STOCK FUNDS STATEMENT OF ADDITIONAL INFORMATION
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NEW ENGLAND FUNDS
Where The Best Minds Meet
NEW ENGLAND CAPITAL GROWTH FUND
NEW ENGLAND BALANCED FUND
NEW ENGLAND GROWTH FUND
NEW ENGLAND GROWTH OPPORTUNITIES FUND
NEW ENGLAND INTERNATIONAL EQUITY FUND
NEW ENGLAND STAR ADVISERS FUND
NEW ENGLAND VALUE FUND
Statement of Additional Information -- PART I
May 1, 1995
As revised February 8, 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 the New England Funds listed above (the
"Funds" and each a "Fund"). This Statement is not a prospectus and is
only authorized for distribution when accompanied or preceded by the
Prospectus of the Funds dated May 1, 1995 for Class A, Class B and
Class C shares (in the case of the New England Stock Funds Prospectus,
as revised August 21, 1995 and as supplemented July 13, 1995, October
31, 1995 and January 5, 1996; and in the case of the New England Star
Advisers Fund Prospectus, as supplemented July 13, 1995, October 26,
1995 and January 5, 1996) or the Prospectus of the Funds dated May 1,
1995 for Class Y shares (in the case of the New England Star Advisers
Fund Prospectus, as revised October 2, 1995), as supplemented November
17, 1995 and January 5, 1996 (the "Prospectus" or "Prospectuses").
The Statement should be read together with the Prospectuses.
Investors may obtain a free copy of any of the Prospectuses from New
England Funds, L.P., Prospectus Fulfillment Desk, 399 Boylston Street,
Boston, Massachusetts 02116.
Part I of this Statement contains specific information about the
Funds. Part II includes information about the Funds and other New
England Funds. New England Growth Fund, New England Capital Growth
Fund, New England Value Fund, New England Balanced Fund, New England
International Equity Fund and New England Star Advisers Fund are
series of New England Funds Trust I, a registered management
investment company that offers a total of eleven series, and New
England Growth Opportunities Fund is a series of New England Funds
Trust II, a registered management investment company that offers a
total of eight series.
T a b l e o f C o n t e n t s
Page
Part I
Investment Restrictions ii
Fund Charges and Expenses ix
Investment Performance of the Funds xvii
Part II
Miscellaneous Investment Practices 1
Management of the Trusts 12
Portfolio Transactions and Brokerage 24
Description of the Trusts and Ownership of 27
Shares
How to Buy Shares 30
Net Asset Value and Public Offering Price 30
Reduced Sales Charges 31
Shareholder Services 33
Redemptions 47
Standard Performance Measures 39
Income Dividends, Capital Gain Distributions 43
and Tax Status
Appendix A - Description of Bond Ratings 47
Appendix B - Publications That May Contain 50
Fund Information
Appendix C - Advertising and Promotional 53
Literature
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments
to be made by the Funds, which restrictions (except as otherwise
specifically indicated below and, in the case of New England Star
Adviser Fund, New England International Equity Fund and New England
Capital Growth Fund, only restrictions marked with an asterisk) may
not be changed without the approval of a majority of the outstanding
voting securities of the relevant Fund. 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.
New England Growth Fund, New England Value Fund and New England
Balanced Fund
New England Growth Fund (the "Growth Fund"), New England Value Fund
(the "Value Fund") and New England Balanced Fund (the "Balanced Fund")
each will not:
(1) Purchase any security (other than U.S. Government obligations) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
issuer or 25% of the Fund's total assets (taken at current value)
would be invested in any one industry;
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities), or make short sales except where, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales;
(3) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
(4) Borrow money in excess of 10% of its total assets (taken at cost)
or 5% of its total assets (taken at current value), whichever is
lower, and then only as a temporary measure for extraordinary or
emergency purposes;
(5) Pledge more than 15% of its total assets (taken at cost);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of New England Funds Trust I or of the investment adviser
of the Fund who individually own more than 1/2 of 1% of the shares
or securities of that issuer, together own more than 5%;
(8) Make loans, except by 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;
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts.
Also, the Value Fund will not buy or sell real estate or interests
in real estate which are not readily marketable. (This
restriction does not prevent such Funds from purchasing securities
of companies investing in the foregoing);
(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) Participate on a joint or joint and several basis in any
trading account in securities;
(13) Purchase options or warrants if, as a result, more than 1% of
its total assets (taken at current value) would be invested in
such securities;
(14) Write options or warrants;
(15) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions. (Under the Investment Company Act of 1940
[the "1940 Act"], the Growth Fund, the Value Fund and the Balanced
Fund each 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 such Fund [taken at current value], or (c) own
more than 3% of the outstanding voting stock of any one investment
company.)
In order to comply with certain state requirements applicable to
restriction (5) above, as a matter of operating policy, the Growth
Fund, the Value Fund and the Balanced Fund will not pledge more than
2% of their assets. In addition as a matter of operating policy, the
Fund does not intend to make short sales of the type permitted by
restriction (2). The operating policies described above are subject
to change without shareholder approval.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities; (2) invest more than 15% of the
Fund's total net assets in illiquid securities, or (3) purchase or
sell real property, including limited partnership interests.
New England Capital Growth Fund
New England Capital Growth Fund (the "Capital Growth Fund") may not:
(1) Purchase any security (other than U.S. Government obligations) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
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 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, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales. (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
(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 10% of its total assets (taken at
cost) or 5% of its total assets (taken at current value),
whichever is lower, and then only as a temporary measure for
extraordinary or emergency purposes;
(6) Pledge more than 15% of its total assets (taken at cost). (For
the purpose of this restriction, collateral arrangements with
respect to options, futures contracts and options on futures
contracts 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 New England Funds Trust I or of the investment adviser
of the Fund who individually own more than l/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. (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) 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 Loomis, Sayles &
Company, L.P. ["Loomis Sayles"] 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 or securities indexes and (c) enter
into currency forward contracts;
(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;
(16) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' 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; or
*(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,
futures contracts and options on futures contracts and with
respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts or options on
futures contracts; 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 Investment Company Act of
1940, the rules thereunder, or any exemption therefrom.)
The Capital Growth Fund has undertaken that its investments in
warrants (other than warrants acquired in units or attached to other
securities) will not exceed 5% of the value of its net assets and
that, within that 5%, not more than 2% of its net assets will be
invested in warrants not listed on the New York or American Stock
Exchanges; it will not invest in commodity futures contracts or real
estate limited partnerships; it will not invest more than 5% of its
net assets in restricted securities; it will not invest in puts,
calls, straddles, spreads or any combination thereof; it will not
invest in futures contracts and it will not make loans of portfolio
securities. The undertakings set forth in this paragraph can be
changed without shareholder approval, but the Statement will be
revised to reflect any such changes.
New England Star Advisers Fund
New England Star Advisers Fund (the "Star Advisers Fund") may not:
*(1) Purchase any security (other than U.S. Government Securities)
if , as a result, more than 25% of the Fund's total assets (taken
at current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies
will be considered as being in separate industries, and each
foreign country's government (together with subdivisions thereof)
will be considered to be a separate industry);
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities), or make short sales except where, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales. (For this purpose, the deposit or
payment by the Fund of initial or variation margin in connection
with futures contracts or related options transactions is not
considered the purchase of a security on margin);
(3) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
*(4) Borrow money in excess of 25% of its total assets, and then
only as a temporary measure for extraordinary or emergency
purposes;
(5) Pledge more than 25% of its total assets (taken at cost). (For
the purpose of this restriction, collateral arrangements with
respect to options, futures contracts and options on futures
contracts and with respect to initial and variation margin are not
deemed to be a pledge of assets);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of New England Funds Trust I or of any investment adviser
of the Fund who individually own more than 1/2 of 1% of the shares
or securities of that issuer, together own more than 5%;
*(8) Make loans, except by entering into repurchase agreements or
by purchase of bonds, debentures, commercial paper, corporate
notes and similar evidences of indebtedness, which are a part of
an issue to the public or to financial institutions, or through
the lending of the Fund's portfolio securities;
*(9) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, real estate or commodities or commodity
contracts, except that the Fund may buy and sell futures contracts
and related options. (This restriction does not prevent the Fund
from purchasing securities of companies investing in the
foregoing);
*(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) 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 any investment
adviser of the Fund or accounts under any such investment
adviser's management to reduce brokerage commissions, to average
prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.);
(13) Write, purchase or sell options or warrants, except that the
Fund may (a) acquire warrants or rights to subscribe to securities
of companies issuing such warrants or rights, or of parents or
subsidiaries of such companies, (b) write, purchase and sell put
and call options on securities, securities indexes or futures
contracts and (c) enter into currency forward contracts;
(14) Purchase any illiquid security if, as a result, more than 15%
of its net assets (taken at current value) would be invested in
such securities;
(15) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' 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 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; or
*(16) Issue senior securities. (For the purpose of this
restriction none of the following is deemed to be a senior
security: any pledge or other encumbrance of assets permitted by
restrictions (2) or (5) above; any borrowing permitted by
restriction (4) above; any collateral arrangements with respect to
forward contracts, options, futures contracts and options on
futures contracts and with respect to initial and variation
margin; the purchase or sale of options, forward contracts,
futures contracts or options on futures contracts; 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 Investment Company Act of 1940, the rules thereunder, or any
exemption therefrom.)
As a matter of operating policy subject to change without
shareholder approval, the Star Advisers Fund intends not to purchase
securities when its outstanding borrowings exceeds 5% of its total
assets and the Fund will not (1) invest more 15% of its total assets
in securities of issuers which together with any predecessors have a
record of less than three years continuous operation or securities of
issuers which are restricted as to disposition; (2) invest in any oil,
gas and other mineral leases; (3) purchase or sell real property
including limited partnership interests but excluding readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest in real estate; (4)
invest more than 5% of its net assets in warrants, no more than 2% of
which will be invested in warrants that are not listed on the New York
Stock Exchange or American Stock Exchange, provided however, that for
purposes of this limitation, warrants acquired by the Fund in units or
attached to other securities may be deemed to be without value; (5)
invest in any uncovered puts, calls, straddles, spreads or any
combination thereof, if immediately thereafter the aggregate premiums
paid on such outstanding options would exceed 5% of the market value
of the total assets of the Fund; or (6) invest in commodities or
commodity futures contracts, except that the Fund may buy and sell
stock index futures contracts and related options, stock index
options, currency options, currency futures contracts and related
options and interest rate futures contracts and related options.
New England International Equity Fund
New England International Equity Fund (the "International Equity
Fund") may not:
(1) Purchase any security (other than U.S. Government obligations) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
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 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, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales. (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
(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 10% of its total assets (taken at
cost) or 5% of its total assets (taken at current value),
whichever is lower, and then only as a temporary measure for
extraordinary or emergency purposes;
(6) Pledge more than 15% of its total assets (taken at cost). (For
the purpose of this restriction, collateral arrangements with
respect to options, futures contracts and options on futures
contracts 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 New England Funds Trust I 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. (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) 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 Draycott Partners,
Ltd. ["Draycott"] 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 or securities indexes and (c) enter
into currency forward contracts;
(15) Purchase any illiquid security if, as a result, more than 15%
of its total assets (taken at current value) would be invested in
such securities;
(16) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions. Under the Investment Company Act of 1940,
("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; or
*(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, futures contracts
and options on futures contracts and with respect to initial and
variation margin; the purchase or sale of options, forward
contracts, futures contracts or options on futures contracts; 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 has given undertakings to certain state regulatory
authorities in connection with the qualification of Fund shares for
sale in such states that its investments in warrants (other than
warrants acquired in units or attached to other securities) will not
exceed 5% of the value of its net assets and that, within that 5%, not
more than 2% of its net assets will be invested in warrants not listed
on the New York or American Stock Exchanges; that it will not invest
in commodity futures contracts or real estate limited partnerships;
that it will not invest more than 5% of its net assets in restricted
securities; and that it will not invest in puts, calls, straddles,
spreads or 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. Such undertakings can be changed without
shareholder approval, but the Statement will be revised to reflect any
such changes.
The staff of the Securities and Exchange Commission (the "SEC")
is currently of the view that repurchase agreements maturing in more
than seven days are subject to restriction (15) above.
New England Growth Opportunities Fund
New England Growth Opportunities Fund (the "Growth Opportunities
Fund") will not:
(1) Purchase securities of an issuer if such purchase would cause more
than 5% of the market value of the total Fund assets to be
invested in the securities of such issuer (exclusive of United
States or Canadian government obligations), or if such purchase
would cause more than 10% of the securities of such issuer to be
held by the Fund;
(2) Purchase or retain the securities of any issuer if the officers
and trustees of New England Funds Trust II owning beneficially 1/2
of 1% of the securities of such issuer together own beneficially
more than 5% of the securities of such issuer;
(3) Purchase the securities issued by any other investment company,
except that a purchase involving no commission or profit to a
sponsor or dealer (other than a customary broker's commission) is
permitted and except that a purchase that is part of a plan of
merger or consolidation is permitted;
(4) Purchase securities issued by companies with a record (including
that of their predecessors) of less than three years' continuous
operation;
(5) Purchase securities for the portfolio on margin, make short sales
or make loans to persons affiliated with New England Funds Trust
II;
(6) Act as underwriter of securities of other issuers, or invest
directly in real estate or in commodities or commodity contracts;
or
(7) Make loans to other persons, provided, however, that this
restriction shall not prohibit the Fund from entering into
repurchase agreements with respect to not more than 25% of the
Fund's total assets taken at current value. The purchase of a
portion of an issue of bonds, notes or debentures publicly
distributed or of a type customarily purchased by institutional
investors does not constitute the making of loans within the
meaning of this restriction.
(8) The Growth Opportunities Fund may make secured or unsecured bank
borrowings, provided that an asset coverage of at least 300% for
all such borrowings (including the amount then being borrowed) is
maintained as required by the 1940 Act.
It is a fundamental policy of the Growth Opportunities Fund that
it will not concentrate its assets in the securities of issuers in the
same industry. The Fund intends to abide by the views of the SEC
staff on what constitutes industry concentration. Accordingly, the
Fund will not make an investment if, immediately thereafter, the Fund
would hold more than 25% of its total assets in securities of issuers
in any one industry. This limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
It is contrary to the Growth Opportunities Fund's present policy,
which may be changed without shareholder approval, to:
(a) Purchase interests in oil, gas or other mineral exploration or
development programs, mineral leases;
(b) Write put or call options;
(c) Invest in real estate investments, or
(d) Invest in warrants.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities; (2) invest more than 15% of the
Fund's total net assets in illiquid securities; or (3) purchase or
sell real property, including limited partnership interests.
The Growth Opportunities Fund has no present intention of
borrowing money except on a temporary basis, as may be needed; to
cover redemptions of shares. Should this intention change, the
prospectus will be amended.
FUND CHARGES AND EXPENSES
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES
Pursuant to an advisory agreement dated September 1, 1993,
Capital Growth Management Limited Partnership ("CGM") has agreed to
manage the investment and reinvestment of the assets of the Growth
Fund, subject to the supervision of the Board of Trustees of New
England Funds Trust I. Under the advisory agreement, the Fund pays
CGM an advisory fee at the annual rate of 0.75% of the first $200
million of the Fund's average daily net assets, 0.70% of the next $300
million of such assets and 0.65% of such assets in excess of $500
million.
Pursuant to separate advisory agreements, each dated January 2,
1996 (December 29, 1995, in the case of the International Equity
Fund), New England Funds Management, L.P. ("NEFM") has agreed, subject
to the supervision of the Board of Trustees of the relevant Trust, to
manage the investment and reinvestment of the assets of the Capital
Growth, Value, Balanced, International Equity, Star Advisers and
Growth Opportunities Funds and to provide a range of administrative
services to such Funds. For the services described in the advisory
agreements, each such Fund has agreed to pay NEFM a management fee at
the annual rate set forth in the following table:
Management fee payable by Fund to NEFM
(as a percentage of average daily net assets of
Fund the Fund)
- ------------------------ -----------------------------------------------
Balanced Fund 0.75% of the first $200 million
0.70% of the next $300 million
0.65% of amounts in excess of $500 million
Capital Growth Fund 0.75% of the first $200 million
0.70% of the next $300 million
0.65% of amounts in excess of $500 million
Growth Opportunities 0.70% of the first $200 million
Fund 0.65% of the next $300 million
0.60% of amounts in excess of $500 million
International Equity 0.90% of the first $200 million
Fund 0.85% of the next $300 million
0.80% of amounts in excess of $500 million
Star Advisers Fund 1.05% of all assets
Value Fund 0.75% of the first $200 million
0.70% of the next $300 million
0.65% of amounts in excess of $500 million
The advisory agreements for the Capital Growth, Value, Balanced,
International Equity, Star Advisers and Growth Opportunities Funds
each provide that NEFM may delegate its responsibilities thereunder to
other parties. Pursuant to separate subadvisory agreements, each
dated January 2, 1996 (December 29, 1995, in the case of the
International Equity Fund), NEFM has delegated responsibility for
managing the investment and reinvestment of each of these Funds'
assets to a subadviser. The subadviser is Loomis Sayles, in the case
of the Balanced, Value and Capital Growth Funds; Westpeak Investment
Advisors, L.P. ("Westpeak"), in the case of the Growth Opportunities
Fund; and Draycott, in the case of the International Equity Fund. The
Funds pay no direct fees to the subadvisers. For providing such
subadvisory services to the Funds, NEFM pays each subadviser a
subadvisory fee at the annual rate set forth in the following table:
Subadvisory fee payable by NEFM to
subadviser
(as a percentage of average daily net
Fund Subadviser assets of the Fund)
- ------------------- ---------- --------------------------------
Balanced Fund Loomis 0.535% of the first $200 million
Sayles 0.350% of the next $300 million
0.300% of amounts in excess of $500
million
Capital Growth Fund Loomis 0.60% of the first $25 million
Sayles 0.55% of the next $75 million
0.50% of the next $100 million
0.35% of the next $300 million
0.30% of amounts in excess of $500
million
Growth Westpeak 0.50% of the first $25 million
Opportunities Fund 0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200
million
International Draycott 0.54% of the first $200 million
Equity Fund 0.49% of the next $300 million
0.44% of amounts in excess of $500
million
Value Fund Loomis 0.535% of the first $200 million
Sayles 0.350% of the next $300 million
0.300% of amounts in excess of $500
million
As explained in the Prospectus, the Star Advisers Fund's
portfolio is divided into four segments. Pursuant to separate
subadvisory agreements, each dated January 2, 1996, NEFM has delegated
responsibility for managing the investment and reinvestment of the
assets of each segment of the portfolio to a different subadviser.
The four subadvisers are Berger Associates, Inc. ("Berger"), Founders
Asset Management, Inc. ("Founders"), Janus Capital Corporation ("Janus
Capital") and Loomis Sayles. For providing such subadvisory services
to the Fund, NEFM pays each subadviser a subadvisory fee at the annual
rate of 0.55% of the first $50 million of the average daily net assets
of the segment of the Fund managed by that subadviser and 0.50% of
such assets in excess of $50 million.
Prior to January 2, 1996, Loomis Sayles served as adviser to the
Capital Growth, Balanced and Value Funds pursuant to separate advisory
agreements, each of which provided for an advisory fee payable by such
Fund to Loomis Sayles at the same rate as the management fee currently
payable by such Fund to NEFM.
From May 1, 1995 until January 2, 1996, NEFM served as adviser
and Westpeak served as subadviser to the Growth Opportunities Fund
pursuant to advisory and subadvisory agreements providing for the same
advisory and subadvisory fee rates as are currently in effect for the
Fund. Prior to May 1, 1995, Back Bay Advisors, L.P. ("Back Bay
Advisors") served as adviser to the Growth Opportunities Fund pursuant
to an advisory agreement providing for an advisory fee payable by the
Fund to Back Bay Advisors at the annual rate of 0.50% of the Fund's
average daily net assets.
Prior to January 2, 1996, New England Investment Companies, L.P.
("NEIC") served as adviser to the Star Advisers Fund pursuant to an
advisory agreement providing for a management fee payable by the Fund
to NEIC at the same rate as the management fee currently payable by
such Fund to NEFM.
Prior to December 29, 1995, Draycott served as adviser to the
International Equity Fund pursuant to an advisory agreement providing
for an advisory fee payable by the Fund to Draycott at the annual rate
of 0.80% of the first $200 million of the Fund's average daily net
assets, 0.75% of the next $300 million of such assets and 0.70% of
such assets in excess of $500 million.
Prior to December 29, 1995, short-term cash management services
were provided to the International Equity Fund by Back Bay Advisors, a
subadviser to Draycott. For these services, Draycott had agreed to
compensate Back Bay Advisors at the annual rate of 0.08% of average
daily net assets of the Fund. Back Bay Advisors voluntarily agreed to
waive this fee in its entirety.
Prior to December 29, 1995, New England Funds, L.P. (the
"Distributor"), of which Draycott was then an affiliate, furnished or
paid the expenses of the International Equity Fund for office space,
facilities and equipment, services of executive and other personnel of
New England Funds Trust I and certain administrative services,
pursuant to an administrative services agreement. Under this
agreement, the Fund paid the Distributor a fee at the annual rate of
0.10% of the average daily net assets attributable to the Fund's Class
A, Class B and Class C shares and 0.05% of the average daily net
assets attributable to the Fund's Class Y shares. The International
Equity Fund's current management fee rate represents, with respect to
the Fund's Class A, Class B and Class C shares, the sum of the fee
rates under the prior advisory and administrative services agreements.
