<PAGE>
Registration Nos. 2-98326
811-4323
- - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- - - - - - - - - - - - - - -
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 34 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 35 [X]
(Check appropriate box or boxes)
- - - - - - - - - - - - - - -
NEW ENGLAND FUNDS TRUST I
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices, including Zip Code)
(617) 578-1388
(Registrant's Telephone Number, including Area Code)
- - - - - - - - - - - - - - -
Robert P. Connolly, Esq.
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
Copy to:
Edward A. Benjamin, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
- - - - - - - - - - - - - - -
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant intends to file on or about February
28, 1997 the Rule 24f-2 Notice for the Registrant's fiscal year ended December
31, 1996.
<PAGE>
NEW ENGLAND FUNDS TRUST I
(Prospectus and Statement of Additional Information)
CROSS-REFERENCE SHEET
Items required by Form N-1A
Item No. of
Form N-1A Caption in Prospectus
--------- ---------------------
1 . . . . . . . . Cover page
2 . . . . . . . . Schedule of Fees
3 . . . . . . . . Financial Highlights
4 . . . . . . . . Cover page; Additional Facts About the Funds;
Investment Objectives; How the Funds Pursue Their
Objectives; Fund Investments; Investment Risks
5 . . . . . . . . New England Investment Companies and the Funds'
Adviser and Subadvisers; Fund Management; Back cover
page; Additional Facts About the Funds
5A . . . . . . . . None
6 . . . . . . . . Cover page; Additional Facts About the Funds; Buying
Fund Shares; Owning Fund Shares; Dividends; Income Tax
Considerations; Back cover page
7 . . . . . . . . Cover page; Schedule of Fees; Buying Fund Shares;
Owning Fund Shares; Selling Fund Shares; How Fund
Share Price is Determined; Determination of Net Asset
Value; The Funds' Expenses; Back cover page
8 . . . . . . . . Selling Fund Shares; Exchanging Among New England Funds
9 . . . . . . . . None
<PAGE>
Item No. of Caption in Statement of
Form N-1A Additional Information
--------- ----------------------
10 . . . . . . . . Cover page
11 . . . . . . . . Table of Contents
12 . . . . . . . . Description of the Trusts and Ownership of Shares
13 . . . . . . . . Miscellaneous Investment Practices; Investment
Restrictions
14 . . . . . . . . Management of the Trusts
15 . . . . . . . . Fund Charges and Expenses; Management of the Trusts
16 . . . . . . . . Fund Charges and Expenses; Management of the Trusts
17 . . . . . . . . Fund Charges and Expenses; Portfolio Transactions and
Brokerage
18 . . . . . . . . Description of the Trusts and Ownership of Shares
19 . . . . . . . . How to Buy Shares; Net Asset Value and Public Offering
Price; Reduced Sales Charges; Shareholder Services;
Redemptions
20 . . . . . . . . Income Dividends, Capital Gain Distributions and Tax
Status
21 . . . . . . . . Fund Charges and Expenses; Management of the Trusts
22 . . . . . . . . Performance Criteria (in Prospectus); Investment
Performance of the Funds; Standard Performance Measures
23 . . . . . . . . Financial Statements
<PAGE>
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
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
PROSPECTUS AND APPLICATION -- MAY 1, 1997
New England Capital Growth Fund, New England Balanced Fund, New England Growth
Fund, New England International Equity Fund, New England Star Advisers Fund
and New England Value Fund, series of New England Funds Trust I, and New
England Growth Opportunities Fund, a series of New England Funds Trust II, are
separate mutual funds (the "Funds" and each a "Fund"). New England Funds Trust
I and New England Funds Trust II are referred to in this prospectus as the
"Trusts."
Each Fund offers three classes of shares to the general public (Classes A, B and
C), except as described in the next paragraph. The offering price is based on
the net asset value per share next determined after an order is received. Class
A share purchases generally involve a sales charge at the time of purchase. No
initial sales charge applies to Class B or Class C share purchases. A contingent
deferred sales charge (a "CDSC"), however, is imposed upon certain redemptions
of Class B and Class C shares. Class B shares automatically convert to Class A
shares eight years after purchase. Class C shares do not have a conversion
feature. Class B shares and Class C shares bear higher annual 12b-1 fees than
Class A shares. See "Buying Fund Shares--Sales Charges." Through a separate
prospectus, New England Capital Growth Fund, New England Balanced Fund, New
England International Equity Fund, New England Star Advisers Fund, New England
Value Fund and New England Growth Opportunities Fund also offer an additional
class of shares, Class Y shares, to certain institutional investors. To obtain
more information about Class Y shares, please call New England Funds, L.P. (the
"Distributor") toll-free at 1-800-225-5478.
New England Growth Fund currently offers only Class A and Class B shares, but
may at a later date offer Class C shares to the general public and Class Y
shares to certain institutional investors. If and when New England Growth Fund
offers such additional classes of shares for sale, the Fund will supplement
its prospectus.
This prospectus sets forth information you should know before investing in the
Funds. Please read it carefully and keep it for future reference. A statement
of additional information in two parts (the "Statement") about the Funds dated
May 1, 1997 has been filed with the Securities and Exchange Commission (the
"SEC") and is available free of charge. Write to New England Funds, L.P., SAI
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116 or call toll free at
1-800-225-5478. The Statement contains more detailed information about the
Funds and is incorporated into this prospectus by reference.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FOR GENERAL INFORMATION ON THE FUNDS OR ANY OF THEIR SERVICES AND FOR
ASSISTANCE IN OPENING AN ACCOUNT, CONTACT YOUR INVESTMENT DEALER OR CALL THE
DISTRIBUTOR TOLL FREE AT 1-800-225-5478.
<PAGE>
<TABLE>
T A B L E O F C O N T E N T S
<CAPTION>
PAGE
<C> <C> <C>
FUND EXPENSES AND FINANCIAL INFORMATION
Schedule of Fees Sales charges, yearly operating expenses.
Financial Highlights Historical information on the Funds' performance.
- ----------- ----------------------------------------------------------- ------------------------------------------------------
INVESTMENT STRATEGY
Investment Objectives The investment goal for each Fund.
New England Investment Companies and the
Funds' Advisers and Subadvisers
How the Funds Pursue Their Objectives
Fund Investments
- ----------- ----------------------------------------------------------- ------------------------------------------------------
INVESTMENT RISKS It is important to understand the risks inherent in a
Fund before you invest.
- ----------- ----------------------------------------------------------- ------------------------------------------------------
FUND MANAGEMENT
- ----------- ----------------------------------------------------------- ------------------------------------------------------
BUYING FUND SHARES
Minimum Investment Everything you need to know to open and add to
6 Ways to Buy Fund Shares a New England Funds account.
[] Through your investment dealer
[] By mail
[] By wire transfer
[] By Investment Builder
[] By electronic purchase through ACH
[] By exchange from another New England Fund
Sales Charges
Reduced Sales Charges (Class A Shares Only)
- ----------- ----------------------------------------------------------- ------------------------------------------------------
OWNING FUND SHARES
Exchanging Among New England Funds New England Funds offers three convenient ways to
Fund Dividend Payments exchange Fund shares.
- ----------- ----------------------------------------------------------- ------------------------------------------------------
SELLING FUND SHARES
4 Ways to Sell Fund Shares How to withdraw money or close your account.
[] Through your investment dealer
[] By telephone
[] By mail
[] By Systematic Withdrawal Plan
Repurchase Option (Class A Shares Only) An opportunity to reinvest your redemption proceeds
within 120 days for no sales charge.
- ----------- ----------------------------------------------------------- ------------------------------------------------------
FUND DETAILS
How Fund Share Price Is Determined Additional information you may find important.
Income Tax Considerations
The Funds' Expenses
Performance Criteria
Additional Facts About the Funds
Glossary of Terms
</TABLE>
<PAGE>
F U N D E X P E N S E S A N D F I N A N C I A L I N F O R M A T I O N
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Funds.
The following tables summarize your maximum transaction costs from investing in
the Funds and estimated annual expenses for each class of the Funds' shares. The
Example on the following page shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each class of shares of the Funds for the
periods specified.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ALL FUNDS
----------------------------------
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase
(as a percentage of offering price)(1)(2) 5.75% None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable)(2) (3) 4.00% 1.00%
(1) A reduced sales charge on Class A shares applies in some cases. See "Buying
Fund Shares -- Reduced Sales Charges (Class A Shares Only)."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any portion
of certain purchases of Class A shares greater than $1,000,000 redeemed
within 1 year after purchase, but not to any other purchases or redemptions
of Class A shares. See "Buying Fund Shares -- Sales Charges."
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
NEW ENGLAND NEW ENGLAND
CAPITAL GROWTH FUND BALANCED FUND
------------------------------------ ------------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
Management Fees ___% ___% ___% ___% ___% ___%
12b-1 Fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other Expenses ___% ___% ___% ___% ___% ___%
Total Fund Operating Expenses ___% ___% ___% ___% ___% ___%
<CAPTION>
NEW ENGLAND
INTERNATIONAL EQUITY FUND
--------------------------------------
Class A Class B Class C
------- ------- -------
<C> <C> <C> <C>
Management Fees
(after voluntary fee waiver and expense reduction)** ___% ___% ___%
12b-1 Fees 0.25% 1.00%* 1.00%*
Other Expenses ___% ___% ___%
Total Fund Operating Expenses
(after voluntary fee waiver and expense reduction)** ___% ___% ___%
<PAGE>
<CAPTION>
NEW ENGLAND NEW ENGLAND
STAR ADVISERS FUND VALUE FUND
------------------------------------ ------------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
Management Fees ___% ___% ___% ___% ___% ___%
12b-1 Fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other Expenses ___% ___% ___% ___% ___% ___%
Total Fund Operating Expenses ___% ___% ___% ___% ___% ___%
<CAPTION>
NEW ENGLAND GROWTH NEW ENGLAND
OPPORTUNITIES FUND GROWTH FUND
------------------------------------ -------------------------------------
Class A Class B Class C Class A Class B
------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C>
Management Fees ___% ___% ___% ___% ___%
12b-1 Fees 0.25% 1.00%* 1.00%* 0.25% 1.00%*
Other Expenses ___% ___% ___% ___% ___%
Total Fund Operating Expenses ___% ___% ___% ___% ___%
* Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by rules of the National Association of Securities Dealers, Inc.
** Without the voluntary fee waiver and expense reduction by the Fund's adviser, Management Fees would be ___% for all
classes and Total Fund Operating Expenses would be ___% for Class A shares, ___% for Class B shares and ___% for
Class C shares. These voluntary limitations can be terminated by the Fund's adviser at any time. See "Fund
Management."
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of actual
or expected Fund performance or expenses, both of which may be more or less than
those shown.
<TABLE>
<CAPTION>
NEW ENGLAND NEW ENGLAND
CAPITAL GROWTH FUND BALANCED FUND
--------------------------------------- ---------------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
(1) (2) (1) (2)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $___ $___ $___ $___ $___ $___ $___ $___
3 years $___ $___ $___ $___ $___ $___ $___ $___
5 years $___ $___ $___ $___ $___ $___ $___ $___
10 years* $___ $___ $___ $___ $___ $___ $___ $___
<CAPTION>
NEW ENGLAND
INTERNATIONAL EQUITY FUND
---------------------------------------
Class A Class B Class C
------- ------- -------
(1) (2)
<C> <C> <C> <C> <C>
1 year $___ $___ $___ $___
3 years $___ $___ $___ $___
5 years $___ $___ $___ $___
10 years* $___ $___ $___ $___
<CAPTION>
NEW ENGLAND NEW ENGLAND
STAR ADVISERS FUND VALUE FUND
---------------------------------------- ---------------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
(1) (2) (1) (2)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $___ $___ $___ $___ $___ $___ $___ $___
3 years $___ $___ $___ $___ $___ $___ $___ $___
5 years $___ $___ $___ $___ $___ $___ $___ $___
10 years* $___ $___ $___ $___ $___ $___ $___ $___
<CAPTION>
NEW ENGLAND GROWTH NEW ENGLAND
OPPORTUNITIES FUND GROWTH FUND
---------------------------------------- ----------------------------------------
Class A Class B Class C Class A Class B
------- ------- ------- ------- -------
(1) (2) (1) (2)
<C> <C> <C> <C> <C> <C> <C> <C>
1 year $___ $___ $___ $___ $___ $___ $___
3 years $___ $___ $___ $___ $___ $___ $___
5 years $___ $___ $___ $___ $___ $___ $___
10 years* $___ $___ $___ $___ $___ $___ $___
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
* Class B shares automatically convert to Class A shares after 8 years; therefore, Class B
amounts are calculated using Class A expenses in years 9 and 10.
</TABLE>
The purpose of this fee schedule is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly if you invest in
the Funds. For additional information about the Funds' fees and other expenses,
please see "Fund Management," "The Funds' Expenses" and "Additional Facts About
the Funds."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect to
transfer redemption proceeds by wire.
<PAGE>
FINANCIAL HIGHLIGHTS
(For Class A, B and C shares of each Fund outstanding throughout the indicated
periods.)
The Financial Highlights presented on pages __ through __ have been included in
financial statements for the Funds. The financial statements for the Class A, B
and C shares of New England Capital Growth Fund, New England Balanced Fund, New
England International Equity Fund, New England Star Advisers Fund and New
England Value Fund and the financial statements for the Class A shares of New
England Growth Fund (which has only one class of shares outstanding through
1996) have been examined by Price Waterhouse LLP, independent accountants. The
financial statements for New England Growth Opportunities Fund's Class A, B and
C shares have been examined by Coopers & Lybrand LLP, independent accountants.
The reports of Price Waterhouse LLP and Coopers & Lybrand LLP are incorporated
by reference in Part II of the Statement and may be obtained by shareholders.
The Financial Highlights should be read in conjunction with the financial
statements and the notes thereto incorporated by reference in Part II of the
Statement. Each Fund's annual report contains additional performance information
and is available upon request and without charge.
NEW ENGLAND CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------------- -----------------------------------------
AUGUST 3(a) SEPT. 13(a)
THROUGH YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DEC. 31,
DEC. 31, ------------------------------------ DEC. 31, ----------------------------
1992 1993 1994 1995 1996 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.50 $14.23 $15.27 $15.02 $ $14.79 $15.24 $14.89 $
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income (loss) 0.02 0.00 (0.08) (0.11)(e) 0.00 (0.08) (0.16)(e)
Net gain (loss) on investments (both
realized and unrealized) 1.84 1.12 (0.17) 4.74 0.53 (0.27) 4.60
------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations 1.86 1.12 (0.25) 4.63 0.53 (0.35) 4.44
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions (from net investment
income) (0.02) 0.00 0.00 0.00 0.00 0.00 0.00
Distributions (from net realized
capital gains) (0.11) (0.08) 0.00 (1.24) (0.08) 0.00 (1.24)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.13) (0.08) 0.00 (1.24) (0.08) 0.00 (1.24)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $14.23 $15.27 $15.02 $18.41 $15.24 $14.89 $18.09
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (%)(c) 14.9 7.9 (1.6) 30.7 3.6 (2.3) 29.7
Ratios/Supplemental data
Net assets, end of period (000) $34,772 $98,735 $95,803 $123,504 $ 6,748 $15,390 $26,234
Ratio of operating expenses to
average net assets (%)(d) 1.00(b) 1.23 1.63 1.61 2.29(b) 2.38 2.36
Ratio of net investment income (loss)
to average net assets (%) 0.74(b) (0.03) (0.45) (0.67) (1.15)(b) (1.20) (1.42)
Portfolio turnover rate (%) 15 77 82 69 77 82 69
</TABLE>
<PAGE>
NEW ENGLAND CAPITAL GROWTH FUND CONTINUED
<TABLE>
<CAPTION>
CLASS C
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1995(a) 1996
--------- ------
<S> <C> <C>
Net asset value, beginning of period $14.89 $
Income from investment operations
Net investment income (loss) (0.09)(e)
Net gain (loss) on investments (both realized and 4.52
unrealized)
------ ------
Total income (loss) from investment operations 4.43
------ ------
Less distributions
Distributions (from net investment income) 0.00
Distributions (from net realized capital gains) (1.24)
------ ------
Total distributions (1.24)
------ ------
Net asset value, end of period $18.08
====== ======
Total return (%)(c) 29.7
Ratios/Supplemental data
Net assets, end of period (000) $354
Ratio of operating expenses to average net assets (%)(d) 2.36
Ratio of net investment income (loss) to average net (1.42)
assets (%)
Portfolio turnover rate (%) 69
<FN>
(a) The Fund commenced operations on August 3, 1992. Class B shares were first offered on
September 13, 1993. Class C shares were first offered on January 3, 1995.
(b) Computed on an annualized basis.
(c) A sales charge in the case of the Class A shares and a contingent deferred sales charge in the
case of the Class B and Class C shares are not reflected in total return calculations. Periods
of less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the voluntary
expense limitations in effect from August 3, 1992 through September 30, 1993 would have been: (%)
Class A Class B
------------------------- ---------
8/3/92 - Year Ended 9/13/93 -
12/31/92 12/31/93 12/31/93
-------- -------- --------
2.20(b) 1.58 2.97(b)
(e) Per share net investment income (loss) does not reflect current period's reclassification of
permanent differences between book and tax basis net investment income (loss).
</FN>
</TABLE>
<PAGE>
NEW ENGLAND BALANCED FUND (a)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period $10.30 $8.94 $9.50 $9.47 $8.11 $10.15 $11.16 $12.13 $11.27
------ ----- ----- ----- ----- ------ ------ ------ ------ ------
Income from investment
operations
Net investment income 0.23 0.39 0.34 0.35 0.30 0.30 0.31 0.33 0.42
Net gains or
losses on
investments
(both
realized and
unrealized) (0.11) 0.50 0.65 (1.34) 2.05 1.10 1.26 (0.65) 2.49
------ ----- ----- ----- ----- ------ ------ ------ ------ ------
Total income
(loss) from
investment
operations 0.12 0.89 0.99 (0.99) 2.35 1.40 1.57 (0.32) 2.91
------ ----- ----- ----- ----- ------ ------ ------ ------ ------
Less distributions
Distributions
(from net
investment
income) (0.39) (0.33) (0.41) (0.35) (0.30) (0.30) (0.31) (0.33) (0.40)
Distributions
(from net
realized
capital
gains) (1.09) 0.00 (0.61) 0.00 0.00 (0.09) (0.29) (0.21) (0.64)
Distributions
(from
paid-in
capital) 0.00 0.00 0.00 (0.02) (0.01) 0.00 0.00 0.00 0.00
------ ----- ----- ----- ----- ------ ------ ------ ------ ------
Total
distributions (1.48) (0.33) (1.02) (0.37) (0.31) (0.39) (0.60) (0.54) (1.04)
------ ----- ----- ----- ----- ------ ------ ------ ------ ------
Net asset value
end of period
$8.94 $9.50 $9.47 $8.11 $10.15 $11.16 $12.13 $11.27 $13.14
====== ===== ===== ===== ===== ====== ====== ====== ====== ======
Total return(%)(d) 0.8 10.0 10.4 (10.6) 29.2 13.9 14.2 (2.7) 26.3
Ratios/Supplemental data
Net assets, end
of period
(000) $46,632 $51,902 $59,405 $52,134 $67,467 $90,527 $158,308 $158,332 $196,514
Ratio of
operating
expenses to
average net
assets(%) 1.52(e) 1.52 1.52 1.58 1.53 1.48 1.40 1.40 1.36
Ratio of net
investment
income to
average net
assets(%) 2.33 4.19 3.35 4.00 3.18 2.84 2.66 2.91 3.37
Portfolio
turnover
rate(%) 63 58 111 68 51 38 50 36 54
</TABLE>
<PAGE>
NEW ENGLAND BALANCED FUND (a) CONTINUED
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------- -------------------
SEPT. 13(b) YEAR ENDED
THROUGH YEAR ENDED DEC. 31 DEC. 31,
DEC. 31, ----------------------------- -------------------
1993 1994 1995 1996 1995(b) 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.16 $12.11 $11.24 $ $11.24 $
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.16 0.26 0.34 0.35
Net gains or losses on investments (both realized
and unrealized) 0.24 (0.66) 2.46 2.44
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations 0.40 (0.40) 2.80 2.79
------ ------ ------ ------ ------ ------
Less distributions
Distributions (from net investment income) (0.16) (0.26) (0.32) (0.34)
Distributions (from net realized capital gains) (0.29) (0.21) (0.64) (0.64)
Distributions (from paid-in capital) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions (0.45) (0.47) (0.96) (0.98)
------ ------ ------ ------ ------ ------
Net asset value end of period $12.11 $11.24 $13.08 $13.05
====== ====== ====== ====== ====== ======
Total return (%)(d) 3.3 (3.4) 25.3 25.2
Ratios/Supplemental data
Net assets, end of period (000) $4,691 $21,607 $40,361 $718
Ratio of operating expenses to average net
assets (%) 2.36(c) 2.15 2.11 2.11
Ratio of net investment income to average net
assets (%) 1.92(c) 2.16 2.62 2.62
Portfolio turnover rate (%) 50 36 54 54
<FN>
(a) The Fund was changed from an "equity income" fund to a "balanced" fund on March 1, 1990. Results for periods prior to
March 1, 1990 reflect former investment policies and are not necessarily representative of results that would have been
achieved had the Fund's current investment policies then been in effect.
(b) Class B shares were first offered on September 13, 1993. Class C shares were first offered on January 3, 1995.
(c) Computed on an annualized basis.
(d) A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of the Class B and Class
C shares are not reflected in total return calculations. Periods of less than one year are not annualized.
(e) In 1987, the Fund's adviser and principal underwriter voluntarily agreed to waive a portion of their fees in order to
limit the Fund's expenses (exclusive of trustees' fees) to 1.50% of the Fund's average daily net assets. The ratio of
operating expenses to average net assets without giving effect to the voluntary expense limitation would have been 1.64%.
</FN>
</TABLE>
<PAGE>
NEW ENGLAND GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.88 $7.59 $7.46 $8.49 $8.85 $11.19 $10.08 $10.44 $8.87
----- ----- ----- ----- ------ ------ ------ ------ ------ -----
Income from investment operations
Net investment income (0.01)(a) 0.28 0.09 0.07 0.10 0.09 0.02 0.11 0.05
Net gains or losses
on investments
(both realized and
unrealized) 1.62 (0.17) 1.56 0.38 4.92 (0.83) 1.12 (0.84) 3.30
----- ----- ----- ----- ------ ------ ------ ------ ------ -----
Total income from
investment operations 1.61 0.11 1.65 0.45 5.02 (0.74) 1.14 (0.73) 3.35
----- ----- ----- ----- ------ ------ ------ ------ ------ -----
Less distributions
Distributions (from
net investment
income) (0.05) (0.24) (0.11) (0.09) (0.10) (0.09) (0.01) (0.11) (0.05)
Distributions (from
net realized capital
gains) (2.85) 0.00 (0.46) 0.00 (2.57) (0.28) (0.77) (0.73) (1.62)
Distributions (from
paid-in capital) 0.00 0.00 (0.05) 0.00 (0.01) 0.00 0.00 0.00 0.00
----- ----- ----- ----- ------ ------ ------ ------ ------ -----
Total distributions (2.90) (0.24) (0.62) (0.09) (2.68) (0.37) (0.78) (0.84) (1.67)
----- ----- ----- ----- ------ ------ ------ ------ ------ -----
Net asset value, end
of period $7.59 $7.46 $8.49 $8.85 $11.19 $10.08 $10.44 $8.87 $10.55
===== ===== ===== ===== ====== ====== ====== ====== ====== =====
Total return (%)(b) 18.5 1.5 22.3 5.1 56.7 (6.6) 11.3 (7.1) 38.1
Ratios/Supplemental data
Net assets, end of
period (000) $440,851 $462,495 $555,659 $614,018 $996,813 $1,173,948 $1,200,515 $988,430 $304,381
Ratio of operating
expenses to average
net assets (%) 1.29 1.26 1.22 1.23 1.14 1.15 1.18 1.19 1.20
Ratio of net investment
income to average
net assets (%) (0.06) 3.64 1.19 0.77 0.89 0.89 0.16 1.05 0.42
Portfolio turnover
rate (%) 154 283 203 185 186 218 145 141 235
<FN>
(a) Net investment income per share has been calculated based upon the averages of monthly shares outstanding.
(b) A sales charge was not reflected in total return calculations.
</FN>
</TABLE>
<PAGE>
NEW ENGLAND INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------- ------------------------------------
MAY 21(a) SEPT. 13(a)
THROUGH YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DEC. 31,
DEC. 31, ------------------------------------ DEC. 31, ------------------------
1992 1993 1994 1995 1996 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.50 $11.80 $14.85 $15.50 $ $15.19 $14.81 $15.35 $
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.01 0.11 0.00 0.27 0.12 0.00 0.19
Net gains or losses on investments (both
realized and unrealized) (0.63) 3.37 1.19 0.63 (0.06) 1.08 0.58
------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from investment operations (0.62) 3.48 1.19 0.90 0.06 1.08 0.77
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions (from net investment income) (0.01) (0.11) 0.00 (0.27) (0.12) 0.00 (0.19)
Distributions (from net realized capital 0.00 (0.32) (0.53) 0.00 (0.32) (0.53) 0.00
gains)
Distributions (from paid-in capital) (0.07) 0.00 (0.01) 0.00 0.00 (0.01) 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.08) (0.43) (0.54) (0.27) (0.44) (0.54) (0.19)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $11.80 $14.85 $15.50 $16.13 $14.81 $15.35 $15.93
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (%)(c) (5.0) 29.4 8.1 5.8 0.3 7.3 5.0
Ratios/Supplemental data
Net assets, end of period (000) $21,731 $80,937 $142,917 $136,848 $9,176 $41,601 $52,895
Ratio of operating expenses to average
net assets (%)(d) 1.50(b) 1.60 1.75 1.75 2.50(b) 2.50 2.50
Ratio of net investment income to average
net assets (%) 0.10(b) 0.24 0.01 1.24 (1.69)(b) (0.74) 0.49
Portfolio turnover rate (%) 62 101 123 119 101 123 119
<FN>
(a) The Fund commenced operations on May 21, 1992. Class B shares were first offered on September 13, 1993. Class C shares
were first offered on January 3, 1995.
(b) Computed on an annualized basis.
(c) A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of the Class B and
Class C shares are not reflected in total return calculations. Periods of less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the voluntary expense limitations would
have been: (%)
Class A Class B Class C
--------------------------------------------------------- -------------------------------------------- --------------------
Year Year Year Year Year Year Year Year Year
5/21/92 - Ended Ended Ended Ended 9/13/93 - Ended Ended Ended Ended Ended
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/94 12/31/94 12/31/95 12/31/96 12/31/95 12/31/96
--------- -------- -------- -------- -------- --------- -------- -------- -------- -------- --------
2.89(b) 2.16 1.79 1.83(b) 3.36(b) 2.54 2.58 2.58
</FN>
</TABLE>
The Fund's current subadviser assumed that function on February 14, 1997. These
financial highlights reflect results achieved by the previous subadviser under
different investment policies.
<PAGE>
NEW ENGLAND INTERNATIONAL EQUITY FUND CONTINUED
<TABLE>
<CAPTION>
CLASS C
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1995(a) 1996
-------- ------
<C> <C>
Net asset value, beginning of period $15.35 $
------
Income from investment operations
Net investment income 0.19
Net gains or losses on investments (both realized and 0.61
unrealized)
------ ------
Total income from investment operations 0.80
------ ------
Less distributions
Distributions (from net investment income) (0.19)
Distributions (from net realized capital gains) 0.00
------
Distributions (from paid-in capital) 0.00
------ ------
Total distributions (0.19)
------ ======
Net asset value, end of period $15.96
======
Total return (%)(c) 5.2
Ratios/Supplemental data
Net assets, end of period (000) $1,066
Ratio of operating expenses to average net assets (%)(d) 2.50
Ratio of net investment income to average net assets (%) 0.49
Portfolio turnover rate (%) 119
</TABLE>
<PAGE>
NEW ENGLAND STAR ADVISERS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ------------------------- -------------------------
JULY 7(a) YEAR ENDED JULY 7(a) YEAR ENDED JULY 7(a) YEAR ENDED
THROUGH DEC. 31, THROUGH DEC. 31, THROUGH DEC. 31,
DEC. 31, --------------- DEC. 31, --------------- DEC. 31, ---------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.50 $13.25 $ $12.50 $13.23 $ $12.50 $13.24 $
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.05 0.00 0.02 0.00 0.02 0.00
Net gains or losses on investments
(both realized and unrealized) 0.75 4.52 0.73 4.39 0.74 4.40
------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from investment operations 0.80 4.52 0.75 4.39 0.76 4.40
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Distributions (from net investment
income) (0.05) 0.00 (0.02) 0.00 (0.02) 0.00
Distributions (from capital gains) 0.00 (0.99) 0.00 (0.99) 0.00 (0.99)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.05) (0.99) (0.02) (0.99) (0.02) (0.99)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $13.25 $16.78 $13.23 $16.63 $13.24 $16.65
====== ====== ====== ====== ====== ------ ------ ------ ------
Total return (%)(c) 6.4 34.4 6.0 33.4 6.0 33.4
Ratios/Supplemental data
Net assets, end of period (000) $91,218 $223,596 $72,889 $220,017 $20,096 $45,672
Ratio of operating expenses to average
net assets (%)(d) 1.94(b) 1.82 2.69(b) 2.57 2.69(b) 2.57
Ratio of net investment income to
average net assets (%) 1.06(b) (0.33) 0.31(b) (1.08) 0.31(b) (1.08)
Portfolio turnover rate (%) 100 142 100 142 100 142
<FN>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B and Class C shares
are not reflected in total return calculations. Periods of less than one year are not annualized.
(d) The ratio of operating expenses to average net assets (computed on an annualized basis) for Class A, B and C shares without
giving effect to the voluntary expense limitations in effect from July 7, 1994 through December 31, 1994 would have been
1.98%, 2.75% and 2.75%, respectively.
</FN>
</TABLE>
<PAGE>
NEW ENGLAND VALUE FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $8.73 $6.42 $6.07 $6.51 $5.44 $6.69 $7.28 $7.87 $7.27 $
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations
Net investment income 0.04 0.20 0.12 0.16 0.13 0.09 0.07 0.08 0.10
Net gains or losses
on investments
(both realized
and unrealized) 0.90 (0.34) 1.25 (1.04) 1.35 1.02 1.16 (0.19) 2.21
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total income from
investment
operations 0.94 (0.14) 1.37 (0.88) 1.48 1.11 1.23 (0.11) 2.31
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions
Distributions (from
net investment (0.14) (0.21) (0.12) (0.16) (0.13) (0.09) (0.07) (0.08) (0.09)
income)
Distributions (from
net realized
capital gains) (3.11) 0.00 (0.80) 0.00 (0.10) (0.43) (0.57) (0.41) (0.71)
Distributions (from
paid-in capital) 0.00 0.00 (0.01) (0.03) 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (3.25) (0.21) (0.93) (0.19) (0.23) (0.52) (0.64) (0.49) (0.80)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end
of period $6.42 $6.07 $6.51 $5.44 $6.69 $7.28 $7.87 $7.27 $8.78
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return (%)(c) 11.6 (2.2) 22.6 (13.6) 27.1 16.6 17.0 (1.4) 32.3
Ratios/Supplemental data
Net assets, end of
period (000) $141,775 $136,443 $146,831 $139,248 $145,790 $156,240 $189,779 $190,869 $241,038
Ratio of operating
expenses to
average net
assets (%) 1.29 1.29 1.29 1.31 1.28 1.32 1.34 1.37 1.37
Ratio of net
investment income
to average net
assets (%) 0.55 3.13 1.69 2.87 1.84 1.26 0.83 1.00 1.22
Portfolio turnover
rate (%) 202 243 111 68 51 38 40 29 52
</TABLE>
<PAGE>
NEW ENGLAND VALUE FUND CONTINUED
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------------- -----------------
SEPT. 13(a) YEAR ENDED
THROUGH YEAR ENDED DEC. 31, DEC. 31,
DEC. 31, ------------------------------------ -----------------
1993 1994 1995 1996 1995(a) 1996
---------- ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.97 $7.85 $7.23 $ $7.23 $
----- ----- ----- ----- ----- -----
Income from investment operations
Net investment income 0.11 0.04 0.05 0.05
Net gains or losses on investments (both
realized and unrealized) 0.39 (0.20) 2.18 2.18
----- ----- ----- ----- ----- -----
Total income from investment operations 0.50 (0.16) 2.23 2.23
----- ----- ----- ----- ----- -----
Less distributions
Distributions (from net investment income) (0.05) (0.05) (0.05) (0.05)
Distributions (from net realized capital (0.57) (0.41) (0.71) (0.71)
gains)
Distributions (from paid-in capital) 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- -----
Total distributions (0.62) (0.46) (0.76) (0.76)
----- ----- ----- ----- ----- -----
Net asset value, end of period $7.85 $7.23 $8.70 $8.70
===== ===== ===== ===== ===== =====
Total return (%)(c) 6.5 (2.0) 31.3 31.3
Ratios/Supplemental data
Net assets, end of period (000) $2,182 $13,830 $27,941 $1,224
Ratio of operating expenses to average net
assets (%) 2.16(b) 2.12 2.12 2.12
Ratio of net investment income to average
net assets (%) 0.05(b) 0.25 0.47 0.47
Portfolio turnover rate (%) 40 29 52 52
<FN>
(a) Class B shares were first offered on September 13, 1993. Class C shares were first offered on January 3, 1995.
(b) Computed on an annualized basis.
(c) A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of the Class B
and Class C shares are not reflected in total return calculations. Periods of less than one year are not annualized.
</FN>
</TABLE>
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND(a)
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------------------------
SEVEN
YEAR ENDED MAY 31, MONTHS YEAR ENDED DECEMBER 31,
------------------ ENDED ----------------------------------------------------------------------------
1987 1988(b) 12/31/88(b) 1989 1990 1991 1992 1993* 1994 1995 1996
---- --- ----------- ---- --- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $12.70 $11.92 $10.37 $9.55 $10.88 $9.54 $11.79 $12.20 $12.67 $12.41 $
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ -----
Income from investment operations
Net investment
income 0.35 0.33 0.19 0.29 0.30 0.26 0.23 0.21 0.22 0.18
Net gains or
losses on
investments
(both realized
and unrealized) 0.73 (1.22) 0.25 2.32 (0.76) 2.63 0.86 0.75 (0.10) 4.01
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ -----
Total income
from investment
operations 1.08 (0.89) 0.44 2.61 (0.46) 2.89 1.09 0.96 0.12 4.19
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ -----
Less distributions
Distributions
(from net
investment
income) (0.34) (0.35) (0.18) (0.29) (0.30) (0.26) (0.23) (0.21) (0.21) (0.18)
Distributions
(in excess of net
investment
income) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) 0.00 0.00
Distributions
(from net
realized
capital gains) (1.52) (0.30) (1.08) (0.95) (0.56) (0.38) (0.45) (0.27) (0.17) (2.03)
Distributions
(from paid-in
capital) 0.00 (0.01) 0.00 (0.04) (0.02) 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ -----
Total
distributions (1.86) (0.66) (1.26) (1.28) (0.88) (0.64) (0.68) (0.49) (0.38) (2.21)
------ ------ ------ ----- ------ ----- ------ ------ ------ ------ -----
Net asset value,
end of period $11.92 $10.37 $9.55 $10.88 $9.54 $11.79 $12.20 $12.67 $12.41 $14.39
====== ====== ===== ====== ===== ====== ====== ====== ====== ====== =====
Total 8.9 (7.3) 7.3(e) 27.6 (4.3) 30.6 9.3 8.0 1.00 35.1
return(%)(f)
Ratios/Supplemental data
Net assets, end of
period (000) $70,427 $58,552 $55,041 $62,688 $55,726 $70,263 $90,945 $109,168 $104,081 $150,693
Ratio of
operating
expenses to
average net
assets(%) 1.24 1.25(d) 1.33(e) 1.15 1.18 1.23 1.94 1.21 1.28 1.38
Ratio of net
investment
income to
average net
assets(%) 2.65 2.90 3.10(e) 2.68 2.92 2.28 1.18 1.70 1.75 1.31
Portfolio
turn-over
rate(%) 25 8 83(e) 17 6 12 10 4 6 69
</TABLE>
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND (a) CONTINUED
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------- ---------------------
SEPT. 13(c) MAY 1(c) YEAR
THROUGH YEAR ENDED DEC. 31, THROUGH ENDED
DEC. 31, --------------------------- DEC. 31, DEC. 31,
1993 1994 1995 1996 1995 1996
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.95 $12.66 $12.42 $ $13.84 $
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.06 0.16 0.10 0.06
Net gains or losses on investments (both
realized and unrealized) 0.01 (0.09) 4.01 2.58
------ ------ ------ ------ ------ ------
Total income from investment operations 0.07 0.07 4.11 2.64
------ ------ ------ ------ ------ ------
Less distributions
Distributions (from net investment income) (0.03) (0.14) (0.10) (0.06)
Distributions (in excess of net investment (0.06) 0.00 0.00 0.00
income)
Distributions (from net realized capital (0.27) (0.17) (2.03) (2.03)
gains)
Distributions (from paid-in capital) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions (0.36) (0.31) (2.13) (2.09)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.66 $12.42 $14.40 $14.39
====== ====== ====== ====== ====== ======
Total return (%)(f) 0.60 0.60 34.3 20.2
Ratios/Supplemental data
Net assets, end of period (000) $1,498 $5,185 $29,026 $4,707
Ratio of operating expenses to average net
assets (%) 2.08(e) 1.93 2.11 2.11(e)
Ratio of net investment income to average
net assets (%) 0.71(e) 1.10 0.56 0.56(e)
Portfolio turnover rate (%) 4 6 69 69
<FN>
(a) Information shown for all years is audited. The accountants' report incorporated by reference in the Statement
covers years ended May 31, 1987 through December 31, 1996. The accountants' report for the year ended May 31,
1986 is on file with the SEC.
(b) Fiscal year end changed in 1988 from May 31 to December 31. The Fund's former adviser, Back Bay Advisors, L.P.,
assumed that function on July 27, 1988.
(c) Commencement of offering of Class B or Class C shares.
(d) Until May 18, 1988, the Fund's former adviser, Back Bay Advisors, L.P., voluntarily agreed to limit total Fund
expenses to 1.25% of the Fund's average annual net assets. Without such limitation, the ratio of operating
expenses to average net assets for the year ended May 31, 1988 would have been 1.31%.
(e) Computed on an annualized basis.
(f) A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of the
Class B and Class C shares are not reflected in total return calculations. Unless otherwise indicated, periods
of less than one year are not annualized.
* As of January 1, 1993, the Fund discontinued the use of equalization accounting.
</FN>
</TABLE>
The Fund's current adviser and subadviser assumed those functions on May 1,
1995. These financial highlights prior to that date reflect results achieved by
earlier advisers under investment policies that are no longer in effect.
<PAGE>
I N V E S T M E N T S T R A T E G Y
INVESTMENT OBJECTIVES
NEW ENGLAND CAPITAL GROWTH FUND (the "Capital Growth Fund")
The Fund seeks long-term growth of capital.
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles"), Chicago, IL
NEW ENGLAND BALANCED FUND
(the "Balanced Fund")
The Fund seeks a reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income.
Subadviser: Loomis Sayles, Pasadena, CA
NEW ENGLAND GROWTH FUND
(the "Growth Fund")
The Fund seeks long-term growth of capital through investment in equity
securities of companies whose earnings are expected to grow at a faster rate
than the United States economy.
Adviser: Capital Growth Management Limited Partnership
NEW ENGLAND INTERNATIONAL EQUITY FUND
(the "International Equity Fund")
The Fund seeks total return from long-term growth of capital and dividend
income, primarily through investment in international equity securities.
Subadviser: Loomis Sayles, Boston, MA
NEW ENGLAND STAR ADVISERS FUND
(the "Star Advisers Fund")
The Fund seeks long-term growth of capital.
Subadvisers: Berger Associates, Inc., Founders Asset Management, Inc.,
Janus Capital Corporation and Loomis Sayles, Detroit, MI
NEW ENGLAND VALUE FUND
(the "Value Fund")
The Fund seeks a reasonable long-term investment return from a combination of
market appreciation and dividend income from equity securities.
Subadviser: Loomis Sayles, Pasadena, CA
NEW ENGLAND GROWTH OPPORTUNITIES FUND
(the "Growth Opportunities Fund")
The Fund seeks opportunities for long-term growth of capital and income.
Subadviser: Westpeak Investment Advisors, L.P.
NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDS' ADVISERS AND SUBADVISERS
The subadvisers of each of the Funds, except the Star Advisers Fund, are
independently operated subsidiaries of New England Investment Companies, L.P.
("NEIC"), the fifth-largest publicly traded investment management firm in the
United States. New England Funds Management, L.P. ("NEFM"), the adviser to each
of the Funds except the Growth Fund, is also a independently operated subsidiary
of NEIC. NEIC is listed on the New York Stock Exchange and through its
subsidiaries or an affiliate manages over $__ billion in assets for individuals
and institutions. Each subadviser operates independently and is staffed by
experienced investment professionals. All the subadvisers apply specialized
knowledge and careful analysis to the pursuit of each Fund's objectives.
NEW ENGLAND FUNDS MANAGEMENT, L.P. is the adviser to each of the Funds except
the Growth Fund, as well as most of the other New England Funds.
LOOMIS, SAYLES & COMPANY, L.P., with over $__ billion of assets under
management, manages portfolios for mutual funds and other institutional
investors and individuals. Loomis Sayles serves as the subadviser to the
International Equity, Capital Growth, Balanced and Value Funds, and as one of
the subadvisers to the Star Advisers Fund.
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP ("CGM"), manager of the Growth
Fund, has $__ billion of assets under management. CGM specializes in managing
aggressive growth-oriented equity portfolios for mutual funds and other
institutions.
BERGER ASSOCIATES, INC. ("Berger") is one of the subadvisers to the Star
Advisers Fund, in addition to managing portfolios for other mutual funds,
pension and profit sharing plans and other institutional and private investors.
FOUNDERS ASSET MANAGEMENT, INC. ("Founders"), is one of the subadvisers to the
Star Advisers Fund. Established in 1938, Founders manages a family of no-load,
growth-style mutual funds and offers asset management for private clients and
institutions.
JANUS CAPITAL CORPORATION ("Janus Capital") is one of the subadvisers to the
Star Advisers Fund and has managed mutual funds since 1970. Janus Capital also
advises individual, corporate, charitable and retirement accounts.
WESTPEAK INVESTMENT ADVISORS, L.P. ("Westpeak") acts as subadviser to the Growth
Opportunities Fund and also provides investment management services to other
mutual funds and institutional clients, including accounts of New England Mutual
Life Insurance Company ("The New England").
HOW THE FUNDS PURSUE THEIR OBJECTIVES
Investments in each Fund will be pooled with money from other investors in that
Fund to invest in a managed portfolio consisting of securities appropriate to
each Fund's investment objective and policies. There can be no assurance that
any Fund will achieve its objective. Each Fund is a "diversified" mutual fund,
except for the Star Advisers Fund.
FUND INVESTMENTS
[] CAPITAL GROWTH FUND
The Capital Growth Fund seeks to attain its objective by investing substantially
all of its assets in equity securities. Investments are selected based on their
growth potential; current income is not a consideration. The Fund normally will
invest primarily in equity securities of companies with medium or large market
capitalization (capitalization of $1 billion to $5 billion and over $5 billion,
respectively), but will also invest a portion of its assets in equity securities
of companies with relatively small market capitalization (under $1 billion).
The Fund's subadviser selects investments based upon fundamental research and
analysis of individual companies and industries. The subadviser selects
investments for the Fund based on qualitative and quantitative criteria
including, among others, industry dominance and competitive position, consistent
earnings growth, a history of high profitability, the subadviser's expectation
of continued high profitability and overall financial strength, although not
every investment will have all of these characteristics. The Fund may invest in
foreign securities.
[] GROWTH FUND
Most of the Growth Fund's investments are normally in common stocks, although
the Fund may invest in any type of equity securities. The Fund does not consider
current income as a factor in selecting its investments. The Fund may invest in
foreign securities.
[] VALUE FUND
Substantially all of the Value Fund's investments are normally in equity
securities. In selecting investments for the Fund, the emphasis is ordinarily
placed on undervalued securities. Although long-term market appreciation is
ordinarily the basis for security selection, current income may be a significant
consideration when yields appear to be favorable compared to overall
opportunities for capital appreciation. The Fund may invest in foreign
securities.
[] BALANCED FUND
The Balanced Fund is "flexibly managed" in that sometimes it invests more
heavily in equity securities and at other times it invests more heavily in
fixed-income securities, depending on the Fund's subadviser's view of the
economic and investment outlook. Most of the Fund's equity investments are
normally in dividend-paying common stocks of recognized investment quality that
are expected to achieve growth in earnings and dividends over the long term. In
selecting equity investments for the Fund, an emphasis is ordinarily placed on
undervalued securities. Fixed-income securities include notes, bonds,
non-convertible preferred stock and money market instruments. The Fund invests
at least 25% of its assets in fixed-income senior securities and, under normal
market conditions, more than 50% of its assets in equity securities.
The Fund may invest in foreign securities.
[] INTERNATIONAL EQUITY FUND
The International Equity Fund seeks to achieve its objective by investing
primarily in common stocks, although the Fund may invest in any type of equity
securities. Normally the Fund will invest at least 65% of its total assets in
equity securities of issuers headquartered outside the United States or that
derive a substantial part of their revenues or profits from countries outside
the United States. Under normal conditions the Fund's portfolio will contain
equity securities of issuers from at least three countries outside the United
States. The Fund may also invest in closed-end investment companies domiciled in
the United States that invest primarily in securities issued by foreign
companies. In addition, the Fund may invest up to 20% of its assets in bonds
issued or guaranteed by foreign governments (including their political
subdivisions, agencies, authorities and/or instrumentalities), issued by
supranational agencies or issued by foreign companies, including but not limited
to convertible debt and below investment grade or unrated debt. The Fund may
also engage in certain options and futures transactions.
The Fund's subadviser will make investment decisions on behalf of the Fund by,
first, selecting a group of attractively valued countries. Within the selected
countries, the subadviser will select securities that are expected to offer the
best value based on its valuation and earnings growth expectations.
[] GROWTH OPPORTUNITIES FUND
It is normally the policy of the Growth Opportunities Fund to invest in a
diversified portfolio of common stocks considered by the Fund's subadviser to
have possibilities for long-term appreciation of capital and income. Emphasis
will be given to both undervalued securities ("value" style) and securities of
companies with growth potential ("growth" style). The Fund will ordinarily
invest substantially all of its assets in equity securities. The Fund may invest
in foreign securities that are traded in U.S. markets.
[] STAR ADVISERS FUND
The Star Advisers Fund seeks to attain its objective by investing primarily in
equity securities. The Fund may also invest in other securities, as described
below. Under normal market conditions, however, at least 65% of the Fund's
assets will be invested in equity securities. Capital invested in the Fund will
be allocated on an equal basis among four different subadvisers. Each subadviser
will manage its segment of the Fund's assets in accordance with that
subadviser's own investment style and strategy. The Fund, in the discretion of
each subadviser, may invest without limit in securities of companies with
smaller capitalization. The Fund may in the discretion of each of its
subadvisers invest without limit in securities of foreign issuers (including
issuers in emerging markets) as well as in securities of U.S.
issuers.
NEFM, the adviser of the Star Advisers Fund, believes that a multi-adviser
approach to equity investing - one that combines the varied styles of a number
of subadvisers in selecting securities for the Fund's portfolio - offers a
different investment opportunity than equity funds run by a single adviser using
a single style.
Any given management style tends to produce better returns than other styles
under certain market and economic conditions, and to perform less well under
other conditions. Therefore, most single-adviser funds have not consistently
maintained superior performance rankings relative to their peers over long
periods. NEFM believes that consistency of results, minimizing under-performance
even at the cost of out-performance at times, is likely to produce higher
performance over time.
NEFM believes that assigning portfolio management responsibility for the Star
Advisers Fund to four subadvisers, whose varying styles have resulted in records
of success, may increase the likelihood that the Fund may produce superior
long-term results for its shareholders, with less variability of return and less
risk of persistent under-performance than a single-adviser fund. Of course, past
results should not be considered a prediction of future performance, and there
is no assurance that the Fund will in fact achieve superior results over any
time period. The investment styles described below will be those applied by each
of the subadvisers to the segment of the Fund's portfolio for which that
subadviser is responsible.
BERGER places primary emphasis on established companies which it believes have
favorable growth prospects, regardless of the company's size. Berger emphasizes
stocks with potential for rapid earnings expansion. Berger seeks companies with
the capability to perform well under varying economic conditions, including the
ability to compete in the global marketplace. Berger also seeks companies with
the ability to market increasing amounts of products or services in order to
increase shareholder equity at an above-average rate. Berger also places
considerable emphasis on the quality of the corporate leadership of companies
under consideration. Common stocks will generally constitute all or most of the
segment of the Fund managed by Berger, but this segment of the portfolio may
from time to time take substantial positions in securities convertible into
common stocks, and may also purchase preferred stocks, government securities,
zero-coupon securities and other senior securities when Berger believes it is
appropriate to do so. This segment of the portfolio may also invest in Rule 144A
securities (see "Investment Risks -- Miscellaneous" below) and may purchase put
and call options on stock indices and futures contracts and options thereon for
the purpose of hedging.
FOUNDERS' segment of the portfolio will invest primarily in common stocks of
well-established, high-quality growth companies with mid or high market
capitalization. Founders manages its segment of the Fund's portfolio by
investing primarily in established companies with above-average prospects for
growth in earnings per share. This segment will invest primarily in mid-cap and
large capitalization stocks. Founders believes that mid-cap companies (companies
with between $1.0 billion and $5.0 billion of market capitalization) can produce
returns close to those of smaller-cap companies, but with less risk because of
their stronger infrastructures and performance records and more solid market
positions, and that large-capitalization stocks add stability to the portfolio.
These companies tend to have strong performance records, with solid continuous
operating records of three years or more. Founders' approach to investment
management gives greater emphasis to the fundamental financial, marketing and
operating characteristics of individual companies, and is less concerned with
the short-term impact of changes in macroeconomics and market conditions, than
some other investment firms. This segment of the portfolio may invest in bonds,
debentures and other corporate obligations when Founders believes that these
investments offer opportunity for growth of capital. This segment of the
portfolio may also invest in Rule 144A securities and may enter into futures
contracts or options thereon for hedging purposes.
JANUS CAPITAL pursues the Fund's investment objective by investing substantially
all of Janus Capital's segment of the portfolio in common stocks when its
portfolio manager believes that the relevant market environment favors
profitable investing in such securities. Janus Capital manages its segment of
the portfolio to seek long-term capital growth primarily from investing in
common stocks of companies of any size, including large, well-established
companies and smaller, emerging growth companies. Janus Capital's analysis and
selection process focus on stocks with earnings growth potential that may not be
recognized by the market. This segment of the portfolio may also invest in
preferred stocks, warrants, government securities, corporate bonds and
debentures or other debt securities or repurchase agreements when its portfolio
manager perceives an opportunity for capital growth from such securities or to
receive a return on idle cash. Janus Capital's segment may also invest in Rule
144A securities and may enter into options, futures and forward contracts.
LOOMIS SAYLES manages its segment of the portfolio by investing primarily in
stocks of small cap companies with good earnings growth potential that Loomis
Sayles believes are undervalued by the market. Typically, such companies range
in size from $100 million to $500 million in market capitalization, have better
than average growth rates at below average price/earnings ratios and have strong
balance sheets and cash flow. Loomis Sayles seeks to build a core small cap
portfolio of solid growth company stocks, with a smaller emphasis on special
situations and turnarounds (companies that have experienced significant business
problems but which Loomis Sayles believes have favorable prospects for
recovery), as well as unrecognized stocks.
Under unusual market conditions as determined by any of the four subadvisers,
all or any portion of the segment of the portfolio managed by that subadviser
may be invested, for temporary, defensive purposes, in short-term debt
instruments or in cash. In addition, under normal conditions, a portion of each
segment's assets may be invested in short-term assets for liquidity purposes or
pending investment in other securities. Short-term investments may include U.S.
Government securities, certificates of deposit, commercial paper and other
obligations of corporate issuers rated in the top two rating categories by a
major rating agency or, if unrated, determined to be of comparable quality by
the subadviser, and repurchase agreements that are fully collateralized by cash,
U.S. Government securities or high-quality money market instruments.
[] ADDITIONAL INFORMATION
Equity securities are securities that represent an ownership interest (or the
right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and convertible
preferred stock). The Capital Growth, Growth, Growth Opportunities,
International Equity, Star Advisers and Value Funds seek to attain their
objectives by normally investing primarily all of their assets in equity
securities. When the particular Fund's adviser or subadviser deems it
appropriate, however, the International Equity, Capital Growth, Growth, Growth
Opportunities and Value Funds may, for temporary defensive purposes, hold a
substantial portion of their assets in cash or fixed-income investments,
including U.S. Government obligations, investment grade (and comparable unrated)
corporate bonds or notes, money market instruments and repurchase agreements.
Corporate obligations in the lowest investment grade category (rated BBB by
Standard & Poor's Ratings Group ["S&P"] or Baa by Moody's Investors Service,
Inc. ["Moody's"]) have some speculative characteristics and may be more
adversely affected by changing economic conditions than are higher grade
obligations. No estimate can be made as to when or for how long a Fund will
employ defensive strategies. Under some market conditions, the Balanced Fund
may, for temporary purposes, invest less than 50% of its assets in equity
securities and the balance in cash and fixed-income investments.
<PAGE>
I N V E S T M E N T R I S K S
It is important to understand the following risks inherent in a Fund before you
invest.
[] EQUITY SECURITIES
While offering greater potential for long-term growth, equity securities are
more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in a Fund may sometimes decrease instead of increase.
Each Fund may invest in equity securities of companies with relatively small
market capitalization. Securities of such companies may be more volatile than
the securities of larger, more established companies and the broad equity market
indices. See "Small Companies" below. Each Fund's investments may include
securities traded "over-the-counter" as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
Each Fund may invest in convertible securities, including corporate bonds, notes
or preferred stocks that can be converted into common stocks or other equity
securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally increase or decrease as the values of the underlying equity
securities increase or decrease. The movements in the prices of convertible
securities, however, may be smaller than the movements in the value of the
underlying equity securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent ownership of the securities
for which they are exercisable, but only the right to buy such securities at a
particular price. Less than 35% of each Fund's respective net assets will be
invested in convertible securities rated below investment grade and unrated
convertible securities of comparable quality.
[] SMALL COMPANIES
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with more established companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and they may be dependent upon a relatively small management group. The
securities may have limited marketability and may be subject to more abrupt or
erratic movements in price than securities of companies with larger
capitalization or the market averages in general. The net asset value of funds
that invest in companies with smaller capitalization therefore may fluctuate
more widely than market averages.
[] FOREIGN SECURITIES
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
The International Equity and Star Advisers Funds' investments in foreign
securities may include investments in emerging or developing countries, whose
economies or securities markets are not yet highly developed. Special
considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement procedures.
The Funds may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository receipts
are instruments issued by a bank that represent an interest in equity securities
held by arrangement with the bank. Depository receipts can be either "sponsored"
or "unsponsored." Sponsored depository receipts are issued by banks in
cooperation with the issuer of the underlying equity securities. Unsponsored
depository receipts are arranged without involvement by the issuer of the
underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
[] FOREIGN CURRENCY (CAPITAL GROWTH, BALANCED, INTERNATIONAL EQUITY,
STAR ADVISERS AND VALUE FUNDS)
Most foreign securities in the Capital Growth, Balanced, International Equity,
Star Advisers and Value Funds' portfolios will be denominated in foreign
currencies or traded in securities markets in which settlements are made in
foreign currencies. Similarly, any income on such securities is generally paid
to the Fund in foreign currencies. The value of these foreign currencies
relative to the U.S. dollar varies continually, causing changes in the dollar
value of the Fund's portfolio investments (even if the local market price of the
investments is unchanged) and changes in the dollar value of the Fund's income
available for distribution to its shareholders. The effect of changes in the
dollar value of a foreign currency on the dollar value of the Fund's assets and
on the net investment income available for distribution may be favorable or
unfavorable.
The Capital Growth, Balanced, International Equity, Star Advisers and Value
Funds may incur costs in connection with conversions between various currencies.
In addition, those Funds may be required to liquidate portfolio assets, or may
incur increased currency conversion costs, to compensate for a decline in the
dollar value of a foreign currency occurring between the time when the Fund
declares and pays a dividend, or between the time when the Fund accrues and pays
an operating expense in U.S. dollars.
[] FIXED-INCOME SECURITIES
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the security, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk. Credit risk is
the risk that the security's issuer will fail to fulfill its obligation to pay
interest, dividends or principal on the security. Market risk is the risk that
the value of the security will fall because of changes in market rates of
interest. (Generally, the value of fixed-income securities falls when market
rates of interest are rising.) Some fixed-income securities also involve
prepayment or call risk. This is the risk that the issuer will repay a Fund the
principal on the security before it is due, thus depriving the Fund of a
favorable stream of future interest or dividend payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of a Fund's investments in fixed-income securities will cause a
Fund's net asset value to increase or decrease.
All non-convertible fixed-income securities purchased by the Funds other than
the International Equity, Balanced and Star Advisers Funds, will, at the time of
purchase, either be rated investment grade by at least one major rating agency
or be unrated but determined to be of investment grade quality by the Fund's
adviser or subadviser.
[] LOWER QUALITY FIXED-INCOME SECURITIES (INTERNATIONAL EQUITY, BALANCED AND
STAR ADVISERS FUNDS)
Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's (and
comparable unrated securities) are of below "investment grade" quality. Lower
quality fixed-income securities generally provide higher yields, but are subject
to greater credit and market risk, than higher quality fixed-income securities.
Lower quality fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a mutual fund investing in
lower quality fixed-income securities may be more dependent on the fund's
adviser's or subadviser's own credit analysis than for a fund investing in
higher quality bonds. The market for lower quality fixed-income securities may
be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public perceptions
of this market or by legislation that limits the ability of certain categories
of financial institutions to invest in these securities. In addition, the market
may be less liquid for lower rated fixed-income securities. This lack of
liquidity at certain times may affect the valuation of these securities and may
make the valuation and sale of these securities more difficult. During the
fiscal year ended December 31, 1996, the International Equity, Balanced and Star
Advisers Funds had on average ___%, ___% and ___% of their assets, respectively,
invested in fixed-income securities rated below investment grade. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds." For more information, including a
detailed description of the ratings assigned by S&P and Moody's, please refer to
the Statement's "Appendix A - Description of Bond Ratings."
[] ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES AND "STRIPS"
(STAR ADVISERS FUND)
The Star Advisers Fund may invest in zero coupon, pay-in-kind and step coupon
securities and in "strips." Zero coupon bonds do not make regular interest
payments; rather, they are sold at a discount from face value. Principal and
accrued discount (representing interest accrued but not paid) are paid at
maturity. "Strips" are debt securities that are stripped of their interest
coupon after the securities are issued, but otherwise are comparable to zero
coupon bonds. Step coupon bonds trade at a discount from their face value and
pay coupon interest. The coupon rate is low for an initial period and then
increases to a higher coupon rate thereafter. Pay-in-kind bonds normally give
the issuer an option to pay cash at a coupon payment date or give the holder of
the security a similar bond with the same coupon rate and a face value equal to
the amount of the coupon payment that would have been made. The market values of
"strips" and zero coupon, pay-in-kind and step coupon securities generally
fluctuate in response to changes in interest rates to a greater degree than do
conventional interest-paying securities of comparable term and quality. Under
many market conditions, investments in such securities may be illiquid, making
it difficult for the Fund to dispose of them or determine their current value.
[] REPURCHASE AGREEMENTS
Under a repurchase agreement, a Fund buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will repurchase
the securities at a higher price at a later date. If the seller fails to
repurchase the securities, the Fund has rights to sell the securities to third
parties. Repurchase agreements can be regarded as loans by the Fund to the
seller, collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low market risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase. The staff of the SEC is currently of the view that repurchase
agreements maturing in more than 7 days are illiquid securities.
[] INVESTMENTS IN OTHER INVESTMENT COMPANIES (INTERNATIONAL EQUITY FUND)
The International Equity Fund may invest up to 10% of its total assets in
securities of other investment companies. Because of restrictions on direct
investment by U.S. entities in certain countries, investing indirectly in such
countries (by purchasing shares of another fund that is permitted to invest in
such countries) may be the most practical or efficient way for the Fund to
invest in such countries. In other cases, where the Fund's subadviser desires to
make only a relatively small investment in a particular country, investing
through another fund that holds a diversified portfolio in that country may be
more effective than investing directly in issuers in that country. As an
investor in another investment company, the Fund will indirectly bear its share
of the expenses of that investment company. These expenses are in addition to
the Fund's own costs of operations. In some cases, investing in an investment
company may involve the payment of a premium over the value of the assets held
in that investment company's portfolio.
[] SHORT-TERM TRADING
Although each Fund seeks long-term growth or return, each Fund may, consistent
with its investment objective, engage in portfolio trading in anticipation of,
or in response to, changing economic or market conditions and trends. These
policies may result in higher turnover rates in the Fund's portfolio, which may
produce higher transaction costs and a higher level of taxable capital gains.
Portfolio turnover considerations will not limit any adviser's or subadviser's
investment discretion in managing a Fund's assets.
Recent portfolio turnover rates of each Fund are set forth above under
"Financial Highlights."
[] OPTIONS, FUTURES, SWAP CONTRACTS AND CURRENCY TRANSACTIONS (INTERNATIONAL
EQUITY, STAR ADVISERS AND GROWTH OPPORTUNITIES FUNDS)
The International Equity and Star Advisers Funds may buy, sell or write options
on securities, securities indexes, currencies or futures contracts. These Funds
may buy and sell futures contracts on securities, securities indexes or
currencies. These Funds may also enter into swap contracts. These Funds may
engage in these transactions either for the purpose of enhancing investment
return, or to hedge against changes in the value of other assets that the Fund
owns or intends to acquire. These Funds may also conduct foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market. These Funds may enter into interest
rate, currency and securities index swaps. These Funds will enter into these
transactions primarily to seek to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against an
increase in the price of securities the Fund anticipates purchasing at a later
date.
The Growth Opportunities Fund may buy and sell futures contracts on a variety of
stock indexes. The Fund would buy such a futures contract only when the Fund is
experiencing significant cash inflows, and then only for the purpose of
maintaining the Fund's exposure to the equity markets during the time before the
Fund has fully invested incoming cash in equity securities directly. Similarly,
the Fund would sell stock index futures only during periods of cash outflows
from the Fund, for the purpose of reducing equity market exposure before
holdings of stock are liquidated. The Fund will not use futures contracts for
speculative purposes or to hedge against changes in the value of the Fund's
securities portfolios.
Options, futures and swap contracts fall into the broad category of financial
instruments known as "derivatives" and involve special risks. Use of options,
futures or swaps for other than hedging purposes may be considered a speculative
activity, involving greater risks than are involved in hedging.
Options can generally be classified as either "call" or "put" options. There are
two parties to a typical options transaction: the "writer" and the "buyer." A
call option gives the buyer the right to buy a security or other asset (such as
an amount of currency or a futures contract) from, and a put option the right to
sell a security or other asset to, the option writer at a specified price, on or
before a specified date. The buyer of an option pays a premium when purchasing
the option, which reduces the return on the underlying security or other asset
if the option is exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium from writing an option,
which may increase its return if the option expires or is closed out at a
profit. If a Fund as the writer of an option is unable to close out an unexpired
option, it must continue to hold the underlying security or other asset until
the option expires, to "cover" its obligations under the option.
A futures contract creates an obligation by the seller to deliver and the buyer
to take delivery of the type of instrument or cash at the time and in the amount
specified in the contract. Although many futures contracts call for the delivery
(or receipt) of the specified instrument, futures are usually closed out before
the settlement date through the purchase (or sale) of a comparable contract. If
the price of the sale of the futures contract by a Fund exceeds (or is less
than) the price of the offsetting purchase, the Fund will realize a gain (or
loss).
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal). A currency swap is an agreement to exchange cash flows on a
notional amount based on changes in the relative values of the specified
currencies. An index swap is an agreement to make or receive payments based on
the different returns that would be achieved if a notional amount were invested
in a specified basket of securities (such as the Standard & Poor's Composite
Index of 500 Stocks [the "S&P 500"]) or in some other investment (such as U.S.
Treasury securities).
The value of options purchased by a Fund, futures contracts held by a Fund and a
Fund's positions in swap contracts may fluctuate up or down based on a variety
of market and economic factors. In some cases, the fluctuations may offset (or
be offset by) changes in the value of securities held in the Fund's portfolio.
All transactions in options, futures or swaps involve the possible risk of loss
to the Fund of all or a significant part of the value of its investment. In some
cases, the risk of loss may exceed the amount of the Fund's investment. The Fund
will be required, however, to set aside with its custodian bank certain assets
in amounts sufficient at all times to satisfy its obligations under options,
futures and swap contracts.
The successful use of options, futures and swaps will usually depend on the
subadvisers' ability to forecast stock market, currency or other financial
market movements correctly. A Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options, futures and swap
transactions also depends on the degree of correlation between the changes in
the value of futures, options or swap positions and changes in the values of the
portfolio securities. The successful use of futures and exchange-traded options
also depends on the availability of a liquid secondary market to enable the Fund
to close its positions on a timely basis. There can be no assurance that such a
market will exist at any particular time. In the case of swap contracts and of
options that are not traded on an exchange ("over-the-counter" options), the
Fund is at risk that the other party to the transaction will default on its
obligations, or will not permit the Fund to terminate the transaction before its
scheduled maturity. As a result of these characteristics, the Fund will treat
most swap contracts and over-the-counter options (and the assets it segregates
to cover its obligations thereunder) as illiquid. Certain provisions of the
Internal Revenue Code (the "Code") and certain regulatory requirements may limit
a Fund's ability to engage in futures, options and swap transactions.
[] CURRENCY HEDGING TRANSACTIONS (INTERNATIONAL EQUITY AND STAR ADVISERS FUNDS)
The International Equity and Star Advisers Funds may, at the discretion of their
subadvisers, engage in foreign currency exchange transactions, in connection
with the purchase and sale of portfolio securities, to protect the value of
specific portfolio positions or in anticipation of changes in relative values of
currencies in which current or future Fund portfolio holdings are denominated or
quoted. Currency hedging transactions may include forward contracts (contracts
with another party to buy or sell a currency at a specified price on a specified
date), futures contracts (which are similar to forward contracts but are traded
on an exchange) and swap contracts. For more information on foreign currency
hedging transactions, see Part II of the Statement.
[] MISCELLANEOUS
No Fund will invest more than 15% of its net assets in "illiquid securities,"
that is, securities which are not readily resalable, which may include
securities whose disposition is restricted by federal securities laws.
The Balanced, International Equity and Star Advisers Funds may purchase Rule
144A securities. These are privately offered securities that can be resold only
to certain qualified institutional buyers. The Star Advisers Fund may also
purchase commercial paper issued under Section 4(2) of the Securities Act of
1933. Rule 144A securities and Section 4(2) commercial paper are treated as
illiquid, unless a subadviser has determined, under guidelines established by
New England Funds Trust I's trustees, that the particular issue of Rule 144A
securities or commercial paper is liquid. Investment in restricted or other
illiquid securities involves the risk that a Fund may be unable to sell such a
security at the desired time. Also, a Fund may incur expenses, losses or delays
in the process of registering restricted securities prior to resale.
The International Equity and Star Advisers Funds may purchase securities on a
"when-issued" or "delayed-delivery" basis. This means that a Fund enters into a
commitment to buy the security before the security has been issued, or, in the
case of a security that has already been issued, to accept delivery of the
security on a date beyond the usual settlement period. If the value of a
security purchased on a "when-issued" or "delayed delivery" basis falls or
market rates of interest increase between the time a Fund commits to buy the
security and the delivery date, the Fund may sustain a loss in value of or yield
on the security. For more information on "when-issued" and "delayed delivery"
securities, see Part II of the Statement.
To the extent the Star Advisers Fund may invest in derivative securities for
other than bona fide hedging purposes, such investments may be speculative in
nature and may involve additional risks.
The Star Advisers Fund is a "non-diversified" fund and as such is not required
to meet any diversification requirements under the Investment Company Act of
1940 (the "1940 Act"), although the Fund must meet certain diversification
standards to qualify as a "regulated investment company" under the Code. Since
the Fund may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the Fund may be more susceptible
than a more widely-diversified fund to any single economic, political or
regulatory occurrence.
[] SPECIAL CONSIDERATIONS REGARDING THE MULTI-ADVISER APPROACH
(STAR ADVISERS FUND)
NEFM, the adviser of the Star Advisers Fund, oversees the portfolio management
services provided to the Fund by each of the four subadvisers. NEFM does not,
however, determine what investments will be purchased or sold for any segment of
the portfolio. Because each subadviser will be managing its segment of the
portfolio independently from the other subadvisers, the same security may be
held in two different segments of the portfolio, or may be acquired for one
segment of the portfolio at a time when the subadviser of another segment deems
it appropriate to dispose of the security from that other segment. Similarly,
under some market conditions, one or more of the subadvisers may believe that
temporary, defensive investments in short-term instruments or cash are
appropriate when another subadviser or subadvisers believe continued exposure to
the equity markets is appropriate for their segments of the portfolio. Because
each subadviser directs the trading for its own segment of the portfolio, and
does not aggregate its transactions with those of the other subadvisers, the
Fund may incur higher brokerage costs than would be the case if a single adviser
or subadviser were managing the entire portfolio. Also, because each segment of
the portfolio will perform differently from the other segments depending upon
the investments it holds and changing market conditions, one segment may be
larger or smaller at various times than other segments. For example, as of
December 31, 1996, the percentages of the Fund's net assets held in the segments
of the Fund managed by Berger, Founders, Janus Capital and Loomis Sayles were
__%, __%, __% and __%, respectively. Net cash inflows or outflows resulting from
sales and redemptions of the Fund's shares will, however, continue to be
allocated on an equal basis among the four segments of the portfolio without
regard to the relative size of the segments. The Fund does not intend to
reallocate assets among the segments to reduce these differences in size.
NEFM may, at its discretion, terminate its agreement with a segment's
subadviser. In such case, NEFM will either enter into an agreement with another
subadviser to manage the segment or will allocate the segment's assets equally
among the other segments of the Fund.
<PAGE>
F U N D M A N A G E M E N T
NEFM, 399 Boylston Street, Boston, Massachusetts, 02116, serves as the adviser
to each Fund except the Growth Fund (for which CGM serves as adviser). NEFM
oversees, evaluates and monitors the subadvisory services provided to each Fund
(except the Growth Fund) and furnishes general business management and
administration to each such Fund (except the Growth Fund). NEFM does not
determine what investments will be purchased by the Funds.
The subadviser of the International Equity Fund, the Capital Growth Fund, the
Balanced Fund and the Value Fund is Loomis Sayles. Founded in 1926, Loomis
Sayles, One Financial Center, Boston, Massachusetts 02111, is one of the
country's oldest and largest investment counsel firms. Paul Drexler, Vice
President of Loomis Sayles, has served as the portfolio manager of the
International Equity Fund since February 14, 1997. Scott S. Pape, Vice President
of Loomis Sayles, has served as co-portfolio manager of the Capital Growth Fund
since its inception in 1992. Since June 30, 1996, Bruce A. Ebel, Vice President
of Loomis Sayles, has also served as co-portfolio manager of the Capital Growth
Fund. Carol C. McMurtrie, Vice President and Managing Partner of Loomis Sayles,
and Tricia H. Mills and Douglas D. Ramos, Vice Presidents of Loomis Sayles, have
served as portfolio managers of the Value Fund since March 1993. Douglas D.
Ramos and Meri Anne Beck have served as portfolio managers of the Balanced Fund
since 1990; Ms. Beck is also a Vice President of Loomis Sayles. All of the
foregoing persons have been employed by Loomis Sayles for at least five years
except Mr. Drexler, Mr. Pape and Mr. Ebel who, prior to the time they joined
Loomis Sayles, were Deputy Manager, Brown Brothers Harriman & Co., Equity
Portfolio Manger of the Illinois State Board of Investment and Senior Vice
President, Kemper Asset Management, respectively.
The adviser of the Growth Fund is CGM, One International Place, Boston,
Massachusetts 02110. CGM, organized in 1989, serves as investment adviser to
seven mutual funds and to other institutional investors. The general partner of
CGM is a corporation owned in equal shares by Robert L. Kemp and G. Kenneth
Heebner. Mr. Heebner, Senior Portfolio Manager of CGM, has served as portfolio
manager of the Growth Fund since 1976. NEIC owns a majority limited partnership
interest in CGM. In 1996, the Growth Fund paid ___% of its average net assets in
advisory fees to CGM. The Distributor has agreed to provide certain
administrative services to the Growth Fund at CGM's expense.
The subadviser of the Growth Opportunities Fund is Westpeak, 1011 Walnut Street,
Boulder, Colorado 80302. The portfolio manager of the Growth Opportunities Fund
is Gerald H. Scriver, President and Chief Executive Officer of Westpeak. Mr.
Scriver has been with Westpeak since its inception in 1991 and has been
portfolio manager of the Growth Opportunities Fund since May 1995.
<PAGE>
Each Fund other than the Growth Fund pays NEFM a management fee at the annual
rate set forth in the following table:
<TABLE>
<CAPTION>
Management fee paid by Fund to NEFM
Fund (as a percentage of average daily net assets of the Fund)
- --------------------------------------------- -------------------------------------------------------------
<S> <C> <C>
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 Fund 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
International Equity Fund 0.90% of the first $200 million
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
</TABLE>
The advisory fee rates payable by the Balanced, Capital Growth, International
Equity, Star Advisers and Value Funds are higher than those paid by most other
mutual funds but are comparable to fee rates paid by some mutual funds with
similar investment objectives and policies to these Funds. In the case of the
Star Advisers Fund, this difference in the fee rate is partially due to the
multi-adviser format.
Subject to the supervision of NEFM, each subadviser manages the portfolio(s) of
the Fund(s) to which it serves as subadviser (in the case of the Star Advisers
Fund, its segment of such Fund's portfolio) in accordance with the Fund's
investment objective and policies, makes investment decisions for that Fund or
segment, places orders to purchase and sell securities for that Fund or segment,
and employs professional advisers and securities analysts who provide research
services to that Fund or segment. The Funds pay no direct fees to any of their
subadvisers.
Below is a brief description of the subadvisers of the Star Advisers Fund.
BERGER, 210 University Boulevard, Suite 900, Denver, Colorado 80206. Rodney L.
Linafelter, Vice President of Berger, has day-to-day responsibility for the
management of the segment of the Fund managed by Berger. Kansas City Southern
Industries, Inc. ("KCSI"), a publicly traded holding company, owns approximately
80% of the outstanding shares of Berger.
FOUNDERS, 2930 East Third Avenue, Denver, Colorado 80206. To facilitate
day-to-day investment management, Founders employs a unique
team-and-lead-manager system. The management team for a portfolio or fund is
comprised of Founders' Chief Investment Officer Bjorn K. Borgen, a lead
portfolio manager, assistant portfolio managers, portfolio traders and research
analysts. Team members share responsibility for providing ideas, information,
knowledge and expertise in the management of Founders' segment of the Fund. Each
team member has one or more areas of expertise that is applied to the management
of Founders' segment of the Fund. Daily decisions on portfolio selection rest
with the lead portfolio manager, who, through participation in the team process,
utilizes the input of other team members in making purchase and sale
determinations. Edward F. Keely is lead portfolio manager for the segment of the
Fund that is managed by Founders. Mr. Borgen has served as Founders' Chief
Investment Officer since 1969 and owns all of Founders' outstanding shares.
JANUS CAPITAL, 100 Fillmore Street, Denver, Colorado 80206. Warren B. Lammert
has day-to-day management responsibility for those assets of the Fund allocated
to Janus Capital, where he serves as a portfolio manager and Vice President of
Investments. 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 of directors.
LOOMIS SAYLES. Jeffrey C. Petherick and Mary Champagne, Vice Presidents of
Loomis Sayles, have day-to-day management responsibility for the segment of the
Fund that is allocated to Loomis Sayles. Mr. Petherick, who joined Loomis Sayles
in 1990, has co-managed the Loomis Sayles segment of the Fund since the Fund's
inception. Ms. Champagne has co-managed the Loomis Sayles segment of the Fund
since July 1995. Prior to joining Loomis Sayles in 1993, Ms. Champagne served as
a portfolio manager at NBD Bank for 10 years.
NEFM pays each subadviser of the Star Advisers Fund 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 that the subadviser manages and 0.50% of such assets in
excess of $50 million. The Distributor in its discretion may, but is not
obligated to, pay an incentive bonus to the subadviser whose segment of the
Fund's portfolio has the highest relative total return for the prior year versus
that segment's investment peer group as tracked by a major independent mutual
fund reporting service.
NEFM pays the subadvisers of the following Funds a subadvisory fee at the annual
rate set forth in the following table:
<TABLE>
<CAPTION>
Subadvisory fee payable by NEFM to subadviser
Fund Subadviser (as a percentage of average daily net assets of the Fund)
- -------------------------------------- ------------------- -----------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund Loomis Sayles 0.535% of the first $200 million
0.350% of the next $300 million
0.300% of amounts in excess of $500 million
Capital Growth Fund Loomis Sayles 0.60% of the first $25 million
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 Opportunities Fund Westpeak 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
International Equity Fund Loomis Sayles 0.40% of the first $200 million
0.35% of amounts in excess of $200 million
Value Fund Loomis Sayles 0.535% of the first $200 million
0.350% of the next $300 million
0.300% of amounts in excess of $500 million
</TABLE>
Prior to January 2, 1996, the current subadvisers to the Balanced, Capital
Growth and Value Funds served as those Funds' respective advisers, and NEIC
served as adviser to the Star Advisers Fund. Prior to December 29, 1995, the
International Equity Fund's adviser was Draycott Partners, Ltd. ("Draycott").
From December 29, 1995 to on February 14, 1997, Draycott served as subadviser
(and NEFM served as adviser) to the International Equity Fund. [Prior to May 1,
1995, the Growth Opportunities Fund was advised by a different adviser and paid
a lower rate of advisory fees.]
Loomis Sayles, as subadviser to the International Equity Fund, has voluntarily
agreed to waive its entire subadvisory fee payable to Loomis Sayles by NEFM
through February 14, 1998. This waiver by Loomis Sayles will not reduce the
International Equity Fund's management fee payable to NEFM. In addition, NEFM
and the Distributor have voluntarily agreed to reduce their fees and to bear
certain operating expenses charged to the International Equity Fund to the
extent that the total of such fees and expenses would exceed 1.75%, 2.50%, 2.50%
and 1.15% annually of the average daily net assets of the Fund's Class A, B, C
and Y shares, respectively. NEFM and the Distributor may terminate these
voluntary limitations at any time. In such event, the Fund would supplement its
prospectus.
The general partners of each of NEFM, the Distributor, Loomis Sayles and
Westpeak are special purpose corporations. These corporations are indirect
wholly-owned subsidiaries of NEIC, whose sole general partner, New England
Investment Companies, Inc. ("NEIC Inc."), is a wholly-owned subsidiary of
Metropolitan Life Insurance Company ("MetLife").
Subject to applicable regulatory restrictions and such policies as the Trusts'
trustees may adopt, the Funds' advisers and subadvisers may consider sales of
shares of the Funds and other mutual funds they manage as a factor in the
selection of broker-dealers to effect portfolio transactions for the Funds.
Subject to procedures adopted by the trustees of the Trusts, Fund brokerage
transactions may be executed by brokers that are affiliated with NEIC, NEFM, CGM
or any subadviser. See "Portfolio Transactions and Brokerage" in Part II of the
Statement.
NEFM and CGM provide executive and other personnel for the management of the
Trusts. Each Trust's Board of Trustees supervises the affairs of the Trust as
conducted by the Funds' advisers and subadvisers.
<PAGE>
B U Y I N G F U N D S H A R E S
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in any Fund and $50 is the
minimum for each subsequent investment. There are special initial investment
minimums for the following plans:
[] $25 (for initial and subsequent investments) for payroll deduction investment
programs for 401(k), SARSEP, 403(b)(7) retirement plans and certain other
retirement plans.
[] $50 for automatic investing through the Investment Builder program.
[] $250 for retirement plans with tax benefits such as corporate pension and
profit sharing plans, IRAs and Keogh plans.
[] $1,000 for accounts registered under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Funds in the
following ways:
[] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[] BY MAIL:
FOR AN INITIAL INVESTMENT, simply complete an application and return it, with a
check payable to New England Funds, P.O. Box 8551, Boston, MA 02266-8551.
FOR SUBSEQUENT INVESTMENTS, please mail your check to New England Funds, P.O.
Box 8551, Boston, MA 02266-8551 along with a letter of instruction or an
additional deposit slip from your statements. To make investing even easier, you
can also order personalized investment slips by calling 1-800-225-5478 between
8:00 a.m. and 7:00 p.m. (Eastern time).
All purchases made by check should be in U.S. dollars and made payable to New
England Funds, or, in the case of a retirement account, the custodian or
trustee. Third party checks will not be accepted. When purchases are made by
check or periodic account investment, redemptions will not be allowed until the
investment being redeemed has been in the account for 10 calendar days.
[] BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time), on a day when the Funds are open for business, to obtain an
account number and wire transfer instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street
Bank and Trust Company, ABA #011000028, DDA #99011538, Credit Fund (Fund name
and class of shares), Shareholder Name, Shareholder Account Number. Funds may be
transferred between 9:00 a.m. and 4:00 p.m. (Eastern time). Your bank may charge
a fee for this service.
USING TELE#FACTS 1-800-346-5984
Tele#Facts is New England Funds' automated service system that gives you 24-hour
access to your account. Through your touch-tone telephone, you can receive your
account balance, your last five transactions, Fund prices and recent performance
information. You can also purchase, sell or exchange Class A shares of any New
England Fund. For a free brochure about Tele#Facts including a convenient wallet
card, call us at 1-800-225-5478.
[] BY INVESTMENT BUILDER:
Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $50 or more from your bank checking or
savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder on the enclosed
application. Indicate the amount of the monthly investment and enclose a check
marked "Void" or a deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at
1-800-225-5478 for a Service Options Form.
[] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated Clearing
House ("ACH") system as long as your bank or credit union is a member of the ACH
system and you have a completed, approved ACH application on file with the Fund.
To purchase through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time). You may purchase shares through ACH by calling Tele#Facts at
1-800-346-5984 twenty-four hours a day. Under normal circumstances, the New York
Stock Exchange (the "Exchange") closes at 4:00 p.m. (Eastern time). Purchase
orders accepted through ACH or Tele#Facts will be complete only upon receipt by
New England Funds of funds from your bank and, on the day that funds are
received, will be processed at the net asset value next determined at the close
of regular trading on the Exchange on days that the Exchange is open. Proceeds
of redemptions of Fund shares purchased through ACH may not be available for up
to ten days after the purchase date.
[] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND:
You may also purchase shares of a Fund by exchanging shares from another New
England Fund. Please see "Owning Fund Shares -- Exchanging Among New England
Funds" for complete details.
To make investing even easier, you can also order personalized investment slips
by calling 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time).
GENERAL
All purchase orders are subject to acceptance by the Funds and will be effected
at the net asset value next determined after the order is received in proper
form by State Street Bank and Trust Company ("State Street Bank") (except orders
received by your investment dealer before the close of trading on the Exchange
and transmitted to the Distributor by 5:00 p.m. [Eastern time] on the same day,
which will be effected at the net asset value determined on that day). Although
the Funds do not anticipate doing so, they reserve the right to suspend or
change the terms of sales of shares.
Class B shares and certain shareholder features may not be available to persons
whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless you request
them in writing from the Distributor. The Funds' "open account" system for
recording your investment eliminates the problems and expense of handling and
safekeeping certificates. Certificates will not be issued for Class B shares or
Class C shares. If you wish transactions in your account to be effected by
another person under a power of attorney from you, special rules apply.
Please contact your investment dealer or the Distributor for details.
SALES CHARGES
Except as otherwise indicated in this prospectus, each Fund offers three classes
of shares to the general public:
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge which varies
depending on the size of your purchase. They are also subject to a 0.25% annual
service fee. Class A shares of all Funds are offered subject to the following
initial sales charges:
SALES CHARGE AS A % OF DEALER'S
------------------------- CONCESSION
VALUE OF OFFERING NET AMOUNT AS A % OF
TOTAL INVESTMENT PRICE INVESTED OFFERING PRICE
---------------- ----- -------- --------------
Less than $50,000+ 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.15%
$500,000 - $999,999 2.00% 2.04% 1.70%
$1,000,000 or more None None *
+ [Growth Fund Only]. For accounts established prior to February 28, 1997
having a total investment value of between (and including) $25,000 and
$49,999, a reduced sales charge of 5.50% as a percentage of offering price
(or 5.82% of the net amount invested), with a dealer's concession of 4.25%
as a percentage of offering price, will be charged on the sale of additional
Class A shares of the Growth Fund if the total investment value of the
Growth Fund account after such sale is between (and including) $25,000 and
$49,999.
* The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases (except investments by plans under
Sections 401(a) or 401(k) of the Code whose total investment amount to $1
million or more or that have 100 or more eligible employees ["Retirement
Plans"]) a commission of up to the following amounts: 1% on the first $3
million invested; 0.50% on the next $2 million; and 0.25% on the excess over
$5 million. For investments by Retirement Plans, the Distributor may, at its
discretion, pay investment dealers who initiate and are responsible for such
purchases a commission of up to the following amounts: 1% on the first $3
million invested; and 0.50% on amounts over $3 million and up to $10
million. These commissions are not payable if the purchase represents the
reinvestment of a redemption made during the previous 12 calendar months.
Section 401(a), 401(k), 457 and 403(b) plans that have total investment
assets of at least $10 million are eligible to purchase Class Y shares of
certain Funds, which are described in a separate prospectus.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more of Class A shares of the Funds or purchases by Retirement
Plans as defined above, a CDSC, at the rate of 1% of the lesser of the purchase
price or the net asset value at the time of redemption, applies to redemptions
of shares within one year after purchase. If an exchange is made to Class A
shares of any of New England Cash Management Trust Money Market Series or U.S.
Government Series or New England Tax Exempt Money Market Trust (the "Money
Market Funds"), then the one-year holding period for purposes of determining the
expiration of the CDSC will stop and will resume only when an exchange is made
back into Class A shares of a series of the Trusts. If the Money Market Fund
shares are redeemed rather than exchanged back into the Trusts, then a CDSC
applies to the redemption. For purposes of the CDSC, it is assumed that the
shares held the longest are the first to be redeemed. No CDSC applies to a
redemption of shares followed by a reinvestment effected within 30 days after
the date of the redemption.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales charge,
subject to a 0.25% annual service fee, a 0.75% annual distribution fee for 8
years (at which time they automatically convert to Class A shares) and a CDSC if
they are redeemed within 5 years of purchase. The holding period for purposes of
timing the conversion to Class A shares and determining the CDSC will continue
to run after an exchange to Class B shares of a series of the Trusts. If the
exchange is made to Class B shares of a Money Market Fund, then the holding
period stops and will resume only when an exchange is made back into Class B
shares of a series of the Trusts. If the Money Market Fund shares are redeemed
rather than exchanged back into a series of the Trusts, then a CDSC applies to
the redemption, at the same rate as if the Class B shares of the Fund had been
redeemed at the time they were exchanged for Money Market Fund shares. For the
purpose of the CDSC it is assumed that the shares held the longest are the first
to be redeemed.
The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
same Fund purchased with reinvested dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. The CDSC equals the following percentages of the
dollar amounts subject to the charge:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
----------------------- ------------------------------------
1st ............. 4%
2nd ............. 3%
3rd ............. 3%
4th ............. 2%
5th ............. 1%
thereafter ............. 0%
Year one ends one year after the day on which the purchase was accepted, and so
on.
The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested, and is paid to the
Distributor. The CDSC may be eliminated for certain persons and organizations.
See "Sales Charges -- General" below. At the time of sale, the Distributor pays
investment dealers a commission of 3.75% and advances the first year's service
fee (up to 0.25%) on purchases of Class B shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial sales charge;
subject to a 0.25% annual service fee and a 0.75% annual distribution fee; and
are subject to a CDSC of 1% if they are redeemed within the first year of
purchase. Class C shares do not convert to another class. The holding period for
determining the CDSC will continue to run after an exchange to Class C shares of
a series of the Trusts. If an exchange is made to Class A shares of a Money
Market Fund, then the one-year holding period for purposes of determining the
expiration of the CDSC will stop and resumes only when an exchange is made back
into Class C shares of a series of the Trusts. If the Money Market Fund shares
are redeemed rather than exchanged back into a series of the Trusts, then a CDSC
applies to the redemption. For purposes of the CDSC, it is assumed that the
shares held longest are the first to be redeemed. The CDSC is not imposed if the
shareholder's account was established on or before April 30, 1997.
The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
same Fund purchased with reinvested dividends or capital gain distributions. The
first year of purchase ends one year after the day on which the purchase was
accepted.
The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested, and is paid to the
Distributor. The CDSC may be eliminated for certain persons and organizations.
See "Sales Charges -- General" below. At the time of sale, the Distributor
advances to investment dealers first year's service and distribution fees (up to
1.00%) on purchases of Class C shares.
A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE?
Your choice of share class depends on the size of your investment and how long
you intend to hold your shares. In general, there are only minor differences in
performance results for the different classes if held for the long term. Consult
your financial representative for help in deciding which class is appropriate
for you.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or Class C shares are more
appropriate for an investor depends on the amount and intended length of the
investment. Investors making large investments, qualifying for a reduced initial
sales charge, might consider Class A shares because Class A shares have lower
12b-1 fees and pay correspondingly higher dividends per share. For these
reasons, the Distributor will treat any order of $1 million or more for Class B
or Class C shares as a Class A order. Investors making smaller investments might
consider Class B or Class C shares because 100% of the purchase is invested
immediately. Investors making smaller investments who anticipate redeeming their
shares after one year and before five years may find Class C shares more
favorable than Class B shares, because while Class C shares are subject to a
CDSC only on redemptions made within one year of purchase, Class B shares are
subject to a CDSC only on redemptions made within five years after purchase.
Class B shares are more favorable than Class C shares for investors who
anticipate holding their investment for more than eight years, since Class B
shares convert to Class A shares (and thus bear lower ongoing fees) after eight
years. Consult your investment dealer for advice applicable to your particular
circumstances.
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions by
retirement plans qualified under Code Sections 401(a) or 403(b)(7) when such
redemptions are necessary to make distributions to plan participants; (2)
distributions from an IRA due to death, disability or a tax-free return of an
excess contribution; (3) distributions by other employee benefit plans to pay
benefits; and (4) distributions by a Section 401(a) plan due to death. For
403(b)(7) and IRA accounts established before January 3, 1995, the CDSC is
waived for redemptions made after attainment of age 59 1/2. The CDSC is waived
for redemptions made to make required minimum distributions after attainment of
age 70 1/2 for 403(b)(7) and IRA accounts established on or after January 3,
1995. There is also no CDSC on redemptions following the death or disability (as
defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is
made within one year after the shareholder's death or disability. In addition,
there is no CDSC on certain withdrawals pursuant to a Systematic Withdrawal
Plan. See "Selling Fund Shares -- 4 Ways to Sell Fund Shares -- By Systematic
Withdrawal Plan" below.
Each Fund receives the net asset value next determined after an order is
received on sales of each class of shares. The sales charge is allocated between
the investment dealer and the Distributor. The Distributor receives the CDSC.
For purposes of the CDSC, an exchange from one series of the Trusts 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 a loss.
The Distributor may, at its discretion, reallow the entire sales charge imposed
on the sale of Class A shares of each Fund to investment dealers from time to
time. The staff of the SEC is of the view that dealers receiving all or
substantially all of the sales charge may be deemed underwriters of a Fund's
shares.
For new amounts invested, the Distributor may, at its expense, pay investment
dealers who sell shares of the Funds at net asset value to an eligible
governmental authority .025% of the average daily net assets of an account at
the end of each calendar quarter for up to one year. These commissions are not
payable if the purchase represents the reinvestment of redemption proceeds from
any of the Funds or any series of the Trusts or if the account is registered in
street name.
The Distributor may, at its expense, provide additional promotional incentives
or payments to dealers who sell shares of the Funds. In some instances these
incentives are provided to certain dealers who achieve sales goals or who have
sold or may sell significant amounts of shares. The Distributor from time to
time may provide financial assistance programs to dealers in connection with
conferences, sales or training programs, seminars, advertising and sales
campaigns and/or shareholder services arrangements. Certain dealers who have
sold or may sell significant amounts of shares also may receive compensation in
the form of payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives to locations,
within or outside of the U.S., for educational seminars or meetings of a
business nature.
The Distributor may provide non-cash incentives for achievement of specified
sales levels by representatives of participating broker-dealers and financial
institutions. Such incentives include, but are not limited to, merchandise from
gift catalogues or other sources. The participation of representatives in such
incentive programs is at the discretion of the broker-dealer or financial
institution with which the representative is associated.
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
[] LETTER OF INTENT -- if aggregate purchases of all series and classes of the
Trusts over a 13-month period will reach a breakpoint (a dollar amount at which
a lower sales charge applies), smaller individual amounts can be invested at the
sales charge applicable to that breakpoint.
[] COMBINING ACCOUNTS -- purchases by all qualifying accounts of all series and
classes of the Trusts (which do not include the Money Market Funds unless the
shares were purchased through an exchange from a series of the Trusts) may be
combined with purchases of qualifying accounts of a spouse, parents, children,
siblings, grandparents or grandchildren, individual fiduciary accounts, sole
proprietorships and/or single trust estates. The values of all accounts are
combined to determine the sales charge.
[] UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust distributions
of less than $1 million may be invested in Class A shares of any Fund at a
reduced sales charge of 1.50% of the public offering price (or 1.52% of the net
amount invested).
[] ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC applies to
investments by any state, county or city or any instrumentality, department,
authority or agency thereof that has determined that 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.
[] CLIENTS OF AN ADVISER OR SUBADVISER -- no sales charge or CDSC applies to
investments of $25,000 or more in the Funds by (1) clients of an adviser or
subadviser to any series of the Trusts; any director, officer or partner of a
client of an adviser or subadviser to any series of the Trusts; and the parents,
spouses and children of the foregoing; (2) any individual who is a participant
in a Keogh or IRA Plan under a prototype Plan document of an adviser or
subadviser to any series of the Trusts if at least one participant in the plan
qualifies under category (1) above; and (3) an individual who invests through an
IRA and is a participant in an employee benefit plan that is a client of an
adviser or subadviser to any series of the Trusts. Any investor eligible for
these arrangements should so indicate in writing at the time of the purchase.
[] Shares of the Funds 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 Sections
401(a), 403(b), 401(k) and 457 of the Code and "rabbi trusts." Investors may be
charged a fee if they effect transactions through a broker or agent.
[] Shares of the Funds are available at net asset value for investments in
participant-directed 401(a) and 401(k) plans that have 100 or more eligible
employees.
[] Shares of the Funds are available at net asset value for investments by
non-discretionary and non-retirement accounts of bank trust departments or trust
companies, but are unavailable if the trust department or institution is part of
an organization not principally engaged in banking or trust activities.
[] Current shareholders of the Growth Opportunities Fund who were participants
in a certain Trust Securities Program, administered through State Street Bank,
may purchase additional shares of the Growth Opportunities Fund at net asset
value.
[] Shares of the Funds 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.
[] There is no sales charge, CDSC or initial investment minimum related to
investments by certain current and retired employees of the Trusts' investment
advisers or subadvisers, the Distributor, The New England or any other company
affiliated with The New England; current and former directors and trustees of
the Trusts, The New England or their predecessor companies; agents and general
agents of The New England and its insurance company subsidiaries; current and
retired employees of such agents and general agents; registered representatives
of broker-dealers who have selling arrangements with the Distributor; the
spouse, parents, children, siblings, grandparents or grandchildren of the
persons listed above; any trust, pension, profit sharing or other benefit plan
for any of the foregoing persons; and any separate account of The New England or
of any insurance company affiliated with The New England.
[] Shareholders of Reich and Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of the Funds 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.
<PAGE>
O W N I N G F U N D S H A R E S
EXCHANGING AMONG NEW ENGLAND FUNDS
CLASS A SHARES
Except as indicated in the next two sentences, you may exchange Class A shares
of any series of the Trusts (and Class A shares of the Money Market Funds
acquired through exchanges from any series of the Trusts) for Class A shares of
any other series of the Trusts without paying a sales charge; such exchanges
will be made at the next-determined net asset value of the shares. Class A
shares of New England Intermediate Term Tax Free Fund of California and New
England Intermediate Term Tax Free Fund of New York (and shares of the Money
Market Funds acquired through exchanges of such shares) may be exchanged for
Class A shares of another series of the Trusts at net asset value only if you
have held them for at least six months; otherwise, sales charges apply to the
exchange. If you exchange your Class A shares of New England Adjustable Rate
U.S. Government Fund (the "Adjustable Rate Fund") for shares of another series
of the Trusts that has a higher sales charge, you will pay the difference
between any sales charge you have already paid on your Adjustable Rate Fund
shares and the higher sales charge of the series into which you are exchanging.
In addition, you may redeem Class A shares of any Money Market Fund that were
not acquired through exchanges from any series of the Trusts and have the
proceeds directly applied to the purchase of shares of a series of the Trusts at
the applicable sales charge.
CLASS B SHARES
You may exchange Class B shares of any Fund or series of the Trusts (and Class B
shares of the Money Market Funds or Class A shares of the Money Market Funds
which have not been subject to a previous sales charge) for Class B shares of
any other series of the Trusts which offers Class B shares. Such exchanges will
be made at the next-determined net asset value of the shares. Class B shares
will automatically convert on a tax-free basis to Class A shares eight years
after they are purchased (excluding the time the shares are held in a Money
Market Fund). See "Sales Charges -- Class B Shares" above.
AUTOMATIC EXCHANGE PLAN
The Funds have an automatic exchange plan under which shares of a class of a
Fund are automatically exchanged each month for shares of the same class of
other series of the Trusts. The minimum monthly exchange amount under the plan
is $50. There is no fee for exchanges made pursuant to this program, but there
may be a sales charge as described on this page. Shares of the Adjustable Rate
Fund that are subject to a differential sales charge as described on this page
may not participate in this program.
CLASS C SHARES
You may exchange Class C shares of the Funds or any other series of the Trusts
for Class C shares of any other series of the Trusts which offers Class C shares
or for Class A shares of the Money Market Funds. Such exchanges will be made at
the next - determined net asset value of the shares.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Funds are open for business, call Tele#Facts at
1-800-346-5984 twenty-four hours a day or write to New England Funds. Exchange
requests after 4:00 p.m. (Eastern time), or after the Exchange closes if it
closes earlier than 4:00 p.m., will be processed at the net asset value
determined at the close of regular trading on the next day that the Exchange is
open. The exchange must be for a minimum of $500 (or the total net asset value
of your account, whichever is less), except that under the Automatic Exchange
Plan the minimum is $50. All exchanges are subject to the minimum investment and
eligibility requirements of the series into which you are exchanging. In
connection with any exchange, you must receive a current prospectus of the
series into which you are exchanging. The exchange privilege may be exercised
only in those states where shares of such other series may be legally sold.
You have the automatic privilege to exchange your Fund shares by telephone. New
England Funds, L.P. will employ reasonable procedures to confirm that your
telephone instructions are genuine, and, if it does not, it may be liable for
any losses due to unauthorized or fraudulent instructions. New England Funds,
L.P. will require a form of personal identification prior to acting upon your
telephone instructions, will provide you with written confirmations of such
transactions and will record your instructions. Except as otherwise permitted by
SEC rule, shareholders will receive at least 60 days' advance notice of any
material change to the exchange privilege.
FUND DIVIDEND PAYMENTS
The Capital Growth Fund, the Growth Fund, the International Equity Fund, the
Value Fund and the Star Advisers Fund pay dividends annually and the Balanced
Fund and the Growth Opportunities Fund pay dividends quarterly. Each Fund pays
as dividends substantially all net investment income (other than long-term
capital gains) each year and distributes annually all net realized long-term
capital gains (after applying any available capital loss carryovers). The
trustees of the Trusts may adopt a different schedule as long as payments are
made at least annually. If you intend to purchase shares of a Fund shortly
before it declares a dividend, you should be aware that a portion of the
purchase price may be returned to you as a taxable dividend.
You have the option to reinvest all distributions in additional shares of the
same class of the Fund or in shares of the same class of other series of the
Trusts, to receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional shares of the same
class of the Fund or the same class of shares of other series of the Trusts, or
to receive all distributions in cash. Income distributions and capital gains
distributions will be reinvested in shares of the same class of the Fund at net
asset value (without a sales charge or CDSC) unless you select another option.
You may change your distribution option by notifying New England Funds in
writing or by calling 1-800-225-5478. If you elect to receive your dividends in
cash and the dividend checks sent to you are returned "undeliverable" to the
Fund or remain uncashed for six months, your cash election will automatically be
changed and your future dividends will be reinvested.
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program that allows you to
have all dividends and any other distributions automatically invested in shares
of the same class of another New England Fund, subject to the investor
eligibility requirements of that other fund and to state securities law
requirements. Shares will be purchased at the selected fund's net asset value
(without a sales charge or CDSC) on the dividend record date. A dividend
diversification account must be in the same registration (shareholder name) as
the distributing fund account and, if a new account in the purchased fund is
being established, the purchased fund's minimum investment requirements must be
met. Before establishing a dividend diversification program into any other New
England Fund, you must obtain a copy of that fund's prospectus.
<PAGE>
S E L L I N G F U N D S H A R E S
4 WAYS TO SELL FUND SHARES
You may sell Class A, Class B and Class C shares of the Funds in the following
ways:
[] THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[] BY TELEPHONE:
You or your investment dealer may redeem (sell) shares by telephone using any of
the three methods described below:
Wired to Your Bank Account -- If you have previously selected the telephone
redemption privilege on your account, shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
Funds are open for business or by calling Tele#Facts at 1-800-346-5984
twenty-four hours a day. The proceeds (LESS ANY APPLICABLE CDSC) generally will
be wired on the next business day to the bank account previously chosen by you
on your application. A wire fee (currently $5.00) will be deducted from the
proceeds.
Your bank must be a member of the Federal Reserve System or have a correspondent
bank that is a member. If your account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
Mailed to Your Address of Record -- Shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) and requesting
that a check for the proceeds (LESS ANY APPLICABLE CDSC) be mailed to the
address on your account, provided that the address has not changed over the
previous month and that the proceeds are for $100,000 or less. Generally, the
check will be mailed to you on the business day after your redemption request is
received.
