As filed with the Securities and Exchange Commission on
October 27, 1995
Registration Nos. 33-62061
811-7345
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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. 1 [ X ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ]
ACT OF 1940
Amendment No. 1 [ 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 N-
1A Caption in Prospectus
--------- ------------------------------
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.
of Form N- Caption in Statement of
1A Additional Information
--------- ------------------------------
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.
<PAGE>
Table of Contents
Page
FUND EXPENSES AND FINANCIAL INFORMATION
Schedule of Fees Sales charges, yearly operating
expenses.
INVESTMENT STRATEGY
How the Fund Pursues Its Investment Objective
INVESTMENT RISKS It is important to understand the
risks inherent in
the Fund before you invest.
FUND MANAGEMENT
BUYING FUND SHARES
Minimum Investment
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
Sales Charges
Reduced Sales Charges
OWNING FUND SHARES
Exchanging Among New England Funds
Fund Dividend Payments
SELLING FUND SHARES
4 Ways to Sell Fund Shares How to withdraw money or close your
account.
[] Through your investment dealer
[] By telephone
[] By mail
[] By Systematic Withdrawal Plan
Repurchase Option An opportunity to reinvest your
redemption proceeds within 120 days
for no sales charge.
FUND DETAILS Additional information you may find important.
How Fund Share Price is Determined
Income Tax Considerations
The Fund's Expenses
Performance Criteria
Additional Facts About the Fund
Glossary of Terms
<PAGE>
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
Public Concess
Value of Offering Amount ion
Total Investment Price Invested as % of
Offering
Price
Less than $50,000 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 4.00%
$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 more None None *
*The Distributor may, at its discretion, pay investment dealers who
initiate and are responsible for such purchases a commission of up to
the following amounts: 1% on the first $2 million invested; .80% on
the next $1 million; .20% on the next $2 million; and .08% on the
excess over $5 million. These commissions are not payable if the
purchase represents the reinvestment of a redemption made during the
previous 12 calendar months.
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
Fund Charges and Expenses
Miscellaneous Investment Practices
Management of the Trust
Portfolio Transactions and Brokerage
Description of the Trust and Ownership of
Shares
How to Buy Shares
Net Asset Value and Public Offering Price
Reduced Sales Charges
Shareholder Services
Redemptions
Standard Performance Measures
Income Dividends, Capital Gain Distributions
and Tax Status
Appendix A - Description of Bond Ratings
Appendix B - Publications That May Be Referred to 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 AND ADMINISTRATIVE SERVICES FEES
Pursuant to an advisory agreement dated _______, 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 an "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 an "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); 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 received the amounts set forth below for serving on the
governing boards of ________ other mutual fund portfolios that have
NEFM or an affiliate thereof as investment adviser or principal
underwriter (the "Other Funds").
Aggregate Total Compensation
Compensation from from
Name of Trustee the Trust in the Other Funds in
1994 1994
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 _______, 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
_______________, ________________, Boston, MA _____. 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 pays per account fees to New England Funds, L.P. for these
services in the amount of [$17.25]. New England Funds, L.P. has
subcontracted with State Street Bank for it to provide, through its
subsidiary, Boston Financial Data Services, Inc. ("BFDS"), transaction
processing, mail and other services. For these services, New England
Funds, L.P. pays BFDS a per account fee of [$_____].
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
__________, 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).
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
NEW ENGLAND FUNDS TRUST III
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Not applicable.
(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 filed
herein.
9.(A) Form of Transfer Agency Agreement between the
Registrant and New England Funds, L.P. is filed herein.
(B) Form of Dealer Agreement of New England Funds,
L.P., the Trust's Distributor, is filed herein.
(C) Powers of Attorney for Trustees of the Registrant
are filed herein.
10. Opinion of Ropes & Gray with respect to New
England Equity Income Fund will be filed by amendment.
11. Not applicable.
12. Not applicable.
13. Not applicable.
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 filed herein.
Item 25. Persons Controlled by or under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
Not applicable.
Item 27. Indemnification
See Article 4 of the Registrant's By-Laws filed as Exhibit 2
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):
CUSTODIAN CONTRACT
between
NEW ENGLAND FUNDS TRUST III
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States . . . . . . . . . . . . . . . . . . . . . 2
2.1. Holding Securities . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Delivery of Securities . . . . . . . . . . . . . . . . . . . . 2
2.3. Registration of Securities . . . . . . . . . . . . . . . . . . 4
2.4. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5. Collection of Income . . . . . . . . . . . . . . . . . . . . . 5
2.6. Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . 6
2.7. Liability for Payment in Advance of Receipt of Securities
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8. Appointment of Agents . . . . . . . . . . . . . . . . . . . . 7
2.9. Fund Assets-Held in the Custodian's Direct Paper System . . . 9
2.10. Segregated Account . . . . . . . . . . . . . . . . . . 10
2.11. Ownership Certificates for Tax Purposes . . . . . . . . 10
2.12. Proxies . . . . . . . . . . . . . . . . . . . . . . . . 11
2.13. Communications Relating to Portfolio Securities . . . . 11
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1. Appointment of Foreign Sub-Custodians . . . . . . . . . . . 11
3.2. Assets to be Held . . . . . . . . . . . . . . . . . . . . . 12
3.3. Foreign Securities Systems . . . . . . . . . . . . . . . . . 12
3.4. Holding Securities . . . . . . . . . . . . . . . . . . . . . 12
3.5. Agreements with Foreign Banking Institutions . . . . . . . . 12
3.6. Access of Independent Accountants of the Fund . . . . . . . 13
3.7. Reports by Custodian . . . . . . . . . . . . . . . . . . . . 13
3.8. Transactions in Foreign Custody Account . . . . . . . . . . 13
3.9. Liability of Foreign Sub-Custodians . . . . . . . . . . . . 14
3.10. Liability of Custodian . . . . . . . . . . . . . . . . . . 14
3.11. Reimbursement for Advances . . . . . . . . . . . . . . . . 14
3.12. Monitoring Responsibilities . . . . . . . . . . . . . . . . 15
3.13. Branches of US -Banks . . . . . . . . . . . . . . . . . . . 15
3.14. Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund 15
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income . . . . . . . . . . . . . . . . . . 17
8. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Opinion of Fund's Independent Accountant . . . . . . . . . . . . . . . 18
PAGE i
10. Reports to Fund by Independent Public Accountants . . . . . . . . . . 18
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . 18
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . 18
13. Effective Period, Termination and Amendment . . . . . . . . . . . . . 20
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . 21
16. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
17. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . . 22
18. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
19. Shareholder Communications Election . . . . . . . . . . . . . . . . . 22
20. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
21. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
22. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PAGE ii
CUSTODIAN CONTRACT
This Contract between New England Funds Trust III, a business trust
organized and existing under the laws of The Commonwealth of Massachusetts with
its principal place of business at 399 Boylston Street, Boston, Massachusetts
02116, hereinafter called the "Fund", and State Street Bank and Trust Company,
a Massachusetts trust company with its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series,
New England Equity Income Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with Article 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the Fund, on behalf
of the applicable Portfolio, desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the Fund's
declaration of trust (the "Declaration of Trust"). The Fund on behalf of the
Portfolio(s) agrees to deliver to the Custodian all securities and cash of the
Portfolios, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Portfolio and not delivered to the Custodian.
The Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians, located in the United States,
but only in accordance with Section 2.16. The Custodian may employ as sub-
custodian for the Fund's foreign securities on behalf of the applicable
Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedule A hereto but only in accordance with the
provisions of Article 3.
Page 1
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1. Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash
property, to be held by it in the United States including all
domestic securities owned by such Portfolio, other than (a)
securities which are maintained pursuant to Section 2.9 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury (each, a "U.S. Securities System") and (b) commercial
paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the
Custodian (the "Direct Paper System") pursuant to Section 2.10.
2.2. Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or
in a U.S. Securities System account of the Custodian or in the
Custodian's Direct Paper System account ("Direct Paper System
Account") only upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only in
the following cases:
(1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Portfolio;
(3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.9
hereof;
(4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.8 or into the
name or nominee name of any sub-custodian appointed
Page 2
pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence
representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities
are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, split up of shares,
changes of par value, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any
such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(9) In the case of warrants, subscription or purchase rights,
the surrender thereof in the exercise of such warrants,
subscription or purchase rights or the surrender of interim
receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
(10) For delivery in connection with any loans of securities
made by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the
Custodian and the Fund on behalf of the Portfolio, which
may be in the form of cash or obligations issued by the
United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned
by the Portfolio prior to the receipt of such collateral;
(11) For delivery as security in connection with any borrowings
by the Fund on behalf of the Portfolio requiring a pledge
of assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed, except that in cases
where additional collateral is required to secure a
Page 3
borrowing already made, subject to proper prior
authorization, further securities may be released for that
purpose;
(12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio of the Fund;
(13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission
and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection
with transactions by the Portfolio of the Fund;
(14) Upon receipt of instructions from the transfer agent for
the Fund (the "Transfer Agent") for delivery to such
Transfer Agent or to the holders of Shares in connection
with distributions in kind, as may be described from time
to time in the currently effective prospectus and statement
of additional information of the Fund, related to the
Portfolio (the "Prospectus"), in satisfaction of requests
by holders of Shares for repurchase or redemption; and
(15) For any other purpose that the Fund declares is a proper
corporate purpose, but only upon upon receipt of proper
Instructions from the Fund.
2.3. Registration of Securities. Securities of each Portfolio held by
the Custodian shall be registered in the name of such Portfolio
or of any nominee of such Portfolio or in the name of the
Custodian or of any nominee of the Custodian or in the name of
any Security System approved by the California Insurance
Commissioner.
Any nominee shall either be a 'dba' of the Cusdodian or a
partnership consisting solely of the Custodian's employees,
officers, directors or affiliated entities under the legal and
operational control of the Custodian. Only one nominee will be
used for all securities of each Portfolio held by the Custodian.
Page 4
Any securities issued in bearer form shall be maintained in that
form and not be subject to reregistration in definitive form;
i.e. in the name of a nominee of any depository, except upon
specific instruction as to a given security. The bearer
securities must be retained by the Custodian itself, unless
deposited with a depository authorized by the SEC and approved
by the California Insurance Commissioner.
2.4. Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of each
Portfolio of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank
account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940, as amended (the " 1940 Act").
Funds held by the Custodian for a Portfolio may be deposited by
it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act
as a custodian under the 1940 Act and that each such bank or
trust company and the funds to be deposited with each such bank
or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall
be withdrawable by the Custodian only in that capacity. If
requested by the Fund, the Custodian shall furnish the Fund, not
later than twenty (20) calendar days after the last business day
of each month, a statement reflecting the current status of its
internal reconciliation of the closing balance as of that day in
all acounts described in this Section 2.4 to the balance shown on
the daily cash report for that day rendered to the Fund. Any
bank account maintained under this Section 2.4 shall be subject
to all of the terms and conditions of this Contract.
2.5. Collection of Income. Subject to the provisions of Section 2.3,
the Custodian shall collect on a timely basis all income and
other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either
by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments
with respect to bearer domestic securities if, on the date of
payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected,
to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall (1) detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder; (2) present for
Page 5
payment all securities which may mature or be called, redeemed,
retired or otherwise become payable on the date such securities
become payable; and (3) endorse and deposit for collection, in
the name of the applicable Portfolio, checks, drafts or other
negotiable instruments on the same day as received. In any case
in which the Custodian does not receive any such due and unpaid
income within a reasonable time after it has made proper demands
for the same (which shall be presumed to consist of at least
three demand letters and at least one telephonic demand), it
shall so notify the Fund in writing, including copies of all
demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await
proper instructions; the Custodian shall not be obliged to take
legal action for collection unless and until reasonably
indemnified to its satisfaction. It shall also notify the Fund
as soon as reasonably practicable whenever income due on
securities is not collected in due course.
