<PAGE>
Registration Nos. 2-98326
811-4323
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 32 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 33 [X]
(Check appropriate box or boxes)
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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)
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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
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on July 30, 1996 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant filed on February 29, 1996 the Rule
24f-2 Notice for the Registrant's fiscal year ended December 31, 1995.
<PAGE>
NEW ENGLAND FUNDS TRUST I
(Prospectus and Statement of Additional Information)
CROSS-REFERENCE SHEET
Items required by Form N-1A
<TABLE>
<CAPTION>
Item No. of
Form N-1A Caption in Prospectus
--------- ---------------------
<S> <C> <C>
1 . . . . . . . . . Cover page
2 . . . . . . . . . Schedule of Fees
3 . . . . . . . . . Financial Highlights
4 . . . . . . . . . Cover page; Additional Facts About the Fund;
Investment Objectives; How the Fund Pursues Its
Investment Objective; Fund Investments; Investment Risks
5 . . . . . . . . . Fund Management; Back cover page
6 . . . . . . . . . Cover page; Additional Facts About the 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; How Fund Share Price is Determined; Sales
Charges; Reduced Sales Charges; Back cover page
8 . . . . . . . . . 4 Ways to Sell Fund Shares; Repurchase Option;
Exchanging Among New England Funds
9 . . . . . . . . . None
Caption in Statement of 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
17 . . . . . . . . . Fund Charges and Expenses; Portfolio Transactions and
Brokerage
18 . . . . . . . . . Description of the Trusts and Ownership of Shares
19 . . . . . . . . . How to Buy Shares; Net Asset Value and Public Offering
Price; Reduced Sales Charges; Shareholder Services;
Redemptions
20 . . . . . . . . . Income Dividends, Capital Gain Distributions and Tax
Status
21 . . . . . . . . . Fund Charges and Expenses; Management of the Trusts
22 . . . . . . . . . Performance Criteria (in Prospectus); Investment
Performance of the Funds; Standard Performance Measures
23 . . . . . . . . . Financial Statements
</TABLE>
<PAGE>
NEW ENGLAND STAR WORLDWIDE FUND
SUPPLEMENT DATED JULY 30, 1996 TO
PROSPECTUS DATED DECEMBER 29, 1995
In the Schedule of Fees section on page 3 of the prospectus, the tables
appearing under the captions "Annual Fund Operating Expenses" and "Example" are
replaced with the following:
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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** 1.05% 1.05% 1.05%
Total Expenses 2.35% 3.10% 3.10%
<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.
</FN>
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
------- ------- -------
<C> <C> <C> <C> <C>
(1) (2)
1 year $ 79 $ 71 $31 $31
3 Years $126 $112 $96 $96
<FN>
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(unaudited)
The Financial Highlights presented below are for Class A, B and C shares of New
England Star Worldwide Fund (the "Fund") outstanding throughout the indicated
period. The Financial Highlights should be read in conjunction with the
financial statements and the notes thereto incorporated by reference in Part II
of the Fund's Statement of Additional Information dated July 30, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------- -------------- --------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1996 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.50 $12.50 $12.50
------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) 0.01 (0.01) (0.01)
Net Realized and Unrealized Gain
on Investments 1.46 1.43 1.44
------ ------ ------
Total From Investment Operations 1.47 1.42 1.43
------ ------ ------
Net Asset Value, End of Period $13.97 $13.92 $13.93
====== ====== ======
Total Return (%)(a) 11.8 11.4 11.4
Ratio of Operating Expenses to Average Net Assets (%) 2.86 (b) 3.61 (b) 3.61 (b)
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) 0.32 (b) (0.43)(b) (0.43)(b)
Portfolio Turnover Rate (%) 39 (b) 39 (b) 39 (b)
Average Commission Rate (c) $0.0004 $0.0004 $0.0004
Net Assets, End of Period (000) $35,617 $31,115 $10,191
(a) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B shares are not
reflected in total return calculations. Not annualized.
(b) Computed on an annualized basis.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades on which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
<PAGE>
In addition, the following changes have been made to the Fund's prospectus:
o On page 17, the fifth bullet under the caption "Minimum Investments" is
deleted.
o On page 17, the paragraph at the top of the right-hand column is deleted
and replaced with the following paragraph:
All purchases made by check should be in U.S. dollars and made payable to
New England Funds, or, in the case of a retirement account, the custodian
or trustee. Third party checks will not be accepted. When purchases are
made by check or periodic account investment, redemptions will not be
allowed until the investment being redeemed has been in the account for ten
calendar days.
o On page 18, the second paragraph under the caption "By Electronic purchase
through ACH" is deleted and replaced with the following paragraph:
To purchase through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time). You may purchase shares through ACH by calling
Tele#Facts at 1-800-346-5984 twenty-four hours a day. Under normal
circumstances, the New York Stock Exchange (the "Exchange") closes at 4:00
p.m. (Eastern time). Purchase orders through ACH or Tele#Facts will be
complete only upon receipt by New England Funds of funds from your bank
and, on the day that funds are received, will be processed at the net asset
value next determined at the close of regular trading on the Exchange on
days that the Exchange is open. Proceeds of redemptions of Fund shares
purchased through ACH may not be available for up to ten days after the
purchase date.
o Also on page 18, the footnote under the chart in the "Sales Charges"
section is replaced with the following:
The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases (except investment by plans under
Sections 401(a) and 401(k) of the Internal Revenue Code whose total
investments amount to $1 million or more or that have 100 or more eligible
employees ["Retirement Plans"]) a commission of up to the following
amounts: 1% on the first $3 million invested; 0.50% on the next $2 million;
and 0.25% on the excess over $5 million. For investments by Retirement
Plans, the Distributor may, at its discretion, pay investment dealers who
initiate and are responsible for such purchases a commission of up to the
following amounts: 1% on the first $3 million invested; and 0.50% on
amounts over $3 million and up to $10 million. These commissions are not
payable if the purchase represents the reinvestment of a redemption made
during the previous 12 calendar months.
o On page 21, in the first full paragraph in the right-hand column, the
language "... including, but not limited to, those defined in Section 401(a),
403(b) or 457 of the Internal Revenue Code..." is deleted and replaced with the
following:
including, but not limited to, those defined in Section 401(a), 401(k),
403(b) or 457 of the Internal Revenue Code
o The following paragraphs are added to the list appearing on page 21:
o Shares of the Fund are available at net asset value for investments by
non-discretionary and non-retirement accounts of bank trust departments or
trust companies, but are unavailable if the trust department or institution
is part of an organization not principally engaged in banking or trust
activities.
o Shares of the Fund are available at net asset value for investments in
participant-directed 401(a) and 401(k) plans that have 100 or more eligible
employees.
o Shares of the Fund also may be purchased at net asset value through
certain broker-dealers and/or financial services organizations without any
transaction fee. Such organizations may receive compensation, in an amount
of up to 0.35% annually of the average value of the Fund shares held by
their customers. This compensation may be paid by NEFM and/or the Fund's
subadvisers out of their own assets, or may be paid indirectly by the Fund
in the form of servicing, distribution or transfer agent fees.
<PAGE>
[GRAPHIC OMITTED](R)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
NEW ENGLAND STAR WORLDWIDE FUND
PROSPECTUS AND APPLICATION
DECEMBER 29, 1995
New England Star Worldwide Fund (the "Fund") is a newly organized,
multi-manager, diversified mutual fund that will allocate its investment capital
on an equal basis among multiple segments of the Fund 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 long-term growth of capital. 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 December 29, 1995
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.
FOR GENERAL INFORMATION ON THE FUND OR ANY OF ITS SERVICES AND FOR ASSISTANCE IN
OPENING AN ACCOUNT, CONTACT YOUR INVESTMENT DEALER OR CALL THE DISTRIBUTOR TOLL
FREE AT 1-800-225-5478.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
- ----
<S> <C> <C>
SCHEDULE OF FEES Sales charges, yearly operating expenses.
INVESTMENT STRATEGY
How the Fund Pursues Its Investment Objective
SUBADVISERS' INVESTMENT STYLES
INVESTMENT RISKS It is important to understand the risks
inherent in the Fund before you invest.
PERFORMANCE INFORMATION
Subadvisers' Past Performance
FUND MANAGEMENT
BUYING FUND SHARES Everything you need to know to open and add to
Minimum Investment a New England Star Worldwide Fund account.
6 Ways to Buy Fund Shares
o Through you investment dealer
o By mail
o By wire transfer
o By Investment Builder
o By electronic purchase through ACH
o By exchange from another New England Fund
Sales Charges
Reduced Sales Charges (Class A Shares Only)
OWNING FUND SHARES
Exchanging Among New England Funds New England Funds offers three convenient ways
Fund Dividend Payments to exchange Fund shares.
SELLING FUND SHARES How to withdraw money or close your account.
4 Ways to Sell Fund Shares
o Through your investment dealer
o By telephone
o By mail
o By Systematic Withdrawal Plan
Repurchase Option (Class A Shares Only) An opportunity to reinvest your redemption
proceeds within 120 days for no sales charge.
FUND DETAILS Additional information you may find important.
How Fund Share Price Is Determined
Income Tax Considerations
The Fund's Expenses
Performance Criteria
Additional Facts About the Fund
</TABLE>
<PAGE>
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Fund. The
following table summarizes your maximum transaction costs from investing in the
Fund and estimated annual expenses for each class of the Fund's shares. The
Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in each class of shares of the Fund for the periods specified.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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."
</FN>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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** 0.90% 0.90% 0.90%
Total Expenses 2.20% 2.95% 2.95%
<FN>
* Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National Association of Securities Dealers, Inc.
**Other Expenses are based on estimated expenses for the Fund's first full fiscal year.
</FN>
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
------- ------- -------
<C> <C> <C> <C> <C>
(1) (2)
1 year $ 79 $ 70 $30 $30
3 Years $122 $121 $91 $91
<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."
INVESTMENT STRATEGY
The Fund's investment objective is long-term growth of capital.
HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital by investing primarily in equity
securities both within the United States and around the world. The Fund is a
global fund, which means it will seek to invest in equity securities traded on
foreign stock markets as well as the stock markets of the United States. Foreign
markets represent two-thirds of the value of all stocks traded in the world, and
offer many opportunities for investment in addition to those found in the United
States. Foreign markets may be located in large, developed countries such as
Great Britain or in smaller, developing markets like Singapore. The Fund may
also invest in other securities, as described below. Under normal market
conditions, however, at least 65% of each segment of the Fund's portfolio, and
at least 65% of the Fund's total assets, will be invested in equity securities.
The Fund may in the discretion of each of its subadvisers (see below) invest
without limit in securities of foreign issuers (including issuers in emerging
markets) as well as in securities of U.S. issuers. Under normal market
conditions, the Fund will invest in securities of issuers in at least three
different countries, one of which will be the United States. As a temporary,
defensive measure, however, the Fund may invest without limit in securities of
U.S. issuers, including corporate and government debt obligations, or in cash or
cash equivalents. For more information about investments in foreign securities,
see "Investment Risks - Foreign Securities."
Capital invested in the Fund will be allocated equally among five different
segments of the portfolio, managed by four different subadvisers. Each
subadviser will manage its segment or segments of the Fund's assets in
accordance with that subadviser's own investment style and strategy. The
subadvisers' styles and strategies are outlined below. See also "Subadvisers'
Investment Styles" and "Fund Management." New England Funds Management, L.P.
("NEFM") oversees the segments' investment activities as conducted by the
subadvisers.
HARRIS ASSOCIATES L.P. ("HARRIS ASSOCIATES") manages two segments of the
Fund's portfolio, a U.S. segment and an international segment. 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 growth of capital. The U.S. segment invests primarily in
equity securities of U.S. issuers, whereas the international segment
invests primarily in markets outside the U.S., which may include both
mature and emerging markets. The segments of the Fund managed by Harris
Associates invest primarily in common stocks and securities convertible
into common stock, but may also invest in other securities that are suited
to the Fund's investment objective, including preferred stocks and
fixed-income securities (including lower quality fixed-income securities).
MONTGOMERY ASSET MANAGEMENT, L.P. ("MONTGOMERY") normally will invest at
least 65% of its segment of the Fund's portfolio in equity securities in
emerging market countries. Montgomery selects investments for its segment
based on a combination of quantitative screening techniques, "top-down"
industry selection and "bottom-up" stock selection, using fundamental
analysis.
FOUNDERS ASSET MANAGEMENT, INC.'S ("FOUNDERS") segment of the portfolio may
invest in both small and established growth companies, in both emerging and
established markets throughout the world. Founders' approach to investment
management gives greater emphasis to the fundamental financial, marketing
and operating characteristics of individual companies, and is less
concerned with the short-term impact of changes in macroeconomic and market
conditions, than some other investment firms. This segment of the portfolio
may invest in bonds, debentures and other fixed-income securities
(including lower quality fixed-income securities) when Founders believes
that these investments offer opportunity for growth of capital.
JANUS CAPITAL CORPORATION ("JANUS CAPITAL") pursues the Fund's investment
objective by investing its segment of the portfolio in U.S. and foreign
(including emerging) markets, using a "bottom up" approach. Janus Capital
seeks to identify companies with earnings growth potential that may not be
recognized by the market at large. This segment of the portfolio invests
primarily in common stocks, and may also invest, to a lesser degree, in
preferred stocks, warrants, government securities, corporate bonds and
debentures or other fixed-income securities (including lower quality
fixed-income securities).
Under unusual market conditions as determined by any of the four subadvisers,
all or any portion of the segment(s) 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, each segment may also engage in various other
investment techniques and practices. See "Investment Risks" below.
Daily net capital inflows will be allocated on an equal basis among the five
segments of the Fund. Over time, the amount of assets in each segment may differ
as a result of different investment results achieved by the subadvisers of the
different segments. The Fund does not intend to reallocate its assets among the
segments to reduce these differences.
SUBADVISERS' INVESTMENT STYLES
NEFM believes that a multi-adviser approach to global equity investing -- one
that combines the varied styles and geographic focuses of a number of
subadvisers in selecting securities for the Fund's portfolio -- offers a
different investment opportunity than global equity funds run by a single
adviser using a single style.
Any given management style tends to produce better returns than other styles
under certain market and economic conditions, and to perform less well under
other conditions. Therefore, most single-adviser funds have not consistently
maintained superior performance rankings relative to their peers over long
periods. NEFM believes that assigning portfolio management responsibility for
the five segments of the Fund's portfolio to four subadvisers, whose varying
styles have resulted in records of success, may increase the likelihood that the
Fund may produce superior long-term results for its shareholders, with less
variability of return and less risk of persistent under-performance than a
single-adviser 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 time period. The investment styles
described below will be those applied by each of the subadvisers to the
segment(s) of the Fund's portfolio for which that subadviser is responsible.
HARRIS ASSOCIATES L.P.
Harris Associates manages two of the five segments of the Fund's portfolio, a
U.S. segment and an international segment. Harris Associates' chief
consideration in security selection is the size of the discount of 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 growth of capital.
U.S. Segment. In managing its U.S. segment of the Fund's portfolio, Harris
Associates uses several qualitative and quantitative methods in analyzing
economic value, but considers the primary determinant of value to be the
enterprise's long-run ability to generate cash for its owners. Once Harris
Associates has determined that a security is undervalued, Harris Associates will
consider it for purchase by this segment of the Fund. In making investment
decisions, a key additional factor is the quality of management and, for equity
securities, particular emphasis is placed on significant stock ownership by the
company's management. Harris Associates believes that the risks of equity
investing are often reduced if management's interests are strongly aligned with
the interests of stockholders. At least 65% of the value of this segment of the
portfolio will, under normal market conditions, be invested in equity securities
of U.S. issuers. The segment may invest the balance of its assets in equity or
fixed income securities, including those of non-U.S.
issuers.
International Segment. In managing its international segment of the Fund's
portfolio, Harris Associates uses several qualitative and quantitative methods
in analyzing economic value, but considers the primary determinant of value to
be the enterprise's long-run ability to generate cash for its owners. Once
Harris Associates has determined that a security is undervalued, Harris
Associates will consider it for purchase by this segment of the Fund, taking
into account the quality of management, the firm's market position within its
industry and its degree of pricing power. Harris Associates also considers the
relative political and economic stability of the company's home country in
evaluating the potential rewards and risks of an investment opportunity. This
segment of the Fund may invest in securities traded in mature markets (for
example, Japan, Canada and the United Kingdom), in less developed markets
(Mexico and Thailand, for example) and in selected emerging markets (Peru and
India, for example). There are no limits on the Fund's geographic asset
distribution, but, to provide adequate diversification, Harris Associates
ordinarily invests this segment of the Fund in the securities markets of at
least five countries outside the United States. Under normal market conditions,
at least 65% of the segment's total assets will be invested in equity
securities.
MONTGOMERY ASSET MANAGEMENT, L.P.
Under normal market conditions, Montgomery will invest at least 65% of the
assets of its segment in equity securities of companies in countries having
emerging markets. As used in this prospectus, "emerging markets" means those
countries that are classified by the World Bank or the International Monetary
Fund as "emerging," "developing" or "in transition."
This segment currently limits its investments to the following emerging market
countries: Latin America (Argentina, Brazil, Chile, Colombia, Costa Rica,
Jamaica, Mexico, Peru, Trinidad and Tobago, Uruguay, Venezuela); Asia (China,
India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka,
Taiwan, Thailand, Vietnam); Southern and Eastern Europe (Czech Republic, Greece,
Hungary, Poland, Portugal, Turkey); Mid-East (Israel, Jordan); and Africa
(Egypt, Ghana, Ivory Coast, Kenya, Morocco, Nigeria, South Africa, Tunisia,
Zimbabwe). This segment may determine not to invest in one or more of the
emerging market countries listed above, and, in the future, this segment may
invest in other emerging market countries. Under normal conditions, this segment
maintains investments in at least six emerging market countries and invests no
more than 35% of its total assets in any one emerging market country. Montgomery
considers a company to be an emerging market company if its securities are
principally traded in the capital market of an emerging market country; or it
derives at least 50% of its total revenue from either goods produced or services
rendered in emerging market countries or from sales made in such emerging market
countries, regardless of where the securities of such company are principally
traded; or it is organized under the laws of, or has a principal office in, an
emerging market country.
Montgomery uses a proprietary, quantitative asset allocation model created by
Montgomery to manage its segment of the Fund. This model employs mean-variance
optimization, a process used in developed markets based on modern portfolio
theory and statistics. Mean-variance optimization helps determine the percent of
assets to invest in each country in an attempt to maximize expected returns for
a given risk level. Montgomery's aims are to invest in those countries that are
expected to have the highest risk/reward trade-off when incorporated into the
context of Montgomery's segment as a whole. This "top-down" country selection is
combined with "top-down" industry selection and "bottom-up" stock selection
using original research, publicly available information and company visits.
FOUNDERS ASSET MANAGEMENT, INC.
Founders is a "growth-style" manager of equity portfolios and gives priority to
the selection of individual securities that have the potential to provide
superior results over time, despite short-term volatility. Under normal
circumstances, Founders' approach to investment management gives greater
emphasis to the fundamental financial, marketing and operating strengths of the
companies whose securities it buys, and is less concerned with the short-term
impact of changes in macroeconomic and market conditions. Founders focuses on
purchasing the stocks of companies with strong management and market positions
whose earnings prospects are significantly above the average for their market
sectors.
Founders' segment of the Fund normally will invest at least 65% of its assets in
equity securities. The segment may invest in a variety of markets throughout the
world. Founders will emphasize common stocks of both small and established
growth companies that generally have proven performance records and strong
market positions. This segment of the Fund's portfolio will usually consist of
investments in companies in various countries (which may include the U.S.), and
under normal market conditions it will invest in at least three countries.
Founders will not invest more than 25% of the assets of its segment of the Fund
in the securities of any one foreign country.
JANUS CAPITAL CORPORATION
Janus Capital manages its segment of the portfolio to seek long-term capital
growth primarily from investing in common stocks of foreign and domestic
companies, of any size. This segment of the Fund normally invests in issuers
from at least five different countries, including the United States, but may at
times invest in fewer than five countries or even a single country. Under normal
market conditions at least 65% of the total assets of the segment will be
invested in equity securities.
Janus Capital takes a "bottom-up" approach to investing its segment of the
Fund's portfolio. This means that investments are selected based primarily on
the earnings growth potential and other characteristics of the individual
companies in which the segment invests. (This "bottom-up" approach contrasts
with a "top-down" approach, in which a portfolio is selected based primarily on
decisions to invest in certain industries, countries or regions.) In managing
the segment, Janus Capital does, however, consider factors such as expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships, and prospects for economic growth in
different countries, regions or geographic areas.
INVESTMENT RISKS
It is important to understand the following risks inherent in the Fund before
you invest.
[] EQUITY SECURITIES
Equity securities are securities that represent an ownership interest (or the
right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and convertible
preferred stock).
While offering greater potential for long-term growth, equity securities are
more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in the Fund may sometimes decrease instead of increase.
The Fund may invest in equity securities of companies with relatively small
market capitalization. Securities of such companies may be more volatile than
the securities of larger, more established companies and the broad equity market
indices. See "Small Companies" below. The Fund's investments may include
securities traded over-the-counter as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
The Fund may invest in convertible securities, including corporate bonds, notes
or preferred stocks that can be converted into common stocks or other equity
securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally increase or decrease as the values of the underlying equity
securities increase or decrease. The movements in the prices of convertible
securities, however, may be smaller than the movements in the value of the
underlying equity securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent ownership of the securities
for which they are exercisable, but only the right to buy such securities at a
particular price. The credit risk associated with convertible securities is
generally reflected by their being rated, if at all, below investment grade by
organizations such as Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("S&P"). Less than 35% of the Fund's assets will be
invested in convertible securities rated below investment grade and unrated
convertible securities of comparable quality.
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.
[] 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.
[] 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 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 time when the Fund accrues and pays
an operating expense in U.S. dollars.
[] 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.
[] SMALL COMPANIES
The Fund may, in the discretion of its subadvisers, invest without limit in the
securities of companies with smaller capitalization. Investments in companies
with relatively small capitalization may involve greater risk than is usually
associated with more established companies. These companies often have sales and
earnings growth rates which exceed those of companies with larger
capitalization. Such growth rates may in turn be reflected in more rapid share
price appreciation. However, companies with smaller capitalization often have
limited product lines, markets or financial resources and they may be dependent
upon a relatively small management group. The securities may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of companies with larger capitalization or the market averages
in general. The net asset values of funds that invest in companies with smaller
capitalization therefore may fluctuate more widely than market averages.
[] 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 or dividends 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, dividends 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 or dividend 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.
[] LOWER QUALITY FIXED-INCOME SECURITIES
Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's (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 risk, than higher quality fixed-income securities.
Lower quality fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a mutual fund investing in
lower quality fixed-income securities may be more dependent on the fund's
adviser's or sub-adviser's own credit analysis than for a fund investing in
higher quality bonds. 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 or by legislation that limits the ability of certain categories
of financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed-income 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 known as "junk bonds." For more
information, including a detailed description of the ratings assigned by S&P and
Moody's, please refer to the Statement's "Appendix A - Description of Bond
Ratings."
[] ZERO COUPON BONDS AND "STRIPS"
The Fund may invest in zero coupon bonds or "strips." Zero coupon bonds do not
make regular interest payments; rather, they are sold at a discount from face
value. Principal and accrued discount (representing interest accrued but not
paid) are paid at maturity. "Strips" are debt securities that are stripped of
their interest after the securities are issued, but otherwise are comparable to
zero coupon bonds. The market values of "strips" and zero coupon bonds generally
fluctuate in response to changes in interest rates to a greater degree than do
interest-paying securities of comparable term and quality. Under many market
conditions, investments in stripped securities may be illiquid, making it
difficult for the Fund to dispose of them or determine their current value.