Through ACH -- Shares may be redeemed electronically through the ACH system,
provided that you have an approved ACH application on file with the Fund. To
redeem through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern
time) or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds
(LESS ANY APPLICABLE CDSC) generally will arrive at your bank within three
business days; their availability will depend on your bank's particular rule.
Redemption requests accepted after 4:00 p.m. (Eastern time), or after the
Exchange closes if it closes before 4:00 p.m., will be processed at the net
asset value determined at the close of regular trading on the next day that the
Exchange is open.
[] BY MAIL:
You may redeem your shares at their net asset value (LESS ANY APPLICABLE CDSC)
next determined after receipt of your request in good order by sending a written
request (including any necessary special documentation) to New England Funds,
P.O. Box 8551, Boston, MA 02266-8551.
The request must include the name of the Fund, your account number, the exact
name(s) in which your shares are registered, the number of shares or the dollar
amount to be redeemed and whether you wish the proceeds mailed to your address
of record, wired to your bank account or transmitted through ACH. All owners of
the shares must sign the request in the exact names in which the shares are
registered (this appears on your confirmation statement) and indicate any
special capacity in which they are signing (such as trustee, custodian or under
power of attorney or on behalf of a partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the proceeds check is
made payable to the registered owner(s) and mailed to the record address, no
signature guarantee is required. Otherwise, you generally must have your
signature guaranteed by an eligible guarantor institution in accordance with
procedures established by New England Funds, L.P.
Signature guarantees by notaries public are not acceptable.
Additional written information may be required for redemptions by certain
benefit plans and IRAs. Contact the Distributor or your investment dealer for
details.
If you hold certificates for your Class A shares, you must enclose them with
your redemption request or your request will not be honored. The Funds recommend
that certificates be sent by registered mail.
[] BY SYSTEMATIC WITHDRAWAL PLAN:
You may establish a Systematic Withdrawal Plan that allows you to redeem shares
and receive payments on a regular schedule. In the case of shares subject to a
CDSC, the amount or percentage you specify may not exceed, on an annualized
basis, 10% of the value of your Fund account. Redemption of shares pursuant to
the Plan will not be subject to a CDSC. For information, contact the Distributor
or your investment dealer. Since withdrawal payments may have tax consequences,
you should consult your tax adviser before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset value next
determined after your redemption request is received in proper form by State
Street Bank or your investment dealer (except that orders received by your
investment dealer before the close of regular trading on the Exchange and
transmitted to the Distributor by 5:00 p.m. Eastern time on the same day will
receive that day's net asset value). Redemption proceeds (LESS ANY APPLICABLE
CDSC) will normally be mailed to you within seven days after State Street Bank
or the Distributor receives your request in good order. However, in those cases
where you have recently purchased your shares by check or an electronic funds
transfer through the ACH system and you make a redemption request within 10 days
after such purchase or transfer, the Fund may withhold redemption proceeds until
the Fund knows that the check or funds have cleared.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If you are unable to contact the Distributor by
telephone, shares may be redeemed by delivering the redemption request in person
to the Distributor or by mail as described above. Requests are processed at the
net asset value next determined after the request is received.
Special rules apply with respect to redemptions under powers of attorney. Please
call your investment dealer or the Distributor for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares held in certificate form. If certificates have been issued for
your investment, you must send them to New England Funds along with your request
before a redemption request can be honored. See the instructions for redemption
by mail above.
The Funds may suspend the right of redemption and may postpone payment for more
than seven days when the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the SEC when trading on the Exchange is
restricted or during an emergency which makes it impracticable for the Funds to
dispose of their securities or to determine fairly the value of their net
assets, or during any other period permitted by the SEC for the protection of
investors.
REPURCHASE OPTION (CLASS A SHARES ONLY)
You may apply your Class A share redemption proceeds (without a sales charge) to
the repurchase of Class A shares of any series of the Trusts. To qualify, you
must reinvest some or all of the proceeds within 120 days after your redemption
and notify New England Funds or your investment dealer at the time of
reinvestment that you are taking advantage of this privilege. You may reinvest
the proceeds either by returning the redemption check or by sending your check
for some or all of the redemption amount. Please note: For federal income tax
purposes, a redemption is a sale that involves tax consequences (even if the
proceeds are later reinvested). Please consult your tax adviser.
<PAGE>
F U N D D E T A I L S
HOW FUND SHARE PRICE IS DETERMINED
The net asset value of each Fund's shares is determined as of the close of
regular trading (normally 4:00 p.m. [Eastern time]) on the Exchange on each day
that the Exchange is open for trading. Each Fund's holdings of equity securities
are valued at the most recent sales prices on an applicable exchange or NASDAQ,
or, in the case of unlisted securities (or listed securities which were not
traded during the day), at the last quoted bid prices. Price information on
listed securities is generally taken from the closing price on the exchange
where the security is primarily traded. Securities traded primarily on an
exchange outside the United States which closes before the close of the Exchange
generally will be valued for purposes of calculating the Fund's net asset value
at the last sale or bid price on that non-U.S. exchange, except that when an
occurrence after the closing of that exchange is likely to have materially
changed such a security's value, such security will be valued at fair value as
of the close of regular trading on the Exchange. An option that is written by
the Fund generally will be valued at the last sale price or, in the absence of
the last sale price, the last offer price. The value of a futures contract will
be equal to the unrealized gain or loss on the contract that is determined by
marking the contract to the current settlement price. A settlement price may not
be used if the market makes a limit move with respect to a particular futures
contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price is not used, futures contracts will be valued at their
fair value as determined by or under the direction of each Trust's Board of
Trustees. Short-term notes are valued at cost, or, where applicable, amortized
cost, which method is intended to approximate market value. All other securities
and assets of each Fund's portfolio (or, in the case of the Star Advisers Fund,
each segment of the Fund's portfolio) are valued at their fair market value as
determined in good faith by the adviser or subadviser of that Fund or segment
(or a pricing service selected by the adviser or subadviser) under the
supervision of each Trust's Board of Trustees. The value of any assets for which
the market price is expressed in terms of a foreign currency will be translated
into U.S. dollars at the prevailing market rate on the date of the net asset
value computation, or, if no such rate is quoted at such time, at such other
appropriate rate as may be determined by or under the direction of each Trust's
Board of Trustees.
The net asset value per share of each class is determined by dividing the value
of each class's securities (determined as explained above) plus any cash and
other assets (including dividends and interest receivable but not collected)
less all liabilities (including accrued expenses), by the number of shares of
such class outstanding. The public offering price of each Fund's Class A shares
is determined by adding the applicable sales charge to the net asset value. See
"Buying Fund Shares -- Sales Charges" above. The public offering price of each
Fund's Class B and Class C shares is the net asset value per share.
The price you pay for a share will be determined using the next set of
calculations made after your order is accepted by New England Funds, L.P. In
other words, if, on a Tuesday morning, your properly completed application is
received, your wire is received or your dealer places your trade for you, the
price you pay will be determined by the calculations made as of the close of
regular trading on the Exchange on Tuesday. If you buy shares through your
investment dealer, the dealer must receive your order by the close of regular
trading on the Exchange and transmit it to the Distributor by 5:00 p.m. (Eastern
time) to receive that day's public offering price.
CALCULATING THE PRICE OF SHARES
Total Market Value of
Portfolio Securities + Other Assets - Any Liabilities = Net Asset Value (NAV)
- -------------------------------------------------------------------------------
Total Number of Outstanding Shares in a Class
THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE APPLICABLE
SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B AND CLASS C SHARES IS THE
NAV.
INCOME TAX CONSIDERATIONS
Each Fund intends to meet all requirements of the Code necessary to qualify as a
"regulated investment company" and thus does not expect to pay any federal
income tax on investment income and capital gains distributed to shareholders in
cash or in additional shares. Unless you are a tax-exempt entity, your
distributions derived from a Fund's short-term capital gains and ordinary income
are taxable to you as ordinary income. (A portion of these distributions may
qualify for the dividends-received deduction for corporations.) Distributions
derived from a Fund's long-term capital gains ("capital gains distributions"),
if designated as such by a Fund, are taxable to you as long-term capital gains,
regardless of how long you have owned shares in the Fund. Both income
distribution and capital gains distributions are taxable whether you elected to
receive them in cash or additional shares.
To avoid an excise tax, each Fund intends to distribute prior to calendar year
end virtually all the Fund's ordinary income and net capital gains earned during
that calendar year. If declared in December to shareholders of record in that
month, and paid the following January, these distributions will be considered
for federal income tax purposes to have been received by shareholders on
December 31.
Each Fund is required to withhold 31% of all income dividends and capital gains
distributions it pays to you if you do not provide a correct, certified taxpayer
identification number, if a Fund is notified that you have underreported income
in the past or if you fail to certify to a Fund that you are not subject to such
withholding. In addition, each Fund will be required to withhold 31% of the
gross proceeds of Fund shares you redeem if you have not provided a correct,
certified taxpayer identification number. If you are a tax-exempt shareholder,
however, these backup withholding rules will not apply so long as you furnish
the Fund with an appropriate certification.
Annually, if you earn more than $10 in taxable income from a Fund, you will
receive a Form 1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should consult your tax
adviser about any state or local taxes that may apply to such distributions. Be
sure to keep the Form 1099 as a permanent record. A fee may be charged for any
duplicate information requested.
The International Equity Fund may be liable to foreign governments for taxes
relating primarily to investment income or capital gains on foreign securities
in the Fund's portfolio. The Fund may in some circumstances be eligible to, and
in its discretion may, make an election under the Code which would allow Fund
shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax
credit or deduction (but not both) on their U.S. income tax return. If the Fund
makes the election, the amount of each shareholder's distribution reported on
the information returns filed by the Fund with the Internal Revenue Service must
be increased by the amount of the shareholder's portion of the Fund's foreign
tax paid.
The foregoing is a summary of certain federal income tax consequences of an
investment in a Fund for shareholders who are U.S. citizens or corporations.
Shareholders should consult a competent tax adviser as to the effect of an
investment in a Fund on their particular federal, state and local tax
situations. Shareholders of the International Equity Fund should also consult
their tax advisers about consequences of their investment under foreign laws.
THE FUNDS' EXPENSES
In addition to the management fee paid to its adviser, each Fund pays all
expenses not borne by its adviser, subadviser(s) or the Distributor, including,
but not limited to, the charges and expenses of each Fund's custodian and
transfer agent, independent auditors and legal counsel for the Fund and the
Trusts' independent trustees, 12b-1 fees, all brokerage commissions and transfer
taxes in connection with portfolio transactions, all taxes and filing fees, the
fees and expenses for registration or qualification of its shares under federal
and state securities laws, all expenses of shareholders' and trustees' meetings,
preparing, printing and mailing prospectuses and reports to shareholders and the
compensation of trustees who are not directors, officers or employees of The New
England or its affiliates, other than affiliated registered investment
companies. In the case of Funds that offer Class Y shares, certain expenses are
allocated differently between the Fund's Class A, Class B and Class C shares, on
the one hand, and its Class Y shares, on the other hand. (See "Additional Facts
about the Funds" below.)
Under Service Plans adopted pursuant to Rule 12b-1 under the 1940 Act, each Fund
pays the Distributor a monthly service fee at an annual rate not to exceed 0.25%
of the Fund's average daily net assets attributable to the Class A, Class B and
Class C shares. The Distributor may pay up to the entire amount of this fee to
securities dealers who are dealers of record with respect to the Fund's shares,
for providing personal services to investors in shares of the Fund and/or the
maintenance of shareholder accounts. In the case of the Class B shares, the
Distributor pays investment dealers at the time of sale the first year's service
fee, in the amount of up to 0.25% of the amount invested. In the case of each
Fund except the Growth Opportunities Fund, the Class A service fee is payable
only to reimburse the Distributor for amounts it pays or expends in connection
with the provision of personal services to investors and/or the maintenance of
shareholder accounts. In the case of the Class A shares of the Growth, Value and
Balanced Funds, reimbursable expenses may include such expenses incurred by
those Funds' former distributor (an affiliate of the Distributor) in prior
years. To the extent that the Distributor's reimbursable expenses in any year
exceed the maximum amount payable under the relevant Service Plan for that year,
such expenses may be carried forward for reimbursement in future years in which
the Plan remains in effect. The amounts of unreimbursed Class A expenses carried
over into 1997 from previous plan years were $__________ for the Capital Growth
Fund, $__________ for the Balanced Fund, $__________ for the Growth Fund,
$__________ for the International Equity Fund and $__________ for the Value
Fund. The Class B and C service fees for all Funds which have such classes of
shares, and the Class A service fee for the Growth Opportunities Fund, are
payable regardless of the amount of the Distributor's related expenses.
Each Fund's Class B and Class C shares also pay the Distributor a monthly
distribution fee at an annual rate not to exceed 0.75% of the average net assets
of the respective Fund's Class B and Class C shares. The Distributor may pay up
to the entire amount of this fee to securities dealers who are dealers of record
with respect to the Fund's shares, as distribution fees in connection with the
sale of the Fund's shares. The Distributor retains the balance of the fee as
compensation for its services as distributor of the Class B and Class C shares.
PERFORMANCE CRITERIA
Each Fund may include total return information for each class of shares in
advertisements or other written sales material. Each Fund may show each class's
average annual total return for the one-, five- and ten-year periods (or the
life of the class, if shorter) through the end of the most recent calendar
quarter, or, in the case of the Growth Opportunities Fund's Class A shares, from
July 27, 1988, when there was a change in that Fund's investment adviser, to the
end of the most recent calendar quarter. Total return is measured by comparing
the value of a hypothetical $1,000 investment in a class at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming deduction of the current maximum sales charge on Class A shares,
automatic reinvestment of all dividends and capital gains distributions and, in
the case of Class B and Class C shares, imposition of the CDSC relevant to the
period quoted). Total return may be quoted with or without giving effect to any
voluntary expense limitations in effect for the class in question during the
relevant period. The class may also show total return over other periods, on an
aggregate basis for the period presented, or without deduction of a sales
charge. If a sales charge is not deducted in calculating total return, the
class's total return will be higher.
The Balanced Fund may also include the yield of its Class A, Class B and Class C
shares, accompanied by the total return, in advertising and other written
material. Yield will be computed in accordance with the SEC's standardized
formula by dividing the adjusted net investment income per share earned during a
recent thirty-day period by the maximum offering price of a share of the
relevant class (reduced by any earned income expected to be declared shortly as
a dividend) on the last day of the period. Yield calculations will reflect any
voluntary expense limitations in effect for the Fund during the relevant period.
The Balanced Fund may also present one or more distribution rates for each class
in its sales literature. These rates will be determined by annualizing the
class's distributions from net investment income and net short-term capital gain
over a recent 12-month, 3-month or 30-day period and dividing that amount by the
maximum offering price or the net asset value on the last day of such period. If
the net asset value, rather than the maximum offering price, is used to
calculate the distribution rate, the rate will be higher.
Total return will generally be higher for Class A shares than for Class B and
Class C shares of the same Fund, because of the higher levels of expenses borne
by the Class B and Class C shares. An investor should balance this expected
lower total return against the benefit gained by 100% immediate investment of
the purchase price of Class B or Class C shares. As a result of lower operating
expenses, Class Y shares of each Fund that offers such shares can be expected to
achieve a higher investment return than the Fund's Class A, Class B or Class C
shares.
All performance information is based on past results and is not an indication of
likely future performance.
ADDITIONAL FACTS ABOUT THE FUNDS
[] New England Funds Trust I, an open-end management investment company, was
organized in 1985 as a Massachusetts business trust and is authorized to issue
an unlimited number of full and fractional shares in multiple series. The
Growth, Value and Balanced Funds were organized prior to 1985 and conducted
investment operations as separate corporations until their reorganization as
series of New England Funds Trust I in January 1987. The International Equity
Fund and the Capital Growth Fund were organized in 1992 and the Star Advisers
Fund was organized in 1994.
[] New England Funds Trust II, an open-end management investment company, was
organized in 1931 as a Massachusetts business trust and is authorized to issue
an unlimited number of full and fractional shares in multiple series. The Growth
Opportunities Fund is the original series of shares of the Trust and has been in
operation since 1931.
[] When you invest in a Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive annual or quarterly dividends as
determined by the respective Trust's trustees and to cast a vote for each share
you own at shareholder meetings. Shares of each Fund vote separately from shares
of other series of the same Trust, except as otherwise required by law. Shares
of all classes of a Fund vote together, except as to matters relating to a
class's Rule 12b-1 plan, on which only shares of that class are entitled to
vote.
[] Except for matters that are explicitly identified as "fundamental" in this
prospectus or Part I of the Statement, the investment policies of each Fund may
be changed by the relevant Trust's trustees without shareholder approval or, in
most cases, prior notice. The investment objectives of the Growth, Value and
Balanced Funds are fundamental. The investment objectives of the Capital Growth,
International Equity and Star Advisers Funds are not fundamental. The investment
objective of the Growth Opportunities Fund is not fundamental but, as a matter
of policy, the trustees would not change the objective without shareholder
approval. If there is a change in the objective of the Capital Growth,
International Equity, Star Advisers or Growth Opportunities Fund, shareholders
should consider whether these Funds remain appropriate investments in light of
their current financial position and needs.
[] Each Fund (except the Growth Fund) also offers Class Y shares to certain
qualified investors. Class Y shares are identical to Class A, Class B and Class
C shares, except that Class Y shares have no sales charge or CDSC, bear no Rule
12b-1 fees and have separate voting rights in certain circumstances. Class Y
bears its own transfer agency and prospectus printing costs and does not bear
any portion of those costs relating to other classes of shares.
[] The Trusts do not generally hold regular shareholder meetings and will do so
only when required by law. Shareholders of a Trust may remove the trustees of
that Trust from office by votes cast at a shareholder meeting or by written
consent.
[] The transfer and dividend paying agent for the Funds is New England Funds,
L.P., 399 Boylston Street, Boston, MA 02116. New England Funds, L.P. has
subcontracted certain of its obligations as such to State Street Bank, 225
Franklin Street, Boston, MA 02110.
[] If the balance in your account with a Fund is less than a minimum amount set
by the trustees of the Trusts from time to time (currently $500 for all
accounts, except for those indicated below and for individual retirement
accounts, which have a $25 minimum), that Fund may close your account and send
the proceeds to you. Shareholders who are affected by this policy will be
notified of the Fund's intention to close the account and will have 60 days
immediately following the notice to bring the account up to the minimum. The
minimum does not apply to Keogh, pension and profit sharing plans, automatic
investment plans or accounts that have fallen below the minimum solely because
of fluctuations in a Fund's net asset value per share.
[] The Trusts, together with the Money Market Funds, constitute the New England
Funds. Each Trust offers only its own funds' shares for sale, but it is possible
that a Trust might become liable for any misstatements in this prospectus that
relate to the other Trust. The trustees of each Trust have considered this
possible liability and approved the use of this combined prospectus for Funds of
both Trusts.
[] Each Fund's annual report contains additional performance information and is
available upon request and without charge. Each Fund will send a single copy of
its annual and semi-annual reports to an address at which more than one
shareholder of record with the same last name has indicated that mail is to be
delivered. Shareholders may request additional copies of any annual or
semi-annual report in writing or by telephone.
[] The Class A, Class B, Class C and Class Y structure could be terminated
should certain IRS rulings be rescinded.
[] Summit Cash Reserves Fund (the "Cash Fund"), a series of Financial
Institutions Series Trust, is related to the Funds for purposes of investment
and investor services. Shares of all classes of the Funds may be exchanged for
shares of the Cash Fund at net asset value. If shares of the Funds that are
exchanged for shares of the Cash Fund are subject to a CDSC, the holding period
for purposes of determining the expiration of the CDSC will stop and resume only
when an exchange is made back into shares of a series of the Trusts. If Fund
shares subject to a CDSC are exchanged for Cash Fund shares and the Cash Fund
shares are later redeemed rather than being exchanged back into shares of a
series of the Trusts, then a CDSC will apply at the same rate as if the Fund
shares were redeemed at the time of the exchange.
<PAGE>
G L O S S A R Y O F T E R M S
Capital gain distributions -- Payments to shareholders of profits earned from
selling securities in the fund's portfolio. Capital gain distributions are
usually paid once a year.
Contingent Deferred Sales Charge (CDSC) -- A fee that may be charged when a
shareholder sells fund shares.
Distribution fee -- An annual asset-based sales charge that is used to pay for
sales-related expenses.
Income Distributions -- Payments to shareholders resulting from interest or
dividend income earned by a fund's portfolio.
Mutual fund -- The pooled assets of a group of investors, professionally managed
in pursuit of a specific objective.
Net asset value (NAV) -- The market value of one share of a mutual fund on any
given day without sales charge or CDSC. Determined by dividing the fund's total
net assets by the number of fund shares outstanding.
New England Funds, L.P. -- The distributor and transfer agent of the New England
Funds.
New England Funds Management, L.P. -- The investment adviser to most of the New
England Funds.
Open end investment management company -- A mutual fund that allows investors to
redeem fund shares directly from the fund company on any business day.
Public offering price -- The price of one share of a mutual fund, including its
initial sales charge, if there is one.
Record date -- The date on which mutual fund investors must own a fund's shares
to be eligible to receive specific income or capital gain distributions.
Service fee -- Payments by a fund to the fund's distributor or a financial
representative for personal services to investors and/or for maintenance of
shareholder accounts.
Total Return -- The change in value of an investment in a fund investment over a
specific time period, assuming all earnings are reinvested in additional shares
of the fund. Expressed as a percentage.
Yield -- The rate at which a fund earns income, expressed as a percentage. Yield
calculations are standardized among mutual funds, based on a formula developed
by the Securities and Exchange Commission.
12b-1 fees-- Fees paid by a mutual fund under a plan adopted under 1940 Act Rule
12b-1. Can include both distribution fees and service fees.
<PAGE>
[LOGO](R)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- -------------------------------------------------------------------------------
CLASS Y SHARES OF:
NEW ENGLAND CAPITAL GROWTH FUND
NEW ENGLAND BALANCED FUND
NEW ENGLAND GROWTH OPPORTUNITIES FUND
NEW ENGLAND INTERNATIONAL EQUITY FUND
NEW ENGLAND STAR ADVISERS FUND
NEW ENGLAND VALUE FUND
PROSPECTUS AND APPLICATION -- MAY 1, 1997
New England Capital Growth Fund, New England Balanced Fund, New England
International Equity Fund, New England Star Advisers Fund and New England Value
Fund, series of New England Funds Trust I, and New England Growth Opportunities
Fund, a series of New England Funds Trust II, are separate mutual funds (the
"Funds" and each a "Fund"). New England Funds Trust I and New England Funds
Trust II are referred to in this prospectus as the "Trusts."
The Funds offer four classes of shares: Class Y (for qualified institutional
investors) and Classes A, B and C (for other investors). This prospectus sets
forth information investors should know before investing in Class Y shares.
Please read it carefully and keep it for future reference. A Statement of
Additional Information in two parts (the "Statement") about the Funds dated May
1, 1997 has been filed with the Securities and Exchange Commission (the "SEC")
and is available free of charge. Write to New England Funds, L.P. (the
"Distributor"), SAI Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts
02116 or call toll free at 1-800-225-5478. The Statement contains more detailed
information about the Funds and is incorporated into this prospectus by
reference. Class A, Class B and Class C shares of the Funds are described in a
separate prospectus. To obtain more information about Class A, Class B and Class
C shares, please call the Distributor toll-free at 1-800-225-5478.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
FUND EXPENSES AND FINANCIAL INFORMATION
Schedule of Fees
Financial Highlights
- -------------------------------------------------------------------------------
INVESTMENT STRATEGY
Investment Objectives
How the Funds Pursue Their Objectives
Fund Investments
- -------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------
FUND MANAGEMENT
- -------------------------------------------------------------------------------
BUYING FUND SHARES
Minimum Investment
Ways to Buy Fund Shares
[] By wire transfer
[] By mail
- -------------------------------------------------------------------------------
OWNING FUND SHARES
Exchanging Among New England Funds
Fund Dividend Payments
- -------------------------------------------------------------------------------
SELLING FUND SHARES
Ways to Sell Fund Shares
[] By telephone
[] By mail
- -------------------------------------------------------------------------------
FUND DETAILS
Determination of Net Asset Value
Income Tax Considerations
Performance Criteria
Additional Facts About the Funds
<PAGE>
FUND EXPENSES AND FINANCIAL INFORMATION
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Funds.
The following tables summarize your maximum transaction costs from investing in
Class Y shares of the Funds and estimated annual expenses for the Funds' Class Y
shares. The Example on the following page shows the cumulative expenses
attributable to a hypothetical $1,000 investment in Class Y shares of the Funds
for the periods specified.
SHAREHOLDER TRANSACTION EXPENSES
ALL FUNDS
------------
Class Y
Maximum Initial Sales Charge Imposed
on a Purchase None
Maximum Contingent Deferred Sales
Charge None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
NEW ENGLAND
INTERNATIONAL EQUITY
FUND
---------------------
Class Y
Management Fees
(after voluntary fee waiver and expense
reduction) ___%*
12b-1 Fees None
Other Expenses ___%
Total Fund Operating Expenses
(after voluntary fee waiver and expense
reduction) ___%*
NEW ENGLAND NEW ENGLAND
CAPITAL GROWTH BALANCED
FUND FUND
--------------- ----------
Class Y Class Y
Management Fees ___% ___%
12b-1 Fees None None
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
NEW ENGLAND NEW ENGLAND NEW ENGLAND
STAR ADVISERS VALUE GROWTH OPPORTUNITIES
FUND FUND FUND
--------------- ------------ --------------------
Class Y Class Y Class Y
Management Fees ___% ___% ___%
12b-1 Fees None None None
Other Expenses ___% ___% ___%
Total Fund Operating Expenses ___% ___% ___%
* Without the voluntary fee waiver and expense reduction by the Fund's
adviser, Management Fees would be ___% and Total Fund Operating Expenses
would be ___%. These voluntary limitations can be terminated by the Fund's
adviser at any time. See "Fund Management."
<PAGE>
EXAMPLE
A $1,000 investment in Class Y shares of the Funds would incur the following
dollar amount of transaction costs and operating expenses, assuming a 5% annual
return and redemption at period end. The 5% return and expenses in the Example
should not be considered indicative of actual or expected Fund performance or
expenses, both of which may be more or less than those shown.
NEW ENGLAND NEW ENGLAND
CAPITAL GROWTH FUND BALANCED FUND
------------------------- -------------------------
Class Y Class Y
1 year $___ $___
3 years $___ $___
5 years $___ $___
10 years $___ $___
NEW ENGLAND NEW ENGLAND
INTERNATIONAL EQUITY FUND STAR ADVISERS FUND
------------------------- -------------------------
Class Y Class Y
1 year $___ $___
3 years $___ $___
5 years $___ $___
10 years $___ $___
NEW ENGLAND NEW ENGLAND GROWTH
VALUE FUND OPPORTUNITIES FUND
------------------------- -------------------------
Class Y Class Y
1 year $___ $___
3 years $___ $___
5 years $___ $___
10 years $___ $___
The purpose of this fee schedule is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly if you invest in
the Funds. For additional information about the Funds' fees and other expenses,
please see "Fund Management" and "Additional Facts About the Funds."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect to
transfer redemption proceeds by wire.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Class Y share of each Fund, except New England Capital Growth and New
England Growth Opportunities Funds, outstanding throughout the indicated period.
The Financial Highlights presented on pages 6 through 14 have been included in
financial statements for the Funds. The financial statements for New England
Value Fund, New England Balanced Fund, New England International Equity Fund,
New England Capital Growth Fund and New England Star Advisers Fund for periods
through December 31, 1996 have been examined by Price Waterhouse LLP,
independent accountants. The financial statements for the Growth Opportunities
Fund's Class A shares for the years ended May 31, 1986, 1987 and 1988, the seven
month period ended December 31, 1988 and the years ended December 31, 1989,
1990, 1991, 1992, 1993, 1994 and 1995 and the Fund's Class B shares for the
period September 13, 1993 through December 31, 1993 and the years ended December
31, 1994 and 1995 have been examined by Coopers & Lybrand LLP, independent
accountants. The reports of Price Waterhouse LLP and Coopers & Lybrand LLP are
incorporated by reference in Part II of the Statement and may be obtained by
shareholders. The Financial Highlights should be read in conjunction with the
financial statements and the notes thereto incorporated by reference in Part II
of the Statement. Each Fund's annual report contains additional performance
information and is available upon request and without charge.
<PAGE>
NEW ENGLAND CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
AUGUST 3(a)
THROUGH
DEC. 31, YEAR ENDED DECEMBER 31,
-------- ---------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.50 $14.23 $15.27 $15.02
------ ------ ------ ------ ------
Income From Investment
Operations Net
Investment Income
(Loss) 0.02 0.00 (0.08) (0.11)(e)
Net Gain (Loss) on
Investments (both
realized and
unrealized) 1.84 1.12 (0.17) 4.74
------ ------ ------ ------ ------
Total Income (Loss)
From Investment
Operations 1.86 1.12 (0.25) 4.63
------ ------ ------ ------ ------
Less Distributions
Distributions (from net
investment income) (0.02) 0.00 0.00 0.00
Distributions (from net
realized capital gains) (0.11) (0.08) 0.00 (1.24)
------ ------ ------ ------ ------
Total Distributions (0.13) (0.08) 0.00 (1.24)
------ ------ ------ ------ ------
Net Asset Value,
End of Period $14.23 $15.27 $15.02 $18.41
====== ====== ====== ====== ======
Total Return (%) (c) 14.9 7.9 (1.6) 30.7
Ratios/Supplemental Data
Net Assets, End of Period
(000) $34,772 $98,735 $95,803 $123,504
Ratio of Operating Expenses
to Average Net Assets (%)(d) 1.00(b) 1.23 1.63 1.61
Ratio of Net Investment
Income (Loss) to Average
Net Assets (%) 0.74(b) (0.03) (0.45) (0.67)
Portfolio Turnover Rate (%) 15 77 82 69
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------- -------------------
SEPT. 13(a) YEAR YEAR
THROUGH ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
----------- --------------------------------- -------------------
1993 1994 1995 1996 1995(a) 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period $14.79 $15.24 $14.89 $14.89
------ ------ ------ ------ ------ ------
Income From Investment
Operations Net
Investment Income
(Loss) 0.00 (0.08) (0.16)(e) (0.09)(e)
Net Gain (Loss) on
Investments (both
realized and
unrealized) 0.53 (0.27) 4.60 4.52
------ ------ ------ ------ ------ ------
Total Income (Loss)
From Investment
Operations 0.53 (0.35) 4.44 4.43
------ ------ ------ ------ ------ ------
Less Distributions
Distributions (from net
investment income) 0.00 0.00 0.00 0.00
Distributions (from net
realized capital gains) (0.08) 0.00 (1.24) (1.24)
------ ------ ------ ------ ------ ------
Total Distributions (0.08) 0.00 (1.24) (1.24)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $15.24 $14.89 $18.09 $18.08
====== ====== ====== ====== ====== ======
Total Return (%) (c) 3.6 (2.3) 29.7 29.7
Ratios/Supplemental Data
Net Assets, End of Period
(000) $6,748 $15,390 $26,234 $354
Ratio of Operating Expenses
to Average Net Assets (%)(d) 2.29(b) 2.38 2.36 2.36
Ratio of Net Investment
Income (Loss) to Average
Net Assets (%) (1.15)(b) (1.20) (1.42) (1.42)
Portfolio Turnover Rate (%) 77 82 69 69
</TABLE>
(a) The Fund commenced operations on August 3, 1992. Class B shares were first
offered on September 13, 1993. Class C shares were first offered on January
3, 1995.
(b) Computed on an annualized basis.
(c) A sales charge in the case of Class A shares and contingent deferred sales
charge in the case of Class B shares are not reflected in total return
calculations. Periods of less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect
to the voluntary expense limitations in effect from August 3, 1992 through
September 30, 1993 would have been: (%)
Class A Class B
------------------------- ----------------------
8/3/92 - Year Ended 9/13/93 -
12/31/92 12/31/93 12/31/93
------------ ------------ ----------------------
2.20(b) 1.58 2.97(b)
(e) Per share investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss).
<PAGE>
NEW ENGLAND VALUE FUND
<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------
MARCH 31 (a) YEAR
THROUGH ENDED
DEC. 31, DEC. 31,
------------ ----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $7.57 $7.24
----- -----
Income from investment operations
Net investment income 0.10 0.12
Net gains or losses on investments (both realized and unrealized) 0.08 2.21
----- -----
Total income from investment operations 0.18 2.33
----- -----
Less distributions
Distributions (from net investment income) (0.10) (0.11)
Distributions (from capital gains) (0.41) (0.71)
----- -----
Total distributions (0.51) (0.82)
----- -----
Net asset value, end of period $7.24 $8.75
===== =====
Total return (%) 2.4 (c) 32.8
Ratios/Supplemental data
Net assets, end of period (000) $4,001 $6,738
Ratio of operating expenses to average net assets (%) 1.54 (b) 1.12
Ratio of net investment income to average net assets (%) 1.05 (b) 1.47
Portfolio turnover rate (%) 29 52
(a) Commencement of offering of Class Y shares.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
</TABLE>
<PAGE>
NEW ENGLAND BALANCED FUND
<TABLE>
<CAPTION>
CLASS Y
--------------------------------------------------------------
MAR. 8 (a) YEAR
THROUGH ENDED
DEC. 31, DEC. 31,
---------------------- -----------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $12.20 $11.27
------ ------
Income from investment operations
Net investment income 0.38 0.46
Net gains or losses on investments (both realized and unrealized) (0.72) 2.51
------ ------
Total income from investment operations (0.34) 2.97
------ ------
Less distributions
Distributions (from net investment income) (0.38) (0.45)
Distributions (from net realized capital gains) (0.21) (0.64)
------ ------
Total distributions (0.59) (1.09)
------ ------
Net asset value, end of period $11.27 $13.15
====== ======
Total return (%) (2.8)(c) 26.8
Ratios/Supplemental data
Net assets, end of period (000) $39,183 $59,411
Ratio of operating expenses to average net assets (%) 0.99 (b) 1.11
Ratio of net investment income to average net assets (%) 3.69 (b) 3.62
Portfolio turnover rate (%) 36 54
(a) Commencement of offering of Class Y shares.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
</TABLE>
<PAGE>
NEW ENGLAND INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------------------------------------
SEPT. 9, (a) YEAR
THROUGH ENDED
DEC. 31, DEC. 31,
---------------------- ----------------------------------------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.19 $14.86 $15.64
------ ------ ------
Income from investment operations
Net investment income 0.13 0.00 0.42
Net gains or losses on investments (both realized
and unrealized) (0.01) 1.32 0.60
------ ------ ------
Total income from investment operations 0.12 1.32 1.02
------ ------ ------
Less distributions
Distributions (from net investment income) (0.13) 0.00 (0.41)
Distributions (from net realized capital gains) (0.32) (0.53) 0.00
Distributions (from paid in capital) 0.00 (0.01) 0.00
------ ------ ------
Total distributions (0.45) (0.54) (0.41)
------ ------ ------
Net asset value, end of period $14.86 $15.64 $16.25
====== ====== ======
Total return (%) 0.7 (c) 8.9 6.6
Ratios/Supplemental data
Net assets, end of period (000) $7,006 $56,561 $83,119
Ratio of operating expenses to average net assets
(%) (d) 1.00 (b) 1.00 1.00
Ratio of net investment income to average net
assets (%) 0.33 (b) 0.76 1.49
Portfolio turnover rate (%) 101 (c) 123 119
(a) Commencement of offering of Class Y shares.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets without giving effect to the voluntary expense
limitations would have been 1.35 (b) and 1.04%, respectively.
</TABLE>
The Fund's current subadviser assumed that function on February 14, 1997. These
financial highlights reflect results achieved by the previous subadviser under
different investment policies.
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND (A)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------------------------
SEVEN
MONTHS
YEAR ENDED MAY 31, ENDED YEAR ENDED DECEMBER 31,
-------------------------------- ----- ----------------------------------------------------------------------
1987 1988(b) 12/31/88(b) 1989 1990 1991 1992 1993* 1994 1995 1996
---- ------- ----------- ---- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of period $12.70 $11.92 $10.37 $9.55 $10.88 $9.54 $11.79 $12.20 $12.67 $12.41
------ ------ ------ ----- ------ ----- ------ ------ ------ ------
Income from investment operations
Net
investment
income 0.35 0.33 0.19 0.29 0.30 0.26 0.23 0.21 0.22 0.18
Net gains
or losses on
investments
(both
realized and
unrealized) 0.73 (1.22) 0.25 2.32 (0.76) 2.63 0.86 0.75 (0.10) 4.01
------ ------ ------ ----- ------ ----- ------ ------ ------ ------
Total
income
from
investment
operations 1.08 (0.89) 0.44 2.61 (0.46) 2.89 1.09 0.96 0.12 4.19
------ ------ ------ ----- ------ ----- ------ ------ ------ ------
Less distributions
Distributions
(from net
investment
income) (0.34) (0.35) (0.18) (0.29) (0.30) (0.26) (0.23) (0.21) (0.21) (0.18)
------ ------ ------ ----- ------ ----- ------ ------ ------ ------
Distributions
(in excess
of net
investment
income) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) 0.00 0.00
</TABLE>
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND (a) [CONTINUED]
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------------------------
SEVEN
MONTHS
YEAR ENDED MAY 31, ENDED YEAR ENDED DECEMBER 31,
-------------------------------- ------- ----------------------------------------------------------------------
1987 1988(B) 12/31/88(B) 1989 1990 1991 1992 1993* 1994 1995 1996
---- ------- ----------- ---- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distributions
(from net
realized
capital
gains) (1.52) (0.30) (1.08) (0.95) (0.56) (0.38) (0.45) (0.27) (0.17) (2.03)
Distribution
(from
paid-in
capital) 0.00 (0.01) 0.00 (0.04) (0.02) 0.00 0.00 0.00 0.00 0.00
------ ------ ----- ------ ------ ------ ------ ------ ====== ======
Total
distributions (1.86) (0.66) (1.26) (1.28) (0.88) (0.64) (0.68) (0.49) (0.38) (2.21)
------ ------ ----- ------ ------ ------ ------ ------ ====== ======
Net asset
value, end
of period $11.92 $10.37 $9.55 $10.88 $9.54 $11.79 $12.20 $12.67 $12.41 $14.39
====== ====== ===== ====== ===== ====== ====== ====== ====== ======
Total
return (%)(f) 8.9 (7.3) 7.3(e) 27.6 (4.3) 30.6 9.3 8.0 1.0 35.1
Ratios/Supplemental data
Net
assets,
end of
period
(000) $70,427 $58,552 $55,041 $62,688 $55,726 $70,263 $90,945 $109,168 $104,081 $150,693
Ratio of
operating
expenses
to average
net assets
(%) 1.24 1.25(d) 1.33(e) 1.15 1.18 1.23 1.94 1.21 1.28 1.38
</TABLE>
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND (a) [CONTINUED]
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------------------------------
SEVEN
MONTHS
YEAR ENDED MAY 31, ENDED YEAR ENDED DECEMBER 31,
----------------------------------- ------ -------------------------------------------------------------------
1987 1988(b) 12/31/88(b) 1989 1990 1991 1992 1993* 1994 1995 1996
---- ------- ----------- ---- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of
net
investment
income to
average
net assets (%) 2.65 2.90 3.10(e) 2.68 2.92 2.28 1.18 1.70 1.75 1.31
Portfolio
turnover
rate (%) 25 8 83(e) 17 6 12 10 4 6 69
</TABLE>
<PAGE>
NEW ENGLAND GROWTH OPPORTUNITIES FUND (a) [CONTINUED]
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------ ---------------------
SEPT. 13,(C) YEAR MAY 1(C) YEAR
THROUGH ENDED THROUGH ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
------------- ------------------------ ---------------------
1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.95 $12.66 $12.42 $00.00 $13.84
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income 0.06 0.16 0.10 0.06
Net gains or losses on investments (both realized
and unrealized) 0.01 (0.09) 4.01 2.58
------ ------ ------ ------ ------ ------
Total income from investment operations 0.07 0.07 4.11 2.64
------ ------ ------ ------ ------ ------
Less distributions
Distributions (from net investment income) (0.03) (0.14) (0.10) (0.06)
Distributions in excess of net investment income (0.06) 0.00 0.00 0.00
Distributions (from net realized capital gains) (0.27) (0.17) (2.03) (2.03)
Distribution (from paid in capital) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions (0.36) (0.31) (2.13) (2.09)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.66 $12.42 $14.40 $14.39
====== ====== ====== ====== ======
Total return (%) (f) 0.60 0.60 34.3 20.2
Ratios/Supplemental data
Net assets, end of period (000) $1,498 $5,185 $29,026 $4,707
Ratio of operating expenses to average net assets (%) 2.08(e) 1.93 2.11 2.11 (e)
Ratio of net investment income to average net assets (%) 0.71(e) 1.10 0.56 0.56 (e)
(%)
Portfolio turnover rate (%) 4 6 69 69
(a) Information shown for all years is audited. The accountants' report incorporated by reference in the Statement covers years
ended May 31, 1987 through December 31, 1996. Accountants' reports for the year ended through May 31, 1986 is on file with
the SEC.
(b) Fiscal year end changed in 1988 from May 31 to December 31. The Fund's former adviser, Back Bay Advisors, L.P., assumed
that function on July 27, 1988.
(c) Commencement of offering of Class B or Class C shares.
(d) Until May 18, 1988, the Fund's former adviser, Back Bay Advisors, L.P., voluntarily agreed to limit total Fund expenses to
1.25% of the Fund's average annual net assets. Without such limitation, the ratio of operating expense to average net
assets for the year ended May 31, 1988 would have been 1.31%.
(e) Computed on an annualized basis.
(f) A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of the Class B shares
are not reflected in total return calculations. Unless otherwise indicated, periods of less than one year are not
annualized.
* As of January 1, 1993, the Fund discontinued the use of equalization accounting.
</TABLE>
The Fund's current adviser and subadviser assumed those functions on May 1,
1995. The financial highlights prior to that date reflect results achieved
by earlier advisers under investment policies that are no longer in effect.
<PAGE>
NEW ENGLAND STAR ADVISERS FUND
<TABLE>
<CAPTION>
CLASS Y
-----------------------------------------------
NOV. 15,(a) YEAR
THROUGH ENDED
DEC. 31, DEC. 31,
----------- ---------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $13.59 $13.24
------ ------
Income from investment operations
Net investment income 0.06 0.00
Net gains or losses on investments (both realized and
unrealized) (0.35) 4.58
------ ------
Total income from investment operations (0.29) 4.58
------ ------
Less distributions
Distributions (from net investment income) (0.06) 0.00
Distributions (from realized capital gains) 0.00 (0.99)
------ ------
Total distributions (0.06) (0.99)
------ ------
Net asset value, end of period $13.24 $16.83
====== ======
Total return (%) (2.1) (c) 34.8
Ratios/Supplemental data
Net assets, end of period (000) $196 $5,569
Ratio of operating expenses to average net assets (%) (d) 1.79 (b) 1.57
Ratio of net investment income to average net assets (%) 2.26 (b) (0.08)
Portfolio turnover rate (%) 100 142
(a) Commencement of offering of Class Y shares.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets (computed on an annualized basis) without giving effect
to the voluntary expense limitations in effect from November 15, 1994 through December 31, 1994 would have
been 1.90% for the period ended December 31, 1994.
</TABLE>
<PAGE>
I N V E S T M E N T S T R A T E G Y
INVESTMENT OBJECTIVES
NEW ENGLAND CAPITAL GROWTH FUND (the "Capital Growth Fund")
The Fund seeks long-term growth of capital.
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles"), Chicago, IL
NEW ENGLAND BALANCED FUND
(the "Balanced Fund")
The Fund seeks a reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income.
Subadviser: Loomis Sayles, Pasadena, CA
NEW ENGLAND INTERNATIONAL EQUITY FUND
(the "International Equity Fund")
The Fund seeks total return from long-term growth of capital and dividend
income, primarily through investment in international equity securities.
Subadviser: Loomis Sayles, Boston, MA
NEW ENGLAND STAR ADVISERS FUND
(the "Star Advisers Fund")
The Fund seeks long-term growth of capital.
Subadvisers: Berger Associates, Inc. ("Berger"), Founders Asset Management,
Inc. ("Founders"), Janus Capital Corporation ("Janus Capital")
and Loomis Sayles,
Detroit, MI
NEW ENGLAND VALUE FUND
(the "Value Fund")
The Fund seeks a reasonable long-term investment return from a combination of
market appreciation and dividend income from equity securities.
Subadviser: Loomis Sayles, Pasadena, CA
NEW ENGLAND GROWTH OPPORTUNITIES FUND
(the "Growth Opportunities Fund")
The Fund seeks opportunities for long-term growth of capital and income.
Subadviser: Westpeak Investment Advisors, L.P. ("Westpeak")
HOW THE FUNDS PURSUE THEIR OBJECTIVES
Investments in each Fund will be pooled with money from other investors in that
Fund to invest in a managed portfolio consisting of securities appropriate to
each Fund's investment objective and policies. There can be no assurance that
any Fund will achieve its objective. Each Fund is a "diversified" mutual fund,
except for the Star Advisers Fund.
FUND INVESTMENTS
[] CAPITAL GROWTH FUND
The Capital Growth Fund seeks to attain its objective by investing substantially
all of its assets in equity securities. Investments are selected based on their
growth potential; current income is not a consideration. The Fund normally will
invest primarily in equity securities of companies with medium or large market
capitalization (capitalization of $1 billion to $5 billion and over $5 billion,
respectively), but will also invest a portion of its assets in equity securities
of companies with relatively small market capitalization (under $1 billion).
The Fund's subadviser selects investments based upon fundamental research and
analysis of individual companies and industries. The subadviser selects
investments for the Fund based on qualitative and quantitative criteria
including, among others, industry dominance and competitive position, consistent
earnings growth, a history of high profitability, the subadviser's expectation
of continued high profitability and overall financial strength, although not
every investment will have all of these characteristics. The Fund may invest in
foreign securities.
[] VALUE FUND
Substantially all of the Value Fund's investments are normally in equity
securities. In selecting investments for the Fund, the emphasis is ordinarily
placed on undervalued securities. Although long-term market appreciation is
ordinarily the basis for security selection, current income may be a significant
consideration when yields appear to be favorable compared to overall
opportunities for capital appreciation. The Fund may invest in foreign
securities.
[] BALANCED FUND
The Balanced Fund is "flexibly managed" in that sometimes it invests more
heavily in equity securities and at other times it invests more heavily in
fixed-income securities, depending on the Fund's subadviser's view of the
economic and investment outlook. Most of the Fund's equity investments are
normally in dividend-paying common stocks of recognized investment quality that
are expected to achieve growth in earnings and dividends over the long term. In
selecting equity investments for the Fund, an emphasis is ordinarily placed on
undervalued securities. Fixed-income securities include notes, bonds,
non-convertible preferred stock and money market instruments. The Fund invests
at least 25% of its assets in fixed-income senior securities and, under normal
market conditions, more than 50% of its assets in equity securities. The Fund
may invest in foreign securities.
[] INTERNATIONAL EQUITY FUND
The International Equity Fund seeks to achieve its objective by investing
primarily in common stocks, although the Fund may invest in any type of equity
securities. Normally the Fund will invest at least 65% of its total assets in
equity securities of issuers headquartered outside the United States or that
derive a substantial part of their revenues or profits from countries outside
the United States. Under normal conditions the Fund's portfolio will contain
equity securities of issuers from at least three countries outside the United
States. The Fund may also invest in closed-end investment companies domiciled in
the United States that invest primarily in securities issued by foreign
companies. In addition, the Fund may invest up to 20% of its assets in bonds
issued or guaranteed by foreign governments (including their political
subdivisions, agencies, authorities and/or instrumentalities), issued by
supranational agencies or issued by foreign companies, including but not limited
to convertible debt and below investment grade or unrated debt. The Fund may
also engage in certain options and futures transactions.
The Fund's subadviser will make investment decisions on behalf of the Fund by,
first, selecting a group of attractively valued countries. Within the selected
countries, the subadviser will select securities that are expected to offer the
best value based on its valuation and earnings growth expectations.
[] GROWTH OPPORTUNITIES FUND
It is normally the policy of the Growth Opportunities Fund to invest in a
diversified portfolio of common stocks considered by the Fund's subadviser to
have possibilities for long-term appreciation of capital and income. Emphasis
will be given to both undervalued securities ("value" style) and securities of
companies with growth potential ("growth" style). The Fund will ordinarily
invest substantially all of its assets in equity securities. The Fund may invest
in foreign securities that are traded in U.S. markets.
[] STAR ADVISERS FUND
The Star Advisers Fund seeks to attain its objective by investing primarily in
equity securities. The Fund may also invest in other securities, as described
below. Under normal market conditions, however, at least 65% of the Fund's
assets will be invested in equity securities. Capital invested in the Fund will
be allocated on an equal basis among four different subadvisers. Each subadviser
will manage its segment of the Fund's assets in accordance with that
subadviser's own investment style and strategy. The Fund, in the discretion of
each subadviser, may invest without limit in securities of companies with
smaller capitalization. The Fund may in the discretion of each of its
subadvisers invest without limit in securities of foreign issuers (including
issuers in emerging markets) as well as in securities of U.S. issuers.
NEFM, the adviser of the Star Advisers Fund, believes that a multi-adviser
approach to equity investing - one that combines the varied styles of a number
of subadvisers in selecting securities for the Fund's portfolio - offers a
different investment opportunity than equity funds run by a single adviser using
a single style.
Any given management style tends to produce better returns than other styles
under certain market and economic conditions, and to perform less well under
other conditions. Therefore, most single-adviser funds have not consistently
maintained superior performance rankings relative to their peers over long
periods. NEFM believes that consistency of results, minimizing under-performance
even at the cost of out-performance at times, is likely to produce higher
performance over time.
NEFM believes that assigning portfolio management responsibility for the Star
Advisers Fund to four subadvisers, whose varying styles have resulted in records
of success, may increase the likelihood that the Fund may produce superior
long-term results for its shareholders, with less variability of return and less
risk of persistent under-performance than a single-adviser fund. Of course, past
results should not be considered a prediction of future performance, and there
is no assurance that the Fund will in fact achieve superior results over any
time period. The investment styles described below will be those applied by each
of the subadvisers to the segment of the Fund's portfolio for which that
subadviser is responsible.
BERGER places primary emphasis on established companies which it believes have
favorable growth prospects, regardless of the company's size. Berger emphasizes
stocks with potential for rapid earnings expansion. Berger seeks companies with
the capability to perform well under varying economic conditions, including the
ability to compete in the global marketplace. Berger also seeks companies with
the ability to market increasing amounts of products or services, in order to
increase shareholder equity at an above-average rate. Berger also places
considerable emphasis on the quality of the corporate leadership of companies
under consideration. Common stocks will generally constitute all or most of the
segment of the Fund managed by Berger, but this segment of the portfolio may
from time to time take substantial positions in securities convertible into
common stocks, and may also purchase preferred stocks, government securities,
zero-coupon securities and other senior securities when Berger believes it is
appropriate to do so. This segment of the portfolio may also invest in Rule 144A
securities (see "Investment Risks -- Miscellaneous" below) and may purchase put
and call options on stock indices and futures contracts and options thereon for
the purpose of hedging.
FOUNDERS' segment of the portfolio will invest primarily in common stocks of
well-established, high-quality growth companies with mid or high market
capitalization. Founders manages its segment of the Fund's portfolio by
investing primarily in established companies with above-average prospects for
growth in earnings per share. This segment will invest primarily in mid-cap and
large capitalization stocks. Founders believes that mid-cap companies (companies
with between $1.0 billion and $5.0 billion of market capitalization) can produce
returns close to those of smaller-cap companies, but with less risk because of
their stronger infrastructures and performance records and more solid market
positions, and that large-capitalization stocks add stability to the portfolio.
These companies tend to have strong performance records, with solid continuous
operating records of three years or more. Founders' approach to investment
management gives greater emphasis to the fundamental financial, marketing and
operating characteristics of individual companies, and is less concerned with
the short-term impact of changes in macroeconomics and market conditions, than
some other investment firms. This segment of the portfolio may invest in bonds,
debentures and other corporate obligations when Founders believes that these
investments offer opportunity for growth of capital. This segment of the
portfolio may also invest in Rule 144A securities and may enter into futures
contracts or options thereon for hedging purposes.
JANUS CAPITAL pursues the Fund's investment objective by investing substantially
all of Janus Capital's segment of the portfolio in common stocks when its
portfolio manager believes that the relevant market environment favors
profitable investing in such securities. Janus Capital manages its segment of
the portfolio to seek long-term capital growth primarily from investing in
common stocks of companies of any size, including large, well-established
companies and smaller, emerging growth companies. Janus Capital's analysis and
selection process focus on stocks with earnings growth potential that may not be
recognized by the market. This segment of the portfolio may also invest in
preferred stocks, warrants, government securities, corporate bonds and
debentures or other debt securities or repurchase agreements when its portfolio
manager perceives an opportunity for capital growth from such securities or to
receive a return on idle cash. Janus Capital's segment may also invest in Rule
144A securities and may enter into options, futures and forward contracts.
LOOMIS SAYLES manages its segment of the portfolio by investing primarily in
stocks of small cap companies with good earnings growth potential that Loomis
Sayles believes are undervalued by the market. Typically, such companies range
in size from $100 million to $500 million in market capitalization, have better
than average growth rates at below average price/earnings ratios and have strong
balance sheets and cash flow. Loomis Sayles seeks to build a core small cap
portfolio of solid growth company stocks, with a smaller emphasis on special
situations and turnarounds (companies that have experienced significant business
problems but which Loomis Sayles believes have favorable prospects for
recovery), as well as unrecognized stocks.
Under unusual market conditions as determined by any of the four subadvisers,
all or any portion of the segment of the portfolio managed by that subadviser
may be invested, for temporary, defensive purposes, in short-term debt
instruments or in cash. In addition, under normal conditions, a portion of each
segment's assets may be invested in short-term assets for liquidity purposes or
pending investment in other securities. Short-term investments may include U.S.
Government securities, certificates of deposit, commercial paper and other
obligations of corporate issuers rated in the top two rating categories by a
major rating agency or, if unrated, determined to be of comparable quality by
the subadviser, and repurchase agreements that are fully collateralized by cash,
U.S. Government securities or high-quality money market instruments.
[] ADDITIONAL INFORMATION
Equity securities are securities that represent an ownership interest (or the
right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and convertible
preferred stock). The Capital Growth, Growth Opportunities, International
Equity, Star Advisers and Value Funds seek to attain their objectives by
normally investing primarily all of their assets in equity securities. When the
particular Fund's adviser or subadviser deems it appropriate, however, the
International Equity, Capital Growth, Growth Opportunities and Value Funds may,
for temporary defensive purposes, hold a substantial portion of their assets in
cash or fixed-income investments, including U.S. Government obligations,
investment grade (and comparable unrated) corporate bonds or notes, money market
instruments and repurchase agreements. Corporate obligations in the lowest
investment grade category (rated BBB by Standard & Poor's Ratings Group ["S&P"]
or Baa by Moody's Investors Service, Inc. ["Moody's"]) have some speculative
characteristics and may be more adversely affected by changing economic
conditions than are higher grade obligations. No estimate can be made as to when
or for how long a Fund will employ defensive strategies. Under some market
conditions, the Balanced Fund may, for temporary purposes, invest less than 50%
of its assets in equity securities and the balance in cash and fixed-income
investments.
<PAGE>
I N V E S T M E N T R I S K S
It is important to understand the following risks inherent in a Fund before you
invest.
[] EQUITY SECURITIES
While offering greater potential for long-term growth, equity securities are
more volatile and more risky than some other forms of investment. Therefore, the
value of your investment in a Fund may sometimes decrease instead of increase.
Each Fund may invest in equity securities of companies with relatively small
market capitalization. Securities of such companies may be more volatile than
the securities of larger, more established companies and the broad equity market
indices. See "Small Companies" below. Each Fund's investments may include
securities traded "over-the-counter" as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
Each Fund may invest in convertible securities, including corporate bonds, notes
or preferred stocks that can be converted into common stocks or other equity
securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally increase or decrease as the values of the underlying equity
securities increase or decrease. The movements in the prices of convertible
securities, however, may be smaller than the movements in the value of the
underlying equity securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent ownership of the securities
for which they are exercisable, but only the right to buy such securities at a
particular price. Less than 35% of each Fund's respective net assets will be
invested in convertible securities rated below investment grade and unrated
convertible securities of comparable quality.
[] SMALL COMPANIES
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with more established companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be reflected
in more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial resources
and they may be dependent upon a relatively small management group. The
securities may have limited marketability and may be subject to more abrupt or
erratic movements in price than securities of companies with larger
capitalization or the market averages in general. The net asset value of funds
that invest in companies with smaller capitalization therefore may fluctuate
more widely than market averages.
[] FOREIGN SECURITIES
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate or
governmental issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
The International Equity and Star Advisers Funds' investments in foreign
securities may include investments in emerging or developing countries, whose
economies or securities markets are not yet highly developed. Special
considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement procedures.
The Funds may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository receipts
are instruments issued by a bank that represent an interest in equity securities
held by arrangement with the bank. Depository receipts can be either "sponsored"
or "unsponsored." Sponsored depository receipts are issued by banks in
cooperation with the issuer of the underlying equity securities. Unsponsored
depository receipts are arranged without involvement by the issuer of the
underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
[] FOREIGN CURRENCY (CAPITAL GROWTH, BALANCED, INTERNATIONAL EQUITY, STAR
ADVISERS AND VALUE FUNDS)
Most foreign securities in the Capital Growth, Balanced, International Equity,
Star Advisers and Value Funds' portfolios will be denominated in foreign
currencies or traded in securities markets in which settlements are made in
foreign currencies. Similarly, any income on such securities is generally paid
to the Fund in foreign currencies. The value of these foreign currencies
relative to the U.S. dollar varies continually, causing changes in the dollar
value of the Fund's portfolio investments (even if the local market price of the
investments is unchanged) and changes in the dollar value of the Fund's income
available for distribution to its shareholders. The effect of changes in the
dollar value of a foreign currency on the dollar value of the Fund's assets and
on the net investment income available for distribution may be favorable or
unfavorable.
The Capital Growth, Balanced, International Equity, Star Advisers and Value
Funds may incur costs in connection with conversions between various currencies.
In addition, those Funds may be required to liquidate portfolio assets, or may
incur increased currency conversion costs, to compensate for a decline in the
dollar value of a foreign currency occurring between the time when the Fund
declares and pays a dividend, or between the time when the Fund accrues and pays
an operating expense in U.S. dollars.
[] FIXED-INCOME SECURITIES
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the security, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk. Credit risk is
the risk that the security's issuer will fail to fulfill its obligation to pay
interest, dividends or principal on the security. Market risk is the risk that
the value of the security will fall because of changes in market rates of
interest. (Generally, the value of fixed-income securities falls when market
rates of interest are rising.) Some fixed-income securities also involve
prepayment or call risk. This is the risk that the issuer will repay a Fund the
principal on the security before it is due, thus depriving the Fund of a
favorable stream of future interest or dividend payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of a Fund's investments in fixed-income securities will cause a
Fund's net asset value to increase or decrease.
All non-convertible fixed-income securities purchased by the Funds other than
the International Equity, Balanced and Star Advisers Funds will, at the time of
purchase, either be rated investment grade by at least one major rating agency
or be unrated but determined to be of investment grade quality by the Fund's
subadviser.
[] LOWER QUALITY FIXED-INCOME SECURITIES (INTERNATIONAL EQUITY, BALANCED
AND STAR ADVISERS FUNDS)
Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's (and
comparable unrated securities) are of below "investment grade" quality. Lower
quality fixed-income securities generally provide higher yields, but are subject
to greater credit and market risk, than higher quality fixed-income securities.
Lower quality fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. Achievement of the investment objective of a mutual fund investing in
lower quality fixed-income securities may be more dependent on the fund's
adviser's or subadviser's own credit analysis than for a fund investing in
higher quality bonds. The market for lower quality fixed-income securities may
be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public perceptions
of this market or by legislation that limits the ability of certain categories
of financial institutions to invest in these securities. In addition, the market
may be less liquid for lower rated fixed-income securities. This lack of
liquidity at certain times may affect the valuation of these securities and may
make the valuation and sale of these securities more difficult. During the
fiscal year ended December 31, 1996, the International Equity, Balanced and Star
Advisers Funds had on average __%, __% and __% of their assets, respectively,
invested in fixed-income securities rated below investment grade. Securities of
below investment grade quality are considered high yield, high risk securities
and are commonly known as "junk bonds." For more information, including a
detailed description of the ratings assigned by S&P and Moody's, please refer to
the Statement's "Appendix A - Description of Bond Ratings."
[] ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES AND "STRIPS" (STAR
ADVISERS FUND)
The Star Advisers Fund may invest in zero coupon, pay-in-kind and step coupon
securities and in "strips." Zero coupon bonds do not make regular interest
payments; rather, they are sold at a discount from face value. Principal and
accrued discount (representing interest accrued but not paid) are paid at
maturity. "Strips" are debt securities that are stripped of their interest
coupon after the securities are issued, but otherwise are comparable to zero
coupon bonds. Step coupon bonds trade at a discount from their face value and
pay coupon interest. The coupon rate is low for an initial period and then
increases to a higher coupon rate thereafter. Pay-in-kind bonds normally give
the issuer an option to pay cash at a coupon payment date or give the holder of
the security a similar bond with the same coupon rate and a face value equal to
the amount of the coupon payment that would have been made. The market values of
"strips" and zero coupon, pay-in-kind and step coupon securities generally
fluctuate in response to changes in interest rates to a greater degree than do
conventional interest-paying securities of comparable term and quality. Under
many market conditions, investments in such securities may be illiquid, making
it difficult for the Fund to dispose of them or determine their current value.
[] REPURCHASE AGREEMENTS
Under a repurchase agreement, a Fund buys securities from a seller, usually a
bank or brokerage firm, with the understanding that the seller will repurchase
the securities at a higher price at a later date. If the seller fails to
repurchase the securities, the Fund has rights to sell the securities to third
parties. Repurchase agreements can be regarded as loans by the Fund to the
seller, collateralized by the securities that are the subject of the agreement.
Repurchase agreements afford an opportunity for the Fund to earn a return on
available cash at relatively low market risk, although the Fund may be subject
to various delays and risks of loss if the seller fails to meet its obligation
to repurchase. The staff of the SEC is currently of the view that repurchase
agreements maturing in more than 7 days are illiquid securities.
[] INVESTMENTS IN OTHER INVESTMENT COMPANIES (INTERNATIONAL EQUITY FUND)
The International Equity Fund may invest up to 10% of its total assets in
securities of other investment companies. Because of restrictions on direct
investment by U.S. entities in certain countries, investing indirectly in such
countries (by purchasing shares of another fund that is permitted to invest in
such countries) may be the most practical or efficient way for the Fund to
invest in such countries. In other cases, where the Fund's subadviser desires to
make only a relatively small investment in a particular country, investing
through another fund that holds a diversified portfolio in that country may be
more effective than investing directly in issuers in that country. As an
investor in another investment company, the Fund will indirectly bear its share
of the expenses of that investment company. These expenses are in addition to
the Fund's own costs of operations. In some cases, investing in an investment
company may involve the payment of a premium over the value of the assets held
in that investment company's portfolio.
[] SHORT-TERM TRADING
Although each Fund seeks long-term growth or return, each Fund may, consistent
with its investment objective, engage in portfolio trading in anticipation of,
or in response to, changing economic or market conditions and trends. These
policies may result in higher turnover rates in the Fund's portfolio, which may
produce higher transaction costs and a higher level of taxable capital gains.
Portfolio turnover considerations will not limit any adviser's or subadviser's
investment discretion in managing a Fund's assets.
Recent portfolio turnover rates of each Fund are set forth above under
"Financial Highlights."
[] OPTIONS, FUTURES, SWAP CONTRACTS AND CURRENCY TRANSACTIONS
(INTERNATIONAL EQUITY, STAR ADVISERS AND GROWTH OPPORTUNITIES FUNDS)
The International Equity and Star Advisers Funds may buy, sell or write options
on securities, securities indexes, currencies or futures contracts. These Funds
may buy and sell futures contracts on securities, securities indexes or
currencies. These Funds may also enter into swap contracts. These Funds may
engage in these transactions either for the purpose of enhancing investment
return, or to hedge against changes in the value of other assets that the Fund
owns or intends to acquire. These Funds may also conduct foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market. These Funds may enter into interest
rate, currency and securities index swaps. These Funds will enter into these
transactions primarily to seek to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against an
increase in the price of securities the Fund anticipates purchasing at a later
date.
The Growth Opportunities Fund may buy and sell futures contracts on a variety of
stock indexes. The Fund would buy such a futures contract only when the Fund is
experiencing significant cash inflows, and then only for the purpose of
maintaining the Fund's exposure to the equity markets during the time before the
Fund has fully invested incoming cash in equity securities directly. Similarly,
the Fund would sell stock index futures only during periods of cash outflows
from the Fund, for the purpose of reducing equity market exposure before
holdings of stock are liquidated. The Fund will not use futures contracts for
speculative purposes or to hedge against changes in the value of the Fund's
securities portfolios.
Options, futures and swap contracts fall into the broad category of financial
instruments known as "derivatives" and involve special risks. Use of options,
futures or swaps for other than hedging purposes may be considered a speculative
activity, involving greater risks than are involved in hedging.
Options can generally be classified as either "call" or "put" options. There are
two parties to a typical options transaction: the "writer" and the "buyer." A
call option gives the buyer the right to buy a security or other asset (such as
an amount of currency or a futures contract) from, and a put option the right to
sell a security or other asset to, the option writer at a specified price, on or
before a specified date. The buyer of an option pays a premium when purchasing
the option, which reduces the return on the underlying security or other asset
if the option is exercised, and results in a loss if the option expires
unexercised. The writer of an option receives a premium from writing an option,
which may increase its return if the option expires or is closed out at a
profit. If a Fund as the writer of an option is unable to close out an unexpired
option, it must continue to hold the underlying security or other asset until
the option expires, to "cover" its obligations under the option.
A futures contract creates an obligation by the seller to deliver and the buyer
to take delivery of the type of instrument or cash at the time and in the amount
specified in the contract. Although many futures contracts call for the delivery
(or receipt) of the specified instrument, futures are usually closed out before
the settlement date through the purchase (or sale) of a comparable contract. If
the price of the sale of the futures contract by a Fund exceeds (or is less
than) the price of the offsetting purchase, the Fund will realize a gain (or
loss).
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal). A currency swap is an agreement to exchange cash flows on a
notional amount based on changes in the relative values of the specified
currencies. An index swap is an agreement to make or receive payments based on
the different returns that would be achieved if a notional amount were invested
in a specified basket of securities (such as the Standard & Poor's Composite
Index of 500 Stocks [the "S&P 500"]) or in some other investment (such as U.S.
Treasury securities).
The value of options purchased by a Fund, futures contracts held by a Fund and a
Fund's positions in swap contracts may fluctuate up or down based on a variety
of market and economic factors. In some cases, the fluctuations may offset (or
be offset by) changes in the value of securities held in the Fund's portfolio.
All transactions in options, futures or swaps involve costs and the possible
risk of loss to the Fund of all or a significant part of the value of its
investment. In some cases, the risk of loss may exceed the amount of the Fund's
investment. The Fund will be required, however, to set aside with its custodian
bank certain assets in amounts sufficient at all times to satisfy its
obligations under options, futures and swap contracts.
The successful use of options, futures and swaps will usually depend on the
subadvisers' ability to forecast stock market, currency or other financial
market movements correctly. A Fund's ability to hedge against adverse changes in
the value of securities held in its portfolio through options, futures and swap
transactions also depends on the degree of correlation between the changes in
the value of futures, options or swap positions and changes in the values of the
portfolio securities. The successful use of futures and exchange-traded options
also depends on the availability of a liquid secondary market to enable the Fund
to close its positions on a timely basis. There can be no assurance that such a
market will exist at any particular time. In the case of swap contracts and of
options that are not traded on an exchange ("over-the-counter" options), the
Fund is at risk that the other party to the transaction will default on its
obligations, or will not permit the Fund to terminate the transaction before its
scheduled maturity. As a result of these characteristics, the Fund will treat
most swap contracts and over-the-counter options (and the assets it segregates
to cover its obligations thereunder) as illiquid. Certain provisions of the
Internal Revenue Code (the "Code") and certain regulatory requirements may limit
a Fund's ability to engage in futures, options and swap transactions.
[] CURRENCY HEDGING TRANSACTIONS (INTERNATIONAL EQUITY AND STAR ADVISERS
FUNDS)
The International Equity and Star Advisers Funds may, at the discretion of their
subadvisers, engage in foreign currency exchange transactions, in connection
with the purchase and sale of portfolio securities, to protect the value of
specific portfolio positions or in anticipation of changes in relative values of
currencies in which current or future Fund portfolio holdings are denominated or
quoted. Currency hedging transactions may include forward contracts (contracts
with another party to buy or sell a currency at a specified price on a specified
date), futures contracts (which are similar to forward contracts but are traded
on an exchange) and swap contracts. For more information on foreign currency
hedging transactions, see Part II of the Statement.
[] MISCELLANEOUS
No Fund will invest more than 15% of its net assets in "illiquid securities,"
that is, securities which are not readily resalable, which may include
securities whose disposition is restricted by federal securities laws.
The Balanced, International Equity and Star Advisers Funds may purchase Rule
144A securities. These are privately offered securities that can be resold only
to certain qualified institutional buyers. The Star Advisers Fund may also
purchase commercial paper issued under Section 4(2) of the Securities Act of
1933. Rule 144A securities and Section 4(2) commercial paper are treated as
illiquid, unless a subadviser has determined, under guidelines established by
New England Funds Trust I's trustees, that the particular issue of Rule 144A
securities or commercial paper is liquid. Investment in restricted or other
illiquid securities involves the risk that a Fund may be unable to sell such a
security at the desired time. Also, a Fund may incur expenses, losses or delays
in the process of registering restricted securities prior to resale.
The International Equity and Star Advisers Funds may purchase securities on a
"when-issued" or "delayed-delivery" basis. This means that a Fund enters into a
commitment to buy the security before the security has been issued, or, in the
case of a security that has already been issued, to accept delivery of the
security on a date beyond the usual settlement period. If the value of a
security purchased on a "when-issued" or "delayed delivery" basis falls or
market rates of interest increase between the time a Fund commits to buy the
security and the delivery date, the Fund may sustain a loss in value of or yield
on the security. For more information on "when-issued" and "delayed delivery"
securities, see Part II of the Statement.
To the extent the Star Advisers Fund may invest in derivative securities for
other than bona fide hedging purposes, such investments may be speculative in
nature and may involve additional risks.
The Star Advisers Fund is a "non-diversified" fund and as such is not required
to meet any diversification requirements under the Investment Company Act of
1940 (the "1940 Act"), although the Fund must meet certain diversification
standards to qualify as a "regulated investment company" under the Code. Since
the Fund may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the Fund may be more susceptible
than a more widely-diversified fund to any single economic, political or
regulatory occurrence.
[] SPECIAL CONSIDERATIONS REGARDING THE MULTI-ADVISER APPROACH (STAR
ADVISERS FUND)
NEFM, the adviser of the Star Advisers Fund, oversees the portfolio management
services provided to the Fund by each of the four subadvisers. NEFM does not,
however, determine what investments will be purchased or sold for any segment of
the portfolio. Because each subadviser will be managing its segment of the
portfolio independently from the other subadvisers, the same security may be
held in two different segments of the portfolio, or may be acquired for one
segment of the portfolio at a time when the subadviser of another segment deems
it appropriate to dispose of the security from that other segment. Similarly,
under some market conditions, one or more of the subadvisers may believe that
temporary, defensive investments in short-term instruments or cash are
appropriate when another subadviser or subadvisers believe continued exposure to
the equity markets is appropriate for their segments of the portfolio. Because
each subadviser directs the trading for its own segment of the portfolio, and
does not aggregate its transactions with those of the other subadvisers, the
Fund may incur higher brokerage costs than would be the case if a single adviser
or subadviser were managing the entire portfolio. Also, because each segment of
the portfolio will perform differently from the other segments depending upon
the investments it holds and changing market conditions, one segment may be
larger or smaller at various times than other segments. For example, as of
December 31, 1996, the percentage of the Fund's net assets held in the segments
of the Fund managed by Berger, Founders, Janus Capital and Loomis Sayles were
__%, __%, __% and __%, respectively. Net cash inflows or outflows resulting from
sales and redemptions of the Fund's shares will, however, continue to be
allocated on an equal basis among the four segments of the portfolio without
regard to the relative size of the segments. The Fund does not intend to
reallocate assets among the segments to reduce these differences in size.
NEFM may, at its discretion, terminate its agreement with a segment's
subadviser. In such case, NEFM will either enter into an agreement with another
subadviser to manage the segment or will allocate the segment's assets equally
among the other segments of the Fund.
<PAGE>
F U N D M A N A G E M E N T
New England Funds Management, L.P. ("NEFM"), 399 Boylston Street, Boston,
Massachusetts, 02116, serves as the adviser to each Fund. NEFM oversees,
evaluates and monitors the subadvisory services provided to each Fund and
furnishes general business management and administration to each Fund. NEFM does
not determine what investments will be purchased by the Funds.
The subadviser of the International Equity Fund, the Capital Growth Fund, the
Balanced Fund and the Value Fund is Loomis Sayles. Founded in 1926, Loomis
Sayles, One Financial Center, Boston, Massachusetts 02111, is one of the
country's oldest and largest investment counsel firms. Paul Drexler, Vice
President of Loomis Sayles, has served as the portfolio manager of the
International Equity Fund since February 14, 1997. Scott S. Pape, Vice President
of Loomis Sayles, has served as co-portfolio manager of the Capital Growth Fund
since its inception in 1992. Since June 30, 1996, Bruce A. Ebel, Vice President
of Loomis Sayles, has also served as co-portfolio manager of the Capital Growth
Fund. Carol C. McMurtrie, Vice President and Managing Partner of Loomis Sayles,
and Tricia H. Mills and Douglas D. Ramos, Vice Presidents of Loomis Sayles, have
served as portfolio managers of the Value Fund since March 1993. Douglas D.
Ramos and Meri Anne Beck have served as portfolio managers of the Balanced Fund
since 1990; Ms. Beck is also a Vice President of Loomis Sayles. All of the
foregoing persons have been employed by Loomis Sayles for at least five years,
except Mr. Drexler, Mr. Pape and Mr. Ebel who, prior to the time they joined
Loomis Sayles, were Deputy Manager, Brown Brothers Harriman & Co., Equity
Portfolio Manger of the Illinois State Board of Investment and Senior Vice
President of Kemper Asset Management, respectively.
The subadviser of the Growth Opportunities Fund is Westpeak, 1011 Walnut Street,
Boulder, Colorado 80302. The portfolio manager of the Growth Opportunities Fund
is Gerald H. Scriver, President and Chief Executive Officer of Westpeak. Mr.
Scriver has been with Westpeak since its inception in 1991 and has been
portfolio manager of the Growth Opportunities Fund since May 1995.
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
Fund of 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 Fund 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
International Equity Fund 0.90% of the first $200 million
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 fee rates payable by the Balanced, Capital Growth, International
Equity, Star Advisers and Value Funds are higher than those paid by most other
mutual funds but are comparable to fee rates paid by some mutual funds with
similar investment objectives and policies to these Funds. In the case of the
Star Advisers Fund, this difference in the fee rate is partially due to the
multi-adviser format.
Subject to the supervision of NEFM, each subadviser manages the portfolio(s) of
the Fund(s) to which it serves as subadviser (in the case of the Star Advisers
Fund, its segment of such Fund's portfolio) in accordance with the Fund's
investment objective and policies, makes investment decisions for that Fund or
segment, places orders to purchase and sell securities for that Fund or segment,
and employs professional advisers and securities analysts who provide research
services to that Fund or segment. The Funds pays no direct fees to any of their
subadvisers.
Below is a brief description of the subadvisers of the Star Advisers Fund.
BERGER, 210 University Boulevard, Suite 900, Denver, Colorado 80206. Rodney L.
Linafelter, Vice President of Berger, has day-to-day responsibility for the
management of the segment of the Fund managed by Berger. Kansas City Southern
Industries, Inc. ("KCSI"), a publicly traded holding company, owns approximately
80% of the outstanding shares of Berger.
FOUNDERS, 2930 East Third Avenue, Denver, Colorado 80206. To facilitate
day-to-day investment management, Founders employs a unique
team-and-lead-manager system. The management team for a portfolio or fund is
comprised of Founders' Chief Investment Officer Bjorn K. Borgen, a lead
portfolio manager, assistant portfolio managers, portfolio traders and research
analysts. Team members share responsibility for providing ideas, information,
knowledge and expertise in the management of Founders' segment of the Fund. Each
team member has one or more areas of expertise that is applied to the management
of Founders' segment of the Fund. Daily decisions on portfolio selection rest
with the lead portfolio manager, who, through participation in the team process,
utilizes the input of other team members in making purchase and sale
determinations. Edward F. Keely is lead portfolio manager for the segment of the
Fund that is managed by Founders. Mr. Borgen has served as Founders' Chief
Investment Officer since 1969 and owns all of Founders' outstanding shares.
JANUS CAPITAL, 100 Fillmore Street, Denver, Colorado 80206. Warren B. Lammert
has day-to-day management responsibility for those assets of the Fund allocated
to Janus Capital, where he serves as a portfolio manager and Vice President of
Investments. 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 of directors.
LOOMIS SAYLES. Jeffrey C. Petherick and Mary Champagne, Vice Presidents of
Loomis Sayles, have day-to-day management responsibility for the segment of the
Fund that is allocated to Loomis Sayles. Mr. Petherick, who joined Loomis Sayles
in 1990, has co-managed the Loomis Sayles segment of the Fund since the Fund's
inception. Ms. Champagne has co-managed the Loomis Sayles segment of the Fund
since July 1995. Prior to joining Loomis Sayles in 1993, Ms. Champagne served as
a portfolio manager at NBD Bank for 10 years.
NEFM pays each subadviser of the Star Advisers Fund 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 that the subadviser manages and 0.50% of such assets in
excess of $50 million. The Distributor in its discretion may, but is not
obligated to, pay an incentive bonus to the subadviser whose segment of the
Fund's portfolio has the highest relative total return for the prior year versus
that segment's investment peer group as tracked by a major independent mutual
fund reporting service.
NEFM pays the subadvisers of the following Funds a subadvisory fee at the annual
rate set forth in the following table:
<TABLE>
<CAPTION>
Subadvisory fee payable by NEFM to subadviser
Fund Subadviser (as a percentage of average daily net assets of the Fund)
- -------------------------------------- --------------------- ------------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund Loomis Sayles 0.535% of the first $200 million
0.350% of the next $300 million
0.300% of amounts in excess of $500 million
Capital Growth Fund Loomis Sayles 0.60% of the first $25 million
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 Opportunities Fund Westpeak 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
International Equity Fund Loomis Sayles 0.40% of the first $200 million
0.35% of amounts in excess of $200 million
Value Fund Loomis Sayles 0.535% of the first $200 million
0.350% of the next $300 million
0.300% of amounts in excess of $500 million
</TABLE>
Prior to January 2, 1996, the current subadvisers to the Balanced, Capital
Growth and Value Funds served as those Funds' respective advisers, and New
England Investment Companies, L.P. ("NEIC") served as adviser to the Star
Advisers Fund. Prior to December 29, 1995, the International Equity Fund's
adviser was Draycott Partners, Ltd. ("Draycott"). From December 29, 1995 to
February 14, 1997, Draycott served as subadviser and NEFM served as adviser to
the International Equity Fund. [Prior to May 1, 1995, the Growth Opportunities
Fund was advised by a different adviser and paid a lower rate of advisory fees.]
Loomis Sayles, as subadviser to the International Equity Fund, has voluntarily
agreed to waive its entire subadvisory fee payable to Loomis Sayles by NEFM
through February 14, 1998. This waiver by Loomis Sayles will not reduce the
International Equity Fund's management fee payable to NEFM. In addition, NEFM
and the Distributor have voluntarily agreed to reduce their fees and to bear
certain operating expenses charged to the International Equity Fund to the
extent that the total of such fees and expenses would exceed 1.75%, 2.50%, 2.50%
and 1.15% annually of the average daily net assets of the Fund's Class A, B, C
and Y shares, respectively. NEFM and the Distributor may terminate these
voluntary limitations at any time. In such event, the Fund would supplement its
prospectus.
The general partners of each of NEFM, the Distributor, Loomis Sayles and
Westpeak are special purpose corporations. These corporations are indirect
wholly-owned subsidiaries of NEIC, whose sole general partner, New England
Investment Companies, Inc. ("NEIC Inc."), is a wholly-owned subsidiary of
Metropolitan Life Insurance Company.
Subject to applicable regulatory restrictions and such policies as the Trusts'
trustees may adopt, the Funds' advisers and subadvisers may consider sales of
shares of the Funds and other mutual funds they manage as a factor in the
selection of broker-dealers to effect portfolio transactions for the Funds.
Subject to procedures adopted by the trustees of the Trusts, Fund brokerage
transactions may be executed by brokers that are affiliated with NEIC, NEFM or
any subadviser. See "Portfolio Transactions and Brokerage" in Part II of the
Statement.
NEFM provides executive and other personnel for the management of the Trusts.
Each Trust's Board of Trustees supervises the affairs of the Trust as conducted
by NEFM and the Funds' subadvisers.
In addition to the management fee paid to its adviser, each Fund pays all
expenses not borne by its adviser, subadviser(s) or the Distributor, including,
but not limited to, the charges and expenses of each 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,
preparing, printing and mailing prospectuses and reports to shareholders and the
compensation of trustees who are not directors, officers or employees of The New
England or its affiliates, other than affiliated registered investment
companies. Certain expenses are allocated differently between each Fund's Class
A, Class B and Class C shares, on the one hand, and its Class Y shares, on the
other hand. (See "Additional Facts about the Funds" below.)
<PAGE>
B U Y I N G F U N D S H A R E S
MINIMUM INVESTMENT
Class Y shares of the Funds may be purchased by endowments, foundations, bank
trust departments or trust companies. The minimum initial investment is $1
million for these entities, and $10,000 is the minimum for each subsequent
investment. Class Y shares may also be purchased by plan sponsors of 401(a),
401(k), 457 or 403(b) plans ("Retirement Plans") that have total investment
assets in these plans of at least $10 million, and by The New England and any
other insurance company affiliated with The New England or any of their
successor entities ("Insurance Company Accounts"). Plan sponsors' investment
assets in multiple Retirement Plans can be aggregated for purposes of meeting
this minimum. Class Y shares may also be purchased by any separate account of
The New England, any other insurance company affiliated with The New England
("Separate Accounts") and, in the case of the International Equity Fund, by bank
common trusts, bank collective trust funds and dedicated corporate or trusted
funds, such as nuclear decommissioning trusts and hospital depreciation funds
("Special Accounts"). Class Y shares may also be purchased by wrap fee programs
of certain broker-dealers as to which no service or marketing fees are paid to
broker-dealers by the Fund, NEFM or the Distributor ("Wrap Fee Programs"). There
is no minimum initial or subsequent investment amount for Retirement Plans,
Separate Accounts, Special Accounts, Insurance Company Accounts or Wrap Fee
Programs. Investments in the Funds may also be made by certain individual
retirement accounts if the amounts invested represent rollover distributions
from investments by any of the foregoing plans of amounts invested in the Funds.
The Distributor serves as the principal underwriter of the Fund's shares. Shares
may be purchased on any day when the New York Stock Exchange (the "Exchange") is
open for business (a "business day"). Investors should contact New England Funds
before attempting to place an order for Fund shares. The Funds and the
Distributor reserve the right at any time to reject a purchase order.
WAYS TO BUY FUND SHARES
A shareholder may purchase Class Y shares for cash on any business day by the
two methods described below:
BY WIRE TRANSFER: Prior to an initial investment, obtain an account number and
wire transfer instructions by calling 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time). All funds should be transmitted to State Street Bank and
Trust Company, ABA #011000028, DDA #99011538, Credit [Fund Name] Class Y shares,
Shareholder Name, and Shareholder Account Number.
BY MAIL: For an initial investment, simply complete the attached application and
return it with a check payable to New England Funds and mailed to New England
Funds, L.P. P O. Box 8551, Boston, MA 02266-8551. All purchases made by check
should be in U.S. dollars and made payable to New England Funds, or, in the case
of a retirement account, the custodian or trustee. Third party checks will not
accepted. When purchases are made by check, redemptions will not be allowed
until the investment being redeemed has been in the account for 10 calendar
days.
Class Y shares of each Fund other than the Star Advisers Fund may also be
purchased by exchanging securities on deposit with a custodian acceptable to the
subadviser of the Fund or by a combination of such securities and cash. Purchase
of shares of the Funds in exchange for securities is subject in each case to the
determination by the Fund's subadviser that the securities to be exchanged are
acceptable for purchase by the Fund. Securities accepted by the Fund's
subadviser in exchange for Fund shares will be valued in the same manner as the
Fund's assets (generally the last quoted sales price), as described below under
"Determination of Net Asset Value," as of the time of the Fund's next
determination of net asset value after such acceptance. All dividends and
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Fund upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes would be realized upon the exchange by an
investor that is subject to federal income taxation, depending upon the
investor's basis in the securities tendered. A shareholder who wishes to
purchase shares by exchanging securities should obtain instructions by calling
1-800-225-5478.
A Fund's subadviser will not approve the acceptance of securities in exchange
for shares of a Fund it manages unless (1) the subadviser, in its sole
discretion, believes the securities are appropriate investments for the Fund;
(2) the investor represents and agrees that all securities offered to the Fund
are not subject to any restrictions upon their sale by the Fund under the
Securities Act of 1933, or otherwise; (3) the securities are eligible to be
acquired under the Fund's investment policies and restrictions; and (4) the
securities have a value which is readily ascertainable (not established by
evaluation procedures alone) as evidenced by a listing on the New York Stock
Exchange, the American Stock Exchange, NASDAQ or the principal securities
exchange of countries in which the Fund may invest. No investor owning 5% or
more of the Fund's shares may purchase additional Fund shares by exchange of
securities (other than shares of other funds in the New England Funds).
GENERAL
The purchase price of shares of each Fund is the net asset value next determined
after a purchase order is received in good order by New England Funds. For
purposes of calculating the purchase price of Fund shares, a purchase order is
considered received by the Fund on the day that it is "in good order" unless it
is rejected by the Fund. For a purchase order to be in "good order" on a
particular day, in the case of a purchase of Fund shares in exchange for
securities, the investor's securities must be placed on deposit at a depository
acceptable to the Fund's subadviser by 4:00 p.m. (Eastern time) and, in the case
of a cash investment, Federal funds must be wired to the Fund between 9:00 a.m.
and 4:00 p.m. (Eastern time) or a check for the purchase price of the shares,
accompanied by a completed application, must have been received by New England
Funds before 4:00 p.m. (Eastern time) on that day. Orders received after 4:00
p.m. (Eastern time) will receive the next day's price.
Purchases will be made in full and fractional Class Y shares calculated to three
decimal places. The shareholder will receive a statement of Fund shares owned
following each transaction. Investors will not receive certificates representing
Class Y shares. The Funds and the Distributor reserve the right at any time to
reject a purchase order.
<PAGE>
O W N I N G F U N D S H A R E S
EXCHANGING AMONG NEW ENGLAND FUNDS
You may exchange Class Y shares of the Funds or any other series of the Trusts
for Class Y shares of any other series of the Trusts which offers Class Y shares
or for Class A shares of New England Cash Management Trust Money Market Series
or U.S. Government Series or New England Tax Exempt Money Market Trust (the
"Money Market Funds").
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) or, write to New England Funds. Exchange requests after 4:00 p.m.
(Eastern time), or after the Exchange closes if it closes earlier than 4:00
p.m., will be processed at the net asset value determined at the close of
regular trading on the next day that the Exchange is open. All exchanges are
subject to the minimum investment and eligibility requirements of the series
into which you are exchanging. In connection with any exchange, you must receive
a current prospectus of the series into which you are exchanging. The exchange
privilege may be exercised only in those states where shares of such other
series may be legally sold.
You have the automatic privilege to exchange your Fund shares by telephone. New
England Funds, L.P. will employ reasonable procedures to confirm that telephone
instructions are genuine, and, if it does not, it may be liable for any losses
due to unauthorized or fraudulent instructions. New England Funds, L.P. will
require a form of personal identification prior to acting upon telephone
instructions, will provide shareholders with written confirmations of such
transactions and will record your instructions.
Except as otherwise permitted by SEC rule, shareholders will receive at least 60
days' advance notice of any material change to the exchange privilege.
FUND DIVIDEND PAYMENTS
The Capital Growth Fund, the International Equity Fund, the Value Fund and the
Star Advisers Fund pay dividends annually and the Balanced Fund and the Growth
Opportunities Fund pay dividends quarterly. Each Fund pays as dividends
substantially all net investment income (other than long-term capital gains)
each year and distributes annually all net realized long-term capital gains
(after applying any available capital loss carryovers). The trustees of the
Trusts may adopt a different schedule as long as payments are made at least
annually. If you intend to purchase shares of a Fund shortly before it declares
a dividend, you should be aware that a portion of the purchase price may be
returned to you as a taxable dividend.
You have the option to reinvest all distributions in additional Class Y shares
of the Fund or in Class Y shares of other series of the Trusts, to receive
distributions from dividends and interest in cash while reinvesting
distributions from capital gains in additional Class Y shares of the Fund or of
other series of the Trusts, or to receive all distributions in cash. Income
distributions and capital gains distributions will be reinvested in Class Y
shares of the respective Fund at net asset value unless you select another
option. You may change your distribution option by notifying New England Funds
in writing or by calling 1-800-225-5478. If you elect to receive your dividends
in cash and the dividend checks sent to you are returned "undeliverable" to the
Fund or remain uncashed for six months, your cash election will automatically be
changed and your future dividends will be reinvested.
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program that allows you to
have all dividends and any other distributions automatically invested in Class Y
shares of another New England Fund, subject to the investor eligibility
requirements of that other fund and to state securities law requirements. Shares
will be purchased at the selected fund's net asset value on the dividend record
date. A dividend diversification account must be in the same registration
(shareholder name) as the distributing fund account and, if a new account in the
purchased fund is being established, the purchased fund's minimum investment
requirements must be met. Before establishing a dividend diversification program
into any other New England Fund, you must obtain a copy of that fund's
prospectus.
<PAGE>
S E L L I N G F U N D S H A R E S
WAYS TO SELL FUND SHARES
You may sell Class Y shares of the Funds in the following ways:
[] BY TELEPHONE:
You may redeem (sell) shares by telephone for cash by the two methods described
below:
Wired to Your Bank Account -- If you have previously selected the telephone
redemption privilege on your account, shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
Funds are open for business. The proceeds generally will be wired on the next
business day to the bank account previously chosen by you on your application. A
wire fee (currently $5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have a correspondent
bank that is a member. If your account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
Mailed to Your Address of Record -- Shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) and requesting
that a check for the proceeds be mailed to the address on your account, provided
that the address has not changed over the previous month and that the proceeds
are for $100,000 or less. Generally, the check will be mailed to you on the
business day after your redemption request is received.
Redemption requests accepted after 4:00 p.m. (Eastern time), or after the
Exchange closes if it closes before 4:00 p.m., will be processed at the net
asset value determined at the close of regular trading on the next day that the
Exchange is open.
[] BY MAIL:
You may redeem your shares at their net asset value next determined after
receipt of your request in good order by sending a written request (including
any necessary special documentation) to New England Funds, P.O. Box 8551,
Boston, MA 02266-8551.
The request must include the name of the Fund, your account number, the exact
name(s) in which your shares are registered, the number of shares or the dollar
amount to be redeemed and whether you wish the proceeds mailed to your address
of record or wired to your bank account or transmitted through ACH. All owners
of the shares must sign the request in the exact names in which the shares are
registered (this appears on your confirmation statement) and indicate any
special capacity in which they are signing (such as trustee, custodian or under
power of attorney or on behalf of a partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the proceeds check is
made payable to the registered owner(s) and mailed to the record address, no
signature guarantee is required. Otherwise, you generally must have your
signature guaranteed by an eligible guarantor institution in accordance with
procedures established by New England Funds, L.P. Signature guarantees by
notaries public are not acceptable.
Additional written information may be required for redemptions by certain
benefit plans and IRAs. Contact the Distributor or your investment dealer for
details.
GENERAL. Redemption requests will be effected at the net asset value next
determined after the redemption request is received in proper form by State
Street Bank and Trust Company ("State Street Bank"). Redemption proceeds will
normally be mailed to you within seven days after State Street Bank or the
Distributor receives your request in good order. However, in those cases where
you have recently purchased your shares by check or an electronic funds transfer
through the ACH system and you make a redemption request within 10 days after
such purchase or transfer, the Fund may withhold redemption proceeds until the
Fund knows that the check or funds have cleared.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If you are unable to contact the Distributor by
telephone, shares may be redeemed by delivering the redemption request in person
to the Distributor or by mail as described above. Requests are processed at the
net asset value next determined after the request is received.
Special rules apply with respect to redemptions under powers of attorney. Please
call the Distributor for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares in certificate form. If certificates have been issued for your
investment, you must send them to New England Funds along with your request
before a redemption request can be honored. See the instructions for redemption
by mail above.
The Funds may suspend the right of redemption and may postpone payment for more
than seven days when the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the SEC when trading on the Exchange is
restricted or during an emergency which makes it impracticable for the Funds to
dispose of their securities or to determine fairly the value of their net
assets, or during any other period permitted by the SEC for the protection of
investors.
If a Fund's subadviser(s) determine(s), in its or their sole discretion, that it
would be detrimental to the best interests of the remaining shareholders of the
Fund to make payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by a distribution in kind of readily marketable
securities held by the Fund in lieu of cash. Securities used to redeem Fund
shares in kind will be valued in accordance with the Funds' procedures for
valuation described under "Determination of Net Asset Value." Securities
distributed by a Fund in kind will be selected by the Fund's subadviser(s) in
light of the Fund's objective and will not generally represent a pro rata
distribution of each security held in the Fund's portfolio. Investors may incur
brokerage charges on the sale of any such securities so received in payment of
redemptions. The Funds' right to pay redemptions in kind is limited by an
election made by the Funds under Rule 18f-1 under the 1940 Act. See
"Redemptions" in Part II of the Statement.
<PAGE>
F U N D D E T A I L S
HOW FUND SHARE PRICE IS DETERMINED
The net asset value of each Fund's shares is determined as of the close of
regular trading (normally 4:00 p.m. [Eastern time]) on the Exchange on each day
that the Exchange is open for trading. Each Fund's holdings of equity securities
are valued at the most recent sales prices on an applicable exchange or NASDAQ,
or, in the case of unlisted securities (or listed securities which were not
traded during the day), at the last quoted bid prices. Price information on
listed securities is generally taken from the closing price on the exchange
where the security is primarily traded. Securities traded primarily on an
exchange outside the United States which closes before the close of the Exchange
generally will be valued for purposes of calculating the Fund's net asset value
at the last sale or bid price on that non-U.S. exchange, except that when an
occurrence after the closing of that exchange is likely to have materially
changed such a security's value, such security will be valued at fair value as
of the close of regular trading on the Exchange. An option that is written by
the Fund generally will be valued at the last sale price or, in the absence of
the last sale price, the last offer price. The value of a futures contract will
be equal to the unrealized gain or loss on the contract that is determined by
marking the contract to the current settlement price. A settlement price may not
be used if the market makes a limit move with respect to a particular futures
contract or if the securities underlying the futures contract experience
significant price fluctuations after the determination of the settlement price.
When a settlement price is not used, futures contracts will be valued at their
fair value as determined by or under the direction of each Trust's Board of
Trustees. Short-term notes are valued at cost, or, where applicable, amortized
cost, which method is intended to approximate market value. All other securities
and assets of each Fund's portfolio (or, in the case of the Star Advisers Fund,
each segment of the Fund's portfolio) are valued at their fair market value as
determined in good faith by the adviser or subadviser of that Fund or segment
(or a pricing service selected by the adviser or subadviser) under the
supervision of each Trust's Board of Trustees. The value of any assets for which
the market price is expressed in terms of a foreign currency will be translated
into U.S. dollars at the prevailing market rate on the date of the net asset
value computation, or, if no such rate is quoted at such time, at such other
appropriate rate as may be determined by or under the direction of each Trust's
Board of Trustees.
The net asset value per share of each class is determined by dividing the value
of each class's securities (determined as explained above) plus any cash and
other assets (including dividends and interest receivable but not collected)
less all liabilities (including accrued expenses), by the number of shares of
such class outstanding. The public offering price of each Fund's Class Y shares
is the net asset value per share.
INCOME TAX CONSIDERATIONS
Each Fund intends to meet all requirements of the Code necessary to qualify as a
regulated investment company and thus does not expect to pay any federal income
tax on investment income and capital gains distributed to shareholders in cash
or in additional shares. Unless you are a tax-exempt entity, your distributions
derived from a Fund's short-term capital gains and ordinary income are taxable
to you as ordinary income. (A portion of these distributions may qualify for the
dividends-received deduction for corporations.) Distributions derived from a
Fund's long-term capital gains ("capital gains distributions"), if designated as
such by a Fund, are taxable to you as long-term capital gains, regardless of how
long you have owned shares in the Fund. Both income distribution and capital
gains distributions are taxable whether you elected to receive them in cash or
additional shares.
To avoid an excise tax, each Fund intends to distribute prior to calendar year
end virtually all the Fund's ordinary income and net capital gains earned during
that calendar year. If declared in December to shareholders of record in that
month, and paid the following January, these distributions will be considered
for federal income tax purposes to have been received by shareholders on
December 31.
Each Fund is required to withhold 31% of all income dividends and capital gains
distributions it pays to you if you do not provide a correct, certified taxpayer
identification number, if a Fund is notified that you have underreported income
in the past or if you fail to certify to a Fund that you are not subject to such
withholding. In addition, each Fund will be required to withhold 31% of the
gross proceeds of Fund shares you redeem if you have not provided a correct,
certified taxpayer identification number. If you are a tax-exempt shareholder,
however, these backup withholding rules will not apply so long as you furnish
the Fund with an appropriate certification.
Annually, if you earn more than $10 in taxable income from a Fund, you will
receive a Form 1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should consult your tax
adviser about any state or local taxes that may apply to such distributions. Be
sure to keep the Form 1099 as a permanent record. A fee may be charged for any
duplicate information requested.
The International Equity Fund may be liable to foreign governments for taxes
relating primarily to investment income or capital gains on foreign securities
in the Fund's portfolio. The Fund may in some circumstances be eligible to, and
in its discretion may, make an election under the Code which would allow Fund
shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax
credit or deduction (but not both) on their U.S. income tax return. If the Fund
makes the election, the amount of each shareholder's distribution reported on
the information returns filed by the Fund with the Internal Revenue Service must
be increased by the amount of the shareholder's portion of the Fund's foreign
tax paid.
The foregoing is a summary of certain federal income tax consequences of an
investment in a Fund for shareholders who are U.S. citizens or corporations.
Shareholders should consult a competent tax adviser as to the effect of an
investment in a Fund on their particular federal, state and local tax
situations. Shareholders of the International Equity Fund should also consult
their tax advisers about consequences of their investment under foreign laws.
PERFORMANCE CRITERIA
Each Fund may include total return information for each class of shares in
advertisements or other written sales material. Each Fund may show each class's
average annual total return for the one-, five- and ten-year periods (or the
life of the class, if shorter) through the end of the most recent calendar
quarter, or, in the case of the Growth Opportunities Fund's Class A shares, from
July 27, 1988, when there was a change in that Fund's investment adviser, to the
end of the most recent calendar quarter. Total return is measured by comparing
the value of a hypothetical $1,000 investment in a class at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming deduction of the current maximum sales charge on Class A shares,
automatic reinvestment of all dividends and capital gains distributions and, in
the case of Class B shares, imposition of the CDSC relevant to the period
quoted). Total return may be quoted with or without giving effect to any
voluntary expense limitations in effect for the class in question during the
relevant period. The class may also show total return over other periods, on an
aggregate basis for the period presented, or without deduction of a sales
charge. If a sales charge is not deducted in calculating total return, the
class's total return will be higher.
The Balanced Fund may also include the yield of each class of its shares,
accompanied by the total return, in advertising and other written material.
Yield will be computed in accordance with the SEC's standardized formula by
dividing the adjusted net investment income per share earned during a recent
thirty-day period by the maximum offering price of a share of the relevant class
(reduced by any earned income expected to be declared shortly as a dividend) on
the last day of the period. Yield calculations will reflect any voluntary
expense limitations in effect for the Fund during the relevant period.
The Balanced Fund may also present one or more distribution rates for each class
in its sales literature. These rates will be determined by annualizing the
class's distributions from net investment income and net short-term capital gain
over a recent 12-month, 3-month or 30-day period and dividing that amount by the
maximum offering price or the net asset value on the last day of such period. If
the net asset value, rather than the maximum offering price, is used to
calculate the distribution rate, the rate will be higher.
As a result of lower operating expenses, Class Y shares of each Fund can be
expected to achieve a higher investment return than the Fund's Class A, Class B
or Class C shares.
All performance information is based on past results and is not an indication of
likely future performance.
ADDITIONAL FACTS ABOUT THE FUNDS
[] New England Funds Trust I, an open-end management investment company,
was organized in 1985 as a Massachusetts business trust and is authorized to
issue an unlimited number of full and fractional shares in multiple series. The
Value and Balanced Funds were organized prior to 1985 and conducted investment
operations as separate corporations until their reorganization as series of New
England Funds Trust I in January 1987. The International Equity Fund and the
Capital Growth Fund were organized in 1992 and the Star Advisers Fund was
organized in 1994.
[] New England Funds Trust II, an open-end management investment
company, was organized in 1931 as a Massachusetts business trust and is
authorized to issue an unlimited number of full and fractional shares in
multiple series. The Growth Opportunities Fund is the original series of shares
of the Trust and has been in operation since 1931.
[] When you invest in a Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive annual or quarterly dividends as
determined by the respective Trust's trustees and to cast a vote for each share
you own at shareholder meetings. Shares of each Fund vote separately from shares
of other series of the same Trust, except as otherwise required by law. Shares
of all classes of a Fund vote together, except as to matters relating to a
class's Rule 12b-1 plan, on which only shares of that class are entitled to
vote. No Rule 12b-1 plan applies to the Class Y shares of any Fund.