2.6. Payment of Fund Monies. Upon receipt of Proper Instructions from
the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties,
the Custodian shall pay out monies of a Portfolio in the
following cases only:
(1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account
of the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
of 1940 Act to act as a custodian and has been designated
by the Custodian as its agent for this purpose) registered
in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.9 hereof, (c) in
the case of a purchase involving the Direct Paper System,
in accordance with the conditions set forth in Section
2.10; (d) in the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting
the Custodian account at the Federal Reserve Bank with such
securities (which account shall comply with Section 2.4) or
(ii) against delivery of the receipt evidencing purchase by
the Portfolio of securities owned by the Custodian along
with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
Page 6
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the
Fund as defined in Article 5; all such securities to be
accompanied by payment of, or a "due bill" for, any
dividends, interest or other distributions of the issuer
due to the purchaser;
(2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section
2.2 hereof;
(3) For the redemption or repurchase of Shares as set forth in
Article 4 hereof;
(4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following
payments for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as
deferred expenses; provided, however that the Custodian
shall not, in connection with the Custodian's compensation
or expenses, charge the custodied assets of any Portfolio,
attach any lien or withhold delivery of any asset, in full
or in part, it being understood that the Fund will make
timely payment of all compensation due to the Custodian on
account of each Portfolio;
(5) For the payment of any dividends on Shares declared
pursuant to the governing documents of the Fund;
(6) For payment of the amount of dividends received in respect
of securities sold short;
(7) For any other purpose which the Fund declares is a proper
trust purpose, but only, upon receipt of Proper
Instructions from the Fund on behalf of the Portfolio.
2.7. Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the
same extent as if the securities had been received by the
Custodian.
Page 7
2.8. Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the 1940
Act to act as a custodian, as its agent to carry out such of the
provisions of this Contract as the Custodian may from time to
time direct; provided, however, that the appointment of any agent
shall not relieve the Custodian of its responsibilities or
liabilities hereunder. Notwithstanding any provision contained
herein to the contrary, the Fund retains the ultimate
responsibility and authority for direction and control for the
services provided pursuant to this Contract.
2.9. Deposit of Fund Assets in U.S. Securities Systems. The Custodian
may deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange
Commission (the "SEC") under Section 17A of the Exchange Act,
which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"U.S. Securities System" in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject
to the following provisions:
(1) The Custodian may keep securities of the Portfolio in a
U.S. Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the U.S. Securities System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of
the Portfolio which are maintained in a U.S. Securities
System shall identify by book-entry those securities
belonging to the Portfolio;
(3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such transfer
and payment for the account of the Portfolio. Copies of
all advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify
the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
Page 8
request, the Custodian shall furnish the Fund on behalf of
the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting
each day's transactions in the U.S. Securities System for
the account of the Portfolio;
(4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
U.S. Securities System;
(5) The Custodian shall have received from the Fund on behalf
of the Portfolio the initial or annual certificate, as the
case may be, required by Article 14 hereof;
(6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit
of the Portfolio for any loss or damage to the Portfolio
resulting from use of the U.S. Securities System by reason
of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such
agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and
to the extent that the Portfolio has not been made whole
for any such loss or damage. Securities Systems,
subcustodians and correspondents utilized by the Custodian
shall be deemed to be agents of the Custodian.
2.10. Fund Assets-Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
(1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions from the Fund on behalf of the Portfolio;
(2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented
in the Direct Paper System Account, which account shall not
include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
Page 9
(3) The records of the Custodian with respect to securities of
the Portfolio which are maintained in the Direct Paper
System shall identify by book-entry those securities
belonging to the Portfolio;
(4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Portfolio.
The Custodian shall transfer securities sold for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and
receipt of payment for the account of the Portfolio;
(5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the
account of the Portfolio, in the form of a written advice
or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transaction in the U.S. Securities
System for the account of the Portfolio;
(6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal
accounting control as the Fund may reasonably request from
time to time.
2.11. Segregated Account; Safekeeping. The Custodian shall upon
receipt of Proper Instructions from the Fund on behalf of each
applicable Portfolio establish and maintain a segregated account
or accounts for and on behalf of each such Portfolio, into which
account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian
pursuant to Section 2.9 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating
to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating
cash or government securities in connection with options
purchased, sold or written by the Portfolio or commodity fixtures
contracts or options thereon purchased or sold by the Portfolio,
(iii) for the purposes of compliance by the Portfolio with the
procedures required by Investment Company Act Release No. 10666,
Page 10
or any subsequent release or releases of the SEC relating to the
maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only,
in the case of clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a Certified Resolution setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
The Custodian shall maintain records of all receipts, deliveries
and locations of each Portfolio's securities, together with a
current inventory thereof, and shall conduct periodic physical
inspections of certificates representing bonds and other
securities held by it under this Contract in such manner as the
Custodian shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. With respect to
securities held by any agent appointed pursuant to Section 2.8,
or securities held by any sub-custodian appointed pursuant to
Section 2.15, or securities held by any foreign sub-custodian
appointed pursuant to Section 3.1, the Custodian may rely upon
certificates from such agent, sub-custodian or foreign sub-
custodian as to the holdings of such agent, sub-custodian or
foreign sub-custodian, it being understood that such reliance in
no way relieves the Custodian of its responsibilities under this
Contract. The Custodian will promptly report to the Fund the
results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.12. Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to domestic securities of
each Portfolio held by it and in connection with transfers of
securities.
2.13. Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the
registered holder of such securities, if the securities are
registered otherwise than in the name of the Portfolio or a
nominee of the Portfolio, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly
deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14. Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly
to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities
of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
Page 11
by the Fund on behalf of the Portfolio and the maturity of
fixtures contracts purchased or sold by the Portfolio) received
by the Custodian from issuers of the securities being held for
the Portfolio. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
2.15. Subcustodians. The Custodian, may from time to time employ one
or more sub-custodians meeting the terms and conditions set forth
in Section 9.4(a) of the Fund's By-Laws, subject to prior
approval by the Fund. Notwithstanding any provision contained
herein to the contrary, the Fund retains the ultimate
responsibility and authority for direction and control for the
services provided pursuant to this Contract.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1. Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Custodian to employ as sub-
custodians for the Portfolio's securities and other assets
maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on
Schedule A hereto ("foreign sub-custodians"). Upon receipt of
"Proper Instructions", as defined in Article 5 hereof, together
with a Certified Resolution, the Custodian and the Fund may agree
to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodians. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Portfolio's assets.
3.2. Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of the foreign sub-
custodians to: (a) "foreign securities", as defined in paragraph
(c)(1) of Rule 17f-5 under the 1940 Act, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may
determine to be reasonably necessary to effect the Portfolio's
foreign securities transactions. The Custodian shall identify on
its books as belonging to the relevant Portfolio, the foreign
securities of such Portfolio held by each foreign sub-custodian.
Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish
a custody account for the Custodian on behalf of the relevant
Page 12
Portfolio and physically segregate in that account securities and
other assets of such Portfolio, and, in the event that such
institution deposits such Portfolio's securities in a foreign
securities depository, that it shall identify on its books as
belonging to the Custodian, as agent for such Portfolio, the
securities so deposited.
3.3. Foreign Securities Systems. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in a clearing agency which acts as
a securities depository or in a book-entry system for the central
handling of securities located outside the United States (each a
"Foreign Securities System") only through arrangements
implemented by the foreign banking institutions serving as sub-
custodians pursuant to the terms hereof (Foreign Securities
Systems and U.S. Securities Systems are collectively referred to
herein as the "Securities Systems"). Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4. Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund,
with a Foreign Sub-custodian in a single account that is
identified as belonging to the Custodian for the benefit of its
customers, provided however, that (i) the records of the
Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify
by book-entry those securities and other non-cash property
belonging to the Fund and (ii) the Custodian shall require that
securities and other non-cash property so held by the Foreign
Subcustodian be held separately from any assets of the Foreign
Sub-custodian or of others.
3.5. Agreements with Foreign Banking Institutions. Each agreement
with a foreign banking institution shall be substantially in the
form set forth in Exhibit I hereto and shall provide that: (a)
the assets of each Portfolio will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of
the foreign banking institution or its creditors or agent, except
a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be
freely transferable without the payment of money or value other
than for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Portfolios
held by the foreign sub-custodian will be subject only to the
instructions of the Custodian or its agents.
Page 13
3.6. Access of Independent Accountants of the Fund. Upon request of
the Fund, the Custodian will use its best efforts to arrange for
the independent accountants of the Fund to be afforded access to
the books and records of any foreign banking institution employed
as a foreign sub-custodian insofar as such books and records
relate to the performance of such foreign banking institution
under its agreement with the Custodian.
3.7. Reports by Custodian. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of
the securities and other assets of the Portfolio(s) held by
foreign sub-custodians, including but not limited to an
identification of entities having possession of the Portfolio(s)
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities
acquired for a Portfolio, the identity of the entity having
physical possession of such securities.
3.8. Transactions in Foreign Custody Account. (a) Except as otherwise
provided in subsection (b) of this Section 3.8, the provision of
Sections 2.2 and 2.6 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received
for the account of each applicable Portfolio and delivery
of securities maintained for the account of each applicable
Portfolio may be effected in accordance with the customary
established securities trading or securities processing
practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or
dealer.
(c) Securities maintained in the custody of a foreign sub-
custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of
this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities.
3.9. Liability of Foreign Sub-Custodians. Each agreement pursuant to
which the Custodian employs a foreign banking institution as a
foreign sub-custodian shall require the institution to exercise
the standard of care that a professional custodian engaged in
the banking or trust company industry and having professional
Page 14
expertise in financial and securities processing transactions
and custody would observe in the performance of its duties and to
indemnify, and hold harmless, the Custodian and the Fund from
and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's perform-
ance of such obligations. At the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability
or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10. Liability of Custodian. The Custodian shall be liable for the
acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally in
this Contract and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated
by Section 3.13 hereof, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of
war or terrorism or any loss where the sub-custodian has
otherwise exercised the standard of care that a professional
custodian engaged in the banking or trust company industry and
having professional expertise in financial and securities
processing transactions and custody would observe.
Notwithstanding the foregoing provisions of this Section 3.10, in
delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund
for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities)
or (b) other losses (excluding a bankruptcy or insolvency of
State Street London Ltd. not caused by political risk) due to
Acts of God, nuclear incident or other losses under circumstances
where the Custodian and State Street London Ltd. have exercised
reasonable care.
