a put on the same futures
contract (or security, as the case may be) as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
If the writer of an option wishes to terminate its position, it may
effect a closing purchase transaction by buying an option identical to the
option previously written. The effect of the purchase is that the writer's
position will be canceled. Likewise, the holder of an option may liquidate its
position by selling an option identical to the option previously purchased.
Closing a written call option will permit the Fund to write another
call option on the portfolio securities used to cover the closed call option.
Closing a written put option will permit the Fund to write another put option
secured by the segregated cash or other liquid assets used to secure the closed
put option. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any futures contract or securities subject
to the option to be used for other Fund investments. If the Fund desires to
sell particular securities covering a written call option position, it will
close out its position or will designate from its portfolio comparable
securities to cover the option prior to or concurrent with the sale of the
covering securities.
8
<PAGE> 44
The Fund will realize a profit from closing out an option if the price
of the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Fund will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the value
of the underlying securities or futures contracts usually have a time value
component (i.e. a value that diminishes as the time within which the option can
be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be enhanced. Likewise, the
profit or loss from writing put options may or may not be offset in whole or in
part by changes in the market value of securities acquired by the Fund when the
put options are closed.
As an alternative to purchasing call and put options on index futures,
the Fund may purchase or sell call or put options on the underlying indices
themselves. Such options would be used in a manner identical to the use of
options on index futures.
The Fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities indices
("index warrants"). Index warrants are generally issued by banks or other
financial institutions and give the holder the right, at any time during the
term of the warrant, to receive upon exercise of the warrant a cash payment from
the issuer based on the value of the underlying index at the time of exercise.
In general, if the value of the underlying index rises above the exercise price
of the index warrant, the holder of a call warrant will be entitled to receive a
cash payment from the issuer upon exercise based on the difference between the
value of the index and the exercise price of the warrant; if the value of the
underlying index falls, the holder of a put warrant will be entitled to receive
a cash payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than the value of
the underlying index, or, in the case of a put warrant, the exercise price is
less than the value of the underlying index. If the Fund were not to exercise an
index warrant prior to its expiration, then the Fund would lose the amount of
the purchase price paid by it for the warrant.
The Fund will normally use index warrants in a manner similar to its
use of options on securities indices. The risks of the Fund's use of index
warrants are generally similar to those relating to its use of index options.
Unlike most index options, however, index warrants are issued in limited amounts
and are not obligations of a regulated clearing agency, but are backed only by
the credit of the bank or other institution which issues the warrant. Also,
index warrants generally have longer terms than index options. Although the Fund
will normally invest only in exchange-listed warrants, index warrants are not
likely to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the Fund's ability to
exercise the warrants at such time, or in such quantities, as the Fund would
otherwise wish to do.
The Fund may buy and write options on foreign currencies in a manner
similar to that in which futures or forward contracts on foreign currencies will
be utilized. For example, a decline in the U.S. dollar value of a foreign
currency in which portfolio securities are denominated will reduce the U.S.
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Fund may buy put options on the foreign currency. If
the value of the currency declines, the Fund will have the right to sell such
currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in
part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may buy call options on the
9
<PAGE> 45
foreign currency. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent desired, the Fund could sustain losses on
transactions in foreign currency options that would require the Fund to forego a
portion or all of the benefits of advantageous changes in those rates.
The Fund may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the Fund
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised and the diminution in value of portfolio securities be offset at least
in part by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates move in
the manner projected, will expire unexercised and allow the Fund to hedge the
increased cost up to the amount of the premium. If exchange rates do not move in
the expected direction, the option may be exercised and the Fund would be
required to buy or sell the underlying currency at a loss, which may not be
fully offset by the amount of the premium. Through the writing of options on
foreign currencies, the Fund also may lose all or a portion of the benefits
which might otherwise have been obtained from favorable movements in exchange
rates.
All call options written by the Fund on foreign currencies will be
"covered." A call option written on a foreign currency by the Fund is "covered"
if the Fund owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if the Fund has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by the Fund in cash or high-grade
liquid assets in a segregated account with the Fund's custodian. For this
purpose, a call option is also considered covered if the Fund owns securities
denominated in (or which trade principally in markets where settlement occurs
in) the same currency, which securities are readily marketable, and the Fund
maintains in a segregated account with its custodian cash or liquid high grade
obligations in an amount that at all times at least equals the excess of (x) the
amount of the Fund's obligation under the call option over (y) the value of such
securities.
SWAP CONTRACTS. Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange cash
flows on a notional amount based on changes in the relative values of the
specified currencies. An index swap is an agreement to make or receive payments
based on the different returns that would be achieved if a notional amount were
invested in a specified basket of securities (such as the S&P 500) or in some
other investment (such as U.S. Treasury securities). The Fund will maintain at
all times in a segregated account with its custodian cash or other liquid
assets in amounts sufficient to satisfy its obligations under swap contracts.
RISKS. The use of futures contracts and options involves risks. One risk arises
because of the imperfect correlation between movements in the price of futures
contracts and movements in the price of the securities that are the subject of
the hedge. The Fund's hedging strategies will not be fully effective unless the
Fund can compensate for such imperfect correlation. There is no assurance that
the Fund will be able to effect such compensation.
The correlation between the price movement of the futures contract and
the hedged security may be distorted due to differences in the nature of the
markets. If the price of the futures contract moves more than the price of the
hedged security, the Fund would experience either a loss or a gain on the future
that is not completely offset by movements in the price of the hedged
securities. In an attempt to compensate for imperfect price movement
correlations, the Fund may purchase or sell futures contracts in a greater
dollar amount than the hedged securities if the price movement volatility of the
hedged securities is historically greater than the
10
<PAGE> 46
volatility of the futures contract. Conversely, the Fund may purchase or sell
fewer contracts if the volatility of the price of hedged securities is
historically less than that of the futures contracts.
The price of index futures may not correlate perfectly with movement in
the relevant index due to certain market distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the index and futures markets. Secondly, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. In addition, trading hours for
foreign stock index futures may not correspond perfectly to hours of trading on
the foreign exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and the value
of the relevant index due to the lack of continuous arbitrage between the index
futures price and the value of the underlying index. Finally, hedging
transactions using stock indices involve the risk that movements in the price of
the index may not correlate with price movements of the particular portfolio
securities being hedged.
Price movement correlation also may be distorted by the illiquidity of
the futures and options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users may
not deal in futures contracts or options because they do not want to assume the
risk that they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices may be
driven by different forces than those driving the market in the underlying
securities, and price spreads between these markets may widen. The participation
of speculators in the market enhances its liquidity. Nonetheless, speculators
trading spreads between futures markets may create temporary price distortions
unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be
established or closed out only on an exchange or board of trade. There is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. The liquidity of markets in
futures contracts and options on futures contracts may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures or options price during a single trading
day. Once the daily limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent the liquidation of
open futures or options positions. Prices have in the past exceeded the daily
limit on a number of consecutive trading days. If there is not a liquid market
at a particular time, it may not be possible to close a futures or options
position at such time, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin.
However, if futures or options are used to hedge portfolio securities, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid secondary
market for an option of the same series. If a liquid secondary market for an
exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option, with the result that
the Fund would have to exercise the option in order to realize any profit. If
the Fund is unable to effect a closing purchase transaction in a secondary
market, it will be not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market on an exchange include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
11
<PAGE> 47
Because the specific procedures for trading foreign stock index futures
on futures exchanges are still under development, additional or different margin
requirements as well as settlement procedures may be applicable to foreign stock
index futures at the time the Fund purchases foreign stock index futures.
The successful use of transactions in futures and options depends in
part on the ability of the Fund's subadvisers to forecast correctly the
direction and extent of interest rate movements within a given time frame. To
the extent interest rates move in a direction opposite to that anticipated, the
Fund may realize a loss on the hedging transaction that is not fully or
partially offset by an increase in the value of portfolio securities. In
addition, whether or not interest rates move during the period that the Fund
holds futures or options positions, the Fund will pay the cost of taking those
positions (i.e. brokerage costs). As a result of these factors, the Fund's total
return for such period may be less than if it had not engaged in the hedging
transaction.
Options trading involves price movement correlation risks similar to
those inherent in futures trading. Additionally, price movements in options on
futures may not correlate with price movements in the futures underlying the
options. Like futures, options positions may become less liquid because of
adverse economic circumstances. The securities covering written option positions
are expected to offset adverse price movements if those options positions cannot
be closed out in a timely manner, but there is no assurance that such offset
will occur. Also, an option writer may not effect a closing purchase transaction
after it has been notified of the exercise of an option.
OVER-THE-COUNTER OPTIONS. An over-the-counter option (an option not traded on a
national securities exchange) may be closed out only with the other party to the
original option transaction. While the Fund will seek to enter into
over-the-counter options only with dealers who agree to or are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an over-the-counter option at
a favorable price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order to realize
any profit thereon and thereby would incur transactions costs on the purchase or
sale of the underlying assets. If the Fund cannot close out a covered call
option written by it, it will not be able to sell the underlying security until
the option expires or is exercised. Furthermore, over-the-counter options are
not subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation or other clearing organizations.
The staff of the Securities and Exchange Commission (the "SEC") has
taken the position that over-the-counter options on U.S. Government securities
and the assets used as cover for written over-the-counter options on U.S.
Government securities should generally be treated as illiquid securities for
purposes of the investment restrictions prohibiting the Government Securities
Fund from investing more than 15% of its net assets in illiquid securities.
However, if a dealer recognized by the Federal Reserve Bank of New York as a
"primary dealer" in U.S. Government securities is the other party to an
option contract written by the Fund, and the Fund has the absolute right to
repurchase the option from the dealer at a formula price established in a
contract with the dealer, the SEC staff has agreed that the Fund only needs to
treat as illiquid that amount of the "cover" assets equal to the amount at
which (i) the formula price exceeds (ii) any amount by which the market value
of the securities subject to the options exceeds the exercise price of the
option (the amount by which the option is "in-the-money").
ECONOMIC EFFECTS AND LIMITATIONS. Income earned by the Fund from its hedging
activities will be treated as capital gain and, if not offset by net recognized
capital losses incurred by the Fund, will be distributed to shareholders in
taxable distributions. Although gain from futures and options transactions may
hedge against a decline in the value of the Fund's portfolio securities, that
gain, to the extent not offset by losses, will be distributed in light of
certain tax considerations and will constitute a distribution of that portion of
the value preserved against decline.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
FUTURE DEVELOPMENTS. The above discussion relates to the Fund's proposed use of
futures contracts, options and options on futures contracts currently available.
The relevant markets and related regulations are still in the developing stage.
In the event of future regulatory or market developments, the Fund may also use
additional types of futures contracts or options and other investment techniques
for the purposes set forth above.
Foreign Currency Hedging Transactions. To protect against a change in the
foreign currency exchange rate between the date on which the Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale, or
to "lock in" the equivalent of a dividend or interest payment in another
currency, the Fund might purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate. If conditions
12
<PAGE> 48
warrant, the Fund may also enter into contracts with banks or broker-dealers to
purchase or sell foreign currencies at a future date ("forward contracts"). The
Fund will maintain cash or high-quality debt obligations in a segregated account
with the custodian in an amount at least equal to (i) the difference between the
current value of the Fund's liquid holdings that settle in the relevant currency
and the Fund's outstanding obligations under currency forward contracts, or (ii)
the current amount, if any, that would be required to be paid to enter into an
offsetting forward currency contract which would have the effect of closing out
the original forward contract. The Fund's use of currency hedging transactions
may be limited by tax considerations. The Fund may also purchase or sell foreign
currency futures contracts traded on futures exchanges. Foreign currency futures
contract transactions involve risks similar to those of other futures
transactions. See "Options and Futures" above.
MANAGEMENT OF THE TRUST
Trustees
Trustees of the Trust and their ages (in parentheses), addresses and principal
occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR. -- Trustee ( ); 79 John F. Kennedy Street, Cambridge, MA
02138; Douglas Dillon Professor and Director for the Center of Science and
International Affairs, John F. Kennedy School of Government; Special
Advisor to the United States Secretary of Defense; formerly, Assistant
Secretary of Defense; formerly, Dean, John F. Kennedy School of Government.
DANIEL M. CAIN -- Trustee ( ); 452 Fifth Avenue, New York, NY 10018; President
and CEO, Cain Brothers & Company, Incorporated (investment banking);
Trustee, Universal Health Realty Income Trust (REIT); Chairman, Inter Fish,
Inc. (an aquaculture venture in Barbados).
KENNETH J. COWAN -- Trustee ( ); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Retired; formerly, Senior Vice President-Finance and Chief
Financial Officer, Blue Cross of Massachusetts, Inc. and Blue Shield of
Massachusetts, Inc.; formerly, Director, Neworld Bank for Savings and
Neworld Bancorp.
RICHARD DARMAN -- Trustee ( ); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Partner and Managing Director, The Carlyle Group (investments);
Trustee, Council for Excellence in Government (not-for-profit); Director,
Frontier Ventures (personal investment); Director, Highway Master
Communications (mobile communications); Managing Partner, Little Falls
Partners (family investment); Director, Sequana Therapeutics
(biotechnology/genomics); Director, Telcom Ventures (telecommunications);
formerly, Director of the U.S. Office of Management and Budget and a member
of President Bush's Cabinet.
SANDRA O. MOOSE -- Trustee ( ); 135 E. 57th Street New York, NY 10022; Senior
Vice President and Director, The Boston Consulting Group, Inc. (management
consulting); Director, GTE Corporation and Rohm and Haas Company (specialty
chemicals).
HENRY L.P. SCHMELZER* -- Trustee and President ( ); President, Chief Executive
Officer and Director, NEF Corporation; President and Chief Executive
Officer, New England Funds, L.P.; President and Chief Executive Officer,
NEFM; Director, Back Bay Advisors, Inc.; formerly, Director, New England
Securities Corporation ("New England Securities").
- --------
* Trustee deemed an "interested person" of the Trust, as defined in the
Investment Company Act of 1940 (the "1940 Act").
13
<PAGE> 49
JOHN A. SHANE -- Trustee ( ); 300 Unicorn Park Drive, Woburn, Massachusetts
01801; President, Palmer Service Corporation (venture capital
organization); General Partner, The Palmer Organization and Palmer Partners
L.P.; Director, 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, Gensym Corporation (expert system software);
Director, Overland Data, Inc. (manufacturer of computer tape drives);
Director, Summa Four, Inc. (manufacturer of telephone switching equipment);
Director, United Asset Management Corporation (holding company for
institutional money management).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee (
); President and Chief Executive Officer, New England Investment Companies,
L.P. ("NEIC"); Director, President and Chief Executive Officer, New England
Investment Companies, Inc.; Chairman of the Board and Director, NEF
Corporation; Chairman of the Board and Director, Back Bay Advisors, Inc.;
formerly, Group Executive Vice President, Bank of America (Los Angeles);
formerly, Group Head of International Banking, Trading and Securities,
Security Pacific National Bank, and Chief Executive Officer of the Security
Pacific Investment Group.
PENDLETON P. WHITE -- Trustee ( ); 6 Breckenridge Lane, Savannah, Georgia 31411;
Retired; formerly, President and Chairman of the Executive Committee,
Studwell Associates (executive search consultants); formerly, Trustee, The
Faulkner Corporation (community hospital corporation).
Officers
Officers of the Trust, in addition to Messrs. Schmelzer and Voss, and their ages
(in parentheses) and principal occupations during the past five years are as
follows:
BRUCE R. SPECA -- Vice President ( ); Executive Vice President, NEF Corporation;
Executive Vice President, New England Funds, L.P.; Executive Vice
President, NEFM.
FRANK NESVET -- Treasurer ( ); Senior Vice President and Chief Financial
Officer, NEF Corporation; Senior Vice President and Chief Financial
Officer, New England Funds, L.P.; Senior Vice President and Chief Financial
Officer, NEFM; formerly, Executive Vice President, SuperShare Services
Corporation (mutual fund and unit investment trust sponsor).
ROBERT P. CONNOLLY -- Secretary and Clerk ( ); Senior Vice President and General
Counsel, NEF Corporation; Senior Vice President and General Counsel, New
England Funds, L.P.; Senior Vice President and General Counsel, NEFM;
formerly, Managing Director and General Counsel, Kroll Associates, Inc.
(business consulting company); formerly, Managing Director and General
Counsel, Equitable Capital Management Corporation.
Previous positions during the past five years with The New England, New
England Funds, L.P. or NEFM are omitted, if not materially different from a
trustee's or officer's current position with such entity. Each of the Trust's
trustees is also a trustee of certain other investment companies for which New
England Funds, L.P. acts as principal underwriter or Back Bay Advisors acts as
investment adviser. Except as indicated above, the address of each trustee and
officer of the Trust is 399 Boylston Street, Massachusetts 02116.
Trustees Fees
The Trust pays no compensation to its officers or to its trustees who
are interested persons thereof.
Each trustee who is not an interested person of the Trust receives, in
the aggregate for serving on the boards of the Trust and New England Funds Trust
II, New England Cash Management Trust and New England
- --------
* Trustee deemed an "interested person" of the Trust, as defined in the
Investment Company Act of 1940 (the "1940 Act").
14
<PAGE> 50
Tax Exempt Money Market Trust (all four 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 $2,500 for each
meeting of the boards he or she attends and $1,500 for each meeting he or she
attends of a committee of the board of which he or she was a member. Each
committee chairman receives an additional retainer fee at the annual rate of
$2,500. These fees are allocated among the Fund and the 22 other mutual fund
portfolios based on a formula that takes into account, among other factors, the
net assets of each fund.
During the fiscal year ended December 31, 1995 the persons who were
then trustees of the Trust received the amounts set forth in the following table
for serving as a trustee of the Trust and for also serving on the governing
boards of the other New England Funds Trusts, New England Zenith Fund ("Zenith")
and New England Variable Annuity Fund I ("NEVA"), comprising as of December 29,
1995 a total of 37 mutual fund portfolios (not all of which were in existence
throughout all of 1995).
<TABLE>
<CAPTION>
Total Compensation
Pension or from the New
Aggregate Retirement Benefits Estimated England Funds
Compensation Accrued as Part of Annual Benefits Trusts, Zenith and
from the Trust Fund Expenses Upon NEVA
Name of Trustee in 1995 in 1995 Retirement in 1995
- --------------- ------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Graham T. Allison, Jr. (a) $26,800 $0 $0 $50,000
Daniel M. Cain (b) $ 0 $0 $0 $ 0
Kenneth J. Cowan $32,991 $0 $0 $69,291
Richard Darman (b) $ 0 $0 $0 $ 0
Joseph M. Hinchey (c) $ 7,051 $0 $0 $50,125
Richard S. Humphrey, Jr. (c) $ 7,051 $0 $0 $48,167
Robert B. Kittredge (c) $ 6,634 $0 $0 $78,667 (e)
Laurens MacLure (c) $ 6,692 $0 $0 $81,500 (e)
Sandra O. Moose $26,943 $0 $0 $56,250
James H. Scott (d) $27,984 $0 $0 $59,000
John A. Shane $30,318 $0 $0 $63,000
Joseph F. Turley (c) $ 7,051 $0 $0 $48,167
Pendleton P. White $30,318 $0 $0 $63,000
</TABLE>
(a) Became a Trustee of the Trust effective April 1, 1995.
(b) Became a Trustee of the Trust effective February 23, 1996.
(c) Resigned as a Trustee of the Trust effective May 1, 1995.
(d) Resigned as a Trustee of the Trust effective March 5, 1996.
(e) Also includes compensation paid by the 5 CGM Funds, a group of mutual funds
for which Capital Growth Management Limited Partnership, the investment
adviser of New England Funds Trust I's New England Growth Fund, Zenith's
Capital Growth Series and NEVA, serves as investment adviser.
The Trust provides no pension or retirement benefits to trustees, but
has adopted a deferred payment arrangement under which each trustee may elect
not to receive fees from the Trust on a current basis but to receive in a
subsequent period an amount equal to the value that such fees would have if they
had been invested in each of the funds in the Trust on the normal payment date
for such fees. As a result of this method of calculating the deferred payments,
the Fund, upon making the deferred payments, will be in the same financial
position as if the fees had been paid on the normal payment dates.
As of September 30, 1996, the officers and trustees of the Trust as a
group owned less than 1% of the outstanding shares of the Trust.
15
<PAGE> 51
Advisory and Subadvisory Agreements
The Fund's advisory agreement provides that NEFM will furnish or pay
the expenses of the Fund for office space, facilities and equipment, services of
executive and other personnel of the Trust and certain administrative services.
The Fund pays all expenses not borne by its adviser or subadvisers
including, but not limited to, the charges and expenses of the Fund's custodian
and transfer agent, independent auditors and legal counsel for the Fund and the
Trusts' independent trustees, all brokerage commissions and transfer taxes in
connection with portfolio transactions, all taxes and filing fees, the fees and
expenses for registration or qualification of its shares under the federal or
state securities laws, all expenses of shareholders' and trustees' meetings and
of preparing, printing and mailing reports to shareholders and the compensation
of trustees who are not directors, officers or employees of the Fund's adviser,
subadviser or their affiliates, other than affiliated registered investment
companies. The Fund also pays NEFM for certain legal and accounting services
provided to the Fund by NEFM.
Under the Fund's advisory agreement, if the total ordinary business
expenses of the Fund or the Trust as a whole for any fiscal year exceed the
lowest applicable limitation (based on percentage of average net assets or
income) prescribed by any state in which the shares of the Fund or Trust are
qualified for sale, NEFM shall pay such excess. At present, the most restrictive
state annual expense limitation is 2-1/2% of the average annual net assets up to
$30,000,000, 2% of the next $70,000,000 and 1-1/2% of such assets in excess of
$100,000,000. NEFM will not be required to reduce its fee or pay such expenses
to an extent or under circumstances which might result in the Fund's inability
to qualify as a regulated investment company under the Code. The term "expenses"
is defined in the advisory agreement and excludes brokerage commissions, taxes,
interest, distribution-related expenses and extraordinary expenses. This means
that the distribution fees payable to New England Funds, L.P. under the Fund's
Distribution Agreement and the Distribution Plans would be excluded from
"expenses."
The advisory agreement and each sub-advisory agreement between NEFM and
the subadviser that manages a segment of the Fund's portfolio provides that it
will continue in effect for two years from its date of execution and thereafter
from year to year if its continuance is approved at least annually (i) by the
board of trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the trustees who
are not "interested persons" of the Trust, as that term is defined in the 1940
Act, cast in person at a meeting called for the purpose of voting on such
approval. Any amendment to the advisory agreement or the subadvisory agreement
must be approved by vote of a majority of the outstanding voting securities of
the Fund and by vote of a majority of the trustees of the Trust who are not such
interested persons, cast in person at a meeting called for the purpose of voting
on such approval. Each agreement may be terminated without penalty by vote of
the Trust's board of trustees or by vote of a majority of the outstanding voting
securities of the Fund, upon 60 days' written notice, or by NEFM upon 90 days'
written notice, and each terminates automatically in the event of its
assignment. The subadvisory agreement also may be terminated by the subadviser
upon 90 days' notice and is automatically terminated upon termination of the
advisory agreement. In addition, the advisory agreement will automatically
terminate if the Trust or the Fund shall at any time be required by the
Distributor to eliminate all reference to the words "New England" or the letters
"TNE" in the name of the Trust or the Fund, unless the continuance of the
agreement after such change of name is approved by a majority of the outstanding
voting securities of the Fund and by a majority of the Trustees who are not
interested persons of the Trust or the Fund's adviser and subadviser.
The advisory agreement and each sub-advisory agreement each provide
that the adviser and subadviser shall not be subject to any liability in
connection with the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
NEFM, organized in 1995, is an independently operated subsidiary of
NEIC, and serves as the investment adviser to each of the funds in the New
England Funds Trusts except New England Growth Fund. NEIC is a New York Stock
Exchange listed company whose sole general partner, New England Investment
Companies, Inc., is an indirect, wholly owned subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Harris was organized in 1995 to succeed to the business of a
predecessor limited partnership also named Harris Associates L.P., which
together with its predecessor had advised and managed mutual funds
16
<PAGE> 52
since 1970. Harris is a wholly-owned subsidiary of NEIC, having been acquired by
NEIC in 1995. Harris also serves as investment adviser to individuals, trusts,
retirement plans, endowments and foundations, and manages numerous private
partnerships.
Certain officers and employees of Harris have responsibility for
portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Harris) that may
invest in securities in which the Fund may invest. Where Harris determines that
an investment purchase or sale opportunity is appropriate and desirable for more
than one advisory account, purchase and sale orders may be executed separately
or may be combined and, to the extent practicable, allocated by Harris to the
participating accounts. Where advisory accounts have competing interests in a
limited investment opportunity, Harris will allocate investment opportunities
based on numerous considerations, including the time the competing accounts have
had funds available for investment, the amounts of available funds, an account's
cash requirements and the time the competing accounts have had investments
available for sale. It is Harris's policy to allocate, to the extent
practicable, investment opportunities to each client over a period of time on a
fair and equitable basis relative to its other clients. It is believed that the
ability of the Fund to participate in larger volume transactions in this manner
will in some cases produce better executions for the Fund. However, in some
cases, this procedure could have a detrimental effect on the price and amount of
a security available to the Fund or the price at which a security may be sold.