[] Class A, Class B and Class C shares are identical to Class Y shares,
except that Class A and Class B shares are subject to a sales load or contingent
deferred sales charge, Class A, Class B and Class C shares bear a service fee at
the annual rate of 0.25% of average net assets (and in the case of Class B and
Class C shares a 0.75% distribution fee) and have separate voting rights in
certain circumstances. Class Y bears its own transfer agency and prospectus
printing costs. The minimum investment in Class A, Class B and Class C shares is
$2,500 (but lower minimums apply to purchases under certain special programs).
[] Except for matters that are explicitly identified as "fundamental" in
this prospectus or Part I of the Statement, the investment policies of each Fund
may be changed by the relevant Trust's trustees without shareholder approval or,
in most cases, prior notice. The investment objectives of the Value and Balanced
Funds are fundamental. The investment objectives of the Capital Growth,
International Equity and Star Advisers Funds are not fundamental. The investment
objective of the Growth Opportunities Fund is not fundamental but, as a matter
of policy, the trustees would not change the objective without shareholder
approval. If there is a change in the objectives of the Capital Growth,
International Equity, Star Advisers or Growth Opportunities Funds, shareholders
should consider whether these Funds remain appropriate investments in light of
their current financial position and needs.
[] The Trusts do not generally hold regular shareholder meetings and
will do so only when required by law. Shareholders of a Trust may remove the
trustees of that Trust from office by votes cast at a shareholder meeting or by
written consent.
[] The transfer and dividend paying agent for the Funds is New England
Funds, L.P., 399 Boylston Street, Boston, MA 02116. New England Funds, L.P. has
subcontracted certain of its obligations as such to State Street Bank, 225
Franklin Street, Boston, MA 02110.
[] The Trusts, together with the Money Market Funds, constitute the New
England Funds. Each Trust offers only its own funds' shares for sale, but it is
possible that a Trust might become liable for any misstatements in this
prospectus that relate to the other Trust. The trustees of each Trust have
considered this possible liability and approved the use of this combined
prospectus for Funds of both Trusts.
[] Each Fund's annual report contains additional performance information
and is available upon request and without charge. Each Fund will send a single
copy of its annual and semi-annual reports to an address at which more than one
shareholder of record with the same last name has indicated that mail is to be
delivered.
Shareholders may request additional copies of any annual or semi-annual report
in writing or by telephone.
[] The Class A, Class B, Class C and Class Y structure could be
terminated should certain IRS rulings be rescinded.
[] The Distributor has entered into a selling agreement with investment
dealers, including a broker-dealer that is an affiliate of the Distributor, for
the sale of the Funds' Class Y Shares. 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. Registered representatives of the affiliated
broker-dealer are also employees of New England Investment Associates, Inc.
("NEIA"), an indirect, wholly owned subsidiary of NEIC. NEIA may receive
compensation with respect to certain sales of each Fund's Class Y shares from
the Fund's subadviser.
<PAGE>
[GRAPHIC OMITTED]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- ------------------------------------------------------------------------------
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, 1997
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, 1997 for Class A, Class B and Class C shares or the Prospectus of the
Funds dated May 1, 1997 for Class Y shares, in each case as amended or
supplemented to date, (the "Prospectus" or "Prospectuses"). The Statement should
be read together with the Prospectus. 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 twelve 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.
TABLE OF CONTENTS
Page
PART I
Investment Restrictions ii
Fund Charges and Expenses ix
Investment Performance of the Funds xix
PART II
Miscellaneous Investment Practices 2
Management of the Trusts 14
Portfolio Transactions and Brokerage 23
Description of the Trusts and Ownership of Shares 26
How to Buy Shares 29
Net Asset Value and Public Offering Price 29
Reduced Sales Charges 30
Shareholder Services 32
Redemptions 36
Standard Performance Measures 38
Income Dividends, Capital Gain Distributions and Tax Status 43
Financial Statements 45
Appendix A - Description of Bond Ratings 46
Appendix B - Publications That May Contain Fund Information 48
Appendix C - Advertising and Promotional Literature 50
Appendix D - Portfolio Composition of the Municipal Income, 54
Bond Income and California Funds
<PAGE>
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INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------------
The following is a description of restrictions on the investments to be
made by the Funds, some of which restrictions (which are marked with an
asterisk) may not be changed without the approval of a majority of the
outstanding voting securities of the relevant Fund (as defined in the Investment
Company Act of 1940 [the "1940 Act"]). Except in the case of restrictions marked
with a dagger (+) below, the percentages set forth below and the percentage
limitations set forth in the Prospectus will apply at the time of the purchase
of a security and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase of
such security.
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 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;
*(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; or
*(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 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.)
*(16) Issue senior securities. For the purpose of this restriction, none of
the following is deemed to be a senior security: any borrowing permitted
by restriction (4) above; any pledge or other encumbrance of assets
permitted by restriction (5) above; any collateral arrangements with
respect to options, forward contracts, futures contracts, swap contracts
and other similar contracts and options on futures contracts and with
respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts, swap contracts and other
similar contracts or options on futures contracts; and the issuance of
shares of beneficial interest permitted from time to time by the
provisions of New England Funds Trust I's Agreement and Declaration of
Trust and by the 1940 Act, the rules thereunder, or any exemption
therefrom.
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 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, subject to change without shareholder approval, the Funds do
not intend to make short sales of the type permitted by restriction (2).
As a matter of operating policy, subject to change without shareholder
approval, the Growth Fund, the Value Fund and the Balanced 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 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;
*(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 (other
than U.S. Government securities and taking all preferred stock issues of
an issuer as a single class and all debt issues of an issuer as a single
class) or acquire more than 10% of the outstanding voting securities of
an issuer;
*(5) Borrow money in excess of 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 or subadviser 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) Except to the extent permitted by rule or order of the Securities and
Exchange Commission (the "SEC"), participate on a joint or joint and
several basis in any trading account in securities. (The "bunching" of
orders for the purchase or sale of portfolio securities with 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 or no commissions. Under the 1940 Act, the Fund may not (a)
invest more than 10% of its total assets (taken at current value) in
such securities, (b) own securities of any one investment company having
a value in excess of 5% of the total assets of the Fund (taken at
current value), or (c) own more than 3% of the outstanding voting stock
of any one investment company; 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 New England Funds Trust I's
Agreement and Declaration of Trust and by the 1940 Act, 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 (other
than U.S. Government securities and taking all preferred stock issues of
an issuer as a single class and all debt issues of an issuer as a single
class) or acquire more than 10% of the outstanding voting securities of
an issuer;
*(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 or subadviser 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) Except to the extent permitted by rule or order of the SEC, participate
on a joint or joint and several basis in any trading account in
securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with any investment adviser or subadviser of the
Fund or accounts under any such investment adviser's or subadviser'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, currencies, futures contracts, swap
contracts and other similar instruments 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 or no commissions. Under the 1940 Act, the Fund may not (a)
invest more than 10% of its total assets (taken at current value) in
such securities, (b) own securities of any one investment company having
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 New England Funds Trust I's Agreement and Declaration
of Trust and by the 1940 Act, 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 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;
*(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 (other
than U.S. Government securities and taking all preferred stock issues of
an issuer as a single class and all debt issues of an issuer as a single
class) or acquire more than 10% of the outstanding voting securities of
an issuer;
*(5) Borrow money in excess of 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 or subadviser 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) Except to the extent permitted by rule or order of the SEC, participate
on a joint or joint and several basis in any trading account in
securities. (The "bunching" of orders for the purchase or sale of
portfolio securities with 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, securities indexes, currencies, futures contracts, swap
contracts and other similar instruments 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 or no commissions. Under the 1940 Act, the Fund may not (a)
invest more than 10% of its total assets (taken at current value) in
such securities, (b) own securities of any one investment company having
a value in excess of 5% of the total assets of the Fund (taken at
current value), or (c) own more than 3% of the outstanding voting stock
of any one investment company; 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 New England Funds Trust I's
Agreement and 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 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.
*(9) Issue senior securities. For the purpose of this restriction, none of
the following is deemed to be a senior security; any borrowing permitted
by restriction (8) above; any collateral arrangements with respect to
options, futures contracts, swap contracts and other similar contracts
and options on futures contracts and with respect to initial and
variation margin; the purchase or sale of options, forward contracts,
futures contracts, swap contracts and other similar contracts or options
on futures contracts; and the issuance of shares of beneficial interest
permitted from time to time by the provisions of New England Funds Trust
II's Agreement and Declaration of Trust and by the 1940 Act, the rules
thereunder, or any exemption therefrom.
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 August 30, 1996, 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 August 30, 1996,
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:
<TABLE>
<CAPTION>
Management fee payable by Fund to NEFM
Fund (as a percentage of average daily net assets of the Fund)
- --------------------------------------------- ----------------------------------------------------------
<S> <C>
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 Fund 0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
International Equity Fund 0.90% of the first $200 million
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
</TABLE>
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 August 30, 1996
(February 14, 1997, 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 International Equity, Balanced, Value and Capital Growth Funds; and
Westpeak Investment Advisors, L.P. ("Westpeak"), in the case of the Growth
Opportunities 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:
<TABLE>
<CAPTION>
Subadvisory fee payable by NEFM to subadviser
Fund Subadviser (as a percentage of average daily net assets of the Fund)
- -------------------------------------- ------------------ ---------------------------------------------------------
<S> <C> <C>
Balanced Fund Loomis Sayles 0.535% of the first $200 million
0.350% of the next $300 million
0.300% of amounts in excess of $500 million
Capital Growth Fund Loomis Sayles 0.60% of the first $25 million
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 Opportunities Fund Westpeak 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
International Equity Fund Loomis Sayles 0.40% of the first $200 million
0.35% of amounts in excess of $200 million
Value Fund Loomis Sayles 0.535% of the first $200 million
0.350% of the next $300 million
0.300% of amounts in excess of $500 million
</TABLE>
As explained in the Prospectus, the Star Advisers Fund's portfolio is
divided into four segments. Pursuant to separate subadvisory agreements, each
dated August 30, 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.
From December 29, 1995 until February 14, 1997, Draycott Partners, Ltd.
("Draycott") served as subadviser to the International Equity Fund pursuant to a
subadvisory agreement providing for a subadvisory fee payable by NEFM to
Draycott at the annual rate of 0.54% of the first $200 million of the Fund's
average daily net assets, 0.49% of the next $300 million of such assets and
0.44% of such assets in excess of $500 million.
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
1.15% 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:
<TABLE>
<CAPTION>
FUND 1994 1995 1996
------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Growth Fund $7,572,051 $7,631,203
Capital Growth Fund $ 834,943 $ 989,864
Value Fund $1,543,333 $1,811,567
Balanced Fund $1,498,050 $1,906,665
International Equity Fund* $1,541,223 $2,025,005
Growth Opportunities $ 555,258 $ 856,469
Star Advisers Fund** $ 569,280 $3,599,730
* As a result of the voluntary expense limitation in effect, the International Equity Fund
paid $1,449,606, $1,756,405 and $________, respectively, in advisory fees for the fiscal
years ended December 31, 1994, 1995 and 1996.
** 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, $3,599,730 and
$_______________, respectively, in advisory fees for the period July 7, 1994 through
December 31, 1994 and for the fiscal years ended December 31, 1995 and 1996.
</TABLE>
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 1994, 1995 and 1996, brokerage transactions for the Growth Fund
aggregating $3,048,679,127, $4,526,450,414 and $_________________, respectively,
were allotted to brokers providing research services, and $4,187,824, $5,685,876
and $_______________, respectively, in commissions were paid on these
transactions in such years. During 1994, 1995 and 1996 the Fund paid total
brokerage commissions of $4,305,999, $5,784,166 and $___________, respectively.
In 1994, 1995 and 1996, brokerage transactions for the Value Fund
aggregating $9,382,814, $14,560,184 and $______________, respectively, were
allotted to brokers providing research services, and $14,664, $28,143 and
$______________, respectively, in commissions were paid on these transactions in
such years. During 1994, 1995 and 1996, the Fund paid total brokerage
commissions of $342,577, $658,975 and $___________, respectively.
In 1994, 1995 and 1996, brokerage transactions for the Balanced Fund
aggregating $14,761,967, $12,187,184 and $_____________, respectively, were
allotted to brokers providing research services, and $28,267, $30,368 and
$__________, respectively, in commissions were paid on these transactions in
such years. During 1994, 1995 and 1996, the Fund paid total brokerage
commissions of $159,243, $415,773 and $____________, respectively.
In 1994, 1995 and 1996, the Growth Opportunities Fund paid aggregate
brokerage commissions of $9,427, $138,878 and $___________, respectively.
For the fiscal year ended December 31, 1994, brokerage transactions for
the International Equity Fund and the Capital Growth Fund aggregating
$482,619,468 and $135,445,676, respectively, were allocated to brokers providing
research services, and $1,173,745 and $10,615, respectively, in commissions were
paid on these transactions. During 1994, the International Equity Fund and the
Capital Growth Fund paid total brokerage commissions of $1,173,745 and $191,861,
respectively. For the fiscal year ended December 31, 1995, brokerage
transactions for the International Equity Fund and the Capital Growth Fund
aggregating $593,996,591 and $130,894,587, respectively, were allocated to
brokers providing research services and $1,446,337 and $157,512, respectively,
in commissions were paid on these transactions. During 1995, the International
Equity Fund and the Capital Growth Fund paid total brokerage commissions of
approximately $1,446,337 and $157,512, respectively. For the fiscal year ended
December 31, 1996, brokerage transactions for the International Equity Fund and
the Capital Growth Fund aggregating $__________ and $__________, respectively,
were allocated to brokers providing research services, and $_________ and
$_________, respectively, in commissions were paid on these transactions. During
1996, the International Equity Fund and the Capital Growth Fund paid total
brokerage commissions of $_________ and $__________, respectively.
For the period July 7, 1994 (commencement of operations) to December
31, 1994 and the fiscal years ended December 31, 1995 and 1996, brokerage
transactions for the Star Advisers Fund aggregating $44,236,466, $191,214,413
and $________________, respectively, were allocated to brokers providing
research services, and $172,408, $614,183 and $_____________, respectively, in
commissions were paid on these transactions. For the period July 7, 1994 to
December 31, 1994 and the fiscal years ended December 31, 1995 and 1996, the
Fund paid total brokerage commissions of $172,408, $614,183 and $____________,
respectively.
For more information about the Funds' 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, 1994, 1995 and
1996:
<TABLE>
<CAPTION>
FUND 1994 1995 1996
--------------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Growth Fund $2,777,712 $2,800,465 (Class A)
Value Fund $489,686 $545,439 (Class A)
$81,490 $206,005 (Class B)
$3,915 (Class C)*
Balanced Fund $401,403 $445,951 (Class A)
$141,331 $301,592 (Class B)
$3,017 (Class C)*
Growth Opportunities Fund $376,217 $340,216 (Class A)
$35,609 $107,138 (Class B)
$3,589 (Class C)**
Star Advisers Fund*** $68,910 $404,530 (Class A)
$204,766 $1,458,476 (Class B)
$62,604 $327,977 (Class C)
International Equity Fund $341,787 $346,710 (Class A)
$262,144 $476,345 (Class B)
$5,831 (Class C)*
Capital Growth Fund $247,956 $277,682 (Class A)
$121,432 $207,706 (Class B)
$1,362 (Class C)*
* Class C shares were first offered on January 3, 1995.
** Growth Opportunities Fund Class C shares were first offered on May 1, 1995.
*** The Star Advisers Fund commenced operations on July 7, 1994.
</TABLE>
During the fiscal year ended December 31, 1996, expenses relating to
each Fund's 12b-1 plans were as follows:
GROWTH FUND
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
VALUE FUND
(Class A shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
(Class B shares)
Compensation to Investment Dealers $
TOTAL $
(Class C shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
BALANCED FUND
(Class A shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
(Class B shares)
Compensation to Investment Dealers $
TOTAL $
(Class C shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
GROWTH OPPORTUNITIES FUND
(Class A shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
(Class B shares)
Compensation to Investment Dealers $
TOTAL $
(Class C shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
STAR ADVISERS FUND
(Class A shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
(Class B shares)
Compensation to Investment Dealers $
TOTAL $
(Class C shares)
Compensation to Investment Dealers $
TOTAL $
INTERNATIONAL EQUITY FUND
(Class A shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
(Class B shares)
Compensation to Investment Dealers $
TOTAL $
(Class C shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
CAPITAL GROWTH FUND
(Class A shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
(Class B shares)
Compensation to Investment Dealers $
TOTAL $
(Class C shares)
Compensation to Investment Dealers $
Compensation to Distributor's Sales Personnel $
TOTAL $
Of the amounts listed above as compensation to investment dealers, the
following amounts were paid by the Distributor to New England Securities
Corporation ("New England Securities"), a broker-dealer affiliate of the
Distributor: $_______ relating to the Growth Fund; $_______ relating to the
Class A shares, $_______ relating to the Class B shares and $_______ relating to
the Class C shares of the Value Fund; $_______ relating to the Class A shares,
$_______ relating to the Class B shares and $_______ relating to the Class C
shares of the Balanced Fund; $_______ relating to the Class A shares, $_______
relating to the Class B shares and $_______ relating to the Class C shares of
the Growth Opportunities Fund; $_______ relating to the Class A shares, $_______
relating to the Class B shares and $_______ relating to the Class C shares of
the Star Advisers Fund; $_______ relating to the Class A shares, $_______
relating to the Class B shares and $_______ relating to the Class C shares of
the International Equity Fund; and $_______ relating to the Class A shares,
$_______ relating to the Class B shares and $_______ relating to the Class C
shares of the Capital Growth Fund. New England Securities paid substantially all
of the fees it received from the Distributor (a) in commissions to its sales
personnel and (b) to defray sales-related overhead costs.
OWNERSHIP OF FUND SHARES
At April 1, 1997, to the Trusts' knowledge, the following persons owned
of record or beneficially 5% or more of the outstanding Class A shares and Class
B shares of the indicated Funds:
Balanced Fund
Class C shares %
Bond Income Fund
Class C shares %
Capital Growth Fund
Class C shares %
Growth Opportunities Fund
Class C shares %
International Equity Fund
Class C shares %
Class Y shares %
Star Advisers Fund
Class Y shares %
Value Fund
Class Y shares %
<PAGE>
- ------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUNDS
- ------------------------------------------------------------------------------
PERFORMANCE RESULTS - PERCENT CHANGE*
For The Periods Ended 12/31/96
<TABLE>
GROWTH FUND**
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- ---------------------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
VALUE FUND
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- ---------------------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class B shares: As a % of 1 Year 9/13/93*** 9/13/93***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class Y shares: As a % of 1 Year 12/30/94*** 12/30/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
BALANCED FUND
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- ---------------------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class B shares: As a % of 1 Year 9/13/93*** 9/13/93***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/08/94*** 3/08/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
GROWTH OPPORTUNITIES FUND****
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- ---------------------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class B shares: As a % of 1 Year 9/13/93*** 9/13/93***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class C shares: As a % of 1 Year 5/1/95*** 5/1/95***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ -------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/31/94*** 3/31/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value n/a n/a n/a
STAR ADVISERS FUND
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class A shares: As a % of 1 Year 7/7/94*** 7/7/94***
- ---------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -----------------------------------
Since Since
Class B shares: As a % of 1 Year 7/7/94*** 7/7/94***
- ---------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -----------------------------------
Since Since
Class C shares: As a % of 1 Year 7/7/94*** 7/7/94***
- ---------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value n/a
Redemption at End of Period n/a n/a
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ ---------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/31/94*** 3/31/94***
- ---------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
INTERNATIONAL EQUITY FUND*****
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ ---------------------------------
Since Since
Class A shares: As a % of 1 Year 5/21/92*** 5/21/92***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class B shares: As a % of 1 Year 9/13/93*** 9/13/93***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ -----------------------------------
Since Since
Class Y shares: As a % of 1 Year 9/9/93*** 9/13/93***
- ---------------------------------------------- ------ --------- ----------
<S> <C> <C> <C>
Net Asset Value
CAPITAL GROWTH FUND******
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class A shares: As a % of 1 Year 8/3/92*** 8/3/92***
- ---------------------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class B shares: As a % of 1 Year 9/13/93*** 9/13/93***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------ ----------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/31/94*** 3/31/94***
- ---------------------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value n/a n/a n/a
* 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.
** The numbers presented reflect the maximum initial sales charge currently in effect. Prior to March 3, 1997, a higher
maximum initial sales charge was in effect, so that the total returns achieved by investors may have been lower than those
shown above.
*** Commencement of Fund operations or offering of specified class of shares.
**** Assuming deduction of the current maximum sales load, the Growth Opportunities Fund's Class A shares' ten-year average
annual total return would have been _____%, had a voluntary expense limitation by the Fund's former investment adviser not
been in effect, and their ten-year aggregate total return would have been _____%. Based on net asset values, the Fund's
Class A shares' ten-year average annual total return would have been _____%, had this limitation not been in effect, and
their ten-year aggregate total return would have been _____%.
***** Assuming deduction of the current maximum sales load, the International Equity Fund's Class A shares' since-inception
average annual total return would have been _____%, and their aggregate one-year and since-inception total returns would
have been _____% and _____%, respectively, had a voluntary expense limitation not been in effect. Based on net asset
values, the Fund's Class A shares' since-inception average annual total return would have been _____%, and their one-year
and since-inception aggregate total returns would have been _____% and _____%, respectively, without the voluntary
limitation. Assuming redemption at the end of the period, the Fund's Class B shares' since-inception average annual total
return would have been _____%, had a voluntary expense limitation not been in effect, and their aggregate total returns
for the one-year and since-inception periods would have been _____% and _____%, respectively. Based on net asset values,
the Fund's Class B shares' average annual total return for the since-inception period would have been _____%, and their
aggregate total returns for the one-year and since-inception periods would have been _____% and _____%, respectively,
without the voluntary limitation. The Fund's Class C and Class Y shares' annualized total returns for the since-inception
period would have been _____% and _____%, respectively, and their since-inception aggregate total returns would have been
_____% and _____%, respectively, without the voluntary limitation.
****** Assuming deduction of the current maximum sales load, the Capital Growth Fund's Class A shares' since-inception average
annual total return would have been _____%, and their aggregate one-year and since-inception total returns would have been
_____% and _____%, respectively, had a voluntary expense limitation not been in effect. Based on net asset values, their
since-inception average annual total return would have been _____%, and their one-year and since inception aggregate total
returns would have been _____% and _____%, respectively, without the voluntary limitation. Assuming redemption at the end
of the period, the Fund's Class B shares' since-inception average annual return would have been _____%, and their one-year
and since-inception aggregate total returns would have been _____% and _____%, respectively, without the voluntary
limitation. Based on net asset values, the Fund's Class B shares' since-inception average annual total return would have
been _____%, and their one-year and since-inception aggregate total returns would have been _____% and _____%,
respectively, without the voluntary limitation. The Fund's Class C shares' average annual total return for the
since-inception period would have been _____%, and their aggregate one-year and since-inception total returns would have
been _____% and _____%, respectively, without the voluntary limitation.
</TABLE>
The foregoing data represent past performance only and are not a
prediction as to the future returns of any Fund. 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>
[logo](R)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
STATEMENT OF ADDITIONAL INFORMATION -- PART II
MAY 1, 1997
The following information applies generally to the funds listed below
(the "Funds" and each a "Fund"). The Funds constitute all of the series of New
England Funds Trust I and New England Funds Trust II (the "Trusts" and each a
"Trust"), except for New England Star Worldwide Fund, a series of New England
Funds Trust I, and Growth Fund of Israel, a series of New England Funds Trust
II, each of 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") as well as in the
Prospectuses of the Funds dated May 1, 1997, each as amended or supplemented to
date (the "Prospectuses"). The following Funds are described in this Statement:
SERIES OF NEW ENGLAND FUNDS TRUST I
New England Capital Growth Fund (the "Capital Growth Fund")
New England Balanced Fund (the "Balanced Fund")
New England Growth Fund (the "Growth Fund")
New England International Equity Fund (the "International Equity Fund")
New England Star Advisers Fund (the "Star Advisers Fund")
New England Value Fund (the "Value Fund")
New England Government Securities Fund (the "Government Securities Fund")
New England Strategic Income Fund (the "Strategic Income Fund")
New England Bond Income Fund (the "Bond Income Fund")
New England Municipal Income Fund (the "Municipal Income Fund")
(formerly named New England Tax
Exempt Income Fund)
SERIES OF NEW ENGLAND FUND TRUST II
<TABLE>
<S> <C>
New England Growth Opportunities Fund (the "Growth Opportunities Fund")
New England Limited Term U.S. Government Fund (the "Limited Term U.S. Government Fund")
New England Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund")
New England High Income Fund (the "High Income Fund")
New England Massachusetts Tax Free Income Fund (the "Massachusetts Fund")
New England Intermediate Term Tax Free Fund of (the "California Fund')
California
New England Intermediate Term Tax Free Fund of (the "New York Fund")
New York
</TABLE>
<PAGE>
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MISCELLANEOUS INVESTMENT PRACTICES
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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
Bond Income Fund
Tax Exempt Bonds Municipal Income Fund
California Fund
Massachusetts Fund
New York Fund
State Tax Exempt Securities California Fund
Massachusetts Fund
New York Fund
Futures, Options and Swap Contracts 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
Growth Opportunities 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 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 of this Statement. 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
the Trusts 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:
o U.S. Treasury Bills - Direct obligations of the United States Treasury
which are issued in maturities of one year or less. No interest is paid
on Treasury bills; instead, they are issued at a discount and repaid at
full face value when they mature. They are backed by the full faith and
credit of the United States Government.
o U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with
interest normally payable every six months. These obligations are backed
by the full faith and credit of the United States Government.
o "Ginnie Maes" - Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by
the Federal Housing Administration or the Farmer's Home Administration
or guaranteed by the Veterans Administration. The Government National
Mortgage Association ("GNMA") guarantees the timely payment of principal
and interest when such payments are due, whether or not these amounts
are collected by the issuer of these certificates on the underlying
mortgages. An assistant attorney general of the United States has
rendered an opinion that the guarantee by GNMA is a general obligation
of the United States backed by its full faith and credit. Mortgages
included in single family or multi-family residential mortgage pools
backing an issue of Ginnie Maes have a maximum maturity of up to 30
years. Scheduled payments of principal and interest are made to the
registered holders of Ginnie Maes (such as the Fund) each month.
Unscheduled prepayments may be made by homeowners, or as a result of a
default. Prepayments are passed through to the registered holder (such
as the Fund, which reinvests any prepayments) of Ginnie Maes along with
regular monthly payments of principal and interest.
o "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders
that purchases residential mortgages from a list of approved
seller/servicers. Fannie Maes are pass-through securities issued by FNMA
that are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the United
States Government.
o "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is
a corporate instrumentality of the United States Government. Freddie
Macs are participation certificates issued by FHLMC that represent an
interest in residential mortgages from FHLMC's National Portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but Freddie Macs are not backed by the full faith and credit
of the United States Government.
U.S. Government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may, for temporary defensive
purposes, accept lower current income from short-term investments rather than
investing in higher yielding long-term securities.
When-Issued Securities. The Fund may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when the Fund anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued later. When the Fund purchases securities in this manner (i.e., on a
when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account cash or U.S.
Government securities in an amount equal to or greater than, on a daily basis,
the amount of the Fund's when-issued or delayed-delivery commitments. The Fund
will make commitments to purchase on a when-issued or delayed-delivery basis
only securities meeting the Fund's investment criteria. The Fund may take
delivery of these securities or, if it is deemed advisable as a matter of
investment strategy, the Fund may sell these securities before the settlement
date. When the time comes to pay for when-issued or delayed-delivery securities,
the Fund will meet its obligations from the then available cash flow or the sale
of securities, or from the sale of the when-issued or delayed-delivery
securities themselves (which may have a value greater or less than the Fund's
payment obligation).
Repurchase Agreements. The Fund may enter into repurchase agreements, by which
the Fund purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed-upon price and date. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
relatively low market risk. While the underlying security may be a bill,
certificate of indebtedness, note or bond issued by an agency, authority or
instrumentality of the United States Government, the obligation of the seller is
not guaranteed by the United States Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, the Fund
would attempt to exercise rights with respect to the underlying security,
including possible disposition in the market. However, the Fund may be subject
to various delays and risks of loss, including (a) possible declines in the
value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce rights and the
expenses involved in the attempted enforcement.
Zero Coupon Securities. Zero coupon securities are debt obligations that do not
entitle the holder to any periodic payments of interest either for the entire
life of the obligation or for an initial period after the issuance of the
obligations. Such securities are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the time
remaining until maturity of the securities, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
securities having similar maturities and credit quality. In order to satisfy a
requirement for qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund must distribute
each year at least 90% of its net investment income, including the original
issue discount accrued on zero coupon securities. Because the Fund will not on a
current basis receive cash payments from the issuer of a zero coupon security in
respect of accrued original issue discount, in some years the Fund may have to
distribute cash obtained from other sources in order to satisfy the 90%
distribution requirement under the Code. Such cash might be obtained from
selling other portfolio holdings of the Fund. In some circumstances, such sales
might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
Fund to sell such securities at such time.
Convertible Securities. The Fund may invest in convertible securities, including
corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can
be converted into (that is, exchanged for) common stocks or other equity
securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
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 Ratings Group ("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 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 Fund's subadviser 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.
Futures, Options and Swap Contracts
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a particular commodity (e.g., an interest-bearing security) for a
specified price on a specified future date. In the case of futures on an index,
the seller and buyer agree to settle in cash, at a future date, based on the
difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to $1000
multiplied by the Bond Buyer Municipal Bond Index, and Standard & Poor's 500
Index futures trade in contracts equal to $500 multiplied by the Standard &
Poor's 500 Index.
When a trader, such as the Fund, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker as "initial margin"
an amount of cash or short-term high-quality securities (such as U.S. Treasury
Bills or high-quality tax exempt bonds acceptable to the broker) equal to
approximately 2% to 5% of the delivery or settlement price of the contract
(depending on applicable exchange rules). Initial margin is held to secure the
performance of the holder of the futures contract. As the value of the contract
changes, the value of futures contract positions increases or declines. At the
end of each trading day, the amount of such increase and decline is received and
paid respectively by and to the holders of these positions. The amount received
or paid is known as "variation margin." If the Fund has a long position in a
futures contract it will establish a segregated account with the Fund's
custodian containing cash or certain liquid assets equal to the purchase price
of the contract (less any margin on deposit). For short positions in futures
contracts, the Fund will establish a segregated account with the custodian with
cash or high grade liquid debt assets that, when added to the amounts deposited
as margin, equal the market value of the instruments or currency underlying the
futures contracts.
Although futures contracts by their terms require actual delivery and
acceptance of securities (or cash in the case of index futures), in most cases
the contracts are closed out before settlement. A futures sale is closed by
purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or commodity and with the same delivery date. Similarly,
the closing out of a futures purchase is closed by the purchaser selling an
offsetting futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
OPTIONS. An option on a futures contract obligates the writer, in return for the
premium received, to assume a position in a futures contract (a short position
if the option is a call and a long position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying contract, the remaining term of
the option, supply and demand and interest rates. Options on futures contracts
traded in the United States may only be traded on a United States board of trade
licensed by the Commodity Futures Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the case of
a call option) or to sell (in the case of a put option) a particular security at
a specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by the Fund is considered
by the Fund to be covered if the Fund owns the security subject to the
underlying futures contract or other securities whose values are expected to
move in tandem with the values of the securities subject to such futures
contract, based on historical price movement volatility relationships. A call
option on a security written by the Fund is considered to be covered if the Fund
owns a security deliverable under the option. A written call option is also
covered if the Fund holds a call on the same futures contract or security as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
Treasury bills or other high grade liquid obligations in a segregated account
with its custodian.
A put option on a futures contract written by the Fund, or a put option
on a security written by the Fund, is covered if the Fund maintains cash, U.S.
Treasury bills or other high-grade liquid debt obligations with a value equal to
the exercise price in a segregated account with the Fund's custodian, or else
holds a put on the same futures contract (or security, as the case may be) as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written.
If the writer of an option wishes to terminate its position, it may
effect a closing purchase transaction by buying an option identical to the
option previously written. The effect of the purchase is that the writer's
position will be canceled. Likewise, the holder of an option may liquidate its
position by selling an option identical to the option previously purchased.
Closing a written call option will permit the Fund to write another
call option on the portfolio securities used to cover the closed call option.
Closing a written put option will permit the Fund to write another put option
secured by the segregated cash, U.S. Treasury bills or other high-grade liquid
obligations used to secure the closed put option. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
futures contract or securities subject to the option to be used for other Fund
investments. If the Fund desires to sell particular securities covering a
written call option position, it will close out its position or will designate
from its portfolio comparable securities to cover the option prior to or
concurrent with the sale of the covering securities.
The Fund will realize a profit from closing out an option if the price
of the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Fund will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the value
of the underlying securities or futures contracts usually have a time value
component (i.e., a value that diminishes as the time within which the option can
be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be enhanced. Likewise, the
profit or loss from writing put options may or may not be offset in whole or in
part by changes in the market value of securities acquired by the Fund when the
put options are closed.
As an alternative to purchasing call and put options on index futures,
the Fund may purchase or sell call or put options on the underlying indices
themselves. Such options would be used in a manner identical to the use of
options on index futures.
The Fund may purchase put warrants and call warrants whose values vary
depending on the change in the value of one or more specified securities indices
("index warrants"). Index warrants are generally issued by banks or other
financial institutions and give the holder the right, at any time during the
term of the warrant, to receive upon exercise of the warrant a cash payment from
the issuer based on the value of the underlying index at the time of exercise.
In general, if the value of the underlying index rises above the exercise price
of the index warrant, the holder of a call warrant will be entitled to receive a
cash payment from the issuer upon exercise based on the difference between the
value of the index and the exercise price of the warrant; if the value of the
underlying index falls, the holder of a put warrant will be entitled to receive
a cash payment from the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at a time when, in
the case of a call warrant, the exercise price is less than the value of the
underlying index, or in the case of a put warrant, the exercise price is less
than the value of the underlying index. If the Fund were not to exercise an
index warrant prior to its expiration, then the Fund would lose the amount of
the purchase price paid by it for the warrant.
The Fund will normally use index warrants in a manner similar to its
use of options on securities indices. The risks of the Fund's use of index
warrants are generally similar to those relating to its use of index options.
Unlike most index options, however, index warrants are issued in limited amounts
and are not obligations of a regulated clearing agency, but are backed only by
the credit of the bank or other institution which issues the warrant. Also,
index warrants generally have longer terms than index options. Although the Fund
will normally invest only in exchange-listed warrants, index warrants are not
likely to be as liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the Fund's ability to
exercise the warrants at such time, or in such quantities, as the Fund would
otherwise wish to do.
The Fund may buy and write options on foreign currencies in a manner
similar to that in which futures or forward contracts on foreign currencies will
be utilized. For example, a decline in the U.S. dollar value of a foreign
currency in which portfolio securities are denominated will reduce the U.S.
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
the portfolio securities, the Fund may buy put options on the foreign currency.
If the value of the currency declines, the Fund will have the right to sell such
currency for a fixed amount in U.S. dollars, thereby offsetting, in whole or in
part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transactions
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Fund could sustain losses on transactions in foreign
currency options that would require the Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
The Fund may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the Fund
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised and the diminution in value of portfolio securities be offset at least
in part by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates move in
the manner projected, will expire unexercised and allow the Fund to hedge the
increased cost up to the amount of the premium. If exchange rates do not move in
the expected direction, the option may be exercised and the Fund would be
required to buy or sell the underlying currency at a loss, which may not be
fully offset by the amount of the premium. Through the writing of options on
foreign currencies, the Fund also may lose all or a portion of the benefits
which might otherwise have been obtained from favorable movements in exchange
rates.
All call options written by the Fund on foreign currencies will be
"covered." A call option written on a foreign currency by the Fund is "covered"
if the Fund owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if the Fund has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by the Fund in cash or high-grade
liquid assets in a segregated account with the Fund's custodian. For this
purpose, a call option is also considered covered if the Fund owns securities
denominated in (or which trade principally in markets where settlement occurs
in) the same currency, which securities are readily marketable, and the Fund
maintains in a segregated account with its custodian cash or liquid high-grade
obligations in an amount that at all times at least equals the excess of (x) the
amount of the Fund's obligation under the call option over (y) the value of such
securities.
SWAP CONTRACTS. Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange cash
flows on a notional amount based on changes in the relative values of the
specified currencies. An index swap is an agreement to make or receive payments
based on the different returns that would be achieved if a notional amount were
invested in a specified basket of securities (such as the Standard & Poor's
Composite Index of 500 Stocks [the "S&P 500"]) or in some other investment (such
as U.S. Treasury securities). The Fund will maintain at all times in a
segregated account with its custodian cash, U.S. Treasury bills or other high
grade liquid obligations in amounts sufficient to satisfy its obligations under
swap contracts.
RISKS. The use of futures contracts, options and swap contracts 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, the Fund may
purchase or sell futures contracts in a greater dollar amount than the hedged
securities if the price movement volatility of the hedged securities is
historically greater than the volatility of the futures contract. Conversely,
the Fund may purchase or sell fewer contracts if the volatility of the price of
hedged securities is historically less than that of the futures contracts.
The price of index futures may not correlate perfectly with movement in
the relevant index due to certain market distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the index and futures markets. Secondly, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. In addition, trading hours for
foreign stock index futures may not correspond perfectly to hours of trading on
the foreign exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and the value
of the relevant index due to the lack of continuous arbitrage between the index
futures price and the value of the underlying index. Finally, hedging
transactions using stock indices involve the risk that movements in the price of
the index may not correlate with price movements of the particular portfolio
securities being hedged.
Price movement correlation also may be distorted by the illiquidity of
the futures and options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users may
not deal in futures contracts or options because they do not want to assume the
risk that they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices may be
driven by different forces than those driving the market in the underlying
securities, and price spreads between these markets may widen. The participation
of speculators in the market enhances its liquidity. Nonetheless, speculators
trading spreads between futures markets may create temporary price distortions
unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be
established or closed out only on an exchange or board of trade. There is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. The liquidity of markets in
futures contracts and options on futures contracts may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures or options price during a single trading
day. Once the daily limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent the liquidation of
open futures or options positions. Prices have in the past exceeded the daily
limit on a number of consecutive trading days. If there is not a liquid market
at a particular time, it may not be possible to close a futures or options
position at such time, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin.
However, if futures or options are used to hedge portfolio securities, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid secondary
market for an option of the same series. If a liquid secondary market for an
exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option with the result that the
Fund would have to exercise the option in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will be not be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise. Reasons for the absence of
a liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Because the specific procedures for trading foreign stock index futures
on futures exchanges are still under development, additional or different margin
requirements as well as settlement procedures may be applicable to foreign stock
index futures at the time the 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 or subadviser(s) to forecast correctly
the direction and extent of interest rate movements within a given time frame.
To the extent interest rates move in a direction opposite to that anticipated,
the Fund may realize a loss on the hedging transaction that is not fully or
partially offset by an increase in the value of portfolio securities. In
addition, whether or not interest rates move during the period that the Fund
holds futures or options positions, the Fund will pay the cost of taking those
positions (i.e., brokerage costs). As a result of these factors, the Fund's
total return for such period may be less than if it had not engaged in the
hedging transaction.
Options trading involves price movement correlation risks similar to
those inherent in futures trading. Additionally, price movements in options on
futures may not correlate with price movements in the futures underlying the
options. Like futures, options positions may become less liquid because of
adverse economic circumstances. The securities covering written option positions
are expected to offset adverse price movements if those options positions cannot
be closed out in a timely manner, but there is no assurance that such offset
will occur. Also, an option writer may not effect a closing purchase transaction
after it has been notified of the exercise of an option.
OVER-THE-COUNTER OPTIONS. An over-the-counter option (an option not traded on a
national securities exchange) may be closed out only with the other party to the
original option transaction. While the Fund will seek to enter into
over-the-counter options only with dealers who agree to or are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an over-the-counter option at
a favorable price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order to realize
any profit thereon and thereby would incur transactions costs on the purchase or
sale of the underlying assets. If the Fund cannot close out a covered call
option written by it, it will not be able to sell the underlying security until
the option expires or is exercised. Furthermore, over-the-counter options are
not subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation or other clearing organizations.
The staff of the Securities and Exchange Commission (the "SEC") has
taken the position that over-the-counter options on U.S. Government securities
and the assets used as cover for written over-the-counter options on U.S.
Government securities should generally be treated as illiquid securities for
purposes of the investment restrictions prohibiting the Government Securities
Fund from investing more than 15% of its net assets in illiquid securities.
However, if a dealer recognized by the Federal Reserve Bank of New York as a
"primary dealer" in U.S. Government securities is the other party to an option
contract written by the Fund, and the Fund has the absolute right to repurchase
the option from the dealer at a formula price established in a contract with the
dealer, the SEC staff has agreed that the Fund only needs to treat as illiquid
that amount of the "cover" assets equal to the amount at which (i) the formula
price exceeds (ii) any amount by which the market value of the securities
subject to the options exceeds the exercise price of the option (the amount by
which the option is "in-the-money"). Although Back Bay Advisors, L.P. ("Back Bay
Advisors"), 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 Back Bay Advisors. 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 intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
FUTURE DEVELOPMENTS. The above discussion relates to the Fund's proposed use of
futures contracts, options and options on futures contracts currently available.
The relevant markets and related regulations are still in the developing stage.
In the event of future regulatory or market developments, the Fund may also use
additional types of futures contracts or options and other investment techniques
for the purposes set forth above.
FOREIGN CURRENCY HEDGING TRANSACTIONS. To protect against a change in the
foreign currency exchange rate between the date on which the Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale, or
to "lock in" the equivalent of a dividend or interest payment in another
currency, the Fund might purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate. If conditions warrant, the Fund may also
enter into contracts with banks or broker-dealers to purchase or sell foreign
currencies at a future date ("forward contracts"). The Fund will maintain cash
or high-quality debt obligations in a segregated account with the custodian in
an amount at least equal to (i) the difference between the current value of the
Fund's liquid holdings that settle in the relevant currency and the Fund's
outstanding obligations under currency forward contracts, or (ii) the current
amount, if any, that would be required to be paid to enter into an offsetting
forward currency contract which would have the effect of closing out the
original forward contract. The Fund's use of currency hedging transactions may
be limited by tax considerations. The Fund may also purchase or sell foreign
currency futures contracts traded on futures exchanges. Foreign currency futures
contract transactions involve risks similar to those of other futures
transactions. See "Options and Futures" above.
- ------------------------------------------------------------------------------
MANAGEMENT OF THE TRUSTS
- ------------------------------------------------------------------------------
Trustees
Trustees of the Trusts and their ages (in parentheses), addresses and
principal occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR.--Trustee (56); 79 John F. Kennedy Street, Cambridge, MA
02138; Douglas Dillon Professor and Director for the Center of Science
and International Affairs, John F. Kennedy School of Government;
Special Advisor to the United States Secretary of Defense; formerly,
Assistant Secretary of Defense; formerly, Dean, John F. Kennedy School
of Government.
DANIEL M. CAIN - Trustee (51); 452 Fifth Avenue, New York, NY 10018; President
and CEO, Cain Brothers & Company, Incorporated (investment banking);
Trustee, Universal Health Realty Income Trust (REIT); Chairman, Inter
Fish, Inc. (an aqua culture venture in Barbados).
KENNETH J. COWAN -- Trustee (63); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Retired; formerly, Senior Vice President-Finance and
Chief Financial Officer, Blue Cross of Massachusetts, Inc. and Blue
Shield of Massachusetts, Inc.; formerly, Director, Neworld Bank for
Savings and Neworld Bancorp.
RICHARD DARMAN - Trustee (52); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Partner and Managing Director, The Carlyle Group (investments);
Trustee, Council for Excellence in Government (not-for-profit);
Director, Frontier Ventures (personal investment); Director, Highway
Master Communications (mobile communications); Managing Partner, Little
Falls Partners (family investment); Director, Sequana Therapeutics
(biotechnology/genomics); Director, Telcom Ventures
(telecommunications); formerly, Director of the U.S. Office of
Management and Budget and a member of President Bush's Cabinet.
SANDRA O. MOOSE -- Trustee (54); 135 E. 57th Street, New York, NY 10022; Senior
Vice President and Director, The Boston Consulting Group, Inc.
(management consulting); Director, GTE Corporation and Rohm and Haas
Company (specialty chemicals).
HENRY L.P. SCHMELZER* -- Trustee and President (52); President, Chief Executive
Officer and Director, NEF Corporation; President and Chief Executive
Officer, New England Funds, L.P.; President and Chief Executive
Officer, New England Funds Management, L.P. ("NEFM"); Director, Back
Bay Advisors, Inc. ("BBAI"); formerly, Director, New England Securities
Corporation ("New England Securities").
JOHN A. SHANE -- Trustee (62); 300 Unicorn Park Drive, Woburn, Massachusetts
01801; President, Palmer Service Corporation (venture capital
organization); General Partner, The Palmer Organization and Palmer
Partners L.P.; Director, Arch Communications Group, Inc. (paging
service); Director, Dowden Publishing Company, Inc. (publishers of
medial magazines); Director, Eastern Bank Corporation; Director, Gensym
Corporation (expert system software); Director, Overland Data, Inc.
(manufacturer of computer tape drives); Director, Summa Four, Inc.
(manufacturer of telephone switching equipment); Director, United Asset
Management Corporation (holding company for institutional money
management); formerly, Director, Abt Associates, Inc. (consulting
firm); formerly, Director, Aviv Corporation (manufacturer of
controllers); formerly, Director, Banyan Systems, Inc. (manufacturer of
network software); formerly, Director, Cerjac Inc. (manufacturer of
telephone testing equipment).
- --------
* Trustee deemed an "interested person" of the Trusts, as defined in the
Investment Company Act of 1940 (the "1940 Act").
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee
(49); President and Chief Executive Officer, New England Investment
Companies, L.P. ("NEIC"); Director, President and Chief Executive
Officer, New England Investment Companies, Inc. ("NEIC Inc."); Chairman
of the Board and Director, NEF Corporation; Chairman of the Board and
Director, BBAI; Director, New England Mutual Life Insurance Company
("The New England"); formerly, Group Executive Vice President, Bank of
America (Los Angeles); formerly, Group Head of International Banking,
Trading and Securities, Security Pacific National Bank and Chief
Executive Officer, Security Pacific Investment Group.
PENDLETON P. WHITE -- Trustee (64); 6 Breckenridge Lane, Savannah, Georgia
31411; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants);
formerly, Trustee, The Faulkner Corporation (community hospital
corporation).
Officers
Officers of the Trusts, in addition to Messrs. Schmelzer and Voss, and
their ages (in parentheses) and principal occupations during the past five years
are as follows:
BRUCE R. SPECA -- Vice President (40); Executive Vice President, NEF
Corporation;Executive Vice President, New England Funds, L.P.;
Executive Vice President, NEFM.
FRANK NESVET -- Treasurer (52); Senior Vice President and Chief Financial
Officer, NEF Corporation ; Senior Vice President and Chief Financial
Officer, New England Funds, L.P.; Senior Vice President and Chief
Financial Officer, NEFM; formerly, Executive Vice President, SuperShare
Services Corporation (mutual fund and unit investment trust sponsor).
ROBERT P. CONNOLLY -- Secretary and Clerk (42); Senior Vice President
and General Counsel, NEF Corporation; Senior Vice President and General
Counsel, New England Funds, L.P.; Senior Vice President and General
Counsel, NEFM; formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company); formerly, Managing
Director and General Counsel, Equitable Capital Management Corporation.
Each person listed above holds the same position(s) with both Trusts.
Previous positions during the past five years with The New England, New England
Funds, L.P. or NEFM are omitted, if not materially different from a trustee's or
officer's current position with such entity. Each of the Trusts' trustees is
also a trustee of certain other investment companies for which New England
Funds, L.P. acts as principal underwriter. Except as indicated above, the
address of each trustee and officer of the Trusts is 399 Boylston Street,
Boston, Massachusetts 02116.
- --------
* Trustee deemed an "interested person" of the Trusts, as defined in the
Investment Company Act of 1940 (the "1940 Act").
Trustee Fees
The Trusts pay no compensation to their officers or to their trustees
who are interested persons thereof.
Each Trustee who is not an interested person of the Trusts receives, in
the aggregate for serving on the boards of the Trusts and New England Cash
Management Trust and New England Tax Exempt Money Market Trust (all four trusts
collectively, the "New England Funds Trusts"), comprising a total of 22 mutual
fund portfolios, a retainer fee at the annual rate of $40,000 and meeting
attendance fees of $2,500 for each meeting of the boards he or she attends and
$1,500 for each meeting he or she attends of a committee of the board of which
he or she is a member. Each committee chairman receives an additional retainer
fee at the annual rate of $2,500. These fees are allocated among the Funds and
the five other mutual fund portfolios in the New England Funds Trusts based on a
formula that takes into account, among other factors, the net assets of each
fund.
During the fiscal year ended December 31, 1996, the persons who were
then trustees of the Trusts received the amounts set forth in the following
table for serving as a trustee of the Trusts and for also serving on the
governing boards of the other New England Funds Trusts, New England Zenith Fund
("Zenith") and New England Variable Annuity Fund I ("NEVA"), comprising as of
April 15, 1997 a total of __ mutual fund portfolios (not all of which were in
existence during all of 1996).
<TABLE>
<CAPTION>
Pension or Total
Aggregate Aggregate Retirement Compensation
Compensation Compensation Benefits Estimated from the New
from from Accrued as Annual England Funds
New England New England Part of Fund Benefits Trusts, Zenith and
Funds Trust I Funds Trust II Expenses Upon NEVA
Name of Trustee in 1996 in 1996 in 1996 Retirement in 1996
--------------- ------------- -------------- ------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Graham T. Allison, Jr. $ $ $0 $0 $
Daniel M. Cain (a) $ $ $0 $0 $
Kenneth J. Cowan $ $ $0 $0 $
Richard Darman (a) $ $ $0 $0 $
Sandra O. Moose $ $ $0 $0 $
James H. Scott (b) $ $ $0 $0 $
John A. Shane $ $ $0 $0 $
Pendleton P. White $ $ $0 $0 $
(a) Became a trustee of the Trusts effective February 23, 1996.
(b) Resigned as a trustee of the Trusts effective March 5, 1996.
</TABLE>
The Funds 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 Funds 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 April 15, 1997, the officers and trustees of each Trust as a group
owned less than 1% of the outstanding shares of each Fund.
Advisory and Subadvisory Agreements
Each Fund's advisory agreement between the Fund and NEFM (between the
Fund and Capital Growth Management Limited Partnership ("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 in the case of 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
MetLife New England Holdings, Inc., which in turn is a wholly-owned subsidiary
of Metropolitan Life Insurance Company, which owns a majority limited
partnership interest in NEIC. NEIC and its ________ subsidiary or affiliated
asset management firms, collectively, have more than $87 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.
Berger Associates, Inc. ("Berger") serves as investment adviser to the
mutual funds in the Berger Funds' 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, the Boston office
buys and sells portfolio securities for the Strategic Income Fund and the
International Equity Fund and the New York office buys and sells portfolio
securities for the High 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, Star Advisers, High Income and International Equity 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, Star
Advisers, High Income and International Equity Funds outweighs the
disadvantages, if any, which might result from these practices.
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 by vote of the holders of a majority of such shares outstanding. The
Trusts' trustees review quarterly a written report 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.
New England Funds, L.P. has entered into selling agreements with
investment dealers, including New England Securities, an affiliate of New
England Funds, L.P., for the sale of the Funds' shares. New England Securities
is registered as a broker-dealer under the Securities Exchange Act of 1934. New
England Funds, L.P. 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 or subadviser 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 Funds 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 names
of the Trusts 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, 1994, 1995 and 1996, New England
Funds, L.P. received commissions on the sale of shares of New England Funds
Trust I aggregating $9,569,312, $8,779,918 and $___________, respectively, of
which $8,290,120, $7,706,937 and $___________, respectively, was allowed to
other securities dealers and the balanced retained by New England Funds, L.P.
See "Other Arrangements" for information about amounts received by New England
Funds, L.P. from New England Funds Trust I's investment advisers and subadvisers
or the Funds directly for providing certain administrative services relating to
New England Funds Trust I.
During the years ended December 31, 1994, 1995 and 1996, New England
Funds, L.P. received commissions on the sale of the Class A shares of New
England Funds Trust II aggregating $2,071,744, $1,913,291 and $__________,
respectively, of which $1,780,651, $1,752,050 and $___________, 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"), 225 Franklin Street, Boston, Massachusetts 02110, 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, One Post Office Square, Boston, Massachusetts 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 Funds' annual reports
for the year ended December 31, 1996 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 the Funds in 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, New England Securities continues to provide such
services under its service agreement with CGM. For the years ended December 31,
1994, 1995 and 1996, New England Securities received $2,261,375, $3,357,556 and
$__________, respectively, from the Fund's advisers under these agreements. In
the case of the Capital Growth Fund, New England Funds, L.P. provided similar
services under a service agreement with Loomis Sayles. For the years ended
December 31, 1994 and 1995, New England Funds, L.P. received $278,333 and
$323,029, respectively, from Loomis Sayles under this agreement. In the case of
the Star Advisers Fund, New England Funds, L.P. provided similar services under
a service agreement with NEIC. For the years ended December 31, 1994 and 1995,
New England Funds, L.P. received $269,302 and $1,715,899, respectively, from
NEIC under this agreement. In the case of the International Equity Fund, New
England Funds, L.P. provided similar services prior to December 29, 1995 under
an administrative services agreement with the Fund under which the International
Equity Fund paid 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 such assets attributable to the Fund's Class Y shares. For the fiscal years
ended December 31, 1994 and 1995, New England Funds, L.P. received $167,715 and
$192,366, respectively, 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 and High Income Funds under an agreement with Back Bay Advisors.
For the years ended December 31, 1994 and 1995, New England Funds, L.P. received
$676,787 and $1,511,359, respectively, from Back Bay Advisors under this
agreement. In the case of the Adjustable Rate Fund, New England Funds, L.P.
provided similar services under an Administrative Services Agreement with the
Fund, under which the Fund paid 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. For
the years ended December 31, 1994 and 1995, New England Funds, L.P. received
$382,335 and $334,777, respectively, from the Adjustable Rate Fund for these
services. In the case of the California and New York Funds, New England Funds,
L.P. provided similar services under Administrative Services Agreements with the
Funds under which the Funds paid 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, and for the year ended December 31,
1995, New England Funds, L.P. waived its fees of $46,879 and $22,124 for these
services from 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 $0.95 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; $0.87 for Massachusetts Tax Free Income Fund,
High Income Fund and Limited Term U.S. Government Fund; $0.78 for International
Equity Fund, Capital Growth Fund, Balanced Fund, Value Fund, Growth Fund and
Star Advisers Fund; and $0.70 for the Growth Opportunities Fund.
In addition, during the fiscal year ended 1996, 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 $______, $______, $______, $______, $______, $______, $______,
$______ and $______, respectively.
<PAGE>
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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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, 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, 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, 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, Founders,
Westpeak or Loomis Sayles. The services may also be used by Back Bay Advisors,
CGM, 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 or subadviser 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
or subadviser 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. Except for the International Equity Fund, 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 subadvisory fees that are received by Berger from NEFM 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.
International Equity Fund. In placing orders for the purchase and sale
of securities for the International Equity Fund, Loomis Sayles follows the same
policies as for the other Funds for which it acts as subadviser, except that
Loomis Sayles may cause the International Equity Fund to pay a broker-dealer
that provides brokerage and research services to Loomis Sayles an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount another broker-dealer would have charged for effecting that transaction.
Loomis Sayles must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of that particular
transaction or Loomis Sayles' overall responsibilities to the Trust and its
other clients. Loomis Sayles' authority to cause the International Equity Fund
to pay such greater commissions is also subject to such policies as the Trustees
of the Trust may adopt from time to time.
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 the Trusts,
the Funds' brokerage transactions may be executed by brokers that are affiliated
with NEIC or the Funds' advisers or subadvisers. Any such transactions will
comply with Rule 17e-1 under the 1940 Act.
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.
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DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES
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New England Funds Trust I is organized as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and Declaration of Trust
(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 twelve
separate portfolios. The Growth Fund and the Municipal Income Fund currently
offer two classes of shares, the Capital Growth, Strategic Income, Government
Securities, New England Star Worldwide and New England Star Small Cap Funds 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. Until September 1986, the name of the Trust was
"New England Life Government Securities Trust"; from September 1986 to April
1994, its name was "The New England Funds." 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. New England Star Small Cap Fund was organized
in 1996 and commenced operations on December 31, 1996. 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 is organized as a Massachusetts business
trust pursuant to a Declaration of Trust dated May 6, 1931, as amended, 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 seven 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
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"; from April 1992 until April 1994, its name was "TNE Funds Trust." 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.
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
and subadvisory 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 be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with 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. Shareholder voting rights are not
cumulative.
No amendment may be made to a Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the relevant Trust
except (i) to change the Trust's or a Fund's name or to cure technical problems
in the Declaration of Trust, (ii) to establish and designate new series or
classes of Trust shares and (iii) to establish, designate or modify new and
existing series or classes of Trust shares or other provisions relating to Trust
shares in response to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of 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 the Trust 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.
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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.
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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. Securities traded on a
non-U.S. exchange will be valued at their last sale price (or the last reported
bid price, if there is no reported sale during the day), on the exchange on
which they principally trade, as of the close of regular trading on such
exchange. The value of other securities principally traded outside the United
States will be computed as of the completion of substantial trading for the day
on the markets on which such securities principally trade. Securities
principally traded outside the United States will generally be valued several
hours before the close of regular trading on the New York Stock Exchange,
generally 4:00 p.m. Eastern time, when the Funds compute the net asset value of
their shares. Occasionally, events affecting the value of securities principally
traded outside the United States may occur between the completion of substantial
trading of such securities for the day and the close of the New York Stock
Exchange, which events will not be reflected in the computation of a Fund's net
asset value. If events materially affecting the value of a Fund's securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or in accordance with procedures approved
by the Trusts' trustees.
Trading in some of the portfolio securities of some of the Funds takes
place in various markets outside the Untied States on days and at times other
than when the New York Stock Exchange is open for trading. Therefore, the
calculation of these Funds' net asset value does not take place at the same time
as the prices of many of its portfolio securities are determined, and the value
of the Fund's portfolio may change on days when the Fund is not open for
business and its shares may not be purchased or redeemed.
The per share net asset value of a class of 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.
<PAGE>
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REDUCED SALES CHARGES
Class A Shares Only
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Special purchase plans are enumerated in the text of the Prospectus.
Cumulative Purchase Discount. A Fund shareholder making an additional
purchase of Class A shares may be entitled to a discount on the sales charge
payable on that purchase. This discount will be available if the shareholder's
"total investment" in the Fund reaches the breakpoint for a reduced sales charge
in the table under "Buying Fund Shares -- Sales Charges" in the Prospectus. The
total investment is determined by adding the amount of the additional purchase,
including sales charge, to the current public offering price of all series and
classes of shares of 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 another Fund, the reduced
sales charge of 4.5% of the public offering price will apply to the entire
amount of the additional investment.
Letter of Intent. A Letter of Intent (a "Letter"), which can be
effected at any time, is a privilege available to investors which reduces the
sales charge on investments in Class A shares. Ordinarily, reduced sales charges
are available for single purchases of Class A shares only when they reach
certain breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a
shareholder indicates an intention to invest enough money in Class A shares
within 13 months to reach a breakpoint. If the shareholder's intended aggregate
purchases of all series and classes of the Trusts over a defined 13-month period
will be large enough to qualify for a reduced sales charge, the shareholder may
invest the smaller individual amounts at the public offering price calculated
using the sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be
increased, decreased or canceled at any time. The effective date of a Letter is
the date it is received in good order at New England Funds, L.P., or, if
communicated by a telephone exchange or order, at the date of telephoning
provided a signed Letter, in good order, reaches New England Funds, L.P. within
five business days.
A reduced sales charge is available for aggregate purchases of all
series and classes of shares of the Trusts pursuant to a written Letter effected
within 90 days after any purchase. In the event the account was established
prior to 90 days before the Letter effective date, the account will be credited
with Rights of Accumulation ("ROA") towards the breakpoint level that will be
reached upon the completion of the 13 months' purchases. The ROA credit is the
value of all shares held as of the effective date of the Letter based on the
"public offering price computed on such date."
The cumulative purchase discount, described above, permits the
aggregate value at the current public offering price of Class A shares of any
accounts with the Trusts held by a shareholder to be added to the dollar amount
of the intended investment under a Letter, provided the shareholder lists them
on the account application.
State Street Bank will hold in escrow shares with a value at the
current public offering price of 5% of the aggregate amount of the intended
investment. The amount in escrow will be released when the Letter is completed.
If the shareholder does not purchase shares in the amount indicated in the
Letter, the shareholder agrees to remit to State Street Bank the difference
between the sales charge actually paid and that which would have been paid had
the Letter not been in effect, and authorizes State Street Bank to redeem
escrowed shares in the amount necessary to make up the difference in sales
charges. Reinvested dividends and distributions are not included in determining
whether the Letter has been completed.
Combining Purchases. Purchases of all series and classes of the Trusts
by or for an investor, the investor's spouse, parents, children, siblings,
grandparents or grandchildren and any other account of the investor, including
sole proprietorships, in either Trust may be treated as purchases by a single
individual for purposes of determining the availability of a reduced sales
charge. Purchases for a single trust estate or a single fiduciary account may
also be treated as purchases by a single individual for this purpose, as may
purchases on behalf of a participant in a tax-qualified retirement plan and
other employee benefit plans, provided that the investor is the sole participant
in the plan.
Combining with Other Series and Classes of the Trusts. A shareholder's
total investment for purposes of the cumulative purchase discount and purchases
under a Letter of Intent includes the value at the current public offering price
of any shares of series and classes of the Trusts that the shareholder owns
(which includes shares of New England Cash Management Trust and New England Tax
Exempt Money Market Trust [the "Money Market Funds"] unless such shares were
purchased by exchanging shares of either of the Trusts). Shares owned by persons
described in the preceding paragraph may also be included.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions may be invested in Class A shares of 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. 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 to the Funds; any
director, officer or partner of a client of an adviser or subadviser 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 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 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 certain current and retired employees of the
Trusts' investment advisers or subadvisers, New England Funds, L.P., The New
England or any other company affiliated with The New England; current and former
directors and trustees of the Trusts, The New England or their predecessor
companies; agents and general agents of The New England and its insurance
company subsidiaries; current and retired employees of such agents and general
agents; registered representatives of broker-dealers that have selling
arrangements with New England Funds, L.P.; the spouse, parents, children,
siblings, grandparents or grandchildren of the persons listed above; any trust,
pension, profit sharing or other benefit plan for any of the foregoing persons;
and any separate account of The New England or of any insurance company
affiliated with The New England.
Eligible Governmental Authorities. There is no sales charge or
contingent deferred sales charge related to investments in Class A shares of any
Fund by any 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 Sections 401(a), 403(b), 401(k) and 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 the Funds at net asset value and
without imposition of a sales charge.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses associated
with such sales.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. New England Funds, L.P. may charge a fee for
providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and delivery of
stock certificates unnecessary, eliminates problems of handling and safekeeping,
and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by the Funds
and no direct charges are made to shareholders. Although the Funds 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 1-800-225-5478 or your investment dealer.
This program is voluntary and may be terminated at any time by New
England Funds, L.P. upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by
the investor by written notice to New England Funds, L.P., which must be
received at least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if any check
is not paid upon presentation; or by written notice to you at least thirty days
prior to any payment date. State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits (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 (in the case of Class
A shares of the Adjustable Rate and California and New York Funds, only if such
shares have been held for at least six months) for shares of the same class of
any other fund of the Trusts (subject to the investor eligibility requirements
of the fund into which the exchange is being made) on the basis of relative net
asset values at the time of the exchange without any sales charge. When an
exchange is made from the Class A, Class B or Class C shares of one Fund to the
same Class of 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, for Class B shares,the conversion
date. If you own Class A or Class B shares, you may also elect to exchange your
shares of any fund of the Trusts for shares of the same class of the Money
Market Funds. Class C shares may also be exchanged for Class A shares of the
Money Market Funds. On all exchanges of Class A, Class B or Class C shares into
the Money Market Funds, the exchange stops the aging period relating to the CDSC
if any, and, for Class B shares only, conversion to Class A shares. The aging
resumes only when an exchange is made back into shares of a fund of the Trusts.
If you own Class Y shares, you may exchange those shares for Class Y shares of
other Funds or for 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
1-800-225-5478 or (2) a written exchange request to New England Funds, P.O. Box
8551, Boston, MA 02266-8551. You must acknowledge receipt of a current
Prospectus for a Fund before an exchange for that Fund can be effected.
The investment objectives of the funds in the Trusts and the Money Market Funds
are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return
from a combination of market appreciation and dividend income from equity
securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-tern capital appreciation and moderate current
income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for long-term
growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from long-term
growth of capital and dividend income primarily through investment in a
diversified portfolio of marketable international equity securities.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level of
current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Bond Income Fund
invests primarily in corporate and U.S. Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of
current income exempt from federal income tax and Massachusetts personal income
taxes as Back Bay Advisors, the Fund's subadviser, believes is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high
a level of current income exempt from federal income tax and its state personal
income tax as is consistent with preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK seeks as high a
level of current income exempt from federal income tax and its state personal
income tax and New York City personal income tax as is consistent with
preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST -
Money Market Series -- maximum current income consistent with
preservation of capital and liquidity.
U.S. Government Series -- highest current income consistent with
preservation of capital and liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST -- current income exempt from federal
income taxes consistent with preservation of capital and liquidity.
As of April 15, 1997, the net assets of the funds in the Trusts and the
Money Market Funds totaled over $__ billion.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term capital gain or
loss.
Automatic Exchange Plan (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 the Trusts. Registration on all
accounts must be identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business day until the
account is exhausted or until New England Funds, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $50 or over ($____ 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.
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REDEMPTIONS
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The procedures for redemption of shares of a Fund are summarized in the
Prospectus. As described in the Prospectus, a CDSC may be imposed on certain
purchases of Class A and Class C 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 sale and a purchase and,
therefore, would be considered a taxable event on which you may recognize a gain
or loss. In determining whether a CDSC is applicable to a redemption of Class B
or Class C shares, the calculation will be determined in the manner that results
in the lowest rate being charged. Therefore, for Class B shares 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. For Class C shares, it will be assumed that the
redemption is first of any shares that have been in the shareholder's Fund
account for over a year and second of any shares that have been in the
shareholder's Fund account for under a year. 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
1-800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds.
Telephone redemption requests must be received by the close of regular trading
on the New York Stock Exchange. Requests made after that time or on a day when
the New York Stock Exchange is not open for business cannot be accepted and a
new request on a later day will be necessary. The proceeds of a telephone
withdrawal will normally be sent on the first business day following receipt of
a proper redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form, available from your investment dealer.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Fund reserves the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59 1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not be exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59 1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also by waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include payment made due to death,
disability, separation from service, normal or early retirement as defined in
the plan document, loans from the plan and hardship withdrawals, return of
excess contributions, required minimum distributions at age 70 1/2 (waivers only
apply to amounts necessary to meet the required minimum amount), certain
withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually
of the value of your account, and redemptions made from qualified retirement
accounts or Section 403(b)(7) custodial accounts necessary to pay custodial
fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
New England Funds, including IRA and 403(b)(7) participant-directed transfers of
assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
The Funds will normally redeem shares for cash; however, the Funds
reserve the right to pay the redemption price wholly or partly in kind if the
relevant Trust's board of trustees determines it to be advisable and in the
interest of the remaining shareholders of a 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 the relevant Trust at the beginning of such period. The
Funds do not currently intend to impose any redemption charge (other than the
CDSC imposed by the Funds' 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 the Funds 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.
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STANDARD PERFORMANCE MEASURES
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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, the Massachusetts Fund and the California
and New York Funds each may also advertise a taxable 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 tax exempt
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 SEC 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 and Class C shares of the same Fund,
because of the higher levels of expenses borne by the Class B and Class C
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, Class B and Class 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, and 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,
including, but not limited to, those publications listed in Appendix B to this
Statement, and on various computer networks, for example, the Internet. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including the 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.
<TABLE>
<CAPTION>
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
<CAPTION>
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The Funds' advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the New England Funds. The Funds' advertising and sales literature 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; and the advertising and
sales literature of any of the New England Funds, but particularly that of
Growth Fund of Israel, New England Star Worldwide Fund and New England
International Equity Fund, may discuss all of the above international
developments, including but not limited to, international developments involving
Europe, North and South America, Asia, the Middle East and Africa, as well as
events and issues affecting specific countries that directly or indirectly may
have had consequences for the New England Funds or may have influenced past
performance or may influence current or prospective performance of the New
England Funds. Articles, releases, advertising and literature may discuss the
range of services offered by the Trusts and New England Funds, L.P., as
distributor and transfer agent of the Funds, with respect to investing in shares
of the Funds and customer service. Such materials may discuss the multiple
classes of shares available through the Trusts and their features and benefits,
including the details of the pricing structure.
New England Funds, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and raters including, but not limited to
Dalbar's Quality Tested Service Seal and Key Honors Award. Such 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., the
S&P 500) to which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If it equals 1,
its risk is the same as the market index. High variability in stock price may
indicate greater business risk, instability in operations and low quality of
earnings. The beta coefficients of the New England Funds may be compared to the
beta coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising and sales
literature developed to publicize such arrangements will explain the
relationship of the bank to New England Funds and New England Funds, L.P. as
well as the services provided by the bank relative to the Funds. The material
may identify the bank by name and discuss the history of the bank including, but
not limited to, the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
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 long-term capital gains, if any,
after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the relevant class of the 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. So long as 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 6 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The 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. The ability of
shareholders of the Fund to claim a foreign tax credit is subject to certain
limitations imposed by Section 904 of the Code, which in general limit the
amount of foreign tax that may be used to reduce a shareholder's U.S. tax
liability to that amount of U.S. tax which would be imposed on the amount and
type of income in respect of which the foreign tax was paid. A shareholder who
for U.S. income tax purposes claims a foreign tax credit in respect of Fund
distributions may not claim a deduction for foreign taxes paid by the Fund,
regardless of whether the shareholder itemizes deductions. Also, under Section
63 of the Code, no deduction in respect of income taxes paid to foreign
countries may be claimed by shareholders who do not itemize deductions on their
federal income tax returns. The Fund will notify shareholders each year of the
amount of 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.
The International Fund may own shares in certain foreign investment
entities, referred to as "passive foreign investment companies." In order to
avoid U.S. federal income tax, and an additional charge on a portion of any
"excess distribution" from such companies or gain from the disposition of such
shares, the Fund has elected to "mark to market" annually its investments in
such entities and to distribute any resulting net gain to shareholders. As a
result, the Fund may be required to sell securities it would have otherwise
continued to hold in order to make distributions to shareholders in or order to
avoid any Fund-level tax.
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. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent 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, 1996 are incorporated
herein by reference.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, if
fact, have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, and B1.
<PAGE>
- ------------------------------------------------------------------------------
APPENDIX B
- ------------------------------------------------------------------------------
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Fortune
Adam Smith's Money World Fox Network and affiliates
America On Line Fund Action
Anchorage Daily News Fund Decoder
Atlanta Constitution Global Finance
Atlanta Journal (the) Guarantor
Arizona Republic Hartford Courant
Austin American Statesman Houston Chronicle
Baltimore Sun INC
Bank Investment Marketing Indianapolis Star
Barron's Individual Investor
Bergen County Record (NJ) Institutional Investor
Bloomberg Business News International Herald Tribune
B'nai B'rith Jewish Monthly Internet
Bond Buyer Investment Advisor
Boston Business Journal Investment Company Institute
Boston Globe Investment Dealers Digest
Boston Herald Investment Profiles
Broker World Investment Vision
Business Radio Network Investor's Daily
Business Week IRA Reporter
CBS and affiliates Journal of Commerce
CFO Kansas City Star
Changing Times KCMO (Kansas City)
Chicago Sun Times KOA-AM (Denver)
Chicago Tribune LA Times
Christian Science Monitor Leckey, Andrew (syndicated column)
Christian Science Monitor News Service Lear's
Cincinnati Enquirer Life Association News
Cincinnati Post Lifetime Channel
CNBC Miami Herald
CNN Milwaukee Sentinel
Columbus Dispatch Money
CompuServe Money Maker
Dallas Morning News Money Management Letter
Dallas Times-Herald Morningstar
Denver Post Mutual Fund Market News
Des Moines Register Mutual Funds Magazine
Detroit Free Press National Public Radio
Donoghues Money Fund Report National Underwriter
Dorfman, Dan (syndicated column) NBC and affiliates
Dow Jones News Service New England Business
Economist New England Cable News
FACS of the Week New Orleans Times-Picayune
Fee Adviser New York Daily News
Financial News Network New York Times
Financial Planning Newark Star Ledger
Financial Planning on Wall Street Newsday
Financial Research Corp. Newsweek
Financial Services Week Nightly Business Report
Financial World Orange County Register
Fitch Insights Orlando Sentinel
Forbes Palm Beach Post
Fort Worth Star-Telegram Pension World
<PAGE>
Pensions and Investments Standard & Poor's Stock Guide
Personal Investor Stanger's Investment Advisor
Philadelphia Inquirer Stockbroker's Register
Porter, Sylvia (syndicated column) Strategic Insight
Portland Oregonian Tampa Tribune
Prodigy Time
Public Broadcasting Service Tobias, Andrew (syndicated column)
Quinn, Jane Bryant (syndicated column) Toledo Blade
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business (syndicated column) Wall St. Journal
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry Management WHDH
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook WRKO
<PAGE>
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to NEIC and its affiliates that perform advisory and
subadvisory functions for New England Funds including, but not limited to: Back
Bay Advisors, Harris Associates L.P., Loomis Sayles, CGM and Westpeak.
References may be included in New England Funds' advertising and
promotional literature to NEIC affiliates that do not perform advisory or
subadvisory functions for the Funds including, but not limited to, New England
Investment Associates, L. P., Copley Real Estate Advisors, L.P., Marlborough
Capital Advisors, L.P., Reich & Tang Capital Management and Reich and Tang
Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that perform
subadvisory functions on behalf of New England Funds may be contained in New
England Funds' advertising and promotional literature including, but not limited
to, Berger, Janus Capital, Founders and Montgomery Asset Management, L.P.
New England Funds' advertising and promotional material will include,
but is not limited to, discussions of the following information about the above
entities:
o Specific and general investment emphasis, specialties, competencies,
operations and functions
o Specific and general investment philosophies, strategies, processes and
techniques
o 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
o The corporate histories, founding dates and names of founders of the
entities
o Awards, honors and recognition given to the firms
o The names of those with ownership interest and the percentage of ownership
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists, principals
and other staff members and employees
o 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
o Specific identification of, and general reference to, current individual,
corporate and institutional clients, including pension and profit sharing
plans
o 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
o 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 portfolio manager Rodney L. Linafelter of Berger and
Berger Funds who also serves as portfolio manager of the Berger 100 Fund
and Berger Growth and Income Fund; Star Advisers Fund portfolio manager
Warren B. Lammert of Janus Capital and Janus Funds, who also serves as
portfolio manager of Janus Mercury Fund, and New England Star Worldwide
Fund (the "Star Worldwide Fund") portfolio manager Helen Young Hayes, also
of Janus Capital and Janus Funds, who serves as portfolio manager of the
Janus Worldwide Fund, IDEX II Series Fund - IDEX II Global Portfolio and
Janus Aspen Series - Worldwide Growth Portfolio; Star Worldwide Fund
portfolio managers Josephine S. Jimenez and Bryan L. Sudweeks of Montgomery
Asset Management, L.P., who also serve as portfolio managers of Montgomery
Emerging Markets Fund; Star Advisers Fund portfolio manager Edward F. Keely
and Star Worldwide Fund portfolio manager Michael W. Gerding of Founders
and Founders Funds, who also serve as portfolio manager of Founders Growth
Fund and Founders Worldwide Growth Fund, respectively; and Star Advisers
Fund portfolio managers Jeffrey C. Petherick and Mary Champagne of Loomis
Sayles 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 Strategic Income Fund and the Loomis
Sayles Bond Fund; and Star Worldwide Fund portfolio manager Robert J.
Sanborn and Star Worldwide Fund and Growth Fund of Israel portfolio manager
David G. Herro of Harris Associates L.P. and Oakmark Funds, who also serve
as portfolio managers of The Oakmark Fund and The Oakmark International
Fund, respectively. Any such references will indicate that New England
Funds and other funds of the managers differ as to performance, objectives,
investment restrictions and limitations, portfolio composition, asset size
and other characteristics, including fees and expenses. References may also
be made to industry rankings and ratings of the Funds and other funds
managers by the Funds' advisers and subadvisers, including, but not limited
to those provided by Morningstar, Lipper Analytical Services, Forbes and
Worth.
In addition, communications and materials developed by New England
Funds will make reference to the following information about NEIC and its
affiliates:
NEIC is the fifth largest publicly traded manager in the U.S. listed on
the New York Stock Exchange. NEIC maintains over $81 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 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.
CGM 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 S&P 500, prompt responses to changes in the market or economy and
aggressive, highly concentrated portfolios.
Loomis Sayles 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 many large corporations such as Mobil Oil.
Westpeak employs proprietary research and a disciplined stock selection
process that seeks rigorously to control unnecessary risk. Its investment
process is designed to evaluate when value and growth styles - two primary
approaches to stock investing - hold potential for reward. Over seventy
fundamental attributes are continuously analyzed by Westpeak's experienced
analysts and sophisticated computer systems. The results are assessed against
Wall Street's consensus thinking, in pursuit of returns in excess of appropriate
benchmarks. The value/growth strategy is a unique blend of investment styles,
seeking opportunities for increased return with reduced risk. Among the keys to
Westpeak's investment process are continuous review of timely, accurate data on
over 3600 companies, analysis of dozens of factors for excess return potential
and identification of overvalued and undervalued stocks.
Harris Associates L.P. is a Chicago-based investment management company
with more than $7.6 billion in assets under management, comprised of the $4
billion Oakmark Fund Group and $3.6 billion in individual and institutional
assets. Harris Associates L.P.'s investment philosophy is predicated on the
belief that over time market price and value converge and that investment in
securities prices significantly below long-term value presents the best
opportunity to achieve long-term growth of capital.
On June 30, 1995, NEIC purchased the assets of Graystone Partners, L.P.
("Graystone"), a Chicago-based consulting firm focusing exclusively on working
with the wealthiest families in the country. Founded in 1993, Graystone
specializes in assisting high net worth families in developing asset allocation
strategies, identifying appropriate portfolio managers and the monitoring of
investment performance.
Vaughan, Nelson, Scarborough & McConnell L.P. ("VNSM") is a
Houston-based investment management firm focusing on institutional and high net
worth clients, approximately half of which are foundations and endowments.
Founded in 1970, VNSM manages equity, fixed income and balanced portfolios and
focuses on strong fundamental research, solid investment performance and
excellent client service.
Financial Adviser Services ("FAS"), a division of NEIC, may be
referenced in Fund advertising and promotional literature concerning the
marketing services it provides to NEIC affiliated fund groups including: New
England Funds, Loomis Sayles Funds, Oakmark Funds and Reich & Tang Funds.
FAS will provide marketing support to NEIC affiliated fund groups
targeting financial advisers, financial intermediaries and institutional clients
who may transact purchases and other fund related business directly with these
fund groups. Communications will contain information including, but not limited
to: descriptions of clients and the marketplaces to which it directs its
efforts; the mission and goals of FAS and the types of services it provides
which may include: seminars; its 1-800 number, web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper Analytical
Services; statistics about the advisers', Fund groups' or a specific fund's
assets under management; the histories of the advisers and biographical
references to portfolio managers and other staff including, but not limited to,
background, credentials, honors, awards and recognition received by the advisers
and their personnel; commentary about the advisers, their funds and their
personnel from third party sources including newspapers, magazines, periodicals,
radio, television or other electronic media.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
o 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.
o 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.
o Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including but
not limited to, statistics, detailed explanations or broad summaries of:
-past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to reporting standards,
minimum distribution notices, Form 5500, Form 1099R and other relevant
forms and documents, Department of Labor rules and standards and other
regulation. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about the
past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of 401(k) and
retirement plans
-information about the history, status and future trends of Social Security
and similar government benefit programs including, but not limited to,
eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs
-current and prospective ERISA regulation and requirements.
o 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.
o 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.
o Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during enrollment
and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
<PAGE>
APPENDIX D
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
MUNICIPAL INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
PERCENTAGE
OF NET
SECURITY ASSETS
-------- ------
Preferred Stock .................................... %
Short-term Obligations and Other Assets ............ %
Debt-- Unrated ..................................... %
Debt-- Standard and Poor's Rating
AAA ....................................... %
AA ........................................ %
A ......................................... %
BBB........................................ %
BB......................................... %
B.......................................... %
CCC........................................ %
C/D........................................ %
The chart above indicates the composition of the Municipal Income Fund for the
fiscal year ended December 31, 1996, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Municipal Income Fund's net assets invested in each category as of the end of
each month during the year. Back Bay Advisors does not rely primarily on ratings
designed by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Fund's portfolio will be in
subsequent fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
BOND INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
PERCENTAGE
OF NET
SECURITY ASSETS
-------- ------
Preferred Stock .................................... %
Short-term Obligations and Other Assets ............ %
Debt-- Unrated ..................................... %
Debt-- Standard and Poor's Rating
AAA ....................................... %
AA ........................................ %
A ......................................... %
BBB........................................ %
BB......................................... %
B.......................................... %
CCC........................................ %
C/D........................................ %
The chart above indicates the composition of the Bond Income Fund for the fiscal
year ended December 31, 1996, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the Bond
Income Fund's net assets invested in each category as of the end of each month
during the year. Back Bay Advisors does not rely primarily on ratings designed
by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Fund's portfolio will be in
subsequent fiscal years.
<PAGE>
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
CALIFORNIA FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
PERCENTAGE
OF NET
SECURITY ASSETS
-------- ------
Preferred Stock .................................... %
Short-term Obligations and Other Assets ............ %
Debt-- Unrated ..................................... %
Debt-- Standard and Poor's Rating
AAA ....................................... %
AA ........................................ %
A ......................................... %
BBB........................................ %
BB......................................... %
B.......................................... %
CCC........................................ %
C/D........................................ %
The chart above indicates the composition of the California Fund for the fiscal
year ended December 31, 1996, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
California Fund's net assets invested in each category as of the end of each
month during the year. Back Bay Advisors does not rely primarily on ratings
designed by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Fund's portfolio will be in
subsequent fiscal years.
<PAGE>
Registration Nos. 2-98326
811-4323
NEW ENGLAND FUNDS TRUST I
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Per share income and capital changes for all series of the Registrant
other than New England Star Small Cap Fund are included in the
prospectuses filed in Part A of Post-Effective Amendment No. 31 to this
Registration Statement (for all such series except New England Star
Worldwide Fund) or Post-Effective Amendment No. 32 thereto (for New
England Star Worldwide Fund). The following financial statements are
incorporated in Part II of the statement of additional information
filed as Part B hereof by reference to the annual reports to
shareholders of the series of the Registrant listed below for the
fiscal year ended December 31, 1995, which were filed with the
Commission on the dates appearing in parentheses below:
(1) New England Balanced Fund (March 13, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(2) New England Growth Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(3) New England Value Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(4) New England Star Advisers Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(5) New England International Equity Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(6) New England Capital Growth Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(7) New England Bond Income Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(8) New England Municipal Income Fund (March 12, 1996)
(i) Port Composition
(ii) Statement of Assets & Liabilities
(iii) Statement Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(9) New England Government Securities Fund (March 14, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(10) New England Strategic Income Fund (March 12, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
The following financial statements are incorporated in Part II of the
statement of additional information filed as Part B hereof by reference
to the semi-annual report to shareholders of New England Star Worldwide
Fund listed below for the semi-annual period ended June 30, 1996, which
was filed with the Commission on July 29, 1996.
New England Star Worldwide Fund (July 29, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(b) Exhibits:
1. (a) Amended and Restated Agreement and Declaration of Trust
of the Registrant is incorporated herein by reference to
Exhibit 1(a) to Post-Effective Amendment No. 31 to this
Registration Statement filed on April 12, 1996.
(b) Amendment No. 5 to Amended and Restated Agreement and
Declaration of Trust of the Registrant is incorporated herein
by reference to Exhibit 1(b) to Post-Effective Amendment No.
31 to this Registration Statement filed on April 12, 1996.
(c) Amendment No. 9 to Amended and Restated Agreement and
Declaration of Trust is incorporated herein by reference to
Exhibit 1(c) to Post-Effective Amendment No. 31 to this
Registration Statement filed on April 12, 1996.
(d) Amendment No. 10 to Amended and Restated Agreement and
Declaration of Trust is filed herewith.
2. (a) Bylaws of the Registrant are incorporated herein by reference
to Exhibit 2(a) to Post-Effective Amendment No. 32 to this
Registration Statement filed on July 30, 1996.
(b) Amendment to the Bylaws of the Registrant is incorporated
herein by reference to Exhibit 2(b) to Post-Effective
Amendment No. 32 to this Registration Statement filed on July
30, 1996.
3. None.
4. Rights of shareholders are described in Article III,
Section 6 of the Amended and Restated Agreement and
Declaration of Trust of the Registrant filed as Exhibit 1(a)
to this Registration Statement.
5. (a) Advisory Agreement between the Registrant, on behalf of
its New England Growth Fund, and Capital Growth Management
Limited Partnership ("CGM") is incorporated herein by
reference to Post-Effective Amendment No. 32 to this
Registration Statement filed on July 30, 1996.
(b) Advisory Agreements between the Registrant and New England
Funds Management, L.P. ("NEFM"), relating to the following
series of the Registrant, are incorporated herein by reference
to Exhibit 5(b) to Post-Effective Amendment No. 31 to this
Registration Statement filed on April 12, 1996:
(i) New England Capital Growth Fund
(ii) New England Balanced Fund
(iii) New England International Equity Fund
(iv) New England Star Advisers Fund
(v) New England Value Fund
(vi) New England Star Worldwide Fund
(vii) New England Government Securities Fund
(viii) New England Strategic Income Fund
(ix) New England Bond Income Fund
(x) New England Municipal Income Fund
(c) Advisory Agreement between the Registrant, relating to its New
England Small Cap Fund, and NEFM is filed herewith.
(d) Subadvisory Agreements relating to the following series of the
Registrant, between NEFM and the subadvisers indicated in
parentheses, are incorporated herein by reference to Exhibit
5(c) to Post-Effective Amendment No. 31 to this Registration
Statement filed on April 12, 1996:
<TABLE>
<S> <C> <C>
(i) New England Capital Growth Fund (Loomis Sayles & Company, L.P. ["Loomis Sayles"])
(ii) New England Balanced Fund (Loomis Sayles)
(iii) New England Star Advisers Fund (Berger Associates, Inc. ["Berger"])
(iv) New England Star Advisers Fund (Founders Asset Management, Inc. ["Founders"])
(v) New England Star Advisers Fund (Janus Capital Corporation ["Janus"])
(vi) New England Star Advisers Fund (Loomis Sayles)
(vii) New England Value Fund (Loomis Sayles)
(viii) New England Star Worldwide Fund (Harris Associates L.P. ["Harris"])
(ix) New England Star Worldwide Fund (Montgomery Asset Management ["Montgomery"])
(x) New England Star Worldwide Fund (Founders)
(xi) New England Star Worldwide Fund (Janus Capital)
(xii) New England Government Securities Fund (Back Bay Advisors ["Back Bay Advisors"])
(xiii) New England Strategic Income Fund (Loomis Sayles)
(xiv) New England Bond Income Fund (Back Bay Advisors)
(xv) New England Municipal Income Fund (Back Bay Advisors)
</TABLE>
(e) Subadvisory Agreements relating to the Registrant's New
England Star Small Cap Fund, between NEFM and each of the
following subadvisers are filed herewith:
<TABLE>
<S> <C> <C>
(i) Robertson Stephens & Company Investment Management, L.P.
(ii) Montgomery
(iii) Loomis Sayles
(iv) Harris
</TABLE>
(f) Form of Subadvisory Agreement relating to the Registrant's New
England International Equity Fund, between NEFM and Loomis
Sayles is filed herein.
6. (a) Form of Distribution Agreement between the Registrant, on
behalf of each of the following series, and New England Funds,
L.P. is incorporated herein by reference to Exhibit 6(a) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996:
(i) New England Capital Growth Fund
(ii) New England Balanced Fund
(iii) New England Growth Fund
(iv) New England International Equity Fund
(v) New England Star Advisers Fund
(vi) New England Value Fund
(vii) New England Government Securities Fund
(viii) New England Strategic Income Fund
(ix) New England Bond Income Fund
(x) New England Municipal Income Fund
(xi) New England Star Worldwide Fund
(b) Distribution Agreement between the Registrant, on behalf of
its New England Star Small Cap Fund, and New England Funds,
L.P. is filed herewith.
7. None.
8. (a) Custodian Contract dated April 13, 1988 between the
Registrant, on behalf of its New England Global Government
Fund, and State Street Bank and Trust Company ("State
Street"), including form of subcustodian agreement, is
incorporated herein by reference to Exhibit 8(a) to
Post-Effective Amendment No. 32 to this Registration Statement
filed on July 30, 1996.
(b) Amendment No. 1 to Custodian Contract dated April 12, 1988
between the Registrant and State Street Bank and Trust Company
is incorporated herein by reference to Exhibit 8(b) to
Post-Effective Amendment No. 32 to this Registration Statement
filed on July 30, 1996.
(c) Letter Agreement between the Registrant and State Street
relating to the applicability of the Custodian Contract to New
England International Equity Fund filed herewith.
(d) Letter Agreement between the Registrant and State Street
relating to the applicability of the Custodian Contract to New
England Capital Growth Fund is filed herewith.
(e) Letter Agreement between the Registrant and State Street
relating to the applicability of the Custodian Contract to New
England Star Advisers Fund is filed herewith.
(f) Letter Agreement between the Registrant and State Street
relating to the applicability of the Custodian Contract to New
England Strategic Income Fund is filed herewith.
(g) Letter Agreement between the Registrant and State Street
relating to the applicability of the Custodian Contract to New
England Star Worldwide Fund is filed herewith.
(h) Letter Agreement between the Registrant and State Street
relating to the applicability of the Custodian Contract to New
England Star Small Cap Fund is filed herewith.
9. (a) Transfer Agency Agreement between the Registrant and New
England Funds, L.P. (formerly TNE Investment Services
Corporation) is incorporated herein by reference to
Post-Effect Amendment No. 32 to this Registration Statement,
filed on July 30, 1996.
(b) Form of Service Agreement between New England Securities
Corporation ("New England Securities") and Back Bay Advisors
is incorporated herein by reference to Post-Effective
Amendment No. 3 to this Registration Statement, filed on
November 7, 1986.
(c) Form of Service Agreement between New England Securities and
Loomis Sayles is incorporated herein by reference to
Post-Effective Amendment No. 3 to this Registration Statement,
filed on November 7, 1986.
(d) Form of Service Agreement between New England Securities and
CGM is incorporated herein by reference to Post-Effective
Amendment No. 10 to this Registration Statement, filed on May
1, 1990.
(e) Form of Administrative Agreement between New England
Securities and Registrant is incorporated herein by reference
to Post-Effective Amendment No. 3 to this Registration
Statement, filed on November 7, 1986.
(f) Organizational Expense Reimbursement Agreement between the
Registrant and New England Mutual Life Insurance Company ("The
New England") is incorporated herein by reference to
Pre-Effective Amendment No. 1 to this Registration Statement,
filed on September 11, 1985.
(g) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England International Equity
Fund and New England Funds, L.P. is incorporated herein by
reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed on April 1, 1992.
(h) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Capital Growth
Series, is incorporated herein by reference to Post-Effective
Amendment No. 16 to this Registration Statement, filed on
August 19, 1992.
(i) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Strategic Income
Fund, and New England Funds, L.P. is incorporated herein by
reference to Exhibit 9(i) to Post-Effective Amendment No. 31
to this Registration Statement, filed on April 12, 1996.
(j) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its New England Star Worldwide Fund,
and New England Funds, L.P. is incorporated herein by
reference to Exhibit 9(j) to Post-Effective Amendment No. 31
to this Registration Statement, filed April 12, 1996.
(k) Sub-Transfer Agency Agreement between New England Funds, L.P.
(formerly TNE Investment Services Corporation) and State
Street is incorporated herein by reference to Exhibit 9(k) to
Post-Effective Amendment No. 33 to this Registration
Statement, filed on October 3, 1996.
(l) Expense Agreement between the Registrant, on behalf of its
Strategic Income Fund, and NEFM is incorporated herein by
reference to Exhibit 9(l) to Post-Effective Amendment No. 32
to this Registration Statement, filed on July 30, 1996.
(m) Form of Class B Shares Remittance Agreement between the
Registrant and New England Funds, L.P., relating to each
series of the Registrant other than New England Growth Fund,
is incorporated herein by reference to Exhibit 9(m) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996.
(n) Organizational Expense Reimbursement Agreement between the
Registrant, on behalf of its Star Small Cap Fund, and New
England Funds, L.P. is filed herewith.
(o) Letter Agreement between the Registrant and State Street
relating to the applicability of the Sub-Transfer Agency
Agreement to New England Star Small Cap Fund is filed
herewith.
(p) Class B Shares Remittance Agreement between the Registrant and
New England Funds, L.P. relating to New England Star Small Cap
Fund is filed herewith.
10.(a) Opinion and consent of counsel relating to the Registrant's
New England Growth Fund, New England Equity Income Fund, New
England Value Fund, New England Bond Income Fund and New
England Municipal Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed on November 7, 1986.
(b) Opinion and consent of counsel relating to the Registrant's
New England Government Securities Fund is incorporated herein
by reference to Exhibit 10 to Pre-Effective Amendment No. 1 to
this Registration Statement, filed on September 11, 1985.
(c) Opinion and consent of counsel relating to the Registrant's
New England International Equity Fund is incorporated herein
by reference to Post-Effective Amendment No. 17 to this
Registration Statement, filed on October 20, 1992.
(d) Opinion and consent of counsel relating to the Registrant's
issuance of multiple classes of shares is incorporated herein
by reference to Post-Effective Amendment No. 20 to this
Registration Statement, filed on December 22, 1993.
(e) Opinion and consent of counsel relating to the Registrant's
New England Capital Growth Fund is incorporate herein by
reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(f) Opinion and consent of counsel relating to the Registrant's
New England Star Advisers Fund is incorporate herein by
reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(g) Opinion and consent of counsel relating to the Registrant's
New England Strategic Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 28 to this
Registration Statement, filed on October 13, 1995.
(h) Opinion and consent of counsel relating to the Registrant's
New England Star Worldwide Fund is incorporated herein by
reference to Exhibit 10(h) to Post-Effective Amendment No. 31
to this Registration Statement, filed on April 12, 1996.
(i) Opinion and consent of counsel relating to the Registrant's
New England Star Small Cap Fund is filed herewith.
11. None.
12. None.
13. Investment Letter of New England Securities is incorporated
herein by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed on September 11, 1985.
14. The following are filed herewith: (i) New England Funds, L.P.
Tax Sheltered Custodial Account Agreement; (ii) New England
Funds, L.P. Keogh Plan; (iii) New England Funds, L.P.
Simplified Employee Pension Plan; (iv) New England Funds, L.P.
Individual Retirement Plan Prototype; and (v) New England
Funds, L.P. 401(k) Plan Prototype.
15.(a) Rule 12b-1 Plans relating to the Class A shares of the
Registrant's New England Balanced Fund, New England Growth
Fund, New England Value Fund, New England International Equity
Fund, New England Capital Growth Fund, New England Bond Income
Fund, New England Municipal Income Fund and New England
Government Securities Fund are incorporated herein by
reference to Exhibit 15(a) to Post-Effective Amendment No. 32
to this Registration Statement filed on July 30, 1996.
(b) Rule 12b-1 Plan relating to the Class A shares of the
Registrant's New England Star Advisers Fund is incorporated
herein by reference to Exhibit 15(b) to Post-Effective
Amendment No. 32 to this Registration Statement filed on July
30, 1996.
(c) Form of Rule 12b-1 Plan relating to the Class C shares of the
Registrant's New England Star Advisers Fund is incorporated
herein by reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed on June 20, 1994.
(d) Rule 12b-1 Plans relating to the Class C shares of the
Registrant's New England International Equity Fund, New
England Value Fund, New England Balanced Fund, New England
Capital Growth Fund and New England Bond Income Fund are
incorporated herein by reference to Post-Effective Amendment
No. 25 to this Registration Statement, filed on February 15,
1995.
(e) Form of Rule 12b-1 Plan relating to the Class A shares of the
Registrant's New England Strategic Income Fund is incorporated
herein by reference to Exhibit 15 to Post-Effective Amendment
No. 25 to this Registration Statement, filed February 15,
1995.
(f) Form of Rule 12b-1 Plan relating to the Class C shares of the
Registrant's New England Strategic Income Fund is incorporated
herein by reference to Exhibit 15 to Post-Effective Amendment
No. 25 to this Registration Statement, filed February 15,
1995.
(g) Forms of Rule 12b-1 Plan relating to the Class A and Class C
shares of New England Star Worldwide Fund are incorporated
herein by reference to Post-Effective Amendment No. 28 to this
Registration Statement, filed on October 13, 1995.
(h) Form of Rule 12b-1 Plan relating to Class B shares of each
series of the Registrant other than New England Growth Fund is
incorporated herein by reference to Exhibit 15(h) to
Post-Effective Amendment No. 31 to this Registration
Statement, filed on April 12, 1996.
(i) 12b-1 Plan relating to Class A shares of the Registrant's New
England Star Small Cap Fund is incorporated herein by
reference to Exhibit 15(i) to Post-Effective Amendment No. 33
to this Registration Statement, filed on October 3, 1996.
(j) 12b-1 Plan relating to Class B shares of the Registrant's New
England Star Small Cap Fund is incorporated herein by
reference to Exhibit 15(j) to Post-Effective Amendment No. 33
to this Registration Statement, filed on October 3, 1996.
(k) 12b-1 Plan relating to Class C shares of the Registrant's New
England Star Small Cap Fund is incorporated herein by
reference to Exhibit 15(k) to Post-Effective Amendment No. 33
to this Registration Statement, filed on October 3, 1996.
16. Schedule for computation of performance quotations is
incorporated herein by reference to Post-Effective Amendment
No. 9 to this Registration Statement, filed on May 1, 1989.
17. Financial Data Schedule is incorporated herein by reference to
Exhibit 17 to Post-Effective Amendment No. 32 to this
Registration Statement, filed on July 30, 1996.
18. Plan pursuant to Rule 18f-3 under the Investment Company Act
of 1940 is incorporated herein by reference to Exhibit 18 to
Post-Effective Amendment No. 26 to this Registration
Statement, filed on May 1, 1995.
19.(a) Powers of Attorney designating Edward A. Benjamin, Frank
Nesvet, Henry L.P. Schmelzer and Robert P. Connolly as
attorneys to sign for Kenneth J. Cowan, Peter S. Voss, Henry
L.P. Schmelzer, Graham T. Allison, Jr., Pendleton P. White,
John A. Shane and Sandra O. Moose are incorporated herein by
reference to Post-Effective Amendment No. 27 to this
Registration Statement, filed on October 12, 1995.
(b) Powers of Attorney designating Edward A. Benjamin, Frank
Nesvet, Henry L.P. Schmelzer and Robert P. Connolly as
attorneys to sign for Daniel M. Cain and Richard Darman are
incorporated herein by reference to Post-Effective Amendment
No. 31 to this Registration Statement, filed on April 12,
1996.
Item 25. Persons Controlled by or Under Common Control with the
Registrant
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of each class of
securities of the Registrant as of January 31, 1997:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- ------------------------
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
New England Growth Fund 74,043 --- --- ---
New England Value Fund 15,874 5,797 303 3
New England Balanced Fund 13,740 6,340 213 6
New England Bond Income Fund 11,415 3,149 273 7
New England Government Securities Fund 8,558 505 --- 2
New England Municipal Income Fund 5,271 510 --- ---
New England Star Advisers Fund 27,307 35,013 5,142 7
New England International Equity Fund 10,496 6,757 263 11
New England Capital Growth Fund 11,844 5,289 99 ---
New England Strategic Income Fund 4,213 5,168 1,242 ---
New England Star Small Cap Fund 1,445 1,148 294 ---
New England Star Worldwide Fund 7,638 8,795 1,279 ---
</TABLE>
Item 27. Indemnification
Incorporated herein by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed on September 11, 1985.
Item 28. Business and Other Connections of Investment Adviser
(a) Loomis Sayles, the subadviser of the Registrant's New England Value Fund,
New England International Equity Fund, New England Balanced Fund, New
England Capital Growth Fund, New England Strategic Income Fund and New
England High Income Fund and a subadviser of New England Star Advisers
Fund and New England Star Small Cap Fund, provides investment advice to a
number of other registered investment companies and to other organizations
and individuals. Loomis Sayles' general partner, directors and officers
have been engaged during the past two fiscal years in the following other
businesses, professions, vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Loomis Sayles Other Affiliations Connection
------------- ------------------ ----------
<S> <C> <C>
Loomis Sayles & Company, Incorporated None None
("LSCI")
General Partner
Robert J. Blanding, None None
President and Chief Executive Officer
Daniel J. Fuss, None None
Executive Vice President
Jeffrey L. Meade, None None
Executive Vice President and Chief
Operating Officer
Sandra P. Tichenor, None None
Vice President, General Counsel and
Secretary
Meri Anne Beck, None None
Vice President
Mary C. Champagne, None None
Vice President
Paul Drexler, None None
Vice President
Richard W. Hurkes, None None
Vice President
Scott A. Pape, None None
Vice President
Douglas D. Ramos, None None
Vice President
Carol C. McMurtie, None None
Vice President
Tricia H. Mills, None None
Vice President
Jeffery C. Petherick, None None
Vice President
</TABLE>
(b) CGM, the adviser of the Registrant's New England Growth Fund, provides
investment advice to a number of other registered investment companies and
to other organizations and individuals. CGM's general partner, directors
and officers have been engaged during the past two fiscal years in the
following other businesses, professions, vocations or employments of a
substantial nature.