3.11. Reimbursement for Advances. If the Fund requires the Custodian
to advance cash or securities for any purpose for the benefit of
a Portfolio including the purchase or sale of foreign exchange or
of contracts for foreign exchange, or in the event that the
Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in
connection with the performance of Section 3 of this Contract,
except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, each
Portfolio hereby grants to the Custodian a security interest and
pledges to the Custodian in an amount not to exceed the lesser of
the dollar amounts borrowed or two percent of such Portfolio's
total assets (taken at cost), the specific securities to be
Page 15
designated in writing from time to time by the Portfolio or its
investment adviser; provided, however, that (1) if from time to
time neither the Portfolio nor its investment adviser shall have
designated in writing specific securities in an amount at least
equal to the lesser of the dollar amounts borrowed or two percent
of such Portfolio's total assets (taken at cost), or (2) if as a
result of the delivery by the Custodian out of its custody,
pursuant to Proper Instructions, of any securities previously so
designated, the remaining amount of securities so designated
shall be less than the lesser of the dollar amounts borrowed or
two percent of such Portfolio's total assets, then the Custodian
shall have a security interest in such Portfolio's securities in
an amount that, taken together with amounts of securities from
time to time designated in writing by the Portfolio or its
investment adviser that have not been delivered out of the
custody of the Custodian pursuant to Proper Instructions, does
not exceed the lesser of the dollar amounts borrowed or two
percent of such Portfolio's total assets (taken at cost). Should
the Portfolio fail to repay promptly any advances of cash or
securities, the Custodian shall be entitled to use available cash
and to dispose of pledged securities and property as is necessary
to repay any such advances.
3.12. Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the Custodian.
Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of
this Contract. In addition, the Custodian will promptly inform
the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-
custodian or any material loss of the assets of the Fund or in
the case of any foreign sub-custodian not the subject of an
exemptive order from the SEC is notified by such foreign sub-
custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in
accordance with generally accepted U.S. accounting principles).
3.13. Branches of US Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody
of the Portfolios assets are maintained in a foreign branch of a
banking institution which is a "bank" as defined by Section
2(a)(5) of the 1940 Act meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as
a sub-custodian shall be governed by Article 1 hereof.
(b) Cash held for each Portfolio of the Fund in the United
Kingdom shall be maintained in an interest bearing account
Page 16
established for the Fund with the Custodian's London
branch, which account shall be subject to the direction of
the Custodian, State Street London Ltd. or both.
3.14. Tax Law. The Custodian shall have no responsibility or liability
for any obligations now or hereafter imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of the United
States of America or any state or political subdivision thereof.
It shall be the responsibility of the Fund to notify the
Custodian of the obligations imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of jurisdictions other
than those mentioned in the above sentence, including
responsibility for withholding and other taxes, assessments or
other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard
to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the
Fund
The Custodian shall make such arrangements with the Transfer Agent of
each Portfolio, which may be the Custodian, as will enable the Custodian to
make certain it receives the cash consideration due to each such Portfolio for
shares of such Portfolio as may be issued or sold from time to time by the
Fund, all in accordance with the Fund's Declaration of Trust. In connection
with such issuance of shares of each Portfolio, the Custodian shall make such
arrangements with the Transfer Agent as shall insure the timely notification to
the Transfer Agent and to the Fund of the receipt of Federal funds by the
Custodian by means of the Federal Reserve Wire System or of the receipt of
funds by other bank wire transfers in payment for the issuance of such shares.
Consideration received in connection with the sale of Shares of any Series
shall be credited to the account of that Portfolio only.
At 9:00 a.m. on the second business day after the deposit of a check
into a Portfolio's account, the Custodian agrees to make Federal funds
available to such Portfolio in the amount of the check.
From such funds as may be available for the purpose but subject to
the limitations of the Declaration of Trust, and applicable resolutions of the
Trustees of the Fund pursuant thereto, the Custodian shall make funds of the
applicable Portfolio available for payment to shareholders who have delivered
to the Transfer Agent a request for redemption of their shares by such
Portfolio pursuant to said Declaration of Trust. Redemption of the shares of
any Portfolio shall be made only from the assets of the relevant Portfolio. In
connection with the redemption of shares of each Portfolio pursuant to the
Declaration of Trust, the Custodian is authorized and directed upon receipt of
instructions from the Transfer Agent for such Portfolio to make funds of such
Portfolio available for transfer through the Federal Reserve Wire System or by
Page 17
other bank wire to a commercial bank account designated by the redeeming
shareholder.
5. Proper Instructions
The Custodian shall be deemed to have received proper instructions
upon receipt of written instructions signed by a majority of the Trustees of
the Fund or by one or more person or persons as the Trustees shall have from
time to time authorized to give the particular class of instructions in
question ("Proper Instructions"). Different persons may be authorized to give
instructions for different purposes. A certified copy of a resolution or
action of the Trustees may be received and accepted by the Custodian as
conclusive evidence of the authority of any such person or persons to act and
may be considered as in full force and effect until receipt of written notice
to the contrary. Such instructions may be general or specific in terms. Upon
receipt of a certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Board, Proper Instructions may include communications effected
directly between electromechanical or electronic devices provided that the
Board and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.11.
In performing its duties generally, and more particularly in
connection with the purchase, sale and exchange of securities made by or for
each Portfolio, the Custodian may take cognizance of the provisions of the
Declaration of Trust of the Fund as from time to time amended; however, except
as otherwise expressly provided herein, it may assume unless and until notified
in writing to the contrary that instructions purporting to be proper
instructions received by it are not in conflict with or in any way contrary to
any provision of the Declaration of Trust and By-Laws of the Fund as amended,
or resolutions or proceedings of the Trustees of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board pursuant to the Declaration of Trust as described in such vote, and such
vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
Page 18
7. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall keep books of account and render statements,
including interim monthly and complete quarterly financial statements, or
copies thereof from time to time as requested by the Treasurer or any Executive
Officer of the Fund.
Unless otherwise directed by receipt of proper instructions, the
Custodian shall compute and determine, as of the close of business of the New
York Stock Exchange, the "net asset value" of a share of each Portfolio, and
shall also compute and determine such net asset value for each Portfolio on
each day during which there is a sufficient degree of trading in such
Portfolio's portfolio securities that the current net asset value of such
Portfolio's shares might be affected by the change in the value of such
portfolio securities, each such computation and determination to be made
pursuant to the provisions of the Declaration of Trust and/or By-Laws of the
Fund, by a vice president, assistant vice president or assistant secretary of
the Custodian; and promptly to notify the Fund of the result of such
computation and determination. In computing the "net asset value" the
Custodian shall rely upon security quotations received by telephone or
otherwise from sources designated by the Fund by proper instructions and may
further rely upon information furnished to it by any officer of the Fund
thereunto duly authorized relative (a) to liabilities of each Portfolio not
appearing on its books of account, (b) to the existence, status and proper
treatment of any reserve or reserves and (c) to the fair value of any security
or other property for which market quotations are not readily available.
Upon receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
calculate daily the "net income" of each Portfolio in a manner consistent with
the Declaration of Trust and in accordance with the then current prospectus of
the Fund applicable to such Portfolio, and shall advise the Fund and the
Transfer Agent daily of the total amount of such "net income".
8. Records
The Custodian shall with respect to each Portfolio create and
maintain all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under the 1940
Act, with particular attention to Section 31 thereof and Rules 3la-1 and 31a-2
thereunder, applicable Federal and State tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and in the event of termination
of this Contract will be delivered in accordance with Section 14.
The Custodian will keep books of account and render statements for
each Portfolio separately. The Custodian shall maintain such records as will
enable the Fund to comply with the requirements of all Federal and State laws
Page 19
and regulations applicable to the Fund with respect to the matters covered by
this Contract. The Custodian shall submit, upon not more than 48 hours' notice
and during the course of the Custodian's regular business hours, to all
regulatory and administrative bodies having jurisdiction over the services
provided pursuant to this Contract, present or future, any information, reports
or other materials which any such body by reason of this Contract may request
or require pursuant to applicable laws and regulations. The Custodian shall
not disclose or use any record it has prepared by reason of this Contract in
any manner except as expressly authorized herein or directed by the Fund and
shall keep confidential any information obtained by reason of this Contract.
Subject to security requirements of the Custodian applicable to its
own employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Fund, the books
and records of the Custodian pertaining to its actions under this Contract
shall be open to inspection and audit at reasonable times by the Trustees of,
attorneys for, and auditors employed by, the Fund.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from
year to year favorable opinions from the Fund's independent accountants with
respect to its activities hereunder in connection with the preparation of the
Fund's Form N- IA, and Form N-SAR or other annual reports to the SEC, state
"Blue Sky" authorities and with respect to any other requirements of the SEC
or such state "Blue Sky" authority.
10. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
Page 20
12. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be properly executed in accordance with
Section 5, including any futures commission merchant acting pursuant to the
terms of a three-party futures or options agreement. The Custodian shall be
entitled to receive and act upon advice of counsel (who may be counsel for the
Fund) and, except as provided in the next paragraph of this Section 12, shall
be without liability for any action reasonably taken or thing reasonably done
pursuant to such advice, provided that such action is not in violation of
applicable Federal or State laws or regulations, and, if the counsel is counsel
for the Fund and not for The Custodian, shall be kept indemnified by the Fund
and be without liability for any action taken or thing done by it in carrying
out the terms and provisions of this Contract in good faith and without
negligence. The Custodian shall not be entitled to indemnification for any
action taken upon advice of its own counsel.
Notwithstanding any other provision of this Contract, the Custodian
shall be strictly liable for all losses to the property of any Portfolio held
by the Custodian due to fire, burglary, robbery, theft and mysterious
disappearance, whether such a loss occurred while the property was in the
possession of the Custodian, its nominee or any agent of the Custodian at the
time of loss. Notwithstanding any other provision of this Contract, the
Custodian shall be liable for losses resulting from any cause or causes other
than those specified in the immediately preceding sentence unless the Custodian
itself can establish that the loss was not due to any dishonesty, negligence or
misconduct by its officers, employees or agents or nominee. In the event of
loss, damage or injury to the securities held on deposit for any Portfolio with
the Custodian, its nominee or its agent, the Custodian shall promptly, upon
demand of the Fund on behalf of such Portfolio, cause such securities to be
replaced by securities of like kind and quality, together with all rights and
privileges pertaining thereto, or, if acceptable to the Fund on behalf of the
Portfolio, remit cash equal to the fair market value of said securities. (Fair
market value shall be determined as of the date such securities suffered the
loss, damage or injury.) Notwithstanding any provision of this Section 12, the
Custodian shall not be liable for any loss, damage or injury resulting from
nuclear contamination (other than industrial use of nuclear energy),
expropriation by government order, war, insurrection or revolution and, with
respect to a sub-custodian or foreign sub-custodian, even if the sub-custodian
or foreign sub-custodian's standards of liability for failure or delay in
effecting any collections or providing any notices may be less than that
described in this Section 12, the Custodian shall not be absolved of
responsibility if the failure or delay in effecting collections or giving
notice is due to the Custodian's negligence or misconduct.
Each party shall be liable for its own misconduct and negligence.
While there may be indemnification between the Custodian and the Fund, neither
Page 21
of these parties can immunize themselves from liability by relying upon advice
from their own individual counsel. In order that the indemnification
provisions contained in this Section 12 shall apply, however, it is understood
that in any case in which the Fund may be asked to indemnify or hold the
Custodian harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Custodian will use all reasonable care to identify and
notify the Fund promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Fund. The Fund shall have the option to defend the Custodian against any
claim which may be the subject of this indemnification, and in the event that
the Fund so elects it will so notify the Custodian, and thereupon the Fund
shall take over complete defense of the claim, and the Custodian shall in such
situations initiate no further legal or other expenses for which it shall seek
indemnification under this Section 12. The Custodian shall in no case confess
any claim or make any compromise in any case in which the Fund will be asked to
indemnify the Custodian except with the Fund's prior written consent.