Until further notice to the International Equity Fund, NEFM and
the Distributor have voluntarily agreed to reduce their fees and, if
necessary, to bear certain expenses related to operating the Fund in
order to limit the Fund's expenses to an annual rate of 1.75% of the
average daily net assets of the Fund's Class A shares, 2.50% of the
average daily net assets of the Fund's Class B shares, 2.50% of the
average daily net assets of the Fund's Class C shares and 1.00% of the
average daily net assets of the Fund's Class Y shares. NEFM and the
Distributor may terminate these voluntary limitations at any time.
Prior to December 29, 1995, similar voluntary limitations were in
effect with respect to Draycott, the Distributor and the Fund.
For the last three fiscal years, the advisory fees for the Funds
(before any voluntary fee reductions) were:
Fund 1992 1993 1994
Growth Fund $7,298,603 $8,074,472 $7,572,051
Capital Growth Fund* $46,123 $558,088 $834,943
Value Fund $1,142,977 $1,287,064 $1,543,333
Balanced Fund $583,598 $954,586 $1,498,050
International Equity $82,978 $387,348 $1,541,223
Fund**
Growth Opportunities $381,721 $511,327 $555,258
Star Advisers $569,280
Fund***
* The Capital Growth Fund commenced operations on August 3,1992. For
the periods August 3, 1992 through December 31, 1992, the Capital
Growth Fund paid no advisory fees, because of a voluntary fee
waiver that was then in effect.
**The International Equity Fund commenced operations on May 21, 1992.
As a result of the voluntary expense limitation in effect, the
International Equity Fund paid $0, $171,250 and $1,449,606,
respectively, in advisory fees for the period May 21, 1992 through
December 31, 1992 and the fiscal years ended 1993 and 1994.
*** The Star Advisers Fund commenced operations on July 7, 1994.
As a result of the voluntary expense limitation in effect, the Star
Advisers Fund paid $543,254 in advisory fees for the period July 7,
1994 through December 31, 1994.
For the period from the commencement of the Star Advisers Fund's
operations in July 1994 until December 31, 1994, NEIC and the
subadvisers of the Star Advisers Fund voluntarily agreed to reduce
their compensation. As a result of this voluntary agreement, the
compensation paid by the Fund to NEIC for this period was at the
annual rate of 1.00% of the Fund's average daily net assets, and the
compensation paid by NEIC to each subadviser was at the annual rate of
0.50% of the average daily net assets of the segment of the Fund's
portfolio managed by that subadviser. Without the voluntary
limitations, estimated compensation paid to NEIC would have been at
the annual rate of 1.05% of the Fund's average daily net assets and
the compensation paid by NEIC to each subadviser would be been at the
annual rate of 0.55% of the average daily net assets of the segment of
the Fund's portfolio managed by that subadviser.
For more information about the Funds' advisory and subadvisory
agreements, see "Management of the Trusts" in Part II of this
Statement.
BROKERAGE COMMISSIONS
In 1992, 1993 and 1994, brokerage transactions for the Growth
Fund aggregating $4,402,530,215, $3,159,418,968 and $3,048,679,127,
respectively, were allotted to brokers providing research services and
$6,897,486, $4,896,039 and $4,187,824 in commissions were paid on
these transactions in such years. During 1992, 1993 and 1994 the Fund
paid total brokerage fees of approximately $9,476,620, $5,204,339 and
$4,305,999, respectively.
In 1992, 1993 and 1994, brokerage transactions for the Value Fund
aggregating $14,326,262, $10,177,146 and $9,382,814, respectively,
were allotted to brokers providing research services and $62,238,
$14,608 and $14,664 in commissions were paid on these transactions in
such years. During 1992, 1993 and 1994, the Fund paid total brokerage
fees of approximately $294,472, $290,786 and $342,576.50,
respectively.
In 1992, 1993 and 1994, brokerage transactions for the Balanced
Fund aggregating $3,935,846, $12,509,788 and $14,761,967.20,
respectively, were allotted to brokers providing research services and
$6,990, $18,540 and $28,267 in commissions were paid on these
transactions in such years. During 1992, 1993 and 1994, the Fund paid
total brokerage fees of approximately $88,887, $188,608 and $159,243,
respectively.
In the fiscal years ended 1992, 1993 and 1994, the Growth
Opportunities Fund paid aggregate commissions of $24,857, $27,371.72
and $9,427.
For the periods May 21, 1992 through December 31, 1992 and August
3, 1992 through December 31, 1992, brokerage transactions for the
International Equity Fund and Capital Growth Fund aggregating
$38,268,000 and $15,524,488, respectively, were allocated to brokers
providing research services and $112,600 and $22,544, respectively, in
commissions were paid on these transactions during these periods.
During the periods, the International Equity Fund and Capital Growth
Fund paid total brokerage fees of approximately $112,600 and $35,058,
respectively. For the fiscal year ended December 31, 1993, brokerage
transactions for the International Equity Fund and Capital Growth Fund
aggregating $141,224,000 and $84,641,249, respectively, were allocated
to brokers providing research services and $376,365 and $108,879,
respectively, in commissions were paid on these transactions. During
1993, the International Equity Fund and Capital Growth Fund paid total
brokerage fees of approximately $376,365 and $156,966, respectively.
For the fiscal year ended December 31, 1994, brokerage transactions
for the International Equity Fund and Capital Growth Fund aggregating
$482,619.468 and $135,445,676, respectively, were allocated to brokers
providing research services and $1,173,745 and $191,861, respectively,
in commissions were paid on these transactions. During 1994, the
International Equity Fund and Capital Growth Fund paid total brokerage
fees of approximately $1,173.745 and $10,615, respectively.
For more information about Fund portfolio transactions, see
"Portfolio Transactions and Brokerage" in Part II of this Statement.
SALES CHARGES AND 12B-1 FEES
As explained in Part II of this Statement, the Class A, Class B
and Class C shares of each Fund pay fees under plans adopted pursuant
to Rule 12b-1 under the 1940 Act. The following table shows the
amounts of Rule 12b-1 fees paid by each Fund during the fiscal years
ended December 31, 1992, 1993 and 1994:
Fund 1992 1993 1994
Growth Fund $2,672,541 $2,970,951 $2,177,712 (Class A)
Value Fund $380,993 $429,022 $489,686 (Class A)
$2,966 $81,490 (Class B)*
Balanced Fund $194,532 $318,195 $401,403 (Class A)
$6,196 $131,331 (Class B)*
Growth $267,207 $357,066 $376,217 (Class A)
Opportunities Fund $2,469 $35,609 (Class B)*
Star Advisers Fund $89,910** (Class A)
$204,766 (Class B)
$62,604 (Class C)
International $25,931*** $112,228 $341,787 (Class A)
Equity Fund $13,893 $242,144 (Class B)*
Capital Growth Fund $15,228**** $183,521 $247,956 (Class A)
$10,030 $121,432 (Class B)*
* Class B shares were first offered on September 13, 1993.
** The Fund commenced operations on July 7, 1994.
*** The Fund commenced operations on May 21, 1992.
**** The Fund commenced operations on August 3, 1992.
During the fiscal year or periods ended December 31, 1994,
expenses relating to each Fund's 12b-1 plans were as follows:
Growth Fund
Compensation to Investment Dealers $2,743,547
Compensation to Distributor's Sales Personnel $34,165
TOTAL $2,777,547
Value Fund
(Class A shares)
Compensation to Investment Dealers $489,559
Compensation to Distributor's Sales Personnel $127
TOTAL $489,686
(Class B shares)
Compensation to Investment Dealers $431,769
TOTAL $431,769
Balanced Fund
(Class A shares)
Compensation to Investment Dealers $400,875
Compensation to Distributor's Sales Personnel $528
TOTAL $401,403
(Class B shares)
Compensation to Investment Dealers $691,676
TOTAL $691,676
Growth Opportunities Fund
(Class A shares)
Compensation to Investment Dealers $268,381
Compensation to Distributor's Sales Personnel $107,836
TOTAL $376,217
(Class B shares)
Compensation to Investment Dealers $142,143
TOTAL $142,143
Star Advisers Fund
(Class A shares)
Compensation to Investment Dealers $68,910
Compensation to Distributor's Sales Personnel $0
TOTAL $68,910
(Class B shares)
Compensation to Investment Dealers $2,664,886
TOTAL $2,664,886
(Class C shares)
Compensation to Investment Dealers $62,604
TOTAL $62,604
International Equity Fund
(Class A shares)
Compensation to Investment Dealers $341,787
Compensation to Distributor's Sales Personnel $0
TOTAL $341,787
(Class B shares)
Compensation to Investment Dealers $1,249,158
TOTAL $1,249,158
Capital Growth Fund
(Class A shares)
Compensation to Investment Dealers $247,605
Compensation to Distributor's Sales Personnel $351
TOTAL $247,956
(Class B shares)
Compensation to Investment Dealers $367,098
TOTAL $367,098
Of the amounts listed above as compensation to investment
dealers, the following amounts were paid by the Distributor to New
England Securities, a broker dealer affiliate of the Distributor:
$2,277,563 relating to shares of the Growth Fund; $444,375 relating to
the Class A shares and $398,552 relating to the Class B shares of the
Value Fund; $357,548 relating to the Class A shares and $632,764
relating to the Class B shares of the Balanced Fund; $94,341 relating
to the Class A shares and $139,146 relating to the Class B shares of
the Growth Opportunities Fund; $47,881 relating to the Class A shares,
$1,461,436 relating to the Class B shares and $14,544 relating to the
Class C shares of the Star Advisers Fund; $208,866 were paid relating
to the Class A shares and $792,990 relating to the Class B shares of
the International Equity Fund and $186,517 relating to the Class A
shares and $333,285 relating to the Class B shares of the Capital
Growth Fund. New England Securities paid substantially all of the
fees it received from the Distributor in commissions to its sales
personnel and to defray overhead costs relating to sales of Fund
shares and/or servicing shareholder accounts.
OWNERSHIP OF FUND SHARES
On April 1, 1995 the following persons owned of record or
beneficially 5% or more of the Class A,
Class B, Class C or Class Y shares of the indicated Funds.
Capital Growth
Class C shares William J. Walker 50.93%
11 Saddle Club Road
Lexington, MA 02173-
2102
Edward D. Jones and Co 17.32%
Post Office 2500
Marland Heights, MD
Advest 11.59%
280 Trumbull Street
Hartford, CT 06103-
3599
Susan E. Bergsma 9.82%
5355 Stage NW
Grand Rapids, MI
William F. Crockett 8.65%
Frances L. Crockett JT
TEN
1220 Oak Hills Drive
Colorado Springs, CO
80919-1429
Balanced Fund Great Lakes Elevator
Class C shares 401(k) Plan
401 Hall Street SW,
Box 9
Grand Rapids, MI
49503-5098
Paul Bojanowwer
54-053 Oak Hill RD
La Quinta, CA 92253
William Walker 21.05%
11 Saddle Club Rd
Lexington, MA 02173-
2102
Susan R. Labonski 13.80%
916 Union Street, Apt
50
Brooklyn, NY 11215-
1663
Class Y shares New England Mutual 84.75.%
Life Ins. Co
Separate Investment
Accounting
Attention: Victor
Soohoo
501 Boylston Street,
6th Floor
Boston, MA 02116-3706
New England 5.99%
Progress Sharing Plan
c/o Benefit Admin Svs
501B-8
Boston, MA 02116
Value Fund
Class C shares William Walker
11 Saddle Club Rd
Lexington, MA 02173-
2102
Henry Johnson 18.12%
639 Meadowbrook Drive
Huntington Valley, PA
19006-6914
Jill D. Hoffman 14.74%
105 Ocean Hollow Lane
St. Augustine, FL
32095-1743
Richard F. Lanes 14.68%
11844 Providence Bay
Ct
Lakeside, CA 92040-
2366
Elizabeth Kerhsaw 5.93%
1021 Concord Avenue
Belmont, MA 02178-
1040
Class Y shares New England Mutual 100%
Life Ins. Co.
Separate Investment
Accounting
Attention: Victor
Soohoo
501 Boylston Street,
6th Floor
Boston, MA 02116-3706
International
Equity Fund
Class C shares Polly P. White 20.61%
240 S. High Haro Drive
Friday Harbor, WA
98250-9442
Karen J. Foley 13.84%
12 Walden Oaks
St. Joseph, MO 64505-
9400
First Minnetonka City 13.42%
Bank
14550 Excelsior Blvd.
Minnetonka, MN 55345-
5822
William Walker 6.91%
11 Saddle Club Rd
Lexington, MA 02173-
2102
Class Y shares New England Mutual 58.39%
Life Ins. Co
Separate Investment
Accounting
Attention: Victor
Soohoo
501 Boylston Street,
6th Floor
Boston, MA 02116-3706
Walker Art Center 11.22%
c/o Tim Schultz
Wineland Place
Minneapolis, MN 55403
Benedictine Health 7.78%
System
Attention: Thomas Cook
503 East Third Street
Duluth, MN 55805-1931
NEIC Master Retirement 5.31%
Trust
c/o Defined
Contribution SVS-TNE
Post Office 755
Boston, MA 02117-0755
Star Advisers
Fund
Class Y shares New England Mutual 99.99%
Life Ins. Co
Separate Investment
Accounting
Attention: Victor
Soohoo
501 Boylston Street,
6th Floor
Boston, MA 02116-3706
INVESTMENT PERFORMANCE OF THE FUNDS
Performance Results - Percent Change
For The Periods Ended 12/31/94
Growth Fund
Aggregate Total Average Annual Total
Return* Return
As a % of 1 5 10 1 5 10
Year Years Years Year Years Years
Net Asset Value -7.05 59.33 274.08 -7.05 9.76 14.10
Maximum Offering Price -13.13 48.97 249.77 -13.13 8.3 13.34
Value Fund
(Class A shares)
Aggregate Total Average Annual Total
Return* Return
As a % of 1 5 10 1 5 10
Year Years Years Year Years Years
Net Asset Value -1.39 47.70 233.36 -1.39 8.11 12.8
Maximum Offering Price -7.06 39.21 214.20 -7.06 6.83 12.13
(Class B shares)
Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value -2.00 4.19 -2.00 3.21
Redemption at End of -5.68 1.47 -5.68 1.13
Period
(Class Y shares)
Average Annual
Total Return
As a % of Since 3/31/94** Annualized Total
Return
Net Asset Value 2.38% 9.44%
Balanced Fund
(Class A shares)
Aggregate Total Average Annual Total
Return* Return
As a % of 1 5 10 1 5 10
Year Years Years Year Years Years
Net Asset Value -2.67 46.25 169.08 -2.67 7.90 10.41
Maximum Offering Price -8.27 37.84 153.61 -8.27 6.63 9.75
(Class B shares)
Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value -3.36 -0.19 -3.36 -0.14
Redemption at End of -7.08 -2.97 -7.08 -2.28
Period
(Class Y shares)
Aggregate Annual
Total Return
As a % of Since 3 /31/94** Annualized Total
Return
Net Asset Value -2.80 -15.25
Growth Opportunities Fund
(Class A shares)
Aggregate Total Average Annual Total
Return* Return
As a % of 1 5 10 1 5 10
Year Years Years Year Years Years
Net Asset Value 0.99 48.97 207.56 0.99 8.3 11.84
Maximum Offering Price -4.79 40.41 189.88 -4.79 7.03 11.23
(Class B shares)
Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value 0.58 1.16 -0.58 0.89
Redemption at End of -3.34 -1.73 -3.34 -1.33
Period
Star Advisers Fund
(Class A shares)
Average Annual
Total Return
As a % of Since 7/7/94** Annualized Total Return
Net Asset Value 6.38 13.16
Maximum Offering Price 0.27 6.64
(Class B shares)
Average Annual
Total Return
As a % of Since 7/7/94** Annualized Total
Return
Net Asset Value 5.99 12.35
Redemption at End of 1.99 8.35
Period
(Class C shares)
Average Annual
Total Return
As a % of Since 7/7/94** Annualized Total
Return
Net Asset Value 6.04 12.46
(Class Y shares)
Aggregate Annual
Total Return
As a % of Since 3 /31/94** Annualized Total
Return
Net Asset Value -2.08 -16.50
International Equity Fund+
(Class A shares)
Aggregate Total Average Annual Total
Return* Return
5/21/92** 5/21/92** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value 8.06 32.98 8.06 11.50
Maximum Offering Price 1.82 25.34 1.82 9.01
(Class B shares)
Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value 7.33 7.66 7.33 5.84
Redemption at End of 3.33 4.65 3.33 3.57
Period
(Class Y shares)
Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value 8.93 9.72 8.93 7.34
Capital Growth Fund++
(Class A shares)
Aggregate Total Average Annual Total
Return* Return
8/03/92** 8/03/92** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value -1.64 21.94 -1.64 8.58
Maximum Offering Price -7.28 14.93 -7.28 5.96
(Class B shares)
Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
As a % of 1 Year - 12/31/94 1 Year 12/31/94
Net Asset Value -2.30 1.23 -2.30 0.94
Redemption at End of -6.20 -1.78 -6.20 -1.37
Period
* Federal regulations require this example to be calculated using a
$1,000 investment. The normal minimum initial investment in shares
of the Funds is $2,500, however.
**Commencement of Fund operations.
*** Assuming deduction of the current maximum sales load, the
Growth Opportunities Fund's Class A shares' ten-year average annual
total return for the period ended December 31, 1994 would have been
11.2%, had a voluntary expense limitation by the Fund's former
investment adviser not been in effect. The aggregate ten-year
total return would have been 189.8%. Based on its net asset
values, the Growth Opportunities Fund's ten-year average annual
total return for the period ended December 31, 1994 would have been
11.9%. The aggregate ten-year total return, based on net asset
values, would have been 207.5%.
+ Assuming deduction of the current maximum sales load, the
International Equity Fund's Class A shares' average one year and
since inception average annual total returns would have been 1.78%
and 8.39%, respectively, and aggregate one year and since inception
total returns would have been 1.78% and 23.35%, respectively, had a
voluntary expense limitation not been in effect. Based on its net
asset values, the International Equity Fund's one year and since
inception total returns would have been 8.02% and 30.99%,
respectively, and aggregate total returns would have been 8.02% and
30.99%, respectively. Assuming a redemption at the end of the
period, the Fund's Class B shares' average one year and since
inception average annual total returns would have been 3.29% and
2.87%, respectively, had a voluntary expense limitation not been in
effect. Aggregate total returns for the one year and since
inception period would have been 7.62% and 3.75%, respectively.
Based on its net asset values, the Class B shares' average annual
total return for the one year and since inception period would have
been 7.29% and 5.16%, respectively. Aggregate total returns for
the one year and since inception period would have been 7.29% and
6.76%, respectively.
++Assuming deduction of the current maximum sales load, the Capital
Growth Fund's Class A shares' average one year and since inception
average annual total returns would have been -7.28% and 5.35%,
respectively, and aggregate one year and since inception total
returns would have been -7.28% and 13.38%, respectively, had a
voluntary expense limitation not been in effect. Based on its net
asset values, the Capital Growth Fund's one year and since
inception average annual total returns would have been -1.64% and
8.00%, respectively, and aggregate total returns would have been -
1.64% and 20.39%, respectively.
The foregoing data represent past performance. The investment
return and principal value of an investment in any Fund will fluctuate
so that the investor's shares, when redeemed, may be worth more or
less than this original cost.
<PAGE>
BOND FUNDS STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
NEW ENGLAND FUNDS
Where The Best Minds Meet
NEW ENGLAND GOVERNMENT SECURITIES FUND
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
NEW ENGLAND STRATEGIC INCOME FUND
NEW ENGLAND BOND INCOME FUND
NEW ENGLAND HIGH INCOME FUND
NEW ENGLAND MUNICIPAL INCOME FUND
Statement of Additional Information -- PART I
May 1, 1995
As revised February 8, 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 the New England Funds listed above (the
"Funds" and each a "Fund"). This Statement is not a prospectus and is
only authorized for distribution when accompanied or preceded by the
Prospectus of the Funds dated May 1, 1995 for Class A, Class B or
Class C shares, as supplemented July 1, 1995, October 26, 1995 and
January 5, 1996, or the Prospectus of the Funds dated May 1, 1995, as
revised October 2, 1995, for Class Y shares, as supplemented November
17, 1995 and January 5, 1996 (the "Prospectus" or "Prospectuses").
The Statement should be read together with the Prospectuses.
Investors may obtain a free copy of any of the Prospectuses from New
England Funds, L.P., Prospectus Fulfillment Desk, 399 Boylston Street,
Boston, Massachusetts 02116.
Part I of this Statement contains specific information about the
Funds. Part II includes information about the Funds and other New
England Funds.
New England Government Securities Fund, New England Strategic
Income Fund, New England Bond Income Fund and New England Municipal
Income Fund (formerly named New England Tax Exempt Income Fund) are
series of New England Funds Trust I, a registered management
investment company that offers a total of eleven series, and New
England Limited Term U.S. Government Fund, New England Adjustable Rate
U.S. Government Fund and New England High Income Fund are series of
New England Funds Trust II, a registered management investment company
that offers a total of eight series. New England Funds Trust I and
New England Funds Trust II are collectively referred to in this
Statement as the "Trusts," and are each referred to as a "Trust."