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
CGM Other Affiliations Connection
--- ------------------ ----------
<S> <C> <C>
Kenbob, Inc. None None
General Partner
</TABLE>
(c) Back Bay Advisors, the subadviser of the Registrant's New England Bond
Income Fund, New England Government Securities Fund and New England
Municipal Income Fund, is wholly owned by NEIC. Back Bay Advisors serves
as investment adviser to a number of other registered investment
companies. Back Bay Advisors' general partner, directors and officers have
been engaged during the past two fiscal years in the following businesses,
professions, vocations or employments of a substantial nature (former
affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Back Bay Advisors Other Affiliations Connection
----------------- ------------------ ----------
<S> <C> <C>
Back Bay Advisors, Inc. None None
General Partner
Charles T. Wallis, NEF Corporation Director
President and Chief Executive Officer
Back Bay Advisors, Inc. President, Chief Executive
399 Boylston Street Officer and Director
Boston, MA 02116
Charles G. Glueck, None None
Senior Vice President
Scott A. Millimet, Back Bay Advisors, Inc. Executive Vice President
Executive Vice President 399 Boylston Street
Boston, MA 02116
Edgar M. Reed, Aetna Capital Management* Head of Fixed Income Management
Executive Vice President and Chief 151 Farmington Avenue Group
Investment Officer Hartford, CT 06156
J. Scott Nicholson, None None
Senior Vice President
Kimberly J. Forsyth, Legg Mason Incorporated* Senior Vice President and
Senior Vice President 7 East Redwood Street Director of Tax-Exempt Credit
Baltimore, MD 21202 Research
Via International City/County Independent Consultant to
Management Association Bulgaria
777 North Capital Street, NE
Washington, DC 20002
Catherine Bunting, None None
Senior Vice President
Nathan R. Wentworth, None None
Vice President
Paul Zamagni, None None
Vice President and Treasurer
Peter Palfrey, None None
Vice President
Harold B. Bjornson, None None
Vice President
Eric Gutterson, None None
Vice President
</TABLE>
(d) Berger, a subadviser to the Registrant's New England Star Advisers Fund,
serves as investment adviser to mutual funds, pension and profit sharing
plans and other institutional and private investors. Berger's directors
and officers have been engaged during the past two fiscal years in the
following other businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Berger Other Affiliations Connection
------ ------------------ ----------
<S> <C> <C>
William M. B. Berger, None None
Director
Patrick S. Adams, Zurich Kemper Investments, Inc.* Senior Vice President
Senior Vice President 1 Kemper Dr.
Long Grove, IL 60049
Founders Asset Management, Inc.* Portfolio Manager
2930 East Third Ave.
Denver, CO 80206
William R. Keithler, INVESCO Trust Company* Senior Vice President
Vice President 7800 East Union Ave; Suite 800
Denver, CO 80237
Kevin R. Fay, None None
Vice President, Secretary and Treasurer
Brian S. Ferrie, United Services Advisors, Inc.* Compliance Officer
Compliance Officer 7900 Callaghan Road
San Antonio, TX 78229
David J. Schultz, Smith, Brock and Gwinn* Partner
Controller 650 South Cherry Street
Denver, CO 80222
Gerard M. Lavin, DST Systems Inc. Senior Officer
President and Director 1055 Broadway, 9th Floor
Kansas City, MO 64105
Investors Fiduciary Trust Co.* President and Chief Executive
127 West 10th Street Officer
Kansas City, MO 64105
Landon H. Rowland, Kansas City Southern Industries, Inc. President and Chief Executive
Director ("KCSI") Officer
114 West 11th Street
Kansas City, MO 64105
</TABLE>
(e) Founders, a subadviser to the Registrant's New England Star Advisers Fund
and New England Star Worldwide Fund, has been an investment adviser since
1938 and serves as an investment adviser to mutual funds and other
accounts. Founders' directors and officers have been engaged during the
past two fiscal years in the following other businesses, professions,
vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Founders Other Affiliations Connection
-------- ------------------ ----------
<S> <C> <C>
Bjorn K. Borgen, None None
Director, Chief Executive Officer and
Secretary
David L. Ray, None None
Vice President, Assistant Secretary and
Treasurer
Michael K. Haines, None None
Senior Vice President
Michael Gerding, None None
Vice President
Charles Hooper, None None
Vice President
Linda Ripley, None None
Assistant Vice President
Roberto Galindo, Jr., None None
Assistant Vice President
Thomas Mauer, None None
Assistant Vice President
Gregory Contillo, None None
Vice President
James Rankin, None None
Vice President
</TABLE>
(f) Janus Capital, a subadviser to the Registrant's New England Star Advisers
Fund and New England Star Worldwide Fund, serves as investment adviser to
mutual funds and individual, corporate, charitable and retirement
accounts. Janus Capital's directors and officers have been engaged during
the past two fiscal years in the following businesses, professions,
vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Janus Other Affiliations Connection
----- ------------------ ----------
<S> <C> <C>
Thomas H. Bailey, IDEX Management, Inc. ("IDEX") Chairman and Director
Chairman, Director, President and Chief 201 Highland Avenue
Executive Officer Largo, FL 34690
James P. Craig, None
Vice President and Chief Investment
Officer
Thomas F. Marsico, None
Vice President
James P. Goff, None None
Vice President
Warren B. Lammert, None None
Vice President
Ronald V. Speaker, None None
Vice President
Helen Young Hayes, None None
Vice President
Sharon S. Pichler, None None
Vice President
Scott W. Schoelzel, None None
Vice President
David C. Tucker, Janus Service Corporation ("Janus Service") Vice President, General Counsel
Vice President, Secretary and General 100 Fillmore Street and Director
Counsel Denver, CO 80206
Janus Distributors, Inc. ("Janus Vice President, General Counsel
Distributors") and Director
100 Fillmore Street
Denver, CO 80206
Steven R. Goodbarn, Janus Service Vice President of Finance,
Vice President of Finance, Treasurer and Treasurer and Chief Financial
Chief Financial Officer Officer
Janus Distributors Vice President of Finance,
Treasurer and Chief Financial
Officer
IDEX Director
Michael E. Herman, Ewing Marion Kauffman Foundation Chairman of Finance Committee
Director 4900 Oak
Kansas City, MO 64112
Michael N. Stolper, Stolper & Company, Inc. President
Director 525 B Street
San Diego, CA
Thomas A. McDonnell, DST Systems, Inc. President, Chief Executive
Director 1055 Broadway Officer and Director
Kansas City, MO 64105
KCSI Executive Vice President and
Director
</TABLE>
(g) NEFM, adviser to all the series of the Registrant except New England
Growth Fund, was organized in 1995. NEFM also serves as adviser to all of
the series of New England Funds Trust II and to New England Cash
Management Trust, New England Tax Exempt Money Market Trust and New
England Equity Income Fund. NEFM's general partner, directors and officers
have been engaged during the past two fiscal years in the following
businesses, professions, vocations or employments of a substantial nature
(former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
---- ------------------ ----------
<S> <C> <C>
NEF Corporation New England Funds, L.P. General Partner
General Partner 399 Boylston Street
Boston, MA 02116
Henry L.P. Schmelzer, New England Funds, L.P. President and Chief Executive Officer
President and Chief Executive Officer
NEF Corporation President, Chief Executive Officer
and Director
Back Bay Advisors, Inc. Director
New England Securities Corporation* Director
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, L.P. Senior Vice President and Chief
Senior Vice President, Chief Financial Financial Officer
Officer and Treasurer
NEF Corporation Senior Vice President, Chief
Financial Officer and Treasurer
Robert P. Connolly, NEF Corporation Senior Vice President, General
Senior Vice President, General Counsel, Counsel, Secretary and Clerk
Assistant Secretary and Clerk
New England Funds, L.P. Senior Vice President, General
Counsel, Secretary and Clerk
Kroll Associates, Inc.* Managing Director and General Counsel
900 3rd Avenue
New York, NY 10022
Bruce R. Speca, NEF Corporation Executive Vice President
Executive Vice President
New England Funds, L.P. Executive Vice President
Peter H. Duffy, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Martin G. Dyer, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Ralph M. Greggs, NEF Corporation Vice President
Vice President
New England Funds, L.P. Vice President
Beatriz A. Pina-Smith, NEF Corporation Assistant Controller
Assistant Controller
New England Funds, L.P. Assistant Controller
</TABLE>
(h) Montgomery is a subadviser to the Registrant's New England Star Worldwide
Fund and New England Star Small Cap Fund. Montgomery's general partner,
directors and officers have been engaged during the past two fiscal years
in the following businesses, professions, vocations or employments of a
substantial nature (former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Other Nature of
Montgomery Affiliations Connection
---------- ------------ ----------
<S> <C> <C>
Montgomery Asset Management, Inc. None None
General Partner
R. Stephen Doyle Montgomery Asset Management, Inc. Chairman and Director
Chairman, Managing Director of 600 Montgomery Street
Mutual Funds and Executive Vice San Francisco, CA 94111
President
Montgomery Securities Managing Director
600 Montgomery Street
San Francisco, CA 94111
Mark B. Geist Montgomery Asset Management, Inc. Director and President
President
John T. Story None None
Managing Director of Mutual Funds
and Executive Vice President
Mary Jane Fross None None
Manager of Mutual Fund
Administration and Finance
Josephine Jimenez None None
Managing Director and Portfolio
Manager
Bryan L. Sudweeks None None
Managing Director and Portfolio
Manager
Stuart O. Roberts None None
Managing Director and Portfolio
Manager
John H. Brown Merus Capital Management* Portfolio Manager and
Managing Director and Senior 475 Sansome Street Analyst
Portfolio Manger San Francisco, CA 94111
William C. Stevens None None
Managing Director and Portfolio
Manager
Roger Honour None None
Managing Director and Senior
Portfolio Manager
Oscar Castro None None
Managing Director and Portfolio
Manager
John Boich None None
Managing Director and Portfolio
Manager
</TABLE>
(i) Harris serves as a subadviser to the Registrant's New England Star
Worldwide Fund and New England Star Small Cap Fund and is wholly owned by
NEIC. Harris serves as investment adviser to mutual funds, individuals,
trusts, retirement plans, endowments and foundations, and manages several
private partnerships, and is a registered commodity trading adviser and
commodity pool operator. Harris's general partner, directors and officers
have been engaged during the past two fiscal years in the following
business, professions, vocations or employments of a substantial nature:
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Harris Other Affiliations Connection
------ ------------------ ----------
<S> <C> <C>
Harris Associates Inc. Harris Associates Securities, L.P. General Partner
General Partner Two North LaSalle Street
Chicago, IL 60602
Victor Morgenstern None None
Executive and Chief Executive
Officer
Donald Terao None None
Chief Financial Officer,
Treasurer and Secretary
Robert M. Levy None None
President
Roxanne M. Martino None None
Vice President
Anita Nagler None None
Vice President
</TABLE>
(j) Robertson Stephens Investment Management, L.P. ("RSIM L.P"), a subadviser
to the Registrant's Star Small Cap Fund provides investment advice to
various clients including public mutual funds, private limited
partnerships and separate accounts. RSIM's directors and officers have
been engaged in the following businesses, professions, vacations or
employments of a substantial nature during the past two fiscal years
(former affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Other Nature of
RSIM, L.P. Affiliations Connection
---------- ------------ ----------
<S> <C> <C>
George R. Hecht Robertson Stephens & Company LLC Chief Operating Officer and
President (affiliate of/distributor for RSIM, L.P.) Managing Director
555 California Street
San Francisco, CA 94104
Robertson, Stephens & Company Group, L.L.C. Member and Executive
555 California Street Committee Member
San Francisco, CA 94104
Terry R. Otton Robertson Stephens & Company LLC Chief Financial Officer and
Chief Financial Officer (affiliate of/distributor for RSIM, L.P.) Managing Director
555 California Street
San Francisco, CA 94104
Robertson, Stephens & Company Group, L.L.C. Member
555 California Street
San Francisco, CA 94104
Dana K. Welch Robertson Stephens & Company LLC General Counsel
General Counsel (affiliate of/distributor for RSIM, L.P.)
555 California Street
San Francisco, CA 94104
Paul H. Stephens Robertson Stephens & Company LLC Managing Director
Chief Investment Officer (affiliate of/distributor for RSIM, L.P.)
555 California Street
San Francisco, CA 94104
Robertson, Stephens & Company Group, L.L.C. Member and Executive
555 California Street Committee Member
San Francisco, CA 94104
Amy Hoffman KPMG Peat Marwick* Employee/Senior Manager
Controller 345 Park Avenue
New York, NY 10154
Robert Greenwood Putnam Investments* Project Manager Compliance
Compliance Director One Post Office Square Systems
Boston, MA 02109
</TABLE>
Item 29. Principal Underwriter
(a) New England Funds, L.P., the principal underwriter of the Registrant, also
serves as principal underwriter for:
New England Tax Exempt Money Market Trust
New England Cash Management Trust
New England Funds Trust II
New England Funds Trust III
(b) The general partner and officers of the Registrant's principal
underwriter, New England Funds, L.P., and their addresses are as follows:
<TABLE>
<CAPTION>
Positions and Offices with Positions and Offices
Name Principal Underwriter with Registrant
---- --------------------- ---------------
<S> <C> <C>
NEF Corporation General Partner None
Henry L.P. Schmelzer President and Chief Executive Officer President and Trustee
Bruce R. Speca Executive Vice President Executive Vice President
Robert P. Connolly Senior Vice President, General Counsel, Secretary
Secretary and Clerk
Frank Nesvet Senior Vice President and Chief Financial Treasurer
Officer
Munish Agrawal Vice President None
Elizabeth P. Burns Vice President None
James H. Davis Senior Vice President None
Peter H. Duffy Vice President None
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
Raymond K. Girouard Senior Vice President, Treasurer and None
Controller
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
Caren I. Leedom Senior Vice President None
Marie G. McKenzie Vice President None
Robert E. O'Hare Vice President, Senior Counsel, Assistant None
Secretary and Assistant Clerk
Andrew Olear Executive Vice President None
Bernard M. Shavelson Vice President None
Kristine E. Swanson Vice President None
Sharon Wratchford Vice President None
Beatriz A. Pina-Smith Vice President and Assistant Controller None
</TABLE>
The principal business address of all the above persons or entities is 399
Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents required by the
specified rules:
(a) Registrant
Rule 31a-1(b)(4)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
(i) For New England Growth Fund:
Capital Growth Management Limited Partnership
One International Place
Boston, Massachusetts 02110
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(ii) For series of the Registrant managed by Back Bay Advisors:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(iii) For New England Star Advisers Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Berger Associates, Inc.
210 University Blvd.; Suite 900
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Janus Capital Corporation 100 Fillmore Street Denver, CO
80206 Rule 31a-1(b)(9), (10), (11); 31a-1(f) Rule 31a-2(e)
Founders Asset Management, Inc.
2930 East Third Ave.
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(iv) For New England Star Worldwide Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Harris Associates L.P.
Two North LaSalle Street
Chicago, Illinois 60602
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Janus Capital Corporation
100 Fillmore Street
East Third Avenue
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Founders Asset Management, Inc.
2930 East Third Avenue
Denver, Colorado 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, California 94111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(v) For the series of the Registrant managed by Loomis Sayles:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(vi) For New England Star Small Cap Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Harris Associates L.P.
Two North LaSalle Street
Chicago, IL 60602
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, CA 94111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Robertson Stephens & Company
555 California Street
San Francisco, CA 94101
Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f)
Rule 31a-2(e)
(d) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a - 1(d)
Rule 31a - 2(c)
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) The Registrant undertakes to provide the annual report of any of its
series to any person who receives a prospectus for such series and who requests
the annual report.
(b) The Registrant hereby undertakes to file a post-effective amendment using
Financial Statements relating to its New England Small Cap Fund within four to
six months from the effective date of Post-Effective Amendment No. 33 filed on
October 3, 1996.
<PAGE>
NEW ENGLAND FUNDS TRUST I
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment No. 34 to its Registration Statement meets all the
requirements for effectiveness under paragraph (a) of Rule 485 under the
Securities Act of 1933, and that it has duly caused this Post-Effective
Amendment No. 34 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, in the Commonwealth
of Massachusetts on the 14th day of February, 1997.
NEW ENGLAND FUNDS TRUST I
By: PETER S. VOSS*
----------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ ROBERT P. CONNOLLY
----------------------
Robert P. Connolly
Attorney-In-Fact
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PETER S. VOSS* Chairman of the Board; Chief Executive February 14, 1997
- ------------- Officer; Principal Executive Officer;
Peter S. Voss Trustee
/s/FRANK NESVET Chief Financial Officer February 14, 1997
- ---------------
Frank Nesvet
HENRY L. P. SCHMELZER* Trustee February 14, 1997
- ----------------------
Henry L. P. Schmelzer
GRAHAM T. ALLISON, JR.* Trustee February 14, 1997
- -----------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee February 14, 1997
Daniel M. Cain
KENNETH J. COWAN* Trustee February 14, 1997
Kenneth J. Cowan
RICHARD DARMAN* Trustee February 14, 1997
Richard Darman
SANDRA O. MOOSE* Trustee February 14, 1997
Sandra O. Moose
JOHN A. SHANE* Trustee February 14, 1997
John A. Shane
PENDLETON P. WHITE* Trustee February 14, 1997
Pendleton P. White
*By: /s/ROBERT P. CONNOLLY
----------------------
Robert P. Connolly
Attorney-In-Fact
February 14, 1997
</TABLE>
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT NUMBER EXHIBIT
<S> <C>
EX-99.1(d) Amendment No. 10 to Amended and Restated Agreement and Declaration of Trust
EX-99.5(c) Advisory Agreement between the Registrant, relating to its New England Star Small Cap
Fund, and NEFM
EX-99.5(e) Subadvisory Agreements, relating to the Registrant's New England Star Small Cap Fund,
between NEFM and the following subadvisers: Robertson, Stephens & Company Investment
Management, L.P., Montgomery Asset Management, L.P., Loomis, Sayles & Company L.P. and
Harris Associates, L.P.
EX-99.5(f) Form of Subadvisory Agreement, relating to the Registrant's New England International
Equity Fund, between NEFM and Loomis, Sayles & Company, L.P.
EX-99.6(b) Distribution Agreement between the Registrant, on behalf of its New England Star Small
Cap Fund, and New England Funds, L.P.
EX-99.8(c) Letter Agreement between the Registrant and State Street relating to the applicability
of the Custodian Contract to New England International Equity Fund
EX-99.8(d) Letter Agreement between the Registrant and State Street relating to the applicability
of the Custodian Contract to New England Capital Growth Fund
EX-99.8(e) Letter Agreement between the Registrant and State Street relating to the applicability
of the Custodian Contract to New England Star Advisers Fund
EX 99.8(f) Letter Agreement between the Registrant and State Street relating to the applicability
of the Custodian Contract to New England Strategic Income Fund
EX 99.8(g) Letter Agreement between the Registrant and State Street relating to the applicability
of the Custodian Contract to New England Star Worldwide Fund
EX-99.8(h) and Letter Agreement between the Registrant and State Street on behalf of New England Star
EX-99.9(o) Small Cap Fund
EX-99.9(n) Organizational Expense Reimbursement Agreement
between the Registrant, on behalf of its New England Small Cap
Fund and New England Funds, L.P.
EX-99.9(p) Class B Shares Remittance Agreement between the Registrant and New England Funds, L.P.
relating to New England Star Small Cap Fund
EX 99.10(i) Opinion and consent of counsel relating to the Registrant's New England Star Small Cap
Fund
EX-99.14 New England Funds, L.P. Tax Sheltered Custodial Account Agreement; New England Funds,
L.P. Keogh Plan; New England Funds, L.P. Simplified Employee Pension Plan; New England
Funds, L.P. Individual Retirement Plan Prototype; New England Funds, L.P. 401(K) Plan
Prototype
</TABLE>
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.1(D)
AMENDMENT NO. 10 TO AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
<PAGE>
NEW ENGLAND FUNDS TRUST I
AMENDMENT NO. 10 TO AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
The undersigned, being at least a majority of the Trustees of New
England Funds Trust I (the "Trust"), having determined it to be consistent with
the fair and equitable treatment of all shareholders of the Trust, hereby amend
the Trust's Amended and Restated Agreement and Declaration of Trust, as amended
by Amendments Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 thereto (the "Declaration of
Trust"), a copy of which is on file in the office of the Secretary of State of
The Commonwealth of Massachusetts, as follows:
1. The first sentence of Section 6 of Article III of the Declaration of
Trust is hereby amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or
to modify the rights and preferences of any Series or class, each of
the following Series shall be, and is hereby established and
designated: (1) New England Government Securities Fund, (2) New England
Growth Fund, (3) New England Balanced Fund, (4) New England Value Fund,
(5) New England Bond Income Fund, (6) New England Municipal Income
Fund, (7) New England International Equity Fund, (8) New England
Capital Growth Fund, (9) New England Star Advisers Fund, (10) New
England Strategic Income Fund, (11) New England Star Worldwide Fund and
(12) New England Star Small Cap Fund; and the following Series shall
be, and are hereby, designated Multi-Class Series: New England
Government Securities Fund, New England Growth Fund, New England
Balanced Fund, New England Value Fund, New England Bond Income Fund,
New England Municipal Income Fund, New England International Equity
Fund, New England Capital Growth Fund, New England Star Advisers Fund,
New England Strategic Income Fund, New England Star Worldwide Fund and
New England Star Small Cap Fund.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for
our successors and assigns as of the day of October, 1996.
/S/GRAHAM T. ALLISON, JR.
- ------------------------------
Graham T. Allison, Jr.
/S/SANDRA O. MOOSE
- ------------------------------
Sandra O. Moose
/S/PETER S. VOSS
- ------------------------------
Peter S. Voss
/S/DANIEL M. CAIN
- ------------------------------
Daniel M. Cain
/S/KENNETH J. COWAN
- ------------------------------
Kenneth J. Cowan
/S/HENRY L.P. SCHMELZER
- ------------------------------
Henry L.P. Schmelzer
/S/JOHN A. SHANE
- ------------------------------
John A. Shane
/S/PENDLETON P. WHITE
- ------------------------------
Pendleton P. White
/S/RICHARD DARMAN
- ------------------------------
Richard Darman
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.5(C)
ADVISORY AGREEMENT BETWEEN THE REGISTRANT, RELATING TO ITS
NEW ENGLAND STAR SMALL CAP FUND, AND NEFM
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
ADVISORY AGREEMENT
AGREEMENT made this 31st day of December, 1996 by and between NEW
ENGLAND FUNDS TRUST I, a Massachusetts business trust (the "Fund"), with respect
to its New England Star Small Cap Fund series (the "Series"), and NEW ENGLAND
FUNDS MANAGEMENT, L.P., a Delaware limited partnership (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) will perform certain services for the
Series;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Sections
1(b) and (c) hereof. The Manager hereby accepts such employment and
agrees, at its own expense, to furnish such services (either directly
or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth,
for the compensation herein provided. The Manager shall, unless
otherwise expressly provided or authorized, have no authority to act
for or represent the Fund in any way or otherwise be deemed an agent of
the Fund.
(b) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services (and assumption of related expenses) to one or more
other parties (each such party, a "Sub-Adviser"), pursuant in each case
to a written agreement with such Sub-Adviser that meets the
requirements of Section 15 of the Investment Company Act of 1940 and
the rules thereunder (the "1940 Act") applicable to contracts for
service as investment adviser of a registered investment company
(including without limitation the requirements for approval by the
trustees of the Fund and the shareholders of the Series), subject,
however, to such exemptions as may be granted by the Securities and
Exchange Commission. Any Sub-Adviser may (but need not) be affiliated
with the Manager. If different Sub-Advisers are engaged to provide
Portfolio Management Services with respect to different segments of the
portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect,
what portion of the assets belonging to the Series shall be managed by
each Sub-Adviser.
(c) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of
Administrative Services to one or more other parties (each such party,
an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Series in accordance with the Series' investment objectives and
policies;
(b) taking such steps as are necessary to implement the
investment policies of the Series by purchasing and selling of
securities, including the placing of orders for such purchase and sale;
and
(c) regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of the
Series.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Series (exclusive of those related to and to be
performed under contract for custodial, transfer, dividend and plan
agency services by the entity or entities selected to perform such
services and exclusive of any managerial functions described in Section
4);
(c) compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator; and
(d) supervision and oversight of the Portfolio Management
Services provided by each Sub-Adviser, and oversight of all matters
relating to compliance by the Fund with applicable laws and with the
Series' investment policies, restrictions and guidelines, if the
Manager has delegated to one or more Sub-Advisers any or all of its
responsibilities hereunder with respect to the provision of Portfolio
Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and mailing the items
referred to in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing
sales literature;
(c) compensation of trustees of the Fund who are not
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the
Fund for custodial, paying agent, shareholder servicing and plan agent
services;
(f) charges and expenses of independent accountants retained
by the Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes
chargeable to the Fund in connection with securities transactions to
which the Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or
other governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of
the Fund, including registering and qualifying its shares with Federal
and State regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the
Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel,
required in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the Fund, and
notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing
and financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of 1.05% of the average daily net assets of the
Series (or such lesser amount as the Manager may from time to time agree to
receive). Such compensation shall be payable monthly in arrears or at such other
intervals, not less frequently than quarterly, as the Board of Trustees of the
Fund may from time to time determine and specify in writing to the Manager. The
Manager hereby acknowledges that the Fund's obligation to pay such compensation
is binding only on the assets and property belonging to the Series.
8. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a
meeting called for the purpose of voting on, such approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Manager either by vote of the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund;
(e) if New England Funds, L.P., the Fund's principal
underwriter, requires the Fund or the Series to change its name so as
to eliminate all references to the words "New England" or the letters
"TNE" pursuant to the provisions of the Fund's Distribution Agreement
relating to the Series with said principal underwriter, this Agreement
shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of
the Fund who are not interested persons of the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on such
approval.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST I
on behalf of its New England Star Small Cap Fund series
By: /s/ BRUCE R. SPECA
---------------------------
Name: Bruce R. Speca
Title: Vice President
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: /s/ HENRY L.P. SCHMELZER
---------------------------
Name: Henry L.P. Schmelzer
Title: President
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I (the "Fund") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's New England Star Small Cap Fund series (the
"Series") on behalf of the Fund by officers of the Fund as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Series.
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.5(E)
SUBADVISORY AGREEMENTS, RELATING TO THE REGISTRANT'S NEW ENGLAND
STAR SMALL CAP FUND, BETWEEN NEFM AND THE FOLLOWING SUBADVISERS:
ROBERTSON STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P., MONTGOMERY
ASSET MANAGEMENT, L.P., LOOMIS, SAYLES & COMPANY, L.P. AND HARRIS
ASSOCIATES, L.P.
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P.
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December 31, 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Robertson, Stephens & Company
Investment Management, L.P., a California limited partnership (the
"Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December 31, 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund (the "Fund"), a
series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of a segment
of the assets of the Series (the "Portfolio"). The Sub-Adviser shall
manage the Series in conformity with (1) the investment objective,
policies and restrictions of the Series set forth in the Trust's
prospectus and statement of additional information relating to the
Series, (2) any additional policies or guidelines established by the
Manager or by the Trust's trustees that have been furnished in writing
to the Sub-Adviser and (3) the provisions of the Internal Revenue Code
(the "Code") applicable to "regulated investment companies" (as defined
in Section 851 of the Code), all as from time to time in effect
(collectively, the "Policies"), and with all applicable provisions of
law, including without limitation all applicable provisions of the
Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations thereunder. The Fund is the owner of all cash, securities
and other assets in the Portfolio, and, except as may otherwise be
provided be the 1940 or other federal laws, there are no restrictions
on the pledge, hypothecation, transfer or sale of such cash,
securities, or assets. Subject to the foregoing, the Sub-Adviser is
authorized, in its sole and exclusive discretion and without prior
consultation with the Manager, to buy, sell, lend and otherwise trade
in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover
or any tax considerations; and the majority or the whole of the Series
may be invested in such proportions of stocks, bonds, other securities
or investment instruments, or cash, as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name and mark "Robertson, Stephens &
Company Investment Management, L.P." and that all use of any designation
consisting in whole or part of "Robertson, Stephens & Company Investment
Management, L.P." (a "Robertson Stephens Mark") under this Agreement shall inure
to the benefit of the Sub-Adviser. The Manager on its own behalf and on behalf
of the Series agrees not to use any Robertson Stephens Mark in any advertisement
or sales literature or other materials promoting the Series, except with the
prior written consent of the Sub-Adviser. Without the prior written consent of
the Sub-Adviser, the Manager shall not, and the Manager shall use its best
efforts to cause the Series not to, make representations regarding the
Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Robertson Stephens Mark(s) as soon
as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, (c) custodian, independent
auditors, legal counsel fees and expenses, (d) settlement charges, and (e)
expenses of preparing, printing and distributing all prospectuses, proxy
material, reports and notices to shareholders of the Fund, and other incidental
costs of the Portfolio. Any reimbursement of advisory fees required by any
expense limitation provision of any law shall be the sole responsibility of the
Manager. The Manager and the Sub-Adviser shall not be considered as partners or
participants in a joint venture. The Sub-Adviser will pay its own expenses
incurred in furnishing the services to be provided by it pursuant to this
Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be
entitled to any compensation from the Manager or the Trust with respect to
service by any affiliated person of the Sub-Adviser as an officer or trustee of
the Trust (other than the compensation to the Sub-Adviser payable by the Manager
pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders
for the purchase and sale of securities for the Series with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers affiliated
with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940
Act in all respects. To the extent consistent with applicable law, purchase or
sell orders for the Series may be aggregated with contemporaneous purchase or
sell orders of other clients of the Sub-Adviser. Except as may otherwise be
provided by the 1940 or other federal laws, such transactions may be made at
slightly different prices, due to the volume of the securities purchased or
sold. In such event, the average price of all securities purchased or sold in
such transactions may be determined, and the Portfolio may be charged or
credited, as the case may be, the average transaction price. The Sub-Adviser
shall use its best efforts to obtain execution of transactions for the Series at
prices which are advantageous to the Series and at commission rates that are
reasonable in relation to the benefits received. However, the Sub-Adviser may
select brokers or dealers on the basis that they provide brokerage, research or
other services or products to the Series and/or other accounts serviced by the
Sub-Adviser. To the extent consistent with applicable law, the Sub-Adviser may
pay a broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission or dealer spread another
broker or dealer would have charged for effecting that transaction if the
Sub-Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research products
and/or services provided by such broker or dealer. This determination, with
respect to brokerage and research services or products, may be viewed in terms
of either that particular transaction or the overall responsibilities which the
Sub-Adviser and its affiliates have with respect to the Series or to accounts
over which they exercise investment discretion. Not all such services or
products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.55% of the first $50 million of the average daily net assets of the
Portfolio and 0.50% of such assets in excess of $50 million. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Manager is paid by the Series pursuant to the
Advisory Agreement. The daily fee accruals will be computed on the basis of the
valuations of the total net assets of the Portfolio as of the close of business
each day. For purposes of determining the daily fee accruals, the assets of the
Portfolio shall be valued by the Manager in good faith to reflect the fair
market value thereof. The net market value of securities held short by the
Portfolio shall be treated a liability of the Account, and, together with the
amount of any margin or other loans owned by the Account, shall be subtracted in
determining net market value. If this Agreement begins on a date other than the
first day of a quarter or terminates on a date other than the last day of a
quarter, the sub-advisory fee payable with respect to either such quarter shall
be prorated.
8. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. This will create conflicts of interest with
the Portfolio over the Sub-Adviser's time devoted to managing the Portfolio and
the allocation of investment opportunities among accounts (including the
Portfolio) managed by the Sub-Adviser. The Sub-Adviser will attempt to resolve
all such conflicts in a manner that is generally fair to all of its clients.
Nothing in this Agreement shall be deemed to obligate the Sub-Adviser to acquire
for the Portfolio any security that the Sub-Adviser or its affiliated persons
may acquire for its own accounts or for the account of any other client, if in
the absolute discretion of the Sub-Adviser and consistent with the Sub-Adviser's
fiduciary duties to the shareholders or the Manager of the Fund, it is not
practical or desirable to acquire such a position in such security for the
Portfolio. The Sub-Adviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Series or the Manager in any way or
otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series or any regulatory body that is not
based upon the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Confidentiality. Except as required by law, the Manager agrees to
maintain in strict confidence all investment advice and information furnished to
the Manager or the Fund by the Sub-Adviser.
12. Amendment. This Agreement may be amended in writing at any time by
mutual consent of the Manager and the Sub-Adviser, provided that, if required by
law, such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
13. Notices. Any notice given hereunder shall be in writing and may be
served by being sent to telex, facsimile, or other electronic transmission or
sent by registered mail or by courier to the address set forth for the party for
which it is intended. A notice served by mail shall be deemed to have been
served seven days after mailing and in the case of telex, facsimile or other
electronic transmission twelve hours after dispatch thereof. Addressed for
notice may be changed by written notice to the other party.
If to Manager:
Robert P. Connolly
Senior Vice President and General Counsel
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
With a copy to:
Bruce R. Speca
Executive Vice President
399 Boylston Street
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
If to Sub-Adviser:
Chris Hauswirth
Vice President
Robertson, Stephens & Company
555 California Street
San Francisco, CA 94104
With a copy to:
Dana K. Welch
General Counsel
Robertson, Stephens & Company
555 California Street
San Francisco, CA 94104
14. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
15. Delivery of Information. The Manager acknowledges that it has
received the Sub-Adviser's brochure required to be delivered under the Advisers
Act (including the information in Part II of the Sub-Adviser's Form ADV). If the
Manager received such information less than forty-eight hours prior to signing
this Agreement, this Agreement may be terminated by the Adviser with penalty
within five business days from the effective date. On written request by the
Manager, the Sub-Adviser agrees to deliver annually without charge the
Sub-Adviser's brochure required by the Advisers Act.
16. Entire Agreement; Severability. This Agreement (and the letter
dated September 16, 1996 from Bruce R. Speca to Robertson, Stephens) is the
entire agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and understandings
regarding the subject matter hereof.
17. No Third-Party Beneficiaries. Neither party intends for this
Agreement to benefit any third-party not expressly named in this Agreement.
18. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the portfolio management duties
described therein until the Sub-Adviser notifies the Manager that one
or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific
date.
(b) If any term or provision or this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By: /s/ ROBERT P. CONNOLLY
-----------------------------
Name: Robert P. Connolly
Title: Senior Vice President and
Managing Director
ROBERTSON, STEPHENS & COMPANY INVESTMENT
MANAGEMENT, L.P.
By: /s/ GEORGE R. HECHT
-----------------------------
Name: George R. Hecht
Title: President
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
MONTGOMERY ASSET MANAGEMENT, L.P
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December 31, 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Montgomery Asset Management, L.P., a
California limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December 31, 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of Such
portion of the assets of the Series as the Manager may from time to
time allocate to the Sub-Adviser for management (such portion, the
"Segment"). The Sub-Adviser shall manage the Segment in conformity with
(1) the investment objective, policies and restrictions of the Series
set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's Trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
For purposes of compliance with the Policies, the Sub-Adviser shall be
entitled to treat the Segment as though the Segment constituted the
entire Series, and the Sub-Adviser shall not be responsible in any way
for the compliance of any assets of the Series, other than the Segment,
with the Policies, or for the compliance of the Series, taken as a
whole, with the Policies. Subject to the foregoing, the Sub-Adviser is
authorized, in its discretion and without prior consultation with the
Manager, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the
Series, without regard to the length of time the securities have been
held and the resulting rate of portfolio turnover or any tax
considerations; and the majority or the whole of the Segment may be
invested in such proportions of stocks, bonds, other securities or
investment instruments, or cash, as the Sub-Adviser shall determine.
Notwithstanding the foregoing provisions of this Section 1.a; however,
the Sub-Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Segment as the Manager shall
determine are necessary in order for the Series to comply with the
Policies.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Segment in such form as
may be mutually agreed upon, and agrees to review the Segment and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Segment to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Series' Custodian
(as defined in Section 3 hereof) to provide) timely information to the
Sub-Adviser regarding such matters as the composition of assets of the
Segment, cash requirements and cash available for investment in the
Segment, and all other information as may be reasonably necessary for
the Sub-Adviser to perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Segment shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Segment shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name and mark "Montgomery Asset Management,
L.P." and that all use of any designation consisting in whole or part of
"Montgomery Asset Management, L.P." (a "Montgomery Mark") under this Agreement
shall inure to the benefit of the Sub-Adviser. The Manager on its own behalf and
on behalf of the Series agrees not to use any Montgomery Mark in any
advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Montgomery Mark(s) as soon as
reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or Trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. Absent instructions from the Manager to
the contrary, the Sub-Adviser shall place all orders for the purchase and sale
of securities for the Segment with brokers or dealers selected by the
Sub-Adviser, which may include brokers or dealers affiliated with the
Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in
all respects. To the extent consistent with applicable law, purchase or sell
orders for the Segment may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best
efforts to obtain execution of transactions for the Segment at prices which are
advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Segment.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.65% of the first $50 million of the average daily net assets (including
cash or cash equivalents) of the Segment and 0.50% of such assets in excess of
$50 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Series or the
Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser with respect to the Segment under this Agreement.
Without limiting the foregoing, it is expressly understood and agreed
that the Manager and the Series shall hold harmless and indemnify the
Indemnified Parties for any loss arising out of any act or omission of any other
sub-adviser to the Series, or for any loss arising out of the failure of the
Series to comply with the Policies, except for losses arising out of the
Sub-Adviser's failure to comply with the Policies with respect to the Segment.
The Manager acknowledges and agrees that the Sub-Adviser makes no representation
or warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or the Segment or that the Series or the
Segment will perform comparably with any standard or index, including other
client of the Sub-Adviser, whether public or private.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the portfolio management duties
described therein until the Sub-Adviser notifies the Manager that one
or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific
date.
(b) If any term or provision or this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
(d) The Sub-Adviser will notify Manager of any change in the
composition of its partners within a reasonable time after such change.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By: /s/ ROBERT P. CONNOLLY
-----------------------------
Name: Robert P. Connolly
Title: Managing Director and General Counsel
MONTGOMERY ASSET MANAGEMENT, L.P.
By: /s/ KEVIN T. HAMILTON
-----------------------------
Name: Kevin T. Hamilton
Title: Managing Director
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
(LOOMIS, SAYLES & COMPANY, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December 31, 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Loomis, Sayles & Company, L.P., a
Delaware limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December 31, 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name and mark "Loomis, Sayles & Company,
L.P." and that all use of any designation consisting in whole or part of
"Loomis, Sayles & Company, L.P." (a "Loomis Sayles Mark") under this Agreement
shall inure to the benefit of the Sub-Adviser. The Manager on its own behalf and
on behalf of the Series agrees not to use any Loomis Sayles Mark in any
advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Loomis Sayles Mark(s) as soon as
reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders
for the purchase and sale of securities for the Series with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers affiliated
with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940
Act in all respects. To the extent consistent with applicable law, purchase or
sell orders for the Series may be aggregated with contemporaneous purchase or
sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its
best efforts to obtain execution of transactions for the Series at prices which
are advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.55% of the first $50 million of the average daily net assets of the segment
of the Series that the Sub-Adviser manages and 0.50% of such assets in excess of
$50 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Series or the
Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the portfolio management duties
described therein until the Sub-Adviser notifies the Manager that one
or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific
date.
(b) If any term or provision or this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By: /s/ BRUCE R. SPECA
-----------------------------
Name: Bruce R. Speca
Title: Executive Vice President & Managing
Director
LOOMIS, SAYLES & COMPANY, L.P.
By: /s/ ROBERT BLANDING
-----------------------------
Name: Robert Blanding
Title: Chief Executive Officer & President
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
SUB-ADVISORY AGREEMENT
(HARRIS ASSOCIATES, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
December 31, 1996 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Harris Associates, L.P., a Delaware
limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
December 31, 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England Star Small Cap Fund, a series of the
Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision of the
Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's custodian
to provide) timely information to the Sub-Adviser regarding such
matters as the composition of assets of the Series, cash requirements
and cash available for investment in the Series, and all other
information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series' agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name and mark "Harris Associates, L.P. and
"Oakmark" and that all use of any designation consisting in whole or part of
"Harris Associates, Inc." or "Oakmark" (a "Harris/Oakmark Mark") under this
Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own
behalf and on behalf of the Series agrees not to use any Harris/Oakmark Mark in
any advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Harris/Oakmark Mark(s) as soon as
reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders
for the purchase and sale of securities for the Series with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers affiliated
with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940
Act in all respects. To the extent consistent with applicable law, purchase or
sell orders for the Series may be aggregated with contemporaneous purchase or
sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its
best efforts to obtain execution of transactions for the Series at prices which
are advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate
of 0.70% of the average daily net assets of the segment of the Series that the
Sub-Adviser manages. Such compensation shall be payable monthly in arrears or at
such other intervals, not less frequently than quarterly, as the Manager is paid
by the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Series or the
Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, employees or agents (the "Indemnified Parties") shall be subject to
any liability to the Manager, the Trust, the Series or any shareholder of the
Series for any error of judgment, any mistake of law or any loss arising out of
any investment or other act or omission in the course of, connected with, or
arising out of any service to be rendered under this Agreement, except by reason
of willful misfeasance, bad faith or gross negligence in the performance of the
Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of
its obligations and duties. The Manager shall hold harmless and indemnify the
Sub-Adviser for any loss, liability, cost, damage or expense (including
reasonable attorneys fees and costs) arising from any claim or demand by any
past or present shareholder of the Series that is not based upon the obligations
of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
(a) unless otherwise terminated, this Agreement shall continue
in effect for two years from the date of execution, and from year to
year thereafter so long as such continuance is specifically approved at
least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Series, and (ii)
by vote of a majority of the trustees of the Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, cast
in person at a meeting called for the purpose of voting on such
approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Sub-Adviser either by vote of the Board of
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment or upon the termination of the Advisory Agreement;
(d) this Agreement may be terminated by the Sub-Adviser on
ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through any
employee, officer or agent of the Sub-Adviser, and the Manager shall
not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the portfolio management duties
described therein until the Sub-Adviser notifies the Manager that one
or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific
date.
(b) If any term or provision or this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
(c) This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By: /s/ BRUCE R. SPECA
-----------------------------
Name: Bruce R. Speca
Title: Executive Vice President
HARRIS ASSOCIATES, L.P.
By: /s/ ANITA NAGLER
-----------------------------
Name: Anita Nagler
Title: Vice President
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.5(F)
FORM OF SUBADVISORY AGREEMENT, RELATING TO THE REGISTRANT'S
NEW ENGLAND INTERNATIONAL EQUITY FUND, BETWEEN NEFM AND
LOOMIS, SAYLES & COMPANY, L.P.
<PAGE>
NEW ENGLAND INTERNATIONAL EQUITY FUND
FORM OF SUB-ADVISORY AGREEMENT
(LOOMIS, SAYLES & COMPANY, L.P.)
This Sub-Advisory Agreement (this "Agreement") is entered into as of
February , 1997 by and between New England Funds Management, L.P., a Delaware
limited partnership (the "Manager"), and Loomis, Sayles & Company, L.P., a
Delaware limited partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
August 30, 1996 (the "Advisory Agreement") with New England Funds Trust I (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to New England International Equity Fund, a series of
the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the Trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Sub-Adviser agree as follows:
1. Sub-Advisory Services.
(a) The Sub-Adviser shall, subject to the supervision
of the Manager and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series. The Sub-Adviser shall manage the Series in conformity
with (1) the investment objective, policies and restrictions of the
Series set forth in the Trust's prospectus and statement of additional
information relating to the Series, (2) any additional policies or
guidelines established by the Manager or by the Trust's trustees that
have been furnished in writing to the Sub-Adviser and (3) the
provisions of the Internal Revenue Code (the "Code") applicable to
"regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including
without limitation all applicable provisions of the Investment Company
Act of 1940 (the "1940 Act") and the rules and regulations thereunder.
Subject to the foregoing, the Sub-Adviser is authorized, in its
discretion and without prior consultation with the Manager, to buy,
sell, lend and otherwise trade in any stocks, bonds and other
securities and investment instruments on behalf of the Series, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations; and the
majority or the whole of the Series may be invested in such proportions
of stocks, bonds, other securities or investment instruments, or cash,
as the Sub-Adviser shall determine.
(b) The Sub-Adviser shall furnish the Manager and the
Administrator monthly, quarterly and annual reports concerning
portfolio transactions and performance of the Series in such form as
may be mutually agreed upon, and agrees to review the Series and
discuss the management of it. The Sub-Adviser shall permit all books
and records with respect to the Series to be inspected and audited by
the Manager and the Administrator at all reasonable times during normal
business hours, upon reasonable notice. The Sub-Adviser shall also
provide the Manager with such other information and reports as may
reasonably be requested by the Manager from time to time, including
without limitation all material requested by or required to be
delivered to the Trustees of the Trust.
(c) The Sub-Adviser shall provide to the Manager a copy
of the Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
(a) The Manager shall provide (or cause the Fund's
custodian to provide) timely information to the Sub-Adviser regarding
such matters as the composition of assets of the Series, cash
requirements and cash available for investment in the Series, and all
other information as may be reasonably necessary for the Sub-Adviser to
perform its responsibilities hereunder.
(b) The Manager has furnished the Sub-Adviser a copy of
the prospectus and statement of additional information of the Series
and agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the Trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a
copy of the Series' agreement with the custodian designated to hold the assets
of the Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that
the Sub-Adviser is the sole owner of the name and mark "Loomis, Sayles &
Company, L.P." and that all use of any designation consisting in whole or part
of "Loomis, Sayles & Company, L.P." (a "Loomis Sayles Mark") under this
Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own
behalf and on behalf of the Series agrees not to use any Loomis Sayles Mark in
any advertisement or sales literature or other materials promoting the Series,
except with the prior written consent of the Sub-Adviser. Without the prior
written consent of the Sub-Adviser, the Manager shall not, and the Manager shall
use its best efforts to cause the Series not to, make representations regarding
the Sub-Adviser in any disclosure document, advertisement or sales literature or
other materials relating to the Series. Upon termination of this Agreement for
any reason, the Manager shall cease, and the Manager shall use its best efforts
to cause the Series to cease, all use of any Loomis Sayles Mark(s) as soon as
reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed
to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be
liable for any organizational, operational or business expenses of the Manager
or the Trust including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase or sale of
securities or other investment instruments with respect to the Series, and (c)
custodian fees and expenses. Any reimbursement of advisory fees required by any
expense limitation provision of any law shall be the sole responsibility of the
Manager. The Manager and the Sub-Adviser shall not be considered as partners or
participants in a joint venture. The Sub-Adviser will pay its own expenses
incurred in furnishing the services to be provided by it pursuant to this
Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be
entitled to any compensation from the Manager or the Trust with respect to
service by any affiliated person of the Sub-Adviser as an officer or trustee of
the Trust (other than the compensation to the Sub-Adviser payable by the Manager
pursuant to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all
orders for the purchase and sale of securities for the Series with brokers or
dealers selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1
under the 1940 Act in all respects. To the extent consistent with applicable
law, purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The
Sub-Adviser shall use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and at commission
rates that are reasonable in relation to the benefits received. However, the
Sub-Adviser may select brokers or dealers on the basis that they provide
brokerage, research or other services or products to the Series and/or other
accounts serviced by the Sub-Adviser. To the extent consistent with applicable
law, the Sub-Adviser may pay a broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
products and/or services provided by such broker or dealer. This determination,
with respect to brokerage and research services or products, may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Sub-Adviser and its affiliates have with respect to the Series or to
accounts over which they exercise investment discretion. Not all such services
or products need be used by the Sub-Adviser in managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for
all services rendered, facilities furnished and expenses borne by the
Sub-Adviser hereunder, the Manager shall pay the Sub-Adviser compensation at the
annual rate of 0.40 % of the first $200 million of the average daily net assets
of the Series that the Sub-Adviser manages and 0.35 % of the amount in excess of
$200 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Manager is paid by
the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the
services of the Sub-Adviser are not to be deemed exclusive and that the
Sub-Adviser and its affiliates are free to act as investment manager and provide
other services to various investment companies and other managed accounts,
except as the Sub-Adviser and the Manager or the Administrator may otherwise
agree from time to time in writing before or after the date hereof. This
Agreement shall not in any way limit or restrict the Sub-Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Sub-Adviser of its duties and obligations under this Agreement. The Manager and
the Series recognize and agree that the Sub-Adviser may provide advice to or
take action with respect to other clients, which advice or action, including the
timing and nature of such action, may differ from or be identical to advice
given or action taken with respect to the Series. The Sub-Adviser shall for all
purposes hereof be deemed to be an independent contractor and shall, unless
otherwise provided or authorized, have no authority to act for or represent the
Series or the Manager in any way or otherwise be deemed an agent of the Series
or the Manager.
9. Liability. Except as may otherwise be provided by the 1940
Act or other federal securities laws, neither the Sub-Adviser nor any of its
officers, directors, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties. The Manager
shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost,
damage or expense (including reasonable attorneys fees and costs) arising from
any claim or demand by any past or present shareholder of the Series that is not
based upon the obligations of the Sub-Adviser under this Agreement.
10. Effective Date and Termination. This Agreement shall become
effective as of the date of its execution, and
(a) unless otherwise terminated, this Agreement shall
continue in effect for two years from the date of execution, and from
year to year thereafter so long as such continuance is specifically
approved at least annually (i) by the Board of Trustees of the Trust or
by vote of a majority of the outstanding voting securities of the
Series, and (ii) by vote of a majority of the trustees of the Trust who
are not interested persons of the Trust, the Manager or the
Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval;
(b) this Agreement may at any time be terminated on
sixty days' written notice to the Sub-Adviser either by vote of the
Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Series;
(c) this Agreement shall automatically terminate in the
event of its assignment or upon the termination of the Advisory
Agreement;
(d) this Agreement may be terminated by the Sub-Adviser
on ninety days' written notice to the Manager and the Trust, or by the
Manager on ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by
mutual consent of the Manager and the Sub-Adviser, provided that, if required by
law, such amendment shall also have been approved by vote of a majority of the
outstanding voting securities of the Series and by vote of a majority of the
trustees of the Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of voting
on such approval.
12. Certain Definitions. For the purpose of this Agreement, the
terms "vote of a majority of the outstanding voting securities," "interested
person," "affiliated person" and "assignment" shall have their respective
meanings defined in the 1940 Act, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
13. General.
(a) The Sub-Adviser may perform its services through
any employee, officer or agent of the Sub-Adviser, and the Manager
shall not be entitled to the advice, recommendation or judgment of any
specific person; provided, however, that the persons identified in the
prospectus of the Series shall perform the portfolio management duties
described therein until the Sub-Adviser notifies the Manager that one
or more other employees, officers or agents of the Sub-Adviser,
identified in such notice, shall assume such duties as of a specific
date.
(b) If any term or provision of this Agreement or the
application thereof to any person or circumstances is held to be
invalid or unenforceable to any extent, the remainder of this Agreement
or the application of such provision to other persons or circumstances
shall not be affected thereby and shall be enforced to the fullest
extent permitted by law.
(c) This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By: __________________________________
Name: _______________________________
Title: ______________________________
LOOMIS, SAYLES & COMPANY, L.P.
By: __________________________________
Name: _______________________________
Title: ______________________________
beo\subadagr.loo
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.6(B)
DISTRIBUTION AGREEMENT BETWEEN THE REGISTRANT, ON BEHALF OF ITS NEW
ENGLAND STAR SMALL CAP FUND, AND NEW ENGLAND FUNDS, L.P.
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
DISTRIBUTION AGREEMENT
AGREEMENT made this 31st day of December, 1996 by and between NEW
ENGLAND FUNDS TRUST I, a Massachusetts business trust (the "Trust"), and NEW
ENGLAND FUNDS, L.P., a Delaware limited partnership (the "Distributor").
W I T N E S S E T H:
WHEREAS, this Agreement has been approved by the Trustees of the Trust
in contemplation of the transfer by the Distributor of its rights to receive the
Class B Distribution Fee (as defined in the Class B Distribution and Service
Plan attached hereto as Exhibit A) and/or contingent deferred sales charges to a
financing party in order to raise funds to cover distribution expenditures;
WHEREAS, the Trustees of the Trust recognize the importance to the
Trust of the Distributor being able to obtain financing with which to pay
commissions on Class B shares at the time of sale;
WHEREAS, the Trustees of the Trust acknowledge that by providing
financing to the Distributor the financing party enables the Distributor to
provide valuable services to the Series (as defined below); and
WHEREAS, the Trustees of the Trust, in the context of considering the
best interests of the Series and its shareholders at the time of and in
preparation for any vote, consent or other action that the Trustees of the Trust
may from time to time take relating to the continued receipt by the Distributor
(and/or the financing party) of the Distribution Fee, intend to consider the
effect on the Distributor and any financing party of any such vote, consent or
action.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the Trust and the Distributor agree as follows:
1. Distributor. The Trust hereby appoints the Distributor as general
distributor of shares of beneficial interest ("Series shares") of the
Trust's NEW ENGLAND STAR SMALL CAP FUND series (the "Series") during
the term of this Agreement. The Trust reserves the right, however, to
refuse at any time or times to sell any Series shares hereunder for any
reason deemed adequate by the Board of Trustees of the Trust.
2. Sale and Payment. Under this agreement, the following provisions shall
apply with respect to the sale of and payment for Series shares:
(a) The Distributor shall have the right, as principal,
to purchase Series shares from the Trust at their net asset
value and to sell such shares to the public against orders
therefor at the applicable public offering price, as defined
in Section 4 hereof. The Distributor shall also have the
right, as principal, to sell shares to dealers against orders
therefor at the public offering price less a concession
determined by the Distributor.
(b) Prior to the time of delivery of any shares by the
Trust to, or on the order of, the Distributor, the Distributor
shall pay or cause to be paid to the Trust or to its order an
amount in Boston or New York clearing house funds equal to the
applicable net asset value of such shares. The Distributor
shall retain so much of any sales charge or underwriting
discount as is not allowed by it as a concession to dealers.
3. Fees. For its services as general distributor of the Class B Series
shares, the Trust shall cause the Series to pay to the Distributor (or
its designee or transferee) in addition to the sales charge, if any,
referred to in Section 4 below, the Class B Distribution Fee at the
rate and upon the terms and conditions set forth in the Class B
Distribution and Service Plan attached as Exhibit A hereto, and as
amended from time to time, and the Distributor shall also be entitled
to receive any contingent deferred sales charges that may be payable
upon redemption or repurchase of Class B Series shares. The Class B
Distribution Fee shall be accrued daily and paid monthly to the
Distributor (or, at its direction, to its designee or transferee) as
soon as practicable after the end of the calendar month in which it
accrues, but in any event within five business days following the last
day of the month. So long as this agreement and the Class B
Distribution and Service Plan have not been terminated in accordance
with their respective terms, the Series' obligation to pay the Class B
Distribution Fee to the Distributor shall be absolute and unconditional
and shall not be subject to any dispute, offset, counterclaim or
defense whatsoever (it being understood that nothing in this sentence
shall be deemed a waiver by the Trust or the Series of its right
separately to pursue any claims it may have against the Distributor and
to enforce such claims against any assets (other than its rights to be
paid the Class B Distribution Fee and to be paid contingent deferred
sales charges with respect to Class B Series shares) of the
Distributor).
4. Public Offering Price. The public offering price shall be the net asset
value of Series shares, plus any applicable sales charge, all as set
forth in the current prospectus and statement of additional information
("prospectus") of the Trust relating to the Series shares. In no event
shall the public offering price exceed 1000/935 of such net asset
value, and in no event shall any applicable sales charge or
underwriting discount exceed 6.5% of the public offering price. The net
asset value of Series shares shall be determined in accordance with the
provisions of the agreement and declaration of trust and by-laws of the
Trust and the current prospectus of the Trust relating to the Series
shares.
5. Trust Issuance of Series Shares. The delivery of Series shares shall be
made promptly by a credit to a shareholder's open account for the
Series or by delivery of a share certificate. The Trust reserves the
right (a) to issue Series shares at any time directly to the
shareholders of the Series as a stock dividend or stock split, (b) to
issue to such shareholders shares of the Series, or rights to subscribe
to shares of the Series, as all or part of any dividend that may be
distributed to shareholders of the Series or as all or part of any
optional or alternative dividend that may be distributed to
shareholders of the Series, and (c) to sell Series shares in accordance
with the current applicable prospectus of the Trust relating to the
Series shares.
6. Redemption or Repurchase. The Distributor shall act as agent for the
Trust in connection with the redemption or repurchase of Series shares
by the Trust to the extent and upon the terms and conditions set forth
in the current applicable prospectus of the Trust relating to the
Series shares, and the Trust agrees to reimburse the Distributor, from
time to time upon demand, for any reasonable expenses incurred in
connection with such redemptions or repurchases. The Trust will remit
to the Distributor any contingent deferred sales charges imposed on
redemptions or repurchases of Series shares (other than Class B shares)
upon the terms and conditions set forth in the then current prospectus
of the Trust. The Trust will also remit to the Distributor (or its
designee or transferee), in addition to the Class B Distribution Fee,
any contingent deferred sales charges imposed on redemptions or
repurchases of Class B shares, in accordance with the Remittance
Agreement attached hereto as Exhibit B.
7. Undertaking Regarding Sales. The Distributor shall use reasonable
efforts to sell Series shares but does not agree hereby to sell any
specific number of Series shares and shall be free to act as
distributor of the shares of other investment companies. Series shares
will be sold by the Distributor only against orders therefor. The
Distributor shall not purchase Series shares from anyone except in
accordance with Sections 2 and 6 and shall not take "long" or "short"
positions in Series shares contrary to the agreement and declaration of
trust or by-laws of the Trust.
8. Compliance. The Distributor shall conform to the Rules of Fair Practice
of the NASD and the sale of securities laws of any jurisdiction in
which it sells, directly or indirectly, any Series shares. The
Distributor agrees to make timely filings, with the Securities and
Exchange Commission in Washington, D.C. (the "SEC"), the NASD and such
other regulatory authorities as may be required, of any sales
literature relating to the Series and intended for distribution to
prospective investors. The Distributor also agrees to furnish to the
Trust sufficient copies of any agreements or plans it intends to use in
connection with any sales of Series shares in adequate time for the
Trust to file and clear them with the proper authorities before they
are put in use (which the Trust agrees to use its best efforts to do as
expeditiously as reasonably possible), and not to use them until so
filed and cleared.
9. Registration and Qualification of Series Shares. The Trust agrees to
execute such papers and to do such acts and things as shall from time
to time be reasonably requested by the Distributor for the purpose of
qualifying and maintaining qualification of the Series shares for sale
under the so-called Blue Sky Laws of any state or for maintaining the
registration of the Trust and of the Series shares under the federal
Securities Act of 1933 and the federal Investment Company Act of 1940
(the "1940 Act"), to the end that there will be available for sale from
time to time such number of Series shares as the Distributor may
reasonably be expected to sell. The Trust shall advise the Distributor
promptly of (a) any action of the SEC or any authorities of any state
or territory, of which it may be advised, affecting registration or
qualification of the Trust or the Series shares, or rights to offer
Series shares for sale, and (b) the happening of any event which makes
untrue any statement or which requires the making of any change in the
Trust's registration statement or its prospectus relating to the Series
shares in order to make the statements therein not misleading.
10. Distributor Independent Contractor. The Distributor shall be an
independent contractor and neither the Distributor nor any of its
officers or employees as such is or shall be an employee of the Trust.
The Distributor is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to such
agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
thereunder.
11. Expenses Paid by Distributor. While the Distributor continues to act as
agent of the Trust to obtain subscriptions for and to sell Series
shares, the Distributor shall pay the following:
(a) all expenses of printing (exclusive of typesetting)
and distributing any prospectus for use in offering Series
shares for sale, and all other copies of any such prospectus
used by the Distributor, and
(b) all other expenses of advertising and of preparing,
printing and distributing all other literature or material for
use in connection with offering Series shares for sale.
12. Interests in and of Distributor. It is understood that any of the
shareholders, trustees, officers, employees and agents of the Trust may
be a shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an
interest or any organization which may have an interest in the
Distributor; that the Distributor, any such affiliated person or any
such organization may have an interest in the Trust; and that the
existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in
the agreement and declaration of trust or by-laws of the Trust, in the
limited partnership agreement of the Distributor or by specific
provision of applicable law.
13. Words "New England" and Letters "TNE". The Distributor and/or its
parent organization and New England Investment Companies, L.P.
("NEIC"), retain proprietary rights in the words "New England" and the
letters "TNE", which may be used by the Trust and the Series only with
the consent of the Distributor, which is authorized by NEIC to give
such consent as provided herein. The Distributor consents to the use by
the Series of the name "New England Star Small Cap Fund" or any other
name embodying the words "New England" or the letters "TNE", in such
forms as the Distributor shall in writing approve, but only on
condition and so long as (i) this Agreement shall remain in full force
and (ii) the Trust shall fully perform, fulfill and comply with all
provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it. No such name shall be used by the
Trust or the Series at any time or in any place or for any purposes or
under any conditions except as in this section provided. The foregoing
authorization by the Distributor as agent of NEIC to the Trust and the
Series to use said words or letters as part of a business or name is
not exclusive of the right of the Distributor itself to use, or to
authorize others to use, the same; the Trust acknowledges and agrees
that as between the Distributor and the Trust and the Series, the
Distributor has the exclusive right so to use, or authorize others to
use, said words and letters, and the Trust agrees to take such action
as may reasonably be requested by the Distributor to give full effect
to the provisions of this section (including, without limitation,
consenting to such use of said words or letters). Without limiting the
generality of the foregoing, the Trust agrees that, upon any
termination of this Agreement by either party or upon the violation of
any of its provisions by the Trust, the Trust will, at the request of
the Distributor made within six months after the Distributor has
knowledge of such termination or violation, use its best efforts to
change the name of the Trust and the Series so as to eliminate all
reference, if any, to the words "New England" or the letters "TNE" and
will not thereafter transact any business in a name containing the
words "New England" or the letters "TNE" in any form or combination
whatsoever, or designate itself as the same entity as or successor to
any entity of such name, or otherwise use the words "New England" or
the letters "TNE" or any other reference to the Distributor. Such
covenants on the part of the Trust and the Series shall be binding upon
it, its trustees, officers, shareholders, creditors and all other
persons claiming under or through it.
14. Effective Date and Termination. This Agreement shall become effective
as of the date of its execution, and
(a) Unless otherwise terminated, this Agreement shall
continue in effect with respect to the shares of the Series so
long as such continuation is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by the
vote of a majority of the votes which may be cast by
shareholders of the Series and (ii) by a vote of a majority of
the Board of Trustees of the Trust who are not interested
persons of the Distributor or the Trust, cast in person at a
meeting called for the purpose of voting on such approval.
(b) This Agreement may at any time be terminated on
sixty days' notice to the Distributor either by vote of a
majority of the Trust's Board of Trustees then in office or by
the vote of a majority of the votes which may be cast by
shareholders of the Series.
(c) This Agreement shall automatically terminate in the
event of its assignment (excluding for this purpose any
assignment of rights to payment described in the recitals and
in Section 19 of the Agreement which are hereby ratified and
approved).
(d) This Agreement may be terminated by the Distributor
on ninety days' written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment
of any penalty.
15. Definitions. For purposes of this Agreement, the following definitions
shall apply:
(a) The "vote of a majority of the votes which may be
cast by shareholders of the Series" means (1) 67% or more of
the votes of the Series present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more than
50% of the outstanding shares of the Series entitled to vote
at such meeting are present; or (2) the vote of the holders of
more than 50% of the outstanding shares of the Series entitled
to vote at such meeting, whichever is less.
(b) The terms "affiliated person," "interested person"
and "assignment" shall have their respective meanings as
defined in the 1940 Act subject, however, to such exemptions
as may be granted by the SEC under the 1940 Act.
16. Amendment. This Agreement may be amended at any time by mutual consent
of the parties, provided that such consent on the part of the Series
shall be approved (i) by the Board of Trustees of the Trust or by vote
of a majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of Trustees of the
Trust who are not interested persons of the Distributor or the Trust
cast in person at a meeting called for the purpose of voting on such
approval.
17. Applicable Law and Liabilities. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts. All sales hereunder are to be made, and title to the
Series shares shall pass, in Boston, Massachusetts.
18. Limited Recourse. The Distributor hereby acknowledges that the Trust's
obligations hereunder with respect to the shares of the Series are
binding only on the assets and property belonging to the Series.
19. Payments to Distributor's Transferees. The Distributor may transfer its
rights to payments hereunder with respect to Class B shares (but not
its obligations hereunder) in order to raise funds to cover
distribution expenditures, and any such transfer shall be effective
upon written notice from the Distributor to the Trust. In connection
with the foregoing, the Series is authorized to pay all or a part of
the Distribution Fee and/or contingent deferred sales charges in
respect of Class B shares directly to such transferee as directed by
the Distributor.
20. Liquidation etc. As long as the Class B Distribution and Service Plan
is in effect, the Series shall not change the manner in which the
Distribution Fee is computed (except as may be required by a change in
applicable law after the date hereof) or adopt a plan of liquidation
without the consent of the Distributor (or any designee or transferee
of the Distributor's rights to receive payment hereunder in respect of
Class B shares) except in circumstances where a surviving entity or
transferee of the Series' assets adopts the Class B Distribution and
Service Plan and assumes the obligations of the Series to make payments
to the Distributor (or its transferee) hereunder in respect of Class B
shares.
21. "Distributor's Shares" etc. The Trust, on behalf of the Series, agrees
that it will not pay any portion of the Class B Distribution Fee which
is calculated by reference to the "Distributor's Shares" (nor shall it
pay a Distribution Fee calculated by reference to Class B shares
("Other Class B Shares") other than the Distributor's Shares at a rate
exceeding .75% per annum of the net assets attributable to Other Class
B Shares) to any person other than the Distributor (or its designee or
transferee) without the written consent of the Distributor.
"Distributor's Shares" shall mean (i) Class B shares of the Series that
were sold by the Distributor, plus (ii) Class B shares of the Series
issued in connection with the exchange, for Class B shares of the
Series, of Class B shares of another fund in the New England fund group
that were sold by the Distributor, plus (iii) Class B shares of the
Series issued in connection with the exchange, for Class B shares of
the Series, of Class B shares of another fund in the New England fund
group issued in respect of the automatic reinvestment of dividends or
capital gain distributions in respect of Class B shares of such other
fund that were sold by the Distributor, plus (iv) Class B shares of the
Series issued in respect of the automatic reinvestment of dividends or
capital gain distributions in respect of Class B shares of the Series
described in clauses (i), (ii) and (iii). To the extent permitted under
the 1940 Act, the terms of this Section 21 shall survive the
termination of this Agreement.
22. Limitation on Reduction of Class B Distribution Fee. The Trust, on
behalf of the Series, agrees that it will not reduce the Distribution
Fee in respect of Series' assets attributable to Class B shares below
the annual rate of 0.75% unless it has ceased (and not resumed) paying
all "service fees" (within the meaning of Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
or any successor provision thereto) to the Distributor, to any
affiliate of the Distributor and to any other person in circumstances
where substantially all of the services and functions relating to the
distribution of Class B Series shares have been delegated to, or are
being performed by, the Distributor or an affiliate of the Distributor.
To the extent permitted under the 1940 Act, the terms of this Section
22 shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST I,
on behalf of its New England Star Small Cap series
By: /s/FRANK NESVET
------------------------
Name: Frank Nesvet
Title: Treasurer
NEW ENGLAND FUNDS, L.P.
By: NEF Corporation, its general partner
By: /s/BRUCE R. SPECA
------------------------
Name: Bruce R. Speca
Title: Executive Vice President
<PAGE>
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I (the "Trust") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Trust's New England Star Small Cap Fund series (the
"Series") on behalf of the Trust by officers of the Trust as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders of the Trust
individually but are binding only upon the assets and property of the Series.
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.8(C)
LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET
RELATING TO THE APPLICABILITY OF THE CUSTODIAN CONTRACT
TO NEW ENGLAND INTERNATIONAL EQUITY FUND
<PAGE>
March 26, 1992
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
RE: TNE International Equity Fund
Gentlemen:
This is to advise you that the New England Funds (the "Trust") has
established a new series of shares, the TNE International Equity Fund. In
accordance with the Additional Funds provisions in Section 17 of the Custodian
Contract dated April 12, 1988 as amended September 12, 1991 between the Trust
and State Street Bank and Trust Company and in Article 8 of the Transfer Agency
and Service Agreement dated August 15, 1985 between the Trust and State Street
Bank and Trust Company, the Trust hereby requests that you act as Custodian and
Transfer Agent for the new series under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one to the Trust and retaining one
copy for your records.
By /s/ HENRY L.P. SCHMELZER
------------------------
Henry L.P. Schmelzer
President
The New England Funds
Agreed to this 27th day of March, 1992
State Street Bank and Trust Company
By /s/RONALD E. LOGUE
-----------------------
Vice President
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.8(D)
LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET
RELATING TO THE APPLICABILITY OF THE CUSTODIAN CONTRACT
TO NEW ENGLAND CAPITAL GROWTH FUND
<PAGE>
July 23, 1992
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
RE: TNE Capital Growth Fund
Gentleman:
This is to advise you that The New England Funds (the "Trust") has
established a new series of shares, the TNE Capital Growth Fund. In accordance
with the Additional Funds provisions in Section 17 of the Custodian Contract
dated April 12, 1988 as amended September 12, 1991 between the Trust and State
Street Bank and Trust Company and in Article 8 of the Transfer Agency and
Service Agreement dated August 15, 1985 between the Trust and State Street Bank
and Trust Company, the Trust hereby requests that you act as Custodian and
Transfer Agent for the new series under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one to the Trust and retaining one
copy for your records.
By /s/ Henry L.P. Schmelzer
------------------------
Henry L.P. Schmelzer
President
The New England Funds
Agreed to this 28th day of July, 1992
State Street Bank and Trust Company
By /s/ Theresa Mc Guire
------------------------
Theresa Mc Guire
Vice President
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.8(E)
LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET
RELATING TO THE APPLICABILITY OF THE CUSTODIAN CONTRACT
TO NEW ENGLAND STAR ADVISERS FUND
<PAGE>
[SAIL LOGO]
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
HENRY L.P. SCHMELZER
President and Chief Executive Officer
June 30, 1994
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Star Advisers Fund
Gentlemen:
This is to advise you that New England Funds Trust I (the "Trust" and
formerly The New England Funds) has established a new series of shares, New
England Star Advisers Fund. In accordance with the Additional Funds provisions
in Section 17 of the Custodian Contract dated April 12, 1988 as amended
September 12, 1991 between the Trust and State Street Bank and Trust Company and
the provisions of Section 1.01 of the Sub-Transfer and Service Agreement between
New England Funds, L.P. and State Street Bank, the Trust and New England Funds,
L.P. hereby requests that you act as Custodian and Sub-Transfer Agent for the
new series under the terms of the respective contracts. A revised Exhibit A to
the Sub-Transfer and Service Agreement is attached to this letter.
By /s/ HENRY L.P. SCHMELZER
-------------------------
Henry L.P. Schmelzer
President
New England Funds Trust I
New England Funds, L.P.
Agreed to this 5th day of July, 1994.
State Street Bank and Trust Company
By /s/ ROLAND F. CAREN
-------------------------
Vice President
smb\letter\SSB613
<PAGE>
APPENDIX A
NEW ENGLAND FUNDS
o New England Growth Fund
o New England International Equity Fund
o New England Capital Growth Fund
o New England Value Fund
o New England Growth Opportunities Fund
o New England Balanced Fund
o New England Star Advisers Fund
o New England High Income Fund
o New England Global Government Fund
o New England Government Securities Fund
o New England Bond Income Fund
o New England Limited Term U.S. Government Fund
o New England Adjustable Rate U.S. Government Fund
o New England Tax Exempt Income Fund
o New England Massachusetts Tax Free Income Fund
o New England Intermediate Term Tax Free Fund of California
o New England Intermediate Term Tax Free Fund of New York
o New England Cash Management Trust
o Money Market Series
o U.S. Government Series
o New England Tax Exempt Money Market Trust
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.8(F)
LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET
RELATING TO THE APPLICABILITY OF THE CUSTODIAN CONTRACT
TO NEW ENGLAND STRATEGIC INCOME FUND
<PAGE>
[SAIL LOGO]
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
HENRY L.P. SCHMELZER
President and Chief Executive Officer
April 24, 1995
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Strategic Income Fund
Gentlemen:
This is to advise you that New England Funds Trust I (the "Trust" and
formerly The New England Funds) has established a new series of shares, New
England Strategic Income Fund. In accordance with the Additional Funds
provisions in Section 17 of the Custodian Contract dated April 12, 1988 as
amended September 12, 1991 between the Trust and State Street Bank and Trust
Company and the provisions of Section 1.01 of the Sub-Transfer and Service
Agreement between New England Funds, L.P. and State Street Bank, the Trust and
New England Funds, L.P. hereby requests that you act as Custodian and
Sub-Transfer Agent for the new series under the terms of the respective
contracts. A revised Exhibit A to the Sub-Transfer and Service Agreement is
attached to this letter.
By /s/ HENRY L.P. SCHMELZER
--------------------------
Henry L.P. Schmelzer
President
New England Funds Trust I
New England Funds, L.P.
Agreed to this 1st day of May, 1995.
State Street Bank and Trust Company
By /s/ MICHAEL L. WILLIAMS
--------------------------
Vice President
<PAGE>
APPENDIX A
NEW ENGLAND FUNDS
o New England Growth Fund
o New England International Equity Fund
o New England Capital Growth Fund
o New England Value Fund
o New England Growth Opportunities Fund
o New England Balanced Fund
o New England Star Advisers Fund
o New England High Income Fund
o New England Global Government Fund
o New England Government Securities Fund
o New England Bond Income Fund
o New England Limited Term U.S. Government Fund
o New England Adjustable Rate U.S. Government Fund
o New England Strategic Income Fund
o New England Tax Exempt Income Fund
o New England Massachusetts Tax Free Income Fund
o New England Intermediate Term Tax Free Fund of California
o New England Intermediate Term Tax Free Fund of New York
o New England Cash Management Trust
o Money Market Series
o U.S. Government Series
o New England Tax Exempt Money Market Trust
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.8(G)
LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET
RELATING TO THE APPLICABILITY OF THE CUSTODIAN CONTRACT
TO NEW ENGLAND STAR WORLDWIDE FUND
<PAGE>
[SAIL LOGO]
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
HENRY L.P. SCHMELZER
President and Chief Executive Officer
December 29, 1995
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Star Worldwide Fund
Gentlemen:
This is to advise you that New England Funds Trust I (the "Trust" and
formerly The New England Funds) has established a new series of shares, New
England Star Worldwide Fund. In accordance with the Additional Funds provisions
in Section 17 of the Custodian Contract dated April 12, 1988 as amended
September 12, 1991 between the Trust and State Street Bank and Trust Company and
the provisions of Section 1.01 of the Sub-Transfer and Service Agreement between
New England Funds, L.P. and State Street Bank, the Trust and New England Funds,
L.P. hereby requests that you act as Custodian and Sub-Transfer Agent for the
new series under the terms of the respective contracts. A revised Exhibit A to
the Sub-Transfer and Service Agreement is attached to this letter.
By /s/ FRANK NESVET
-----------------------------
Frank Nesvet
Treasurer
New England Funds Trust I
New England Funds, L.P.
Agreed to this 10th day of January, 1996
State Street Bank and Trust Company
By /s/ TIMOTHY NAZZARO
-----------------------------
Vice President
<PAGE>
APPENDIX A
NEW ENGLAND FUNDS
o New England Growth Fund
o New England International Equity Fund
o New England Capital Growth Fund
o New England Value Fund
o New England Growth Opportunities Fund
o New England Balanced Fund
o New England Star Advisers Fund
o Growth Fund of Israel
o New England Star Worldwide Fund
o New England Equity Income Fund
o New England High Income Fund
o New England Government Securities Fund
o New England Bond Income Fund
o New England Limited Term U.S. Government Fund
o New England Adjustable Rate U.S. Government Fund
o New England Strategic Income Fund
o New England Tax Exempt Income Fund
o New England Massachusetts Tax Free Income Fund
o New England Intermediate Term Tax Free Fund of California
o New England Intermediate Term Tax Free Fund of New York
o New England Cash Management Trust
o Money Market Series
o U.S. Government Series
o New England Tax Exempt Money Market Trust
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.8(H) AND EX-99.9(O)
LETTER AGREEMENT BETWEEN THE REGISTRANT AND STATE STREET
ON BEHALF OF NEW ENGLAND STAR SMALL CAP FUND
<PAGE>
[SAIL LOGO]
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
HENRY L.P. SCHMELZER
President and Chief Executive Officer
December 9, 1996
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Star Small Cap Fund
Gentlemen:
This is to advise you that New England Funds Trust I (the "Trust" and
formerly The New England Funds) has established a new series of shares, New
England Star Small Cap Fund. In accordance with the Additional Funds provisions
in Section 17 of the Custodian Contract dated April 12, 1988 as amended
September 12, 1991 between the Trust and State Street Bank and Trust Company and
the provisions of Section 1.01 of the Sub-Transfer and Service Agreement between
New England Funds, L.P. and State Street Bank, the Trust and New England Funds,
L.P. hereby requests that you act as Custodian and Sub-Transfer Agent for the
new series under the terms of the respective contracts. A revised Exhibit A to
the Custodian Contract and to the Sub-Transfer and Service Agreement are
attached to this letter.
By: /s/ HENRY L.P. SCHMELZER
------------------------------
Henry L.P. Schmelzer
President
New England Funds Trust I
New England Funds, L.P.
Agreed to this 9th day of December, 1996.
State Street Bank and Trust Company
By: /s/ MICHAEL L. WILLIAMS
------------------------------
Vice President
<PAGE>
APPENDIX A
NEW ENGLAND FUNDS
o New England Growth Fund
o New England International Equity Fund
o New England Capital Growth Fund
o New England Value Fund
o New England Growth Opportunities Fund
o New England Balanced Fund
o New England Star Advisers Fund
o New England Star Worldwide Fund
o New England Equity Income Fund
o New England Star Small Cap Fund
o New England High Income Fund
o New England Government Securities Fund
o New England Bond Income Fund
o New England Limited Term U.S. Government Fund
o New England Adjustable Rate U.S. Government Fund
o New England Strategic Income Fund
o New England Tax Exempt Income Fund
o New England Massachusetts Tax Free Income Fund
o New England Intermediate Term Tax Free Fund of California
o New England Intermediate Term Tax Free Fund of New York
o New England Cash Management Trust
o Money Market Series
o U.S. Government Series
o New England Tax Exempt Money Market Trust
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.9(N)
ORGANIZATIONAL EXPENSE REIMBURSEMENT AGREEMENT BETWEEN THE REGISTRANT, ON
BEHALF OF ITS NEW ENGLAND SMALL CAP FUND AND NEW ENGLAND FUNDS, L.P.
<PAGE>
This Agreement, made this as of the 31st day of December, 1996, by and
between New England Funds Trust I, a Massachusetts business trust (the "Trust"),
on behalf of its New England Star Small Cap Fund (the "Series") and New England
Funds, L.P. (the "Distributor").
WITNESSETH
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 and was and is in the process
of organizing the Series;
WHEREAS, there have been and will be certain organizational expenses
incurred as a part of such organization, which are properly expenses of the
Series, that have been and will in the future be paid by the Distributor by
reason of the fact that the Series was not or will not be capitalized when such
expenses otherwise became or become due and payable;
WHEREAS, such organizational expenses include expenses necessary to
organize and establish the Series as separate series of the Trust and to create
the necessary relationships and legal qualifications to enable them to commence
business and operations, including, but not by way of limitation, such expenses
as outside legal counsel's fees, fees and taxes imposed by The Commonwealth of
Massachusetts on Massachusetts business trusts, independent public accountant
fees and state blue sky filing and registration fees (such expenses being
hereinafter referred to as "Organization Expenses"):
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Upon the issuance and sale of shares of beneficial interest of the
Series to the public, the Series shall reimburse and pay to the Distributor up
to $250,000 of the amounts expended by the Distributor for Organization Expenses
for the Series.
2. Such reimbursement shall be paid by the Series to the Distributor
upon demand, without interest, and in no event later than five years from the
commencement of operations of the Series. Upon demand for payment, the
Distributor shall present copies of invoices or receipts, and copies of
cancelled checks or other evidence of payment by the Distributor, of the
Organization Expenses for which it is demanding reimbursement.
New England Funds Trust I,
on behalf of its
New England Star Small Cap Fund
/S/ HENRY L.P. SCHMELZER
- --------------------------------
Henry L. P. Schmelzer
President
New England Funds, L.P.
/s/ BRUCE R. SPECA
- --------------------------------
Bruce R. Speca
Executive Vice President
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.9(P)
CLASS B SHARES REMITTANCE AGREEMENT BETWEEN THE REGISTRANT AND NEW ENGLAND
FUNDS, L.P. RELATING TO NEW ENGLAND STAR SMALL CAP FUND
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
Form of Class B Shares Remittance Agreement
Agreement made this 31st day of December, 1996 by and between NEW
ENGLAND FUNDS TRUST I, a Massachusetts business trust (the "Trust"), and NEW
ENGLAND FUNDS, L.P., a Delaware limited partnership (the "Distributor"). Terms
used in the Distribution Agreement (the "Distribution Agreement") dated December
31, 1996 between the Trust and the Distributor relating to the Trust's NEW
ENGLAND STAR SMALL CAP FUND (the "Series") and not defined herein are used with
the meanings so defined.
WHEREAS, contingent deferred sales charges ("CDSCs") apply to certain
redemptions or repurchases of Class B shares of the Series; and
WHEREAS, the Trust acknowledges that the CDSCs relating to the
Distributor's shares are the property of the Distributor and not of the Trust;
NOW, THEREFORE, in consideration of the Distributor's agreement to act
as agent for the Trust in connection with the redemption or repurchase of Series
shares by the Trust, the Trust and the Distributor agree as follows:
1. On all redemptions or repurchases of the Distributor's Shares that
are effected by the Distributor as agent for the Trust, the Distributor shall be
entitled to retain the amount of the applicable CDSC out of the proceeds of the
redemption or repurchase, and shall remit to the relevant shareholder the amount
of such redemption or repurchase net of such CDSCs.
2. On all redemptions or repurchases of the Distributor's Shares that
are effected by the Trust directly or through an agent other than the
Distributor, the Trust shall remit to the Distributor any applicable CDSCs in
accordance with the terms and conditions set forth in the then current
prospectus of the Trust.
3. The Distributor shall be entitled to receive all applicable CDSCs in
respect of the redemption or repurchase of the Distributor's Shares,
notwithstanding the Distributor's termination as general distributor of the
Class B shares of the Series or any termination of this Agreement or the
Distribution Agreement.
4. The right of the Distributor under Section 1 hereof to retain CDSCs
and the obligation of the Series under Section 2 hereof to remit CDSCs to the
Distributor shall not be subject to any dispute, offset, counterclaim or defense
whatsoever (it being understood that nothing in this sentence shall be deemed a
waiver by the Trust or the Series of its right separately to pursue any claims
it may have against the Distributor and to enforce such claims against any
assets of the Distributor (other than its right to be paid the CDSCs with
respect to the Distributor's Shares).
5. The Distributor may assign or transfer its rights to receive CDSCs
hereunder, but shall give prompt written notice to the Trust of any such
assignment or transfer.
6. The Trust shall not waive any CDSCs applicable to redemptions or
repurchases of the Distributor's Shares (other than under the circumstances set
forth in the Fund's prospectus dated December 31, 1996), except with the consent
of the Distributor (or, if the Distributor has assigned or transferred its
rights to receive CDSCs as provided in Section 5 hereof, with the consent of the
assignee or transferee) and shall not take any action, following the termination
of the Distribution Agreement, that would interfere with the Distributor's right
to receive the applicable CDSCs on redemptions or repurchases of the
Distributor's Shares.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST I Series,
on behalf of its New England Star
Small Cap Fund series
By: /s/ FRANK NESVET
-----------------------
Name: Frank Nesvet
Title: Treasurer
NEW ENGLAND FUNDS, L.P.
By: NEF Corporation, its general partner
By: /s/ BRUCE R. SPECA
-----------------------
Name: Bruce R. Speca
Title: Executive Vice President
<PAGE>
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust I (the "Trust") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Trust's New England Star Small Cap Fund series (the
"Series") on behalf of the Trust by officers of the Trust as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders of the Trust
individually but are binding only upon the assets and property of the Series.
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.10(I)
OPINION AND CONSENT OF COUNSEL RELATING TO THE REGISTRANT'S
NEW ENGLAND STAR SMALL CAP FUND
<PAGE>
December 11, 1996
New England Funds Trust I
399 Boylston Street
Boston, Massachusetts 02116
Gentlemen:
You have informed us that you propose to register under the Securities
Act of 1933, as amended (the "Act"), and offer and sell from time to time shares
of beneficial interest, without par value, of your New England Star Small Cap
Fund series ("Shares"), at not less than net asset value.
We have examined an executed copy of your Amended and Restated
Agreement and Declaration of Trust dated January 24, 1992, as amended through
Amendment No. 10 thereto (as so amended, the "Declaration of Trust"), and are
familiar with the action taken by your trustees to authorize the issue and sale
to the public from time to time of authorized and unissued Shares. We have
further examined a copy of your By-Laws and such other documents and records as
we have deemed necessary for the purpose of this opinion.
Based on the foregoing, we are of the opinion that:
1. The beneficial interest in your New England Star Small Cap Fund
series is divided into an unlimited number of Shares.
2. The issue and sale of the authorized but unissued Shares has been
duly authorized under Massachusetts law. Upon the original issue and sale of any
such authorized but unissued Shares and upon receipt of the authorized
consideration therefor in an amount not less than the applicable net asset
value, the Shares so issued will be validly issued, fully paid and nonassessable
by New England Funds Trust I (the "Trust").
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or its trustees. The Declaration of Trust provides for indemnification out of
the property of the New England Star Small Cap Fund series (the "Series") for
all loss and expense of any shareholder of the Series held personally liable
solely by reason of his or her being or having been such a shareholder. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Series itself would be unable
to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of an indefinite number of Shares for offering and sale pursuant to
the Act. We consent to the filing of this opinion with and as part of your
Registration Statement on Form N-1A (File No. 2-98326) relating to such offering
and sales.
Very truly yours,
/s/ ROPES & GRAY
ROPES & GRAY
<PAGE>
Registration Nos. 2-98326
811-4323
EX-99.14
NEW ENGLAND FUNDS, L.P. TAX SHELTERED CUSTODIAL ACCOUNT
AGREEMENT; NEW ENGLAND FUNDS, L.P. KEOGH PLAN; NEW ENGLAND
FUNDS, L.P. SIMPLIFIED EMPLOYEE PENSION PLAN; NEW ENGLAND
FUNDS, L.P. INDIVIDUAL RETIREMENT PLAN PROTOTYPE; NEW ENGLAND
FUNDS, L.P. 401(K) PLAN PROTOTYPE
<PAGE>
#
1
- -------------------------------------------------------------------------------
New England Funds, L.P.Tax-Sheltered Custodial Account Agreement
- -------------------------------------------------------------------------------
This Tax-Sheltered Custodial Account Agreement (the "Agreement") is intended to
establish a separate investment custodial account under a qualified Tax
Sheltered Annuity Program (the "TSA Program") sponsored by the Employer under
Section 403(b) of the Internal Revenue Code (the "Code"). The Employer,
Participant and Custodian agree that the custodial account is intended to
satisfy the requirements of Section 403(b)(7) of the Code, and that
Contributions made thereto by the Employer on behalf of the Participant will be
accepted by the Custodian for investment in mutual fund shares for the benefit
of the Participant and/or his Beneficiaries. The Employer, Participant and
Custodian agree to perform any and all acts, and to execute any and all
documents which may be necessary or desirable for the proper administration of
this Agreement or any of its provisions.
- -------------------------------------------------------------------------------
ARTICLE I
Definition of Terms
Where used in this Agreement, the following words and phrases shall have the
following meanings unless the context clearly indicates otherwise. Singular
nouns may include the plural and the masculine gender the feminine, as
appropriate.
1.01 "Beneficiary" shall mean a person or entity designated by a
Participant to receive benefits from the Participant Account upon
the death of the Participant. In the case of a married Participant, the
Beneficiary shall be his Spouse unless the designation of a non-Spouse
Beneficiary is consented to by the Spouse in accordance with Section 5.08 of
this Agreement.
1.02 "Code" shall mean the Internal Revenue Code of 1986, and regulations
thereunder, as amended from time to time.
1.03 "Contributions" shall mean any amount received by the Custodian for
investment under this Agreement, including Salary Reduction
Contributions, Employer Contributions, and contributions resulting from a
rollover and/or a transfer as provided for in Article III of this Agreement.
1.04 "Custodian" shall mean the State Street Bank and Trust Company, or any
qualified successor custodian which meets the requirements of Section 6.01 of
this Agreement.
1.05 "Employee" shall mean a person who performs services for the Employer and
who is eligible to participate in the Employer's TSA program. A plan which
provides for Employer contributions may not require as a condition of
participation, that an employee complete a period of service with the
employer extending beyond the later of the following dates
(i) The date on which the employee attains the age of 21; or
(ii) The date on which the employee completes one year of service.
1.06 "Employer" shall mean the Employer named in the Employer Affiliation
Agreement, who must be an eligible organization under Section 403(b)(1)(A) of
the Code for purposes of purchasing tax sheltered annuities for its eligible
Employees.
1.07 "Employer Affiliation Agreement" or "Affiliation Agreement" shall mean the
agreement in which the Employer adopts this Agreement and appoints a
Custodian to the custodial account established thereunder.
1.08 "Employer Contributions" shall mean contributions attributable to the
Employer which are discretionary in nature and are not made pursuant to a
Salary Reduction Agreement.
1.09 "New England Funds" shall mean those Massachusetts business trusts
registered as open-end management investment companies for a series of mutual
fund shares which may be purchased through New England Funds, L.P. The term
New England Funds shall include New England Funds Trust I, New England Funds
Trust II, New England Cash Management Trust and New England Tax Exempt Money
Market Trust.
1.10 New England Funds, L.P., is a Massachusetts corporation which is a
broker-dealer and which is an indirect subsidiary of New England Mutual Life
Insurance Company.
1.11 "Participant" shall mean an Employee who is eligible to participate in the
Employer's TSA program and for whom the Custodial Account under this
Agreement is established.
1.12 "Participant Custodial Account" or "Participant's Account" or "Account"
shall mean the custodial account established under this Agreement which is
intended to satisfy the requirements of Section 401(f)(2) of the Code, under
which Contributions attributable to the Employer are made for the benefit of
the Participant.
1.13 "Participant Investment Application" or "Investment Application" shall mean
the New England Funds form used to purchase shares of New England Funds with
the Contributions made to the Custodial Account as specified by the
Participant in such form.
1.14 "Salary Reduction Contributions" shall mean contributions attributable to
the Employer that are made to the Participant's Account pursuant to a Salary
Reduction Agreement.
1.15 "Salary Reduction Agreement" is a separate written agreement between the
Employer and the Participant to either reduce the Participant's salary or
forego increases so that such amounts could be contributed to the
Participant's Account.
1.16 "Spouse" shall mean the Spouse of the Participant; provided, however, that
to the extent required by any qualified domestic relations order (as defined
in Section 414(p) of the Code), a former Spouse of the Participant shall be
treated as Spouse of the Participant.
1.17 "TSA Custodial Account Agreement" or "Agreement" shall mean this Agreement,
together with the Employer Affiliation Agreement and each Participant
Investment Application, as hereby incorporated.
1.18 "Withdrawal" shall mean the partial liquidation of a Participant's Account
by virtue of the Participant's attainment of age 591/2 or financial hardship
as provided in Section 5.01 and 5.02 of this Agreement.
ARTICLE II
Establishment of Custodial Account
2.01 Participant's Custodial Account. Upon receipt of a signed Employer
Affiliation Agreement, Participant Investment Application and an initial
Contribution, the Custodian shall establish a separate investment account in
the name of the Participant and such account shall be maintained for the
exclusive benefit of the Participant and/or his Beneficiaries. The
Participant's Account shall include Contributions and such assets as may be
purchased by the Custodian on behalf of the Participant.
2.02 Participant's Rights are Nonforfeitable and Nontransferable. Except for
fees, expenses and any other charges as described in Section 6.04 of this
Agreement, the Participant's interest in the balance of his Account shall be
nonforfeitable and nontransferable by the Participant. The Participant's
Account shall not be subject to assignment, attachment, execution,
garnishment, pledge, encumbrance, charge, other legal or equitable process,
or otherwise alienable. Any attempt at such shall be void; provided, however,
the Custodian shall not be precluded from complying with a qualified domestic
relations order (as defined in Section 414(p) of the Code) with respect to
payment of alimony and/or child support. The Participant's Account shall not
be subject to the claims of the Employer's creditors.
ARTICLE III
Contributions
3.01 Discretionary Employer Contributions. The Employer may contribute to the
Participant's Account an amount which has been allocated according to the
allocation method specified in the Employer Affiliation Agreement which
allocation shall be nondiscriminatory within the meaning of Section 403(b)(1)
of the Code. Such Employer's Contributions shall be subject to the following
limitations:
(A) Payment. Employer Contributions made under this Agreement must be paid to
the Custodian in one or more installments not later than December 31 of
each calendar year.
(B) Nonforfeitable. Such Employer Contributions shall be fully vested and
nonforfeitable when made to the Participant's Account.
(C) Participant's Investment Direction. Employer Contributions shall be under
the investment direction of the Participant in accordance with Section
4.02 of this Agreement.
(D) Excess Contributions Resulting from Employer Contributions. In the event
the nondiscriminatory testing under Section 403(b)(12) of the Code
results in excess contributions in the Participant's Account, the
Employer must notify the Participant of such excess amounts and must
instruct the Participant to withdraw such amounts (and any earnings
thereon) as Excess Contributions in the manner prescribed in Section 3.08
of this Agreement.
3.02 Salary Reduction Contributions. The Employer shall make available to all
eligible Employees the opportunity to make Salary Reduction Contributions on
a basis that does not favor highly compensated Employees within the meaning
of Code Section 414(q). Each Participant may make Salary Reduction
Contributions by electing to reduce annually his or her salary by more than
$200 under a written Salary Reduction Agreement. Any such Salary Reduction
Agreement shall provide that the Participant agrees to forego an increase in
salary or to accept a reduction in salary from the Employer, equal to any
whole percentage or dollar amount of her/his Compensation per payroll period,
but in no event shall the maximum deferral amount under such agreement exceed
the dollar limitations described in Section 3.03 of this Agreement. While
such Agreement is in effect, the Employer will make Salary Reduction
Contributions to the Participant's Account on behalf of the Participant in an
amount equal to the total amount by which the Participant's salary is reduced
pursuant to the Salary Reduction Agreement.
3.03 Limitation of the Salary Reduction Agreement. A Salary Reduction Agreement
to which the Participant's Account relates shall be subject to the following
additional limitations:
(A) The maximum deferral amount under a Salary Reduction Agreement cannot
exceed $9500 for any given taxable year of the Participant, except that
such Participant, if eligible, may increase the maximum deferral amount
in accordance with the special election available under Section 402(g)(8)
of the Code. Any Salary Reduction Contributions in excess of $9500 shall
be treated by the Custodian as permissible increases available to the
Participant under Section 402(g)(8) of the Code, unless otherwise
directed by the Participant to treat such amounts as Excess Deferrals
under Section 3.08 of this Agreement.
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(B) Any Salary Reduction Agreement between the Employer and the Participant
shall be irrevocable only as to amounts earned by the Participant after
such agreement becomes effective.
(C) The Participant may not make more than one Salary Reduction Agreement
with the Employer during any taxable year of the Participant.
(D) Any such Salary Reduction Agreement may be terminated as of the end of
any payroll period by either the Employer or Participant. (E) Salary
Reduction Contributions shall be fully vested and nonforfeitable when
made to the Participant's Account.
3.04 Annual Contribution Limit. The annual contribution limit applicable to the
sum of Employer Contributions and Salary Reduction Contributions made in any
taxable year of the Participant, may not exceed the Participant's exclusion
allowance, as defined in Section 403(b)(2) of the Code, except that such
Participant may elect to have the exclusion allowance determined under
Section 415(c) of the Code. The Participant shall be responsible for
computing his exclusion allowance under Sections 403(b)(2), or if applicable,
under Section 415(c) of the Code, and shall promptly notify the Custodian
when the sum of Employer Contributions and Salary Reduction Contributions
exceeds the applicable exclusion allowance of the Participant. In that event,
the Participant shall direct the Custodian to distribute the amounts in
excess of the exclusion allowance as Excess Contributions under Section 3.08
of this Agreement.
3.05 Transfers to and from Other Accounts. With the consent of the Custodian,
the proceeds from an existing annuity contract or custodial account described
in Section 403(b) of the Code may be transferred into the Participant's
Account. However, the balance of the Participant's Account may only be
transferred into another custodial account described in Section 403(b)(7) of
the Code unless otherwise permitted by law, regulation or administrative
pronouncement. Any transfer described in this Section shall be made only
after receipt of documents reasonably required by the Custodian to effect the
transfer.
3.06 Rollover Contributions. The Participant may make a rollover contribution to
the Participant's Account to the extent that such contribution qualifies in
all respects as a rollover contribution within the meaning of Section
403(b)(8) of the Code or any other applicable provisions of the Code in
effect at the time the contribution is made. Rollover contributions shall be
accepted by the Custodian upon receipt of documents reasonably required by
the Custodian to effect the rollover into the Participant's Account.
3.07 Receipt and Acceptance of Contributions. Contributions attributable to the
Employer and Contributions resulting from transfers and roll-overs made
pursuant to Sections 3.05 and 3.06 of this Agreement, shall be credited to
the Participant's Account upon receipt by the Custodian and shall be invested
in accordance with the provisions of Article IV.
3.08 Responsibility for Excess Deferrals and Excess Contributions. The
Participant shall be responsible for determining the maximum deferral amount
described in Section 3.03 of this Agreement, the annual contribution limit as
described in Section 3.04 of this Agreement, and for making the elections
related thereto under Sections 402(g), 403(b), and/or 415(c) of the Code. In
the event that there are amounts in excess of the permissible limits
described in Sections 3.03 and 3.04 of this Agreement, the Participant shall
direct the Custodian to treat such excess as either Excess Deferrals or
Excess Contributions.
(A) Excess Deferrals. For purposes of this Agreement, Excess Deferrals shall
mean Salary Reduction Contributions made in a given taxable year in
excess of $9500 which are not treated by the Participant as permissible
increases to the maximum deferral amount provided under Section 402(g) of
the Code. The Participant shall direct the Custodian in writing no later
than April 1st of the following tax year to which the Excess Deferrals
relate, to distribute such Excess Deferrals and earnings thereon no later
than April 15th of that year. If the Participant fails to notify the
Custodian on a timely basis and the Excess Deferrals and earnings thereon
are not distributed as of that April 15th, the Participant shall report
such amounts to the Internal Revenue Service as income both in the year
the Excess Deferrals arose and in the year they are actually distributed
from the Participant's Account. Such Excess Deferrals shall also reduce
the Participant's future exclusion allowance.
(B) Excess Contributions. For purposes of this Agreement, Excess
Contributions shall mean all Contributions attributable to the Employer
which exceed the annual contribution limit described in Section 3.04 of
this Agreement. In the case of a highly compensated Participant, Excess
Contributions shall also mean excess discretionary Employer Contributions
as determined by the Employer pursuant to Section 3.01 of this Agreement
and in accordance with Section 401(m) of the Code. The Employer shall be
responsible for notifying the Participant to withdraw such excess
discretionary Employer Contributions in the manner prescribed herein. The
Participant shall direct the Custodian in writing no later than April 1st
of the tax year following that in which the Excess Contributions were
made, to distribute such Excess Contributions and earnings thereon no
later than April 15 of that same year. If the Participant fails to notify
the Custodian on a timely basis and such Excess Contributions and
earnings thereon are not distributed as of that date, then the
Participant shall report such amounts to the Internal Revenue Service as
income for the year in which the Excess Contribution arose and shall be
subject to any excise tax imposed by Section 4973 of the Code.
ARTICLE IV
Investment of Contributions
4.01 Types of Investments. Contributions under this Agreement shall be invested
at the direction of the Participant in shares of one or more New England
Funds, which shares may be purchased through New England Funds, L.P.
4.02 Participant to Direct Investments. The Participant shall direct the
Custodian to invest the initial Contribution made to the Participant's
Account in the manner specified in the Participant Investment
Application. Thereafter, any subsequent Contributions shall be invested
by the Custodian in accordance with the written instructions of the
Participant.
(A) Exchange of Shares in the New England Funds. The Participant may at any
time direct the Custodian in writing to exchange any portion of shares in
the New England Funds held in the Participant's Account for other shares
in the New England Funds having different investment objectives, if such
exchange is permitted by the current prospectus.
(B) Limitation of Liability for Investment Losses. The Custodian shall have
no duty to look beyond the written instructions received by it from the
Participant and shall in no event be responsible for any loss incurred
with respect to any investments made or retained in accordance with the
directions of the Participant.
4.03 Reinvestment of Earnings. All income, dividends, capital gains or other
earnings on the shares of New England Funds in the Participant's Account
shall be reinvested in additional full and/or fractional shares of New
England Funds which shall be credited to the Participant's Account. If such
earnings may be received in shares or in cash, the Custodian shall elect to
receive such earnings in additional shares.
4.04 Ownership of Investments. All shares in the New England Funds purchased for
a Participant's Account shall be registered in the name of the Custodian or
its nominee.
4.05 Information to Participants. The Custodian shall deliver in accordance with
the requirements of applicable law, to the Participant any notices of
Shareholders' meetings, proxies, and proxy-soliciting materials, prospectuses
and annual and other reports to shareholders relating to the shares of the
New England Funds held in the Participant's Account, which have been received
by the Custodian with respect to such investments.
4.06 Voting Powers. With respect to shares of the New England Funds, the
Participant may direct the Custodian as to the manner in which any shares
(including fractional shares) or units held by the Custodian for the
Participant's Account shall be voted with respect to any matters being voted
upon by the entity which issued such shares. All such directions by the
Participant shall be in writing, on a form approved by the Custodian, signed
by the Participant and delivered to the Custodian within the time prescribed
by it. The Custodian shall not vote in the absence of such directions.
ARTICLE V
Withdrawals and Liquidation
5.01 Withdrawals after Age 591/2. After the Participant has attained age 591/2,
the Participant may at any time make a Withdrawal from his Account in cash by
submitting a written request to the Custodian with such proof of age as the
Custodian may require.
5.02 Hardship Withdrawals. If the Participant encounters financial hardship
within the meaning of Section 403(b)(7)(A)(ii) of the Code, whether before or
after age 591/2, the Participant may withdraw only the Salary Reduction
Contributions (not including earnings thereon) made to the Participant's
Account. This restriction on hardship withdrawal will not apply to the
Participant's Account balance as of December 31, 1988. The Participant must
submit a written request to the Custodian with evidence satisfactory to the
Custodian that the Withdrawal is necessary to meet an immediate and heavy
financial need of the Participant created by the hardship, and that the
amount requested is not reasonably available from other resources of the
Participant. Following any Withdrawal under this Section, the Custodian may
refuse to accept additional Contributions to the Participant's Account in the
calendar year of the Withdrawal or in the succeeding calendar year.
5.03 Liquidation of Participant's Account.
(A) Distribution Event. The Participant may elect to have the assets in the
Participant's Account fully liquidated, or may commence distribution upon
any of the following events:
(1) The Participant's attainment of age 591/2.