The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against the Custodian
or its nominee in connection with the performance of this Contract, except such
as may arise from it or its nominee's own negligent action, negligent failure
to act or willful misconduct and except for claims by or liabilities to the
Fund. To secure any advances of cash or securities made by the Custodian to or
for the benefit of the Fund for any purposes which result in a Portfolio
incurring an overdraft at the end of any business day or for extraordinary or
emergency purposes during any business day, each Portfolio hereby grants to the
Custodian a security interest in and pledges to the Custodian securities held
for it by the Custodian, in an amount not to exceed the lesser of the dollar
amounts borrowed or two percent of the Portfolio's total assets (taken at
cost), the specific securities to be designated in writing from time to time by
the Portfolio or its investment adviser; provided, however, that (1) if from
time to time neither the Portfolio nor its investment adviser shall have
designated in writing specific securities in an amount at least equal to the
lesser of the dollar amounts borrowed or two percent of the Portfolio's total
assets (taken at cost), or (2) if as a result of the delivery by the Custodian
out of its custody, pursuant to Proper Instructions, of any securities
previously so designated, the remaining amount of securities so designated
shall be less than the lesser of the dollar amounts borrowed or two percent of
the Portfolio's total assets (taken at cost), then the Custodian shall have a
security interest in the Portfolio's securities in an amount that, taken
together with amounts of securities from time to time designated in writing by
the Portfolio or its investment adviser that have not been delivered out of
custody of the Custodian pursuant to Proper Instructions, does not exceed the
lesser of the dollar amounts borrowed or two percent of the Portfolio's total
assets (taken at cost). Should the Portfolio fail to repay promptly any
advances of cash or securities, the Custodian shall be entitled to use
available cash and to dispose of pledged securities and property as is
necessary to repay any such advances.
Page 22
The Custodian in its performance of its duties will exercise the
standard of care that a professional custodian engaged in the banking or trust
company industry and having professional expertise in financial and securities
processing transactions and custody would observe in these affairs.
13. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio
act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of a particular Securities System by such Portfolio,
as required by Rule 17f-4 under the 1940 Act and that the Custodian shall not
with respect to a Portfolio act under Section 2.10 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board has approved the initial use of the Direct Paper System by
such Portfolio; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of the Board (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board, the Custodian shall, upon
termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities, funds
and other properties and all records of each applicable Portfolio then held by
it hereunder and shall transfer to an account of the successor custodian all of
the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
Page 23
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the 1940 Act, doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$25,000,000, all securities, funds and other properties held by the Custodian
on behalf of each applicable Portfolio and all instruments held by the
Custodian relative thereto and all other property held by it under this
Contract on behalf of each applicable Portfolio and to transfer to an account
of such successor custodian all of the securities of each such Portfolio held
in any Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, ftmds and other properties remain in
the possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
16. Additional Funds
In the event that the Fund establishes one or more series of Shares
in addition to New England Equity Income Fund with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
Page 24
17. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
18. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
19. Shareholder Communications Election
SEC Rule 14b-2 requires banks which hold securities for the account
of customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held
by the bank unless the beneficial owner has expressly objected to disclosure
of this information. In order to comply with the rule, the Custodian needs
the Fund to indicate whether it authorizes the Custodian to provide the
Fund's name, address, and share position to requesting companies whose
securities the Fund owns. If the Fund tells the Custodian "no", the
Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below,
the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the
Rule prohibits the requesting company from using the Fund's name and address
for any purpose other than corporate communications. Please indicate below
whether the Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
20. Notices.
Notices and other writings delivered or mailed postage prepaid to the
Fund at 399 Boylston Street, Boston, Massachusetts and to State Street at 225
Franklin Street, Boston, Massachusetts, 02110 or to such other address as the
Fund or the Custodian may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address. Notice given
to the Fund with respect to any matter affecting less than all of the Portfolio
shall indicate in such notice the Portfolio to which such matter pertains.
Page 25
21. Binding Effect.
This Agreement shall be binding on and shall inure to the benefit of
the Custodian and its successors. The Custodian shall bill the Fund for each
Portfolio separately on account of those custodian fees determined in
accordance with this Contract which are attributable to the administration,
portfolio trades, interest accrual and appraisals or other activities of such
Portfolio. Except as otherwise specifically provided in this Contract, the
rights, obligations and interests of the Fund, any Portfolio and the Custodian
under this Contract shall not be assignable in whole or in part.
22. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
Page 26
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of September [ ], 1995.
STATE STREET BANK AND TRUST COMPANY
By: ________________________________________
Name: Ronald E. Logue
Title: Executive Vice President
NEW ENGLAND FUNDS TRUST III
By: ________________________________________
Name:
Title:
Page 27
SCHEDULE A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
JUNE 1995
Country Subcustodian Central Depository
Argentina Citibank, N.A. Caja de Valores S.A.
Australia Westpac Banking Corporation Austraclear Limited;
Reserve Bank Information and
Transfer System (RITS)
Austria GiroCredit Bank Oesterreichische
Aktiengesellschaft der Sparkassen
Kontrollbank AG
(Wertpapiersammelbank Division)
Bangladesh Standard Chartered Bank None
Belgium Generale Bank Caisse Interprofessionnelle de
Depots et de Virements de
Titres S.A. (CIK)
Banque Nationale de Belgique
Botswana Barclays Bank of Botswana None
Limited
Brazil Citibank, N.A. Bolsa de Valores de Sdo Paulo
(Bovespa);
Banco Central do Brasil,
Systema Especial de
Liquidacao e Custodia
(SELIC)
Canada Canada Trustco Mortgage The Canadian Depository for
Company Securities Limited (CDS)
Chile Citibank, N.A. None
Page 28
People's The Hongkong and Shanghai Shanghai Securities Central
Republic of Banking Corporation Limited, Clearing and Registration
China Shanghai and Shenzhen Corporation (SSCCRC)
branches
Shenzhen Securities Registrars
Co., Ltd. and its designated
agent banks
Page 29
SCHEDULE A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
JUNE 1995
Country Subcustodian Central Depository
Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
Cyprus Barclays Bank PLC None
Czech Republic CeskoslovenskA Obchodni Stfedisko cennych papir-6
(SCP);
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen - The
Danish Securities Center (VP)
Egypt National Bank of Egypt None
Finland Merita Bank Limited The Central Share Register of
Finland
France Banque Paribas Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobili&res
(SICOVAM);
Banque de France, Saturne
System
Germany BHF - Bank The Deutscher Kassenverein
Aktiengesellschaft AG
Ghana Barclays Bank of Ghana None
Limited
Page 30
Greece National Bank of The Central Securities
Greece S.A. Depository (Apothetirion
Titlon A.E.)
Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest)
Ltd. (KELER Ltd.)
Page 31
SCHEDULE A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
JUNE 1995
Country Subcustodian Central Depository
India Deutsche Bank AG None
Indonesia Standard Chartered Bank None
Ireland Bank of Ireland None;
The Central Bank of Ireland,
The Gilt Settlement Office
(GSO)
Israel Bank Hapoalim B.M. The Clearing House of the Tel
Aviv Stock Exchange
Italy Morgan Guaranty Monte Titoli S.p.A;
Trust Company
Japan The Daiwa Bank, Limited Japan Securities Depository
Center (JASDEC);
Bank of Japan Net System
The Sumitomo Trust & Japan Securities Depository
Banking Co., Ltd. Center (JASDEC);
Bank of Japan Net System
Jordan The British Bank of the None
Middle East
Kenya Barclays Bank of Kenya None
Limited
Page 32
Republic of Korea SEOULBANK Korea Securities Depository
(KSD)
Malaysia Standard Chartered Bank Malaysian Central Depository
Malaysia Berhad Sdn. Bhd. (MCD)
Mauritius The Hongkong and None
Shanghai Banking
Corporation Limited
Page 33
SCHEDULE A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
JUNE 1995
Country Subcustodian Central Depository
Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
Banco de Mexico
Morocco Banque Commerciale du None
Maroc
Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEFK)
New Zealand ANZ Banking Group (New Austraclear Limited
Zealand) Limited
The Reserve Bank of New
Zealand, Austraclear NZ
Norway Christiania Bank og Verdipapirsentralen - The
Kreditkasse Norwegian Registry of
Securities (VPS)
Pakistan Deutsche Bank AG None
Peru Citibank, N.A. Caja de Valores (CAVAL)
Philippines Standard Chartered Bank None
Poland Citibank Poland S.A. The National Depository of
Securities (Centrum
Krajowego Depozytu
Papierow Warto ciowych)
Page 34
Portugal Banco Comercial Portugues Central de Valores
Mobilidrios (Central)
Singapore The Development Bank of The Central Depository (Pte)
Singapore Ltd. Limited (CDP)
Page 35
SCHEDULE A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
JUNE 1995
Country Subcustodian Central Depository
Slovak Republic Ceskoslovenskd Obchodnd Stredisko cenn@ch papierov
Banka A.S. (SCP);
National Bank of Slovakia
South Africa Standard Bank of South None
Africa Limited
Spain Banco Santander, S.A. Servicio de Compensaci6n y
Liquidaci6n de Valores, S.A.
(SCLV);
Banco de Espafia,
Anotaciones en Cuenta
SriLanka The Hongkong and Central Depository System
Shanghai Banking (Pvt) Limited
Corporation Limited
Swaziland Barclays Bank of Swaziland None
Limited
Sweden Skandinaviska Enskilda Vdrdepapperscentralen VPC
Banken AB, The Swedish Central
Securities Depository
Switzerland Union Bank of Switzerland Schweizerische Effekten -
Giro AG (SEGA)
Taiwan - R.O.C. Central Trust of China The Taiwan Securities Central
Depository Company, Ltd.
(TSCD)
Page 36
Thailand Standard Chartered Bank Thailand Securities
Depository Company Limited
(TSD)
Turkey Citibank, N.A. Istanbul Stock Exchange
Settlement and Custody Co.,
Inc. (I.M.K.B. Takas ve
Saklama A.S.)
Page 37
SCHEDULE A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
JUNE 1995
Country Subcustodian Central Depository
United Kingdom State Street Bank and Trust None;
Company
The Bank of England,
The Central Gilts Office
(CGO);
The Central Moneymarkets
Office (CMO)
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
Zambia Barclays Bank of Zambia None
Limited
Zimbabwe Barclays Bank of None
Zimbabwe Limited
Euroclear (The Euroclear System)/State Street London Limited
Cedel (Cedel Bank societe anonyme)/State Street London Limited
Page 38
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
AGREEMENT between New England Funds Trust III (the "Customer") and
State Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain
assets of the Customer pursuant to a certain Custodian Contract (the "Custodian
Contract") dated as of September [ * ], 1995;
WHEREAS, State Street has developed and utilizes proprietary
accounting and other systems, including State Street's proprietary
Multicurrency HORIZON R Accounting System, in its role as custodian of the
Customer, and maintains certain Customer-related data ("Customer Data") in
databases under the control and ownership of State Street (the "Data Access
Services"); and
WHEREAS, State Street makes available to the Customer certain Data
Access Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration,
the parties agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement,
State Street hereby agrees to provide the Customer with access to State
Street's Multicurrency HORIZON R Accounting System and the other information
systems (collectively, the "System") as described in Attachment A, on a remote
basis for the purpose of obtaining reports, solely on computer hardware, system
software and telecommunication links of the Customer, or certain third parties
approved by State Street that serve as investment advisors or investment
managers of the Customer (each an "Investment Advisor") as listed in Attachment
C hereto and solely with respect to the Customer (the "Designated
Configuration") or on any designated substitute or back-up equipment
configuration with State Street's written consent, such consent not to be
unreasonably withheld.
b. Data Access Services. State Street agrees to make available to
the Customer the Data Access Services subject to the terms and conditions of
this Agreement and data access operating standards and procedures as may be
issued by State Street from time to time. The ability of the Customer to
originate electronic instructions to State Street on behalf of the Customer in
order to (i) effect the transfer or movement of cash or securities held under
PAGE 39
custody by State Street or (ii) transmit accounting or other information (such
transactions are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and
analysis, shall be deemed to be Data Access Services for purposes of this
Agreement.
c. Additional Services. State Street may from time to time agree
to make available to the Customer additional Systems that are not described in
the attachments to this Agreement. In the absence of any other written
agreement concerning such additional systems, the term "System" shall include,
and this Agreement shall govern, the Customer's access to and use of any
additional System made available by State Street and/or accessed by the
Customer.
