<PAGE>
As filed with the Securities and Exchange Commission on
April 30, 1997
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. ___ [ ]
Post-Effective Amendment No. 2 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ]
ACT OF 1940
Amendment No. 5 [ 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, Esq.
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, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant filed on February 28, 1997 the Rule
24f-2 Notice for the Registrant's fiscal year ended December 31, 1996.
<PAGE>
NEW ENGLAND FUNDS TRUST III
(Prospectus and Statement of Additional Information)
CROSS REFERENCE SHEET
Items required by Form N-1A
<TABLE>
<CAPTION>
Item No. of
Form N-1A Caption in Prospectus
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<C> <S>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item No. of Caption in Statement of
Form N-1A Additional Information
--------- ----------------------
<C> <S>
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
</TABLE>
<PAGE>
[sail logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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NEW ENGLAND EQUITY INCOME FUND
PROSPECTUS AND APPLICATION
MAY 1, 1997
New England Equity Income Fund (the "Fund") is a 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 (the "Statement") about the Fund dated May 1, 1997 has
been filed with the Securities and Exchange Commission (the "Commission") 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Page
FUND EXPENSES AND FINANCIAL INFORMATION
Schedule of Fees Sales charges, yearly operating expenses.
Financial Highlights Historical information on the Fund's performance.
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INVESTMENT STRATEGY
How the Fund Pursues Its Investment Objective
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INVESTMENT RISKS It is important to understand the risks inherent in the
Fund before you invest.
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FUND MANAGEMENT
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BUYING FUND SHARES
Minimum Investment Everything you need to know to open and add to
5 Ways to Buy Fund Shares 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
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OWNING FUND SHARES
Exchanging Among New England Funds
Fund Dividend Payments
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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.
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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
</TABLE>
<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
Maximum Initial Sales Charge Imposed on a Purchase (as a percentage of
offering price)(1)(2) ................................................... 5.75%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(2)................. (3)
(1) A reduced sales charge applies in some cases. See "Buying Fund Shares --
Reduced Sales Charges."
(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 but not to any other purchases or
redemptions. See "Buying Fund Shares -- Sales Charges."
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C>
Management Fees (after fee waiver and voluntary expense limitation) 0.00%*
12b-1 Fees (after fee waiver and voluntary expense limitation) 0.00%*
Other Expenses(after fee waiver and voluntary expense limitation 1.50%*
Total Fund Operating Expenses (after fee waiver and voluntary expense limitation) 1.50%*
* Without the voluntary fee waiver and expense reduction by the Fund's adviser, the Fund's subadviser
and/or the Distributor, Management Fees, 12b-1 Fees, Other Expenses and Total Expenses would be
0.70%, 0.25%, 2.72% and 3.67%, respectively. These voluntary limitations can be terminated by the
Fund's adviser, the Fund's subadviser and/or the Distributor at any time. See "Fund Management."
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) 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........................................................ $72
3 Years....................................................... $102
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," "The Funds Expenses" and "Additional Facts About the Fund."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect to
transfer redemption proceeds by wire.
<PAGE>
FINANCIAL HIGHLIGHTS
The Financial Highlights have been included in financial statements for the Fund
and have been examined by Price Waterhouse LLP, independent accountants, whose
report thereon is incorporated by reference in the Statement and may be obtained
by shareholders. The Financial Highlights should be read in conjunction with the
financial statements and notes thereto incorporated by reference in the
Statement. The Fund's annual report contains additional performance information
and is available upon request and without charge.
<TABLE>
NEW ENGLAND EQUITY INCOME FUND
<CAPTION>
NOV. 15 (a) YEAR
THROUGH ENDED
DEC. 31, DEC. 31
1995 1996
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<S> <C> <C>
Net asset value, beginning of period $12.50 $12.86
------ ------
Income from investment operations
Net investment income 0.04 0.31
Net gains or losses on securities (both realized and 0.36 3.11
unrealized)
------ ------
Total from investment operations 0.40 3.42
------ ------
Less distributions
Dividends (from net investment income) (0.04) (0.30)
Distributions (from capital gains) 0.00 (0.83)
------ ------
Total distributions (0.04) (1.13)
------ ------
Net asset value, end of period $12.86 $15.15
====== ======
Total return(%) 3.2(c) 26.6
Ratios/Supplemental data
Net assets, end of period (000) $2,064 $2,613
Ratio of expenses to average net assets(%)(d) 1.50 (b) 1.50
Ratio of net income to average net assets(%) 3.58(b) 2.06
Average Commission Rate (e) 0.0608
Portfolio turnover rate(%) 0 45
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets without giving effect to the expense limitations
in effect would have been 5.97% (annualized) and 3.67% for the periods ended December 31, 1995 and
December 31, 1996, respectively.