[] 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.
[] 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.
[] SHORT-TERM TRADING
Although the Fund seeks long-term growth or return, the Fund may, consistent
with its investment objective, engage in portfolio trading in anticipation of,
or in response to, changing economic or market conditions and trends. These
policies may result in higher turnover rates in the Fund's portfolio which may
produce higher transaction costs and a higher level of taxable capital gains.
Portfolio turnover considerations will not limit any subadviser's investment
discretion in managing the Fund's assets.
[] 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 considered 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 option receives a premium from writing an option,
which may increase its return if the option expires or is closed out at a
profit. If the Fund as the writer of an 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).
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 [the "S&P 500"]) 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 the changes
in the value of futures, options or swap positions and changes in the values of
the portfolio securities. The 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. In the case of swap
contracts and of options that are not traded on an exchange ("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 certain regulatory
requirements may limit the Fund's ability to engage in futures, options and swap
transactions.
[] 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.
[] STRUCTURED NOTES
The Fund may invest in a broad category of instruments known as "structured
notes." These instruments are debt obligations issued by industrial
corporations, financial institutions or governmental or international agencies.
Traditional debt obligations typically obligate the issuer to repay the
principal plus a specified rate of interest. Structured notes, by contrast,
obligate the issuer to pay amounts of principal or interest that are determined
by reference to changes in some external factor or factors. For example, the
issuer's obligations could be determined by reference to changes in the value of
a commodity (such as gold or oil), a foreign currency, an index of securities
(such as the S&P 500) or an interest rate (such as the U.S. Treasury bill rate).
In some cases, the issuer's obligations are determined by reference to changes
over time in the difference (or "spread") between two or more external factors
(such as the U.S. prime lending rate and the total return of the stock market in
a particular country, as measured by a stock index). In some cases, the issuer's
obligations may fluctuate inversely with changes in an external factor or
factors (for example, if the U.S. prime lending rate goes up, the issuer's
interest payment obligations are reduced). In some cases, the issuer's
obligations may be determined by some multiple of the change in an external
factor or factors (for example, three times the change in the U.S. Treasury bill
rate). In some cases, the issuer's obligations remain fixed (as with a
traditional debt instrument) so long as an external factor or factors do not
change by more than the specified amount (for example, if the value of a stock
index does not exceed some specified maximum); but if the external factor or
factors change by more than the specified amount, the issuer's obligations may
be sharply reduced.
Structured notes can serve many different purposes in the management of a mutual
fund. For example, they can be used to increase the fund's exposure to changes
in the value of assets that the fund would not ordinarily purchase directly
(such as stocks traded in a market that is not open to U.S. investors). They can
also be used to hedge the risks associated with other investments the fund
holds. For example, if a structured note has an interest rate that fluctuates
inversely with general changes in a country's stock market index, the value of
the structured note would generally move in the opposite direction to the value
of holdings of stocks in that market, thus moderating the effect of stock market
movements on the value of the fund's portfolio as a whole.
Structured notes involve special risks. As with any debt obligation, structured
notes involve the risk that the issuer will become insolvent or otherwise
default on its payment obligations. This risk is in addition to the risk that
the issuer's obligations (and thus the value of the Fund's investment) will be
reduced because of adverse changes in the external factor or factors to which
the obligations are linked. The value of structured notes will in many cases be
more volatile (that is, will change more rapidly or severely) than the value of
traditional debt instruments. Volatility will be especially high if the issuer's
obligations are determined by reference to some multiple of the change in the
external factor or factors. Many structured notes have limited or no liquidity,
so that the Fund would be unable to dispose of the investment prior to maturity.
(The Fund is not permitted to invest more than 15% of its net assets in illiquid
investments.) As with all investments, successful use of structured notes
depends in significant part on the accuracy of the relevant subadviser's
analysis of the issuer's creditworthiness and financial prospects, and of the
subadviser's forecast as to changes in relevant economic and financial market
conditions and factors. In instances where the issuer of a structured note is a
foreign entity, the usual risks associated with investments in foreign
securities (described above) apply.
[] 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 % 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.
[] SHORT SALES AGAINST THE BOX
A short sale is a transaction in which a party borrows a security and then sells
the borrowed security to another party. The Fund may engage in short sales only
if the Fund owns (or has the right to acquire without further consideration) the
security it has sold short, a practice known as selling short "against the box."
Short sales against the box may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized losses with respect
to such securities should be wholly or partially offset by a corresponding gain
in the short position. However, any potential gains in such securities should be
wholly or partially offset by a corresponding loss in the short position. Short
sales against the box may be used to lock in a profit on a security when, for
tax reasons or otherwise, a subadviser does not want to sell the security. The
Fund does not currently expect that more than 20% of its total assets would be
involved in short sales against the box. For a more complete explanation, please
refer to Part II of the Statement.
[] 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.
The Fund may purchase securities on a when-issued or delayed-delivery basis.
This means that the Fund enters into a commitment to buy the security before the
security has been issued, or, in the case of a security that has already been
issued, to accept delivery of the security on a date beyond the usual settlement
period. If the value of a security purchased on a when-issued or
delayed-delivery basis falls or market rates of interest increase between the
time the Fund commits to buy the security and the delivery date, the Fund may
sustain a loss in value of or yield on the security. For more information on
when-issued and delayed-delivery securities, see Part II of the Statement.
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 125%. A turnover rate in excess of 100% may be
considered high.
SPECIAL CONSIDERATIONS REGARDING THE MULTI-ADVISER APPROACH
NEFM oversees the portfolio management services provided to the Fund by each of
the four subadvisers. NEFM does not, however, determine what investments will be
purchased or sold for any segment of the portfolio. Because each subadviser will
be managing its segment(s) of the portfolio independently from the other
subadvisers (and Harris Associates will manage its two segments independently of
each other), the same security may be held in two different segments of the
portfolio, or may be acquired for one segment of the portfolio 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 segments of the portfolio. Because each subadviser directs the trading for
its own segment of the portfolio, 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
portfolio. Also, because each segment of the portfolio 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. The Fund does not intend to reallocate its assets among the
segments to reduce these differences in size. Net cash inflows or outflows
resulting from sales and redemptions of the Fund's shares will, however, be
allocated on an equal basis among the five segments of the portfolio.
NEFM may, at its discretion, terminate its agreement with a segment's
subadviser. In such case, NEFM will either enter into an agreement with another
subadviser to manage the segment or will allocate the segment's assets equally
among the other segments of the Fund.
<PAGE>
PERFORMANCE INFORMATION
SUBADVISERS' PAST PERFORMANCE
The graphs below are based on performance data provided by each subadviser
relating to all of the accounts (the "Accounts") managed by that subadviser that
have investment objectives substantially similar to the Fund and are managed by
that subadviser using investment styles and strategies substantially similar
(although not necessarily identical) to those to be employed by that subadviser
in managing its segment(s) of the Fund's portfolio. 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 period from December 31,
1994 through September 30, 1995, and for the one, three and four year periods
ended September 30, 1995, of the Accounts managed by each subadviser. The graphs
also show the total return of the Lipper Global Index for each period and the
combined total returns of the Accounts for the year-to-date and the one and
three year periods ended September 30, 1995, during which all four subadvisers
were managing Accounts. Combined Subadviser Performance was calculated by taking
the average of the subadvisers' total returns shown in the graph, assuming that
each segment had the same dollar value at the beginning of the period. All
performance information shown below is adjusted to give effect to the higher of
the level of the actual expenses of the Accounts during the periods shown, or
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. The information presented in
the graphs below for "Oakmark" and "Oakmark International" represents the total
return of The Oakmark Fund and The Oakmark International Fund, respectively, two
mutual funds managed by Harris Associates that have investment objectives and
policies substantially similar to the investment objectives and policies of the
U.S. and international segments of the Fund, respectively, for which Harris
Associates serves as subadviser.
During the periods that Janus Capital, Montgomery and Harris Associates were
managing their Accounts, there were no changes in the portfolio management
personnel for the Accounts. Michael W. Gerding joined the team managing the
Founders Account in May 1990, at which time he assumed lead portfolio management
responsibility for that Account.
[A bar graph appears here, illustrating the year-to-date total returns for
December 31, 1994 to September 30, 1995 for the Lipper Global Index, Combined
Subadviser Performance and the Accounts of Founders, Janus Capital, Montgomery,
Oakmark and Oakmark International. (1) The data points from the chart are as
follows:
Lipper Global Index 13.31%
Combined Subadviser Performance 12.60%
Founders 19.30%
Janus Capital 15.75%
Montgomery -6.74%
Oakmark 24.74%
Oakmark International 9.93%]
[A bar graph appears here, illustrating the one year total returns for September
30, 1994 to September 30, 1995 for the Lipper Global Index, Combined Subadviser
Performance and the Accounts of Founders, Janus Capital, Montgomery, Oakmark and
Oakmark International. (2) The data points from the chart are as follows:
Lipper Global Index 8.42%
Combined Subadviser Performance 7.00%
Founders 14.49%
Janus Capital 14.74%
Montgomery -16.91%
Oakmark 21.97%
Oakmark International 0.71%]
[A bar graph appears here, illustrating the three year average annual total
returns for September 30, 1992 to September 30, 1995 for the Lipper Global
Index, Combined Subadviser Performance and for the Accounts of Founders, Janus
Capital, Montgomery, Oakmark and Oakmark International. (3) The data points from
the chart are as follows:
Lipper Global Index 14.42%
Combined Subadviser Performance 17.56%
Founders 16.79%
Janus Capital 18.88%
Montgomery 12.75%
Oakmark 23.91%
Oakmark International 14.84%]
[A bar graph appears here, illustrating the four year average annual total
returns for September 30, 1991 to September 30, 1995 for the Lipper Global Index
and for the Accounts of Founders, Janus Capital and Oakmark. (4) The data points
from the chart are as follows:
Lipper Global Index 11.34%
Founders 13.68%
Janus Capital 15.75%
Oakmark 30.29%]
(1) Because of its emerging market focus, it is more relevant to compare the
past performance of the Account managed by Montgomery to that of the
International Finance Corporation ("IFC") Global Index than to that of the
Lipper Global Index. Similarly, because of their respective U.S. and
non-U.S. (rather than global) focuses, it is more relevant to compare the
past performance of The Oakmark Fund and The Oakmark International Fund to
the S&P 500 and the Morgan Stanley World Index (which includes the
securities of 21 different countries and excludes U.S. securities),
respectively, than to the Lipper Global Index. The total return for the IFC
Global Index for the period December 31, 1994 through September 30, 1995
was -9.65%. The total return for the S&P 500 for this period was 29.72%.
The total return for the Morgan Stanley World Index for this period was
7.09%. Total returns stated for periods of less than one year are not
annualized.
(2) The total return for the IFC Global Index for the one year period ended
September 30, 1995 was -19.90%. The total return for the S&P 500 for this
period was 29.69%. The total return for the Morgan Stanley World Index for
this period was 5.81%.
(3) The average annual total return for the IFC Global Index for the three year
period ended September 30, 1995 was 16.61%. The average annual total return
for the S&P 500 for this period was 14.96%. The average annual total return
for the Morgan Stanley World Index for this period was 13.53%. In the case
of Montgomery, the average annual total return for the period March 1, 1992
(inception of the Accounts managed by Montgomery with objectives and
investment approaches substantially the same as the Montgomery segment of
the Fund) through September 30, 1995 was 8.94%. The Oakmark International
Fund commenced operations on September 30, 1992.
(4) The average annual total return for the S&P 500 for the four year period
ended September 30, 1995 was 13.97%. In the case of Founders, the average
annual total return for the five year period ended September 30, 1995 was
16.54%, compared to an average annual total return of 13.22% for the Lipper
Global Index for the same period, and the average annual total return for
the period December 31, 1989 (inception of the Account managed by Founders
with an objective and investment approach substantially the same as the
Founders segment of the Fund) through September 30, 1995 was 14.53%. In the
case of Janus Capital, the average annual total return for the period May
15, 1991 (inception of the first Account managed by Janus Capital with an
objective and investment approach substantially the same as the Janus
Capital segment of the Fund) through September 30, 1995 was 20.75%. In the
case of The Oakmark Fund, the average annual total return for the period
August 5, 1991 (inception of The Oakmark Fund) through September 30, 1995
was 32.16%.
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 it 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. This difference in the fee rate is partially
due to the multi-adviser format. NEFM pays each of Harris Associates, Founders
and Janus Capital an advisory fee at the annual rate of 0.65% of the first $50
million of the average daily net assets of each segment of the Fund that that
subadviser manages, 0.60% of the next $50 million of such assets and 0.55% of
such assets in excess of $100 million. NEFM pays Montgomery an advisory fee at
the annual rate of 0.90% of the first $25 million of the average daily net
assets of the segment of the Fund that Montgomery manages, 0.70% of the next $25
million of such assets and 0.55% of such assets in excess of $50 million.
Montgomery has agreed to waive 0.15% of the fee payable to it by NEFM through
June 30, 1996, but this waiver will not reduce the fees payable by the Fund to
NEFM.
The Distributor in its discretion may, but is not obligated to, pay a bonus to
the subadviser whose segment of the Fund's portfolio has the highest relative
return for the prior year versus that segment's investment peer group as tracked
by a major independent mutual fund reporting service.
Subject to the supervision of NEFM, each subadviser manages its segment or
segments of the Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for its segment(s) of the
portfolio, places orders to purchase and sell securities for its segment(s) of
the portfolio and employs professional advisers and securities analysts who
provide research services relating to its segment(s) of the portfolio. The Fund
pays no direct fees to any of the subadvisers. Below is a brief description of
the subadvisers.
HARRIS ASSOCIATES, Two North LaSalle Street, Chicago, Illinois 60602, 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.
Robert J. Sanborn, CFA, is the portfolio manager for the U.S. segment of the
Fund managed by Harris Associates. Mr. Sanborn joined Harris Associates as a
portfolio manager and analyst in 1988.
David G. Herro, CFA, and Michael J. Welsh are the portfolio managers for the
international segment of the Fund managed by Harris Associates. Mr. Herro joined
Harris Associates in 1992 from the State of Wisconsin Investment Board, where he
managed a $700 million international equity fund from 1989 through July 1992.
Mr. Welsh joined Harris Associates as an international analyst in 1992.
Previously, he had been a senior associate, valuation services, with Coopers &
Lybrand.
MONTGOMERY, 600 Montgomery Street, San Francisco, California 94111, was formed
in 1990 and since then has advised private accounts and mutual funds. Its
general partner is Montgomery Asset Management, Inc. and its sole limited
partner is Montgomery Securities, an investment banking firm founded in 1969.
The portfolio managers for the segment of the Fund managed by Montgomery are
Josephine S. Jimenez, CFA, Managing Director and Senior Portfolio Manager, and
Bryan L. Sudweeks, Ph.D., CFA, Managing Director and Senior Portfolio Manager.
From 1988 through 1991, when she joined Montgomery, Ms. Jimenez worked at
Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. as senior analyst and portfolio manager. Before joining
Montgomery in 1991, Dr. Sudweeks was a senior analyst and portfolio manager at
Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. Previously, he was a Professor of International Finance and
Investments at George Washington University and served as Adjunct Professor of
International Investments from 1988 until May 1991.
FOUNDERS, 2930 East Third Avenue, Denver, Colorado 80206, has acted as an
investment adviser since 1938. To facilitate day-to-day investment management,
Founders employs a unique team-and-lead-manager system. The management team for
a portfolio or fund is comprised of Founders' Chief Investment Officer Bjorn K.
Borgen, a lead portfolio manager, assistant portfolio managers, portfolio
traders and research analysts. Team members share responsibility for providing
ideas, information, knowledge and expertise in the management of Founders'
segment of the Fund. Each team member has one or more areas of expertise that is
applied to the management of Founders' segment of the Fund. Daily decisions on
portfolio selection rest with the lead portfolio manager, who, through
participation in the team process, utilizes the input and advice of the
management team in making purchase and sale determinations. Michael W. Gerding
is lead portfolio manager for the segment of the Fund managed by Founders. Mr.
Gerding is a Vice President of Investments at Founders and has managed
portfolios at Founders since 1990. Mr. Borgen has served as Founders' Chief
Investment Officer since 1969 and owns all of Founders' outstanding shares.
JANUS CAPITAL, 100 Fillmore Street, Suite 300, Denver, Colorado 80206, has
managed mutual funds since 1970 and also advises individual, corporate,
charitable and retirement accounts. Helen Young Hayes has day-to-day management
responsibility for those assets of the Fund allocated to Janus Capital. Ms.
Hayes is a portfolio manager and Vice President of Janus Capital, where she has
been employed since 1987. Kansas City Southern Industries, Inc. ("KCSI"), a
publicly traded holding company, owns approximately 83% of the outstanding
voting stock of Janus Capital. Thomas H. Bailey, President and Chairman of the
Board of Janus Capital, owns approximately 12% of Janus Capital's voting stock
and, by agreement with KCSI, selects a majority of Janus Capital's board of
directors.
The general partners of NEFM, Harris Associates and the Distributor are special
purpose corporations. These corporations are indirect wholly-owned subsidiaries
of New England Investment Companies, L.P. ("NEIC"), whose sole general partner,
New England Investment Companies, Inc. ("NEIC Inc."), is a wholly-owned
subsidiary of New England Mutual Life Insurance Company ("The New England"). The
New England and Metropolitan Life Insurance Company ("MetLife") have entered
into an agreement to merge, with MetLife to be the survivor of the merger. The
merger is conditioned upon, among other things, approval by the policy holders
of The New England and MetLife and receipt of certain regulatory approvals.
After such merger, NEIC Inc. will be a wholly-owned subsidiary of MetLife.
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.
BUYING FUND SHARES
USING TELE#FACTS 1-800-346-5984
TELE#FACTS IS NEW ENGLAND FUNDS' AUTOMATED SERVICE SYSTEM THAT GIVES YOU 24-HOUR
ACCESS TO YOUR ACCOUNT. THROUGH YOUR TOUCH-TONE TELEPHONE, YOU CAN RECEIVE YOUR
CURRENT ACCOUNT BALANCE, YOUR LAST FIVE TRANSACTIONS, FUND PRICES AND RECENT
PERFORMANCE INFORMATION. YOU CAN ALSO PURCHASE, SELL OR EXCHANGE CLASS A AND B
SHARES AND PURCHASE AND SELL CLASS C SHARES OF ANY NEW ENGLAND FUND.
FOR A FREE BROCHURE ABOUT TELE#FACTS INCLUDING A CONVENIENT WALLET CARD, CALL US
AT 1-800-225-5478.
MINIMUM INVESTMENT
$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:
[] $25 (for initial and subsequent investments) for payroll deduction
investment programs for 401(k), SARSEP, 403(b) retirement plans and certain
other retirement plans.
[] $50 for automatic investing through the Investment Builder program.
[] $250 for retirement plans with tax benefits such as corporate pension and
profit sharing plans, IRAs and Keogh plans.
[] $1,000 for accounts registered under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act.
[] $1,000 (per Fund) for Portfolio 1,2,3 investment programs. Subsequent
investment minimums are $50 per Fund. See Part II of the Statement.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Fund in the
following ways:
[] THROUGH YOUR INVESTMENT DEALER
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[] BY MAIL:
FOR AN INITIAL INVESTMENT, simply complete an application and return it, with a
check payable to New England Funds, P.O. Box 8551, Boston, MA 02266-8551.
Proceeds of redemptions of Fund shares purchased by check may not be available
for up to ten days after the purchase date.
FOR SUBSEQUENT INVESTMENTS, please mail your check to New England Funds, P.O.
Box 8551, Boston, MA 02266-8551 along with a letter of instruction or an
additional deposit slip from your statements. To make investing even easier, you
can also order personalized investment slips by calling 1-800-225-5478 between
8:00 a.m. and 7:00 p.m. (Eastern time).
Investment checks should be made payable to New England Funds. New England Funds
will accept second-party checks (up to $10,000) for investments into existing
accounts only. (A second-party check is a check made payable to a Fund
shareholder which the shareholder has endorsed to New England Funds for deposit
into an account registered to the shareholder.) New England Funds will NOT
accept third-party checks, except certain third-party checks issued by other
mutual fund companies, broker dealers or banks representing the transfer of
retirement assets. (A third-party check is a check made payable to a party which
is not a Fund shareholder, but which has been ultimately endorsed to New England
Funds for deposit into an account.)
[] BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) to obtain an account number and wire transfer instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street
Bank and Trust Company, ABA #011000028, DDA #99011538, Credit New England Star
Worldwide 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). Your
bank may charge a fee for this service.
[] BY INVESTMENT BUILDER:
Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $50 or more from your bank checking or
savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder on the enclosed
application. Indicate the amount of the monthly investment and enclose a check
marked "Void" or a deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at
1-800-225-5478 for a Service Options form.
[] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated Clearing
House ("ACH") system as long as your bank or credit union is a member of the ACH
system and you have a completed, approved ACH application on file with the Fund.
To purchase through ACH, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) on a day when the Fund is open for business. You may
purchase shares through ACH by calling Tele#Facts at 1-800-346-5984 twenty-four
hours a day. Under normal circumstances, the New York Stock Exchange (the
"Exhange") closes at 4:00 p.m. (Eastern time). Purchase orders accepted through
ACH or Tele#Facts after 4:00 p.m. (Eastern time), or after the Exchange closes
if it closes earlier than 4:00 p.m., will be processed at the net asset value
determined at the close of regular trading on the next day that the Exchange is
open. Proceeds of redemptions of Fund shares purchased through ACH may not be
available for up to ten days after the purchase date.
[] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND:
You may also purchase shares of the Fund by exchanging shares from another New
England Fund. Please see "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
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:
Sales Charges as a % of
--------------------------------- Dealer's
Public Amount Concession as a % of
Offering Price Invested Offering Price
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 *
* The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases a commission of up to the following
amounts: 1% on the first $2 million invested; .80% on the next $1 million; .20%
on the next $2 million; and .08% on the excess over $5 million. These
commissions are not payable if the purchase represents the reinvestment of a
redemption made during the previous 12 calendar months.
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).
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more of Class A shares of the Fund, a CDSC, at the rate of 1% of
the lesser of the purchase price or the net asset value at the time of
redemption, applies to redemptions of shares within one year after purchase. If
an exchange is made to Class A shares of any of New England Cash Management
Trust Money Market Series or U.S. Government Series or New England Tax Exempt
Money Market Trust (the "Money Market Funds"), then the one-year holding period
for purposes of determining the expiration of the CDSC will stop and will resume
only when an exchange is made back into Class A shares of a series of New
England Funds Trust I or New England Funds Trust II (the "Trusts"). If the Money
Market Fund shares are redeemed rather than exchanged back into the Trusts, then
a CDSC applies to the 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.
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:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHANGE
------------------- ------------------------
1st 4%
2nd 3%
3rd 3%
4th 2%
5th 1%
thereafter 0%
Year one ends one year after the day on which the purchase was accepted, and so
on.
The CDSC is deducted from the proceeds of the redemption, unless otherwise
requested, and is paid to the Distributor. The CDSC may be eliminated for
certain persons and organizations. See "Sales Charges - General" below. At the
time of sale, the Distributor pays investment dealers a commission of 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 also in the future offer a fourth class of shares, which is not
currently available for purchase. 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
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. In some instances these
incentives are provided to certain dealers who achieve sales goals or who have
sold or may sell significant amounts of shares. The Distributor from time to
time may provide financial assistance programs to dealers in connection with
conferences, sales or training programs, seminars, advertising and sales
campaigns and/or shareholder services arrangements. Certain dealers who have
sold or may sell significant amounts of shares also may receive compensation in
the form of payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives to locations,
within or outside of the U.S., for educational seminars or meetings of a
business nature.
