As filed with the Securities and Exchange Commission on
November 22, 1995
- - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. 3 [ X ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ]
ACT OF 1940
Amendment No. 3 [ X ]
(Check appropriate box or boxes)
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NEW ENGLAND FUNDS TRUST III
(Exact name of registrant as specified in charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices)
(617) 578-1388
(Registrant's telephone number, including Area Code)
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ROBERT P. CONNOLLY, Esquire
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
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Copy to:
EDWARD A. BENJAMIN, Esquire
Ropes & Gray
One International Place
Boston, Massachusetts 02110
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this Registration Statement.
DECLARATION PURSUANT TO RULE 24F-2
Pursuant to Rule 24f-2(a) under the Investment Company
Act of 1940, the Registrant hereby declares that an
indefinite number or amount of its shares of beneficial
interest was registered on August 23, 1995 under the
Securities Act of 1933. The $500 filing fee required by
said Rule was paid on August 23, 1995.
<PAGE>
NEW ENGLAND FUNDS TRUST III
(Prospectus and Statement of Additional Information)
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form Caption in Prospectus
N-1A
1 . . . . . . . . . Cover page
2 . . . . . . . . . Schedule of Fees
3 . . . . . . . . . None
4 . . . . . . . . . Cover page; Additional Facts
about the Funds; Investment
Objectives; How the Funds
Pursue Their Objectives; Fund
Investments; Investment Risks
5 . . . . . . . . . Fund Management
6 . . . . . . . . . Cover page; Additional Facts
about the Funds; 5 Ways to Buy
Fund Shares; Fund Dividend
Payment; Income Tax
Considerations
7 . . . . . . . . . Cover page; Schedule of Fees;
5 Ways to Buy Fund Shares; How
Fund Share Price is
Determined; Sales Charges;
Reduced Sales Charges
8 . . . . . . . . . 4 Ways to Sell Fund Shares;
Repurchase Option; Exchanging
Among New England Funds
9 . . . . . . . . . None
<PAGE>
Item No. Caption in Statement of
of Form Additional Information
N-1A
10 . . . . . . . . . Cover page
11 . . . . . . . . . Table of Contents
12 . . . . . . . . . Description of the Trust and
Ownership of Shares
13 . . . . . . . . . Investment Restrictions
14 . . . . . . . . . Management of the Trust
15 . . . . . . . . . Management of the Trust
16 . . . . . . . . . Fund Charges and Expenses;
Management of the Trust
17 . . . . . . . . . Portfolio Transactions and
Brokerage; Fund Charges and
Expenses
18 . . . . . . . . . Description of the Trust and
Ownership of Shares
19 . . . . . . . . . How to Buy Shares; Net Asset
Value and Public Offering
Price; Reduced Sales Charges;
Shareholder Services;
Redemptions
20 . . . . . . . . . Performance Criteria (in
prospectus); Standard
Performance Measures; Income
Dividends, Capital Gain
Distributions and Tax Status
21 . . . . . . . . . Advisory Agreements;
Distribution Agreements and
Rule 12b-1 Plans; Fund Charges
and Expenses
22 . . . . . . . . . Performance Criteria (in
prospectus); Standard
Performance Measures
23 . . . . . . . . . None
<PAGE>
New England Equity Income Fund
Prospectus and Application
November __, 1995
New England Equity Income Fund (the "Fund") is a newly-
organized series of New England Funds Trust III (the
"Trust"), a registered open-end management investment
company.
The Fund's investment objective is current income and
capital growth. There can be no assurance that the Fund
will achieve its objective, which may be changed without
shareholder approval. The Fund has only one class of shares
available, Class A shares.
This prospectus sets forth information you should know
before investing in the Fund. Please read it carefully and
keep it for future reference. A statement of additional
information in two parts (the "Statement") about the Fund
dated November __, 1995 has been filed with the Securities
and Exchange Commission (the "SEC") and is available free of
charge. To obtain a copy of the Statement, write to New
England Funds, L.P. (the "Distributor"), SAI Fulfillment
Desk, 399 Boylston Street, Boston, MA 02116 or call toll
free at 1-800-225-5478. The Statement contains more
detailed information about the Fund and is incorporated into
this prospectus by reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL
INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
Page
3 FUND EXPENSES AND FINANCIAL INFORMATION
3 Schedule of Fees Sales charges, yearly
operating expenses.
4 INVESTMENT STRATEGY
4 How the Fund Pursues Its Investment Objective
4 INVESTMENT RISKS It is important to
understand the
risks inherent in
the Fund before you
invest.
7 FUND MANAGEMENT
7 BUYING FUND SHARES
7 Minimum Investment
8 5 Ways to Buy Fund Shares Everything you need to know to
open and add to a
New England Equity
Income Fund account.
[] Through your investment dealer
[] By mail
[] By wire transfer
[] By Investment Builder
[] By electronic purchase through ACH
9 Sales Charges
10 Reduced Sales Charges
11 OWNING FUND SHARES
11 Exchanging Among New England Funds
12 Fund Dividend Payments
12 SELLING FUND SHARES
12 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
14 Repurchase Option An opportunity to
reinvest your
redemption proceeds
within 120
days for no sales
charge.
14 FUND DETAILS Additional information
you may
find important.
14 How Fund Share Price is Determined
15 Income Tax Considerations
15 The Fund's Expenses
15 Performance Criteria
16 Additional Facts About the Fund
17 Glossary of Terms
Fund Expenses and Financial Information
Schedule of Fees
Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your
maximum transaction costs from investing in the Fund and
estimated annual expenses. The Example shows the cumulative
expenses attributable to a hypothetical $1,000 investment in
the Fund for the periods specified.
Shareholder transaction expenses - paid directly by
shareholders
Maximum Initial Sales Charge Imposed on a 5.75%
Purchase (as a percentage of offering
price)(1)(2)
Maximum Contingent Deferred Sales Charge (as a (3)
percentage of original purchase price or
redemption proceeds, as applicable)(2)
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
(1) A reduced sales charge applies in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with
respect to any portion of certain purchases greater than
$1,000,000 redeemed within approximately 1 year after
purchase. See "Sales Charges."
Annual operating expenses - paid directly by the Fund, and
indirectly by its shareholders
(as a percentage of net assets)
Management Fees (after voluntary
expense limitation) 0.00%
*
12b-1 Fees (after voluntary expense
limitation) 0.00%
*
Other Expenses** 1.00%
Total Expenses (after voluntary
expense limitation) 1.00%
*
*After fee waiver and expense reduction by the Fund's
adviser and/or the Distributor. Without the voluntary
limitations, Management Fees, 12b-1 Fees, Other Expenses
and Total Expenses would be 0.70%, 0.25%, 1.94% and 2.89%,
respectively.
** Other Expenses are based on estimated amounts for the
current fiscal year.
Example
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and
(2) redemption at period end. The 5% return and expenses in
the Example should not be considered indicative of actual or
expected Fund performance or expenses, both of which will
vary.
1 Year $67
3 Years $88
The purpose of this fee schedule is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly if you invest in the Fund.
For additional information about the Fund's fees and other
expenses, please see "Fund Management," "Additional Facts
About the Fund" and "The Fund's Expenses."
A wire fee (currently $5.00) will be deducted from your
proceeds if you elect to transfer redemption proceeds by
wire.
Please keep in mind that the Example shown above is
hypothetical. The information above should not be
considered a representation of past or future return or
expenses; actual return or expenses may be more or less
than those shown.
Investment Strategy
The Fund's objective is current income and capital growth.
How the Fund Pursues Its Investment Objective
Under normal market circumstances, the Fund will invest at
least 80% of its assets in dividend-paying common or
preferred stocks. The Fund's portfolio will be selected to
seek a current dividend yield which is comparable to the
published composite yield of the Standard & Poor's Index of
500 Common Stocks (the "S&P Index") and significant, long-
term capital appreciation. The Fund may also invest in non
dividend-paying stocks, other equity securities, fixed
income securities, Rule 144A securities, zero coupon bonds
and strips and may engage in repurchase agreements.
Investment Risks
It is important to understand the following risks inherent
in the Fund before you invest.
[]Equity Securities
Equity securities are securities that represent an
ownership interest (or the right to acquire such an
interest) in a company, and include common and preferred
stocks and securities exercisable for or convertible into
common or preferred stocks (such as warrants, convertible
debt securities and convertible preferred stock).
While offering greater potential for long-term growth,
equity securities are more volatile and more risky than
some other forms of investment. Therefore, the value of
your investment in the Fund may sometimes decrease instead
of increase. The Fund may invest in equity securities of
companies with relatively small market capitalization.
Securities of such companies may be more volatile than the
securities of larger, more established companies and the
broad equity market indices. See "Small Companies"
below. The Fund's investments may include securities
traded "over-the-counter" as well as those traded on a
securities exchange. Some over-the-counter securities may
be more difficult to sell under some market conditions.
The Fund may invest in convertible securities, including
corporate bonds, notes or preferred stocks that can be
converted into common stocks or other equity securities.
Convertible securities also include other securities, such
as warrants, that provide an opportunity for equity
participation. Because convertible securities can be
converted into equity securities, their values will
normally move up or down as the value of the underlying
equity securities moves up or down. The movements in the
prices of convertible securities, however, often will be
smaller than the movements in the value of the related
equity securities. Warrants have no voting rights, pay no
dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent
ownership of the securities for which they are
exercisable, but only the right to buy such securities at
a particular price. The credit risk associated with
convertible securities is generally reflected by their
being rated, if at all, below investment grade by
organizations such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("S&P").
Less than 35% of the Fund's assets will be invested in
convertible or debt securities rated below investment
grade and unrated convertible or debt securities of
comparable quality.
[]Fixed-Income Securities
Because interest rates vary, it is impossible to predict
the income of a fund that invests in fixed-income
securities for any particular period. Fluctuations in the
value of the Fund's investments in fixed-income securities
will cause the Fund's net asset value to increase or
decrease.
Fixed-income securities are subject to market and credit
risk. Market risk relates to changes in a security's
value as a result of changes in interest rates generally.
Credit risk relates to the ability of the issuer to make
payments of principal and interest.
[]Repurchase Agreements
In repurchase agreements, the Fund buys securities from a
seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the
securities at a higher price at a later date. Such
transactions afford an opportunity for the Fund to earn a
return on available cash at minimal market risk, although
the Fund may be subject to various delays and risks of
loss if the seller is unable to meet its obligation to
repurchase.
[]Short-Term Trading
Although the Fund seeks long-term growth or return, the
Fund may, consistent with its investment objective, engage
in portfolio trading in anticipation of, or in response
to, changing economic or market conditions and trends.
These policies may result in higher turnover rates in the
Fund's portfolio which may produce higher transaction
costs and a higher level of taxable capital gains.
Portfolio turnover considerations will not limit the
investment discretion of the Fund's subadviser in managing
the Fund's assets.
[]Small Companies
The Fund, in the discretion of its subadviser, may invest
without limit in the securities of companies with smaller
capitalization. Investments in companies with relatively
small capitalization may involve greater risk than is
usually associated with more established companies. These
companies often have sales and earnings growth rates which
exceed those of companies with larger capitalization.
Such growth rates may in turn be reflected in more rapid
share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets
or financial resources and they may be dependent upon a
relatively small management group. The securities may
have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of
companies with larger capitalization or the market
averages in general. The net asset value of funds that
invest in companies with smaller capitalization therefore
may fluctuate more widely than market averages.
[]Lower Quality Fixed-Income Securities
Fixed-income securities rated BB or lower by S&P or Ba or
lower by Moody's (and comparable unrated securities) are
of below "investment grade " quality. Lower quality fixed-
income securities generally provide higher yields, but are
subject to greater credit and market risk, than higher
quality fixed-income securities. Lower quality fixed-
income securities are considered predominantly speculative
with respect to the ability of the issuer to meet
principal and interest payments. Achievement of the
investment objective of a mutual fund investing in lower
quality fixed-income securities may be more dependent on
the fund's adviser's or sub-adviser's own credit analysis
than for a fund investing in higher quality bonds. The
market for lower quality fixed-income securities may be
more severely affected than some other financial markets
by economic recession or substantial interest rate
increases, by changing public perceptions of this market
or by legislation that limits the ability of certain
categories of financial institutions to invest in these
securities. In addition, the secondary market may be less
liquid for lower rated fixed-income securities. This lack
of liquidity at certain times may affect the valuation of
these securities and may make the valuation and sale of
these securities more difficult. Securities of below
investment grade are commonly known as junk bonds. For
more information, see the Statement's Appendix A -
Description of Bond Ratings.
[]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 Fund's investments in foreign securities may include
investments in 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.
Most foreign securities in the Fund's portfolio will be
denominated in foreign currencies or traded in securities
markets in which settlements are made in foreign
currencies. Similarly, any income on such securities is
generally paid to the Fund in foreign currencies. The
value of these foreign currencies relative to the U.S.
dollar varies continually, causing changes in the dollar
value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and
changes in the dollar value of the Fund's income available
for distribution to its shareholders. The effect of
changes in the dollar value of a foreign currency on the
dollar value of the Fund's assets and on the net
investment income available for distribution may be
favorable or unfavorable.
The Fund may incur costs in connection with conversions
between various currencies. In addition, the Fund may be
required to liquidate portfolio assets, or may incur
increased currency conversion costs, to compensate for a
decline in the dollar value of a foreign currency
occurring between the time when the Fund declares and pays
a dividend, or between the time when the Fund accrues and
pays an operating expense in U.S. dollars.
[]Zero Coupon Bonds and Strips
The Fund may invest in zero coupon bonds and "strips."
Zero coupon bonds do not make regular interest payments;
rather, they are sold at a discount from face value.
Principal and accrued discount (representing interest
accrued but not paid) are paid at maturity. "Strips" are
debt securities that are stripped of their interest after
the securities are issued, but otherwise are comparable to
zero coupon bonds. The market values of "strips" and zero
coupon bonds generally fluctuate in response to changes in
interest rates to a greater degree than do interest paying
securities of comparable term and quality. Under many
market conditions, investments in stripped securities may
be illiquid, making it difficult for the Fund to dispose
of them or determine their current value.
[]Miscellaneous
The Fund will not invest more than 15% of its assets in
"illiquid securities," that is, securities which are not
readily resalable, which include securities whose
disposition is restricted by federal securities laws.
Investment in restricted or other illiquid securities
involves the risk that the Fund may be unable to sell such
a security at the desired time. Also, the Fund may incur
expenses, losses or delays in the process of registering
restricted securities prior to resale.
The Fund may purchase Rule 144A securities. These are
privately offered securities that can be resold only to
certain qualified institutional buyers. Investing in Rule
144A securities could have the effect of increasing the
level of fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in
purchasing these securities. Rule 144A securities are
treated as illiquid, unless the Fund's subadviser has
determined, under guidelines established by the Trust's
trustees, that the particular issue of Rule 144A
securities is liquid.
The Fund may purchase securities on a "when-issued" or
"delayed-delivery" basis. This means that the Fund enters
into a commitment to buy the security before the security
has been issued, or, in the case of a security that has
already been issued, to accept delivery of the security on
a date beyond the usual settlement period. If the value
of a security purchased on a "when-issued" or "delayed-
delivery" basis falls or market rates of interest increase
between the time the Fund commits to buy the security and
the delivery date, the Fund may sustain a loss in value of
or yield on the security. For more information on "when-
issued" and "delayed-delivery" securities, see the
Statement.