T a b l e o f C o n t e n t s
Page
Part I
Investment Restrictions ii
Fund Charges and Expenses x
Investment Performance of the Funds xvi
Part II
Miscellaneous Investment Practices 1
Management of the Trusts 12
Portfolio Transactions and Brokerage 24
Description of the Trusts and Ownership of 27
Shares
How to Buy Shares 30
Net Asset Value and Public Offering Price 30
Reduced Sales Charges 31
Shareholder Services 33
Redemptions 37
Standard Performance Measures 39
Income Dividends, Capital Gain Distributions 43
and Tax Status
Appendix A - Description of Bond Ratings 47
Appendix B - Publications That May Contain 50
Fund Information
Appendix C - Advertising and Promotional 53
Literature
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments
to be made by the Funds, which restrictions (except as otherwise
specifically indicated below and, in the case of the Strategic Income
Fund, only restrictions marked with an asterisk) may not be changed
without the approval of a majority of the outstanding voting
securities of the relevant Fund. 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.
Government Securities Fund
New England Government Securities Fund (the "Government Securities
Fund") will not:
(1) Invest in any securities other than U.S. Government Securities,
put and call options thereon, futures contracts, options on
futures contracts and repurchase agreements;
(2) Purchase or sell commodities or commodity contracts, except that
the Fund may purchase and sell interest rate futures contracts and
related options;
(3) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with interest rate futures contracts or related
options transactions is not considered the purchase of a security
on margin.);
(4) Make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such
sales at any one time. (It is the present intention of management
to make such sales only for the purpose of deferring realization
of gain or loss for federal income tax purposes; such sales would
not be made with respect to securities subject to outstanding
options.);
(5) Make loans to other persons (except as provided in restriction (6)
below); provided that for purposes of this restriction the
investment in repurchase agreements shall not be deemed to be the
making of a loan;
(6) Lend its portfolio securities in excess of 15% of its total assets
taken at market value;
(7) Issue senior securities, borrow money or pledge its assets;
provided, however, that the Fund may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to
meet redemptions, in amounts not exceeding 10% (taken at the
market value) of its total assets and pledge its assets to secure
such borrowings; and, provided, further, that the Fund will not
purchase any additional portfolio securities at any time that its
borrowings exceed 5% of its total net assets. (For the purpose of
this restriction, collateral arrangements with respect to the
writing of options, interest rate futures contracts, options on
interest rate futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a
pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance
of a senior security.);
(8) Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities;
(9) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with respect to U.S. Government Securities
and with respect to interest rate futures contracts;
(10) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions, or in connection with a merger,
consolidation or similar transaction. Under the Investment
Company Act of 1940 (the "1940 Act"), the Fund may not (a) invest
more than 10% of its total assets (taken at current value) in such
securities, (b) own securities of any one investment company
having a value in excess of 5% of the Fund's total assets [taken
at current value], or (c) own more than 3% of the outstanding
voting stock of any one investment company.
Although the Government Securities Fund may from time to time
loan its portfolio securities and issue senior securities, borrow
money or pledge its assets to the extent permitted by investment
restrictions (5), (6) and (7) above, the Fund has no current intention
of engaging in such investment techniques.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities; (2) invest more than 15% of the
Fund's total net assets in illiquid investments; (3) invest in any
oil, gas and other mineral leases; (4) purchase or sell real property
including limited partnership interests but excluding readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest in real estate, or (5)
invest more than 5% of its net assets in warrants, no more than 2% of
which will be invested in warrants that are not listed on the New York
Stock Exchange or American Stock Exchange, provided however, that for
purposes of this limitation, warrants acquired by the Fund in units or
attached to other securities may be deemed to be without value.
Limited Term U.S. Government Fund
New England Limited Term U.S. Government Fund (the "Limited Term U.S.
Government Fund") will not:
(1) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or options transactions is
not considered the purchase of a security on margin.);
(2) Make short sales of securities unless at all times when a short
position is open it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short, and unless not
more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time;
(3) Issue senior securities, borrow money or pledge its assets;
provided, however, that the Fund may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to
meet redemptions, in amounts not exceeding 10% (taken at the
current value) of its total assets and pledge its assets to secure
such borrowings; and, provided, further, that the Fund will not
purchase any additional portfolio securities at any time that its
borrowings exceed 5% of its total net assets. (For the purpose of
this restriction, collateral arrangements with respect to the
writing of options, futures contracts and options on futures
contracts, and collateral arrangements with respect to initial and
variation margin, are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or
options are deemed to be the issuance of a senior security.);
(4) Invest more than 25% of its total assets (taken at current value)
in securities of businesses in the same industry (for this
purpose, telephone, electric, water and gas utilities are
considered separate industries);
(5) Make loans, except by the purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of
indebtedness that are a part of an issue to the public or to
financial institutions, or by lending portfolio securities to the
extent set forth in Part II of this Statement of Additional
Information under "Miscellaneous Investment Practices -- Loans of
Portfolio Securities" provided that for purposes of this
restriction, investment in repurchase agreements shall not be
deemed to be the making of a loan;
(6) 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 purchase and sell financial futures
contracts, currency futures contracts and options related to such
futures contracts. (This restriction does not prevent the Fund
from purchasing securities of companies investing or dealing in
the foregoing.);
(7) 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;
(8) Make investments for the purpose of exercising control or
management;
(9) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with respect to financial instruments or
indices thereof and currencies and with respect to futures
contracts on financial instruments or indices thereof.
Although the Limited Term U.S. Government Fund may from time to time
make short sales, issue senior securities, borrow money or pledge its
assets to the extent permitted by the above investment restrictions,
the Limited Term U.S. Government Fund has no current intention of
engaging in such investment techniques.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities or (2) invest more than 15% of
the Fund's total net assets in illiquid securities.
The Fund may invest in the securities of other investment
companies to the extent permitted by the 1940 Act. The Fund has given
undertakings to certain state regulatory authorities that the Fund
will not (i) invest in real estate limited partnership interests or
(ii) invest more than 5% of its net assets in warrants, no more than
2% of which will be invested in warrants that are not listed on the
New York Stock Exchange or American Stock Exchange; provided, however,
that for purposes of this limitation, warrants acquired by the Fund in
units or attached to other securities may be deemed to be without
value.
Such undertakings can be changes without shareholder approval,
but the Trust's Statement will be revised to reflect any such changes.
Adjustable Rate Fund
New England Adjustable Rate U.S. Government Fund (the "Adjustable Rate
Fund") will not:
(1) Purchase any security (other than U.S. Government Securities) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
issuer or 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);
(2) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with interest rate futures contracts or related
options transactions is not considered the purchase of a security
on margin.);
(3) Make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such
sales at any one time. (It is the current intention of the Fund,
which may change without shareholder approval, to make such sales
only for the purpose of deferring realization of gain or loss for
federal income tax purposes; such sales would not be made with
respect to securities covering outstanding options.);
(4) Acquire more than 10% of any class of securities of an issuer
(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) Issue senior securities, borrow money or pledge its assets;
provided, however, that the Fund may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to
meet redemptions, in amounts not exceeding 10% (taken at the
market value) of its total assets and pledge its assets to secure
such borrowings; and, provided, further, that the Fund will not
purchase any additional portfolio securities at any time that its
borrowings exceed 5% of its total net assets. (For the purpose of
this restriction, collateral arrangements with respect to the
writing of options, interest rate future contracts, and options on
interest rate futures contracts, collateral arrangements with
respect to interest rate caps, floors or swap arrangements, and
collateral arrangements with respect to initial and variation
margin are not deemed to be a pledge of assets and neither (i)
such arrangements, (ii) the purchase or sale of futures or related
options, (iii) interest rate caps and floors nor (iv) interest
rate swap agreements, where assets are segregated to cover the
Fund's obligations thereunder, are deemed to be the issuance of a
senior security.);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of the Trust or officers and directors of the investment
adviser of the Fund who individually own more than 1/2 of 1% of
the shares or securities of that issuer, together own more than
5%;
(8) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness, that
are a part of an issue to the public or to financial institutions,
or by lending portfolio securities to the extent set forth under
"Miscellaneous Investment Practices - Loans of Portfolio
Securities" in Part II of this Statement of Additional
Information. (This restriction 8 does not limit the Fund's
ability to engage in repurchase agreement transactions.);
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts,
except that the Fund may purchase and sell financial futures
contracts, currency futures contracts and options related to such
futures contracts, and may purchase interest rate caps and floors
and enter into interest rate swap agreements. (This restriction
does not prevent the Fund from purchasing securities of companies
investing or dealing in the foregoing.);
(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) Participate on a joint or joint and several basis in any
trading account in securities;
(13) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with respect to fixed income securities and
currencies and with respect to futures contracts on fixed income
securities or currencies;
(14) Purchase any illiquid security, including securities that are
not readily marketable, if, as a result, more than 10% of the
Fund's total net assets (based on current value) would then be
invested in such securities. The staff of the SEC is presently of
the view that repurchase agreements maturing in more than seven
days are subject to this restriction. Until that position is
revised, modified or rescinded, the Fund will conduct its
operations in a manner consistent with this view.
(15) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions, or in connection with a merger,
consolidation or similar transaction. Under the 1940 Act, the Fund
may not (a) invest more than 10% of its total assets (taken at
current value) in such securities, (b) own securities of any one
investment company having a value in excess of 5% of the Fund's
total assets (taken at current value), or (c) own more than 3% of
the outstanding voting stock of any one investment company.
Although the Fund may loan its portfolio securities and issue
senior securities, borrow money, pledge its assets, and invest in the
securities of other investment companies to the extent permitted by
investment restrictions (5), (8) and (14) above, the Fund has no
current intention of engaging in such investment activities. Also,
the Fund will not invest in any stripped securities or other
derivative investments.
In addition, as a matter of current operating policy that may be
changed without shareholder approval, the Adjustable Rate Fund (1)
intends to limit certain of its investments in accordance with the
provisions of the Federal Credit Union Act and Regulation 703
thereunder, (2) will not purchase or sell real property, including
limited partnership interests but excluding readily marketable
interests in real estate investment trusts or readily marketable
securities of companies which invest in real estate, and (3) will not
purchase any security restricted as to disposition under federal
securities laws if as a result of such purchase more than 10% of the
Fund's total net assets would be invested in such securities.
Strategic Income Fund
New England Strategic Income Fund (the "Strategic Income Fund") will
not:
*(1) Purchase any security (other than U.S. Government Securities)
if , as a result, more than 25% of the Fund's total assets (taken
at current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies
will be considered as being in separate industries, and each
foreign country's government (together with subdivisions thereof)
will be considered to be a separate industry);
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities), or make short sales except where, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales. (For this purpose, the deposit or
payment by the Fund of initial or variation margin in connection
with futures contracts or related options transactions is not
considered the purchase of a security on margin);
(3) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
*(4) Borrow money in excess of 25% of its total assets, and then
only as a temporary measure for extraordinary or emergency
purposes;
(5) Pledge more than 25% of its total assets (taken at cost). (For
the purpose of this restriction, collateral arrangements with
respect to options, futures contracts and options on futures
contracts and with respect to initial and variation margin are not
deemed to be a pledge of assets);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of New England Funds Trust I or of any investment adviser
of the Fund who individually own more than 1/2 of 1% of the shares
or securities of that issuer, together own more than 5%;
*(8) Make loans, except by entering into repurchase agreements or
by purchase of bonds, debentures, commercial paper, corporate
notes and similar evidences of indebtedness, which are a part of
an issue to the public or to financial institutions, or through
the lending of the Fund's portfolio securities;
*(9) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, real estate or commodities or commodity
contracts, except that the Fund may buy and sell futures contracts
and related options. (This restriction does not prevent the Fund
from purchasing securities of companies investing in the
foregoing);
*(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) 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 any investment
adviser of the Fund or accounts under any such investment
adviser's management to reduce brokerage commissions, to average
prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.);
(13) Write, purchase or sell options or warrants, except that the
Fund may (a) acquire warrants or rights to subscribe to securities
of companies issuing such warrants or rights, or of parents or
subsidiaries of such companies, (b) write, purchase and sell put
and call options on securities, securities indexes or futures
contracts and (c) enter into currency forward contracts;
(14) Purchase any illiquid security if, as a result, more than 15%
of its net assets (taken at current value) would be invested in
such securities;
(15) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' 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; or
*(16) Issue senior securities. (For the purpose of this
restriction none of the following is deemed to be a senior
security: any pledge or other encumbrance of assets permitted by
restrictions (2) or (5) above; any borrowing permitted by
restriction (4) above; any collateral arrangements with respect to
forward contracts, options, futures contracts, swap contracts or
other similar contracts and options on futures contracts, swap
contracts or other similar contracts and with respect to initial
and variation margin; the purchase or sale of options, forward
contracts, futures contracts, swap contracts or other similar
contracts or options on futures contracts, swap contracts or other
similar contracts; 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 Investment Company Act of
1940, the rules thereunder, or any exemption therefrom.)
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) at the time of purchase,
invest more than 5% of its assets the securities of any issuer,
excluding government securities; and (2) purchase puts, calls,
straddles, spreads and any combination thereof if by reason thereof
the value of its aggregate investments in such will exceed 5% of its
total assets.
Bond Income Fund
New England Bond Income Fund (the "Bond Income Fund") will not:
(1) Purchase any security (other than U.S. Government obligations) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
issuer or 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);
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities); or make short sales except where, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales;
(3) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and debt issues of an issuer as a single class) or acquire more
than 10% of the outstanding voting securities of an issuer;
(4) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, up to an amount not in excess of 10% of its
total assets (taken at cost) or 5% of its total assets (taken at
current value), whichever is lower;
(5) Pledge more than 15% of its total assets (taken at cost);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any company if officers and
trustees of New England Funds Trust I or of any investment adviser
of the Bond Income Fund who individually own more than 1/2 of 1%
of the shares or securities of that company, together own more
than 5%;
(8) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness,
which are part of an issue to the public, or by lending portfolio
securities to the extent set forth under "Miscellaneous Investment
Practices -- Loans of Portfolio Securities" in Part II of this
Statement;
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts or real estate
(except that the Bond Income Fund may buy and sell marketable
securities of companies, including real estate investment trusts,
which may represent indirect interests in real estate; may buy and
sell futures contracts on securities or on securities indexes and
may write, purchase or sell put or call options on such futures
contracts or indexes; and may enter into currency forward
contracts);
(10) Act as underwriter;
(11) Make investments for the purpose of exercising control or
management;
(12) 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 Back Bay Advisors,
L.P. ["Back Bay Advisors"] or accounts under its management to
reduce brokerage commissions, to average prices among them, or to
facilitate such transactions is not considered participating in a
trading account in securities.);
(13) Write, purchase or sell options or warrants, except that the
Fund may (a) acquire warrants or rights to subscribe to securities
of companies issuing such warrants or rights or of parents or
subsidiaries of such companies, provided that such warrants or
other rights to subscribe are attached to, or part of a unit
offering involving, other securities, and (b) write, purchase or
sell put or call options on securities, securities indexes or
futures contracts; or
(14) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions, or in connection with a merger,
consolidation or similar transaction. (Under the 1940 Act, the
Fund may not (a) invest more than 10% of its total assets [taken
at current value] in such securities, (b) own securities of any
one investment company having a value in excess of 5% of the
Fund's total assets [taken at current value], or (c) own more than
3% of the outstanding voting stock of any one investment company.)
In order to comply with certain state requirements applicable to
restriction (5) above, as a matter of operating policy subject to
change without shareholder approval, the Bond Income Fund will not
pledge more than 2% of its assets. As a matter of operating policy
subject to change without shareholder approval, the Fund will not (1)
purchase any security restricted as to disposition under federal
securities laws if as a result of such purchase more than 10% of the
Fund's total net assets would be invested in such securities; (2)
invest more than 15% of the Fund's total net assets in illiquid
investments; or (3) purchase or sell real property, including limited
partnership interests but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of
companies which invest in real estate.
High Income Fund
New England High Income Fund (the "High Income Fund") will not:
(1) Buy more than 10% of the voting securities or more than 10% of all
of the securities of any issuer, or invest to control or manage
any company;
(2) Purchase securities on "margin," except for short-term credits as
needed to clear securities purchases;
(3) Invest in securities issued by other investment companies, except
in connection with a merger, consolidation, acquisition, or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer
commission or profit, other than a customary brokerage commission,
is involved and only if immediately thereafter not more than 10%
of the value of its total assets would be invested in such
securities;
(4) Purchase securities, other than shares of the Fund, from or sell
portfolio securities to its directors or officers, or firms they
are affiliated with as principals, except as permitted by the
regulations of the SEC;
(5) Purchase or sell commodities or commodity contracts, or write,
purchase or sell options, except that the Fund may (a) buy or sell
futures contracts on securities or on securities indexes and (b)
write, purchase or sell put or call options on securities, on
securities indexes or on futures contracts of the type referred to
in clause (a) of this restriction;
(6) Make loans, except loans of portfolio securities and except to the
extent that the purchase of notes, repurchase agreements, bonds,
or other evidences of indebtedness or deposits with banks or other
financial institutions may be considered loans;
(7) Make short sales of securities or maintain a short position;
(8) Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or in
securities issued by companies which invest in real estate or
interests therein;
(9) Purchase or sell interests in oil and gas or other mineral
exploration or development programs, provided that the Fund may
invest in securities issued by companies which do invest in or
sponsor such programs;
(10) Underwrite the securities of other issuers; or
(11) Invest more than 10% of the value of its total assets, in the
aggregate, in repurchase agreements maturing in more than seven
days and restricted securities.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities or (2) invest more than 15% of
the Fund's total net assets in illiquid investments.
The Fund has given undertakings to certain state regulatory
authorities that the Fund will not (1) invest more than 5% of its net
assets in warrants, no more than 2% of which will be invested in
warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange; provided, however, that for purposes of this
limitation, warrants acquired by the Fund in units or attached to
other securities may be deemed to be without value, (2) invest in
mineral leases or (3) invest in real estate limited partnership
interests. Such undertakings can be changed without shareholder
approval, but the Statement will be revised to reflect any such
changes.
Municipal Income Fund
New England Municipal Income Fund (the "Municipal Income Fund") will
not:
(1) Purchase any security if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in
securities of a single issuer. This limitation does not apply to
U.S. Government Securities. (The Fund will treat each state and
each separate political subdivision, agency, authority or
instrumentality of such state, each multistate agency or
authority, and each guarantor, if any, as a separate issuer);
(2) Invest more than 25% of its total assets (taken at current value)
in industrial development revenue bonds that are based, directly
or indirectly, on the credit of private entities in any one
industry or in securities of private issuers in any one industry.
(For the purpose of this restriction, "private activity bonds"
under the Code will be treated as industrial revenue bonds.) (In
the utilities category, gas, electric, water and telephone
companies will be considered as being in separate industries);
(3) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities; or make short sales. For this
purpose, the deposit or payment by the Fund of initial or
variation margin in connection with interest rate futures
contracts or tax exempt bond index futures contracts is not
considered the purchase of a security on margin;
(4) Purchase more than 10% of the total value of the outstanding
securities of an issuer;
(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to
an amount not in excess of 10% of its total assets (taken at cost)
or 5% of its total assets (taken at current value), whichever is
lower;
(6) Pledge, mortgage or hypothecate more than 15% of its total assets
(taken at cost). In order to comply with certain state
requirements, as a matter of operating policy subject to change
without shareholder approval, the Fund will not pledge, mortgage
or hypothecate more than 5% of such assets;
(7) Invest more than 5% of its total assets (taken at current value)
in securities of businesses less than three years old and
industrial development revenue bonds where the private entity on
whose credit the security is based, directly or indirectly, is
less than three years old (including predecessor businesses and
entities);
(8) Purchase or retain securities of any issuer if, to the knowledge
of the Fund, officers and trustees of New England Funds Trust I or
of any investment adviser of the Municipal Income Fund who
individually own beneficially more than 1/2 of 1% of the
securities of that issuer, together own beneficially more than 5%
of such securities;
(9) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies. This
limitation does not apply to repurchase agreements;
(10) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, commodities or real estate (except that the
Fund may buy tax exempt bonds or other permitted investment
secured by real estate or an interest therein);
(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) Purchase voting securities or make investments for the
purpose of exercising control or management;
(13) Participate on a joint or joint and several basis in any
trading account in securities;
(14) Write, purchase, or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with regard to futures contracts;
(15) Invest in the securities of other investment companies,
except in connection with a merger, consolidation or similar
transaction. (Under the 1940 Act, the Fund may not (a) invest
more than 10% of its total assets (taken at current value) in such
securities, (b) own securities of any one investment company
having a value in excess of 5% of the Fund's total assets (taken
at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company.)
The Fund may invest more than 25% of its assets in industrial
development revenue bonds, subject to limitation (2) above. In
addition, as a matter of such operating policy subject to change
without shareholder approval, the Fund will not invest more than 25%
of its assets in securities of issuers located in the same state, and
the Fund will not (1) purchase any security restricted as to
disposition under federal securities laws if as a result of such
purchase more than 10% of the Fund's total net assets would be
invested in such securities or (2) invest more than 15% of the Fund's
total net assets in illiquid investments.