The Distributor may provide non-cash incentives for achievement of specified
sales levels by representatives of participating broker-dealers and financial
institutions. Such incentives include, but are not limited to, merchandise from
gift catalogues or other sources. The participation of representatives in such
incentive programs is at the discretion of the broker-dealer or financial
institution with which the representative is associated.
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.
[] 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), 403(b) or 457 of the Internal Revenue Code and rabbi trusts. Investors
may be charged a fee if they effect transactions through a broker or agent.
[] There is no sales charge, CDSC or initial investment minimum related to
investments by certain current and retired employees of the Trusts' investment
advisers or subadvisers, the Distributor or any other company affiliated with
The New England; current and former directors and trustees of the Trusts or
their predecessor companies; agents and general agents of The New England and
its insurance company subsidiaries; current and retired employees of such agents
and general agents; registered representatives of broker-dealers that have
selling arrangements with the Distributor; the spouse, parents, children,
siblings, grandparents or grandchildren of the persons listed above; any trust,
pension, profit sharing or other benefit plan for any of the foregoing persons;
and any separate account of The New England or of any insurance company
affiliated with The New England.
[] Shareholders of Reich & Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of any series of the Trusts at net asset
value and without the imposition of a sales charge.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses associated
with such sales.
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 (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 them for at least six months; otherwise, sales
charges apply to the exchange. If you exchange your Class A shares of New
England Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund") for
shares of another fund that has a higher sales charge, you will pay the
difference between any sales charge you have already paid on your Adjustable
Rate Fund shares and the higher sales charge of the 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.
AUTOMATIC EXCHANGE PLAN
THE FUND HAS AN AUTOMATIC EXCHANGE PLAN UNDER WHICH SHARES OF A CLASS OF THE
FUND ARE AUTOMATICALLY EXCHANGED EACH MONTH FOR SHARES OF THE SAME CLASS OF
OTHER SERIES OF THE TRUSTS (OTHER THAN NEW ENGLAND GROWTH FUND, WHICH IS
AVAILABLE ONLY TO CERTAIN ELIGIBLE INVESTORS). THE MINIMUM MONTHLY EXCHANGE
AMOUNT UNDER THE PLAN IS $50. THERE IS NO FEE FOR EXCHANGES MADE PURSUANT TO
THIS PROGRAM, BUT THERE MAY BE A SALES CHARGE AS DESCRIBED ON THIS PAGE.
CLASS 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), call Tele#Facts at 1-800-346-5984 twenty-four hours a day or
write to New England Funds. Exchange requests accepted after 4:00 p.m. (Eastern
time), or after the Exchange closes if it closes earlier than 4:00 p.m., will be
processed at the net asset value determined at the close of regular trading on
the next day that the Exchange is open. The exchange must be for a minimum of
$500 (or the total net asset value of your account, whichever is less), except
that under the Automatic Exchange Plan the minimum is $50. All exchanges are
subject to the minimum investment and eligibility requirements of the series
into which you are exchanging. In connection with any exchange, you must receive
a current prospectus of the series into which you are exchanging. The exchange
privilege may be exercised only in those states where shares of such other
series may be legally sold.
You have the automatic privilege to exchange your Fund shares by telephone. New
England Funds, L.P. will employ reasonable procedures to confirm that your
telephone instructions are genuine, and, if it does not, it may be liable for
any losses due to unauthorized or fraudulent instructions. New England Funds,
L.P. will require a form of personal identification prior to acting upon your
telephone instructions, will provide you with written confirmations of such
transactions and will record your instructions.
Except as otherwise permitted by SEC rule, shareholders will receive at least 60
days' advance notice of any material change to the exchange privilege.
FUND DIVIDEND PAYMENTS
The Fund pays dividends annually. The Fund pays as dividends substantially all
net investment income (other than long-term capital gains) each year and
distributes annually all net realized long-term capital gains (after applying
any available capital loss carryovers). The trustees of the Trust may adopt a
different schedule as long as payments are made at least annually. If you intend
to purchase shares of the Fund shortly before it declares a dividend, you should
be aware that a portion of the purchase price may be returned to you as a
taxable dividend.
You have the option to reinvest all distributions in additional shares of the
same class of the Fund or in shares of the same class of other series of the
Trusts, to receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares of the same
class of the Fund or the same class of shares of other series of the Trusts, or
to receive all distributions in cash. Income distributions and capital gains
distributions will be reinvested in shares of the same class of the Fund at net
asset value (without a sales charge or CDSC) unless you select another option.
You may change your distribution option by notifying New England Funds in
writing or by calling 1-800-225-5478. If you elect to receive your dividends in
cash and the dividend checks sent to you are returned undeliverable to the Fund
or remain uncashed for six months, your cash election will automatically be
changed and your future dividends will be reinvested.
- --------------------------------------------------------------------------------
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program that allows you to
have all dividends and any other distributions automatically invested in shares
of the same class of another New England Fund, subject to the investor
eligibility requirements of that other fund and to state securities law
requirements. Shares will be purchased at the selected fund's net asset value
(without a sales charge or CDSC) on the dividend record date. A dividend
diversification account must be in the same registration (shareholder name) as
the distributing fund account and, if a new account in the purchased fund is
being established, the purchased fund's minimum investment requirements must be
met. Before establishing a dividend diversification program into any other New
England Fund, you must obtain a copy of that fund's prospectus.
- --------------------------------------------------------------------------------
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:
[] THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[] BY TELEPHONE:
You or your investment dealer may redeem (sell) shares by telephone using any of
the three methods described below:
Wired to Your Bank Account - If you have previously selected the telephone
redemption privilege on your account, shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) or by calling
Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds (LESS
ANY APPLICABLE CDSC) generally will be wired on the next business day to
the bank account previously chosen by you on your application. A wire fee
(currently $5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have a
correspondent bank that is a member. If your account is with a savings
bank, it must have only one correspondent bank that is a member of the
System.
Mailed to Your Address of Record - Shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) and
requesting that a check for the proceeds (LESS ANY APPLICABLE CDSC) be
mailed to the address on your account, provided that the address has not
changed over the previous month and that the proceeds are for $100,000 or
less. Generally, the check will be mailed to you on the business day after
your redemption request is received.
Through ACH - Shares may be redeemed electronically through the ACH system,
provided that you have an approved ACH application on file with the Fund.
To redeem through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Fund is open for business or call
Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds (LESS
ANY APPLICABLE CDSC) generally will arrive at your bank within three
business days; their availability will depend on your bank's particular
rule.
Redemption requests accepted after 4:00 p.m. (Eastern time), or after the
Exchange closes if it closes 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.
[] 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 Fund recommends
that certificates be sent by registered mail.
[] BY SYSTEMATIC WITHDRAWAL PLAN:
You may establish a Systematic Withdrawal Plan that allows you to redeem shares
and receive payments on a regular schedule. In the case of shares subject to a
CDSC, the amount or percentage you specify may not exceed, on an annualized
basis, 10% of the value of your Fund account. Redemption of shares pursuant to
the Plan will not be subject to a CDSC. For information, contact the Distributor
or your investment dealer. Since withdrawal payments may have tax consequences,
you should consult your tax adviser before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset value next
determined after your redemption request is received in proper form by State
Street Bank or your investment dealer (except that orders received by your
investment dealer before the close of regular trading on the Exchange and
transmitted to the Distributor by 5:00 p.m. Eastern time on the same day will
receive that day's net asset value). Redemption proceeds (LESS ANY APPLICABLE
CDSC) will normally be mailed to you within seven days after State Street Bank
or the Distributor receives your request in good order. However, in those cases
where you have recently purchased your shares by check or an electronic funds
transfer through the ACH system and you make a redemption request within 10 days
after such purchase or transfer, the Fund may withhold redemption proceeds until
the Fund knows that the check or funds have cleared.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If you are unable to contact the Distributor by
telephone, shares may be redeemed by delivering the redemption request in person
to the Distributor or by mail as described above. Requests are processed at the
net asset value next determined after the request is received.
Special rules apply with respect to redemptions under powers of attorney. Please
call your investment dealer or the Distributor for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares held in certificate form. If certificates have been issued for
your investment, you must send them to New England Funds along with your request
before a redemption request can be honored. See the instructions for redemption
by mail above.
The Fund may suspend the right of redemption and may postpone payment for more
than seven days when the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the SEC when trading on the Exchange is
restricted or during an emergency which makes it impracticable for the Fund to
dispose of its securities or to determine fairly the value of its net assets, or
during any other period permitted by the SEC for the protection of investors.
REPURCHASE OPTION (CLASS A SHARES ONLY)
You may apply your Class A share redemption proceeds (without a sales charge) to
the repurchase of Class A shares of any series of the Trusts. To qualify, you
must reinvest some or all of the proceeds within 120 days after your redemption
and notify New England Funds or your investment dealer at the time of
reinvestment that you are taking advantage of this privilege. You may reinvest
the proceeds either by returning the redemption check or by sending your check
for some or all of the redemption amount. Please note: For federal income tax
purposes, a redemption is a sale that involves tax consequences (even if the
proceeds are later reinvested). Please consult your tax adviser.
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
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. 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-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, the Fund pays all expenses not
borne by the 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 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
[] 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.
[] 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.
[] 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.
[] If they become available, Class Y shares of the Fund will be eligible for
purchase by endowments and foundations. The minimum initial investment is $1
million for these entities and the minimum for each subsequent investment is
$100,000. Class Y shares may also be purchased by plan sponsors of 401(a),
401(k), 457 or 403(b) plans ("Retirement Plans") that have total investment
assets in these plans of at least $10 million. Plan sponsors' investment assets
in multiple Retirement Plans can be aggregated for purposes of meeting this
minimum. Class Y shares will also be eligible for purchase by any separate
account of The New England or of any other insurance company affiliated with The
New England ("Separate Accounts"). There is no minimum initial or subsequent
investment amount for Retirement Plans or Separate Accounts. Investments in
Class Y shares will also be able to be made by certain individual retirement
accounts if the amounts invested represent rollover distributions from
investments by any of the foregoing Retirement Plans of amounts invested in
Class Y shares.
[] If Class Y shares become available, 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.
[] The Trust does not generally hold regular shareholder meetings and will do
so only when required by law. Shareholders of the Trust may remove the trustees
of the Trust from office by votes cast at a shareholder meeting or by written
consent.
[] The transfer and dividend paying agent for the Fund is New England Funds,
L.P., 399 Boylston Street, Boston, MA 02116. New England Funds, L.P. has
subcontracted certain of its obligations as such to State Street Bank, 225
Franklin Street, Boston, MA 02110.
[] If the balance in your account with the Fund is less than a minimum amount
set by the trustees of the Trust from time to time (currently $500 for all
accounts, except for those indicated below and for individual retirement
accounts, which have a $25 minimum), the Fund may close your account and send
the proceeds to you. Shareholders who are affected by this policy will be
notified of the Fund's intention to close the account and will have 60 days
immediately following the notice to bring the account up to the minimum. The
minimum does not apply to Keogh, pension and profit sharing plans, automatic
investment plans or accounts that have fallen below the minimum solely because
of fluctuations in the Fund's net asset value per share.
[] The Fund's annual report contains additional performance information and
will be made available upon request and without charge.
[] The Class A, Class B, Class C and Class Y structure could be terminated
should certain IRS rulings be rescinded.
[] Summit Cash 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.
<PAGE>
[GRAPHIC OMITTED](R)
NEW ENGLAND FUNDS
Where The Best Minds MeetTM
- --------------------------------------------------------------------------------
NEW ENGLAND STAR WORLDWIDE FUND
STATEMENT OF ADDITIONAL INFORMATION -- PART I
DECEMBER 29, 1995
AS REVISED JULY 30, 1996
This Statement of Additional Information (the "Statement") contains
information which may be useful to investors but which is not included in the
prospectus of New England Star Worldwide 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 December 29, 1995 for Class A, B, C
or Y 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, C and Y
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 eleven series.
<TABLE>
<CAPTION>
T a b l e o f C o n t e n t s
Page
PART I
<S> <C>
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
Appendix A - Description of Bond Ratings
Appendix B - Publications That May Contain Fund Information
Appendix C - Advertising and Promotional Literature
</TABLE>
<PAGE>
PART I
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following is a description of restrictions on the investments to be
made by the Fund, some of which restrictions (those restrictions marked with an
asterisk) may not be changed without the approval of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act of 1940 [the "1940 Act"]). Except in the case of restriction (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), or make short sales except where it owns or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold. (For this purpose, the deposit or payment by the
Fund of initial or variation margin in connection with futures
contracts or related options transactions is not considered the
purchase of a security on margin);
(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 % of its total assets, and then only as a
temporary measure for extraordinary or emergency purposes;
(6) Pledge more than 33 % 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 and other similar
instruments and with respect to initial and variation margin are not
deemed to be a pledge of assets);
(7) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;
(8) Purchase or retain securities of any issuer if officers and trustees of
the Trust or of the investment adviser of the Fund who individually own
more than 1/2 of 1% of the shares or securities of that issuer,
together own more than 5%;
*(9) 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;
*(10) 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);
*(11) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
(12) Make investments for the purpose of exercising control or management;
(13) 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.);
(14) Write, purchase or sell options or warrants, except that the Fund may
(a) acquire warrants or rights to subscribe to securities of companies
issuing such warrants or rights, or of parents or subsidiaries of such
companies, (b) write, purchase and sell put and call options on
securities, securities indexes, currencies, futures contracts, swap
contracts and other similar instruments, (c) enter into currency
forward contracts and (d) invest in structured notes;
(15) 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);
(16) 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;
*(17) 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
(18) Lend its portfolio securities if, as a result, the aggregate amount of
such loans outstanding at any one time would exceed 33 % 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 (15)
above.
As a matter of operating policy, subject to change without shareholder
approval, the Fund will not (i) invest more than 5% of the value of its net
assets in warrants (included within that amount but not to exceed 2% of the
value of its net assets may be warrants which are not listed on either the New
York Stock Exchange or the American Stock Exchange) (for purposes of this
restriction, warrants acquired in units or attached to other securities may be
deemed to be without value); (ii) purchase or sell real property including
real-estate limited partnerships but excluding readily marketable investments in
real estate investment trusts or readily marketable securities of companies
which invest in real estate; or (iii) purchase puts, calls, straddles, spreads
and any combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total assets.
- --------------------------------------------------------------------------------
FUND CHARGES AND EXPENSES
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES
Pursuant to an Advisory Agreement dated December 29, 1995 New England
Funds Management, L.P. ("NEFM") has agreed, subject to the supervision of the
board of trustees of the Trust, to manage the investment and reinvestment of the
assets of the Fund and to provide a range of administrative services to the
Fund. For the services described in the Advisory Agreement, the Fund pays NEFM a
fee at the annual rate of 1.05% of the Fund's average daily net assets.
The Advisory Agreement provides that NEFM may delegate its
responsibilities thereunder to other parties. As explained in the prospectus,
the Fund's portfolio is divided into five segments. NEFM has delegated
responsibility for the investment and reinvestment of the assets of each segment
of the portfolio to four different investment advisers (the "subadvisers"). The
subadvisers are Harris Associates L.P. ("Harris"), which manages two of the five
segments, and Founders Asset Management Inc. ("Founders"), Janus Capital
Corporation ("Janus Capital") and Montgomery Asset Management, L.P.
("Montgomery"), each of which manage one of the five segments. NEFM pays each
subadviser a fee for managing its segment or segments of the portfolio, at the
annual rate of 0.65% of the average daily net assets of each such segment up to
$50 million, 0.60% of the next $50 million of such assets and 0.55% of such
assets in excess of $100 million; except that Montgomery's fee is at the annual
rate of 0.90% of the average daily net assets of its segment of the portfolio up
to $25 million, 0.70% of the next $25 million of such assets and 0.55% of such
assets in excess of $50 million.
Montgomery has agreed to waive 0.15% of its fee through June 30, 1996.
For more information about the Fund's investment advisory and
subadvisory agreements, see "Management of the Trust" in Part II of this
Statement.
<PAGE>
PART II
- --------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
The following information relates to certain investment practices in
which the Fund may engage.
Loans of Portfolio Securities. The Fund may lend its portfolio securities to
broker-dealers under contracts calling for cash collateral equal to at least the
market value of the securities loaned, marked to the market on a daily basis.
(The Fund at the present time has no intention to engage in the lending of
portfolio securities.) The Fund will continue to benefit from interest or
dividends on the securities loaned and will also receive interest through
investment of the cash collateral in short-term liquid investments, which may
include shares of money market funds subject to any investment restriction
listed in Part I. Any voting rights, or rights to consent, relating to
securities loaned pass to the borrower. However, if a material event affecting
the investment occurs, such loans will be called so that the securities may be
voted by the Fund. The Fund pays various fees in connection with such loans,
including shipping fees and reasonable custodian and placement fees approved by
the board of trustees of the Trust or persons acting pursuant to the direction
of the board.
These transactions must by fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default on its
obligation and the Fund is delayed in or prevented from recovering the
collateral.
U.S. Government Securities. The Fund may invest in some or all of the following
U.S. Government securities:
o U.S. Treasury Bills - Direct obligations of the United States Treasury
which are issued in maturities of one year or less. No interest is paid on
Treasury bills; instead, they are issued at a discount and repaid at full face
value when they mature. They are backed by the full faith and credit of the
United States Government.
o U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with interest
normally payable every six months. These obligations are backed by the full
faith and credit of the United States Government.
o "Ginnie Maes" - Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmer's Home Administration or guaranteed
by the Veterans Administration. The Government National Mortgage Association
("GNMA") guarantees the timely payment of principal and interest when such
payments are due, whether or not these amounts are collected by the issuer of
these certificates on the underlying mortgages. An assistant attorney general of
the United States has rendered an opinion that the guarantee by GNMA is a
general obligation of the United States backed by its full faith and credit.
Mortgages included in single family or multi-family residential mortgage pools
backing an issue of Ginnie Maes have a maximum maturity of up to 30 years.
Scheduled payments of principal and interest are made to the registered holders
of Ginnie Maes (such as the Fund) each month. Unscheduled prepayments may be
made by homeowners, or as a result of a default. Prepayments are passed through
to the registered holder (such as the Fund, which reinvests any prepayments) of
Ginnie Maes along with regular monthly payments of principal and interest.
o "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers. Fannie
Maes are pass-through securities issued by FNMA that are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
o "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
is a corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
U.S. Government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may, for temporary defensive
purposes, accept lower current income from short-term investments rather than
investing in higher yielding long-term securities.
When-Issued Securities. The Fund may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when the Fund anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued later. When the Fund purchases securities in this manner (i.e. on a
when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account cash or U.S.
Government securities in an amount equal to or greater than, on a daily basis,
the amount of the Fund's when-issued or delayed-delivery commitments. The Fund
will make commitments to purchase on a when-issued or delayed-delivery basis
only securities meeting the Fund's investment criteria. The Fund may take
delivery of these securities or, if it is deemed advisable as a matter of
investment strategy, the Fund may sell these securities before the settlement
date. When the time comes to pay for when-issued or delayed-delivery securities,
the Fund will meet its obligations from the then available cash flow or the sale
of securities, or from the sale of the when-issued or delayed-delivery
securities themselves (which may have a value greater or less than the Fund's
payment obligation).
Repurchase Agreements. The Fund may enter into repurchase agreements by which
the Fund purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed-upon price and date. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the United States Government, the obligation of the seller is not guaranteed by
the United States Government and there is a risk that the seller may fail to
repurchase the underlying security. In such event, the Fund would attempt to
exercise rights with respect to the underlying security, including possible
disposition in the market. However, the Fund may be subject to various delays
and risks of loss, including (a) possible declines in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto, (b) possible reduced levels of income and lack of access to income
during this period and (c) inability to enforce rights and the expenses involved
in the attempted enforcement.
Zero Coupon Securities. Zero coupon securities are debt obligations that do not
entitle the holder to any periodic payments of interest either for the entire
life of the obligation or for an initial period after the issuance of the
obligations. Such securities are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the time
remaining until maturity of the securities, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
securities having similar maturities and credit quality. In order to satisfy a
requirement for qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund must distribute
each year at least 90% of its net investment income, including the original
issue discount accrued on zero coupon securities. Because the Fund will not on a
current basis receive cash payments from the issuer of a zero coupon security in
respect of accrued original issue discount, in some years the Fund may have to
distribute cash obtained from other sources in order to satisfy the 90%
distribution requirement under the Code. Such cash might be obtained from
selling other portfolio holdings of the Fund. In some circumstances, such sales
might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
Fund to sell such securities at such time.
Convertible Securities. The Fund may invest in convertible securities including
corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can
be converted into (that is, exchanged for) common stocks or other equity
securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
Short Sales Against the Box. The Fund may make short sales of securities only if
at all times when a short position is open the Fund owns at least an equal
amount of such securities or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short. These transactions are known
as short sales "against the box."
In a short sale against the box, 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 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 sales may protect the Fund against the risk of losses in the
value of its portfolio securities, because any unrealized losses with respect to
such portfolio securities should be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in the
portfolio securities should be wholly or partially offset by a corresponding
loss in the short position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to the amount the
Fund owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities that are convertible into any equity security that is
sold short, changes in the relative value of the convertible security and the
related equity security.
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. 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 against the box.
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 illiquid assets equal to the purchase price
of the contract (less any margin on deposit). For short positions in futures
contracts, the Fund will establish a segregated account with the custodian with
cash or high grade liquid debt assets that, when added to the amounts deposited
as margin, equal the market value of the instruments or currency underlying the
futures contracts.
Although futures contracts by their terms require actual delivery and
acceptance of securities (or cash in the case of index futures), in most cases
the contracts are closed out before settlement. A futures sale is closed by
purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or commodity and with the same delivery date. Similarly,
the closing out of a futures purchase is closed by the purchaser selling an
offsetting futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
OPTIONS. An option on a futures contract obligates the writer, in return for the
premium received, to assume a position in a futures contract (a short position
if the option is a call and a long position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying contract, the remaining term of
the option, supply and demand and interest rates. Options on futures contracts
traded in the United States may only be traded on a United States board of trade
licensed by the Commodity Futures Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the case of
a call option) or to sell (in the case of a put option) a particular security at
a specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by the Fund is considered
by the Fund to be covered if the Fund owns the security subject to the
underlying futures contract or other securities whose values are expected to
move in tandem with the values of the securities subject to such futures
contract, based on historical price movement volatility relationships. A call
option on a security written by the Fund is considered to be covered if the Fund
owns a security deliverable under the option. A written call option is also
covered if the Fund holds a call on the same futures contract or security as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
Treasury bills or other high grade liquid obligations in a segregated account
with its custodian.
A put option on a futures contract written by the Fund, or a put option
on a security written by the Fund, is covered if the Fund maintains cash, U.S.
Treasury bills or other high-grade liquid debt obligations with a value equal to
the exercise price in a segregated account with the Fund's custodian, or else
holds a put on the same futures contract (or security, as the case may be) as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written.
If the writer of an option wishes to terminate its position, it may
effect a closing purchase transaction by buying an option identical to the
option previously written. The effect of the purchase is that the writer's
position will be canceled. Likewise, the holder of an option may liquidate its
position by selling an option identical to the option previously purchased.
Closing a written call option will permit the Fund to write another
call option on the portfolio securities used to cover the closed call option.
Closing a written put option will permit the Fund to write another put option
secured by the segregated cash, U.S. Treasury bills or other high-grade liquid
obligations used to secure the closed put option. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
futures contract or securities subject to the option to be used for other Fund
investments. If the Fund desires to sell particular securities covering a
written call option position, it will close out its position or will designate
from its portfolio comparable securities to cover the option prior to or
concurrent with the sale of the covering securities.