Although it is not possible to predict the portfolio
turnover rate with certainty, the Fund's subadviser does
not expect the Fund's portfolio turnover rate to exceed
100%.
Fund Management
New England Funds Management, L.P. ("NEFM"), 399 Boylston
Street, Boston, Massachusetts 02116, is the investment
adviser of the Fund but has delegated day-to-day portfolio
management responsibility to the Fund's subadviser, Loomis,
Sayles & Company, L.P. ("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. Mauricio F. Cevallos, Vice President and
Manager of Loomis Sayles and Peter Ramsden, Vice President
of Loomis Sayles, have served as the Fund's portfolio
managers since the Fund's inception in November 1995. Mr.
Cevallos has been employed by Loomis Sayles for more than
ten years. Mr. Ramsden joined Loomis Sayles in 1991 and,
prior to that time, was a MBA candidate at the University of
Michigan. NEFM oversees, evaluates and monitors the
investment advisory services provided to the Fund and
furnishes general business management and administration to
the Fund.
The Fund pays NEFM a management fee at the annual rate of
0.70% of the first $200 million of the Fund's average daily
net assets, 0.65% of the next $300 million of such assets
and 0.60% of such assets in excess of $500 million. NEFM
pays Loomis Sayles for providing subadvisory services to the
Fund a subadvisory fee at the annual rate of 0.40% of the
first $200 million of the average daily net assets of the
Fund, 0.325% of the next $300 million of such assets and
0.275% of such assets in excess of $500 million.
The general partners of each of Loomis Sayles, NEFM and the
Distributor are special purpose organizations that are
indirect, wholly-owned subsidiaries of New England
Investment Companies, L.P. ("NEIC"). NEIC's sole general
partner, New England Investment Companies, Inc., is a wholly-
owned subsidiary of New England Mutual Life Insurance
Company ("The New England").
In placing portfolio transactions for the Fund, Loomis
Sayles seeks the most favorable price and execution
available.
In addition to selecting and reviewing the investments of
the Fund, Loomis Sayles provides executive and other
personnel for the management of the Trust. The Trust's
Board of Trustees supervises the affairs of the Trust.
Under an agreement between NEFM and the Distributor, NEFM
pays the Distributor to provide certain administrative
services to the Fund.
In addition to the management fee paid to NEFM and the fees
paid to the Distributor, the Fund pays all expenses not
borne by NEFM, Loomis Sayles or the Distributor, including,
but not limited to, the charges and expenses of the Fund's
custodian and transfer agent, independent auditors and legal
counsel, all brokerage commissions and transfer taxes in
connection with portfolio transactions, all taxes and filing
fees, the fees and expenses for registration or
qualification of its shares under the federal or state
securities laws, all expenses of shareholders' and trustees'
meetings and of preparing, printing and mailing prospectuses
and reports to shareholders and the compensation of trustees
who are not directors, officers or employees of NEFM, Loomis
Sayles or their affiliates, other than affiliated registered
investment companies.
Buying Fund Shares
Minimum Investment
$2,500 is the minimum for an initial investment in the Fund
and $50 is the minimum for each subsequent investment.
There are special initial investment minimums for the
following plans:
[]$25 (for initial and subsequent investments) for payroll
deduction investment programs for 401(k), SARSEP, 403(b)
retirement plans and certain other retirement plans.
[]$50 for automatic investing through the Investment Builder
program.
[]$250 for retirement plans with tax benefits such as
corporate pension and profit sharing plans, IRAs and Keogh
plans.
[]$1,000 for accounts registered under the Uniform Gifts to
Minors Act or the Uniform Transfers to Minors Act.
5 Ways to Buy Fund Shares
[] Through your investment dealer:
Many investment dealers have a sales agreement with the
Distributor and would be pleased to accept your order.
[] By mail:
For an initial investment, simply complete an application
and return it, with a check payable to New England Funds,
P.O. Box 8551, Boston, MA 02266-8551. Proceeds of
redemptions of Fund shares purchased by check may not be
available for up to ten days after the purchase date.
For subsequent investments, please mail your check to New
England Funds, P.O. Box 8551, Boston, MA 02266-8551 along
with a letter of instruction or an additional deposit slip
from your statements. To make investing even easier, you
can also order personalized investment slips by calling 1-
800-225-5478.
[] By wire transfer of Federal Funds:
For an initial investment, call us at 1-800-225-5478 between
8:00 a.m. and 6:00 p.m. (Eastern time) to obtain an account
number and wire transfer instructions.
For subsequent investments, direct your bank to transfer
funds to State Street Bank and Trust Company, ABA
#011000028, DDA #99011538, Credit New England Equity Income
Fund, Shareholder Name, Shareholder Account Number. Funds
may be transferred between 9:00 a.m. and 4:00 p.m. (Eastern
time). Your bank may charge a fee for this service.
[] By Investment Builder:
Investment Builder is New England Funds' automatic
investment plan. You may authorize automatic monthly
transfers of $50 or more from your bank checking or savings
account to purchase shares of one or more New England Funds.
For an initial investment, please indicate that you would
like to begin an automatic investment plan through
Investment Builder on the enclosed application. Indicate
the amount of the monthly investment and enclose a voided
check from your bank account.
To add Investment Builder to an existing account, please
call us at 1-800-225-5478 for a Service Options form.
[] By electronic purchase through ACH:
You may purchase additional shares electronically through
the Automated Clearing House ("ACH") system as long as your
bank or credit union is a member of the ACH system and you
have a completed, approved ACH application on file with the
Fund.
To purchase through ACH, call us at 1-800-225-5478 between 8
a.m. and 6 p.m. (Eastern time) for instructions or call
Tele#Facts at 1-800-346-5984 twenty-four hours a day. If
you purchase your shares through ACH, you will receive the
net asset value next determined after your order is
received. Proceeds of redemptions of Fund shares purchased
through ACH may not be available for up to ten days after
the purchase date.
General
All purchase orders are subject to acceptance by the Fund
and will be effected at the net asset value next determined
after the order is received in proper form by State Street
Bank and Trust Company ("State Street Bank") (except orders
received by your investment dealer before the close of
trading on the New York Stock Exchange [the "Exchange"] and
transmitted to the Distributor by 5:00 p.m. [Eastern time]
on the same day, which will be effected at the net asset
value determined on that day). Although the Fund does not
anticipate doing so, it reserves the right to suspend or
change the terms of sales of shares.
You will not receive any certificates for your shares unless
you request them in writing from New England Funds, L.P.
The Fund's "open account" system for recording your
investment eliminates the problems and expense of handling
and safekeeping certificates. 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
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. The current
sales charges are:
Sales Charge as a % of
Dealer's
Concessi
Public on
Value of Offering Amount as % of
Total Price Invested Offering
Investment Price
Less than 5.75% 6.10% 5.00%
$50,000
$50,000 - 4.50% 4.71% 4.00%
$99,999
$100,000 - 3.50% 3.63% 3.00%
$249,999
$250,000 - 2.50% 2.56% 2.15%
$499,999
$500,000 - 2.00% 2.04% 1.70%
$999,999
$1,000,000 or None None *
more
*The Distributor may, at its discretion, pay investment
dealers who initiate and are responsible for such
purchases a commission of up to the following amounts: 1%
on the first $2 million invested; .80% on the next $1
million; .20% on the next $2 million; and .08% on the
excess over $5 million. These commissions are not payable
if the purchase represents the reinvestment of a
redemption made during the previous 12 calendar months.
Contingent Deferred Sales Charge. For purchases of
$1,000,000 or more of the Fund, a contingent deferred sales
charge ("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 Trust, New
England Funds Trust I or New England Funds Trust II (the
"Trusts"). 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.
No CDSC applies in connection with (1) redemptions by
retirement plans qualified under Internal Revenue 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
Section 403(b)(7) and IRA accounts established before
January 3, 1995, the CDSC is waived for redemptions made
after attainment of age 591/2. The CDSC is waived for
redemptions made to make required minimum distributions
after attainment of age 701/2 for Section 403(b)(7) and IRA
accounts established on or after January 3, 1995. There is
also no CDSC on redemptions following the death or
disability (as defined in Section 72(m)(7) of the Internal
Revenue Code) of a shareholder if the redemption is made
within one year after the shareholder's death or disability.
Also, there is no CDSC on certain withdrawals pursuant to a
Systematic Withdrawal Plan. See "Systematic Withdrawal
Plan" below.
The Fund receives the net asset value next determined after
an order is received. 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 shares to investment
dealers from time to time. The staff of the SEC is of the
view that dealers receiving all or substantially all of the
sales charge may be deemed underwriters of a fund's shares.
For new amounts invested, the Distributor may, at its
expense, pay investment dealers who sell shares of the Fund
at net asset value to an eligible governmental authority
0.025% of the average daily net assets of an account at the
end of each calendar quarter for up to one year. These
commissions are not payable if the purchase represents the
reinvestment of redemption proceeds from any series of the
Trusts or if the account is registered in street name.
The Distributor may, at its expense, provide additional
promotional incentives or payments to dealers who sell
shares of the Fund. In some instances these incentives are
provided to certain dealers who achieve sales goals or who
have sold or may sell significant amounts of shares. New
England Funds, L.P., 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, gift certificates or
vouchers through membership in the New England Funds
Flagship Club. 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
[]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 the Fund at a reduced sales charge of 1.50% of
the public offering price (or 1.52% of the net amount
invested).
[]Eligible governmental authorities - no sales charge or
CDSC applies to investments by any state, county or city
or any instrumentality, department, authority or agency
thereof that has determined that the Fund is a legally
permissible investment and that is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of
any registered investment company.
[]Clients of an adviser or subadviser (affiliated with NEIC)
- no sales charge or CDSC applies to investments of
$100,000 or more in the Fund by (1) clients of an adviser
or subadviser (affiliated with NEIC) to any series of the
Trusts; any director, officer or partner of a client of an
adviser or subadviser (affiliated with NEIC) 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 (affiliated with NEIC) 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 (affiliated with NEIC) to any series of the
Trusts. Any investor eligible for these arrangements
should so indicate in writing at the time of the purchase.
[]Shares of the Fund may be purchased at net asset value
with no sales charge or CDSC by advisory accounts through
investment advisers that are registered under the
Investment Advisers Act of 1940 and affiliated with broker-
dealers.
[]Shares of the Fund may be purchased at net asset value by
affiliates of NEFM.
[]There is no sales charge or CDSC related to investments by
401(a), 401(k), 457 or 403(b) plans that have total
investment assets equal to or in excess of $5 million.
[]There is no sales charge, CDSC or initial investment
minimum related to investments by certain current and
retired employees of the Trusts' investment advisers and
subadvisers (affiliated with NEIC), the Distributor or any
other company affiliated with The New England; current and
former directors and trustees of the Trusts or their
predecessor companies; agents and general agents of The
New England and its insurance company subsidiaries;
current and retired employees of such agents and general
agents; registered representatives of broker-dealers that
have selling arrangements with the Distributor; the
spouse, parents, children, siblings, grandparents or
grandchildren of the persons listed above; any trust,
pension, profit sharing or other benefit plan for any of
the foregoing persons; and any separate account of The New
England or of any insurance company affiliated with The
New England.
The reduction or elimination of the sales charge in
connection with sales described above reflects the absence
or reduction of sales expenses associated with such sales.
Owning Fund Shares
Exchanging Among New England Funds
You may exchange Class A shares of the Fund for the Class A
shares of any other series of the Trusts (except New England
Growth Fund, which is subject to special eligibility
restrictions) without paying a sales charge. You may also
exchange your shares for Class A shares of the Money Market
Funds. Class A shares of the Money Market Funds acquired
through exchanges from the Fund may be exchanged for Class A
shares of any other series of the Trusts (except New England
Growth Fund) without paying a sales charge.
To make an exchange, please call 1-800-225-5478 between 8
a.m. and 6 p.m. (Eastern time), call Tele#Facts at
1-800-346-5984 twenty-four hours a day or write to New
England Funds. The exchange must be for a minimum of $500
(or the total net asset value of your account, whichever is
less), except that under the Automatic Exchange Plan the
minimum is $50. All exchanges are subject to the minimum
investment and eligibility requirements of the series into
which you are exchanging. In connection with any exchange,
you must receive a current prospectus of the series into
which you are exchanging. The exchange privilege may be
exercised only in those states where shares of such other
series may be legally sold.
You have the automatic privilege to exchange your Fund
shares by telephone. New England Funds, L.P. will employ
reasonable procedures to confirm that your telephone
instructions are genuine, and, if it does not, it may be
liable for any losses due to unauthorized or fraudulent
instructions. New England Funds, L.P. will require a form
of personal identification prior to acting upon your
telephone instructions, will provide you with written
confirmations of such transactions and will record your
instructions.
Except as otherwise permitted by SEC rule, shareholders will
receive at least 60 days' advance notice of any material
change to the exchange privilege.
Fund Dividend Payments
The Fund pays dividends at least annually. The Fund pays as
dividends substantially all net investment income and
distributes net realized long-term capital gains (after
applying any available capital loss carryovers). The
trustees of the Trust may adopt a different schedule as long
as payments are made at least annually. If you intend to
purchase shares of the Fund shortly before it declares a
dividend, you should be aware that a portion of the purchase
price may in effect be returned to you as a taxable
dividend.
You have the option to reinvest all distributions in
additional Class A shares of the Fund or in Class A 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 A
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 A
shares of the Fund at net asset value (without a sales
charge) 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 A shares of
another New England Fund, subject to the investor
eligibility requirements of that other fund and to state
securities law requirements. Investments will be made at
the appropriate offering price, which may include a sales
charge. Dividends will be invested in the selected fund's
shares on the dividend record date. A dividend
diversification account must be in the same registration
(shareholder name) as the distributing fund account and, if
a new account in the purchased fund is being established,
the purchased fund's minimum investment requirements must be
met. Before establishing a dividend diversification program
into any other New England Fund, you must obtain a copy of
that fund's prospectus.
Selling Fund Shares
4 Ways to Sell Fund Shares
[] 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 a.m. and
6 p.m. (Eastern time). Shares may also be redeemed by
calling Tele#Facts at 1-800-346-5984 twenty-four hours a
day. Redemption requests accepted after the Exchange has
closed (4:00 p.m. Eastern time) will be processed at the
next-determined net asset value. The proceeds (less any
applicable CDSC) generally will be wired on the next
business day to the bank account previously chosen by you on
your application. A wire fee (currently $5.00) will be
deducted from the proceeds.
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 and requesting that a check for
the proceeds (less any applicable CDSC) be mailed to the
address on your account, provided that the address has not
changed during the previous month and that the proceeds are
for $100,000 or less. Generally, the check will be mailed
to 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 prior to 3:00 p.m. (Eastern time) on a
day when the Fund is open for business or call Tele#Facts at
1-800-346-5984 twenty-four hours a day. If your telephone
call is made to Tele#Facts before 4:00 p.m., the redemption
will be processed the day the call is made, unless it is a
day when the Exchange closes before 4:00 p.m. and your call
is made after the Exchange closes. 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. If you have recently purchased your
shares through the ACH system, the Fund may withhold
redemption proceeds until the funds have cleared, which may
take up to ten days.
[] By mail:
You may redeem your shares at their net asset value (less
any applicable CDSC) next determined after receipt of your
request in good order by sending a written request
(including any necessary special documentation) to New
England Funds, P.O. Box 8551, Boston, MA 02266-8551.