(2) The Participant's becoming disabled such that he is unable to engage
in any substantial gainful activity by reason of a medically
determinable physical or mental impairment which may be expected to
result in death or to be of long-continued and indefinite duration,
provided that the disability satisfies Section 403(b)(7)(ii) of the
Code.
(3) The Participant's separation from service.
(4) The Participant's death.
(B)Notice of the Occurrence of a Distribution Event. The Participant, the
Employer or, upon death, the Participant's Beneficiary or legal
representative, must provide the Custodian with written notice of the
occurrence of one of the foregoing events, with any other documentation
deemed necessary to effect the liquidation of a Participant's Account. In
the case of disability, such documentation shall include a physician's
certificate or opinion that the conditions of clause (2) above are
satisfied.
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5.04 Distribution of Benefits.
(A)Account Liquidation Methods. Except as otherwise provided below, upon
proper notification of a Distribution Event as described in Section 5.03
of this Agreement, the Participant or Beneficiary may elect to liquidate
the Account under one of the prescribed methods:
(1) One lump-sum payment in cash;
(2) Periodic Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments, such payments to be provided
under a cash installment plan available through the Custodian under
the rules of the New England Funds whose shares are held in the
Participant's Account.
5.05 Minimum Distribution Amount. The entire interest of the individual for
whose benefit the contract is maintained (Participant) will be distributed or
commence to be distributed, no later than the first day of April following
the calendar year in which such individual attains age 701/2 (required
beginning date), over (a) the life of such individual, or the lives of such
individual and his or her designated beneficiary, or (b) a period certain not
extending beyond the life expectancy of such individual and his or her
designated beneficiary. Payments must be made in periodic payments at
intervals of no longer than one year. In addition, payments must be either
non-increasing or they may increase only as provided in Q&A F-3 of Section
1.401 (a)(9)-1 of the Proposed Income Tax Regulations.
All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental death
benefit requirements of Section 401(a)(9)(G) of the Code, and the regulations
thereunder, including the minimum distribution incidental benefit requirement
of section 4.401(a)(9)-2 of the Proposed Income Tax Regulations.
Life expectancy is computed by use of the expected return multiples in Tables
V and VI of Section 1.72-9 of the Income Tax Regulations. Unless otherwise
elected by the individual by the time distributions are required to begin,
life expectancies shall be recalculated annually. Such election shall be
irrevocable by the individual and shall apply to all subsequent years. The
life expectancy of a non-spouse beneficiary may not be recalculated. Instead,
life expectancy will be calculated using the attained age of such beneficiary
during the calendar year in which the individual attains age 701/2, and
payments for subsequent years shall be calculated based on such life
expectancy reduced by one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
5.06 (a) Distributions beginning before death
If the Participant dies after distribution of his or her interest has
begun, the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of distribution
being used prior to the individual's death.
(b) Distributions beginning after death If the
Participant dies before distribution of his or her interest begins
distribution of the Participant's entire interest shall be completed
by December 31 of the calendar year containing the fifth anniversary
of the individual's death except to the extent that an election is
made to receive distributions in accordance with (1) or (2) below:
(1) If the Participant interest is payable to a designated
beneficiary, then the entire interest of the Participant may be
distributed over the life or over a period certain not greater
than the life expectancy of the designated beneficiary commencing
on or before December 31 of the calendar year immediately
following the calendar year in which the Participant died.
(2) If the designated beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance
with (1) above shall not be earlier than the later of (A) December
31 of the calendar year immediately following the calendar year in
which the Participant died or (B) December 31 of the calendar year
in which the Participant would have attained age 70 1/2.
(3) If the designated beneficiary is the Participant's surviving
spouse, the spouse may rollover the account into his or her
Individual Retirement Account (IRA).
(c) Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the Participant's death,
unless otherwise elected by the surviving spouse by the time
distributions are required to begin, life expectancies shall be
recalculated annually. Such election shall be irrevocable by the
surviving spouse and shall apply to all subsequent years. In the case
of any other designated beneficiary, life expectancies shall be
calculated using the attained age of such beneficiary during the
calendar year in which distributions are required to begin pursuant to
this section, and payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by one for each
calendar year which has elapsed since the calendar year life
expectancy was first calculated.
(d)Distributions under the section are considered to have begun if
distributions are made on account of the Participant reaching his or
her required beginning date or if prior to the required beginning date
distributions irrevocably commence to an individual over a period
permitted and in an annuity form acceptable under Section 1.401(a)(9)
of the Regulations.
5.07 Designation of Beneficiary by Participant. If the plan contains employer
contributions, a married Participant must designate his Spouse as the
Beneficiary unless such Participant obtains spousal consent to name a
non-Spouse Beneficiary. Spousal consent must be given in writing by the
Participant's Spouse. Further, the Spouse's consent shall be irrevocable and
shall acknowledge the specific non-Spouse Beneficiary designated by the
Participant, including the designation of classes of Beneficiaries. If the
Participant's Spouse fails to provide written consent as to the designation
of a non-Spouse Beneficiary, then one half of the Participant's account
balance shall be paid automatically to the Surviving Spouse without regard to
the named Beneficiary who shall be entitled to receive only the remaining
half of the Participant's account balance upon the Participant's death. The
Participant may change the Beneficiary designation at any time prior to his
death by written instrument satisfactory to the Custodian. Such instrument
shall be dated and signed by the Participant and filed with the Custodian.
5.08 Benefits Payable by Custodian. The Custodian shall have full authority to
carry out the instructions of the Participant or Beneficiary for the payment
of such benefits. Upon the Participant's death, the balance in the
Participant's Account shall be distributed in accordance with the last valid
beneficiary designation form, but to the extent such designation is not
dispositive, such amounts shall be distributed to the Participant's surviving
Spouse or, if none, to the Participant's estate. All beneficiary designation
forms shall be considered to be part of this Agreement and shall be enforced
and administered according to the laws of the State in which the Custodian is
located. 5.09 Direct Rollovers and Mandatory Withholding. For distributions
made on or after January 1, 1993, a distributee may elect to have any portion
of an Eligible Rollover Distribution paid in a Direct Rollover to an Eligible
Retirement Plan specified by the Distributee. For purposes of this Section:
(a) "Direct Rollover" shall mean a payment by the Plan directly to an
Eligible Retirement Plan.
(b) "Distributee" shall mean an Employee or former Employee, and Employee's
or former Employee's Surviving Spouse and the Employee's for former
Employee's Spouse or former Spouse who is the alternate payee under a
qualified Domestic Relations Order, as defined in s414(p) of the Code.
(c)"Eligible Retirement Plan" shall mean an individual retirement account
described in s408(a) of the Code, an individual retirement annuity
described in s408(b) of the Code, or a tax-sheltered annuity, described
in s403(b) of the Code, that accepts the Distributee's Eligible Rollover
Distribution to the Surviving Spouse an "Eligible Retirement Plan" shall
mean an individual retirement account or individual retirement annuity.
(d) "Eligible Rollover Distribution" shall mean any distribution of all or
any portion of the balance to credit of the Distributee, except that an
Eligible Rollover Distribution does not include: any distribution that is
one of a series of substantially equal period (at least annually)
payments made for the life (or life expectancy) of the Distributee and
the Distributee's designated beneficiary, or for a specified period of 10
years or more; any distribution to the extent such distributions are
required under s401(a) (9) of the Code; and the portion of any
distribution that is not includible in gross income. Eligible Rollover
Distributions which are not rolled over to an Eligible Retirement Plan or
otherwise exempt shall be subject to mandatory Federal withholding of tax
at the rate of 20%".
ARTICLE VI
Custodian
6.01 Requirements for Appointment. The Custodian and any successor Custodian
appointed to serve under this Agreement must be a bank or a person who has
been approved by the Commissioner of Internal Revenue under Section
1.401-12(n) of the Internal Revenue Service Regulations.
6.02 Duties. The Custodian shall be an agent for the Employer and the
Participant to receive and to invest Contributions as directed by the
Participant under Article IV hereof, hold and distribute such investments,
and keep adequate records and report thereon relating to transactions
affecting the Participant's Account, all in accordance with this Agreement.
The Custodian shall file with the Internal Revenue Service returns, reports,
forms or other information which may relate to Contributions and/or
distributions from the Participant's Account.
The Custodian may perform any of its administrative duties through other
persons designated by the Custodian from time to time. When State Street Bank
and Trust Company serves as Custodian, the Custodian intends to delegate
certain administrative functions among its partially owned subsidiary, Boston
Financial Data Services, Inc., and New England Funds, L.P. No such delegation
or future change therein shall be considered an amendment of this Agreement.
Not later than sixty (60) days after the close of each calendar year, after
the Custodian's resignation or removal pursuant to Section 6.05 of this
Agreement, or termination by the Custodian of this Agreement pursuant to
Section 6.06, the Custodian shall provide the Participant or his Beneficiary
with a written statement of the transactions in the Participant's Account
during such periods, including Contributions made, dividends paid, and
distributions made. The Custodian shall be released from all liability to the
Participant or any third party as to matters contained in such statement
unless the Participant files written objections with the Custodian within
thirty (30) days after the Custodian provides such statement.
6.03 Limitations of Custodian's Liabilities and Duties. The Custodian shall be
fully protected in acting or omitting to take any action, in reliance upon
any order, notice, request, consent, certificate or other direction from the
Employer, the Participant or their legal representatives believed by the
Custodian to be genuine and properly given. If such instructions or
directions are not timely received as required under this Agreement, or if
received, are in the opinion of the Custodian unclear, the Custodian shall
not be liable for loss of income, or decrease in value of assets, and shall
not be liable for interest, pending receipt of further written instructions
or other clarification. The Custodian shall not be liable and assumes no
responsibility for: the determination of Contribution amounts and the
collection of Contributions; the deductibility of any Contribution or its
propriety under this Agreement; the purpose, propriety, amount, or timing of
any distribution under the Agreement; or the selection of investments and any
losses incurred, which matters are the sole responsibility of the Participant
or his Beneficiary under Sections 3.03, 3.04, 3.08 and 4.02 of this
Agreement.
Furthermore, the Custodian will not be required to effect any transaction by
order of the Participant or his Beneficiary unless and until the requisite
written instructions specifying the occasion for such action are rendered to
the Custodian. The Custodian must be furnished with any and all applications,
certificates, tax waivers, signature guarantees and other documents
(including proof of any legal representative's authority) deemed necessary or
advisable by the Custodian to effect such transaction. The Custodian shall
have no liability to the Participant or his Beneficiary for any tax penalty
or other damages resulting from any inadvertent failure by the Custodian to
make a distribution under this Agreement.
The Custodian shall not be liable for interest on temporary cash balances, if
any, maintained in the Account.
The Custodian shall not be obligated or expected to commence or defend any
legal action or proceeding in connection with this Agreement or such matters
unless agreed upon by the Custodian and the Participant or said legal
representative, and unless fully indemnified for so doing to the Custodian's
satisfaction.
6.04 Fees, Expenses and Taxes; Custodian's Right to Reserve Assets in
Participant's Account. The Custodian is entitled to charge the Participant's
Account for reasonable expenses arising in connection with this Agreement
including the fees specified on its current fee schedule, initially appearing
in the Participant Investment Application. The Custodian may change such fees
on thirty (30) days written notice to the Participant.
The following shall constitute a charge to the Participant, or, at the
Custodian's option, to the Participant's Account, and shall be paid from the
assets held in such Account by means of liquidation of shares in the New
England Funds: the Custodian's fees; and taxes incurred in connection with
the investment and reinvestment of the assets of the Account; taxes that may
be levied or assessed against such assets; and all other administrative
expenses incurred by the Custodian in the performance of its duties including
fees for legal services rendered to the Custodian.
6.05 Resignation and
Removal. The Custodian may resign by giving at least sixty (60) days written
notice to New England Funds, L.P., the Employer and the Participant. New
England Funds, L.P. may remove the Custodian by giving at least sixty (60)
days written notice to the Custodian. In each case, New England Funds, L.P.
shall designate a successor Custodian qualified under Code Section 403(B)(7)
and Regulation Section 1.401-12(n), which successor Custodian shall accept
such appointment by a writing submitted to the Custodian. Upon request, the
successor Custodian shall submit evidence satisfactory to the Custodian of
its qualification under Regulation Section 1.401-12(n).
Upon receipt by the Custodian of written acceptance of such appointment by
the successor Custodian, the Custodian shall transfer to such successor
Custodian the assets of the Participant's Account and all necessary records
or copies thereof, provided that any successor Custodian shall agree not to
dispose of any records without the Custodian's consent (which shall not be
unreasonably withheld). The Custodian is authorized, however, to retain
whatever assets it reasonably deems necessary for payment of its fees, costs
and expenses, and any other liabilities which constitute a charge on or
against the assets of the Participant's Account or on or against the
Custodian.
After the Custodian has transferred the assets of the Participant's Account
to the successor Custodian, the Custodian shall be relieved of all further
responsibility with respect to this Agreement, the Participant's Account, and
the assets thereof. The Custodian shall not be liable for the acts or
omissions of any successor Custodian.
6.06 Termination by Custodian. The Custodian may terminate this Agreement if,
within sixty (60) days after its resignation or removal pursuant to Section
6.05 hereof, New England Funds, L.P. has not appointed a successor Custodian
which has accepted such appointment. Termination of this Agreement shall be
effected by written notice to the Employer and the Participant and by
distributing all assets in the Participant's Account in cash or in kind to
the Participant (or, at the Participant's request, to another custodial
account established under Section 403(b)(7) of the Code), or, in the event of
his death, to his Beneficiary or Beneficiaries, subject to the Custodian's
right to certain expense charges under Section 6.04 of this Agreement.
ARTICLE VII Amendment and Termination
7.01 Amendment.
(A)Amendments to Comply with Law. New England Funds, L.P. may, with the
approval of the Custodian, amend this Agreement and the documents
incorporated herein, including retroactive amendment, to conform to the
requirements of Section 403(b) of the Code or any other law or regulation
affecting this Agreement. The Employer and Participant shall be deemed to
have consented to any such amendment. New England Funds, L.P. shall give
prompt written notice to the Employer and the Participant of any such
amendment. However, New England Funds, L.P. has no affirmative obligation
to so amend the Agreement.
(B)Other Amendments. Any amendment other than an amendment described in
paragraph (A) above may be proposed by New England Funds, L.P., the
Employer or the Custodian, and shall be effective if agreed to in writing
by New England Funds, L.P., the Employer and the Custodian.
(C)Limitations. Notwithstanding the above provisions concerning amendments,
no amendment of this Agreement shall be made which would:
(1) Cause or permit any part of the assets in the Participant's Account
to be diverted to purposes other than for the exclusive benefit of the
Participant or his Beneficiary or cause or permit any portion of such
assets to revert to or become the property of the Employer;
(2) Place any greater burden on the Custodian without its written
consent;
(3) Retroactively deprive the Participant or his Beneficiary of any
benefit to which he was entitled under this Agreement by reason of
Contributions made prior to the effective date of the amendment,
unless such amendment is necessary to conform the Agreement to, or
satisfy the conditions of any law, governmental regulation or ruling,
or to permit the Participant's Account to meet the requirements of
Section 403(b)(7) of the Code.
7.02 Termination of Agreement.
(A)The Participant or the Employer may terminate this Agreement at any time
by an instrument in writing delivered to the Custodian. Such termination
shall not be effective until and unless the Custodian receives written
instructions from the Participant or the Employer directing that the
assets in the Participant's Account be transferred to another custodial
account established under Section 403(b)(7) of the Code, and receives a
formal acceptance letter from a successor Custodian qualified under
Section 1.041-12(n) of the Regulations.
(B)This Agreement shall not terminate if the Employer named in the
Affiliation Agreement is succeeded by an Employer which meets the
requirements of Section 1.06, and such successor elects in writing with
the written acceptance of the Custodian, to continue the Agreement.
(C)If it is determined by the Internal Revenue Service that this Agreement,
after initially meeting the requirements of Section 403(b)(7) of the Code,
no longer meets those requirements, this Agreement shall terminate. The
assets which are derived from Contributions made while the Agreement met
the requirements of Section 403(b)(7) of the Code, and earnings thereon,
shall continue to be held by the Custodian until written instructions are
received either to transfer the assets of the Participant's Account in
accordance with the preceding Paragraph (A), or to distribute such assets
to the Participant or Beneficiary. Such transfer on distribution will
occur to the Participant within thirty (30) days following the Custodian's
receipt of notice of such failure from the Employer or the Participant,
subject to the Custodian's right to deduct fees and expenses under Section
6.04 of this Agreement.
7.03 Termination of Distribution. This Agreement shall terminate when all assets
held in the Participant's Account have been distributed to the Participant or
Beneficiary.
ARTICLE VIII
Miscellaneous
8.01 Agreement Neither Creates Nor Modifies Contract of Employment. This
Agreement shall not be deemed to create or modify any contract of employment
between the Employer and the Participant.
8.02 Successors. This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of any and all parties hereto whether
present or future.
8.03 Applicable Law. This Agreement is accepted by the Custodian in, and shall
be construed and administered in accordance with laws of, the State in which
the Custodian is located.
8.04 New England Funds, L.P. Not Party. Neither New England Funds, L.P. nor New
England Funds whose shares are issued in connection with this Agreement shall
be considered to be a party to this Agreement; they shall be fully protected
in acting in accordance with any written direction of the Custodian and shall
not be required to question any actions directed by the Custodian, except as
otherwise required by law. Neither New England Funds, L.P. nor any New
England Funds whose shares are issued in connection with this Agreement shall
be responsible for the propriety of Contributions, distributions or
investment losses under this Agreement. Under no circumstances will New
England Funds, L.P. or any of the New England Funds be a fiduciary within the
meaning of Section 3(21) of the Employee Retirement Income Security Act of
1974 with respect to the Participant's Account or any plan maintained by the
Employer.
4
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8.05 Cooperation in Carrying Out Agreement. The parties to this Agreement and
all persons claiming any interest whatsoever hereunder agree to perform any
and all acts and to execute any and all documents and paper which may be
necessary or desirable for the proper administration of this Agreement or any
of its provisions.
8.06 Construction. No provision of this Agreement, including the documents
incorporated herein by reference, shall be construed to conflict with any
provision of Treasury Department or Internal Revenue Service regulations,
rulings, releases or other orders which affects its qualification under
Section 403(b)(7) of the Code. It is intended that this Agreement, including
said documents, shall be construed in a manner consistent with that purpose.
Subject to the foregoing provisions of this Paragraph, in the event of any
conflict between this Custodial Agreement and the Employer Affiliation
Agreement or the Participant Investment Application, the provisions of this
Custodial Agreement shall prevail.
8.07 Tax Treatment. Neither the Custodian, New England Funds, L.P., nor any of
the New England Funds have any responsibility with respect to such tax
treatment of any Contributions to or distributions from the Participant's
Account, nor shall any term or provision of this Agreement be construed so as
to place any such responsibility upon any one of them. Furthermore, the
Employer and/or the Participant shall have sole responsibility for filing
with the Internal Revenue Service and/or any other government agency such
returns, reports, forms, and other information as may be required of them.
8.08 Notice. Any notice from the Custodian to the Participant pursuant to this
Agreement shall be effective if sent by first class mail to the address
specified in the Participant Investment Application until the Participant
specifies a different address in a form acceptable to the Custodian. Any
notice from the Participant or Employer to the Custodian pursuant to this
Agreement shall be by first class mail addressed to its home office.
8.09 Change of Name and Address. The Participant shall notify the Custodian
in writing of any change of name or address within thirty
(30) days of such change.
8.10 Separability. If any provision of this Agreement shall be held invalid or
illegal for any reason, such determination shall not affect any remaining
provisions of this Agreement, but this Agreement shall be construed and
enforced as if such invalid or illegal provision had never been included in
this Agreement.
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QUALIFIED RETIREMENT PLAN AND TRUST
Defined Contribution Basic Plan Document 03
SECTION ONE DEFINITIONS
The following words and phrases when used in the Plan with initial capital
letters shall, for the purpose of this Plan, have the meanings set forth below
unless the context indicates that other meanings are intended:
1.01 Adoption Agreement
Means the document executed by the Employer through which it adopts the
Plan and Trust and thereby agrees to be bound by all terms and
conditions of the Plan and Trust.
1.02 Basic Plan Document
Means this prototype Plan and Trust document.
1.03 Break in Eligibility Service
Means a 12 consecutive month period which coincides with an Eligibility
Computation Period during which an Employee fails to complete more than
500 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
1.04 Break in Vesting Service
Means a Plan Year during which an Employee fails to complete more than
500 Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
1.05 Code
Means the Internal Revenue Code of 1986 as amended from time-to-time.
1.06 Compensation
For Plan Years beginning on or after January 1, 1989, the following
definition of Compensation shall apply:
Compensation will mean Compensation as that term is defined in Section
3.05(E)(2) of the Plan. For any Self-Employed Individual covered under
the Plan, Compensation will mean Earned Income. Compensation shall
include only that Compensation which is actually paid to the
Participant during the applicable period. Except as provided elsewhere
in this Plan, the applicable period shall be the Plan Year unless the
Employer has selected another period in the Adoption Agreement.
Unless otherwise indicated in the Adoption Agreement, Compensation
shall include any amount which is contributed by the Employer pursuant
to a salary reduction agreement and which is not includible in the
gross income of the Employee under Sections 125, 402(a)(8), 402(h) or
403(b) of the Code.
For years beginning after December 31, 1988, the annual Compensation of
each Participant taken into account under the Plan for any year shall
not exceed $200,000. This limitation shall be adjusted by the Secretary
at the same time and in the same manner as under Section 415(d) of the
Code, except that the dollar increase in effect on January 1 of any
calendar year is effective for years beginning in such calendar year
and the first adjustment to the $200,000 limitation is effected on
January 1, 1990. If a Plan determines Compensation on a period of time
that contains fewer than 12 calendar months, then the annual
Compensation limit is an amount equal to the annual Compensation limit
for the calendar year in which the compensation period begins
multiplied by the ratio obtained by dividing the number of full months
in the period by 12.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only the
spouse of the Participant and any lineal descendants of the Participant
who have not attained age 19 before the close of the year.
If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan
provides for permitted disparity), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this Section prior to the application
of this limitation.
If Compensation for any prior Plan Year is taken into account in
determining an Employee's contributions or benefits for the current
year, the Compensation for such prior year is subject to the applicable
annual Compensation limit in effect for that prior year. For this
purpose, for years beginning before January 1, 1990, the applicable
annual Compensation limit is $200,000.
Unless otherwise indicated in the Adoption Agreement, where an Employee
enters the Plan (and thus becomes a Participant) on an Entry Date other
than the first Entry Date in a Plan Year, his Compensation will include
any such earnings paid to him during the whole of such Plan Year.
Where this Plan is being adopted as an amendment and restatement to
bring a Prior Plan into compliance with the Tax Reform Act of 1986,
such Prior Plan's definition of Compensation shall apply for Plan Years
beginning before January 1, 1989.
<PAGE>
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under the Plan shall
not exceed the OBRA '93 annual Compensation limit. The OBRA '93 annual
Compensation limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with Section
401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93
annual Compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period,
and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall
mean the OBRA '93 annual Compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current
Plan Year, the Compensation for that prior determination period is
subject to the OBRA '93 annual Compensation limit in effect for that
prior determination period. For this purpose, for determination periods
beginning before the first day of the first Plan Year beginning on or
after January 1, 1994, the OBRA '93 annual Compensation limit is
$150,000.
1.07 Custodian
Means an entity specified in the Adoption Agreement as Custodian or any
duly appointed successor as provided in Section 5.09.
1.08 Disability
Means the inability to engage in any substantial, gainful activity by
reason of any medically determinable physical or mental impairment that
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12 months.
The permanence and degree of such impairment shall be supported by
medical evidence.
1.09 Earned Income
Means the net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net
earnings will be determined without regard to items not included in
gross income and the deductions allocable to such items. Net earnings
are reduced by contributions by the Employer to a qualified plan to the
extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction allowed
to the Employer by Section 164(f) of the Code for taxable years
beginning after December 31, 1989.
1.10 Effective Date
Means the date the Plan becomes effective as indicated in the Adoption
Agreement. However, where a separate date is stated in the Plan as of
which a particular Plan provision becomes effective, such date will
control with respect to that provision.
1.11 Eligibility Computation Period
An Employee's initial Eligibility Computation Period shall be the 12
consecutive month period commencing with the date such Employee first
performs an Hour of Service (employment commencement date). His
subsequent Eligibility Computation Periods shall be the 12 consecutive
month periods commencing on the anniversaries of his employment
commencement date; provided, however, if pursuant to the Adoption
Agreement, an Employee is required to complete one or less Years of
Eligibility Service to become a Participant, then his subsequent
Eligibility Computation Periods shall be the Plan Years commencing with
the Plan Year beginning during his initial Eligibility Computation
Period.
1.12 Employee
Means any person employed by the Employer maintaining the Plan or of
any other employer required to be aggregated with such Employer under
Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed to be
an Employee of any Employer described in the previous paragraph as
provided in Sections 414(n) or (o) of the Code.
1.13 Employer
Means any corporation, partnership, sole-proprietorship or other entity
named in the Adoption Agreement and any successor who by merger,
consolidation, purchase or otherwise assumes the obligations of the
Plan. A partnership is considered to be the Employer of each of the
partners and a sole-proprietorship is considered to be the Employer of
a sole proprietor.
1.14 Employer Contribution
Means the amount contributed by the Employer each year as determined
under this Plan.
1.15 Entry Dates Means the first day of the Plan Year and the first day of
the seventh month of the Plan Year, unless the Employer has specified
more frequent dates in the Adoption Agreement.
1.16 ERISA
Means the Employee Retirement Income Security Act of 1974 as amended
from time-to-time.
<PAGE>
1.17 Forfeiture
Means that portion of a Participant's Individual Account as derived
from Employer Contributions which he or she is not entitled to receive
(i.e., the nonvested portion).
1.18 Fund
Means the Plan assets held by the Trustee or Custodian for the
Participants' exclusive benefit.
1.19 Highly Compensated Employee
The term Highly Compensated Employee includes highly compensated active
employees and highly compensated former employees.
A highly compensated active employee includes any Employee who performs
service for the Employer during the determination year and who, during
the look-back year: (a) received Compensation from the Employer in
excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code);
(b) received Compensation from the Employer in excess of $50,000 (as
adjusted pursuant to Section 415(d) of the Code) and was a member of
the top-paid group for such year; or (c) was an officer of the Employer
and received Compensation during such year that is greater than 50% of
the dollar limitation in effect under Section 415(b)(1)(A) of the Code.
The term Highly Compensated Employee also includes: (a) Employees who
are both described in the preceding sentence if the term "determination
year" is substituted for the term "look-back year" and the Employee is
one of the 100 Employees who received the most Compensation from the
Employer during the determination year; and (b) Employees who are 5%
owners at any time during the look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated
Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the 12 month period immediately preceding the
determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for
either the separation year or any determination year ending on or after
the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5% owner who is an active or former Employee
or a Highly Compensated Employee who is one of the 10 most Highly
Compensated Employees ranked on the basis of Compensation paid by the
Employer during such year, then the family member and the 5% owner or
top 10 Highly Compensated Employee shall be aggregated. In such case,
the family member and 5% owner or top 10 Highly Compensated Employee
shall be treated as a single Employee receiving Compensation and Plan
contributions or benefits equal to the sum of such Compensation and
contributions or benefits of the family member and 5% owner or top 10
Highly Compensated Employee. For purposes of this Section, family
member includes the spouse, lineal ascendants and descendants of the
Employee or former Employee and the spouses of such lineal ascendants
and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the
top-paid group, the top 100 Employees, the number of Employees treated
as officers and the Compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the regulations
thereunder.
1.20 Hours of Service - Means
A. Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours
will be credited to the Employee for the computation period in
which the duties are performed; and
B. Each hour for which an Employee is paid, or entitled to payment,
by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty or leave of absence. No more than 501 Hours of Service will
be credited under this paragraph for any single continuous period
(whether or not such period occurs in a single computation
period). Hours under this paragraph shall be calculated and
credited pursuant to Section 2530.200b-2 of the Department of
Labor Regulations which is incorporated herein by this reference;
and
C. Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service will not be credited both under paragraph (A) or
paragraph (B), as the case may be, and under this paragraph (C).
These hours will be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement, or
payment is made.
D. Solely for purposes of determining whether a Break in Eligibility
Service or a Break in Vesting Service has occurred in a
computation period (the computation period for purposes of
determining whether a Break in Vesting Service has occurred is the
Plan Year), an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service
which would otherwise have been credited to such individual but
for such absence, or in any case in which such hours cannot be
determined, 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy
of the individual, (2) by reason of a birth of a child of the
individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
The Hours of Service credited under this paragraph shall be
credited (1) in the Eligibility Computation Period or Plan Year in
which the absence begins if the crediting is necessary to prevent
a Break in Eligibility Service or a Break in Vesting Service in
the applicable period, or (2) in all other cases, in the following
Eligibility Computation Period or Plan Year.
<PAGE>
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m) of
the Code), a controlled group of corporations (under Section
414(b) of the Code), or a group of trades or businesses under
common control (under Section 414(c) of the Code) of which the
adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to Section 414(o) of the
Code and the regulations thereunder.
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Code
Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor employer,
service for such predecessor employer shall be treated as
service for the Employer.
G. The above method for determining Hours of Service may be altered
as specified in the Adoption Agreement.
1.21 Individual Account
Means the account established and maintained under this Plan for each
Participant in accordance with Section 4.01.
1.22 Investment Fund
Means a subdivision of the Fund established pursuant to Section 5.05.
1.23 Key Employee
Means any person who is determined to be a Key Employee under Section
10.08.
1.24 Leased Employee
Means any person (other than an Employee of the recipient) who pursuant
to an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the
recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period
of at least one year, and such services are of a type historically
performed by Employees in the business field of the recipient Employer.
Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient
Employer.
A Leased Employee shall not be considered an Employee of the recipient
if: (1) such employee is covered by a money purchase pension plan
providing: (a) a nonintegrated employer contribution rate of at least
10% of compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction agreement
which are excludible from the employee's gross income under Section
125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code,
(b) immediate participation, and (c) full and immediate vesting; and
(2) Leased Employees do not constitute more than 20% of the recipient's
nonhighly compensated work force.
1.25 Normal Retirement Age
Means the age specified in the Adoption Agreement. However, if the
Employer enforces a mandatory retirement age which is less than the
Normal Retirement Age, such mandatory age is deemed to be the Normal
Retirement Age. If no age is specified in the Adoption Agreement, the
Normal Retirement Age shall be age 59 1/2.
1.26 Owner-Employee
Means an individual who is a sole proprietor, or who is a partner
owning more than 10% of either the capital or profits interest of the
partnership.
1.27 Participant
Means any Employee or former Employee of the Employer who has met the
Plan's eligibility requirements, has entered the Plan and who is or may
become eligible to receive a benefit of any type from this Plan or
whose Beneficiary may be eligible to receive any such benefit.
1.28 Plan
Means the prototype defined contribution plan adopted by the Employer.
The Plan consists of this Basic Plan Document plus the corresponding
Adoption Agreement as completed and signed by the Employer.
1.29 Plan Administrator
Means the person or persons determined to be the Plan Administrator in
accordance with Section 8.01.
1.30 Plan Year
Means the 12 consecutive month period which coincides with the
Employer's tax year or such other 12 consecutive month period as is
designated in the Adoption Agreement.
1.31 Prior Plan
Means a plan which was amended or replaced by adoption of this Plan
document, as indicated in the Adoption Agreement.
1.32 Prototype Sponsor
Means the entity specified in the Adoption Agreement. Such entity must
meet the definition of a sponsoring organization set forth in Section
3.07 of Revenue Procedure 89-9.
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1.33 Self-Employed Individual
Means an individual who has Earned Income for the taxable year from the
trade or business for which the Plan is established; also, an
individual who would have had Earned Income but for the fact that the
trade or business had no net profits for the taxable year.
1.34 Separate Fund
Means a subdivision of the Fund held in the name of a particular
Participant representing certain assets held for that Participant. The
assets which comprise a Participant's Separate Fund are those assets
earmarked for him and those assets subject to the Participant's
individual direction pursuant to Section 5.14.
1.35 Taxable Wage Base
Means, with respect to any taxable year, the maximum amount of earnings
which may be considered wages for such year under Section 3121(a)(1) of
the Code.
1.36 Termination of Employment
A Termination of Employment of an Employee of an Employer shall occur
whenever his status as an Employee of such Employer ceases for any
reason other than his death. An Employee who does not return to work
for the Employer on or before the expiration of an authorized leave of
absence from such Employer shall be deemed to have incurred a
Termination of Employment when such leave ends.
1.37 Top-Heavy Plan
This Plan is a Top-Heavy Plan for any Plan Year if it is determined to
be such pursuant to Section 10.08.
1.38 Trustee
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed successor as
provided in Section 5.09. Trustee shall mean Custodian in the event the
financial organization named as Trustee does not have full trust
powers.
1.39 Valuation Date
Means the last day of the Plan Year and each other date designated by
the Plan Administrator which is selected in a uniform and
nondiscriminatory manner when the assets of the Fund are valued at
their then fair market value.
1.40 Vested
Means nonforfeitable, that is, a claim which is unconditional and
legally enforceable against the Plan obtained by a Participant or his
Beneficiary to that part of an immediate or deferred benefit under the
Plan which arises from a Participant's Years of Vesting Service.
1.41 Year of Eligibility Service
Means a 12-consecutive month period which coincides with an Eligibility
Computation period during which an Employee completes at least 1,000
Hours of Service (or such lesser number of Hours of Service specified
in the Adoption Agreement for this purpose).
1.42 Year of Vesting Service
Means a Plan Year during which an Employee completes at least 1,000
Hours of Service (or such lesser number of Hours of Service specified
in the Adoption Agreement for this purpose).
In the case of a Participant who has 5 or more consecutive Breaks in
Vesting Service, all Years of Vesting Service after such Breaks in
Vesting Service will be disregarded for the purpose of determining the
Vested portion of his Individual Account derived from Employer
Contributions that accrued before such breaks. Such Participant's
prebreak service will count in vesting the postbreak Individual Account
derived from Employer Contributions only if either:
(A) such Participant had any Vested right to any portion of his
Individual Account derived from Employer Contributions at the time
of his Termination of Employment; or
(B) upon returning to service, the number of consecutive Breaks in
Vesting Service is less than his number of Years of Vesting
Service before such breaks.
Separate subaccounts will be maintained for the Participant's
prebreak and postbreak portions of his Individual Account derived
from Employer Contributions. Both subaccounts will share in the
gains and losses of the Fund.
Years of Vesting Service shall not include any period of time
excluded from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period,
Employees shall receive credit for Years of Vesting Service, in
accordance with the preceding provisions of this definition, for
each of the Plan Years (the old and new Plan Years) which overlap
as a result of such change.
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 Eligibility to Participate
Each Employee of the Employer, except those Employees who belong to a
class of Employees which is excluded from participation as indicated in
the Adoption Agreement, shall be eligible to participate in this Plan
upon the satisfaction of the age and Years of Eligibility Service
requirements specified in the Adoption Agreement.
<PAGE>
2.02 Plan Entry
A. If this Plan is a replacement of a Prior Plan by amendment or
restatement, each Employee of the Employer who was a Participant
in said Prior Plan before the Effective Date shall continue to be
a Participant in this Plan.
B. An Employee will become a Participant in the Plan as of the
Effective Date if he has met the eligibility requirements of
Section 2.01 as of such date. After the Effective Date, each
Employee shall become a Participant on the first Entry Date
following the date the Employee satisfies the eligibility
requirements of Section 2.01.
C. The Plan Administrator shall notify each Employee who becomes
eligible to be a Participant under this Plan and shall furnish him
with the application form, enrollment forms or other documents
which are required of Participants. The eligible Employee shall
execute such forms or documents and make available such
information as may be required in the administration of the Plan.
2.03 Transfer to or From Ineligible Class
If an Employee who had been a Participant becomes ineligible to
participate because he is no longer a member of an eligible class of
Employees, but has not incurred a Break in Eligibility Service, such
Employee shall participate immediately upon his return to an eligible
class of Employees. If such Employee incurs a Break in Eligibility
Service, his eligibility to participate shall be determined by Section
2.04.
An Employee who is not a member of the eligible class of Employees will
become a Participant immediately upon becoming a member of the eligible
class provided such Employee has satisfied the age and Years of
Eligibility Service requirements. If such Employee has not satisfied
the age and Years of Eligibility Service requirements as of the date he
becomes a member of the eligible class, he shall become a Participant
on the first Entry Date following the date he satisfies said
requirements.
2.04 Return as a Participant After Break in Eligibility Service
A. Employee Not Participant Before Break - If an Employee incurs a
Break in Eligibility Service before satisfying the Plan's
eligibility requirements, such Employee's Years of Eligibility
Service before such Break in Eligibility Service will not be taken
into account.
B. Nonvested Participants - In the case of a Participant who does not
have a Vested interest in his Individual Account derived from
Employer Contributions, Years of Eligibility Service before a
period of consecutive Breaks in Eligibility Service will not be
taken into account for eligibility purposes if the number of
consecutive Breaks in Eligibility Service in such period equals or
exceeds the greater of 5 or the aggregate number of Years of
Eligibility Service before such break. Such aggregate number of
Years of Eligibility Service will not include any Years of
Eligibility Service disregarded under the preceding sentence by
reason of prior breaks.
If a Participant's Years of Eligibility Service are disregarded
pursuant to the preceding paragraph, such Participant will be
treated as a new Employee for eligibility purposes. If a
Participant's Years of Eligibility Service may not be disregarded
pursuant to the preceding paragraph, such Participant shall
continue to participate in the Plan, or, if terminated, shall
participate immediately upon reemployment.
C. Vested Participants - A Participant who has sustained a Break in
Eligibility Service and who had a Vested interest in all or a
portion of his Individual Account derived from Employer
Contributions shall continue to participate in the Plan, or, if
terminated, shall participate immediately upon reemployment.
2.05 Determinations Under This Section
The Plan Administrator shall determine the eligibility of each Employee
to be a Participant. This determination shall be conclusive and binding
upon all persons except as otherwise provided herein or by law.
2.06 Terms of Employment
Neither the fact of the establishment of the Plan nor the fact that a
common law Employee has become a Participant shall give to that common
law Employee any right to continued employment; nor shall either fact
limit the right of the Employer to discharge or to deal otherwise with
a common law Employee without regard to the effect such treatment may
have upon the Employee's rights under the Plan.
SECTION THREE CONTRIBUTIONS
3.01 Employer Contributions
A. Obligation to Contribute - The Employer shall make contributions
to the Plan in accordance with the contribution formula specified
in the Adoption Agreement. If this Plan is a profit sharing plan,
the Employer shall, in its sole discretion, make contributions
without regard to current or accumulated earnings or profits.
B. Allocation Formula and the Right to Share in the Employer
Contribution -
1. General - The Employer Contribution for a Plan Year will be
allocated or contributed to the Individual Accounts of
qualifying Participants in accordance with the allocation or
contribution formula specified in the Adoption Agreement. The
Employer Contribution for any Plan Year will be allocated to
each Participant's Individual Account as of the last day of
that Plan Year.
Any Employer Contribution for a Plan Year must satisfy Section
401(a)(4) and the regulations thereunder for such Plan Year.
<PAGE>
2. Qualifying Participants - A Participant is a qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year if (1) he was a Participant on
at least one day during the Plan Year, (2) if this Plan is a
nonstandardized plan, he completes a Year of Vesting Service
during the Plan Year and (3) where the Employer has selected
the "last day requirement" in the Adoption Agreement, he is an
Employee of the Employer on the last day of the Plan Year
(except that this last requirement (3) shall not apply if the
Participant has died during the Plan Year or incurred a
Termination of Employment during the Plan year after having
reached his Normal Retirement Age or having incurred a
Disability). Notwithstanding anything in this paragraph to the
contrary, a Participant will not be a qualifying Participant
for a Plan Year if he incurs a Termination of Employment during
such Plan Year with not more than 500 Hours of Service if he is
not an Employee on the last day of the Plan Year. The
determination of whether a Participant is entitled to share in
the Employer Contribution shall be made as of the last day of
each Plan Year.
3. Special Rules for Integrated Plans - If the Employer has
selected the integrated contribution or allocation formula in
the Adoption Agreement, then the maximum disparity rate shall
be determined in accordance with the following table.
MAXIMUM DISPARITY RATE
Integration Level Money Purchase Top-Heavy Nontop-Heavy
Profit Sharing Profit Sharing
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more than X* 5.7% 2.7% 5.7%
More than X* of TWB but not more
than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but not
more than TWB 5.4% 2.4% 5.4%
* X means the greater of $10,000 or 20% of TWB.
C. Allocation of Forfeitures - Forfeitures for a Plan Year which
arise as a result of the application of Section 6.01(D) shall be
allocated as follows:
1. Profit Sharing Plan - If this is a profit sharing plan,
Forfeitures shall be allocated in the manner provided in
Section 3.01(B)(for Employer Contributions) to the Individual
Accounts of Participants who are entitled to share in the
Employer Contribution for such Plan Year.
2. Money Purchase Pension and Target Benefit Plan - If this Plan
is a money purchase pension plan or a target benefit plan,
Forfeitures shall be applied towards the reduction of Employer
Contributions to the Plan. However, if the Employer has
indicated in the Adoption Agreement that Forfeitures shall be
allocated to the Individual Accounts of Participants, then
Forfeitures shall be allocated in the manner provided in
Section 3.01(B) (for Employer Contributions) to the Individual
Accounts of Participants who are entitled to share in the
Employer Contributions for such Plan Year.
D. Timing of Employer Contribution - The Employer Contribution for
each Plan Year shall be delivered to the Trustee (or Custodian, if
applicable) not later than the due date for filing the Employer's
income tax return for its fiscal year in which the Plan Year ends,
including extensions thereof.
E. Minimum Allocation for Top-Heavy Plans - The contribution and
allocation provisions of this Section 3.01(E) shall apply for any
Plan Year with respect to which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, the Employer
Contributions and Forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than
the lesser of 3% of such Participant's Compensation or (in the
case where the Employer has no defined benefit plan which
designates this Plan to satisfy Section 401 of the Code) the
largest percentage of Employer Contributions and Forfeitures,
as a percentage of the first $200,000 (increased by any cost of
living adjustment made by the Secretary of Treasury or his
delegate) of the Key Employee's Compensation, allocated on
behalf of any Key Employee for that year. The minimum
allocation is determined without regard to any Social Security
contribution. This minimum allocation shall be made even though
under other Plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or would have
received a lesser allocation for the year because of (a) the
Participant's failure to complete 1,000 Hours of Service (or
any equivalent provided in the Plan), or (b) the Participant's
failure to make mandatory Employee Contributions to the Plan,
or (c) Compensation less than a stated amount.
2. For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 1.06 of the Plan.
3. The provision in (1) above shall not apply to any Participant
who was not employed by the Employer on the last day of the
Plan Year.
4. The provision in (1) above shall not apply to any Participant
to the extent the Participant is covered under any other plan
or plans of the Employer and the Employer has provided in the
Adoption Agreement that the minimum allocation or benefit
requirement applicable to Top-Heavy Plans will be met in the
other plan or plans.
<PAGE>
5. The minimum allocation required under this Section 3.01(E) and
Section 3.01(F)(1) (to the extent required to be
nonforfeitable under Code Section 416(b)) may not be forfeited
under Code Section 411(a)(3)(B) or 411(a)(3)(D).
F. Special Requirements for Paired Plans - The Employer maintains
paired plans if the Employer has adopted both a standardized
profit sharing plan and a standardized money purchase pension plan
using this Basic Plan Document.
1. Minimum Allocation - The mandatory minimum allocation
provision of Section 3.01(E) shall not apply to any
Participant if the Employer maintains paired plans. Rather,
for each Plan Year, the Employer will provide a minimum
contribution equal to 3% of Compensation for each non-Key
Employee who is entitled to a minimum contribution. Such
minimum contribution will only be made to one of the Plans. If
an Employee is a Participant in only one of the Plans, the
minimum contribution shall be made to that Plan. If the
Employee is a Participant in both Plans, the minimum
contribution shall be made to the money purchase plan.
2. Only One Plan can be Integrated - If the Employer maintains
paired plans, only one of the Plans may provide for the
disparity in contributions which is permitted under Section
401(l) of the Code. In the event that both Adoption Agreements
provide for such integration, only the money purchase pension
plan shall be deemed to be integrated.
G. Return of the Employer Contribution to the Employer Under Special
Circumstances - Any contribution made by the Employer because of a
mistake of fact must be returned to the Employer within one year
of the contribution.
In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Code, any
contributions made incident to that initial qualification by the
Employer must be returned to the Employer within one year after
the date the initial qualification is denied, but only if the
application for qualification is made by the time prescribed by
law for filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe.
In the event that a contribution made by the Employer under this
Plan is conditioned on deductibility and is not deductible under
Code Section 404, the contribution, to the extent of the amount
disallowed, must be returned to the Employer within one year
after the deduction is disallowed.
H. Omission of Participant
1. If the Plan is a money purchase plan or a target benefit plan
and, if in any Plan Year, any Employee who should be included
as a Participant is erroneously omitted and discovery of such
omission is not made until after a contribution by the
Employer for the year has been made and allocated, the
Employer shall make a subsequent contribution with respect to
the omitted Employee in the amount which the Employer would
have contributed with respect to that Employee had he not been
omitted.
2. If the Plan is a profit sharing plan, and if in any Plan Year,
any Employee who should be included as a Participant is
erroneously omitted and discovery of such omission is not made
until after the Employer Contribution has been made and
allocated, then the Plan Administrator must re-do the
allocation (if a correction can be made) and inform the
Employee. Alternatively, the Employer may choose to contribute
for the omitted Employee the amount which the Employer would
have contributed for him.
3.02 Employee Contributions
This Plan will not accept nondeductible employee contributions and
matching contributions for Plan Years beginning after the Plan Year in
which this Plan is adopted by the Employer. Employee contributions for
Plan Years beginning after December 31, 1986, together with any
matching contributions as defined in Section 401(m) of the Code, will
be limited so as to meet the nondiscrimination test of Section 401(m)
of the Code.
A separate account will be maintained by the Plan Administrator for the
nondeductible employee contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his Individual
Account attributable to his nondeductible employee contributions or the
amount he contributed as nondeductible employee contributions.
Employee contributions and earnings thereon will be nonforfeitable at
all times. No Forfeiture will occur solely as a result of an Employee's
withdrawal of employee contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning after
December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at all
times. The account will share in the gains and losses of the Fund in
the same manner as described in Section 4.03 of the Plan. No part of
the deductible employee contribution account will be used to purchase
life insurance. Subject to Section 6.05, joint and survivor annuity
requirements (if applicable), the Participant may withdraw any part of
the deductible employee contribution account by making a written
application to the Plan Administrator.
3.03 Rollover Contributions
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, an Employee may contribute a rollover contribution to the Plan;
provided that such Employee submits a written certification,
satisfactory to the Trustee (or Custodian), that the contribution
qualifies as a rollover contribution.
<PAGE>
A separate account shall be maintained by the Plan Administrator for
each Employee's rollover contributions which will be nonforfeitable at
all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be
subject to the Plan's provisions governing distributions.
For purposes of this Section 3.03, "rollover contribution" means a
contribution described in Sections 402(a)(5), 403(a)(4) or 408(d)(3) of
the Code or in any other provision which may be added to the Code which
may authorize rollovers to the Plan.
3.04 Transfer Contributions
If the Plan Administrator so permits in a uniform and nondiscriminatory
manner, the Trustee (or Custodian, if applicable) may receive any
amounts transferred to it from the trustee or custodian of another plan
qualified under Code Section 401(a).
A separate account shall be maintained by the Plan Administrator for
each Employee's transfer contributions which will be nonforfeitable at
all times. Such account will share in the income and gains and losses
of the Fund in the manner described in Section 4.03 and shall be
subject to the Plan's provisions governing distributions.
3.05 Limitation on Allocations
A. If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employer
or a welfare benefit fund, as defined in Section 419(e) of the
Code maintained by the Employer, or an individual medical account,
as defined in Section 415(l)(2) of the Code, maintained by the
Employer, which provides an annual addition as defined in Section
3.05(E)(1), the following rules shall apply:
1. The amount of annual additions which may be credited to the
Participant's Individual Account for any limitation year will
not exceed the lesser of the maximum permissible amount or any
other limitation contained in this Plan. If the Employer
Contribution that would otherwise be contributed or allocated
to the Participant's Individual Account would cause the annual
additions for the limitation year to exceed the maximum
permissible amount, the amount contributed or allocated will
be reduced so that the annual additions for the limitation
year will equal the maximum permissible amount.
2. Prior to determining the Participant's actual compensation for
the limitation year, the Employer may determine the maximum
permissible amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for
the limitation year, uniformly determined for all participants
similarly situated.
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If pursuant to Section 3.05(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount, the
excess will be disposed of as follows:
a. Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be
returned to the Participant;
b. If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan
at the end of the limitation year, the excess amount in
the Participant's Individual Account will be used to
reduce Employer Contributions (including any allocation of
Forfeitures) for such Participant in the next limitation
year, and each succeeding limitation year if necessary;
c. If after the application of paragraph (a) an excess amount
still exists, and the Participant is not covered by the
Plan at the end of a limitation year, the excess amount
will be held unallocated in a suspense account. The
suspense account will be applied to reduce future Employer
Contributions (including allocation of any Forfeitures)
for all remaining Participants in the next limitation
year, and each succeeding limitation year if necessary;
d. If a suspense account is in existence at any time during a
limitation year pursuant to this Section, it will not
participate in the allocation of the Fund's investment
gains and losses. If a suspense account is in existence at
any time during a particular limitation year, all amounts
in the suspense account must be allocated and reallocated
to Participants' Individual Accounts before any Employer
Contributions or any Employee contributions may be made to
the Plan for that limitation year. Excess amounts may not
be distributed to Participants or former Participants.
B. If, in addition to this Plan, the Participant is covered under
another qualified master or prototype defined contribution plan
maintained by the Employer, a welfare benefit fund, as defined in
Section 419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of the
Code, maintained by the Employer, which provides an annual
addition as defined in Section 3.05(E)(1), during any limitation
year, the following rules apply:
1. The annual additions which may be credited to a Participant's
Individual Account under this Plan for any such limitation year
will not exceed the maximum permissible amount reduced by the
annual additions credited to a Participant's Individual Account
under the other plans and welfare benefit funds for the same
limitation year. If the annual additions with respect to the
Participant under other defined contribution plans and welfare
<PAGE>
benefit funds maintained by the employer are less than the
maximum permissible amount and the Employer Contribution that
would otherwise be contributed or allocated to the
Participant's Individual Account under this Plan would cause
the annual additions for the limitation year to exceed this
limitation, the amount contributed or allocated will be reduced
so that the annual additions under all such plans and funds for
the limitation year will equal the maximum permissible amount.
If the annual additions with respect to the Participant under
such other defined contribution plans and welfare benefit funds
in the aggregate are equal to or greater than the maximum
permissible amount, no amount will be contributed or allocated
to the Participant's Individual Account under this Plan for the
limitation year.
2. Prior to determining the Participant's actual compensation for
the limitation year, the Employer may determine the maximum
permissible amount for a Participant in the manner described
in Section 3.05(A)(2).
3. As soon as is administratively feasible after the end of the
limitation year, the maximum permissible amount for the
limitation year will be determined on the basis of the
Participant's actual compensation for the limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a result of the
allocation of Forfeitures, a Participant's annual additions
under this Plan and such other plans would result in an excess
amount for a limitation year, the excess amount will be deemed
to consist of the annual additions last allocated, except that
annual additions attributable to a welfare benefit fund or
individual medical account will be deemed to have been
allocated first regardless of the actual allocation date.
5. If an excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an
allocation date of another plan, the excess amount attributed
to this Plan will be the product of,
a. the total excess amount allocated as of such date, times
b. the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date under
this Plan to (ii) the total annual additions allocated to
the Participant for the limitation year as of such date
under this and all the other qualified master or prototype
defined contribution plans.
6. Any excess amount attributed to this Plan will be disposed in
the manner described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a master
or prototype plan, annual additions which may be credited to the
Participant's Individual Account under this Plan for any
limitation year will be limited in accordance with Sections
3.05(B)(1) through 3.05(B)(6) as though the other plan were a
master or prototype plan unless the Employer provides other
limitations in the Section of the Adoption Agreement titled
"Limitation on Allocation - More Than One Plan."
D. If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the
sum of the Participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any limitation
year. The annual additions which may be credited to the
Participant's Individual Account under this Plan for any
limitation year will be limited in accordance with the Section of
the Adoption Agreement titled "Limitation on Allocation - More
Than One Plan."
E. The following terms shall have the following meanings when used
in this Section 3.05:
1. Annual additions: The sum of the following amounts credited
to a Participant's Individual Account for the limitation year:
a. Employer Contributions,
b. Employee contributions,
c. Forfeitures, and
d. Amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l)(2) of the
Code, which is part of a pension or annuity plan
maintained by the Employer are treated as annual additions
to a defined contribution plan. Also amounts derived from
contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are
attributable to post-retirement medical benefits,
allocated to the separate account of a key employee, as
defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the Code,
maintained by the Employer are treated as annual additions
to a defined contribution plan.
For this purpose, any excess amount applied under Section
3.05(A)(4) or 3.05(B)(6) in the limitation year to reduce
Employer Contributions will be considered annual additions
for such limitation year.
2. Compensation: As elected by the Employer in the Adoption
Agreement (and if no election is made, Section 3401(a) wages
will be deemed to have been selected), Compensation shall mean
all of a Participant's:
a. Section 3121 wages. Wages as defined in Section 3121(a) of
the Code, for purposes of calculating Social Security
taxes, but determined without regard to the wage base
limitation in Section 3121(a)(1), the special rules in
Section 3121(v), any rules that limit covered employment
based on the type or location of an Employee's Employer,
and any rules that limit the remuneration included in
wages based on familial relationship or based on the
nature or location of the employment or the services
performed (such as the exceptions to the definition of
employment in Section 3121(b)(1) through (20)).
<PAGE>
b. Section 3401(a) wages. Wages as defined in Section 3401(a)
of the Code, for the purposes of income tax withholding at
the source but determined without regard to any rules that
limit the remuneration included in wages based on the
nature or location of the employment or the services
performed (such as the exception for agricultural labor in
Section 3401(a)(2)).
c. 415 safe-harbor compensation. Wages, salaries, and fees
for professional services and other amounts received
(without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the
course of employment with the Employer maintaining the
Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions
paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips, bonuses, fringe benefits, reimbursements, and
expense allowances), and excluding the following:
1. Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in which
contributed, or employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred
compensation;
2. Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
3. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
4. Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity described in Section 403(b) of
the Code (whether or not the amounts are actually
excludible from the gross income of the Employee).
For any Self-Employed Individual, Compensation will mean
Earned Income. For limitation years beginning after
December 31, 1991, for purposes of applying the
limitations of this Section 3.05, compensation for a
limitation year is the compensation actually paid or
includible in gross income during such limitation year.
Notwithstanding the preceding sentence, compensation for a
Participant in a defined contribution plan who is
permanently and totally disabled (as defined in Section
22(e)(3) of the Code) is the compensation such Participant
would have received for the limitation year if the
Participant had been paid at the rate of compensation paid
immediately before becoming permanently and totally
disabled; such imputed compensation for the disabled
participant may be taken into account only if the
Participant is not a Highly Compensated Employee (as
defined in Section 414(q) of the Code) and contributions
made on behalf of such Participant are nonforfeitable when
made.
3. Defined benefit fraction: A fraction, the numerator of which
is the sum of the Participant's projected annual benefits
under all the defined benefit plans (whether or not
terminated) maintained by the Employer, and the denominator of
which is the lesser of 125% of the dollar limitation
determined for the limitation year under Section 415(b) and
(d) of the Code or 140% of the highest average compensation,
including any adjustments under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first limitation year
beginning after December 31, 1986, in one or more defined
benefit plans maintained by the employer which were in
existence on May 6, 1986, the denominator of this fraction
will not be less than 125% of the sum of the annual benefits
under such plans which the participant had accrued as of the
close of the last limitation year beginning before January 1,
1987, disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence applies
only if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 of the
Code for all limitation years beginning before January 1,
1987.
4. Defined contribution dollar limitation: $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth
in Section 415(b)(1) of the Code as in effect for the
limitation year.
5. Defined contribution fraction: A fraction, the numerator of
which is the sum of the annual additions to the Participant's
account under all the defined contribution plans (whether or
not terminated) maintained by the Employer for the current and
all prior limitation years (including the annual additions
attributable to the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual
additions attributable to all welfare benefit funds, as
defined in Section 419(e) of the Code, and individual medical
accounts, as defined in Section 415(l)(2) of the Code,
maintained by the Employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and
all prior limitation years of service with the Employer
(regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in
any limitation year is the lesser of 125% of the dollar
limitation determined under Section 415(b) and (d) of the Code
in effect under Section 415(c)(1)(A) of the Code or 35% of
the Participant's compensation for such year.
If the Employee was a participant as of the end of the first
day of the first limitation year beginning after December 31,
1986, in one or more defined contribution plans maintained by
the Employer which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the
fractions as they would be computed as of the end of the last
limitation year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the Section 415
limitation applicable to the first limitation year beginning
on or after January 1, 1987.
<PAGE>
The annual addition for any limitation year beginning before
January 1, 1987, shall not be recomputed to treat all employee
contributions as annual additions.
6. Employer: For purposes of this Section 3.05, Employer shall
mean the Employer that adopts this Plan, and all members
of a controlled group of corporations (as defined in Section
414(b) of the Code as modified by Section 415(h)), all
commonly controlled trades or businesses (as defined in
Section 414(c) as modified by Section 415(h)) or affiliated
service groups (as defined in Section 414(m)) of which the
adopting Employer is a part, and any other entity required to
be aggregated with the Employer pursuant to regulations under
Section 414(o) of the Code.
7. Excess amount: The excess of the Participant's annual
additions for the limitation year over the maximum permissible
amount.
8. Highest average compensation: The average compensation for
the three consecutive years of service with the Employer
that produces the highest average.
9. Limitation year: A calendar year, or the 12-consecutive month
period elected by the Employer in the Section of the Adoption
Agreement titled "Limitation on Allocation - More Than One
Plan." All qualified plans maintained by the Employer must use
the same limitation year. If the limitation year is amended to
a different 12-consecutive month period, the new limitation
year must begin on a date within the limitation year in which
the amendment is made.
10. Master or prototype plan: A plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
11. Maximum permissible amount: The maximum annual addition that
may be contributed or allocated to a Participant's Individual
Account under the Plan for any limitation year shall not
exceed the lesser of:
a. the defined contribution dollar limitation, or
b. 25% of the Participant's compensation for the limitation
year.
The compensation limitation referred to in (b) shall not apply
to any contribution for medical benefits (within the meaning
of Section 401(h) or Section 419A(f)(2) of the Code) which is
otherwise treated as an annual addition under Section
415(l)(1) or 419A(d)(2) of the Code.
If a short limitation year is created because of an amendment
changing the limitation year to a different 12-consecutive
month period, the maximum permissible amount will not exceed
the defined contribution dollar limitation multiplied by the
following fraction:
Number of months in the short limitation year
12
12. Projected annual benefit: The annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight
life annuity or qualified joint and survivor annuity) to which
the Participant would be entitled under the terms of the Plan
assuming:
a. the Participant will continue employment until normal
retirement age under the Plan (or current age, if later),
and
b. the Participant's compensation for the current limitation
year and all other relevant factors used to determine
benefits under the Plan will remain constant for all
future limitation years.
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 Individual Accounts
A. The Plan Administrator shall establish and maintain an Individual
Account in the name of each Participant to reflect the total value
of his interest in the Fund. Each Individual Account established
hereunder shall consist of such subaccounts as may be needed for
each Participant including:
1. a subaccount to reflect Employer Contributions and Forfeitures
allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover
contributions;
3. a subaccount to reflect a Participant's transfer
contributions;
4. a subaccount to reflect a Participant's nondeductible employee
contributions; and
5. a subaccount to reflect a Participant's deductible employee
contributions.
Such subaccounts are primarily for accounting purposes, and do not
necessarily require a segregation of the Fund.
<PAGE>
B. The Plan Administrator may establish additional accounts as it may
deem necessary for the proper administration of the Plan,
including, but not limited to, a suspense account for Forfeitures
as required pursuant to Section 6.01(D).
4.02 Valuation of Fund
The Fund will be valued each Valuation Date at fair market value.
4.03 Valuation of Individual Accounts
A. Where all or a portion of the assets of a Participant's Individual
Account are invested in a Separate Fund for the Participant, then
the value of that portion of such Participant's Individual Account
at any relevant time equals the sum of the fair market values of
the assets in such Separate Fund, less any applicable charges or
penalties.
B. The fair market value of the remainder of each Individual Account
is determined in the following manner:
1. First, the portion of the Individual Account invested in each
Investment Fund as of the previous Valuation Date is
determined. Each such portion is reduced by any withdrawal
made from the applicable Investment Fund to or for the benefit
of a Participant or his Beneficiary, further reduced by any
amounts forfeited by the Participant pursuant to Section
6.01(D) and further reduced by any transfer to another
Investment Fund since the previous Valuation Date and is
increased by any amount transferred from another Investment
Fund since the previous Valuation Date. The resulting amounts
are the net Individual Account portions invested in the
Investment Funds.
2. Secondly, the net Individual Account portions invested in each
Investment Fund are adjusted upwards or downwards, pro rata
(i.e., ratio of each net Individual Account portion to the sum
of all net Individual Account portions) so that the sum of all
the net Individual Account portions invested in an Investment
Fund will equal the then fair market value of the Investment
Fund. Notwithstanding the previous sentence, for the first
Plan Year only, the net Individual Account portions shall be
the sum of all contributions made to each Participant's
Individual Account during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are
allocated in accordance with the appropriate allocation
provisions of Section 3. For purposes of Section 4,
contributions made by the Employer for any Plan Year but after
that Plan Year will be considered to have been made on the
last day of that Plan Year regardless of when paid to the
Trustee (or Custodian, if applicable).
Amounts contributed between Valuation Dates will not be
credited with investment gains or losses until the next
following Valuation Date.
4. Finally, the portions of the Individual Account invested in
each Investment Fund (determined in accordance with (1), (2)
and (3) above) are added together.
4.04 Segregation of Assets
If a Participant elects a mode of distribution other than a lump sum,
the Plan Administrator may place that Participant's account balance
into a segregated Investment Fund for the purpose of maintaining the
necessary liquidity to provide benefit installments on a periodic
basis.
4.05 Statement of Individual Accounts
No later than 270 days after the close of each Plan Year, the Plan
Administrator shall furnish a statement to each Participant indicating
the Individual Account balances of such Participant as of the last
Valuation Date in such Plan Year.
4.06 Modification of Method for Valuing Individual Accounts
If necessary or appropriate, the Plan Administrator may establish
different or additional procedures (which shall be uniform and
nondiscriminatory) for determining the fair market value of the
Individual Accounts.
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 Creation of Fund
By adopting this Plan, the Employer establishes the Fund which shall
consist of the assets of the Plan held by the Trustee (or Custodian, if
applicable) pursuant to this Section 5. Assets within the Fund may be
pooled on behalf of all Participants, earmarked on behalf of each
Participant or be a combination of pooled and earmarked. To the extent
that assets are earmarked for a particular Participant, they will be
held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
5.02 Investment Authority
Except as provided in Section 5.14 (relating to individual direction of
investments by Participants), the Employer, not the Trustee (or
Custodian, if applicable), shall have exclusive management and control
over the investment of the Fund into any permitted investment.
5.03 Financial Organization Custodian or Trustee Without Full Trust Powers
This Section 5.03 applies where a financial organization has indicated
in the Adoption Agreement that it will serve, with respect to this
Plan, as Custodian or as Trustee without full trust powers (under
applicable law). Hereinafter, a financial organization Trustee without
full trust powers (under applicable law) shall be referred to as a
Custodian.
<PAGE>
A. Permissible Investments - The assets of the Plan shall be
invested only in those investments listed as permissible
investments in the Adoption Agreement.
B. Responsibilities of the Custodian - The responsibilities of the
Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest
the Fund without distinction between principal and interest;
provided, however, that nothing in this Plan shall require the
Custodian to maintain physical custody of stock certificates
(or other indicia of ownership of any type of asset)
representing assets within the Fund;
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Custodian deems relevant
with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of the
Custodian as of the end of each Plan Year.
C. Powers of the Custodian - Except as otherwise provided in this
Plan, the Custodian shall have the power to take any action with
respect to the Fund which it deems necessary or advisable to
discharge its responsibilities under this Plan including, but not
limited to, the following powers:
1. To invest all or a portion of the Fund (including idle cash
balances) in time deposits, savings accounts, money market
accounts or similar investments bearing a reasonable rate of
interest in the Custodian's own savings department or the
savings department of another financial organization;
2. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or
without power of substitution; to exercise any conversion
privileges or subscription rights and to make any payments
incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes
affecting corporate securities, and to pay any assessments or
charges in connection therewith; and generally to exercise any
of the powers of an owner with respect to stocks, bonds,
securities or other property;
3. To hold securities or other property of the Fund in its own
name, in the name of its nominee or in bearer form; and
4. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out
the powers herein granted.
5.04 [INTENTIONALLY OMITTED]
5.05 Division of Fund into investment funds
The Employer may direct the Trustee (or Custodian, if applicable) from
time-to-time to divide and redivide the Fund into one or more
Investment Funds. Such Investment Funds may include, but not be limited
to, Investment Funds representing the assets under the control of an
investment manager pursuant to Section 5.12 and Investment Funds
representing investment options available for individual direction by
Participants pursuant to Section 5.14. Upon each division or
redivision, the Employer may specify the part of the Fund to be
allocated to each such Investment Fund and the terms and conditions, if
any, under which the assets in such Investment Fund shall be invested.
5.06 Compensation and Expenses
The Trustee (or Custodian, if applicable) shall receive such reasonable
compensation as may be agreed upon by the Trustee (or Custodian) and
the Employer. The Trustee (or Custodian) shall be entitled to
reimbursement by the Employer for all proper expenses incurred in
carrying out his duties under this Plan, including reasonable legal,
accounting and actuarial expenses. If not paid by the Employer, such
compensation and expenses may be charged against the Fund.
All taxes of any kind that may be levied or assessed under existing or
future laws upon, or in respect of, the Fund or the income thereof
shall be paid from the Fund.
5.07 Not Obligated to Question Data
The Employer shall furnish the Trustee (or Custodian, if applicable)
and Plan Administrator the information which each party deems necessary
for the administration of the Plan including, but not limited to,
changes in a Participant's status, eligibility, mailing addresses and
other such data as may be required. The Trustee (or Custodian) and Plan
Administrator shall be entitled to act on such information as is
supplied them and shall have no duty or responsibility to further
verify or question such information.
5.08 Liability for Withholding on Distributions
The Plan Administrator shall be responsible for withholding federal
income taxes from distributions from the Plan, unless the Participant
(or Beneficiary, where applicable) elects not to have such taxes
withheld. However, the Trustee (or Custodian, if applicable) shall act
as agent for the Plan Administrator to withhold such taxes and to make
the appropriate distribution reports, subject to the Plan
Administrator's obligation to furnish all the necessary information to
so withhold to the Trustee (or Custodian).
<PAGE>
5.09 Resignation or Removal of Trustee (or Custodian)
The Trustee (or Custodian, if applicable) may resign at any time by
giving 30 days advance written notice to the Employer. The resignation
shall become effective 30 days after receipt of such notice unless a
shorter period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such removal
shall be effective 30 days after receipt of such notice unless a
shorter period is agreed upon. The Employer shall have the power to
appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed Trustee
(or Custodian) is the sole Trustee (or Custodian), he shall transfer
all of the assets of the Fund then held by him as expeditiously as
possible to the successor Trustee (or Custodian) after paying or
reserving such reasonable amount as he shall deem necessary to provide
for the expense in the settlement of the accounts and the amount of any
compensation due him and any sums chargeable against the Fund for which
he may be liable. If the Funds as reserved are not sufficient for such
purpose, then he shall be entitled to reimbursement from the successor
Trustee (or Custodian) out of the assets in the successor Trustee's (or
Custodian's) hands under this Plan. If the amount reserved shall be in
excess of the amount actually needed, the former Trustee (or Custodian)
shall return such excess to the successor Trustee (or Custodian).
Upon receipt of such assets, the successor Trustee (or Custodian) shall
thereupon succeed to all of the powers and responsibilities given to
the Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer
within 30 days of its receipt, the accounting shall be deemed to have
been approved and the resigning or removed Trustee (or Custodian) shall
be released and discharged as to all matters set forth in the
accounting. Where a financial organization is serving as Trustee (or
Custodian) and it is merged with or bought by another organization (or
comes under the control of any federal or state agency), that
organization shall serve as the successor Trustee (or Custodian) of
this Plan, but only if it is the type of organization that can so serve
under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal Revenue
that such substitution is required because the Trustee (or Custodian)
has failed to comply with the requirements of Section 1.401-12(n) or is
not keeping such records or making such returns or rendering such
statements as are required by forms or regulations.
5.10 Degree of Care
Limitations of Liability - The Trustee (or Custodian, if applicable)
shall not be liable for any losses incurred by the Fund by any lawful
direction to invest communicated by the Employer, Plan Administrator or
any Participant or Beneficiary. The Trustee (or Custodian) shall be
under no liability for distributions made or other action taken or not
taken at the written direction of the Plan Administrator. It is
specifically understood that the Trustee (or Custodian) shall have no
duty or responsibility with respect to the determination of matters
pertaining to the eligibility of any Employee to become a Participant
or remain a Participant hereunder, the amount of benefit to which a
Participant or Beneficiary shall be entitled to receive hereunder,
whether a distribution to Participant or Beneficiary is appropriate
under the terms of the Plan or the size and type of any policy to be
purchased from any insurer for any Participant hereunder or similar
matters; it being understood that all such responsibilities under the
Plan are vested in the Plan Administrator.
5.11 Indemnification of Prototype Sponsor and Trustee (or Custodian)
Notwithstanding any other provision herein, and except as may be
otherwise provided by ERISA, the Employer shall indemnify and hold
harmless the Trustee (or Custodian, if applicable) and the Prototype
Sponsor, their officers, directors, employees, agents, their heirs,
executors, successors and assigns, from and against any and all
liabilities, damages, judgments, settlements, losses, costs, charges,
or expenses (including legal expenses) at any time arising out of or
incurred in connection with any action taken by such parties in the
performance of their duties with respect to this Plan, unless there has
been a final adjudication of gross negligence or willful misconduct in
the performance of such duties.
Further, except as may be otherwise provided by ERISA, the Employer
will indemnify the Trustee (or Custodian) and Prototype Sponsor from
any liability, claim or expense (including legal expense) which the
Trustee (or Custodian) and Prototype Sponsor shall incur by reason of
or which results, in whole or in part, from the Trustee's (or
Custodian's) or Prototype Sponsor's reliance on the facts and other
directions and elections the Employer communicates or fails to
communicate.
5.12 Investment Managers
A. Definition of Investment Manager - The Employer may appoint one or
more investment managers to make investment decisions with respect
to all or a portion of the Fund. The investment manager shall be
any firm or individual registered as an investment adviser under
the Investment Advisers Act of 1940, a bank as defined in said Act
or an insurance company qualified under the laws of more than one
state to perform services consisting of the management,
acquisition or disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate Investment Fund shall
be established representing the assets of the Fund invested at the
direction of the investment manager. The investment manager so
appointed shall direct the Trustee (or Custodian, if applicable)
with respect to the investment of such Investment Fund. The
investments which may be acquired at the direction of the
investment manager are limited to those described in Section
5.03(A) (for Custodians) or Section 5.04(A) (for Trustees).
C. Written Agreement - The appointment of any investment manager
shall be by written agreement between the Employer and the
investment manager and a copy of such agreement (and any
modification or termination thereof) must be given to the Trustee
(or Custodian).
<PAGE>
The agreement shall set forth, among other matters, the effective
date of the investment manager's appointment and an acknowledgment
by the investment manager that it is a fiduciary of the Plan under
ERISA.
D. Concerning the Trustee (or Custodian) - Written notice of each
appointment of an investment manager shall be given to the Trustee
(or Custodian) in advance of the effective date of such
appointment. Such notice shall specify which portion of the Fund
will constitute the Investment Fund subject to the investment
manager's direction. The Trustee (or Custodian) shall comply with
the investment direction given to it by the investment manager and
will not be liable for any loss which may result by reason of any
action (or inaction) it takes at the direction of the investment
manager.
5.13 [INTENTIONALLY OMITTED]
5.14 Direction of Investments by Participant
If so indicated in the Adoption Agreement, each Participant may
individually direct the Trustee (or Custodian, if applicable) regarding
the investment of part or all of his Individual Account. To the extent
so directed, the Employer, Plan Administrator, Trustee (or Custodian)
and all other fiduciaries are relieved of their fiduciary
responsibility under Section 404 of ERISA.
The Plan Administrator shall direct that a Separate Fund be established
in the name of each Participant who directs the investment of part or
all of his Individual Account. Each Separate Fund shall be charged or
credited (as appropriate) with the earnings, gains, losses or expenses
attributable to such Separate Fund. No fiduciary shall be liable for
any loss which results from a Participant's individual direction. The
assets subject to individual direction shall not be invested in
collectibles as that term is defined in Section 408(m) of the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it deems
necessary or advisable including, but not limited to, rules describing
(1) which portions of Participant's Individual Account can be
individually directed; (2) the frequency of investment changes; (3) the
forms and procedures for making investment changes; and (4) the effect
of a Participant's failure to make a valid direction.
Subject to the approval of the Prototype Sponsor, the Plan
Administrator may, in a uniform and nondiscriminatory manner, limit the
available investments for Participants' individual direction to certain
specified investment options (including, but not limited to, certain
mutual funds, investment contracts, deposit accounts and group trusts).
The Plan Administrator may permit, in a uniform and nondiscriminatory
manner, a Beneficiary of a deceased Participant to individually direct
in accordance with this Section.
SECTION SIX VESTING AND DISTRIBUTION
6.01 Distribution to Participant
A. When Distributable
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable to the
Participant upon the occurrence of any of the following
events:
a. the Participant's Termination of Employment;
b. the Participant's attainment of Normal Retirement Age;
c. the Participant's Disability; or
d. the termination of the Plan.
2. Written Request: When Distributed - A Participant entitled to
distribution who wishes to receive a distribution must
submit a written request to the Plan Administrator. Such
request shall be made upon a form provided by the Plan
Administrator. Upon a valid request, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to
commence distribution no later than 90 days following the
later of:
a. the close of the Plan Year within which the event occurs
which entitles the Participant to distribution; or
b. the close of the Plan Year in which the request is
received.
3. Special Rules For Withdrawals During Service - If this is a
profit sharing plan and the Adoption Agreement so provides, a
Participant who is not otherwise entitled to a distribution
under Section 6.01(A)(1) may elect to receive a distribution
of all or a part of the Vested portion of his Individual
Account, subject to the requirements of Section 6.05 and
further subject to the following limits:
a. Participant for 5 or more years. An Employee who has been
a Participant in the Plan for 5 or more years may withdraw
up to his entire Vested portion of his Individual Account.
b. Participant for less than 5 years. An Employee who has
been a Participant in the Plan for less than 5 years may
withdraw only the amount which has been in his Vested
Individual Account attributable to Employer Contributions
for at least 2 full Plan Years.
<PAGE>
However, if the distribution is on account of hardship, the
Participant may withdraw up to his entire Vested portion of
his Individual Account. For purposes of the preceding
sentence, hardship is defined as an immediate and heavy
financial need of the Participant where such Participant lacks
other available resources. The following are the only
financial needs considered immediate and heavy: expenses
incurred or necessary for medical care, described in Section
213(d) of the Code, of the Employee, the Employee's spouse or
dependents; the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of tuition and
related educational fees for the next 12 months of
post-secondary education for the Employee, the Employee's
spouse, children or dependents; or the need to prevent the
eviction of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if:
1) The employee has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer;
2) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the
distribution).
4. Commencement of Benefits - Notwithstanding any other
provision, unless the Participant elects otherwise,
distribution of benefits will begin no later than the 60th day
after the latest of the close of the Plan Year in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
Notwithstanding the foregoing, the failure of a Participant
and spouse to consent to a distribution while a benefit is
immediately distributable, within the meaning of Section
6.02(B), shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy
this Section 6.01(A)(4).
B. Determining the Vested Portion - In determining the Vested portion
of a Participant's Individual Account, the following rules apply:
1. Employer Contributions and Forfeitures - The Vested portion of
a Participant's Individual Account derived from Employer
Contributions and Forfeitures is determined by applying the
vesting schedule selected in the Adoption Agreement (or the
vesting schedule described in Section 6.01(C) if the Plan is a
Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is fully
Vested in his rollover contributions and transfer
contributions.
3. Fully Vested Under Certain Circumstances - A Participant is
fully Vested in his Individual Account if any of the
following occurs:
a. the Participant reaches Normal Retirement Age;
b. the Participant incurs a Disability;
c. the Participant dies;
d. the Plan is terminated or partially terminated; or
e. there exists a complete discontinuance of contributions
under the Plan (if this Plan is a profit sharing plan).
4. Participants in a Prior Plan - If a Participant was a
participant in a Prior Plan on the Effective Date, his Vested
percentage shall not be less than it would have been under
such Prior Plan as computed on the Effective Date.
C. Minimum Vesting Schedule for Top-Heavy Plans - The following
vesting provisions apply for any Plan Year in which this Plan is
a Top-Heavy Plan.
Notwithstanding the other provisions of this Section 6.01 or the
vesting schedule selected in the Adoption Agreement (unless those
provisions or that schedule provide for more rapid vesting), a
Participant's Vested portion of his Individual Account
attributable to Employer Contributions and Forfeitures shall be
determined in accordance with the following minimum vesting
schedule:
Years of Vesting Service Vested Percentage
1 0
2 20
3 40
4 60
5 80
6 100
<PAGE>
This minimum vesting schedule applies to all benefits within the
meaning of Section 411(a)(7) of the Code, except those
attributable to employee contributions including benefits accrued
before the effective date of Section 416 of the Code and benefits
accrued before the Plan became a Top-Heavy Plan. Further, no
decrease in a Participant's Vested percentage may occur in the
event the Plan's status as a Top-Heavy Plan changes for any Plan
Year. However, this Section 6.01(C) does not apply to the
Individual Account of any Employee who does not have an Hour of
Service after the Plan has initially become a Top-Heavy Plan and
such Employee's Individual Account attributable to Employer
Contributions and Forfeitures will be determined without regard to
this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance
with the above restrictions, the vesting schedule as selected in
the Adoption Agreement will govern. If the vesting schedule under
the Plan shifts in or out of top-heavy status, such shift is an
amendment to the vesting schedule and the election in Section 9.04
applies.
D. Break in Vesting Service and Forfeitures - If a Participant incurs
a Termination of Employment, any portion of his Individual Account
which is not Vested shall be held in a suspense account. Such
suspense account shall share in any increase or decrease in the
fair market value of the assets of the Fund in accordance with
Section 4 of the Plan. The disposition of such suspense account
shall be as follows:
1. No Breaks in Vesting Service - If a Participant neither
receives nor is deemed to receive a distribution pursuant to
Section 6.01(D)(2) or (3) and the Participant returns to the
service of the Employer before incurring 5 consecutive Breaks
in Vesting Service, there shall be no Forfeiture and the
amount in such suspense account shall be recredited to such
Participant's Individual Account.
2. Cash-out of Certain Participants - If the value of the Vested
portion of such Participant's Individual Account derived from
Employee and Employer Contributions does not exceed $3,500,
the Participant shall receive a distribution of the entire
Vested portion of such Individual Account and the portion
which is not Vested shall be treated as a Forfeiture. For
purposes of this Section, if the value of the Vested portion
of a Participant's Individual Account is zero, the Participant
shall be deemed to have received a distribution of such Vested
Individual Account. A Participant's Vested Individual Account
balance shall not include accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code for Plan Years beginning prior to January 1, 1989.
3. Participants Who Elect to Receive Distributions - If such
Participant elects to receive a distribution, in accordance
with Section 6.02(B), of the value of the Vested portion of
his Individual Account derived from Employee and Employer
Contributions, the portion which is not Vested shall be
treated as a Forfeiture.
4. Re-employed Participants - If a Participant receives or is
deemed to receive a distribution pursuant to Section
6.01(D)(2) or (3) above and the Participant resumes employment
covered under this Plan, the Participant's Employer-derived
Individual Account balance will be restored to the amount on
the date of distribution if the Participant repays to the Plan
the full amount of the distribution attributable to Employer
Contributions before the earlier of 5 years after the first
date on which the Participant is subsequently re-employed by
the Employer, or the date the Participant incurs 5 consecutive
Breaks in Vesting Service following the date of the
distribution.
Amounts forfeited under Section 6.01(D) shall be allocated in
accordance with Section 3.01(C) as of the last day of the Plan
Year during which the Forfeiture arises. Any restoration of a
Participant's Individual Account pursuant to Section
6.01(D)(4) shall be made from other Forfeitures, income or
gain to the Fund or contributions made by the Employer.
E. Distribution Prior to Full Vesting - If a distribution is made to
a Participant who was not then fully Vested in his Individual
Account derived from Employer Contributions and the Participant
may increase his Vested percentage in his Individual Account, then
the following rules shall apply:
1. a separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
2. at any relevant time the Participant's Vested portion of the
separate account will be equal to an amount ("X") determined
by the formula: X=P (AB + (R x D)) - (R x D) where "P" is the
Vested percentage at the relevant time, "AB" is the separate
account balance at the relevant time; "D" is the amount of the
distribution; and "R" is the ratio of the separate account
balance at the relevant time to the separate account balance
after distribution.
6.02 Form of Distribution to a Participant
A. Value of Individual Account Does Not Exceed $3,500 - If the value
of the Vested portion of a Participant's Individual Account
derived from Employee and Employer Contributions does not exceed
$3,500, distribution from the Plan shall be made to the
Participant in a single lump sum in lieu of all other forms of
distribution from the Plan.
B. Value of Individual Account Exceeds $3,500
<PAGE>
1. If the value of the Vested portion of a Participant's
Individual Account derived from Employee and Employer
Contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the Individual Account is
immediately distributable, the Participant and the
Participant's spouse (or where either the Participant or the
spouse died, the survivor) must consent to any distribution of
such Individual Account. The consent of the Participant and
the Participant's spouse shall be obtained in writing within
the 90-day period ending on the annuity starting date. The
annuity starting date is the first day of the first period for
which an amount is paid as an annuity or any other form. The
Plan Administrator shall notify the Participant and the
Participant's spouse of the right to defer any distribution
until the Participant's Individual Account is no longer
immediately distributable. Such notification shall include a
general description of the material features, and an
explanation of the relative values of, the optional forms of
benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 417(a)(3) of the
Code, and shall be provided no less than 30 days and no more
than 90 days prior to the annuity starting date. If a
distribution is one to which Sections 401(a)(11) and 417 of
the Internal Revenue Code do not apply, such distribution may
commence less than 30 days after the notice required under
Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
a. the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least
30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
b. the Participant, after receiving the notice, affirmatively
elects a distribution.
Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form of a
qualified joint and survivor annuity while the Individual
Account is immediately distributable. Neither the consent of
the Participant nor the Participant's spouse shall be required
to the extent that a distribution is required to satisfy
Section 401(a)(9) or Section 415 of the Code. In addition,
upon termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the
Participant's Individual Account may, without the
Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than
an employee stock ownership plan as defined in Section
4975(e)(7) of the Code) within the same controlled group.
An Individual Account is immediately distributable if any part
of the Individual Account could be distributed to the
Participant (or surviving spouse) before the Participant
attains or would have attained (if not deceased) the later of
Normal Retirement Age or age 62.
2. For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first
day of the first Plan year beginning after December 31, 1988,
the Vested portion of a Participant's Individual Account shall
not include amounts attributable to accumulated deductible
employee contributions within the meaning of Section
72(o)(5)(B) of the Code.
C. Other Forms of Distribution to Participant - If the value of the
Vested portion of a Participant's Individual Account exceeds
$3,500 and the Participant has properly waived the joint and
survivor annuity, as described in Section 6.05, the Participant
may request in writing that the Vested portion of his Individual
Account be paid to him in one or more of the following forms
of payment: (1) in a lump sum; (2) in installment
payments over a period not to exceed the life expectancy of the
Participant or the joint and last survivor life expectancy of the
Participant and his designated Beneficiary; or (3) applied to the
purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the contrary, a
Participant cannot elect payments in the form of an annuity if the
safe harbor rules of Section 6.05(F) apply.
6.03 Distributions Upon the Death of a Participant
A. Designation of Beneficiary - Spousal Consent - Each Participant
may designate, upon a form provided by and delivered to the Plan
Administrator, one or more primary and contingent Beneficiaries to
receive all or a specified portion of his Individual Account in
the event of his death. A Participant may change or revoke such
Beneficiary designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a primary
Beneficiary who is not his spouse, his spouse must consent in
writing to such designation, and the spouse's consent must
acknowledge the effect of such designation and be witnessed by a
notary public. Notwithstanding this consent requirement, if the
Participant establishes to the satisfaction of the Plan
Administrator that such written consent may not be obtained
because there is no spouse or the spouse cannot be located, no
consent shall be required. Any change of Beneficiary will require
a new spousal consent.
B. Payment to Beneficiary - If a Participant dies before his entire
Individual Account has been paid to him, such deceased
Participant's Individual Account shall be payable to any surviving
Beneficiary designated by the Participant, or, if no Beneficiary
survives the Participant, to the Participant's estate.
C. Written Request: When Distributed - A Beneficiary of a deceased
Participant entitled to a distribution who wishes to receive a
distribution must submit a written request to the Plan
Administrator. Such request shall be made upon a form provided by
the Plan Administrator. Upon a valid request, the Plan
Administrator shall direct the Trustee (or Custodian) to commence
distribution no later than 90 days following the later of:
1. the close of the Plan Year within which the Participant dies;
or
2. the close of the Plan Year in which the request is received.
<PAGE>
D. Location of Participant or Beneficiary Unknown - In the event
that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the
expiration of 5 years after it becomes payable, remain unpaid
solely by reason of the inability of the Plan Administrator,
after sending a registered letter, return receipt requested,
to the last known address, and after further diligent effort,
to ascertain the whereabouts of such Participant or his
Beneficiary, the amount so distributable shall be forfeited
and allocated in accordance with the terms of the Plan. In the
event a Participant or Beneficiary is located subsequent to
his benefit being forfeited, such benefit shall be restored;
provided, however, if all or a portion of such amount has been
lost by reason of escheat under state law, the Participant or
Beneficiary shall cease to be entitled to the portion so lost.
6.04 Form of Distribution to Beneficiary
A. Value of Individual Account Does Not Exceed $3,500 - If the value
of the Participant's Individual Account derived from Employee and
Employer Contributions does not exceed $3,500, the Plan
Administrator shall direct the Trustee (or Custodian, if
applicable) to make a distribution to the Beneficiary in a single
lump sum in lieu of all other forms of distribution from the Plan.
B. Value of Individual Account Exceeds $3,500 - If the value of a
Participant's Individual Account derived from Employee and
Employer Contributions exceeds $3,500 the preretirement survivor
annuity requirements of Section 6.05 shall apply unless waived in
accordance with that Section or unless the safe harbor rules of
Section 6.05(F) apply.
C. Other Forms of Distribution to Beneficiary - If the value of a
Participant's Individual Account exceeds $3,500 and the
Participant has properly waived the preretirement survivor
annuity, as described in Section 6.05 (if applicable), the
Beneficiary may, subject to the requirements of Section 6.06,
request in writing that the Participant's Individual Account be
paid to him as follows: (1) in a lump sum; or (2) in installment
payments over a period not to exceed the life expectancy of such
Beneficiary.
6.05 Joint and Survivor Annuity Requirements
A. The provisions of this Section shall apply to any Participant who
is credited with at least one Hour of Eligibility Service with the
Employer on or after August 23, 1984, and such other participants
as provided in Section 6.05(G).
B. Qualified Joint and Survivor Annuity - Unless an optional form of
benefit is selected pursuant to a qualified election within the
90-day period ending on the annuity starting date, a married
Participant's Vested account balance will be paid in the form of a
qualified joint and survivor annuity and an unmarried
Participant's Vested account balance will be paid in the form of a
life annuity. The Participant may elect to have such annuity
distributed upon attainment of the earliest retirement age under
the Plan.
C. Qualified Preretirement Survivor Annuity - Unless an optional form
of benefit has been selected within the election period pursuant
to a qualified election, if a Participant dies before the annuity
starting date then the Participant's Vested account balance shall
be applied toward the purchase of an annuity for the life of the
surviving spouse. The surviving spouse may elect to have such
annuity distributed within a reasonable period after the
Participant's death.
D. Definitions
1. Election Period - The period which begins on the first day of
the Plan Year in which the Participant attains age 35 and ends
on the date of the Participant's death. If a Participant
separates from service prior to the first day of the Plan year
in which age 35 is attained, with respect to the account
balance as of the date of separation, the election period
shall begin on the date of separation.
Pre-age 35 waiver - A Participant who will not yet attain age
35 as of the end of any current Plan Year may make a special
qualified election to waive the qualified preretirement
survivor annuity for the period beginning on the date of such
election and ending on the first day of the Plan Year in which
the Participant will attain age 35. Such election shall not be
valid unless the Participant receives a written explanation of
the qualified preretirement survivor annuity in such terms as
are comparable to the explanation required under Section
6.05(E)(1). Qualified preretirement survivor annuity coverage
will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new
waiver on or after such date shall be subject to the full
requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which, under
the Plan, the Participant could elect to receive retirement
benefits.
3. Qualified Election - A waiver of a qualified joint and
survivor annuity or a qualified preretirement survivor
annuity. Any waiver of a qualified joint and survivor annuity
or a qualified preretirement survivor annuity shall not be
effective unless: (a) the Participant's spouse consents in
writing to the election, (b) the election designates a
specific Beneficiary, including any class of beneficiaries or
any contingent beneficiaries, which may not be changed without
spousal consent (or the spouse expressly permits designations
by the Participant without any further spousal consent); (c)
the spouse's consent acknowledges the effect of the election;
and (d) the spouse's consent is witnessed by a plan
representative or notary public. Additionally, a Participant's
waiver of the qualified joint and survivor annuity shall not
be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or
the spouse expressly permits designations by the Participant
without any further spousal consent). If it is established to
the satisfaction of a plan representative that there is no
spouse or that the spouse cannot be located, a waiver will be
deemed a qualified election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such spouse.
A consent that permits designations by the Participant without
any requirement of further consent by such spouse must
acknowledge that the spouse has the right to limit consent to
a specific Beneficiary, and a specific form of benefit where
applicable, and that the spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a
prior waiver may be made by a Participant without the consent
of the spouse at any time before the commencement of benefits.
The number of revocations shall not be limited. No consent
obtained under this provision shall be valid unless the
Participant has received notice as provided in Section 6.05(E)
below.
<PAGE>
4. Qualified Joint and Survivor Annuity - An immediate annuity
for the life of the Participant with a survivor annuity for
the life of the spouse which is not less than 50% and not more
than 100% of the amount of the annuity which is payable during
the joint lives of the Participant and the spouse and which is
the amount of benefit which can be purchased with the
Participant's vested account balance. The percentage of the
survivor annuity under the Plan shall be 50% (unless a
different percentage is elected by the Employer in the
Adoption Agreement).
5. Spouse (surviving spouse) - The spouse or surviving spouse of
the Participant, provided that a former spouse will be treated
as the spouse or surviving spouse and a current spouse will
not be treated as the spouse or surviving spouse to the extent
provided under a qualified domestic relations order as
described in Section 414(p) of the Code.
6. Annuity Starting Date - The first day of the first period for
which an amount is paid as an annuity or any other form.
7. Vested Account Balance - The aggregate value of the
Participant's Vested account balances derived from Employer
and Employee contributions (including rollovers), whether
Vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The
provisions of this Section 6.05 shall apply to a Participant
who is Vested in amounts attributable to Employer
Contributions, Employee contributions (or both) at the time of
death or distribution.
E. Notice Requirements
1. In the case of a qualified joint and survivor annuity, the
Plan Administrator shall no less than 30 days and not more
than 90 days prior to the annuity starting date provide each
Participant a written explanation of: (a) the terms and
conditions of a qualified joint and survivor annuity; (b) the
Participant's right to make and the effect of an election to
waive the qualified joint and survivor annuity form of
benefit; (c) the rights of a Participant's spouse; and (d) the
right to make, and the effect of, a revocation of a previous
election to waive the qualified joint and survivor annuity.
2. In the case of a qualified preretirement survivor annuity as
described in Section 6.05(C), the Plan Administrator shall
provide each Participant within the applicable period for such
Participant a written explanation of the qualified
preretirement survivor annuity in such terms and in such
manner as would be comparable to the explanation provided for
meeting the requirements of Section 6.05(E)(1) applicable to a
qualified joint and survivor annuity.
The applicable period for a Participant is whichever of the
following periods ends last: (a) the period beginning with the
first day of the Plan Year in which the Participant attains
age 32 and ending with the close of the Plan Year preceding
the Plan Year in which the Participant attains age 35; (b) a
reasonable period ending after the individual becomes a
Participant; (c) a reasonable period ending after Section
6.05(E)(3) ceases to apply to the Participant; (d) a
reasonable period ending after this Section 6.05 first applies
to the Participant. Notwithstanding the foregoing, notice must
be provided within a reasonable period ending after separation
from service in the case of a Participant who separates from
service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable
period ending after the enumerated events described in (b),
(c) and (d) is the end of the two-year period beginning one
year prior to the date the applicable event occurs, and ending
one year after that date. In the case of a Participant who
separates from service before the Plan Year in which age 35 is
attained, notice shall be provided within the two-year period
beginning one year prior to separation and ending one year
after separation. If such a Participant thereafter returns to
employment with the Employer, the applicable period for such
Participant shall be redetermined.
3. Notwithstanding the other requirements of this Section
6.05(E), the respective notices prescribed by this Section
6.05(E), need not be given to a Participant if (a) the Plan
"fully subsidizes" the costs of a qualified joint and survivor
annuity or qualified preretirement survivor annuity, and (b)
the Plan does not allow the Participant to waive the qualified
joint and survivor annuity or qualified preretirement survivor
annuity and does not allow a married Participant to designate
a nonspouse beneficiary. For purposes of this Section
6.05(E)(3), a plan fully subsidizes the costs of a benefit if
no increase in cost, or decrease in benefits to the
Participant may result from the Participant's failure to elect
another benefit.
F. Safe Harbor Rules
1. If the Employer so indicates in the Adoption Agreement, this
Section 6.05(F) shall apply to a Participant in a profit
sharing plan, and shall always apply to any distribution, made
on or after the first day of the first Plan Year beginning
after December 31, 1988, from or under a separate account
attributable solely to accumulated deductible employee
contributions, as defined in Section 72(o)(5)(B) of the Code,
and maintained on behalf of a Participant in a money purchase
pension plan, (including a target benefit plan) if the
following conditions are satisfied:
a. the Participant does not or cannot elect payments in the
form of a life annuity; and
b. on the death of a participant, the Participant's Vested
account balance will be paid to the Participant's surviving
spouse, but if there is no surviving spouse, or if the
surviving spouse has consented in a manner conforming to a
qualified election, then to the Participant's designated
beneficiary. The surviving spouse may elect to have
distribution of the Vested account balance commence within
the 90-day period following the date of the Participant's
death. The account balance shall be adjusted for gains or
losses occurring after the Participant's death in
accordance with the provisions of the Plan governing the
adjustment of account balances for other types of
distributions. This Section 6.05(F) shall not be operative
with respect to a Participant in a profit sharing plan if
the plan is a direct or indirect transferee of a defined
benefit plan, money purchase plan, a target benefit plan,
stock bonus, or profit sharing plan which is subject to the
survivor annuity requirements of Section 401(a)(11) and
Section 417 of the Code. If this Section 6.05(F) is
operative, then the provisions of this Section 6.05 other
than Section 6.05(G) shall be inoperative.
<PAGE>
2. The Participant may waive the spousal death benefit described
in this Section 6.05(F) at any time provided that no such
waiver shall be effective unless it satisfies the conditions
of Section 6.05(D)(3) (other than the notification requirement
referred to therein) that would apply to the Participant's
waiver of the qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account balance
shall mean, in the case of a money purchase pension plan or a
target benefit plan, the Participant's separate account
balance attributable solely to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code. In the case of a profit sharing plan, Vested account
balance shall have the same meaning as provided in Section
6.05(D)(7).
G. Transitional Rules
1. Any living Participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits prescribed
by the previous subsections of this Section 6.05 must be given
the opportunity to elect to have the prior subsections of this
Section apply if such Participant is credited with at least
one Hour of Service under this Plan or a predecessor plan in a
Plan Year beginning on or after January 1, 1976, and such
Participant had at least 10 Years of Vesting Service when he
or she separated from service.
2. Any living Participant not receiving benefits on August 23,
1984, who was credited with at least one Hour of Service under
this Plan or a predecessor plan on or after September 2, 1974,
and who is not otherwise credited with any service in a Plan
Year beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance
with Section 6.05(G)(4).
3. The respective opportunities to elect (as described in Section
6.05(G)(1) and (2) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984,
and ending on the date benefits would otherwise commence to
said Participants.
4. Any Participant who has elected pursuant to Section 6.05(G)(2)
and any Participant who does not elect under Section
6.05(G)(1) or who meets the requirements of Section 6.05(G)(1)
except that such Participant does not have at least 10 Years
of Vesting Service when he or she separates from service,
shall have his or her benefits distributed in accordance with
all of the following requirements if benefits would have been
payable in the form of a life annuity:
a. Automatic Joint and Survivor Annuity - If benefits in the
form of a life annuity become payable to a married
Participant who:
1. begins to receive payments under the Plan on or after
Normal Retirement Age; or
2. dies on or after Normal Retirement Age while still
working for the Employer; or
3. begins to receive payments on or after the qualified
early retirement age; or
4. separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement
age) and after satisfying the eligibility
requirements for the payment of benefits under the
Plan and thereafter dies before beginning to receive
such benefits;
then such benefits will be received under this Plan in the
form of a qualified joint and survivor annuity, unless the
Participant has elected otherwise during the election
period. The election period must begin at least 6 months
before the Participant attains qualified early retirement
age and ends not more than 90 days before the commencement
of benefits. Any election hereunder will be in writing and
may be changed by the Participant at any time.
b. Election of Early Survivor Annuity - A Participant who is
employed after attaining the qualified early retirement age
will be given the opportunity to elect, during the election
period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under
such annuity must not be less than the payments which would
have been made to the spouse under the qualified joint and
survivor annuity if the Participant had retired on the day
before his or her death. Any election under this provision
will be in writing and may be changed by the Participant at
any time. The election period begins on the later of (1)
the 90th day before the Participant attains the qualified
early retirement age, or (2) the date on which
participation begins, and ends on the date the Participant
terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest of:
a. the earliest date, under the Plan, on which the
Participant may elect to receive retirement
benefits,
<PAGE>
b. the first day of the 120th month beginning before
the Participant reaches Normal Retirement Age, or
c. the date the Participant begins participation.
2. Qualified joint and survivor annuity is an annuity
for the life of the Participant with a survivor
annuity for the life of the spouse as described in
Section 6.05 (D)(4) of this Plan.
6.06 Distribution Requirements
A. General Rules
1. Subject to Section 6.05, Joint and Survivor Annuity
Requirements, the requirements of this Section shall apply to
any distribution of a Participant's interest and will take
precedence over any inconsistent provisions of this Plan.
Unless otherwise specified, the provisions of this Section
6.06 apply to calendar years beginning after December 31,
1984.
2. All distributions required under this Section 6.06 shall be
determined and made in accordance with the Income Tax
Regulations under Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the regulations.
B. Required Beginning Date - The entire interest of a Participant
must be distributed or begin to be distributed no later than the
Participant's required beginning date.
C. Limits on Distribution Periods - As of the first distribution
calendar year, distributions, if not made in a single sum, may
only be made over one of the following periods (or a combination
thereof):
1. the life of the Participant,
2. the life of the Participant and a designated Beneficiary,
3. a period certain not extending beyond the life expectancy of
the Participant, or
4. a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
Beneficiary.
D. Determination of Amount to be Distributed Each Year - If the
Participant's interest is to be distributed in other than a single
sum, the following minimum distribution rules shall apply on or
after the required beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy
of the Participant and the Participant's designated
Beneficiary or (2) a period not extending beyond the life
expectancy of the designated Beneficiary, the amount
required to be distributed for each calendar year,
beginning with distributions for the first distribution
calendar year, must at least equal the quotient obtained
by dividing the Participant's benefit by the applicable
life expectancy.
b. For calendar years beginning before January 1, 1989, if
the Participant's spouse is not the designated
Beneficiary, the method of distribution selected must
assure that at least 50% of the present value of the
amount available for distribution is paid within the life
expectancy of the Participant.
c. For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first distribution calendar year
shall not be less than the quotient obtained by dividing
the Participant's benefit by the lesser of (1) the
applicable life expectancy or (2) if the Participant's
spouse is not the designated Beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of
Section 1.401(a)(9)-2 of the Income Tax Regulations.
Distributions after the death of the Participant shall be
distributed using the applicable life expectancy in
Section 6.06(D)(1)(a) above as the relevant divisor
without regard to regulations 1.401(a)(9)-2.
d. The minimum distribution required for the Participant's
first distribution calendar year must be made on or before
the Participant's required beginning date. The minimum
distribution for other calendar years, including the
minimum distribution for the distribution calendar year in
which the Employee's required beginning date occurs, must
be made on or before December 31 of that distribution
calendar year.
2. Other Forms - If the Participant's benefit is distributed in
the form of an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code and the
regulations thereunder.
<PAGE>
E. Death Distribution Provisions
1. Distribution Beginning Before Death - If the Participant dies
after distribution of his or her interest has begun, the
remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Participant's death.
2. Distribution Beginning After Death - If the Participant dies
before distribution of his or her interest begins,
distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in
accordance with (a) or (b) below:
a. if any portion of the Participant's interest is payable to
a designated Beneficiary, distributions may be made over
the life or over a period certain not greater than the
life expectancy of the designated Beneficiary commencing
on or before December 31 of the calendar year immediately
following the calendar year in which the Participant died;
b. if the designated Beneficiary is the Participant's
surviving spouse, the date distributions are required to
begin in accordance with (a) above shall not be earlier
than the later of (1) December 31 of the calendar year
immediately following the calendar year in which the
Participant dies or (2) December 31 of the calendar year
in which the Participant would have attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 6.06(E)(2) by the time of his or her death, the
Participant's designated Beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to
begin under this Section 6.06(E)(2), or (2) December 31 of the
calendar year which contains the fifth anniversary of the date
of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does
not elect a method of distribution, distribution of the
Participant's entire interest must be completed by December 31
of the calendar year containing the fifth anniversary of the
Participant's death.