The trustees are of the view that the benefits of retaining Harris as investment
manager outweigh the disadvantages, if any, that might result from participating
in such transactions.
Montgomery Asset Management, L.P. ("Montgomery"), a California limited
partnership, was formed in 1990 as an investment adviser registered as
such with the SEC under the Investment Advisers Act of 1940, as amended, and
since then has advised institutional and retail clients. Its general partner is
Montgomery Asset Management, Inc., and its sole limited partner is Montgomery
Securities, the Distributor for The Montgomery Funds. Under the Investment
Company Act, both Montgomery Asset Management, Inc. and Montgomery Securities
may be deemed control persons of Montgomery. Although the operations and
management of Montgomery are independent from those of Montgomery Securities,
Montgomery may draw upon the research and administrative resources of
Montgomery Securities in its discretion and consistent with applicable
regulations.
In addition to advising a segment of the Fund's portfolio, Montgomery
serves as investment adviser to other mutual funds, pension and profit-sharing
plans, and other institutional and private investors. At times, Montgomery may
effect purchases and sales of the same investment securities for the Fund, and
for one or more other investment accounts. In such cases, it will be the
practice of Montgomery to allocate the purchase and sale transactions among the
Fund and the accounts in such manner as it deems equitable. In making such
allocation, the main factors to be considered are the respective investment
objectives of the Fund and the accounts, the relative size of portfolio holdings
of the same or comparable securities, the current availability of cash for
investment by the Fund and each account, the size of investment commitments
generally held by the Fund and each account, and the opinions of the persons at
Montgomery responsible for selecting investments for the Fund and the accounts.
It is the opinion of the trustees that the desirability of retaining Montgomery
as an investment adviser to the Fund outweighs the disadvantages, if any, which
might result from these procedures.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") was organized in 1926
and is one of the oldest and largest investment counsel firms in the country. An
important feature of the Loomis Sayles investment approach is its emphasis on
investment research. Recommendations and reports of the Loomis Sayles research
department are circulated throughout the Loomis Sayles organization and are
available to the individuals in the Loomis Sayles organization who have been
assigned the responsibility for making investment decisions for the Funds'
portfolios. Loomis Sayles provides investment advice to numerous other
institutional and individual clients. These clients include some accounts of Met
Life and its affiliates ("Met Life Accounts"). Loomis Sayles is a limited
partnership whose sole general partner, Loomis, Sayles & Company, Incorporated,
is an indirect wholly-owned subsidiary of NEIC. NEIC owns the entire limited
partnership interest in Loomis Sayles.
Certain officers of Loomis Sayles have responsibility for the
management of other investment companies and other client portfolios. The other
investment companies and clients served by Loomis Sayles sometimes invest in
securities in which the Fund also invests. If the Fund and such other clients
desire to buy or sell the same portfolio securities at about the same time,
purchases and sales will be allocated, to the extent practicable, on a pro rata
basis in proportion to the amounts desired to be purchased or sold for each. It
is recognized that in
17
<PAGE> 53
some cases the practices described in this paragraph could have a detrimental
effect on the price or amount of the securities which each of the Funds
purchases or sells. In other cases, however, it is believed that these practices
may benefit the relevant Fund. It is the opinion of the trustees that the
desirability of retaining Loomis Sayles as subadviser for the Fund outweighs the
disadvantages, if any, which might result from these practices.
Robertson Stephens, a California limited partnership, was formed in
1993 and is registered as an investment adviser with the Securities and Exchange
Commission. The general partner of Robertson Stephens is Robertson, Stephens &
Company, Inc., and the principal limited partner is Robertson, Stephens &
Company LLC, the Funds' distributor and a major investment banking firm
specializing in emerging growth companies that has developed substantial
investment research, underwriting, and venture capital expertise. Robertson
Stephens and its affiliates have in excess of $3.4 billion under management in
public and private investment funds.
Investment decisions for the segment of the Fund and for other
investment advisory clients of Robertson Stephens and its affiliates are made
with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus a particular security may be bought or sold
for certain clients even though it could be bought or sold for other clients at
the same time. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the same security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in Robertson Stephens' opinion is equitable to each and in
accordance with the amount being purchased or sold by each client. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients. Robertson Stephens employs
staffs of portfolio managers who draw upon a variety of resources, including
Robertson Stephens & Company, Inc., for research information. It is the opinion
of the trustees that the desirability of retaining Robertson Stephens as an
investment adviser to the Fund outweigh the disadvantages, if any, which could
result from these procedures.
Distribution Agreement and Rule 12b-1 Plans. Under an agreement with
the Fund (the "Distribution Agreement"), New England Funds, L.P. serves as the
general distributor of each class of shares of the Fund. Under this agreement,
New England Funds, L.P. is not obligated to sell a specific number of shares.
New England Funds, L.P. bears the cost of making information about the Fund
available through advertising and other means and the cost of printing and
mailing prospectuses to persons other than shareholders. The Fund pays the cost
of registering and qualifying its shares under state and federal securities laws
and the distribution of prospectuses to existing shareholders.
New England Funds, L.P. is compensated under the Distribution Agreement
through receipt of the sales charges on Class A shares described below under
"Net Asset Value and Public Offering Price" and is paid by the Fund the service
and distribution fees described in the Prospectus.
As described in the prospectuses, the Fund has adopted Rule 12b-1 plans
(the "Plans") for its Class A, Class B and Class C shares which, among other
things, permit it to pay the Fund's distributor (currently New England Funds,
L.P.) monthly fees out of its net assets. Pursuant to Rule 12b-1 under the 1940
Act, each Plan was approved by the shareholders of the Fund, and (together with
the Distribution Agreement) by the board of trustees, including a majority of
the trustees who are not interested persons of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Plan or the Distribution Agreement (the "Independent Trustees").
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
relevant class of shares of the Fund. Each Plan may be amended by vote of the
trustees, including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. Any change in any Plan that would materially
increase the fees payable thereunder by the relevant class of shares of the Fund
requires approval of the holders of such shares. The Trust's trustees review
quarterly written reports of such costs and the purposes for which such costs
have been incurred. For so long as a Plan is in effect, selection and nomination
of those trustees who are not interested persons of the Trust shall be committed
to the discretion of such disinterested persons.
The Distributor has entered into selling agreements with investment
dealers, including New England Securities, an affiliate of the Distributor, for
the sale of the Fund's shares. New England Securities is registered as a
broker-dealer under the Securities Exchange Act of 1934. The Distributor may at
its expense pay an amount not to exceed 0.50% of the amount invested to dealers
who have selling agreements with the Distributor.
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by New England Funds, L.P. or by
vote of a majority of the outstanding voting securities of the Fund or by vote
of a majority of the Independent Trustees.
The Distribution Agreement and the Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire board of trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the outstanding
securities of Fund (or the relevant class, in the case of the Plans).
18
<PAGE> 54
With the exception of New England Funds, L.P., New England Securities
(an indirect subsidiary of MetLife) and their direct and indirect corporate
parents (including NEIC and MetLife), no interested person of the Trust nor any
trustee of the Trust had any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Fund and its shareholders resulting from the Plans are
believed to include (1) enhanced shareholder service, (2) asset retention, (3)
enhanced bargaining position with third party service providers and economies of
scale arising from having higher asset levels and (4) portfolio management
opportunities arising from having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the name of
the Trust and the Fund and if it should cease to be the distributor, the Trust
or the Fund may be required to change their names and delete these words or
letters. New England Funds, L.P. also acts as general distributor for New
England Cash Management Trust, New England Tax Exempt Money Market Trust, New
England Funds Trust II, New England Funds Trust III and the other series of the
Trust besides the Fund.
During the years ended December 31, 1993, New England Funds, L.P.
received commissions on the sale of the Class A shares of the Trust aggregating
$12,478,105, of which $1,428,524 was retained by New England Funds, L.P. During
the years ended December 31, 1994 and 1995, New England Funds, L.P. received
commissions on the sale of shares of the Trust aggregating $9,569,312 and
$8,779,918, respectively, of which $8,290,120 and $7,706,937, respectively, was
allowed to other securities dealers and the balanced retained by New England
Funds, L.P. See "Other Arrangements" for information about amounts received by
New England Funds, L.P. from the Trust's investment advisers and subadvisers or
the Funds directly for providing certain administrative services relating to the
Trust.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Trust's
custodian. As such, State Street Bank holds in safekeeping certificated
securities and cash belonging to the Fund and, in such capacity, is the
registered owner of securities in book-entry form belonging to the Fund. Upon
instruction, State Street Bank receives and delivers cash and securities of the
Fund in connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Trust and calculates the
total net asset value, total net income and net asset value per share of the
Fund on a daily basis.
Independent Accountants. The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, MA 02109. The independent
accountants of the Trust conduct an annual audit of that Trust's financial
statements, assist in the preparation of federal and state income tax returns
and consult with the Trust as to matters of accounting and federal and state
income taxation.
Other Arrangements
Pursuant to a contract between the Fund and New England Funds, L.P.,
New England Funds, L.P. acts as shareholder servicing and transfer agent for the
Fund and is responsible for services in connection with the establishment,
maintenance and recording of shareholder accounts, including all related tax and
other reporting requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Fund's shares. The Fund
pays per account fees to New England Funds, L.P. for these services in the
amount of $17.25. New England Funds, L.P. has subcontracted with State Street
Bank for it to provide, through its subsidiary Boston Financial Data Services,
Inc. ("BFDS") transaction processing, mail and other services. For these
services, New England Funds, L.P. pays BFDS a per account fee of $9.40.
PORTFOLIO TRANSACTIONS AND BROKERAGE
General
Subject to the overriding objective of obtaining the best possible
execution of orders. Each of the subadvisers may allocate a portion of their
respective segment of the Fund's brokerage transactions to affiliated brokers.
In order for the affiliated broker to effect portfolio transactions for the
Fund, the commissions, fees or other remuneration received by the affiliated
broker must be reasonable and fair compared to the commissions, fees and other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period. Furthermore, the trustees, including a majority of
those trustees who are not "interested persons" as defined in the 1940 Act have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker are
consistent with the foregoing standard.
Segment of the Fund Advised by Harris. In placing orders for the
purchase and sale of portfolio securities for the segment of the Fund advised
by Harris, Harris always seeks best execution, subject to the considerations set
forth below. Transactions in unlisted securities are carried out through
broker-dealers who
19
<PAGE> 55
make the market for such securities unless, in the judgment of Harris, a more
favorable execution can be obtained by carrying out such transactions through
other brokers or dealers.
Harris selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best execution for the transaction. This does not necessarily mean that the
lowest available brokerage commission will be paid. However, the commissions are
believed to be competitive with generally prevailing rates. Harris will use its
best efforts to obtain information as to the general level of commission rates
being charged by the brokerage community from time to time and will evaluate the
overall reasonableness of brokerage commissions paid on transactions by
reference to such data. In making such evaluation, all factors affecting
liquidity and execution of the order, as well as the amount of the capital
commitment by the broker in connection with the order, are taken into account.
Receipt of brokerage or research services from brokers may sometimes be
a factor in selecting a broker which Harris believes will provide best execution
for a transaction. These services include not only a wide variety of reports on
such matters as economic and political developments, industries, companies,
securities, portfolio strategy, account performance, daily prices of securities,
stock and bond market conditions and projections, asset allocation and portfolio
structure, but also meetings with management representatives of issuers and with
other analysts and specialists. Although it is not possible to assign an exact
dollar value to these services, they may, to the extent used, tend to reduce
Harris's expenses. Such services may be used by Harris in servicing other client
accounts and in some cases may not be used with respect to the Fund. Consistent
with the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., and subject to seeking best execution, Harris may, however,
consider purchases of shares of the Fund by customers of broker-dealers as a
factor in the selection of broker-dealers to execute Fund portfolio
transactions.
Harris may cause the segment of the Fund to pay a broker-dealer that
provides brokerage and research services to Harris an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. Harris must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or Harris's overall
responsibilities to the Fund and its other clients. Harris's authority to cause
the Fund to pay such greater commissions is also subject to such policies as the
trustees of the Trust may adopt from time to time.
Segment of the Fund Advised by Montgomery. In all purchases and sales
of securities for its segment of the Fund, Montgomery's primary consideration is
to obtain the most favorable execution available. Pursuant to the sub-advisory
agreement between NEFM and Montgomery, Montgomery determines which securities
are to be purchased and sold by its segment and which broker-dealers are
eligible to execute its segment's portfolio transactions, subject to the
instructions of, and review by, NEFM and the trustees. Purchases and sales of
securities within the U.S. other than on a securities exchange will generally be
executed directly with a "market-maker" unless, in the opinion of Montgomery, a
better price and execution can otherwise be obtained by using a broker for the
transaction.
In purchasing ADRs and EDRs (and other similar instruments),
Montgomery's segment of the Fund may purchase those listed on stock exchanges,
or traded in the over-the-counter markets in the U.S. or Europe, as the case may
be. ADRs, like other securities traded in the U.S., will be subject to
negotiated commission rates. The foreign and domestic debt securities and money
market instruments in which this segment may invest may be traded in the
over-the-counter markets.
Purchases of portfolio securities for this segment also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which this segment will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principals for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers
20
<PAGE> 56
will include the spread between the bid and the asked price. If the execution
and price offered by more than one dealer or underwriter are comparable, the
order may be allocated to a dealer or underwriter that has provided research or
other services as discussed below.
In placing portfolio transactions, Montgomery will use its best efforts
to choose a broker-dealer capable of providing the services necessary generally
to obtain the most favorable execution available. The full range and quality of
services available will be considered in making these determinations, such as
the firm's ability to execute trades in a specific market required by this
segment of the Fund, such as in an emerging market, the size of the order, the
difficulty of execution, the operational facilities of the firm involved, the
firm's risk in positioning a block of securities, and other factors.
Montgomery may also consider the sale of the Fund's shares as a factor
in the selection of broker-dealers to execute portfolio transactions for its
segment. The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc.
While Montgomery's general policy is to seek first to obtain the most
favorable execution available, in selecting a broker-dealer to execute portfolio
transactions, weight may also be given to the ability of a broker-dealer to
furnish brokerage, research and statistical services to Montgomery, even if the
specific services were not imputed just to the Fund and may be lawfully and
appropriately used by Montgomery in advising other clients. Montgomery considers
such information, which is in addition to, and not in lieu of, the services
required to be performed by it under its sub-advisory agreement with NEFM, to be
useful in varying degrees, but of indeterminable value. In negotiating any
commissions with a broker or evaluating the spread to be paid to a dealer, this
segment of the Fund may therefore pay a higher commission or spread than would
be the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by Montgomery to be reasonable in relation to the value
of the brokerage and/or research services provided by such broker-dealer, which
services either produce a direct benefit to this segment of the Fund or assist
Montgomery in carrying out its responsibilities to this segment of the Fund. The
standard of reasonableness is to be measured in light of Montgomery's overall
responsibilities to its segment. The trustees review all brokerage allocations
where services other than best execution capabilities are a factor to ensure
that the other services provided meet the criteria outlined above and produce a
benefit to the Fund.
On occasion, situations may arise in which legal and regulatory
considerations will preclude trading for this segment's account by reason of
activities of Montgomery Securities, a broker-dealer affiliated with Montgomery,
or its affiliates. It is the judgment of the trustees that the Fund will not be
materially disadvantaged by any such trading preclusion and that the
desirability of continuing its sub-advisory arrangements with Montgomery and
Montgomery's affiliation with Montgomery Securities and other affiliates of
Montgomery Securities outweigh any disadvantages that may result from the
foregoing.
Montgomery's sell discipline for this segment's investment in issuers
is based on the premise of a long-term investment horizon; however, sudden
changes in valuation levels arising from, for example, new macroeconomic
policies, political developments, and industry conditions could change the
assumed time horizon. Liquidity, volatility, and overall risk of a position are
other factors considered by Montgomery in determining the appropriate investment
horizon.
At the company level, sell decisions are influenced by a number of
factors including current stock valuation relative to the estimated fair value
range, or a high P/E relative to expected growth. Negative changes in the
relevant industry sector, or a reduction in international competitiveness and
declining financial flexibility may also signal a sell.
21
<PAGE> 57
Segment of the Fund Advised by Robertson Stephens. It is the policy of
Robertson Stephens, in effecting transactions in portfolio securities, to seek
the best execution of orders. The determination of what may constitute best
execution in a securities transaction involves a number of judgmental
considerations, including, without limitation, the overall direct net economic
result to this segment of the Fund (involving both price paid or received and
any commissions and other costs), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large block is
involved, the availability of the broker to stand ready to execute possibly
difficult transactions for this segment in the future, and the financial
strength and stability of the broker.
Subject to the policy of seeking best execution of orders at the most
favorable prices, Robertson Stephens may execute transactions with brokerage
firms which provide research services and products to Robertson Stephens. The
phrase "research services and products" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
the availability of securities or purchasers or sellers of securities, the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts,
and the obtainment of products such as third-party publications, computer and
electronic access equipment, software programs, and other information and
accessories that may assist Robertson Stephens in furtherance of its investment
advisory responsibilities to its advisory clients. Such services and products
permit Robertson Stephens to supplement its own research and analysis
activities, and provide it with information from individuals and research staffs
of many securities firms. Generally, it is not possible to place a dollar value
on the benefits derived from specific research services and products. Robertson
Stephens may receive a benefit from these research services and products which
is not passed on, in the form of a direct monetary benefit, to this segment of
the Fund. If Robertson Stephens determines that any research product or service
has a mixed use, such that it also serves functions that do not assist in the
investment decision-making process, Robertson Stephens may allocate the cost of
such service or product accordingly. The portion of the product or service that
Robertson Stephens determines will assist it in the investment decision-making
process may be paid for in brokerage commission dollars. Any such allocation may
create a conflict of interest for Robertson Stephens. Subject to the standards
outlined in this and the preceding paragraph, Robertson Stephens may arrange to
execute a specified dollar amount of transactions through a broker that has
provided research products or services. Such arrangements do not constitute
commitments by Robertson Stephens to allocate portfolio brokerage upon any
prescribed basis, other than upon the basis of seeking best execution of orders.
Research services and products may be useful to Robertson Stephens in
providing investment advice to any of the funds or clients it advises. Likewise,
information made available to Robertson Stephens from brokers effecting
securities transactions for such other funds and clients may be utilized on
behalf of another fund. Thus, there may be no correlation between the amount of
brokerage commissions generated by a particular fund or client and the indirect
benefits received by that fund or client.
Subject to the policy of seeking the best execution of orders, sales of
shares of the Fund may also be considered as a factor in the selection of
brokerage firms to execute portfolio transactions for this segment of the Fund.
Because selection of executing brokers is not based solely on net
commissions, the segment of the Fund advised by Robertson Stephens may pay an
executing broker a commission higher than that which might have been charged by
another broker for that transaction. Robertson Stephens will not knowingly pay
higher mark-ups on principal transactions to brokerage firms as consideration
for receipt of research services or products. While it is not practicable for
Robertson Stephens to solicit competitive bids for commissions on each portfolio
transaction, consideration is regularly given to available information
concerning the level of commissions charged in comparable transactions by
various brokers. Transactions in over-the-counter securities are normally placed
with principal market makers, except in circumstances where, in the opinion of
Robertson Stephens, better prices and execution are available elsewhere.
Segment of the Fund Advised by Loomis Sayles. Decisions as to the
assignment of portfolio business for the segment of the Fund's portfolio advised
by Loomis Sayles and negotiation of its commission rates are made by Loomis
Sayles, whose policy is to obtain the "best execution" (prompt and reliable
execution at the
22
<PAGE> 58
most favorable securities price) of all portfolio transactions. In placing
portfolio transactions for its segment of the Fund's portfolio, Loomis Sayles
may agree to pay brokerage commissions for effecting a securities transaction,
in an amount higher than another broker or dealer would have charged for
effecting that transaction as authorized, under certain circumstances, by the
Securities Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions, Loomis
Sayles considers a number of factors, including but not limited to: Loomis
Sayles' knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the securities being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Loomis Sayles may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting that transaction if Loomis Sayles determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall responsibilities of Loomis
Sayles. Research may include furnishing advice, either directly or through
publications or writing, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services, and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Loomis Sayles in carrying out its responsibilities. Research received
from brokers or dealers is supplemental to Loomis Sayles' own research efforts.
Loomis Sayles may use research products and services in servicing other
accounts in addition to the Fund. If Loomis Sayles determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Loomis Sayles may allocate
the costs of such service or product accordingly. Only that portion of the
product or service that Loomis Sayles determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Loomis Sayles.
Loomis Sayles may also consider sales of shares of mutual funds advised
by Loomis Sayles by a broker-dealer or the recommendation of a broker-dealer to
its customers that they purchase shares of such funds as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund. In
placing portfolio business with such broker-dealers, Loomis Sayles will seek the
best execution of each transaction.
General
Portfolio turnover is not a limiting factor with respect to investment
decisions. The Fund anticipates that its portfolio turnover rate will vary
significantly from time to time depending on the volatility of economic and
market conditions.
Subject to procedures adopted by the Board of Trustees of the Trust,
the Fund's brokerage transactions may be executed by brokers that are affiliated
with the Distributor, NEFM or the subadvisers. Any such transactions will comply
with Rule 17e-1 under the Investment Company Act of 1940.
Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Fund as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts,
affiliated persons of the Trust, such as New England Securities, may not serve
as the Fund's dealer in connection with such transactions.
23
<PAGE> 59
It is expected that the portfolio transactions in fixed-income
securities will generally be with issuers or dealers on a net basis without a
stated commission. Securities firms may receive brokerage commissions on
transactions involving options, futures and options on futures and the purchase
and sale of underlying securities upon exercise of options. The brokerage
commissions associated with buying and selling options may be proportionately
higher than those associated with general securities transactions.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
New England Funds Trust I is organized as a Massachusetts business
Trust under the laws of Massachusetts by an Agreement and Declaration of Trust
(the "Declaration of Trust") dated June 7, 1985 and is a "series" company as
described in Rule 18f-1 under the 1940 Act. The Fund is a newly organized series
of the Trust. The Trust has twelve separate portfolios (the "Funds"). The other
series of the Trust are New England Growth Fund, which currently offers one
class of shares, New England Municipal Income Fund, which currently offers two
classes of shares, New England Capital Growth Fund, New England Strategic Income
Fund, New England Government Securities Fund and New England Star Worldwide
Fund, each of which currently offers three classes of shares, and New England
Balanced Fund, New England Value Fund, New England International Equity Fund,
New England Star Advisers Fund and New England Bond Income Fund, each of which
currently offers four classes of shares. The initial portfolio of the Trust (the
Fund now called New England Government Securities Fund) commenced operations on
September 16, 1985. New England International Equity Fund commenced operations
on May 22, 1992. New England Capital Growth Fund was organized in 1992 and
commenced operations on August 3, 1992. New England Star Advisers Fund was
organized in 1994 and commenced operations on July 7, 1994. New England
Strategic Income Fund was organized in 1995 and commenced operations on May 1,
1995. New England Star Worldwide Fund was organized in 1995 and commenced
operations on December 29, 1995. New England Star Small Cap Fund was organized
in 1996 and commenced operations on _________________. The remaining funds in
the Trust are successors to the following corporations which commenced
operations in the years indicated:
<TABLE>
<CAPTION>
Corporation Date of Commencement
----------- --------------------
<S> <C>
NEL Growth Fund, Inc. 1968
NEL Retirement Equity Fund, Inc.* 1969
NEL Equity Fund, Inc.** 1968
NEL Income Fund, Inc.*** 1973
NEL Tax Exempt Bond Fund, Inc.**** 1976
</TABLE>
* Predecessor of New England Value Fund
** Predecessor of New England Balanced Fund
*** Predecessor of New England Bond Income Fund
**** Predecessor of New England Municipal Income Fund
The Declaration of Trust currently permits the Trust's trustees to
issue an unlimited number of full and fractional shares of each series. The Fund
is represented by a particular series of shares. The Declaration of Trust
further permits the Trust's trustees to divide the shares of each series into
any number of separate classes, each having such rights and preferences relative
to other classes of the same series as the trustees may determine. The shares of
Fund do not have any preemptive rights. Upon termination of the Fund, whether
pursuant to liquidation of the Trust or otherwise, shareholders of each class of
the Fund are entitled to share pro rata in the net assets attributable to that
class of shares of the Fund available for distribution to shareholders. The
Declaration of Trust also permits the trustees to charge shareholders directly
for custodial, transfer agency and servicing expenses.
The shares of the Fund are divided into three classes, Class A,
Class B and Class C. The Fund offers such classes of shares as set forth in the
prospectus. All expenses of the Fund [excluding transfer agency fees and
expenses of printing and mailing prospectuses to shareholders ("Other
Expenses")] are borne by its Class A, B and C shares on a pro rata basis,
except for 12b-1 fees, which are borne only by Classes A, B and C and may be
charged at a separate rate
24
<PAGE> 60
to each class. Other Expenses of Classes A, B and C are borne by such
classes on a pro rata basis.