The request must include the name of the Fund, your account
number, the exact name(s) in which your shares are
registered, the number of shares or the dollar amount to be
redeemed and whether you wish the proceeds mailed to your
address of record, wired to your bank account or transmitted
through ACH. All owners of the shares must sign the request
in the exact names in which the shares are registered (this
appears on your confirmation statement) and indicate any
special capacity in which you are signing (such as trustee,
custodian, 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 shares, you must enclose
them with your redemption request or your request will not
be honored. The Fund recommends that certificates be sent
by registered mail.
[] By Systematic Withdrawal Plan:
You may establish a Systematic Withdrawal Plan that allows
you to redeem shares and receive payments on a regular
schedule. In the case of shares subject to a CDSC, the
amount or percentage you specify may not exceed, on an
annualized basis, 10% of the value of your Fund account.
Redemption of shares pursuant to the Plan will not be
subject to a CDSC. For information, contact the Distributor
or your investment dealer. Since withdrawal payments may
have tax consequences, you should consult your tax adviser
before establishing such a plan.
General. Redemption requests will be effected at the net
asset value next determined after your redemption request is
received in proper form by State Street Bank or your
investment dealer (except that orders received by your
investment dealer before the close of regular trading on the
Exchange and transmitted to the Distributor by 5:00 p.m.
Eastern time on the same day will receive that day's net
asset value). Redemption proceeds (less any applicable
CDSC) will normally be mailed to you within seven days after
State Street Bank or the Distributor receives your request
in good order.
During periods of substantial economic or market change,
telephone redemptions may be difficult to implement. If you
are unable to contact the Distributor by telephone, shares
may be redeemed by delivering the redemption request in
person to the Distributor or by mail as described above.
Requests are processed at the net asset value next
determined after the request is received.
Special rules apply with respect to redemptions under powers
of attorney. Please call your investment dealer or the
Distributor for more information.
Telephone redemptions are not available for tax qualified
retirement plans or for Fund shares held in certificate
form. If certificates have been issued for your investment,
you must send them to New England Funds along with your
request before a redemption request can be honored. See the
instructions for redemption by mail above.
The Fund may suspend the right of redemption and may
postpone payment for more than seven days when the Exchange
is closed for other than weekends or holidays, or if
permitted by the rules of the SEC when trading on the
Exchange is restricted or during an emergency which makes it
impracticable for the Fund to dispose of its securities or
to determine fairly the value of its net assets, or during
any other period permitted by the SEC for the protection of
investors.
Repurchase Option
You may apply your redemption proceeds (without a sales
charge) to the repurchase of Class A shares of any series of
the Trusts. To qualify, you must reinvest some or all of
the proceeds within 120 days after your redemption and
notify New England Funds or your investment dealer at the
time of reinvestment that you are taking advantage of this
privilege. You may reinvest the proceeds either by
returning the redemption check or by sending your check for
some or all of the redemption amount. Please note: For
federal income tax purposes, a redemption is a sale that
involves tax consequences (even if the proceeds are later
reinvested). Please consult your tax adviser.
Fund Details
How Fund Share Price Is Determined
The 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. 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 the Fund are valued at
their fair market value as determined in good faith by the
subadviser (or a pricing service selected by the subadviser)
under the supervision of the Trust's Board of Trustees. The
net asset value of the Fund's shares is determined as of the
close of regular trading (normally 4:00 p.m. Eastern time)
on the Exchange each day it is open for trading.
The net asset value per share is determined by dividing the
value of the Fund's assets (the current U.S. dollar value,
in the case of securities principally traded outside the
United States) 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 the Fund outstanding. The public offering
price of shares is determined by adding the applicable sales
charge to the net asset value. See "Buying Fund Shares -
Sales Charges" above.
The price you pay for a share will be determined using the
next set of calculations made after your order is accepted
by New England Funds, L.P. In other words, if, on a Tuesday
morning, your properly completed application is received,
your wire is received or your dealer places your trade for
you, the price you pay will be determined by the
calculations made as of the close of regular trading on the
Exchange on Tuesday. If you buy shares through your
investment dealer, the dealer must receive your order by the
close of regular trading on the Exchange and transmit it to
the Distributor by 5:00 p.m. (Eastern time) to receive that
day's public offering price.
Income Tax Considerations
The Fund intends to meet all requirements of the Internal
Revenue Code of 1986, as amended, necessary to qualify as a
"regulated investment company" and thus does not expect to
pay any federal income tax on investment income and capital
gains distributed to shareholders in cash or in additional
shares. Unless you are a tax-exempt entity, your
distributions derived from the Fund's short-term capital
gains and ordinary income are taxable to you as ordinary
income. (A portion of these distributions may qualify for
the dividends-received deduction for corporations.)
Distributions derived from the Fund's long-term capital
gains ("capital gains distributions"), if designated as such
by the Fund, are taxable to you as long-term capital gains,
regardless of how long you have owned shares in the Fund.
Both income distributions and capital gains distributions
are taxable whether you elect to receive them in cash or
additional shares.
To avoid an excise tax, the Fund intends to distribute prior
to calendar year end virtually all the Fund's ordinary
income and net capital gains earned during that calendar
year. If declared in December to shareholders of record in
that month, and paid the following January, these
distributions will be considered for federal income tax
purposes to have been received by shareholders on December
31.
The Fund is required to withhold 31% of all income dividends
and capital gains distributions it pays to you if you do not
provide a correct, certified taxpayer identification number,
if the Fund is notified that you have underreported income
in the past, or if you fail to certify to the Fund that you
are not subject to such withholding. In addition, the Fund
will be required to withhold 31% of the gross proceeds of
Fund shares you redeem if you have not provided a correct,
certified taxpayer identification number. If you are a tax-
exempt shareholder, however, these back-up withholding rules
will not apply so long as you furnish the Fund with an
appropriate certification.
Annually, if you earn more than $10 in taxable income from
the Fund, you will receive a Form 1099 to assist you in
reporting the prior calendar year's distributions on your
federal income tax return. You should consult your tax
adviser about any state or local taxes that may apply to
such distributions. Be sure to keep the Form 1099 as a
permanent record. A fee may be charged for any duplicate
information requested.
The foregoing is a summary of certain federal income tax
consequences of an investment in the Fund for shareholders
who are U.S. citizens or corporations. Shareholders should
consult a competent tax adviser as to the effect of an
investment in the Fund on their particular federal, state
and local tax situations.
The Fund's Expenses
Under a Service Plan, adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund pays the
Distributor a monthly service fee at an annual rate not to
exceed 0.25% of the Fund's average daily net assets. 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. The service fee is payable only to
reimburse the Distributor for amounts it pays or expends in
connection with the provision of personal services to
investors and/or the maintenance of shareholder accounts.
To the extent that the Distributor's reimbursable expenses
in any year exceed the maximum amount payable under the
Service Plan for that year, such expenses may be carried
forward for reimbursement in future years in which the Plan
remains in effect.
Performance Criteria
The Fund may include total return information in
advertisements or other written sales material. The Fund
will show average annual total return for the one-, five-
and ten-year periods (or the life of the Fund, if shorter)
through the end of the most recent calendar quarter. Total
return is measured by comparing the value of a hypothetical
$1,000 investment in a Fund 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 and automatic reinvestment of all dividends and
capital gains distributions). Total return may be quoted
with or without giving effect to any voluntary expense
limitations in effect during the relevant period. The Fund
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 Fund's total
return is higher.
All performance information is based on past results and is
not an indication of likely future performance.
Additional Facts About the Fund
[]New England Funds Trust III was organized in 1995 as a
Massachusetts business trust and is authorized to issue an
unlimited number of full and fractional shares in multiple
series.
[]When you invest in the Fund, you acquire freely
transferable shares of beneficial interest that entitle
you to receive dividends as determined by the Trust's
trustees and to cast a vote for each share you own at
shareholder meetings. Shares of the Fund vote separately
from shares of other series of the Trust, except as
otherwise required by law.
[]Except for matters that are explicitly identified as
"fundamental" in this prospectus or Part I of the
Statement, the investment policies of the Fund may be
changed without shareholder approval or, in most cases,
prior notice. The investment objective of the Fund is not
fundamental. If there is a change in the Fund's
objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their
current financial position and needs.
[]The Trust does not generally hold regular shareholder
meetings and will do so only when required by law.
Shareholders of the Trust may remove the trustees of the
Trust from office by votes cast at a shareholder meeting
or by written consent.
[]The transfer and dividend paying agent for the Fund is New
England Funds, L.P., 399 Boylston Street, Boston, MA
02116. New England Funds, L.P. has subcontracted certain
of its obligations as such to State Street Bank, 225
Franklin Street, Boston, MA 02110.
[]If the balance in your account with the Fund is less than
a minimum amount set by the trustees of the Trust from
time to time (currently $500 for all accounts except as
indicated below and except for Individual Retirement
Accounts, which have a $25 minimum), the Fund may close
your account and send the proceeds to you. Shareholders
who are affected by this policy will be notified of the
Fund's intention to close the account and will have 60
days immediately following the notice to bring the account
up to the minimum. The minimum does not apply to Keoghs
and pension and profit sharing plans, automatic investment
plans or accounts that have fallen below the minimum
solely because of fluctuations in the Fund's net asset
value per share.
[]The Fund's annual report will contain additional
performance information and will be made available upon
request and without charge.
Glossary of Terms
Capital gain distributions - Payments to shareholders of net
profits earned from selling securities in a 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.
Open end management investment company - A mutual fund that
allows investors to redeem fund shares directly from the
fund company on any business day.
Public offering price (POP) - 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 for personal service to
investors and/or for maintenance of shareholder accounts by
a fund's distributor or a financial representative.
Total return - The change in value of an investment in a
fund 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 net investment
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 SEC Rule 12b-1. Can include both distribution fees
and service fees.
<PAGE>
NEW ENGLAND FUNDS
New England Equity Income Fund
STATEMENT OF ADDITIONAL INFORMATION
November __, 1995
This Statement of Additional Information (the
"Statement") contains information which may be useful to
investors but which is not included in the prospectus of New
England Equity Income Fund (the "Fund"). This Statement is
not a prospectus and is only authorized for distribution
when accompanied or preceded by the Fund's prospectus dated
November __, 1995 (the "Prospectus"). The Statement should
be read together with the prospectus. Investors may obtain
a free copy of the prospectus from New England Funds, L.P.,
Prospectus Fulfillment Desk, 399 Boylston Street, Boston,
Massachusetts 02116.
T a b l e o f C o n t e n t s
Page
Investment Restrictions 2
Fund Charges and Expenses 3
Miscellaneous Investment Practices 4
Management of the Trust 10
Portfolio Transactions and Brokerage 15
Description of the Trust and Ownership of 16
Shares
How to Buy Shares 18
Net Asset Value and Public Offering Price 18
Reduced Sales Charges 19
Shareholder Services 21
Redemptions 25
Standard Performance Measures 27
Income Dividends, Capital Gain Distributions 29
and Tax Status
Financial Statements 31
Report of Independent Accountants 33
Appendix A - Description of Bond Ratings A-1
Appendix B - Publications That May Be Referred to B-1
in Trust Advertisements and Sales Literature
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the
investments to be made by the Fund. Restrictions marked
with an asterisk may not be changed without the approval of
a majority of the outstanding voting securities of the Fund.
The percentages set forth below and the percentage
limitations set forth in the Prospectus will apply at the
time of the purchase of a security and shall not be
considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of the purchase of
such security.
The Fund will not:
*(1) Purchase any security (other than U.S. Government
Securities) if, as a result, more than 25% of the Fund's
total assets (taken at current value) would be invested
in any one industry (in the utilities category, gas,
electric, water and telephone companies will be
considered as being in separate industries, and each
foreign country's government (together with subdivisions
thereof) will be considered to be a separate industry);
(2) Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance
of purchases and sales of securities), or make short
sales except where, by virtue of ownership of other
securities, it has the right to obtain, without payment
of further consideration, securities equivalent in kind
and amount to those sold, and the Fund will not deposit
or pledge more than 10% of its total assets (taken at
current value) as collateral for such sales. (For this
purpose, the deposit or payment by the Fund of initial
or variation margin in connection with futures contracts
or related options transactions is not considered the
purchase of a security on margin);
(3) Acquire more than 10% of any class of securities of an
issuer (taking all preferred stock issues of an issuer
as a single class and all debt issues of an issuer as a
single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
*(4) Borrow money in excess of 25% of its total assets,
and then only as a temporary measure for extraordinary
or emergency purposes;
(5) Pledge more than 25% of its total assets (taken at
cost). (For the purpose of this restriction, collateral
arrangements with respect to options, futures contracts,
options on futures contracts and swap 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 III (the
"Trust") 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%;
*(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, swap contracts and related
options. (This restriction does not prevent the Fund
from purchasing securities of companies investing in the
foregoing);
*(10)Act as underwriter, except to the extent that, in
connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under certain
federal securities laws;
(11) Make investments for the purpose of exercising
control or management;
(12) Participate on a joint or joint and several basis
in any trading account in securities. (The "bunching"
of orders for the purchase or sale of portfolio
securities with any investment adviser 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 or
futures contracts and (c) enter into currency forward
contracts;
(14) Purchase any illiquid security if, as a result,
more than 15% of its net assets (taken at current value)
would be invested in such securities;
(15)Invest in the securities of other investment companies,
except by purchases in the open market involving only
customary brokers' commissions. Under the Investment
Company Act of 1940 (the "1940 Act"), the Fund may not
(a) invest more than 10% of its total assets (taken at
current value) in such securities, (b) own securities of
any one investment company having value in excess of 5%
of the total assets of the Fund (taken at current
value), or (c) own more than 3% of the outstanding
voting stock of any one investment company; or
*(16)Issue senior securities. (For the purpose of this
restriction none of the following is deemed to be a
senior security: any pledge or other encumbrance of
assets permitted by restrictions (2) or (5) above; any
borrowing permitted by restriction (4) above; any
collateral arrangements with respect to forward
contracts, options, futures contracts, swap contracts
and options on futures contracts or swap contracts and
with respect to initial and variation margin; the
purchase or sale of options, forward contracts, futures
contracts, swap contracts or options on futures
contracts or swap contracts; and the issuance of shares
of beneficial interest permitted from time to time by
the provisions of the Trust's Declaration of Trust and
by the 1940 Act, the rules thereunder, or any exemption
therefrom.)
FUND CHARGES AND EXPENSES
INVESTMENT ADVISORY FEES
Pursuant to an advisory agreement dated November __
1995, New England Funds Management, L.P. ("NEFM") has
agreed, subject to the supervision of the board of trustees
of the Trust, to manage the investment and reinvestment of
the assets of the Fund and to provide a range of
administrative services to the Fund. For the services
described in the advisory agreement, NEFM is paid a fee at
the annual rate of 0.70% of the first $200 million of the
Fund's average net assets, 0.65% of the next $300 million of
such assets and 0.60% of such assets in excess of $500
million.
The advisory agreement for Fund provides that NEFM may
delegate its responsibilities thereunder to other parties.
As explained in the Prospectus, NEFM has delegated
responsibility for the investment and reinvestment of the
Fund's assets to Loomis, Sayles & Company, L.P. ("Loomis
Sayles"), as subadviser. NEFM pays Loomis Sayles for
providing subadvisory services at the annual rate of 0.40%
of the first $200 million of the Fund's average net assets,
0.325% of the next $300 million of such assets and 0.275% of
such assets in excess of $500 million.
Pursuant to a voluntary agreement that may be
terminated at any time, NEFM and Loomis Sayles bear all
expenses (other than any brokerage costs, interest, taxes or
extraordinary expenses) of the Fund in excess of 1.00%
annually of the Fund's average daily net assets.