3. For purposes of Section 6.06(E)(2) above, if the surviving
spouse dies after the Participant, but before payments to such
spouse begin, the provisions of Section 6.06(E)(2), with the
exception of paragraph (b) therein, shall be applied as if the
surviving spouse were the Participant.
4. For purposes of this Section 6.06(E), any amount paid to a
child of the Participant will be treated as if it had been
paid to the surviving spouse if the amount becomes payable to
the surviving spouse when the child reaches the age of
majority.
5. For purposes of this Section 6.06(E), distribution of a
Participant's interest is considered to begin on the
Participant's required beginning date (or, if Section
6.06(E)(3) above is applicable, the date distribution is
required to begin to the surviving spouse pursuant to Section
6.06(E)(2) above). If distribution in the form of an annuity
irrevocably commences to the Participant before the required
beginning date, the date distribution is considered to begin
is the date distribution actually commences.
F. Definitions
1. Applicable Life Expectancy - The life expectancy (or joint and
last survivor expectancy) calculated using the attained age of
the Participant (or designated Beneficiary) as of the
Participant's (or designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year
which has elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
2. Designated Beneficiary - The individual who is designated as
the Beneficiary under the Plan in accordance with Section
401(a)(9) of the Code and the regulations thereunder.
3. Distribution Calendar Year - A calendar year for which a
minimum distribution is required. For distributions beginning
before the Participant's death, the first distribution
calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required
beginning date. For distributions beginning after the
Participant's death, the first distribution calendar year is
the calendar year in which distributions are required to begin
pursuant to Section 6.06(E) above.
4. Life Expectancy - Life expectancy and joint and last survivor
expectancy are computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Income
Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the
case of distributions described in Section 6.06(E)(2)(b)
above) by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election
shall be irrevocable as to the Participant (or spouse) and
shall apply to all subsequent years. The life expectancy of a
nonspouse Beneficiary may not be recalculated.
<PAGE>
5. Participant's Benefit
a. The account balance as of the last valuation date in the
valuation calendar year (the calendar year immediately
preceding the distribution calendar year) increased by the
amount of any Contributions or Forfeitures allocated to
the account balance as of dates in the valuation calendar
year after the valuation date and decreased by
distributions made in the valuation calendar year after
the valuation date.
b. Exception for second distribution calendar year. For
purposes of paragraph (a) above, if any portion of the
minimum distribution for the first distribution calendar
year is made in the second distribution calendar year on
or before the required beginning date, the amount of the
minimum distribution made in the second distribution
calendar year shall be treated as if it had been made in
the immediately preceding distribution calendar year.
6. Required Beginning Date
a. General Rule - The required beginning date of a
Participant is the first day of April of the calendar year
following the calendar year in which the Participant
attains age 70 1/2.
b. Transitional Rules - The required beginning date of a
Participant who attains age 70 1/2 before January 1, 1988,
shall be determined in accordance with (1) or (2) below:
1. Non 5% Owners - The required beginning date of a
Participant who is not a 5% owner is the first day of
April of the calendar year following the calendar
year in which the later of retirement or attainment
of age 70 1/2 occurs.
2. 5% Owners - The required beginning date of a
Participant who is a 5% owner during any year
beginning after December 31, 1979, is the first day
of April following the later of:
a. the calendar year in which the Participant
attains age 70 1/2, or
b. the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a 5% owner, or the calendar year in which
the Participant retires.
The required beginning date of a Participant who
is not a 5% owner who attains age 70 1/2 during
1988 and who has not retired as of January 1,
1989, is April 1, 1990.
c. 5% Owner - A Participant is treated as a 5% owner
for purposes of this Section 6.06(F)(6) if such
Participant is a 5% owner as defined in Section
416(i) of the Code (determined in accordance with
Section 416 but without regard to whether the
Plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in
which such owner attains age 66 1/2 or any
subsequent Plan Year.
d. Once distributions have begun to a 5% owner under
this Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be
a 5% owner in a subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of this Section 6.06
and subject to the requirements of Section 6.05, Joint and
Survivor Annuity Requirements, distribution on behalf of any
Employee, including a 5% owner, may be made in accordance with
all of the following requirements (regardless of when such
distribution commences):
a. The distribution by the Fund is one which would not have
disqualified such Fund under Section 401(a)(9) of the Code
as in effect prior to amendment by the Deficit Reduction
Act of 1984.
b. The distribution is in accordance with a method of
distribution designated by the Employee whose interest in
the Fund is being distributed or, if the Employee is
deceased, by a Beneficiary of such Employee.
c. Such designation was in writing, was signed by the
Employee or the Beneficiary, and was made before
January 1, 1984.
d. The Employee had accrued a benefit under the Plan as of
December 31, 1983.
e. The method of distribution designated by the Employee or
the Beneficiary specifies the time at which distribution
will commence, the period over which distributions will be
made, and in the case of any distribution upon the
Employee's death, the Beneficiaries of the Employee listed
in order of priority.
2. A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with respect
to the distributions to be made upon the death of the
Employee.
<PAGE>
3. For any distribution which commences before January 1, 1984,
but continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be
presumed to have designated the method of distribution under
which the distribution is being made if the method of
distribution was specified in writing and the distribution
satisfies the requirements in Sections 6.06(G)(1)(a) and (e).
4. If a designation is revoked, any subsequent distribution must
satisfy the requirements of Section 401(a)(9) of the Code and
the regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin,
the Plan must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the
total amount not yet distributed which would have been
required to have been distributed to satisfy Section 401(a)(9)
of the Code and the regulations thereunder, but for the
Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section
1.401(a)(9)-2 of the Income Tax Regulations. Any changes in
the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of
another Beneficiary (one not named in the designation) under
the designation will not be considered to be a revocation of
the designation, so long as such substitution or addition does
not alter the period over which distributions are to be made
under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an
amount is transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
6.07 Annuity Contracts
Any annuity contract distributed under the Plan (if permitted or
required by this Section 6) must be nontransferable. The terms of any
annuity contract purchased and distributed by the Plan to a Participant
or spouse shall comply with the requirements of the Plan.
6.08 [INTENTIONALLY OMITTED]
6.09 Distribution in Kind
The Plan Administrator may cause any distribution under this Plan to be
made either in a form actually held in the Fund, or in cash by
converting assets other than cash into cash, or in any combination of
the two foregoing ways.
6.10 Direct Rollovers of Eligible Rollover Distributions
A. Direct Rollover Option - This Section applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of
the Plan to the contrary that would otherwise limit a
distributee's election under this Section, a distributee may
elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
B. Definitions
1. Eligible rollover distribution - An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distribution does not include:
a. any distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more;
b. any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
c. the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to
employer securities).
2. Eligible retirement plan - An eligible retirement plan is an
individual retirement account described in Section 408(a) of
the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account
or individual retirement annuity.
3. Distributee - A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
4. Direct rollover - A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
SECTION SEVEN CLAIMS PROCEDURE
7.01 Filing a Claim for Plan Distributions
<PAGE>
A Participant or Beneficiary who desires to make a claim for the Vested
portion of the Participant's Individual Account shall file a written
request with the Plan Administrator on a form to be furnished to him by
the Plan Administrator for such purpose. The request shall set forth
the basis of the claim. The Plan Administrator is authorized to conduct
such examinations as may be necessary to facilitate the payment of any
benefits to which the Participant or Beneficiary may be entitled under
the terms of the Plan.
7.02 Denial of Claim
Whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan Administrator
must furnish such Participant or Beneficiary written notice of the
denial within 60 days of the date the original claim was filed. This
notice shall set forth the specific reasons for the denial, specific
reference to pertinent Plan provisions on which the denial is based, a
description of any additional information or material needed to perfect
the claim, an explanation of why such additional information or
material is necessary and an explanation of the procedures for appeal.
7.03 Remedies Available
The Participant or Beneficiary shall have 60 days from receipt of the
denial notice in which to make written application for review by the
Plan Administrator. The Participant or Beneficiary may request that the
review be in the nature of a hearing. The Participant or Beneficiary
shall have the right to representation, to review pertinent documents
and to submit comments in writing. The Plan Administrator shall issue a
decision on such review within 60 days after receipt of an application
for review as provided for in Section 7.02. Upon a decision unfavorable
to the Participant or Beneficiary, such Participant or Beneficiary
shall be entitled to bring such actions in law or equity as may be
necessary or appropriate to protect or clarify his right to benefits
under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 Employer is Plan Administrator
A. The Employer shall be the Plan Administrator unless the managing
body of the Employer designates a person or persons other than the
Employer as the Plan Administrator and so notifies the Prototype
Sponsor and the Trustee (or Custodian, if applicable). The
Employer shall also be the Plan Administrator if the person or
persons so designated cease to be the Plan Administrator.
B. If the managing body of the Employer designates a person or
persons other than the Employer as Plan Administrator, such person
or persons shall serve at the pleasure of the Employer and shall
serve pursuant to such procedures as such managing body may
provide. Each such person shall be bonded as may be required by
law.
8.02 Powers and Duties of the Plan Administrator
A. The Plan Administrator may, by appointment, allocate the duties of
the Plan Administrator among several individuals or entities. Such
appointments shall not be effective until the party designated
accepts such appointment in writing.
B. The Plan Administrator shall have the authority to control and
manage the operation and administration of the Plan. The Plan
Administrator shall administer the Plan for the exclusive benefit
of the Participants and their Beneficiaries in accordance with the
specific terms of the Plan.
C. The Plan Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to,
the following:
1. To determine all questions of interpretation or policy in a
manner consistent with the Plan's documents and the Plan
Administrator's construction or determination in good faith
shall be conclusive and binding on all persons except as
otherwise provided herein or by law. Any interpretation or
construction shall be done in a nondiscriminatory manner and
shall be consistent with the intent that the Plan shall
continue to be deemed a qualified plan under the terms of
Section 401(a) of the Code, as amended from time-to-time, and
shall comply with the terms of ERISA, as amended from
time-to-time;
2. To determine all questions relating to the eligibility of
Employees to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be
contributed to the Plan;
4. To compute the amount and kind of benefits to which a
Participant or Beneficiary shall be entitled under the Plan
and to direct the Trustee (or Custodian, if applicable) with
respect to all disbursements under the Plan, and, when
requested by the Trustee (or Custodian), to furnish the
Trustee (or Custodian) with instructions, in writing, on
matters pertaining to the Plan and the Trustee (or Custodian)
may rely and act thereon;
5. To maintain all records necessary for the administration of
the Plan;
6. To be responsible for preparing and filing such disclosure and
tax forms as may be required from time-to-time by the
Secretary of Labor or the Secretary of the Treasury; and
7. To furnish each Employee, Participant or Beneficiary such
notices, information and reports under such circumstances as
may be required by law.
D. The Plan Administrator shall have all of the powers necessary or
appropriate to accomplish his duties under the Plan, including,
but not limited to, the following:
<PAGE>
1. To appoint and retain such persons as may be necessary to
carry out the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other persons
as the Plan Administrator deems necessary or advisable in the
administration of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules which it
deems necessary to carry out the terms of the Plan;
5. To make any adjustments in a uniform and nondiscriminatory
manner which it deems necessary to correct any arithmetical or
accounting errors which may have been made for any Plan Year;
and
6. To correct any defect, supply any omission or reconcile any
inconsistency in such manner and to such extent as shall be
deemed necessary or advisable to carry out the purpose of the
Plan.
8.03 Expenses and Compensation
All reasonable expenses of administration including, but not limited
to, those involved in retaining necessary professional assistance may
be paid from the assets of the Fund. Alternatively, the Employer may,
in its discretion, pay such expenses. The Employer shall furnish the
Plan Administrator with such clerical and other assistance as the Plan
Administrator may need in the performance of his duties.
8.04 Information From Employer
To enable the Plan Administrator to perform his duties, the Employer
shall supply full and timely information to the Plan Administrator (or
his designated agents) on all matters relating to the Compensation of
all Participants, their regular employment, retirement, death,
Disability or Termination of Employment, and such other pertinent facts
as the Plan Administrator (or his agents) may require. The Plan
Administrator shall advise the Trustee (or Custodian, if applicable) of
such of the foregoing facts as may be pertinent to the Trustee's (or
Custodian's) duties under the Plan. The Plan Administrator (or his
agents) is entitled to rely on such information as is supplied by the
Employer and shall have no duty or responsibility to verify such
information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 Right of Prototype Sponsor to Amend the Plan
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but not the duty, to amend the Plan
without any further action or consent of the Employer as the
Prototype Sponsor deems necessary for the purpose of adjusting the
Plan to comply with all laws and regulations governing pension or
profit sharing plans. Specifically, it is understood that the
amendments may be made unilaterally by the Prototype Sponsor.
However, it shall also be understood that the Prototype
Sponsor shall be under no obligation to amend the Plan documents
and the Employer expressly waives any rights or claims against the
Prototype Sponsor for not exercising this power to amend. For
purposes of Prototype Sponsor amendments, the mass submitter shall
be recognized as the agent of the Prototype Sponsor. If the
Prototype Sponsor does not adopt the amendments made by the mass
submitter, it will no longer be identical to or a minor modifier
of the mass submitter plan.
B. An amendment by the Prototype Sponsor shall be accomplished by
giving written notice to the Employer of the amendment to be made.
The notice shall set forth the text of such amendment and the date
such amendment is to be effective. Such amendment shall take
effect unless within the 30 day period after such notice is
provided, or within such shorter period as the notice may specify,
the Employer gives the Prototype Sponsor written notice of refusal
to consent to the amendment. Such written notice of refusal shall
have the effect of withdrawing the Plan as a prototype plan and
shall cause the Plan to be considered an individually designed
plan. The right of the Prototype Sponsor to cause the Plan to be
amended shall terminate should the Plan cease to conform as a
prototype plan as provided in this or any other section.
9.02 Right of Employer to Amend the Plan
The Employer may (1) change the choice of options in the Adoption
Agreement, (2) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Section 415 or Section 416 of the
Code because of the required aggregation of multiple plans, and (3) add
certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption will not cause the Plan
to be treated as individually designed. An Employer that amends the
Plan for any other reason, including a waiver of the minimum funding
requirement under Section 412(d) of the Code, will no longer
participate in this prototype plan and will be considered to have an
individually designed plan.
An Employer who wishes to amend the Plan to change the options it has
chosen in the Adoption Agreement must complete and deliver a new
Adoption Agreement to the Prototype Sponsor and Trustee (or Custodian,
if applicable). Such amendment shall become effective upon execution by
the Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in its
entirety by adopting another retirement plan which the Employer
designates as a replacement plan.
9.03 Limitation on Power to Amend
No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's accrued benefit.
<PAGE>
Notwithstanding the preceding sentence, a Participant's Individual
Account may be reduced to the extent permitted under Section 412(c)(8)
of the Code. For purposes of this paragraph, a plan amendment which has
the effect of decreasing a Participant's Individual Account or
eliminating an optional form of benefit with respect to benefits
attributable to service before the amendment shall be treated as
reducing an accrued benefit. Furthermore, if the vesting schedule of a
Plan is amended, in the case of an Employee who is a Participant as of
the later of the date such amendment is adopted or the date it becomes
effective, the Vested percentage (determined as of such date) of such
Employee's Individual Account derived from Employer Contributions will
not be less than the percentage computed under the Plan without regard
to such amendment.
9.04 Amendment of Vesting Schedule
If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the
Participant's Vested percentage, or if the Plan is deemed amended by an
automatic change to or from a top-heavy vesting schedule, each
Participant with at least 3 Years of Vesting Service with the Employer
may elect, within the time set forth below, to have the Vested
percentage computed under the Plan without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in any Plan
Year beginning after December 31, 1988, the preceding sentence shall be
applied by substituting "5 Years of Vesting Service" for "3 Years of
Vesting Service" where such language appears.
The Period during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made and shall end
the later of:
A. 60 days after the amendment is adopted;
<PAGE>
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the
amendment by the Employer or Plan Administrator.
9.05 Permanency
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and payment is
not assumed as a contractual obligation. Neither the Adoption Agreement
nor the Plan nor any amendment or modification thereof nor the making
of contributions hereunder shall be construed as giving any Participant
or any person whomsoever any legal or equitable right against the
Employer, the Trustee (or Custodian, if applicable), the Plan
Administrator or the Prototype Sponsor except as specifically provided
herein, or as provided by law.
9.06 Method and Procedure for Termination
The Plan may be terminated by the Employer at any time by appropriate
action of its managing body. Such termination shall be effective on the
date specified by the Employer. The Plan shall terminate if the
Employer shall be dissolved, terminated, or declared bankrupt. Written
notice of the termination and effective date thereof shall be given to
the Trustee (or Custodian, if applicable), Plan Administrator,
Prototype Sponsor, Participants and Beneficiaries of deceased
Participants, and the required filings (such as the Form 5500 series
and others) must be made with the Internal Revenue Service and any
other regulatory body as required by current laws and regulations.
Until all of the assets have been distributed from the Fund, the
Employer must keep the Plan in compliance with current laws and
regulations by (a) making appropriate amendments to the Plan and (b)
taking such other measures as may be required.
9.07 Continuance of Plan by Successor Employer
Notwithstanding the preceding Section 9.06, a successor of the Employer
may continue the Plan and be substituted in the place of the present
Employer. The successor and the present Employer (or, if deceased, the
executor of the estate of a deceased Self-Employed Individual who was
the Employer) must execute a written instrument authorizing such
substitution and the successor must complete and sign a new Adoption
Agreement.
9.08 Failure of Plan Qualification
If the Plan fails to attain or retain its qualified status, the Plan
will no longer be considered to be part of a prototype plan, and such
Employer can no longer participate under this prototype. In such event,
the Plan will be considered an individually designed plan.
SECTION TEN MISCELLANEOUS
10.01 State Community Property Laws
The terms and conditions of this Plan shall be applicable without
regard to the community property laws of any state.
10.02 Headings
The headings of the Plan have been inserted for convenience of
reference only and are to be ignored in any construction of the
provisions hereof.
10.03 Gender and Number
Whenever any words are used herein in the masculine gender they shall
be construed as though they were also used in the feminine gender in
all cases where they would so apply, and whenever any words are used
herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
10.04 Plan Merger or Consolidation
In the case of any merger or consolidation of the Plan with, or
transfer of assets or liabilities of such Plan to, any other plan, each
Participant shall be entitled to receive benefits immediately after the
merger, consolidation, or transfer (if the Plan had then terminated)
which are equal to or greater than the benefits he would have been
entitled to receive immediately before the merger, consolidation, or
transfer (if the Plan had then terminated). The Trustee (or Custodian,
if applicable) has the authority to enter into merger agreements or
agreements to directly transfer the assets of this Plan but only if
such agreements are made with trustees or custodians of other
retirement plans described in Section 401(a) of the Code.
10.05 Standard of Fiduciary Conduct
The Employer, Plan Administrator, Trustee and any other fiduciary under
this Plan shall discharge their duties with respect to this Plan solely
in the interests of Participants and their Beneficiaries and with the
care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with
such matters would use in the conduct of an enterprise of a like
character and with like aims. No fiduciary shall cause the Plan to
engage in any transaction known as a "prohibited transaction" under
ERISA.
10.06 General Undertaking of All Parties
All parties to this Plan and all persons claiming any interest
whatsoever hereunder agree to perform any and all acts and execute any
and all documents and papers which may be necessary or desirable for
the carrying out of this Plan and any of its provisions.
10.07 Agreement Binds Heirs, etc.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns, as those terms shall apply to any and all
parties hereto, present and future.
10.08 Determination of Top-Heavy Status
A. For any Plan Year beginning after December 31, 1983, this Plan is
a Top-Heavy Plan if any of the following conditions exist:
1. If the top-heavy ratio for this Plan exceeds 60% and this Plan
is not part of any required aggregation group or permissive
aggregation group of plans;
2. If this Plan is part of a required aggregation group of plans
but not part of a permissive aggregation group and the
top-heavy ratio for the group of plans exceeds 60%;
3. If this Plan is a part of a required aggregation group and
part of a permissive aggregation group of plans and the
top-heavy ratio for the permissive aggregation group exceeds
60%.
For purposes of this Section 10.08, the following terms shall have the
meanings indicated below:
B. Key Employee - Any Employee or former Employee (and the
beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such
individual's annual compensation exceeds 50% of the dollar
limitation under Section 415(b)(1)(A) of the Code, an owner (or
considered an owner under Section 318 of the Code) of one of the
10 largest interests in the Employer if such individual's
compensation exceeds 100% of the dollar limitation under Section
415(c)(1)(A) of the Code, a 5% owner of the Employer, or a 1%
owner of the Employer who has an annual compensation of more than
$150,000. Annual compensation means compensation as defined in
Section 415(c)(3) of the Code, but including amounts contributed
by the Employer pursuant to a salary reduction agreement which are
excludible from the Employee's gross income under Section 125,
Section 402(a)(8), Section 402(h) or Section 403(b) of the Code.
The determination period is the Plan Year containing the
determination date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the regulations
thereunder.
C. Top-heavy ratio
1. If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which
during the 5-year period ending on the determination date(s)
has or has had accrued benefits, the top-heavy ratio for this
Plan alone or for the required or permissive aggregation group
as appropriate is a fraction, the numerator of which is the
sum of the account balances of all Key Employees as of the
determination date(s) (including any part of any account
balance distributed in the 5-year period ending on the
determination date(s)), and the denominator of which is the
sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the
determination date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both
the numerator and the denominator of the top-heavy ratio
are increased to reflect any contribution not actually made
as of the determination date, but which is required to be
taken into account on that date under Section 416 of the Code
and the regulations thereunder.
2. If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined
benefit plans which during the 5-year period ending on the
determination date(s) has or has had any accrued benefits, the
top-heavy ratio for any required or permissive aggregation
group as appropriate is a fraction, the numerator of which is
the sum of account balances under the aggregated defined
contribution plan or plans for all Key Employees, determined
in accordance with (1) above, and the present value of accrued
benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the determination date(s), and the
denominator of which is the sum of the account balances under
the aggregated defined contribution plan or plans for all
Participants, determined in accordance with (1) above, and the
present value of accrued benefits under the defined benefit
plan or plans for all Participants as of the determination
date(s), all determined in accordance with Section 416 of the
Code and the regulations thereunder. The accrued benefits
under a defined benefit plan in both the numerator and
denominator of the top-heavy ratio are increased for any
distribution of an accrued benefit made in the 5-year period
ending on the determination date.
<PAGE>
3. For purposes of (1) and (2) above, the value of account
balances and the present value of accrued benefits will be
determined as of the most recent valuation date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
plan years of a defined benefit plan. The account balances and
accrued benefits of a Participant (a) who is not a Key
Employee but who was a Key Employee in a Prior Year, or (b)
who has not been credited with at least one Hour of Service
with any employer maintaining the plan at any time during the
5-year period ending on the determination date will be
disregarded. The calculation of the top-heavy ratio, and the
extent to which distributions, rollovers, and transfers are
taken into account will be made in accordance with Section 416
of the Code and the regulations thereunder. Deductible
employee contributions will not be taken into account for
purposes of computing the top-heavy ratio. When aggregating
plans the value of account balances and accrued benefits will
be calculated with reference to the determination dates that
fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee
shall be determined under (a) the method, if any, that
uniformly applies for accrual purposes under all defined
benefit plans maintained by the Employer, or (b) if there is
no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation group
of plans plus any other plan or plans of the Employer which,
when considered as a group with the required aggregation
group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Code.
5. Required aggregation group: (a) Each qualified plan of the
Employer in which at least one Key Employee participates or
participated at any time during the determination period
(regardless of whether the Plan has terminated), and (b) any
other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Sections
401(a)(4) or 410 of the Code.
6. Determination date: For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the
first Plan Year of the Plan, the last day of that year.
7. Valuation date: For purposes of calculating the top-heavy
ratio, the valuation date shall be the last day of each Plan
Year.
8. Present value: For purposes of establishing the "present
value" of benefits under a defined benefit plan to compute
the top-heavy ratio, any benefit shall be discounted only for
mortality and interest based on the interest rate and
mortality table specified for this purpose in the defined
benefit plan.
10.09 Special Limitations for Owner-Employees
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and
the plan established for other trades or businesses must, when looked
at as a single plan, satisfy Sections 401(a) and (d) of the Code for
the employees of those trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trade or business which
is controlled must be as favorable as those provided for him under the
most favorable plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or business
if the Owner-Employee, or two or more Owner-Employees, together:
A. own the entire interest in a unincorporated trade or business, or
B. in the case of a partnership, own more than 50% of either the
capital interest or the profit interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or
more Owner-Employees, shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
<PAGE>
10.10 Inalienability of Benefits
No benefit or interest available hereunder will be subject to
assignment or alienation, either voluntarily or involuntarily. The
preceding sentence shall also apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order
is determined to be a qualified domestic relations order, as defined in
Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified domestic
relations order until January 1, 1985. However, in the case of a
domestic relations order entered before such date, the Plan
Administrator:
(1) shall treat such order as a qualified domestic relations order if
such Plan Administrator is paying benefits pursuant to such order
on such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does not
meet the requirements of Section 414(p) of the Code.
<PAGE>
NEW ENGLAND FUNDS SIMPLIFIED EMPLOYEE PENSION PLAN
UNIVERSAL SIMPLIFIED EMPLOYEE PENSION PLAN
Basic Plan Document
- -------------------------------------------------------------------------------
SECTION ONE ESTABLISHMENT AND PURPOSE OF PLAN
1.01 PURPOSE: The purpose of this Plan is to provide, in
accordance with its provisions, a Simplified Employee
Pension Plan providing benefits upon retirement for the
individuals who are eligible to participate hereunder.
1.02 INTENT TO QUALIFY: It is the intent of the Employer that
this Plan shall be for the exclusive benefit of its
Employees and shall qualify for approval under Section
408(k) of the Internal Revenue Code, as amended from time
to time (or corresponding provisions of any subsequent
Federal law at that time in effect). In case of any
ambiguity, it shall be interpreted to accomplish such
result. It is further intended that it comply with the
provisions of the Employee Retirement Income Security Act
of 1974 (ERISA) as amended from time to time.
1.03 WHO MAY ADOPT An employer who has ever maintained a
defined benefit plan which is now terminated may not
participate in this prototype Simplified Employee Pension
Plan. If, subsequent to adopting this Plan, any defined
benefit plan of the Employer terminates, the employer will
no longer participate in this prototype plan and will be
considered to have an individually designed plan.
1.04 USE WITH IRA This prototype Simplified Employee Pension
Plan must be used with an Internal Revenue Service model
IRA (Form 5305 or Form 5305-A) or an Internal Revenue
Service approved master or prototype IRA.
1.05 FOR MORE INFORMATION To obtain more information concerning
the rules governing this Plan, contact the Prototype
Sponsor listed in Section 5 of the Adoption Agreement.
SECTION TWO DEFINITIONS
2.01 ADOPTION AGREEMENT Means the document executed by the
Employer through which it adopts the Plan and thereby
agrees to be bound by all terms and conditions of the
Plan.
2.02 CODE Means the Internal Revenue Code of 1986 as amended.
2.03 COMPENSATION Compensation for the purposes of the $300
limit of Section 408(k)(2)(C) of the Code shall be
defined as Section 414(q)(7) Compensation.
For all other purposes, Compensation shall mean all of a
Participant's wages as defined in Section 3401(a) of the
Code for the purposes of income tax withholding at the
source (that is, W-2 wages) but determined without regard
to any rules that limit the remuneration included in wages
based on the nature or location of the employment or the
services performed (such as the exception for agricultural
labor in Section 3401(a)(2) of the Code).
For any Self-Employed Individual covered under the Plan,
Compensation will mean Earned Income.
Compensation shall include only that Compensation which is
actually paid to the Participant during the Plan Year.
Compensation shall include any amount which is contributed
by the Employer pursuant to a salary reduction agreement
and which is not includible in the gross income of the
Employee under Sections 125, 402(a)(8), 402(h) or 403(b)
of the Code.
The annual Compensation of each Participant taken into
account under the Plan for any year shall not exceed
$200,000. This limitation shall be adjusted by the
Secretary at the same time and in the same manner as under
Section 415(d) of the Code, except the dollar increase in
effect on January 1 of any calendar year is effective for
years beginning in such calendar year and the first
adjustment to the $200,000
<PAGE>
limitation is effected on January 1, 1990. If a Plan
determines Compensation on a period of time that contains
fewer than 12 calendar months, then the annual
Compensation limit is an amount equal to the annual
Compensation limit for the calendar year in which the
compensation period begins multiplied by the ratio
obtained by dividing the number of full months in the
period by 12.
In determining the Compensation of a Participant the rules
of Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only
the spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the
close of the year. If, as a result of the application of
such rules the adjusted $200,000 limitation is exceeded,
then (except for purposes of determining the portion of
Compensation up to the integration level if this Plan
provides for permitted disparity), the limitation shall be
prorated among the affected individuals in proportion to
each such individual's Compensation as determined under
this section prior to the application of this limitation.
In addition to other applicable limitations set forth in
the Plan, and notwithstanding any other provision of the
Plan to the contrary, for Plan Years beginning on or after
January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the
OBRA '93 annual Compensation limit. The OBRA '93 annual
Compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Internal
Revenue Code. The cost-of-living adjustment in effect for
a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined
(determination period) beginning in such calendar year. If
a determination period consists of fewer than 12 months,
the OBRA '93 annual Compensation limit will be multiplied
by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of
which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Section
401(a)(17) of the Code shall mean the OBRA '93 annual
Compensation limit set forth in this provision.
2.04 EARNED INCOME Means the net earnings from self-employment
in the trade or business with respect to which the Plan is
established, for which personal services of the individual
are a material income-producing factor. Net earnings will
be determined without regard to items not included in
gross income and the deductions allocable to such items.
Net earnings are reduced by contributions by the Employer
to a qualified plan or to a Simplified Employee Pension
Plan to the extent deductible under Section 404 of the
Code.
Net earnings shall be determined with regard to the
deduction allowed to the Employer by Section 164(f) of the
Code for taxable years beginning after December 31, 1989.
2.05 EFFECTIVE DATE Means the date the Plan becomes effective
as indicated in the Adoption Agreement.
2.06 EMPLOYEE Means any person who is a natural person employed
by the Employer as a common law employee and if the
Employer is a sole proprietorship or partnership, any
Self-Employed Individual who performs services with
respect to the trade or business of the Employer. Further,
any employee of any other employer required to be
aggregated under Section 414(b), (c), (m), or (o) of the
Code and any leased employee required to be treated as an
employee of the Employer under Section 414(n) of the Code
shall also be considered an Employee.
2.07 EMPLOYER Means any corporation, partnership or sole
proprietorship named in the Adoption Agreement and any
successor who by merger, consolidation, purchase or
otherwise assumes the obligations of the Plan. A
partnership is considered to be the Employer of each of
the partners and a sole proprietorship is considered to be
the Employer of the sole proprietor.
2.08 EMPLOYER CONTRIBUTION Means the amount contributed by the
Employer to this Plan.
2.09 IRA Means the designated Individual Retirement Account or
Individual Retirement Annuity, which satisfies the
requirements of Section 408 of the Code, and which is
maintained by a Participant with the Prototype Sponsor
(unless the Prototype Sponsor allows Participants to
maintain their IRAs with other organizations).
2.10 PARTICIPANT Means any Employee who has met the
participation requirements of Section 3.01 and who is or
may become eligible to receive an Employer Contribution.
2.11 PLAN Means this plan document plus the corresponding
Adoption Agreement as completed and signed by the
Employer.
<PAGE>
2.12 PLAN YEAR Means the calendar year or the 12 consecutive
month period which coincides with the Employer's taxable
year.
2.13 PRIOR PLAN Means a plan which was amended or replaced by
adoption of this plan document, as indicated in the
Adoption Agreement.
2.14 PROTOTYPE SPONSOR Means the entity specified in the
Adoption Agreement which sponsors this prototype Plan.
2.15 SELF-EMPLOYED INDIVIDUAL Means an individual who has
Earned Income for a Plan Year from the trade or business
for which the Plan is established; also, an individual who
would have had Earned Income but for the fact that the
trade or business had no net profits for the Plan Year.
2.16 SERVICE Means the performance of duties by an Employee for
the Employer, for any period of time, however short, for
which the Employee is paid or entitled to payment. When
the Employer maintains the Plan of a predecessor employer,
an Employee's Service will include his or her service for
such predecessor employer.
2.17 TAXABLE WAGE BASE Means the maximum amount of earnings
which may be considered wages for a year under Section
3121(a)(1) of the Code in effect as of the beginning of
the Plan Year.
SECTION THREE ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY REQUIREMENTS Except for those Employees
excluded pursuant to Section 3.02, each Employee of the
Employer who fulfills the eligibility requirements
specified in the Adoption Agreement shall, as a condition
for further employment, become a Participant. Each
Participant must establish an IRA with the Prototype
Sponsor to which Employer Contributions under this Plan
will be made.
3.02 EXCLUSION OF CERTAIN EMPLOYEES If the Employer has so
indicated in the Adoption Agreement, the following
Employees shall not be eligible to become a
participant in the Plan: (a) Those Employees
included in a unit of Employees covered by the terms of a
collective bargaining agreement, provided retirement
benefits were the subject of good faith bargaining; and
(b) those Employees who are nonresident aliens, who have
received no earned income from the Employer which
constitutes earned income from sources within the United
States.
3.03 ADMITTANCE AS A PARTICIPANT
A. Prior Plan - If this Plan is an amendment or
continuation of a Prior Plan, each Employee of the
Employer who immediately before the Effective Date
was a participant in said Prior Plan shall be a
Participant in this Plan as of said date.
B. Notification of Eligibility - The Employer shall
notify each Employee who becomes a Participant of his
or her status as a Participant in the Plan and of his
or her duty to establish an IRA with the Prototype
Sponsor to which Employer Contributions may be made.
C. Establishment of an IRA - If a Participant fails to
establish an IRA for whatever reason, the Employer
may execute any necessary documents to establish an
IRA on behalf of the Participant.
3.04 DETERMINATIONS UNDER THIS SECTION The Employer shall
determine the eligibility of each Employee to be a
Participant. This determination shall be
conclusive and binding upon all persons except as
otherwise provided herein or by law.
3.05 LIMITATION RESPECTING EMPLOYMENT Neither the fact of the
establishment of the Plan nor the fact that a common-law
employee has become a Participant shall give to that
common-law employee any right to continued employment; nor
shall either fact limit the right of the Employer to
discharge or to deal otherwise with a common-law employee
without regard to the effect such treatment may have upon
the Employee's rights under the Plan.
SECTION FOUR CONTRIBUTIONS AND ALLOCATIONS
4.01 EMPLOYER CONTRIBUTIONS
<PAGE>
A. Allocation Formula - Employer Contributions shall be
allocated in accordance with the allocation formula
selected in the Adoption Agreement. Each Employee who
has satisfied the eligibility requirements pursuant
to Section 3.01 (thereby becoming a Participant) will
share in such allocation.
If the Employer has selected the pro rata allocation
formula in the Adoption Agreement, then Employer
Contributions for each Plan Year shall be allocated
to the IRA of each Participant in the same proportion
as such Participant's Compensation (not in excess of
$200,000, indexed for cost of living increases in
accordance with Section 408(k)(8) of the Code) for
the Plan Year bears to the total Compensation of all
Participants for such year.
Employer Contributions made for a Plan Year on behalf
of any Participant shall not exceed the lesser of 15%
of Compensation or the limitation in effect under
Code Section 415(c)(1)(A) (indexed for cost of living
increases in accordance with Code Section 415(d)).
B. Integrated Allocation Formula - If the Employer has
selected the integrated allocation formula in the
Adoption Agreement, then Employer Contributions for
the Plan Year will be allocated to Participants' IRA
as follows:
Step 1 Employer Contributions will be allocated to
each Participant's IRA in the ratio that each
Participant's total Compensation bears to all
Participants' total Compensation, but not in
excess of 3% of each Participant's
Compensation.
Step 2 Any Employer Contributions remaining after
the allocation in Step 1 will be allocated to
each Participant's IRA in the ratio that each
Participant's Compensation for the Plan Year
in excess of the integration level bears to
the Compensation of all Participants in excess
of the integration level, but not in excess of
3%.
Step 3 Any Employer Contributions remaining after
the allocation in Step 2 will be allocated to
each Participant's IRA in the ratio that the
sum of each Participant's total Compensation
and Compensation in excess of the integration
level bears to the sum of all Participants'
total Compensation and Compensation in excess
of the integration level, but not in excess of
the maximum disparity rate described in the
table below.
Step 4 Any Employer Contributions remaining after
the allocation in Step 3 will be allocated to
each Participant's IRA in the ratio that each
Participant's total Compensation for the Plan
Year bears to all Participants' total
Compensation for that Plan Year.
The integration level shall be equal to the Taxable
Wage Base or such lesser amount elected by the
Employer in the Adoption Agreement.
<TABLE>
<CAPTION>
Integration Level Maximum Disparity Rate
----------------- ----------------------
<S> <C>
Taxable Wage Base (TWB) 2.7%
More than $0 but not more than X* 2.7%
More than X* of TWB but not more than 80% of TWB 1.3%
More than 80% of TWB but not more than TWB 2.4%
</TABLE>
*X mean the greater of $10,000 or 20% of TWB.
C. Timing of Employer Contribution - Employer
Contributions, if any, made on behalf of Participants
for a Plan Year shall be allocated and deposited to
the IRA of each Participant no later than the due
date for filing the Employer's tax return (including
extensions).
4.02 DEDUCTIBILITY OF CONTRIBUTIONS Contributions to the Plan
are deductible by the Employer for the taxable year with
or within which the Plan Year of the Plan ends.
Contributions made for a particular taxable year and
contributed by the due date of the Employer's income tax
return, including extensions, are deemed made in that
taxable year.
4.03 VESTING, WITHDRAWAL RIGHTS TO CONTRIBUTIONS All Employer
Contributions made under the Plan on behalf of Employees
shall be fully vested and nonforfeitable at all
times. Each Employee shall have an unrestricted
right to withdraw at any time all or a portion of
the Employer Contributions made on his or her behalf.
However, withdrawals taken are subject to the same
taxation and penalty provisions of
<PAGE>
the Code which are applicable to IRA distributions.
4.04 SIMPLIFIED EMPLOYER REPORTS The Employer shall furnish
reports, relating to contributions made under the Plan, in
the time and manner and containing the information
prescribed by the Secretary of the Treasury, to
Participants. Such reports shall be furnished at least
annually and shall disclose the amount of the contribution
made under the Plan to the Participant's IRA.
SECTION FIVE AMENDMENT OR TERMINATION OF PLAN
5.01 AMENDMENT BY EMPLOYER The Employer reserves the right to
amend the elections made or not made on the Adoption
Agreement by executing a new Adoption Agreement and
delivering a copy of the same to the Prototype Sponsor.
The Employer shall not have the right to amend any
nonelective provision of the Adoption Agreement nor the
right to amend provisions of this plan document. If the
Employer adopts an amendment to the Adoption Agreement or
plan document in violation of the preceding sentence, the
Plan will be deemed to be an individually designed plan
and may no longer participate in this prototype Plan.
5.02 AMENDMENT BY PROTOTYPE SPONSOR By adopting this Plan, the
Employer delegates to the Prototype Sponsor the power to
amend or replace the Adoption Agreement of the Plan to
conform them to the provisions of any law, regulations or
administrative rulings pertaining to Simplified Employee
Pensions and to make such other changes to the Plan,
which, in the judgement of the Prototype Sponsor, are
necessary or appropriate. The Employer shall be deemed to
have consented to all such amendments; provided however,
that no changes may be made without the consent of the
Employer if the effect would be to substantially change
the costs or benefits under the Plan. The Prototype
Sponsor shall not have the obligation to exercise or not
to exercise the power delegated to it nor shall the
Prototype Sponsor incur liability of any nature for any
act done or failed to be done by the Prototype Sponsor in
good faith in the exercise or nonexercise of the power
delegated hereunder. The Prototype Sponsor shall notify
the Employer should it discontinue sponsorship of the
Plan.
5.03 LIMITATIONS ON POWER TO AMEND No amendment by either the
Employer or the Prototype Sponsor shall reduce or
otherwise adversely affect any benefits of a
Participant or Beneficiary acquired prior to
such amendment unless it is required to maintain
compliance with any law, regulation or administrative
ruling pertaining to Simplified Employee Pensions.
5.04 TERMINATION While the Employer expects to continue the
Plan indefinitely, the Employer shall not be under any
obligation or liability to continue contributions or to
maintain the Plan for any given length of time. The
Employer may terminate this Plan at any time by
appropriate action of its managing body. This Plan shall
terminate on the occurrence of any of the following
events:
A. Delivery to the Prototype Sponsor of a notice of
termination executed by the Employer specifying the
effective date of the Plan's termination.
B. Adjudication of the Employer as bankrupt or the
liquidation or dissolution of the Employer.
5.05 NOTICE OF AMENDMENT, TERMINATION Any amendment or
termination shall be communicated by the Employer to all
appropriate parties as required by law. Amendments made by
the Prototype Sponsor shall be furnished to the Employer
and communicated by the Employer to all appropriate
parties as required by law. Any filings required by the
Internal Revenue Service or any other regulatory body
relating to the amendment or termination of the Plan shall
be made by the Employer.
5.06 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER A successor of
the Employer may continue the Plan and be substituted in
the place of the present Employer. The successor and
present Employer (or if deceased, the executor of the
estate of a deceased Self-Employed Individual who was the
Employer) must execute a written instrument authorizing
such substitution and the successor must complete and sign
a new Adoption Agreement.
SECTION SIX SALARY DEFERRAL SEP PROVISIONS
In addition to Sections 1 through 5, the provisions of this Section
6 shall apply if the Employer is an Eligible Employer and has
adopted a salary deferral Simplified Employee Pension Plan by
indicating in the Adoption
<PAGE>
Agreement that Retirement Savings Contributions are permitted.
If the Employer has so indicated in the Adoption Agreement, the
Employer agrees to permit Retirement Savings Contributions to be
made which will be contributed by the Employer to the IRA
established by or on behalf of each Contributing Participant. This
arrangement is intended to qualify as a salary reduction simplified
employee pension ("SARSEP") under Section 408(k)(6) of the Code and
the regulations thereunder.
The SARSEP portion of this Plan shall be effective upon adoption.
No Retirement Savings Contributions may be based on Compensation an
Employee could have received before adoption of the SARSEP and
execution by the Employee of a Retirement Savings Agreement.
6.100 DEFINITIONS
6.101 COMPENSATION Means Compensation as defined in Section 2.03
of the Plan and shall include any amount which is
contributed by the Employer as a Retirement Savings
Contribution pursuant to a Retirement Savings Agreement
which is not includible in the gross income of the
Employee under Section 402(h) of the Code.
6.102 CONTRIBUTING PARTICIPANT Means a person who has met the
participation requirements and who has enrolled as a
Contributing Participant pursuant to Section 6.201 and on
whose behalf the Employer is contributing Retirement
Savings Contributions.
6.103 ELIGIBLE EMPLOYER Means an Employer which: (a) has no more
than 25 Employees who are eligible to participate in the
Plan (or would have been eligible to participate if this
Plan had been maintained) at any time during the preceding
Plan Year; (b) has no leased employees within the meaning
of Section 414(n)(2) of the Code; (c) is not a state or
local government or political subdivision thereof, or any
agency or instrumentality thereof, or an organization
exempt from tax under Subtitle A of the Code; and (d) does
not currently maintain or has not maintained a defined
benefit plan, even if now terminated.
6.104 ENROLLMENT DATE Means the first day of any Plan Year, the
first day of the seventh month of any Plan Year and any
more frequent dates as the Employer may designate in a
uniform and nondiscriminatory manner.
6.105 EXCESS CONTRIBUTION Means the amount of each Highly
Compensated Employee's Retirement Savings Contributions
that exceeds the actual deferral percentage test limits
described in Section 6.303(B) of the Plan for a Plan Year.
6.106 HIGHLY COMPENSATED EMPLOYEE Means a Participant described
in Section 414(q) of the Code who during the current or
preceding year: (a) was a 5% owner of the Employer as
defined in Section 416(i)(1)(B)(i) of the Code; (b)
received Compensation in excess of $50,000, as adjusted
pursuant to Section 415(d), and was in the top-paid group
(the top 20% of Employees, by Compensation); (c) received
Compensation in excess of $75,000, as adjusted pursuant to
section 415(d); or (d) was an officer and received
Compensation in excess of 50% of the dollar limit under
Section 415 of the Code for defined benefit plans.
6.107 KEY EMPLOYEE Means any Employee or former Employee or
beneficiaries of these Employees who at any time during
the Plan Year or the four preceding Plan Years is or was:
(a) an officer of the Employer (if the Employee's annual
Compensation exceeds 50% of the dollar limitation under
Section 415(b)(1)(A) of the Code); (b) an owner of one of
the 10 largest interests in the Employer (if the
Employee's annual Compensation exceeds 100% of the dollar
limitation under Section 415(c)(1)(A) of the Code); (c) a
5% owner of the Employer as defined in Section
416(i)(1)(B)(i) of the Code; or (d) a 1% owner of Employer
(if the Employee has annual Compensation in excess of
$150,000).
6.108 RETIREMENT SAVINGS AGREEMENT Means an agreement, on a form
provided by the Employer, pursuant to which a Contributing
Participant may elect to have his or her Compensation
reduced and paid as a Retirement Savings Contribution to
his or her IRA by the Employer.
6.109 RETIREMENT SAVINGS CONTRIBUTIONS Means contributions made
by the Employer on behalf of a Contributing Participant
pursuant to Section 6.301. Retirement Savings
Contributions shall be deemed to be Employer Contributions
for purposes of (a) the contribution limits described in
Section 4.01(A) of the Plan; (b) the vesting and
withdrawal rights described in Section 4.03 of the Plan;
and (c) determining
<PAGE>
whether this Plan is a Top-Heavy Plan.
6.110 TOP-HEAVY PLAN This Plan is a Top-Heavy Plan for any Plan
Year if, as of the last day of the previous Plan Year (or
current Plan Year if this is the first year of the Plan)
the total of the Employer Contributions made on behalf of
Key Employees for all the years this Plan has been in
existence exceeds 60% of such contributions for all
Employees. If the Employer maintains (or maintained within
the prior five years) any other SEP or defined
contribution plan in which a Key Employee participates (or
participated), the contributions or account balances,
whichever is applicable, must be aggregated with the
contributions made to the Plan. The contributions (and
account balances, if applicable) of an Employee who ceases
to be a Key Employee or of an individual who has not been
in the employ of the Employer for the previous five years
shall be disregarded. The identification of Key Employees
and the top-heavy calculation shall be determined in
accordance with Section 416 of the Code and the
regulations thereunder.
6.200 CONTRIBUTING PARTICIPANT
6.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Enrollment - Each Employee who becomes a Participant
may enroll as a Contributing Participant. A
Participant shall be eligible to enroll as a
Contributing Participant on any Enrollment Date.
B. Initial Enrollment - Notwithstanding the time set
forth in Section 6.201(A) as of which a Participant
may enroll as a Contributing Participant, the
Employer shall have the authority to designate, in a
uniform and nondiscriminatory manner, additional
Enrollment Dates during the twelve month period
beginning on the Effective Date in order that an
orderly first enrollment might be completed.
6.202 MODIFICATION OF RETIREMENT SAVINGS AGREEMENT A
Contributing Participant may modify his or her Retirement
Savings Agreement to increase or decrease (within the
limits placed on Retirement Savings Contributions in the
Adoption Agreement) the amount of his or her Compensation
deferred into his or her IRA under the Plan. Such
modification may only be prospectively made effective as
of an Enrollment Date, or as of any other more frequent
date(s) if the Employer so permits in a uniform and
nondiscriminatory manner. A Contributing Participant who
desires to make such a modification shall complete, sign
and file a new Retirement Savings Agreement with the
Employer at least 30 days (or such lesser period of days
as the Employer shall permit in a uniform and
nondiscriminatory manner) before the modification is to
become effective.
6.203 WITHDRAWAL AS A CONTRIBUTING PARTICIPANT A Participant may
withdraw as a Contributing Participant as of the last date
preceding any Enrollment Date (or as of any other date if
the Employer so permits in a uniform and nondiscriminatory
manner) by revoking his or her authorization to the
Employer to make Retirement Savings Contributions on his
or her behalf. A Participant who desires to withdraw as a
Contributing Participant shall give written notice of
withdrawal to the Employer at least 30 days (or such
lesser period of days as the Employer shall permit in a
uniform and nondiscriminatory manner) before the effective
date of withdrawal. A Participant shall cease to be a
Contributing Participant upon his or her termination of
employment, or on account of termination of the Plan.
6.204 RETURN AS CONTRIBUTING PARTICIPANT AFTER WITHDRAWAL
A Participant who has withdrawn as a Contributing
Participant under Section 6.203 may not again become a
Contributing Participant until the first day of the first
Plan Year following the effective date of his or her
withdrawal as Contributing Participant.
6.300 RETIREMENT SAVINGS CONTRIBUTIONS
6.301 SALARY DEFERRAL ARRANGEMENT The Employer shall contribute
Retirement Savings Contributions on behalf of all
Contributing Participants for each Plan Year that the
following requirements are satisfied:
A. The Employer is an Eligible Employer; and
B. Not less than 50% of the Employees eligible to
participate elect to have Retirement Savings
Contributions contributed to the Plan on their
behalf.
Subject to the limits described in Section 6.303, the
amount of Retirement Savings Contributions so contributed
shall be the amount required by the Retirement Savings
Agreements of Contributing Participants.
<PAGE>
No Retirement Savings Contribution may be based on
Compensation a Participant received, or had a right to
receive, before execution of a Retirement Savings
Agreement by the Participant.
6.302 FAILURE TO SATISFY 50% PARTICIPATION REQUIREMENT If the
50% participation requirement described in Section
6.301(B)is not satisfied as of the end of any Plan Year,
all the Retirement Savings Contributions made by Employees
for the Plan Year shall be considered "Disallowed
Deferrals", i.e., IRA contributions that are not SEP-IRA
contributions. The Employer shall notify each affected
Employee, within 2 1/2 months after the end of the Plan
Year to which the Disallowed Deferrals relate, that the
deferrals are no longer considered SEP-IRA contributions.
Such notification shall specify the amount of the
Disallowed Deferrals and the calendar year of the Employee
in which they are includible in income and must provide an
explanation of applicable penalties if the Disallowed
Deferrals are not withdrawn in a timely fashion.
The notice to each affected Employee must state
specifically: (a) the amount of the Disallowed Deferrals;
(b) that the Disallowed Deferrals are includible in the
Employee's gross income for the calendar year or years in
which the amounts deferred would have been received by the
Employee in cash had he or she not made an election to
defer and that the income allocable to such Disallowed
Deferrals is includible in the year withdrawn from the
IRA; and (c) that the Employee must withdraw the
Disallowed Deferrals (and allocable income) from the
SEP-IRA by April 15 following the calendar year of
notification by the Employer. Those Disallowed Deferrals
not withdrawn by April 15 following the year of
notification will be subject to the IRA contribution
limitations of Sections 219 and 408 of the Code and thus
may be considered an excess contribution to the Employee's
IRA. Disallowed Deferrals may be subject to the 6% tax on
excess contributions under Section 4973 of the Code. If
income allocable to a Disallowed Deferral is not withdrawn
by April 15 following the year of notification by the
Employer, the income may be subject to the 10% tax on
early distributions under Section 72(t) of the Code when
withdrawn.
Disallowed Deferrals are reported in the same manner as
are Excess Contributions.
6.303 LIMITS ON RETIREMENT SAVINGS CONTRIBUTIONS
A. Maximum Amount - No Contributing Participant shall be
permitted to have Retirement Savings Contributions
made under this Plan during any calendar year in
excess of $7,000 (as indexed pursuant to Code Section
402(g)(5)). The $7,000 (indexed) limit applies to the
total elective deferrals the Contributing Participant
makes for the calendar year under this Plan and under
any cash or deferred arrangement described in Section
401(k) of the Code and any salary reduction
arrangement described in Section 403(b) of the Code.
The limit may be increased to $9,500 if the
Contributing Participant makes elective deferrals to
a salary reduction arrangement under Section 403(b)
of the Code.
Under no circumstances may an Employee=s Retirement
Savings Contributions in any calendar year exceed the
lesser of: (1) the limitation under Section 402(g) of
the Code based on all of the plans of the Employer;
or (2) 15% of his or her Compensation (less any
amount contributed by the Employer as a Retirement
Savings Contribution). Compute the amount of this 15%
limit by using the following formula:
Compensation (before subtracting Retirement
Savings Contributions) x 13.0435%.
If an Employer maintains any other SEP plan to which
non-elective SEP Employer Contributions are made for
a Plan Year, or any qualified plan to which
contributions are made for such Plan Year, then an
Employee's Retirement Savings Contribution may be
limited to the extent necessary to satisfy the
maximum contribution limitation under Section
415(c)(1)(A) of the Code.
In addition to the dollar limitation of Section
415(c)(1)(A), which is $30,000 in 1991, Employer
Contributions to this Plan, when aggregated with
contributions to all other SEP plans and qualified
plans of the Employer, generally may not exceed 15%
of Compensation (less any amount contributed by the
Employer as a Retirement Savings Contribution) for
any Employee. If these limits are exceeded on behalf
of any Employee for a particular Plan Year, that
Employee's Retirement Savings Contributions for that
year must be reduced to the extent of the excess.
B. Actual Deferral Percentage (ADP) Test Limits -
Retirement Savings Contributions by a Highly
Compensated Employee must satisfy the actual deferral
percentage (hereinafter "ADP") limitation under
Section 408(k)(6) of the Code. Amounts in excess of
the ADP limitation will be deemed Excess
<PAGE>
Contributions on behalf of the affected Highly
Compensated Employee or Employees. The ADP of any
Highly Compensated Employee who is eligible to be a
Contributing Participant shall not be more than the
product obtained by multiplying the average of the
ADPs of all non-Highly Compensated Employees who are
eligible to be Contributing Participants by 1.25. For
purposes of this Section 6.303, an Employee's ADP is
the ratio (expressed as a percentage) of his or her
Retirement Savings Contributions for the Plan Year to
his or her Compensation for the Plan Year. The ADP of
an Employee who is eligible to be a Contributing
Participant, but who does not make Retirement Savings
Contributions during the Plan Year is zero. The
determination of the ADP for any Employee is to be
made in accordance with Section 408(k)(6) of the Code
and should satisfy such other requirements as may be
provided by the Secretary of the Treasury.
C. Special Rule for Family Members - For purposes of
determining the ADP of a Highly Compensated Employee,
the Retirement Savings Contributions and Compensation
of the Employee will also include the Retirement
Savings Contributions and Compensation of any family
member. This special rule applies only if the Highly
Compensated Employee is in one of the following
groups: (a) a more than 5% owner of the Employer; or
(b) one of a group of the 10 most Highly Compensated
Employees.
The Retirement Savings Contributions and Compensation
of family members used in this special rule do not
count in computing the average of the ADPs of
non-Highly Compensated Employees.
For purposes of this special rule, a family member is
an individual who is related to a Highly Compensated
Employee as a spouse, or as a lineal ascendant or
descendant or the spouses of such lineal ascendants
or descendants in accordance with Section 414(q) of
the Code and the regulations thereunder.
6.304 DISTRIBUTION OF EXCESS RETIREMENT SAVINGS CONTRIBUTIONS To
the extent that a Contributing Participant's Retirement
Savings Contributions for a calendar year exceed the limit
described in Section 6.303(A) (i.e., the $7,000 (indexed)
limit), the Contributing Participant must withdraw the
excess Retirement Savings Contributions (and any income
allocable to such amount) by April 15 following the year
of the deferral.
6.305 DISTRIBUTION OF EXCESS CONTRIBUTIONS The Employer shall
notify each Employee, no later than 2 1/2 months following
the close of the Plan Year of the amount, if any, of any
Excess Contribution to that Employee's IRA for such Plan
Year. If the Employer does not so notify Employees by such
date, the Employer must pay a tax equal to 10% of the
Excess Contributions for the Plan Year pursuant to Section
4979 of the Code. If the Employer fails to notify
Employees by the end of the Plan Year following the Plan
Year of the Excess Contributions, the SEP no longer will
be considered to meet the requirements of Section
408(k)(6) of the Code. This means that the earnings on the
SEP are subject to tax immediately, that no more
Retirement Savings Contributions may be made under the
SEP, and that Retirement Savings Contributions of all
Employees with uncorrected Excess Contributions must be
included in their income in that year. If the SEP no
longer meets the requirements of Section 408(k)(6), then
any contribution to an Employee's IRA will be subject to
the IRA contribution limitations of Section 219 and 408 of
the Code and thus may be considered an excess contribution
to the Employee's IRA.
The Employer's notification to each affected Employee of
the Excess Contributions must specifically state in a
manner calculated to be understood by the average Plan
Participant: (a) the amount of the Excess Contributions
attributable to that Employee's Retirement Savings
Contributions; (b) the Plan Year for which the Excess
Contributions were made; (c) that the Excess Contributions
are includible in the affected Employee's gross income for
the calendar year in which such Excess Contributions were
made; and (d) that the Employee must withdraw the Excess
Contributions (and allocable income) from the IRA by April
15 following the year of notification by the Employer.
Those Excess Contributions not withdrawn by April 15
following the year of notification will be subject to the
IRA contribution limitations of Sections 219 and 408 of
the Code for the preceding calendar year and thus may be
considered an excess contribution to the Employee's IRA.
Such excess contributions may be subject to the 6% tax on
excess contributions under Section 4973 of the Code. If
income allocable to an Excess Contribution is not
withdrawn by April 15 following the year of notification
by the Employer, the income may be subject to the 10% tax
on early distributions under Section 72(t) of the Code
when withdrawn. However, if the Excess Contributions (not
including allocable income) total less than $100, then the
Excess Contributions are includible in the Employee's
gross income in the year of notification. Income allocable
to the Excess Contributions is includible in the year of
withdrawal from the IRA.
<PAGE>
6.306 DETERMINATION OF INCOME For purposes of Sections 6.302,
6.304 and 6.305, the income allocable to Disallowed
Deferrals, excess Retirement Savings Contributions or
Excess Contributions for a year shall be determined by
multiplying the income earned on the IRA for the period
which begins on the first day of such year and ends on the
date of distribution from the IRA by a fraction, the
numerator of which is the Disallowed Deferral, excess
Retirement Savings Contribution or Excess Contribution for
such year and the denominator of which is the sum of the
account balance of the IRA as of the beginning of such
year and the total contributions made to the IRA for such
year.
6.307 RESTRICTION ON TRANSFERS AND WITHDRAWALS The Employer
shall notify each Contributing Participant that, until the
earlier of 2 1/2 months after the end of a particular Plan
Year or the date the Employer notifies its employees that
the actual deferral percentage limitations have been
calculated, any transfer or distribution from the
Contributing Participant's IRA of Retirement Savings
Contributions (or income on these contributions)
attributable to Retirement Savings Contributions made
during that Plan Year will be includible in income for
purposes of Sections 72(t) and 408(d)(1) of the Code.
6.308 ALLOCATION OF RETIREMENT SAVINGS CONTRIBUTIONS Retirement
Savings Contributions made on behalf of Contributing
Participants for a Plan Year shall be allocated and
deposited to the IRA of each Contributing Participant by
the Employer as soon as is administratively feasible.
6.400 SPECIAL RULES FOR TOP-HEAVY PLANS
6.401 MINIMUM ALLOCATION The following mandatory minimum
allocation applies when this Plan is a Top-Heavy Plan:
Unless another plan of the Employer is designated in the
space below to satisfy the top-heavy requirements of
Section 416 of the Code, each year this Plan is a
Top-Heavy Plan, the Employer will make a minimum
contribution to the IRA of each Participant who is not a
Key Employee, which, in combination with other
non-elective contributions, if any, is equal to the lesser
of 3% of such Participant's Compensation or a percentage
of Compensation equal to the percentage of Compensation at
which elective and non-elective contributions are made
under the Plan for the Plan Year for the Key Employee for
whom such percentage is the largest.
The top-heavy minimum will be met in the following plan:
--------------------------------------------------------
--------------------------------------------------------
(If applicable, name the plan other than this Plan in
which the minimum top-heavy contribution will be made.)
6.402 RETIREMENT SAVINGS CONTRIBUTIONS CANNOT BE USED FOR
MINIMUM ALLOCATION For purposes of satisfying the minimum
allocation requirement of Section 416 of the Code,
Retirement Savings Contributions contributed for the
benefit of Employees who are not Key Employees may not be
used to satisfy the minimum allocation requirement.
#409 (1/94)A92 1995 Universal Pensions, Inc., Brainerd, MN 56401
<PAGE>
[Logo]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
INDIVIDUAL
- -------------------
RETIREMENT
- -------------------
ACCOUNT
- -------------------
PLAN AND DISCLOSURE
STATEMENT
- ----------------------------------------------------------------------------
WHAT'S INSIDE . . . .
* SUMMARY QUESTIONS & ANSWERS ....................................... P. 1
* CUSTODIAL ACCOUNT AGREEMENT ....................................... P. 2
* INFORMATION ON YOUR INDIVIDUAL RETIREMENT ACCOUNT ................. P. 8
* INTERNAL REVENUE SERVICE LETTER ................................... P.13
- ----------------------------------------------------------------------------
<PAGE>
Q. HOW MUCH CAN I CONTRIBUTE TO MY IRA?
A. The Tax Reform Act of 1986 ("TRA-86") did not change the IRA contribution
limits. For each year prior to the year in which you attain age seventy and
one-half (70 1/2), you can still contribute up to the lesser of $2,000 or
100% of your compensation (earned income, if you are self-employed). However,
as a result of the new limits on deductibility, all or a portion of your
contribution may not be deductible.
Q. WHEN CAN I MAKE A CONTRIBUTION TO AN IRA?
A. You may make a contribution to your existing IRA or establish a new IRA for
a taxable year up to April 15th of the following year.
Q. CAN I MAKE A CONTRIBUTION TO A SEPARATE IRA FOR MY SPOUSE?
A. TRA-86 liberalized the requirements for making contributions to a separate
spousal IRA. For each year prior to the year in which your spouse attains age
seventy and one-half (70 1/2), you can now make a contribution to a separate
IRA for your spouse, regardless of whether your spouse had any compensation
or earned income in that year. To make an IRA contribution for your spouse
you must file a joint tax return and your spouse must elect on the return to
be treated as having no compensation or earned income for that year. The
limits of the amount you can contribute have not changed. The aggregate
amount of your contribution to both IRA's cannot exceed the lesser of $2,250,
or 100% of your compensation (earned income, if you are self-employed). You
must set up a separate IRA for your spouse and no more than the lesser of
$2,000, or 100% of joint earned income may be deposited in any one account.
Q. HOW DO I KNOW IF MY CONTRIBUTION IS TAX DEDUCTIBLE?
A. The deductibility of your contribution depends upon whether you, or, if
applicable, your spouse, is an active participant in an employer-sponsored
retirement plan. If neither you nor your spouse are an active participant,
the entire contribution to your IRA and, if applicable, your spouse's IRA is
deductible.
Q. WHAT PORTION OF MY CONTRIBUTION IS DEDUCTIBLE IF EITHER MY SPOUSE OR I AM
AN ACTIVE PARTICIPANT IN AN EMPLOYER-SPONSORED RETIREMENT PLAN?
A. The portion of your contribution that is deductible depends upon your filing
status and the amount of your Adjusted Gross Income ("AGI"). If you are
single and your AGI does not exceed $25,000; or if you are married, filing
jointly and your AGI does not exceed $40,000; the entire contribution to your
IRA and, if applicable, your spouse's IRA will be deductible. If you are
single and your AGI exceeds $35,000; or if you are married, filing jointly
and your AGI exceeds $50,000, the entire contribution to your IRA and, if
applicable, your spouse's IRA will be nondeductible. If you are married but
live apart from your spouse, filing separately and your spouse is an active
participant but you are not, the entire contribution to your IRA will be
deductible. If you are an active participant with an AGI of $10,000 or more
and you are married, filing separately, the entire contribution to your IRA
will be nondeductible.
Q. WHAT HAPPENS IF I CONTRIBUTE MORE THAN I'M ALLOWED TO MY IRA?
A. The maximum allowable contribution you can make to an IRA is $2,000 or 100%
of earned income, whichever is less. Any amounts contributed to the IRA in
excess of the maximum allowable contribution will be considered an "excess
contribution." An excess contribution is subject to a nondeductible excise
tax of 6% for each year it remains in the IRA. This is true whether the
excess contribution is deductible or nondeductible.
Q. HOW CAN I CORRECT AN EXCESS CONTRIBUTION?
A. Excess contributions may be corrected without paying a 6% penalty, provided
you withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your tax return for the year for which you
made the excess contribution. A deduction should not be taken for any excess
contributions. Earnings on any excess contribution withdrawn by this method
must be withdrawn along with the amount of the contribution. These earnings
must be included in your income for the tax year in which the contribution
was made.
Q. HOW ARE AMOUNTS DISTRIBUTED FROM MY IRA GOING TO BE TAXED?
A. Amounts distributed to you are includible in your gross income in the
taxable year that you receive them unless considered a return of
nondeductible contributions, and are then taxable as ordinary income. Since
the purpose of the IRA is to accumulate funds for retirement, your receipt or
use of any portion of this IRA before you attain age 59 1/2 generally will be
considered as an early withdrawal and subject to a 10% penalty tax unless the
distribution was a result of death or disability. TRA-86 has added an
additional exception to the early withdrawal rule. The 10% penalty tax for
early withdrawal will not apply if the distribution is part of a scheduled
series of substantially equal periodic payments for your life (or the joint
lives of you and your beneficiary) or your life expectancy (or the joint life
expectancy of you and your beneficiary). If there is an adjustment to the
scheduled series of payments, the 10% penalty tax may apply. For example, if
you begin receiving payments at age 50 under a distribution method which
provides for substantially equal payments over your life expectancy, and at
age 58 you elect to receive the remaining amount in a lump sum, the 10%
penalty tax will apply to the lump sum and to the amounts previously
distributed to you prior to age 59 1/2.
Q. HOW ARE MY DISTRIBUTIONS FROM MY IRA REPORTED?
A. The custodian will report all distributions to the IRS on a form 1099R.
This report will include a description of the type of distribution (e.g.
premature, regular, rollover, etc.) For reporting purposes, a direct
transfer of assets to a successor custodian or trustee shall not be
considered a distribution.
Q. CAN I ROLL OVER A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S RETIREMENT PLAN
INTO AN IRA?
A. If you receive an eligible distribution from a tax-qualified retirement plan
as a result of termination of employment, plan discontinuance or retirement,
it may be deposited into your IRA. Distributions from qualified plans (other
than the return of Non-deductible Employee Contributions) must be "rolled
over" into an IRA within 60 days of receipt from the other qualifed plan in
order to continue their tax-deferred status.
Q. WHAT ARE THE WITHHOLDING REQUIREMENTS WHICH APPLY TO DISTRIBUTIONS MADE
AFTER JANUARY 1, 1993?
A. Generally, a plan making a distribution after January 1, 1993 may be required
to withhold 20% of the "eligible rollover amount." For most kinds of
distributions, that means that unless the distribution is made directly from
the distributing plan to the new plan or IRA, or is paid to you in a check
made payable to the new plan or IRA, the distributing plan will be required
to withhold 20% of the total amount of the distribution.
Q. CAN I ROLL OVER A PART OF A DISTRIBUTION I RECEIVE FROM MY EMPLOYER'S PLAN?
A. Yes it is possible to roll over, tax free, any portion of a distribution
from an employer plan without rolling over the entire amount distributed.
Amounts you receive which are not paid directly from an employer plan to a
new plan or IRA may be subject to tax and withholding, as noted above.
Q. ONCE I HAVE ROLLED OVER THIS DISTRIBUTION INTO AN IRA, CAN I SUBSEQUENTLY
ROLL OVER THESE AMOUNTS INTO ANOTHER QUALIFIED RETIREMENT PLAN?
A. Yes. Part or all of a qualifed total distribution received from a qualified
plan may be transferred to another qualifed plan through the medium of an
IRA. However, the IRA must have no assets other than those which were
previously distributed to you from the qualified plan. Specifically, the IRA
cannot contain any regular annual IRA contributions. Also, the new qualified
plan must provide for the acceptance of these amounts.
Q. HOW FREQUENTLY CAN I ROLL OVER ASSETS FROM MY IRA TO ANOTHER IRA?
A. You may "roll over" distributions from an IRA only once in any 365-day
period. This rule applies to each individual IRA. Further, if you roll over
assets from a qualified plan to an IRA you may subsequently roll over to
another IRA.
PLEASE REFER TO IRS PUBLICATION 590 FOR MORE INFORMATION ABOUT YOUR IRA
NEW ENGLAND FUNDS, L.P.
INDIVIDUAL RETIREMENT ACCOUNT
PROTOTYPE
The Custodial Account Agreement ("Agreement") including the Adoption Agreement
executed by the Custodian and the Depositor constitutes a Custodial Account for
the purpose of qualifying as an Individual Retirement Account under section
408(a) of the Internal Revenue Code of 1986.
ARTICLE I
GENERAL
1.01 INTERPRETATION AND ADMINISTRATION. The Agreement is intended to meet the
requirements of the Internal Revenue Code ("IRC") relating to individual
retirement accounts and shall be interpreted and administered in a manner
consistent with such requirements.
1.02 AGREEMENT FOR EXCLUSIVE BENEFIT OF DEPOSITOR. In no circumstances shall any
part of the corpus or income of the Agreement be used for or diverted to
purposes other than for the exclusive benefit of the Depositor or his
Beneficiary.
1.03 DEPOSITOR'S RIGHTS TO CONTRIBUTIONS NONFORFEITABLE. The right of the
Depositor to or derived from contributions made shall be nonforfeitable at
the time such contribution is paid to the Agreement.
1.04 GOVERNING STATE. The Agreement established hereunder shall be governed by
the law of the State in which the Custodian is located.
1.05 SPONSOR. New England Funds, L.P. is the sponsoring organization of this
Individual Retirement Account. New England Funds, L.P. shall mean the
broker-dealer subsidiary of New England Investment Companies, L.P.
ARTICLE II
CONTRIBUTIONS AND ROLLOVERS
2.01 CONTRIBUTION REQUIREMENTS.
A. If an individual retirement account is established, whether alone or as
part of a Simplified Employee Pension ("SEP"), the total contribution to
such account by the Depositor for his taxable year must be in cash and
shall not exceed the lesser of $2,000 or 100% of the Depositor's
compensation for such year.
B. If individual retirement accounts are established for the benefit of an
individual who receives compensation and his non-employed spouse, the
total contribution by the Depositors to both accounts for their taxable
year must be in cash and shall not exceed the lesser of $2,250 or 100%
of the compensation of the employed Depositor for such year. Provided,
however, that no contribution made to the separate account of either
spouse may exceed $2,000 for the taxable year.
C. If an individual retirement account is established for the investment of
contributions to a Simplified Employee Pension (SEP) described in
section 408(k) of the Internal Revenue Code, the total contribution by
the Depositor's employer to such account for the Depositor's taxable
year shall not exceed the lesser of $22,500 or 15% of the Depositor's
compensation (not in excess of the first $150,000), or such larger
amount as may be prescribed by law for such year.
D. If an individual retirement account is established for the investment of
contributions to a Salary Reduction Simplified Employee Pension (SARSEP)
described in section 408(k) of the IRC, the total contribution to the
Depositor's account for the taxable year shall not exceed the employer
contribution described in subsection C. increased by an employee
elective deferral amount not to exceed $9,240 (as adjusted annually per
IRC section 415(d)).
"Compensation" means wages, salaries, professional fees, or other amounts
derived from or received for personal services actually rendered
(including, but not limited to commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips, and bonuses) and includes earned income, as defined in
section 401(c)(2) (reduced by the deduction the self employed individual
takes for contributions made to a Keogh plan). Compensation does not
include amounts derived from or received as earnings or profits from
property (including but not limited to interest and dividends) or amounts
not includible in gross income. Compensation also does not include any
amount received as a pension or annuity or as deferred compensation. The
term "compensation" shall include any amount includible in the individual's
gross income under section 71 with respect to a divorce or separation
instrument described in subparagraph (A) of section 71(b)(2).
2.02 ROLLOVERS. The provisions of Section 2.01 notwithstanding, a Depositor may
make a contribution which exceeds such limits provided that the Depositor
warrants that the amount contributed is a rollover contribution described
in Internal Revenue Code section 402(a)(5), 402(a)(7), 403(a)(4), 403(b)
(8), or 408(d)(3) relating to qualified plans, individual retirement
accounts and individual retirement annuities and is contributed hereto
within sixty (60) days of receipt by the Depositor.
In the event that the Depositor elects to make a rollover contribution
attributable to a distribution from an employer plan qualified under Code
section 401(a), the Depositor shall have full discretion as to (a) whether
such a contribution shall be made to an IRA containing regular annual
contributions made pursuant to Section 2.01, (b) whether to make subsequent
regular annual contributions to an IRA originally funded solely with
rollover contributions attributable to distributions from a plan qualified
under Code section 401(a), or (c) whether to maintain an IRA established
with a rollover contribution attributable to a distribution from a plan
qualified under section 401(a) as a separate IRA, not commingled with
regular annual contributions pursuant to Section 2.01. The Custodian shall
be under no duty to question any direction of the Depositor regarding any
order to commingle rollover and regular annual contributions, nor shall the
Custodian be liable for any loss or damage which may arise from any
subsequent loss of portability of such an employer plan rollover
contribution to another employer plan qualified under Code section 401(a).
ARTICLE III
DEPOSITOR'S ACCOUNT AND INVESTMENTS
3.01 As used in this Agreement, the following terms shall have the following
meanings:
"Securities Account" shall mean an account consisting of shares of New
England Funds which are distributed by New England Funds, L.P.
"Insurer" shall mean the New England Mutual Life Insurance Company of
Boston, Massachusetts.
"Policy" shall mean an annuity contract issued by the Insurer. Such
policies shall not provide for fixed premiums. No portion of a Depositor's
Account shall be invested in life insurance contracts.
"Savings Account" shall mean an interest bearing deposit in the Custodian's
banking department of a type made available by the Custodian from time to
time for investment hereunder, and which is intended by the Depositor as
either (i) a relatively permanent investment, or (ii) an interim investment
pending use of the deposit to invest in Policies or a Securities Account.
3.02 DEPOSITOR'S ACCOUNT. For each type of account designated in the Adoption
Agreement, the Custodian shall establish an account to which shall be
credited all contributions made for the Depositor according to the
direction of the Depositor under Section 3.03. When the term "Depositor's
Account" is used in the Agreement, it shall refer to all the accounts
maintained for the Depositor under the Agreement.
The Depositor's Account shall include all assets held by the Custodian or
by the Insurer on behalf of the Depositor, including Securities Accounts,
Policies, Savings Accounts, and uninvested funds.
When the Adoption Agreement is checked for spousal accounts, a separate
Depositor Account will be opened and maintained in each spouse's name.
Contributions made on behalf of each spouse will be credited to that
spouse's separate account. A spouse for whom the Agreement is established
shall be the sole owner of all amounts in his Depositor's Account and shall
have the right to direct the investments in his Depositor's Account in
accordance with Sections 3.03 and 3.05. When any provision of the Agreement
gives the Depositor a right, option or privilege, such provision shall
extend to the spouse when the Agreement is established for a spouse.
3.03 INVESTMENT OF FUNDS. The Custodian shall receive and invest contributions
made by or on behalf of the Depositor and shall invest and reinvest thereto
without distinction between principal and income. No portion of the
Agreement assets shall be invested in life insurance contracts or
collectibles within the meaning of Code section 408(m), nor may the assets
of the Agreement be commingled with other property except in a common trust
fund or a common investment fund. The Custodian shall invest only in
Securities Accounts, Policies, and Savings Accounts and may hold amounts
uninvested without liability for interest thereon pursuant to Section
5.02(D).
A. All investments acquired by the Custodian under any Securities Account
or Savings Account shall be registered in the name of Custodian (with or
without identifying Depositor) or of its nominee (and the same nominee
may be used with respect to assets of other investors whether or not
held under agreements similar to this one or in any fiduciary capacity
whatsoever); provided, however, that the Custodian may hold any security
in bearer form or by or through a central clearing corporation
maintained by institutions active in the national securities markets;
provided further, however, that (i) the books and records of the
Custodian shall show that all such investments are part of the Custodial
Account; (ii) each Custodial Account shall be separate and distinct;
(iii) a separate account thereof shall be maintained by the party having
actual custody of such assets; and (iv) the assets thereof shall be held
in individual or bulk segregation in such party's vaults or in
depositories approved by the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
B. Policy Ownership. Each Policy shall be a contract between the Custodian
and the Insurer. The Policy shall name the Custodian as owner, reserving
to it all rights, options and benefits provided by the Policy or
permitted by the Insurer except the right to change the Beneficiary
shall be exercisable by the Depositor.
C. Supplemental Agreement. A Disability Benefit Agreement (waiver of
premium in the event of disability), if available from the Insurer, may
be added to a Policy, provided that the additional cost of such
Agreement together with the annual contribution for the Depositor shall
not exceed the amounts specified in Section 2.01. The payment of
benefits from such agreement shall in no sense or manner or for any
purpose be considered or deemed a distribution by or through the
Agreement.
3.04 DIVIDENDS AND GAINS. Dividends which may become payable under a Policy
shall be held in the Depositor's Account to provide additional benefits.
Dividends and capital gains or other distributions received under any
Securities Account held for a Depositor's Account shall be reinvested in
the Securities Account in accordance with the written direction by the
Depositor. The shares so received upon such reinvestment shall be credited
to such Depositor's Account. All interest earned on a Savings Account shall
be credited as a deposit thereto. Notwithstanding the foregoing, a
Depositor who has attained age 59 1/2 may request distribution of dividends
and gains in accordance with the provisions of Article IV.
3.05 DEPOSITOR TO DIRECT INVESTMENTS. The Depositor shall direct the Custodian
with respect to the investment of the Depositor's Account, except that such
investments shall be limited to Securities Accounts, Policies, and Savings
Accounts. The Custodian shall have no duty to look beyond instructions
received by it from the Depositor and shall in no event be responsible for
any loss incurred with respect to any investments made or retained in
accordance with the directions of the Depositor.
3.06 CHANGES IN INVESTMENT. The Depositor may direct the Custodian in writing to
change investments held by the Custodian, both with respect to investments
already made and with respect to investments to be made with contributions
currently due. The Custodian shall make such changes in investment as soon
as reasonably possible after receiving written direction from the
Depositor. The Custodian shall not be responsible for any investment gains
or losses in the interim.
3.07 INFORMATION TO DEPOSITOR. When any portion of the Depositor's Account is
invested in Securities Accounts or variable annuity Policies, the Custodian
shall in accordance with requirements of applicable law, deliver or cause
to be delivered to the Depositor copies of any notices of shareholders'
meetings, proxies and proxy-soliciting materials, prospectuses, and annual
and other reports to shareholders, which have been received by the
Custodian with respect to such investments.
3.08 VOTING POWERS. With respect to Securities Accounts and variable annuity
Policies each Depositor may direct the Custodian as to the manner in which
any shares (including fractional shares) or units held by the Custodian for
his Depositor's Account shall be voted with respect to any matters being
voted upon by the entity which issued such shares or units. All such
directions by the Depositor shall be in writing on a form approved by the
Custodian, signed by the Depositor and delivered to the Custodian within
the time prescribed by it. The Custodian shall not vote in the absence of
such directions.
ARTICLE IV
DISTRIBUTIONS
4.01 DISTRIBUTIONS AFTER AGE 59 1/2. A Depositor who has attained the age of 59
1/2 may receive a distribution of dividends and gains as they accrue or of
other amounts in the account by directing the Custodian in writing to make
such distributions and furnishing such proof of age as the Custodian may
require.
4.02 COMMENCEMENT OF REQUIRED DISTRIBUTIONS. The entire interest (value of the
account) of the Depositor will be distributed or commence to be
distributed, no later than the first day of April following the calendar
year in which such individual attains age 70 1/2 (required beginning date),
in equal or substantially equal amounts, over (a) the life of the
Depositor, or the lives of the Depositor and his or her designated
beneficiary, or (b) a period certain not extending beyond the life
expectancy of the Depositor, or the joint and last survivor expectancy of
the Depositor and his or her designated beneficiary.
4.03 MINIMUM AMOUNTS TO BE DISTRIBUTED. If the Depositor's entire interest is to
be distributed in other than a lump sum, then the amount to be distributed
each year (commencing with the required beginning date and each year
thereafter) must be at least equal to the quotient obtained by dividing the
Depositor's benefit by the applicable life expectancy.
For calendar years beginning before January 1, 1989, if the Depositor's
spouse is not the designated beneficiary, the method of distribution
selected must assure that at least 50% of the present value of the amount
available for distribution is paid within the life expectancy of the
Depositor.
For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with the first year for which
distributions are required and then for each succeeding calendar year,
shall not be less than the quotient obtained by dividing the Depositor's
benefit by the lesser of (1) the applicable life expectancy or (2) if the
Depositor's spouse is not the designated beneficiary, the applicable
divisor determined from the table set forth in Q&A-4 of section 1.401(a)
(9)-2 of the Proposed Income Tax Regulations. Distributions after the death
of the Depositor shall be calculated using the applicable life expectancy
as the relevant divisor without regard to proposed regulations section
1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the participant by the time distributions are required
to begin, life expectancies shall be recalculated annually. Such election
shall be irrevocable as to the participant and shall apply to all
subsequent years. The life expectancy of a non-spouse beneficiary may not
be recalculated; instead, life expectancy will be calculated using the
attained age of such beneficiary during the calendar year in which
distributions are required to begin pursuant to this section, and payments
for subsequent years shall be calculated based on such life expectancy
reduced by one for each calendar year which has elapsed since the calendar
year life expectancy was first calculated.
If the individual retirement arrangement is an annuity, distributions shall
be made in accordance with the requirements of section 401(a)(9) of the
Code and the regulations thereunder.
4.04 DISTRIBUTION PROCEDURE. Shortly before the time benefits are to commence
under Section 4.02, the Depositor shall advise the Custodian or the Insurer
of the arrangements to be made effective for the payment of benefits. Such
benefits may be paid entirely by the Custodian or by the Insurer, or in
part by each of them, and the Custodian shall have full authority to carry
out the instructions of the Depositor for the payment of such benefits in a
fixed or variable amount. In order to perform the foregoing, the Custodian
shall have full authority to surrender a Policy or to transfer amounts held
by it to the Insurer for settlement under a Policy. Any interest in a
Securities Account shall be transferred to the Depositor or converted into
cash and the value distributed to the Depositor. Any credit balance in
Savings Account shall be distributable in a lump sum.
Before making any distribution upon the death of a Depositor, the Custodian
shall be furnished with any and all certificates, tax waivers and other
documents requested in its discretion by the Custodian.
4.05 DISTRIBUTIONS UPON DEATH OF DEPOSITOR.
A. Distributions beginning before death. If the Depositor dies after
distribution of his or her interest has begun, the remaining portion of
such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the Depositor's
death.
B. Distributions beginning after death. If the Depositor dies before
distribution of his or her interest begins, the Depositor's entire
interest will be distributed in accordance with one of the following
four provisions:
(1) The Depositor's entire interest will be paid by December 31 of the
calendar year containing the fifth anniversary of the Depositor's
death.
(2) If the Depositor's interest is payable to a beneficiary designated
by the Depositor and the Depositor has not elected (1) above, then
the entire interest will be distributed over the life or over a
period certain not greater than the life expectancy of the
designated beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Depositor died. The designated beneficiary may elect at any time to
receive greater payments.
(3) If the designated beneficiary of the Depositor is the Depositor's
surviving spouse, the spouse may elect to receive equal or
substantially equal payments over the life or life expectancy of the
surviving spouse commencing at any date prior to the later of (1)
December 31 of the calendar year immediately following the calendar
year in which the Depositor died and (2) December 31 of the calendar
year in which the Depositor would have attained age 70 1/2. Such
election must be made no later than the earlier of December 31 of
the calendar year containing the fifth anniversary of the
Depositor's death or the date distributions are required to begin
pursuant to the preceding sentence. The surviving spouse may
accelerate these payments at any time, i.e., increase the frequency
or amount of such payments.
(4) If the designated beneficiary is the Depositor's surviving spouse,
the spouse may treat the account as his or her own individual
retirement arrangement (IRA). This election will be deemed to have
been made if such surviving spouse makes a regular IRA contribution
to the account, makes a rollover to or from such account, or fails
to elect any of the above three provisions.
C. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the Depositor's death, unless
otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually.
Such election shall be irrevocable as to the surviving spouse and shall
apply to all subsequent years. In the case of any other designated
beneficiary, life expectancies shall be calculated using the attained
age of such beneficiary during the calendar year in which distributions
are required to begin pursuant to this section, and payments for any
subsequent calendar year shall be calculated based on such life
expectancy reduced by one for each calendar year which has based on such
life expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
D. For purposes of this requirement, any amount paid to a child of the
Depositor will be treated as if it had been paid to the surviving spouse
if the remainder of the interest becomes payable to the surviving spouse
when the child reaches the age of majority.
4.06 BENEFICIARY DESIGNATION. The term "Beneficiary" means one or more
recipients designated to receive a payment upon the death of the Depositor.
With respect to any Policy on the life of a Depositor, the proceeds shall
be paid to the Beneficiary designated in the Policy. With respect to
Securities Accounts and Savings Accounts, the amount remaining in the
Depositor's Account shall be distributed to the Beneficiary last designated
by the Depositor in writing on a form acceptable to the Custodian. Such
designation shall not take effect until it is received by the Custodian.
However, in the event no such designation is made or, if made, to the
extent such designation does not effectively dispose of the Depositor's
Account, the term "Beneficiary" shall mean the Depositor's estate.
4.07 DISTRIBUTION UPON DISABILITY OF DEPOSITOR. If the Depositor shall become
disabled to the extent that he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long,
continued and indefinite duration as documented by a physician's statement,
the Depositor may direct the Custodian to transfer the Depositor's Account
to the disabled Depositor in such manner as directed by the Depositor
provided, however, such manner does not conflict with Section 4.02 and
4.03.
4.08 DISTRIBUTION IN PERIODIC PAYMENTS FOR LIFE. The Depositor may elect to
receive distributions at least annually as part of a series of
substantially equal periodic payments (if not less than $100) over the life
or life expectancy of the Depositor or the joint lives (or joint life
expectancies) of the Depositor and his or her Beneficiary.
4.09 DISTRIBUTION TO DEPOSITOR. Except in the case of the Depositor's death,
disability or attainment of age 59 1/2, the Custodian shall be notified by
the Depositor as to the disposition of the amount distributed. The
Depositor must direct the Custodian to commence distribution in accordance
with Section 4.02.
4.10 DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Depositor shall contribute, in
any calendar year, an amount greater than that which may be claimed as an
allowable deduction under the Code, the Depositor shall be entitled to
withdraw the excess, plus earnings thereon, before the date for filing of
the Depositor's federal income tax return, plus extensions.
ARTICLE V
CUSTODIAN
5.01 CUSTODIAN. "Custodian" shall mean the State Street Bank and Trust Company
or the Custodian named on the Adoption Agreement, and any successor
Custodian.
5.02 PROVISIONS REGARDING CUSTODIAN.
A. The Agreement shall take effect only when accepted and signed by the
Custodian and Depositor. As directed, the Custodian shall then open and
maintain a separate custodial account for the Depositor for each type of
individual retirement account designated in the Adoption Agreement and
invest the initial contribution hereunder as directed by the Depositor.
The Custodian shall not accept annual contributions in excess of the
amounts specified in Section 2.01 (or such other amounts as may be
permitted under the Internal Revenue Code of 1986 as amended), unless
the same is designated by the Depositor as a rollover contribution as
provided in Section 2.02.
B. The Depositor may direct the Custodian to establish another account for
him under the Agreement or may redesignate the account he had originally
designated in this adoption Agreement.
C. When there is more than one account under the Agreement the Depositor
shall direct the Custodian to which account each contribution shall be
credited.
D. The Custodian shall invest subsequent contributions as directed.
However, if any such written instructions are not received as required,
or if received, are in the opinion of Custodian unclear, the Custodian
may hold or return all or a portion of the contribution uninvested
without liability for loss of income or appreciation, and without
liability for interest, pending receipt of written instructions or
clarification. The Custodian does not undertake to render any investment
advice whatsoever to the Depositor.
E. The Custodian assumes (and shall have) no responsibility to make any
distribution unless and until such instructions specify the occasion for
such distribution, the elected manner of distribution, and any
declaration required by Section 4.08. Also, before making any such
distribution or before honoring any assignment of a Depositor's Account,
the Custodian shall be furnished with any and all applications,
certificates, tax waivers, signature guarantees, and other documents
(including proof of any legal representative's authority) deemed
necessary or advisable by the Custodian.
5.03 RECORDS OF TRANSACTIONS. The Custodian shall keep adequate records of
transactions it is required to perform hereunder. Not later than sixty (60)
days after the close of each calendar year or after the Custodian's
resignation or removal pursuant to Section 5.07(A), the Custodian shall
render to the Depositor a written report or reports reflecting the
transactions effected by it during such period and the assets of the
Agreement (other than Policies) at the close of the period, using such
information as is reasonably available to it. Sixty (60) days after
rendering such report(s), the Custodian shall be forever released and
discharged (to the extent permitted by law) from all liability and
accountability to anyone with respect to its acts and transactions shown in
or reflected by such report(s), except with respect to those as to which
the recipient of such report(s) shall have filed written objections with
the Custodian within the latter such sixty (60) day period.
5.04 DUTIES OF CUSTODIAN. Except as provided in Section 3.03, the Custodian
shall be an agent for the Depositor to receive and invest contributions
directed by the Depositor, hold and distribute such investments, and keep
adequate records and report thereon, all in accordance with this Agreement.
Custodian may perform any of its administrative duties through other
persons designated by the Custodian from time to time, except that the
ownership of the assets shall be as prescribed in Section 3.03 and 3.07 and
Custodian intends initially to delegate all such duties to its
partially-owned subsidiary Boston Financial Data Service, Inc., but no such
delegation or future change therein shall be considered as an amendment of
this Agreement. Custodian shall not be liable (and assumes no
responsibility) for the collection of contributions, the deductibility of
any contribution or its propriety under this Agreement, the purpose or
propriety of any distribution or the tax treatment of any distribution
ordered by the Depositor or the Depositor's failure to commence
distribution in accordance with Article IV, which matters are the
responsibility of the Depositor.
5.05 INDEMNIFICATION. To the extent permitted by law, the Depositor shall always
fully indemnify Custodian and save it harmless from any and all liability
whatsoever which may arise in connection with this Agreement and matters
which it contemplates, except that which arises due to Custodian's
negligence or willful misconduct. Custodian shall not be obligated or
expected to commence or defend any legal action or proceeding in connection
with Agreement or such matters unless agreed upon by Custodian and
Depositor and unless fully indemnified for so doing to Custodian's
satisfaction.
5.06 RELIANCE ON INSTRUCTIONS. Custodian may conclusively rely upon and shall
not be responsible for acting upon any written order from the Depositor or
any other notice, request, consent, certificate, or other instrument or
paper believed by it to be genuine and to have been properly executed, and
so long as it acts in good faith, in taking or omitting to take any other
action in reliance thereon, and shall have no further duty or inquiry.
5.07 RESIGNATION OR REMOVAL OF CUSTODIAN.
A. The Custodian may resign at any time upon at least thirty (30) days
prior notice in writing to the Depositor, and may be removed by the
Depositor at any time upon at least thirty (30) days prior notice in
writing to the Custodian. Upon such resignation or removal, the
Depositor shall appoint a successor Custodian to serve under this
Agreement. Upon receipt by the Custodian of written acceptance of such
appointment by the successor Custodian, the Custodian shall transfer to
such successor the assets of the Agreement and all necessary records (or
copies thereof) pertaining thereto, provided that (if so requested by
Custodian) any successor Custodian agrees not to dispose of any such
records without the Custodian's consent. The Custodian is authorized,
however, to reserve such a portion of such assets as it may deem
advisable for payment of all its fees, compensation, costs, and expense,
or for payment of any other liabilities constituting a charge on or
against the assets of the Agreement or on or against the Custodian, with
any balance of such reserve remaining after the payment of all such
items to be paid over to the successor Custodian.
B. If within thirty (30) days after Custodian's resignation or removal or
such longer time as Custodian may agree to, the Depositor has not
appointed a successor Custodian which has accepted such appointment, the
Custodian shall terminate the Agreement.
C. The Custodian shall not be liable for the acts or omissions of such
successor.
D. The Custodian, and every successor Custodian appointed to serve under
this Agreement, must be a bank as defined in Code section 408(n).
E. After the Custodian has transferred the Agreement assets (including any
reserve balance as contemplated above) to the successor Custodian, the
Custodian shall be relieved of all further liability with respect to
this Custodial Agreement, and the assets thereof.
5.08 FEES, EXPENSES, AND TAXES. The Depositor shall pay the fees and reasonable
expenses of the Custodian in connection with the operation of the
Agreement.
Upon thirty (30) days' prior notice, the Custodian may change such schedule
of fees. Custodian's fees, any income, gift, estate and inheritance taxes
and other taxes of any kind whatsoever, including transfer taxes incurred
in connection with the investment or reinvestment of the assets of the
Agreement, that may be levied or assessed in respect to such assets, and
all other administrative expenses incurred by the Custodian, may be charged
to a Depositor's Account, by sale or liquidation of the assets in such
Account, or (at the Custodian's election) may be charged to the Depositor.
ARTICLE VI
AMENDMENT AND TERMINATION OF AGREEMENT
6.01 AMENDMENT OF AGREEMENT. New England Funds, L.P. is the sponsoring
organization for the Agreement. New England Funds, L.P. reserves to itself,
and the Depositor by execution of an Adoption Agreement delegates to it,
powers to amend the plan as it deems necessary or advisable including
amendments in order to implement requirements of applicable law, provided
that notice of such amendment shall be given to the Custodian and to the
Depositor.
6.02 AMENDMENT OF AGREEMENT. A Depositor may amend his Adoption Agreement at any
time by an instrument in writing which shall take effect 60 days after
delivery to the Custodian (a copy of which amendment shall be sent to the
Insurer) provided that
A. no amendment shall deprive the Insurer of any of its exemptions and
immunities with respect to Policies which were issued by it prior to
receipt at its Home Office of notice of such amendment; and
B. no amendment shall expand or increase the duties or liabilities of the
Custodian without its consent.
6.03 TERMINATION OF AGREEMENT.
A. The Custodian shall terminate the Agreement if, within the time
specified in Section 5.07B, after the Custodian's resignation or
removal, the Depositor has not appointed a successor Custodian which has
accepted such appointment. Termination of this Agreement shall be
effected by distributing all assets thereof in a lump sum in cash or in
kind to the Depositor, subject to Custodian's right to reserve funds as
provided in Section 5.07A.
B. Upon termination of the Agreement, the Custodian shall be relieved from
all further liability with respect to this Agreement, and all assets
thereof so distributed.
6.04 WITHDRAWAL OF DEPOSITOR. The Depositor may terminate his Agreement at any
time by an instrument in writing delivered to the Custodian, and upon such
termination the Depositor shall be entitled to receive all values being
held for his benefit in a manner consistent with Section 4.04.
6.05 FAILURE OF QUALIFICATION OF AGREEMENT. In the event that an Agreement shall
fail to qualify initially under the applicable provisions of the Internal
Revenue Code, the Custodian shall upon direction of the Depositor return to
the Depositor the value of all assets of the Agreement and the Agreement
thereupon shall be of no effect.
ARTICLE VII
REPORTS; MISCELLANEOUS
7.01 ANNUAL INFORMATION. The Insurer and the Custodian shall supply annually
such information concerning Agreement transactions affecting the Depositor
as the Secretary of the Treasury or his delegate shall prescribe, and shall
otherwise conform to such reporting requirements as may be prescribed by
Federal or State regulatory authority.
7.02 INTERNAL REVENUE CODE. "Internal Revenue Code" or "Code" or "IRC" as used
herein shall mean the Internal Revenue Code of 1986, as amended from time
to time.
7.03 PROTECTION OF INSURER, SPONSOR. Neither the Custodian, the Sponsor nor the
Insurer shall be responsible for the validity of a Depositor's Agreement or
for the validity or tax compliance of any SEP or SARSEP whose contributions
may be held under this Agreement. To the extent permitted by law, neither
the Sponsor nor the Insurer shall owe the Depositor any responsibility for
action taken or not taken by the Custodian, for determining the propriety
of accepting premium payments or other contributions, for making payments
in accordance with directions of the Custodian, or for the application of
such payments. The Sponsor and the Insurer shall be fully protected in
dealing with any officer, partner or principal of the Custodian.
7.04 NO ALIENATION OR ASSIGNMENT BY DEPOSITOR. Neither the Depositor nor a
designated Beneficiary shall have the right to alienate or assign his
interests provided by this Agreement. No such interest shall be subject to
attachment, execution, garnishment, or any other legal or equitable
process.
7.05 DEPOSITOR'S BENEFITS LIMITED TO ASSETS. The Depositor by his participation
in the Agreement shall be conclusively deemed to have agreed to look solely
to the assets held in the Agreement for the payment of any benefit to which
he may be entitled by reason of his participation.
7.06 DEPOSITOR TO ENFORCE AGREEMENT. To the extent permitted by law, the
Depositor shall have the sole authority to enforce the Agreement, and no
person other than the Depositor shall institute or maintain any action or
proceeding against the Custodian or the Insurer.
7.07 WITHHOLDING. Income tax may be withheld from payments provided under the
Agreement unless the Depositor or the Depositor's Beneficiary effectively
elects in writing not to have income tax withholding apply.
<PAGE>
NEW ENGLAND FUNDS, L.P.
INFORMATION ON YOUR INDIVIDUAL RETIREMENT ACCOUNT
This summary highlights the general provisions of federal tax law concerning
your Individual Retirement Account Plan (IRA Plan) including certain provisions
of the Tax Reform Act of 1986 (Act). As discussed below, this Act made a number
of major changes to the law governing the deductibility of contributions to IRA
plans. Hopefully, this summary will answer many of your questions about how the
law now operates. Further information can be obtained from any district office
of the Internal Revenue Service, from IRS Publication 590, from your investment
dealer or New England Funds, L.P.
IRA PLAN MAY BE REVOKED
You have the right to revoke this IRA Plan for any reason within 7 days after it
is established by delivering or mailing written notification to New England
Funds, L.P. or your investment dealer. If mailed, the notification will be
deemed mailed on the date of the postmark if it is deposited in the U.S. mail
first class postage prepaid and properly addressed. The notification to New
England Funds, L.P. should be mailed or delivered to:
New England Funds, L.P.
P.O. Box 8551
Boston, Massachusetts 02266-8551
If you wish to mail your notification to your investment dealer, call your
investment dealer for further information.
Upon revocation, all amounts paid will be refunded to you without adjustment due
to sales commissions, administrative expenses, or change in market value.
INDIVIDUALS ELIGIBLE FOR IRA PLANS
If you had compensation or earned income during your taxable year, you are
eligible to establish and contribute to an IRA Plan for yourself during the
year. The term "compensation" includes alimony or separate maintenance payments
which are includable in an individual's gross income with respect to a divorce
or separation instrument. Under the Act, if you are eligible to establish an IRA
Plan for yourself you may contribute to a Spousal IRA even if your spouse has
earned some compensation during the year. Provided your spouse does not make a
contribution to an IRA, you may set up a Spousal IRA consisting of an account
for your spouse as well as an account for yourself. Note that an IRA Plan for
the benefit of your spouse may be established only if you file a joint return.
If both you and your spouse have compensation or earned income during the
taxable year, you may each establish and maintain separate IRA Plans.
DEDUCTIBLE CONTRIBUTIONS TO IRA PLANS
Under the Act, if neither you, nor your spouse, is an active participant (see A.
below) you may make a contribution of up to the lesser of $2,000 (or $2,250 in
the case of a Spousal IRA) or 100% of compensation and take a deduction for the
entire amount contributed. If you are an active participant but have an adjusted
gross income (AGI) below a certain level (see B. below), you may make a
deductible contribution as under old law. If, however, you or your spouse is an
active participant and your combined AGI is above the specified level, the
amount of the deductible contribution you may make to an IRA Plan is phased down
and eventually eliminated.
A. Active Participant
You are an "active participant" for a year if you are covered by a
retirement plan. You are covered by a "retirement plan" for a year if your
employer or union has a retirement plan under which money is added to your
account or you are eligible to earn retirement credits. For example, if you
are covered under a profit-sharing plan, certain government plans, a salary
reduction arrangement (such as a tax sheltered annuity arrangement or a 401
(k) plan), a simplified employee pension plan (SEP) or a plan which
promises you a retirement benefit which is based upon the number of years
of service you have with the employer, you are likely to be an active
participant. Your Form W-2 for the year should indicate your participation
status.
You are an active participant for a year even if you are not yet vested in
your retirement benefit. Also, if you make required contributions or
voluntary employee contributions to a retirement plan, you are an active
participant. In certain plans you may be an active participant even if you
were only with the employer for part of the year.
You are not considered an active participant if you are covered in a plan
only because of your service as 1) an Armed Forces Reservist, for 90 days
or less of active service, or 2) a volunteer firefighter covered for
firefighting service by a government plan if your accrued benefit is below
a threshold amount. Of course, if you are covered in any other plan, these
exceptions do not apply.
If you are married, living apart from your spouse, and file a separate tax
return, your spouse's active participation does not affect your ability to
make deductible contributions.
B. Adjusted Gross Income (AGI)
If you are an active participant, you must look at your AGI for the year
(if you and your spouse file a joint tax return you use your combined AGI)
to determine whether you can make a deductible IRA Plan contribution. Your
tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you are
treated as if you were not an active participant and can make a deductible
contribution under the same rules as a person who is not an active
participant.
If you are single, your threshold AGI level is $25,000. The threshold level
if you are married and file a joint tax return is $40,000, and if you are
married but file a separate tax return, the threshold level is $0.
If your AGI is less than $10,000 above your threshold level, you will still
be able to make a deductible contribution but it will be limited in amount.
The amount by which your AGI exceeds your Threshold Level (AGI-Threshold
Level) is called your Excess AGI. The Maximum Allowable Deduction is $2,000
(or $2,250 for a Spousal IRA). You can estimate your deduction limit as
follows:
10,000 - Excess AGI
------------------- X Maximum Allowable Deduction = Deduction Limit
10,000
You must round up the result to the next highest $10 level (the next highest
number which ends in zero). For example, if the result is $1,525, you must round
it up to $1,530. If the final result is below $200 but above zero, your
Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed 100%
of your compensation.