FUND CHARGES AND EXPENSES
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES
Pursuant to separate advisory agreements, each dated January 2,
1996 (May 1, 1995, in the case of the Strategic Income Fund), New
England Funds Management, L.P. ("NEFM") has agreed, subject to the
supervision of the Board of Trustees of the relevant Trust, to manage
the investment and reinvestment of the assets of each Fund and to
provide a range of administrative services to each Fund. For the
services described in the advisory agreements, each Fund pays NEFM a
management fee at the annual rate set forth in the following table:
Management fee paid by Fund to NEFM
(as a percentage of average daily net assets of
Fund the Fund)
- ---------------------------- -------------------------------------------------
Adjustable Rate Fund 0.55% of the first $200 million
0.51% of the next $300 million
0.47% of amounts in excess of $500 million
Bond Income Fund 0.500% of the first $100 million
0.375% of amounts in excess of $100 million
Government Securities Fund 0.650% of the first $200 million
0.625% of the next $300 million
0.600% of amounts in excess of $500 million
High Income Fund 0.75% of all assets
Limited Term U.S. Government 0.650% of the first $200 million
Fund 0.625% of the next $300 million
0.600% of amounts in excess of $500 million
Strategic Income Fund 0.65% of the first $200 million
0.60% of amounts in excess of $200 million
Municipal Income Fund 0.500% of the first $100 million
0.375% of amounts in excess of $100 million
Each advisory agreement provides that NEFM may delegate its
responsibilities thereunder to another party. Pursuant to a
subadvisory agreement dated May 1, 1995, NEFM has delegated
responsibility for managing the investment and reinvestment of the
Strategic Income Fund's assets to Loomis Sayles & Company, L.P.
("Loomis Sayles"), as subadviser. Pursuant to separate subadvisory
agreements, each dated January 2, 1996, NEFM has delegated
responsibility for managing the investment and reinvestment of the
other Funds' assets to Back Bay Advisors, as subadviser. The Funds pay
no direct fees to Loomis Sayles or Back Bay Advisors. For providing
such subadvisory services to the Funds, NEFM pays each subadviser a
subadvisory fee at the annual rate set forth in the following table:
Subadvisory fee payable to NEFM to
subadviser
(as a percentage of average daily
Fund Subadviser net assets of the Fund)
- ----------------------- ----------- --------------------------------
Adjustable Rate Fund Back Bay 0.275% of the first $200 million
Advisors 0.255% of the next $300 million
0.235% of amounts in excess of
$500 million
Bond Income Fund Back Bay 0.2500% of the first $100 million
Advisors 0.1875% of amounts in excess of
$100 million
Government Securities Back Bay 0.3250% of the first $200 million
Fund Advisors 0.3125% of the next $300 million
0.3000% of amounts in excess of
$500 million
High Income Fund Back Bay 0.375% of all assets
Advisors
Limited Term U.S. Back Bay 0.3250% of the first $200 million
Government Fund Advisors 0.3125% of the next $300 million
0.3000% of amounts in excess of
$500 million
Strategic Income Fund Loomis 0.35% of the first $200 million
Sayles 0.30% of amounts in excess of
$200 million
Municipal Income Fund Back Bay 0.2500% of the first $100 million
Advisors 0.1875% of amounts in excess of
$100 million
Prior to January 2, 1996, Back Bay Advisors served as adviser to
the Government Securities, Limited Term U.S. Government, Bond Income,
High Income and Municipal Income Funds, pursuant to separate advisory
agreements each of which provided for an advisory fee payable by such
Fund to Back Bay Advisors at the same rate as the management fee
currently payable by such Fund to NEFM.
Prior to January 2, 1996, Back Bay Advisors served as adviser to
the Adjustable Rate Fund, pursuant to an advisory agreement which
provided for an advisory fee payable by the Fund to Back Bay Advisors
at the annual rate of 0.40% of the first $200 million of the Fund's
average daily net assets, 0.375% of the next $300 million of such
assets and 0.35% of such assets in excess of $500 million.
Back Bay Advisors was paid $275,084, $955,078 and $1,056,207,
respectively, for investment management services it rendered to the
Adjustable Rate Fund during the fiscal years ended December 31, 1992,
1993 and 1994, after reduction pursuant to the expense limitation
arrangement described below. Had the voluntary expense limitation not
been in effect Back Bay Advisors would have been paid $751,293,
2,011,626 and $2,351,792, respectively, for investment management
services it rendered to the Adjustable Rate Fund during the fiscal
years ended December 31, 1992, 1993 and 1994.
Prior to January 2, 1996, New England Funds, L.P. (the
"Distributor"), an affiliate of Back Bay Advisors, provided the
Adjustable Rate Fund with office space, facilities and equipment,
services of executive and other personnel and certain administrative
services, pursuant to an administrative services agreement. Under
this agreement, the Adjustable Rate Fund paid the Distributor a fee at
the annual rate of 0.15% of the first $200 million of the Fund's
average daily net assets, 0.135% of the next $300 million of such
assets and 0.12% of such assets in excess of $500 million. The
Adjustable Rate Fund's current management fee rate represents the sum
of the fee rates under the prior advisory and administrative services
agreements.
Until further notice to the Adjustable Rate Fund, NEFM and the
Distributor have voluntarily agreed to reduce their fees and, if
necessary, to bear certain expenses related to operating the Fund in
order to limit the Fund's expenses to an annual rate of 0.70%, 1.45%
and 0.45% of the average daily net assets of the Fund's Class A, Class
B and Class Y shares, respectively. Prior to January 2, 1996, similar
voluntary limitations were in effect with respect to Back Bay
Advisors, the Distributor and the Fund.
For the fiscal years ended December 31, 1992, 1993 and 1994, the
Government Securities Fund paid advisory fees to Back Bay Advisors of
$1,144,944, $1,211,057 and $1,102,880, respectively.
The Limited Term U.S. Government Fund paid Back Bay Advisors
$2,460,751, $3,390,740 and $3,163,619 in advisory fees for the fiscal
years ended December 31, 1992, 1993 and 1994, respectively, after
reduction pursuant to the voluntary expense limitations then in
effect.
For the fiscal years ended December 31, 1992, 1993 and 1994, the
Bond Income Fund paid advisory fees to Back Bay Advisors of $613,851,
$751,948 and $774,457, respectively; and the Municipal Income Fund
paid advisory fees to Back Bay Advisors of $772,944, $911,990 and
$925,947, respectively.
Prior to July 1, 1995, the advisory agreement for the Municipal
Income Fund included a provision under which Loomis Sayles served as a
subadviser and furnished regularly to Back Bay Advisors, without
additional cost to the Fund, statistical and research information and
advice relating to the Fund's investments. For its services, Loomis
Sayles received a fee, paid by Back Bay Advisors not less often than
quarterly, equal to 40% of the compensation paid by the Fund to Back
Bay Advisors on the first $10 million of the Fund's average daily net
assets, 30% of the compensation paid on the next $10 million of such
assets and 20% of the compensation paid on such assets in excess of
$20 million. For the fiscal years ended December 31, 1992, 1993 and
1994, the compensation from Back Bay Advisors to Loomis Sayles under
this agreement was $169,589, $197,398 and $200,190, respectively.
In addition to the expense limitations discussed in Part II of
this Statement under "Management of the Trusts," Back Bay Advisors'
compensation under its advisory agreement with the High Income Fund
was subject to reduction to the extent that, for any calendar month,
the Fund's expenses, including the management fee, but exclusive of
brokerage, taxes, interest, distribution fees and extraordinary items,
exceed an annual rate of 1.50% of the Fund's average daily net assets.
Until further notice to the Fund, NEFM has voluntarily agreed to
reduce its management fee and, if necessary, to bear certain expenses
related to operating the High Income Fund to an annual rate of 1.50%
of the Fund's average daily net assets. Prior to January 2, 1996,
similar voluntary limitations were in effect with respect to Back Bay
Advisors and the Fund.
Back Bay Advisors was paid $41,884, $131,833 and $190,955 in
advisory fees by the High Income Fund during the fiscal years ended
December 31, 1992, 1993 and 1994, respectively, after reduction
pursuant to the foregoing voluntary expense limitations. Had the
voluntary expense limitation not been in effect, Back Bay Advisors
would have been paid $125,542, $207,486 and $273,994, respectively, in
advisory fees by the High Income Fund during the fiscal years ended
December 31, 1992, 1993 and 1994.
BROKERAGE COMMISSIONS
In 1992, 1993 and 1994, $13,300, $-0- and $-0-, respectively,
were paid in commissions on brokerage transactions for the Government
Securities Fund.
For more information about Fund portfolio transactions, see
"Portfolio Transactions and Brokerage" in Part II of this Statement.
SALES CHARGES AND 12B-1 FEES
As explained in Part II of this Statement, the Class A, B and, in
the case of the Limited Term U.S. Government the Bond Income and the
Strategic Income Funds, C shares of each Fund pay a fee pursuant to a
plan adopted pursuant to Rule 12b-1 under the 1940 Act. The following
table shows the amounts of Rule 12b-1 fees paid by the Class A and B
shares of each Fund during the fiscal year ended Decembers 31, 1992,
1993 and 1994:
Fund 1992 1993 1994
Government Securities $440,364 $465,401 $409,90 (Class A)
Fund $1,582 $23,270 (Class B)**
Limited Term U.S. $1,350,024 $1,873,424 $1,705,012 (Class A)
Government Fund $7,721 $98,717 (Class B)*
Adjustable Rate Fund $474,055 $1,322,743 $1,551,366 (Class A)
$1,444 $14,092 (Class B)*
Bond Income Fund $325,900 $416,977 $416,918 (Class A)
$3,957 $30,717 (Class B)*
High Income Fund $58,527 $96,279 $117,107 (Class A)
$1,574 $30,717 (Class B)*
Municipal Income Fund $431,964 $523,343 $512,288 (Class A)
$5,363 $66,711 (Class B)*
* Class B shares were first offered on September 13, 1993.
**Government Securities Fund Class B shares were first offered
September 23, 1993.
Class C shares were first offered on January 3, 1995.
During the fiscal year ended December 31, 1994 for the Class A
and B shares, the Distributor's expenses relating to each Fund's 12b-1
plan were as follows:
Government Securities Fund
(Class A shares)
Compensation to Investment Dealers $409,069
Compensation to Distributor's Sales Personnel $840
TOTAL $409,909
(Class B shares)
Compensation to Investment Dealers $85,549
TOTAL $85,549
Limited Term U.S. Government Fund
(Class A shares)
Compensation to Investment Dealers $1,214,139
Compensation to Distributor's Sales Personnel $490,873
TOTAL $1,705,012
(Class B shares)
Compensation to Investment Dealers $238,791
TOTAL $238,791
Adjustable Rate Fund
(Class A shares)
Compensation to Investment Dealers $1,545,457
Compensation to Distributor's Sales Personnel $5,909
TOTAL $1,551,366
(Class B shares)
Compensation to Investment Dealers $38,904
TOTAL $38,904
Bond Income Fund
(Class A shares)
Compensation to Investment Dealers $416,304
Compensation to Distributor's Sales Personnel $614
TOTAL $416,918
(Class B shares)
Compensation to Investment Dealers $306,332
TOTAL $306,332
High Income Fund
(Class A shares)
Compensation to Investment Dealers $83,573
Compensation to Distributor's Sales Personnel $33,534
TOTAL $117,107
(Class B shares)
Compensation to Investment Dealers $160,546
TOTAL $160,546
Municipal Income Fund
(Class A shares)
Compensation to Investment Dealers $516,362
Compensation to Distributor's Sales Personnel $926
TOTAL $517,288
(Class B shares)
Compensation to Investment Dealers $244,391
TOTAL $244,391
Of the amounts listed above as compensation to investment
dealers, the following amounts were paid by the Distributor to New
England Securities, a broker dealer affiliate of the Distributor:
$362,757 relating to the Class A shares and $69,405 relating to the
Class B shares of the Government Securities Fund; $315,154 relating to
the Class A shares and $31,368 relating to the Class B shares of the
Adjustable Rate Fund; $361,710 relating to the Class A shares and
$282,362 relating to the Class B shares of the Bond Income Fund;
$50,320 relating to the Class A shares and $96,262 relating to the
Class B shares of the High Income Fund; $439,718 relating to the Class
A shares and $183,622 relating to the Class B shares of the Municipal
Income Fund; and $809,044 relating to the Class A shares and $198,426
relating to Class B shares of the Limited Term U.S. Government Fund.
New England Securities paid substantially all of the fees it received
from the Distributor in commissions to its sales personnel and to
defray overhead costs relating to sales of Fund shares and/or
servicing shareholder accounts.
At April 1, 1995, to the Trusts' knowledge, the following persons
owned of record or beneficially 5% or more of the indicated Fund:
Adjustable Rate U.S. Government
Fund
Class A shares San Bernardino County 21.25%
Treasurer
172 W. 3rd Street,
1st Floor
San Bernardino, CA 9245-
1001
San Diego County Treasurer 10.52%
Tax Collector
1600 Pacific Highway,
Room 112
San Diego, CA 92101-2422
Class B shares Smith Barney Inc. 7.3%
388 Greenwich Street
New York, NY 10013-2375
Lynn C. Knarr 6.83%
14 Canal Road
Westport, CT 06880-6904
Government Securities
Class B shares Edith H. Crowson 7.33%
22410 Provincial
Katy, TX 77450-1624
Class Y shares New England Mutual Life 100%
Ins. Co.
Separate Investment
Accounting
Attention: Victor Soohoo
501 Boylston Street,
6th Floor
Boston, MA 02116-3706
Limited Term U.S.
Government Fund
Class C shares Advest Inc. 48.59%
280 Trumbull Street
Hartford, CT 06103-3599
Class Y shares NEIC Retirement Trust 61.83%
c/o Defined Contribution
Svs - TNE
Post Office Box 755
Boston, MA 02117
New England Mutual Life 38.17%
Ins. Co.
Separate Investment
Accounting
Attention: Victor Soohoo
501 Boylston Street, 6th
Floor
Boston, MA 02116-3706
Bond Income Fund
Class C shares Hays Properties LLC 48.75%
Post Office Box 1312
Bloomington, IN 47402-
1312
William Walker 29.20%
11 Saddle Club
Lexington, MA 02173-2102
Richard F. Lanes 8.65%
11844 Providence Bay Ct
Lakeside, CA 92404-2360
Great Lakes Elevator Inc. 6.37%
401(k) Plan
401 Hall Street SW Box 9
Grand Rapids, MI 49503-
5098
INVESTMENT PERFORMANCE OF THE FUNDS
PERFORMANCE RESULTS - PERCENT CHANGE
For the Periods Ended 12/31/94
Government Securities
Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 5 9/16/85** - 1 5 9/16/85**
Year Years 12/31/94 Year Years - 12/31/94
Net Asset Value -5.50 33.48 91.69 -5.50 5.95 7.26
Maximum Offering Price -9.73 27.48 83.06 -9.73 4.98 6.73
(Class B shares) Aggregate Total Average Annual Total
Return* Return
As a % of 1 9/23/93** 1 9/23/93**
Year - 12/31/94 Year - 12/31/94
Net Asset Value -6.22 -7.33 -6.22 5.81
Redemption at End of -9.77 -10.01 -9.77 -7.86
Period
(Class Y shares)
Aggregate Total Annualized Total
As a % of Return* Return
3/31/94**- 12/31/94
Net Asset Value -1.97 -7.99
Limited Term U.S. Government
Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 1/03/89** 1 1/03/89**
Year - 12/31/94 Year -
12/31/94
Net Asset Value -2.28 -52.62 -2.28 6.69
Maximum Offering Price -5.24 48.05 -5.24 6.04
(Class B shares) Aggregate Total Average Annual Total
Return* Return
As a % of 1 9/27/93** 1 9/27/93**
Year - 12/31/94 Year -
12/31/94
Net Asset Value -2.98 -3.32 -2.98 -2.62
Redemption at End of -6.66 -6.09 -6.66 -4.78
Period
(Class Y shares)
Aggregate Total Annualized Total
As a % of Return* Return
3/31/94**-12/31/94
Net Asset Value -0.19 -0.77
Adjustable Rate Fund***
(Class A shares) Aggregate Total Return* Average Annual Total
Return
1
As a % of 1 0/19/91** 1 10/19/91*
Year - 12/31/94 Year * -
12/31/94
Net Asset Value 0.77 10.00 0.77 3.41
Maximum Offering Price -2.25 8.90 -2.25 2.44
(Class B shares) Aggregate Total Average Annual Total
Return* Return
As a % of 1 9/13/93** 1 9/13/93**
Year - 12/31/94 Year -
12/31/94
Net Asset Value 0.03 0.01 0.03 0.01
Redemption at End of -3.84 -2.88 -3.84 -2.21
Period
Bond Income Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 5 10 1 5 10
Year Years Years Year Years Years
Net Asset Value -4.24 46.36 144.05 -4.24 7.92 9.33
Maximum Offering Price -8.52 39.77 133.06 -8.52 6.93 8.83
(Class B shares) Aggregate Total Average Annual Total
Return* Return
As a % of 1 9/13/93** 1 9/13/93**
Year - 12/31/94 Year - 12/31/94
Net Asset Value -4.95 -5.71 -4.95 4.42
Redemption at End of -8.55 -8.32 -8.55 -6.39
Period
High Income Fund****
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 5 2/22/84** - 1 5 2/22/84**
Year Years 12/31/94 Year Years - 12/31/94
Net Asset Value -3.31 54.45 117.48 -3.31 9.08 8.08
Maximum Offering Price -7.63 47.50 107.69 -7.63 8.09 7.58
(Class B shares) Aggregate Total Average Annual Total
Return* Return
As a % of 1 9/20/93** 1 9/20/93**
Year - 12/31/94 Year - 12/31/94
Net Asset Value -4.03 0.16 -4.03 0.12
Redemption at End of -7.56 -2.55 -7.56 -1.99
Period
Municipal Income Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 5 10 1 5 10
Year Years Years Year Years Years
Net Asset Value -8.06 32.84 133.19 -8.06 5.84 8.83
Maximum Offering Price -12.20 26.87 122.70 -12.20 4.88 8.34
(Class B shares) Aggregate Total Average Annual Total
Return* Return
As a % of 1 9/13/93** 1 9/13/93**
Year - 12/31/94 Year - 12/31/94
Net Asset Value -8.67 -7.77 -8.67 -6.03
Redemption at End of -12.15 -10.46 -12.15 -8.04
Period
* Federal regulations require this example to be calculated using a
$1,000 investment. The normal minimum initial investment in
shares of the Funds is $2,500, however.
** Commencement of Fund operations.
*** Assuming deduction of current maximum sales load, the Adjustable
Rate Fund's Class A shares' average one year and since inception
average annual total returns would have been -2.53% and 3.22% and
aggregate one year and since inception total returns would have
been -2.53% and 7.21%, respectively, had a voluntary expense
limitation not been in effect. Based on its net asset values,
the Adjustable Rate Fund's Class A shares' one year and since
inception average annual total return would have been 0.49% and
3.70% and aggregate total return would have been 0.49% and 8.31%,
respectively. Assuming a redemption at the end of the period,
the Fund's Class B shares average one year and since inception
average annual total returns would have been -4.10% and -1.80%,
respectively, had a voluntary expense limitation not been in
effect. Aggregate total returns for the one year and since
inception period would have been -4.10% and -2.34%, respectively.
Based on its net asset values, the Class B shares average annual
total return for the one year and since inception period would
have been -0.25% and -0.05%, respectively. Aggregate total
returns for the one year and since inception period would have
been -0.25% and -0.53%, respectively.
**** Assuming deduction of current maximum sales load, the High Income
Fund's Class A shares' one year, five year and since inception
average annual total returns for the periods ended December 31,
1994 would have been 7.86%, 7.35% and 6.57%, respectively, had a
voluntary expense limitation, for certain periods not been in
effect. Aggregate total returns would have been -7.86%, 42.58%
and 100.03%, respectively. Based on its net asset values, the
High Income Fund's Class A shares' one year, five year and since
inception average annual total returns for the period ended
December 31, 1994 would have been -3.54%, 8.38% and 7.07%,
respectively. Aggregate total returns would have been -3.54%,
49.53% and 109.82%, respectively. Assuming a redemption at the
end of the period, the Fund's Class B shares average annual total
returns for the one year and since inception period would have
been -7.79% and -2.36%, respectively, had a voluntary expense
limitation not been in effect. Aggregate total returns for the
one year and since inception period would have been -7.79% and -
3.06%, respectively. Based on its net asset values, the Class B
shares average annual total returns for the one year and since
inception period would have been -4.26% and -0.19%, respectively.
Aggregate total returns for the one year and since inception
period would have been -4.26% and -0.25%, respectively.
YIELD FOR THE 30-DAY PERIOD
Ended 12/31/94
Fund Class A Class B*
Government Securities 6.30% 5.87%
Limited Term U.S. Government 6.42% 5.98%
Adjustable Rate U.S. Government 5.11% 4.36%
Bond Income 7.50% 7.10%
High Income 9.99% 9.76%
Municipal Income 5.77% 5.23%
* Yields for the Class A shares of the Funds are based on the
public offering price of a share of the Funds and yields for
the Class B shares are based on the net asset value of a share
of the Funds.
Distribution Rate. The Government Securities, Limited Term U.S.
Government, Adjustable Rate, Bond Income and High Income Funds may
include in their written sales material distribution rates based on
the Funds' distributions from net investment income and short-term
capital gains for a recent 30 day, three month or one year period.