The assets received by each class of the Fund for the issue or sale of
its shares and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to, and constitute the
underlying assets of, that class. The underlying assets of each class of the
Fund are segregated and are charged with the expenses with respect to that class
and with a share of the general expenses of the Fund. Any general expenses of
the Fund that are not readily identifiable as belonging to a particular class of
a fund in the Fund are allocated by or under the direction of the trustees in
such manner as the trustees determine to be fair and equitable. While the
expenses of the Trust are allocated to the separate books of account of each
fund in the Trust, certain expenses may be legally chargeable against the assets
of all classes of the funds in the Trust.
The Declaration of Trust also permits Trust's trustees, without
shareholder approval, to subdivide any series or class of shares or fund into
various sub-series or sub-classes with such dividend preferences and other
rights as the trustees may designate. While the trustees have no current
intention to exercise this power, it is intended to allow them to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The trustees may also,
without shareholder approval, establish one or more additional series or classes
or merge two or more existing series or classes.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any fund of the Trust, however, may be terminated at any
time by vote of at least two-thirds of the outstanding shares of each fund
affected. Similarly, any class within a fund may be terminated by vote of at
least two-thirds of the outstanding shares of such class. While the Declaration
of Trust further provides that the board of trustees may also terminate the
Trust upon written notice to its shareholders, the 1940 Act requires that the
Trust receive the authorization of a majority of its outstanding shares in order
to change the nature of its business so as to cease to be an investment company.
Voting Rights
As summarized in the prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided therein) in the election of trustees and
the termination of the Trust and on other matters submitted to the vote of
shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all shareholders of the Trust, all Trust shares entitled to vote shall
be voted together irrespective of series or class unless the rights of a
particular series or class would be adversely affected by the vote, in which
case a separate vote of that series or class shall also be required to decide
the question. Also, a separate vote shall be held whenever required by the 1940
Act or any rule thereunder. Rule 18f-2 under 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreements relating to that series, and shareholders of each
class within a series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the board of trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting
25
<PAGE> 61
duly called for that purpose, which meeting shall be held upon the written
request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
of at least $25,000 or at least 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Trust has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Shareholder voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's or a fund's name or to cure technical problems in the
Declaration of Trust, (ii) to establish and designate new series or classes of
Trust shares and (iii) to establish, designate or modify new and existing series
or classes of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the trustees. The Declaration of Trust provides for indemnification out of
the Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund by reason of owning shares of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and the Fund itself would be unable to
meet its obligations.
The Declaration of Trust further provides that the board of trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The By-Laws of the Trust provide for
indemnification by the Trust of trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are summarized in the
prospectus. Banks may charge a fee for transmitting funds by wire. With respect
to shares purchased by federal funds, shareholders should bear in mind that wire
transfers may take two or more hours to complete.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange on a day
when the Exchange is open; otherwise the settlement date is the following
business day. For telephone orders, the settlement date is the fifth business
day after the order is made.
Shares may also be purchased either in writing, by phone or by
electronic funds transfer using Automated Clearing House ("ACH"), or by
exchange as described in the
26
<PAGE> 62
prospectus through firms that are members of the National Association of
Securities Dealers, Inc. and that have selling agreements with the Distributor.
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of the Fund's shares. Payment must be received by the
Distributor within five business days following the transaction date or the
order will be subject to cancellation. Telephone orders must be placed through
the Distributor or your investment dealer.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset
value per share is summarized in the prospectus.
The total net asset value of each class of shares of the Fund (the
excess of the assets of the Fund attributable to such class over the liabilities
attributable to such class) is determined as of the close of regular trading
(normally 4:00 p.m. Eastern time) on each day that the New York Stock Exchange
is open for trading. The weekdays that the New York Stock Exchange is expected
to be closed are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities
listed on a national securities exchange or on the NASDAQ National Market System
are valued at their last sale price, or, if there is no reported sale during the
day, the last reported bid price estimated by a broker. Unlisted securities
traded in the over-the-counter market are valued at the last reported bid price
in the over-the-counter market or on the basis of yield equivalents as obtained
from one or more dealers that make a market in the securities. U.S. Government
Securities are traded in the over-the-counter market. Options, interest rate
futures and options thereon that are traded on exchanges are valued at their
last sale price as of the close of such exchanges. Securities for which current
market quotations are not readily available and all other assets are taken at
fair value as determined in good faith by the board of trustees, although the
actual calculations may be made by persons acting pursuant to the direction of
the board.
Generally, trading in equity securities in markets outside the United
States, as well as trading in foreign government securities and other
fixed-income securities, is substantially completed each day at various times
prior to the close of the New York Stock Exchange. Securities traded on a
non-U.S. exchange, except equity securities traded on the London Stock Exchange
("British Equities"), will be valued at their last sale price (or the last
reported bid price, if there is no reported sale during the day), on the
exchange on which they principally trade, as of the close of regular trading on
such exchange. British Equities will be valued at the mean between the last bid
and ask price. The value of other securities principally traded outside the
United States will be computed as of the completion of substantial trading for
the day on the markets on which such securities principally trade. Securities
principally traded outside the United States will generally be valued several
hours before the close of regular trading on the New York Stock Exchange,
generally 4:00 p.m. Eastern time, when the Fund computes the net asset value of
its shares. Occasionally, events affecting the value of securities principally
traded outside the United States may occur between the completion of substantial
trading of such securities for the day and the close of the New York Stock
Exchange. If events materially affecting the value of the Fund's securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or in accordance with procedures approved
by the trustees.
Trading in many of the portfolio securities of the Fund takes place in
various markets outside the United States on days and at times other than when
the New York Stock Exchange is open for trading. Therefore, the calculation of
the Fund's net asset value does not take place at the same time as the prices of
many of its portfolio securities are determined, and the value of the Fund's
portfolio may change on days when the Fund is not open for business and its
shares may not be purchased or redeemed.
The per share net asset value of a class of the Fund's shares is
computed by dividing the number of shares outstanding into the total net asset
value attributable to such class. The public offering price of a Class A share
of the Fund is the net asset value per share next determined after a properly
completed purchase order is accepted by New England Funds, L.P. or State Street
Bank, plus a sales charge as set forth in the Fund's
27
<PAGE> 63
prospectus. The public offering price of a Class B or C share of the Fund is
the next-determined net asset value.
REDUCED SALES CHARGES
Class A Shares Only
Special purchase plans are enumerated in the text of the prospectus.
Cumulative Purchase Discount. A Fund shareholder making an additional
purchase of Class A shares may be entitled to a discount on the sales charge
payable on that purchase. This discount will be available if the shareholder's
"total investment" in the Fund reaches the breakpoint for a reduced sales charge
in the table under "Buying Fund Shares - Sales Charges" in the Prospectus. The
total investment is determined by adding the amount of the additional purchase,
including sales charge, to the current public offering price of all series and
classes of shares of New England Funds Trust II and the Trust (the "Trusts")
held by the shareholder in one or more accounts. If the total investment exceeds
the breakpoint, the lower sales charge applies to the entire additional
investment even though some portion of that additional investment is below the
breakpoint to which a reduced sales charge applies. For example, if a
shareholder who already owns shares of one or more funds in the Trusts with a
value at the current public offering price of $30,000 makes an additional
purchase of $20,000 of Class A shares of the Fund, the reduced sales charge of
4.5% of the public offering price will apply to the entire amount of the
additional investment.
Letter of Intent. A Letter of Intent (a "Letter"), which can be
effected at any time, is a privilege available to investors which reduces the
sales charge on investments in Class A shares. Ordinarily, reduced sales charges
are available for single purchases of Class A shares only when they reach
certain breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a
shareholder indicates an intention to invest enough money in Class A shares
within 13 months to reach a breakpoint. If the shareholder's intended aggregate
purchases of all series and classes of the Trusts over a defined 13-month period
will be large enough to qualify for a reduced sales charge, the shareholder may
invest the smaller individual amounts at the public offering price calculated
using the sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be
increased, decreased or canceled at any time. The effective date of a Letter is
the date it is received in good order at New England Funds, L.P., or, if
communicated by a telephone exchange or order, at the date of telephoning
provided a signed Letter, in good order, reaches New England Funds, L.P. within
five business days.
A reduced sales charge is available for aggregate purchases of all
series and classes of shares of the Trusts pursuant to a written Letter effected
within 90 days after any purchase. In the event the account was established
prior to 90 days before the Letter effective date, the account will be credited
with Rights of Accumulation ("ROA") towards the breakpoint level that will be
reached upon the completion of the 13 months' purchases. The ROA credit is the
value of all shares held as of the effective date of the Letter based on the
"public offering price computed on such date."
The cumulative purchase discount, described above, permits the
aggregate value at the current public offering price of Class A shares of any
accounts with the Trusts held by a shareholder to be added to the dollar amount
of the intended investment under a Letter, provided the shareholder lists them
on the account application.
State Street Bank will hold in escrow shares with a value at the
current public offering price of 5% of the aggregate amount of the intended
investment. The amount in escrow will be released when the Letter is completed.
If the shareholder does not purchase shares in the amount indicated in the
Letter, the shareholder agrees to remit to State Street Bank the difference
between the sales charge actually paid and that which would have been paid had
the Letter not been in effect, and authorizes State Street Bank to redeem
escrowed shares in the amount necessary to make up the difference in sales
charges. Reinvested dividends and distributions are not included in determining
whether the Letter has been completed.
28
<PAGE> 64
Combining Purchases. Purchases of all series and classes of the Trusts
by or for an investor, the investor's spouse, parents, children, siblings,
grandparents or grandchildren and any other account of the investor, including
sole proprietorships, in either Trust may be treated as purchases by a single
individual for purposes of determining the availability of a reduced sales
charge. Purchases for a single trust estate or a single fiduciary account may
also be treated as purchases by a single individual for this purpose, as may
purchases on behalf of a participant in a tax-qualified retirement plan and
other employee benefit plans, provided that the investor is the sole participant
in the plan.
Combining with Other Series and Classes of the Trusts. A shareholder's
total investment for purposes of the cumulative purchase discount and purchases
under a Letter of Intent includes the value at the current public offering price
of any shares of series and classes of the Trusts that the shareholder owns
(which includes shares of New England Cash Management Trust and New England Tax
Exempt Money Market Trust [the "Money Market Funds"] if such shares were
purchased by exchanging shares of either of the Trusts). Shares owned by persons
described in the preceding paragraph may also be included.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions may be invested in Class A shares of the Fund at a reduced sales
charge of 1.50% of the public offering price (or 1.52% of the net amount
invested); for large purchases on which a sales charge of less than 1.50% would
ordinarily apply, such lower charge also applies to investments of unit
investment trust distributions.
Clients of Advisers or Subadvisers. No sales charge or contingent
deferred sales charge applies to investments of $25,000 or more in Class A
shares of the Fund by (1) clients of an adviser or subadviser to the Trusts; any
director, officer or partner of a client of an adviser or subadviser to the
Trusts; and the spouse, parents or children of the foregoing; (2) any individual
who is a participant in a Keogh or IRA Plan under a prototype of an adviser or
subadviser to the Trusts if at least one participant in the plan qualifies under
category (1) above; and (3) an individual who invests through an IRA and is a
participant in an employee benefit plan that is a client of an adviser or
subadviser to the Trusts. Any investor eligible for this arrangement should so
indicate in writing at the time of the purchase.
Offering to Employees of Metropolitan Life Insurance Company
("MetLife") and Associated Entities. There is no sales charge, CDSC or initial
investment minimum related to investments in Class A shares of the Fund by any
of the Trusts' investment advisers or subadvisers, New England Funds, L.P. or
any other company affiliated with MetLife; current and former directors and
trustees of the Trusts or their predecessor companies; agents and general agents
of MetLife and its insurance company subsidiaries; current and retired
employees of such agents and general agents; registered representatives of
broker-dealers that have selling arrangements with New England Funds, L.P.; the
spouse, parents, children, siblings, grandparents or grandchildren of the
persons listed above and any trust, pension, profit sharing or other benefit
plans for any of the foregoing persons and any separate account of MetLife or
any other company affiliated with MetLife.
Eligible Governmental Authorities. There is no sales charge or
contingent deferred sales charge related to investments in Class A shares of the
Fund by any state, county or city or any instrumentality, department, authority
or agency thereof that has determined that the Fund is a legally permissible
investment and that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered investment company.
Investment Advisory Accounts. Shares of the Fund may be purchased at
net asset value by investment advisers, financial planners or other
intermediaries who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
clients of such investment advisers, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary on
the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Section 401(a), 401(k), 403(b) or 457 of the Code
and rabbi trusts. Investors may be charged a fee if they effect transactions
through a broker or agent.
29
<PAGE> 65
Shareholders of Reich and Tang Government Securities Trust.
Shareholders of Reich and Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of the Fund at net asset value and
without imposition of a sales charge.
Shares of the Fund also may be purchased at net asset value through
certain broker-dealers and/or financial services organizations without any
transaction fee. Such organizations may receive compensation, in an amount of up
to 0.35% annually of the average value of the Fund shares held by their
customers. This compensation may be paid by NEFM and/or the Fund's subadvisers
out of their own assets, or may be paid indirectly by the Fund in the form of
servicing, distribution or transfer agent fees.
The reduction or elimination of the sales charge in connection with
sales described above reflects the absence or reduction of sales expenses
associated with such sales.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. New England Funds, L.P. may charge a fee for
providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and delivery of
stock certificates unnecessary, eliminates problems of handling and safekeeping,
and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by the Fund
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Automatic Investment Plans
Subject to the Fund's investor eligibility requirements, investors may
automatically invest in additional shares of the Fund on a monthly basis by
authorizing New England Funds, L.P. to draw checks on an investor's bank
account. The checks are drawn under the Investment Builder Program, a program
designed to facilitate such periodic payments, and are forwarded to New England
Funds, L.P. for investment in the Fund. A plan may be opened with an initial
investment of $50 or more and thereafter regular monthly checks of $50 or more
will be drawn on the investor's account. The reduced minimum initial investment
pursuant to an automatic investment plan is referred to in the prospectus. An
Investment Builder application must be completed to open
30
<PAGE> 66
an automatic investment plan. An application may be found in the prospectus or
may be obtained by calling New England Funds, L.P. at (800) 225-5478 or your
investment dealer.
This program is voluntary and may be terminated at any time by New
England Funds, L.P. upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by
the investor by written notice to New England Funds, L.P., which must be
received at least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if any check
is not paid upon presentation; or by written notice to you at least thirty days
prior to any payment date. State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the Fund or with certain
other investments. The plans include H.R. 10 (Keogh) plans for self-employed
individuals and partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans, and retirement
plans for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the prospectus. For these plans, initial
investments in the Fund must be at least $250 for each participant in corporate
pension and profit sharing plans, IRAs and Keogh plans and $50 for subsequent
investments. There is a special initial and subsequent investment minimum of
$25 for payroll deduction investment programs for 401(k), SARSEP, 403(b) and
certain other retirement plans. Income dividends and capital gain distributions
must be reinvested (unless the investor is over age 59-1/2 or disabled). Plan
documents and further information can be obtained from New England Funds, L.P.
An investor should consult a competent tax or other adviser as to the
suitability of the Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.
Systematic Withdrawal Plans
An investor owning Fund shares having a value of $5,000 or more at the
current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in your account. No CDSC applies to a redemption pursuant
to the Plan.
All shares under the Plan must be held in an open (uncertificated)
account. Income dividends and capital gain distributions will be reinvested
(without a sales charge in the case of Class A shares) at net asset value
determined on the record date.
31
<PAGE> 67
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, the
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The Fund
and New England Funds, L.P. make no recommendations or representations in this
regard. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a regular
basis additional Fund shares with a sales charge while redeeming shares under a
Systematic Withdrawal Plan. Accordingly, the Fund and New England Funds, L.P. do
not recommend additional investments in Class A shares by a shareholder who has
a withdrawal plan in effect and who would be subject to a sales load on such
additional investments.
Because of statutory restrictions this plan is not available to pension
or profit-sharing plans, IRAs or 403(b) plans that have State Street Bank as
trustee.
Exchange Privilege
A shareholder may exchange the shares of any fund in the Trusts (except
for shares of the New England Adjustable Rate U.S. Government Fund and in the
case of Class A shares of New England Intermediate Term Tax Free Fund of
California and New England Intermediate Term Tax Free Fund of New York, only if
such shares have been held for at least six months) for shares of the same class
of any other fund of the Trusts (subject to the investor eligibility
requirements of the fund into which the exchange is being made) on the basis of
relative net asset values at the time of the exchange without any sales charge.
In the case of Class A shares of New England Adjustable Rate U.S. Government
Fund (the "Adjustable Rate Fund"), if exchanged for shares of any other fund of
the Trusts that has a higher sales charge, a shareholder will pay the
difference between any sales charge they have already paid on their Adjustable
Rate Fund shares and the higher sales charge of the fund into which they are
exchanging. When an exchange is made from the Class B shares of one Fund to the
Class B shares of another Fund, the shares received in exchange will have the
same age characteristics as the shares exchanged. The age of the shares
determines the expiration of the CDSC and the conversion date. If you own Class
A or Class B shares, you may also elect to exchange your shares of the Fund for
shares of the same class of the Money Market Funds. Class C shares may also be
exchanged for Class A shares of the Money Market Funds. On all exchanges of
Class A shares subject to a CDSC and Class B shares into the Money Market Funds,
the exchange stops the aging period relating to the CDSC and, for Class B shares
only, conversion to Class A shares. The aging resumes only when an exchange is
made back into Class B shares of a fund of the Trusts. These options are
summarized in the prospectus. An exchange may be effected, provided that
neither the registered name nor address of the accounts are different and
provided that a certificate representing the shares being exchanged has not
been issued to the shareholder, by (1) a telephone request to New England
Funds, L.P. at 1-(800) 225-5478 or (2) a written exchange request to New
England Funds, P.O. Box 8551, Boston, MA 02266-8551. You must acknowledge
receipt of a current prospectus for a Fund before an exchange for that Fund can
be effected.
The investment objectives of the other funds (besides the Fund) in the Trusts
and the Money Market Funds are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return
from a combination of market appreciation and dividend income from equity
securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-tern capital appreciation and moderate current
income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for long-term
growth of capital and income.
32
<PAGE> 68
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.
GROWTH FUND OF ISRAEL seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level of
current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Bond Income Fund
invests primarily in corporate and U.S. Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of
current income exempt from federal income tax and Massachusetts personal income
taxes as Back Bay Advisors, the Fund's subadviser, believes is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high
a level of current income exempt from federal income tax and its state personal
income tax as is consistent with preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK seeks as high a
level of current income exempt from federal income tax and its state personal
income tax and New York City personal income tax as is consistent with
preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST -
Money Market Series -- maximum current income consistent with
preservation of capital and liquidity.
U.S. Government Series -- highest current income consistent with
preservation of capital and liquidity.
33
<PAGE> 69
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST -- current income exempt from federal
income taxes consistent with preservation of capital and liquidity.
As of ________ 17, 1996, the net assets of the funds in the Trusts and
the Money Market Funds totaled over $__ billion.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term capital gain or
loss.
Automatic Exchange Plan
As described in the prospectus following the caption "Owning Fund
Shares," a shareholder may establish an Automatic Exchange Plan under which
shares of the Fund are automatically exchanged each month for shares of the same
class of one or more of the other funds in the Trusts. Registration on all
accounts must be identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business day until the
account is exhausted or until New England Funds, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $500 or over. The
Service Options Form is available from New England Funds, L.P. or your
financial representative to establish an Automatic Exchange Plan.
REDEMPTIONS
The procedures for redemption of shares of a Fund are summarized in the
prospectus. As described in the prospectus, a contingent deferred sales charge
(a "CDSC") may be imposed on certain purchases of Class A shares and on
purchases of Class B shares. For purposes of the CDSC, an exchange of shares
from the Fund to another series of the Trusts is not considered a redemption or
a purchase. For federal tax purposes, however, such an exchange is considered a
sale and a purchase and, therefore, would be considered a taxable event on which
you may recognize a gain or loss. In determining whether a CDSC is applicable to
a redemption of Class B shares, the calculation will be determined in the manner
that results in the lowest rate being charged. Therefore, it will be assumed
that the redemption is first of any Class A shares in the shareholder's Fund
account, second of shares held for over five years, third of shares issued in
connection with dividend reinvestment and fourth of shares held longest during
the five-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value of shares since the time of
purchase or reinvested distributions associated with such shares. Unless you
request otherwise at the time of redemption, the CDSC is deducted from the
redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 shares of $10 per share
(at a cost of $1,000) and in the second year after purchase, the net asset value
per share is $12 and, during such time, the investor has acquired 10 additional
shares under dividend reinvestment. If at such time the investor makes his or
her first redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the CDSC because of dividend reinvestment. With respect to the
remaining 40 shares, the CDSC is applied only to the original cost of $10 per
share and not to the increase in the net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 3% (the
applicable rate in the second year after purchase).
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934. However, a signature guarantee will not be required if the proceeds
of the redemption do not exceed $100,000 and the proceeds check is made payable
to the registered owner(s) and mailed to the record address.
If you select the telephone redemption service in the manner described
in the next paragraph, shares of the Fund may be redeemed by calling toll free
1-(800) 225-5478. A wire fee, currently $5.00, will be deducted from the
proceeds. Telephone redemption requests must be received by the close of
regular trading on the New York Stock Exchange. Requests made after that time
or on a day when the New York Stock Exchange is
34
<PAGE> 70
not open for business cannot be accepted and a new request on a later day will
be necessary. The proceeds of a telephone withdrawal will normally be sent on
the first business day following receipt of a proper redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form, available from your investment dealer.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Fund reserves the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59-1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70-1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59-1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include payments made due to death,
disability, separation from service, normal or early retirement as defined in
the plan document, loans from the plan and hardship withdrawals, return of
excess contributions, required minimum distributions at age 70-1/2 (waivers only
apply to amounts necessary to meet the required minimum amount), certain
withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually
of the value of your account, and redemptions made from qualified retirement
accounts or Section 403(b)(7) custodial accounts necessary to pay custodial
fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
New England Funds, including IRA and 403(b)(7) participant-directed transfers of
assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
The Fund will normally redeem shares for cash; however, the Fund
reserves the right to pay the redemption price wholly or partly in kind if the
Trust's board of trustees determines it to be advisable and in the interest of
the remaining shareholders of the Fund. Such redemptions will be made in readily
marketable securities. If portfolio securities are distributed in lieu of cash,
the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Fund has elected to be governed
by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to
redeem shares solely in cash for any shareholder during any 90-day period up to
the lesser of $250,000 or 1% of the total net asset value of the Trust at the
beginning of such period. The Fund does not currently intend to impose any
redemption charge (other than the CDSC imposed by the Distributor), although it
reserves the right to charge a fee not
35
<PAGE> 71
exceeding 1% of the redemption price. A redemption constitutes a sale of shares
for federal income tax purposes on which the investor may realize a long- or
short-term capital gain or loss. See also "Income Dividends, Capital Gain
Distributions and Tax Status," below.
Reinstatement Privilege (Class A shares only)
The prospectus describes redeeming shareholders' reinstatement
privileges for Class A shares. Written notice and the investment check from
persons wishing to exercise this reinstatement privilege must be received by
your investment dealer within 120 days after the date of the redemption. The
reinstatement or exchange will be made at net asset value next determined after
receipt of the letter of instruction requesting reinstatement and the
investment check and will be limited to the amount of the redemption proceeds or
to the nearest full share if fractional shares are not purchased.
Even though an account is reinstated, the redemption will constitute a
sale for federal income tax purposes. Investors who reinstate their accounts by
purchasing shares of the Fund should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
STANDARD PERFORMANCE MEASURES
Calculation of Total Return. Total return is a measure of the change in
value of an investment in the Fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically reinvested in
shares of the same class of the Fund rather than paid to the investor in cash.
The formula for total return used by the Fund is prescribed by the Securities
and Exchange Commission and includes three steps: (1) adding to the total number
of shares of the particular class that would be purchased by a hypothetical
$1,000 investment in the Fund (with or without giving effect to the deduction of
sales charge or CDSC, if applicable) all additional shares that would have been
purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested; (2) calculating the value of the
hypothetical initial investment as of the end of the period by multiplying the
total of shares owned at the end of the period by the net asset value per share
of the relevant class on the last trading day of the period; (3) dividing this
account value for the hypothetical investor by the amount of the initial
investment, and annualizing the result for periods of less than one year. Total
return may be stated with or without giving effect to any expense limitations in
effect for the Fund.
Performance Comparisons
Total Return. Total returns will generally be higher for Class A shares
than for Class B and C shares of the Fund, because of the higher levels of
expenses borne by the Class B and C shares. The Fund may from time to time
include total return in advertisements or in information furnished to present or
prospective shareholders. The Funds may from time to time include in
advertisements its total return and the ranking of those performance figures
relative to such figures for groups of mutual funds categorized by Lipper
Analytical Services as having similar investment objectives.