2. NO USE OF THIRD PARTY SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Agreement, the Customer will have
access, through the Data Access Services, to Customer Data and to functions
of State Street's proprietary systems; provided, however that in no event
will the Customer have direct access to any third party systems-level
software that retrieves data for, stores data from, or otherwise supports the
System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Location. The System and the
Data Access Services shall be used and accessed solely on and through the
Designated Configuration at the offices of the Customer or each Investment
Advisor located in Boston, Massachusetts ("Designated Location").
b. Designated Configuration; Trained Personnel. State Street shall
be responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer agree
that each will engage or retain the services of trained personnel to enable
both parties to perform their respective obligations under this Agreement.
State Street agrees to use commercially reasonable efforts to maintain the
System so that it remains serviceable, provided, however, that State Street
does not guarantee or assure uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data
Access Services only for the processing of securities transactions, the keeping
of books of account for the Customer and accessing data for purposes of
reporting and analysis. The Customer shall not, and shall cause its employees
and agents not to (i) permit any third party to use the System or the Data
Access Services, (ii) sell, rent, license or otherwise use the System or the
Data Access Services for any purpose other than as expressly authorized under
this Agreement, (iii) allow access to the System or the Data Access Services
through terminals or any other computer or telecommunications facilities
located outside the Designated Locations, (iv) allow or cause any information
Page 40
(other than portfolio holdings, valuations of portfolio holdings, and other
information reasonably necessary for the management or distribution of the
assets of the Customer) transmitted from State Street's databases, including
data from third party sources, available through use of the System or the Data
Access Services to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of the Customer or
(v) modify the System in any way, including without limitation, developing any
software for or attaching any devices or computer programs to any equipment,
system, software or database which forms a part of or is resident on the
Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a
planned System shutdown, the Customer's access to services performed by the
System or to Data Access Services at the Designated Location may be transferred
to a different location only upon the prior written consent of State Street.
In the event of an emergency or System shutdown, the Customer may use any back-
up site included in the Designated Configuration or any other back-up site
agreed to by State Street, which agreement will not be unreasonably withheld.
The Customer may secure from State Street the right to access the System or the
Data Access Services through computer and telecommunications facilities or
devices complying with the Designated Configuration at additional locations
only upon the prior written consent of State Street and on terms to be mutually
agreed upon by the parties.
e. Title. Title and all ownership and proprietary rights to the
System, including any enhancements or modifications thereto, whether or not
made by State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State
Street, the Customer shall not modify, enhance or otherwise create derivative
works based upon the System, nor shall the Customer reverse engineer, decompile
or otherwise attempt to secure the source code for all or any part of the
System.
g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and
to access the Data Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by
State Street and, upon notice from State Street, the Customer shall discontinue
remote use of the System and access to Data Access Services for any security
reasons cited by State Street; provided, that, in such event, State Street
shall, for a period not less than 180 days (or such other shorter period
specified by the Customer) after such discontinuance, assume responsibility to
provide accounting services under the terms of the Custodian Contract.
Page 41
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State
Street represents that the System and the databases, computer programs, screen
formats, report formats, interactive design techniques, documentation and other
information made available to the Customer by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to the Customer shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Customer agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy
its obligations hereunder. The Customer further acknowledges that State Street
shall not be required to provide any Investment Advisor with access to the
System unless it has first received from such Investment Advisor an undertaking
with respect to State Street's Proprietary Information in the form of
Attachment C to this Agreement. The Customer shall use all commercially
reasonable efforts to assist State Street in identifying and preventing any
unauthorized use, copying or disclosure of the Proprietary Information or any
portions thereof or any of the logic, formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer
shall advise State Street immediately in the event the Customer learns or has
reason to believe that any person to whom the Customer has given access to the
Proprietary Information, or any portion thereof, has violated or intends to
violate the terms of this Agreement, and the Customer will, at its expense,
cooperate with State Street in seeking injunctive or other equitable relief in
the name of the Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the
disclosure of any Proprietary Information, or of any information which at law
or equity ought to remain confidential, will immediately give rise to
continuing irreparable injury to State Street inadequately compensable in
damages at law. In addition, State Street shall be entitled to obtain
immediate injunctive relief against the breach or threatened breach of any of
the foregoing undertakings, in addition to any other legal remedies which may
be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer
agrees that State Street's liability to the Customer arising out of contract,
strict liability in tort, or any other cause of action under this Agreement for
its provision of Data Access Services or the System shall be limited to the
amount paid by the Customer for the preceding 24 months for such component
services. No action, regardless of form, arising out of this Agreement may be
brought by the Customer more than two years after the Customer has knowledge
that the cause of action has arisen.
Page 42
b. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET. IN NO EVENT WILL STATE STREET BE
LIABLE TO THE CUSTOMER OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHICH MAY ARISE FROM THE CUSTOMER'S ACCESS TO THE SYSTEM OR USE OF
INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may
obtain certain data included in the System or the Data Access Services are
solely responsible for the contents of such data, and State Street shall have
no liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the
Customer, the Customer shall be solely responsible for the accuracy of any
accounting statements or reports produced using the Data Access Services and
the System and the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or
damages due to delay or nonperformance under this Agreement arising out of any
cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Customer as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or
communication disruption.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from
any loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from (i) the negligence or willful
misconduct in the use by the Customer of the Data Access Services or the
System, including any loss incurred by State Street resulting from a security
breach at the Designated Location or committed by the Customer's employees or
agents or the Investment Advisor and (ii) any loss resulting from incorrect
Client Originated Electronic Financial Instructions. State Street shall be
entitled to rely on the validity and authenticity of Client Originated
Electronic Financial Instructions without undertaking any further inquiry as
long as such instruction is undertaken in conformity with security
procedures established by State Street from time to time.
7. FEES
Fees and charges for the use of the System and the Data Access
Services and related payment terms shall be as set forth in the Custody Fee
Schedule in effect from time to time between the parties (the "Fee Schedule").
Any tariffs, duties or taxes imposed or levied by any government or
governmental agency by reason of the transactions contemplated by this
Page 43
Agreement, including, without limitation, federal, state and local taxes, use,
value added and personal property taxes (other than income, franchise or
similar taxes which may be imposed or assessed against State Street) shall be
borne by the Customer. Any claimed exemption from such tariffs, duties or
taxes shall be supported by proper documentary evidence delivered to State
Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a
designated State Street training facility or at the Designated Location, to the
Customer's personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time
to enable all operators of the System and the Data Access Services, designated
by the Customer, to receive the training offered by State Street pursuant to
this Agreement.
b. Installation and Conversion. State Street shall be responsible
for the technical installation and conversion ("Installation and Conversion")
of the Designated Configuration. The Customer shall have the following
responsibilities in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the timely
acquisition and maintenance of the hardware and software
that attach to the Designated Configuration in order to use
the Data Access Services at the Designated Location.
(ii) State Street and the Customer each agree that they will
assign qualified personnel to actively participate during
the Installation and Conversion phase of the System
implementation to enable both parties to perform their
respective obligations under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the
date of its execution by State Street and shall remain in full force and effect
until terminated as herein provided.
b. Termination of Agreement. Either party may terminate this
Agreement (i) for any reason by giving the other party at least one-hundred and
eighty days' prior written notice in the case of notice of termination by State
Page 44
Street to the Customer or thirty days' notice in the case of notice from the
Customer to State Street of termination; or (ii) immediately for failure of the
other party to comply with any material term and condition of the Agreement by
giving the other party written notice of termination. In the event the
Customer shall cease doing business, shall become subject to proceedings under
the bankruptcy laws (other than a petition for reorganization or similar
proceeding) or shall be adjudicated bankrupt, this Agreement and the rights
granted hereunder shall, at the option of State Street, immediately terminate
with notice to the Customer. This Agreement shall in any event terminate as to
any Customer within 90 days after the termination of the Custodian Contract
applicable to such Customer.
c. Termination of the Right to Use. Upon termination of this
Agreement for any reason, any right to use the System and access to the Data
Access Services shall terminate and the Customer shall immediately cease use of
the System and the Data Access Services. Immediately upon termination of this
Agreement for any reason, the Customer shall return to State Street all copies
of documentation and other Proprietary Information in its possession; provided,
however, that in the event that either party terminates this Agreement or the
Custodian Contract for any reason other than the Customer's breach, State
Street shall provide the Data Access Services for a period of time and at a
price to be agreed upon by the parties.
11. MISCELLANEOUS
a. Assignment: Successors. This Agreement and the rights and
obligations of the Customer and State Street hereunder shall not be assigned by
either party without the prior written consent of the other party, except that
State Street may assign this Agreement to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by, or under
common control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all prior
or contemporaneous representations or agreements, whether oral or written,
between the parties as such may relate to the Data Access Services or the
System, and cannot be modified or altered except in a writing duly executed by
the parties. This Agreement is not intended to supersede or modify the duties
and liabilities of the parties hereto under the Custodian Contract or any other
agreement between the parties hereto except to the extent that any such
agreement specifically refers to the Data Access Services or the System. No
single waiver or any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, unlawful, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired.
Page 45
e. Governing Law. This Agreement shall be interpreted and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts without regard to the conflict of laws provisions thereof.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
Page 46
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of September [ * ], 1995.
NEW ENGLAND FUNDS TRUST III
By:
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Name: Ronald E. Logue
Title: Executive Vice President
Page 47
ATTACHMENT A
System Product Description
I. Multicurrency-HORIZONR Accounting System. The Multicurrency HORIZON
Accounting System is designed to provide lot level portfolio and
general ledger accounting for SEC and ERISA type requirements and
includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3)
reconciliation of daily activity with the trial balance, and 4)
appropriate automated feeding mechanisms to (i) domestic and
international settlement systems, (ii) daily, weekly and monthly
evaluation services, (iii) portfolio performance and analytic
services, (iv) customer's internal computing systems and (v) various
State Street provided information services products.
II. Global Quest. Global Quest is designed to provide customer access
to the following information maintained on The Multicurrency HORIZON
Accounting System: 1) cash transactions and balances; 2) purchases
and sales; 3) income receivables; 4) tax refund; 5) daily priced
positions; 6) open trades; 7) settlement status; 8) foreign exchange
transactions; 9) trade history; and 10) daily, weekly and monthly
evaluation services.
Page 48
ATTACHMENT B
Designated Configuration
Page 49
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as
Investment Advisor to New England Funds Trust III (the "Customer") it will have
access to State Street Bank and Trust Company's ("State Street") Multicurrency
HORIZON Accounting System and other information systems (collectively, the
"System").