The Fund will realize a profit from closing out an option if the price
of the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Fund will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the value
of the underlying securities or futures contracts usually have a time value
component (i.e. a value that diminishes as the time within which the option can
be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be enhanced. Likewise, the
profit or loss from writing put options may or may not be offset in whole or in
part by changes in the market value of securities acquired by the Fund when the
put options are closed.
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 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, U.S. Treasury bills
or other high grade liquid obligations 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 volatility of the futures
contract. Conversely, the Fund may purchase or sell fewer contracts if the
volatility of the price of hedged securities is historically less than that of
the futures contracts.
The price of index futures may not correlate perfectly with movement in
the relevant index due to certain market distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the index and futures markets. Secondly, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. In addition, trading hours for
foreign stock index futures may not correspond perfectly to hours of trading on
the foreign exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and the value
of the relevant index due to the lack of continuous arbitrage between the index
futures price and the value of the underlying index. Finally, hedging
transactions using stock indices involve the risk that movements in the price of
the index may not correlate with price movements of the particular portfolio
securities being hedged.
Price movement correlation also may be distorted by the illiquidity of
the futures and options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users may
not deal in futures contracts or options because they do not want to assume the
risk that they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices may be
driven by different forces than those driving the market in the underlying
securities, and price spreads between these markets may widen. The participation
of speculators in the market enhances its liquidity. Nonetheless, speculators
trading spreads between futures markets may create temporary price distortions
unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be
established or closed out only on an exchange or board of trade. There is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. The liquidity of markets in
futures contracts and options on futures contracts may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures or options price during a single trading
day. Once the daily limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent the liquidation of
open futures or options positions. Prices have in the past exceeded the daily
limit on a number of consecutive trading days. If there is not a liquid market
at a particular time, it may not be possible to close a futures or options
position at such time, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin.
However, if futures or options are used to hedge portfolio securities, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid secondary
market for an option of the same series. If a liquid secondary market for an
exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option, with the result that
the Fund would have to exercise the option in order to realize any profit. If
the Fund is unable to effect a closing purchase transaction in a secondary
market, it will be not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market on an exchange include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Because the specific procedures for trading foreign stock index futures
on futures exchanges are still under development, additional or different margin
requirements as well as settlement procedures may be applicable to foreign stock
index futures at the time the Fund purchases foreign stock index futures.
The successful use of transactions in futures and options depends in
part on the ability of 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.
ECONOMIC EFFECTS AND LIMITATIONS. Income earned by the Fund from its hedging
activities will be treated as capital gain and, if not offset by net recognized
capital losses incurred by the Fund, will be distributed to shareholders in
taxable distributions. Although gain from futures and options transactions may
hedge against a decline in the value of the Fund's portfolio securities, that
gain, to the extent not offset by losses, will be distributed in light of
certain tax considerations and will constitute a distribution of that portion of
the value preserved against decline.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
FUTURE DEVELOPMENTS. The above discussion relates to the Fund's proposed use of
futures contracts, options and options on futures contracts currently available.
The relevant markets and related regulations are still in the developing stage.
In the event of future regulatory or market developments, the Fund may also use
additional types of futures contracts or options and other investment techniques
for the purposes set forth above.
Foreign Currency Hedging Transactions. To protect against a change in the
foreign currency exchange rate between the date on which the Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale, or
to "lock in" the equivalent of a dividend or interest payment in another
currency, the Fund might purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate. If conditions warrant, the Fund may also
enter into contracts with banks or broker-dealers to purchase or sell foreign
currencies at a future date ("forward contracts"). The Fund will maintain cash
or high-quality debt obligations in a segregated account with the custodian in
an amount at least equal to (i) the difference between the current value of the
Fund's liquid holdings that settle in the relevant currency and the Fund's
outstanding obligations under currency forward contracts, or (ii) the current
amount, if any, that would be required to be paid to enter into an offsetting
forward currency contract which would have the effect of closing out the
original forward contract. The Fund's use of currency hedging transactions may
be limited by tax considerations. The Fund may also purchase or sell foreign
currency futures contracts traded on futures exchanges. Foreign currency futures
contract transactions involve risks similar to those of other futures
transactions. See "Options and Futures" above.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
Trustees
Trustees of the Trust and their ages (in parentheses), addresses and principal
occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR. -- Trustee (55); 79 John F. Kennedy Street, Cambridge, MA
02138; Douglas Dillon Professor and Director for the Center of Science and
International Affairs, John F. Kennedy School of Government; Special
Advisor to the United States Secretary of Defense; formerly, Assistant
Secretary of Defense; formerly, Dean, John F. Kennedy School of Government.
DANIEL M. CAIN - Trustee (51); 452 Fifth Avenue, New York, NY 10018; President
and CEO, Cain Brothers & Company, Incorporated (investment banking);
Trustee, Universal Health Realty Income Trust (REIT); Chairman, Inter Fish,
Inc., (an aqua venture in Barbados).
KENNETH J. COWAN -- Trustee (63); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Retired; formerly, Senior Vice President-Finance and Chief
Financial Officer, Blue Cross of Massachusetts, Inc. and Blue Shield of
Massachusetts, Inc.; formerly, Director, Neworld Bank for Savings and
Neworld Bancorp.
RICHARD DARMAN - Trustee (52); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Partner and Managing Director, The Carlyle Group (investments);
Trustee, Council for Excellence in Government (not-for-profit); Director,
Frontier Ventures (personal investment); Director, Highway Master
Communications (mobile communications); Managing Partner, Little Falls
Partners (family investment); Director, Sequana Therapeutics
(biotechnology/genomics); Director, Telcom Ventures (telecommunications);
formerly, Director of the U.S. Office of Management and Budget and a member
of President Bush's Cabinet.
SANDRA O. MOOSE -- Trustee (53); 135 E. 57th Street New York, NY 10022; Senior
Vice President and Director, The Boston Consulting Group, Inc. (management
consulting); Director, GTE Corporation and Rohm and Haas Company (specialty
chemicals).
HENRY L.P. SCHMELZER* -- Trustee and President (52); President, Chief Executive
Officer and Director, NEF Corporation; President and Chief Executive
Officer, New England Funds, L.P.; President and Chief Executive Officer,
NEFM; Director, Back Bay Advisors, Inc.; formerly, Director, New England
Securities Corporation ("New England Securities").
JAMES H. SCOTT -- Trustee (53); 2001 Bryan Street, Suite 1850, Dallas, Texas
75201; Vice President, TU Services (electric utility); formerly, Treasurer,
The Trustees of Amherst College.
JOHN A. SHANE -- Trustee (62); 300 Unicorn Park Drive, Woburn, Massachusetts
01801; President, Palmer Service Corporation (venture capital
organization); General Partner, The Palmer Organization and Palmer Partners
L.P.; Director, Arch Communications Group, Inc. (paging service); Director,
Dowden Publishing Company, Inc. (publishers of medical magazines);
Director, Eastern Bank Corporation; Director, Gensym Corporation (expert
system software); Director, Overland Data, Inc. (manufacturer of computer
tape drives); Director, Summa Four, Inc. (manufacturer of telephone
switching equipment); Director, United Asset Management Corporation
(holding company for institutional money management); formerly, Director,
Abt Associates, Inc. (consulting firm); formerly, Director, Aviv
Corporation (manufacturer of controllers); formerly, Director, Banyan
Systems, Inc. (manufacturer of network software); formerly, Director,
Cerjac Inc. (manufacturer of telephone testing equipment).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee
(49); President and Chief Executive Officer, New England Investment
Companies, L.P. ("NEIC"); Director, President and Chief Executive Officer,
New England Investment Companies, Inc.; Chairman of the Board and Director,
NEF Corporation; Chairman of the Board and Director, Back Bay Advisors,
Inc.; Director, New England Mutual Life Insurance Company ("The New
England"); formerly, Executive Vice President, Bank of America; formerly,
Group Head of International Banking, Trading and Securities, Security
Pacific National Bank, and Chief Executive Officer of the Security Pacific
Investment Group.
PENDLETON P. WHITE -- Trustee (64); 6 Breckenridge Lane, Savannah, Georgia
31411; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants); formerly,
Trustee, The Faulkner Corporation (community hospital corporation).
- --------
* Trustee deemed an "interested person" of the Trust, as defined in the
Investment Company Act of 1940 (the "1940 Act").
Officers
Officers of the Trust, in addition to Messrs. Schmelzer and Voss, and their ages
(in parentheses) and principal occupations during the past five years are as
follows:
BRUCE R. SPECA -- Vice President (40); Executive Vice President, NEF
Corporation; Executive Vice President, New England Funds, L.P.; Executive
Vice President, NEFM.
FRANK NESVET -- Treasurer (52); Senior Vice President and Chief Financial
Officer, NEF Corporation; Senior Vice President and Chief Financial
Officer, New England Funds, L.P.; Senior Vice President and Chief Financial
Officer, NEFM; formerly, Executive Vice President, SuperShare Services
Corporation.
ROBERT P. CONNOLLY -- Secretary and Clerk (42); Senior Vice President and
General Counsel, NEF Corporation; Senior Vice President and General
Counsel, New England Funds, L.P.; Senior Vice President and General
Counsel, NEFM; formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company); formerly, Managing Director
and General Counsel, Equitable Capital Management Corporation.
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 director or trustee of certain other investment companies for
which New England Funds, L.P. acts as principal underwriter and 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 Tax Exempt Money Market
Trust (all four trusts collectively, the "New England Funds Trusts"), comprising
a total of 21 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 20 other mutual fund portfolios based on a formula that
takes into account, among other factors, the net assets of each fund.
During the fiscal year ended December 31, 1994 the persons who were
then trustees of the Trust received the amounts set forth in the following table
for serving as a trustee of the Trust and for also serving on the governing
boards of the other New England Funds Trusts, New England Zenith Fund ("Zenith")
and New England Variable Annuity Fund I ("NEVA"), comprising as of December 29,
1995 a total of 37 mutual fund portfolios (not all of which were in existence
during 1994).
<TABLE>
<CAPTION>
Total Compensation
Pension or from the New
Aggregate Retirement Benefits Estimated Annual England Funds
Compensation Accrued as Part of Benefits Trusts, Zenith
from the Trust Fund Expenses Upon and NEVA
Name of Trustee in 1994 in 1994 Retirement in 1994
- --------------- ------- ------- ---------- -------
<S> <C> <C> <C> <C>
Graham T. Allison, Jr. (a) $ 0 $0 $0 $ 0
Daniel M. Cain (b) $ 0 $0 $0 $ 0
Kenneth J. Cowan $18,244 $0 $0 $59,375
Richard Darman (b) $ 0 $0 $0 $ 0
Joseph M. Hinchey (c) $17,507 $0 $0 $56,875
Richard S. Humphrey, Jr. (c) $17,507 $0 $0 $56,875
Robert B. Kittredge (c) $17,951 $0 $0 $89,279 (e)
Laurens MacLure (c) $18,688 $0 $0 $91,779 (e)
Sandra O. Moose $16,326 $0 $0 $52,875
James H. Scott (d) $17,507 $0 $0 $56,875
John A. Shane $17,211 $0 $0 $55,875
Joseph F. Turley (c) $17,951 $0 $0 $58,375
Pendleton P. White $17,951 $0 $0 $58,375
<FN>
(a) Became a Trustee of the Trust effective April 1, 1995.
(b) Became a Trustee of the Trust effective February 23, 1996.
(c) Resigned as a Trustee of the Trust effective May 1, 1995.
(d) Resigned as a Trustee of the Trust effective March 5, 1996.
(e) Also includes compensation paid by the 5 CGM Funds, a group of mutual funds for which Capital Growth Management
Limited Partnership, the investment adviser of New England Funds Trust I's New England Growth Fund, Zenith's
Capital Growth Series and NEVA, serves as investment adviser.
</TABLE>
The Trust provides no pension or retirement benefits to trustees, but
has adopted a deferred payment arrangement under which each trustee may elect
not to receive fees from the Trust on a current basis but to receive in a
subsequent period an amount equal to the value that such fees would have if they
had been invested in each of the funds in the Trust on the normal payment date
for such fees. As a result of this method of calculating the deferred payments,
the Fund, upon making the deferred payments, will be in the same financial
position as if the fees had been paid on the normal payment dates.
As of December 29, 1995, the officers and trustees of the Trust as a
group owned less than 1% of the outstanding shares of the Trust.
Advisory and Subadvisory Agreements
The Fund's advisory agreement provides that NEFM will furnish or pay
the expenses of the Fund for office space, facilities and equipment, services of
executive and other personnel of the Trust and certain administrative services.
The Fund pays all expenses not borne by its adviser or subadvisers
including, but not limited to, the charges and expenses of the Fund's custodian
and transfer agent, independent auditors and legal counsel, all brokerage
commissions and transfer taxes in connection with portfolio transactions, all
taxes and filing fees, the fees and expenses for registration or qualification
of its shares under the federal or state securities laws, all expenses of
shareholders' and trustees' meetings and of preparing, printing and mailing
reports to shareholders and the compensation of trustees who are not directors,
officers or employees of the Fund's adviser, subadviser or their affiliates,
other than affiliated registered investment companies. The Fund also pays NEFM
for certain legal and accounting services provided to the Fund by NEFM.
Under the Fund's advisory agreement, if the total ordinary business
expenses of the Fund or the Trust as a whole for any fiscal year exceed the
lowest applicable limitation (based on percentage of average net assets or
income) prescribed by any state in which the shares of the Fund or Trust are
qualified for sale, NEFM shall pay such excess. At present, the most restrictive
state annual expense limitation is 2 1/2% of the average annual net assets up to
$30,000,000, 2% of the next $70,000,000 and 1 1/2% of such assets in excess of
$100,000,000. NEFM will not be required to reduce its fee or pay such expenses
to an extent or under circumstances which might result in the Fund's inability
to qualify as a regulated investment company under the Code. The term "expenses"
is defined in the advisory agreement and excludes brokerage commissions, taxes,
interest, distribution-related expenses and extraordinary expenses. This means
that the distribution fees payable to New England Funds, L.P. under the Fund's
Distribution Agreement and the Distribution Plans would be excluded from
"expenses."
The advisory agreement and each sub-advisory agreement between NEFM and
the subadviser that manages a segment or segments 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 NEFM.
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 New England Growth Opportunities
Fund, New England Strategic Income Fund, New England Equity Income Fund and
Growth Fund of Israel, as well as the Fund, and will serve, beginning January 2,
1996, as the investment adviser to each of the remaining 19 funds in the New
England Funds Trusts except New England Growth Fund.
Harris was organized in 1995 to succeed to the business of a
predecessor limited partnership also named Harris Associates L.P., which
together with its predecessor had advised and managed mutual funds since 1970.
Harris is a wholly-owned subsidiary of NEIC, having been acquired by NEIC in
1995. Harris also serves as investment adviser to individuals, trusts,
retirement plans, endowments and foundations, and manages numerous private
partnerships.
Janus Capital serves as investment adviser to the Janus mutual funds
and to other mutual funds, individual, charitable, corporate and retirement
accounts. Kansas City Southern Industries, Inc., a publicly-traded company, owns
83% of the outstanding voting stock of Janus Capital. Thomas H. Bailey, Chairman
and President of Janus Capital, owns approximately 12% of such voting stock.
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.
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.
The segment of the Fund advised by Founders and one or more of the
other mutual funds or clients to which Founders serves as investment adviser may
own the same securities from time to time. If purchases or sales of securities
for the segment of the Fund advised by Founders and other funds or clients
advised by Founders arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the Fund
and other clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on the price and amount of the
security being purchased or sold for the Fund. However, the ability of the Fund
to participate in volume transactions may possibly produce better executions for
the Fund in some cases. It is the opinion of the trustees that the desirability
of retaining Founders as an adviser to the Fund outweighs the disadvantages, if
any, which might result from these procedures.
Janus Capital performs investment advisory services for other mutual
funds, individual, charitable, corporate and retirement accounts (the "private
accounts"), as well as for a segment of the portfolio of the Fund. Although the
overall investment objective of the Fund may differ from the objectives of the
private accounts and other funds served by Janus Capital, there may be
securities that are suitable for the portfolio of the Fund as well as for one or
more of the other funds or the private accounts. Therefore, purchases and sales
of the same investment securities may be recommended for the Fund and for one or
more of the other funds or private accounts. To the extent that the Fund and one
or more of the other funds or private accounts seek to acquire or sell the same
security at the same time, either the price obtained by the Fund or the amount
of securities that may be purchased or sold by the Fund at one time may be
adversely affected. In such cases, the purchase and sale transactions are
allocated among the Fund, the other funds and the private accounts in a manner
believed by the management of Janus Capital to be equitable to each. It is the
opinion of the trustees that the desirability of retaining Janus Capital as an
adviser to the Fund outweighs the disadvantages, if any, which might 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. If they become available,
Class Y shares of the Fund may be offered by registered representatives of New
England Securities who are also employees of New England Investment Associates,
Inc. ("NEIA"), an indirect, wholly-owned subsidiary of NEIC. NEIA may receive
compensation from NEFM with respect to sales of Class Y shares.
The Distribution Agreement may be terminated at any time on 60 days'
written notice without payment of any penalty by New England Funds, L.P. or by
vote of a majority of the outstanding voting securities of the Fund or by vote
of a majority of the Independent Trustees.
The Distribution Agreement and the Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire board of trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the outstanding
securities of Fund (or the relevant class, in the case of the Plans).
With the exception of New England Funds, L.P., New England Securities
and their direct and indirect corporate parents (NEIC and The New England), no
interested person of the Trust nor any trustee of the Trust had any direct or
indirect financial interest in the operation of the Plans or any related
agreement.
Benefits to the Fund and its shareholders resulting from the Plans are
believed to include (1) enhanced shareholder service, (2) asset retention, (3)
enhanced bargaining position with third party service providers and economies of
scale arising from having higher asset levels and (4) portfolio management
opportunities arising from having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the name of
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, 1992 and 1993, New England Funds,
L.P. received commissions on the sale of the Class A shares of the Trust
aggregating $19,853,746 and $12,478,105 and respectively, of which $1,985,975
and $1,428,524 was retained by New England Funds, L.P. During the year ended
December 31, 1994, New England Funds, L.P. received commissions on the sale of
shares of the Trust aggregating $9,569,312, of which $8,290,120 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 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.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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Segments of the Fund Advised by Harris. In placing orders for the
purchase and sale of portfolio securities for the segments 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 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 these segments of 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 these segments'
securities transactions.
Harris may cause these segments 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 these segments 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 these segments of 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.
Montgomery contemplates purchasing most equity securities directly in
the securities markets located in emerging or developing countries or in the
over-the-counter markets. 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 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.
Sell decisions at the country level are dependent on the results of
Montgomery's asset allocation model. Some countries impose restrictions on
repatriation of capital and/or dividends which would lengthen Montgomery's
assumed time horizon in those countries. In addition, the rapid pace of
privatization and initial public offerings creates a flood of new opportunities
which must continually be assessed against current holdings.
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.
Segment of the Fund Advised by Founders. It is the policy of Founders,
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, Founders may execute transactions with brokerage firms which
provide research services and products to Founders. 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 Founders in furtherance of its investment advisory responsibilities to
its advisory clients. Such services and products permit Founders 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. Founders 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 Founders 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, Founders may allocate the
cost of such service or product accordingly. The portion of the product or
service that Founders 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 Founders. Subject to the
standards outlined in this and the preceding paragraph, Founders 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 Founders 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 Founders in providing
investment advice to any of the funds or clients it advises. Likewise,
information made available to Founders 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.
A significant proportion of the total commissions paid by Founders'
advisory clients for portfolio transactions during the year ended December 31,
1994 was paid to brokers that provided research services to Founders. It is
expected that a majority of the brokerage business of the segment of the Fund
advised by Founders will be placed with firms that provide such services.
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 Founders may pay an executing
broker a commission higher than that which might have been charged by another
broker for that transaction. Founders 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 Founders 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 Founders, better
prices and execution are available elsewhere.
Segment of the Fund Advised by Janus Capital. Decisions as to the
assignment of portfolio business for the segment of the Fund's portfolio advised
by Janus Capital and negotiation of its commission rates are made by Janus
Capital, whose policy is to obtain the "best execution" (prompt and reliable
execution at the most favorable securities price) of all portfolio transactions.
In placing portfolio transactions for its segment of the Fund's portfolio, Janus
Capital 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, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's 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, Janus Capital 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 Janus Capital 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 Janus
Capital. 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 Janus Capital in carrying out its responsibilities. Research received
from brokers or dealers is supplemental to Janus Capital's own research efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to the Fund. If Janus Capital 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, Janus Capital may allocate
the costs of such service or product accordingly. Only that portion of the
product or service that Janus Capital 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 Janus Capital.
Janus Capital may also consider sales of shares of mutual funds advised
by Janus Capital 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, Janus Capital 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.
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.
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DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
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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 eleven separate portfolios (the "Funds"). The other
series of the Trust are New England Growth Fund, which currently offers one
class of shares, New England Tax Exempt Income Fund, which currently offers two
classes of shares, New England Capital Growth Fund, New England Strategic Income
Fund and New England Government Securities 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. The remaining funds in the Trust
are successors to the following corporations which commenced operations in the
years indicated:
Corporation Date of Commencement
----------- --------------------
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
* Predecessor of New England Value Fund
** Predecessor of New England Balanced 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 series of shares of the Trust. The Declaration of Trust
further permits the Trust's trustees to divide the shares of each series into
any number of separate classes, each having such rights and preferences relative
to other classes of the same series as the trustees may determine. The shares of
Fund do not have any preemptive rights. Upon termination of the Fund, whether
pursuant to liquidation of the Trust or otherwise, shareholders of each class of
the Fund are entitled to share pro rata in the net assets attributable to that
class of shares of the Fund available for distribution to shareholders. The
Declaration of Trust also permits the trustees to charge shareholders directly
for custodial, transfer agency and servicing expenses.
The shares of the Fund are divided into four classes, Class A, Class B,
Class C and Class Y. The Fund offers such classes of shares as set forth in the
prospectus. The Class Y shares are available for purchase only by certain
eligible institutional investors and have higher minimum purchase requirements
than Classes A, B and C. All expenses of the Fund [excluding transfer agency
fees and expenses of printing and mailing prospectuses to shareholders ("Other
Expenses")] are borne by its Class A, B, C and Y shares on a pro rata basis,
except for 12b-1 fees, which are borne only by Classes A, B and C and may be
charged at a separate rate to each such class. Other Expenses of Classes A, B
and C are borne by such classes on a pro rata basis, but Other Expenses relating
to the Class Y Shares may be allocated separately to the Class Y shares.
The assets received by each class of the Fund for the issue or sale of
its shares and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to, and constitute the
underlying assets of, that class. The underlying assets of each class of the
Fund are segregated and are charged with the expenses with respect to that class
and with a share of the general expenses of the Trust. Any general expenses of
the Trust that are not readily identifiable as belonging to a particular class
of a fund in the Trust are allocated by or under the direction of the trustees
in such manner as the trustees determine to be fair and equitable. While the
expenses of the Trust are allocated to the separate books of account of each
fund in the Trust, certain expenses may be legally chargeable against the assets
of all classes of the funds in the Trust.