Total return may also be used to compare the performance of the Fund
against certain widely acknowledged standards or indices for stock and bond
market performance or against the U.S. Bureau of Labor Statistics' Consumer
Price Index.
The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is
a market value-weighted and unmanaged index showing the changes in the aggregate
market value of 500 stocks relative to the base period 1941-43. The S&P 500 is
composed almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange.
36
<PAGE> 72
The Salomon Brothers World Government Bond Index includes a broad range
of institutionally-traded fixed-rate government securities issued by the
national governments of the nine countries whose securities are most actively
traded. The index generally excludes floating- or variable-rate bonds,
securities aimed principally at non-institutional investors (such as U.S.
Savings Bonds) and private-placement type securities.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted issues
are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rated
agency.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The Merrill Lynch High Yield Index includes over 750 issues and
represents public debt greater than $10 million (original issuance rated BBB/BB
and below), and the First Boston High Yield Index includes over 350 issues and
represents all public debt greater than $100 million (original issuance and
rated BBB/BB and below).
The Salomon Brothers Broad Investment Grade Bond Index is a price
composite of a broad range of institutionally based U.S. Government
mortgage-backed and corporate debt securities of investment outstanding of at
least $1 million and with a remaining period to maturity of at least one year.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc. ("Lipper") is an independent service
that monitors the performance of over 1,300 mutual funds, and calculates total
return for the funds grouped by investment objective. Lipper's Mutual Fund
Performance Analysis, Small Cap Company Analysis and Mutual Fund Indices measure
total return and average current yield for the mutual fund industry. Rankings of
individual mutual fund performance over specific time periods assume
reinvestment of all distributions, exclusive of sales charges.
The Russell 2000 Index represents the top 2,000 stocks traded on the
New York Stock Exchange, American Stock Exchange and National Association of
Securities Dealers Automated Quotations, by market capitalizations.
The Morgan Stanley Capital International Europe, Australia and Far East
(Gross Domestic Product) Index (the "EAFE Index") is a market-value weighted and
unmanaged index of common stocks traded outside the U.S. The stocks in the index
are selected with reference to national and industry representation and weighted
in the EAFE Index according to their relative market value (market price per
share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australia and Far East
Index (the "EAFE [GDP] Index") is a market-value weighted and unmanaged index of
common stocks traded outside the U.S. The stocks in the index are selected with
reference to national and industry representation and weighted in the EAFE (GDP)
Index according to their relative market values. The relative market value of
each country is further weighted with reference to the country's relative gross
domestic product.
Articles and releases, developed by the Fund and other parties, about
the Fund regarding performance, rankings, statistics and analyses of the Fund's
and the fund group's asset levels and sales volumes, numbers of shareholders by
fund or in the aggregate for New England Funds, statistics and analyses of
industry sales volumes and asset levels, and other characteristics may appear in
advertising, promotional literature,
37
<PAGE> 73
publications, including, but not limited to, those publications listed in
Appendix B to this Statement and on various computer networks, for example, the
Internet. In particular, some or all of these publications may publish their own
rankings or performance reviews of mutual funds, including the Fund. References
to or reprints of such articles may be used in the Funds' advertising and
promotional literature. Such advertising and promotional material may refer to
NEIC, its structure, goals and objectives and the advisory subsidiaries of NEIC,
including their portfolio management responsibilities, portfolio managers and
their categories and background; their tenure, styles and strategies and their
shared commitment to fundamental investment principles and may identify specific
clients, as well as discuss the types of institutional investors who have
selected the advisers to manage their investment portfolios and the reasons for
that selection. The references may discuss the independent, entrepreneurial
nature of each advisory organization and allude to or include excerpts from
articles appearing in the media regarding NEIC, its advisory subsidiaries and
their personnel. For additional information about the Fund's advertising and
promotional literature, see Appendix C.
The Fund may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising and sales
literature developed to publicize such arrangements will explain the
relationship of the bank to New England Funds and New England Funds, L.P. as
well as the services provided by the bank relative to the Fund. The material may
identify the bank by name and discuss the history of the bank including, but not
limited to, the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
The Fund may use the accumulation charts below in their advertisements
to demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
INVESTMENTS AT 8% RATE OF RETURN
<TABLE>
<CAPTION>
5 YRS. 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C>
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
</TABLE>
INVESTMENTS AT 10% RATE OF RETURN
<TABLE>
<CAPTION>
5 YRS. 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C>
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The Fund's advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the New England Funds. For example, the advertising and sales literature
of any of the New England Funds, but particularly that of Growth Fund of Israel,
New England Star Worldwide Fund and New England International Equity Fund, may
discuss all of the above international developments, including but not limited
to, international developments involving Europe, North and South America, Asia,
the Middle East and Africa, as well as events and issues affecting specific
countries that directly or indirectly may have had consequences for the New
England Funds or may have influenced past performance or may influence current
or prospective performance of the New England Funds. The Fund's advertising and
sales literature may also include historical and current performance and total
returns of investment alternatives to the New England Funds. Articles, releases,
advertising and literature may discuss the range of services offered by the
Trusts and New England Funds, L.P., as distributor and transfer agent of the
Trusts, with respect to investing in shares of
38
<PAGE> 74
the Trusts and customer service. Such materials may discuss the multiple classes
of shares available through the Trusts and their features and benefits,
including the details of the pricing structure.
New England Funds, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and raters including, but not limited to
Dalbar's Quality Tested Service Seal and Key Honors Award. Such references may
explain the criteria for the award, indicate the nature and significance of the
honor and provide statistical and other information about the award and New
England Funds, L.P.'s selection including, but not limited to, the scores and
categories in which New England Funds, L.P. excelled, the names of funds and
fund companies that have previously won the award and comparative information
and data about those against whom New England Funds, L.P. competed for the
award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in its
advertising and sales literature testimonials from shareholders, clients,
brokers who sell or own shares, 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.
Advertising and sales literature may also refer to the beta coefficient
of the New England Funds. A beta coefficient is a measure of systematic or
undiversifiable risk of a stock. A beta coefficient of more than 1 means that
the company's stock has shown more volatility than the market index (e.g. the
S&P 500) to which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If it equals 1,
its risk is the same as the market index. High variability in stock price may
indicate greater business risk, instability in operations and low quality of
earnings. The beta coefficients of the New England Funds may be compared to the
beta coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising and sales
literature developed to publicize such arrangements will explain the
relationship of the bank to New England Funds and New England Funds, L.P. as
well as the services provided by the bank relative to the Funds. The material
may identify the bank by name and discuss the history of the bank including,
but not limited to, the type of bank, its asset size, the nature of its
business and services and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Fund's prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Fund's prospectus, it is the policy of the Fund to
pay its shareholders, as dividends, substantially all net investment income and
to distribute annually all net realized long-term capital gains, if any, after
offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the relevant class of the Fund based upon the net asset
value determined as of the close of the New York Stock Exchange on the record
date for each dividend or distribution. Shareholders, however, may elect to
receive their income dividends or capital gain distributions, or both, in cash.
The election may be made at any time by submitting a written request directly to
New England Funds. In order for a change to be in effect for any dividend or
distribution, it must be received by New England Funds on or before the record
date for such dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order to qualify, the Fund must, among other
things (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, gains from sale of securities
or foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii) derive less than 30% of
its gross income from gains from the sale or other disposition of securities
held for less than three months;
39
<PAGE> 75
(iii) distribute at least 90% of its dividend, interest and certain other
taxable income each year; and (iv) at the end of each fiscal quarter maintain at
least 50% of the value of its total assets in cash, government securities,
securities of other regulated investment companies, other securities of issuers
which represent, with respect to each issuer, no more than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and with no more than 25% of its assets invested in the securities
(other than those of the U.S. government or other regulated investment
companies) of any one issuer or of two or more issuers which the Fund controls
and which are engaged in the same, similar or related trades and businesses. So
long as it qualifies for treatment as a regulated investment company, the Fund
will not be subject to federal income tax on income paid to its shareholders in
the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for 6 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund may be eligible to make and, if eligible, may make an election
under Section 853 of the Code so that its shareholders will be able to claim a
credit or deduction on their income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to Israel and other foreign countries. The
ability of shareholders of the Fund to claim a foreign tax credit is subject to
certain limitations imposed by Section 904 of the Code, which in general limit
the amount of foreign tax that may be used to reduce a shareholder's U.S. tax
liability to that amount of U.S. tax which would be imposed on the amount and
type of income in respect of which the foreign tax was paid. A shareholder who
for U.S. income tax purposes claims a foreign tax credit in respect of Fund
distributions may not claim a deduction for foreign taxes paid by the Fund,
regardless of whether the shareholder itemizes deductions. Also, under Section
63 of the Code, no deduction in respect of income taxes paid by the Fund to
foreign countries may be claimed by shareholders who do not itemize deductions
on their federal income tax returns. The Fund will notify shareholders each year
of the amount for dividends and distributions and the shareholder's pro rata
share of qualified taxes paid by the Fund to foreign countries.
The Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
The Fund may own shares in certain foreign investment entities,
referred to as "passive foreign investment companies." In order to avoid U.S.
federal income tax, and an additional charge on a portion of any "excess
distribution" from such companies or gain from the disposition of such shares,
the Fund may elect to "mark to market" annually its investments in such entities
and to distribute any resulting net gain to shareholders. As a result, the Fund
may be required to sell securities it would have otherwise continued to hold in
order to make distributions to shareholders in order to avoid any Fund-level
tax.
40
<PAGE> 76
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss, provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the Fund within 30 days
prior to the sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
41
<PAGE> 77
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, if
fact, have speculative characteristics as well.
42
<PAGE> 78
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, and B1.
43
<PAGE> 79
APPENDIX B
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's Bergen County Record (NJ)
Bloomberg Business News
B'nai B'rith Jewish Monthly
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the)Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News New
Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
44
<PAGE> 80
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
45
<PAGE> 81
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to New England Investment Companies ("NEIC") and its
affiliates that perform advisory functions for New England Funds including, but
not limited to: Back Bay Advisors, L.P., Harris Associates L.P., Loomis, Sayles
and Company, L.P., Westpeak Investment Advisors, L.P., Capital Growth Management
Limited Partnership and Draycott Partners, Ltd.
References may be included in New England Funds' advertising and
promotional literature to NEIC affiliates that do not perform advisory or
subadvisory functions for the Funds including, but not limited to, New England
Investment Associates, L.P., Copley Real Estate Advisors, L.P., Marlborough
Capital Advisors, L.P., Reich & Tang Capital Management and Reich and Tang
Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained in New
England Funds' advertising and promotional literature including, but not limited
to, Montgomery Asset Management, L.P. and Robertson Stephens & Company
Investment Management, L.P.
New England Funds' advertising and promotional material will include,
but is not limited to, discussions of the following information about the above
entities:
Specific and general investment emphasis, specialties,
competencies, operations and functions
Specific and general investment philosophies, strategies, processes
and techniques
Specific and general sources of information, economic models,
forecasts and data services utilized, consulted or considered in
the course of providing advisory or other services
The corporate histories, founding dates and names of founders of
the entities
Awards, honors and recognition given to the firms
The names of those with ownership interest and the percentage of
ownership
Current capitalization, levels of profitability and other financial
information
Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
The specific credentials of the above individuals, including but
not limited to, previous employment, current and past positions,
titles and duties performed, industry experience, educational
background and degrees, awards and honors
Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and profit
sharing plans
Current and historical statistics about:
- total dollar amount of assets managed
- New England Funds' assets managed in total and by Fund
- the growth of assets
- asset types managed
46
<PAGE> 82
- numbers of principal parties and employees, and the length of
their tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
- the above individuals' total and average number of years of
industry experience and the total and average length of their
service to the adviser or the subadviser
Specific and general references to portfolio managers and funds that they serve
as portfolio manager of, other than New England Funds, and those families of
funds, other than New England Funds, including but not limited to, the Fund's
portfolio manager John Wallace of Robertson Stephens and the Robertson Stephens
Mutual Fund, who also serves as portfolio manager of the Robertson Stephens
Diversified Growth Fund; the Fund's portfolio manager Michael Carmen of
Montgomery and the Montgomery Funds who serves as the portfolio manager for the
Montgomery Small Cap Opportunities Fund and the Montgomery Micro Cap Fund; the
Fund's portfolio managers Christopher Ely, Philip Fine and David Smith of
Loomis Sayles and the Fund's portfolio manager Steven Reid of Harris Associates
and The Oakmark Family of Funds who serves as the portfolio manager of the
Oakmark Small Cap Fund. New England Star Advisers Fund (the "Star Advisers
Fund") portfolio manager Rodney L. Linafelter of Berger Associates, Inc. and
Berger Funds, who also serves as portfolio manager of the Berger 100 Fund; Star
Advisers Fund portfolio manager Warren B. Lammert of Janus Capital and Janus
Funds, who also serves as portfolio manager of Janus Mercury Fund, and Fund
portfolio manager Helen Young Hayes, also of Janus Capital and Janus Funds, who
serves as portfolio manager of the Janus Worldwide Fund, IDEX II Series Fund
- -IDEX II Global Portfolio and Janus Aspen Series -Worldwide Growth Portfolio;
Fund portfolio managers Josephine S. Jimenez and Bryan L. Sudweeks of Montgomery
Asset Management, L.P., who also serve as portfolio managers of Montgomery
Emerging Markets Fund; Star Advisers Fund portfolio manager Edward F. Keely and
Fund portfolio manager Michael W. Gerding of Founders Asset Management, Inc. and
Founders Funds, who also serve as portfolio manager of Founders Growth Fund and
Founders Worldwide Growth Fund, respectively; and Star Advisers Fund portfolio
managers Jeffrey C. Petherick and Mary Champagne of Loomis, Sayles & Company,
L.P. and Loomis Sayles Funds, who also serves as portfolio managers of the
Loomis Sayles Small Cap Fund. Specific and general references may be made to the
Loomis Sayles Funds, the Loomis Sayles Bond Fund and Daniel Fuss, who serves as
portfolio manager of New England Strategic Income Fund and the Loomis Sayles
Bond Fund; and Fund portfolio managers Robert J. Sanborn and Fund and Growth
Fund of Israel portfolio manager David G. Herro of Harris Associates L.P. and
Oakmark Funds, who also serve as portfolio managers of The Oakmark Fund and The
Oakmark International Fund, respectively. Any such references will indicate that
New England Funds and the other funds of the managers differ as to performance,
objectives, investment restrictions and limitations, portfolio composition,
asset size and other characteristics, including fees and expenses. References
may also be made to industry rankings and ratings of the Fund and other funds
managed by the Fund's 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 NEIC and its
affiliates:
NEIC is the fifth largest publicly traded manager in the U.S. listed on
the New York Stock Exchange. NEIC maintains over $87 billion in assets under
management. Clients serviced by NEIC and its affiliates, besides New England
Funds, are wealthy individuals, major corporations and large institutions.
Back Bay Advisors, L.P. employs a conservative style of management
emphasizing short and intermediate term securities to reduce volatility, adds
value through careful continuous credit analysis and has expertise in
government, corporate and tax-free municipal bonds and equity securities. Among
its clients are Boston City Retirement System, Public Service Electric and Gas
of New Jersey, Petrolite Corp. and General Mills.
Capital Growth Management, L.P. seeks to deliver exceptional growth for
its clients through the selection of stocks with the potential to outperform the
market and grow at a faster rate than the U.S. economy. Among its approaches are
pursuit of growth 50% above the Standard & Poor's Index of 500 Common Stocks,
prompt responses to changes in the market or economy and aggressive, highly
concentrated portfolios.
Loomis, Sayles & Company, L.P. is one of the oldest and largest
investment firms in the U.S. and has provided investment counseling to
individuals and institutions since 1926. Characteristic of Loomis Sayles is that
it has one of the largest staffs of research analysts in the industry, practices
strict buy and sell disciplines and focuses on sound value in stock and bond
selection. Among its clients are large corporations such as Chrysler, Mobil Oil
and Revlon.
47
<PAGE> 83
Westpeak Investment Advisors, L.P. ("Westpeak") employs proprietary
research and a disciplined stock selection process that seeks rigorously to
control unnecessary risk. Its investment process is designed to evaluate when
value and growth styles - two primary approaches to stock investing - hold
potential for reward. Over seventy fundamental attributes are continuously
analyzed by Westpeak's experienced analysts and sophisticated computer systems.
The results are assessed against Wall Street's consensus thinking, in pursuit of
returns in excess of appropriate benchmarks. The value/growth strategy is a
unique blend of investment styles, seeking opportunities for increased return
with reduced risk. Among the keys to Westpeak's investment process are
continuous review of timely, accurate data on over 3600 companies, analysis of
dozens of factors for excess return potential and identification of overvalued
and undervalued stocks.
Harris Associates, L.P. is a Chicago-based investment management
company with more than $9.5 billion in assets under management, comprised of the
$5.4 billion Oakmark Fund Group and $3.9 billion in individual and
institutional assets. Harris Associates, L.P.'s investment philosophy is
predicated on the belief that over time market price and value converge and that
investment in securities priced significantly below long-term value presents the
best opportunity to achieve long-term growth of capital.
Graystone Partners, L.P. ("Graystone"), a Chicago-based consulting firm
focusing exclusively on working with the wealthiest families in the country.
Founded in 1993, Graystone specializes in assisting high net worth families in
developing asset allocation strategies, identifying appropriate portfolio
managers and the monitoring of investment performance.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating to plans,
participants and sponsors, third party and other administrators, benefits
consultants and firms including, but not limited to, DC Xchange, William Mercer
and other organizations involved in 401(k) and retirement programs with whom New
England Funds may or may not have a relationship.
Specific and general reference to comparative ratings, rankings and
other forms of evaluation as well as statistics regarding the New England Funds
as a 401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including but not
limited to, statistics, detailed explanations or broad summaries of:
-past, present and prospective tax regulation, IRS requirements and
rules, including, but not limited to reporting standards, minimum
distribution notices, Form 5500, Form 1099R and other relevant forms and
documents, Department of Labor rules and standards and other regulation.
This includes past, current and future initiatives, interpretive releases
and positions of regulatory authorities about the past, current or future
eligibility, availability, operations, administration, structure,
features, provisions or benefits of 401(k) and retirement plans
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs
-current and prospective ERISA regulation and requirements.
48
<PAGE> 84
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.
49
<PAGE> 85
NEW ENGLAND FUNDS TRUST I
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Per share income and capital changes for all series of the Registrant
other than New England Star Small Cap Fund are included in the
prospectuses filed in Part A of Post-Effective Amendment No. 31 to this
Registration Statement (for all such series except New England Star
Worldwide Fund) or Post-Effective Amendment No. 32 thereto (for New
England Star Worldwide Fund). The following financial statements
are incorporated in Part II of the statement of additional information
filed as Part B hereof by reference to the annual reports to
shareholders of the series of the Registrant listed below for the fiscal
year ended December 31, 1995, which were filed with the Commission on
the date appearing in parentheses below:
(1) New England Balanced Fund (March 13, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(2) New England Growth Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(3) New England Value Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(4) New England Star Advisers Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(5) New England International Equity Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(6) New England Capital Growth Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(7) New England Bond Income Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
1
<PAGE> 86
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(8) New England Municipal Income Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(9) New England Government Securities Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(10) New England Strategic Income Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
The following financial statements are incorporated in Part II of the
statement of additional information filed as Part B hereof by reference
to the semi-annual report to shareholders of New England Star Worldwide
Fund listed below for the semi-annual period ended June 30, 1996, which
was filed with the Commission on July 29, 1996.
New England Star Worldwide Fund (July 29, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(b) Exhibits:
1.(a) Amended and Restated Agreement and Declaration of Trust of the
Registrant is incorporated herein by reference to Exhibit 1(a)
to Post-Effective Amendment No. 31 to this Registration
Statement filed on April 12, 1996.
(b) Amendment No. 5 to Amended and Restated Agreement and
Declaration of Trust of the Registrant is incorporated herein by
reference to Exhibit 1(b) to Post-Effective Amendment No. 31 to
this Registration Statement filed on April 12, 1996.
(c) Amendment No. 9 to Amended and Restated Agreement and
Declaration of Trust is incorporated herein by reference to
Exhibit 1(c) to Post-Effective Amendment No. 31 to this
Registration Statement filed on April 12, 1996.
(d) Form of Amendment No. 10 to Amended and Restated Agreement and
Declaration of Trust is filed herewith.
2.(a) Bylaws of the Registrant are incorporated herein by reference
to Exhibit 2(a) to Post-Effective amendment No. 32 to this
Registration Statement filed on July 30, 1996.
(b) Amendment to the Bylaws of the Registrant is incorporated herein
by reference to Exhibit 2(b) to Post-Effective Amendment No. 32
to this Registration Statement filed on July 30, 1996.
2
<PAGE> 87
Registration Nos. 2-98326
811-4323
3. None.
4. Rights of shareholders are described in Article III, Section 6
of the Amended and Restated Agreement and Declaration of Trust
of the Registrant filed as Exhibit 1(a) to this Registration
Statement.
5.(a) Advisory Agreement between the Registrant, on behalf of its
New England Growth Fund, and Capital Growth Management Limited
Partnership ("CGM") is incorporated herein by reference to
Post-Effective Amendment No. 32 to this Registration Statement
filed on July 30, 1996.
(b) Advisory Agreements between the Registrant and New England
Funds Management, L.P. ("NEFM"), relating to the following
series of the Registrant, are incorporated herein by reference
to Exhibit 5(b) to Post-Effective Amendment No. 31 to this
Registration Statement filed on April 12, 1996:
(i) New England Capital Growth Fund
(ii) New England Balanced Fund
(iii) New England International Equity Fund
(iv) New England Star Advisers Fund
(v) New England Value Fund
(vi) New England Star Worldwide Fund
(vii) New England Government Securities Fund
(viii) New England Strategic Income Fund
(ix) New England Bond Income Fund
(x) New England Municipal Income Fund
(c) Form of Advisory Agreement between the Registrant, relating to
its New England Small Cap Fund, and NEFM is filed herewith.
(d) Subadvisory Agreements relating to the following series of the
Registrant, between NEFM and the subadvisers indicated in
parentheses, are incorporated herein by reference to Exhibit
5(c) to Post-Effective Amendment No. 31 to this Registration
Statement filed on April 12, 1996:
(i) New England Capital Growth Fund (Loomis Sayles &
Company, L.P. ["Loomis Sayles"])
(ii) New England Balanced Fund (Loomis Sayles)
(iii) New England International Equity Fund (Draycott
Partners, Ltd. ["Draycott"])
(iv) New England Star Advisers Fund (Berger Associates,
Inc. ["Berger"])
(v) New England Star Advisers Fund (Founders Asset
Management, Inc. ["Founders"])
(vi) New England Star Advisers Fund (Janus Capital
Corporation ["Janus"])
(vii) New England Star Advisers Fund (Loomis Sayles)
(viii) New England Value Fund (Loomis Sayles)
(ix) New England Star Worldwide Fund (Harris Associates
L.P. ["Harris"])
(x) New England Star Worldwide Fund (Montgomery Asset
Management ["Montgomery"])
(xi) New England Star Worldwide Fund (Founders)
(xii) New England Star Worldwide Fund (Janus Capital)
(xiii) New England Government Securities Fund (Back Bay
Advisors ["Back Bay Advisors"])
(xiv) New England Strategic Income Fund (Loomis Sayles)
(xv) New England Bond Income Fund (Back Bay Advisors)
(xvi) New England Municipal Income Fund (Back Bay Advisors)
(e) Forms of Subadvisory Agreements relating to the Registrant's
New England Small Cap Fund, between NEFM and each of the
following subadvisers are filed herewith:
(i) Robertson Stephens & Company Investment Management,
L.P.
(ii) Montgomery
(iii) Loomis Sayles
(iv) Harris
3
<PAGE> 88
Registration Nos. 2-98326
811-4323
6.(a) Form of Distribution Agreement between the Registrant, on
behalf of each of the following series, and New England Funds,
L.P. is incorporated herein by reference to Exhibit 6(a) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996:
(i) New England Capital Growth Fund
(ii) New England Balanced Fund
(iii) New England Growth Fund
(iv) New England International Equity Fund
(v) New England Star Advisers Fund
(vi) New England Value Fund
(vii) New England Government Securities Fund
(viii) New England Strategic Income Fund
(ix) New England Bond Income Fund
(x) New England Municipal Income Fund
(xi) New England Star Worldwide Fund
(b) Form of Distribution Agreement between the Registrant, on
behalf of its New England Star Small Cap Fund, and New England
Funds, L.P. is filed herewith.
7. None.
8.(a) Custodian Contract dated April 13, 1988 between the
Registrant, on behalf of its New England Global Government
Fund, and State Street Bank and Trust Company ("State
Street"), including form of subcustodian agreement, is
incorporated herein by reference to Exhibit 8(a) to
Post-Effective Amendment No. 32 to this Registration Statement
filed on July 30, 1996.
(b) Amendment No. 1 to Custodian Contract dated April 12, 1988
between the Registrant and State Street Bank and Trust Company
is incorporated herein by reference to Exhibit 8(b) to
Post-Effective Amendment No. 32 to this Registration Statement
filed on July 30, 1996.