(e) For fiscal years beginning on or after September 1, 1995, the Fund is required to disclose its average
commission rate per share for trades on which commissions are charged. This rate generally does not
reflect mark-ups, mark-downs, or spreads on shares traded on a principal basis.
</TABLE>
<PAGE>
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 Composite Index of 500 Common
Stocks (the "S&P 500") 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,
foreign securities and 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
Fixed-income securities include debt obligations of governmental and
corporate issuers. 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
Under a repurchase agreement, 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. If the seller
fails to repurchase the securities, the Fund has the right to sell the
securities to third parties. Repurchase agreements can be regarded as loans
by the Fund to the seller collateralized by securities that are the subject
of the agreement. Repurchase agreements afford an opportunity for the Fund to
earn a return on available cash at relatively low market risk, although the
Fund may be subject to various delays and risks of loss if the seller fails
to meet its obligation to repurchase.
* 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.
Recent portfolio turnover rates for the Fund are set forth above under
"Financial Highlights."
* 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.
FUND MANAGEMENT
New England Funds Management, L.P. ("NEFM"), 399 Boylston Street, Boston,
Massachusetts 02116, serves as the adviser to the Fund but has delegated
day-to-day portfolio management responsibility to the Fund's subadviser, Loomis,
Sayles & Company, L.P. ("Loomis Sayles"), One Financial Center, Boston,
Massachusetts 02111. Founded in 1926, Loomis Sayles is one of the country's
oldest and largest investment counsel firms. Mauricio F. Cevallos, Vice
President and Manager of Loomis Sayles, Peter Ramsden, Vice President of Loomis
Sayles, and Tom Kolefas, Vice President of Loomis Sayles act as portfolio
managers of the Fund. Mr. Cevallos has been employed by Loomis Sayles for more
than ten years and has served as portfolio manager of the Fund since November
1995. Mr. Kolefas joined Loomis Sayles in 1996, he was previously employed as
portfolio manager at Mackay Shields Financial Corporation. Mr. Ramsden has been
employed by Loomis Sayles for more than five years, and have served as portfolio
managers of the Fund since its inception in November 1995. NEFM oversees,
evaluates and monitors the subadvisory services provided to the Fund and
furnishes general business management and administration to the Fund. NEFM does
not determine what investments will be purchased by 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 NEFM, Loomis Sayles and the Distributor are
special purpose corporations 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 Metropolitan
Life Insurance Company ("MetLife").
In placing portfolio transactions for the Fund, Loomis Sayles seeks the most
favorable price and execution available. Subject to applicable regulatory
restrictions and such policies as the Trust's trustees may adopt, Loomis Sayles
may consider sales of shares of the Fund and other mutual funds that it manages
as a factor in the selection of broker-dealers to effect portfolio transactions
for the Fund.
NEFM provides executive and other personnel for the management of the Trust. The
Trust's Board of Trustees supervises the affairs of the Trust as conducted by
NEFM and Loomis Sayles.
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 for
the Fund and the Trust's independent trustees, all brokerage commissions and
transfer taxes in connection with portfolio transactions, all taxes and filing
fees, the fees and expenses for registration or qualification of its shares
under federal and state securities laws, all expenses of shareholders' and
trustees' meetings and of preparing, printing and mailing 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. NEFM, Loomis Sayles and the
Distributor have voluntarily agreed to reduce their fees and bear certain
operating expenses charged to the Fund to the extent that the total of such fees
and expenses would exceed 1.50% annually of the average net assets of the Fund.
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, SEP, SIMPLE, 403(b) retirement plans and certain
other retirement plans.
* $100 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.
* $2,000 on initial and $100 on subsequent investments for accounts registered
under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act.
* $500 on initial and $100 on subsequent investments for IRAs.
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.
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.
All purchases made by check should be in U.S. dollars made payable to New
England Funds, or, in the case of a retirement account or custodian or trustee,
third party checks will not be accepted. When purchases are made by check or
periodic account investment, redemptions will not be allowed until the
investment being redeemed has been in the account for 10 calendar days.
() BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) 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 $100 or more from your bank checking or
savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder on the enclosed
application. Indicate the amount of the monthly investment and enclose a check
marked "Void" or a deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at
1-800-225-5478 for a Service Options form.
() BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated Clearing
House ("ACH") system as long as your bank or credit union is a member of the ACH
system and you have a completed, approved ACH application on file with the Fund.