Distributions of less than one year are annualized by multiplying
by the factor necessary to produce twelve distributions. The
distribution rates are determined by dividing the amount of the
particular Fund's distributions per share over the relevant period by
either the maximum offering price or the net asset value of a share of
the Fund on the last day of the period.
DISTRIBUTION RATES
For Periods Ending 12/31/94
As a % of 30 day 3 months 12 months
Government Securities Fund
(Class A shares)
Net Asset Value 6.79% 6.79% 4.32%
Maximum Offering Price 6.48% 6.48% 4.13%
(Class B shares)
Net Asset Value 5.98% 5.98% 4.09%
(Class Y shares)
Net Asset Value 6.79% 6.78% 5.20%
Limited Term U.S. Government
Fund
(Class A shares)
Net Asset Value 6.37% 6.30% 4.09%
Maximum Offering Price 6.23% 6.25% 6.22%
(Class B shares)
Net Asset Value 5.70% 5.64% 5.57%
(Class Y shares)
Net Asset Value 5.63% 6.67% 1.61%
Adjustable Rate Fund
(Class A shares)
Net Asset Value 5.01% 4.64% 4.23%
Maximum Offering Price 4.96% 4.59% 4.18%
(Class B shares)
Net Asset Value 4.26% 3.91% 3.50%
Bond Income Fund
(Class A shares)
Net Asset Value 6.58% 6.58% 1.19%
Maximum Offering Price 6.28% 6.28% 1.13%
(Class B shares)
Net Asset Value 5.81% 5.81% 0.40%
High Income Fund
(Class A shares)
Net Asset Value 10.12% 10.12% 9.62%
Maximum Offering Price 9.67% 9.67% 9.18%
(Class B shares)
Net Asset Value 9.46% 9.46% 8.94%
Redemption at the End of the
Period
The foregoing data represent past performance. The investment
return and principal value of an investment in any Fund will fluctuate
so that the investor's shares, when redeemed, may be with more or less
than the original cost.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION PART II
<PAGE>
NEW ENGLAND FUNDS
Where The Best Minds Meet
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
Statement of Additional Information -- PART II
May 1, 1995
As revised February 8, 1996
The following information applies generally to the funds that
make up New England Funds Trust I and New England Funds Trust II
(collectively the "Funds" and each a "Fund") except for New England
Star Worldwide Fund and Growth Fund of Israel which are described in
separate Statements of Additional Information. In certain cases, the
discussion applies to some but not all of the Funds. Certain data
applicable to particular Funds is found in Part I of this Statement
of Additional Information (the "Statement").
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to certain investment
practices in which certain Funds may engage. The table below
indicates which Funds may engage in each of these practices.
Practices Funds
Loans of Portfolio Securities Government Securities Fund
Bond Income Fund
Limited Term U.S.
Government Fund
High Income Fund
Adjustable Rate Fund
International Equity Fund
Star Advisers Fund
Strategic Income Fund
U.S. Government Securities All Funds
When-Issued Securities Star Advisers Fund
Government Securities Fund
Bond Income Fund
Municipal Income Fund
High Income Fund
Limited Term U.S.
Government Fund
California Fund
Massachusetts Fund
New York Fund
Adjustable Rate Fund
Strategic Income Fund
Repurchase Agreements All Funds
Zero Coupon Securities All Funds
Convertible Securities Value Fund
Balanced Fund
Growth Opportunities Fund
High Income Fund
International Equity Fund
Capital Growth Fund
Star Advisers Fund
Strategic Income Fund
Tax Exempt Bonds Municipal Income Fund
California Fund
Massachusetts Fund
State Tax Exempt Securities California Fund
Massachusetts Fund
New York Fund
Futures and Options Government Securities Fund
Municipal Income Fund
Limited Term U.S.
Government Fund
International Equity Fund
Star Advisers Fund
California Fund
New York Fund
Strategic Income Fund
Bond Income Fund
High Income Fund
Massachusetts Fund
Foreign Currency Transactions International Equity Fund
Balanced Fund
Capital Growth Fund
Value Fund
Star Advisers Fund
Strategic Income Fund
Bond Income Fund
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 below. No loans will
be made if, as a result, the aggregate amount of such loans
outstanding at any one time would exceed 15% 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 custodian and placement fees approved by
the boards of trustees of New England Funds Trust I or New England
Funds Trust II (the "Trusts" and each a "Trust") or persons acting
pursuant to the direction of the boards.
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:
. U.S. Treasury Bills - Direct obligations of the United States
Treasury which are issued in maturities of one year or less. No
interest is paid on Treasury bills; instead, they are issued at a
discount and repaid at full face value when they mature. They are
backed by the full faith and credit of the United States Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the United
States Treasury issued in maturities that vary between one and 40
years, with interest normally payable every six months. These
obligations are backed by the full faith and credit of the United
States Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or
other mortgagee which represent an interest in a pool of mortgages
insured by the Federal Housing Administration or the Farmer's Home
Administration or guaranteed by the Veterans Administration. The
Government National Mortgage Association ("GNMA") guarantees the
timely payment of principal and interest when such payments are due,
whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. An assistant attorney
general of the United States has rendered an opinion that the
guarantee by GNMA is a general obligation of the United States backed
by its full faith and credit. Mortgages included in single family or
multi-family residential mortgage pools backing an issue of Ginnie
Maes have a maximum maturity of up to 30 years. Scheduled payments
of principal and interest are made to the registered holders of
Ginnie Maes (such as the Fund) each month. Unscheduled prepayments
may be made by homeowners, or as a result of a default. Prepayments
are passed through to the registered holder (such as the Fund, which
reinvests any prepayments) of Ginnie Maes along with regular monthly
payments of principal and interest.
. "Fannie Maes" - The Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely by
private stockholders that purchases residential mortgages from a list
of approved seller/servicers. Fannie Maes are pass-through
securities issued by FNMA that are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation
("FHLMC") is a corporate instrumentality of the United States
Government. Freddie Macs are participation certificates issued by
FHLMC that represent an interest in residential mortgages from
FHLMC's National Portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but Freddie Macs are
not backed by the full faith and credit of the United States
Government.
As described in the prospectus, U.S. Government Securities 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 Trust 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.
Tax Exempt Bonds. The Fund may invest in tax exempt bonds. Tax
exempt bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range
of public facilities such as bridges, highways, hospitals, housing,
mass transportation, schools, streets, and water and sewer works.
Other public purposes for which tax exempt bonds may be issued
include the refunding of outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other
public institutions and facilities. In addition, prior to the Tax
Reform Act of 1986, certain debt obligations known as industrial
development bonds could be issued by or on behalf of public
authorities to obtain funds to provide privately operated housing
facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. Such
obligations are included within the term "tax exempt bonds" if the
interest paid thereon is, in the opinion of bond counsel, exempt from
federal income tax. Interest on certain industrial development bonds
used to fund the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities may also be
exempt from federal income tax. The Tax Reform Act of 1986
eliminated some types of tax exempt industrial revenues bonds but
retains others under the general category of "private activity
bonds." The interest on so-called "private activity bonds" is exempt
from ordinary federal income taxation but is treated as a tax
preference item in computing a shareholder's alternative minimum tax
liability, as noted in the prospectus.
The Fund may not be a desirable investment for "substantial
users" of facilities financed by industrial development bonds or for
"related persons" of substantial users.
The two principal classifications of tax exempt bonds are
general obligation bonds and limited obligation (or revenue) bonds.
General obligation bonds are obligations involving the credit of an
issuer possessing taxing power and are payable from the issuer's
general unrestricted revenues and not from any particular fund or
source. The characteristics and method of enforcement of general
obligation bonds vary according to the law applicable to the
particular issuer, and payment may be dependent upon an appropriation
by the issuer's legislative body. Limited obligation bonds are
payable only from the revenues derived from a particular facility or
class of facilities, or in some cases from the proceeds of a special
excise or other specific revenue source such as the user of the
facility. Tax exempt industrial development bonds and private
activity bonds are in most cases revenue bonds and generally are not
payable from the unrestricted revenues of the issuer. The credit and
quality of such bonds is usually directly related to the credit
standing of the corporate user of the facilities. Principal and
interest on such bonds is the responsibility of the corporate user
(and any guarantor).
Prices and yields on tax exempt bonds are dependent on a variety
of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the tax exempt bond
market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. A number of these factors,
including the ratings of particular issues, are subject to change
from time to time. Information about the financial condition of an
issuer of tax exempt bonds may not be as extensive as that made
available by corporations whose securities are publicly traded.
The ratings of Moody's Investors Service, Inc. "(Moody's") and
Standard and Poor's Corporation "(Standard & Poor's" or "S&P")
represent their opinions and are not absolute standards of quality.
Tax exempt bonds with the same maturity, interest rate and rating may
have different yields while tax exempt bonds of the same maturity and
interest rate with different ratings may have the same yield.
Obligations of issuers of tax exempt bonds are subject to the
provisions of bankruptcy, insolvency and other laws, such as the
Federal Bankruptcy Reform Act of 1978, affecting the rights and
remedies of creditors. Congress or state legislatures may seek to
extend the time for payment of principal or interest, or both, or to
impose other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power or ability of issuers to meet their obligations
for the payment of interest and principal on their tax exempt bonds
may be materially affected, or their obligations may be found to be
invalid or unenforceable. Such litigation or conditions may from
time to time have the effect of introducing uncertainties in the
market for tax exempt bonds or certain segments thereof, or
materially affecting the credit risk with respect to particular
bonds. Adverse economic, business, legal or political developments
might affect all or a substantial portion of the Fund's tax exempt
bonds in the same manner.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal
income tax exemption for interest on debt obligations issued by
states and their political subdivisions and similar proposals may
well be introduced in the future. If such a proposal were enacted,
the availability of tax exempt securities for investment by the Fund
and the value of the Fund's portfolio could be materially affected,
in which event the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or
dissolution.
All debt securities, including tax exempt bonds, are subject to
credit and market risk. Generally, for any given change in the level
of interest rates, prices for longer maturity issues tend to
fluctuate more than prices for shorter maturity issues. The ability
of the Fund to invest in securities other than tax exempt bonds is
limited by a requirement of the Code that at least 50% of the Fund's
total assets be invested in tax exempt bonds at the end of each
calendar quarter.
State Tax Exempt Securities. The Fund may invest in "State Tax
Exempt Securities" which term refers to debt securities the interest
from which is, in the opinion of bond counsel, exempt from federal
income tax and State personal income taxes (other than the possible
incidence of any alternative minimum taxes). State Tax Exempt
Securities consist primarily of bonds of the Fund's named state,
their political subdivisions (for example, counties, cities, towns,
villages and school districts) and authorities issued to obtain funds
for various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which certain State Tax
Exempt Securities may be issued include the refunding of outstanding
obligations, obtaining funds for general operating expenses, or
obtaining funds to lend to public or private institutions for the
construction of facilities such as educational, hospital and housing
facilities. In addition, certain types of industrial development
bonds and private activity bonds have been or may be issued by public
authorities or on behalf of state or local governmental units to
finance privately operated housing facilities, sports facilities,
convention or trade facilities, air or water pollution control
facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Other types of
industrial development and private activity bonds are used to finance
the construction, equipment, repair or improvement of privately
operated industrial or commercial facilities. Industrial development
bonds and private activity bonds are included within the term "State
Tax Exempt Securities" if the interest paid thereon is, in the
opinion of bond counsel, exempt from federal income tax and State
personal income taxes (other than the possible incidence of any
alternative minimum taxes). The Fund may invest more than 25% of the
value of its total assets in such bonds, but not more than 25% in
bonds backed by non-governmental users in any one industry (see
"Investment Restrictions" in Part I of this Statement). However, as
described in the Fund's prospectus, the income from certain private
activity bonds is an item of tax preference for purposes of the
federal alternative minimum tax, and it is a fundamental policy of
the Fund that distributions from interest income on such private
activity bonds, together with distributions of interest income on
investments other than State Tax Exempt Securities, will normally not
exceed 10% of the total amount of the Fund's income distributions.
In addition, the term "State Tax Exempt Securities" includes
debt obligations issued by other governmental entities (for example,
U. S. territories) if such debt obligations generate interest income
which is exempt from federal income tax and State personal income
taxes (other than any alternative minimum taxes).
There are, of course, variations in the quality of State Tax
Exempt Securities, both within a particular classification and
between classifications, depending on numerous factors (see Appendix
A).
The yields on State Tax Exempt Securities are dependent on a
variety of factors, including general money market conditions, the
financial condition of the issuer, general conditions of the State
Tax Exempt Securities market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings
of Moody's and Standard and Poor's represent their opinions as to the
quality of the State Tax Exempt Securities which they undertake to
rate. It should be emphasized, however, that ratings are general and
are not absolute standards of quality. Consequently, State Tax
Exempt Securities with the same maturity, interest rate and rating
may have different yields while State Tax Exempt Securities of the
same maturity and interest rates with different ratings may have the
same yield. Subsequent to its purchase by the Fund, an issue of
State Tax Exempt Securities or other investments may cease to be
rated or the rating may be reduced below the minimum rating required
for purchase by the Fund. Neither event will require the elimination
of an investment from the Fund's portfolio, but the Manager will
consider such an event as part of its normal, ongoing review of all
the Fund's portfolio securities.
The Fund does not currently intend to invest in so-called "moral
obligation" bonds, where repayment is backed by a moral commitment of
an entity other than the issuer, unless the credit of the issuer
itself, without regard to the "moral obligation," meets the
investment criteria established for investments by the Fund.
Securities in which the Fund may invest, including State Tax
Exempt Securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or the State legislature extending
the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations. There is
also the possibility that as a result of litigation or other
conditions the power or ability of issuers to meet their obligations
for the payment of interest and principal on their State Tax Exempt
Securities may be materially affected or that their obligations may
be found to be invalid and unenforceable.
The Fund's named state and certain of its cities and towns and
public bodies have from time to time encountered financial
difficulties which have adversely affected their respective credit
standings and borrowing abilities. Such difficulties could, of
course, affect outstanding obligations of such entities, including
obligations held by the Fund.
Options and Futures
Futures Contracts. A futures contract is an agreement between two
parties to buy and sell a particular commodity (e.g., an interest-
bearing security) for a specified price on a specified future date.
In the case of futures on an index, the seller and buyer agree to
settle in cash, at a future date, based on the difference in value of
the contract between the date it is opened and the settlement date.
The value of each contract is equal to the value of the index from
time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to
$1000 multiplied by the Bond Buyer Municipal Bond 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." A Fund with a long position in a futures
contract 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, a 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.
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 a 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 a Fund, or a put
option on a security written by a Fund, is covered if the Fund
maintains cash, U.S. Treasury bills or other high-grade liquid debt
obligations with a value equal to the exercise price in a segregated
account with the Fund's custodian, or else holds a put on the same
futures contract (or security, as the case may be) as the put written
where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
If the writer of an option wishes to terminate its position, it
may effect a closing purchase transaction by buying an option
identical to the option previously written. The effect of the
purchase is that the writer's position will be canceled. Likewise,
the holder of an option may liquidate its position by selling an
option identical to the option previously purchased.
Closing a written call option will permit the Fund to write
another call option on the portfolio securities used to cover the
closed call option. Closing a written put option will permit the
Fund to write another put option secured by the segregated cash, U.S.
Treasury bills or other high-grade liquid obligations used to secure
the closed put option. Also, effecting a closing transaction will
permit the cash or proceeds from the concurrent sale of any futures
contract or securities subject to the option to be used for other
Fund investments. If the Fund desires to sell particular securities
covering a written call option position, it will close out its
position or will designate from its portfolio comparable securities
to cover the option prior to or concurrent with the sale of the
covering securities.
The Fund will realize a profit from closing out an option if the
price of the offsetting position is less than the premium received
from writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from closing out an option
transaction if the price of the offsetting option position is more
than the premium received from writing the option or is less than the
premium paid to purchase the option. Because increases in the market
price of a call option will generally reflect increases in the market
price of the covering securities, any loss resulting from the closing
of a written call option position is expected to be offset in whole
or in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the
value of the underlying securities or futures contracts usually have
a time value component (i.e. a value that diminishes as the time
within which the option can be exercised grows shorter) an option
writer may profit from the lapse of time even though the value of the
futures contract (or security in some cases) underlying the option
(and of the security deliverable under the futures contract) has not
changed. Consequently, profit from option writing may or may not be
offset by a decline in the value of securities covering the option.
If the profit is not entirely offset, the Fund will have a net gain
from the options transaction, and the Fund's total return will be
enhanced. Likewise, the profit or loss from writing put options may
or may not be offset in whole or in part by changes in the market
value of securities acquired by the Fund when the put options are
closed.
Risks. The use of futures contracts and options involves risks. One
risk arises because of the imperfect correlation between movements in
the price of futures contracts and movements in the price of the
securities that are the subject of the hedge. The Fund's hedging
strategies will not be fully effective unless the Fund can compensate
for such imperfect correlation. There is no assurance that the Fund
will be able to effect such compensation.
The correlation between the price movement of the futures
contract and the hedged security may be distorted due to differences
in the nature of the markets. For example, to the extent that the
Municipal Income Fund enters into futures contracts on securities
other than tax exempt bonds, the value of such futures may not vary
in direct proportion to the value of tax exempt bonds that the Fund
owns or intends to acquire, because of an imperfect correlation
between the movement of taxable securities and tax exempt bonds. If
the price of the futures contract moves more than the price of the
hedged security, the relevant 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, each 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
International Equity Fund purchases foreign stock index futures.
The successful use of transactions in futures and options
depends in part on the ability of a Fund's adviser 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 a 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 organization.
The staff of the Securities and Exchange Commission (the "SEC")
has taken the position that over-the-counter options on U.S.
Government Securities and the assets used as cover for written over-
the-counter options on U.S. Government Securities should generally be
treated as illiquid securities for purposes of the investment
restrictions prohibiting the Government Securities Fund from
investing more than 10% of its net assets in illiquid securities.
However, if a dealer recognized by the Federal Reserve Bank of New
York as a "primary dealer" in U.S. Government Securities is the other
party to an option contract written by the Fund, and the Fund has the
absolute right to repurchase the option from the dealer at a formula
price established in a contract with the dealer, the SEC staff has
agreed that the Fund only needs to treat as illiquid that amount of
the "cover" assets equal to the amount at which (i) the formula price
exceeds (ii) any amount by which the market value of the securities
subject to the options exceeds the exercise price of the option (the
amount by which the option is "in-the-money"). Although the
Government Securities Fund's subadviser does not believe that over-
the-counter options on U.S. Government Securities are generally
illiquid, the Fund has agreed that pending resolution of this issue
it will conducts its operations in conformity with the views of the
SEC staff on such matters.
Back Bay Advisors has established standards for the
creditworthiness of the primary dealers with which the Government
Securities Fund may enter into over-the-counter option contracts
having the formula-price feature referred to above. Those standards,
as modified from time to time, are implemented and monitored by the
subadviser. Such contracts will provide that the Fund has the
absolute right to repurchase an option it writes at any time at a
repurchase price which represents the fair market value, as
determined in good faith through negotiation between the parties, but
which in no event will exceed a price determined pursuant to a
formula contained in the contract. Although the specific details of
the formula may vary between contracts with different primary
dealers, the formula will generally be based on a multiple of the
premium received by the Fund for writing the option, plus the amount,
if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of
the securities and the exercise price of the option if the option is
written out-of-the-money. Although each agreement will provide that
the Fund's repurchase price shall be determined in good faith (and
that it shall not exceed the maximum determined pursuant to the
formula), the formula price will not necessarily reflect the market
value of the option written, and therefore the Fund might pay more to
repurchase the option contract than the Fund would pay to close out a
similar exchange-traded option.
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. If the Municipal Income Fund
is required to use taxable fixed-income securities as margin, the
portion of the Fund's dividends that is taxable to shareholders will
be larger than if that Fund is permitted to use tax exempt bonds for
that purpose.
The Fund will not "over hedge," that is, maintain open short
positions in futures or options contracts if, in the aggregate, the
market value of its open positions exceeds the current market value
of its securities portfolio plus or minus the unrealized gain or loss
on such open positions, adjusted for the historical price volatility
relationship between the portfolio and futures and options contracts.
Also, subject to change without shareholder approval, neither the
Government Securities Fund, the Municipal Income Fund, nor the
International Equity Fund will sell futures contracts if, as a
result, the sum of the amount of its initial margin deposits on its
existing futures positions would exceed 5% of the Fund's total assets
(taken at current value).
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 TRUSTS
New England Funds Trust I and New England Funds Trust II
Trustees of New England Funds Trust I and New England Funds Trust II
and their principal occupations during the past five years are as
follows:
GRAHAM T. ALLISON, JR.--Trustee; 79 John F. Kennedy Street, Cambridge,
MA 02138; Douglas Dillon Professor and Director for the Center of
Science and International Affairs, John F. Kennedy School
Government; Special Advisor to the United States Secretary of
Defense; formerly, Assistant Secretary of Defense; formerly
Dean, John F. Kennedy School Government.
KENNETH J. COWAN -- Trustee; One Beach Drive, S.E. #2103, St.
Petersburg, Florida 33701; Retired; formerly, Senior Vice
President-Finance and Chief Financial Officer, Blue Cross of
Massachusetts, Inc. and Blue Shield of Massachusetts, Inc.;
Director, Neworld Bank for Savings and Neworld Bancorp.