(c) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Custodian Contract
to New England International Equity Fund is incorporated
herein by reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed on April 1, 1992.
(d) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Custodian Contract
to New England Capital Growth Fund is incorporated herein by
reference to Post-Effective Amendment No. 14 to this
Registration Statement, filed on May 15, 1992.
(e) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Custodian Contract
to New England Star Advisers Fund is incorporated herein by
reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(f) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Custodian Contract
to New England Strategic Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 25 to this
Registration Statement, filed on February 15, 1995.
(g) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Custodian Contract
to New England Star Worldwide Fund is incorporated herein by
reference to Post-Effective Amendment No. 28 to this
Registration Statement, filed on October 13, 1995.
(h) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Custodian Contract
to New England Star Small Cap Fund is filed herewith.
9.(a) Transfer Agency Agreement between the Registrant and New
England Funds, L.P. (formerly TNE Investment Services
Corporation) is incorporated herein by reference to
Post-Effect Amendment No. 32 to this Registration Statement,
filed on July 30, 1996.
4
<PAGE> 89
Registration Nos. 2-98326
811-4323
(b) Form of Service Agreement between New England Securities
Corporation ("New England Securities") and Back Bay Advisors
is incorporated herein by reference to Post-Effective
Amendment No. 3 to this Registration Statement, filed on
November 7, 1986.
(c) Form of Service Agreement between New England Securities and
Loomis Sayles is incorporated herein by reference to
Post-Effective Amendment No. 3 to this Registration Statement,
filed on November 7, 1986.
(d) Form of Service Agreement between New England Securities and
CGM is incorporated herein by reference to Post-Effective
Amendment No. 10 to this Registration Statement, filed on May
1, 1990.
(e) Form of Administrative Agreement between New England
Securities and Registrant is incorporated herein by reference
to Post-Effective Amendment No. 3 to this Registration
Statement, filed on November 7, 1986.
(f) Organizational Expense Reimbursement Agreement between the
Registrant and New England Mutual Life Insurance Company ("The
New England") is incorporated herein by reference to
Pre-Effective Amendment No. 1 to this Registration Statement,
filed on September 11, 1985.
(g) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England International Equity
Fund and New England Funds, L.P. is incorporated herein by
reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed on April 1, 1992.
(h) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Capital Growth
Series, is incorporated herein by reference to Post-Effective
Amendment No. 16 to this Registration Statement, filed on
August 19, 1992.
(i) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Strategic Income
Fund, and New England Funds, L.P. is incorporated herein by
reference to Exhibit 9(i) to Post-Effective Amendment No. 31
to this Registration Statement, filed on April 12, 1996.
(j) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Star Worldwide Fund,
and New England Funds, L.P. is incorporated herein by
reference to Exhibit 9(j) to Post-Effective Amendment No. 31
to this Registration Statement, filed April 12, 1996.
(k) Sub-Transfer Agency Agreement between New England Funds, L.P.
(formerly TNE Investment Services Corporation) and State
Street is filed herewith.
(l) Expense Agreement between the Registrant, on behalf of its
Strategic Income Fund, and NEFM is incorporated herein by
reference to Exhibit 9(l) to Post-Effective Amendment No. 32
to this Registration Statement, filed on July 30, 1996.
(m) Form of Class B Shares Remittance Agreement between the
Registrant and New England Funds, L.P., relating to each
series of the Registrant other than New England Growth Fund,
is incorporated herein by reference to Exhibit 9(m) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996.
(n) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its Star Small Cap Fund, and New
England Funds, L.P. is filed herewith.
(o) Form of Letter Agreement between the Registrant and State
Street relating to the applicability of the Sub-Transfer
Agency Agreement to New England Star Small Cap Fund is filed
herewith.
(p) Class B Shares Remittance Agreement between the Registrant and
New England Funds, L.P. relating to New England Star Small Cap
Fund is filed herewith.
5
<PAGE> 90
Registration Nos. 2-98326
811-4323
10.(a) Opinion and consent of counsel relating to the Registrant's
New England Growth Fund, New England Equity Income Fund, New
England Value Fund, New England Bond Income Fund and New
England Municipal Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed on November 7, 1986.
(b) Opinion and consent of counsel relating to the Registrant's
New England Government Securities Fund is incorporated herein
by reference to Exhibit 10 to Pre-Effective Amendment No. 1 to
this Registration Statement, filed on September 11, 1985.
(c) Opinion and consent of counsel relating to the Registrant's
New England International Equity Fund is incorporated herein
by reference to Post-Effective Amendment No. 17 to this
Registration Statement, filed on October 20, 1992.
(d) Opinion and consent of counsel relating to the Registrant's
issuance of multiple classes of shares is incorporated herein
by reference to Post-Effective Amendment No. 20 to this
Registration Statement, filed on December 22, 1993.
(e) Opinion and consent of counsel relating to the Registrant's
New England Capital Growth Fund is incorporate herein by
reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(f) Opinion and consent of counsel relating to the Registrant's
New England Star Advisers Fund is incorporate herein by
reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(g) Opinion and consent of counsel relating to the Registrant's
New England Strategic Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 28 to this
Registration Statement, filed on October 13, 1995.
(h) Opinion and consent of counsel relating to the Registrant's
New England Star Worldwide Fund is incorporated herein by
reference to Exhibit 10(h) to Post-Effective Amendment No. 31
to this Registration Statement, filed on April 12, 1996.
(i) Opinion and consent of counsel relating to the Registrant's
New England Star Small Cap Fund will be filed by amendment.
11. None.
12. None.
13. Investment Letter of New England Securities is incorporated
herein by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed on September 11, 1985.
14. The following are incorporated herein by reference to
Post-Effective Amendment No. 29 to the Registration Statement
on Form N-1A of NEL Growth Fund, Inc. (File No. 2-28971) filed
on December 22, 1983: (i) NEL Equity Services Corporation Tax
Sheltered Mutual Fund Plan; (ii) HR-10 New England Life
Defined Contribution Prototype Retirement Plan for the
Self-Employed; and (iii) NEL Funds Prototype Individual
Retirement Account Plan.
15.(a) Rule 12b-1 Plans relating to the Class A shares of the
Registrant's New England Balanced Fund, New England Growth
Fund, New England Value Fund, New England International Equity
Fund, New England Capital Growth Fund, New England Bond Income
Fund, New England Municipal Income Fund and New England
Government Securities Fund are incorporated herein by
reference to Exhibit 15(a) to Post-Effective Amendment No. 32
to this Registration Statement filed on July 30, 1996.
(b) Rule 12b-1 Plan relating to the Class A shares of the
Registrant's New England Star Advisers Fund is incorporated
herein by reference to Exhibit 15(b) to Post-Effective
Amendment No. 32 to this Registration Statement filed on July
30, 1996.
6
<PAGE> 91
(c) Form of Rule 12b-1 Plan relating to the Class C shares of the
Registrant's New England Star Advisers Fund is incorporated
herein by reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(d) Rule 12b-1 Plans relating to the Class C shares of the
Registrant's New England International Equity Fund, New
England Value Fund, New England Balanced Fund, New England
Capital Growth Fund and New England Bond Income Fund are
incorporated herein by reference to Post-Effective Amendment
No. 25 to this Registration Statement, filed on February 15,
1995.
(e) Form of Rule 12b-1 Plan relating to the Class A shares of the
Registrant's New England Strategic Income Fund is incorporated
herein by reference to Exhibit 15 to Post-Effective Amendment
No. 25 to this Registration Statement, filed February 15,
1995.
(f) Form of Rule 12b-1 Plan relating to the Class C shares of the
Registrant's New England Strategic Income Fund is incorporated
herein by reference to Exhibit 15 to Post-Effective Amendment
No. 25 to this Registration Statement, filed February 15,
1995.
(g) Forms of Rule 12b-1 Plan relating to the Class A and Class C
shares of New England Star Worldwide Fund are incorporated
herein by reference to Post-Effective Amendment No. 28 to this
Registration Statement, filed on October 13, 1995.
(h) Form of Rule 12b-1 Plan relating to Class B shares of each
series of the Registrant other than New England Growth Fund is
incorporated herein by reference to Exhibit 15(h) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996.
(i) 12b-1 Plan relating to Class A shares of the Registrant's New
England Star Small Cap Fund is filed herewith.
(j) 12b-1 Plan relating to Class B shares of the Registrant's New
England Star Small Cap Fund is filed herewith.
(k) 12b-1 Plan relating to Class C shares of the Registrant's New
England Star Small Cap Fund is filed herewith.
16. Schedule for computation of performance quotations is
incorporated herein by reference to Post-Effective Amendment
No. 9 to this Registration Statement, filed on May 1, 1989.
17. Financial Data Schedule is incorporated herein by reference to
Exhibit 17 to Post-Effective Amendment No. 32 to this
Registration Statement, filed on July 30, 1996.
18. Plan pursuant to Rule 18f-3 under the Investment Company Act
of 1940 is incorporated herein by reference to Exhibit 18 to
Post-Effective Amendment No. 26 to this Registration
Statement, filed on May 1, 1995.
19.(a) Powers of Attorney designating Edward A. Benjamin, Frank
Nesvet, Henry L.P. Schmelzer and Robert P. Connolly as
attorneys to sign for Kenneth J. Cowan, Peter S. Voss, Henry
L.P. Schmelzer, Graham T. Allison, Jr., Pendleton P. White,
John A. Shane and Sandra O. Moose are incorporated herein by
reference to Post-Effective Amendment No. 27 to this
Registration Statement, filed on October 12, 1995.
(b) Powers of Attorney designating Edward A. Benjamin, Frank
Nesvet, Henry L.P. Schmelzer and Robert P. Connolly as
attorneys to sign for Daniel M. Cain and Richard Darman are
incorporated herein by reference to Post-Effective Amendment
No. 31 to this Registration Statement, filed on April 12,
1996.
7
<PAGE> 92
Registration Nos. 2-98326
811-4323
Item 25. Persons Controlled by or Under Common Control with the 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 August 31, 1996:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
------------------------
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
New England Growth Fund 77,141 --- --- ---
New England Value Fund 15,361 4,848 207 2
New England Balanced Fund 13,870 6,051 173 7
New England Bond Income Fund 11,939 3,137 231 7
New England Government Securities Fund 9,164 534 --- 2
New England Municipal Income Fund 5,530 523 --- ---
New England Star Advisers Fund 24,154 30,208 4,236 5
New England International Equity Fund 12,205 7,589 239 12
New England Capital Growth Fund 11,887 4,976 77 ---
New England Strategic Income Fund 2,867 3,444 856 ---
New England Star Worldwide Fund 4,736 5,420 799 ---
</TABLE>
Item 27. Indemnification
Incorporated herein by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed on September 11, 1985.
Item 28. Business and Other Connections of Investment Adviser
(a) Draycott, the subadviser of the Registrant's New England International
Equity Fund, provides investment advice to various clients, including a
separate account of The New England. Interests in such separate accounts
are offered to U.S. tax-qualified pension and profit-sharing plans by
means of group annuity contracts issued by The New England. Draycott's
directors and officers have been engaged during the past two fiscal
years in the following other businesses, professions, vocations or
employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Draycott Other Affiliations Connection
-------- ------------------ ----------
<S> <C> <C>
Nicholas D.P. Carn, Cursitor-Eaton Asset Management Company Principal
President, Chief Investment Officer, 38 Newbury Street
Chief Executive Officer, Director, Boston, MA 02116-3210
Chairman of the Investment
Committee and Principal
</TABLE>
8
<PAGE> 93
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Cursitor Alliance LLC Principal
38 Newbury Street
Boston, MA 02116-3210
Cursitor Holdings Limited Principal
66 Buckingham Gate
London SW1E 6AU, England
Hugh M. Eaton III, Cursitor Alliance LLC Chairman, Principal
Chairman, Director
HME International Advisory Chairman
Associates, L.P.
1010 Franklin Avenue
Garden City, NY 11530
Cursitor Management Limited Principal
66 Buckingham Gate
London, SW1E 6AU, England
Cursitor Holdings Limited Chief Executive Officer,
Principal
Cursitor-Eaton Asset Management Chief Executive Officer,
Company Principal
Richard I. Morris, Jr., Cursitor Alliance LLC President, CEO, Principal
Director
Cursitor Gestion SA Director
79 Avenue Marceau
Paris, France 75116
Cecogest SA Director
79 Avenue Marceau
Paris, France 75116
Cursitor Holdings Limited Chief Financial Officer,
Principal
Cecogest International Ltd. Director
66 Buckingham Gate
London SW1E 6AU, England
Cursitor Management Limited Chief Financial Officer,
Principal
Cursitor France SA Director
79 Avenue Marceau
Paris, France 75116
Cursitor-Eaton Asset Management Chief Financial Officer,
Company Principal
The London Partnership Limited Managing Director
66 Buckingham Gate
London SW1E 6AU, England
</TABLE>
9
<PAGE> 94
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Jens Christian Sorensen, Cursitor-Eaton Asset Management Vice President, Associate
Director, Secretary and Clerk Company
Timothy S. Griffen, None None
Director, Senior Portfolio Manager
Principal
</TABLE>
(b) Loomis Sayles, the subadviser of the Registrant's New England Value
Fund, New England Balanced Fund, New England Capital Growth Fund, New
England Strategic Income Fund and New England High Income Fund and a
subadviser of New England Star Advisers Fund and New England Star
Small Cap Fund, provides investment advice to a number of other
registered investment companies and to other organizations and
individuals. Loomis Sayles' general partner, directors and officers
have been engaged during the past two fiscal years in the following
other businesses, professions, vocations or employments of a
substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Loomis Sayles Other Affiliations Connection
------------- ------------------ ----------
<S> <C> <C>
Loomis Sayles & Company, None None
Incorporated ("LSCI")
General Partner
Robert J. Blanding, None None
President and Chief Executive
Officer
Daniel J. Fuss, None None
Executive Vice President
Jeffrey L. Meade, None None
Executive Vice President and Chief
Operating Officer
Sandra P. Tichenor, None None
Vice President, General Counsel
and Secretary
Meri Anne Beck, None None
Vice President
Mary C. Champagne, None None
Vice President
Richard W. Hurkes, None None
Vice President
Scott A. Pape, None None
Vice President
Douglas D. Ramos, None None
Vice President
Carol C. McMurtie, None None
Vice President
</TABLE>
10
<PAGE> 95
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C>
Tricia H. Mills, None None
Vice President
Jeffery C. Petherick, None None
Vice President
</TABLE>
(c) CGM, the adviser of the Registrant's New England Growth Fund, provides
investment advice to a number of other registered investment companies
and to other organizations and individuals. CGM's general partner,
directors and officers have been engaged during the past two fiscal
years in the following other businesses, professions, vocations or
employments of a substantial nature.
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
CGM Other Affiliations Connection
--- ------------------ ----------
<S> <C> <C> <C>
Kenbob, Inc. None None
General Partner
</TABLE>
(d) Back Bay Advisors, the subadviser of the Registrant's New England Bond
Income Fund, New England Government Securities Fund and New England
Municipal Income Fund, is wholly owned by NEIC. Back Bay Advisors
serves as investment adviser to a number of other registered investment
companies. Back Bay Advisors' general partner, directors and officers
have been engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a substantial
nature (former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Back Bay Advisors Other Affiliations Connection
-------------------- ------------------- ----------
<S> <C> <C>
Back Bay Advisors, Inc. None None
General Partner
Charles T. Wallis, NEF Corporation Director
President and Chief Executive
Officer
Back Bay Advisors, Inc. President, Chief Executive
399 Boylston Street Officer and Director
Boston, MA 02116
Charles G. Glueck, None None
Senior Vice President
Scott A. Millimet, Back Bay Advisors, Inc. Executive Vice President
Executive Vice President 399 Boylston Street
Boston, MA 02116
Edgar M. Reed, Aetna Capital Management* Head of Fixed Income
Executive Vice President and Chief 151 Farmington Avenue Management Group
Investment Officer Hartford, CT 06156
J. Scott Nicholson, None None
Senior Vice President
Kimberly J. Forsyth, Legg Mason Incorporated* Senior Vice President and
Senior Vice President 7 East Redwood Street Director of Tax-Exempt
Baltimore, MD 21202 Credit Research
</TABLE>
11
<PAGE> 96
Registration Nos. 2-98326
811-4323
<TABLE>
<CAPTION>
Via International City/County Independent Consultant to
Management Association Bulgaria
777 North Capital Street, NE
Washington, DC 20002
<S> <C> <C>
Catherine Bunting, None None
Senior Vice President
Nathan R. Wentworth, None None
Vice President
Paul Zamagni, None None
Vice President and Treasurer
Peter Palfrey, None None
Vice President
Harold B. Bjornson, None None
Vice President
Eric Gutterson, None None
Vice President
</TABLE>
(e) Berger, a subadviser to the Registrant's New England Star Advisers
Fund, serves as investment adviser to mutual funds, pension and profit
sharing plans and other institutional and private investors. Berger's
directors and officers have been engaged during the past two fiscal
years in the following other 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
Berger Other Affiliations Connection
-------------------- ------------------- ----------
<S> <C> <C>
William M. B. Berger, None None
Director
Rodney L. Linafelter, None None
Vice President and Director
William R. Keithler, INVESCO Trust Company* Senior Vice President
Vice President 7800 East Union Ave; Suite 800
Denver, CO 80237
Kevin R. Fay, None None
Vice President, Secretary and
Treasurer
Brian S. Ferrie, United Services Advisors, Inc.* Compliance Officer
Compliance Officer 7900 Callaghan Road
San Antonio, TX 78229
David J. Schultz, Smith, Brock and Gwinn* Partner
Controller 650 South Cherry Street
Denver, CO 80222
Gerard M. Lavin, DST Systems Inc. Senior Officer
President and Director 1055 Broadway, 9th Floor
Kansas City, MO 64105
</TABLE>
12
<PAGE> 97
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Investors Fiduciary Trust Co.* President and Chief
127 West 10th Street Executive Officer
Kansas City, MO 64105
Landon H. Rowland, Kansas City Southern Industries, Inc. President and Chief
Director ("KCSI") Executive Officer
114 West 11th Street
Kansas City, MO 64105
</TABLE>
(f) Founders, a subadviser to the Registrant's New England Star Advisers
Fund and New England Star Worldwide Fund, has been an investment
adviser since 1938 and serves as an investment adviser to mutual funds
and other accounts. Founders' directors and officers have been engaged
during the past two fiscal years in the following other businesses,
professions, vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Founders Other Affiliations Connection
-------------------- ------------------- ----------
<S> <C> <C>
Bjorn K. Borgen, None None
Director, Chief Executive Officer
and Secretary
David L. Ray, None None
Vice President, Assistant Secretary
and Treasurer
Michael K. Haines, None None
Senior Vice President
Michael Gerding, None None
Vice President
Charles Hooper, None None
Vice President
Linda Ripley, None None
Assistant Vice President
Roberto Galindo, Jr., None None
Assistant Vice President
Thomas Mauer, None None
Assistant Vice President
Gregory Contillo, None None
Vice President
James Rankin, None None
Vice President
</TABLE>
(g) Janus Capital, a subadviser to the Registrant's New England Star
Advisers Fund and New England Star Worldwide Fund, serves as investment
adviser to mutual funds and individual, corporate, charitable and
retirement accounts. Janus Capital's directors and officers have been
engaged during the past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature:
13
<PAGE> 98
Registration Nos. 2-98326
811-4323
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Janus Other Affiliations Connection
-------------------- ------------------- ----------
<S> <C> <C>
Thomas H. Bailey, IDEX Management, Inc. ("IDEX") Chairman and Director
Chairman, Director, President and 201 Highland Avenue
Chief Executive Officer Largo, FL 34690
James P. Craig, None
Vice President and Chief
Investment Officer
Thomas F. Marsico, None
Vice President
James P. Goff, None None
Vice President
Warren B. Lammert, None None
Vice President
Ronald V. Speaker, None None
Vice President
Helen Young Hayes, None None
Vice President
Sharon S. Pichler, None None
Vice President
Scott W. Schoelzel, None None
Vice President
David C. Tucker, Janus Service Corporation ("Janus Vice President, General
Vice President, Secretary and Service") Counsel and Director
General Counsel 100 Fillmore Street
Denver, CO 80206
Janus Distributors, Inc. ("Janus Vice President, General
Distributors") Counsel and Director
100 Fillmore Street
Denver, CO 80206
Steven R. Goodbarn, Janus Service Vice President of Finance,
Vice President of Finance, Treasurer and Chief Financial
Treasurer and Chief Financial Officer
Officer
Janus Distributors Vice President of Finance,
Treasurer and Chief Financial
Officer
IDEX Director
Michael E. Herman, Ewing Marion Kauffman Foundation Chairman of Finance
Director 4900 Oak Committee
Kansas City, MO 64112
</TABLE>
14
<PAGE> 99
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Michael N. Stolper, Stolper & Company, Inc. President
Director 525 B Street
San Diego, CA
Thomas A. McDonnell, DST Systems, Inc. President, Chief Executive
Director 1055 Broadway Officer and Director
Kansas City, MO 64105 Executive Vice President and
Director
KCSI
</TABLE>
(h) NEFM, adviser to all the series of the Registrant except New England
Growth Fund, was organized in 1995. NEFM also serves as adviser to all
of the series of New England Funds Trust II and to New England Cash
Management Trust, New England Tax Exempt Money Market Trust and New
England Equity Income Fund. NEFM's general partner, directors and
officers have been engaged during the past two fiscal years in the
following businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
-------------------- ------------------- ----------
<S> <C> <C>
NEF Corporation New England Funds, L.P. General Partner
General Partner 399 Boylston Street
Boston, MA 02116
Henry L.P. Schmelzer, New England Funds, L.P. President and Chief Executive
President and Chief Executive Officer
Officer
NEF Corporation President, Chief Executive
Officer and Director
Back Bay Advisors, Inc. Director
New England Securities Corporation* Director
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, L.P. Senior Vice President and Chief
Senior Vice President, Chief Financial Officer
Financial Officer and Treasurer
NEF Corporation Senior Vice President, Chief
Financial Officer and Treasurer
Robert P. Connolly, NEF Corporation Senior Vice President, General
Senior Vice President, General Counsel, Secretary and Clerk
Counsel, Assistant Secretary and
Clerk
New England Funds, L.P. Senior Vice President, General
Counsel, Secretary and Clerk
Kroll Associates, Inc.* Managing Director and General
900 3rd Avenue Counsel
New York, NY 10022
</TABLE>
15
<PAGE> 100
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Bruce R. Speca, NEF Corporation Executive Vice President
Executive Vice President
New England Funds, L.P. Executive Vice President
Peter H. Duffy, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Martin G. Dyer, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Ralph M. Greggs, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Beatriz A. Pina-Smith, NEF Corporation Assistant Controller
Assistant Controller
New England Funds, L.P. Assistant Controller
</TABLE>
(i) Montgomery is a subadviser to the Registrant's New England Star
Worldwide Fund and New England Star Small Cap Fund. Montgomery'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 Other Nature of
Montgomery Affiliations Connection
-------------------- ------------------------- ----------
<S> <C> <C>
Montgomery Asset None None
Management, Inc.
General Partner
R. Stephen Doyle Montgomery Asset Management, Chairman and
Chairman, Managing Director Inc. Director
of Mutual Funds and Executive 600 Montgomery Street
Vice President San Francisco, CA 94111
Montgomery Securities Managing Director
600 Montgomery Street
San Francisco, CA 94111
Mark B. Geist Montgomery Asset Management, Director and
President Inc. President
John T. Story None None
Managing Director of Mutual
Funds and Executive Vice
President
</TABLE>
16
<PAGE> 101
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Mary Jane Fross None None
Manager of Mutual Fund
Administration and Finance
Josephine Jimenez None None
Managing Director and
Portfolio Manager
Bryan L. Sudweeks None None
Managing Director and
Portfolio Manager
Stuart O. Roberts None None
Managing Director and
Portfolio Manager
John H. Brown Merus Capital Management* Portfolio Manager and
Managing Director and Senior 475 Sansome Street Analyst
Portfolio Manger San Francisco, CA 94111
William C. Stevens None None
Managing Director and
Portfolio Manager
Roger Honour None None
Managing Director and Senior
Portfolio Manager
Oscar Castro None None
Managing Director and
Portfolio Manager
John Boich None None
Managing Director and
Portfolio Manager
</TABLE>
(j) Harris serves as a subadviser to the Registrant's New England Star
Worldwide Fund and New England Star Small Cap Fund and is wholly owned
by NEIC. Harris serves as investment adviser to mutual funds,
individuals, trusts, retirement plans, endowments and foundations, and
manages several private partnerships, and is a registered commodity
trading adviser and commodity pool operator. Harris's general partner,
directors and officers have been engaged during the past two fiscal
years in the following business, professions, vocations or employments
of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Harris Other Affiliations Connection
-------------------- ------------------- ----------
<S> <C> <C>
Harris Associates Inc. Harris Associates Securities, L.P. General Partner
General Partner Two North LaSalle Street
Chicago, IL 60602
Victor Morgenstern None None
Executive and Chief Executive
Officer
Donald Terao None None
Chief Financial Officer,
Treasurer and Secretary
</TABLE>
17
<PAGE> 102
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Robert M. Levy None None
President
Roxanne M. Martino None None
Vice President
Anita Nagler None None
Vice President
</TABLE>
(k) Robertson Stephens Investment Management, L.P. ("RSIM L.P."), a subadvisor
to the Registrant's Star Small Cap Fund provides investment advice to various
clients including public mutual funds, private limited partnerships and
separate accounts. RSIM's directors and officers have been engaged in the
following businesses, professions, vocations or employments of a substantial
nature during the past two fiscal years (former affiliations are marked with an
asterisk):
Name and Office Name and Address of
With RSIM. L.P. Other Affiliations Nature of Connection
- --------------- ------------------ ---------------------
George R. Hecht Robertson Stephens & Company LLC Chief Operating Officer
President, RSIM L.P. (affiliate of/distributor for and Managing Director
RSIM L.P.)