EXAMPLE 1: Ms. Smith, a single person, is an active participant and has an AGI
of $31,619. She calculates her deductible IRA Plan contributions as follows:
Her AGI is $31,619
Her Threshold Level is $25,000
Her Excess AGI is (AGI - Threshold Level) or ($31,619 - $25,000) = $6,619
Her Maximum Allowable Deduction is $2,000
So, her IRA Plan deduction limit is:
$10,000 - $6,619
---------------- X $2,000 = $676 (rounded to $680).
$10,000
EXAMPLE 2: Mr. and Mrs. Young file a joint tax return. Each spouse earns more
than $2,000 and one is an active participant. They have a combined AGI of
$44,255. They may each contribute to an IRA Plan and calculate their
deductible contributions to each IRA Plan as follows:
Their AGI is $44,255
Their Threshold Level is $40,000
Their Excess AGI is (AGI - Threshold Level) or ($44,255 - $40,000) = $4,255
The Maximum Allowable Deduction for each spouse is $2,000
So, each spouse may compute his or her IRA Plan deduction limit as follows:
$10,000 - $4,255
---------------- X $2,000 = $1,149 (rounded to $1,150).
$10,000
EXAMPLE 3: If, in example 2, Mr. Young did not earn any compensation, or elected
to be treated as earning no compensation, Mrs. Young could establish a Spousal
IRA. The amount of deductible contributions which could be made to the two IRA
Plans is calculated using a Maximum Allowable Deduction of $2,250 rather than
$2,000.
$10,000 - $4,255
---------------- X $2,250 = $1,293 (rounded to $1,300).
$10,000
The $1,300 can be divided between the two accounts, but neither IRA Plan may
receive a deductible contribution of more than $1,150 (the limit in Example 2).
EXAMPLE 4: Mr. Jones, a married person, files a separate tax return and is
an active participant. He has $1,500 of compensation and wishes to make a
deductible contribution to an IRA.
His AGI is $1,500
His Threshold Level is $0
His Excess AGI is (AGI - Threshold Level) or ($1,500 - $0) = $1,500
His Maximum Allowable Deduction is $2,000
So, his IRA deduction limit is:
$10,000 - $1,500
---------------- X $2,000 = $1,700
$10,000
Even though his IRA Plan deduction limit under the formula is $1,700, Mr. Jones
may not deduct an amount in excess of his compensation, so his actual deduction
is limited to $1,500.
NONDEDUCTIBLE CONTRIBUTIONS TO IRA PLANS
Even if you are above the threshold level and thus may not make a deductible
contribution of $2,000 ($2,250 for Spousal IRA), you may still contribute up to
the lesser of 100% of compensation or $2,000 to an IRA Plan ($2,250 for a
Spousal IRA). The amount of your contribution which is not deductible will be a
nondeductible contribution to the IRA Plan. You may also choose to make a
contribution nondeductible even if you could have deducted part or all of the
contribution. Interest or other earnings on your IRA Plan contribution, whether
from deductible or nondeductible contribution, will not be taxed until taken out
of your IRA Plan and distributed to you.
If you make a nondeductible contribution to an IRA Plan you must report the
amount of the nondeductible contribution to the IRS as a part of your tax return
for the year.
You may make a $2,000 contribution at any time during the year, if your
compensation for the year will be at least $2,000, without having to know how
much will be deductible. When you fill out your tax return you may then figure
out how much is deductible.
According to the IRS, you may withdraw an IRA Plan contribution made for a year
any time before April 15 of the following year. If you do so, you must also
withdraw the earnings attributable to that portion and report the earnings as
income for the year for which the contribution was made. In addition, if you are
not 59 1/2 at the time of the withdrawal, you also may be required to pay the
premature distribution tax on these earnings. If some portion of your
contribution is not deductible, you may decide either to withdraw the
nondeductible amount, or to leave it in the IRA and designate that portion as a
nondeductible contribution on your tax return.
IRA PLAN DISTRIBUTIONS
Because nondeductible IRA Plan contributions are made using income which has
already been taxed (that is, they are not deductible contributions), the portion
of the IRA Plan distributions consisting of nondeductible contributions will not
be taxed again when received by you. If you make any nondeductible IRA Plan
contributions, each distribution from your IRA Plan will consist of a nontaxable
portion (return of nondeductible contributions) and a taxable portion (return of
deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The following
formula is used to determine the nontaxable portion of your distributions for a
taxable year:
<TABLE>
<S> <C> <C>
Remaining Nondeductible contributions Total Nontaxable
-------------------------------------------------- X Distributions = distributions
Year-end total IRA Plan account balance (for the year) (for the year)
(plus distributions taken during the year).
</TABLE>
To Figure the year-end total IRA Plan account balance you treat all of your IRA
Plans as a single IRA. This includes all regular IRAs, as well as Simplified
Employer Pension (SEP) IRAs, and Rollover IRAs. You also add back the
distributions taken during the year.
EXAMPLE: An individual makes the following contributions to his or her IRA
Plans:
YEAR DEDUCTIBLE NONDEDUCTIBLE
1983 $2,000
1984 1,800 $1,000
1987 1,000 1,400
1989 600
----- -----
$5,400 $2,400
Deductible Contributions ......................................... $5,400
Nondeductible Contributions ...................................... 2,400
Earnings on IRA Plans ............................................ 1,200
-----
Total Account Balance of IRA Plans as of 12/31/91 ................ $9,000
(including distributions in 1991)
In 1991 the individual takes a distribution of $3,000. The total account balance
in the IRA Plans on 12/31/91 plus 1991 distributions is $9,000. The nontaxable
portion of the distributions for 1991 is figured as follows:
Total nondeductible contributions ........ $2,400 X $3,000
Total account balance in the IRA Plans --------------- = $800
plus distributions ..................... $9,000
Thus, $800 of the $3,000 distribution in 1991 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1991.
SIMPLIFIED EMPLOYEE PENSION (SEP) IRA PLANS
Your employer also may establish a SEP IRA Plan for you. If a SEP IRA Plan is
established by your employer, you are allowed an exclusion for federal income
tax purposes equal to the employer contributions made to your IRA Plan for the
least of the following amounts:
1. The actual amount of employer contributions made to your IRA Plan;
2. $22,500; or
3. 15% of your compensation (not in excess of the first $150,000) from such
employer.
If you are a participant in a SEP IRA Plan you also may make your own IRA Plan
contributions in accordance with the limitations described above.
A SARSEP is a Salary Reduction Simplified Employee Pension Plan. A salary
reduction contribution of no more than $9,500 annually (as adjusted by law) is
allowed. This salary reduction contribution is treated as an employer
contribution in applying the exclusion for federal income tax purposes described
above.
A SEP Plan may be established by completing IRS Form 5305-SEP. A SARSEP Plan may
be established by completing IRS Form 5305A-SEP. A nonmodel SEP/SARSEP document
may be required in some cases.
OTHER LIMITATIONS
The terms "compensation" and "earned income" do not include earnings from
property such as interest, rents and dividends. IRA contributions must be made
no later than the due date of your tax return (without regard to extensions) to
be deductible for that year. No contributions may be made to your IRA Plan
beginning with the taxable year in which you attain age 70 1/2. However, if you
contribute to a Spousal IRA, contributions may be made on behalf of your spouse
(who has not attained age 70 1/2) even if you are age 70 1/2 or older. Your
employer may continue to make excludible contributions for you under a SEP IRA
Plan after you have attained age 70 1/2. However, distribution must commence not
later than April 1 of the calendar year following the year in which you attain
age 70 1/2. The IRA Plan deduction is available whether or not you itemize
deductions.
REQUIREMENTS OF AN IRA PLAN
An IRA Plan is a trust or custodial agreement with a bank or other organization
approved by the Secretary of the Treasury which is for the exclusive benefit of
an individual or his beneficiaries and which meets the following requirements:
1. The interest of an individual in the IRA Plan must be non-forfeitable;
2. The contributions for any year must be in cash and cannot exceed $2,000,
except in the case of contributions to a SEP IRA Plan and a rollover
contribution (described later);
3. The assets of the IRA Plan cannot be commingled with other property
except in a common trust fund or common investment fund; and
4. Distribution of the assets of the IRA Plan must be made in the manner
described in the LATEST TIME FOR DISTRIBUTION Section.
EXCESS CONTRIBUTIONS
Contributions which exceed the limits in either the DEDUCTIBLE CONTRIBUTIONS TO
IRA PLANS or NONDEDUCTIBLE CONTRIBUTIONS TO IRA PLANS Sections are excess
contributions. No deduction is allowed for excess contributions to your IRA
Plan. If in any year you make an excess contribution to your IRA Plan, you may
correct your contribution by withdrawing the excess amount (and any income
earned by it) by the due date for filing your tax return (including extensions)
for that year. The earned income withdrawn is taxable and may be subject to a
10% penalty as described in the PREMATURE DISTRIBUTION Section. Excess
contributions which are not corrected are subject to a 6% nondeductible excise
tax.
If you do not withdraw your excess contribution (and any income earned by it),
you may withdraw the contribution in a later year or you may treat it as a
deductible or nondeductible contribution for that year to the extent allowable.
If you do not correct your contribution, the 6% nondeductible excise tax will be
applied for each year that the excess contribution is allowed to remain in your
IRA Plan. If an excess contribution is not withdrawn before the due date of your
tax return (including extensions), the return of the excess contribution in a
later year may be treated as a premature distribution which could result in an
additional penalty tax being imposed. This tax is explained in the PREMATURE
DISTRIBUTION Section. If, however, your total IRA contribution was not more than
$2,250 for a taxable year and you have not been allowed a deduction for the
excess contribution, you may withdraw the excess after the due date for your
return. The excess withdrawn is not included in income or subject to a premature
distribution tax, and you need not withdraw the related earnings.
PREMATURE DISTRIBUTION
If you receive a payment from your IRA Plan before you attain the age of 59 1/ 2
or become disabled, the payment will be considered a premature distribution. If
you receive a premature distribution, some or all of the amount received may be
included in your gross income in the taxable year of receipt. In addition, your
income tax for that tax year is increased by an amount equal to 10% of the
premature distribution includable in your gross income. However, the 10% penalty
will not be imposed on amounts distributed on account of your death prior to age
59 1/2, on amounts rolled over, or on amounts distributed as part of a series of
substantially equal periodic payments (made at least annually) over your life or
life expectancy or the joint lives (or life expectancies) of you and your
designated beneficiary.
LATEST TIME FOR DISTRIBUTION
Amounts contributed to an IRA Plan are intended to be paid out for retirement
purposes. Distribution must be made or commenced not later than April 1 of the
calendar year following the year in which you attain age 70 1/2, and the
distribution generally must not extend beyond the lives of you and your
designated beneficiary (or a period based on the life expectancies of you and
your designated beneficiary). If your designated beneficiary is your spouse, the
life expectancies of you and your spouse may be recomputed annually. If your
designated beneficiary is other than your spouse, the life expectancy of such
nonspouse beneficiary may be calculated only at the time distribution commences.
If sufficient payments are not made from your IRA Plan, you may be liable for an
excise tax of 50% of the amount of underdistribution. For example, if the payout
that you should receive is $1,000 for the taxable year and you only receive
$600, an excise tax of $200 (50% of the $400 underdistribution) must be paid by
you unless the IRS grants you a waiver of this tax (see Form 5329 for an
explanation of the procedures for applying for such a waiver). Detailed
information about amounts required to be distributed can be found in your IRA
Plan document.
ROLLOVERS
Rollover contributions permit you to withdraw all or a portion of your interest
in your IRA Plan and reinvest it in another IRA Plan or other qualified vehicle
without incurring any federal tax liability or penalty as a premature
distribution. There is no tax deduction for the amount transferred. Rollovers
between IRA Plans may be made once every year and the money and any other
property received from one IRA Plan must be reinvested within 60 days of the
date it was received into another IRA Plan. Some or all of the amount retained
by you may be included in your gross income in the year of receipt and may be
considered a premature distribution subject to an additional 10% tax if the
distribution occurs prior to age 59 1/2.
If you take a partial or total distribution from a qualified retirement plan
which is not transferred directly into an IRA or other qualified vehicle, you
may be subject to a mandatory 20% withholding requirement.
PROHIBITED TRANSACTIONS
If you or your beneficiary engages in a prohibited transaction with respect to
your IRA Plan, the IRA Plan will lose its exemption from tax, and the fair
market value of the IRA Plan may be includible in your gross income for that
year. In addition, if you have not attained age 59 1/2, there may be an
additional 10% penalty tax as a premature distribution. The term "prohibited
transaction" means any direct or indirect sale or exchange, or leasing, of any
property, lending of money or other extension of credit, or furnishing of goods,
services, or facilities between you or your beneficiary and the IRA Plan;
transfer to, or use by or for the benefit of you or your beneficiary of the
assets of the IRA Plan for your own interest; and receipt of any consideration
by you or your beneficiary from any party dealing with the IRA Plan in
connection with a transaction involving the income or assets of the IRA Plan.
SECURITY FOR LOAN
If you are participating in an IRA Plan and use any portion of the value as
security for a loan, the portion so used will be treated as a distribution and
may be includible in your gross income for that tax year. The transaction also
may be treated as a premature distribution subject to an additional 10% tax if
it occurs before age 59 1/2.
TAXABILITY OF IRA PLANS-FEDERAL INCOME TAX
Amounts which accumulate under your IRA Plan are exempt from federal income
taxation while they remain in the IRA Plan. When you or your beneficiary receive
distributions from your IRA Plan, the distributions may be taxed as ordinary
income for the year received. Distributions from any IRA Plan are not eligible
for the special averaging rules that apply to lump sum distributions from
qualified employer plans. As noted above, distributions which qualify as
rollovers will not incur tax liability, and there are penalties for premature
distributions, insufficient distributions, borrowing under the IRA Plan or using
the values as security for a loan.
TAXABILITY OF IRA PLANS -- FEDERAL ESTATE AND GIFT TAX
In the event of your death, distributions to the beneficiary of your IRA Plan
will be included for purposes of determining your federal estate tax liability
(if any). The designation by you of a beneficiary to receive payment under this
IRA Plan is not considered to be a transfer subject to federal gift tax
treatment.
TAXABILITY OF IRA PLANS -- STATE LAW
The treatment of IRA Plans varies under state income, estate or gift tax laws
(if any). Consult your state office of taxation or your tax advisor for
questions you may have concerning the effect of state law on your IRA Plan.
IRS FORM 5329 REQUIRED FOR SPECIAL SITUATIONS
IRS Form 5329, Additional Taxes Attributable to Qualified Retirement Plans
(Including IRAs), Annuities, and Modified Endowment Contracts is used to report
penalty taxes on your IRA Plan. The penalty taxes which must generally be
reported on Form 5329 include excess contribution taxes, premature distribution
taxes, and taxes imposed because an IRA Plan has not distributed a sufficient
amount to you under the distribution rules.
Form 5329 and Instructions for Form 5329 are available at your local IRS office.
Failure to file Form 5329 when required may be subject to penalty by the
Internal Revenue Service.
APPROVAL BY IRS
The Internal Revenue Service approved the overall form of this account as an IRA
plan. This does not represent a determination on the specific use of the account
by you.
FINANCIAL DISCLOSURE
Your contributions to this IRA Plan will be subject to custodial fees which are
described in the Individual Retirement Account booklet.
If the investment(s) you choose to fund this IRA Plan is (are) sold by
prospectus, consult the applicable prospectus(es) you have been furnished for
information concerning (i) the types and amounts of charges which are made
against your contributions, (ii) the method for computing and allocating annual
earnings, and (iii) the types of other charges which may be applied to your
interest in the investment(s) in determining the net amount of money available
to you and the method of computing each such charge. Growth in value of this IRA
Plan is neither guaranteed nor projected.
<PAGE>
INTERNAL REVENUE SERVICE
Plan Name: IRA Custodial Account
FFN: 50143000000-007 Case: 9070037 EIN: 04-1662730
Letter Serial No: D111853b
NEW ENGLAND MUTUAL LIFE INSURANCE CO.
501 BOYLSTON STREET
BOSTON, MA 02117
DEPARTMENT OF THE TREASURY
Washington, DC 20224
Person to Contact: Mr. Westry
Telephone Number: (202) 535-4972
Refer Reply to: E:EP:Q:4
Date: 04/30/90
Dear Applicant:
In our opinion, the amendment to the form of the prototype trust, custodial
account or annuity contract identified above does not adversely affect its
acceptability under section 408 of the Internal Revenue Code, as amended by the
Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to have a
retirement savings program that satisfies the requirements of Code section 408,
provided they follow the terms of the program and do not engage in certain
transactions specified in Code section 408(e). Please provide a copy of this
letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this savings
program and does not guarantee contributions or investments made under the
savings program. Furthermore, this letter does not express any opinion as to the
applicability of Code section 4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the trustee, custodian
or issuer of a contract provide a disclosure statement to each participant in
this program as specified in the regulations. Publication 590, Tax Information
on Individual Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to provide each
adopting individual with annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File Folder
Number shown in the heading of this letter. Please provide those adopting this
plan with your phone number, and advise them to contact your office if they have
any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ John Swieca
John Swieca
Chief, Employee Plans
Qualifications Branch
<PAGE>
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IR12
<PAGE>
Defined Contribution Plan and Trust Document Table of Contents
1.0 GENERAL............................................................Page 3
1.1 PURPOSE...................................................Page 3
1.2 NAME OF PLAN..............................................Page 3
1.3 APPROVAL OF INTERNAL REVENUE SERVICE......................Page 3
1.4 AMENDMENT OR TERMINATION..................................Page 3
2.0 DEFINITIONS........................................................Page 4
2.1 ACCRUED BENEFIT...........................................Page 4
2.2 ACTIVE PARTICIPANT........................................Page 4
2.3 ACTUARIAL EQUIVALENT......................................Page 4
2.4 ADMINISTRATOR.............................................Page 4
2.5 ADOPTION AGREEMENT........................................Page 5
2.6 ANNIVERSARY DATE..........................................Page 5
2.7 ANNUAL ADDITIONS..........................................Page 5
2.8 AVERAGE ANNUAL COMPENSATION...............................Page 5
2.9 BENEFICIARY...............................................Page 5
2.10 BOARD....................................................Page 5
2.11 COMPENSATION.............................................Page 5
2.12 COVERED YEARS OF SERVICE.................................Page 6
2.13 EARLY RETIREMENT DATE....................................Page 6
2.14 EARNED INCOME............................................Page 6
2.15 EFFECTIVE DATE...........................................Page 6
2.16 ELIGIBLE CLASS...........................................Page 6
2.17 EMPLOYEE..................................................Page 6
2.18 EMPLOYER.................................................Page 7
2.19 ENTRY DATE...............................................Page 7
2.20 ERISA....................................................Page 7
2.21 FORMER PARTICIPANT.......................................Page 7
2.22 FUTURE SERVICE...........................................Page 7
2.23 HIGHLY COMPENSATED EMPLOYEE..............................Page 7
2.24 HOUR OF SERVICE..........................................Page 8
2.25 INACTIVE PARTICIPANT.....................................Page 9
2.26 INSURER..................................................Page 9
2.27 INVESTMENT MANAGER.......................................Page 9
2.28 JOINT AND SURVIVOR ANNUITY...............................Page 9
2.29 LATE RETIREMENT DATE.....................................Page 9
2.30 LIMITATION YEAR..........................................Page 9
2.31 NET PROFITS..............................................Page 9
2.32 NORMAL RETIREMENT AGE....................................Page 9
2.33 NORMAL RETIREMENT DATE...................................Page 9
2.34 ONE YEAR BREAK IN SERVICE................................Page 9
2.35 OWNER-EMPLOYEE..........................................Page 10
2.36 PARTICIPANT.............................................Page 10
2.37 PARTICIPANT ACCOUNT.....................................Page 10
2.38 PLAN....................................................Page 10
2.39 PLAN YEAR...............................................Page 10
2.40 PREDECESSOR EMPLOYER....................................Page 10
2.41 PARTICIPANT CONTRIBUTION ACCOUNT........................Page 10
2.42 QUALIFIED LEAVE OF ABSENCE..............................Page 10
2.43 SELF-EMPLOYED INDIVIDUAL................................Page 11
2.435 SHORT FORM ADOPTION AGREEMENT..........................Page 11
2.44 SOCIAL SECURITY COVERED COMPENSATION....................Page 11
2.45 TAXABLE WAGE BASE.......................................Page 11
2.46 TOTAL AND PERMANENT DISABILITY..........................Page 11
2.47 TRUST...................................................Page 11
2.48 TRUSTEE..................................................Page 11
2.49 YEAR....................................................Page 12
2.50 YEAR OF SERVICE.........................................Page 12
3.0 ELIGIBILITY........................................................Page 12
3.1 ELIGIBILITY REQUIREMENTS.................................Page 12
3.2 RE-ELIGIBILITY...........................................Page 13
3.3 LEAVE OF ABSENCE.........................................Page 13
4.0 FUNDING...........................................................Page 13
4.1 CONTRIBUTION FORMULA.....................................Page 13
4.2 FORFEITURES..............................................Page 14
4.3 MISTAKE OF FACT..........................................Page 14
4.4 DISALLOWANCE OF DEDUCTION................................Page 14
4.5 VOLUNTARY CONTRIBUTIONS..................................Page 14
4.6 QUALIFIED VOLUNTARY EMPLOYEE
CONTRIBUTIONS........................................Page 14
4.7 ROLLOVER ACCOUNT.........................................Page 15
4.8 EMPLOYER CONTRIBUTION ACCOUNT............................Page 15
4.9 ALLOCATION OF CONTRIBUTIONS AND
FORFEITURES..........................................Page 15
4.10 ALLOCATION OF TRUST GAINS AND LOSSES....................Page 15
4.11 SEGREGATION OF PARTICIPANT ACCOUNTS.....................Page 16
5.0 BENEFIT...........................................................Page 16
5.1 AMOUNT OF DISTRIBUTION...................................Page 16
5.2 FORM OF BENEFIT..........................................Page 17
5.3 DISTRIBUTION OF BENEFITS.................................Page 17
5.4 VESTING ON TERMINATION AND
RE-EMPLOYMENT........................................Page 21
5.5 LIMITATION ON BENEFITS AND
CONTRIBUTIONS........................................Page 23
5.6 ALIENATION PROHIBITED....................................Page 27
5.7 JOINT AND SURVIVOR ANNUITY
REQUIREMENTS.........................................Page 27
5.8 PERMITTED DISPARITY IN PLAN
CONTRIBUTIONS........................................Page 31
6.0 LIFE INSURANCE....................................................Page 33
6.1 AUTHORIZATION TO PURCHASE................................Page 33
6.2 PAYMENT OF PREMIUMS......................................Page 33
6.3 DISPOSITION OF POLICIES AT RETIREMENT....................Page 33
6.4 LIMITATION ON AMOUNTS....................................Page 33
6.5 CONFLICT WITH INSURANCE CONTRACTS........................Page 33
7.0 MISCELLANEOUS.....................................................Page 34
7.1 LOANS TO PARTICIPANTS....................................Page 34
7.2 DISCHARGE RIGHTS PRESERVED...............................Page 35
7.3 BENEFICIARY DESIGNATED BY PARTICIPANT....................Page 35
7.4 PRIORITY OF ADOPTION AGREEMENT...........................Page 35
7.5 REFERENCE TO INTERNAL REVENUE CODE.......................Page 35
7.6 SAVING CLAUSE............................................Page 35
7.7 GOVERNING LAW............................................Page 35
7.8 MERGER OR CONSOLIDATION OF PLAN..........................Page 36
7.9 AGREEMENT BINDING ON ALL PARTIES.........................Page 36
7.10 HEADINGS................................................Page 36
7.11 SINGULAR INCLUDES PLURAL, ETC...........................Page 36
7.12 FORFEITURE OF BENEFITS..................................Page 36
7.13 DISTRIBUTION PURSUANT TO QUALIFIED
DOMESTIC RELATIONS ORDER.............................Page 36
8.0 TOP HEAVY PLAN....................................................Page 36
8.1 PRECEDENCE OF SECTION....................................Page 36
8.2 DEFINITIONS..............................................Page 36
8.3 COMPENSATION IN TOP HEAVY PLAN YEAR......................Page 38
8.4 VESTING IN TOP HEAVY PLAN YEAR...........................Page 38
8.5 MINIMUM CONTRIBUTION UNDER TOP HEAVY
PLAN.................................................Page 39
8.6 MINIMUM CONTRIBUTION UNDER MULTIPLE
PLANS................................................Page 39
8.7 NONFORFEITABILITY OF MINIMUM BENEFIT.....................Page 39
8.8 ADJUSTMENT TO DEFINED BENEFIT AND
DEFINED CONTRIBUTION FRACTION
FOR SUPER TOP-HEAVY PLAN.............................Page 40
9.0 AFFILIATED EMPLOYER...............................................Page 40
9.1 MEMBERS OF CONTROLLED GROUP..............................Page 40
9.2 LEASED EMPLOYEES.........................................Page 40
9.3 PLAN OF A PREDECESSOR....................................Page 40
9.4 CONTROLLED TRADES OR BUSINESSES OF
OWNER-EMPLOYEES......................................Page 40
10.0 TRUST PROVISIONS.................................................Page 41
10.1 ESTABLISHMENT OF TRUST..................................Page 41
10.2 APPOINTMENT OF ADMINISTRATOR AND
TRUSTEE..............................................Page 41
10.3 ADMINISTRATOR FUNCTIONS.................................Page 42
10.4 TRUSTEE FUNCTIONS.......................................Page 42
10.5 INVESTMENT OF TRUST ASSETS..............................Page 47
10.6 MISCELLANEOUS...........................................Page 49
10.10 LOANS TO PARTICIPANTS..................................Page 50
11.0 CASH OR DEFERRED ARRANGEMENT.....................................Page 50
11.1 PURPOSE AND EFFECTIVE DATE..............................Page 50
11.2 ELIGIBILITY TO PARTICIPATE..............................Page 50
11.3 DEFINITIONS.............................................Page 50
11.4 ELECTIVE DEFERRALS .....................................Page 52
11.5 TOP-HEAVY REQUIREMENTS..................................Page 55
11.6 SPECIAL DISTRIBUTION RULES..............................Page 56
11.7 MATCHING CONTRIBUTIONS..................................Page 57
11.8 LIMITATIONS ON EMPLOYEE CONTRIBUTIONS
AND MATCHING CONTRIBUTIONS...........................Page 57
11.9 PROFITS NOT REQUIRED UNDER THE CODA.....................Page 60
11.10 FORFEITURES............................................Page 60
<PAGE>
Defined Contribution Plan and Trust Document
1.0 GENERAL
1.1 PURPOSE
This Prototype Defined Contribution Plan and Trust with its Adoption Agreement
constitute an employee pension benefit plan created hereby for the exclusive
Benefit of eligible Employees of the Employer. All contributions thereto shall
be made for the purpose of distributing to such eligible Employees their Accrued
Benefit. Prior to satisfaction of all liabilities with respect to the
Participants and their Beneficiaries, no part of the corpus or income of the
Trust shall at any time be used for or diverted to purposes other than for the
exclusive benefit of such Participants or their Beneficiaries. It is further the
purpose of the Plan to provide benefits in accordance herewith for those
Participants who remain in the employ of the Employer until their Accrued
Benefit is vested or until they reach Normal Retirement Age, at which time
benefits will be distributed in accordance herewith. It is further the intent to
provide other benefits as are set forth in the Adoption Agreement.
1.2 NAME OF PLAN
The name of the Plan shall be the legal name of the Employer as set forth in the
Adoption Agreement followed by the name of the plan as set forth in the Adoption
Agreement followed by the words "and Trust".
1.3 APPROVAL OF INTERNAL REVENUE SERVICE
This Plan is contingent upon and subject to obtaining such initial approval of
the District Director of Internal Revenue as may be necessary to establish the
qualification for income tax purposes pursuant to Section 401 of the Internal
Revenue Code of 1986 (Code) and as may be necessary to qualify for tax exemption
under the provisions of Section 501 or other applicable provisions of the Code.
Any modification or amendment of the Plan may be made if necessary or
appropriate to initially qualify or maintain qualification of the Plan. If a
final adverse action with respect to initial qualification or requalification is
issued by the Internal Revenue Service, the Plan shall be treated as an
individually designed plan and the Employer shall no longer participate in this
prototype Plan.
1.4 AMENDMENT OR TERMINATION
(A) Amendment
(1) The sponsoring organization may amend any part of the Plan. For purposes
of sponsoring organization amendments, the mass submitter shall be recognized as
the agent of the sponsoring organization. If the sponsoring organization does
not adopt the amendments made by the mass submitter, it will no longer be
identical to or a minor modifier of the mass submitter plan. The Employer may:
(a) Change the choice of options in the Adoption Agreement,
(b) Add overriding language in the Adoption Agreement when such language
is necessary to satisfy Section 415 or Section 416 of the Code because of the
required aggregation of multiple plans, and
(c) Add certain model amendments published by the Internal Revenue Service
which specifically provide that their adoption will not cause the Plan to be
treated as individually designed. An Employer that amends the Plan for any other
reason including a waiver of the minimum funding requirement under Code Section
412(d), will no longer participate in this prototype plan and will be considered
to have an individually designed plan. When this Plan is used to amend an
existing plan, the terms and conditions of the prior plan document shall prevail
as to obligations and rights of the parties to the Plan during the effective
period of the prior plan document. No amendment to the Plan shall decrease the
Accrued Benefit of any Participant. If the Employer amends any of the provisions
of this Plan, it will be considered to be an individually designed plan.
(2) No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's Accrued Benefit. Notwithstanding the
preceding sentence, a Participant's Accrued Benefit may be reduced to the extent
permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan
amendment which has the effect of:
(a) Decreasing a Participant's Accrued Benefit, or
(b) Eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment, shall be
treated as reducing Accrued Benefits. Furthermore, if the vesting schedule of
the Plan is amended, in the case of an Employee who is a Participant as of the
later of the date such amendment is
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Defined Contribution Plan and Trust Document
adopted or the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such Employee's Employer - derived accrued
benefit will not be less than the percentage computed under the Plan without
regard to such amendment.
(3) If the Plan's vesting schedule is amended or the Plan is amended in any
way that directly or indirectly affects the computation of a Participant's
nonforfeitable percentage, or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, each Participant with at least
three (3) Years of Service with the Employer may elect within a reasonable
period after the adoption of the amendment or change, to have his nonforfeitable
percentage computed under the Plan without regard to such amendment or change.
For Participants who do not have at least one (1) Hour of Service in any Plan
Year beginning after December 31, 1988, the preceding sentence shall be applied
by substituting "five (5) Years of Service" for "three (3) Years of Service"
where such language appears. The period during which the election may be made
shall commence with the date the amendment is adopted or deemed to be made and
shall end on the latest of:
(a) Sixty (60) days after the amendment is adopted;
(b) Sixty (60) days after the amendment becomes
effective; or
(c) Sixty (60) days after the Participant is issued written notice of the
amendment by the Employer or Administrator.
(B) The Employer also reserves the right to terminate the Plan and Trust at
any time. In the event of the termination or partial termination of the Plan, or
the complete discontinuance of contributions under a Profit Sharing Plan, the
rights of all affected Active Participants and Inactive Participants to their
Accrued Benefit as of the date of the termination or partial termination or the
complete discontinuance of contributions under a Profit Sharing Plan, shall be
non-forfeitable. Former Participants shall vest according to the vesting
schedule in effect on their date of termination of service with the Employer. In
no event, however, shall any amount be allocated to a Participant under this
Section 1.4 which would cause the Plan to fail to meet the integration
requirements of Revenue Ruling 71-446 or the limitation specified under Section
5.8 of the Plan. 2.0 DEFINITIONS
2.1 ACCRUED BENEFIT
"Accrued Benefit" shall mean the balance of the
Participant Account of each Participant.
2.2 ACTIVE PARTICIPANT
"Active Participant" means each Participant who is a member of the Eligible
Class on the Anniversary Date or such other date as of which the Accrued Benefit
of a Participant is determined.
2.3 ACTUARIAL EQUIVALENT
(A) "Actuarial Equivalent" shall mean a benefit payable in an alternative mode
which is equivalent to a benefit payable in a given mode under the Plan when
computed using the rate of interest and the Mortality Table specified in the
Adoption Agreement.
(B) Anything in Section 2.3(A) notwithstanding, for purposes of the Short Form
Adoption Agreement and for purposes of establishing present value to compute the
top heavy ratio, benefit payments shall be discounted only for mortality and
interest based upon a pre-retirement interest rate of 6.0% and the 83IAM
Mortality Table at 6.0% interest.
2.4 ADMINISTRATOR
(A) "Administrator" shall mean the Employer or other entity designated in the
Adoption Agreement.
(B) For purposes of the Short Form Adoption Agreement, "Administrator" shall
mean the Employer.
2.5 ADOPTION AGREEMENT
"Adoption Agreement" shall mean that document which is attached hereto and is
made a part hereof and which is an integral part of this document. It sets forth
the detailed specifications of the Plan.
2.6 ANNIVERSARY DATE
"Anniversary Date" shall mean the date as of which the Plan shall be evaluated,
which date shall be specified in the Adoption Agreement.
2.7 ANNUAL ADDITIONS
"Annual Additions" shall mean, with respect to each Participant for any Plan
Year, the sum of the following amounts credited to a Participant's account for
the
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Defined Contribution Plan and Trust Document
Limitation Year:
(A) Contributions made by the Employer on behalf of
the Participant to all qualified defined contribution
plans of the Employer,
(B) Forfeitures allocated to the account(s) of the
Participant,
(C) The Participant's contributions, and
(D) Amounts allocated after March 31, 1984 to an
individual medical account, as defined in Code Section 415(l)(2), which is part
of a pension or annuity plan maintained by the Employer, are treated as Annual
Additions to a defined contribution plan; and amounts derived from contributions
paid or accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to post-retirement medical benefits allocated to
the separate account of a key Employee, as defined in Code Section 419(A)(d)(3),
under a welfare benefit fund, as defined in Code Section 419(e), maintained by
the Employer, are treated as Annual Additions to a defined contribution plan.
(E) For this purpose, any excess amount applied pursuant to the provisions of
Section 5.5 in the Limitation Year to reduce Employer Contributions will be
considered Annual Additions for such Limitation
Year.
2.8 AVERAGE ANNUAL COMPENSATION
"Average Annual Compensation" shall mean:
(A) The average of a Participant's Compensation over the period of time
specified in the Adoption Agreement, which shall not be less than three (3)
consecutive Plan Years which produce the highest average. If the Participant has
less than the period of time specified in the Adoption Agreement, Compensation
is averaged over the Participant's total period of service. Compensation shall
be annualized for any period of service which is less than twelve (12) months.
(B) If the Adoption Agreement provides for permitted disparity under Internal
Revenue Code Section 401(l), Final Average Compensation shall mean the greater
of:
(1) The Participant's Average Annual Compensation
over:
(a) The three (3) consecutive year period ending
with the current year, or
(b) If shorter, the Participant's full period of
service, or
(2) The Participant's highest Average Annual Compensation for any other
period of three (3) consecutive years.
2.9 BENEFICIARY
"Beneficiary" shall mean the person or persons or legal entity designated as
such by a Participant and which is entitled to receive benefits under the Plan.
2.10 BOARD
"Board" shall mean the Board of Directors of the Employer. Board shall also mean
the sole proprietor of a sole proprietorship or the directing partners of a
partnership.
2.11 COMPENSATION
As elected by the Employer in the Adoption Agreement, Compensation will mean all
of each Participant's:
(A) W-2 earnings or
(B) Compensation (as that term is defined in section 415(c)(3) of the Code).
(1) For any Self-Employed Individual covered under the plan, compensation
will mean Earned Income. Compensation shall include only that Compensation which
is actually paid to the Participant during the applicable period. Except as
provided elsewhere in this Plan, the applicable period shall be the period
elected by the Employer in the Adoption Agreement. If the Employer makes no
election, the applicable period shall be the Plan Year.
(2) Notwithstanding the above, if elected by the Employer in the Adoption
Agreement, Compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is not includible in
the gross income of the Employee under Sections 125, 402(a)(8), 402(h) or 403(b)
of the Code.
(3) The annual Compensation of each Participant taken into account under the
Plan for any year shall not exceed $200,000, as adjusted by the Secretary at the
same time and in the same manner as under Section 415(d) of the Code. In
determining the Compensation of a Participant for purposes of this limitation,
the rules of Section 414(q)(6) of the Code shall apply, except in
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Defined Contribution Plan and Trust Document
applying such rules, the term "family" shall include only the Spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the integration level if this Plan
provides for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each such individual's Compensation as
determined under this Section 2.11 prior to the application of this limitation.
(C) Anything in Section 2.11(A) or (B) notwithstanding, for purposes of the
Short Form Adoption Agreement, "Compensation" shall mean Compensation as that
term is defined in Section 415(c)(3) of the Code which is actually paid to an
Employee during the Plan Year.
2.12 COVERED YEARS OF SERVICE "Covered Years of Service" shall mean each Year of
Service with which a Participant is credited for purposes of computing his
vested interest in his Accrued Benefit, as determined under the vesting schedule
specified in the Adoption Agreement.
2.13 EARLY RETIREMENT DATE
(A) "Early Retirement Date" shall mean the
Anniversary Date nearest the date on which a Participant meets the requirements
for early retirement specified in the Adoption Agreement.
(B) Anything in Section 2.13(A) notwithstanding, for purposes of the Short
Form Adoption Agreement, early retirement shall not be permitted under the Plan.
2.14 EARNED INCOME
"Earned Income" shall mean the net earnings from self-employment with the
Employer for which the personal services of the individual are a material income
producing factor. Net earnings will be determined without regard to items not
included in gross income and the deductions allocable to such items. Net
earnings are reduced by contributions by the Employer to a qualified plan to the
extent deductible under Code Section 404. Net earnings shall be determined with
regard to the deduction allowed to the Employer by Code Section 164(f) for
taxable years beginning after December 31, 1989.
2.15 EFFECTIVE DATE
"Effective Date" of the Plan shall mean the date
specified in the Adoption Agreement.
2.16 ELIGIBLE CLASS
"Eligible Class" shall mean any Employee who is not excluded from participation
under the Adoption Agreement.
2.17 EMPLOYEE
(A) "Employee" shall mean any employee of the Employer maintaining the Plan or
of any other employer required to be aggregated with such Employer as a related
business under Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any leased employee deemed to be an
employee of any employer described in the previous paragraph as provided in
sections 414(n) or (o) of the Code.
(B) Anything in Section 2.17(A) notwithstanding, for purposes of eligibility
under Section 6 of the Short Form Adoption Agreement, the term "Employee" shall
include all Employees of the Employer adopting the Plan and any other employer
aggregated with this Employer under Internal Revenue Code Section 414(b), (c),
or (m) and individuals required to be considered Employees of any such Employer
under Code Section 414(n).
2.18 EMPLOYER
"Employer" shall mean the Employer named in the
Adoption Agreement.
2.19 ENTRY DATE
"Entry Date" shall mean the date the Participant enters the Plan, as specified
in the Adoption Agreement.
2.20 ERISA
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 and any
amendments thereto.
2.21 FORMER PARTICIPANT
"Former Participant" shall mean any former Employee who is entitled to receive a
distribution from the Trust.
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Defined Contribution Plan and Trust Document
2.22 FUTURE SERVICE
"Future Service" shall mean each Year of Participation by an Active Participant
prior to his Normal Retirement Date.
2.23 HIGHLY COMPENSATED EMPLOYEE
(A) Highly Compensated Employee includes highly compensated active Employees
and highly compensated former Employees.
(B) A highly compensated active Employee includes any Employee who performs
service for the Employer during the determination year and who, during the
look-back year:
(1) Received Compensation from the Employer in
excess of $75,000 (as adjusted pursuant to section
415(d) of the Code);
(2) Received Compensation from the Employer in excess of $50,000 (as
adjusted pursuant to section 415(d) of the Code) and was a member of the
top-paid group for such year; or
(3) Was an officer of the Employer and received Compensation during such
year that is greater than 50 percent of the dollar limitation in effect under
section 415(b)(1)(A) of the Code.
(C) The term Highly Compensated Employee also includes:
(1) Employees who are both described in Section 2.23(B) if the term
"determination year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most Compensation from the
Employer during the determination year; and
(2) Employees who are 5 percent owners at any time during the look-back year
or determination year.
(D) If no officer has satisfied the Compensation requirement of Section
2.23(B)(3) above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a Highly Compensated
Employee.
(E) For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
determination year.
(F) A highly compensated former employee includes any Employee who separated
from service (or was deemed to have separated) prior to the determination year,
performs no service for the Employer during the determination year, and was a
highly compensated active Employee for either the separation year or any
determination year ending on or after the Employee's 55th birthday.
(G) If an Employee is, during a determination year or look-back year, a family
member of either a 5 percent owner who is an active or former Employee or a
Highly Compensated Employee who is one of the 10 most Highly Compensated
Employees ranked on the basis of Compensation paid by the Employer during such
year, then the family member and the 5 percent owner or top-ten Highly
Compensated Employee shall be aggregated. In such case, the family member and 5
percent owner or top-ten Highly Compensated Employee shall be treated as a
single Employee receiving Compensation and Plan contributions or benefits equal
to the sum of such Compensation and contributions or benefits of the family
member and 5 percent owner or top-ten Highly Compensated Employee. For purposes
of this Section 2.23(G), family member includes the spouse, lineal ascendants
and descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
(H) The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
Compensation that is considered, will be made in accordance with Section 414(q)
of the Code and the regulations thereunder.
2.24 HOUR OF SERVICE
(A) "Hour of Service" shall mean each Hour of Service for which:
(1) An Employee is directly or indirectly paid or entitled to payment by the
Employer for the performance of duties. These hours shall be credited to the
Employee for the period or periods in which the duties were performed;
(2) An Employee is paid or entitled to payment by the Employer on account of
a period of time during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty, Qualified
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Defined Contribution Plan and Trust Document
Leave of Absence, or other leave of absence. No more than five hundred one (501)
Hours of Service will be credited under this Section 2.24(A)(2) for a single
computation period (whether or not the period occurs in a single computation
period). These hours shall be credited to the Employee for the period or periods
the payment pertains to rather than the period or periods in which the payment
is made; and
(3) Back pay, irrespective of mitigation of damage, has been either awarded
or agreed to by the Employer. These hours shall be credited to the Employee for
the period or periods to which the award or agreement pertains. In no event
shall an Employee be credited with an Hour of Service under this Section
2.24(A)(3) for a period or periods in which he was credited with Hours of
Service under Section 2.24(A)(1) or 2.24(A)(2).
(B) Where the Employer uses this Plan to maintain a plan of a Predecessor
Employer, an Hour of Service for purposes of eligibility, vesting and accrual
for such Predecessor Employer shall be treated as an Hour of Service for the
Employer. Where the Employer is a member of a controlled group of corporations,
a group of trades or businesses under common control or an affiliated service
group, as defined in Code Section 414(b), (c) or (m), an Hour of Service for
purposes of eligibility or vesting for a member of the above groups shall be
treated as an Hour of Service for the Employer. Hours of Service will also be
credited for any individual considered an employee under Section 414(n) and any
other entity required to be aggregated with the Employer pursuant to Code
Section 414(o) and the regulations thereunder. Notwithstanding the foregoing,
nothing in this Section shall be construed as denying an Employee credit for
Hours of Service pursuant to Section 2530.200(b)-2 of the Department of Labor
Regulations which are hereby incorporated herein by this reference.
Nothing herein shall be construed as denying an Employee credit for an Hour of
Service if credit is required by separate federal law.
(C) Solely for purposes of determining whether a One Year Break in Service, as
defined in Section 2.34, for participation and vesting purposes has occurred in
a computation period, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight (8) Hours of Service per
day of such absence. For purposes of this Section 2.24(C), an absence from work
for maternity or paternity reasons means an absence:
(1) By reason of the pregnancy of the individual, (2) By reason of a birth
of a child of the individual, (3) By reason of the placement of a child with
the
individual in connection with the adoption of such child
by such individual, or
(4) For purposes of caring for such child for a period beginning immediately
following such birth or placement.
(D) The Hours of Service credited under Section 2.24(C), above, shall be
credited:
(1) In the computation period in which the absence begins if the crediting
is necessary to prevent a One Year Break in Service in that period, or
(2) In all other cases, in the following computation
period.
2.25 INACTIVE PARTICIPANT
"Inactive Participant" shall mean any current Employee who was a Participant in
the Plan who is currently excluded from participation as a result of his loss of
status as a member of the Eligible Class.
2.26 INSURER
"Insurer" shall mean any insurance company selected by the Administrator to
issue any life insurance or annuity contracts.
2.27 INVESTMENT MANAGER
"Investment Manager" shall mean any fiduciary (other
than the Trustee or Administrator):
(A) Who has the power to manage, acquire, or
dispose of any asset of the Plan;
(B) Who is (1) registered as an investment advisor under the Investment
Advisors Act of 1940; (2) is a bank as defined in that Act; or (3) is an
insurance company qualified to perform services described in paragraph 2.27(A),
above, under the laws of more than one state, and;
(C) Has acknowledged in writing that he is a fiduciary with respect to the
Plan.
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Defined Contribution Plan and Trust Document
2.28 JOINT AND SURVIVOR ANNUITY "Joint and Survivor Annuity" shall mean an
immediate annuity for the life of the Participant with a survivor annuity for
the life of his spouse which is not less than one-half (1/2), nor greater than,
the annuity payable during the joint lives of the Participant and his spouse.
The Joint and Survivor Annuity will be the amount of benefit which can be
purchased with the Participant's account balance. The percentage of the survivor
annuity shall be fifty percent (50%). The consent of the Participant's spouse is
required if the account balance is payable in any form other than a qualified
Joint and Survivor Annuity and the Plan is required by law to offer a Qualified
Joint and Survivor Annuity.
2.29 LATE RETIREMENT DATE
"Late Retirement Date" shall mean the first day of the month following a
Participant's separation from service with the Employer after his Normal
Retirement Date.
2.30 LIMITATION YEAR
(A) "Limitation Year" shall mean the twelve (12) consecutive month period
ending on the date specified in the Adoption Agreement.
(B) Anything in 2.30(A) notwithstanding, for purposes of the Short Form
Adoption Agreement "Limitation Year" shall mean the twelve (12) consecutive
month period ending on December 31.
2.31 NET PROFITS
"Net Profits" shall mean the current and accumulated earnings of the Employer
before Federal and State taxes and contributions to this Plan and any other
qualified Plan.
2.32 NORMAL RETIREMENT AGE
(A) "Normal Retirement Age" shall mean the age specified in the Adoption
Agreement. Notwithstanding the vesting schedule elected under the Adoption
Agreement, a Participant's Accrued Benefit shall be fully vested and
non-forfeitable upon attainment of his Normal Retirement Age. If the Employer
enforces a mandatory retirement age, the Normal Retirement Age is the lesser of
that mandatory age or the age specified in the Adoption Agreement.
(B) Anything in 2.32(A) notwithstanding, for purposes of the Short Form
Adoption Agreement, "Normal Retirement Age" shall mean age 65.
2.33 NORMAL RETIREMENT DATE
"Normal Retirement Date" shall mean the Anniversary
Date nearest the Participant's Normal Retirement Age.
2.34 ONE YEAR BREAK IN SERVICE
"One Year Break in Service" shall mean a twelve (12) consecutive month period
(computation period) during which a Participant has not completed more than 500
Hours of Service. For purposes of determining a One Year Break in Service, the
twelve (12) consecutive month computation period shall be the same computation
period used in determining Years of Service.
2.35 OWNER-EMPLOYEE
"Owner-Employee" shall mean a sole-proprietor or a partner who owns more than
ten percent (10%) of either the capital or profits interest of the Employer.
2.36 PARTICIPANT
(A) "Participant" shall mean any Employee who has fulfilled the eligibility
requirements as specified in the Adoption Agreement and has become a member of
the Plan.
(B) Anything in 2.36(A) notwithstanding, for purposes of the Short Form
Adoption Agreement, Participant shall not include any Employee who is included
in a unit of Employees covered by a collective bargaining agreement between the
Employer and Employee representatives, if retirement benefits were the subject
of good faith bargaining. For this purpose, the term "Employee Representative"
does not include any organization more than half of whose members are Employees
who are owners, officers or executives of the Employer.
2.37 PARTICIPANT ACCOUNT "Participant Account" shall mean the records maintained
to record a Participant's (or his Beneficiary's) interest in the Trust. Each
Participant (or, when applicable, Beneficiary) shall have an Employer
Contribution Account and, when applicable, a Participant Contribution Account, a
Participant Deductible Contribution Account and those accounts necessary for a
cash or deferred arrangement. If this
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Defined Contribution Plan and Trust Document
Plan is part of a qualified cash or deferred arrangement, Employee deferrals
shall be allocated to the Employer Contribution Account established for such
Participant.
2.38 PLAN
"Plan" shall mean this Prototype Defined Contribution Plan together with its
related Adoption Agreement, as adopted by the Employer.
2.39 PLAN YEAR
"Plan Year" shall mean the period between the Effective Date and the first
Anniversary Date following the Effective Date, and thereafter the twelve (12)
consecutive calendar month period ending on each subsequent Anniversary Date.
For periods prior to the Effective Date of the Plan, Plan Year shall mean each
12 month period ending on the Anniversary Date of the Plan, had the Plan then
been in place.
2.40 PREDECESSOR EMPLOYER
(A) "Predecessor Employer" shall mean any
predecessor corporation, partnership or sole proprietorship to the Employer. For
purposes of determining a Participant's Years of Service for eligibility and
Covered Years of Service for vesting, service with the Predecessor Employer
shall be considered service with the Employer, if elected in the Adoption
Agreement.
(B) Anything in Section 2.40(A) notwithstanding, for purposes of the Short
Form Adoption Agreement, service with a Predecessor Employer, as defined in
Section 2.40(A), shall be counted for purposes of eligibility Years of Service
and vesting (covered Years of Service).
2.41 PARTICIPANT CONTRIBUTION ACCOUNT "Participant Contribution Account" shall
mean that portion of the Participant Account which is established to record a
Participant's voluntary, nondeductible contributions to the Plan as adjusted for
allocations of
gains and losses and withdrawals.
2.42 QUALIFIED LEAVE OF ABSENCE "Qualified Leave of Absence" shall mean a leave
of absence granted by the Employer on a uniform basis for service in the Armed
Forces, or for sickness, accident, or other cause, provided, however, that a
Participant granted such leave of absence for service in the Armed Forces shall
be required to report for work within ninety (90) days following the date he was
first eligible for discharge from such service; and provided further that any
Active Participant or Inactive Participant who fails to return to active
employment at or before the expiration of his leave of absence, shall, for the
purposes of this Plan, be deemed to have terminated his employment as of the
date of commencement of his leave of absence; provided further, however, that
should he fail to return to work because of death or disability, his service,
and participation if he was an Active Participant at the time such leave of
absence commenced, shall be deemed to have continued until the date of his death
or of the termination of his employment for disability. In granting Qualified
Leaves of Absence pursuant to the provisions of this paragraph, the Employer
shall not discriminate as between individuals covered by the Plan, and shall
apply the same rules with respect to Qualified Leaves of Absence to all
individuals covered thereby.
2.43 SELF-EMPLOYED INDIVIDUAL
"Self-Employed Individual" means any person who has Earned Income from the
Employer for which the Plan is established for the taxable Year or who would
have had Earned Income but for the fact that the Employer had no net profits for
the taxable Year.
2.435 SHORT FORM ADOPTION AGREEMENT "Short Form Adoption Agreement" shall mean
Money Purchase Pension Plan Adoption Agreement 001 and Profit Sharing Adoption
Agreement 003.
2.44 SOCIAL SECURITY COVERED
COMPENSATION
"Social Security Covered Compensation" shall mean
either:
(A) The amount of Compensation which would be used to calculate the
Participant's old age and survivor insurance benefits under the Social Security
Act if the Participant's annual compensation for each year until age sixty-five
(65) equaled the taxable wage base. Social Security Covered Compensation shall
be determined according to the table specified in the Adoption Agreement.
However, no amendment increasing the amount of Social Security Covered
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Defined Contribution Plan and Trust Document
Compensation shall reduce anyone's Accrued Benefit under the Plan.
(B) The dollar amount specified in the Adoption Agreement. Such amount shall
not exceed the maximum Social Security Covered Compensation under Section
2.44(A) above for the oldest possible Participant in the Plan. No amendment
which increases a Participant's Social Security Covered Compensation shall
reduce the Accrued Benefit of any Participant.
2.45 TAXABLE WAGE BASE
"Taxable Wage Base" shall mean the maximum amount of earnings which may be
considered wages for such Year under Code Section 3121(a)(1) in effect as of the
beginning of the Plan Year.
2.46 TOTAL AND PERMANENT DISABILITY "Total and Permanent Disability" shall mean
a disability where a licensed medical practitioner satisfactory to the
Administrator certifies:
(A) That a Participant has become totally disabled by bodily injury or disease
so as to be prevented from engaging in any occupation suited to him by reason of
education, training and experience.
(B) That such disability can be expected to result in death or shall have
continued or be expected to continue for a period of not less than twelve (12)
consecutive months, and will be permanent and continuous during the remainder of
his lifetime. The rules with respect to disability shall be uniformly and
consistently applied to all Participants in similar circumstances. If the Plan
is integrated with Social Security, the Participant must have commenced to
receive disability benefits under the Federal Old Age Survivor and Disability
Insurance Act.
2.47 TRUST
"Trust" shall mean the legal entity created under the trust agreement relating
to the Plan to hold all monies, securities, and assets held by the Trustee for
the benefit of Participants and Beneficiaries.
2.48 TRUSTEE
"Trustee" shall mean the Trustee(s) appointed by the Board under the trust
agreement relating to the Plan and any duly appointed successor(s). 2.49 YEAR
"Year" shall mean twelve (12) consecutive calendar months.
2.50 YEAR OF SERVICE
(A) "Year of Service" shall mean each Plan Year in which an Employee is
credited with at least one thousand (1000) Hours of Service, unless a lesser
number of Hours of Service is elected in the Adoption Agreement. For purposes of
determining an Employee's eligibility to participate in the Plan, Year of
Service shall also mean the twelve (12) consecutive months of employment with
the Employer beginning on the date for which the Employee is first credited with
an Hour of Service for the Employer (Employment Commencement Date) and ending on
the anniversary of such date during which he is credited with at least one
thousand (1000) Hours of Service or the Hours of Service specified in the
Adoption Agreement as constituting a Year of Service, if less than one thousand
(1000). For purposes of computing an Employee's nonforfeitable right to the
account balance derived from Employer contributions, Years of Service and One
Year Breaks in Service will be measured by the Plan Year.
(B) Short Form Adoption Agreement.
(1) Anything in Section 2.50(A) notwithstanding,
for purposes of the Short Form Adoption Agreement, a Year of Service shall mean
each Plan Year in which an Employee is credited with at least one thousand
(1000) Hours of Service.
(2) If the Years of Service selected in Option 6.2 of the Short Form
Adoption Agreement is or includes a fraction of a Year of Service, an Employee
shall not be required to complete any specified number of Hours of Service to
receive credit for such fractional year.
(C) Where this definition is used for purposes of contributions and
allocations, it is possible that the Plan can fail the nondiscrimination tests
under Code Sections 401(a)(26) and 410(b) by creating a group of nonbenefitting
employees who have not incurred a Break in Service and because of the Year of
Service requirement, are not entitled to receive an allocation of the Employer
contribution.
Each Nonstandard Adoption Agreement shall specifically address and remedy
this problem so that the Plan will pass the required nondiscrimination tests.
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Defined Contribution Plan and Trust Document
Each Standardized and Standardized Short Form Adoption Agreement will require
that a Participant who has not incurred a Break in Service will be entitled to
receive an allocation of the Employer contribution.
3.0 ELIGIBILITY
3.1 ELIGIBILITY REQUIREMENTS
(A) Initial Eligibility. An Employee shall become a Participant in the Plan on
the Entry Date coinciding with or next following the date he satisfies the
requirements for eligibility specified in the Adoption Agreement, provided that
he is then a member of the Eligible Class. For purposes of determining Years of
Service and One Year Breaks in Service for purposes of eligibility, the initial
eligibility computation period is the twelve (12) consecutive month period
beginning on the date the Employee first performs an Hour of Service for the
Employer (Employment Commencement Date).
(B) Subsequent Eligibility. An Employee who fails to meet the requirements for
participation in the Plan on the Entry Date on which he would otherwise commence
participation in the Plan shall become a Participant on the Entry Date
coinciding with or next following his completion of twelve (12) consecutive
month period commencing on the date the Participant is first credited with one
(1) Hour of Service with the Employer (Employment Commencement Date) and each
subsequent anniversary thereof. The succeeding twelve (12) consecutive month
periods commence with the first anniversary of the Employee's Employment
Commencement Date.
Where an Employer has specified an eligibility computation period which is
greater than one (1) Year of Service, the number of Years of Service (and
fractions thereof, if any,) specified in the Adoption Agreement shall be
substituted for one (1) Year of Service in Section 3.1 (B), above.
(C) All Years of Service with the Employer are counted toward eligibility
except the following:
(1) If an Employee has a One Year Break in Service before satisfying the
Plan's requirement for eligibility, service before such break will not be taken
into account. This Section 3.1(C)(1) shall apply only if a participant is 100%
vested upon completion of not more than two (2) Years of Service.
(2) In the case of a Participant who does not have any nonforfeitable right
to the account balance derived from Employer contributions, Years of Service
before a period of consecutive One Year Breaks in Service will not be taken into
account in computing eligibility service if the number of consecutive One Year
Breaks in Service in such period equals or exceeds the greater of 5 or the
aggregate number of Years of Service. Such aggregate number of Years of Service
will not include any Years of Service disregarded under the preceding sentence
by reason of prior breaks in service.
(3) If a Participant's Years of Service are disregarded pursuant to the
preceding paragraph, such Participant will be treated as a new Employee for
eligibility purposes. If a Participant's Years of Service may not be disregarded
pursuant to the preceding paragraph, such Participant shall continue to
participate in the Plan, or, if terminated, shall participate immediately upon
reemployment.
3.2 RE-ELIGIBILITY
If a Participant terminates employment, incurs a One Year Break in Service and
is subsequently re-employed, such Former Participant shall become a Participant
immediately upon his re-employment.
In the event an Active Participant becomes ineligible to participate because
he is no longer a member of the Eligible Class, but has not incurred a One Year
Break in Service, such Employee shall again become an Active Participant as of
the date on which he again becomes a member of the Eligible Class. If such
Participant incurs a One Year Break in Service, eligibility will be determined
under the break in service rules of the Plan. In the event an Employee who is
not a member of the Eligible Class becomes a member of the Eligible Class, such
Employee shall participate immediately if such Employee has satisfied the
requirements for eligibility specified in the Adoption Agreement and would have
previously become an Active Participant had he then been a member of the
Eligible Class.
3.3 LEAVE OF ABSENCE
If an Employee leaves the employment of the Employer for the expressed purpose
of a Qualified Leave of Absence authorized by the Employer, or for the expressed
purpose of entering the Armed Forces and
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Defined Contribution Plan and Trust Document
serves therein, the time spent on such Qualified Leave of Absence or the time
spent in the Armed Forces shall be included in determining his eligibility to
participate in the Plan, provided that re-employment occurs within ninety (90)
days following such Qualified Leave of Absence. If re-employment does not occur
within said ninety (90) day period, his rights under the Plan, if any, shall be
determined as of the date the absence began. All Employees, under similar
circumstances, shall be treated alike according to uniform and impartial rules.
4.0 FUNDING
4.1 CONTRIBUTION FORMULA
(A) Profit Sharing Plan. The Employer contribution for each Plan Year will be
such amount as may be approved by the Board, in its sole discretion, without
regard to the Net Profits of the Employer. In no event, however, shall such
contribution exceed, in total, the maximum amount which is deductible under Code
Section 404. Except as required by Section 8.5, no contribution shall be made on
behalf of a Participant who has not been credited with a Year of Service during
the Plan Year for which the contribution is made.
(B) Money Purchase Pension Plan. The Employer contribution for each Plan Year
shall be determined according to the formula specified in the Adoption
Agreement.
(C) Target Benefit Pension Plan. The Employer contribution for each Plan Year
shall be determined according to the formula specified in the Adoption
Agreement.
4.2 FORFEITURES
Forfeitures shall be added to the Employer contribution for the current Plan
Year and allocated therewith, in accordance with the Adoption Agreement.
Forfeitures arising hereunder will be allocated only for the benefit of
Employees of the Employer who adopted this Plan.
4.3 MISTAKE OF FACT
In the event that the Employer shall make a contribution by reason of a mistake
of fact, the Employer shall be entitled to recover from the Trustee that portion
of the contribution contributed by virtue of the mistake of fact within one (1)
Year of the date the contribution is made by reason of a mistake of fact.
4.4 DISALLOWANCE OF DEDUCTION
In the event that the deduction for a contribution made by the Employer is not
allowed under Section 404(a) of the Code, the Employer shall be entitled to
recover from the Trustee that portion of such contribution which is in excess of
the allowable deduction under Section 404(a) of the Code within one (1) Year of
the date the deduction is disallowed. However, any income attributable to the
portion of the contribution made in excess of the allowable deduction shall not
revert to the Employer and any loss attributable thereto shall be used to reduce
the amount to be returned.
4.5 VOLUNTARY CONTRIBUTIONS
(A) Beginning with the Plan Year in which this Plan is adopted by the
Employer, this Plan will no longer accept nondeductible Employee contributions
and matching contributions. Employee contributions for Plan Years beginning
after December 31, 1986, together with any matching contributions as defined in
Section 401(m) of the Code, will be limited so as to meet the nondiscrimination
test of section 401(m).
(B) A separate "Participant Contribution Account" shall be maintained by the
Trustee for the nondeductible voluntary contributions of each Participant. The
assets of the Trust shall be valued annually at fair market value as of the last
day of the Plan Year. On such date, the earnings and losses attributable to the
Participant Contribution Account will be added to each Participant's Participant
Contribution Account in the ratio that such account balance bears to all such
account balances. The total market value of the Employee contributions shall be
nonforfeitable at all times. No forfeitures will occur solely as a result of a
Participant's withdrawal of voluntary contributions.
(C) A Participant may request withdrawal of an amount not to exceed the lesser
of the total amount of actual contributions made by him or the total market
value of said contributions, subject to the following conditions:
(1) The Participant shall bear the administrative expense incident to this
withdrawal of contributions.
(2) Each Participant shall be limited to one such
withdrawal in any Plan Year.
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Defined Contribution Plan and Trust Document
(D) Subject to the Joint and Survivor Annuity requirements of Section 5.7, but
notwithstanding any other provisions of this Plan to the contrary, the
Participant Contribution Account, adjusted for gains and losses, of a
Participant shall be paid to him, as the Administrator shall direct, upon his
termination of employment for any reason (including retirement), or to his
beneficiary in the event of his death while a Participant. (E) Neither the
Employer, the Trustee, nor the Administrator to any extent warrants or
represents that the value of a Participant Contribution Account at any time
shall equal the total of the amounts previously credited thereto.
(F) All amount allocated to the Participant's Participant Contribution Account
shall be invested in the same manner as Employer contributions to the Plan
unless directed by the Participant pursuant to the provisions of Section 4.11.
4.6 QUALIFIED VOLUNTARY EMPLOYEE
CONTRIBUTIONS
The Administrator will not accept deductible employee contributions which are
made for a taxable year beginning after December 31, 1986. Contributions made
prior to that date will be maintained in a separate account which will be
nonforfeitable at all times. The assets of the trust will be valued annually at
fair market value as of the last day of the Plan Year. On such date, the
earnings and losses of the trust attributable to the accumulated deductible
voluntary contribution will be allocated to each Participant's deductible
voluntary contributions account in the ratio that such account balance bears to
all such account balances. No part of the deductible voluntary contribution
account will be used to purchase life insurance. Subject to Section 5.7, Joint
and Survivor Annuity requirements (if applicable), the Participant may withdraw
any part of the deductible voluntary contribution account by making a written
application to the Plan Administrator.
4.7 ROLLOVER ACCOUNT
(A) If permitted by the Administrator and under rules established by the
Administrator on a non-discriminatory basis, any Employee who is or will become
eligible to participate in the Plan may at the sole discretion of the
Administrator roll over to the Trust any lump sum distribution received by such
Employee from a tax-qualified plan under Code Section 401(a) or 408(k), an
annuity plan qualified under Code Section 403(a) or 403(b) or accumulated
deductible employee contributions as defined in Code Section 72(o)(5) that were
distributed from a qualified retirement plan and rolled over pursuant to Code
Sections 402(a)(5), 402(a)(7), 403(a)(4) or 408(d)(3) within sixty (60) days of
the date such distribution occurred. Provided, however, that any Employee who
transferred such lump sum distribution into an Individual Retirement Account
under Code Section 408 within sixty (60) days of the date such distribution
occurred may rollover such transferred amount to this Plan. The Plan will not
accept rollovers of accumulated deductible employee contributions from a plan in
which the Employee was covered as a Self-Employed Individual under Code Section
401(c).
(B) The Employee's rollover contribution shall be maintained in a separate
"Rollover Account" in which the Employee will be one hundred percent (100%)
vested at all times.
(C) An Employee may withdraw his Rollover Account at any time with the
approval of the Administrator, in its sole discretion.
(D) An Employee shall receive the benefits attributable to his Rollover
Account in the manner specified in Section 5.2 and at the time specified in
Section 5.3 of the Plan.
(E) All amounts allocated to an Employee's Rollover Account shall be invested
in the same manner as Employer contributions to the Plan unless directed by the
Participant pursuant to the Provisions of Section 4.11.
4.8 EMPLOYER CONTRIBUTION ACCOUNT A separate Employer Contribution Account shall
be opened and maintained by the Administrator for each Participant who has
become eligible to participate in the Plan in which shall be recorded the
amounts of the Employer's contribution allocated to such Participant,
adjustments for allocation of Trust earnings, forfeitures, distributions, and
all other information affecting the value of such Employer Contribution Account.
This account shall include such subaccounts as required to meet accounting rules
for the plan.
4.9 ALLOCATION OF CONTRIBUTIONS AND
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Defined Contribution Plan and Trust Document
FORFEITURES
(A) The Employer's contributions to the Trust for each Plan Year, together
with any forfeitures, shall be allocated to the Employer Contribution Account
for each Active Participant as specified in the Adoption Agreement.
(B) Anything in Section 4.9(A) notwithstanding, for purposes of the Short Form
Adoption Agreement, Employer contributions shall be allocated among Participant
Accounts in the ratio which each Active Participant's Compensation bears to the
Compensation
paid to all Active Participants.
4.10 ALLOCATION OF TRUST GAINS AND
LOSSES
(A) The Participant's account balance attributable to his Employer
Contribution Account, Participant Contribution Account, Participant Deductible
Contribution Account and his Rollover Account (Participant Account) shall be
determined on each Anniversary Date in the following manner:
(1) The Participant's Participant Account on the
preceding Anniversary Date; plus
(2) Any contributions to such Participant's Participant Account with respect
to the Plan Year ended on the current Anniversary Date; minus
(3) The amount of any withdrawals from such Participant Account during the
Plan Year ended on the current Anniversary Date; plus or minus
(4) The Participant's pro-rata share of the earnings or losses of that
portion of the Trust, since the preceding Anniversary Date, attributable to all
Participant Accounts, as determined under Section
4.10(B).
(B) The earnings or losses of the Trust fund attributable to Participant
Accounts shall be valued annually at fair market value and allocated as of the
last day of each Plan Year and any other interim date selected by the
Administrator for valuing the Trust ("Valuation Date") to each Participant in
the ratio that his Participant Account on such Valuation Date bears to the total
of all Participant Accounts on such Valuation Date. For purposes of this Section
4.10(B), in determining a Participant's Participant Account on such Valuation
Date, any Participant contributions or rollovers actually contributed subsequent
to the next preceding Valuation Date shall be disregarded.
4.11 SEGREGATION OF PARTICIPANT
ACCOUNTS
(A) Subject to uniform rules established by the Administrator on a
non-discriminatory basis, a Participant may request, subject to the approval of
the Administrator, that his Participant Account and/or Participant Deductible
Contribution Account and/or his Rollover Account be segregated in a separate
account. The Administrator shall establish rules regarding the manner and the
times by which such request can be made and/or revoked. The Plan Administrator
shall adopt rules and regulations concerning all aspects of the segregated
account including the adjustment of the segregated account for earnings and
losses generated by the general Trust Fund if and where applicable. If the Plan
Administrator authorized the segregation of any such Participant's account, such
Participant shall have the full authority to direct the investment of such
segregated account, held on his behalf, by written instruction delivered to the
Trustee, in which event the Trustee shall follow, as soon as practicable, the
directions of the Participant with respect to the investment of such segregated
account; provided, however, that such an investment is not prohibited by statute
or by any other provision of the Plan and Trust. In so doing, the Trustee shall
be completely exonerated from any liability and held harmless by the Participant
and the Plan Administrator with respect to such investments. Contributions made
during the period in which a segregated account is maintained for the
Participant shall be allocated appropriately to such segregated account.
Notwithstanding the provisions of Section 4.10, the Participant's applicable
segregated account shall be increased and/or decreased solely by the net
earnings and/or losses resulting from the investments of the segregated account.
All expenses incurred as a result of such an election and operation of the
segregated account shall be charged to and deducted directly from said account.
Upon retirement of the Participant, if any of his account balances are still
segregated, his benefits shall be equal to the assets in his segregated account.
(B) For purposes of the Short Form Adoption Agreement, each Participant will
have a separate Individual Investment Account which will contain the
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Defined Contribution Plan and Trust Document
amount allocated to the Participant Account. Each Participant will have the
power to direct the investment with respect to his Individual Investment
Account, as provided in Section 4.11(A).
5.0 BENEFIT
5.1 AMOUNT OF DISTRIBUTION
(A) A Participant who attains Normal Retirement Age or who terminates his
employment with the Employer by reason of death or Total and Permanent
Disability shall be entitled to receive one hundred percent (100%) of the amount
credited to his Employer Contribution Account as of the preceding valuation date
together with one hundred percent (100%) of the amounts credited to his
Participant Contribution Account and his Participant Deductible Contribution
Account, if any.
(B) A Participant who terminates his employment with the Employer for any
reason other than death, Total and Permanent Disability or attainment of Normal
Retirement Age will be entitled to receive his vested account balance.
(C) For purposes of the Short Form Adoption Agreement, a Participant shall be
vested 100% in his account balance at all times.
(D) Anything in this Plan and Trust to the contrary
notwithstanding;
(1) A Participant under a Profit Sharing Plan may be able to take an
in-service withdrawal of the funds which have accumulated in the Plan after two
years provided that
(a) such a distribution is on account of hardship,
and
(b) the Administrator approves such hardship as
qualifying under the plan.
(2) For purposes of this Section 5.1(D), a distribution will be on account
of hardship if the distribution is necessary in light of immediate and heavy
financial needs of the Employee. A distribution based upon financial hardship
cannot exceed the amount required to meet the immediate need created by the
hardship and the Employee lacks other available resources.
5.2 FORM OF BENEFIT
(A) If this plan is a new profit sharing plan or an amended profit sharing
plan which does not and has never permitted benefit forms subject to the joint
and survivor requirements of Code Sections 401(a)(11) or 417, and meets the
requirements of Section 5.7(F) of this Plan, the Participant may elect to
receive his benefit in one of the following optional forms:
(1) a single lump sum payment, or
(2) substantially equal monthly, quarterly or annual
installments over a period of years not to exceed the life expectancy of the
Participant or that of the Participant and his spouse.
(B) In all cases to which Section 5.2(A) does not apply, notwithstanding
anything in this document to the contrary, the Participant may elect, subject to
the requirements of Section 5.7 of this document, to receive his benefit in one
of the following optional forms:
(1) In the form of a single lump sum payment;
(2) In the form of substantially equal monthly,
quarterly or annual installments over a period of years which does not exceed
the life expectancy of the Participant or the life expectancy of the Participant
and his spouse;
(3) In the form of an annuity for the life of the
Participant;
(4) In the form of an annuity for the life of the Participant, with the
provision that if he dies prior to having received monthly benefit payments for
a period of five (5), ten (10) or fifteen (15) years, the benefit payments
remaining for the balance of the specified period shall continue to be paid to
his Beneficiary;
(5) In the form of a Joint and Survivor Annuity where the monthly amount
payable to the contingent annuitant is fifty percent (50%) or one hundred
percent (100%) of the amount payable during the joint lives of the Participant
and the contingent annuitant.
(C) The terms of any annuity contract purchased and distributed by the Plan to
a Participant or spouse shall comply with the requirements of this Plan.
If the Participant's Benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be made in
accordance with the requirements of section 401(a)(9) of the Code and the
Proposed Regulations thereunder.
5.3 DISTRIBUTION OF BENEFITS
(A) Unless the Participant elects otherwise,
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Defined Contribution Plan and Trust Document
distribution of benefits will begin no later than the 60th day after the latest
of the close of the Plan Year in which:
(1) The Participant attains age 65 (or Normal
Retirement Age, if earlier);
(2) Occurs the 10th anniversary of the year in which
the Participant commenced participation in the Plan;
or,
(3) The Participant terminates service with the Employer. Notwithstanding
the foregoing, the failure of a Participant and spouse to consent to a
distribution while a benefit is immediately distributable, within the meaning of
section 5.4(D) of the Plan, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy this Section.
A Participant who has satisfied the service requirement for Early Retirement,
but separated from service (with any non-forfeitable right to his Accrued
Benefit) before satisfying the age requirement for such Early Retirement, shall
be entitled to elect upon the satisfaction of such age requirement a benefit
equal to the benefit to which he would be entitled at Normal Retirement Age. Any
annuity contract distributed under this Plan shall be non-transferable.
(B) Subject to Section 5.7, Joint and Survivor Annuity Requirements, the
requirements of this Section 5.3 shall apply to any distribution of a
Participant's interest and will take precedence over any inconsistent provisions
of this Plan. Unless otherwise specified, the provisions of this Section 5.3
apply to calendar years beginning after December 31, 1984.
All distributions required under this Section 5.3 shall be determined and made
in accordance with the Proposed Regulations under Section 401(a)(9) of the Code,
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the
Proposed Regulations.
(C) Required Beginning Date. The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's required
beginning date.
(D) Limits on Distribution Periods. As of the first distribution calendar
year, distributions, if not made in a single-sum, may only be made over one of
the following periods (or a combination thereof):
(1) The life of the Participant,
(2) The life of the Participant and a designated
Beneficiary,
(3) A period certain not extending beyond the life
expectancy of the Participant, or
(4) A period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated Beneficiary.
(E) Determination of amount to be distributed each year. If the Participant's
interest is to be distributed in other than a single sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(1) Individual Account.
(a) If a Participant's benefit is to be distributed over (i) a period not
extending beyond the life expectancy of the Participant or the joint life and
last survivor expectancy of the Participant and the Participant's designated
Beneficiary or (ii) a period not extending beyond the life expectancy of the
designated Beneficiary, the amount required to be distributed for each calendar
year, beginning with distributions for the first distribution calendar year,
must at least equal the quotient obtained by dividing the Participant's benefit
by the applicable life expectancy.
(b) For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least 50% of the present value of the
amount available for distribution is paid within the life expectancy of the
Participant.
(c) For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with distributions for the first distribution
calendar year shall not be less than the quotient obtained by dividing the
Participant's benefit by the lesser of:
(i) The applicable life expectancy or
(ii) If the Participant's spouse is not the designated
Beneficiary, the applicable divisor determined from the table set forth in Q&A-4
of section 1.401(a)(9)-2 of the Proposed Regulations. Distributions after the
death of the Participant shall be distributed using the applicable life
expectancy in section 5.3(E)(1)(a) above as the relevant divisor without regard
to Proposed Regulations section 1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the Participant's required
beginning
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Defined Contribution Plan and Trust Document
date. The minimum distribution for other calendar years, including the minimum
distribution for the distribution calendar year in which the Employee's required
beginning date occurs, must be made on or before December 31 of that
distribution calendar year.
(2) If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be made in
accordance with the requirements of section 401(a)(9) of the Code and the
Proposed Regulations thereunder.
(F) Death Distribution Provisions.
(1) Distribution beginning before death. If the
Participant dies after distribution of his interest has begun, the remaining
portion of such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the Participant's death.
(2) Distribution beginning after death. If the Participant dies before
distribution of his interest begins, distribution of the Participant's entire
interest shall be completed by December 31 of the calendar year containing the
fifth anniversary of the Participant's death except to the extent that an
election is made to receive distributions in accordance with (a) or (b) below:
(a) If any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life or over a period
certain not greater than the life expectancy of the designated Beneficiary
commencing on or before December 31 of the calendar year immediately following
the calendar year in which the Participant died;
(b) If the designated Beneficiary is the Participant's surviving Spouse,
the date distributions are required to begin in accordance with (a) above shall
not be earlier than the later of (1) December 31 of the calendar year
immediately following the calendar year in which the Participant died and (2)
December 31 of the calendar year in which the Participant would have attained
age 70 1/2.
If the Participant has not made an election pursuant to this Section 5.3(F)(2)
by the time of his or her death, the Participant's designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
Section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(3) For purposes of Section 5.3(F)(2) above, if the surviving spouse dies
after the Participant, but before payments to such spouse begin, the provisions
of Section 5.3(F)(2), with the exception of paragraph (b) therein, shall be
applied as if the surviving spouse were the Participant.
(4) For purposes of this Section (F), any amount paid to a child of the
Participant will be treated as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse when the child reaches the
age of majority.
(5) For the purposes of this Section (F), distribution of a Participant's
interest is considered to begin on the Participant's required beginning date
(or, if Section 5.3(F)(3) above is applicable, the date distribution is required
to begin to the surviving spouse pursuant to Section 5.3(F)(2) above). If
distribution in the form of an annuity irrevocably commences to the Participant
before the required beginning date, the date distribution is considered to begin
is the date distribution actually commences.
(G) Definitions
(1) Applicable life expectancy. The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Participant (or
designated Beneficiary) as of the Participant's (or designated Beneficiary's)
birthday in the applicable calendar year reduced by one for each calendar year
which has elapsed since the date life expectancy was first calculated. If life
expectancy is being recalculated, the applicable life expectancy shall be the
life expectancy as so recalculated. The applicable calendar year shall be the
first distribution calendar year, and if life expectancy is being recalculated
such succeeding calendar year.
(2) Designated beneficiary. The individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and
the regulations thereunder.
(3) Distribution calendar year. A calendar year for
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Defined Contribution Plan and Trust Document
which a minimum distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the calendar year
immediately preceding the calendar year which contains the Participant's
required beginning date. For distributions beginning after the Participant's
death, the first distribution calendar year is the calendar year in which
distributions are required to begin pursuant to Section F above.
(4) Life expectancy. Life expectancy and joint and last survivor expectancy
are computed by use of the expected return multiples in Tables V and VI of
Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or spouse, in the case of
distributions described in Section 5.3(F)(2)(b) above) by the time distributions
are required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or spouse) and shall apply
to all subsequent years. The life expectancy of a nonspouse Beneficiary may not
be recalculated.
(5) Participant's benefit.
(a) The account balance as of the last valuation date in the calendar year
immediately preceding the distribution calendar year (valuation calendar year)
increased by the amount of any contributions or forfeitures allocated to the
account balance as of dates in the valuation calendar year after the valuation
date and decreased by distributions made in the valuation calendar year after
the valuation date.
(b) Exception for second distribution calendar year. For purposes of
paragraph (a) above, if any portion of the minimum distribution for the first
distribution calendar year is made in the second distribution calendar year on
or before the required beginning date, the amount of the minimum distribution
made in the second distribution calendar year shall be treated as if it had been
made in the immediately preceding distribution calendar year.
(6) Required beginning date.
(a) General rule. The required beginning date of a Participant is the
first day of April of the calendar year following the calendar year in which the
Participant attains age 70 1/2.
(b) Transitional rule. The required beginning date of a Participant who
attains age 70 1/2 before January 1, 1988, shall be determined in accordance
with (i) or (ii) below:
(i) Non-5-percent owners. The required beginning date of a Participant
who is not a "5-percent owner" (as defined in (c) below) is the first day of
April of the calendar year following the calendar year in which the later of
retirement or attainment of age 70 1/2 occurs.
(ii) 5-percent owners. The required beginning date of a Participant who
is a 5-percent owner during any year beginning after December 31, 1979, is the
first day of April following the later of:
(1) The calendar year in which the Participant
attains age 70 1/2, or
(2) The earlier of the calendar year with or within which ends the
Plan Year in which the Participant becomes a 5-percent owner, or the calendar
year in which the Participant retires.
The required beginning date of a Participant who is not a 5-percent owner who
attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is
April 1, 1990.
(c) 5-percent owner. A Participant is treated as a 5-percent owner for
purposes of this Section if such Participant is a 5-percent owner as defined in
Section 416(i) of the Code (determined in accordance with Section 416 but
without regard to whether the Plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age 66
1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this Section,
they must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
(H) Transitional Rule
(1) Notwithstanding the other requirements of this Section 5.3 and subject
to the requirements of Section 5.7, Joint and Survivor Annuity Requirements,
distribution on behalf of any Employee, including a 5-percent owner, may be made
in accordance with all of the following requirements (regardless of when such
distribution commences):
(a) The distribution by the trust is one which would not have disqualified
such trust under Section 401(a)(9) of the Internal Revenue Code as in effect
prior to amendment by the Deficit Reduction Act of 1984.
(b) The distribution is in accordance with a method
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Defined Contribution Plan and Trust Document
of distribution designated by the Employee whose interest in the trust is being
distributed or, if the Employee is deceased, by a Beneficiary of such Employee.
(c) Such designation was in writing, was signed by
the Employee or the Beneficiary, and was made before
January 1, 1984.
(d) The Employee had accrued a benefit under the
Plan as of December 31, 1983.
(e) The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distribution will commence, the period
over which distributions will be made, and in the case of any distribution upon
the Employee's death, the Beneficiaries of the Employee listed in order of
priority.
(2) A distribution upon death will not be covered by this transitional rule
unless the information in the designation contains the required information
described above with respect to the distributions to be made upon the death of
the Employee.
(3) For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee, or the Beneficiary, to whom
such distribution is being made, will be presumed to have designated the method
of distribution under which the distribution is being made if the method of
distribution was specified in writing and the distribution satisfies the
requirements in Sections 5.3(H)(1)(a) and (e).
(4) If a designation is revoked any subsequent distribution must satisfy the
requirements of Section 401(a)(9) of the Code and the Proposed Regulations
thereunder. If a designation is revoked subsequent to the date distributions are
required to begin, the trust must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Section 401(a)(9) of the Code and the Proposed Regulations thereunder,
but for the Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum distribution
incidental benefit requirements in Section 1.401(a)(9)-2 of the Proposed
Regulations. Any changes in the designation will be considered to be a
revocation of the designation. However, the mere substitution or addition of
another Beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which distributions are
to be made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount is
transferred or rolled over from one plan to another plan, the rules in Q&A J-2
and Q&A J-3 of Section 1.401(a)(9)-1 of the Proposed Regulations shall apply.
5.4 VESTING ON TERMINATION AND
RE-EMPLOYMENT
(A) If a Participant terminates employment, incurs a One Year Break in Service
and is subsequently re-employed, Covered Years of Service completed prior to
such break shall not be counted for vesting purposes until such time as the
Participant has been re-employed by the Employer and has completed a Year of
Service after his return to service. Such Year of Service will be measured by
the twelve (12) month period beginning on the first day on which the Employee is
credited with an Hour of Service for the performance of duties after the first
eligibility computation period in which the Employee incurs a One Year Break in
Service and on each subsequent anniversary of such date. After that time, that
Year of Service shall be counted as a Covered Year of Service for vesting
purposes, and all Covered Years of Service prior to the One Year Break in
Service, except as provided in paragraph (C) below, shall be included in the
aggregate of Covered Years of Service for vesting purposes.
(B) If an Employee terminates service:
(1) And the value of the Employee's Employer
Contribution Account and Participant Contribution Account is not greater than
$3,500, the Employee will receive a distribution of the value of the entire
vested portion of such account balance and the non-vested portion will be
treated as a forfeiture. For purposes of this Section 5.4(B)(1), if the value of
a Participant's vested account balance is zero, the Employee shall be deemed to
have received a distribution of such vested account balance. A Participant's
vested account balance shall not include accumulated deductible employee
contributions within the meaning of Section 7.2(o)(5)(B) of the Code for Plan
Years beginning
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Defined Contribution Plan and Trust Document
prior to January 1, 1989.
(2) And elects, in accordance with the requirements of Section 5.4(D), to
receive the value of the Employee's Employer Contribution Account and
Participant Contribution Account, the non-vested portion will be treated as a
forfeiture. If the Employee elects to have distributed less than the entire
vested portion of the Employer Contribution Account, the part of the non-vested
portion that will be treated as a forfeiture is the total non-vested portion
multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to Employer contributions and the denominator of which
is the total value of the vested Employer Contribution Account.
(3) And receives or is deemed to receive a distribution pursuant to this
Section 5.4(B) which is less than the value of the Employee's account balance
derived from Employer contributions, and resumes employment covered under this
Plan, the Employee's account will be restored to the amount on the date of
distribution if the Employee repays to the Plan the full amount of the
distribution on or before the Employee incurs five (5) consecutive One Year
Breaks in Service following the date of distribution.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100 percent of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(a) A separate account will be established for the
Participant's interest in the Plan as of the time of the
distribution, and
(b) At any relevant time the Participant's nonforfeitable portion of the
separate account will be equal to an amount ("X") determined by the formula:
X=P(AB + (R x D)) - (R x D)
For purposes of applying the formula: P is the nonforfeitable percentage at
the relevant time, AB is the account balance at the relevant time, D is the
amount of the distribution, and R is the ratio of the account balance at the
relevant time to the account balance after distribution.
(C) In the case of a Participant who has 5 or more consecutive One Year Breaks
in Service, all service after such One Year Breaks in Service will be
disregarded for the purpose of vesting the Employer-derived account balance that
accrued before such One Year Breaks in Service. Such Participant's pre-break
service will count in vesting the post-break Employer-derived account balance
only if either:
(1) such Participant has any nonforfeitable interest in the account balance
attributable to Employer contributions at the time of separation from service;
or
(2) upon returning to service the number of consecutive One Year Breaks in
Service is less than the number of Years of Service.
Separate accounts will be maintained for the Participant's pre-break and
post-break Employer-derived account balance. Both accounts will share in the
earnings and losses of the fund. If a Participant's Years of Service are
disregarded pursuant to the preceding paragraph, such Participant will be
treated as a new Employee for eligibility purposes. If a Participant's Years of
Service may not be disregarded pursuant to the preceding paragraph, such
Participant shall continue to participate in the Plan, or, if terminated, shall
participate immediately upon reemployment.
(D) If the value of a Participant's vested account balance derived from
Employer and Employee contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the account balance is immediately
distributable, the Participant and the Participant's spouse (or where either the
Participant or the spouse has died, the survivor) must consent to any
distribution of such account balance. The consent of the Participant and the
Participant's spouse shall be obtained in writing within the 90-day period
ending on the annuity starting date. The annuity starting date is the first day
of the first period for which an amount is paid as an annuity or any other form.
The Plan Administrator shall notify the Participant and the Participant's spouse
of the right to defer any distribution until the Participant's account balance
is no longer immediately distributable. Such notification shall include a
general description of the material features, and an explanation of the relative
values of, the optional forms of benefit available under the Plan in a manner
that would satisfy the notice requirements of section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to the annuity
starting date. Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a qualified Joint and
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Defined Contribution Plan and Trust Document
Survivor Annuity while the account balance is immediately distributable.
(Furthermore, if payment in the form of a qualified Joint and Survivor Annuity
is not required with respect to the Participant pursuant to Section 5.7 of the
Plan, only the Participant need consent to the distribution of an account
balance that is immediately distributable.) Neither the consent of the
Participant nor the Participant's spouse shall be required to the extent that a
distribution is required to satisfy section 401(a)(9) or section 415 of the
Code. In addition, upon termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the Participant's account
balance may, without the Participant's consent, be distributed to the
Participant or transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in section 4975(e)(7) of the Code)
within the same controlled group.
An account balance is immediately distributable if any part of the account
balance could be distributed to the Participant (or surviving spouse) before the
Participant attains or would have attained if not deceased) the later of Normal
Retirement Age or age 62.
(E) For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first Plan Year
beginning after December 31, 1988, the Participant's vested account balance
shall not include amounts attributable to accumulated deductible employee
contributions within the meaning of section 72(o)(5)(B) of the Code.
5.5 LIMITATION ON BENEFITS AND
CONTRIBUTIONS
(A) No Participation in Another Qualified Plan or
Welfare Benefit Fund
(1) If the Participant does not participate in, and has never participated
in another qualified plan or a welfare benefit fund, as defined in Section
419(e) of the Code, maintained by the adopting Employer or an individual medical
account, as defined in Code Section 415(l)(2) of the Code, maintained by the
Employer, which provides an Annual Addition as defined in Section 2.7, the
amount of Annual Additions which may be credited to the Participant's account
for any Limitation Year will not exceed the lesser of the Maximum Permissible
Amount or any other limitation contained in this Plan. If the Employer
contribution that would otherwise be contributed or allocated to the
Participant's account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, the amount contributed or allocated
will be reduced so that the Annual Additions for the Limitation Year will equal
the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated.
(3) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be determined
on the basis of the Participant's actual Compensation for the Limitation Year.
(4) If pursuant to Section 5.5(A)(3) or as the result of the allocation of
forfeitures, there is an excess amount, the excess will be disposed of as
follows:
(a) Any non-deductible voluntary employee contributions, to the extent
they would reduce the excess amount, will be returned to the Participant;
(b) If after the application of Section 5.5(A)(4)(a) an excess amount
still exists, and the Participant is covered by the Plan at the end of the
Limitation Year, the excess amount in the Participant's account will be used to
reduce Employer contributions (including any allocation of forfeitures) for such
Participant in the next Limitation Year, and each succeeding Limitation Year, if
necessary;
(c) If after the application of Section 5.5(A)(4)(a) an excess amount
still exists, and the Participant is not covered by the Plan at the end of a
Limitation Year, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future Employer
contributions (including allocation of any forfeitures) for all remaining
Participants in the next Limitation Year, and each succeeding Limitation Year,
if necessary;
(d) If a suspense account is in existence at any time during a Limitation
Year pursuant to this Section 5.5, it will not participate in the allocation of
the Trust's investment gains and losses. If a suspense account is in existence
at any time during a particular Limitation
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Defined Contribution Plan and Trust Document
Year, all amounts in the suspense account must be allocated and reallocated to
Participant's accounts before Employer contributions or any Employee
contributions may be made to the Plan for that Limitation Year. Excess amounts
may not be distributed to Participants or Former Participants.
(B) Participation in Another Qualified Master or
Prototype Plan or Welfare Benefit Fund.
(1) This Section 5.5(B)(1) applies if, in addition to this Plan, the
Participant is covered under another qualified master or prototype defined
contribution plan maintained by the Employer, a welfare benefit fund, as defined
in Section 419(e) of the Code, maintained by the Employer or an individual
medical account, as defined in Code Section 415(l)(2) of the Code, maintained by
the Employer, which provides an Annual Addition as defined in Section 2.7,
during any Limitation Year. The Annual Additions which may be credited to a
Participant's account under this Plan for any such Limitation Year will not
exceed the Maximum Permissible Amount reduced by the Annual Additions credited
to a Participant's account under the other plans and welfare benefit funds for
the same Limitation Year. If the Annual Additions with respect to the
Participant under other defined contribution plans and welfare benefit funds
maintained by the Employer are less than the Maximum Permissible Amount, and the
Employer contribution that would otherwise be contributed or allocated to the
Participant's account under this Plan would cause the Annual Additions for the
Limitation Year to exceed this limitation, the amount contributed or allocated
will be reduced so that the Annual Additions under all such plans and funds for
the Limitation Year will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under such other defined contribution
plans and welfare benefit funds in the aggregate are equal to or greater than
the Maximum Permissible Amount, no amount will be contributed or allocated to
the Participant's account under this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount for a
Participant in the manner described in Section
5.5(A)(2).
(3) As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be determined
on the basis of the Participant's actual Compensation for the Limitation Year.
(4) If, pursuant to Section 5.5(B)(3) or as a result of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and such other
plans would result in an excess amount for a Limitation Year, the excess amount
will be deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless of the actual
allocation date.
(5) If an excess amount was allocated to a Participant on an allocation date
of this Plan which coincides with an allocation date of another plan, the excess
amount attributed to this Plan will be the product of: The total excess amount
allocated as of such date, times the ratio of the Annual Additions allocated to
the Participant for the Limitation Year, as of such date under this Plan to the
total Annual Additions allocated to the Participant for the Limitation Year as
of such date under this and all the other qualified master or prototype defined
contribution plans.
(6) Any excess amount attributed to this Plan will be disposed in the manner
described in Section 5.5(A)(4).
(C) If the Participant is covered under another qualified defined contribution
plan maintained by the Employer which is not a master or prototype plan, Annual
Additions which may be credited to the Participant's account under this Plan for
any Limitation Year will be limited in accordance with Section 5.5(B) as though
the other plan were a master or prototype plan, unless the Employer provides
other limitations in the Adoption Agreement. For purposes of the Short Form
Adoption Agreement, the provisions of Section 5.5(B) of the Plan will apply as
if the other plan were a master or prototype plan.
(D) If the Employer maintains, or at any time maintained, a qualified defined
benefit plan (other than paired plan #01) covering any Participant in this Plan,
the sum of the Participant's defined benefit plan fraction and defined
contribution plan fraction will not exceed 1.0 in any Limitation Year. The
Annual Additions which may be credited to the Participant's account under this
Plan for any Limitation Year will be limited
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Defined Contribution Plan and Trust Document
in accordance with the Adoption Agreement. If the Employer maintains, or at any
time maintained, a qualified defined benefit plan other than paired plan #01,
the Employer cannot adopt the Short Form Adoption Agreement.
(E) Definitions
(1) Compensation: A Participant's earned income, wages, salaries, and fees
for professional services and other amounts received for personal services
actually rendered in the course of employment with the Employer maintaining the
Plan (including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), and excluding the following:
(a) Employer contributions to a plan of deferred compensation which are
not includible in the Employee's gross income for the taxable year in which
contributed, or Employer contributions under a simplified employee pension plan
to the extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(b) Amounts realized from the exercise of a nonqualified stock option, or
when restricted stock (or property) held by the Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture;
(c) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified
stock option; and
(d) Other amounts which received special tax benefits, or contributions
made by the Employer (whether or not under a salary reduction agreement) towards
the purchase of an annuity described in Section 403(b) of the Internal Revenue
Code (whether or not the amounts are actually excludable from the gross income
of the Employee).
For purposes of applying the limitations of this Section 5.5, Compensation for
a Limitation Year is the Compensation actually paid or includible in gross
income during such year.
Notwithstanding the preceding sentence,
Compensation for a Participant in a defined
contribution plan who is permanently and totally
disabled (as defined in Section 22(e)(3) of the Internal Revenue Code) is the
Compensation such Participant would have received for the Limitation Year if the
Participant had been paid at the rate of Compensation paid immediately before
becoming permanently and totally disabled; such imputed Compensation for the
disabled Participant may be taken into account only if the Participant is not a
highly compensated employee as defined in Code Section 414(q); and contributions
made on behalf of such Participant are non-forfeitable when made.
(2) Defined benefit fraction: A fraction, the numerator of which is the sum
of the Participant's projected annual benefits under all the defined benefit
plans (whether or not terminated) maintained by the Employer; and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Sections 415(b) and (d) of the Internal
Revenue Code, or 140 percent of the highest average compensation including any
adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a participant as of the
first day of the first Limitation Year beginning after December 31, 1986 in one
or more defined benefit plans maintained by the Employer which were in existence
on May 6, 1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the Participant
had accrued as of the close of the last Limitation Year beginning before January
1, 1987 disregarding any changes in the terms and conditions of the Plan after
May 5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Section 415 for
all Limitation Years beginning before January 1, 1987.
(3) Defined contribution dollar limitation: $30,000
or if greater, one-fourth of the defined benefit dollar
limitation set forth in section 415(b)(1) of the Code as
in effect for the Limitation Year.
(4) Defined contribution fraction: A fraction, the numerator of which is the
sum of the Annual Additions to the Participant's account under all the defined
contribution plans (whether or not terminated) maintained by the Employer for
the current and all prior Limitation Years (including the Annual Additions
attributable to the Participant's non-deductible employee contributions to all
defined benefit plans, whether or not terminated, maintained by the Employer,
and the Annual Additions attributable to all
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Defined Contribution Plan and Trust Document
welfare benefit funds, as defined in Section 419(e) of the Code and individual
medical accounts, as defined in Code Section 415(l)(2), maintained by the
Employer); and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of service with the
Employer (regardless of whether a defined contribution plan was maintained by
the Employer). The maximum aggregate amount in any Limitation Year is the lesser
of 125 percent of the dollar limitation determined under Code Sections 415(b)
and (d) in effect under Section 415(c)(1)(A) of the Code or 35 percent of the
Participant's Compensation for such year. If the Employee was a Participant as
of the end of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of the excess of the sum of the fractions over
1.0 times the denominator of this fraction, will be permanently subtracted from
the numerator of this fraction. The adjustment is calculated using the fractions
as they would be computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms and conditions
of the Plan made after May 5, 1986, but using the section 415 limitation
applicable to the first Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before January 1, 1987,
shall not be recomputed to treat all Employee contributions as Annual Additions.
(5) Employer: For purposes of this Section 5.5, Employer shall mean the
Employer that adopts this Plan, and all members of a controlled group of
corporations (as defined in Section 414(b) of the Internal Revenue Code as
modified by Section 415(h)), all commonly controlled trades or businesses (as
defined in Section 414(c) as modified by Section 415(h) or affiliated service
groups (as defined in Section 414(m)) of which the adopting Employer is a part,
and any other entity required to be aggregated with the Employer pursuant to
regulations under Code Section 414(o).
(6) Excess amount: The excess of the Participant's Annual Additions for the
Limitation Year over the maximum permissible amount.
(7) Highest average compensation: The average compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month period
ending on the Anniversary Date defined in Section 4 of the Adoption Agreement.
(8) Limitation Year: A calendar year or the 12-consecutive month period
elected by the Employer in the Adoption Agreement. All qualified plans
maintained by the Employer must use the same Limitation Year. If the Limitation
Year is amended to a different 12-consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in which the amendment is
made.
(9) Master or prototype plan: A plan, the form of which, is the subject of a
favorable option letter from the Internal Revenue Service.
(10) Maximum permissible amount. The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the Plan for any
Limitation Year shall not exceed the lesser of:
(a) The defined contribution dollar limitation, or
(b) 25 percent of the Participant's Compensation
for the Limitation Year.
The Compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits (within the meaning of Section 401(h) or
Section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition
under section 415(l)(1) or 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment changing the
Limitation Year to be a different 12-consecutive month period, the maximum
permissible amount will not exceed the defined contribution dollar limitation
multiplied by the following fraction: Number of months in the short limitation
year / 12
(11) Projected annual benefit: The annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if such benefit is expressed in a
form other than a straight life annuity or qualified Joint and Survivor Annuity)
to which the Participant would be entitled under the terms of the Plan assuming:
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Defined Contribution Plan and Trust Document
(a) the Participant will continue employment until
Normal Retirement Age under the Plan (or current age,
if later), and
(b) the Participant's Compensation for the current Limitation Year and all
other relevant factors used to determine benefits under the Plan will remain
constant for all future Limitation Years.
5.6 ALIENATION PROHIBITED
No benefit or interest available under the Plan shall be subject in any manner
to alienation, anticipation, assignment, charge, encumbrance, pledge, sale or
transfer, either voluntary or involuntary, and any attempt to do so shall be
void. No benefit under the Plan shall in any manner be liable or subject to the
debts, contracts, liabilities, engagements, or torts of any person. The
preceding sentences shall also apply to the creation, assignment, or recognition
of a right to any benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined to be a qualified
domestic relations order, as defined in Code Section 414(p), or any domestic
relations order entered before January 1, 1985.
5.7 JOINT AND SURVIVOR ANNUITY
REQUIREMENTS
(A) The provisions of this Section 5.7 shall apply to any Participant whose
vested Accrued Benefit exceeds $3,500 and who is credited with at least one Hour
of Service with the Employer on or after August 23, 1984, and such other
Participants as provided in Section 5.7(G).
(B) Unless an optional form of benefit is selected pursuant to a Qualified
Election within the 90-day period ending on the annuity starting date, a married
Participant's vested Accrued Benefit will be paid in the form of a qualified
Joint and Survivor Annuity and an unmarried Participant's vested Accrued Benefit
will be paid in the normal form of an immediate life annuity. The Participant
may elect to have such annuity distributed upon attainment of the Earliest
Retirement Age under the Plan.
(C) Unless an optional form of benefit has been selected within the election
period pursuant to a Qualified Election, if a Participant dies before the
annuity starting date, then the Participant's vested account balance shall be
applied toward the purchase of an annuity for the life of the surviving Spouse.
The surviving Spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
(D) Definitions.
(1) Election Period: The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the first
day of the Plan Year in which age 35 is attained, with respect to benefits
accrued prior to separation, the Election Period shall begin on the date of
separation.
Pre-age 35 waiver: A Participant who will not yet attain age 35 as of the end
of any current Plan Year may make a special qualified election to waive the
qualified preretirement survivor annuity for the period beginning on the date of
such election and ending on the first day of the Plan Year in which the
Participant will attain age 35. Such election shall not be valid unless the
Participant receives a written explanation of the qualified preretirement
survivor annuity in such terms as are comparable to the explanation required
under Section 5.7(E). Qualified preretirement survivor annuity coverage will be
automatically reinstated as of the first day of the Plan Year in which the
Participant attains age 35. Any new waiver on or after such date shall be
subject to the full requirements of this Section 5.7.
(2) Earliest Retirement Age: The earliest date on
which, under the Plan, the Participant could elect to
receive retirement benefits.
(3) Qualified Election: A waiver of a qualified Joint and Survivor Annuity
or a qualified preretirement survivor annuity. Any waiver of a qualified Joint
and Survivor Annuity or a qualified preretirement survivor annuity shall not be
effective unless:
(a) the Participant's Spouse consents in writing to
the election;
(b) the election designates a specific alternate Beneficiary, including
any class of Beneficiaries or any contingent Beneficiaries, which may not be
changed without spousal consent (or the Spouse expressly permits designations by
the Participant without any further spousal consent;
(c) the Spouse's consent acknowledges the effect of
the election; and
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Defined Contribution Plan and Trust Document
(d) the Spouse's consent is witnessed by a Plan
representative or notary public.