SANDRA O. MOOSE -- Trustee; 135 E. 57th Street New York, NY 10022;
Senior Vice President and Director, The Boston Consulting Group,
Inc. (management consulting); Director, GTE Corporation and Rohm
and Haas Company (specialty chemicals).
HENRY L. P. SCHMELZER* -- Trustee and President; President, Chief
Executive Officer and Managing Director, New England Funds, L.P.;
President and Chief Executive Officer, New England Funds
Management, L.P. ("NEFM"); Director, New England Securities
Corporation ("New England Securities"); Director, Back Bay
Advisors, L.P. ("Back Bay Advisors").
* Trustee deemed an "interested person" of the Trusts, as defined in
the Investment Company Act of 1940 (the "1940 Act").
JAMES H. SCOTT -- Trustee; 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; 300 Unicorn Park Drive, Woburn,
Massachusetts 01801; President, Palmer Service Corporation
(venture capital organization); General Partner, The Palmer
Organization and Palmer Partners L.P.; Director, Abt Associates
(consulting firm), Aviv Corporation (manufacturer of
controllers), Banyan Systems, Inc. (manufacturer of network
software), Cerjac Inc. (manufacturer of telephone testing
equipment), Dowden Publishing Company (publishers of medical
magazines), Summa Four, Inc. (manufacturer of telephone switching
equipment), United Asset Management Corporation (holding company
for institutional money management), Eastern Bank and Arch
Communications Group, Inc. (paging service).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and
Trustee; President and Chief Executive Officer of New England
Investment Companies, L.P. ("NEIC"); Chairman of the Board,
Director, President and Chief Executive Officer of New England
Investment Companies, Inc.; Chairman of the Board and Director,
New England Funds, L.P.; Chairman of the Board and Director, Back
Bay Advisors; Director, New England Mutual Life Insurance Company
("The New England"); formerly Group Head of International
Banking, Trading and Securities at Security Pacific and Chief
Executive Officer of the Security Pacific Investment Group.
* Trustee deemed an "interested person" of the Trusts, as defined in
the Investment Company Act of 1940 (the "1940 Act").
PENDLETON P. WHITE -- Trustee; 6 Breckenridge Lane, Savannah, Georgia
31411; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants);
Trustee, The Faulkner Corporation.
New England Funds Trust I
Officers of New England Funds Trust I and their principal
occupations during the past five years are as follows:
G. KENNETH HEEBNER -- Senior Vice President; Associate, Capital Growth
Management Limited Partnership ("CGM"); formerly, Vice President
and Director, Loomis, Sayles & Company, L.P. ("Loomis Sayles").
ROBERT L. KEMP -- Senior Vice President; Associate, CGM; formerly,
President and Director, Loomis Sayles.
ROBERT J. BLANDING -- Senior Vice President; Chief Executive Officer,
Loomis Sayles.
CHARLES T. WALLIS -- Senior Vice President; President, Chief Executive
Officer and Director, Back Bay Advisors; Director, New England
Funds, L.P.
MERIANNE BECK -- Vice President; Vice President, Senior Partner and
Fixed-Income Portfolio Manager, Loomis Sayles; formerly, Senior
Portfolio Manager and Investment Strategist, TSA Capital
Management.
HAROLD B. BJORNSON -- Vice President; Vice President, Back Bay
Advisors; formerly, Assistant Vice President, New England
Securities.
CATHERINE L. BUNTING -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, trader, Harvard Management Company.
CHRISTINE A. CREELMAN -- Vice President; Vice President, Back Bay
Advisors.
DAVID M. DAVIS -- Vice President; Vice President and Senior Partner,
Loomis Sayles.
CHARLES J. FINLAYSON -- Vice President; Vice President, Director,
General Counsel, Secretary and Clerk, Loomis Sayles.
BARBARA C. FRIEDMAN -- Vice President; Vice President, Loomis Sayles;
formerly partner and portfolio manager, Harvard Management Company.
DANIEL FUSS -- Vice President; Managing Partner, Executive Vice
President and Director, Loomis Sayles.
KIMBERLY FORSYTH -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Vice President and Director of Tax-Exempt
Credit Research Department, Legg Mason, Incorporated (investment
advisory firm); formerly Vice President and Senior Credit Analyst,
Putnam Investment Management, Incorporated (investment management
company); formerly, Director of Municipal Research, Alex. Brown &
Sons Incorporated (brokerage/advisory firm).
CHARLES G. GLUECK -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Investment Officer, The New England.
ERIC N. GUTTERSON -- Vice President; Vice President, Back Bay Advisors.
RICHARD W. HURCKES -- Vice President; Vice President, Loomis Sayles.
CAROL C. McMURTRIE -- Vice President; Director, Managing Partner and
Vice President, Loomis Sayles; formerly, Vice President, Addison
Capital Management.
TRICIA H. MILLS -- Vice President; Vice President, Loomis Sayles.
SCOTT A. MILLIMET -- Vice President; Vice President, Back Bay Advisors;
formerly, Senior Vice President and Manager of Carroll, McEntee &
McGinley, Chicago Board of Trade.
J. STEVEN NEAMTZ -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.; formerly, Vice President
- Private Capital Group, Kidder, Peabody and Company and Vice
President - Asset Finance, Prudential Securities Incorporated.
J. SCOTT NICHOLSON -- Vice President; Senior Vice President, Back Bay
Advisors.
SCOTT S. PAPE -- Vice President; Vice President, Loomis Sayles;
formerly, Equity Portfolio Manager, Illinois State Board of
Investment.
JEFFREY C. PETHERICK -- Vice President; Vice President, Loomis Sayles;
formerly, Analyst, Masco Corporation.
DOUGLAS D. RAMOS -- Vice President; Vice President and Senior Partner,
Loomis Sayles.
EDGAR M. REED - Vice President; Executive Vice President and Chief
Investment Officer, Back Bay Advisors; formerly, Head of the
Fixed Income Management Group, Aetna Capital Management.
BRUCE R. SPECA -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.
NATHAN R. WENTWORTH -- Vice President; Vice President, Back Bay
Advisors; formerly, Investment Officer, The New England.
FRANK NESVET -- Treasurer; Senior Vice President, Chief Financial
Officer and Managing Director, New England Funds, L.P.; Senior
Vice President, Chief Financial Officer and Treasurer, NEFM;
formerly, Executive Vice President, SuperShare Services
Corporation.
ROBERT P. CONNOLLY -- Secretary and Clerk; Senior Vice President,
General Counsel and Managing Director, New England Funds, L.P.;
formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company); formerly,
Managing Director and General Counsel, Equitable Capital
Management Corporation (investment management company).
Previous positions during the past five years with The New
England, Back Bay Advisors, Loomis Sayles or New England Funds, L.P.
are omitted, if not materially different. 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 New England Funds Trust I affiliated with NEIC, New England
Funds, L.P. or Back Bay Advisors is 399 Boylston Street, Boston,
Massachusetts. The address of each officer associated with CGM is One
International Place, Boston, Massachusetts. The address of each
officer associated with Loomis Sayles is One Financial Place, Boston,
Massachusetts, except for Mr. Davis and Ms. Beck whose address is 155
Lake Avenue, Suite 1030, Pasadena, California and Mr. Shepherd whose
address is 595 Fifth Street West, Sonoma, California, Messrs. Hurckes
and Pape, whose address is Three First National Plaza, Chicago,
Illinois and Mr. Petherick whose address is 1533 North Woodward
Street, #300, Detroit, Michigan.
New England Funds Trust II
Officers of New England Funds Trust II and their principal
occupations during the past five years are as follows:
CHARLES T. WALLIS -- Senior Vice President; President, Chief Executive
Officer and Director, Back Bay Advisors; Director, New England
Securities; formerly, Vice President, The New England.
GERALD H. SCRIVER -- Senior Vice President; President and Chief
Executive Officer of Westpeak Investment Advisors, L.P.
("Westpeak"); formerly, Director of Quantitative Strategies of
INVESCO.
HAROLD B. BJORNSON -- Vice President; Vice President, Back Bay
Advisors; formerly, Assistant Vice President, New England
Securities.
PHILIP J. COOPER -- Vice President; Vice President, Westpeak; formerly,
Portfolio Manager, United Asset Management Services.
CHRISTINE A. CREELMAN -- Vice President; Vice President, Back Bay
Advisors.
KIMBERLY J. FORSYTH -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Vice President and Director of Tax-Exempt
Credit Research Department, Legg Mason, Incorporated (investment
advisory firm); formerly Vice President and Senior Credit Analyst,
Putnam Investment Management, Incorporated (investment management
company); formerly, Director of Municipal Research, Alex. Brown &
Sons Incorporated (brokerage/advisory firm).
CHARLES G. GLUECK -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Investment Officer, The New England.
ERIC N. GUTTERSON -- Vice President; Vice President, Back Bay Advisors.
SCOTT A. MILLIMET -- Vice President; Vice President, Back Bay Advisors;
formerly, Senior Vice President and Manager of Carroll, McEntee &
McGinley, Chicago Board of Trade.
J. STEVEN NEAMTZ -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.; formerly, Vice President
- Private Capital Group, Kidder, Peabody and Company and Vice
President - Asset Finance, Prudential Securities Incorporated.
J. SCOTT NICHOLSON - Vice President; Senior Vice President, Back Bay
Advisors.
EDGAR M. REED -- Vice President; Executive Vice President and Chief
Investment Officer, Back Bay Advisors; formerly, Head of the
Fixed Income Management Group, Aetna Capital Management.
BRUCE R. SPECA -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.
JAMES S. WELCH -- Vice President; Vice President, Back Bay Advisors;
formerly, Vice President, Putnam Management Company.
FRANK NESVET -- Treasurer; Senior Vice President, Chief Financial
Officer and Managing Director, New England Funds, L.P.; Senior
Vice President, Chief Financial Officer and Treasurer, New
England Funds Management, L.P.; formerly, Executive Vice
President, SuperShare Services Corporation.
ROBERT P. CONNOLLY -- Secretary and Clerk; Senior Vice President,
General Counsel and Managing Director, New England Funds, L.P.;
formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company); formerly Managing
Director and General Counsel, Equitable Capital Management
Corporation (investment management company).
Except as indicated above, the address of each officer affiliated
with Back Bay Advisors or New England Funds, L.P. is 399 Boylston
Street, Boston, Massachusetts 02116. The address of each officer
associated with Westpeak is 1050 Walnut Street, Boulder Colorado
80302.
Trustees Fees
New England Funds Trust I and New England Funds Trust II each pay no
compensation to their officers or to their trustees who are interested
persons thereof.
Until May 1, 1995, each Trustee who is not an interested person
of the Trusts received, in the aggregate for serving on the boards of
the Trusts and nineteen other 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 attended and $1,500 for each
meeting he or she attended of a committee of the board of which he or
she was a member. Each committee chairman received an additional
retainer fee at the annual rate of $2,500. These fees were allocated
among the Funds and nineteen other mutual fund portfolios based on a
formula that took into account, among other factors, the net assets of
each Fund
Effective May 1, 1995, each Trustee who is not an interested
person will receive the foregoing rates of compensation for serving as
Trustee of the Trusts and three other mutual fund portfolios. The
compensation will be allocated among the Funds and the three
portfolios based on a formula similar to that in effect before May 1,
1995.
During the fiscal year ended December 31, 1994, the persons who
were then Trustees of the Trusts received the amounts set forth on the
following page for serving as a Trustee of the Trusts and for also
serving on the governing boards of nineteen other mutual fund
portfolios (the "Other Funds"). As of December 31, 1994, there were a
total of thirty-six Funds in the Trusts and the Other Funds combined.
Aggregate Aggregate Total
Compensatio Compensati Compensation
n from on from from the Trusts
Name of Trustee Trust I in Trust II and the Other
1994 in 1994 Funds in 1994
Kenneth J. Cowan $18,244 $18,244 $59,375
Joseph M. Hinchey 17,507 17,507 56,875
Richard S. Humphrey, Jr. 17,507 17,507 56,875
Robert B. Kittredge 17,951 17,951 89,279(a)
Laurens MacLure 18,688 18,688 91,779(a)
Sandra O. Moose 16,326 16,326 52,875
James H. Scott 17,507 17,507 56,875
John A. Shane 17,211 17,211 55,875
Joseph F. Turley 17,951 17,951 58,375
Pendleton P. White 17,951 17,951 58,375
(a) 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 Growth Fund,
serves as investment adviser.
The Trusts provide no pension or retirement benefits to Trustees,
but have adopted a deferred payment arrangement under which each
Trustee may elect not to receive fees from 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 Fund
on the normal payment date for such fees. As a result of this method
of calculating the deferred payments, each Fund, upon making the
deferred payments, will be in the same financial position as if the
fees had been paid on the normal payment dates.
At May 1, 1995, the officers and trustees of each Trust as a
group owned less than 1% of the outstanding shares of each Trust.
Advisory and Subadvisory Agreements
Each Fund's advisory agreement between the Fund and NEFM
(between the Fund and CGM, in the case of the Growth Fund) provides
that the adviser (NEFM or CGM) will furnish or pay the expenses of
the applicable Fund for office space, facilities and equipment,
services of executive and other personnel of the Trust and certain
administrative services.
Each Fund pays all expenses not borne by its adviser or
subadviser(s) including, but not limited to, the charges and expenses
of the Fund's custodian and transfer agent, independent auditors and
legal counsel for the Fund and the Trusts' independent trustees, all
brokerage commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and expenses for
registration or qualification of its shares under federal and 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(s) or their affiliates,
other than affiliated registered investment companies. Each Fund
(except the Growth Fund) also pays NEFM for certain legal and
accounting services provided to the Fund by NEFM.
Under each Fund's advisory agreement, if the total ordinary
business expenses of the Fund or the applicable 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, the
Fund's adviser 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 million, 2% of the next $70 million and 1
1/2% of such assets in excess of $100 million. The adviser 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 relevant 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 each Fund's Distribution
Agreement and the Distribution Plans would be excluded from
"expenses."
Each Fund's advisory agreement and (except for the Growth Fund)
each Fund's subadvisory agreement between NEFM and the subadviser
that manages the Fund (or, in the case of the Star Advisers Fund,
each subadvisory agreement between NEFM and the subadviser that
manages a segment of the Fund's portfolio) provides that it will
continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at least
annually (i) by the board of trustees of the relevant Trust by vote
of a majority of the outstanding voting securities of the relevant
Fund and (ii) by vote of a majority of the trustees who are not
"interested persons" of the relevant 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 an advisory or
subadvisory agreement must be approved by vote of a majority of the
outstanding voting securities of the relevant Fund and by vote of a
majority of the trustees of the relevant Trust who are not such
interested persons, cast in person at a meeting called for the
purpose of voting on such approval. Each advisory and subadvisory
agreement may be terminated without penalty by vote of the relevant
Trust's board of trustees or by vote of a majority of the outstanding
voting securities of the relevant Fund, upon 60 days' written notice,
or by the Fund's adviser upon 90 days' written notice, and each
terminates automatically in the event of its assignment. Each
subadvisory agreement also may be terminated by the subadviser upon
90 days' notice and automatically terminated upon termination of the
related advisory agreement. In addition, each advisory agreement
will automatically terminate if the Trust or the Fund shall at any
time be required by the Distributor to eliminate all reference to the
words "New England" or the letters "TNE" in the name of the relevant
Trust or the relevant Fund, unless the continuance of the agreement
after such change of name is approved by a majority of the
outstanding voting securities of the relevant Fund and by a majority
of the trustees who are not interested persons of the relevant Trust
or the Fund's adviser or subadviser.
Each advisory and subadvisory agreement provides that the
adviser or 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, formed in 1995, is a limited partnership whose sole
general partner, NEF Corporation, is a wholly-owned subsidiary of
NEIC Holdings, Inc. ("NEIC Holdings"), which is a wholly-owned
subsidiary of NEIC. NEF Corporation is also the sole general partner
of New England Funds, L.P., the distributor of the Funds. NEIC owns
the entire limited partnership interest in each of NEFM and New
England Funds, L.P.
NEIC's sole general partner, NEIC Inc., is a wholly-owned
subsidiary of The New England, which owns a majority limited
partnership interest in NEIC. NEIC and its seven subsidiary or
affiliated asset management firms, collectively, have more than $60
billion of assets under management or administration.
Back Bay Advisors, formed in 1986, is a limited partnership
whose sole general partner, BBAI, is a wholly-owned subsidiary of
NEIC Holdings. NEIC owns the entire limited partnership interest in
Back Bay Advisors. Back Bay Advisors provides investment management
services to institutional clients, including other registered
investment companies and accounts of The New England and its
affiliates. Back Bay Advisors specializes in fixed-income management
and currently manages over $6 billion in total assets.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") was organized
in 1926 and is one of the oldest and largest investment counsel firms
in the country. An important feature of the Loomis Sayles investment
approach is its emphasis on investment research. Recommendations and
reports of the Loomis Sayles research department are circulated
throughout the Loomis Sayles organization and are available to the
individuals in the Loomis Sayles organization who have been assigned
the responsibility for making investment decisions for the Funds'
portfolios. Loomis Sayles provides investment advice to numerous
other institutional and individual clients. These clients include
some accounts of The New England and its affiliates ("New England
Accounts"). Loomis Sayles is a limited partnership whose sole
general partner, Loomis, Sayles & Company, Incorporated, is a wholly-
owned subsidiary of NEIC Holdings. NEIC owns the entire limited
partnership interest in Loomis Sayles.
CGM is a limited partnership whose sole general partner, Kenbob,
Inc., is a corporation owned in equal shares by Robert L. Kemp and G.
Kenneth Heebner. NEIC owns a majority limited partnership interest
in CGM. Prior to March 1, 1990, the Growth Fund was managed by
Loomis Sayles' Capital Growth Management Division. On March 1, 1990,
Loomis Sayles reorganized its Capital Growth Management Division into
CGM. In addition to advising the Growth Fund, CGM acts as investment
adviser of CGM Capital Development Fund, CGM Trust, NEVA and Zenith's
Capital Growth Series. CGM also provides investment advice to other
institutional and individual clients.
Westpeak Investment Advisors, L.P. ("Westpeak"), organized in
1991, provides investment management services to institutional
clients, including accounts of The New England and its affiliates.
Westpeak is a limited partnership whose sole general partner,
Westpeak Investment Advisors, Inc., is a wholly-owned subsidiary of
NEIC Holdings. NEIC owns the entire limited partnership interest in
Westpeak.
Draycott Partners, Ltd. ("Draycott"), formed in 1991, provides
investment management services to institutional clients, including
separate accounts of The New England. Draycott was a wholly-owned
subsidiary of NEIC until December 29, 1995, when NEIC sold Draycott
to Cursitor Holdings Ltd. U.K. ("Cursitor"). Cursitor is an
international investment management group that had approximately $9.4
billion in assets under management at September 30 1995. Alliance
Capital Management L.P. ("Alliance Capital") is expected to acquire
the business of Cursitor later in 1996. As a result of this
transaction, Draycott will become a wholly-owned subsidiary of a new
entity, Cursitor Alliance LLC, in which Alliance Capital will
directly and indirectly own a 93% interest. Alliance Capital
Management Corporation ("ACMC") is the sole general partner of, and
the owner of a 1% general partnership interest in, Alliance Capital.
ACMC is an indirectly wholly-owned subsidiary of The Equitable Life
Assurance Society of the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company
controlled by AXA, a French insurance holding company.
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, and
MetLife will own, directly or indirectly, a majority limited
partnership in NEIC.
Berger Associates, Inc. ("Berger") serves as investment adviser
to the mutual funds in the Berger fund group and to pension and
profit-sharing plans and other institutional and private investors.
Kansas City Southern Industries, Inc. ("KCSI") a publicly-traded
holding company, owns approximately 80% of the stock of Berger.
Founders Asset Management, Inc. ("Founders") was organized in
1938. It serves as investment adviser to the Founders mutual funds
as well as to private accounts. Bjorn K. Borgen, Chief Executive
Officer of Founders, owns all of the stock of Founders.
Janus Capital Corporation ("Janus Capital") serves as investment
adviser to the Janus mutual funds and to other mutual funds,
individual, charitable, corporate and retirement accounts. KCSI 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.
Certain officers and employees of Back Bay Advisors have
responsibility for portfolio management of other advisory accounts
and clients (including other registered investment companies and
accounts of affiliates of Back Bay Advisors) that may invest in
securities in which the Funds may invest. Where Back Bay Advisors
determines that an investment purchase or sale opportunity is
appropriate and desirable for more than one advisory account,
purchase and sale orders may be executed separately or may be
combined and, to the extent practicable, allocated by Back Bay
Advisors to the participating accounts. Where advisory accounts have
competing interests in a limited investment opportunity, Back Bay
Advisors will allocate an investment purchase opportunity based on
the relative time the competing accounts have had funds available for
investment, and the relative amounts of available funds, and will
allocate an investment sale opportunity based on relative cash
requirements and the time the competing accounts have had investments
available for sale. It is Back Bay Advisors' 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 Funds for which Back
Bay Advisors acts as subadviser to participate in larger volume
transactions in this manner will in some cases produce better
executions for the Funds. However, in some cases, this procedure
could have a detrimental effect on the price and amount of a security
available to a Fund or the price at which a security may be sold.
The trustees are of the view that the benefits of retaining Back Bay
Advisors as investment manager outweigh the disadvantages, if any,
that might result from participating in such transactions.