555 California Street
San Francisco, CA 94104
Robertson Stephens & Company Member and Executive
Group, L.L.C. Committee Member
555 California Street
San Francisco, CA 94104
Terry R. Otton Robertson Stephens & Company LLC Chief Financial Officer
Chief Financial (affiliate of/distributor for and Managing Director
Officer, RSIM L.P. RSIM L.P.)
555 California Street
San Francisco, CA 94104
Robertson Stephens & Company Member
Group, L.L.C.
555 California Street
San Francisco, CA 94104
Dana K. Welch Robertson Stephens & Company LLC General Counsel
General Counsel, (affiliate/distributor of
RSIM L.P. RSIM L.P.)
555 California Street
San Francisco, CA 94104
Paul H. Stephens Robertson Stephens & Company LLC Managing Director
Chief Investment (affiliate/distributor of
Officer, RSIM L.P. RSIM L.P.)
555 California Street
San Francisco, CA 94104
Robertson Stephens & Company Member and Executive
Group, L.L.C. Committee Member
555 California Street
San Francisco, CA 94104
Amy Hoffman KPMG Peat Marwick* Employee/
Controller, 345 Park Avenue Senior Manager
RSIM L.P. New York, NY 10154
Robert Greenwood Putnam Investments* Project Manager
Compliance Director, 1 Post Office Square Compliance Systems
RSIM L.P. Boston, MA 02109
Item 29. Principal Underwriter
(a) New England Funds, L.P., the principal underwriter of the Registrant, also
serves as principal underwriter for:
New England Tax Exempt Money Market Trust
New England Cash Management Trust
New England Funds Trust II
New England Funds Trust III
(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 President and Chief Executive Officer President and Trustee
Bruce R. Speca Executive Vice President Executive Vice President
Robert P. Connolly Senior Vice President, General Secretary
Counsel, Secretary and Clerk
Frank Nesvet Senior Vice President and Chief Treasurer
Financial Officer
Munish Agrawal Vice President None
Elizabeth P. Burns Vice President None
James H. Davis Vice President None
Peter H. Duffy Vice President None
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
William H. Finnegan Senior Vice President None
Raymond K. Girouard Vice President, Treasurer and None
Controller
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
</TABLE>
18
<PAGE> 103
Registration Nos. 2-98326
811-4323
<TABLE>
<S> <C> <C>
Caren I. Leedom Vice President None
Marie G. McKenzie Vice President None
Robert E. O'Hare Vice President, Senior Counsel, None
Assistant Secretary and Assistant
Clerk
Andrew Olear Executive Vice President None
Bernard M. Shavelson Vice President None
Kristine E. Swanson Vice President None
Sharon Wratchford Vice President None
Beatriz A. Pina-Smith Assistant Controller None
</TABLE>
The principal business address of all the above persons or entities is 399
Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required by the
specified rules:
(a) Registrant
Rule 31a-1(b)(4)
(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)
(i) For New England Growth Fund:
Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(ii) For series of the Registrant managed by Back Bay
Advisors:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
19
<PAGE> 104
Registration Nos. 2-98326
811-4323
(iii) For New England International Equity Fund:
Draycott Partners, Ltd.
8 City Road
London, EC2Y 1HE
England
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(iv) For New England Star Advisers Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Berger Associates, Inc.
210 University Blvd.; Suite 900
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Founders Asset Management, Inc.
2930 East Third Ave.
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(v) For New England Star Worldwide Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Harris Associates L.P.
20
<PAGE> 105
Registration Nos. 2-98326
811-4323
Two North LaSalle Street
Chicago, Illinois 60602
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Janus Capital Corporation
100 Fillmore Street
East Third Avenue
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Founders Asset Management, Inc.
2930 East Third Avenue
Denver, Colorado 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, California 94111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(vi) For the series of the Registrant managed by Loomis
Sayles:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(vii) For New England Star Small Cap Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, California 94111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Robertson Stephens & Company
555 California Street
San Francisco, California 94101
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(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
(a) The Registrant undertakes to provide the annual report of any of its series
to any person who receives a prospectus for such series and who requests the
annual report.
(b) The Registrant hereby undertakes to file a post-effective amendment using
Financial Statements relating to its New England Small Cap Fund within four to
six months from the effective date of this Post-Effective Amendment.
21
<PAGE> 106
Registration Nos. 2-98326
811-4323
NEW ENGLAND FUNDS TRUST I
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment No. 33 to its Registration Statement meets all the
requirements for effectiveness under paragraph (a) of Rule 485 under the
Securities Act of 1933, and that it has duly caused this Post-Effective
Amendment No. 33 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 1st day of October, 1996.
NEW ENGLAND FUNDS TRUST I
By: PETER S. VOSS*
--------------------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ ROBERT P. CONNOLLY
--------------------------------
Robert P. Connolly
Attorney-In-Fact
22
<PAGE> 107
Registration Nos. 2-98326
811-4323
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PETER S. VOSS* Chairman of the Board; Chief October 1, 1996
- -------------------------------- Executive Officer; Principal
Peter S. Voss Executive Officer; Trustee
/s/ FRANK NESVET
- -------------------------------- Chief Financial Officer October 1, 1996
Frank Nesvet
HENRY L. P. SCHMELZER* Trustee October 1, 1996
- --------------------------------
Henry L. P. Schmelzer
GRAHAM T. ALLISON, JR.* Trustee October 1, 1996
- --------------------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee October 1, 1996
- --------------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee October 1, 1996
- --------------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee October 1, 1996
- --------------------------------
Richard Darman
SANDRA O. MOOSE* Trustee October 1, 1996
- --------------------------------
Sandra O. Moose
JOHN A. SHANE* Trustee October 1, 1996
- --------------------------------
John A. Shane
PENDLETON P. WHITE* Trustee October 1, 1996
- --------------------------------
Pendleton P. White
*By: /s/ ROBERT P. CONNOLLY
-------------------------------
Robert P. Connolly
Attorney-In-Fact
October 1, 1996
</TABLE>
23
<PAGE> 108
Registration Nos. 2-98326
811-4323
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
EX-99.1(d) Form of Amendment No. 10 to Bylaws of the Registrant
EX-99.5(c) Form of Advisory Agreement between the Registrant,
relating to its New England Star Small Cap Fund, and
NEFM
EX-99.5(e) Forms of Subadvisory Agreements, relating to the
Registrant's New England Star Small Cap Fund, between
NEFM and the following subadvisers: Robertson Stephens &
Company Investment Management, L.P., Montgomery, Loomis
Sayles and Harris
EX-99.6(b) Form of Distribution Agreement between the Registrant,
on behalf of its New England Star Small Cap Fund, and
New England Funds, L.P.
EX-99.8(h) and Form of Letter Agreement between the Registrant and
EX-99.9(o) State Street on behalf of New England Star Small Cap
Fund
EX-99.9(k) Sub-Transfer Agency Agreement between TNE Investment
Services Corporation and State Street
EX-99.9(n) Form of Organizational Expense Reimbursement Agreement
between the Registrant, on behalf of its New England
Small Cap Fund and New England Funds, L.P.
EX-99.9(p) Form of Class B Shares Remittance Agreement between the
Registrant and New England Funds, L.P. relating to New
England Star Small Cap Fund
EX-99.15(i) 12b-1 Plan relating to Class A shares of the
Registrant's New England Star Small Cap Fund
EX-99.15(j) 12b-1 Plan relating to Class B shares of the
Registrant's New England Star Small Cap Fund
EX-99.15(k) 12b-1 Plan relating to Class C shares of the
Registrant's New England Star Small Cap Fund
24
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.1(D)
AMENDMENT NO. 10 TO BYLAWS OF THE REGISTRANT
25
<PAGE> 2
NEW ENGLAND FUNDS TRUST I
FORM OF AMENDMENT NO. 10 TO AMENDED AND RESTATED AGREEMENT AND DECLARATION OF
TRUST
The undersigned, being at least a majority of the Trustees of New
England Funds Trust I (the "Trust"), having determined it to be consistent with
the fair and equitable treatment of all shareholders of the Trust, hereby amend
the Trust's Amended and Restated Agreement and Declaration of Trust, as amended
by Amendments Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 thereto (the "Declaration of
Trust"), a copy of which is on file in the office of the Secretary of State of
The Commonwealth of Massachusetts, as follows:
1. The first sentence of Section 6 of Article III of the Declaration of
Trust is hereby amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
to modify the rights and preferences of any Series or class, each of
the following Series shall be, and is hereby established and
designated: (1) New England Government Securities Fund, (2) New England
Growth Fund, (3) New England Balanced Fund, (4) New England Value Fund,
(5) New England Bond Income Fund, (6) New England Municipal Income
Fund, (7) New England International Equity Fund, (8) New England
Capital Growth Fund, (9) New England Star Advisers Fund, (10) New
England Strategic Income Fund, (11) New England Star Worldwide Fund and
(12) New England Star Small Cap Fund; and the following Series shall
be, and are hereby, designated Multi-Class Series: New England
Government Securities Fund, New England Growth Fund, New England
Balanced Fund, New England Value Fund, New England Bond Income Fund,
New England Municipal Income Fund, New England International Equity
Fund, New England Capital Growth Fund, New England Star Advisers Fund,
New England Strategic Income Fund, New England Star Worldwide Fund and
New England Star Small Cap Fund.
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for
our successors and assigns as of the nd day of October, 1996.
- ------------------------------ ------------------------------
Graham T. Allison, Jr. Kenneth J. Cowan
- ------------------------------ ------------------------------
Sandra O. Moose Henry L.P. Schmelzer
- ------------------------------ ------------------------------
Peter S. Voss John A. Shane
- ------------------------------ ------------------------------
Daniel M. Cain Pendleton P. White
------------------------------
Richard Darman
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.5(C)
FORM OF ADVISORY AGREEMENT BETWEEN THE REGISTRANT, RELATING TO ITS NEW ENGLAND
STAR SMALL CAP FUND, AND NEFM
26
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
ADVISORY AGREEMENT
AGREEMENT made this ___ day of December, 1996 by and between NEW
ENGLAND FUNDS TRUST I, a Massachusetts business trust (the "Fund"), with respect
to its New England Star Small Cap Fund series (the "Series"), 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
Series;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Sections
1(b) and (c) hereof. The Manager hereby accepts such employment and
agrees, at its own expense, to furnish such services (either directly
or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth,
for the compensation herein provided. The Manager shall, unless
otherwise expressly provided or authorized, have no authority to act
for or represent the Fund in any way or otherwise be deemed an agent of
the Fund.
(b) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services (and assumption of related expenses) to one or more
other parties (each such party, a "Sub-Adviser"), pursuant in each case
to a written agreement with such Sub-Adviser that meets the
requirements of Section 15 of the Investment Company Act of 1940 and
the rules thereunder (the "1940 Act") applicable to contracts for
service as investment adviser of a registered investment company
(including without limitation the requirements for approval by the
trustees of the Fund and the shareholders of the Series), subject,
however, to such exemptions as may be granted by the Securities and
Exchange Commission. Any Sub-Adviser may (but need not) be affiliated
with the Manager. If different Sub-Advisers are engaged to provide
Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect,
what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
(c) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of
Administrative Services to one or more other parties (each such party,
an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
-1-
<PAGE> 3
2. As used in this Agreement, "Portfolio Management Services"
means management of the investment and reinvestment of the assets belonging to
the Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Series in accordance with the Series' investment objectives and
policies;
(b) taking such steps as are necessary to implement the
investment policies of the Series by purchasing and selling of
securities, including the placing of orders for such purchase and sale;
and
(c) regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of the
Series.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Series (exclusive of those related to and to be
performed under contract for custodial, transfer, dividend and plan
agency services by the entity or entities selected to perform such
services and exclusive of any managerial functions described in Section
4);
(c) compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator; and
(d) supervision and oversight of the Portfolio Management
Services provided by each Sub-Adviser, and oversight of all matters
relating to compliance by the Fund with applicable laws and with the
Series' investment policies, restrictions and guidelines, if the
Manager has delegated to one or more Sub-Advisers any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear,
or to reimburse the Fund for:
(a) any of the costs of printing and mailing the items
referred to in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing
sales literature;
(c) compensation of trustees of the Fund who are not
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
-2-
<PAGE> 4
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the
Fund for custodial, paying agent, shareholder servicing and plan agent
services;
(f) charges and expenses of independent accountants retained
by the Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes
chargeable to the Fund in connection with securities transactions to
which the Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or
other governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of
the Fund, including registering and qualifying its shares with Federal
and State regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the
Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel,
required in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the Fund, and
notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing
and financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser
or Administrator hereunder are not to be deemed exclusive and the Manager and
any Sub-Adviser or Administrator shall be free to render similar services to
others, so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities
furnished and expenses borne by the Manager hereunder, the Fund shall pay the
Manager compensation at the annual rate of 1.05% of the average daily net assets
of the Series (or such lesser amount as the Manager may from time to time agree
to receive). Such compensation shall be payable monthly in arrears or at such
other
-3-
<PAGE> 5
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager. The
Manager hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
8. If the total of all ordinary business expenses of the Fund as
a whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees,
officers, employees and agents of the Fund may be a shareholder, director,
officer, employee or agent of, or be otherwise interested in, the Manager, any
affiliated person of the Manager, any organization in which the Manager may have
an interest or any organization which may have an interest in the Manager; that
the Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement 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 Series, 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 Series;
(c) this Agreement shall automatically terminate in the event
of its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund;
(e) if New England Funds, L.P., the Fund's principal
underwriter, requires the Fund or the Series to change its name 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 Series with said principal underwriter, this Agreement
shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of
the Fund
-4-
<PAGE> 6
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
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "interested person," "affiliated
person" and "assignment" shall have their respective meanings defined in the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under the 1940 Act. References in this
Agreement to any assets, property or liabilities "belonging to" the Series shall
have the meaning defined in the Fund's Agreement and Declaration of Trust as
amended from time to time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST I
on behalf of its New England Star Small Cap Fund series
By: ________________________________
Name:
Title:
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: ________________________________
Name:
Title:
-5-
<PAGE> 7
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I (the "Fund") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's New England Star Advisers Fund series (the
"Series") on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Series.
-6-
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.5(E)
FORMS OF SUBADVISORY AGREEMENTS, RELATING TO THE REGISTRANT'S NEW ENGLAND STAR
SMALL CAP FUND, BETWEEN NEFM AND THE FOLLOWING SUBADVISERS: ROBERTSON
STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P., MONTGOMERY, LOOMIS SAYLES AND
HARRIS
27
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
(ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December , 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Robertson, Stephens & Company
Investment Management, L.P., a California limited partnership (the
"Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December ,1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable
-1-
<PAGE> 3
notice. The Sub-Adviser shall also provide the Manager with such other
information and reports as may reasonably be requested by the Manager
from time to time, including without limitation all material requested
by or required to be delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a
copy of the Series' agreement with the custodian designated to hold the assets
of the Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that
the Sub-Adviser is the sole owner of the name and mark "Robertson, Stephens &
Company Investment Management, L.P." and that all use of any designation
consisting in whole or part of "Robertson, Stephens & Company Investment
Management, L.P." (a "Robertson Stephens Mark") under this Agreement shall inure
to the benefit of the Sub-Adviser. The Manager on its own behalf and on behalf
of the Series agrees not to use any Robertson Stephens Mark in any advertisement
or sales literature or other materials promoting the Series, except with the
prior written consent of the Sub-Adviser. Without the prior written consent of
the Sub-Adviser, the Manager shall not, and the Manager shall use its best
efforts to cause the Series not to, make representations regarding the
Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this
-2-
<PAGE> 4
Agreement for any reason, the Manager shall cease, and the Manager shall use its
best efforts to cause the Series to cease, all use of any Robertson Stephens
Mark(s) as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed
to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be
liable for any organizational, operational or business expenses of the Manager
or the Trust including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase or sale of
securities or other investment instruments with respect to the Series, and (c)
custodian fees and expenses. Any reimbursement of advisory fees required by any
expense limitation provision of any law shall be the sole responsibility of the
Manager. The Manager and the Sub-Adviser shall not be considered as partners or
participants in a joint venture. The Sub-Adviser will pay its own expenses
incurred in furnishing the services to be provided by it pursuant to this
Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be
entitled to any compensation from the Manager or the Trust with respect to
service by any affiliated person of the Sub-Adviser as an officer or trustee of
the Trust (other than the compensation to the Sub-Adviser payable by the Manager
pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.55% of the first $50 million of the average daily net assets of the segment
of the Series that the Sub-Adviser manages and 0.50% of such assets in excess of
$50 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others
-3-
<PAGE> 5
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Series or the
Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act
or other federal securities laws, neither the Sub-Adviser nor any of its
officers, directors, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties. The Manager
shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost,
damage or expense (including reasonable attorneys fees and costs) arising from
any claim or demand by any past or present shareholder of the Series that is not
based upon the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. 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 Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
-4-
<PAGE> 6
12. Certain Definitions. For the purpose of this Agreement, the
terms "vote of a majority of the outstanding voting securities," "interested
person," "affiliated person" and "assignment" shall have their respective
meanings defined in the 1940 Act, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the 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 or 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: __________________________________
Name: ______________________________
Title: _______________________________
ROBERTSON, STEPHENS & COMPANY INVESTMENT
MANAGEMENT, L.P.
By: __________________________________
Name: ______________________________
Title: _______________________________
-5-
<PAGE> 7
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
(MONTGOMERY ASSET MANAGEMENT, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December ,1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Montgomery Asset Management, L.P., a
California limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December , 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
-1-
<PAGE> 8
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a
copy of the Series' agreement with the custodian designated to hold the assets
of the Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that
the Sub-Adviser is the sole owner of the name and mark "Montgomery Asset
Management, L.P." and that all use of any designation consisting in whole or
part of "Montgomery Asset Management, L.P." (a "Montgomery Mark") under this
Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own
behalf and on behalf of the Series agrees not to use any Montgomery Mark in any
advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Montgomery Mark(s) as soon as
reasonably practicable.
-2-
<PAGE> 9
5. Expenses. Except for expenses specifically assumed or agreed
to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be
liable for any organizational, operational or business expenses of the Manager
or the Trust including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase or sale of
securities or other investment instruments with respect to the Series, and (c)
custodian fees and expenses. Any reimbursement of advisory fees required by any
expense limitation provision of any law shall be the sole responsibility of the
Manager. The Manager and the Sub-Adviser shall not be considered as partners or
participants in a joint venture. The Sub-Adviser will pay its own expenses
incurred in furnishing the services to be provided by it pursuant to this
Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be
entitled to any compensation from the Manager or the Trust with respect to
service by any affiliated person of the Sub-Adviser as an officer or trustee of
the Trust (other than the compensation to the Sub-Adviser payable by the Manager
pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.65% of the first $50 million of the average daily net assets of the segment
of the Series that the Sub-Adviser manages and 0.50% of such assets in excess of
$50 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The
-3-
<PAGE> 10
Manager and the Series recognize and agree that the Sub-Adviser may provide
advice to or take action with respect to other clients, which advice or action,
including the timing and nature of such action, may differ from or be identical
to advice given or action taken with respect to the Series. The Sub-Adviser
shall for all purposes hereof be deemed to be an independent contractor and
shall, unless otherwise provided or authorized, have no authority to act for or
represent the Series or the Manager in any way or otherwise be deemed an agent
of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act
or other federal securities laws, neither the Sub-Adviser nor any of its
officers, directors, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties. The Manager
shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost,
damage or expense (including reasonable attorneys fees and costs) arising from
any claim or demand by any past or present shareholder of the Series that is not
based upon the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. 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 Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
-4-
<PAGE> 11
12. Certain Definitions. For the purpose of this Agreement, the
terms "vote of a majority of the outstanding voting securities," "interested
person," "affiliated person" and "assignment" shall have their respective
meanings defined in the 1940 Act, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the 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 or 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: __________________________________
Name: ______________________________
Title: _______________________________
MONTGOMERY ASSET MANAGEMENT, L.P.
By: __________________________________
Name: ______________________________
Title: _______________________________
-5-
<PAGE> 12
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
(LOOMIS, SAYLES & COMPANY, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December ,1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Loomis, Sayles & Company, L.P., a
Delaware limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December , 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
-1-
<PAGE> 13
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a
copy of the Series' agreement with the custodian designated to hold the assets
of the Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that
the Sub-Adviser is the sole owner of the name and mark "Loomis, Sayles &
Company, L.P." and that all use of any designation consisting in whole or part
of "Loomis, Sayles & Company, L.P." (a "Loomis Sayles Mark") under this
Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own
behalf and on behalf of the Series agrees not to use any Loomis Sayles Mark in
any advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Loomis Sayles Mark(s) as soon as
reasonably practicable.
-2-
<PAGE> 14
5. Expenses. Except for expenses specifically assumed or agreed
to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be
liable for any organizational, operational or business expenses of the Manager
or the Trust including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase or sale of
securities or other investment instruments with respect to the Series, and (c)
custodian fees and expenses. Any reimbursement of advisory fees required by any
expense limitation provision of any law shall be the sole responsibility of the
Manager. The Manager and the Sub-Adviser shall not be considered as partners or
participants in a joint venture. The Sub-Adviser will pay its own expenses
incurred in furnishing the services to be provided by it pursuant to this
Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be
entitled to any compensation from the Manager or the Trust with respect to
service by any affiliated person of the Sub-Adviser as an officer or trustee of
the Trust (other than the compensation to the Sub-Adviser payable by the Manager
pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.55% of the first $50 million of the average daily net assets of the segment
of the Series that the Sub-Adviser manages and 0.50% of such assets in excess of
$50 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The
-3-
<PAGE> 15
Manager and the Series recognize and agree that the Sub-Adviser may provide
advice to or take action with respect to other clients, which advice or action,
including the timing and nature of such action, may differ from or be identical
to advice given or action taken with respect to the Series. The Sub-Adviser
shall for all purposes hereof be deemed to be an independent contractor and
shall, unless otherwise provided or authorized, have no authority to act for or
represent the Series or the Manager in any way or otherwise be deemed an agent
of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act
or other federal securities laws, neither the Sub-Adviser nor any of its
officers, directors, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties. The Manager
shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost,
damage or expense (including reasonable attorneys fees and costs) arising from
any claim or demand by any past or present shareholder of the Series that is not
based upon the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. 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 Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
-4-
<PAGE> 16
12. Certain Definitions. For the purpose of this Agreement, the
terms "vote of a majority of the outstanding voting securities," "interested
person," "affiliated person" and "assignment" shall have their respective
meanings defined in the 1940 Act, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the 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 or 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: __________________________________
Name: ______________________________
Title: _______________________________
LOOMIS, SAYLES & COMPANY, L.P.
By: __________________________________
Name: ______________________________
Title: _______________________________
-5-
<PAGE> 17
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
(HARRIS ASSOCIATES, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December , 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Harris Associates, L.P., a Delaware
limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December , 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
-1-
<PAGE> 18
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a
copy of the Series' agreement with the custodian designated to hold the assets
of the Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that
the Sub-Adviser is the sole owner of the name and mark "Harris Associates, L.P.
and "Oakmark"and that all use of any designation consisting in whole or part of
"Harris Associates, Inc."or "Oakmark" (a "Harris/Oakmark Mark") under this
Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own
behalf and on behalf of the Series agrees not to use any Harris/Oakmark Mark in
any advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Harris/Oakmark Mark(s) as soon as
reasonably practicable.