The undersigned acknowledges that the System and the databases,
computer programs screen formats, report formats, interactive design
techniques, documentation and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to the Undersigned shall
be deemed proprietary and confidential information of State Street
(hereinafter "Proprietary Information"). The Undersigned agrees that it will
hold such Proprietary Information in confidence and secure and protect it in a
manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to
data in transmission, or attempt entry into any system or files for which it is
not authorized. It will not intentionally adversely affect the integrity of
the System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the
System and access to the Data Access Services shall terminate and the
Undersigned shall immediately cease use of the System and the Data Access
Services. Immediately upon notice by State Street for any reason, the
Undersigned shall return to State Street all copies of documentation and other
Proprietary Information in its possession.
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By:
Name:
Title:
Date:
Page 50
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as Investment
Advisor to New England Funds Trust III (the "Customer") it will have access to
State StreetBank and Trust Company's ("State Street") Multicurrency HORIZON
Accounting System andother information systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs screen formats, report formats, interactive design
techniques, documentation and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to the Undersigned shall
be deemed proprietary and confidential information of State Street
(hereinafter "Proprietary Information"). The Undersigned agrees that it will
hold such Proprietary Information in confidence and secure and protect it in a
manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to
data in transmission, or attempt entry into any system or files for which it is
not authorized. It will not intentionally adversely affect the integrity of
the System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the
System and access to the Data Access Services shall terminate and the
Undersigned shall immediately cease use of the System and the Data Access
Services. Immediately upon notice by State Street for any reason, the
Undersigned shall return to State Street all copies of documentation and other
Proprietary Information in its possession.
LOOMIS, SAYLES & COMPANY, L.P.
By:
Name:
Title:
Date:
Page 51
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following ongoing support services:
a. Telephone Support. The Customer Designated Persons may contact
State Street's HORIZOPe Help Desk and Customer Assistance Center between the
hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for the purpose
of obtaining answers to questions about the use of the System, or to report
apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. Technical Support. State Street will provide technical support
to assist the Customer in using the System and the Data Access Services. The
total amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially
reasonable efforts to correct system functions that do not work according to
the System Product Description as set forth on Attachment A in priority order
in the next scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer
any enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such
enhancement, State Street shall notify the Customer and shall offer the
Customer reasonable training on the enhancement. Charges for system
enhancements shall be as provided in the Fee Schedule. State Street retains
the right to charge for related systems or products that may be developed and
separately made available for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in
its sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (1) for use on any computer
equipment or telecommunication facilities which does not conform to the
Designated Configuration or (ii) in the event the Customer has modified the
System in breach of this Agreement.
PAGE 52
SHAREHOLDER SERVICING AND TRANSFER AGENT AGREEMENT
AGREEMENT made as of the 1st day of September, 1993, by and
between each of the New England Funds listed in Appendix A hereto
(as the same may from time to time be amended to add one or more
additional New England Funds or to delete one or more of such
Funds), each of such Funds acting severally on its own behalf and
not jointly with any of such other Funds (each of such Funds
being hereinafter referred to as the "Fund"), and New England
Funds, L.P. (the "Agent").
W I T N E S S E T H:
WHEREAS, the Fund is an investment company registered under
the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund desires to engage the Agent to provide all
services required by the Fund in connection with the
establishment, maintenance and recording of shareholder accounts,
including without limitation all related tax and other reporting
requirements, and the implementation of investment and redemption
arrangements offered in connection with the sale of the Fund's
shares; and
WHEREAS, the Agent is willing to provide such services on
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth herein, and for other good and
valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT.
The Fund hereby appoints the Agent as its "Investor
Servicing Agent" on the terms and conditions set forth herein.
In such capacity the Agent shall act as transfer, distribution
disbursing and redemption agent for the Fund and shall act as
agent for the shareholders of the Fund in connection with the
various shareholder investment and/or redemption plans from time
to time made available to shareholders. The Agent hereby accepts
such appointment and agrees to perform the respective duties and
functions of such offices in accordance with the terms of this
agreement and in a manner generally consistent with the practices
and standards customarily followed by other high quality investor
servicing agents for registered investment companies. The Agent
may subcontract certain shareholder accounting and administrative
servicing functions to State Street Bank and Trust Company,
pursuant to an agreement substantially in the form attached
hereto as Appendix B, or to such other entity and pursuant to
such agreement as approved by the Fund's Trustees.
2. GENERAL AUTHORITY AND DUTIES.
By its acceptance of the foregoing appointment, the Agent
shall be responsible for performing all functions and duties
which, in the reasonable judgment of the Fund, are necessary or
desirable in connection with the establishment, maintenance and
recording of the Fund's shareholder accounts and the conduct of
its relations with shareholders with respect to their accounts.
Without limiting the generality of the foregoing, the Agent shall
be responsible:
(a) as transfer agent, for performing all functions
customarily performed by transfer agents for registered
investment companies, including without limitation all functions
necessary or desirable to establish and maintain accounts
evidencing the ownership of securities issued by the Fund and, to
the extent applicable, the issuance of certificates representing
such securities, the recording of all transactions pertaining to
such accounts, and effecting the issuance and redemption of
securities issued by the Fund;
(b) as distribution disbursing agent, for performing all
functions customarily performed by distribution disbursing agents
for registered investment companies, including without limitation
all functions necessary or desirable to effect the payment to
shareholders of distributions declared from time to time by the
Trustees of the Fund;
(c) as redemption agent for the Fund, for performing all
functions necessary or desirable to effect the redemption of
securities issued by the Fund and payment of the proceeds
thereof; and
(d) as agent for shareholders of the Fund, for performing
all functions necessary or desirable to maintain all plans or
arrangements from time to time made available to shareholders to
facilitate the purchase or redemption of securities issued by the
Fund.
In performing its duties hereunder, in addition to the
provisions set forth herein, the Agent shall comply with the
terms of the Declaration of Trust, the Bylaws and the current
Prospectus and Statement of Additional Information of the Fund,
and with the terms of votes adopted from time to time by the
Trustees and shareholders of the Fund, relating to the subject
matters of this Agreement, all as the same may be amended from
time to time.
3. STANDARD OF SERVICE; COMPLIANCE WITH LAWS.
The Agent will use its best efforts to provide high quality
services to the Fund's shareholders and in so doing will seek to
take advantage of such innovations and technological improvements
as may be appropriate or desirable with a view to improving the
quality and, where possible, reducing the cost of its services to
the Fund. In performing its duties hereunder, the Agent shall
comply with the provisions of all applicable laws and regulations
and shall comply with the requirements of any governmental
authority having jurisdiction over the Agent or the Fund with
respect to the duties of the Agent hereunder.
4. COMPENSATION.
The Fund shall pay to the Agent, for its services rendered
and its costs incurred in connection with the performance of its
duties hereunder, such compensation and reimbursements as may
from time to time be approved by vote of the Trustees of the
Fund.
5. DUTY OF CARE; INDEMNIFICATION.
The Agent will at all times act in good faith and exercise
reasonable care in performing its duties hereunder. The Agent
shall indemnify and hold the Fund harmless from and against any
and all losses, damages, costs, charges, reasonable counsel fees,
payments, expenses and liability arising out of or attributable
to any action or failure or omission to act by the Agent as a
result of the Agent's lack of good faith, negligence or willful
misconduct. The Agent will not be liable or responsible for
delays or errors resulting from circumstances beyond its control,
including acts of civil or military authorities, national
emergencies, labor difficulties, fire, mechanical breakdown
beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of
transportation, communication or power supply.
The Agent may rely on certifications of the Secretary, the
President, the Chairman, a Senior Vice President or the Treasurer
of the Fund as to any action taken by the shareholders or
trustees of the Fund, and upon instructions not inconsistent with
this Agreement received from the President, the Chairman, a
Senior Vice President, the Treasurer or any other officer of the
Fund authorized by the Fund's Trustees to give such instructions.
If any officer of the Fund shall no longer be vested with
authority to give instructions for the Fund, written notice
thereof shall forthwith be given to the Agent by the Fund and,
until receipt of such notice by it, the Agent shall be entitled
to recognize and act in good faith upon certificates or other
instruments bearing the signatures or facsimile signatures of
such officers. The Agent may request advice of counsel for the
Fund, at the expense of the Fund, with respect to the performance
of its duties hereunder.
The Fund will indemnify and hold the Agent harmless from any
and all losses, claims, damages, liabilities and expenses
(including reasonable fees and expenses of counsel) arising out
of (i) any action taken by the Agent in good faith consistent
with the exercise of reasonable care in accordance with such
certifications, instructions or advice, (ii) any action taken by
the Agent in good faith consistent with the exercise of
reasonable care in reliance upon any instrument or certificate
for securities believed by it (a) to be genuine, and (b) to be
executed by any person or persons authorized to execute the same;
provided, however, that the Agent shall not be so indemnified in
the event of its failure to obtain a proper signature guarantee
to the extent the same is required by the Declaration of Trust,
Bylaws, current Prospectus or Statement of Additional Information
of the Fund or a vote of the Trustees of the Fund, and such
requirement has not been waived by vote of the Trustees of the
Fund, or (iii) any other action taken by the Agent in good faith
consistent with the exercise of reasonable care in connection
with the performance of its duties hereunder.
In the event that the Agent proposes to assert the right to
be indemnified under this Section 5 in connection with any
action, suit or proceeding against it, the Agent shall promptly
after receipt of notice of commencement of such action, suit or
proceeding notify the Fund of the same, enclosing a copy of all
papers served. In such event, the Fund shall be entitled to
participate in such action, suit or proceeding, and, to the
extent that it shall wish, to assume the defense thereof, and
the Fund shall not be liable to the Agent for any legal or other
expenses incurred after notice from the Fund to the Agent of its
election so to assume the defense thereof. The parties shall
cooperate with each other in the defense of any such action, suit
or proceeding. In no event shall the Fund be liable for any
settlement of any action or claim effected without its consent.
6. MAINTENANCE OF RECORDS.
The Agent will maintain and preserve all records relating to
its duties under this Agreement in compliance with the
requirements of applicable statutes, rules and regulations,
including, without limitation, Rule 31a-1 under the Investment
Company Act of 1940. Such records shall be the property of the
Fund and shall at all times be available for inspection and use
by the officers and agents of the Fund. The Agent shall furnish
to the Fund such information pertaining to the shareholder
accounts of the Fund and the performance of its duties hereunder
as the Fund may from time to time request. The Agent shall
notify the Fund promptly of any request or demand by any third
party to inspect the records of the Fund maintained by it and
will act upon the instructions of the Fund in permitting or
refusing such inspection.
7. FUND ACCOUNTS.
All moneys of the Fund from time to time made available for
the payment of distributions to shareholders or redemptions of
shares, or otherwise coming into the possession or control of the
Agent or its officers, shall be deposited and held in one or more
accounts maintained by the Agent solely for the benefit of the
Funds.
8. INSURANCE.
The Agent will at all times maintain in effect insurance
coverage, including, without limitation, Errors and Omissions,
Fidelity Bond and Electronic Data Processing coverages, at levels
of coverage consistent with those customarily maintained by other
high quality investor servicing agents for registered investment
companies and with such policies as the Trustees of the Fund may
from time to time adopt.
9. EMPLOYEES.
The Agent shall be responsible for the employment, control
and conduct of its agents and employees and for injury to such
agents or employees or to others caused by such agents or
employees. The Agent shall assume full responsibility for its
agents and employees under applicable statutes and agrees to pay
all applicable employer taxes thereunder with respect to such
agents and employees, and such agents and employees shall in no
event be considered to be agents or employees of the Fund.