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to certain
investment practices in which the Fund may engage.
Loans of Portfolio Securities. The Fund may lend its
portfolio securities to broker-dealers under contracts
calling for cash collateral equal to at least the market
value of the securities loaned, marked to the market on a
daily basis. (The Fund at the present time has no
intention to engage in the lending of portfolio
securities.) The Fund will continue to benefit from
interest or dividends on the securities loaned and will
also receive interest through investment of the cash
collateral in short-term liquid investments, which may
include shares of money market funds subject to any
investment restriction listed in above. No loans will be
made if, as a result, the aggregate amount of such loans
outstanding at any one time would exceed 15% of the Fund's
total assets (taken at current value). Any voting rights,
or rights to consent, relating to securities loaned pass to
the borrower. However, if a material event affecting the
investment occurs, such loans will be called so that the
securities may be voted by the Fund. The Fund pays various
fees in connection with such loans, including shipping fees
and reasonable custodian and placement fees approved by the
board of trustees of the Trust or persons acting pursuant
to the direction of the board.
These transactions must by fully collateralized at all
times, but involve some credit risk to the Fund if the
other party should default on its obligation and the Fund
is delayed in or prevented from recovering the collateral.
U.S. Government Securities. The Fund may invest in some or
all of the following U.S. Government Securities:
. U.S. Treasury Bills - Direct obligations of the United
States Treasury which are issued in maturities of one year
or less. No interest is paid on Treasury bills; instead,
they are issued at a discount and repaid at full face value
when they mature. They are backed by the full faith and
credit of the United States Government.
. U.S. Treasury Notes and Bonds - Direct obligations of
the United States Treasury issued in maturities that vary
between one and 40 years, with interest normally payable
every six months. These obligations are backed by the full
faith and credit of the United States Government.
. "Ginnie Maes" - Debt securities issued by a mortgage
banker or other mortgagee which represent an interest in a
pool of mortgages insured by the Federal Housing
Administration or the Farmer's Home Administration or
guaranteed by the Veterans Administration. The Government
National Mortgage Association ("GNMA") guarantees the
timely payment of principal and interest when such payments
are due, whether or not these amounts are collected by the
issuer of these certificates on the underlying mortgages.
An assistant attorney general of the United States has
rendered an opinion that the guarantee by GNMA is a general
obligation of the United States backed by its full faith
and credit. Mortgages included in single family or multi-
family residential mortgage pools backing an issue of
Ginnie Maes have a maximum maturity of up to 30 years.
Scheduled payments of principal and interest are made to
the registered holders of Ginnie Maes (such as the Fund)
each month. Unscheduled prepayments may be made by
homeowners, or as a result of a default. Prepayments are
passed through to the registered holder (such as the Fund,
which reinvests any prepayments) of Ginnie Maes along with
regular monthly payments of principal and interest.
. "Fannie Maes" - The Federal National Mortgage
Association ("FNMA") is a government-sponsored corporation
owned entirely by private stockholders that purchases
residential mortgages from a list of approved
seller/servicers. Fannie Maes are pass-through securities
issued by FNMA that are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government.
. "Freddie Macs" - The Federal Home Loan Mortgage
Corporation ("FHLMC") is a corporate instrumentality of the
United States Government. Freddie Macs are participation
certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio.
FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but Freddie Macs are not
backed by the full faith and credit of the United States
Government.
As described in the Prospectus, U.S. Government
Securities do not involve the credit risks associated with
investments in other types of fixed-income securities,
although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields
available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will not
affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the
magnitude of these fluctuations will generally be greater
at times when the Fund's average maturity is longer, under
certain market conditions the Fund may, for temporary
defensive purposes, accept lower current income from short-
term investments rather than investing in higher yielding
long-term securities.
When-Issued Securities. The Fund may enter into agreements
with banks or broker-dealers for the purchase or sale of
securities at an agreed-upon price on a specified future
date. Such agreements might be entered into, for example,
when the Fund anticipates a decline in interest rates and
is able to obtain a more advantageous yield by committing
currently to purchase securities to be issued later. When
the Fund purchases securities in this manner (i.e., on a
when-issued or delayed-delivery basis), it is required to
create a segregated account with the Trust's custodian and
to maintain in that account cash or U.S. Government
Securities in an amount equal to or greater than, on a
daily basis, the amount of the Fund's when-issued or
delayed-delivery commitments. The Fund will make
commitments to purchase on a when-issued or delayed-
delivery basis only securities meeting the Fund's
investment criteria. The Fund may take delivery of these
securities or, if it is deemed advisable as a matter of
investment strategy, the Fund may sell these securities
before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Fund will
meet its obligations from the then available cash flow or
the sale of securities, or from the sale of the when-issued
or delayed- delivery securities themselves (which may have
a value greater or less than the Fund's payment
obligation).
Repurchase Agreements. The Fund may enter into repurchase
agreements by which the Fund purchases a security and
obtains a simultaneous commitment from the seller to
repurchase the security at an agreed-upon price and date.
The resale price is in excess of the purchase price and
reflects an agreed-upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily
available cash at minimal market risk. While the
underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority
or instrumentality of the United States Government, the
obligation of the seller is not guaranteed by the United
States Government and there is a risk that the seller may
fail to repurchase the underlying security. In such event,
the Fund would attempt to exercise rights with respect to
the underlying security, including possible disposition in
the market. However, the Fund may be subject to various
delays and risks of loss, including (a) possible declines
in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of access to
income during this period and (c) inability to enforce
rights and the expenses involved in the attempted
enforcement.
Zero Coupon Securities. Zero coupon securities are debt
obligations that do not entitle the holder to any periodic
payments of interest either for the entire life of the
obligation or for an initial period after the issuance of
the obligations. Such securities are issued and traded at
a discount from their face amounts. The amount of the
discount varies depending on such factors as the time
remaining until maturity of the securities, prevailing
interest rates, the liquidity of the security and the
perceived credit quality of the issuer. The market prices
of zero coupon securities generally are more volatile than
the market prices of securities that pay interest
periodically and are likely to respond to changes in
interest rates to a greater degree than do non-zero coupon
securities having similar maturities and credit quality.
In order to satisfy a requirement for qualification as a
"regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"), the Fund must
distribute each year at least 90% of its net investment
income, including the original issue discount accrued on
zero coupon securities. Because the Fund will not on a
current basis receive cash payments from the issuer of a
zero coupon security in respect of accrued original issue
discount, in some years the Fund may have to distribute
cash obtained from other sources in order to satisfy the
90% distribution requirement under the Code. Such cash
might be obtained from selling other portfolio holdings of
the Fund. In some circumstances, such sales might be
necessary in order to satisfy cash distribution
requirements even though investment considerations might
otherwise make it undesirable for the Trust to sell such
securities at such time.
Convertible Securities. The Fund may invest in convertible
securities including corporate bonds, notes or preferred
stocks of U.S. or foreign issuers that can be converted
into (that is, exchanged for) common stocks or other equity
securities. Convertible securities also include other
securities, such as warrants, that provide an opportunity
for equity participation. Because convertible securities
can be converted into equity securities, their values will
normally vary in some proportion with those of the
underlying equity securities. Convertible securities
usually provide a higher yield than the underlying equity,
however, so that the price decline of a convertible
security may sometimes be less substantial than that of the
underlying equity security.
Options and Futures
. Futures Contracts - A futures contract is an agreement
between two parties to buy and sell a particular commodity
(e.g., an interest-bearing security) for a specified price
on a specified future date. In the case of futures on an
index, the seller and buyer agree to settle in cash, at a
future date, based on the difference in value of the
contract between the date it is opened and the settlement
date. The value of each contract is equal to the value of
the index from time to time multiplied by a specified
dollar amount.
When a trader, such as the Fund, enters into a futures
contract, it is required to deposit with (or for the
benefit of) its broker as "initial margin" an amount of
cash or short-term high-quality securities (such as U.S.
Treasury Bills or high-quality tax exempt bonds acceptable
to the broker) equal to approximately 2% to 5% of the
delivery or settlement price of the contract (depending on
applicable exchange rules). Initial margin is held to
secure the performance of the holder of the futures
contract. As the value of the contract changes, the value
of futures contract positions increases or declines. At
the end of each trading day, the amount of such increase
and decline is received and paid respectively by and to the
holders of these positions. The amount received or paid is
known as "variation margin." If the Fund has a long
position in a futures contract, it will establish a
segregated account with the Fund's custodian containing
cash or certain illiquid assets equal to the purchase price
of the contract (less any margin on deposit). For short
positions in futures contracts, the Fund will establish a
segregated account with the Fund's custodian with cash or
high grade liquid debt assets that, when added to the
amounts deposited as margin, equal the market value of the
instruments or currency underlying the futures contracts.
Although futures contracts by their terms require
actual delivery and acceptance of securities (or cash in
the case of index futures), in most cases the contracts are
closed out before settlement. A futures sale is closed by
purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument or commodity
and with the same delivery date. Similarly, the closing
out of a futures purchase is closed by the purchaser
selling an offsetting futures contract.
Gain or loss on a futures position is equal to the net
variation margin received or paid over the time the
position is held, plus or minus the amount received or paid
when the position is closed, minus brokerage commissions.
. Options - An option on a futures contract obligates
the writer, in return for the premium received, to assume a
position in a futures contract (a short position if the
option is a call and a long position if the option is a
put), at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the
option to the holder of the option generally will be
accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the
amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the
option. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the
exercise price to the market price and volatility of the
underlying contract, the remaining term of the option,
supply and demand and interest rates. Options on futures
contracts traded in the United States may only be traded on
a United States board of trade licensed by the Commodity
Futures Trading Commission.
An option on a security entitles the holder to receive
(in the case of a call option) or to sell (in the case of a
put option) a particular security at a specified exercise
price. An "American style" option allows exercise of the
option at any time during the term of the option. A
"European style" option allows an option to be exercised
only at the end of its term. Options on securities may be
traded on or off a national securities exchange.
A call option on a futures contract written by 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 cancelled. 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 if the price of
the offsetting option position is more than the premium
received from writing the option or is less than the
premium paid to purchase the option. Because increases in
the market price of a call option will generally reflect
increases in the market price of the covering securities,
any loss resulting from the closing of a written call
option position is expected to be offset in whole or in
part by appreciation of such covering securities.
Since premiums on options having an exercise price
close to the value of the underlying securities or futures
contracts usually have a time value component (i.e., a
value that diminishes as the time within which the option
can be exercised grows shorter), an option writer may
profit from the lapse of time even though the value of the
futures contract (or security in some cases) underlying the
option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from
option writing may or may not be offset by a decline in the
value of securities covering the option. If the profit is
not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be
enhanced. Likewise, the profit or loss from writing put
options may or may not be offset in whole or in part by
changes in the market value of securities acquired by the
Fund when the put options are closed.
. Risks - The use of futures contracts and options
involves risks. One risk arises because of the imperfect
correlation between movements in the price of futures
contracts and movements in the price of the securities that
are the subject of the hedge. The Fund's hedging
strategies will not be fully effective unless the Fund can
compensate for such imperfect correlation. There is no
assurance that the Fund will be able to effect such
compensation.
The correlation between the price movement of the
futures contract and the hedged security may be distorted
due to differences in the nature of the markets. If the
price of the futures contract moves more than the price of
the hedged security, the Fund would experience either a
loss or a gain on the future that is not completely offset
by movements in the price of the hedged securities. In an
attempt to compensate for imperfect price movement
correlations, the Fund may purchase or sell futures
contracts in a greater dollar amount than the hedged
securities if the price movement volatility of the hedged
securities is historically greater than the volatility of
the futures contract. Conversely, the Fund may purchase or
sell fewer contracts if the volatility of the price of
hedged securities is historically less than that of the
futures contracts.
The price of index futures may not correlate perfectly
with movement in the relevant index due to certain market
distortions. First, all participants in the futures market
are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting
transactions, which could distort the normal relationship
between the index and futures markets. Secondly, the
deposit requirements in the futures market are less onerous
than margin requirements in the securities market, and as a
result the futures market may attract more speculators than
does the securities market. In addition, trading hours for
foreign stock index futures may not correspond perfectly to
hours of trading on the foreign exchange to which a
particular foreign stock index future relates. This may
result in a disparity between the price of index futures
and the value of the relevant index due to the lack of
continuous arbitrage between the index futures price and
the value of the underlying index. Finally, hedging
transactions using stock indices involve the risk that
movements in the price of the index may not correlate with
price movements of the particular portfolio securities
being hedged.
Price movement correlation also may be distorted by
the illiquidity of the futures and options markets and the
participation of speculators in such markets. If an
insufficient number of contracts are traded, commercial
users may not deal in futures contracts or options because
they do not want to assume the risk that they may not be
able to close out their positions within a reasonable
amount of time. In such instances, futures and options
market prices may be driven by different forces than those
driving the market in the underlying securities, and price
spreads between these markets may widen. The participation
of speculators in the market enhances its liquidity.
Nonetheless, speculators trading spreads between futures
markets may create temporary price distortions unrelated to
the market in the underlying securities.
Positions in futures contracts and options on futures
contracts may be established or closed out only on an
exchange or board of trade. There is no assurance that a
liquid market on an exchange or board of trade will exist
for any particular contract or at any particular time. The
liquidity of markets in futures contracts and options on
futures contracts may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures or
options price during a single trading day. Once the daily
limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent
the liquidation of open futures or options positions.
Prices have in the past exceeded the daily limit on a
number of consecutive trading days. If there is not a
liquid market at a particular time, it may not be possible
to close a futures or options position at such time, and,
in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of
variation margin. However, if futures or options are used
to hedge portfolio securities, an increase in the price of
the securities, if any, may partially or completely offset
losses on the futures contract.
An exchange-traded option may be closed out only on a
national securities or commodities exchange which generally
provides a liquid secondary market for an option of the
same series. If a liquid secondary market for an exchange-
traded option does not exist, it might not be possible to
effect a closing transaction with respect to a particular
option with the result that the Fund would have to exercise
the option in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a
secondary market, it will be not be able to sell the
underlying security until the option expires or it delivers
the underlying security upon exercise. Reasons for the
absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or
other restrictions may be imposed with respect to
particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing
Corporation or other clearing organization may not at all
times be adequate to handle current trading volume; or (vi)
one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue
the trading of options (or a particular class or series of
options), in which event the secondary market on that
exchange (or in that class or series of options) would
cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The successful use of transactions in futures and
options depends in part on the ability of the Fund's
subadviser 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 organization.
. Economic Effects and Limitations - Income earned by
the Fund from its hedging activities will be treated as
capital gain and, if not offset by net recognized capital
losses incurred by the Fund, will be distributed to
shareholders in taxable distributions. Although gain from
futures and options transactions may hedge against a
decline in the value of the Fund's portfolio securities,
that gain, to the extent not offset by losses, will be
distributed in light of certain tax considerations and will
constitute a distribution of that portion of the value
preserved against decline.
The Fund will not "over hedge," that is, maintain open
short positions in futures or options contracts if, in the
aggregate, the market value of its open positions exceeds
the current market value of its securities portfolio plus
or minus the unrealized gain or loss on such open
positions, adjusted for the historical price volatility
relationship between the portfolio and futures and options
contracts.
. 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.