-2-
<PAGE> 19
5. Expenses. Except for expenses specifically assumed or agreed
to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be
liable for any organizational, operational or business expenses of the Manager
or the Trust including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase or sale of
securities or other investment instruments with respect to the Series, and (c)
custodian fees and expenses. Any reimbursement of advisory fees required by any
expense limitation provision of any law shall be the sole responsibility of the
Manager. The Manager and the Sub-Adviser shall not be considered as partners or
participants in a joint venture. The Sub-Adviser will pay its own expenses
incurred in furnishing the services to be provided by it pursuant to this
Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be
entitled to any compensation from the Manager or the Trust with respect to
service by any affiliated person of the Sub-Adviser as an officer or trustee of
the Trust (other than the compensation to the Sub-Adviser payable by the Manager
pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.70% of the average daily net assets of the segment of the Series that the
Sub-Adviser manages. Such compensation shall be payable monthly in arrears or at
such other intervals, not less frequently than quarterly, as the Manager is paid
by the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The
-3-
<PAGE> 20
Manager and the Series recognize and agree that the Sub-Adviser may provide
advice to or take action with respect to other clients, which advice or action,
including the timing and nature of such action, may differ from or be identical
to advice given or action taken with respect to the Series. The Sub-Adviser
shall for all purposes hereof be deemed to be an independent contractor and
shall, unless otherwise provided or authorized, have no authority to act for or
represent the Series or the Manager in any way or otherwise be deemed an agent
of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act
or other federal securities laws, neither the Sub-Adviser nor any of its
officers, directors, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties. The Manager
shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost,
damage or expense (including reasonable attorneys fees and costs) arising from
any claim or demand by any past or present shareholder of the Series that is not
based upon the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. 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 Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
-4-
<PAGE> 21
12. Certain Definitions. For the purpose of this Agreement, the
terms "vote of a majority of the outstanding voting securities," "interested
person," "affiliated person" and "assignment" shall have their respective
meanings defined in the 1940 Act, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the 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 or 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: __________________________________
Name: ______________________________
Title: _______________________________
HARRIS ASSOCIATES, L.P.
By: __________________________________
Name: ______________________________
Title: _______________________________
-5-
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.6(B)
FORM OF DISTRIBUTION AGREEMENT BETWEEN THE REGISTRANT, ON BEHALF OF ITS NEW
ENGLAND STAR SMALL CAP FUND, AND NEW ENGLAND FUNDS, L.P.
28
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
DISTRIBUTION AGREEMENT
AGREEMENT made this ____ day of December, 1996 by and between NEW
ENGLAND FUNDS TRUST I, a Massachusetts business trust (the "Trust"), and NEW
ENGLAND FUNDS, L.P., a Delaware limited partnership (the "Distributor").
W I T N E S S E T H:
WHEREAS, this Agreement has been approved by the Trustees of the Trust
in contemplation of the transfer by the Distributor of its rights to receive the
Class B Distribution Fee (as defined in the Class B Distribution and Service
Plan attached hereto as Exhibit A) and/or contingent deferred sales charges to a
financing party in order to raise funds to cover distribution expenditures;
WHEREAS, the Trustees of the Trust recognize the importance to the
Trust of the Distributor being able to obtain financing with which to pay
commissions on Class B shares at the time of sale;
WHEREAS, the Trustees of the Trust acknowledge that by providing
financing to the Distributor the financing party enables the Distributor to
provide valuable services to the Series (as defined below); and
WHEREAS, the Trustees of the Trust, in the context of considering the
best interests of the Series and its shareholders at the time of and in
preparation for any vote, consent or other action that the Trustees of the Trust
may from time to time take relating to the continued receipt by the Distributor
(and/or the financing party) of the Distribution Fee, intend to consider the
effect on the Distributor and any financing party of any such vote, consent or
action.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the Trust and the Distributor agree as follows:
1. Distributor. The Trust hereby appoints the Distributor as general
distributor of shares of beneficial interest ("Series shares") of the
Trust's NEW ENGLAND STAR SMALL CAP FUND series (the "Series") during
the term of this Agreement. The Trust reserves the right, however, to
refuse at any time or times to sell any Series shares hereunder for any
reason deemed adequate by the Board of Trustees of the Trust.
2. Sale and Payment. Under this agreement, the following provisions shall
apply with respect to the sale of and payment for Series shares:
(a) The Distributor shall have the right, as principal, to
purchase Series shares from the Trust at their net asset value and to
sell such shares to the public against orders therefor at the
applicable public offering price, as defined in Section 4 hereof. The
Distributor shall also have the right, as principal, to sell shares to
dealers against orders therefor at the public offering price less a
concession determined by the Distributor.
(b) Prior to the time of delivery of any shares by the Trust to,
or on the order of, the Distributor, the Distributor shall pay or cause
to be paid to the Trust or to its order an amount in Boston or New York
clearing house funds equal to the applicable net asset value of such
shares. The Distributor shall retain so much of any sales charge or
underwriting discount as is not allowed by it as a concession to
dealers.
3. Fees. For its services as general distributor of the Class B Series
shares, the Trust shall cause the Series to pay to the Distributor (or
its designee or transferee) in addition to the sales charge, if any,
referred to in Section 4 below, the Class B Distribution Fee at the
rate and upon the terms and conditions set forth in the Class B
Distribution and Service Plan attached as Exhibit A hereto, and as
amended from time to time, and the Distributor shall also be entitled
to receive any contingent deferred sales charges that may be payable
upon redemption or repurchase of Class B Series shares. The Class B
Distribution Fee shall
<PAGE> 3
be accrued daily and paid monthly to the Distributor (or, at its
direction, to its designee or transferee) as soon as practicable after
the end of the calendar month in which it accrues, but in any event
within five business days following the last day of the month. So long
as this agreement and the Class B Distribution and Service Plan have
not been terminated in accordance with their respective terms, the
Series' obligation to pay the Class B Distribution Fee to the
Distributor shall be absolute and unconditional and shall not be
subject to any dispute, offset, counterclaim or defense whatsoever (it
being understood that nothing in this sentence shall be deemed a waiver
by the Trust or the Series of its right separately to pursue any claims
it may have against the Distributor and to enforce such claims against
any assets (other than its rights to be paid the Class B Distribution
Fee and to be paid contingent deferred sales charges with respect to
Class B Series shares) of the Distributor).
4. Public Offering Price. The public offering price shall be the net asset
value of Series shares, plus any applicable sales charge, all as set
forth in the current prospectus and statement of additional information
("prospectus") of the Trust relating to the Series shares. In no event
shall the public offering price exceed 1000/935 of such net asset
value, and in no event shall any applicable sales charge or
underwriting discount exceed 6.5% of the public offering price. The net
asset value of Series shares shall be determined in accordance with the
provisions of the agreement and declaration of trust and by-laws of the
Trust and the current prospectus of the Trust relating to the Series
shares.
5. Trust Issuance of Series Shares. The delivery of Series shares shall be
made promptly by a credit to a shareholder's open account for the
Series or by delivery of a share certificate. The Trust reserves the
right (a) to issue Series shares at any time directly to the
shareholders of the Series as a stock dividend or stock split, (b) to
issue to such shareholders shares of the Series, or rights to subscribe
to shares of the Series, as all or part of any dividend that may be
distributed to shareholders of the Series or as all or part of any
optional or alternative dividend that may be distributed to
shareholders of the Series, and (c) to sell Series shares in accordance
with the current applicable prospectus of the Trust relating to the
Series shares.
6. Redemption or Repurchase. The Distributor shall act as agent for the
Trust in connection with the redemption or repurchase of Series shares
by the Trust to the extent and upon the terms and conditions set forth
in the current applicable prospectus of the Trust relating to the
Series shares, and the Trust agrees to reimburse the Distributor, from
time to time upon demand, for any reasonable expenses incurred in
connection with such redemptions or repurchases. The Trust will remit
to the Distributor any contingent deferred sales charges imposed on
redemptions or repurchases of Series shares (other than Class B shares)
upon the terms and conditions set forth in the then current prospectus
of the Trust. The Trust will also remit to the Distributor (or its
designee or transferee), in addition to the Class B Distribution Fee,
any contingent deferred sales charges imposed on redemptions or
repurchases of Class B shares, in accordance with the Remittance
Agreement attached hereto as Exhibit B.
7. Undertaking Regarding Sales. The Distributor shall use reasonable
efforts to sell Series shares but does not agree hereby to sell any
specific number of Series shares and shall be free to act as
distributor of the shares of other investment companies. Series shares
will be sold by the Distributor only against orders therefor. The
Distributor shall not purchase Series shares from anyone except in
accordance with Sections 2 and 6 and shall not take "long" or "short"
positions in Series shares contrary to the agreement and declaration of
trust or by-laws of the Trust.
8. Compliance. The Distributor shall conform to the Rules of Fair Practice
of the NASD and the sale of securities laws of any jurisdiction in
which it sells, directly or indirectly, any Series shares. The
Distributor agrees to make timely filings, with the Securities and
Exchange Commission in Washington, D.C. (the "SEC"), the NASD and such
other regulatory authorities as may be required, of any sales
literature relating to the Series and intended for distribution to
prospective investors. The Distributor also agrees to furnish to the
Trust sufficient copies of any agreements or plans it intends to use in
connection with any sales of Series shares in adequate time for the
Trust to file and clear them with the proper authorities before they
are put in use (which the Trust agrees to use its best efforts to do as
expeditiously as reasonably possible), and not to use them until so
filed and cleared.
-2-
<PAGE> 4
9. Registration and Qualification of Series Shares. The Trust agrees to
execute such papers and to do such acts and things as shall from time
to time be reasonably requested by the Distributor for the purpose of
qualifying and maintaining qualification of the Series shares for sale
under the so-called Blue Sky Laws of any state or for maintaining the
registration of the Trust and of the Series shares under the federal
Securities Act of 1933 and the federal Investment Company Act of 1940
(the "1940 Act"), to the end that there will be available for sale from
time to time such number of Series shares as the Distributor may
reasonably be expected to sell. The Trust shall advise the Distributor
promptly of (a) any action of the SEC or any authorities of any state
or territory, of which it may be advised, affecting registration or
qualification of the Trust or the Series shares, or rights to offer
Series shares for sale, and (b) the happening of any event which makes
untrue any statement or which requires the making of any change in the
Trust's registration statement or its prospectus relating to the Series
shares in order to make the statements therein not misleading.
10. Distributor Independent Contractor. The Distributor shall be an
independent contractor and neither the Distributor nor any of its
officers or employees as such is or shall be an employee of the Trust.
The Distributor is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to such
agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
thereunder.
11. Expenses Paid by Distributor. While the Distributor continues to act as
agent of the Trust to obtain subscriptions for and to sell Series
shares, the Distributor shall pay the following:
(a) all expenses of printing (exclusive of typesetting) and
distributing any prospectus for use in offering Series shares for sale,
and all other copies of any such prospectus used by the Distributor,
and
(b) all other expenses of advertising and of preparing, printing
and distributing all other literature or material for use in connection
with offering Series shares for sale.
12. Interests in and of Distributor. It is understood that any of the
shareholders, trustees, officers, employees and agents of the Trust may
be a shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an
interest or any organization which may have an interest in the
Distributor; that the Distributor, any such affiliated person or any
such organization may have an interest in the Trust; and that the
existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in
the agreement and declaration of trust or by-laws of the Trust, in the
limited partnership agreement of the Distributor or by specific
provision of applicable law.
13. Words "New England" and Letters "TNE". The Distributor and/or its
parent organization and New England Investment Companies, L.P.
("NEIC"), retain proprietary rights in the words "New England" and the
letters "TNE", which may be used by the Trust and the Series only with
the consent of the Distributor, which is authorized by NEIC to give
such consent as provided herein. The Distributor consents to the use by
the Series of the name "New England Star Small Cap Fund" or any other
name embodying the words "New England" or the letters "TNE", in such
forms as the Distributor shall in writing approve, but only on
condition and so long as (i) this Agreement shall remain in full force
and (ii) the Trust shall fully perform, fulfill and comply with all
provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it. No such name shall be used by the
Trust or the Series at any time or in any place or for any purposes or
under any conditions except as in this section provided. The foregoing
authorization by the Distributor as agent of NEIC to the Trust and the
Series to use said words or letters as part of a business or name is
not exclusive of the right of the Distributor itself to use, or to
authorize others to use, the same; the Trust acknowledges and agrees
that as between the Distributor and the Trust and the Series, the
Distributor has the exclusive right so to use, or authorize others to
use, said words and letters, and the Trust agrees to take such action
as may reasonably be requested by the Distributor to give full effect
to the provisions of this section (including, without limitation,
consenting to such use of said words or letters). Without limiting the
generality of the foregoing, the Trust agrees that, upon any
termination of this Agreement by either party or upon the
-3-
<PAGE> 5
violation of any of its provisions by the Trust, the Trust will, at the
request of the Distributor made within six months after the Distributor
has knowledge of such termination or violation, use its best efforts to
change the name of the Trust and the Series so as to eliminate all
reference, if any, to the words "New England" or the letters "TNE" and
will not thereafter transact any business in a name containing the
words "New England" or the letters "TNE" in any form or combination
whatsoever, or designate itself as the same entity as or successor to
any entity of such name, or otherwise use the words "New England" or
the letters "TNE" or any other reference to the Distributor. Such
covenants on the part of the Trust and the Series shall be binding upon
it, its trustees, officers, shareholders, creditors and all other
persons claiming under or through it.
14. 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 with respect to the shares of the Series so
long as such continuation is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by the
vote of a majority of the votes which may be cast by
shareholders of the Series and (ii) by a vote of a majority of
the Board of Trustees of the Trust who are not interested
persons of the Distributor or the Trust, 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' notice to the Distributor either by vote of a majority
of the Trust's Board of Trustees then in office or by the vote
of a majority of the votes which may be cast by shareholders
of the Series.
(c) This Agreement shall automatically terminate in the
event of its assignment (excluding for this purpose any
assignment of rights to payment described in the recitals and
in Section 19 of the Agreement which are hereby ratified and
approved).
(d) This Agreement may be terminated by the Distributor
on ninety days' written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment
of any penalty.
15. Definitions. For purposes of this Agreement, the following definitions
shall apply:
(a) The "vote of a majority of the votes which may be
cast by shareholders of the Series" means (1) 67% or more of
the votes of the Series present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more than
50% of the outstanding shares of the Series entitled to vote
at such meeting are present; or (2) the vote of the holders of
more than 50% of the outstanding shares of the Series entitled
to vote at such meeting, whichever is less.
(b) The terms "affiliated person," "interested person"
and "assignment" shall have their respective meanings as
defined in the 1940 Act subject, however, to such exemptions
as may be granted by the SEC under the 1940 Act.
16. Amendment. This Agreement may be amended at any time by mutual consent
of the parties, provided that such consent on the part of the Series
shall be approved (i) by the Board of Trustees of the Trust or by vote
of a majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of Trustees of the
Trust who are not interested persons of the Distributor or the Trust
cast in person at a meeting called for the purpose of voting on such
approval.
17. Applicable Law and Liabilities. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts. All sales hereunder are to be made, and title to the
Series shares shall pass, in Boston, Massachusetts.
18. Limited Recourse. The Distributor hereby acknowledges that the Trust's
obligations hereunder with respect to the shares of the Series are
binding only on the assets and property belonging to the Series.
-4-
<PAGE> 6
19. Payments to Distributor's Transferees. The Distributor may transfer its
rights to payments hereunder with respect to Class B shares (but not
its obligations hereunder) in order to raise funds to cover
distribution expenditures, and any such transfer shall be effective
upon written notice from the Distributor to the Trust. In connection
with the foregoing, the Series is authorized to pay all or a part of
the Distribution Fee and/or contingent deferred sales charges in
respect of Class B shares directly to such transferee as directed by
the Distributor.
20. Liquidation etc. As long as the Class B Distribution and Service Plan
is in effect, the Series shall not change the manner in which the
Distribution Fee is computed (except as may be required by a change in
applicable law after the date hereof) or adopt a plan of liquidation
without the consent of the Distributor (or any designee or transferee
of the Distributor's rights to receive payment hereunder in respect of
Class B shares) except in circumstances where a surviving entity or
transferee of the Series' assets adopts the Class B Distribution and
Service Plan and assumes the obligations of the Series to make payments
to the Distributor (or its transferee) hereunder in respect of Class B
shares.
21. "Distributor's Shares" etc. The Trust, on behalf of the Series, agrees
that it will not pay any portion of the Class B Distribution Fee which
is calculated by reference to the "Distributor's Shares" (nor shall it
pay a Distribution Fee calculated by reference to Class B shares
("Other Class B Shares") other than the Distributor's Shares at a rate
exceeding .75% per annum of the net assets attributable to Other Class
B Shares) to any person other than the Distributor (or its designee or
transferee) without the written consent of the Distributor.
"Distributor's Shares" shall mean (i) Class B shares of the Series that
were sold by the Distributor, plus (ii) Class B shares of the Series
issued in connection with the exchange, for Class B shares of the
Series, of Class B shares of another fund in the New England fund group
that were sold by the Distributor, plus (iii) Class B shares of the
Series issued in connection with the exchange, for Class B shares of
the Series, of Class B shares of another fund in the New England fund
group issued in respect of the automatic reinvestment of dividends or
capital gain distributions in respect of Class B shares of such other
fund that were sold by the Distributor, plus (iv) Class B shares of the
Series issued in respect of the automatic reinvestment of dividends or
capital gain distributions in respect of Class B shares of the Series
described in clauses (i), (ii) and (iii). To the extent permitted under
the 1940 Act, the terms of this Section 21 shall survive the
termination of this Agreement.
22. Limitation on Reduction of Class B Distribution Fee. The Trust, on
behalf of the Series, agrees that it will not reduce the Distribution
Fee in respect of Series' assets attributable to Class B shares below
the annual rate of 0.75% unless it has ceased (and not resumed) paying
all "service fees" (within the meaning of Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
or any successor provision thereto) to the Distributor, to any
affiliate of the Distributor and to any other person in circumstances
where substantially all of the services and functions relating to the
distribution of Class B Series shares have been delegated to, or are
being performed by, the Distributor or an affiliate of the Distributor.
To the extent permitted under the 1940 Act, the terms of this Section
22 shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
<TABLE>
<S> <C>
NEW ENGLAND FUNDS TRUST I, NEW ENGLAND FUNDS, L.P.
on behalf of its New England Star Small Cap series
By: NEF Corporation, its general partner
By: ________________________________
Name: By: ________________________________
Title: Name:
Title:
</TABLE>
-5-
<PAGE> 7
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I (the "Trust") 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 Trust's New England Star Small Cap Fund series (the
"Series") on behalf of the Trust by officers of the Trust 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 of the Trust
individually but are binding only upon the assets and property of the Series.
-6-
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.8(H) AND EX-99.9(O)
FORM OF LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET ON BEHALF OF
NEW ENGLAND STAR SMALL CAP FUND
29
<PAGE> 2
December , 1996
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Star Small Cap Fund
Gentlemen:
This is to advise you that New England Funds Trust I (the "Trust" and
formerly The New England Funds) has established a new series of shares, New
England Star Small Cap Fund. In accordance with the Additional Funds provisions
in Section 17 of the Custodian Contract dated April 12, 1988 as amended
September 12, 1991 between the Trust and State Street Bank and Trust Company and
the provisions of Section 1.01 of the Sub-Transfer and Service Agreement between
New England Funds, L.P. and State Street Bank, the Trust and New England Funds,
L.P. hereby requests that you act as Custodian and Sub-Transfer Agent for the
new series under the terms of the respective contracts. A revised Exhibit A to
the Custodian Contract and to the Sub-Transfer and Service Agreement are
attached to this letter.
By: __________________________________
Henry L.P. Schmelzer
President
New England Funds Trust I
New England Funds, L.P.
Agreed to this ___ day of December, 1996.
State Street Bank and Trust Company
By: __________________________________
Vice President
<PAGE> 1
EX-99.9(K)
SUB-TRANSFER AGENCY AGREEMENT BETWEEN TNE INVESTMENT SERVICES CORPORATION
AND STATE STREET
30
<PAGE> 2
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
between
TNE INVESTMENT SERVICES CORPORATION
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1 Terms of Appointment;Duties of the Bank................. 2
Article 2 Fees and Expenses....................................... 6
Article 3 Representations and Warranties of the Bank.............. 7
Article 4 Representations and Warranties of the Transfer
Agent................................................... 8
Article 5 Data Access and Proprietary Information................. 9
Article 6 Indemnification......................................... 11
Article 7 Standard of Care........................................ 14
Article 8 Covenants of the Fund and the Transfer Agent............ 14
Article 9 Termination of Agreement................................ 16
Article 10 Assignment.............................................. 16
Article 11 Amendment............................................... 17
Article 12 Massachusetts Law to Apply.............................. 17
Article 13 Force Majeure........................................... 17
Article 14 Consequential Damages................................... 18
Article 15 Merger of Agreement..................................... 18
Article 16 Counterparts............................................ 18
</TABLE>
2
<PAGE> 4
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of September, 1993, by and between TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation, having its
principal office and place of business at 399 Boylston Street, Boston,
Massachusetts 02116 (the "Transfer Agent"), and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Transfer Agent has been appointed by each of the
investment companies (including each series thereof) listed on Schedule A (the
"Fund(s)"), each an open-end management investment company registered under the
Investment Company Act of 1940, as amended, as transfer agent, dividend
disbursing agent and shareholder servicing agent in connection with certain
activities, and the Transfer Agent has accepted each such appointment;
WHEREAS, the Transfer Agent has entered into a Shareholder Servicing
and Transfer Agent Agreement with each of the Funds (including each series
thereof) listed on Schedule A pursuant to which the Transfer Agent is
responsible for certain transfer agency and dividend disbursing functions and
the Transfer Agent is authorized to subcontract for the performance of its
obligations and duties thereunder in whole or in part with the Bank;
3
<PAGE> 5
WHEREAS, the Transfer Agent is desirous of having the Bank perform
certain shareholder accounting, administrative and servicing functions
(collectively "Shareholder and Record-Keeping Services");
WHEREAS, the Transfer Agent desires to appoint the Bank as its agent,
and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Transfer Agent hereby employs and appoints the Bank to act as,
and the Bank agrees to act as, the agent of the Transfer Agent for the Shares of
each of the Funds in connection with any accumulation, open-account, retirement
plan or similar plan provided to the shareholders of each Fund ("Shareholders")
and set out in the currently effective prospectus and statement of additional
information ("Prospectus") of each such Fund, including without limitation any
periodic investment plan or periodic withdrawal program. As used herein, the
term "Shares" means the authorized and issued shares of common stock, or shares
of beneficial interest, as the case may be, for each of the Funds (including
each class thereof) enumerated in Schedule A hereto (as the same may from time
to time be amended to add one or more Funds or to delete one or more Funds).
1.02 The Bank agrees that it will perform the following
Shareholder and Record-Keeping services:
4
<PAGE> 6
(a) In accordance with procedures established from time to time
by agreement between the Transfer Agent and the Bank, the Bank shall:
(i) Receive for acceptance, order for the purchase of Shares,
and promptly deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Articles of Incorporation or
Declaration of Trust of each Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with the Funds' principal
underwriter (the "Distributor") or with broker- dealers authorized by the
Distributor who shall thereby be deemed to be acting on behalf of the Funds;
(v) At the appropriate time as and when it receives
5
<PAGE> 7
monies paid to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders, and calculate the amount of and pay over or cause to be
paid over to the Distributor any applicable contingent deferred sales charges;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by each Fund;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and protecting the Bank and each Fund,
and the Bank, at its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise each Fund and
its Shareholders as to the foregoing; and
(x) Record the issuance of shares of each Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record
6
<PAGE> 8
of the total number of shares of each Fund which are authorized, based upon data
provided to it by each Fund, and issued and outstanding. The Bank shall also
provide each Fund on a regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no obligation, when
recording the issuance of shares, to monitor the issuance of such shares or to
take cognizance of any laws relating to the issue or sale of such shares, which
functions shall be the sole responsibility of the Distributor.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall: (i) perform
the customary services of a transfer agent, dividend disbursing agent, custodian
of certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing and tabulating
7
<PAGE> 9
proxies, mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts, preparing
and filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder account information and
(ii) provide a system which will enable each Fund to monitor the total number of
Shares sold in each State.
(c) In addition, each Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Bank for each Fund's blue sky
State registration
8
<PAGE> 10
status is solely limited to the initial establishment of
transactions subject to blue sky compliance by each Fund and
the reporting of such transactions to each Fund as provided
above.
(d) Procedures as to who shall provide certain of these services
in Article 1 may be established from time to time by
agreement between the Transfer Agent and the Bank per the
attached service responsibility schedule. The Bank may at
times perform only a portion of these services and the
Transfer Agent, the Funds or their agent may perform these
services on each Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Transfer Agent (i.e., escheatment services) which may be
agreed upon in writing between the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement,
the Transfer Agent agrees to pay the Bank an annual maintenance fee for each
Shareholder account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Transfer Agent and the Bank.
9
<PAGE> 11
2.02 In addition to the fee paid under Section 2.01 above, the
Transfer Agent agrees to reimburse the Bank for out-of-pocket expenses,
including but not limited to confirmation production, postage, forms, telephone,
microfilm, microfiche, tabulating proxies, records storage, or advances incurred
by the Bank for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or with the
consent of the Transfer Agent will be reimbursed by the Transfer Agent.
2.03 The Transfer Agent agrees to pay all fees and reimbursable
expenses within five days following the receipt of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all shareholder accounts shall be advanced to the Bank by the
Transfer Agent at least seven (7) days prior to the mailing date of such
materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Transfer Agent that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
10
<PAGE> 12
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.06 It has and will at all times maintain in effect insurance
coverage, including, without limitation, errors and omissions, fidelity bond and
electronic data processing coverage at levels of coverage consistent with those
customarily maintained by other high quality servicing agents for registered
investment companies.