Certain officers of Loomis Sayles have responsibility for the
management of other client portfolios. The Pasadena office of Loomis
Sayles buys and sells portfolio securities for the Value and Balanced
Funds, the Chicago office buys and sells portfolio securities for the
Capital Growth Fund, the Detroit office buys and sells portfolio
securities for the segment of the Star Advisers Fund's portfolio that
is advised by Loomis Sayles and the Boston office buys and sells
portfolio securities for the Strategic Income Fund. These offices
buy and sell securities independently of one another. The other
investment companies and clients served by Loomis Sayles sometimes
invest in securities in which the Capital Growth, Value, Balanced and
Star Advisers Funds also invest. If one of these Funds and such
other clients advised by the same office of Loomis Sayles desire to
buy or sell the same portfolio securities at about the same time,
purchases and sales will be allocated, to the extent practicable, on
a pro rata basis in proportion to the amounts desired to be purchased
or sold for each. It is recognized that in some cases the practices
described in this paragraph could have a detrimental effect on the
price or amount of the securities which each of the Funds purchases
or sells. In other cases, however, it is believed that these
practices may benefit the relevant Fund. It is the opinion of the
trustees that the desirability of retaining Loomis Sayles as
subadviser for the Strategic Income, Capital Growth, Value, Balanced
and Star Advisers Funds outweighs the disadvantages, if any, which
might result from these practices.
Certain officers and employees of Draycott have responsibility
for portfolio management for other clients (including affiliates of
Draycott), some of which may invest in securities in which the
International Equity Fund also may invest. When the Fund and other
clients desire to purchase or sell the same security at or about the
same time, purchase and sale orders are ordinarily placed and
confirmed separately but may be combined to the extent practicable
and allocated as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold for each.
It is believed that the ability of those clients to participate in
larger volume transactions 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.
It is the opinion of the trustees that the desirability of retaining
Draycott as subadviser to the Fund outweighs the disadvantages, if
any, which might result from such procedure.
In addition to managing a segment of the Star Advisers Fund's
portfolio, Berger serves as investment adviser or subadviser to other
mutual funds, pension and profit-sharing plans, and other
institutional and private investors. At times, Berger 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 Berger 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 Berger responsible for selecting
investments for the Fund and the accounts. It is the opinion of the
trustees that the desirability of retaining Berger as a subadviser to
the Fund outweighs the disadvantages, if any, which might result from
these procedures.
The segment of the Star Advisers Fund managed 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 a subadviser
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 a subadviser to
the Fund outweighs the disadvantages, if any, which might result from
these procedures.
Certain officers of Westpeak have responsibility for portfolio
management for other clients (including affiliates of Westpeak), some
of which may invest in securities in which the Growth Opportunities
Fund also may invest. When the Fund and other clients desire to
purchase or sell the same security at or about the same time, the
purchase and sale orders are ordinarily placed and confirmed
separately but may be combined to the extent practicable and allocated
as nearly as practicable on a pro rata basis in proportion to the
amounts desired to be purchased or sold for each. It is believed that
the ability of those clients to participate in larger volume
transactions 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. It is the opinion of the
trustees of the Fund that the desirability of retaining Westpeak as
subadviser for the Fund outweighs the disadvantages, if any, which
might result from these practices.
Distribution Agreements and Rule 12b-1 Plans. Under a separate
agreement with each Fund, New England Funds, L.P. serves as the
general distributor of each class of shares of the Funds. Under
these agreements, 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 Funds available through advertising and
other means and the cost of printing and mailing prospectuses to
persons other than shareholders. Each 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 each 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 Funds the service and distribution fees described in the
prospectus.
As described in the prospectuses, each 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 each Fund, and (together with the
related Distribution Agreement) by the board of trustees, including a
majority of the trustees who are not interested persons of the
relevant 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
relevant Independent Trustees, or by vote of a majority of the
outstanding voting securities of the relevant class of shares of the
relevant Fund. Each Plan may be amended by vote of the relevant
trustees, including a majority of the relevant 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 relevant Fund requires
approval of the holders of such shares. The Trusts' trustees review
quarterly a 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 relevant 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 Funds' 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. Class Y shares of the Funds
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 each Fund's adviser with
respect to sales of Class Y shares.
The Distribution Agreement for any Fund 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 relevant Fund or by vote of a majority of
the relevant Independent Trustees.
The Distribution Agreements 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 relevant 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 a 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 Trusts nor any trustee
of the Trusts had any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Trusts and their shareholders resulting from the
Plans are believed to include (1) enhanced shareholder service, (2)
asset retention, (3) enhanced bargaining position with third party
service providers and economies of scale arising from having higher
asset levels and (4) portfolio management opportunities arising from
having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the
name of New England Funds Trust I and New England Funds Trust II and
the Funds and if it should cease to be the distributor, New England
Funds Trust I, New England Funds Trust II or the affected 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 and New England Tax Exempt Money Market
Trust.
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
New England Funds Trust I 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 New
England Funds Trusts I 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 New England
Funds Trust I's investment advisers or the Funds directly for
providing certain administrative services relating to New England
Funds Trust I.
During the years ended December 31, 1992, 1993 and 1994, New
England Funds, L.P. received commissions on the sale of the Class A
shares of New England Funds Trust II aggregating $7,195,240,
$5,970,295 and $2,071,744, respectively, of which $6,475,716,
$573,825 and $1,780,651, respectively, were reallowed to other
securities dealers and the balance retained by New England Funds,
L.P. See "Other Arrangements" for information about amounts received
by New England Funds, L.P. from Back Bay Advisors or the Funds
directly for providing certain administrative services relating to
New England Funds Trust II.
Custodial Arrangements. State Street Bank and Trust Company
("State Street Bank"), Boston, Massachusetts 02102, is the Trusts'
custodian. As such, State Street Bank holds in safekeeping
certificated securities and cash belonging to each Fund and, in such
capacity, is the registered owner of securities in book-entry form
belonging to each Fund. Upon instruction, State Street Bank receives
and delivers cash and securities of each 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 Trusts and calculates
the total net asset value, total net income and net asset value per
share of each Fund on a daily basis.
Independent Accountants. New England Funds Trust I's
independent accountants are Price Waterhouse LLP, 160 Federal Street,
Boston, Massachusetts 02110. New England Funds Trust II's
independent accountants are Coopers & Lybrand LLP, 1 Post Office
Square, Boston, MA 02109. The independent accountants of each 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 Trusts as to matters of accounting and federal and
state income taxation. The information concerning financial
highlights in the prospectuses, and financial statements contained in
the Trusts' annual reports for the year ended December 31, 1994 and
incorporated by reference into this statement, have been so included
in reliance on the reports of each Trusts' independent accountants,
given on the authority of such firms as experts in auditing and
accounting.
Other Arrangements
Prior to January 2, 1996, office space, facilities, equipment
and certain other administrative services for New England Funds Trust
I (except the International Equity, Capital Growth and Star Advisers
Funds) were furnished by New England Securities, an affiliate of New
England Funds, L.P., under service agreements with CGM, Loomis Sayles
or Back Bay Advisors. In the case of the Growth Fund, such a service
agreement is still in effect. For the year ended December 31, 1994,
New England Securities received $2,261,375 from the advisers under
these agreements. In the case of the Capital Growth Fund, New
England Funds, L.P. provides similar services under a service
agreement with Loomis Sayles. For the year ended December 31, 1994,
New England Funds, L.P. received $278,333 from Loomis Sayles under
this agreement. In the case of Star Advisers Fund, New England
Funds, L.P. provides similar services under a service agreement with
NEIC. For the year ended December 31, 1994, New England Funds, L.P.
received $269,302 from NEIC under this agreement. In the case of the
International Equity Fund, New England Funds, L.P. provides similar
services under an Administrative Services Agreement with the Fund
under which the International Equity Fund pays a fee at the annual
rate of 0.10% of the average daily net assets attributable to the
Fund's Class A, Class B and Class C shares and 0.05% of the Fund's
Class Y shares. For the fiscal year ended December 31, 1994, New
England Funds, L.P. received $167,715 from the International Equity
Fund for these services. Class C shares did not commence operations
until January 3, 1995.
Prior to January 2, 1996, New England Funds, L.P. provided
similar services for the Growth Opportunities, Limited Term U.S.
Government, Massachusetts Tax Free Income and High Income Funds under
an agreement with Back Bay Advisors. For the year ended December 31,
1994, New England Funds, L.P. received $676,787 from Back Bay
Advisors under this agreement. In the case of the Adjustable Rate
Fund, New England Funds, L.P. provides similar services under an
Administrative Services Agreement with the Fund, under which the Fund
pays a fee at the annual rate of 0.15% of the first $200 million of
the Fund's average daily nets assets, 0.135% of the next $300 million
of such assets and 0.12% of such assets in excess of $500 million.
For the year ended December 31, 1994, New England Funds, L.P.
received $382,335 from the Adjustable Rate Fund for these services.
In the case of the California and New York Funds, New England Funds,
L.P. provides similar services under Administrative Agreements with
the Funds under which the Funds pay a fee at the rate of 0.125% of
each Fund's average daily net assets. For the year ended December
31, 1994, New England Funds, L.P. waived its fees of $49,097 and
$25,557 for these services for the California and New York Funds,
respectively.
Pursuant to a contract between the Funds and New England Funds,
L.P., New England Funds, L.P. acts as shareholder servicing and
transfer agent for the Funds and is responsible for services in
connection with the establishment, maintenance and recording of
shareholder accounts, including all related tax and other reporting
requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Funds'
shares. The Funds pay per account fees to New England Funds, L.P.
for these services in the amount of $17.25 for the Balanced Fund,
Growth Fund, Capital Growth Fund, Value Fund, International Equity
Fund, Star Advisers Fund, Growth Opportunities Fund and Strategic
Income Fund; and $15.45 for the High Income Fund, Massachusetts Tax
Free Income Fund, Limited Term U.S. Government Fund, Adjustable Rate
Fund, Intermediate Term Tax Free Fund of California, Intermediate
Term Tax Free Fund of New York, Bond Income Fund, Municipal Income
Fund and Government Securities Fund. 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 $8.40 for the Intermediate
Term Tax Free Fund of California, Intermediate Term Tax Free Fund of
New York, Bond Income Fund, Municipal Income Fund, Adjustable Rate
Fund, Government Securities Fund and Strategic Income Fund; $7.40 for
Massachusetts Tax Free Income Fund, High Income Fund and Limited Term
U.S. Government Fund; $6.40 for International Equity Fund, Capital
Growth Fund, Balanced Fund, Value Fund, Growth Fund and Star Advisers
Fund; and $5.40 for the Growth Opportunities Fund.
In addition, during the fiscal year ended 1994, New England
Funds, L.P. received legal and accounting services fees paid by the
Growth Fund, Balanced Fund, Value Fund, Bond Income Fund, Municipal
Income Fund, Government Securities Fund, International Equity Fund,
Capital Growth Fund and Star Advisers Funds in the amounts of
$39,561, $42,407, $40,824, $43,175, $40,497, $42,255, $28,037,
$38,624 and $59,452, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
All Funds (except segments of the Star Advisers Fund advised by
Berger and Janus Capital). In placing orders for the purchase and
sale of portfolio securities for each Fund, Back Bay Advisors, CGM,
Draycott, Founders, Westpeak and Loomis Sayles always seek the best
price and execution. Some of each Fund's portfolio transactions are
placed with brokers and dealers who provide Back Bay Advisors, CGM,
Draycott, Founders, Westpeak or Loomis Sayles with supplementary
investment and statistical information or furnish market quotations
to that Fund, the other Funds or other investment companies advised
by Back Bay Advisors, CGM, Draycott, Founders, Westpeak or Loomis
Sayles. The business would not be so placed if the Funds would not
thereby obtain the best price and execution. Although it is not
possible to assign an exact dollar value to these services, they may,
to the extent used, tend to reduce the expenses of Back Bay Advisors,
CGM, Draycott, Founders, Westpeak or Loomis Sayles. The services may
also be used by Back Bay Advisors, CGM, Draycott, Founders, Westpeak
or Loomis Sayles in connection with their other advisory accounts and
in some cases may not be used with respect to the Funds.
In placing orders for the purchase and sale of equity
securities, each Fund's adviser selects only brokers which it
believes are financially responsible, will provide efficient and
effective services in executing, clearing and settling an order and
will charge commission rates that, when combined with the quality of
the foregoing services, will produce best price and 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. Each Fund's adviser 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. No Fund will pay a broker a commission at a
higher rate than otherwise available for the same transaction in
recognition of the value of research services provided by the broker
or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Star Advisers Fund (segment advised by Berger). Berger places
portfolio transactions for its segment of the Star Advisers Fund only
with brokers and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at reasonable
commission rates. However, Berger may place such transactions with a
broker with whom it has negotiated a commission that is in excess of
the commission then being charged by another broker where such
commission is the result of Berger having reasonably taken into
account the quality and reliability of the brokerage services,
including, without limitation, the availability and value of research
services or execution services. Berger places portfolio brokerage
business of its segment of the Star Advisers Fund with brokers who
provide useful research services to Berger. Such research services
typically consist of studies made by investment analysts or
economists relating either to the past record of and future outlook
for companies and the industries in which they operate, or to
national and worldwide economic conditions, monetary conditions and
trends in investors' sentiment, and the relationship of these factors
to the securities market. In addition, such analysts may be
available for regular consultation so that Berger may be apprised of
current developments in the above-mentioned factors. The research
services received from brokers are often helpful to Berger in
performing its investment advisory responsibilities to its segment of
the Star Advisers Fund, but they are not essential, and the
availability of such services from brokers does not reduce the
responsibility of Berger advisory personnel to analyze and evaluate
the securities in which its segment of the Star Advisers Fund
invests. The research services obtained as a result of the Fund's
brokerage business also will be useful to Berger in making investment
decisions for its other advisory accounts, and, conversely,
information obtained by reason of placement of brokerage business of
such other accounts may be used by Berger in rendering investment
advice to its segment of the Star Advisers Fund. Although such
research services may be deemed to be of value to Berger, they are
not expected to decrease the expenses that Berger would otherwise
incur in performing investment advisory services for its segment of
the Star Advisers Fund nor will the advisory fees that are received
by Berger from NEIC for providing services to the Fund be reduced as
result of the availability of such research services from brokers.
Star Advisers Fund (segment advised by Janus Capital).
Decisions as to the assignment of portfolio business for the segment
of the Star Advisers 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 Star Advisers 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 Star Advisers 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 Star Advisers Fund. In placing
portfolio business with such broker-dealers, Janus Capital will seek
the best execution of each transaction.
Subject to procedures adopted by the Board of Trustees of New
England Funds Trust I, the Star Advisers Fund's brokerage
transactions may be executed by brokers that are affiliated with the
Distributor or the Advisers. Any such transactions will comply with
Rule 17e-1 under the Investment Company Act of 1940.
General
Portfolio turnover is not a limiting factor with respect to
investment decisions. The Funds anticipate that their portfolio
turnover rates 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 New
England Funds Trust I, the Star Advisers Funds' brokerage
transactions may be executed by brokers that are affiliated with the
Distributor or the Fund's advisers or subadvisers. Any such
transactions will comply with Rule 17e-1 under the Investment Company
Act of 1940.
The Bond Income, Government Securities and Municipal Income
Funds and all the Funds of New England Funds Trust II may pay, but
during their three most recent fiscal years have not paid, brokerage
commissions to New England Securities for acting as the respective
Fund's agent on purchases and sales of securities. SEC rules require
that the commissions paid to New England Securities by a Fund for
portfolio transactions not exceed "usual and customary" brokerage
commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange
during a comparable period of time." The trustees of each Trust,
including those who are not "interested persons" of the Trust, have
adopted procedures for evaluating the reasonableness of commissions
paid to New England Securities and will review these procedures
periodically.
Under the 1940 Act, persons affiliated with each Trust are
prohibited from dealing with each Trust's Funds 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 Trusts,
such as New England Securities, may not serve as the Trusts' 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.
The Limited Term U.S. Government and the Government Securities
Funds had significantly higher portfolio turnover rate for the fiscal
year ended December 31, 1994 than for the prior fiscal year. Each
Fund's higher portfolio turnover rate was due principally to a
portfolio management strategy implemented to take advantage of a more
volatile market environment.
DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES
New England Funds Trust I is organized as a Massachusetts
business trust under the laws of Massachusetts by an Agreement and
Declaration of Trust (a "Declaration of Trust") dated June 7, 1985,
as amended, and is a "series" company as described in Section
18(f)(2) of the 1940 Act. The Trust has eleven separate portfolios.
The Growth Fund currently offers one class of shares, the Municipal
Income Fund currently offers two classes of shares, the Capital
Growth, Strategic Income and Government Securities Funds and New
England Star Worldwide Fund each currently offers three classes of
shares and the Balanced, Value, International Equity, Star Advisers,
Strategic Income and Bond Income Funds each currently offers four
classes of shares. Prior to January 5, 1996, the name of the
Municipal Income Fund was "New England Tax Exempt Income Fund." The
initial portfolio of the Trust (the Fund now called New England
Government Securities Fund) commenced operations on September 16,
1985. The International Equity Fund commenced operations on May 22,
1992. The Capital Growth Fund was organized in 1992 and commenced
operations on August 3, 1992. The Star Advisers Fund was organized
in 1994 and commenced operations on July 7, 1994. The Strategic
Income Fund was organized in 1995 and commenced operations on May 1,
1995. New England Star Worldwide Fund was organized in 1995 and
commenced operations on December 29, 1995. 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 the Value Fund
** Predecessor of the Balanced Fund
*** Predecessor of the Bond Income Fund
**** Predecessor of the Municipal Income Fund
New England Funds Trust II was organized in 1931 as a
Massachusetts business trust and consisted of a single investment
portfolio (now the Growth Opportunities Fund) until January 1989,
when the Trust was reorganized as a "series" company as described in
Section 18(f)(2) of the 1940 Act. The Trust has eight separate
portfolios. The High Income, Massachusetts, California and New York
Funds each currently offers two classes of shares, the Adjustable
Rate U.S. Government Fund and Growth Fund of Israel each currently
offers three classes of shares and the Growth Opportunities and
Limited Term U.S. Government Funds each currently offers four classes
of shares. Until December 1988, the name of the Trust was
"Investment Trust of Boston"; from December 1988 until April 1992,
its name was "Investment Trust of Boston Funds." The High Income
Fund and the Massachusetts Fund are successors to separate investment
companies that were organized in 1983 and 1984, respectively, and
reorganized as series of the Trust in January 1989. The Limited Term
U.S. Government Fund was organized in 1988 and commenced operations
in January 1989. The Adjustable Rate Fund was organized in 1991 and
commenced operations on October 18 of that year. The California and
New York Funds were organized in 1993 and commenced operations on
April 23 of that year. Growth Fund of Israel was organized in 1995
and has not yet commenced operations.
The Declarations of Trust of New England Funds Trust I and New
England Funds Trust II currently permit each Trust's trustees to
issue an unlimited number of full and fractional shares of each
series. Each Fund is represented by a particular series of shares.
The Declarations of Trust further permit each Trust's trustees to
divide the shares of each series into any number of separate classes,
each having such rights and preferences relative to other classes of
the same series as the trustees may determine. The shares of each
Fund do not have any preemptive rights. Upon termination of any
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 Declarations of
Trust also permit the trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The shares of all the Funds (except as noted in the first two
paragraphs of this section) are divided into four classes, Class A,
Class B, Class C and Class Y. Each Fund offers such classes of
shares as set forth in such Fund's prospectus. 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 each 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 a Fund for the issue or
sale of its shares and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of the creditors, are
allocated to, and constitute the underlying assets of, that class of
a Fund. The underlying assets of each class of a Fund are segregated
and are charged with the expenses with respect to that class of a
Fund and with a share of the general expenses of the relevant trust.
Any general expenses of the Trust that are not readily identifiable
as belonging to a particular class of a Fund are allocated by or
under the direction of the trustees in such manner as the trustees
determine to be fair and equitable. While the expenses of each Trust
are allocated to the separate books of account of each Fund, certain
expenses may be legally chargeable against the assets of all of the
Funds in a Trust.
The Declarations of Trust also permit each 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 Declarations of Trust provide for the perpetual existence of
the Trusts. Either Trust or any Fund, however, may be terminated at
any time by vote of at least two-thirds of the outstanding shares of
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 each Declaration of Trust further provides that
the board of trustees may also terminate the relevant 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 prospectuses, 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 Declarations of Trust provide that on any matter submitted
to a vote of all shareholders of a 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 agreement 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) a 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 only be filled 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 a 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 Trusts have
undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. Voting rights are not
cumulative.
No amendment may be made to the Declarations of Trust without
the affirmative vote of a majority of the outstanding shares of the
relevant Trust except (i) to change a Trust's or a Fund's name or to
cure technical problems in a 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 a
Trust. However, the Declarations of Trust disclaim shareholder
liability for acts or obligations of a Trust and require that notice
of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by a Trust or the trustees. The
Declarations of Trust provide for indemnification out of each 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
such 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 a
Fund itself would be unable to meet its obligations.