MANAGEMENT OF THE TRUST
The Trustee of the Trust and its principal occupations
during the past five years are as follows:
GRAHAM T. ALLISON, JR.--Trustee (55); 79 John F. Kennedy
Street, Cambridge, MA 02138; Douglas Dillon Professor
and Director for the Center of Science and
International Affairs, John F. Kennedy School of
Government; Special Advisor to the United States
Secretary of Defense; formerly, Assistant Secretary of
Defense; formerly Dean, John F. Kennedy School of
Government.
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.
SANDRA O. MOOSE -- Trustee (53); 135 E. 57th Street New
York, NY 10022; Senior Vice President and Director, The
Boston Consulting Group, Inc. (management consulting);
Director, GTE Corporation and Rohm and Haas Company
(specialty chemicals).
HENRY L. P. SCHMELZER* -- Trustee and President (52);
President, Chief Executive Officer and Director, NEF
Corporation; President and Chief Executive Officer, New
England Funds, L.P.; President and Chief Executive
Officer, New England Funds Management, L.P. ("NEFM");
Director, Back Bay Advisors(R), Inc.; formerly,
Director, New England Securities Corporation ("New
England Securities").
* Trustee deemed on "interested person" of the Trusts, as
defined in the 1940 Act.
JOHN A. SHANE -- Trustee (62); 300 Unicorn Drive, Woburn,
Massachusetts 01801; President, Palmer Service
Corporation (venture capital organization); General
Partner, The Palmer Organization and Palmer Partners
L.P.; Director, Arch Communications Group, Inc. (paging
service); Director, Dowden Publishing Company, Inc.
(publishers of medical magazines); Director, Eastern
Bank Corporation; Director, Gensym Corporation (expert
system software); Director, Overland Data, Inc.
(manufacturer of computer tape drives); Director, Summa
Four, Inc. (manufacturer of telephone switching
equipment); Director, United Asset Management
Corporation (holding company for institutional money
management); formerly, Director, Abt Associates, Inc.
(consulting firm); formerly, Director, Aviv Corporation
(manufacturer of controllers); formerly, Director,
Banyan Systems, Inc. (manufacturer of network
software); and formerly, Director, Cerjac Inc.
(manufacturer of telephone testing equipment).
PETER S. VOSS* -- Chairman of the Board, Chief Executive
Officer and Trustee (48); President and Chief Executive
Officer of New England Investment Companies, L.P.
("NEIC"); Director, President and Chief Executive
Officer of New England Investment Companies, Inc.;
Chairman of the Board and Director, NEF Corporation;
Chairman of the Board and Director, Back Bay
Advisors(R), Inc.; Director, The New England; formerly,
Executive Vice President, Bank of America; formerly,
Group Head of International Banking, Trading and
Securities, Security Pacific National Bank and Chief
Executive Officer, Security Pacific Investment Group.
* Trustee deemed on "interested person" of the Trusts, as
defined in the 1940 Act.
PENDLETON P. WHITE -- Trustee (64); 6 Breckenridge Lane,
North, Savannah, Georgia 31411; Retired; formerly,
President and Chairman of the Executive Committee,
Studwell Associates (executive search consultants);
formerly, Trustee, The Faulkner Corporation.
Officers of the Trust and their principal occupations during
the past five years are as follows:
FRANK NESVET -- Treasurer; Senior Vice President and Chief
Financial Officer, NEF Corporation, Senior Vice
President and Chief Financial Officer, New England
Funds, L.P.; Senior Vice President, Chief Financial
Officer and Treasurer, NEFM.
MAURICIO CEVALLOS -- Vice President; Vice President, Loomis
Sayles & Company ("Loomis Sayles").
PETER RAMSDEN -- Vice President; Vice President, Loomis
Sayles; MBA candidate at University of Michigan.
ROBERT P. CONNOLLY -- Secretary and Clerk; Senior Vice
President and General Counsel, NEF Corporation; Senior
Vice President and General Counsel, New England Funds,
L.P.; Senior Vice President and General Counsel, NEFM;
formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company);
formerly Managing Director and General Counsel,
Equitable Capital Management Corporation (investment
management company).
Except as indicated above, the address of each officer
affiliated with New England Funds, L.P. is 399 Boylston
Street, Boston, Massachusetts 02116. The address of Mr.
Cevallos is 101 East 52nd Street, New York, NY 10022 and the
address of Mr. Ramsden is One Financial Center, Boston, MA
02111.
Trustees Fees
For the initial period of its operations, the Fund will pay
no compensation to Trustees.
During the year ended December 31, 1994, the Trustees
of the Trust who have not been deemed "interested persons"
of the Trust as defined in the 1940 Act, received the
amounts set forth below for serving on the governing boards
of 36 other mutual fund portfolios that have NEFM or an
affiliate thereof as investment adviser or principal
underwriter (the "Other Funds").
Total Compensation from
the Other Funds in
Name of Trustee 1994
Graham T. Allison, Jr. * -0-
Kenneth J. Cowan $59,375
Sandra O. Moose $52,875
John A. Shane $55,875
Pendleton P. White $58,375
* Mr. Allison became a Trustee of the Other Funds on April 1,
1995.
The Trust provides no pension or retirement benefits to
Trustees, but has adopted a deferred payment arrangement
under which each Trustee may elect not to receive fees from
the Trust on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would
have if they had been invested in series of the Trust on the
normal payment date for such fees. As a result of this
method of calculating the deferred payments, each series,
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 November 15 1995, the officers and trustees of the
Trust as a group owned less than 1% of the outstanding
shares of the Trust.
Advisory Agreements
The Fund pays all expenses not borne by its adviser or
subadviser including, but not limited to, the charges and
expenses of the Fund's custodian and transfer agent,
independent auditors and legal counsel, all brokerage
commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and
expenses for registration or qualification of its shares
under the federal or state securities laws, all expenses of
shareholders' and trustees' meetings and of preparing,
printing and mailing reports to shareholders and any
compensation of Trustees who are not directors, officers or
employees of the Fund's adviser, subadviser or their
affiliates, other than affiliated registered investment
companies. The Fund also pays the Distributor for certain
legal and accounting services provided to the Fund by the
Distributor.
Under the advisory agreement, if the total ordinary
business expenses of the Fund or the Trust as a whole for
any fiscal year exceed the lowest applicable limitation
(based on percentage of average net assets or income)
prescribed by any state in which the shares of the Fund or
Trust are qualified for sale, 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 $30,000,000, 2% of the next $70,000,000 and 1-
1/2% of such assets in excess of $100,000,000. 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 advisory agreement and excludes brokerage commissions,
taxes, interest, distribution-related expenses and
extraordinary expenses. This means that the distribution
fees payable to New England Funds, L.P. under the Fund's
Distribution Agreement and the Distribution Plan would be
excluded from "expenses."
The advisory agreement between NEFM and the Fund and
the subadvisory agreement between NEFM and Loomis Sayles
each provides that it will continue in effect for two years
from its date of execution and thereafter from year to year
if its continuance is approved at least annually (i) by the
board of trustees of the Trust by vote of a majority of the
outstanding voting securities of the Fund and (ii) by vote
of a majority of the trustees who are not "interested
persons" of the Trust, as that term is defined in the 1940
Act, cast in person at a meeting called for the purpose of
voting on such approval. Any amendment to an advisory
agreement must be approved by vote of a majority of the
outstanding voting securities of the Fund and by vote of a
majority of the trustees of the Trust who are not such
interested persons, cast in person at a meeting called for
the purpose of voting on such approval. Each agreement may
be terminated without penalty by vote of the board of
trustees or by vote of a majority of the outstanding voting
securities of the 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.
The 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, the advisory agreement will
automatically terminate if the Trust or the Fund shall at
any time be required by the Distributor to eliminate all
reference to the words "New England" or the letters "TNE"
in the name of the Trust or the Fund, unless the
continuance of the agreement after such change of name is
approved by a majority of the outstanding voting securities
of the Fund and by a majority of the Trustees who are not
interested persons of the Trust or the Fund's adviser.
The advisory agreement and the subadvisory agreement
provide that the adviser and subadviser shall not be
subject to any liability in connection with the performance
of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
NEFM is an independently operated subsidiary of NEIC.
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
Fund's portfolio. 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 subsidiary of NEIC.
Certain officers of Loomis Sayles who are also
officers of the Trust have responsibility for the
management of other client portfolios. The other
investment companies and clients served by Loomis Sayles
sometimes invest in securities in which the Fund also
invests. If the Fund and such other investment companies
and clients advised by 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 the Fund purchases or
sells. In other cases, however, it is believed that these
practices may benefit the Fund. It is the opinion of the
trustees that the desirability of retaining Loomis Sayles
as subadviser for the Fund outweighs the disadvantages, if
any, which might result from these practices.
Distribution Agreement and Rule 12b-1 Plan. New
England Funds, L.P. serves as the general distributor of
the Fund. Under the agreement, New England Funds, L.P. is
not obligated to sell a specific number of shares. New
England Funds, L.P. bears the cost of making information
about the Fund available through advertising and other
means and the cost of printing and mailing prospectuses to
persons other than shareholders. The Fund pays the cost of
registering and qualifying its shares under state and
federal securities laws and the distribution of
prospectuses to existing shareholders.
New England Funds, L.P. is compensated under 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 Fund the service fee
described in the Prospectus.
As described in the Prospectus, the Fund has adopted a
Service Plan under Rule 12b-1 plan (the "Plan") 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 Investment
Act of 1940 (the "1940 Act"), the Plan was approved by the
shareholders of the Fund, and (together with the related
Distribution Agreement) by the Trust's board of trustees,
including a majority of the trustees who are not interested
persons of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the
operation of the Plan or the Distribution Agreement (the
"Independent Trustees").
The Plan may be terminated by vote of a majority of
the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Fund. The Plan may be
amended by vote of the trustees, including a majority of
the Independent Trustees, cast in person at a meeting
called for that purpose. Any change in the Plan that would
materially increase the fees payable thereunder by the Fund
requires approval of the holders of such shares. The
Trust's trustees review quarterly a written report of such
amounts expended under the Plan and the purposes for which
such expenses have been incurred. For so long as the Plan
is in effect, selection and nomination of those trustees
who are not interested persons of the Trust shall be
committed to the discretion of such disinterested persons.
The Distributor may enter into selling agreements with
investment dealers, including New England Securities
Corporation ("New England Securities"), an affiliate of the
Distributor, for the sale of the Fund's shares. New
England Securities is registered as a broker-dealer under
the Securities Exchange Act of 1934.
The Distribution Agreement for the 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 Fund or by vote of a majority of the Independent
Trustees.
The Distribution Agreement and the Plan will continue
in effect for successive one-year periods, provided that
each such continuance is specifically approved (i) by the
vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire board of trustees cast
in person at a meeting called for that purpose or by a vote
of a majority of the outstanding securities of the Fund.
With the exception of New England Funds, L.P., New
England Securities and their direct and indirect corporate
parents (NEIC and The New England), no interested person of
the Trust nor any trustee of the Trust had any direct or
indirect financial interest in the operation of the Plan or
any related agreement.
Benefits to the Trust and its shareholders resulting
from the Plan are believed to include (1) enhanced
shareholder service, (2) asset retention, (3) enhanced
bargaining position with third party service providers and
economies of scale arising from having higher asset levels
and (4) portfolio management opportunities arising from
having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New
England" in the name of New England Funds Trust III and the
Fund and if it should cease to be the Fund's principal
underwriter, the Trust or the Fund may be required to
change their names and delete these words. New England
Funds, L.P. also acts as principal underwriter for New
England Funds Trusts I and II, New England Cash Management
Trust and New England Tax Exempt Money Market Trust.
Custodial Arrangements. State Street Bank and Trust
Company ("State Street Bank"), Boston, Massachusetts 02102,
is the Trust's custodian. As such, State Street Bank holds
in safekeeping certificated securities and cash belonging
to the Fund and, in such capacity, is the registered owner
of securities in book-entry form belonging to the Fund.
Upon instruction, State Street Bank receives and delivers
cash and securities of the Fund in connection with Fund
transactions and collects all dividends and other
distributions made with respect to Fund portfolio
securities. State Street Bank also maintains certain
accounts and records of the Trust and calculates the total
net asset value, total net income and net asset value per
share of the Fund on a daily basis.
Independent Accountants. The Fund's independent
accountants are Price Waterhouse LLP, 160 Federal Street,
Boston, MA 02110. The independent accountants of the Fund
conduct an annual audit of the Fund's financial statements,
assist in the preparation of federal and state income tax
returns and consult with the Fund as to matters of
accounting and federal and state income taxation. The
statement of assets and liabilities of the Fund included
herein has been so included in reliance on the report of
such firm as experts in auditing and accounting.
Other Arrangements
Pursuant to a contract between the Fund and New
England Funds, L.P., New England Funds, L.P. acts as
shareholder servicing and transfer agent for the Fund and
is responsible for services in connection with the
establishment, maintenance and recording of shareholder
accounts, including all related tax and other reporting
requirements and the implementation of investment and
redemption arrangements offered in connection with the sale
of the Fund's shares. The Fund will pay per account fees
to New England Funds, L.P. for these services in the amount
of $17.25. New England Funds, L.P. has subcontracted with
State Street Bank for it to provide, through its
subsidiary, Boston Financial Data Services, Inc. ("BFDS"),
transaction processing, mail and other services. For these
services, New England Funds, L.P. will pay BFDS a per
account fee of $6.40.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of
portfolio securities for the Fund, Loomis Sayles always
seek the best price and execution. Some of the Fund's
portfolio transactions are placed with brokers and dealers
who provide Loomis Sayles with supplementary investment and
statistical information or furnish market quotations to the
Fund, or other investment companies advised by Loomis
Sayles. The business would not be so placed if the Fund
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 Loomis Sayles. The services may
also be used by Loomis Sayles in connection with their
other advisory accounts and in some cases may not be used
with respect to the Fund.
In placing orders for the purchase and sale of equity
securities, Loomis Sayles 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. Loomis Sayles 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. The
Fund will not 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.
General
Portfolio turnover is not a limiting factor with
respect to investment decisions. The Fund anticipates that
its portfolio turnover rate will vary significantly from
time to time depending on the volatility of economic and
market conditions.
Subject to procedures adopted by the Board of Trustees
of the Trust, the Fund's brokerage transactions may be
executed by brokers that are affiliated with the
Distributor, or the adviser or subadviser. Any such
transactions will comply with Rule 17e-1 under the 1940
Act.
Under the 1940 Act, persons affiliated with the Trust
are prohibited from dealing with the Fund as a principal in
the purchase and sale of securities. Since transactions in
the over-the-counter market usually involve transactions
with dealers acting as principals for their own accounts,
affiliated persons of the Trust, such as New England
Securities, may not serve as the Trust's dealer in
connection with such transactions.
It is expected that the portfolio transactions in
fixed-income securities will generally be with issuers or
dealers on a net basis without a stated commission.
Securities firms may receive brokerage commissions on
transactions involving options, futures and options on
futures and the purchase and sale of underlying securities
upon exercise of options. The brokerage commissions
associated with buying and selling options may be
proportionately higher than those associated with general
securities transactions.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust is a newly organized Massachusetts business
trust. The Fund, organized in 1995, is expected to
commence operations on November 28 1995. The Fund
currently has one class of shares.
The Declaration of Trust currently permits trustees to
issue an unlimited number of full and fractional shares of
the Fund. The Fund is represented by a particular series
of shares. The Declaration of Trust further permits the
Trust's trustees to divide the shares of each series into
any number of separate classes, each having such rights and
preferences relative to other classes of the same series as
the trustees may determine. The shares of the Fund do not
have any preemptive rights. Upon termination of the Fund,
whether pursuant to liquidation of the Trust or otherwise,
shareholders the Fund are entitled to share pro rata in the
net assets attributable to the Fund available for
distribution to shareholders. The Declaration of Trust
also permits the trustees to charge shareholders directly
for custodial, transfer agency and servicing expenses.