Additionally, a Participant's waiver of the qualified Joint and Survivor
Annuity will not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent. If it is established to the satisfaction of a Plan representative that
such written consent may not be obtained because there is no Spouse or the
Spouse cannot be located, a waiver will be deemed a Qualified Election.
Any consent by a Spouse obtained under this provision (or establishment that
the consent of a Spouse may not be obtained) shall be effective only with
respect to such Spouse. A consent that permits designations by the Participant
without any requirement of further consent by such Spouse must acknowledge that
the Spouse has the right to limit consent to a specific Beneficiary, and a
specific form of benefit where applicable, and that the Spouse voluntarily
elects to relinquish either or both of such rights. A revocation of a prior
waiver may be made by a Participant without the consent of the Spouse at any
time prior to the commencement of benefits. The number of revocations shall not
be limited. No consent obtained under this provision shall be valid unless the
participant has received notice as provided in Section 5.7(E) below.
(4) Qualified Joint and Survivor Annuity: An immediate annuity for the life
of the Participant with a survivor annuity for the life of the Spouse which is
not less than 50 percent and not more than 100 percent of the amount of the
annuity which is payable during the joint lives of the Participant and the
Spouse and which is the amount of benefit which can be purchased with the
Participant's vested account balance.
(5) Spouse (Surviving Spouse): The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
surviving Spouse to the extent provided under a qualified domestic relations
order as described in Section 414(p) of the Code.
(6) Annuity Starting Date: The first day of the first
period for which an amount is paid as an annuity or any
other form.
(7) Vested Account Balance: The aggregate value of the Participant's vested
Account Balance derived from Employer and Employee contributions (including
rollovers) whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of this
Section 5.7 shall apply to a Participant who is vested in amounts attributable
to Employer contributions, Employee contributions (or both) at the time of death
or distribution.
(E) Notice Requirements
(1) In the case of a qualified Joint and Survivor Annuity as described in
Section 5.7(B), the Plan Administrator shall provide each Participant no less
than 30 days and no more than 90 days prior to the annuity starting date a
written explanation of: (a) the terms and conditions of a qualified Joint and
Survivor Annuity; (b) the Participant's right to make and the effect of an
election to waive the qualified Joint and Survivor Annuity form of benefit; (c)
the rights of a Participant's Spouse; and (d) the right to make, and the effect
of, a revocation of a previous election to waive the qualified Joint and
Survivor Annuity.
(2) In the case of a qualified preretirement survivor annuity as described
in Sections 5.7(C), the Plan Administrator shall provide each Participant within
the applicable period for such Participant, a written explanation of the
qualified preretirement survivor annuity in such terms and in such a manner as
would be comparable to the explanation provided for meeting the requirements of
Section 5.7(E)(1) applicable to a qualified Joint and Survivor Annuity.
The applicable period for a Participant is whichever of the following periods
ends last: (a) the period beginning with the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35; (b) a
reasonable period ending after the individual becomes a Participant; (c) a
reasonable period ending after Section 5.7(E)(3) ceases to apply to the
Participant; (d) a reasonable period ending after this Section 5.7 first applies
to the Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation of service in case of a
Participant who separates from service before attaining age 35.
For purposes of the preceding paragraph, a reasonable
period ending after the enumerated events described in
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Defined Contribution Plan and Trust Document
(b), (c) and (d) is the end of the two year period beginning one year prior to
the date the applicable event occurs and ending one year after that date. In the
case of a Participant who separates from service before the Plan Year in which
age 35 is attained, notice shall be provided within the two year period
beginning one year prior to separation and ending one year after separation. If
such a Participant thereafter returns to employment with the Employer, the
applicable period for such Participant shall be redetermined.
(3) Notwithstanding the other requirements of this Section 5.7(E), the
respective notices prescribed by this Section need not be given to the
Participant if:
(a) the Plan "fully subsidizes" the costs of a
Qualified Joint and Survivor Annuity or qualified
preretirement survivor annuity, and
(b) the Plan does not allow the Participant to waive the Qualified Joint
and Survivor Annuity or qualified preretirement survivor annuity and does not
allow a married Participant to designate a nonspouse beneficiary. For purposes
of this Section 5.7(E)(3), a Plan fully subsidizes the costs of a benefit if no
increase in cost, or decrease in benefits to the Participant may result from the
Participant's failure to elect another benefit.
(F) Safe harbor rules.
(1) This Section 5.7(F) shall apply to a Participant in a profit sharing
plan, and to any distribution, made on or after the first day of the first Plan
Year beginning after December 31, 1988, from or under a separate account
attributable solely to accumulated deductible employee contributions, as defined
in section 72(o)(5)(B) of the Code, and maintained on behalf of a Participant in
a money purchase pension plan, (including a target benefit plan) if the
following conditions are satisfied: (1) the Participant does not or cannot elect
payments in the form of a life annuity; and (2) on the death of a Participant,
the Participant's vested account balance will be paid to the Participant's
surviving Spouse, but if there is no surviving Spouse, or if the surviving
Spouse has consented in a manner conforming to a qualified election, then to the
Participant's designated Beneficiary. The surviving Spouse may elect to have
distribution of the vested account balance commence within the 90-day period
following the date of the Participant's death. The account balance shall be
adjusted for gains or losses occurring after the Participant's death in
accordance with the provisions of the Plan governing the adjustment of account
balances for other types of distributions. This Section 5.7(F) shall not be
operative with respect to a Participant in a profit sharing plan if the plan is
a direct or indirect transferee of a defined benefit plan, money purchase plan,
a target benefit plan, stock bonus, or profit sharing plan which is subject to
the survivor annuity requirements of Section 401(a)(11) and Section 417 of the
Code. If this Section 5.7(F) is operative, then the provisions of this Section
5.7 other than Section 5.7(G), shall be inoperative.
(2) The Participant may waive the spousal death benefit described in this
Section 5.7 at any time provided that no such waiver shall be effective unless
it satisfies the conditions described in Section 5.7(D)(3) (other than the
notification requirement referred to therein) that would apply to the
Participant's waiver of the qualified preretirement survivor annuity.
(3) For purposes of this Section 5.7(F), vested account balance shall mean,
in the case of a money purchase pension plan or a target benefit plan, the
Participant's separate account balance attributable solely to accumulated
deductible employee contributions within the meaning of Section 72(o)(5)(B) of
the Code. In the case of a profit sharing plan, vested account balance shall
have the same meaning as provided in Section 5.7(D)(7).
(G) Transitional Rules.
(1) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous sections of
this Section 5.7 must be given the opportunity to elect to have the prior
sections of this Section 5.7 apply if such Participant is credited with at least
one Hour of Service under this Plan or a predecessor plan in a Plan Year
beginning on or after January 1, 1976, and such Participant had at least 10
years of vesting service when he separated from service.
(2) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a predecessor
plan on or after September 2, 1974, and who is not otherwise credited with any
service in a Plan Year beginning on or after January 1, 1976, must be given the
opportunity to have his benefits paid in accordance
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Defined Contribution Plan and Trust Document
with Section 5.7(G)(4).
(3) The respective opportunities to elect (as described in Section 5.7(G)(1)
and (2) above) must be afforded to the appropriate Participants during the
period commencing on August 23, 1984, and ending on the date benefits would
otherwise commence to said Participants.
(4) Any Participant who has elected pursuant to Section 5.7(G)(2) and any
Participant who does not elect under Section 5.7(G)(1) or who meets the
requirement of Section 5.7(G)(1) except that such Participant does not have at
least 10 years of vesting service when he separates from service, shall have his
benefits distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity:
(a) Automatic joint and survivor annuity. If benefits in the form of a
life annuity become payable to a married Participant who:
(i) Begins to receive payments under the plan on
or after Normal Retirement Age; or
(ii) Dies on or after Normal Retirement Age
while still working for the Employer; or
(iii) Begins to receive payments on or after the
qualified early retirement age; or
(iv) Separates from service on or after attaining Normal Retirement Age
(or the qualified early retirement age) and after satisfying the eligibility
requirements for the payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits; then such benefits will be received
under this Plan in the form of a qualified Joint and Survivor Annuity, unless
the Participant has elected otherwise during the Election Period. The Election
Period must begin at least 6 months before the Participant attains qualified
early retirement age and end not more than 90 days before the commencement of
benefits. Any election hereunder will be in writing and may be changed by the
Participant at any time.
(b) Election of early survivor annuity. A Participant who is employed
after attaining the qualified early retirement age will be given the opportunity
to elect, during the Election Period, to have a survivor annuity payable on
death. If the Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have been made to the
Spouse under the qualified Joint and Survivor Annuity if the Participant had
retired on the day before his death. Any election under this provision will be
in writing and may be changed by the Participant at any time. The election
period begins on the later of (i) the 90th day before the Participant attains
the qualified early retirement age, or (ii) the date on which participation
begins, and ends on the date the Participant terminates employment.
(c) For purposes of this Section 5.7(G)(4):
(i) Qualified early retirement age is the latest of:
(1) The earliest date, under the plan, on which
the Participant may elect to receive retirement benefits,
(2) The first day of the 120th month beginning
before the Participant reaches Normal Retirement Age,
or
(3) The date the Participant begins participation.
(ii) Qualified Joint and Survivor Annuity is an
annuity for the life of the Participant with a survivor annuity for the life of
the Spouse as described in Section 5.10(G)(4).
5.8 PERMITTED DISPARITY IN PLAN
CONTRIBUTIONS
(A) Profit Sharing Plan
(1) A Profit Sharing Plan meets the requirements of Code Section 401(l) if
the Excess Contribution Percentage does not exceed the Base Contribution
Percentage by more than the Profit Sharing Maximum
Disparity Rate.
(2) "Profit Sharing Maximum Disparity Rate" means
the lesser of:
(a) The greater of:
(i) 2.7% (5.7% if not Top Heavy)
(ii) The percentage equal to the portion of the rate
of tax under Code Section 3111(a) (in effect as of the beginning of the Plan
Year) which is attributable to old age insurance, less the percentage allocated
under Section 11.2(2) of the Adoption Agreement.
(b) The applicable percentage determined in
accordance with the table below:
If the Integration Level:
is more than but not the applicable
more than percentage is:
$0 X* 2.7% (5.7%
if not Top
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Defined Contribution Plan and Trust Document
Heavy)
X* of TWB 80% of TWB 1.3% (4.3% if
not Top Heavy)
80% of TWB Y** 2.4% (5.4% if
not Top Heavy)
TWB = Taxable Wage Base
*X = the greater of $10,000 or 20 percent of the
Taxable Wage Base.
**Y = any amount more than 80% of the Taxable Wage Base but less than 100% of
the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the
applicable percentage is the percentage specified in Section 5.8(A)(2)(a) above.
(B) Money Purchase Pension Plan
(1) A Money Purchase Pension Plan meets the
requirements of Code Section 401(l) if the Excess Contribution Percentage does
not exceed the Base Contribution Percentage by more than the Money Purchase
Maximum Disparity Rate.
(2) "Money Purchase Maximum Disparity Rate"
means the applicable of:
(a) If Section 10.2 of the Adoption Agreement is
elected, the lesser of:
(i) The greater of:
(aa) 5.7%
(bb) The percentage equal to the portion of the rate of tax under Code
Section 3111(a) (in effect as of the beginning of the Plan Year) which is
attributable to old age insurance.
(ii) If the Integration Level:
is more than but not the applicable
more than percentage is:
$0 X* 5.7%
X* of TWB 80% of TWB 4.3%
80% of TWB Y** 5.4%
TWB = Taxable Wage Base
*X = the greater of $10,000 or 20 percent of the
Taxable Wage Base.
**Y = any amount more than 80% of the Taxable Wage Base but less than 100% of
the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the
applicable percentage is the percentage specified in Section 5.8(B)(2)(a)(i)(aa)
above.
(b) If Sections 10.1 and 11.2 of the Adoption
Agreement are elected, the lesser of:
(i) The greater of:
(aa) 2.7% (5.7% if not Top Heavy)
(bb) The percentage equal to the portion of the
rate of tax under Code Section 3111(a) (in effect as of the beginning of the
Plan Year) which is attributable to old age insurance, less the percentage
allocated under Section 11.2(2) of the Adoption Agreement.
(ii) If the integration level:
is more than but not the applicable
more than percentage is:
$0 X* 2.7% (5.7% if
not Top Heavy)
X* of TWB 80% of TWB 1.3% (4.3% if
not Top Heavy)
80% of TWB Y** 2.4% (5.4% if
not Top Heavy)
TWB = Taxable Wage Base
*X = the greater of $10,000 or 20 percent of the
Taxable Wage Base.
**Y = any amount more than 80% of the Taxable Wage Base but less than 100% of
the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the
applicable percentage is the percentage specified in Section 5.8(B)(2)(b)(i)
above.
(C) Target Benefit Plan - See Adoption Agreement
(D) Definitions
The following definitions apply to Sections 5.8(A) and (B) above:
(1) "Excess Contribution Percentage" means the percentage of Compensation
which is contributed under the Plan with respect to that portion of each
Participant's Compensation in excess of the Integration Level specified in the
Adoption Agreement.
(2) "Base Contribution Percentage" means the percentage of Compensation
contributed under the Plan with respect to that portion of each Participant's
Compensation which is not in excess of the Integration Level specified in the
Adoption Agreement.
(3) "Integration Level" means the amount of Compensation specified under the
Plan (by dollar amount or formula) at or below which the rate at which
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Defined Contribution Plan and Trust Document
contributions or benefits are provided (expressed as a percentage) is less than
such rate above such amount. The Integration Level shall be equal to the Taxable
Wage Base or such lesser amount elected by the Employer in the Adoption
Agreement. In no event shall the Integration Level exceed the contribution and
benefit base in effect under Section 230 of the Social Security Act for such
Plan Year.
(4) "Compensation" shall mean compensation as
defined in Code Section 414(S).
(E) If this Plan is paired with another plan sponsored by the Employer, the
permitted disparity under this Section 5.8 shall be in only one of the paired
plans. Such permitted disparity shall be as follows:
(1) If this Plan is paired with a Money Purchase Pension Plan, the permitted
disparity shall be in the Money Purchase Pension Plan.
(2) If this Plan is paired with a Defined Benefit Pension Plan, the
permitted disparity shall be in the Defined Benefit Pension Plan.
(3) If the paired plans are a Profit Sharing Plan and a Target Benefit
Pension Plan, the permitted disparity shall be in the Target Benefit Pension
Plan.
6.0 LIFE INSURANCE
6.1 AUTHORIZATION TO PURCHASE
The Administrator may direct the Trustee to invest a portion of each Participant
Account in an annual premium contract on a Participant's life issued by a legal
reserve life insurance company. The Administrator shall direct the purchase of
life insurance as an earmarked investment for a Participant, if said Participant
consents to such purchase. If any life insurance is purchased, the option to
purchase shall be available to each Participant in a nondiscriminatory manner.
6.2 PAYMENT OF PREMIUMS
The Trustee shall normally pay premiums on any policy subject hereto as such
premiums fall due. Dividends, experience rating credits, or surrender or
cancellation credits shall be allocated to the Employer Contribution Account of
the Participant for whose benefit the contract is held. If at any time the
Administrator shall decide that the premium on any policy is not to be paid in
cash, the Administrator, in its sole discretion, shall decide whether such
premium is to be paid by policy loan (if the policy contains such a provision)
or whether the policy is to be continued as a paid-up policy, or whether some
other action is to be taken under the policy. Notwithstanding the above, policy
loans may cause Unrelated Business Income tax to become payable by the Trust.
6.3 DISPOSITION OF POLICIES AT
RETIREMENT
Subject to Section 5.7, when any Participant whose policy is held hereunder
shall reach his actual retirement date, or if this Trust shall terminate, the
Trustee at the direction of the Administrator shall convert the contracts on a
Participant's life to cash or an annuity or distribute such contracts to the
Participant upon commencement of benefits. If insurance contracts are
distributed, the modes of settlement under the contract shall be limited to
those provided under the Plan. Any annuity contract distributed hereunder must
be non-transferable.
6.4 LIMITATION ON AMOUNTS
The amount of life insurance held by the Trustee on the life of any Participant
shall be limited as follows:
(A) Ordinary Life - For purposes of these incidental insurance provisions,
ordinary life insurance contracts are contracts with both non-decreasing death
benefits and non-increasing premiums. If such contracts are purchased, less than
one-half (1/2) of the aggregate Employer contributions allocated to any
Participant shall be used to pay premiums on ordinary life insurance contracts.
(B) Term Life - No more than one-fourth (1/4) of the aggregate Employer
contributions allocated to any Participant shall be used to pay premiums on term
life insurance contracts and all other life insurance contracts which are not
ordinary life.
(C) Combination - The sum of one-half (1/2) of the ordinary life insurance
premiums and all other life insurance premiums shall not exceed one-fourth (1/4)
of the aggregate Employer contributions allocated to any Participant.
6.5 CONFLICT WITH INSURANCE CONTRACTS The Trustee shall apply for and will be
the owner of any insurance contract purchased under the terms of
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Defined Contribution Plan and Trust Document
this Plan. The insurance contract(s) must provide that proceeds will be payable
to the Trustee; however, the Trustee shall be required to pay over all proceeds
of the contract(s) to the Participant's designated Beneficiary in accordance
with the distribution provisions of this Plan. A Participant's spouse will be
the designated Beneficiary of the proceeds in all circumstances unless a
qualified election has been made in accordance with Section 5.7, Joint and
Survivor Annuity Requirements, if applicable. Under no circumstances shall the
Trust retain any part of the proceeds. In the event of any conflict between the
terms of this Plan and the terms of any insurance contract purchased hereunder,
the Plan provisions shall control.
7.0 MISCELLANEOUS
7.1 LOANS TO PARTICIPANTS
The Administrator may, in its sole discretion, establish a loan program and
direct the Trustee to make a loan to a Participant or Beneficiary, other than
shareholder-Employees or Owner-Employees.
(A) Loans made pursuant to this program shall be subject to such rules as the
Administrator, in its sole discretion, shall adopt, provided that such rules and
regulations do not discriminate in favor of officers, shareholders or highly
compensated Employees of the Employer and that loans shall be available to all
Participants or Beneficiaries on a non-discriminatory basis. No loans shall be
made under this Section 7.1 to any shareholder-Employees or Owner-Employees.
(B) Any loan to a Participant made under this program shall comply with the
following terms and conditions:
(1) An application for a loan shall be made in writing to the Administrator,
whose action thereon shall be final.
(2) The loan shall be adequately secured, pursuant to Section 5, below.
(3) The loan shall bear a reasonable rate of interest, as determined by the
Plan Administrator in its sole discretion. The interest rate shall be comparable
to the rate charged by commercial lenders in the geographical area of the
Employer for similar types of loans, as determined by conditions customarily
taken into account by such lenders in the making of similar types of loans.
(4) A loan shall be made for fixed period of time, as determined by the Plan
Administrator in its sole discretion, which in no event shall exceed five (5)
Years from the date of such loan, except that such five (5) Year repayment rule
shall not apply to any loan used to acquire a dwelling unit which, within a
reasonable period of time, will be used as a principal residence of the
Participant.
Security for Loans to Participants is described in section 10.6.
(5) No distribution shall be made to any Active Participant, inactive
Participant, Former Participant or Beneficiary of any such Participant unless
and until all unpaid loans, including accrued interest thereon, have
been satisfied.
(6) Loans shall be made available to all Participants and Beneficiaries on a
reasonably equivalent basis.
(7) No loan to any Participant or Beneficiary can be made to the extent that
the amount of the loan, when added to the outstanding balance of all other loans
to the Participant or Beneficiary, would exceed the lesser of:
(a) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans during the one year period ending on the day before the loan is
made, over the outstanding balance of loans from the Plan on the date the loan
is made, or
(b) one-half the value of the vested account balance of the Participant.
For the purpose of the above limitation, all loans from all qualified plans of
the Affiliated Employers are aggregated.
(8) In the event of default, foreclosure on and attachment of security will
not occur until a distributable event occurs in the Plan.
(9) Loans shall not be made available to highly compensated employees (as
defined in Section 414(g) of the Code) in an amount greater than the amount made
available to other Employees.
(10) A Participant must obtain the consent of his Spouse, if any, to use of
the Accrued Benefit as security for the loan. Spousal consent shall be obtained
no earlier than the beginning of the 90-day period that ends on the date on
which the loan is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a Plan
representative or notary public. Such consent shall thereafter be binding with
respect to the consenting
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Defined Contribution Plan and Trust Document
Spouse or any subsequent Spouse with respect to that loan. A new consent shall
be required if the Accrued Benefit is used for renegotiation, extension,
renewal, or other revision of the loan. If a valid spousal consent has been
obtained in accordance with this Section 7.1(c)(11), then, notwithstanding any
other provision of this Plan, the portion of the Participant's vested Accrued
Benefit used as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for purposes of
determining the amount of the Accrued Benefit payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Participant's vested Accrued Benefit (determined without
regard to the preceding sentence) is payable to the surviving Spouse, then the
Accrued Benefit shall be adjusted by first reducing the vested Accrued Benefit
by the amount of the security used as repayment of the loan, and then
determining the benefit payable to the surviving Spouse.
(C) No loan may be made to any Owner Employee or shareholder Employee. For
purposes of this requirement, a shareholder Employee means an Employee or
officer of an electing small business (Sub Chapter S) corporation who owns (or
is considered as owning within the meaning of Code Section 318(a)(1)), on any
day during the taxable year of such corporation, more than five percent (5%) of
the outstanding stock of the corporation.
7.2 DISCHARGE RIGHTS PRESERVED The Plan shall not be deemed to constitute an
employment contract or to be consideration for the employment of any Employee.
7.3 BENEFICIARY DESIGNATED BY
PARTICIPANT
Subject to the Joint and Survivor Annuity requirements of Section 5.7, a
beneficiary designation shall be filed by all Participants with the
Administrator at the time they become Participants. In the absence of a valid
designation or the survival of any Beneficiary designated by the Participant,
the Administrator may, either before or after the Participant's death, designate
the Participant's Beneficiary or Beneficiaries from among the following order of
Priority: spouse, children, grandchildren, parents, brothers and sisters,
nephews and nieces, or his estate.
7.4 PRIORITY OF ADOPTION AGREEMENT Should the terms and conditions of this Plan
and the related trust agreement conflict with the terms and conditions of the
Adoption Agreement, the latter shall prevail. The Adoption Agreement, therefore,
has the function of amending the terms of this Plan and trust agreement when
necessary or appropriate. In the event of any conflict between the terms of the
Plan or the Adoption Agreement and the terms of any insurance contract issued
hereunder, the Plan or Adoption Agreement provisions shall control.
7.5 REFERENCE TO INTERNAL REVENUE
CODE
All references herein to Sections of the Internal Revenue Code, or any
regulations or ruling thereunder shall be deemed to refer to such Sections as
they may subsequently be modified, amended, replaced, or amplified by any
Federal tax statutes, regulations or rulings of similar application and import.
7.6 SAVING CLAUSE
In the event any provision of the Plan is held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts of
the Plan, but this instrument shall be construed and enforced as if said
provision had never been included.
7.7 GOVERNING LAW
This Plan shall be construed, administered, and governed in all respects under
and by ERISA and to the extent applicable, the laws of the Home State of the
Employer, provided, however, that if any provision is susceptible to more than
one interpretation, such interpretation shall be given thereto as is consistent
with this Plan and Trust being a qualified employees' pension benefit plan and
trust within the meaning of the Code and ERISA.
7.8 MERGER OR CONSOLIDATION OF PLAN In the case of a merger or consolidation of
this Plan with another plan or transfer of assets or liabilities to another
plan, each participant in the successor plan shall (if the Plan then terminated)
receive a benefit immediately after the merger, consolidation or transfer
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Defined Contribution Plan and Trust Document
which is at least equal to the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
7.9 AGREEMENT BINDING ON ALL PARTIES This Agreement shall be binding upon the
heirs, executors, administrators, successors and assigns, as such terms shall
apply, or any and all parties hereto, present and future.
7.10 HEADINGS
Headings in this instrument are inserted for convenience of reference only. They
constitute no part of this instrument.
7.11 SINGULAR INCLUDES PLURAL, ETC.
Whenever appropriate, words used herein in the
singular may include the plural or the plural may be
read as the singular and the masculine may include the
feminine.
7.12 FORFEITURE OF BENEFITS
(A) If a retirement benefit become payable under this Plan to a Participant
(or his Beneficiary) and such retirement benefit remains unpaid for a period of
five (5) Years from the date such retirement benefit first became payable
because the Participant (or his Beneficiary) cannot be located, the retirement
benefit shall be deemed to be a forfeiture under the Plan and shall be used to
reduce future Employer contributions to the Plan as soon as practicable after
the deemed forfeiture.
(B) Anything in this Section 7.12 to the contrary notwithstanding, if a
retirement benefit is forfeited under the provisions of Section 7.12(A) and the
Participant (or his Beneficiary) is located, the retirement benefit shall be
reinstated and paid to the Participant (or his Beneficiary) under the terms of
this Plan. The Employer shall make up any loss to the Plan as a result of the
reinstatement of a retirement benefit as soon as practicable thereafter.
7.13 DISTRIBUTION PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDER Anything in
Section 5.3 notwithstanding, the Plan Administrator may, pursuant to procedures
which do not discriminate in favor of highly compensated employees as defined in
Code Section 414(q), and at
the request of the Participant and his former Spouse, elect to treat a Qualified
Domestic Relations Order as immediately distributable even though the
Participant had not yet attained the Earliest Retirement Age under the Plan.
8.0 TOP HEAVY PLAN
8.1 PRECEDENCE OF SECTION
Anything in this Plan or the Adoption Agreement to the contrary notwithstanding,
this Section 8 shall supersede and take precedence over any other provisions of
the Plan or the Adoption Agreement for any Plan Year commencing on or after
January 1, 1984, for which the Plan is determined to be a Top Heavy Plan or
Super Top Heavy Plan under this Section 8.
8.2 DEFINITIONS
For purposes of determining whether the Plan is a Top Heavy Plan or Super Top
Heavy Plan for any Plan Year commencing on or after January 1, 1984, the
following terms, wherever capitalized, shall have the meanings
set forth below:
(A) "Determination Date" shall mean the date on which the Plan is tested to
determine if it is a Top Heavy Plan or Super Top Heavy Plan, which date shall be
the last day of the Plan Year for the first Plan Year and the last day of the
preceding Plan Year for all subsequent Plan Years.
(B) "Key Employee" shall mean any Employee or former Employee (or Beneficiary)
in the Plan who, at any time during the "Determination Period," is or was:
(1) An officer of the Employer if such individual's annual Compensation
exceeds fifty percent (50%) of the dollar limitation under Code Section
415(b)(1)(A) (not more than 10% of the Employees of the Employer to a maximum of
50 such Employees shall be considered officers for this purpose);
(2) An owner (or considered an owner under Code Section 318) of one (1) of
the ten largest interests in the Employer if such individual's Compensation
exceeds one hundred percent (100%) of the dollar limitation under Code Section
415(c)(1)(A);
(3) An owner of five percent (5%) or more of an
Employer; and
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Defined Contribution Plan and Trust Document
(4) An owner of one percent (1%) or more of the Employer having an annual
Compensation from the Employer which is in excess of $150,000.00.
Annual Compensation means Compensation as defined in Section 415(c)(3) of the
Code but includes amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the Employee's gross income under
Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of the Code.
"Determination Period" is the Plan Year containing the Determination Date and
the four (4) preceding Plan Years. The determination of who is a Key Employee
will be made in accordance with Code Section 416(i)(1) and the regulations
thereunder.
(C) "Permissive Aggregation Group" shall mean the Required Aggregation Group
of plans plus any other plan or plans of the Employer which, when considered as
a group with the Required Aggregation Group, would continue to satisfy the
requirements of Section 401(a)(4) and 410 of the Code.
(D) "Present Value" shall be based only on the interest and mortality rates
specified in the Adoption Agreement.
(E) "Required Aggregation Group" shall mean:
(1) Each qualified plan of the Employer in which at
least one Key Employee participates or participated at
any time during the determination period (regardless of
whether the Plan terminated); and
(2) Any other qualified plan of the Employer which enables a plan described
in Section 8.2(E)(1) above to meet the requirements of Sections 401(a)(4) or 410
of the Code.
(F) "Top Heavy Plan" shall mean the Plan where, with respect to any Plan Year
commencing after December 31, 1983, any of the following conditions exist:
(a) If the Top-Heavy Ratio for this Plan exceeds 60 percent and this Plan
is not part of any Required Aggregation Group or Permissive Aggregation Group of
plans,
(b) If this Plan is a part of a Required Aggregation
Group of plans (but which is not part of a Permissive
Aggregation Group ) and the Top-Heavy Ratio for the
group of plans exceeds 60 percent, or
(c) If this Plan is a part of a Required Aggregation Group of plans and
part of a Permissive Aggregation Group and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds 60 percent.
(G) "Top-Heavy Ratio" shall mean:
(1) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee Pension Plan) and the
Employer has not maintained any defined benefit plans which during the 5-year
period ending on the Determination Date(s) has or has had accrued benefits, the
Top-Heavy Ratio for this Plan alone or for the Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of the account balances of all Key Employees as of the Determination Date(s)
(including any part of any account balance distributed in the five-year period
ending on the Determination Date(s)), and the denominator of which is the sum of
all account balances (including any part of any account balances distributed in
the five-year period ending on the Determination Date(s)), both computed in
accordance with Code Section 416 and the regulations thereunder. Both the
numerator and denominator of the Top-Heavy Ratio are increased to reflect any
contribution not actually made as of the Determination Date, but which is
required to be taken into account on that date under Section 416 of the Code and
the regulations thereunder.
(2) If the Employer maintains one or more defined contribution plans
(including any Simplified Employee Pension Plan) and the Employer maintains or
has maintained one or more defined benefit plans which during the 5-year period
ending on the Determination Date(s) has or has had any accrued benefits, the Top
Heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a
fraction, the numerator of which is the sum of the present value of accrued
benefits under the aggregate defined benefit plan or plans for all Key Employees
and the sum of account balances under the aggregated defined contribution plan
or plans for all Key Employees, determined in accordance with (1) above, as of
the Determination Date(s), and the denominator of which is the sum of the
present values of accrued benefits under the aggregated defined benefit plan or
plans for all Participants and the sum of the account balances under the
aggregated defined contribution plan or plans, determined in accordance with (1)
above, for all participants as of the Determination Date(s), all determined in
accordance with Section 416 of the Code and the regulations thereunder. The
accrued benefits
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Defined Contribution Plan and Trust Document
under a defined benefit plan in both the numerator and denominator of the
Top-Heavy Ratio are increased for any distribution of an accrued benefit made in
the 5-year period ending on the Determination Date.
(3) For purposes of (1) and (2) above, the value of account balances and the
present value of accrued benefits will be determined as of the most recent
Valuation Date that falls within or ends with the 12-month period ending on the
Determination Date, except as provided in Section 416 of the Code and the
regulations thereunder for the first and second plan years of a defined benefit
plan. The account balances and accrued benefits of a Participant (a) who is not
a Key Employee but who was a Key Employee in a prior year, or (b) who has not
been credited with at least one (1) Hour of Service with any Employer
maintaining the Plan at any time during the 5-year period ending on the
Determination Date will be disregarded. The calculation of the Top-Heavy Ratio,
and the extent to which distributions, rollovers, and transfers are taken into
account will be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee contributions will not be taken into
account for purposes of computing the Top-Heavy Ratio. When aggregating plans,
the value of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same calendar year.
The Accrued Benefit of a Participant other than a key employee shall be
determined under (a) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of section 411(b)(1)(C)
of the Code.
(H) "Valuation Date" shall mean the date as of which account balances or
accrued benefits are valued for purposes of calculating the Top-Heavy Ratio
which date shall be the last day of the Plan Year.
8.3 COMPENSATION IN TOP HEAVY PLAN
YEAR
During any Plan Year in which the Plan is determined to be a Top Heavy Plan or
Super Top Heavy Plan, the Compensation used to determine a Participant's Accrued
Benefit under Section 11 of the Adoption Agreement shall be limited to
$200,000.00, as adjusted annually for increases in the cost of living by the
Secretary of the Treasury, as described in Code Section 416(d)(2).
8.4 VESTING IN TOP HEAVY PLAN YEAR When a Plan is determined to be a Top Heavy
Plan or a Super Top Heavy Plan for a Plan Year, each Participant's Accrued
Benefit shall be subject to the following vesting schedule provided that the
Participant has at least (1) Hour of Service during any Plan Year in which the
Plan is determined to be a Top Heavy Plan or Super Top Heavy Plan:
Years of Service Vesting Percentage
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
This Section 8.4 shall be applicable only in the event that the Employer has
adopted a variable vesting schedule under Section 9 of the Adoption Agreement
which is not as favorable as the above vesting schedule in all years. If the
vesting schedule under the Plan shifts in or out of the above schedule for any
Plan Year because of the Plan's top-heavy status, such shift is an amendment to
the vesting schedule and the election in Section 1.4(A)(3) of the Plan applies.
The minimum vesting schedule applies to all benefits within the meaning of Code
Section 411(a)(7) except those attributable to Employee contributions, including
benefits accrued before the effective date of Code Section 416 and benefits
accrued before the Plan became top heavy. Further, no decrease in a
Participant's nonforfeitable percentage may occur in the event the Plan's status
as a Top Heavy Plan changes for any Plan Year.
8.5 MINIMUM CONTRIBUTION UNDER TOP
HEAVY PLAN
(A) Except as otherwise provided in Sections 8.5(C) and (D) below, the
Employer contributions and forfeitures allocated in any Plan Year in which the
plan is determined to be a Top Heavy Plan or a Super Top
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Defined Contribution Plan and Trust Document
Heavy Plan, on behalf of any Participant who is not a Key Employee, shall not be
less than the lesser of three percent (3%) of such Participant's Compensation
or, in the case where the Employer has no defined benefit plan which designates
this Plan to satisfy section 416 of the Code, the largest percentage of Employer
contributions and forfeitures, as a percentage of the first $200,000 of the Key
Employee's Compensation, allocated on behalf of any Key Employee for that Year.
The minimum allocation is determined without regard to any Social Security
contribution. This minimum allocation shall be made even though, under other
plan provisions, the Participant would not otherwise be entitled to receive an
allocation, or would have received a lesser allocation for the Year because of
(1) the Participant's failure to complete 1,000 Hours of Service (or any
equivalent provided in the Plan); (2) the Participant's failure to make
mandatory employee contributions to the Plan; or (3) Compensation less than a
stated amount.
(B) For purposes of computing the minimum allocation, Compensation will mean
Compensation as defined in Section 2.11 of the Plan.
(C) The provision in (A) above shall not apply to any Participant who was not
employed by the Employer on the last day of the Plan Year.
(D) The provision in (A) above shall not apply to any Participant to the
extent the Participant is covered under any other plan or plans of the Employer,
and the Employer has provided in the Adoption Agreement that the minimum
allocation or benefit requirement applicable to Top Heavy Plans will be met in
the other plan or plans.
8.6 MINIMUM CONTRIBUTION UNDER
MULTIPLE PLANS
(A) If the Employer elects to provide the additional minimum benefit under the
Adoption Agreement, when the paired plans are top heavy but not super top heavy,
the Employer will provide each non-key Employee who is a participant in paired
defined benefit plan #01 a minimum non-integrated contribution of seven and
one-half percent (7 1/2%) of Compensation. A minimum non-integrated contribution
of four percent (4%) of Compensation will be provided to any non-key Employee
otherwise entitled to receive top heavy contributions from this Plan who is not
entitled to receive a minimum benefit from the paired defined benefit plan.
(B) If the Employer does not elect to provide the additional minimum benefit
under the Adoption Agreement, if the paired plans are top heavy, or when the
paired plans are super top heavy, then the top heavy requirements set forth in
Section 8.5 of this Plan shall apply except that each non-key Employee who is a
Participant in paired defined contribution plan #02 and who is also a
participant in paired defined benefit plan #01 shall receive a minimum
contribution of five percent (5%) of such Employee's total Compensation. For
purposes of the Short Form Adoption Agreement, if the minimum benefit
requirement is met under this Plan, the additional minimum benefit shall not be
provided.
8.7 NONFORFEITABILITY OF MINIMUM BENEFIT
The minimum benefit required under Section 8.5 and 8.6 of the Plan (to the
extent required to be nonforfeitable under Code Section 416(b)) may not be
suspended or forfeited under Code Section 411(a)(3)(B) or Section 411(a)(3)(D).
8.8 ADJUSTMENT TO DEFINED BENEFIT AND DEFINED CONTRIBUTION FRACTION FOR
SUPER TOP-HEAVY PLAN
In any Plan Year in which the Top-Heavy Ratio exceeds ninety percent (90%)
(i.e., the Plan becomes a super Top-Heavy Plan) or sixty percent (60%) where the
Employer does not elect to provide the additional minimum benefit in the
Adoption Agreement the denominators of the defined benefit fraction as defined
in Section 5.5(E)(2) of the Plan, and defined contribution fraction as defined
in Section 5.5(E)(3) of the Plan shall be computed using 100 percent of the
dollar limitation instead of 125 percent.
9.0 AFFILIATED EMPLOYER
9.1 MEMBERS OF CONTROLLED GROUP All employees of all corporations which are
members of a controlled group of corporations (as defined in Section 414(b) of
the Code), all employees of all trades or businesses (whether or not
incorporated) which are under common control (as defined in Section 414(c) of
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Defined Contribution Plan and Trust Document
the Code) and all employees of members of affiliated service groups (as defined
in Section 414(m) of the Code) shall be treated as employed by a single
employer.
9.2 LEASED EMPLOYEES
(A) "Leased Employee" shall mean any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full-time basis for a period of at
least one year, and such services are of a type historically performed by
employees in the business field of the recipient Employer. Contributions or
benefits provided a Leased Employee by the leasing organization which are
attributable to services performed for the recipient employer shall be treated
as provided by the recipient employer.
(B) A leased Employee shall not be considered an employee of the recipient if:
(1) Such employee is covered by a money purchase
pension plan providing:
(a) A nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the employee's gross income under section 125, section 402(a)(8), section 402(h)
or section 403(b) of the Code.
(b) Immediate participation, and
(c) Full and immediate vesting; and
(2) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
9.3 PLAN OF A PREDECESSOR EMPLOYER If the Employer maintains this Plan as a
successor to the plan of a Predecessor Employer, Years of Service and Covered
Years of Service with the Predecessor Employer shall be treated as Years of
Service and Covered Years of Service with the Employer.
9.4 CONTROLLED TRADES OR BUSINESSES OF
OWNER-EMPLOYEES
(A) If this Plan provides contributions or benefits for one (1) or more
Owner-Employees who control both the business for which the Plan is established
and one (1) or more other trades or businesses, this Plan and the plan
established for such other trades or businesses must, when looked at as a single
plan, satisfy Section 401(a) and (d) of the Code for the Employees of this and
all other trades or businesses.
(B) If the Plan provides contributions or benefits for one (1) or more
Owner-Employees who control one (1) or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan which
satisfies Code Sections 401(a) and (d) and which provides contributions and
benefits not less favorable than provided for Owner-Employees under this Plan.
(C) If an individual is covered as an Owner-Employee under the plans of two
(2) or more trades or businesses which are not controlled and such individual
controls at least one (1) other trade or business, the contributions and
benefits provided for the employees under the plan of such controlled trade or
business must be as favorable as those provided for such individual under the
most favorable plan of the trade or business which is not controlled.
(D) For purposes of this Section 9.4, an Owner-Employee, or two (2) or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two (2) or more Owner-Employees together:
(1) Own the entire interest in an unincorporated
trade or business; or
(2) In the case of a partnership, own more than fifty percent (50%) of
either the capital interest or the profits interest in the partnership.
(E) For purposes of section 9.4(D), an Owner-Employee or two (2) or more
Owner-Employees will be treated as owning any interest in a partnership which is
owned, directly or indirectly, by a partnership which such Owner-Employee or
such two (2) or more Owner-Employees are considered to control within the
meaning of Section 9.4(D).
10.0 TRUST PROVISIONS
10.1 ESTABLISHMENT OF TRUST
It is the intention of the Employer that the Trust
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Defined Contribution Plan and Trust Document
established pursuant to this Section 10 shall be a qualified Trust under Section
501(a) of the Internal Revenue Code, and under such other Federal or State
statute of a similar import, in order that the Trust created hereby may qualify
as a tax exempt employees' Trust under all applicable law. However,
notwithstanding any other provisions of the Trust, if the Internal Revenue
Service is requested to issue to the Company a favorable written determination
or ruling with respect to the initial qualification of the Plan and exemption of
the Trust from tax and such request is denied, the Trustee shall, after
receiving a written direction from the Employer or Administrator, pay to each
Participant that portion of the Trust Fund applicable to said Participant's
voluntary contributions, if any, and provided the Plan so states, pay to the
Company any part of the Trust Fund attributable to Company contributions then
remaining in the Trustee's possession. As a condition to such repayment, the
Company must execute, acknowledge, and deliver to the Trustee its written
undertaking, in form satisfactory to the Trustee, to indemnify, defend, and hold
the Trustee harmless from all claims, actions, demands, or liabilities arising
in connection with such repayment, and provided further that such repayment will
occur within one year after the date the request for qualification is denied.
10.2 APPOINTMENT OF ADMINISTRATOR AND
TRUSTEE
(A) The Board shall appoint the Administrator, who may be a person or
committee consisting of any number of members. Any member of the Administrator
may resign by giving notice in writing to the Employer. The Board shall have the
power to remove a member of the Administrator for any or no reason. A member
shall cease to be such upon his death or upon being declared legally
incompetent.
(B) The Board shall appoint the Trustee(s) (hereinafter referred to as the
Trustee). The Trustee may resign at any time upon sixty (60) days written notice
to the Board. The Trustee may be removed for any or no reason at any time by the
Board upon sixty (60) days written notice to the Trustee. In the event of
resignation, death or removal of the Trustee, or one or more of the Trustees,
the Board shall appoint a successor Trustee who shall become effective upon
acceptance in writing by the successor Trustee or Co-Trustee. Upon such
resignation, death or removal of the Trustee or in the event of termination of
this Trust, the Trustee shall have the right to a settlement of its account,
which may be made, at the option of the Trustee, either
(1) By judicial settlement in an action instituted by
the Trustee in a court of competent jurisdiction, or
(2) By agreement of settlement between the Trustee
and the Administrator.
Upon such settlement, all right, title and interest of the Trustee in the
assets of the Trust and all rights and privileges under this Agreement
heretofore vested in the Trustee shall vest in the successor Trustee and
thereupon all future liability of the Trustee shall terminate; provided however
that the Trustee shall execute, acknowledge and deliver all documents and
written instruments which are necessary to transfer and convey the right, title
and interest in the Trust assets and all rights and privileges to the successor
Trustee.
10.3 ADMINISTRATOR FUNCTIONS
(A) As of each Anniversary Date, the Employer shall, as soon as possible,
certify to the Administrator the name, date of birth, date of employment, Hours
of Service, and Compensation of each Employee who has become a Participant
hereunder within the Plan Year in question; and shall also certify the name,
Hours of Service, and Compensation of each Employee who was a Participant on the
prior Anniversary Date and who was such at any time during the Plan Year in
question. As soon as the above is determined, the Employer shall notify the
Administrator of the amount of the contribution due to be made by it or made by
it as of the Anniversary Date in question. The Administrator, upon receipt of
such certifications from the Employer, shall compute therefrom the Accrued
Benefit of each Participant. The Administrator shall keep complete records which
shall show its actions under this Plan. The Administrator shall also keep such
records for such periods as may be required under ERISA and regulations issued
thereunder and under any other Federal law or regulations issued thereunder. The
Administrator shall also maintain and retain records on matters for which
disclosure is required by ERISA in sufficient detail that the information
disclosed may be verified, and it shall keep such records available for
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Defined Contribution Plan and Trust Document
examination for a period of not less than six (6) years after the filing date of
documents containing the disclosed information.
(B) The Administrator shall prepare, or cause to have prepared by any plan
service organization as may be retained to do so, a written Participant
statement to be delivered to the Participant setting forth the Accrued Benefit
of such Participant. The statement of a Participant's Accrued Benefit shall not
be made available for examination by any other Participant without the consent
of the Administrator.
(C) Upon the occurrence of an event giving rise to the payment of benefits
under the Plan, the Administrator shall undertake to calculate such benefits
based on the records of the Administrator and such other pertinent information
as may be put before the Administrator by outside agencies or the Participant or
the Beneficiary of the Participant and shall direct the Trustee to distribute
the benefits at the time that such benefit becomes due and payable.
(D) The Administrator shall give a Participant, or the Beneficiary of a
deceased Participant, written notice, addressed to his last known address, by
certified mail, of any denial of claim for benefits under the Plan, setting
forth the specific reasons for such denial, written in a manner calculated to be
understood by him. Such notice shall be sent within ninety (90) days after such
denial and shall grant such Participant, or the Beneficiary of a deceased
Participant, a reasonable opportunity within sixty (60) days after registered
receipt of such notice to appear before the named members of the Administrator
at a stated place, date and time for a full and fair review by them of the
decision to deny the claim. Failure of the Participant, or the Beneficiary of a
deceased Participant, to so appear before the Administrator within such sixty
(60) day period, shall constitute an irrevocable consent by such Participant, or
the Beneficiary of a deceased Participant, to the decision denying the claim
made by the Administrator. The Administrator shall extend such sixty (60) day
period an additional thirty (30) days and shall provide another stated place,
date and time for such review or appearance, if it receives a written request to
do so by the Participant, or the Beneficiary of a deceased Participant, within
the first sixty (60) day period. The Administrator shall also change the stated
time and date of such appearance if requested to do so by the Participant, or
the Beneficiary of a deceased Participant, and if the parties are able to agree
upon such other time and date. The written notice by the Administrator shall
explain such irrevocable consent upon failure to appear before the Administrator
at the stated place, time and date, and the right of the Participant, or the
Beneficiary of a deceased Participant, to one thirty (30) day extension for his
appearance, and his right to request a different time and date within such
period. The Administrator shall maintain minutes of any meeting denying a claim
for benefits and of any review thereof and copies thereof shall be made
available to the Participant, or the Beneficiary of a deceased Participant, upon
written request.
(E) The Administrator may retain and consult with legal counsel, who may be
counsel for the Employer, with respect to the meaning or construction of this
agreement or its obligations or duties hereunder, or with respect to any action
or proceeding or any question of law, and shall be fully protected with respect
to any action taken or omitted by it in good faith pursuant to the advice of
such legal counsel, provided that the Administrator acts prudently in choosing
such legal counsel. The Administrator may retain such other persons or
organizations including actuaries, accountants and benefit, financial or
administrative consultants to assist in the plan ministerial services. The
Administrator shall have the sole ultimate to construe Plan terms and determine
eligibility for benefits.
(F) The Employer may directly pay the reasonable expenses of the Administrator
in the administration of this Trust, including legal, accounting, and advisor
fees or expenses. Should the Employer, for any reason, fail to pay such
expenses, the same shall be paid by the Trustee out of the Trust. No member of
the Administrator shall be entitled to compensation for his services as such
member, but the Employer agrees to supply such stenographic or office help as
may be necessary to assist the Administrator in the performance of his powers,
duties and discretions.
(G) The Administrator shall establish a funding
policy so that the Trust will meet Plan needs. The
Administrator shall review the funding policy just prior
to the end of each Fiscal Year for its appropriateness
under the circumstances then prevailing. In
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Defined Contribution Plan and Trust Document
establishing a funding policy for the Trust, the Administrator shall follow the
procedures set forth in this paragraph. The Administrator shall first determine
the following matters:
(1) Approximate value of the assets in the Trust;
(2) Anticipated Employer contribution for the Plan
Year then ending;
(3) Approximate amount to be transferred to
segregated accounts of the Trust during the following
year;
(4) Anticipated income of the Trust during the
following year;
(5) Estimate of the anticipated withdrawals during
the following year from Participants' voluntary
contribution accounts;
(6) Anticipated distributions from the Trust during
the following year to retired Participants, terminated
Participants and to Beneficiaries; and
(7) Estimate as to such distributions for the next five
(5) years.
Following a review of this material and consideration of anticipated
contributions and income and distributions, the Administrator shall determine a
funding policy for the Trust bearing in mind both the short-run and long-run
needs and goals of the Plan. Such funding policy shall be communicated to the
Trustee if the investment policy has been delegated to the Trustee or to the
Investment Manager of the Trust, if one shall have been appointed, so that the
investment policy of the Trust can be coordinated with Plan needs.
10.4 TRUSTEE FUNCTIONS
The Administrator hereby delegates to the Trustee the following functions:
(A) The Trustee shall hold in safekeeping the funds and assets received by the
Trustee under this Trust subject to the terms of this Agreement and for the
purposes herein set forth. The Trustee shall be responsible only for such funds
and assets as shall actually be received by the Trustee as Trustee hereunder. So
long as a Trustee is acting, title to any of the assets of the Trust may be held
or registered in the name of a nominee of the Trustee for ease of dealing with
the same, provided that the books of the Trust reflect actual ownership. The
assets so held or registered shall at all times remain in the possession or
under the control of the Trustee. The Trustee may not maintain the indicia of
ownership of any assets of the Trust outside the jurisdiction of the district
courts of the United States except as authorized by Regulations. The Trustee may
retain and consult with legal counsel, who may be legal counsel for the
Employer, with respect to the meaning or construction of this agreement or its
obligations or duties hereunder, or with respect to any action or proceeding or
any question of law, and shall be fully protected with respect to any action
taken or omitted by it in good faith pursuant to the advice of such legal
counsel, provided that the Trustee acts prudently in choosing such legal counsel
and in retaining such legal counsel. The Trustee may retain such other persons
or organization including actuaries, accountants and benefit, financial or
administrative consultants to assist in the Trust ministerial services.
(B) The Trustee shall have such powers as may from time to time be necessary,
appropriate or expedient to perform its functions in the management of the
Trust. In addition to the powers enumerated herein, the Trustee shall have each
and all the powers for trustees enumerated in the Statutes of the Home State of
the Employer. The enumeration herein of a lesser, greater or other power shall
not be deemed to exclude any statutory power. Without limiting the generality of
the foregoing, the Trustee has the power to:
(1) Receive the income of the Trust;
(2) Hold uninvested any cash contributions to the
Trust and to create reserves of cash or other assets of the Trust for the
payment of expenses or for distribution pursuant to the Plan, or for any other
purpose in connection with the Plan;
(3) Enter into any contracts with, or purchase any annuities from, any
insurance company or insurance companies for the purpose of providing for the
payment of all or any part of the retirement income payable under the Plan, and
to disburse under any such contracts or for the purchase of any such annuities
any monies held in the Trust;
(4) Deposit any monies at any time held in the Trust in any savings and loan
association or in the savings department of any bank, including the savings
department of the Trustee;
(5) Purchase, or subscribe for, any securities or
property and to retain the same in the Trust;
(6) Sell, exchange, convey, transfer, or otherwise
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dispose of, any securities or property held by it, by private contract or public
action, and no person dealing with the Trustee shall be bound to see the
application of the purchase money or to inquire into the validity, expediency,
or propriety of any such sale or other dispositions;
(7) Accept and retain for such time as it shall be determined any securities
or other property received or acquired by the Trustee hereunder, whether or not
such securities or other property would normally be purchased as investments
hereunder;
(8) Renew or extend, or to participate in the renewal or extension of, any
mortgage, upon such terms as may be deemed advisable by the Plan Administrator
or the Investment Manager, as the case may be;
(9) Vote upon any stocks, bonds or other securities; to give general or
special proxies or powers of attorney with or without powers of substitution; to
exercise any conversion privileges, subscription rights or other options, and to
make payments incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; to abandon any property determined by it to be
worthless; and generally to exercise any of the powers of an owner with respect
to stocks, bonds, securities and other property held as part of the Trust.
(10) Borrow or raise monies for the purposes of the Trust from anyone (other
than a "party in interest" as defined in Section 3(14) of ERISA) in such amount,
and upon such terms and conditions, as the Plan Administrator may deem
advisable; and, for any sum so borrowed, to issue its promissory note as
Trustee, and to secure the repayment thereof by pledging all, or any part, of
the Trust; and no person lending money to the Trustee shall be bound to see to
the application of the money lent or to inquire into the validity, expediency or
propriety of such borrowing; it being intended that the Trustee shall also have
the power to borrow from itself;
(11) Settle, compromise, or submit to arbitration any claims, debts or
damages due or owing from the Trust, to commence or defend suits or legal or
administrative proceedings, and to represent the Trust in all suits and legal
and administrative proceedings;
(12) Repair, alter or improve any buildings which may be on any real estate
forming part of the Trust or to erect an entirely new structure thereon;
(13) Register any investment held as part of the Trust Fund in its own name
or in the name of a nominee or to hold any investment in bearer form; provided,
however, that the books and records of the Trustee shall at all time show that
all such investments are part of the Trust;
(14) Engage such attorneys, investment advisors, accountants and such other
advisors as it may deem necessary or helpful in connection with the
administration of the Trust, at such wages, fees, remuneration, consideration or
otherwise, and upon such terms and conditions as it shall deem proper. Such
compensation shall in no event be deducted from any commissions or other
compensation payable to the Trustee;
(15) Make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
(16) Lend or borrow securities, write or sell options or futures or enter
into repurchase agreements unless specifically prohibited by the Plan
Administrator, subject to such restrictions as the Trustee in its sole
discretion may impose;
(17) Do all such acts, and exercise all such rights and privileges, although
not specifically mentioned herein, as may be necessary or proper for the
accomplishment of the purposes for which the Trust is established; and
(18) Settle securities trades effected by the Administrator or the
Investment Manager through a securities depository utilizing an institutional
delivery system. In such event, the Trustee may deliver or receive securities in
accordance with appropriate trade reports or statements given to the Trustee by
the depository without having received communications or instructions directly
from the Administrator or the Investment Manager.
(C) The Trustee shall receive from the Employer its contributions in cash made
under the Plan. If Participant contributions are required under the Plan, the
Trustee shall receive from the Employer such Participant contributions in cash.
All contributions so received, together with the income and earnings therefrom
and any increments thereto, shall be held,
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Defined Contribution Plan and Trust Document
managed, and administered in trust pursuant to the terms of this Plan and Trust,
to provide benefits under the Plan according to its terms. The Trustee shall be
under no duty to determine whether any contribution made to this Trust is in a
proper amount; nor shall the Trustee have any duty or responsibility to collect
any sum which the Employer is to contribute under this Trust.
(D) The Trustee shall from time to time, on the written directions of the
Administrator, make benefit payments out of the Trust to Participants or
Beneficiaries in such manner, in such amounts, and for such purposes as may be
specified by the Administrator. The Trustee shall not be responsible in any way
for the purpose or application of such payments.
The Trustee shall not be required to make any investigation beyond contacting
the Social Security Administration to determine the mailing address of any
retired or terminated Participant entitled to benefits under this agreement, or
to determine the identity and mailing address of any person entitled to death
benefits, and shall be entitled to withhold making any payments or deliveries
until such mailing address of retired or terminated Participants, and identity
and mailing address of persons entitled to death benefits, have been certified
to the Trustee by the Administrator or Social Security Administration.
(E) As agreed upon from time to time by the Employer and Trustee, the Trustee
may be paid reasonable compensation for services rendered, or reimbursed
expenses properly and actually incurred in the performance of duties with
respect to the Trust. However, no Trustee who already receives full time pay
from the Employer shall receive compensation from such Trust, except for
reimbursement of expenses properly and actually incurred. In the absence of
specific arrangement for such payments, any compensation or reimbursed expenses
shall be withdrawn by the Trustee from the Trust, unless paid by the Employer.
Such compensation shall include accounting, legal and administrative services
rendered by or to the Trustee unless specifically excluded by appropriate
written agreement. If so excluded, the Trustee may charge and withdraw from the
Trust the cost of such services as may be authorized by the Employer. To the
extent that the Trustee fees are to be charged against Employee contributions,
the Employer shall so advise each Participant.
(F) The Trustee shall keep accurate and detailed records of the administration
of the Trust hereunder which shall be open to inspection at all reasonable times
by any person designated by the Administrator or by the Board. At the end of
each Plan Year, as soon as is practicable after the close of such other periods
as may be agreed upon between the Trustee and the Employer and within sixty (60)
days after the removal or resignation of the Trustee, the Trustee shall file
with the Employer a written report setting forth all investments, receipts,
disbursements and other transactions effected by it during such Plan Year or
other period. The report shall contain an exact description of all securities,
contracts, or other property purchased and sold, the cost or net proceeds of
sale, (excluding accrued interest paid or received), and showing the securities
and investments held at the end of such Plan Year or other period, and the cost
and fair market value of each item thereof as carried on the books of the
Trustee, and the total market value of the Trust at the end of such Plan Year or
other period. The approval of the Administrator, or the lack of written
objection from him within sixty (60) days after submission, of any report or
accounting by the Trustee shall be a complete release and discharge to the
Trustee and shall be binding upon all Participants and all persons claiming in
place of or through such Participants, provided that they do not contain any
statement that is a result of a breach of any fiduciary duty by the Trustee or
they do not omit or conceal such breach. If the Trustee shall determine that the
Trust consists in whole or in part of property not traded freely on a recognized
market, or that information necessary to ascertain the fair market value thereof
is not readily available to the Trustee, the Trustee shall request the party
determining investment policy to instruct the Trustee as to the value of such
property for all purposes under the Plan and Trust, and such party shall comply
with such request. The value placed upon such property by such party in its
instructions to the Trustee shall be conclusive and binding upon the Employer,
the Administrator, Participants, their Beneficiaries and all other persons with
an interest herein. If such party determining investment policy fails or refuses
to instruct the Trustee as to the value of such property
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Defined Contribution Plan and Trust Document
within a reasonable time after receipt of the Trustee's request, the Trustee
shall engage a competent appraiser to fix the fair market value of such property
for all purposes hereunder. The determination of any such property shall be
conclusive upon all parties interested therein and the Trustee shall have no
liability in connection therewith. The reasonable fees and expenses incurred for
any such appraisal shall be paid by the Trustee out of the Trust or, at the
option of the Employer, by the Employer. The Trustee shall prepare and file such
other reports, publications, statements, tax returns and forms required to be
filed by the Trustee with the Secretary of Labor or Secretary of Treasury as the
Trustee shall agree to undertake.
(G) If the Administrator directs, the Trustee will commingle into one Trust
the assets of two or more Employer plans each of which shall be qualified under
Section 401(a) of the Internal Revenue Code. The Trustee shall have no
responsibility to determine the value of each separate plan; such responsibility
shall remain with the Administrator. Should one or more plans be disqualified,
the Administrator shall notify the Trustee and the Trustee shall segregate the
funds of such plan or plans.
(H) If the Administrator directs, the Trustee shall keep full accounts of all
receipts and disbursements for each Participant's account. The Trustee shall
render an annual report for each Participant's account to the Plan Administrator
within sixty (60) days after the end of each Plan Year, said report to contain a
complete accounting showing the total assets in the Trust and the fair market
value of such assets as of that date, as well as a statement of purchases, sales
and any investment changes and all income, expenses and disbursements since the
last such report.
(I) Notwithstanding any other provision contained in this Trust, the Trustee,
at the direction of the Administrator and at the election of the Participant,
shall transfer, upon termination of a Participant, the non-forfeitable interest
to another trust forming part of a pension, profit sharing or stock bonus plan
maintained by such Participant's new employer and meeting the requirements of
Code Section 401(a), provided that the trust to which such transfers are made
permits the transfer to be made. With the consent of the Administrator, the
Trustee may accept funds transferred from another Trust forming part of a
pension, profit sharing or stock bonus plan maintained by such Participant's
previous employer and meeting the requirements of Internal Revenue Code Section
401(a) for the account of a Participant under this Plan, provided that the trust
from which such funds are transferred permits the transfer to be made and, in
the opinion of legal counsel for the Employer, the transfer will not jeopardize
the exempt status of the Trust or create adverse tax consequences to the
Employer. In the event of such a transfer to a Participant's account under this
Trust, the Trustee shall maintain a separate, non-forfeitable account for the
amount transferred and its share of the gains or losses of the Trust hereafter,
as provided under Section 4.7.
(J) The duties and responsibilities of the Trustee shall be solely those set
forth in this document and the Trustee shall not have the authority to interpret
the Plan.
10.5 INVESTMENT OF TRUST ASSETS
(A) If an individual Trustee has been appointed by the Board, the Trustee
shall have the authority and duty to direct the investment and management of all
of the Trust assets and the Trustee shall be the fiduciary with respect to the
investment and management of such Trust assets and the Administrator shall have
no responsibility therefore, to the extent that such authority and duty has not
been delegated to the Administrator or an Investment Manager by the Board. If
more than one (1) individual Trustee is appointed by the Board, each such
individual Trustee shall have full investment and management powers with respect
to the Trust assets as if such Trustee was the sole Trustee, unless such
investment and management authority is restricted by the Board or the
Administrator.
(B) If a bank or other corporate Trustee has been appointed by the Board, the
Administrator shall have the authority and duty to direct the investment and
management of all of the Trust assets, to the extent that such authority and
duty has not been delegated to the Trustee or an Investment Manager by the
Administrator.
(1) The Administrator may by appropriate action appoint the Trustee to
direct the investment and management of all or a portion of the assets of the
Trust pursuant to the powers enumerated in Section 10.5. Written direction of
the Administrator's action shall be
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Defined Contribution Plan and Trust Document
delivered to the Trustee whereupon the Trustee shall be the fiduciary with
respect to the investment and management of such Trust assets and the
Administrator shall have no responsibility therefore. Any transfer of investment
and management to the Trustee may be revoked by a written notice to that effect
by the Administrator.
(C) The Board or the Administrator, by appropriate action, may appoint an
Investment Manager to direct the Trustee to invest and manage all or a portion
of the assets of the Trust pursuant to the powers enumerated in Section 10.5. If
investment of the Trust Fund is to be directed in whole or in part by an
Investment Manager, the Plan Administrator shall deliver to the Trustee a copy
of each of the following documents: (1) Instrument appointing the Investment
Manager; (2) Instrument evidencing the Investment Manager's acceptance of such
appointment; (3) Investment Manager's acknowledgment that it is a fiduciary of
the Plan; and (4) Certificate evidencing the Investment Manager's current
registration under the Investment Advisor's Act of 1940, whereupon the
Investment Manager shall be the fiduciary with respect to the investment and
management of such Trust assets and the Administrator and the Trustee shall have
no responsibility therefore. The Trustee shall be fully protected in relying
upon such documents until such time as it is otherwise notified in writing of
some change by the Plan Administrator.
(D) The party who has been charged with the duty and authority to direct the
investment and management of Trust assets shall have such powers as may from
time to time be necessary, appropriate or expedient to perform its functions in
the management of the Trust. The term "Power" is used herein in its broad sense
and as including powers, implied powers, rights, privileges and immunities.
Without limiting the foregoing, such party shall have the following enumerated
powers:
(1) To sell, convey, exchange, lease, convert, transfer, divide, repair,
partition, consent to partition, or otherwise dispose of any property at any
time held in trust hereunder;
(2) Subject to the provisions of Sections 404, 405 and 407 of ERISA, to
invest and reinvest the Trust and keep the Trust invested, without distinction
between principal and income in such securities or in such property, real or
personal, wherever situated, as they shall deem advisable, including, but not
limited to, annuity contracts, insurance contracts, real estate, management
commodity assets, stocks, common or preferred, option, futures, contract options
on futures in trust and participation certificates, bonds and mortgages
(including part interests in bonds and mortgages or notes and mortgages insured
by the Federal Housing Administration), leaseholds on improved and unimproved
real estate, qualifying securities or qualifying real property of the Employer
or any of its affiliates to the maximum extent permitted under ERISA,
partnership interests, interests in joint ventures, insurance company investment
contracts, trust funds established by the Trustee, common or collective trust
funds or pooled investment funds maintained for the investment of qualified
retirement trusts by a bank, trust company or other financial institution acting
in a fiduciary or custodial capacity for the Plan, (investment in a common or
collective trust fund or pooled investment funds shall constitute the adoption
of the instrument or agreement creating such fund), and other evidences of
indebtedness or ownership;
(3) Borrow money, and to secure the same by mortgage, deed of trust, or
pledge of the Trust, or any assets constituting a part thereof, and to pay and
discharge any and all indebtedness of the Trust or any liens or other charges
against the Trust;
(4) Borrow the cash values of annuity or insurance contracts. Such borrowed
funds may be invested in any security or other property including premiums for
insurance or annuity contracts. Notwithstanding anything herein to the contrary,
the Administrator will only direct the Trustee to exercise its power hereunder
to the extent that the unborrowed cash values of the contracts issued to the
accounts of highly compensated Participants and officers or shareholders of the
Employer are proportionally no greater than the unborrowed cash values of
insurance contracts issued to the accounts of other Participants;
(5) To have, with respect to bonds, shares of stock and other securities,
all the rights, powers and privileges of an owner, including holding securities
in the name of the Trustee or in the name of a nominee with or without
disclosures of the Trust, voting, giving proxies, making payment of calls,
assessments, or other sums deemed by the Trustee expedient for the
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Defined Contribution Plan and Trust Document
protection of the Trust, exchanging securities, selling or exercising stock
subscriptions or conversion rights, participating in foreclosures,
reorganizations, consolidations, mergers, liquidations, pooling agreements,
voting trusts, and assenting to corporate sales, leases and encumbrances;
(6) Settle, compromise or submit to arbitration any claims, debts, or
damages due or owing to or from the Trust; to commence to defend legal
proceedings for or against the Trust; and to represent the Trust in all
proceedings in any court of law or equity or before any other body or tribunal.
The Trustee shall not exercise these powers conferred on it without first giving
notice of the action proposed to be taken by the Administrator and obtaining
written approval of such action from the Administrator;
(7) Invest, on a uniform basis for all Participants, in an annual premium
contract on his life issued by a legal reserve life insurance company and, if
permitted by the policy purchased, at the Participant's retirement, to pay to
such insurance company additional amounts from the Participant's account for the
purpose of converting such policy so as to provide a retirement income;
(8) Invest in any common or collective trust funds in which an Employee
Benefit Trust is eligible to participate if such trust is established and
maintained by the Trustee. The Declaration of Trust, as amended from time to
time, shall be deemed to be a part hereof to the same extent as if fully set
forth at length herein at the time of execution; and
(9) Deposit funds in any interest bearing savings account at the bank which
may also serve as Trustee.
(E) If a Participant or Beneficiary exercises control over the assets in his
account under the Plan, the Trustee shall invest such account as directed by
such Participant or Beneficiary in writing. Provided, however, that the Trustee
shall have no duty or obligation with respect to any such individually directed
investments beyond the duties and obligations imposed upon the Trustee in this
Section 10 with respect to non-individually directed investments.
(F) All directions concerning investments made by the Administrator or the
Investment Manager shall be verbal unless the Trustee requires written
confirmation. The Trustee shall be under no duty to question any directions of
the Administrator or Investment Manager nor to review any securities or other
property of the Trust constituting assets thereof with respect to which the
Administrator or the Investment Manager has investment responsibility, nor to
make any suggestions to such Administrator or the Investment Manager in
connection therewith. The Trustee shall, as promptly as possible, comply with
any written directions given by the Administrator or the Investment Manager
hereunder. The Trustee shall not be liable, in any manner nor for any reason,
for the making or retention of any investment pursuant to such directions of the
Administrator or the Investment Manager, nor shall the Trustee be liable for its
failure to invest any or all of the Trust in the absence of such written
direction. The Administrator or the Investment Manager shall not direct the
purchase, sale or retention of any assets of the Trust if such directions are
not in compliance with the applicable provision of ERISA and any Regulations or
Rulings issued thereunder.
(G) The Trustee shall not be liable nor responsible for losses or unfavorable
results arising from the Trustee's compliance with proper directions of the
Administrator or Investment Manager which are made in accordance with the terms
of the Plan and Trust and which are not contrary to the provisions of any
applicable Federal or State statute regulating such investment and management of
the assets of any employee benefit trust.
10.6 MISCELLANEOUS
(A) This Trust is declared to be irrevocable. However, although the Employer
has established the Trust with the bona fide intention and expectation that it
will be able to make contributions to it indefinitely, the Employer is not and
shall not be under any obligation or liability whatsoever to continue its
contributions or to maintain the Plan for any given length of time. The Employer
may in its sole and absolute discretion completely discontinue its contributions
or terminate the Trust in accordance with the provisions of the Plan at any
time. Unless sooner terminated in accordance with the other provisions of this
agreement, this Trust shall in any event terminate:
(1) Upon the date specified in a written notice of
termination of the Plan and Trust, executed by the
Employer and delivered to the Trustee; or
(2) Upon the complete accomplishment of all the
purposes for which the Plan is created.
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Defined Contribution Plan and Trust Document
The assets of a Plan shall never inure to the benefit of any Employer and
shall be held for the exclusive purposes of providing benefits to Participants
in the Plan and their Beneficiaries and defraying reasonable expenses of
administering the Trust. Any contribution made by the Employer because of a
mistake of fact must be returned to the Employer within one year of the
contribution. In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Internal Revenue Code, any
contribution made incident to that initial qualification by the Employer must be
returned to the Employer within one year after the date the initial
qualification is denied, but only if the application for the qualification is
made by the time prescribed by law for filing the Employer's return for the
taxable year in which the Plan is adopted, or such later date as the Secretary
of the Treasury may prescribe.
(B) The Trustee and the Administrator as well as all other fiduciaries under
the Trust shall discharge their duties with respect to this Trust solely in the
interest of the Participants and their Beneficiaries; and,
(1) For the exclusive purpose of providing benefits to Participants and
their Beneficiaries, and defraying reasonable expenses of administering this
Trust;
(2) Acting prudently, with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims;
(3) By diversifying the investments of the Trust so as to minimize the risk
of large losses, unless under the circumstances it is clearly not prudent to do
so; and
(4) In accordance with the terms of this Trust insofar as they are
consistent with Title I of the Employee Retirement Income Security Act of 1974.
(C) The Trust created hereby shall not terminate or be held to have terminated
upon any theory of merger based on the fact that the same persons are, by the
terms of this instrument, made sole Participant and Trustee of said Trust; and
said Participants are expressly given the right and privilege to participate in
the profits, dividends, earnings and increases thereof, without regard to the
relation as Trustee which such Participants may bear to said Trust.
(D) The Trust will be administered in the Home State of the Trustee, and its
validity, construction, and all rights hereunder shall be governed by ERISA and,
to the extent not preempted, by the laws of the Home State of the Trustee. If
any provisions of this Agreement shall be invalid or unenforceable, the
remaining provisions shall continue to be fully effective.
10.10 LOANS TO PARTICIPANTS
(A) All loans shall be adequately secured by the assignment of fifty percent
of the Participant's vested Accrued Benefit in the plan and such other security
as the Plan Administrator deems appropriate under the circumstances. The loan
shall be evidenced by the Participant's collateral promissory note payable to
the Trustee describing the amount, term and security for the loan.
11.0 CASH OR DEFERRED ARRANGEMENT
(The Plan Sponsor may choose to offer this provision
in his Plan)
11.1 PURPOSE AND EFFECTIVE DATE
(A) Purpose. If so elected in the cash or deferred arrangement (CODA) adoption
agreement, it is the intention of the Employer to incorporate a CODA, which
satisfies the requirements of Section 401(k) of the Code, as part of its profit
sharing plan.
(B) Effective Date. The CODA is effective upon
adoption by the adopting employer.
11.2 ELIGIBILITY TO PARTICIPATE
(A) Notwithstanding any other provision of the Plan, an Employee will be
eligible to make Elective Deferrals on the Entry Date next following the earlier
of:
(1) The date on which the Employee meets the age
and service requirements specified in Section 6 of the
Adoption Agreement, or
(2) The date on which the Employee attains age 21 and is credited with one
(1) Year of Service.
11.3 DEFINITIONS
The following definitions shall apply for purposes of this amendment only:
(A) "Actual Deferral Percentage" or "ADP" shall
mean, for a specified group of Participants for a Plan
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Defined Contribution Plan and Trust Document
Year, the average of the ratios (calculated separately
for each Participant in such group) of
(1) The amount of Employer contributions actually paid over to the trust on
behalf of such Participant for the Plan Year to
(2) The Participant's Compensation for such Plan Year (whether or not the
Employee was a Participant for the entire Plan Year). Employer contributions on
behalf of any Participant shall include:
(a) Any Elective Deferrals made pursuant to the Participant's deferral
election, including Excess Elective Deferrals, but excluding Elective Deferrals
that are taken into account in the Contribution Percentage test (provided the
ADP test is satisfied both with and without exclusion of these Elective
Deferrals); and
(b) At the election of the Employer, Qualified Non-elective Contributions
and Qualified Matching Contributions. For purposes of computing Actual Deferral
Percentages, an Employee who would be a Participant but for the failure to make
Elective Deferrals shall be treated as a Participant on whose behalf no Elective
Deferrals are made.
(B) "Adjustment Factor" shall mean the cost of living factor prescribed by the
Secretary of the Treasury under Section 415(d) of the Code for years beginning
after December 31, 1987, as applied to such items and in such manner as the
Secretary shall provide.
(C) "Affiliated Employer" shall mean any corporation which is a member of a
controlled group of corporations (as defined in Section 414(b) of the Code)
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Section 414(c) of the Code) with
the Employer; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Section 414(m) of the Code) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to regulations under Section 414(o) of the Code.
(D) "Average Actual Deferral Percentage" shall mean the average (expressed as
a percentage) of the Actual Deferral Percentages of the Participants in a group.
(E) "Code" shall mean the Internal Revenue Code of 1986.
(F) "Compensation" shall mean, unless otherwise elected in the CODA adoption
agreement, compensation paid by the Employer to the Participant during the Plan
Year which is required to be reported as wages on the Participant's Form W-2, or
which, in the case of a self-employed individual, constitutes payment for
services includible in the self-employed individual's gross income. For purposes
of the EZFLEX Adoption Agreement: the Employer may elect that Compensation shall
not include earnings prior to the date an Employee became a Plan Participant.
This definition shall apply solely for purposes of determining the Actual
Deferral Percentage under Section 11.4(F) and the Contribution Percentage under
Section 11.8(A).
(G) "Elective Deferrals" shall mean any Employer contributions made to the
Plan at the election of the Participant, in lieu of cash Compensation, and shall
include contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a Participant's Elective
Deferral is the sum of all Employer contributions made on behalf of such
Participant pursuant to an election to defer under any qualified CODA as
described in Section 401(k) of the Code, any simplified employee pension cash or
deferred arrangement as described in Section 402(h)(1)(B), any eligible deferred
compensation plan under Section 457, any plan as described under Section
501(c)(18), and any Employer contributions made on the behalf of a Participant
for the purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement.
(H) "Employee" shall mean employees of the Employer and shall include leased
employees within the meaning of Section 414(n)(2) of the Code. Notwithstanding
the foregoing, if such leased employees constitute less than twenty (20) percent
of the Employer's Non-highly Compensated work force within the meaning of
Section 414(n)(5)(C)(ii) of the Code, the term "Employee" shall not include
those leased employees covered by a plan described in Section 414(n)(5)(B) of
the Code unless otherwise provided by the terms of this plan other than this
amendment.
(I) "Employee Contributions" shall mean contributions to the plan made by a
Participant during the Plan Year.
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Defined Contribution Plan and Trust Document
(J) "Employer" shall mean the entity that establishes or maintains the plan,
any successor to such entity, and any Affiliated Employer.
(K) "Excess Contributions" shall mean, with respect to any Plan Year, the
excess of:
(1) The aggregate amount of employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such Plan Year,
over
(2) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of the ADPs, beginning with the highest of such percentages).
(L) "Excess Elective Deferrals" shall mean those Elective Deferrals that are
includible in a participant's gross income under Section 402(g) of the Code to
the extent such participant's Elective Deferrals for a taxable year exceed the
dollar limitation under such Code section. Excess Elective Deferrals shall be
treated as annual additions under the plan.
(M) "Family Member" shall mean an individual described in Section 414(q)(6)(B)
of the Code.
(N) "Highly Compensated Employee" shall mean an Employee described in Section
2.23 of the Plan and in Section 414(q) of the Code. (O) "Matching Contribution"
shall mean any contribution to the plan made by the Employer for the Plan Year
and allocated to a Participant's account by reason of the Participant's Employee
Contributions or Elective Deferrals. Matching Contributions are subject to the
distribution provisions applicable to Employer contributions in the underlying
Plan document.
(P) "Non-highly Compensated Employee" shall mean the Employee of the Employer
who is neither a Highly Compensated Employee nor a Family Member.
(Q) "Participant" shall mean any Employee of the Employer who has met the
eligibility and participation requirements of the Plan.
(R) "Plan Year" shall mean the Plan Year otherwise specified in the Plan.
(S) "Qualified Non-elective Contributions" shall mean contributions (other
than Matching Contributions or Qualified Matching Contributions) made by the
Employer and allocated to Participant's accounts that the Participants may not
elect to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in accordance with the
distribution provisions that are applicable to Elective Deferrals and Qualified
Matching Contributions.
(T) "Qualified Matching Contributions" shall mean Matching Contributions which
are subject to the distribution and nonforfeitability requirements under Section
401(k) of the Code when made.
11.4 ELECTIVE DEFERRALS
(A) Allocation of Deferrals. The Employer shall contribute and allocate to
each Participant's Elective Deferral account an amount equal to the amount of a
Participant's Elective Deferrals.
(B) Elective Deferrals Pursuant to a Salary Reduction Agreement. To the extent
provided in the CODA adoption agreement, a Participant may elect to have
Elective Deferrals made under this plan. Elective Deferrals shall include both
single-sum and continuing contributions made pursuant to a salary reduction
agreement. A Participant shall designate the amount and frequency of his or her
Elective Deferrals in the form and manner specified by the Plan Administrator.
(1) Commencement of Elective Deferrals: A Participant shall be afforded a
reasonable period at least once each calendar year, as specified in Section 10.2
of the CODA adoption agreement, to elect to commence Elective Deferrals. Such
election shall not become effective before the time specified in Section 10.2 of
the CODA adoption agreement.
(2) Modification and Termination of Elective Deferrals. A Participant's
election to commence Elective Deferrals shall remain in effect until modified or
terminated. A Participant shall be afforded a reasonable period at least once
each calendar year, as specified in Section 10.2(e) of the CODA adoption
agreement, to modify the amount or frequency of his or her Elective Deferrals. A
Participant may terminate his or her election to make Elective Deferrals at any
time.
(C) Cash bonuses. To the extent provided in Section 10.2 of the CODA adoption
agreement, a Participant may also base Elective Deferrals on cash bonuses that,
at the Participant's election, may be contributed to the CODA or received by the
Participant in cash.
(1) Time and Manner of Election. A Participant
shall be afforded a reasonable period, as provided in
Section 10.2(f) of the CODA adoption agreement, to
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Defined Contribution Plan and Trust Document
elect to defer amounts described in Section 11.4(c) above to the CODA. Such
election shall not become effective before the time specified in Section 10.2(a)
of the CODA adoption agreement.
(D) Maximum Amount of Elective Deferrals. A Participant's Elective Deferrals
are subject to any limitations imposed in Section 10.2 of the CODA adoption
agreement and any further limitations under the plan. No Participant shall be
permitted to have Elective Deferrals made under this Plan during any calendar
year in excess of the maximum dollar limitation under Section 402(g) of the Code
in effect at the beginning of the calendar year.
(E) Distribution of Excess Elective Deferrals. A participant may assign to
this Plan any Excess Elective Deferrals made during a taxable year of the
Participant by notifying the Plan Administrator on or before the date specified
in the adoption agreement of the amount of the Excess Elective Deferrals to be
assigned to the Plan. Notwithstanding any other provisions of the Plan, Excess
Elective Deferrals, plus any income and minus any loss allocable thereto, shall
be distributed no later than April 15 to any Participant to whose account Excess
Elective Deferrals were assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year.
(1) The Participant's claim shall be in writing; shall be submitted to the
plan administrator not later than the date elected in Section 15 of the CODA
adoption agreement; shall specify the amount of the Participant's Excess
Elective Deferral for the preceding calendar year; and shall be accompanied by
the Participant's written statement that if such amounts are not distributed,
such Excess Elective Deferrals, when added to amounts deferred under other plans
or arrangements described in Sections 401(k), 408(k), or 403(b) of the Code,
will exceed the limit imposed on the Participant by Section 402(g) of the Code
for the year in which the deferral occurred.
(2) Determination of income and loss: Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Elective Deferrals is the sum of:
(a) Income or loss allocable to the Participant's Elective Deferral
account for the taxable year multiplied by a fraction, the numerator of which is
such Participant's Excess Elective Deferrals for the year and the denominator is
the Participant's account balance attributable to Elective Deferrals without
regard to any income or loss occurring during such taxable year; and
(b) Ten percent of the amount determined under (a) multiplied by the
number of whole calendar months between the end of the Participant's taxable
year and the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
(F) Actual Deferral Percentage. The Actual Deferral Percentage "ADP" for
Participants who are Highly Compensated Employees for each Plan Year and the ADP
for Participants who are Non-highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(1) The ADP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ADP for Participants who are Non-highly
Compensated Employees for the Plan Year multiplied by 1.25; or
(2) The ADP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ADP for Participants who are Non-highly
Compensated Employees for the Plan Year multiplied by 2.0, provided that the ADP
for Participants who are Highly Compensated Employees does not exceed the ADP
for Participants who are Non-highly Compensated Employees by more than two (2)
percentage points.
(G) Special Rules:
(1) The ADP for any Participant who is a Highly Compensated Employee for the
Plan Year and who is eligible to have Elective Deferrals (and Qualified
Non-elective Contributions or Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of the ADP test) allocated to his
accounts under two or more arrangements described in Section 401(k) of the Code,
that are maintained by the Employer, shall be determined as if such Elective
Deferrals (and, if applicable, such Qualified Non-elective Contributions or
Qualified Matching Contributions, or both) were made under a single arrangement.
If a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
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(2) In the event that this Plan satisfies the requirements of Section
401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this Section shall
be applied by determining the ADP of Employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(k) of the Code only if they have the
same Plan Year.
(3) For purposes of determining the ADP of a Participant who is a 5-percent
owner or one of the ten most highly-paid Highly Compensated Employees, the
Elective Deferrals (and Qualified Non-elective Contributions or Qualified
Matching Contributions, or both, if treated as Elective Deferrals for purposes
of the ADP test) and Compensation of such Participant shall include the Elective
Deferrals (and, if applicable, Qualified Non-elective Contributions and
Qualified Matching Contributions, or both) and Compensation for the Plan Year of
Family Members (as defined in Section 414(q)(6) of the Code). Family Members,
with respect to such Highly Compensated Employees, shall be disregarded as
separate employees in determining the ADP both for Participants who are
Non-highly Compensated Employees and for Participants who are Highly Compensated
Employees.
(4) For purposes of determining the ADP test, Elective Deferrals, Qualified
Non-elective Contributions and Qualified Matching Contributions must be made
before the last day of the twelve-month period immediately following the Plan
Year to which
contributions relate.
(5) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified Non-elective
Contributions or Qualified Matching Contributions, or both, used in such test.
(6) The determination and treatment of the ADP amounts of any participant
shall satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
(H) Distribution of Excess Contributions. Notwithstanding any other provision
of this Plan, Excess Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Contributions were allocated for the
preceding Plan Year. If such excess amounts are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts arose, a
ten (10) percent excise tax will be imposed on the Employer maintaining the Plan
with respect to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees. Excess Contributions shall
be allocated to Participants who are subject to the family member aggregation
rules of Section 414(q)(6) of the Code in the manner prescribed by the
regulations. Excess Contributions (including the amounts recharacterized) shall
be treated as Annual Additions under the Plan.
(1) Determination of Income or Loss: Excess Contributions shall be adjusted
for any income or loss up to the date of distribution. The income or loss
allocable to Excess Contributions is the sum of:
(a) Income or loss allocable to the Participant's Elective Deferral
account (and, if applicable, the Qualified Non-elective Contribution account or
the Qualified Matching Contributions account or both) for the Plan Year
multiplied by a fraction, the numerator of which is such Participant's Excess
Contributions for the year and the denominator is the Participant's account
balance attributable to Elective Deferrals (and Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, if any of such
contributions are included in the ADP test) without regard to any income or loss
occurring during such Plan Year; and
(b) Ten Percent of the amount determined under (a) multiplied by the
number of whole calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution occurs after
the 15th of such month.
(2) Accounting for Excess Contributions: Excess Contributions shall be
distributed from the Participant's Elective Deferral account and Qualified
Matching Contribution account (if applicable) in proportion to the Participant's
Elective Deferrals and Qualified Matching Contributions (to the extent used in
the ADP test) for the Plan Year. Excess Contributions shall be distributed from
the Participant's Qualified
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Defined Contribution Plan and Trust Document
Non-elective Contribution account only to the extent that such Excess
Contributions exceed the balance in the Participant's Elective Deferral account
and Qualified Matching Contribution account.
(3) A Participant may treat his Excess Contributions as an amount
distributed to the Participant and then contributed by the Participant to the
Plan. Recharacterized amounts will remain nonforfeitable and subject to the same
distribution requirements as Elective Deferrals. Amounts may not be
recharacterized by a Highly Compensated Employee to the extent that such amount
in combination with other Employee Contributions made by that Employee would
exceed any stated limit under the Plan on Employee Contributions.
Recharacterization must occur no later than two and one-half months after the
last day of the Plan Year in which such Excess Contributions arose and is deemed
to occur no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for the Participant's
tax year in which the Participant would have received them in cash.
(I) Qualified Non-Elective Contributions
(1) The Employer may elect to make Qualified
Non-elective Contributions under the Plan on behalf of Employees as provided in
the Adoption Agreement.
(2) In addition, in lieu of distributing Excess Contributions as provided in
Section 11.4(H) of the Plan, or Excess Aggregate Contributions as provided in
Section 11.8(D) of the Plan, and to the extent elected by the Employer in the
Adoption Agreement, the Employer may make Qualified Non-elective Contributions
on behalf of Non-highly Compensated Employees that are sufficient to satisfy
either the Actual Deferral Percentage test or the Average Contribution
Percentage test, or both, pursuant to regulations under the Code.
(J) Separate Accounts. A separate account shall be maintained for that portion
of a Participant's accrued benefit that is attributable to Elective Deferrals
and a separate account shall be maintained for that portion of a Participant's
accrued benefit that is attributable to Qualified Non-elective Contributions.
Each separate account shall be credited with the applicable contributions,
earnings and losses, distributions, and other applicable adjustments.
(K) Under no circumstances may Elective Deferrals and Qualified Non-elective
Contributions be contributed and allocated to the trust under the plan later
than thirty (30) days after the close of the Plan Year for which the
contributions are deemed to be made, or such other time as provided in
applicable regulations under the Code.
11.5 TOP-HEAVY REQUIREMENTS
(A) If the underlying plan document does not
designate another plan to satisfy the top-heavy requirements of Section 416 of
the Code, or if the underlying plan document allocates less than three (3)
percent of each Non-key Employee's top-heavy Compensation under the Plan to such
Participant's account for a Plan Year, then the minimum top-heavy allocation
under the Plan shall be allocated on behalf of Non-key Employees in accordance
with Section 416 of the Code. Such allocation shall not be less than the lesser
of three (3) percent of such Participant's Compensation or, in the case where
the Employer has no defined benefit plan which designates this Plan to satisfy
Section 401 of the Code, the largest percentage of Employer contributions and
forfeitures, as a percentage of the first $200,000 of the Key Employee's
compensation, allocated on behalf of any Key Employee for that year.
(B) For purposes of satisfying the minimum contribution on behalf of each
Non-key Employee under Section 11.5(A) above, Elective Deferrals and Matching
Contributions shall not be taken into account.
(C) For purposes of determining whether a plan is top-heavy under Section 416
of the Code, Elective Deferrals are considered employer contributions.
11.6 SPECIAL DISTRIBUTION RULES
(A) Elective Deferrals, Qualified Non-elective Contributions and Qualified
Matching Contributions and income allocable thereto are not distributable to the
Participant, or the Participant's Beneficiary or Beneficiaries, in accordance
with the Participant's or Beneficiary's election, earlier than upon separation
from service, death, or disability.
(B) Such amounts may also be distributed upon:
(1) Termination of the Plan without the
establishment of another defined contribution plan.
(2) The disposition by a corporation to an unrelated
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Defined Contribution Plan and Trust Document
corporation of substantially all of the assets (within the meaning of Section
409(d)(2) of the Code) used in a trade or business of such corporation if such
corporation continues to maintain this Plan after the disposition, but only with
respect to Employees who continue employment with the corporation acquiring such
assets.
(3) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section 409(d)(3)
of the Code) if such corporation continues to maintain this Plan, but only with
respect to Employees who continue employment with such subsidiary.
(4) The hardship of the Participant as described in
Section 11.6(C).
(5) The attainment of age 59 1/2 in the case of a
Profit Sharing Plan.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the spousal and participant consent
requirements (if applicable) contained in Sections 401(a)(11) and 417 of the
Code.
(C) Distribution of Elective Deferrals (and earnings thereon accrued as of
December 31, 1988) may be made to a Participant in the event of hardship. For
the purposes of this Section, hardship is defined as an immediate and heavy
financial need of the Employee where such Employee lacks other available
resources. Hardship distributions are subject to the spousal consent
requirements contained in Sections 401(a)(11) and 417 of the Code.
(1) The following are the only financial needs considered immediate and
heavy: deductible medical expenses (within the meaning of Section 213(d) of the
Code) of the Employee, the Employee's spouse, children, or dependents; the
purchase (excluding mortgage payments) of a principal residence for the
Employee; payment of tuition for the next quarter or semester of post-secondary
education for the Employee, the Employee's spouse, children or dependents; or
the need to prevent the eviction of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
(2) A distribution will be considered as necessary to satisfy an immediate
and heavy financial need of the Employee only if:
(a) The Employee has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by the
Employer;
(b) All plans maintained by the Employer provide that the Employee's
Elective Deferrals (and Employee Contributions) will be suspended for twelve
months after the receipt of the hardship distribution;
(c) The distribution is not in excess of the amount
of an immediate and heavy financial need; and
(d) All plans maintained by the Employer provide that the Employee may
not make Elective Deferrals for the Employee's taxable year immediately
following the taxable year of the hardship distribution in excess of the
applicable limit under Section 402(g) of the Code for such taxable year less the
amount of such Employee's Elective Deferrals for the taxable year of the
hardship distribution.
(3) The determination of the existence of financial hardship, and the amount
required to be distributed to meet the need created by the hardship, shall be
made by a person or persons designated by the Employer (unless a different
person or persons are given authority elsewhere in the plan to approve hardship
distributions).
(4) All determinations regarding financial hardship shall be made in
accordance with written procedures that are established by the person or persons
described in Section 11.6(C)(3) above, and applied in a uniform and
nondiscriminatory manner. Such written procedures shall specify the requirements
for requesting and receiving distributions on account of hardship, including
what forms must be submitted and to whom. All determinations regarding financial
hardship must be made in accordance with objective criteria set forth in Section
7.2(a) through (c) of the CODA adoption agreement. Such determinations must also
comply with applicable regulations under the Code.
(5) Processing of applications and distributions of amounts under this
Section, on account of a bona fide financial hardship, must be made as soon as
administratively feasible.
(6) If this Plan document provides for distributions on account of hardship,
but does not comply with the requirements for hardship as stated in this Section
11.6(C), and as otherwise provided in applicable regulations under the Code,
then Elective Deferrals may be distributed on account of hardship only in
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Defined Contribution Plan and Trust Document
accordance with this Section 11.6(C).
11.7 MATCHING CONTRIBUTIONS
(A) If elected by the Employer in the CODA adoption agreement, the Employer
will make Matching Contributions to the Plan. The amount of such Matching
Contributions shall be calculated by reference to the Participant's Elective
Deferrals as specified by the Employer in the Adoption Agreement.
(B) Separate Account. A separate account shall be maintained for that portion
of a Participant's accrued benefit that is attributable to Matching
Contributions. Such separate account shall be credited with the applicable
contributions, earnings and losses, distributions, and other adjustments.
(C) Vesting. Matching Contributions will be vested in accordance with the
Employer's election in Section 13.2 of the CODA adoption agreement. In any
event, Matching Contributions shall be fully vested at Normal Retirement Age,
upon the complete or partial termination of the Profit Sharing Plan, or upon the
complete discontinuance of Employer contributions.
(D) Forfeitures. Forfeitures of Matching Contributions other than Excess
Aggregate Contributions shall be made in accordance with Section 4.2 of the
Plan.
(E) Qualified Matching Contributions. If elected by the Employer in Section 12
of the CODA adoption agreement, the Employer will make Qualified Matching
Contributions to the plan. The amount of such Qualified Matching Contributions
shall be calculated by reference to the Participant's Elective Deferrals as
specified in the CODA adoption agreement.
11.8 LIMITATIONS ON EMPLOYEE
CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS
(A) The Average Contribution Percentage ("ACP") for Participants who are
Highly Compensated Employees for each Plan year and the ACP for Participants who
are Non-highly Compensated Employees for the same Plan Year must satisfy one of
the following tests:
(1) The ACP for Participants who are Highly Compensated Employees for each
Plan Year shall not exceed the ACP for Participants who are Non-highly
Compensated Employees for the same Plan Year multiplied by 1.25; or
(2) The ACP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ACP for Participants who are Non-highly
Compensated Employees for the same Plan Year multiplied by two (2), provided
that the ACP for Participants who are Highly Compensated Employees does not
exceed the ACP for Participants who are Non-highly Compensated Employees by more
than two (2) percentage points.
(B) Definitions:
(1) "Aggregate Limit" shall mean the sum of:
(a) 125 percent of the greater of the ADP of the
Non-highly Compensated Employees for the Plan Year or the ACP of Non-highly
Compensated Employees under the plan subject to Code Section 401(m) for the Plan
Year beginning with or within the Plan Year of the CODA and
(b) The lesser of 200% or two plus the lesser of
such ADP or ACP.
(2) "Average Contribution Percentage" shall mean the average of the
Contribution Percentages of the Eligible Participants in a group.
(3) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the Participant's Contribution Percentage Amounts to the
Participant's Compensation for the Plan Year (whether or not the Employee was a
Participant for the entire Plan Year).
(4) "Contribution Percentage Amounts" shall mean the sum of the Employee
Contributions, Matching Contributions, and Qualified Matching Contributions (to
the extent not taken into account for purposes of the ADP test) made under the
plan on behalf of the Participant for the Plan Year. Such Contribution
Percentage Amounts shall include forfeitures of Excess Aggregate Contributions
or Matching Contributions allocated to the Participant's account which shall be
taken into account in the year in which such forfeiture is allocated. If so
elected in the adoption agreement the Employer may include Qualified
Non-elective Contributions in the Contribution Percentage Amounts. The employer
also may elect to use Elective Deferrals in the Contribution Percentage Amounts
so long as the ADP test is met before the Elective Deferrals are used in the ACP
test and continues to be met following the exclusion of those Elective Deferrals
that are used to meet the ACP test.
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Defined Contribution Plan and Trust Document
(5) "Eligible Participant" shall mean any Employee who is eligible to make
an Employee Contribution, or an Elective Deferral (if the employer takes such
contributions into account in the calculation of the Contribution Percentage),
or to receive a Matching Contribution (including forfeitures) or a Qualified
Matching Contribution. If an Employee Contribution is required as a condition of
participation in the Plan, any Employee who would be a Participant in the Plan
if such Employee made such a contribution shall be treated as an Eligible
Participant on behalf of whom no Employee Contributions are made.
(6) "Employee Contribution" shall mean any contribution made to the Plan by
or on behalf of a Participant that is included in the Participant's gross income
in the year in which made and that is maintained under a separate account to
which earnings and losses are allocated.
(7) "Matching Contribution" shall mean an Employer contribution made to this
or any other defined contribution plan on behalf of a Participant on account of
an Employee Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a plan maintained by the Employer.
(C) Special Rules:
(1) Multiple Use: If one or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by the Employer and
the sum of the ADP and ACP of those Highly Compensated Employees subject to
either or both tests exceeds the Aggregate limit, then the ACP of those Highly
Compensated Employees who also participate in a CODA will be reduced (beginning
with such Highly Compensated Employee whose ACP is the highest) so that the
limit is not exceeded. The amount by which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the ADP and ACP tests.
Multiple use does not occur if both the ADP and ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-highly
Compensated Employees.
(2) For purposes of this Section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his account under two or more plans
described in Section 401(a) of the Code, or arrangements described in Section
401(k) of the Code that are maintained by the Employer, shall be determined as
if the total of such Contribution Percentage Amounts was made under such plan.
If a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
(3) In the event that that Plan satisfies the requirements of Section
401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section shall
be applied by determining the Contribution Percentage of Employees as if all
such plans were a single plan. For plan years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Section 401(m) of the Code only if
they have the same Plan Year.
(4) For purposes of determining the Contribution Percentage of a Participant
who is a five-percent owner or one of the ten most highly-paid Highly
Compensated Employees, the Contribution Percentage Amounts and Compensation of
such Participant shall include the Contribution Percentage Amounts and
Compensation for the Plan Year of Family Members (as defined in Section
414(g)(6) of the Code). Family Members, with respect to Highly Compensated
Employees, shall be disregarded as separate Employees in determining the
Contribution Percentage both for Participants who are non-highly Compensated
Employees and for Participants who are Highly Compensated Employees.
(5) For purposes of determining the Contribution Percentage test, Employee
Contributions are considered to have been made in the Plan Year in which
contributed to the Trust. Matching Contributions and Qualified Non-elective
Contributions will be considered made for a Plan Year if made no later than the
end of the twelve-month period beginning on the day after the close of the Plan
Year.
(6) The Employer shall maintain records sufficient
to demonstrate satisfaction of the ACP test and the
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Defined Contribution Plan and Trust Document
amount of Qualified Non-elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(7) The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(D) Distribution of Excess Aggregate Contributions
(1) Notwithstanding any other provision of this
Plan, Excess Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable,
distributed no later than the last day of each Plan year to Participants to
whose accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions shall be allocated to
Participants who are subject to the Family Member aggregation rules of Section
414(q)(6) of the Code in the manner prescribed by the regulations. If such
Excess Aggregate Contributions are distributed more than 2 1/2 after the last
day of the Plan Year in which such excess amounts arose, a ten (10) percent
excise tax will be imposed on the Employer maintaining the Plan with respect to
those amounts. Excess Aggregate Contributions shall be treated as Annual
Additions under the Plan.
(2) Determination of Income or Loss: Excess Aggregate Contributions shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is the sum of:
(a) Income or loss allocable to the Participant's Employee Contribution
account, Matching Contribution account (if any, and if all amounts therein are
not used in the ADP test) and, if applicable, Qualified Non-elective
Contribution account and Elective Deferral account for the Plan Year multiplied
by a fraction, the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the Participant's account
balance(s) attributable to Contribution Percentage Amounts without regard to any
income or loss occurring during such Plan Year; and
(b) Ten Percent of the amount determined under (a) multiplied by the
number of whole calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution occurs after
the 15th of such month.
(3) Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess
Aggregate Contributions may either be reallocated to the accounts of Non-highly
Compensated Employees or applied to reduce Employer contributions, as elected by
the Employer in Section 17 of the CODA Adoption Agreement.
(4) Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be forfeited, if forfeitable or distributed on a pro-rata
basis from the Participant's Employee Contribution account, Matching
Contribution account, Qualified Matching Contribution account (and, if
applicable, the Participant's Qualified Non-elective Contribution account or
Elective Deferral account, or both).
(E) "Excess Aggregate Contributions" shall mean, with respect to any Plan
Year, the excess of:
(1) The aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made on behalf
of Highly Compensated Employees for such Plan Year, over
(2) The maximum Contribution Percentage Amounts permitted by the ACP test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of their Contribution Percentages beginning with the highest
of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to Section 11.4(E) and then determining Excess Contributions
pursuant to Section 11.4(H).
11.9 PROFITS NOT REQUIRED UNDER THE CODA
(A) If the Employer elects, Employer contributions to the CODA may be made
without regard to profits in accordance with Section 10.1 of the CODA Adoption
Agreement. The Plan shall continue to be designed to qualify as a profit sharing
plan for purposes of Section 401(a), 402, 412, and 417 of the Code.
11.10 FORFEITURES
The Participant's Accrued Benefit derived from
Elective Deferral, Qualified Non-elective
Contributions, Employee Contributions, and Qualified
Matching Contributions is nonforfeitable. Separate
DCSTRPG792 Page 56
<PAGE>
Defined Contribution Plan and Trust Document
accounts for Elective Deferrals, Qualified Non-elective Contributions, Employee
Contributions, Matching Contributions, and Qualified Matching Contributions will
be maintained for each Participant. Each account will be credited with the
applicable contributions and earnings thereon.
DCSTRPG792 Page 57
<PAGE>
First Amendment to the Defined Contribution Plan and Trust
Pursuant to Article 1.4 of the Basic Plan and Trust, the Trust Consultants, Inc,
Mass Submitter Defined Contribution Plan and Trust is hereby amended effective
the first day of the Plan Year beginning on or after January 1, 1993.
The following new Section 5.9 is added to Article 5 of the Basic Document:
"5.9 Direct Rollover
(A) This Section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Section, a distributee may elect, at
the time and in the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(B) Definitions.
(1) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit
of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives (or
the life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more;
any distribution to the extent such is required under section 401 (a)
(9) of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities.)
(2) Eligible retirement plan: An eligible retirement plan is an individual
retirement acount described in section 408(a) of the Code, an
individual retirement annuity described in section 408 (h) of the Code,
an annuity plan described in section 403 (a) of the Code, or a
qualified trust described in section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement account or individual retirement annuity.
(3) Distributee: A distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's sppouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Section 414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(4) Direct rollover: A direct rollover is payment by the plan to the
eligible retirement plan specified by the distributee."
<PAGE>
Second Amendment to the Defined Contribution Plan and Trust
Pursuant to Article 1.4 of the Basic Plan and Trust, the Defined Contribution
Plan and Trust is hereby amended as noted below:
1. Effective the first day of the Plan Year beginning on or after January 1,
1993 the following new Section 5.10 is added to Article 5 of the Basic Document.
"5.10 Less than 30 Day Notice
If a distribution is one to which sections 401(a) (11) and 417 of the Internal
Revenue code do not apply, such distribution may commence less than 30 days
after the notice required under section 1.411(a)11(C) of the Income Tax
Regulations is given, provided that:
(A) The plan administrator clearly informs the participant that the participant
has a right to a period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and
(B) The participant, after receiving the notice, affirmatively elects a
distribution."
2. Effective the first day of the Plan Year beginning on or after January 1,
1994 the following new Section 2.11(B)(4) is added to Article 2 of the Basic
Document:
(4) In addition to other applicable limitation set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this Plan
to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, OBRA '93 annual
compensation limit is $150,000.*