The Declarations of Trust further provide that the relevant
board of trustees will not be liable for errors of judgment or
mistakes of fact or law. However, nothing in the Declarations of
Trust protects a trustee against any liability to which the trustee
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his or her office. The By-Laws of each Trust
provide for indemnification by New England Funds Trust I or New
England Funds Trust II of trustees and officers of the relevant
Trust, except with respect to any matter as to which any such person
did not act in good faith in the reasonable belief that his or her
action was in or not opposed to the best interests of the Trust.
Such persons may not be indemnified against any liability to the
Trust or the Trust's shareholders to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office.
HOW TO BUY SHARES
The procedures for purchasing shares of the Funds 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 prospectuses through firms that are members of the National
Association of Securities Dealers, Inc. and that have selling
agreements with New England Funds, L.P.
New England Funds, L.P. may at its discretion accept a telephone
order for the purchase of $5,000 or more of a Fund's Class A, B and C
shares. Payment must be received by New England Funds, L.P. within
five business days following the transaction date or the order will
be subject to cancellation. Telephone orders must be placed through
New England Funds, L.P. or your investment dealer.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net
asset value per share is summarized in the prospectus.
The total net asset value of each class of shares of a Fund (the
excess of the assets of such 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 Foreign Government Securities and other
fixed-income securities, as well as trading in equity securities in
markets outside the United States, is substantially completed each
day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in determining the net
asset value of the International Equity Fund's shares are computed as
of 3:00 p.m. Eastern time, in the case of U.S. and Canadian
Government Securities, and 5:00 p.m. London time, in the case of
Foreign Government Securities and equity securities of non-U.S.
issuers which are not traded on a U.S. national exchange, except
that, in unusual instances in which London trading in certain Foreign
Government Securities continues past 5:00 p.m. London time, the
values of such Foreign Government Securities will be computed as of
the close of the New York Stock Exchange that day (or such earlier
time as significant trading activity in such Foreign Government
Securities ceases for the day). The value of equity securities of
non-U.S. issuers not traded on a U.S. exchange will be valued at
their last sale price, if any, on the exchange on which they
principally trade. Occasionally, events affecting the value of fixed-
income securities and of equity securities of non-U.S. issuers not
traded on a U.S. exchange may occur between the completion of
substantial trading of such securities for the day and the close of
the New York Stock Exchange, which events will not be reflected in
the computation of the Fund's net asset value. If events materially
affecting the value of either Funds' securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith by or in accordance with procedures approved
by the trustees.
The per share net asset value of a class of a 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 a 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 a Fund is the next determined net asset
value.
REDUCED SALES CHARGES
Class A Shares Only
Special purchase plans are enumerated in the text of the
prospectus.
Cumulative Purchase Discount. A Fund shareholder making an
additional purchase of Class A shares may be entitled to a discount
on the sales charge payable on that purchase. This discount will be
available if the shareholder's "total investment" in the Fund reaches
the breakpoint for a reduced sales charge in the table under "Net
Asset Value and Public Offering Price," above. 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 both 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 with a value at the current public offering price of $30,000
makes an additional purchase of $20,000 of Class A shares of a Stock
Fund (other than New England Growth 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 do not
include shares of the New England Money Market Funds unless such
shares were purchased by exchanging shares of either Trust). Shares
owned by persons described in the preceding paragraph may also be
included.
Sponsored Arrangements. Class A shares may be purchased at a
reduced sales charge pursuant to "sponsored arrangements," which
include programs under which an association makes recommendations to,
or permits group solicitation of, its members in connection with the
purchase of Fund shares on an individual basis. The amount of the
sales charge reduction will reflect the anticipated reduction in
sales expenses associated with sponsored arrangements. The reduction
in sales expenses, and therefore the reduction in sales charge, will
vary depending on factors such as the size and stability of the
association's membership, the term of the association's existence and
certain characteristics of its members.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions may be invested in Class A shares of any 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 (Affiliated with NEIC). No
sales charge or contingent deferred sales charge applies to
investments of $100,000 or more in Class A shares of the Funds by (1)
clients of an adviser or subadviser (affiliated with NEIC) to the
Funds; any director, officer or partner of a client of an adviser or
subadviser (affiliated with NEIC) to the Funds; 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 (affiliated with
NEIC) to the Funds 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 (affiliated with NEIC) to the
Funds. 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 any Fund by any
of the Trusts' investment advisers or subadvisers (affiliated with
NEIC), 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 any Fund (except the Star Advisers Fund) by any of the
state, county or city or any instrumentality, department, authority
or agency thereof that has determined that a 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 any 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.
Certain Broker-Dealers and Financial Services Organizations.
Shares of any 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 a Fund's subadviser out of their own
assets, or may be paid indirectly by the Fund in the form of
servicing, distribution or transfer agent fees.
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 any series
of the Trusts at net asset value and without imposition of a sales
charge.
The reduction or elimination of the sales charge in connection with
sales described above reflects the absence or reduction of sales
expenses associated with such sales.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment is automatically credited to an open
account maintained for the shareholder by State Street Bank.
Following each transaction in the account, a shareholder will receive
a confirmation statement disclosing the current balance of shares
owned and the details of recent transactions in the account. After
the close of each calendar year, State Street Bank will send each
shareholder a statement providing federal tax information on
dividends and distributions paid to the shareholder during the year.
This statement should be retained as a permanent record. New England
Funds, L.P. may charge a fee for providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and
delivery of stock certificates unnecessary, eliminates problems of
handling and safekeeping, and the cost and inconvenience of replacing
lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are paid by the
Trusts and no direct charges are made to shareholders. Although the
Trusts have no present intention of making such direct charges to
shareholders, they each reserve 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 each Fund's investor eligibility requirements,
investors may automatically invest in additional shares of a 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 at any time by
the investor or by New England Funds, L.P. upon notice to existing
plan participants.
The Investment Builder Program plan may be discontinued by
written notice to New England Funds, L.P., which must be received at
least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if
any check is not paid upon presentation; or by written notice to 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
Funds 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 and subsequent investments in a 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 a 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 relating to Class Y shares.
Systematic Withdrawal Plans (Class A, B and C Shares)
An investor owning a Fund's shares having a value of $5,000 or
more at the current public offering price may establish a Systematic
Withdrawal Plan providing for periodic payments of a fixed or
variable amount. An investor may terminate the plan at any time. A
form for use in establishing such a plan is available from the
servicing agent or your investment dealer. Withdrawals may be paid
to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England
Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to
receive payments monthly, quarterly, semiannually or annually for a
fixed amount of not less than $50 or a variable amount based on (1)
the market value of a stated number of shares, (2) a specified
percentage of the account's market value or (3) a specified number of
years for liquidating the account (e.g., a 20-year program of 240
monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment
option may be $50 or more.
In the case of shares subject to a CDSC, the amount or
percentage you specify may not, on an annualized basis, exceed 10% of
the value, as of the time you make the election, of your account with
the Fund with respect to which you are electing the Plan.
Withdrawals of Class B shares of a Fund under the Plan will be
treated as redemptions of shares purchased through the reinvestment
of Fund distributions, or, to the extent such shares in your account
are insufficient to cover Plan payments, as redemptions from the
earliest purchased shares of such Fund in your account. No CDSC
applies to a redemption pursuant to the Plan.
All shares under the Plan must be held in an open
(uncertificated) account. Income dividends and capital gain
distributions will be reinvested (without a sales charge in the case
of Class A shares) at net asset value determined on the record date.
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 Funds 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 Funds 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 (except Class
A shares of the Adjustable Rate and California and New York Funds)
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. Class A shares of
the Adjustable Rate, California and New York Funds may be exchanged
for shares of the Stock Funds, Bond Funds or New England
Massachusetts Tax Free Income Fund (subject to the investor
eligibility requirements of the Fund into which the exchange is being
made)only if they have been held for at least six months. When an
exchange is made from the Class B shares of one Fund to the Class B
shares of another Fund, the shares received in exchange will have the
same age characteristics as the shares exchanged. The age of the
shares determines the expiration of the CDSC and the conversion date.
If you own Class A and Class B shares, you may also elect to exchange
your shares of any Fund of the Trusts for shares of the same class of
either New England Cash Management Trust or New England Tax Exempt
Money Market Trust (the "Money Market Funds"). Class C shares may
also be exchanged for Class A shares of the Money Market Funds. On
all exchanges of Class A shares subject to a CDSC and Class B shares
into the Money Market Funds, the exchange stops the aging period
relating to the contingent deferred sales charge and, for Class B
shares only, conversion to Class A shares. The aging resumes only
when an exchange is made back into a Fund's Class B shares. If you
own Class Y shares, you may exchange those shares for Class Y shares
of other Funds 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 funds in New England Funds Trust I
are as follows:
Stock Funds:
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 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 an 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 shareholder's' capital. The
Municipal Income Fund invests primarily in debt securities, the
interest of which is, in the opinion of the debt issuer's counsel,
exempt from federal income tax ("tax exempt bonds"), 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
investment 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 Funds 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 May 1, 1995, the net assets of the funds in New England
Funds Trust I totaled over $4.5 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 a Fund are automatically exchanged each month
for shares of the same class of one or more of the other funds in New
England Funds Trust I. 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.
Portfolio 1,2,3 (Class A, B and C Shares)
"Portfolio 1,2,3" is an asset diversification program that
allows shareholders, in a single investment, to allocate their
investments equally among certain Funds. Call your investment dealer
for information.
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 ("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 one 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 redemption
and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or loss. In determining whether a
contingent deferred sales charge is applicable to a redemption of
Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged. Therefore, it will be
assumed that the redemption is first of any Class A shares in the
shareholder's Fund account, second of shares held for over five
years, third of shares issued in connection with dividend
reinvestment and fourth of shares held longest during the five-year
period. The charge will not be applied to dollar amounts
representing an increase in the net asset value of shares since the
time of purchase or reinvested distributions associated with such
shares. Unless you request otherwise at the time of redemption, the
CDSC is deducted from the redemption, not the amount remaining in the
account.
To illustrate, assume an investor purchased 100 shares at $10
per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time,
the investor has acquired 10 additional shares under dividend
reinvestment. If at such time the investor makes his or her first
redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in the 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 a 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 Trust 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 New England Funds Trust I or New England Funds Trust II have
not yet received good payment, the Funds reserve 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).
A Fund will normally redeem shares for cash; however, a Fund
reserves the right to pay the redemption price wholly or partly in
kind if the relevant board of trustees determines it to be advisable
and in the interest of the remaining shareholders of that Fund. If
portfolio securities are distributed in lieu of cash, the shareholder
will normally incur brokerage commissions upon subsequent disposition
of any such securities. However, the Funds have elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Funds
are 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 New England Funds Trust I or New England
Funds Trust II at the beginning of such period. The Funds do not
currently intend to impose any redemption charge (other than the CDSC
imposed by the Distributor), although they reserve 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 prospectuses describe 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 funds in New England
Funds Trust I 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
Calculations of Yield
Each Fund (except the Growth, Value, Growth Opportunities, Star
Advisers, International Equity and Capital Growth Funds) may
advertise the yield of its Class A, Class B, Class C and Class Y
shares. Yield for each class will be computed by annualizing net
investment income per share for a recent 30-day period and dividing
that amount by the maximum offering price per share of the relevant
class (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value
premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include
recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. Each Fund's yield will vary
from time to time depending upon market conditions, the composition
of its portfolio and operating expenses of the Trust allocated to
each Fund. These factors, possible differences in the methods used
in calculating yield and the tax exempt status of distributions
should be considered when comparing a Fund's yield to yields
published for other investment companies and other investment
vehicles. Yield should also be considered relative to changes in the
value of the Fund's shares and to the relative risks associated with
the investment objectives and policies of the Fund. Yields do not
take into account any applicable sales charges or CDSC. Yield may be
stated with or without giving effect to any expense limitations in
effect for a Fund.
The Municipal Income Fund, Massachusetts Tax Free Income Fund
and the California and New York Funds each may also advertise a tax
equivalent yield, calculated as described above except that, for any
given tax bracket, net investment income will be calculated using as
gross investment income an amount equal to the sum of (i) any taxable
income of the Fund plus (ii) the Municipal Income of the Fund divided
by the difference between 1 and the effective federal (or combined
federal and state) income tax rate for taxpayers in that tax bracket.
At any time in the future, yields and total return may be higher
or lower than past yields and there can be no assurance that any
historical results will continue.
Investors in the Funds are specifically advised that share
prices, expressed as the net asset values per share, will vary just
as yield will vary. An investor's focus on the yield of a Fund to
the exclusion of the consideration of the share price of that Fund
may result in the investor's misunderstanding the total return he or
she may derive from the Fund.
Calculation of Total Return. Total return is a measure of the
change in value of an investment in a Fund over the period covered,
which assumes that any dividends or capital gains distributions are
automatically reinvested in shares of the same class of that Fund
rather than paid to the investor in cash. The formula for total
return used by the Funds 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 a Fund.
Performance Comparisons
Yield and Total Return. Yields and total returns will
generally be higher for Class A shares than for Class B shares of the
same Fund, because of the higher levels of expenses borne by the
Class B shares. Because of its lower operating expenses, Class Y
shares of each Fund can be expected to achieve a higher yield and
total return than the same Fund's Class A, B and C shares. The Funds
may from time to time include their yield and 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 Lehman Brothers Municipal Bond Index is a composite measure
of the total return performance of the municipal bond market. This
index is computed from prices on approximate 1800 bonds.
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 International Equity 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.
From time to time, the Adjustable Rate Fund advertisements and
other materials and communications may cite statistics to reflect the
Fund's performance over time, utilizing comparisons to indexes
including those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving
average of mortgage rates. Commonly used indexes include the one-,
three-, five-, ten- and 30-year constant maturity Treasury rates, the
three-month and 180-day Treasury bill rate, rates on longer-term
Treasury certificates, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-
month, six-month or one-year London Interbank Offered Rate (LIBOR),
the prime lending rate of one or several banks, or commercial paper
rates. Some indexes, such as the one-year constant maturity Treasury
rate, closely mirror changes in market interest rate levels. Others,
such as the 11th District Federal Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be
somewhat less volatile.
The current interest rate on many FNMA ARMs is set by reference
to the 11th District Cost of Funds Index published monthly by the
Federal Reserve. Since June 1987, the current interest rate on these
ARMs, measured on a monthly basis, has been higher than the average
yield of taxable money market funds represented by Donoghue's Taxable
Money Fund Average and current rates on newly issued one year bank
certificates of deposit. The interest rates on other ARMs and the
yield on the Adjustable Rate Fund's portfolio may be higher or lower
than the interest rates on FNMA ARMs and there is also no assurance
that historical yield relationships among different types of
investments will continue.
Advertising and promotional materials may refer to the maturity
and duration of the Bond Funds. Maturity refers to the period of
time before a bond or other debt instrument becomes due. Duration is
a commonly used measure of the price responsiveness of a fixed-income
security to an interest rate change (i.e. the change in price one can
expect from a given change in yield).
Articles and releases, developed by the Funds and other parties,
about the Funds regarding performance, rankings, statistics and
analyses of the individual Funds' 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 and on various
computer networks, including, but not limited to, those publications
and computer networks listed in Appendix B to this Statement. In
particular, some or all of these publications may publish their own
rankings or performance reviews of mutual funds, including the Funds.
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 Funds' advertising and promotional literature, see Appendix C.
The Funds may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising
and sales literature developed to publicize such arrangements will
explain the relationship of the bank to New England Funds and New
England Funds, L.P. as well as the services provided by the bank
relative to the Funds. The material may identify the bank by name
and discuss the history of the bank including, but not limited to,
the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
The Funds may use the accumulation charts below in their
advertisements to demonstrate the benefits of monthly savings at an
8% and 10% rate of return, respectively.
Investments At 8% Rate of Return
5 yrs. 10 15 20 25 30
------- ------- ------- ------- ------- -------
$ 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
Investments At 10% Rate of Return
5 yrs. 10 15 20 25 30
------- ------- ------- ------- ------- ---------
$ 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
The Funds' advertising and sales literature may refer to
historical, current and prospective economic trends and may include
historical and current performance and total returns of investment
alternatives to the New England Funds. For example, the Adjustable
Rate Fund's advertising and sales literature may include the
historical and current performance and total returns of bank
certificates of deposits, bank and mutual fund money market accounts
and other income investments. Articles, releases, advertising and
literature may discuss the range of services offered by New England
Funds Trust I, New England Funds Trust II and New England Funds,
L.P., as distributor and transfer agent of the Funds, with respect to
investing in shares of the Funds and customer service. Such
materials may discuss the multiple classes of shares available
through New England Funds Trust I and New England Funds Trust II 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 honor bestowed on it by
industry organizations and other observers and raters, including, but
not limited to Dalbar's Quality Tested Service Seal and Key Honors
Award. Such reference may explain the criteria for the award,
indicate the nature and significance of the honor and provide
statistical and other information about the award and New England
Funds, L.P.'s selection, including, but not limited to, the scores
and categories in which New England Funds, L.P. excelled, the names
of funds and fund companies that have previously won the award and
comparative information and data about those against whom New England
Funds, L.P. competed for the award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in
its advertising and sales literature testimonials from shareholders,
clients, brokers who sell or own shares, broker-dealers, industry
organizations and officials and other members of the public,
including, but not limited to, fund performance, features and
attributes, or service and assistance provided by departments within
the organization, employees or associates of New England Funds, L.P.
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. Standard & Poor's 500) to
which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If
it equals 1, its risk is the same as the market index. High
variability in stock price may indicate greater business risk,
instability in operations and low quality of earnings. The beta
coefficients of the New England Funds may be compared to the beta
coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising
and sales literature developed to publicize such arrangements will
explain the relationship of the bank to New England Funds and New
England Funds, L.P. as well as the services provided by the bank
relative to the Funds. The material may identify the bank by name
and discuss the history of the bank including, but not limited to,
the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
In addition, sales literature may be published concerning topics
of general investor interest for the benefit of registered
representatives and the Funds' 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 Funds' prospectuses, it is the policy of
each Fund to pay its shareholders, as dividends, substantially all
net investment income and to distribute annually all net realized
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 particular
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.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify, each
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. To the extent it qualifies for
treatment as a regulated investment company, a 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 each 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. Each Fund
intends to make distributions sufficient to avoid imposition of the
excise tax. Distributions declared by a 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 each Fund will be subject to federal income
taxes on distributions made by the Fund (other than "exempt-interest
dividends" paid by the Municipal Income, Massachusetts, New York and
California Funds, as described in the relevant prospectuses) whether
received in cash or additional shares of the Fund. Distributions by
each 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 12 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 International Equity 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 foreign countries. In the case of tax-
exempt shareholders, this credit or deduction may be used to reduce
their tax on unrelated business income. The ability for 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 for foreign taxes may be
claimed by shareholders who do not itemize deductions on their
federal income taxes paid by the Fund to foreign countries. However,
that income will generally be exempt from United States taxation by
virtue of such shareholder's tax-exempt status and such a shareholder
will not be entitled to either a tax credit or a deduction with
respect to such income. 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.
Each 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.
Each Fund may limit its investments in certain "passive foreign
investment companies" in order to avoid certain taxes that arise as a
result of such investments.
Redemptions and exchanges of each 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.
However, if a shareholder sells Fund shares at a loss within six
months after purchasing the shares, the loss will be treated as a
long-term capital loss to the extent of any long-term capital gain
distributions received by the shareholder. Furthermore, no loss will
be allowed on the sale of Fund shares to the extend the shareholder
acquired other shares of the same 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 Funds Trust I and New
England Funds Trust II and the related reports of independent
accountants included in their annual reports for the year ended
December 31, 1994 are incorporated herein by reference.
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 sigh 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.
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
Barron's
Bergen County Record (NJ)
Bloomberg Business News
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
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
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
Worth Magazine
WRKO
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., Loomis,
Sayles and Company, L.P., Capital Growth Management, L.P. 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., Westpeak Investment
Advisors, L.P., Copley Real Estate Advisors, L.P., Marlborough Capital
Advisors, L.P., Reich & Tang Capital Management and Reich and Tang
Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained
in New England Funds' advertising and promotional literature
including, but not limited to, Berger Associates, Inc., Janus Capital
Corporation 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:
-total dollar amount of assets managed
-New England Funds' assets managed in total and by Fund
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length of
their tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
-the above individuals' total and average number of years of
industry experience and the total and average length of their
service to the adviser or the subadviser
Specific and general references to portfolio managers and funds that
they serve as portfolio manager of, other than New England Funds,
and those families of funds, other than New England Funds, including
but not limited to, Star Advisers Fund Managers Rodney L. Linafelter
of Berger Associates, Inc., and Berger Funds, who also serves as
portfolio manager of the Berger 100 Fund; Warren B. Lammert of Janus
Capital Corporation and Janus Funds, who also serves as portfolio
manager of the Janus Mercury Fund; Edward F. Keely of Founders Asset
Management, Inc., and Founders Funds who also serves as portfolio
manager of Founders Growth Fund, and Barbara C. Friedman and Jeffrey
C. Petherick of the Loomis, Sayles & Company, L.P. and Loomis Sayles
Funds, who also serve as portfolio managers of the Loomis Sayles
Small Cap Fund. Specific and general references may be made to the
Loomis Sayles Funds, the Loomis Sayles Bond Fund and Daniel Fuss who
serves as portfolio manager of the New England Strategic Income Fund
and the Loomis Sayles Bond Fund. 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.
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 seventh largest publicly traded manager in the U.S.
listed on the New York Stock Exchange. NEIC maintains over $60
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.
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, DOL 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.