The Declaration of Trust also permits Trust's trustees, without
shareholder approval, to subdivide any series or class of shares or fund into
various sub-series or sub-classes with such dividend preferences and other
rights as the trustees may designate. While the trustees have no current
intention to exercise this power, it is intended to allow them to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The trustees may also,
without shareholder approval, establish one or more additional series or classes
or merge two or more existing series or classes.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any fund of the Trust, however, may be terminated at any
time by vote of at least two-thirds of the outstanding shares of each fund
affected. Similarly, any class within a fund may be terminated by vote of at
least two-thirds of the outstanding shares of such class. While the Declaration
of Trust further provides that the board of trustees may also terminate the
Trust upon written notice to its shareholders, the 1940 Act requires that the
Trust receive the authorization of a majority of its outstanding shares in order
to change the nature of its business so as to cease to be an investment company.
Voting Rights
As summarized in the prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided therein) in the election of trustees and
the termination of the Trust and on other matters submitted to the vote of
shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all shareholders of the Trust, all Trust shares entitled to vote shall
be voted together irrespective of series or class unless the rights of a
particular series or class would be adversely affected by the vote, in which
case a separate vote of that series or class shall also be required to decide
the question. Also, a separate vote shall be held whenever required by the 1940
Act or any rule thereunder. Rule 18f-2 under 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreements relating to that series, and shareholders of each
class within a series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the board of trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
of at least $25,000 or at least 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Trust has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Shareholder voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's or 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.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Fund are summarized in the
prospectus. Banks may charge a fee for transmitting funds by wire. With respect
to shares purchased by federal funds, shareholders should bear in mind that wire
transfers may take two or more hours to complete.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange on a day
when the Exchange is open; otherwise the settlement date is the following
business day. For telephone orders, the settlement date is the fifth business
day after the order is made.
Shares may also be purchased either in writing, by phone or, in the
case of Class A, B and C shares, by electronic funds transfer using Automated
Clearing House ("ACH"), or by exchange as described in the prospectus through
firms that are members of the National Association of Securities Dealers, Inc.
and that have selling agreements with the Distributor.
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of the Fund's Class A, B or C shares. Payment must be
received by the Distributor within five business days following the transaction
date or the order will be subject to cancellation. Telephone orders must be
placed through the Distributor or your investment dealer.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset
value per share is summarized in the prospectus.
The total net asset value of each class of shares of the Fund (the
excess of the assets of the Fund attributable to such class over the liabilities
attributable to such class) is determined as of the close of regular trading
(normally 4:00 p.m. Eastern time) on each day that the New York Stock Exchange
is open for trading. The weekdays that the New York Stock Exchange is expected
to be closed are New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities
listed on a national securities exchange or on the NASDAQ National Market System
are valued at their last sale price, or, if there is no reported sale during the
day, the last reported bid price estimated by a broker. Unlisted securities
traded in the over-the-counter market are valued at the last reported bid price
in the over-the-counter market or on the basis of yield equivalents as obtained
from one or more dealers that make a market in the securities. U.S. Government
Securities are traded in the over-the-counter market. Options, interest rate
futures and options thereon that are traded on exchanges are valued at their
last sale price as of the close of such exchanges. Securities for which current
market quotations are not readily available and all other assets are taken at
fair value as determined in good faith by the board of trustees, although the
actual calculations may be made by persons acting pursuant to the direction of
the board.
Generally, trading in equity securities in markets outside the United
States, as well as trading in foreign government securities and other
fixed-income securities, is substantially completed each day at various times
prior to the close of the New York Stock Exchange. Securities traded on a
non-U.S. exchange will be valued at their last sale price (or the last reported
bid price, if there is no reported sale during the day), on the exchange on
which they principally trade, as of the close of regular trading on such
exchange. The value of other securities principally traded outside the United
States will be computed as of the completion of substantial trading for the day
on the markets on which such securities principally trade. Securities
principally traded outside the United States will generally be valued several
hours before the close of regular trading on the New York Stock Exchange,
generally 4:00 p.m. Eastern time, 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 prospectus. The public
offering price of a Class B, C or Y share of the Fund is the next-determined net
asset value.
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REDUCED SALES CHARGES
Class A Shares Only
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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.
Combining Purchases. Purchases of all series and classes of the Trusts
by or for an investor, the investor's spouse, parents, children, siblings,
grandparents or grandchildren and any other account of the investor, including
sole proprietorships, in either Trust may be treated as purchases by a single
individual for purposes of determining the availability of a reduced sales
charge. Purchases for a single trust estate or a single fiduciary account may
also be treated as purchases by a single individual for this purpose, as may
purchases on behalf of a participant in a tax-qualified retirement plan and
other employee benefit plans, provided that the investor is the sole participant
in the plan.
Combining with Other Series and Classes of the Trusts. A shareholder's
total investment for purposes of the cumulative purchase discount and purchases
under a Letter of Intent includes the value at the current public offering price
of any shares of series and classes of the Trusts that the shareholder owns
(which includes shares of New England Cash Management Trust and New England Tax
Exempt Money Market Trust [the "Money Market Funds"] if such shares were
purchased by exchanging shares of either of the Trusts). Shares owned by persons
described in the preceding paragraph may also be included.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions may be invested in Class A shares of the Fund at a reduced sales
charge of 1.50% of the public offering price (or 1.52% of the net amount
invested); for large purchases on which a sales charge of less than 1.50% would
ordinarily apply, such lower charge also applies to investments of unit
investment trust distributions.
Clients of Advisers or Subadvisers. No sales charge or contingent
deferred sales charge applies to investments of $100,000 or more in Class A
shares of the Fund by (1) clients of an adviser or subadviser to the Trusts; any
director, officer or partner of a client of an adviser or subadviser to the
Trusts; and the spouse, parents, children, siblings, grandparents or
grandchildren of the foregoing; (2) any individual who is a participant in a
Keogh or IRA Plan under a prototype of an adviser or subadviser to the Trusts if
at least one participant in the plan qualifies under category (1) above; and (3)
an individual who invests through an IRA and is a participant in an employee
benefit plan that is a client of an adviser or subadviser to the Trusts. Any
investor eligible for this arrangement should so indicate in writing at the time
of the purchase.
Offering to Employees of The New England and Associated Entities. There
is no sales charge, CDSC or initial investment minimum related to investments in
Class A shares of the Fund by any of the Trusts' investment advisers or
subadvisers, New England Funds, L.P. or any other company affiliated with The
New England; current and former directors and trustees of the Trusts; agents and
general agents of The New England and its insurance company subsidiaries;
current and retired employees of such agents and general agents; registered
representatives of broker-dealers that have selling arrangements with New
England Funds, L.P.; the spouse, parents, children, siblings, grandparents or
grandchildren of the persons listed above and any trust, pension, profit sharing
or other benefit plans for any of the foregoing persons and any separate account
of The New England or any other company affiliated with The New England.
Eligible Governmental Authorities. There is no sales charge or
contingent deferred sales charge related to investments in Class A shares of the
Fund by any state, county or city or any instrumentality, department, authority
or agency thereof that has determined that the Fund is a legally permissible
investment and that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered investment company.
Investment Advisory Accounts. Shares of the Fund may be purchased at
net asset value by investment advisers, financial planners or other
intermediaries who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
clients of such investment advisers, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary on
the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Section 401(a), 403(b) or 457 of the Code and rabbi
trusts. Investors may be charged a fee if they effect transactions through a
broker or agent.
Shareholders of Reich and Tang Government Securities Trust.
Shareholders of Reich and Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of the Fund at net asset value and
without imposition of a sales charge.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses associated
with such sales.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record.
New England Funds, L.P. may charge a fee for providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and delivery of
stock certificates unnecessary, eliminates problems of handling and safekeeping,
and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by the Fund
and no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
Automatic Investment Plans (Class A, B and C Shares)
Subject to the Fund's investor eligibility requirements, investors may
automatically invest in additional shares of the Fund on a monthly basis by
authorizing New England Funds, L.P. to draw checks on an investor's bank
account. The checks are drawn under the Investment Builder Program, a program
designed to facilitate such periodic payments, and are forwarded to New England
Funds, L.P. for investment in the Fund. A plan may be opened with an initial
investment of $50 or more and thereafter regular monthly checks of $50 or more
will be drawn on the investor's account. The reduced minimum initial investment
pursuant to an automatic investment plan is referred to in the prospectus. An
Investment Builder application must be completed to open an automatic investment
plan. An application may be found in the prospectus or may be obtained by
calling New England Funds, L.P. at (800) 225-5478 or your investment dealer.
This program is voluntary and may be terminated by New England Funds,
L.P. upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by
the investor by written notice to New England Funds, L.P., which must be
received at least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if any check
is not paid upon presentation; or by written notice to you at least thirty days
prior to any payment date. State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits (Class A, B and C Shares)
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the Fund or with certain
other investments. The plans include H.R. 10 (Keogh) plans for self-employed
individuals and partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans, and retirement
plans for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the prospectus. For these plans, initial
investments in the Fund must be at least $250 for each participant in corporate
pension and profit sharing plans, IRAs and Keogh plans and $50 for subsequent
investments. There is a special initial and subsequent investment minimum of $25
for payroll deduction investment programs for 401(k), SARSEP, 403(b) and certain
other retirement plans. Income dividends and capital gain distributions must be
reinvested (unless the investor is over age 59 1/2 or disabled). Plan documents
and further information can be obtained from New England Funds, L.P.
An investor should consult a competent tax or other adviser as to the
suitability of the Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.
Certain retirement plans may also be eligible to purchase Class Y
shares. See the prospectus.
Systematic Withdrawal Plans (Class A, B and C Shares)
An investor owning Fund shares having a value of $5,000 or more at the
current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. No CDSC applies to a redemption pursuant to the Plan.
All shares under the Plan must be held in an open (uncertificated)
account. Income dividends and capital gain distributions will be reinvested
(without a sales charge in the case of Class A shares) at net asset value
determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, the
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The Fund
and New England Funds, L.P. make no recommendations or representations in this
regard. It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a regular
basis additional Fund shares with a sales charge while redeeming shares under a
Systematic Withdrawal Plan. Accordingly, the Fund and New England Funds, L.P. do
not recommend additional investments in Class A shares by a shareholder who has
a withdrawal plan in effect and who would be subject to a sales load on such
additional investments.
Because of statutory restrictions this plan is not available to pension
or profit-sharing plans, IRAs or 403(b) plans that have State Street Bank as
trustee.
Exchange Privilege
A shareholder may exchange the shares of any fund in the Trusts (in the
case of Class A shares of New England Adjustable Rate U.S. Government Fund, New
England Intermediate Term Tax Free Fund of California and New England
Intermediate Term Tax Free Fund of New York, only if such shares have been held
for at least six months) for shares of the same class of any other fund of the
Trusts (subject to the investor eligibility requirements of the fund into which
the exchange is being made) on the basis of relative net asset values at the
time of the exchange without any sales charge. If you own Class A or Class C
shares, you may also elect to exchange your shares of the Fund for Class A
shares of the Money Market Funds. On all exchanges of Class A shares subject to
a CDSC, the exchange stops the aging period relating to the CDSC. The aging
resumes only when an exchange is made back into shares of one of the Trusts. If
you own Class Y shares of the Fund, you may exchange those shares for Class Y
shares of other funds in the Trusts or for the Class A shares of the Money
Market Funds. These options are summarized in the prospectus. An exchange may be
effected, provided that neither the registered name nor address of the accounts
are different and provided that a certificate representing the shares being
exchanged has not been issued to the shareholder, by (1) a telephone request to
New England Funds, L.P. at (800) 223-7124 or (2) a written exchange request to
New England Funds, P.O. Box 8551, Boston, MA 02266-8551. You must acknowledge
receipt of a current prospectus for a Fund before an exchange for that Fund can
be effected.
The investment objectives of the other funds (besides the Fund) in the Trusts
and the Money Market Funds are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return
from a combination of market appreciation and dividend income from equity
securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-tern capital appreciation and moderate current
income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for long-term
growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from long-term
growth of capital and dividend income primarily through investment in a
diversified portfolio of marketable international equity securities.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
GROWTH FUND OF ISRAEL seeks long-term growth of capital.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level of
current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Bond Income Fund
invests primarily in corporate and U.S. Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
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.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST -- current income exempt from federal
income taxes consistent with preservation of capital and liquidity.
As of December 15, 1995, the net assets of the funds in the Trusts and
the Money Market Funds totaled over $5 billion.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term capital gain or
loss.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the prospectus following the caption "Owning Fund
Shares", a shareholder may establish an Automatic Exchange Plan under which
shares of the Fund are automatically exchanged each month for shares of the same
class of one or more of the other funds in the Trusts. Registration on all
accounts must be identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business day until the
account is exhausted or until New England Funds, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $500 or over ($1000 for
spousal IRAs). The Service Options Form is available from New England Funds,
L.P. or your financial representative to establish an Automatic Exchange Plan.
- --------------------------------------------------------------------------------
REDEMPTIONS
- --------------------------------------------------------------------------------
The procedures for redemption of shares of a Fund are summarized in the
prospectus. As described in the prospectus, a contingent deferred sales charge
(a "CDSC") may be imposed on certain purchases of Class A shares and on
purchases of Class B shares. For purposes of the CDSC, an exchange of shares
from the Fund to another series of the Trusts is not considered a redemption or
a purchase. For federal tax purposes, however, such an exchange is considered a
sale and a purchase and, therefore, would be considered a taxable event on which
you may recognize a gain or loss. In determining whether a CDSC is applicable to
a redemption of Class B shares, the calculation will be determined in the manner
that results in the lowest rate being charged. Therefore, it will be assumed
that the redemption is first of any Class A shares in the shareholder's Fund
account, second of shares held for over five years, third of shares issued in
connection with dividend reinvestment and fourth of shares held longest during
the five-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value of shares since the time of
purchase or reinvested distributions associated with such shares. Unless you
request otherwise at the time of redemption, the CDSC is deducted from the
redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 shares 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
(800) 225-5478. A wire fee, currently $5.00, will be deducted from the proceeds.
Telephone redemption requests must be received by the close of regular trading
on the New York Stock Exchange. Requests made after that time or on a day when
the New York Stock Exchange is not open for business cannot be accepted and a
new request on a later day will be necessary. The proceeds of a telephone
withdrawal will normally be sent on the first business day following receipt of
a proper redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form, available from your investment dealer.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Fund reserves the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59 1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59 1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include payments made due to death,
disability, separation from service, normal or early retirement as defined in
the plan document, loans from the plan and hardship withdrawals, return of
excess contributions, required minimum distributions at age 70 1/2 (waivers only
apply to amounts necessary to meet the required minimum amount), certain
withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually
of the value of your account, and redemptions made from qualified retirement
accounts or Section 403(b)(7) custodial accounts necessary to pay custodial
fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
New England Funds, including IRA and 403(b)(7) participant-directed transfers of
assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
The Fund will normally redeem shares for cash; however, the Fund
reserves the right to pay the redemption price wholly or partly in kind if the
Trust's board of trustees determines it to be advisable and in the interest of
the remaining shareholders of the Fund. 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 exceeding 1% of the redemption price. A
redemption constitutes a sale of shares for federal income tax purposes on which
the investor may realize a long- or short-term capital gain or loss. See also
"Income Dividends, Capital Gain Distributions and Tax Status," below.
Reinstatement Privilege (Class A shares only)
The prospectus describes redeeming shareholders' reinstatement
privileges for Class A shares. Written notice and the investment check from
persons wishing to exercise this reinstatement privilege must be received by
your investment dealer within 120 days after the date of the redemption. The
reinstatement or exchange will be made at net asset value next determined after
receipt of the notice and the investment check and will be limited to the amount
of the redemption proceeds or to the nearest full share if fractional shares are
not purchased.
Even though an account is reinstated, the redemption will constitute a
sale for federal income tax purposes. Investors who reinstate their accounts by
purchasing shares of the Fund should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
- --------------------------------------------------------------------------------
STANDARD PERFORMANCE MEASURES
- --------------------------------------------------------------------------------
Calculation of Total Return. Total return is a measure of the change in
value of an investment in the Fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically reinvested in
shares of the same class of the Fund rather than paid to the investor in cash.
The formula for total return used by the Fund is prescribed by the Securities
and Exchange Commission and includes three steps: (1) adding to the total number
of shares of the particular class that would be purchased by a hypothetical
$1,000 investment in the Fund (with or without giving effect to the deduction of
sales charge or CDSC, if applicable) all additional shares that would have been
purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested; (2) calculating the value of the
hypothetical initial investment as of the end of the period by multiplying the
total of shares owned at the end of the period by the net asset value per share
of the relevant class on the last trading day of the period; (3) dividing this
account value for the hypothetical investor by the amount of the initial
investment, and annualizing the result for periods of less than one year. Total
return may be stated with or without giving effect to any expense limitations in
effect for the Fund.
Performance Comparisons
Total Return. Total returns will generally be higher for Class A shares
than for Class B and C shares of the Fund, because of the higher levels of
expenses borne by the Class B and C shares. Because of its lower operating
expenses, Class Y shares of the Fund can be expected to achieve a higher total
return than the Fund's Class A, B and C shares. The Fund may from time to time
include total return in advertisements or in information furnished to present or
prospective shareholders. The Funds may from time to time include in
advertisements its total return and the ranking of those performance figures
relative to such figures for groups of mutual funds categorized by Lipper
Analytical Services as having similar investment objectives.
Total return may also be used to compare the performance of the Fund
against certain widely acknowledged standards or indices for stock and bond
market performance or against the U.S. Bureau of Labor Statistics' Consumer
Price Index.
The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is
a market value-weighted and unmanaged index showing the changes in the aggregate
market value of 500 stocks relative to the base period 1941-43. The S&P 500 is
composed almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange.
The Salomon Brothers World Government Bond Index includes a broad range
of institutionally-traded fixed-rate government securities issued by the
national governments of the nine countries whose securities are most actively
traded. The index generally excludes floating- or variable-rate bonds,
securities aimed principally at non-institutional investors (such as U.S.
Savings Bonds) and private-placement type securities.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted issues
are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rated
agency.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The Merrill Lynch High Yield Index includes over 750 issues and
represents public debt greater than $10 million (original issuance rated BBB/BB
and below), and the First Boston High Yield Index includes over 350 issues and
represents all public debt greater than $100 million (original issuance and
rated BBB/BB and below).
The Salomon Brothers Broad Investment Grade Bond Index is a price
composite of a broad range of institutionally based U.S. Government
mortgage-backed and corporate debt securities of investment outstanding of at
least $1 million and with a remaining period to maturity of at least one year.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc. is an independent service that
monitors the performance of over 1,300 mutual funds, and calculates total return
for the funds grouped by investment objective.
The Morgan Stanley Capital International Europe, Australia and Far East
(Gross Domestic Product) Index (the "EAFE Index") is a market-value weighted and
unmanaged index of common stocks traded outside the U.S. The stocks in the index
are selected with reference to national and industry representation and weighted
in the EAFE Index according to their relative market value (market price per
share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australia and Far East
Index (the "EAFE [GDP] Index") is a market-value weighted and unmanaged index of
common stocks traded outside the U.S. The stocks in the index are selected with
reference to national and industry representation and weighted in the EAFE (GDP)
Index according to their relative market values. The relative market value of
each country is further weighted with reference to the country's relative gross
domestic product.
The Fund may compare its performance to the Salomon-Russell Broad
Market Index Global X-US and to universes of similarly managed investment pools
compiled by Frank Russell Company and Intersec Research Corporation.
Articles and releases, developed by the Fund and other parties, about
the Fund regarding performance, rankings, statistics and analyses of the Fund's
and the fund group's asset levels and sales volumes, numbers of shareholders by
fund or in the aggregate for New England Funds, statistics and analyses of
industry sales volumes and asset levels, and other characteristics may appear in
advertising, promotional literature, publications, including, but not limited
to, those publications listed in Appendix B to this Statement and on various
computer networks, for example, the Internet. In particular, some or all of
these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. References to or reprints of such articles may
be used in the Funds' advertising and promotional literature. Such advertising
and promotional material may refer to NEIC, its structure, goals and objectives
and the advisory subsidiaries of NEIC, including their portfolio management
responsibilities, portfolio managers and their categories and background; their
tenure, styles and strategies and their shared commitment to fundamental
investment principles and may identify specific clients, as well as discuss the
types of institutional investors who have selected the advisers to manage their
investment portfolios and the reasons for that selection. The references may
discuss the independent, entrepreneurial nature of each advisory organization
and allude to or include excerpts from articles appearing in the media regarding
NEIC, its advisory subsidiaries and their personnel. For additional information
about the Fund's advertising and promotional literature, see Appendix C.
The Fund may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising and sales
literature developed to publicize such arrangements will explain the
relationship of the bank to New England Funds and New England Funds, L.P. as
well as the services provided by the bank relative to the Fund. The material may
identify the bank by name and discuss the history of the bank including, but not
limited to, the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
The Fund may use the accumulation charts below in their advertisements
to demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
<TABLE>
<CAPTION>
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C> <C>
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
<CAPTION>
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C> <C>
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The Fund's advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the New England Funds. For example, the advertising and sales literature
of any of the New England Funds, but particularly that of Growth Fund of Israel,
New England Star Worldwide Fund and New England International Equity Fund, may
discuss all of the above international developments, including but not limited
to, international developments involving Europe, North and South America, Asia,
the Middle East and Africa, as well as events and issues affecting specific
countries that directly or indirectly may have had consequences for the New
England Funds or may have influenced past performance or may influence current
or prospective performance of the New England Funds. The Fund's advertising and
sales literature may also include historical and current performance and total
returns of investment alternatives to the New England Funds. Articles, releases,
advertising and literature may discuss the range of services offered by the
Trusts and New England Funds, L.P., as distributor and transfer agent of the
Trusts, with respect to investing in shares of the Trusts and customer service.
Such materials may discuss the multiple classes of shares available through the
Trusts and their features and benefits, including the details of the pricing
structure.
New England Funds, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and 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.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Fund's prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Fund's prospectus, it is the policy of the Fund to
pay its shareholders, as dividends, substantially all net investment income and
to distribute annually all net realized long-term capital gains, if any, after
offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the relevant class of the Fund based upon the net asset
value determined as of the close of the New York Stock Exchange on the record
date for each dividend or distribution. Shareholders, however, may elect to
receive their income dividends or capital gain distributions, or both, in cash.
The election may be made at any time by submitting a written request directly to
New England Funds. In order for a change to be in effect for any dividend or
distribution, it must be received by New England Funds on or before the record
date for such dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Code. In order to qualify, the Fund must, among other
things (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, gains from sale of securities
or foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii) derive less than 30% of
its gross income from gains from the sale or other disposition of securities
held for less than three months; (iii) distribute at least 90% of its dividend,
interest and certain other taxable income each year; and (iv) at the end of each
fiscal quarter maintain at least 50% of the value of its total assets in cash,
government securities, securities of other regulated investment companies, other
securities of issuers which represent, with respect to each issuer, no more than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and with no more than 25% of its assets invested in
the securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. So long as it qualifies for treatment as a regulated investment
company, the Fund will not be subject to federal income tax on income paid to
its shareholders in the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for 6 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The Fund may be eligible to make and, if eligible, may make an election
under Section 853 of the Code so that its shareholders will be able to claim a
credit or deduction on their income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to Israel and other foreign countries. The
ability of shareholders of the Fund to claim a foreign tax credit is subject to
certain limitations imposed by Section 904 of the Code, which in general limit
the amount of foreign tax that may be used to reduce a shareholder's U.S. tax
liability to that amount of U.S. tax which would be imposed on the amount and
type of income in respect of which the foreign tax was paid. A shareholder who
for U.S. income tax purposes claims a foreign tax credit in respect of Fund
distributions may not claim a deduction for foreign taxes paid by the Fund,
regardless of whether the shareholder itemizes deductions. Also, under Section
63 of the Code, no deduction in respect of income taxes paid by the Fund to
foreign countries may be claimed by shareholders who do not itemize deductions
on their federal income tax returns. The Fund will notify shareholders each year
of the amount for dividends and distributions and the shareholder's pro rata
share of qualified taxes paid by the Fund to foreign countries.
The Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
The Fund may own shares in certain foreign investment entities,
referred to as "passive foreign investment companies." In order to avoid U.S.
federal income tax, and an additional charge on a portion of any "excess
distribution" from such companies or gain from the disposition of such shares,
the Fund may elect to "mark to market" annually its investments in such entities
and to distribute any resulting net gain to shareholders. As a result, the Fund
may be required to sell securities it would have otherwise continued to hold in
order to make distributions to shareholders in order to avoid any Fund-level
tax.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss, provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the Fund within 30 days
prior to the sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of New England Star Worldwide Fund included
in its semi-annual report for the period ended June 30, 1996 are incorporated
herein by reference.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, if
fact, have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, and B1.
<PAGE>
APPENDIX B
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
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
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
<PAGE>
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to New England Investment Companies ("NEIC") and its
affiliates that perform advisory functions for New England Funds including, but
not limited to: Back Bay Advisors, L.P., Harris Associates L.P., Loomis, Sayles
and Company, L.P., Westpeak Investment Advisors, L.P., Capital Growth Management
Limited Partnership and Draycott Partners, Ltd.
References may be included in New England Funds' advertising and
promotional literature to NEIC affiliates that do not perform advisory or
subadvisory functions for the Funds including, but not limited to, New England
Investment Associates, L.P., Copley Real Estate Advisors, L.P., Marlborough
Capital Advisors, L.P., Reich & Tang Capital Management and Reich and Tang
Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained in New
England Funds' advertising and promotional literature including, but not limited
to, Montgomery Asset Management, L.P., Berger Associates, Inc., Janus Capital
Corporation and Founders Asset Management, Inc.
New England Funds' advertising and promotional material will include,
but is not limited to, discussions of the following information about the above
entities:
Specific and general investment emphasis, specialties, competencies,
operations and functions
Specific and general investment philosophies, strategies, processes
and techniques
Specific and general sources of information, economic models,
forecasts and data services utilized, consulted or considered in the
course of providing advisory or other services
The corporate histories, founding dates and names of founders of the
entities
Awards, honors and recognition given to the firms
The names of those with ownership interest and the percentage of
ownership
Current capitalization, levels of profitability and other financial
information
Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
The specific credentials of the above individuals, including but not
limited to, previous employment, current and past positions, titles
and duties performed, industry experience, educational background
and degrees, awards and honors
Specific identification of, and general reference to, current
individual, corporate and institutional clients, including pension and profit
sharing plans
Current and historical statistics about:
o total dollar amount of assets managed
o New England Funds' assets managed in total and by Fund
o the growth of assets
o asset types managed
o numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
o the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or the subadviser
Specific and general references to portfolio managers and funds that they serve
as portfolio manager of, other than New England Funds, and those families of
funds, other than New England Funds, including but not limited to, New England
Star Advisers Fund (the "Star Advisers Fund") portfolio manager Rodney L.
Linafelter of Berger Associates, Inc. and Berger Funds, who also serves as
portfolio manager of the Berger 100 Fund; Star Advisers Fund portfolio manager
Warren B. Lammert of Janus Capital 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 $78 billion in assets under
management. Clients serviced by NEIC and its affiliates, besides New England
Funds, are wealthy individuals, major corporations and large institutions.
Back Bay Advisors, L.P. employs a conservative style of management
emphasizing short and intermediate term securities to reduce volatility, adds
value through careful continuous credit analysis and has expertise in
government, corporate and tax-free municipal bonds and equity securities. Among
its clients are Boston City Retirement System, Public Service Electric and Gas
of New Jersey, Petrolite Corp. and General Mills.
Draycott Partners, Ltd. specializes in international stocks and tracks
key world markets and economic trends from offices in London and Boston. Its
investment approach is based on concentration on "blue chip" companies in
stable, growing economies and is guided by independent, non-consensus thinking.
It monitors country weightings with strict attention to risk control to promote
long-term returns.
Capital Growth Management, L.P. seeks to deliver exceptional growth for
its clients through the selection of stocks with the potential to outperform the
market and grow at a faster rate than the U.S. economy. Among its approaches are
pursuit of growth 50% above the Standard & Poor's Index of 500 Common Stocks,
prompt responses to changes in the market or economy and aggressive, highly
concentrated portfolios.
Loomis, Sayles & Company, L.P. is one of the oldest and largest
investment firms in the U.S. and has provided investment counseling to
individuals and institutions since 1926. Characteristic of Loomis Sayles is that
it has one of the largest staffs of research analysts in the industry, practices
strict buy and sell disciplines and focuses on sound value in stock and bond
selection. Among its clients are large corporations such as Chrysler, Mobil Oil
and Revlon.
Westpeak Investment Advisors, L.P. ("Westpeak") employs proprietary
research and a disciplined stock selection process that seeks rigorously to
control unnecessary risk. Its investment process is designed to evaluate when
value and growth styles - two primary approaches to stock investing - hold
potential for reward. Over seventy fundamental attributes are continuously
analyzed by Westpeak's experienced analysts and sophisticated computer systems.
The results are assessed against Wall Street's consensus thinking, in pursuit of
returns in excess of appropriate benchmarks. The value/growth strategy is a
unique blend of investment styles, seeking opportunities for increased return
with reduced risk. Among the keys to Westpeak's investment process are
continuous review of timely, accurate data on over 3600 companies, analysis of
dozens of factors for excess return potential and identification of overvalued
and undervalued stocks.
Harris Associates, L.P. is a Chicago-based investment management
company with more than $7.6 billion in assets under management, comprised of the
$4 billion Oakmark Fund Group and $3.6 billion in individual and institutional
assets.
Harris Associates, L.P.'s investment philosophy is predicated on the
belief that over time market price and value converge and that investment in
securities priced significantly below long-term value presents the best
opportunity to achieve long-term growth of capital.
On June 30, 1995, NEIC purchased the assets of Graystone Partners, L.P.
("Graystone"), a Chicago-based consulting firm focusing exclusively on working
with the wealthiest families in the country. Founded in 1993, Graystone
specializes in assisting high net worth families in developing asset allocation
strategies, identifying appropriate portfolio managers and the monitoring of
investment performance.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating to plans,
participants and sponsors, third party and other administrators, benefits
consultants and firms including, but not limited to, DC Xchange, William Mercer
and other organizations involved in 401(k) and retirement programs with whom New
England Funds may or may not have a relationship.
Specific and general reference to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the New England Funds as a
401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including but not
limited to, statistics, detailed explanations or broad summaries of:
-past, present and prospective tax regulation, IRS requirements and rules,
including, but not limited to reporting standards, minimum distribution
notices, Form 5500, Form 1099R and other relevant forms and documents,
Department of Labor rules and standards and other regulation. This
includes past, current and future initiatives, interpretive releases and
positions of regulatory authorities about the past, current or future
eligibility, availability, operations, administration, structure,
features, provisions or benefits of 401(k) and retirement plans
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs
-current and prospective ERISA regulation and requirements.
Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the New England Funds 401(k) and
retirement plans, to the participant and plan sponsor, including
explanations, statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers and
other personnel.
Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, New England Funds and
investing in its 401(k) and retirement plans, including but not limited to:
-the significant economies of scale experienced by mutual fund companies
in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including but not limited to,
trustee services and tax reporting
-the services of DST and BFDS, including but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
-the services of Trust Consultants Inc. (TCI), including but not limited
to, sales support, plan record keeping, document service support, plan
sponsor support, compliance testing and Form 5500 preparation.
Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during enrollment
and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
<PAGE>
NEW ENGLAND FUNDS TRUST I
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Highlights for the Registrant's New England Star Worldwide
Fund are included in Part A hereof. The following financial statements
are incorporated in Part II of the statement of additional information
filed as Part B hereof by reference to the semi-annual report to
shareholders of 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.
(1) 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.
2.(a) Bylaws of the Registrant are filed herewith.
(b) Amendment to the Bylaws of the Registrant is filed herewith.
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 filed herewith.
(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) Subadvisory Agreement 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)
6.(a) Form of Distribution Agreement between the Registrant, on
behalf of each of its series, and New England Funds, L.P. is
incorporated herein by reference to Exhibit 6(a) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996.
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 filed
herewith.
(b) Amendment No. 1 to Custodian Contract dated April 12, 1988
between the Registrant and State Street Bank and Trust Company
is filed herewith.
(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.
9.(a) Transfer Agency Agreement between the Registrant and State
Street is incorporated herein by reference to Post-Effective
Amendment No. 3 to this Registration Statement, filed on
November 7, 1986.
(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) Transfer Agency Agreement between the Registrant and New
England Funds, L.P. (formerly TNE Investment Services
Corporation) is filed herewith.
(l) Expense Agreement between the Registrant, on behalf of its
Strategic Income Fund, and NEFM is filed herewith.
(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.
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.
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 filed herewith.
(b) Rule 12b-1 Plan relating to the Class A shares of the
Registrant's New England Star Advisers Fund is filed herewith.
(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 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.
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 filed herewith.
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.
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 May 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 78,886 --- --- ---
New England Value Fund 15,492 4,588 195 2
New England Balanced Fund 14,045 5,808 147 8
New England Bond Income Fund 12,167 2,984 176 7
New England Government Securities Fund 9,469 500 --- 2
New England Municipal Income Fund 5,659 528 --- ---
New England Star Advisers Fund 22,139 27,229 3,775 4
New England International Equity Fund 12,828 7,815 211 12
New England Capital Growth Fund 11,965 4,731 72 ---
New England Strategic Income Fund 2,424 2,962 746 ---
New England Star Worldwide Fund 3,343 3,661 539 ---
</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 adviser 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
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 Associates, L.P. Chairman
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 Company Chief Executive Officer,
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 Company Chief Financial Officer,
Principal
The London Partnership Limited Managing Director
66 Buckingham Gate
London SW1E 6AU, England
Jens Christian Sorensen, Cursitor-Eaton Asset Management Company Vice President, Associate
Director, Secretary and Clerk
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 and
New England Strategic Income Fund and a subadviser of the Registrant;
New England Star Advisers 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, Incorporated None None
("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
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>
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, Chicago Board of Trade* Senior Vice President and
Executive Vice President 141 West Jackson Boulevard Manager of Carroll, McEntee &
Chicago, IL 60604 McGinley
Edgar M. Reed, Aetna Capital Management* Head of Fixed Income Management
Executive Vice President and Chief 151 Farmington Avenue Group
Investment Officer Hartford, CT 06156
J. Scott Nicholson, None None
Senior Vice President
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
Peter Hanson, NEIC Counsel and Senior Vice
Secretary and Clerk President, Assistant Secretary
and Assistant Clerk
Draycott* Assistant Secretary and
Assistant Clerk
</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
Investors Fiduciary Trust Co.* President and Chief Executive
127 West 10th Street Officer
Kansas City, MO 64105
Landon H. Rowland, Kansas City Southern Industries, Inc. President and Chief Executive
Director ("KCSI") 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:
<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 Chief 201 Highland Avenue
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 Service") Vice President, General Counsel
Vice President, Secretary and General 100 Fillmore Street and Director
Counsel Denver, CO 80206
Janus Distributors, Inc. ("Janus Vice President, General Counsel
Distributors") and Director
100 Fillmore Street
Denver, CO 80206
Steven R. Goodbarn, Janus Service Vice President of Finance,
Vice President of Finance, Treasurer and Treasurer and Chief Financial
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 Committee
Director 4900 Oak
Kansas City, MO 64112
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
KCSI Executive Vice President and
Director
</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 None None
General Partner
Henry L.P. Schmelzer, New England Funds, L.P. President and Chief Executive Officer
President and Chief Executive Officer
NEF Corporation President, Chief Executive Officer and
399 Boylston Street Director
Boston, MA 02116
Back Bay Advisors, Inc. Director
New England Securities* Director
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, L.P. Senior Vice President and Chief
Senior Vice President, Chief Financial Financial Officer
Officer and Treasurer
NEF Corporation Senior Vice President, Chief Financial
Officer and Treasurer
</TABLE>
(i) Montgomery is a subadviser to the Registrant's New England Star
Worldwide 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 Nature of
Montgomery Other Affiliations Connection
---------- ------------------ ----------
<S> <C> <C>
Montgomery Asset Management, Inc. None None
General Partner
R. Stephen Doyle Montgomery Asset Management, Inc. Chairman and Director
Chairman, Managing Director of 600 Montgomery Street
Mutual Funds and Executive Vice San Francisco, CA 94111
President
Montgomery Securities Managing Director
600 Montgomery Street
San Francisco, CA 94111
Mark B. Geist Montgomery Asset Management, Inc. Director and President
President
John T. Story None None
Managing Director of Mutual Funds
and Executive Vice President
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 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
Robert M. Levy None None
President
Roxanne M. Martino None None
Vice President
Anita Nagler None None
Vice President
</TABLE>
Item 29. Principal Underwriter
(a) New England Funds, L.P., the 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 Counsel, Secretary
Secretary and Clerk
Frank Nesvet Senior Vice President and Chief Financial Treasurer
Officer
Munish Agrawal Vice President None
Elizabeth P. Burns Vice President None
James H. Davis Vice President None
Peter H. Duffy Vice President None
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
William H. Finnegan Vice President None
Raymond K. Girouard Vice President, Treasurer and Controller None
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
Caren I. Leedom Vice President None
Marie G. McKenzie Vice President None
Bernard M. Shavelson Vice President None
Christine L. Swanson Vice President None
Kristine E. Swanson Vice President None
Beatriz A. Pina Assistant Comptroller 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)
(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.
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)
(d) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a - 1(d)
Rule 31a - 2(c)
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The Registrant undertakes to provide the annual report of any of its series to
any person who receives a prospectus for such series and who requests the annual
report.
<PAGE>
NEW ENGLAND FUNDS TRUST 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. 32 to its Registration Statement meets all the
requirements for effectiveness under paragraph (b) of Rule 485 under the
Securities Act of 1933, and that it has duly caused this Post-Effective
Amendment No. 32 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 30th day of July, 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
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PETER S. VOSS* Chairman of the Board; Chief Executive July 30, 1996
- ----------------------- Officer; Principal Executive Officer;
Peter S. Voss Trustee
/s/FRANK NESVET Chief Financial Officer July 30, 1996
- -----------------------
Frank Nesvet
HENRY L. P. SCHMELZER* Trustee July 30, 1996
- -----------------------
Henry L. P. Schmelzer
GRAHAM T. ALLISON, JR.* Trustee July 30, 1996
- -----------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee July 30, 1996
- -----------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee July 30, 1996
- -----------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee July 30, 1996
- -----------------------
Richard Darman
JAMES H. SCOTT* Trustee July 30, 1996
- -----------------------
James H. Scott
SANDRA O. MOOSE* Trustee July 30, 1996
- -----------------------
Sandra O. Moose
JOHN A. SHANE* Trustee July 30, 1996
- -----------------------
John A. Shane
PENDLETON P. WHITE* Trustee July 30, 1996
- -----------------------
Pendleton P. White
*By: /s/ROBERT P. CONNOLLY
-----------------------
Robert P. Connolly
Attorney-In-Fact
July 30, 1996
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
EX-99 2(a) Bylaws of the Registrant
EX-99 2(b) Amendment to Bylaws of the Registrant
EX-99 5(a) Advisory Agreement for New England Growth Fund
EX-99 8(a) Custodian Contract
EX-99 8(b) Amendment No. 1 to the Custodian Agreement
EX-99 9(k) Transfer Agency Agreement between the Registrant and
New England Funds, L.P.
EX-99 9(l) Expense Agreement between the Registrant, on behalf
of its Strategic Income Fund, and NEFM
EX-99 15(a) 12b-1 Plans for Class A shares on behalf of New
England Balanced, Growth, Value, International
Equity, Capital Growth, Bond Income, Municipal Income
and Government Securities Funds
EX-99 15(b) 12b-1 Plans for Class A shares on behalf of New
England Star Advisers Fund
EX-27 Financial Data Schedule
<PAGE>
EXHIBIT 99.2(A)
BY-LAWS
OF
NEW ENGLAND LIFE GOVERNMENT SECURITIES TRUST
ARTICLE 1
Agreement and Declaration of
Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of New England Life Government Securities Trust (the
"Trust"), the Massachusetts business trust established by the Declaration of
Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his usual or
last known business or residence address or to give notice to him in person or
by telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a waiver
of a notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of
Trustees present may take any action, except when a larger vote is expressly
required by law, by the Declaration of Trust or by these By-Laws.
2.6 Action by Writing. Except as required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of Trustees. Such consent shall be treated for
all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the
Trustees may participate in a meeting of Trustees by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a President,
a Treasurer, a Clerk, and such other officers, if any, as the Trustees from time
to time may in their discretion elect. The Trust may also have such agents as
the Trustees from time to time may in their discretion appoint. If a Chairman of
the Board is elected, he shall be a Trustee and may but need not be a
Shareholder; and any other officer may be but none need be a Trustee or
Shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Clerk and such other
officers as the Trustees may in their discretion from time to time elect shall
each be elected by the Trustees to serve until his successor is elected or
qualified, or until he sooner dies, resigns, is removed or becomes disqualified.
Each officer shall hold office and each agent shall retain authority at the
pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees.
Any Vice Presidents shall have such duties and powers as shall be
designated from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the stockholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
shall have the duties and powers specified in these By-Laws and shall have such
other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.
3.8 Clerk. The Clerk shall record all proceedings of the Shareholders and the
Trustees in books to be kept therefor, which books or a copy thereof shall be
kept at the principal office of the Trust. In the absence of the Clerk from any
meeting of the Shareholders or Trustees, an assistant Clerk, or if there be none
or if he is absent, a temporary clerk chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him and delivered to the President or the Clerk or to a
meeting of the Trustees. Such resignation shall be effective upon receipt unless
specified to be effective at some other time. The Trustees may remove any
officer with or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no officer resigning and no officer removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer or by reason of his being or having been such a
Trustee or officer, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
Covered Person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person, may be paid from
time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding on the condition that the amounts so paid shall be
repaid to the Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Trustees, provided that in the case of approval pursuant to clause (b) or (c)
there has been obtained an opinion in writing of independent legal counsel to
the effect that such Covered Person appears to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the Trust
and that such indemnification would not protect such person against any
liability to the Trust or its Shareholders to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of office; or (d) by
vote of Shareholders holding a majority of the Shares entitled to vote thereon,
exclusive of any Shares beneficially owned by any interested Covered Person.
Approval by the Trustees pursuant to clause (a) or (b) or by any disinterested
person or persons pursuant to clause (c) of this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 4, the term "Covered Person"
shall include such person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or as may from
time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the Trustees, the
initial fiscal year of the Trust shall end on such date as is determined in
advance or in arrears by the Treasurer and subsequent fiscal years shall end on
such date in subsequent years.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts," together with the name of the Trust and the year of its
organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by the Chairman, if any, the President, any Vice
President or the Treasurer or any of such other officers or agents as shall be
designated for that purpose by a vote of the Trustees.
ARTICLE 9
Provisions Relating to the
Conduct of the Trust's Business
9.1 Certain Definitions. When used herein the following words shall have the
following meanings: "Distributor" shall mean any one or more corporations, firms
or associations which have distributor's or principal underwriter's contracts in
effect with the Trust providing that redeemable shares of any class or series
issued by the Trust shall be offered and sold by such Distributor. "Adviser"
shall mean any corporation, firm or association which may at the time have an
advisory or management contract with the Trust.
9.2 Limitation on Dealings with Officers or Trustees. The Trust will not lend
any of its assets to the Distributor or Adviser or to any officer or director of
the Distributor or Adviser or any officer or Trustee of the Trust and shall not
permit any officer or Trustee or any officer or director of the Distributor or
Adviser, to deal for or on behalf of the Trust with himself as principal or
agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or officers and directors of the Distributor
or Adviser from buying, holding or selling shares in the Trust or from being
partners, officers or directors of or otherwise financially interested in the
Distributor or the Adviser; (b) a purchase or sale of securities or other
property if such transaction is permitted by or is exempt or exempted from the
provisions of the Investment Company Act of 1940 and does not involve any
commission or profit to any securities dealer who is, or one or more of whose
partners, shareholders, officers, or directors is, an officer or Trustee of the
Trust or any officer or director of the Distributor or Adviser; (c) employment
of legal counsel, registrars, transfer agents, shareholder servicing agents,
dividend disbursing agents or custodians who are, or any one of which has a
partner, shareholder, officer or director who is, an officer or Trustee of the
Trust or an officer or director of the Distributor or Adviser if only customary
fees are charged for services to the Trust; (d) sharing of statistical,
research, legal and management expenses and office hire and expenses with any
other investment company in which an officer or Trustee of the Trust or an
officer or director of the Distributor or Adviser is an officer or director or
otherwise financially interested.
9.3 Limitation on Dealing in Securities of the Trust by Certain Officers,
Trustees, Distributor or Adviser. Neither the Distributor nor Adviser, nor any
officer or Trustee of the Trust or officer or director of the Distributor or
Adviser shall take long or short positions in securities issued by the Trust;
provided, however, that:
(a) The Distributor may purchase from the Trust and otherwise
deal in shares issued by the Trust pursuant to the terms of its
contract with the Trust;
(b) Any officer or Trustee of the Trust or officer or director
of the Distributor or Adviser or any trustee or fiduciary for the
benefit of any of them may at any time, or from time to time, purchase
from the Trust or from the Distributor shares issued by the Trust at
the price available to the public or to such officer, Trustee, director
or fiduciary, no such purchase to be in contravention of any applicable
state or federal requirement; and
(c) The Distributor or the Adviser may at any time, or from
time to time, purchase for investment shares issued by the Trust.
9.4 Securities and Cash of the Trust to be Held by Custodian Subject to Certain
Terms and Conditions.
(a) All securities and cash owned by the Trust shall, as
hereinafter provided, be held by or deposited with one or more banks or
trust companies having (according to its last published report) not
less than $2,000,000 aggregate capital, surplus and undivided profits
(any such bank or trust company being hereby designated as
"Custodian"), provided such a Custodian can be found ready and willing
to act. The Trust may, or may permit any Custodian to, deposit all or
any part of the securities owned by any class or series of shares of
the Trust in a system for the central handling of securities
established by a national securities exchange or national securities
association registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or such other person as may
be permitted by said Commission, including, without limitation, a
clearing agency registered under Section 17A of said Securities
Exchange Act of 1934, pursuant to which system all securities of any
particular class of series of any issue deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping
entry, without physical delivery of such securities.
(b) The Trust shall enter into a written contract with each
Custodian regarding the powers, duties and compensation of such
Custodian with respect to the cash and securities of the Trust held by
such Custodian. Said contract and all amendments thereto shall be
approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve
of any Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to
serve, use its best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by
any class or series of shares of the Trust and in the
possession of the resigning or disqualified Custodian be
delivered directly to the successor Custodian; and
(iii) in the event that no successor Custodian can be
found, submit to the shareholders, before permitting delivery
of the cash and securities owned by any class or series of
shares of the Trust and in the possession of the resigning or
disqualified Custodian otherwise than to a successor
Custodian, the question whether that class or series shall be
liquidated or shall function without a Custodian.
9.5 Limitations on Investment by the Trust in Securities of Any One Issuer. The
Trust may not purchase for its portfolio or for the portfolio of any class or
series of the Trust's shares the securities of any issuer if immediately after
such purchase the Trust or that class or series would thereupon hold securities
representing more than 10% of the voting securities of such issuer as disclosed
in the last available financial statements of such issuer. This limitation shall
not apply to obligations issued or guaranteed by the government of the United
States of America or to obligations of any corporation organized under a general
Act of Congress if such corporation is an instrumentality of the United States.