The assets received by the Fund for the issue or sale
of its shares and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of the
creditors, are allocated to, and constitute the underlying
assets of the Fund. The underlying assets of the Fund are
segregated and are charged with the expenses with respect
to the Fund and with a share of the general expenses of the
Trust. Any general expenses of the Trust that are not
readily identifiable as belonging to the Fund are allocated
by or under the direction of the trustees in such manner as
the trustees determine to be fair and equitable. While the
expenses of the Trust are allocated to the separate books
of account of the Trust's series, certain expenses may be
legally chargeable against the assets of all classes of the
Trust's series.
The Declaration of Trust also permits the Trust's
trustees, without shareholder approval, to subdivide any
series or class of shares or Fund into various sub-series
or sub-classes with such dividend preferences and other
rights as the trustees may designate. While the trustees
have no current intention to exercise this power, it is
intended to allow them to provide for an equitable
allocation of the impact of any future regulatory
requirements which might affect various classes of
shareholders differently. The trustees may also, without
shareholder approval, establish one or more additional
series or classes or merge two or more existing series or
classes.
The Declaration of Trust provides for the perpetual
existence of the Trust. The Trust may be terminated at any
time by vote of at least two-thirds of the outstanding
shares of the Trust. Similarly, the Fund may be terminated
by a vote of at least two-thirds of its outstanding shares.
The Declaration of Trust further provides that the Trust's
board of trustees may terminate the Trust or the Fund
without shareholder vote upon written notice to its
shareholders.
Voting Rights
As summarized in the Prospectus, shareholders are
entitled to one vote for each full share held (with
fractional votes for each fractional share held) and may
vote (to the extent provided therein) in the election of
trustees and the termination of the Trust and on other
matters submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter
submitted to a vote of all shareholders of 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 Securities and Exchange Commission
(the "SEC"), shareholders of all series and classes vote
together, irrespective of series or class, on the election
of trustees and the selection of the Trust's independent
accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval,
such as certain changes in investment policies of that
series or the approval of the investment advisory agreement
relating to that series, and shareholders of each class
within a series vote separately as to the Rule 12b-1 plan
(if any) relating to that class.
There will normally be no meetings of shareholders for
the purpose of electing trustees except that, in accordance
with the 1940 Act, (i) the Trust will hold a shareholders'
meeting for the election of trustees at such time as less
than a majority of the trustees holding office have been
elected by shareholders, and (ii) if, as a result of a
vacancy on the board of trustees, less than two-thirds of
the trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of
the shareholders. In addition, trustees may be removed
from office by a written consent signed by the holders of
two-thirds of the outstanding shares and filed with a
Trust's custodian or by a vote of the holders of two-thirds
of the outstanding shares at a meeting duly called for that
purpose, which meeting shall be held upon the written
request of the holders of not less than 10% of the
outstanding shares.
Upon written request by the holders of shares having a
net asset value of at least $25,000 or at least 1% of the
outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to
consider removal of a trustee, the Trust has undertaken to
provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue
to hold office and may appoint successor trustees. Voting
rights are not cumulative.
No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the
outstanding shares of the Trust except (i) to change the
Trust's or a series' name or to cure technical problems in
a Declaration of Trust, (ii) to establish and designate new
series or classes of Trust shares or (iii) to establish,
designate or modify new and existing series or classes of
Trust shares or other provisions relating to Trust shares
in response to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Trust. However, the Declaration of
Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the
trustees. The Declaration of Trust provides for
indemnification out of the Fund's property for all loss and
expense of any shareholder held personally liable for the
obligations of the Fund by reason of owning shares of the
Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered
remote since it is limited to circumstances in which the
disclaimer is inoperative and the Fund itself would be
unable to meet its obligations.
The Declaration of Trust further provides that the
board of trustees will not be liable for errors of judgment
or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a trustee against any
liability to which the trustee would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his or her office. The By-Laws of the Trust
provide for indemnification by the Trust of trustees and
officers of the Trust, except with respect to any matter as
to which any such person did not act in good faith in the
reasonable belief that his or her action was in or not
opposed to the best interests of the Trust. Such persons
may not be indemnified against any liability to the Trust
or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are
summarized in the Prospectus. Banks may charge a fee for
transmitting funds by wire. With respect to shares
purchased by federal funds, shareholders should bear in
mind that wire transfers may take two or more hours to
complete.
For purchase of Fund shares by mail, the settlement
date is the first business day after receipt of the check
by the transfer agent so long as it is received by the
close of regular trading of the New York Stock Exchange
(the "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
third business day after the order is made.
Shares may also be purchased either in writing, by
phone or by electronic funds transfer using Automated
Clearing House ("ACH"), or by exchange as described in the
Prospectus 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 the
Fund's shares. Payment must be received by New England
Funds, L.P. within three business days following the
transaction date or the order will be subject to
cancellation. Telephone orders must be placed through New
England Funds, L.P. or your investment dealer.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price
and net asset value per share is summarized in the
Prospectus.
The total net asset value of the shares of the Fund
(the excess of the assets of the Fund over its liabilities)
is determined as of the close of regular trading (normally
4:00 p.m. Eastern time) on each day that the Exchange is
open for trading. The weekdays that the 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 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 Exchange. The
value of equity securities of non-U.S. issuers not traded
on a U.S. exchange will be valued at their last sale price,
if any, on the exchange on which they principally trade.
Occasionally, events affecting the value of fixed-income
securities and of equity securities of non-U.S. issuers not
traded on a U.S. exchange may occur between the completion
of substantial trading of such securities for the day and
the close of the Exchange, which events will not be
reflected in the computation of the Fund's net asset value.
If events materially affecting the value of the Fund's
securities occur during such period, then these securities
will be valued at their fair value as determined in good
faith by or in accordance with procedures approved by the
trustees.
The per share net asset value of the Fund's shares is
computed by dividing the number of shares outstanding into
the total net asset value. The public offering price of a
share of the Fund is the net asset value per share next
determined after a properly completed purchase order is
accepted by New England Funds, L.P. or State Street Bank,
plus a sales charge as set forth in the Fund's prospectus.
REDUCED SALES CHARGES
Special purchase plans are enumerated in the text of
the Prospectus.
Cumulative Purchase Discount. A shareholder making an
additional purchase of Fund shares may be entitled to a
discount on the sales charge payable on that purchase.
This discount will be available if the shareholder's "total
investment" in the Fund reaches the breakpoint for a
reduced sales charge in the table under "Net Asset Value
and Public Offering Price," 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 the Trust, New England Funds Trust I and New England
Funds Trust II (the "Trusts") held by the shareholder in
one or more accounts. If the total investment exceeds the
breakpoint, the lower sales charge applies to the entire
additional investment even though some portion of that
additional investment is below the breakpoint to which a
reduced sales charge applies. For example, if a
shareholder who already owns shares of one or more series
of the Trusts with a value at the current public offering
price of $30,000 makes an additional purchase of $20,000 of
Class A shares of the Fund, the reduced sales charge of
4.5% of the public offering price will apply to the entire
amount of the additional investment.
Letter of Intent. A Letter of Intent (a "Letter"),
which can be effected at any time, is a privilege available
to investors which reduces the sales charge on investments
in Class A shares. Ordinarily, reduced sales charges are
available for single purchases of Class A shares only when
they reach certain breakpoints (e.g., $50,000, $100,000,
etc.). By signing a Letter, a shareholder indicates an
intention to invest enough money in Class A shares within
13 months to reach a breakpoint. If the shareholder's
intended aggregate purchases of all series and classes of
the Trusts over a defined 13-month period will be large
enough to qualify for a reduced sales charge, the
shareholder may invest the smaller individual amounts at
the public offering price calculated using the sales load
applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of
which may be increased, decreased or canceled at any time.
The effective date of a Letter is the date it is received
in good order at New England Funds, L.P., or, if
communicated by a telephone exchange or order, at the date
of telephoning provided a signed Letter, in good order,
reaches New England Funds, L.P. within five business days.
A reduced sales charge is available for aggregate
purchases of all series and classes of shares of the Trusts
pursuant to a written Letter effected within 90 days after
any purchase. In the event the account was established
prior to 90 days before the Letter effective date, the
account will be credited with Rights of Accumulation
("ROA") towards the breakpoint level that will be reached
upon the completion of the 13 months' purchases. The ROA
credit is the value of all shares held as of the effective
date of the Letter based on the "public offering price
computed on such date."
The cumulative purchase discount, described above,
permits the aggregate value at the current public offering
price of Class A shares of any accounts with the Trusts
held by a shareholder to be added to the dollar amount of
the intended investment under a Letter, provided the
shareholder lists them on the account application.
State Street Bank will hold in escrow shares with a
value at the current public offering price of 5% of the
aggregate amount of the intended investment. The amount in
escrow will be released when the Letter is completed. If
the shareholder does not purchase shares in the amount
indicated in the Letter, the shareholder agrees to remit to
State Street Bank the difference between the sales charge
actually paid and that which would have been paid had the
Letter not been in effect, and authorizes State Street Bank
to redeem escrowed shares in the amount necessary to make
up the difference in sales charges. Reinvested dividends
and distributions are not included in determining whether
the Letter has been completed.
Combining Purchases. Purchases of all series and
classes of the Trusts by or for an investor, the investor's
spouse, parents, children, siblings, grandparents or
grandchildren and any other account of the investor,
including sole proprietorships, in the Trusts may be
treated as purchases by a single individual for purposes of
determining the availability of a reduced sales charge.
Purchases for a single trust estate or a single fiduciary
account may also be treated as purchases by a single
individual for this purpose, as may purchases on behalf of
a participant in a tax-qualified retirement plan and other
employee benefit plans, provided that the investor is the
sole participant in the plan.
Combining with Other Series and Classes of the Trusts.
A shareholder's total investment for purposes of the
cumulative purchase discount and purchases under a Letter
of Intent includes the value at the current public offering
price of any shares of series and classes of the Trusts
that the shareholder owns (which do not include shares of
New England Cash Management Trust and New England Tax
Exempt Money Market Trust ("New England Money Market
Funds") unless such shares were purchased by exchanging
shares of the Trusts). Shares owned by persons described
in the preceding paragraph may also be included.
Sponsored Arrangements. Class A shares may be
purchased at a reduced sales charge pursuant to "sponsored
arrangements," which include programs under which an
association makes recommendations to, or permits group
solicitation of, its members in connection with the
purchase of shares of the series of the Trusts on an
individual basis. The amount of the sales charge reduction
will reflect the anticipated reduction in sales expenses
associated with sponsored arrangements. The reduction in
sales expenses, and therefore the reduction in sales
charge, will vary depending on factors such as the size and
stability of the association's membership, the term of the
association's existence and certain characteristics of its
members.
Unit Holders of Unit Investment Trusts. Unit
investment trust distributions may be invested in the Fund
at a reduced sales charge of 1.50% of the public offering
price (or 1.52% of the net amount invested); for large
purchases on which a sales charge of less than 1.50% would
ordinarily apply, such lower charge also applies to
investments of unit investment trust distributions.
Clients of Advisers or Subadvisers (Affiliated with
NEIC). No sales charge or contingent deferred sales charge
("CDSC") applies to investments of $100,000 or more in
Class A shares of series of the Trusts by (1) clients of an
adviser or subadviser (affiliated with NEIC) to series of
the Trusts; any director, officer or partner of a client of
an adviser or subadviser (affiliated with NEIC) to series
of the Trusts; and the spouse, parents, children, siblings,
grandparents or grandchildren of the foregoing; (2) any
individual who is a participant in a Keogh or IRA Plan
under a prototype of an adviser or subadviser (affiliated
with NEIC) to a 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 (affiliated with NEIC) to series
of the Trusts. Any investor eligible for this arrangement
should so indicate in writing at the time of the purchase.
Offering to Employees of The New England and
Associated Entities. There is no sales charge, CDSC or
initial investment minimum related to investments in Class
A shares of any series of the Trusts by any of the Trusts'
investment advisers or subadvisers (affiliated with NEIC),
New England Funds, L.P. or any other company affiliated
with The New England; current and former directors and
trustees of the Trusts; agents and general agents of The
New England and its insurance company subsidiaries; current
and retired employees of such agents and general agents;
registered representatives of broker dealers that have
selling arrangements with New England Funds, L.P.; the
spouse, parents, children, siblings, grandparents or
grandchildren of the persons listed above and any trust,
pension, profit sharing or other benefit plans for any of
the foregoing persons and any separate account of The New
England or any other company affiliated with The New
England.
Eligible Governmental Authorities. There is no sales
charge or CDSC related to investments in Class A shares of
any series of the Trusts (except the Star Advisers Fund) by
any of the state, county or city or any instrumentality,
department, authority or agency thereof that has determined
that a series of the Trusts 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. There is no sales
charge or CDSC to investments in Class A shares of any
series of the Trusts by any of the advisory accounts
through investment advisers registered under the Investment
Advisers Act of 1940 and affiliated with broker-dealers.
Affiliates of NEFM. Shares of the Fund may be
purchased at net asset value by affiliates of NEFM.
The reduction or elimination of the sales charge in
connection with sales described above reflects the absence
or reduction of sales expenses associated with such sales.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment is automatically credited
to an open account maintained for the shareholder by State
Street Bank. Following each transaction in the account, a
shareholder will receive a confirmation statement
disclosing the current balance of shares owned and the
details of recent transactions in the account. After the
close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax
information on dividends and distributions paid to the
shareholder during the year. This statement should be
retained as a permanent record. New England Funds, L.P.
may charge a fee for providing duplicate information.
The open account system provides for full and
fractional shares expressed to three decimal places and, by
making the issuance and delivery of stock certificates
unnecessary, eliminates problems of handling and
safekeeping, and the cost and inconvenience of replacing
lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are
paid by the Trust and no direct charges are made to
shareholders. Although the Trust has no present intention
of making such direct charges to shareholders, it reserves
the right to do so. Shareholders will receive prior notice
before any such charges are made.
Automatic Investment Plans
Subject to the Fund's investor eligibility
requirements, investors may automatically invest in
additional shares of the Fund on a monthly basis by
authorizing New England Funds, L.P. to draw checks on an
investor's bank account. The checks are drawn under the
Investment Builder Program, a program designed to
facilitate such periodic payments, and are forwarded to New
England Funds, L.P. for investment in the Fund. A plan may
be opened with an initial investment of $50 or more and
thereafter regular monthly checks of $50 or more will be
drawn on the investor's account. The reduced minimum
initial investment pursuant to an automatic investment plan
is referred to in the Prospectus. An Investment Builder
application must be completed to open 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 the investor or by New England Funds, L.P. upon
notice to existing plan participants.
The Investment Builder Program plan may be
discontinued by written notice to New England Funds, L.P.,
which must be received at least five business days prior to
any payment date. The plan may be discontinued by State
Street Bank at any time without prior notice if any check
is not paid upon presentation; or by written notice to the
investor at least thirty days prior to any payment date.
State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits
The federal tax laws provide for a variety of
retirement plans offering tax benefits. These plans may be
funded with shares of the Fund or with certain other
investments. The plans include H.R. 10 (Keogh) plans for
self-employed individuals and partnerships, individual
retirement accounts (IRAs), corporate pension trust and
profit sharing plans, including 401(k) plans, and
retirement plans for public school systems and certain tax
exempt organizations, i.e., 403(b) plans.