10. TERMINATION.
This Agreement shall continue indefinitely until terminated
by not less than ninety (90) days prior written notice given by
the Fund to the Agent, or by not less than six months prior
written notice given by the Agent to the Fund. Upon termination
hereof, the Fund shall pay the Agent such compensation as may be
due to the Agent as of the date of such termination.
In the event that in connection with any such termination a
successor to any of the Agent's duties or responsibilities
hereunder is designated by the Fund by written notice to the
Agent, the Agent will cooperate fully in the transfer of such
duties and responsibilities, including provision for assistance
by the Agent's personnel in the establishment of books, records
and other data by such successor. The Fund will reimburse the
Agent for all expenses incurred by the Agent in connection with
such transfer.
11. MISCELLANEOUS.
This Agreement shall be construed and enforced in accordance
with and governed by the laws of The Commonwealth of
Massachusetts.
The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the
provisions of this Agreement or otherwise affect their
construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which taken together shall
constitute one and the same instrument.
A copy of the Declaration of Trust (including any amendments
thereto) of the Fund is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed in behalf of the Trustees of the Fund
as Trustees and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the
Trustees or officers or shareholders individually, but binding
only upon the assets and property of the Fund.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the date
and year first above written.
NEW ENGLAND FUNDS
By_______________________________________
Henry L.P. Schmelzer
President
NEW ENGLAND FUNDS, L.P.
By_______________________________________
Bruce R. Speca
Executive Vice President
Appendix A
New England Funds
New England Growth Fund
New England International Equity Fund
New England Capital Growth Fund
New England Value Fund
New England Growth Opportunities Fund
New England Balanced Fund
New England Star Advisers Fund
Growth Fund of Israel
New England Star Worldwide Fund
New England Equity Income Fund
New England High Income Fund
New England Government Securities Fund
New England Bond Income Fund
New England Limited Term U.S. Government
Fund
New England Adjustable Rate U.S.
Government Fund
New England Strategic Income Fund
New England Tax Exempt Income Fund
New England Massachusetts Tax Free Income
Fund
New England Intermediate Term Tax Free Fund of
California
New England Intermediate Term Tax Free Fund of
New York
New England Cash Management Trust
Money Market Series
U.S. Government Series
New England Tax Exempt Money Market Trust
NEW ENGLAND FUNDS, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Dealer Agreement
As dealer for our own account, we offer to sell to you shares of each of
the Funds listed on Exhibit A hereto as from time to time revised by us
(the "Funds" and each a "Fund"), of each of which Funds we are a principal
underwriter as defined in the Investment Company Act of 1940 (the "Act")
and from which we have the right to purchase shares.
With respect to each of the Funds (except for paragraph 4, which applies
only with respect to each Fund having in effect from time to time a service
plan or service and distribution plan adopted pursuant to Rule 12b-1 under
the Act):
1.In all sales of shares of the Fund to the public you shall act as dealer
for your own account, and in no transaction shall you have any authority
to act as agent for any of the Funds or for us.
2.Orders received from you will be accepted by us only at the public
offering price applicable to each order, except for transactions to
which a reduced offering price applies as provided in the then current
Prospectus (which term as used herein shall include the Statement of
Additional Information) of the Fund. The minimum dollar purchase of
shares of each Fund by any investor shall be the applicable minimum
amount described in the then current Prospectus of the fund and no order
for less than such amount will be accepted hereunder. The public
offering price shall be the net asset value per share plus the sales
charge, if any, applicable to the transaction, expressed as a percentage
of the public offering price, as determined and effective as of the time
specified in the then current Prospectus of the Fund. The procedures
relating to the handling of orders shall be subject to any instructions
that we shall forward from time to time to you. All orders are subject
to acceptance or rejection by us in our sole discretion. You hereby
agree to comply with the attached Policies and Procedures with Respect
to Sales of Shares of New England Funds Offering Multiple Classes of
Shares.
3.The sales charge applicable to any sale of Fund shares by you and the
dealer concession or commission applicable to any order from you for the
purchase of Fund shares accepted by us shall be as set forth in the
then current Prospectus of the Fund. You may be deemed to be an
underwriter in connection with sales by you of shares of the Fund where
you receive all or substantially all of the sales charge as set forth in
the Fund's Prospectus, and therefore you may be subject to applicable
provisions of the Securities Act of 1933.
We are entitled to a contingent deferred sales charge ("CDSC") on
redemptions within five years of purchase on any Class B shares sold and
within one year of purchase of certain Class A shares sold as described
in the Prospectus. You agree that you will sell shares subject to a
CDSC and that are to be held in omnibus accounts only if you are a
NETWORKING participant with the National Securities Clearing Corporation
and if such accounts are pursuant to a NETWORKING Agreement.
Reduced sales charges or no sales charge may apply to certain
transactions under letter of intent, combined purchases or investments,
reinvestment of dividends and distributions, repurchase privilege, unit
investment trust distribution reinvestment or other programs, as
described in the then current Prospectus of the Fund.
4.Rule 12b-1 Plans. The substantive provisions of this Paragraph 4 have
been adopted pursuant to Rule 12b-1 under the Act by certain Funds,
under plans pursuant to such Rule (each a "Plan").
(a) You agree to provide (i) for those Funds with a Service Plan,
personal services to investors in shares of the Funds and/or the
maintenance of shareholder accounts and (ii) for those Funds with a
Service and Distribution Plan, both personal services to investors in
shares of the Funds and/or the maintenance of shareholder accounts and
also distribution and marketing services in the promotion of Fund
shares. As compensation for these services, we shall pay you, with
respect to Fund shares which are owned of record by your firm as
nominee for your customers or which are owned by those shareholders
whose records, as maintained by the Fund or its agent, designate your
firm as the shareholder's dealer of record, a quarterly services fee
or services fee and distribution fee based on the average daily net
asset value of such Fund shares at the rate set forth with respect to
the Fund in Exhibit A hereto as from time to time revised by us. No
such fee will be paid to you with respect to shares purchased by you
and redeemed or repurchased by the Fund or by us as agent within seven
(7) business days after the date of our confirmation of such purchase.
No such fee will be paid to you with respect to any of your customers
if the amount of such fee based upon the value of such customer's Fund
shares will be less than $5.00. Normally, payment of such fee to you
shall be made within forty-five (45) days after the close of each
quarter for which such fee is payable.
(b) You shall furnish us and the Fund with such information as shall
reasonably be requested by the Trustees or Directors of the Fund with
respect to the fees paid to you pursuant to this paragraph 4.
(c) The provisions of this Paragraph 4 may be terminated by the vote
of a majority of the Trustees or Directors of the Fund who are not
interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements
related to the Plan, or by vote of a majority of the Fund's
outstanding shares, on sixty (60) days' written notice, without
payment of any penalty. Such provisions will be terminated also by
any act that terminates either the Fund's Distributor's Contract or
Underwriting Agreement with us or this Dealer Agreement and shall
terminate automatically in the event of the assignment (as that term
is defined in the Act) of this Dealer Agreement.
(d) The provisions of the Distributor's Contract or Underwriting
Agreement between the Fund and us, insofar as they relate to the Plan,
are incorporated herein by reference. The provisions of this
paragraph 4 shall continue in full force and effect only so long as
the continuance of the Plan, the Distributor's Contract or
Underwriting Agreement and these provisions is approved at least
annually by a vote of the Trustees or Directors, including a majority
of the Trustees or Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related to the Plan, cast
in person at a meeting called for the purpose of voting thereon.
5.You agree to purchase shares only from us or from your customers. If
you purchase shares from us, you agree that all such purchases shall me
made only: (a) to cover orders already received by you from your
customers; (b) for shares being acquired by your customers pursuant to
either the Exchange Privilege or the Reinvestment Privilege, as
described in the then current Prospectus of the Fund; (c) for your own
bona fide investment; or (d) for investments by any IRS qualified
pension, profit-sharing or other trust established for the benefit of
your employees or for investments in Individual Retirement Accounts
established by your employees, and, if you so advise us in writing prior
to any sale of Fund shares pursuant to this subparagraph (d), you agree
to waive all your dealer concessions to all sales of Fund shares
pursuant to this subparagraph (d). If you purchase shares from your
customers, you agree to pay such customers not less than the applicable
redemption price as established by the then current Prospectus of the
Fund. We agree that we will not purchase any securities from the Fund
except for our own bona fide investment purposes or for the purpose of
covering purchase orders that we have already received or for shares to
be acquired by our customers pursuant to either the exchange privilege
or the repurchase privilege, as described in the then current Prospectus
of the Fund.
6.You shall sell shares only: (a) to customers at the applicable public
offering price, except for shares being acquired by your customers at
net asset value pursuant to either the exchange privilege or the
repurchase privilege, as described in the then current Prospectus of the
Fund, and (b) to us as agent for the Fund at the redemption price. In
such a sale to us, you may act either as principal for your own account
or as agent for your customer. If you act as principal for your own
account in purchasing shares for resale to us, you agree to pay your
customer not less than the price that you receive from us. If you act
as agent for your customer in selling shares to us, you agree not to
charge your customer more than a fair commission for handling the
transaction, except that you agree to receive no compensation of any
kind based on the reinvestment of redemption or repurchase proceeds
pursuant to the repurchase privilege, as described in the then current
Prospectus of the Fund.
7.You hereby certify that all of your customers' taxpayer identification
numbers ("TIN") or social security numbers ("SSN") furnished to us by
you are correct and that you will not open an account without providing
the customer's TIN or SSN.
8.You shall not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding;
e.g., by a change in the net asset value from that used in determining
the public offering price to your customers.
9. We will not accept from you any conditional orders for shares.
10. If any Fund shares sold to you under the terms of this Agreement are
redeemed by the Fund or repurchased by us as agent for the Fund within
seven (7) business days after the date of our confirmation of the
original purchase by you, it is agreed that you shall forfeit your right
to the dealer concession or commission received by you on such Fund
shares.
We will notify you of any such repurchase or redemption within ten (10)
business days after the date thereof and you shall forthwith refund to
us the entire concession or commission allowed or paid to you on such
sale. We agree, in the event of any such repurchase or redemption, to
refund to the Fund the share of the sales charge, if any, retained by
us and upon receipt from you of the concession allowed to you on Class A
Shares, to pay such refund forthwith to the Fund.
11. Payment for Fund shares sold to you shall be made on or before the
settlement date specified in our confirmation, at the office of our
clearing agent, and by check payable to the order of the Fund, which
reserves the right to delay issuance, redemption or transfer of shares
until such check has cleared. If such payment is not received by us, we
reserve the right, without notice, forthwith either to cancel the sale,
or, at our option, to sell the shares ordered back to the Fund, and in
either case, we may hold you responsible for any loss, including loss of
profit, suffered by us or by the Fund resulting from your failure to
make payment as aforesaid.
12. You will also act as principal in all purchases by a shareholder
for whom you are the dealer of record of Fund shares with payments sent
directly by such shareholder to the Shareholder Servicing and Transfer
Agent (the "Agent") specified in the then current Prospectus of the
Fund, and you authorize and appoint the Agent to execute and confirm
such purchases to such shareholder on your behalf. The Agent will remit
monthly to you the amount of any concessions due with respect to such
purchases, except that no concessions will be paid to you on any
transaction for which your net sales concession is less than the total
of $5.00 in any one month. You also represent that with respect to all
such direct purchases of Fund shares by such shareholder, you may
lawfully sell shares of such Fund in the state designated as such
shareholder's record address.