For purposes of this limitation, each state and each political subdivision,
agency, authority or instrumentality thereof and each multistate agency and
authority shall be considered a separate issuer.
9.6 Determination of Net Asset Value. The Trustees or any officer or officers or
agent or agents of the Trust designated from time to time for this purpose by
the Trustees shall determine at least once daily the net income and the value of
all the assets attributable to any class or series of shares of the Trust on
each day upon which the New York Stock Exchange is open for unrestricted trading
and at such other times as the Trustees shall designate. In determining asset
values, all securities for which representative market quotations are readily
available shall be valued at market value and other securities and assets shall
be valued at fair value, all as determined in good faith by the Trustees or an
officer or officers or agent or agents, as aforesaid, in accordance with
accounting principles generally accepted at the time. Notwithstanding the
foregoing, the assets belonging to any class or series of shares of the Trust
may, if so authorized by the Trustees, be valued in accordance with the
amortized cost method, subject to the power of the Trustees to alter the method
for determining asset values. The value of such assets so determined, less total
liabilities belonging to that class or series of shares (exclusive of capital
stock and surplus) shall be the net asset value until a new asset value is
determined by the Trustees or such officers or agents. In determining the net
asset value the Trustees or such officers or agents may include in liabilities
such reserves for taxes, estimated accrued expenses and contingencies in
accordance with accounting principles generally accepted at the time as the
Trustees or such officers or agents may in their best judgment deem fair and
reasonable under the circumstances. The manner of determining net asset value
may from time to time be altered as necessary or desirable in the judgment of
the Trustees to conform it to any other method prescribed or permitted by
applicable law or regulation. Determinations of net asset value made by the
Trustees or such officers or agents in good faith shall be binding on all
parties concerned. The foregoing sentence shall not be construed to protect any
Trustee, officer or agent of the Trust against any liability to the Trust or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE 10
Amendments to the By-Laws
10.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees.
<PAGE>
EXHIBIT 99.2B
NEW ENGLAND FUNDS TRUST I
Amendment to the By-Laws (adopted January 27, 1995)
The following Article 11 is hereby added to the By-Laws:
ARTICLE 11
11.1 Proxy Instructions Transmitted by Telephonic or Electronic Means. The
placing of a shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such shareholder shall constitute execution of such proxy by or on behalf of
such shareholder.
<PAGE>
EXHIBIT 99.5(A)
ADVISORY AGREEMENT
AGREEMENT made this 1st day of September, 1993 by and between THE NEW
ENGLAND FUNDS, a Massachusetts business trust (the "Fund"), with respect to its
TNE Growth Fund series (the "Series"), and CAPITAL GROWTH MANAGEMENT LIMITED
PARTNERSHIP, a Massachusetts partnership (the "Adviser").
WITNESSETH:
WHEREAS, the Fund and the Adviser wish to enter into an agreement
setting forth the terms upon which the Adviser will perform certain services for
the Series;
NOW THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. The Fund hereby employs the Adviser to manage the investment and
reinvestment of the assets belonging to the Series and to perform the other
services herein set forth, subject to the supervision of the Board of Trustees
of the Fund. The Adviser hereby accepts such employment and agrees, at its own
expense, to render the services and to assume the obligations herein set forth,
for the compensation herein provided. The Adviser shall for all purposes herein
be deemed to be an independent contractor and 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.
2. In carrying out its obligations to manage the investment and
reinvestment of the assets belonging to the Series, the Adviser shall:
(a) obtain and evaluate such economic, statistical and financial data
and information and undertake such additional investment research as it
shall believe necessary or advisable for the management of the
investment and reinvestment of the assets belonging to the Series in
accordance with the Series' investment objective and policies;
(b) take such steps as are necessary to implement the investment
policies of the Series by purchase and sale of securities, including
the placing of orders for such purchase and sale; and
(c) regularly report to the Board of Trustees with respect to the
implementation of the investment policies of the Series.
3. All activities in connection with the management of the affairs of
the Series undertaken by the Adviser pursuant to this Agreement shall at all
times be subject to the supervision and control of the Board of Trustees, any
duly constituted committee thereof or any officer of the Fund acting pursuant to
like authority.
4. In addition to performing at its expense the obligations set forth
in section 2 hereof, the Adviser shall furnish to the Fund at the Adviser's own
expense or pay the expenses of the Fund for the following:
(a) office space in such place or places as may be agreed upon
from time to time, 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 bank selected to perform such services and
exclusive of any managerial functions described in Section 5); and
(c) compensation, if any, of Trustees of the Fund who are
directors, officers, partners or employees of the Adviser or any
affiliated person (other than a registered investment company) of the
Adviser.
5. Nothing in Section 4 hereof shall require the Adviser to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and distributing the items referred to
in subsection (n) of this section 5;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of Trustees of the Fund who are not directors,
officers, partners or employees of the Adviser or of any affiliated
person (other than a registered investment company) of the Adviser;
(d) registration, filing and other fees in connection with requirements
of regulatory authorities;
(e) the charges and expenses of the Custodian appointed by the Fund for
custodial, paying agent, transfer agent 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 shares of the Series 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 cost 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.
6. (a) The services of the Adviser to the Fund hereunder are not to be
deemed exclusive and the Adviser shall be free to render similar services to
others, so long as its services hereunder are not impaired thereby.
(b) To better enable it to fulfill its obligations hereunder, the
Adviser has entered into a service agreement with New England Securities
Corporation under which the latter has agreed to furnish such office space,
personnel and services for the Fund as the Adviser may reasonably request.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Adviser hereunder, the Fund shall pay the Adviser
compensation at the annual percentage rates of the corresponding levels of the
Series' average daily net assets set forth in the following chart:
Annual Average Daily
Percentage Rate Net Asset Value Levels
--------------- ----------------------
.75% the first $200 million
.70% the next $300 million
.65% amounts in excess of $500 million
Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Adviser. The
Adviser 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 Series or the
Fund as a whole (including investment advisory fees but excluding taxes and
portfolio brokerage commissions) 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 Adviser
shall pay any 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 partner, shareholder, director,
officer, employee or agent of, or be otherwise interested in, the Adviser, any
affiliated person of the Adviser, any organization in which the Adviser may have
an interest or any organization which may have an interest in the Adviser; that
the Adviser, 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 and the
Partnership Agreement of the Adviser, respectively, or by 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 its execution, and from year to
year thereafter only 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 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 Adviser 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 Adviser on ninety days'
written notice to the Fund;
(e) if New England Securities Corporation, 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" pursuant to the
provisions of the Fund's Distribution Agreement relating to the Series
with said corporation, then this Agreement shall automatically
terminate at the time of such change unless the continuance of this
Agreement after such change shall have been specifically approved by
vote of a majority of the outstanding voting securities of the Series
and by vote of a majority of the Trustees of the Fund who are not
interested persons of the Fund or the Adviser, 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 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 Adviser, 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 of voting securities," "interested person," "affiliated person"
and "assignment" shall have their respective meanings defined in Investment
Company Act of 1940, subject, however, to such exemptions as may be granted by
the Securities and Exchange Commission under said 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 Adviser, or reckless disregard of its obligations
and duties hereunder, the Adviser 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.
THE NEW ENGLAND FUNDS, on
behalf of its TNE Growth Fund Series
By: /s/HENRY L.P. SCHMELZER
CAPITAL GROWTH MANAGEMENT LIMITED
PARTNERSHIP
By: /s/ROBERT L. KEMP
President, Kenbob Inc. General Partners
A copy of the Agreement and Declaration of Trust establishing The New
England Funds (the "Fund") is on file with the Secretary of State of the
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's TNE Growth Fund series on behalf of the Fund
by officers of the Fund as officers and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property belonging to the Series.
<PAGE>
EXHIBIT 99.8(A)
CUSTODIAN CONTRACT
Between
THE NEW ENGLAND FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It...........1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States.............3
2.1 Holding Securities.................................3
2.2 Delivery of Securities.............................3
2.3 Registration of Securities.........................8
2.4 Bank Accounts......................................9
2.5 Availability of Federal Funds.....................10
2.6 Collection of Income..............................10
2.7 Payment of Fund Monies............................11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased...................14
2.9 Appointment of Agents.............................14
2.10 Deposit of Fund Assets in Securities System.......15
2.10A Fund Assets Held in the Custodian's Direct
Paper System......................................18
2.11 Segregated Account................................20
2.12 Ownership Certificates for Tax Purposes...........21
2.13 Proxies...........................................21
2.14 Communications Relating to Portfolio
Securities........................................22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States.....................22
3.1 Appointment of Foreign Sub-Custodians.............22
3.2 Assets to be Held.................................23
3.3 Foreign Securities Depositories...................23
3.4 Segregation of Securities.........................24
3.5 Agreements with Foreign Banking Institutions......24
3.6 Access of Independent Accountants of the Fund.....25
3.7 Reports by Custodian..............................25
3.8 Transactions in Foreign Custody Account...........26
3.9 Liability of Foreign Sub-Custodians...............27
3.10 Liability of Custodian............................27
3.11 Reimbursement for Advances........................28
3.12 Monitoring Responsibilities.......................30
3.13 Branches of U.S. Banks............................31
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund..........................................31
5. Proper Instructions............................................32
6. Actions Permitted Without Express Authority....................33
7. Evidence of Authority..........................................34
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income..............34
9. Records........................................................35
10. Opinion of Fund's Independent Accountants......................36
11. Reports to Fund by Independent Public Accountants..............36
12. Compensation of Custodian......................................37
13. Responsibility of Custodian....................................37
14. Effective Period, Termination and Amendment....................40
15. Successor Custodian............................................42
16. Interpretive and Additional Provisions.........................43
17. Additional Funds...............................................44
18. Massachusetts Law to Apply.....................................44
19. Prior Contracts................................................44
<PAGE>
CUSTODIAN CONTRACT
This Contract between The New England Funds, a business trust organized
and existing under the laws of Massachusetts, having its principal place of
business at 501 Boylston Street, Boston, Massachusetts hereinafter called the
"Fund", and State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to offer shares in its New England Global
Government Fund series (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolio(s), including securities which the Fund, on behalf of the
applicable Portfolio, desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians located in the United States, but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a "Securities System" (as such term is defined in Section
2.10 and (b) commercial paper of an issuer for which State Street Bank and
Trust Company acts as issuing and paying agent("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the amount of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash or obligations issued by
the United States government, its agencies or instrumental ities,
except that in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities owned
by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Fund
on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, made federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income,
as collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities
held hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as
may be necessary to assist the Fund in arranging for the timely delivery
to the Custodian of the income to which the Portfolio is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian and
has been designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct Paper
System, in accordance with the conditions set forth in Section 2.10A;
(d) in the case of repurchase agreements entered into between the Fund
on behalf of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase
by the Portfolio of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper Instructions from
the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the same
extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or time in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System", in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices from
the Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall furnish
to the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities System for
the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the Securities
System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such loss or
damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the Securities System for the account of the
Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on behalf
of the Portfolio and the maturity of futures contracts purchased or sold
by the Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Trustees, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolio(s) shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities
of such Portfolios held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution
shall require that such institution establish a custody account for the
Custodian on behalf of the Fund for each applicable Portfolio of the Fund
and physically segregate in each account, securities and other assets of
the Portfolios, and, in the event that such institution deposits the
securities of one or more of the Portfolios in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for each applicable Portfolio, the securities so
deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held ny the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution enjoyed as a foreign sub-custodian insofar
as much books and records relate to the performance of such foreign
banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
securities of the Portfolio(s) and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provisions of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis, to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians. (b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account
of each applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer. (c)
Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as such
foreign banking institution is liable for such acts and omissions pursuant
to the agreement pursuant to which the Custodian employs each foreign
banking institution as foreign sub-custodian. Regardless of whether assets
are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.13 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from nationalization,
expropriation, currency restrictions or acts of war or terrorism or any
similar act or event beyond the Custodian's control or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating custody duties
to State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. The Fund agrees to indemnify and hold harmless
the Custodian and its nominee from and against all taxes, charges,
expenses, assessments, claims and liabilities (including counsel fees)
incurred or assessed against it or its nominee in connection with the
performance of this Contract, except such as may arise from it or its
nominee's own negligent action, negligent failure to act or willful
misconduct. The Custodian is authorized to charge any account of the Fund
for such items and its fees. To secure any such authorized charges and any
advances of cash or securities made by the Custodian to or for the benefit
of the Fund for any purposes which result in the Fund incurring an
overdraft at the end of any business day or for extraordinary or emergency
purposes during any business day, the Fund hereby grants to the Custodian
a security interest in and pledges to the Custodian securities held for it
by the Custodian, in an amount not to exceed the lesser of the dollar
amounts borrowed or ten percent of the Fund's gross assets, the specific
securities to be designated in writing from time to time by the Fund or
its investment adviser; provided, however, that (1) if from time to time
neither the Fund nor its investment adviser shall have designated in
writing specific securities in an amount at least equal to the lesser of
the dollar amounts borrowed or ten percent of the Fund's gross assets, or
(2) if as a result of the delivery by the Custodian out of its custody,
pursuant to Proper Instructions, of any securities previously so
designated, the remaining amount of securities so designated shall be less
than the lesser of the dollar amounts borrowed or ten percent of the
Fund's gross assets then the Custodian shall have a security interest in
the Fund's securities; in an amount that, taken together with amounts of
securities from time to time designated in writing by the Fund or its
investment adviser that have not been delivered out of the custody of the
Custodian pursuant to Proper Instructions, does not exceed the lesser of
the dollar amounts borrowed or ten percent of the Fund's gross assets.
Should the Fund fail to repay promptly any advances of cash or securities,
the Custodian shall be entitled to use available cash and to dispose of
pledged securities and property as is necessary to repay any such
advances.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with
the initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or, in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission permitting it to serve as a
foreign sub-custodian notwithstanding that its shareholders' equity is
less than $300 million, is notified by such foreign sub-custodian that
there appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent thereof)
or that its shareholders' equity has declined below $200 million (in each
case computed in accordance with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions of this Article III shall not apply where the
custody of the assets of the Portfolio(s) are maintained in a foreign
branch of a banking institution which is a "bank" as defined by Section
2(a)(5) of the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of any such branch
as a sub-custodian shall be governed by the third paragraph of Article 1
of this Contract. (b) Cash held for each Portfolio of the Fund in the
United Kingdom shall be maintained in an interest bearing account
established for the Fund with the Custodian's London branch, which account
shall be subject to the direction of the Custodian, State Street London
Ltd. Or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund, on behalf of each such Portfolio, and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholder. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions. Proper Instructions as used throughout this Contract
means a writing signed or initialed by one or more person or persons as the
Board of Trustees of the Fund shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the assets of the Portfolio(s).
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which requires
a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund, on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or paper
reasonably believed by it to be genuine and to have been properly executed by or
on behalf of the Fund. The Custodian may receive and accept a certified copy of
a vote of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All such
records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each Portfolio
and held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A and Form N-SAR or other periodic reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each Portfolio, at such
times as the Fund may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting control and procedures
for safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this Contract; such
reports shall be of sufficient scope and in sufficient detail as may reasonably
be required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund, on
behalf of each Portfolio, and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three - party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement, if any, entered into between
the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as it is liable for the acts or omissions of sub-custodians located
in the United States set forth in Article 1 hereof (except as otherwise
specifically provided in Article 3.10) and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a foreign branch of a U.S. bank as contemplated by paragraph 3.13
hereof, the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody or any securities or cash of the
Fund of a foreign country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism and not resulting from the negligence of the Custodian or such foreign
banking institution, foreign securities depository or foreign branch of a U.S.
bank.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or its
nominee in connection with the performance of this Contract, except such as may
arise from it or its nominee's own negligent action, negligent failure to act or
willful misconduct. The Custodian is authorized to charge any account of the
Fund for such items and its fees. To secure any such authorized charges and any
advances of cash or securities made by the Custodian to or for the benefit of
the Fund for any purposes which result in the Fund incurring an overdraft at the
end of any business day or for extraordinary or emergency purposes during any
business day, the Fund hereby grants to the Custodian a security interest in and
pledges to the Custodian securities held for it by the Custodian, in an amount
not to exceed the lesser of the dollar amounts borrowed or ten percent of the
Fund's gross assets, the specific securities to be designated in writing from
time to time by the Fund or its investment adviser; provided, however, that (1)
if from time to time neither the Fund nor its investment adviser shall have
designated in writing specific securities in an amount at least equal to the
lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets,
or (2) if as a result of the delivery by the Custodian out of its custody,
pursuant to Proper Instructions, of any securities previously so designated, the
remaining amount of securities so designated shall be less than the lesser of
the dollar amounts borrowed or ten percent of the Fund's gross assets then the
Custodian shall have a security interest in the Fund's securities; in an amount
that, taken together with amounts of securities from time to time designated in
writing by the Fund or its investment adviser that have not been delivered out
of the custody of the Custodian pursuant to Proper Instructions, does not exceed
the lesser of the dollar amounts borrowed or ten percent of the Fund's gross
assets. Should the Fund fail to repay promptly any advances of cash or
securities, the Custodian shall be entitled to use available cash and to dispose
of pledged securities and property as is necessary to repay any such advances.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date as of which it is
executed, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect not sooner than thirty (30) days after the date of such delivery or
mailing; provided, however that the Custodian shall not with respect to a
Portfolio act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary of the Fund that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has reviewed
the use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.10A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary of the Fund that the Board of Trustees has approved the
initial use of the Direct Paper System by such Portfolio and the receipt of an
annual certificate of the Secretary or an Assistant Secretary of the Fund that
the Board of Trustees has reviewed the use by such Portfolio of the Direct Paper
System; provided further, however, that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Declaration of Trust, and further provided that the Fund
on behalf of one or more of the Portfolios may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each Portfolio
shall pay to the Custodian such compensation as may be due as of the date of
such termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements reasonably incurred by the Custodian in the
performance of its duties under this Contract.
15. Successor Custodian
If a successor custodian for the assets of any Portfolio(s) shall be
appointed by the Board of Trustees of the Fund, the Custodian shall, upon the
effectiveness of such appointment, deliver to such successor custodian, at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the succesor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when a termination of this Contract as to
any Portfolio(s) shall become effective, then the Custodian shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties of any
Portfolio(s) remain in the possession of the Custodian after the date of the
termination of this Contract as to such Portfolio(s) owing to failure of the
Fund to procure the certified copy of the vote referred to above or of the Board
of Trustees to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties, and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund, on behalf of each Portfolio, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to New England Global Government Fund with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in writing
to provide such services, such series of Shares shall become a Portfolio
hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions hereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each Portfolio and the Custodian
relating to the custody of the Fund's assets.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 12th day of April, 1988.
ATTEST THE NEW ENGLAND FUNDS
/s/ ANNE M. GOGGIN By /s/ DONALD C. DAY
- --------------------- -----------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ J. FARRELL By /s/ GUY R. STURGEON
- --------------------- -----------------------
Assistant Secretary Vice President
<PAGE>
EXHIBIT 99.8(B)
AMENDMENT NO. 1 TO CUSTODIAN CONTRACT
BETWEEN THE NEW ENGLAND FUNDS AND
STATE STREET BANK AND TRUST COMPANY
In consideration of the mutual covenants and agreements hereinafter
contained, The New England Funds, a Massachusetts business trust (the "Fund"),
and State Street Bank and Trust Company, a Massachusetts trust company (the
"Custodian"), hereby amend the Custodian Contract between the Trust and the
Custodian dated April 12, 1988 (the "Contract"), as follows:
1. Designation of Additional Portfolios. Effective on August 1, 1991,
each of the following series of the Fund shall constitute a "Portfolio" for
purposes of the Contract as hereby amended:
New England Growth Fund
New England Retirement Equity Fund
New England Balanced Fund
New England Bond Income Fund
New England Tax Exempt Income Fund
New England Government Securities Fund
New England Global Government Fund
2. Prior Contracts Superseded. The Contract as hereby amended
supersedes, as of August 1, 1991, any and all other contracts between the Fund
and the Custodian relating to custody by the Custodian of assets of the Fund.
3. Compensation of Custodian. Pursuant to Section 12 of the Contract,
the Custodian shall be entitled to receive from each Portfolio the compensation
specified on Schedule A hereto.
4. Records etc. Section 2.1 of the Contract is hereby amended by adding
the following at the end thereof:
"The Custodian shall maintain records of all receipts,
deliveries and locations of such securities, together with a current
inventory thereof, and shall conduct periodic physical inspections of
certificates representing bonds and other securities held by it under
this Agreement in such manner as the Custodian shall determine from
time to time to be advisable in order to verify the accuracy of such
inventory. If such inspections indicate any shortages or discrepancies,
the Custodian will promptly report to the Fund the results of such
inspections, and take appropriate action to remedy any such shortages
or discrepancies."
5. Payment of Fund Monies; Repurchase Agreements. Clause (d) of
sub-paragraph 1) of Section 2.7 of the Contract is hereby amended to read in its
entirety as follows:
"(d) in the case of repurchase agreements entered into between a
Portfolio and an entity other than the Custodian, against delivery of
the securities either in certificate form or through an entry crediting
such securities to a segregated, non-proprietary account of the
Custodian maintained with the Federal Reserve Bank of Boston; and in
the case of repurchase agreements entered into between a Portfolio and
the Custodian, against delivery of the receipt evidencing purchase by
the Portfolio of securities owned by such securities which are in
certificate form from all securities held by the Custodian for its own
account, transfer of any such securities which are uncertificated to a
segregated, non-proprietary account of the Custodian maintained with
the Federal Reserve Bank of Boston and written evidence of the
agreement by the Custodian to repurchase such securities from the
Portfolio;"
6. Security for Certain Advances. The last paragraph of Section 13 of
the Contract is hereby amended to read in its entirety as follows:
"The Fund agrees to indemnify and hold harmless the Custodian
and its nominee, out of the assets of each Portfolio, from and against
all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or
its nominee in connection with the performance of its obligations with
respect to such Portfolio under this Contract, except such as may arise
from its or its nominee's own negligent action, negligent failure to
act or willful misconduct. The Custodian is authorized to charge any
account of such Portfolio for such items and its fees. The secure any
such authorized charges and any advances of cash or securities made by
the Custodian to or for the benefit of a Portfolio for any purposes
which result in such Portfolio incurring an overdraft at the end of any
business day or for extraordinary or emergency purposes during any
business day, the Fund hereby grants to the Custodian a security
interest in and pledges to the Custodian securities held for such
Portfolio by the Custodian, in an amount not to exceed the lesser of
the dollar amount borrowed or ten percent (five percent, in the case of
New England Tax Exempt Income Fund) of such Portfolio's gross assets,
the specific securities to be designated in writing from time to time
by the Fund or its investment adviser; provided, however, that (1) if
from time to time neither the Fund nor its investment adviser shall
have designated in writing specific securities of the relevant
Portfolio in an amount at least equal to the lesser of the dollar
amounts borrowed or ten percent (five percent, in the case of New
England Tax Exempt Income Fund) of such Portfolio's gross assets, or
(2) if as a result of the delivery by the Custodian out of its custody,
pursuant to Proper Instructions, of any securities previously so
designated, the remaining amount of securities so designated shall be
less than the lesser of the dollar amounts borrowed or ten percent
(five percent, in the case of New England Tax Exempt Income Fund) of
such Portfolio's gross assets, then the Custodian shall have a security
interest in such Portfolio's securities in an amount that, taken
together with amounts of securities of the relevant Portfolio from time
to time designated in writing by the Fund or its investment adviser
that have not been delivered out of the custody of the Custodian
pursuant to Proper Instructions, does not exceed the lesser of the
dollar amount borrowed or ten percent (five percent, in the case of New
England Tax Exempt Income Fund) of such Portfolio's gross assets.