The reduced minimum initial investment available to
retirement plans offering tax benefits is referred to in
the Prospectus. For these plans, initial and subsequent
investments in the Fund must be at least $25 for each
participant in a plan, and income dividends and capital
gain distributions must be reinvested (unless the investor
is over age 59 1/2 or disabled). Plan documents and
further information can be obtained from New England Funds,
L.P.
An investor should consult a competent tax or other
adviser as to the suitability of the Fund's shares as a
vehicle for funding a plan, in whole or in part, under the
Employee Retirement Income Security Act of 1974 and as to
the eligibility requirements for a specific plan and its
state as well as federal tax aspects.
Systematic Withdrawal Plans
An investor owning Fund shares having a value of
$5,000 or more at the current public offering price may
establish a Systematic Withdrawal Plan providing for
periodic payments of a fixed or variable amount. An
investor may terminate the plan at any time. A form for
use in establishing such a plan is available from the
servicing agent or your investment dealer. Withdrawals may
be paid to a person other than the shareholder if a
signature guarantee is provided. Please consult your
investment dealer or New England Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may
elect to receive payments monthly, quarterly, semiannually
or annually for a fixed amount of not less than $50 or a
variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the
account's market value or (3) a specified number of years
for liquidating the account (e.g., a 20-year program of 240
monthly payments would be liquidated at a monthly rate of
1/240, 1/239, 1/238, etc.). The initial payment under a
variable payment option may be $50 or more.
In the case of shares subject to a contingent deferred
sales charge ("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. 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) at net asset value determined on the record date.
Since withdrawal payments represent proceeds from the
liquidation of shares, withdrawals may reduce and possibly
exhaust the value of the account, particularly in the event
of a decline in net asset value. Accordingly, the
shareholder should consider whether a Systematic Withdrawal
Plan and the specified amounts to be withdrawn are
appropriate in the circumstances. The Fund and New England
Funds, L.P. make no recommendations or representations in
this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan.
It may be disadvantageous for a shareholder to
purchase on a regular basis additional Fund shares with a
sales charge while redeeming shares under a Systematic
Withdrawal Plan. Accordingly, the Fund and New England
Funds, L.P. do not recommend additional investments in the
Fund 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 the Fund for
Class A shares of the same class of any other series of the
Trusts (subject to the investor eligibility requirements of
the series 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. You may also elect to
exchange your shares of the Fund for Class A shares of
either of the Money Market Funds. On all exchanges of
Class A shares subject to a CDSC into the Money Market
Funds, the exchange stops the aging period relating to the
contingent deferred sales charge. 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 1-800-223-7124 or (2) a written
exchange request to New England Funds, P.O. Box 8551,
Boston, MA 02266-8551. You must acknowledge receipt of a
current prospectus for a series before an exchange for that
series can be effected.
The investment objectives of the series of the Trusts are
as follows:
Stock Funds:
New England Capital Growth Fund seeks long-term growth
of capital.
New England Value Fund seeks a reasonable long-term
investment return from a combination of market appreciation
and dividend income from equity securities.
New England Balanced Fund seeks a reasonable long-term
investment return from a combination of long-tern capital
appreciation and moderate current income.
New England Growth Opportunities Fund seeks
opportunities for long-term growth of capital and income.
New England International Equity Fund seeks total
return from long-term growth of capital and dividend income
primarily through investment in a diversified portfolio of
marketable international equity securities.
New England Star Advisers Fund seeks long-term of
capital.
New England Growth Fund seeks long-term of capital
through investment in equity securities of companies whose
earnings are expected to grow at a faster rate than the
U.S. economy.
Bond Funds:
New England Government Securities Fund seeks a high
level of current income consistent with safety of principal
by investing in U.S. Government securities and engaging in
transactions involving related options, futures an options
on futures.
New England Limited Term U.S. Government Fund seeks a
high current return consistent with preservation of
capital.
New England Adjustable Rate U.S. Government Fund seeks
a high level of current income consistent with low
volatility of principal.
New England Strategic Income Fund seeks high current
income with a secondary objective of capital growth.
New England Bond Income Fund seeks a high level of
current income consistent with what the Fund considers
reasonable risk. The Bond Income Fund invests primarily in
corporate and U.S. Government bonds.
New England High Income Fund seeks high current income
plus the opportunity for capital appreciation to produce a
high total return.
New England Tax Exempt Income Fund seeks as high a
level of current income exempt from federal income taxes as
is consistent with reasonable risk and protection of
shareholder's' capital. The Tax Exempt Income Fund invests
primarily in debt securities, the interest of which is, in
the opinion of the debt issuer's counsel, exempt from
federal income tax ("tax exempt bonds"), and may engage in
transactions in financial futures contracts and options on
futures.
New England Massachusetts Tax Free Income Fund seeks
as high a level of current income exempt from federal
income tax and Massachusetts personal income taxes as Back
Bay Advisors(R), the Fund's investment adviser, believes is
consistent with preservation of capital.
New England Intermediate Term Tax Free Fund of
California seeks as high a level of current income exempt
from federal income tax and its state personal income tax
as is consistent with preservation of capital.
New England Intermediate Term Tax Free Funds of New
York seeks as high a level of current income exempt from
federal income tax and its state personal income tax and
New York City personal income tax as is consistent with
preservation of capital.
Money Market Funds:
NEW ENGLAND CASH MANAGEMENT TRUST -
Money Market Series -- maximum current income
consistent with preservation of capital and
liquidity.
U.S. Government Series -- highest current income
consistent with preservation of capital and
liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST -- current income
exempt from federal income taxes consistent with
preservation of capital and liquidity.
As of May 1, 1995, the net assets of the series in the
Trusts totaled over $4.5 billion.
An exchange constitutes a sale of shares for federal
income tax purposes in which the investor may realize a
long- or short-term capital gain or loss.
Automatic Exchange Plan
As described in the Prospectus following the caption
"Owning Fund Shares", a shareholder may establish an
Automatic Exchange Plan under which shares of the Fund are
automatically exchanged each month for Class A shares of
one or more of the other series in the Trusts.
Registration on all accounts must be identical. The
exchanges are made on the 15th of each month or the first
business day thereafter if the 15th is not a business day
until the account is exhausted or until New England Funds,
L.P. is notified in writing to terminate the plan.
Exchanges may be made in amounts of $500 or over ($1000 for
spousal IRAs). The Service Options Form is available from
New England Funds, L.P. or your financial representative to
establish an Automatic Exchange Plan.
REDEMPTIONS
The procedures for redemption of shares of the Fund
are summarized in the Prospectus.
Signatures on redemption requests must be guaranteed
by an "Eligible Guarantor Institution," as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934.
However, a signature guarantee will not be required if the
proceeds of the redemption do not exceed $100,000 and the
proceeds check is made payable to the registered owner(s)
and mailed to the record address.
If you select the telephone redemption service in the
manner described in the next paragraph, shares of the Fund
may be redeemed by calling toll free 1-800-225-5478. A
wire fee, currently $5.00, will be deducted from the
proceeds. Telephone redemption requests must be received
by the close of regular trading on the Exchange. Requests
made after that time or on a day when the 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 Trust 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 Fund will normally redeem shares for cash;
however, the Fund reserves the right to pay the redemption
price wholly or partly in kind if the board of trustees
determines it to be advisable and in the interest of the
remaining shareholders of the 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 Fund has
elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Fund is obligated to redeem shares
solely in cash for any shareholder during any 90-day period
up to the lesser of $250,000 or 1% of the total net asset
value of the Trust at the beginning of such period. The
Fund does not currently intend to impose any redemption
charge (other than the CDSC imposed by the Distributor),
although it reserves the right to charge a fee not
exceeding 1% of the redemption price. A redemption
constitutes a sale of shares for federal income tax
purposes on which the investor may realize a long- or short-
term capital gain or loss. See also "Income Dividends,
Capital Gain Distributions and Tax Status," below.
Reinstatement Privilege
The Prospectus describes redeeming shareholders'
reinstatement privileges. 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 series in the Trusts should consult with their tax
advisers with respect to the effect of the "wash sale" rule
if a loss is realized at the time of the redemption.
STANDARD PERFORMANCE MEASURES
Calculations of Yield
Calculation of Total Return. Total return is a
measure of the change in value of an investment in the Fund
over the period covered, which assumes that any dividends
or capital gains distributions are automatically reinvested
in shares of the Fund rather than paid to the investor in
cash. The formula for total return used by the Fund is
prescribed by the SEC and includes three steps: (1) adding
to the total number of shares 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 on the last trading
day of the period; (3) dividing this account value for the
hypothetical investor by the amount of the initial
investment, and annualizing the result for periods of less
than one year. Total return may be stated with or without
giving effect to any expense limitations in effect for the
Fund.
Performance Comparisons
The Fund may from time to time include its total
return in advertisements or in information furnished to
present or prospective shareholders. The Fund 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 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 Exchange.
The Dow Jones Industrial Average is a market value-
weighted and unmanaged index of 30 large industrial stocks
traded on the Exchange.
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.
Articles and releases, developed by the Fund and other
parties, about the Fund regarding performance, rankings,
statistics and analyses of the Fund and the fund group's
asset levels and sales volumes, numbers of shareholders in
the Fund or in the aggregate for New England Funds,
statistics and analyses of industry sales volumes and asset
levels, and other characteristics may appear in
advertising, promotional literature, publications and on
various computer networks, including, but not limited to,
those publications and computer networks listed in Appendix
B to this Statement. In particular, some or all of these
publications may publish their own rankings or performance
reviews of mutual funds, including the Fund. References to
or reprints of such articles may be used in the Fund's
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.
The Fund may use the accumulation charts below in its
advertisements to demonstrate the benefits of monthly
savings at an 8% and 10% rate of return, respectively.
Investments At 8% Rate of Return
5 yrs. 10 15 20 25 30
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
Investments At 10% Rate of Return
5 yrs. 10 15 20 25 30
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Fund's advertising and sales literature may refer
to historical, current and prospective economic trends and
may include historical and current performance and total
returns of investment alternatives to the New England
Funds. 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 Fund, with respect to investing in shares of the Fund
and other series of the Trusts and customer service. Such
materials may discuss the multiple classes of shares
available through the Trusts and their features and
benefits, including the details of the pricing structure.
Advertising and sales literature may also refer to the
beta coefficient of the New England Funds. A beta
coefficient is a measure of systematic or undiversifiable
risk of a stock. A beta coefficient of more than 1 means
that the company's stock has shown more volatility than the
market index (e.g., Standard & Poor's 500) to which it is
being related. If the beta is less than 1, it is less
volatile than the market average to which it is being
compared. If it equals 1, its risk is the same as the
market index. High variability in stock price may indicate
greater business risk, instability in operations and low
quality of earnings. The beta coefficients of the New
England Funds may be compared to the beta coefficients of
other funds.
The Fund may enter into arrangements with banks
exempted from registration under the Securities Exchange
Act of 1934. Advertising and sales literature developed to
publicize such arrangements will explain the relationship
of the bank to New England Funds and New England Funds,
L.P. as well as the services provided by the bank relative
to the Fund. The material may identify the bank by name
and discuss the history of the bank including, but not
limited to, the type of bank, its asset size, the nature of
its business and services and its status and standing in
the industry.
In addition, sales literature may be published
concerning topics of general investor interest for the
benefit of registered representatives and the Fund's
prospective shareholders. These materials may include, but
are not limited to, discussions of college planning,
retirement planning, reasons for investing and historical
examples of the investment performance of various classes
of securities, securities markets and indices.
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
As described in the Fund's prospectus, it is the
policy of the Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute
annually all net realized 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 Fund based
upon the net asset value determined as of the close of the
Exchange on the record date for each dividend or
distribution. Shareholders, however, may elect to receive
their income dividends or capital gain distributions, or
both, in cash. The election may be made at any time by
submitting a written request directly to New England Funds.
In order for a change to be in effect for any dividend or
distribution, it must be received by New England Funds on
or before the record date for such dividend or
distribution.
As required by federal law, detailed federal tax
information will be furnished to each shareholder for each
calendar year on or before January 31 of the succeeding
year.
The Fund intends to qualify each year as a regulated
investment company under Subchapter M of the Code. In
order to qualify, the Fund must, among other things (i)
derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities
loans, gains from sale of securities or foreign currencies,
or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; (ii) derive less than 30% of its gross income
from gains from the sale or other disposition of securities
held for less than three months; (iii) distribute at least
90% of its dividend, interest and certain other taxable
income each year; and (iv) at the end of each fiscal
quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other
regulated investment companies, other securities of issuers
which represent, with respect to each issuer, no more than
5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no
more than 25% of its assets invested in the securities
(other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in
the same, similar or related trades and businesses. To
the extent it qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal
income tax on income paid to its shareholders in the form
of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the
excess, if any, of the Fund's "required distribution" over
its actual distributions in any calendar year. Generally,
the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain
net income recognized during the one-year period ending on
October 31 (or December 31, if the Fund so elects) plus
undistributed amounts from prior years. The Fund intends
to make distributions sufficient to avoid imposition of the
excise tax. Distributions declared by the Fund during
October, November or December to shareholders of record on
a date in any such month and paid by the Fund during the
following January will be treated for federal tax purposes
as paid by the Fund and received by shareholders on
December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal
income taxes on distributions made by the Fund whether
received in cash or additional shares of the Fund.
Distributions by the Fund of net income and short-term
capital gains, if any, will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains,
if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has
held shares of the Fund. A loss on the sale of shares held
for 12 months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain
dividend paid to the shareholder with respect to such
shares.
Dividends and distributions on Fund shares received
shortly after their purchase, although in effect a return
of capital, are subject to federal income taxes.
The Fund's transactions, if any, in foreign currencies
are likely to result in a difference between the Fund's
book income and taxable income. This difference may cause
a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to
make distributions exceeding book income to avoid excise
tax liability and to qualify as a regulated investment
company.
The Fund may limit its investments in certain "passive
foreign investment companies" in order to avoid certain
taxes that arise as a result of such investments.
Redemptions and exchanges of Fund shares are taxable
events and, accordingly, shareholders may realize gains and
losses on these transactions. If shares have been held for
more than one year, gain or loss realized will be long-term
capital gain or loss, provided the shareholder holds the
shares as a capital asset. However, if a shareholder sells
Fund shares at a loss within six months after purchasing
the shares, the loss will be treated as a long-term capital
loss to the extent of any long-term capital gain
distributions received by the shareholder. Furthermore, no
loss will be allowed on the sale of Fund shares to the
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
NEW ENGLAND FUNDS TRUST III
Statement of Assets & Liabilities
November 15, 1995
ASSETS
Cash............................................. $100,000
Deferred Organizational Expenses................. 20,000
---------
Total Assets................................ 120,000
LIABILITIES
Accrued Expenses................................. 20,000
---------
Net Assets.................................. $100,000
=========
Shares of beneficial interest, no par value,
outstanding...................................... 8,000
=========
Computation of net asset value and offering
price:
Net asset value and redemption price per share
($100,000 divided by 8,000 shares of beneficial
interest)........................................ $12.50
=========
Offering price per share ( $12.50 x 100/94.25)*.. $13.26*
=========
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of
this amount.