Article 4 Representations and Warranties of the Transfer Agent
The Transfer Agent represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
11
<PAGE> 13
4.04 Each Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933,
as amended, for each Fund is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of each Fund being offered for sale.
Article 5 Data Access and Proprietary Information
5.01 The Transfer Agent acknowledges that the data bases,
computer programs, screen formats, report formats, interactive design
techniques, and documentation manuals furnished to the Transfer Agent by the
Bank as part of the Fund's ability to access certain Fund-related data
("Customer Data") maintained by the Bank on data bases under the control and
ownership of the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"Proprietary Information") of substantial value to the Bank or other third
party. In no event shall Proprietary Information be deemed Customer Data. The
Transfer Agent agrees to treat all Proprietary Information as proprietary to the
Bank and further agrees that it shall not divulge any Proprietary Information to
any person or organization except as may be provided hereunder. Without limiting
the foregoing, the Transfer Agent agrees for itself and its employees and
agents:
12
<PAGE> 14
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to - any
portion of the Proprietary Information, and if such access
is inadvertently obtained, to inform the Bank in a timely
manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any other
computer facility or other location, except with the prior
written consent of the Bank;
(e) that the Transfer Agent shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal
copyright law and under other federal or state law.
13
<PAGE> 15
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.02 If the Transfer Agent notifies the Bank that any of the Data
Access Services do not operate in material compliance with the most recently
issued user documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for the
contents of such data and the Transfer Agent agrees to make no claim against the
Bank arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS
AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS
IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Transfer Agent include
the ability to originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information then in such event the Bank shall be entitled
to rely on the validity and
14
<PAGE> 16
authenticity of such instruction without undertaking any further inquiry as long
as such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Transfer
Agent shall indemnify and hold the Bank harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Transfer Agent's lack of good faith, negligence or
willful misconduct which arise out of the breach of any representation or
warranty of the Transfer Agent hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Transfer Agent or each Fund or any
other person or firm on behalf of the Transfer Agent or each Fund including but
not limited to any previous transfer agent or registrar (other than the Bank).
(d) The carrying out by the Bank or its agents or
15
<PAGE> 17
subcontractors of any instructions or requests of the Transfer Agent or each
Fund, provided that such instructions or requests are undertaken in conformity
with security procedures established by the Bank from time to time.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or by any state with respect to the offer or sale of such Shares in such
state.
6.02 At any time the Bank may apply to any officer of the
Transfer Agent for instructions, and may consult with legal counsel with respect
to any matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or subcontractors shall
not be liable and shall be indemnified by the Transfer Agent for any action
taken or omitted by it in reliance upon such instructions or upon the opinion of
such counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Transfer Agent or each Fund, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT
16
<PAGE> 18
data entry or other similar means authorized by the Transfer Agent and
reasonably believed to be genuine, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from
the Transfer Agent. The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
each Fund, and the proper countersignature of the Transfer Agent or any former
transfer agent or former registrar, or of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which the Transfer
Agent may be required to indemnify the Bank, the Bank shall promptly notify the
Transfer Agent of such assertion, and shall keep the Transfer Agent advised with
respect to all developments concerning such claim. The Transfer Agent shall have
the option to participate with the Bank in the defense of such claim or to
defend against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in which
the Transfer Agent may be required to indemnify the Bank except with the
Transfer Agent's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
17
<PAGE> 19
responsibility and shall not be liable for loss or damage due to errors unless
said errors are caused by its negligence, bad faith, or willful misconduct or
that of its employees.
Article 8 Covenants of the Transfer Agent and the Bank
8.01 The Transfer Agent shall promptly furnish to the Bank the
following:
(a) A certified copy of the resolution of the Board of Directors
of the Transfer Agent authorizing the appointment of the Bank and the execution
and delivery of this Agreement.
8.02 The Bank hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Transfer Agent for safekeeping of
stock certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of each Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to each Fund on and in accordance with its request.
18
<PAGE> 20
8.04 The Bank and the Transfer Agent agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of any of the Funds, the Bank will endeavor to notify the
Transfer Agent and to secure instructions from an authorized officer of the
Transfer Agent as to such inspection. The Bank reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other. Notwithstanding the
foregoing, this Agreement shall terminate concurrently with the termination of
the Shareholder Servicing and Transfer Agent Agreement in effect between the
Transfer Agent and the Funds.
9.02 Should the Transfer Agent exercise its right to terminate,
all out-of-pocket expenses associated with the movement of
19
<PAGE> 21
records and material will be borne by the Transfer Agent. Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated with
such termination.
Article 10 Assignment
10.01 Except as provided in Section 10.03 and 10.04 below,
neither this Agreement nor any rights or obligations hereunder may be assigned
by either party without the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
10.03 The Bank may, without further consent on the part of the
Transfer Agent, subcontract for the performance hereof with (i) Boston Financial
Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary
duly registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully responsible
to the Transfer Agent for the acts and omissions of any subcontractor as it is
for its own acts and omissions.
10.04 The Transfer Agent may, without further consent on the part
of the Bank, and upon written notice to the Bank assign this Agreement to any
other entity that (i) is then under common
20
<PAGE> 22
control with the Transfer Agent, (ii) is acting or has been appointed to act as
Transfer Agent for the Funds and (iii) is duly registered as a Transfer Agent
pursuant to Section 17A(c)(1).
Article 11 Amendment
11.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Transfer Agent.
Article 12 Massachusetts Law to Apply
12.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 13 Force Majeure
13.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
Article 14 Consequential Damages
14.01 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
21
<PAGE> 23
Article 15 Merger of Agreement
15.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 16 Counterparts
16.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
22
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
THE INVESTMENT SERVICES CORPORATION
BY: /s/BRUCE R. SPECA
--------------------------------
ATTEST:
- ----------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ RONALD E. LOGUE
--------------------------------
Executive Vice President
ATTEST:
/s/D. HUFNAGLE
- ----------------------------
23
<PAGE> 25
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C> <C>
1. Receives orders for the purchase X Add-ons X New
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X X
4. Effect transactions 1-3 above
directly with broker-dealers. X X
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. OTI
13. Mail Shareholder reports. X
14. Mail prospectuses to current
Shareholders. X
15. Withhold taxes on U.S. resident
and non-resident alien accounts. X
16. Prepare and file U.S. Treasury X
Department forms.
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C> <C>
17. Prepare and mail account and
confirmation statements for
Shareholders. X
18. Provide Shareholder account
information. X
19. Blue sky reporting. X
</TABLE>
* Such services are more fully described in Article 1.02 (a), (b) and
(c) of the Agreement.
TNE INVESTMENT SERVICES CORPORATION
BY: /s/BRUCE R. SPECA
--------------------------------
ATTEST:
- ----------------------------
STATE STREET BANK AND TRUST COMPANY
BY: /s/ RONALD E. LOGUE
--------------------------------
Executive Vice President
ATTEST:
/s/D. HUFNAGLE
- --------------
25
<PAGE> 1
EX-99.9(N)
FORM OF ORGANIZATIONAL EXPENSE REIMBURSEMENT AGREEMENT BETWEEN THE REGISTRANT,
ON BEHALF OF ITS NEW ENGLAND SMALL CAP FUND AND NEW ENGLAND FUNDS, L.P.
31
<PAGE> 2
FORM OF ORGANIZATIONAL EXPENSE
REIMBURSEMENT AGREEMENT
This Agreement, made this as of the ___ day of _______, ____, by and
between New England Funds Trust I, a Massachusetts business trust (the "Trust"),
on behalf of its New England Star Small Cap Fund (the "Series") and New England
Funds, L.P. (the "Distributor").
WITNESSETH
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 and was and is in the process
of organizing the Series;
WHEREAS, there have been and will be certain organizational expenses
incurred as a part of such organization, which are properly expenses of the
Series, that have been and will in the future be paid by the Distributor by
reason of the fact that the Series was not or will not be capitalized when such
expenses otherwise became or become due and payable;
WHEREAS, such organizational expenses include expenses necessary to
organize and establish the Series as separate series of the Trust and to create
the necessary relationships and legal qualifications to enable them to commence
business and operations, including, but not by way of limitation, such expenses
as outside legal counsel's fees, fees and taxes imposed by The Commonwealth of
Massachusetts on Massachusetts business trusts, independent public accountant
fees and state blue sky filing and registration fees (such expenses being
hereinafter referred to as "Organization Expenses"):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Upon the issuance and sale of shares of beneficial interest of the
Series to the public, the Series shall reimburse and pay to the Distributor up
to $250,000 of the amounts expended by the Distributor for Organization Expenses
for the Series.
2. Such reimbursement shall be paid by the Series to the Distributor
upon demand, without interest, and in no event later than five years from the
commencement of operations of the Series. Upon demand for payment, the
Distributor shall present copies of invoices or receipts, and copies of
cancelled checks or other evidence of payment by the Distributor, of the
Organization Expenses for which it is demanding reimbursement.
New England Funds Trust I, New England Funds, L.P.
on behalf of its
New England Star Small Cap Fund
- ---------------------------- ---------------------------
Henry L. P. Schmelzer Bruce R. Speca
President Executive Vice President
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.8(H) AND EX-99.9(O)
FORM OF LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET ON BEHALF OF
NEW ENGLAND STAR SMALL CAP FUND
29
<PAGE> 2
December , 1996
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Star Small Cap Fund
Gentlemen:
This is to advise you that New England Funds Trust I (the "Trust" and
formerly The New England Funds) has established a new series of shares, New
England Star Small Cap Fund. In accordance with the Additional Funds provisions
in Section 17 of the Custodian Contract dated April 12, 1988 as amended
September 12, 1991 between the Trust and State Street Bank and Trust Company and
the provisions of Section 1.01 of the Sub-Transfer and Service Agreement between
New England Funds, L.P. and State Street Bank, the Trust and New England Funds,
L.P. hereby requests that you act as Custodian and Sub-Transfer Agent for the
new series under the terms of the respective contracts. A revised Exhibit A to
the Custodian Contract and to the Sub-Transfer and Service Agreement are
attached to this letter.
By: __________________________________
Henry L.P. Schmelzer
President
New England Funds Trust I
New England Funds, L.P.
Agreed to this ___ day of December, 1996.
State Street Bank and Trust Company
By: __________________________________
Vice President
<PAGE> 1
EX-99.9(P)
FORM OF CLASS B SHARES REMITTANCE AGREEMENT BETWEEN THE REGISTRANT AND
NEW ENGLAND FUNDS, L.P. RELATING TO NEW ENGLAND STAR SMALL CAP FUND
32
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
FORM OF CLASS B SHARES REMITTANCE AGREEMENT
Agreement made this 29th day of December, 1996 by and between NEW
ENGLAND FUNDS TRUST I, a Massachusetts business trust (the "Trust"), and NEW
ENGLAND FUNDS, L.P., a Delaware limited partnership (the "Distributor"). Terms
used in the Distribution Agreement (the "Distribution Agreement") dated August
30, 1996 between the Trust and the Distributor relating to the Trust's NEW
ENGLAND STAR SMALL CAP FUND (the "Series") and not defined herein are used with
the meanings so defined.
WHEREAS, contingent deferred sales charges ("CDSCs") apply to certain
redemptions or repurchases of Class B shares of the Series; and
WHEREAS, the Trust acknowledges that the CDSCs relating to the
Distributor's shares are the property of the Distributor and not of the Trust;
NOW, THEREFORE, in consideration of the Distributor's agreement to act
as agent for the Trust in connection with the redemption or repurchase of Series
shares by the Trust, the Trust and the Distributor agree as follows:
1. On all redemptions or repurchases of the Distributor's Shares that
are effected by the Distributor as agent for the Trust, the Distributor shall be
entitled to retain the amount of the applicable CDSC out of the proceeds of the
redemption or repurchase, and shall remit to the relevant shareholder the amount
of such redemption or repurchase net of such CDSCs.
2. On all redemptions or repurchases of the Distributor's Shares that
are effected by the Trust directly or through an agent other than the
Distributor, the Trust shall remit to the Distributor any applicable CDSCs in
accordance with the terms and conditions set forth in the then current
prospectus of the Trust.
3. The Distributor shall be entitled to receive all applicable CDSCs in
respect of the redemption or repurchase of the Distributor's Shares,
notwithstanding the Distributor's termination as general distributor of the
Class B shares of the Series or any termination of this Agreement or the
Distribution Agreement.
4. The right of the Distributor under Section 1 hereof to retain CDSCs
and the obligation of the Series under Section 2 hereof to remit CDSCs to the
Distributor shall not be subject to any dispute, offset, counterclaim or defense
whatsoever (it being understood that nothing in this sentence shall be deemed a
waiver by the Trust or the Series of its right separately to pursue any claims
it may have against the Distributor and to enforce such claims against any
assets of the Distributor (other than its right to be paid the CDSCs with
respect to the Distributor's Shares).
5. The Distributor may assign or transfer its rights to receive CDSCs
hereunder, but shall give prompt written notice to the Trust of any such
assignment or transfer.
6. The Trust shall not waive any CDSCs applicable to redemptions or
repurchases of the Distributor's Shares (other than under the circumstances set
forth in the Fund's prospectus dated December __, 1996), except with the consent
of the Distributor (or, if the Distributor has assigned or transferred its
rights to receive CDSCs as provided in Section 5 hereof, with the consent of the
assignee or transferee) and shall not take any action, following the termination
of the Distribution Agreement, that would interfere with the Distributor's right
to receive the applicable CDSCs on redemptions or repurchases of the
Distributor's Shares.
-1-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST I Series,
on behalf of its New England Star Small Cap Fund series
By: ___________________________________________________
Name: Frank Nesvet
Title: Treasurer
NEW ENGLAND FUNDS, L.P.
By: NEF Corporation, its general partner
By: __________________________________________________
Name: Bruce R. Speca
Title: Executive Vice President
-2-
<PAGE> 4
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I (the "Trust") 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 Trust's New England Star Small Cap Fund series (the
"Series") on behalf of the Trust by officers of the Trust 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 of the Trust
individually but are binding only upon the assets and property of the Series.
-3-
<PAGE> 1
EX-99.15(I)
12B-1 PLAN RELATING TO CLASS A SHARES OF THE REGISTRANT'S NEW ENGLAND STAR
SMALL CAP FUND
33
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
CLASS A SERVICE PLAN
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND STAR SMALL CAP FUND (the "Series"), a series of
New England Funds Trust I, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to NEW ENGLAND
FUNDS, L.P., a Delaware limited partnership which acts as the Principal
Distributor of the Series' shares, or such other entity as shall from time to
time act as the Principal Distributor of the Series' shares (the "Distributor"),
a fee (the "Service Fee") for expenses borne by the Distributor in connection
with the provision of personal services provided to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, at an annual rate
not to exceed .25% of the Series' average daily net assets attributable to the
Class A shares. Subject to such limit and subject to the provisions of Section 7
hereof, the Service Fee shall be as approved from time to time by (a) the
Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service
Fee shall be accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. All payments under this Service Plan are intended to
qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. (or any successor
provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall not take effect until it has been approved
by votes of the majority of both (a) the Trustees of the Trust, and (b) the
Independent Trustees of the Trust, in each case cast in person at a meeting
called for the purpose of voting on this Plan, and by vote of a majority of the
outstanding Class A shares of this Series, and shall in no event take effect
before December __, 1996. This Plan shall continue in effect for a period of
more than one year after December __, 1996 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
-1-
<PAGE> 3
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding Class A
shares of the Series, on not more than 60 days' written notice to
any other party to the agreement; and
B. That such agreement shall terminate automatically in the event
of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
-2-
<PAGE> 1
EX-99.15(J)
12B-1 PLAN RELATING TO CLASS B SHARES OF THE REGISTRANT'S NEW ENGLAND STAR
SMALL CAP FUND
34
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
CLASS B DISTRIBUTION AND SERVICE PLAN
This Plan (the "Plan") as amended and restated on December 29, 1996
constitutes the Distribution and Service Plan relating to the Class B shares of
NEW ENGLAND STAR SMALL CAP FUND (the "Series"), a series of New England Funds
Trust I, a Massachusetts business trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P. ("NEF"), a Delaware limited partnership which acts as
the Principal Distributor of the Series' shares, or such other entity as shall
from time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed .25%
of the Series' average daily net assets attributable to the Class B shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Service Fee shall be as approved from time to time by (a) the Trustees of the
Trust and (b) the Independent Trustees of the Trust; provided, however, that no
Service Fee or other fee that is a "service fee" as defined in Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(or any successor provision thereto) as in effect from time to time (the "NASD
Rule") shall be paid, with respect to Class B shares of the Series, to NEF (or
to any affiliate of NEF, or to any other person in circumstances where
substantially all of the services and functions relating to the distribution of
Class B shares of the Series have been delegated to, or are being performed by,
NEF or an affiliate of NEF), under this Plan or otherwise, if the Distribution
Fee is terminated or is reduced below the rate set forth in Section 2. The
Service Fee shall be accrued daily and paid monthly or at such other intervals
as the Trustees shall determine. The Distributor may pay all or any portion of
the Service Fee to securities dealers or other organizations (including, but not
limited to, any affiliate of the Distributor) as service fees pursuant to
agreements with such organizations for providing personal services to investors
in Class B shares of the Series and/or the maintenance of shareholder accounts,
and may retain all or any portion of the Service Fee as compensation for
providing personal services to investors in Class B shares of the Series and/or
the maintenance of shareholder accounts. All payments under this Section 1 are
intended to qualify as "service fees" as defined in the NASD Rule.
Section 2. Distribution Fee. In addition to the Service Fee, the Trust,
on behalf of the Series, will pay to the Distributor a fee (the "Distribution
Fee") at an annual rate of 0.75% (unless reduced as contemplated by and
permitted pursuant to the next sentence hereof) of the Series' average daily net
assets attributable to the Class B shares in consideration of the services
rendered in connection with the sale of such shares by the Distributor. The
Trust will not terminate the Distribution Fee in respect of Series assets
attributable to Class B shares, or pay such fee at an annual rate of less than
.75% of the Series' average daily net assets attributable to the Class B shares,
unless it has ceased, and not resumed, paying the Service Fee (or any other fee
that constitutes a "service fee" as defined in the NASD Rule) to NEF (or to any
affiliate of NEF, or to any other person in circumstances where substantially
all of the services and functions relating to the distribution of Class B shares
of the Series have been delegated to, or are being performed by, NEF or an
affiliate of NEF). Subject to such restriction and subject to the provisions of
Section 7 hereof, the Distribution Fee shall be as approved from time to time by
(a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The
Distribution Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine.
The obligation of the Series to pay the Distribution Fee shall
terminate upon the termination of this Plan or the relevant distribution
agreement between the Distributor and the Trust relating to the
-1-
<PAGE> 3
Series, in accordance with the terms hereof or thereof, but until any such
termination shall not be subject to any dispute, offset, counterclaim or defense
whatsoever (it being understood that nothing in this sentence shall be deemed a
waiver by the Trust or the Series of its right separately to pursue any claims
it may have against the Distributor and enforce such claims against any assets
of the Distributor (other than its right to be paid the Distribution Fee and to
be paid contingent deferred sales charges).
The right of NEF to receive the Distribution Fee (but not the relevant
distribution agreement or NEF's obligations thereunder) may be transferred by
NEF in order to raise funds which may be useful or necessary to perform its
duties as principal underwriter, and any such transfer shall be effective upon
written notice from NEF to the Trust. In connection with the foregoing, the
Series is authorized to pay all or part of the Distribution Fee directly to such
transferee as directed by NEF.
The Distributor may pay all or any portion of the Distribution Fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the Distributor) as commissions, asset-based sales charges or other
compensation with respect to the sale of Class B shares of the Series, and may
retain all or any portion of the Distribution Fee as compensation for the
Distributor's services as principal underwriter of the Class B shares of the
Series. All payments under this Section 2 are intended to qualify as
"asset-based sales charges" as defined in the NASD Rule.
Section 3. This Plan shall continue in effect for a period of more than
one year after December __, 1996 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class B shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding Class B
shares of the Series, on not more than 60 days' written notice to
any other party to the agreement; and
B. That such agreement shall terminate automatically in the event
of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class B shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
-2-
<PAGE> 4
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class B shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
-3-
<PAGE> 1
Registration Nos. 2-98326
811-4323
EX-99.15(K)
12B-1 PLAN RELATING TO CLASS C SHARES OF THE REGISTRANT'S NEW ENGLAND STAR SMALL
CAP FUND
35
<PAGE> 2
NEW ENGLAND STAR SMALL CAP FUND
CLASS C DISTRIBUTION AND SERVICE PLAN
This Plan (the "Plan") as amended and restated on December 29, 1996
constitutes the Distribution and Service Plan relating to the Class C shares of
NEW ENGLAND STAR SMALL CAP FUND (the "Series"), a series of New England Funds
Trust I, a Massachusetts business trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P. ("NEF"), a Delaware limited partnership which acts as
the Principal Distributor of the Series' shares, or such other entity as shall
from time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed .25%
of the Series' average daily net assets attributable to the Class C shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Service Fee shall be as approved from time to time by (a) the Trustees of the
Trust and (b) the Independent Trustees of the Trust; provided, however, that no
Service Fee or other fee that is a "service fee" as defined in Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(or any successor provision thereto) as in effect from time to time (the "NASD
Rule") shall be paid, with respect to Class C shares of the Series, to NEF (or
to any affiliate of NEF, or to any other person in circumstances where
substantially all of the services and functions relating to the distribution of
Class C shares of the Series have been delegated to, or are being performed by,
NEF or an affiliate of NEF), under this Plan or otherwise, if the Distribution
Fee is terminated or is reduced below the rate set forth in Section 2. The
Service Fee shall be accrued daily and paid monthly or at such other intervals
as the Trustees shall determine. The Distributor may pay all or any portion of
the Service Fee to securities dealers or other organizations (including, but not
limited to, any affiliate of the Distributor) as service fees pursuant to
agreements with such organizations for providing personal services to investors
in Class C shares of the Series and/or the maintenance of shareholder accounts,
and may retain all or any portion of the Service Fee as compensation for
providing personal services to investors in Class C shares of the Series and/or
the maintenance of shareholder accounts. All payments under this Section 1 are
intended to qualify as "service fees" as defined in the NASD Rule.
Section 2. Distribution Fee. In addition to the Service Fee, the Trust,
on behalf of the Series, will pay to the Distributor a fee (the "Distribution
Fee") at an annual rate of 0.75% (unless reduced as contemplated by and
permitted pursuant to the next sentence hereof) of the Series' average daily net
assets attributable to the Class C shares in consideration of the services
rendered in connection with the sale of such shares by the Distributor. The
Trust will not terminate the Distribution Fee in respect of Series assets
attributable to Class C shares, or pay such fee at an annual rate of less than
.75% of the Series' average daily net assets attributable to the Class C shares,
unless it has ceased, and not resumed, paying the Service Fee (or any other fee
that constitutes a "service fee" as defined in the NASD Rule) to NEF (or to any
affiliate of NEF, or to any other person in circumstances where substantially
all of the services and functions relating to the distribution of Class C shares
of the Series have been delegated to, or are being performed by, NEF or an
affiliate of NEF). Subject to such restriction and subject to the provisions of
Section 7 hereof, the Distribution Fee shall be as approved from time to time by
(a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The
Distribution Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine.
The obligation of the Series to pay the Distribution Fee shall
terminate upon the termination of this Plan or the relevant distribution
agreement between the Distributor and the Trust relating to the
-1-
<PAGE> 3
Series, in accordance with the terms hereof or thereof, but until any such
termination shall not be subject to any dispute, offset, counterclaim or defense
whatsoever (it being understood that nothing in this sentence shall be deemed a
waiver by the Trust or the Series of its right separately to pursue any claims
it may have against the Distributor and enforce such claims against any assets
of the Distributor (other than its right to be paid the Distribution Fee and to
be paid contingent deferred sales charges).
The right of NEF to receive the Distribution Fee (but not the relevant
distribution agreement or NEF's obligations thereunder) may be transferred by
NEF in order to raise funds which may be useful or necessary to perform its
duties as principal underwriter, and any such transfer shall be effective upon
written notice from NEF to the Trust. In connection with the foregoing, the
Series is authorized to pay all or part of the Distribution Fee directly to such
transferee as directed by NEF.
The Distributor may pay all or any portion of the Distribution Fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the Distributor) as commissions, asset-based sales charges or other
compensation with respect to the sale of Class C shares of the Series, and may
retain all or any portion of the Distribution Fee as compensation for the
Distributor's services as principal underwriter of the Class C shares of the
Series. All payments under this Section 2 are intended to qualify as
"asset-based sales charges" as defined in the NASD Rule.
Section 3. This Plan shall continue in effect for a period of more than
one year after December __, 1996 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class C shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding Class C shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class C shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
-2-
<PAGE> 4
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class C shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
-3-