Should any Portfolio fail to repay promptly any advances of cash or
securities properly made by the Custodian on behalf of such Portfolio,
the Custodian shall be entitled to use available cash and to dispose of
pledged securities and property of such Portfolio (but not of any other
Portfolio) as is necessary to repay any such advances.
7. Limitation of Liability. A copy of the Agreement and Declaration of
Trust establishing the Fund, as amended, is on file with the Secretary of State
of The Commonwealth of Massachusetts, and notice is hereby given that the
Contract and this Amendment are executed with respect to each Portfolio on
behalf of the Fund by officers of the Fund as officers and not individually and
that the obligations of or arising out of the Contract or this Amendment are not
binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding only upon the assets and property belonging to the
respective Portfolios.
8. Headings. The headings of sections in this Amendment are for
convenience of reference only and shall not be deemed to control or govern the
meaning of any provision hereof.
IN WITNESS WHEREOF, the Fund and State Street have caused this
Amendment to be executed by their duly authorized officers on this 12th day of
September, 1991.
THE NEW ENGLAND FUNDS
By: /s/ HENRY L.P. SCHMELZER
--------------------------
President
STATE STREET BANK AND TRUST
COMPANY
By: /s/ W.J. HAYES
--------------------------
<PAGE>
EXHIBIT 99.9(K)
SHAREHOLDER SERVICING AND TRANSFER AGENT AGREEMENT
AGREEMENT made as of the 1st day of September, 1993, by and between
each of the TNE Funds listed in Appendix A hereto (as the same may from time to
time be amended to add one or more additional TNE Funds or to delete one or more
of such Funds), each of such Funds acting severally on its own behalf and not
jointly with any of such other Funds (each of such Funds being hereinafter
referred to as the "Fund"), and TNE Investment Services Corporation (the
"Agent").
W I T N E S S E T H:
WHEREAS, the Fund is an investment company registered under the
Investment Company Act of 1940, as amended; and
WHEREAS, the Fund desires to engage the Agent to provide all services
required by the Fund in connection with the establishment, maintenance and
recording of shareholder accounts, including without limitation 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; and
WHEREAS, the Agent is willing to provide such services on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. APPOINTMENT.
The Fund hereby appoints the Agent as its "Investor Servicing Agent" on
the terms and conditions set forth herein. In such capacity the Agent shall act
as transfer, distribution disbursing and redemption agent for the Fund and shall
act as agent for the shareholders of the Fund in connection with the various
shareholder investment and/or redemption plans from time to time made available
to shareholders. The Agent hereby accepts such appointment and agrees to perform
the respective duties and functions of such offices in accordance with the terms
of this agreement and in a manner generally consistent with the practices and
standards customarily followed by other high quality investor servicing agents
for registered investment companies. The Agent may subcontract certain
shareholder accounting and administrative servicing functions to State Street
Bank and Trust Company, pursuant to an agreement substantially in the form
attached hereto as Appendix B, or to such other entity and pursuant to such
agreement as approved by the Fund's Trustees.
2. GENERAL AUTHORITY AND DUTIES.
By its acceptance of the foregoing appointment, the Agent shall be
responsible for performing all functions and duties which, in the reasonable
judgment of the Fund, are necessary or desirable in connection with the
establishment, maintenance and recording of the Fund's shareholder accounts and
the conduct of its relations with shareholders with respect to their accounts.
Without limiting the generality of the foregoing, the Agent shall be
responsible:
(a) as transfer agent, for performing all functions customarily
performed by transfer agents for registered investment companies, including
without limitation all functions necessary or desirable to establish and
maintain accounts evidencing the ownership of securities issued by the Fund and,
to the extent applicable, the issuance of certificates representing such
securities, the recording of all transactions pertaining to such accounts, and
effecting the issuance and redemption of securities issued by the Fund;
(b) as distribution disbursing agent, for performing all functions
customarily performed by distribution disbursing agents for registered
investment companies, including without limitation all functions necessary or
desirable to effect the payment to shareholders of distributions declared from
time to time by the Trustees of the Fund;
(c) as redemption agent for the Fund, for performing all functions
necessary or desirable to effect the redemption of securities issued by the Fund
and payment of the proceeds thereof; and
(d) as agent for shareholders of the Fund, for performing all functions
necessary or desirable to maintain all plans or arrangements from time to time
made available to shareholders to facilitate the purchase or redemption of
securities issued by the Fund.
In performing its duties hereunder, in addition to the provisions set
forth herein, the Agent shall comply with the terms of the Declaration of Trust,
the Bylaws and the current Prospectus and Statement of Additional Information of
the Fund, and with the terms of votes adopted from time to time by the Trustees
and shareholders of the Fund, relating to the subject matters of this Agreement,
all as the same may be amended from time to time.
3. STANDARD OF SERVICE; COMPLIANCE WITH LAWS.
The Agent will use its best efforts to provide high quality services to
the Fund's shareholders and in so doing will seek to take advantage of such
innovations and technological improvements as may be appropriate or desirable
with a view to improving the quality and, where possible, reducing the cost of
its services to the Fund. In performing its duties hereunder, the Agent shall
comply with the provisions of all applicable laws and regulations and shall
comply with the requirements of any governmental authority having jurisdiction
over the Agent or the Fund with respect to the duties of the Agent hereunder.
4. COMPENSATION.
The Fund shall pay to the Agent, for its services rendered and its
costs incurred in connection with the performance of its duties hereunder, such
compensation and reimbursements as may from time to time be approved by vote of
the Trustees of the Fund.
5. DUTY OF CARE; INDEMNIFICATION.
The Agent will at all times act in good faith and exercise reasonable
care in performing its duties hereunder. The Agent shall indemnify and hold the
Fund harmless from and against any and all losses, damages, costs, charges,
reasonable counsel fees, payments, expenses and liability arising out of or
attributable to any action or failure or omission to act by the Agent as a
result of the Agent's lack of good faith, negligence or willful misconduct. The
Agent will not be liable or responsible for delays or errors resulting from
circumstances beyond its control, including acts of civil or military
authorities, national emergencies, labor difficulties, fire, mechanical
breakdown beyond its control, flood or catastrophe, acts of God, insurrection,
war, riots or failure beyond its control of transportation, communication or
power supply.
The Agent may rely on certifications of the Secretary, the President,
the Chairman, a Senior Vice President or the Treasurer of the Fund as to any
action taken by the shareholders or trustees of the Fund, and upon instructions
not inconsistent with this Agreement received from the President, the Chairman,
a Senior Vice President, the Treasurer or any other officer of the Fund
authorized by the Fund's Trustees to give such instructions. If any officer of
the Fund shall no longer be vested with authority to give instructions for the
Fund, written notice thereof shall forthwith be given to the Agent by the Fund
and, until receipt of such notice by it, the Agent shall be entitled to
recognize and act in good faith upon certificates or other instruments bearing
the signatures or facsimile signatures of such officers. The Agent may request
advice of counsel for the Fund, at the expense of the Fund, with respect to the
performance of its duties hereunder.
The Fund will indemnify and hold the Agent harmless from any and all
losses, claims, damages, liabilities and expenses (including reasonable fees and
expenses of counsel) arising out of (i) any action taken by the Agent in good
faith consistent with the exercise of reasonable care in accordance with such
certifications, instructions or advice, (ii) any action taken by the Agent in
good faith consistent with the exercise of reasonable care in reliance upon any
instrument or certificate for securities believed by it (a) to be genuine, and
(b) to be executed by any person or persons authorized to execute the same;
provided, however, that the Agent shall not be so indemnified in the event of
its failure to obtain a proper signature guarantee to the extent the same is
required by the Declaration of Trust, Bylaws, current Prospectus or Statement of
Additional Information of the Fund or a vote of the Trustees of the Fund, and
such requirement has not been waived by vote of the Trustees of the Fund, or
(iii) any other action taken by the Agent in good faith consistent with the
exercise of reasonable care in connection with the performance of its duties
hereunder.
In the event that the Agent proposes to assert the right to be
indemnified under this Section 5 in connection with any action, suit or
proceeding against it, the Agent shall promptly after receipt of notice of
commencement of such action, suit or proceeding notify the Fund of the same,
enclosing a copy of all papers served. In such event, the Fund shall be entitled
to participate in such action, suit or proceeding, and, to the extent that it
shall wish, to assume the defense thereof, and the Fund shall not be liable to
the Agent for any legal or other expenses incurred after notice from the Fund to
the Agent of its election so to assume the defense thereof. The parties shall
cooperate with each other in the defense of any such action, suit or proceeding.
In no event shall the Fund be liable for any settlement of any action or claim
effected without its consent.
6. MAINTENANCE OF RECORDS.
The Agent will maintain and preserve all records relating to its duties
under this Agreement in compliance with the requirements of applicable statutes,
rules and regulations, including, without limitation, Rule 31a-1 under the
Investment Company Act of 1940. Such records shall be the property of the Fund
and shall at all times be available for inspection and use by the officers and
agents of the Fund. The Agent shall furnish to the Fund such information
pertaining to the shareholder accounts of the Fund and the performance of its
duties hereunder as the Fund may from time to time request. The Agent shall
notify the Fund promptly of any request or demand by any third party to inspect
the records of the Fund maintained by it and will act upon the instructions of
the Fund in permitting or refusing such inspection.
7. FUND ACCOUNTS.
All moneys of the Fund from time to time made available for the payment
of distributions to shareholders or redemptions of shares, or otherwise coming
into the possession or control of the Agent or its officers, shall be deposited
and held in one or more accounts maintained by the Agent solely for the benefit
of the Funds.
8. INSURANCE.
The Agent will at all times maintain in effect insurance coverage,
including, without limitation, Errors and Omissions, Fidelity Bond and
Electronic Data Processing coverages, at levels of coverage consistent with
those customarily maintained by other high quality investor servicing agents for
registered investment companies and with such policies as the Trustees of the
Fund may from time to time adopt.
9. EMPLOYEES.
The Agent shall be responsible for the employment, control and conduct
of its agents and employees and for injury to such agents or employees or to
others caused by such agents or employees. The Agent shall assume full
responsibility for its agents and employees under applicable statutes and agrees
to pay all applicable employer taxes thereunder with respect to such agents and
employees, and such agents and employees shall in no event be considered to be
agents or employees of the Fund.
10. TERMINATION.
This Agreement shall continue indefinitely until terminated by not less
than ninety (90) days prior written notice given by the Fund to the Agent, or by
not less than six months prior written notice given by the Agent to the Fund.
Upon termination hereof, the Fund shall pay the Agent such compensation as may
be due to the Agent as of the date of such termination.
In the event that in connection with any such termination a successor
to any of the Agent's duties or responsibilities hereunder is designated by the
Fund by written notice to the Agent, the Agent will cooperate fully in the
transfer of such duties and responsibilities, including provision for assistance
by the Agent's personnel in the establishment of books, records and other data
by such successor. The Fund will reimburse the Agent for all expenses incurred
by the Agent in connection with such transfer.
11. MISCELLANEOUS.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of The Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions of this
Agreement or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
A copy of the Declaration of Trust (including any amendments thereto)
of the Fund is on file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed in behalf of the
Trustees of the Fund as Trustees and not individually and that the obligations
of or arising out of this instrument are not binding upon any of the Trustees or
officers or shareholders individually, but binding only upon the assets and
property of the Fund.
TNE Investment Services anticipates that it will be reorganized, on or
about September 15, 1993, into a new entity called TNE Investment Services, L.P.
Effective at the date of the reorganization, any and all benefits,
responsibilities and obligations of TNE Investment Services Corporation under
this Agreement will be assumed by TNE Investment Services, L.P.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
TNE FUNDS
By /s/ HENRY L.P. SCHMELZER
------------------------
Henry L.P. Schmelzer
President
TNE Investment Services Corporation
By /s/ BRUCE R. SPECA
------------------------
Bruce R. Speca
Senior Vice President
<PAGE>
APPENDIX A
NEW ENGLAND FUNDS
o New England Growth Fund
o New England International Equity Fund
o New England Capital Growth Fund
o New England Value Fund
o New England Growth Opportunities Fund
o New England Balanced Fund
o New England Star Advisers Fund
o Growth Fund of Israel
o New England Star Worldwide Fund
o New England Equity Income Fund
o New England High Income Fund
o New England Government Securities Fund
o New England Bond Income Fund
o New England Limited Term U.S. Government Fund
o New England Adjustable Rate U.S. Government Fund
o New England Strategic Income Fund
o New England Tax Exempt Income Fund
o New England Massachusetts Tax Free Income Fund
o New England Intermediate Term Tax Free Fund of California
o New England Intermediate Term Tax Free Fund of New York
o New England Cash Management Trust
o Money Market Series
o U.S. Government Series
o New England Tax Exempt Money Market Trust
<PAGE>
EXHIBIT 99.9(L)
EXPENSE AGREEMENT
AGREEMENT dated this 1st day of May, 1995 by and between New England
Funds Trust I, a Massachusetts business trust (the "Trust"), on behalf of its
New England Strategic Income Fund series (the "Series"), and New England Funds
Management, L.P., a Delaware limited partnership (the "Adviser").
WHEREAS, the Adviser has been appointed the investment adviser of the
Series pursuant to an Advisory Agreement dated May 1, 1995 between the Trust and
the Adviser relating to the Series (the "Advisory Agreement"); and
WHEREAS, the Trust and the Adviser desire to enter into the
arrangements described herein relating to certain expenses of the Series;
NOW, THEREFORE, the Trust and the Adviser hereby agree as follows:
1. Until further notice from the Adviser to the Trust, the Adviser
agrees, subject to Section 2 hereof, to reduce the fees payable to it under the
Advisory Agreement (but not below zero) to the extent necessary to limit the
operating expenses of the Series (exclusive of brokerage costs, interest, taxes
and extraordinary expenses) to the annual rate (as a percentage of the average
daily net assets attributable to each class of shares of the Series) of 1.40
percent for the Series' Class A shares, 2.15 percent for the Series' Class B and
Class C shares and 1.15 percent for the Series' Class Y shares.
2. The Series agrees to pay to the Adviser the amount of fees that, but
for Section 1 hereof, would have been payable by the Series to the Adviser
pursuant to the Advisory Agreement ("Deferred Fees"), subject to the limitations
provided in this Section 2. Such repayment shall be made monthly, but only if
the operating expenses of the Series (exclusive of brokerage costs, interest,
taxes and extraordinary expenses), without regard to such repayment, are at an
annual rate (as a percentage of the average daily net assets attributable to
each class of shares of the Series) of less than 1.40 percent for the Series'
Class A shares, 2.15 percent for the Series' Class B and Class C shares and 1.15
percent for the Series' Class Y shares. Furthermore, the amount of Deferred Fees
paid by the Series in any month shall be limited so that the sum of (a) the
amount of such payment and (b) the other operating expenses of the Series
(exclusive of brokerage costs, interest, taxes and extraordinary expenses) do
not exceed the foregoing annual percentage rates.
Deferred Fees with respect to any fiscal year of the Trust shall not be
payable by the Series to the extent that the amounts payable by the Series
pursuant to the immediately preceding two sentences during the period ending two
years after the end of such fiscal year are not sufficient to pay such Deferred
Fees. In no event will the Series be obligated to pay any fees waived or
deferred by the Adviser with respect to any other series of the Trust.
3. The Adviser may by notice in writing to the Trust terminate, in
whole or in part, its obligation under Section 1 to reduce its fees with respect
to the Series in any period following the date specified in such notice (or
change the percentage specified in Section 1 with respect to any class of shares
of the Series), but no such change shall affect the obligation (including the
amount of the obligation) of the Series to repay amounts of Deferred Fees with
respect to periods prior to the date specified in such notice.
4. A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I 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 Series on behalf of the Trust by an officer of the Trust as an
officer 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NEW ENGLAND FUNDS TRUST I
By: /s/ FRANK NESVET
------------------------
Name: Frank Nesvet
Title: Treasurer
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: /s/ BRUCE R. SPECA
------------------------
Name: Bruce R. Speca
Title: Executive Vice President
<PAGE>
EXHIBIT 99.15(A)
NEW ENGLAND BALANCED FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND BALANCED FUND (the "Series"), a series of The New
England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
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, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND GROWTH FUND
SERVICE PLAN
(as amended effective June 1, 1993)
This Plan (the "Plan") constitutes the Service Plan of NEW ENGLAND
GROWTH FUND (the "Series"), a series of The New England Funds, a Massachusetts
business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
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. Subject
to such limit and subject to the provisions of Section 9 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 shares
of the Series and/or in connection with the maintenance of shareholder accounts
(including such expenses incurred after the original adoption of this Plan but
prior to June 1, 1993 that have not previously been reimbursed hereunder),
including, but not limited to, (i) expenses (including overhead expenses) of the
Distributor for providing personal services to investors 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 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 with respect to the Series
until it has been approved by a vote of at least a majority of the outstanding
voting securities of the Series.
Section 4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater 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.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for the approval of this Plan
in Section 4.
Section 6. 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 7. 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 voting securities of the Series.
Section 8. 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 voting securities 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 9. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval in
the manner provided in Section 3 hereof, and all material amendments of this
Plan shall be approved in the manner provided for approval of this Plan in
Section 4.
Section 10. 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,"
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
<PAGE>
NEW ENGLAND VALUE FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND VALUE FUND (the "Series"), a series of The New
England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more
than one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
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, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND INTERNATIONAL EQUITY FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND INTERNATIONAL EQUITY FUND (the "Series"), a series
of The New England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more
than one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation
of this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding Class A shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 4.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND CAPITAL GROWTH FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND CAPITAL GROWTH FUND (the "Series"), a series of
The New England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
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, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND BOND INCOME FUND
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND BOND INCOME FUND (the "Series"), a series of The
New England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more
than one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
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, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND MUNICIPAL INCOME FUND
(formerly Tax Exempt Income Fund)
CLASS A SERVICE PLAN
(as amended effective September 13, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND MUNICIPAL INCOME FUND (the "Series"), a series of
The New England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 13, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more
than one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
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, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
NEW ENGLAND GOVERNMENT SECURITIES FUND
CLASS A SERVICE PLAN
(as amended effective September 24, 1993)
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND GOVERNMENT SECURITIES FUND (the "Series"), a
series of The New England Funds, a Massachusetts business trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to TNE
INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the
Principal Distributor of the Series' shares, or such other entity as shall from
time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor
in connection with the provision of personal services provided to investors in
Class A shares of the Series and/or the maintenance of shareholder accounts, at
an annual rate not to exceed .25% of the Series' average daily net assets
attributable to the Class A shares. Subject to such limit and subject to the
provisions of Section 7 hereof, the Service Fee shall be as approved from time
to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust. The Service Fee shall be accrued daily and paid monthly or at such other
intervals as the Trustees shall determine. All payments under this Service Plan
are intended to qualify as "service fees" as defined in Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (or any
successor provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series and/or in connection with the maintenance of shareholder
accounts (including such expenses incurred after the original adoption of this
Plan but prior to September 24, 1993 that have not previously been reimbursed
hereunder), including, but not limited to, (i) expenses (including overhead
expenses) of the Distributor for providing personal services to investors in
Class A shares of the Series or in connection with the maintenance of
shareholder accounts and (ii) payments made by the Distributor to any securities
dealer or other organization (including, but not limited to, any affiliate of
the Distributor) with which the Distributor has entered into a written agreement
for this purpose, for providing personal services to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, which payments to
any such organization may be in amounts in excess of the cost incurred by such
organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more
than one year after September 1, 1993 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan.
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, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and (c) the term "majority of the
outstanding Class A shares of the Series" shall mean the lesser of the 67% or
the 50% voting requirements specified in clauses (A) and (B), respectively, of
the third sentence of Section 2(a)(42) of the Act, all subject to such
exemptions as may be granted by the Securities and Exchange Commission.
<PAGE>
EXHIBIT 99.15(B)
NEW ENGLAND STAR ADVISERS FUND
CLASS A SERVICE PLAN
This Plan (the "Plan") constitutes the Service Plan relating to the
Class A shares of NEW ENGLAND STAR ADVISERS 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 June 1, 1994. This Plan shall continue in effect for a period of more
than one year after June 1, 1994 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.
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.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> CLASS A
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 73,950,729
<INVESTMENTS-AT-VALUE> 77,589,652
<RECEIVABLES> 16,979,224
<ASSETS-OTHER> 225,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,204,963
<PAYABLE-FOR-SECURITIES> 7,026,897
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,904
<TOTAL-LIABILITIES> 7,032,801
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,503,748
<SHARES-COMMON-STOCK> 2,550,424
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 102,316
<OVERDISTRIBUTION-NII> 102,316
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,638,923
<NET-ASSETS> 77,029,722
<DIVIDEND-INCOME> 447,385
<INTEREST-INCOME> 196,386
<OTHER-INCOME> 0
<EXPENSES-NET> 541,456
<NET-INVESTMENT-INCOME> 102,316
<REALIZED-GAINS-CURRENT> 674,506
<APPREC-INCREASE-CURRENT> 3,638,923
<NET-CHANGE-FROM-OPS> 4,415,745
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,755,954
<NUMBER-OF-SHARES-REDEEMED> 205,530
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77,030,072
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197,447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 203,443
<AVERAGE-NET-ASSETS> 40,014,014
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.99
<EXPENSE-RATIO> 2.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> CLASS B
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 73,950,729
<INVESTMENTS-AT-VALUE> 77,589,652
<RECEIVABLES> 16,979,224
<ASSETS-OTHER> 225,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,204,963
<PAYABLE-FOR-SECURITIES> 7,026,897
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,904
<TOTAL-LIABILITIES> 7,032,801
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,460,346
<SHARES-COMMON-STOCK> 2,235,087
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 102,316
<OVERDISTRIBUTION-NII> 102,316
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,638,923
<NET-ASSETS> 77,029,722
<DIVIDEND-INCOME> 447,385
<INTEREST-INCOME> 196,386
<OTHER-INCOME> 0
<EXPENSES-NET> 541,456
<NET-INVESTMENT-INCOME> 102,316
<REALIZED-GAINS-CURRENT> 674,506
<APPREC-INCREASE-CURRENT> 3,638,923
<NET-CHANGE-FROM-OPS> 4,415,745
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,785,815
<NUMBER-OF-SHARES-REDEEMED> 325,469
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77,030,072
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197,447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 203,443
<AVERAGE-NET-ASSETS> 40,014,014
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.94
<EXPENSE-RATIO> 3.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> CLASS C
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 73,950,729
<INVESTMENTS-AT-VALUE> 77,589,652
<RECEIVABLES> 16,979,224
<ASSETS-OTHER> 225,739
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,204,963
<PAYABLE-FOR-SECURITIES> 7,026,897
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,904
<TOTAL-LIABILITIES> 7,032,801
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,616,958
<SHARES-COMMON-STOCK> 731,514
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 102,316
<OVERDISTRIBUTION-NII> 102,316
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,638,923
<NET-ASSETS> 77,029,722
<DIVIDEND-INCOME> 447,385
<INTEREST-INCOME> 196,386
<OTHER-INCOME> 0
<EXPENSES-NET> 541,456
<NET-INVESTMENT-INCOME> 102,316
<REALIZED-GAINS-CURRENT> 674,506
<APPREC-INCREASE-CURRENT> 3,638,923
<NET-CHANGE-FROM-OPS> 4,415,745
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,965,404
<NUMBER-OF-SHARES-REDEEMED> 348,446
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77,030,072
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197,447
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 203,443
<AVERAGE-NET-ASSETS> 40,014,014
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.95
<EXPENSE-RATIO> 3.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