13. Stock certificates for shares sold to you shall be issued only if
specifically requested and upon the terms specified from time-to-time by
the Trustees of the Fund. If no open account registration or transfer
instructions are received by the Agent within 20 days after payment by
you for shares sold to you, an open account for such shares will be
established in your name. You agree to hold harmless and indemnify us,
the Agent and the Fund, for any loss or expenses resulting from such
open account registration of such shares.
14. No person is authorized to make any representations concerning
shares of the Fund except those contained in the then current Prospectus
of the Fund and in sales literature issued by us supplemental to such
Prospectus. In purchasing shares from us, you shall rely solely on the
representations contained in such Prospectus and such sales literature.
We will furnish you with additional copies of such Prospectus and such
sales literature and other releases and information issued by us in
reasonable quantities upon request.
If, with permission from us, you use any advertisement or sales
literature which has not been supplied by us, you are responsible for
ensuring that the material complies with all applicable regulations and
has been filed with the appropriate authorities. Also, you will send us
copies of all such materials within ten (10) days of first use.
15. The Fund reserves the right in its discretion and we reserve the
right in our discretion, without notice, to suspend sales or withdraw
the offering of Fund shares entirely. We reserve the right, by written
notice to you, to amend, modify or cancel this Dealer Agreement. Notice
for all purposes shall be deemed to be given when mailed or
electronically transmitted to you.
16. This Dealer Agreement shall replace any prior agreement between you
and us and is conditioned upon your representation and warranty that you
are a member of the National Association of Securities Dealers, Inc. or,
in the alternative, that you are a foreign dealer not eligible for
membership in that Association, in which case you agree that, in making
any sales to purchasers within the United States of securities acquired
from us, you will conform to the provisions of paragraphs (a) and (b)
of Rule 25 of Article III of that Association's Rules of Fair Practice.
You and we agree to abide by the Rules and Regulations of the National
Association of Securities Dealers, Inc., including without limitation
Rules 2, 21 and 26 of Article III of its Rules of Fair Practice, and all
applicable state and federal laws, rules and regulations.
You will not offer Fund shares for sale in any state (a) where they are
not qualified for sale under the blue sky laws and regulations of such
state of (b) where you are not qualified to act as a dealer.
In the event that you offer Fund shares for sale outside the United
States, you agree to comply with the applicable laws, rules and
regulations of the foreign government having jurisdiction over such
sales, including any regulations of United States military authorities
applicable to solicitations to military personnel.
17. All communications to us should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below. This Agreement shall be effective when
accepted by you below and shall be construed under the laws of The
Commonwealth of Massachusetts.
Accepted: New England Funds, L.P.
___________________________________ By: __________________________
Dealer's Name
Address
___________________________________
By: ___________________________________
Authorized Signature of Dealer
___________________________________
(Please print name)
Date: ___________________________________
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/GRAHAM T. ALLISON
Graham T. Allison, Jr. - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/KENNETH J. COWAN
Kenneth J. Cowan - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/SANDRA O. MOOSE
Sandra O. Moose - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, and Robert P. Connolly, each of them singly, my
true and lawful attorneys, with full power to them and each of
them to sign for me, and in my name in the capacity indicated
below, any and all registration statements and any and all
amendments thereto to be filed with the Securities and Exchange
Commission for the purpose of registering from time to time
investment companies of which I am now or hereafter a Director or
Trustee and for which Capital Growth Management Limited
Partnership, Back Bay Advisors, Inc., Loomis, Sayles & Company,
Incorporated, Draycott Partners Limited, Westpeak Investment
Advisors, Inc. and/or any other affiliate of New England Mutual
Life Insurance Company ("The New England") serves as adviser, sub-
adviser or co-adviser, registering the shares of such companies
and generally to do all such things in my name and in my behalf
to enable such registered investment companies to comply with the
provisions of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and all requirements
and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my
said attorneys and any and all registration statements and
amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/HENRY L.P. SCHMELZER
Henry L. P. Schmelzer - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/JAMES H. SCOTT
James H. Scott - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/JOHN A. SHANE
John A. Shane - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/PETER S. VOSS
Peter S. Voss - Trustee
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A.
Benjamin, Frank Nesvet, Henry L.P. Schmelzer and Robert P.
Connolly, each of them singly, my true and lawful attorneys,
with full power to them and each of them to sign for me, and
in my name in the capacity indicated below, any and all
registration statements and any and all amendments thereto
to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time investment
companies of which I am now or hereafter a Director or
Trustee and for which Capital Growth Management Limited
Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England")
serves as adviser, sub-adviser or co-adviser, registering
the shares of such companies and generally to do all such
things in my name and in my behalf to enable such registered
investment companies to comply with the provisions of the
Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and all requirements and
regulations of the Securities and Exchange Commission,
hereby ratifying and confirming my signature as it may be
signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/PENDLETON P. WHITE
Pendleton P. White - Trustee
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940
As amended effective November __, 1995<F1>
Each series ("Fund") of New England Funds Trust I, New England Funds Trust
II and New England Funds Trust III (the "Trusts") may from time to time issue
one or more of the following classes of shares: Class A shares, Class B
shares, Class C shares and Class Y shares. Each class is subject to such
investment minimums and other conditions of eligibility as are set forth in the
Funds' prospectuses as from time to time in effect. The differences in
expenses among these classes of shares, and the conversion and exchange
features of each class of shares, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the Declaration of
Trust and By-laws of each Trust, by action of the Board of Trustees of each
Trust.
Initial Sales Charge
Class A shares are offered at a public offering price that is equal to
their net asset value ("NAV") plus a sales charge of up to 6.50% of the public
offering price (which maximum may be less for certain Funds, as described in
the Funds' prospectuses as from time to time in effect). The sales charges on
Class A shares are subject to reduction or waiver as permitted by Rule 22d-1
under the Investment Company Act of 1940 (the "1940 Act") and as described in
the Funds' prospectuses as from time to time in effect.
__________________________
<F>
<F1> New England Funds Trust I and New England Funds Trust II have been
offering multiple classes of shares, prior to the initial effectiveness of this
Plan on May 1, 1995, pursuant to an exemptive order of the Securities and
Exchange Commission. This Plan is intended to permit New England Funds Trust
I and New England Funds Trust II to offer multiple classes of shares pursuant
to Rule 18f-3 under the Investment Company Act of 1940, without any change in
the arrangements and expense allocations that have been approved by the
Board of Trustees of each of New England Funds Trust I and New England Funds
Trust II under such order of exemption.
</F>
Page 1
Class B, Class C and Class Y shares are offered at their NAV, without an
initial sales charge.
Contingent Deferred Sales Charge
Purchases of Class A shares of $1 million or more that are redeemed within
one year from purchase are subject to a contingent deferred sales charge (a
"CDSC") of 1% of either the purchase price or the NAV of the shares redeemed,
whichever is less. Class A shares are not otherwise subject to a CDSC.
Class B shares that are redeemed within 5 years from purchase are subject
to a CDSC of up to 4% of either the purchase price or the NAV of the shares
redeemed, whichever is less; such percentage declines the longer the shares are
held, as described in the Funds' prospectuses as from time to time in effect.
Class B shares purchased with reinvested dividends or capital gain
distributions are not subject to a CDSC.
The CDSC on Class A and Class B shares is subject to reduction or waiver
in certain circumstances, as permitted by Rule 6c-10 under the 1940 Act and as
described in the Funds' prospectuses as from time to time in effect.
Class C and Class Y shares are not subject to any CDSC.
Service, Administration and Distribution Fees
Class A, Class B and Class C shares pay distribution and service fees
pursuant to plans adopted pursuant to Rule 12b-1 under the 1940 Act (the "12b-
1 Plans") for such classes. There is no 12b-1 Plan for Class Y shares.
Class A, Class B and Class C shares each pay, pursuant to the 12b-1 Plans,
a service fee of up to .25% per annum of the average daily net assets
attributable to such class.
Class A, Class B and Class C shares of New England International Equity
Fund pay an administrative fee of .10% per annum of the average daily net
assets attributable to such class, pursuant to an Administrative Services
Page 2
Agreement. Class Y shares of such Fund pay an administrative fee of .05% per
annum of the average daily net assets attributable to such class pursuant to
such agreement.
Class A shares do not pay a distribution fee, with the exception that the
Class A shares of the following Funds pay, pursuant to the 12b-1 Plans, a
distribution fee of up to .10% per annum of the average daily net assets of
such Fund attributable to Class A shares: New England Massachusetts Tax Free
Income Fund, New England High Income Fund and New England Limited Term U.S.
Government Fund.
Class B and Class C shares pay, pursuant to the 12b-1 Plans, a
distribution fee of up to .75% per annum of the average daily net assets of
such Fund attributable to such class of shares.
Conversion and Exchange Features
Class B shares automatically convert to Class A shares of the same Fund
eight years after purchase, except that Class B shares purchased through the
reinvestment of dividends and other distributions on Class B shares convert to
Class A shares at the same time as the shares with respect to which they were
purchased are converted. Class A, Class C and Class Y shares do not convert to
any other class of shares.
Class A shares of any Fund may be exchanged, at the holder's option, for
Class A shares of another Fund without the payment of a sales charge, except
that if Class A shares of New England Adjustable Rate U.S. Government Fund are
exchanged for shares of a Fund with a higher sales charge, then the difference
in sales charges must be paid on the exchange; and except that Class A shares
of New England Intermediate Term Tax Free Fund of New York and New England
Intermediate Term Tax Free Fund of California must have been held for at least
six months before the exchange privilege applies to such shares. The holding
period for determining any CDSC will include the holding period of the shares
exchanged. Class A shares may also be exchanged for Class A shares of New
England Cash Management Trust or New England Tax Exempt Money Market Trust (the
"Money Market Funds"), in which case the holding period for purposes of
determining the expiration of the CDSC on such shares, if any, will stop and
will resume only when an exchange is made back into Class A shares of a Fund.
If such Money Market Fund shares are subsequently redeemed for cash, they will
be subject to a CDSC to the same extent that the shares exchanged would have
been subject to a CDSC at the time of the exchange into the Money Market Fund.
Class A shares of a Money Market Fund so purchased may be exchanged for Class A
Page 3
shares of a Fund without sales charge or CDSC to the same extent as the Class A
shares exchanged for the Money Market Fund Class A shares could have been so
exchanged. The holding period for determining any CDSC for the acquired Fund
shares will not include the period during which the Money Market Fund shares
were held, but will include the holding period for the Class A Fund shares that
were exchanged for the Money Market Fund shares.
Class B shares of any Fund may be exchanged, at the holder's option, for
Class B shares of another Fund, without the payment of a CDSC. The holding
period for determining the CDSC and the conversion to Class A shares will
include the holding period of the shares exchanged. Class B shares of any Fund
may also be exchanged for Class B shares of a Money Market Fund, without the
payment of a CDSC. If such Money Market Fund shares are subsequently redeemed
for cash, they will be subject to a CDSC to the same extent that the shares
exchanged would have been subject to a CDSC at the time of the exchange into
the Money Market Fund. If such Money Market Fund shares are exchanged for
Class B shares of a Fund, no CDSC will apply to the exchange, and the holding
period for the acquired shares will include the holding period of the shares
that were exchanged for the Money Market Fund shares (but not the period during
which the Money Market Fund shares were held).
Class C shares of any Fund may be exchanged for Class C shares of any
other Fund that offers Class C shares, or for Class A shares of a Money Market
Fund.
Class Y shares of any Fund may be exchanged for Class Y shares of any
other Fund that offers Class Y shares, or for Class A shares of a Money Market
Fund.
Page 4