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. New England Funds Trust III (the "Trust")
consisting of a single series of shares, New England Equity
Income Fund, was organized on August 22, 1995 and had no
operations prior to November 15, 1995 other than those
relating to organizational matters, including the sale of
8000 shares of beneficial interest to Loomis Sayles &
Company. Costs incurred and to be incurred in connection
with the Trust's organization and registration, up to
$25,000, will be paid by the Trust and amortized over the
period of benefit, not to exceed 60 months from the date the
Trust commences operations. Loomis Sayles Funded Pension
Plan and Trust has agreed that in the event any of the
initial shares in the Trust during such period are redeemed,
proceeds of the redemption will be reduced by the pro rata
portion of any unamortized organizational expenses in the
same proportion as the number of the initial shares redeemed
bears to the number of initial shares held at the time of
redemption. To the extent that the proceeds of the
redemption are less than such pro rata portion of any
unamortized organizational expenses, Loomis Sayles Funded
Pension Plan and Trust has agreed to reimburse the Trust
promptly.
2. For details regarding the Trust's investment
advisory agreement, see "Fund Charges and Expenses -
Investment Advisory Fees" and "Management of the Trust -
Advisory Agreements" and for details regarding the income
tax status of the Trust, see "Income Dividends, Capital
Gain Distributions and Tax Status" elsewhere in this
Statement of Additional Information.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of New England Funds Trust III
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the New England
Funds Trust III, consisting of a single series of shares, New England
Equity Income Fund, at November 21, 1995 in conformity with generally
accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted
our audit of this financial statement in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
/s/PRICE WATERHOUSE LLP
Price Waterhouse LLP
Boston, Massachusetts
November 21, 1995
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group
AAA
This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
AA
Bonds rated AA also qualify as high quality debt
obligations. Capacity to pay interest and repay principal
is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and
repay principal, although they are somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, CC, C
Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
CI
The rating CI is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA' to "B" may be
modified by the addition of a plus or minus sigh to show
relative standing within the major rating categories.
Moody's Investors Service, Inc.
Aaa
Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds that are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present, but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, if fact, have
speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such
issues may be in default of there may be present elements
of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Should no rating be assigned by Moody's, the reason may be
one of the following:
1. An application for rating was not received or
accepted.
2. The issue or issuer belongs to a group of
securities that are not rated as a matter of
policy.
3. There is a lack of essential data pertaining to
the issue or issuer.
4. The issue was privately placed in which case the
rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude
satisfactory analysis; if there is not longer available
reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other
reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1, A1, Baa1, and
B1.
APPENDIX B
PUBLICATIONS THAT MAY BE REFERRED TO IN TRUST
ADVERTISEMENTS AND
SALES LITERATURE
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Barron's
Bergen County Record (NJ)
Bloomberg Business News
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
<PAGE>
NEW ENGLAND FUNDS TRUST III
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) See "Financial Statements" and "Report of
Independent Accountants" in the Statement of
Additional Information.
(b) Exhibits:
1. The Registrant's Declaration of Trust is
incorporated herein by reference to the
Registration Statement on Form N-1A (File No.
33-62061) filed on August 23, 1995.
2. By-Laws of the Registrant are incorporated
herein by reference to the Registration
Statement on Form N-1A (File No. 33-62061)
filed on August 23, 1995.
3. Not applicable.
4. Not applicable.
5.(A)Form of Advisory Agreement between the
Registrant, on behalf of its New England
Equity Income Fund, and New England Funds
Management, L.P. is incorporated herein by
reference to the Registration Statement on
Form N-1A (File No. 33-62061) filed on August
23, 1995.
(B)Form of Subadvisory Agreement for New
England Equity Income Fund between New
England Funds Management, L.P. and Loomis,
Sayles & Company, L.P. is incorporated herein
by reference to the Registration Statement on
Form N-1A (File No. 33-62061) filed on August
23, 1995.
6. Form of Distribution Agreement between
the Registrant, on behalf of its New England
Equity Income Fund, and New England Funds,
L.P. (the "Distributor") is incorporated
herein by reference to the Registration
Statement on Form N-1A (File No. 33-62061)
filed on August 23, 1995.
7. Not applicable.
8. Form of Custodian Agreement between the
Registrant and State Street Bank and Trust
Company is incorporated herein by reference
to Pre-Effective Amendment No. 2 on Form N-1A
(File No. 33-62061) filed on October 30,
1995.
9.(A)Form of Transfer Agency Agreement between the
Registrant and New England Funds, L.P. is
incorporated herein by reference to Pre-
Effective Amendment
No. 2 on Form N-1A (File No. 33-62061) filed
on October 30, 1995.
(B)Form of Dealer Agreement of New England
Funds, L.P., the Trust's Distributor, is
incorporated herein by reference to Pre-
Effective Amendment No. 2 on Form N-1A (File
No. 33-62061) filed on October 30, 1995.
(C)Powers of Attorney for Trustees of the
Registrant are incorporated herein by
reference to Pre-Effective Amendment No. 2 on
Form N-1A (File No. 33-62061) filed on
October 30, 1995.
10. Opinion of Ropes & Gray with respect to
New England Equity Income Fund is filed
herein.
11. Consent of Price Waterhouse is filed
herein.
12. Not applicable.
13. Investment Letter of Loomis Sayles
Funded Pension Plan and Trust is filed
herein.
14. Not applicable.
15. Form of Rule 12b-1 Plan relating to
Class A shares of New England Equity Income
Fund is incorporated herein by reference to
the Registration Statement on Form N-1A (File
No. 33-62061) filed on August 23, 1995.
16. Not applicable.
18. Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940 for New
England Funds Trust III is incorporated
herein by reference to Pre-Effective
Amendment No. 2 on Form N-1A (File No. 33-
62061) filed on October 30, 1995.
Item 25. Persons Controlled by or under Common
Control with Registrant
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of
record holders of each class of securities of the
Trust as of November 22, 1995:
Title of Class Number of Record
Holders-Class A
Shares of Beneficial Interest 1
New England Equity Income Fund
No Par Value
Item 27. Indemnification
See Article 4 of the Registrant's By-Laws filed as
Exhibit 2 incorporated by reference herein.
In addition, New England Mutual Life Insurance
Company, the parent company of the Trust's adviser
and distributor, maintains a directors and
officers liability insurance policy with maximum
coverage of $15 million, under which the trustee
and officers of the trust are named insureds.
Item 28. Business and Other Connections of Investment
Adviser
(a) New England Funds Management, L.P. ("NEFM"), a
wholly-owned subsidiary of New England Investment
Companies, L.P. ("NEIC"), serves as investment
adviser to New England Equity Income Fund. NEFM
was organized in 1995.
NEFM's officers have been engaged during the past
two years in the following businesses, vocations
or employments of a substantial nature (former
affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
NEF Corporation None None
General Partner
Henry L.P. Schmelzer, New England Funds, President and CEO
President and Chief L.P.
Executive Officer 399 Boylston Street
Boston, MA 02116
NEF Corporation President, CEO and
399 Boylston Street Director
Boston, MA 02116
Back Bay Advisors, Director
Inc.
399 Boylston Street
Boston, MA 02116
New England Director
Securities
Corporation*
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, Senior Vice President
Senior Vice President L.P. and CFO
and CFO 399 Boylston Street
Boston, MA 02116
NEF Corporation Senior Vice President
399 Boylston Street and CFO
Boston, MA 02116
Sheila M. Barry, NEF Corporation Vice President,
Vice President, 399 Boylston Street Assistant Secretary
Secretary and Boston, MA 02116 and Assistant Clerk
Assistant Clerk
New England Funds, Vice President,
L.P. Assistant Secretary
399 Boylston Street and Assistant Clerk
Boston, MA 02116
Robert P. Connolly, NEF Corporation Senior Vice President,
Senior Vice 399 Boylston Street General Counsel,
President, General Boston, MA 02116 Secretary and Clerk
Counsel, Assistant
Secretary and Clerk
New England Funds, Senior Vice President,
L.P. General Counsel,
399 Boylston Street Secretary and Clerk
Boston, MA 02116
Bruce R. Speca, NEF Corporation Executive Vice
Executive Vice 399 Boylston Street President
President Boston, MA 02116
New England Funds, Executive Vice
L.P. President
399 Boylston Street
Boston, MA 02116
Peter H. Duffy, NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, Vice President
L.P.
399 Boylston Street
Boston, MA 02116
Martin G. Dyer, NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, Vice President
L.P.
399 Boylston Street
Boston, MA 02116
Ralph M. Greggs, NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, Vice President
L.P.
399 Boylston Street
Boston, MA 02116
(b) Loomis, Sayles & Company, L.P. ("Loomis Sayles"),
the subadviser to New England Equity Income Fund,
provides investment advice to a number of other
registered investment companies and to other
organizations and individuals.
Such subadviser's directors and officers have been
engaged during the past two years in the following
other businesses, vocations or employments of a
substantial nature:
Name and Office with Name and Address of Nature of
Loomis Sayles Other Affiliations Connection
Loomis Sayles, Inc. None None
General Partner
Robert J. Blanding, None None
President and Chief
Executive Officer
Daniel J. Fuss, None None
Executive Vice
President, Managing
Partner, Director
Jeffrey L. Meade, None None
Executive Vice
President and Chief
Operating Officer
Charles J. Finlayson, None None
Vice President,
General Counsel,
Secretary and Clerk
Meri Anne Beck, None None
Vice President
Mary C. Champagne, None None
Vice President
Richard W. Hurkes, None None
Vice President
Scott A. Pape, None None
Vice President
Douglas D. Ramos, None None
Vice President
Carol C. McMurtie, None None
Vice President,
Director and Managing
Partner
Tricia H. Mills, None None
Vice President
Jeffery C. Petherick, None None
Vice President
Item 29. Principal Underwriter
(a) New England Funds, L.P. also serves as principal
underwriter for:
New England Funds Trust I
New England Funds Trust II
New England Tax Exempt Money Market Trust
New England Cash Management Trust
(b) The general partner and officers of the
Registrant's principal underwriter, New England
Funds, L.P., and their address are as follows:
Positions and Offices Positions and Offices
Name with Principal with Registrant
Underwriter
NEF Corporation General Partner None
Henry L.P. Schmelzer President and Chief President and Trustee
Executive Officer
J. Steven Neamtz Executive Vice Executive Vice
President President
Bruce R. Speca Executive Vice Executive Vice
President President
Robert P. Connolly Senior Vice President, Secretary
General Counsel,
Secretary and Clerk
Frank Nesvet Senior Vice President Treasurer
and Chief Financial
Officer
Munish Agrawal Vice President None
Sheila M. Barry Vice President, Assistant Secretary
Assistant Secretary and
Assistant Clerk
Elizabeth P. Burns Vice President None
James H. Davis Vice President None
Peter H. Duffy Vice President Assistant Treasurer
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
William H. Finnegan Vice President None
Raymond K. Girouard Vice President, None
Treasurer and
Controller
Annette Golia Vice President None
Ralph M. Greggs Vice President None
Caren I. Leedom Vice President None
Marie G. McKenzie Vice President None
Bernard M. Shavelson Vice President None
Christine L. Swanson Vice President None
Kristine E. Swanson Vice President None
Beatriz A. Pina Assistant Comptroller None
The principal business address of all the above persons
or entities is 399 Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the
documents required by the specified rules:
(a) Registrant
Rule 31a-1(b)(4)
Rule 31a-2(d)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(d)
(c) 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(d); and 31a-2(e)
(d) Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 311a-
1(f)
Rule 31a-2(e)
(e) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant undertakes to provide any Fund's
annual report to any person who receives a Fund
prospectus and who requests the annual report.
(b) The Registrant undertakes to file a post-effective
amendment including financial statements, which
need not be certified, within four to six months
after the effectiveness of its New England Equity
Income Fund's registration statement.
(c) The Registrant hereby undertakes that, if
requested to do so by holders of at least 10% of
the Fund's outstanding shares, it will call a
meeting of shareholders for the purpose of voting
upon the question of removal of a trustee or
trustees and will assist in communications between
shareholders for such purpose as provided in
Section 16(c) of the Investment Company Act of
1940.
<PAGE>
NEW ENGLAND FUNDS TRUST III
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it has duly caused this Pre-Effective
Amendment No. 3 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 22nd day of November, 1995.
New England Funds Trust III
By: PETER S. VOSS*
Peter S. Voss
Chief Executive Officer
*By: /s/ROBERT P. CONNOLLY
Robert P. Connolly
Attorney-In-Fact
November 22, 1995
<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.
Signature Title Date
PETER S. VOSS* Chairman of the Board; November 22, 1995
Peter S. Voss Chief Executive
Officer; Principal
Executive Officer;
Trustee
/s/FRANK NESVET Chief Financial November 22, 1995
Frank Nesvet Officer
GRAHAM T. ALLISON, Trustee November 22, 1995
JR.*
Graham T. Allison, Jr.
KENNETH J. COWAN* Trustee November 22, 1995
Kenneth J. Cowan
SANDRA O. MOOSE* Trustee November 22, 1995
Sandra O. Moose
HENRY L. P. SCHMELZER* Trustee November 22, 1995
Henry L. P. Schmelzer
JOHN A. SHANE* Trustee November 22, 1995
John A. Shane
PENDLETON P. WHITE* Trustee November 22, 1995
Pendleton P. White
*By:
Robert P. Connolly
Attorney-In-Fact
November 22, 1995
<PAGE>
N-1A EXHIBITS ITEM 24(B)
EXHIBIT NUMBER EXHIBIT
EX-99.B10 Opinion of Ropes & Gray
EX-99.B11 Consent of Price Waterhouse
EX-99.B13 Investment Letter of Loomis Sayles Funded
Pension Plan and Trust
[Ropes & Gray Letterhead]
November 21, 1995
New England Funds Trust III
399 Boylston Street
Boston, Massachusetts 02116
Ladies and 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 Equity Income Fund
series ("Shares"), at not less than net asset value.
We have examined an executed copy of your Agreement and
Declaration of Trust dated August 22, 1995 (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 Equity
Income 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 of 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 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
Equity Income 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. 33-62061) relating to such
offering and sale.
Very truly yours,
/s/ROPES & GRAY
Ropes & Gray
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional
Information constituting part of this registration statement
on Form N-1A (the "Registration Statement") of our report
dated November 21, 1995, relating to the financial statement
of New England Funds Trust III, consisting of a single
series of shares, New England Equity Income Fund, which
appears in such Statement of Additional Information. We
also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional
Information.
/s/PRICE WATERHOUSE LLP
Price Waterhouse LLP
Boston, Massachusetts
November 21, 1995
BOSTON
CHICAGO
DETROIT
LOOMIS * SAYLES * & * COMPANY, L.P. MILWAUKEE
INVESTMENT COUNSEL MINNEAPOLIS - ST. PAUL
NEW YORK
PALM BEACH
PASADENA
SAN FRANCISCO
WASHINGTON
CHARLES J. FINLAYSON
VICE PRESIDENT AND
GENERAL COUNSEL
ONE FINANCIAL CENTER, BOSTON, MA 02111
(617) 482-2450
November 21, 1995
New England Funds Trust III
399 Boylston Street
Boston, MA 02116
Ladies and Gentlemen:
With respect to our purchase from you of 8,000 shares
of beneficial interest, no par value, of your New England
Equity Income Fund, we hereby advise you that we are
purchasing such shares with no present intention to dispose
of them either through resale to others or redemption by the
Trust.
Sincerely,
LOOMIS SAYLES FUNDED PENSION
PLAN AND TRUST
By: /s/CHARLES J. FINLAYSON
Charles J. Finlayson
Chairman of the Pension Committee