To purchase through ACH, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) 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 of the Fund 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. Shares are offered subject to the following sales charges:
Sales Charge as a % of Dealer's
--------------------------------- Concession
Public as % of
Offering Amount Offering
Value of Total Investment Price Invested Price
------------------------- ----- -------- -----
Less than $50,000 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.15%
$500,000 - $999,999 2.00% 2.04% 1.70%
$1,000,000 or more None None *
* The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases a commission of up to the following
amounts: 1% on the first $3 million invested; 0.50% on the next $2 million;
0.25% 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, a
contingent deferred sales charge (a "CDSC"), at the rate of 1% of the lesser of
the purchase price or the net asset value at the time of redemption, applies to
redemptions of shares within one year after purchase. If an exchange is made to
Class A shares of any of New England Cash Management Trust Money Market Series
or U.S. Government Series or New England Tax Exempt Money Market Trust (the
"Money Market Funds"), then the one-year holding period for purposes of
determining the expiration of the CDSC will stop and will resume only when an
exchange is made back into Class A shares of a series of the 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 59 1/2. The CDSC is waived for
redemptions made to make required minimum distributions after attainment of age
70 1/2 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. 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 - no sales charge or CDSC applies to
investments of $100,000 or more in the Fund by (1) clients of an adviser or
subadviser to any series of the Trusts; any director, officer or partner of a
client of an adviser or subadviser to any series of the Trusts; and the
parents, spouses and children of the foregoing; (2) any individual who is a
participant in a Keogh or IRA plan under a prototype plan document of an
adviser or subadviser to any series of the Trusts if at least one participant
in the plan qualifies under category (1) above; and (3) an individual who
invests through an IRA and is a participant in an employee benefit plan that
is a client of an adviser or subadviser to any series of the Trusts. Any
investor eligible for these arrangements should so indicate in writing at the
time of the purchase.
* Shares of the Fund may be purchased at net asset value 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, CDSC or initial investment minimum related to
investments by certain current and retired employees of the Trusts'
investment advisers and subadvisers, the Distributor, The New England or any
other company affiliated with The New England; current and former directors
and trustees of the Trusts, The New England or their predecessor companies;
agents and general agents of The New England and its insurance company
subsidiaries; current and retired employees of such agents and general
agents; registered representatives of broker-dealers who have selling
arrangements with the Distributor; the spouse, parents, children, siblings,
grandparents or grandchildren of the persons listed above; any trust,
pension, profit sharing or other benefit plan for any of the foregoing
persons; and any separate account of The New England or of any insurance
company affiliated with The New England.
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 shares of the Fund for the Class A shares of any other series
of the Trusts 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 without paying a sales charge.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time), call Tele#Facts at 1-800-346-5984 twenty-four hours a day or
write to New England Funds. 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 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 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 which 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
securities (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
* The Trust 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. The Fund was organized in 1995.
* 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 the Statement, the investment policies of the Fund may be
changed by the Trust's trustees 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, pension and profit sharing plans, automatic
investment plans or accounts that have fallen below the minimum solely
because of fluctuations in the Fund's net asset value per share.
* The Fund's annual report contains additional performance information and is
available upon request and without charge.
<PAGE>
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.
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 - The price of one share of a mutual fund, including its
initial sales charge, if there is one.
RECORD DATE - The date on which mutual fund investors must own a fund's shares
to be eligible to receive specific income or capital gain distributions.
SERVICE FEE - Payments by a fund to a fund's distributor or a financial
representative for personal service to investors and/or for maintenance of
shareholder accounts.
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 SEC.
12B-1 FEES - Fees paid by a mutual fund under a plan adopted under Rule 12b-1
under the 1940 Act. Can include both distribution fees and service fees.
<PAGE>
[sail logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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NEW ENGLAND EQUITY INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
This Statement of Additional Information (the "Statement") contains
information which may be useful to investors but which is not included in the
prospectus of 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 May 1, 1997 (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
Financial Statements
Appendix A - Description of Bond Ratings
Appendix B - Publications That May Be Referred to in Fund Advertisements
and Sales Literature
<PAGE>
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INVESTMENT RESTRICTIONS
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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. Except in the case of restriction (14) below, the percentages set forth
below and the percentage limitations set forth in the Prospectus will apply at
the time of the purchase of a security and shall not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of 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) 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;
*(7) 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);
*(8) 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;
(9) Make investments for the purpose of exercising control or management;
(10) 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.);
(11) Write, purchase or sell options except that the Fund may (a) write,
purchase and sell put and call options on securities, securities
indexes or futures contracts and (b) enter into currency forward
contracts;
(12) 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;
*(14) 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 New England Funds Trust III's (the "Trust")
Declaration of Trust and by the Investment Company Act of 1940 (the
"1940 Act"), the rules thereunder, or any exemption therefrom.)
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FUND CHARGES AND EXPENSES
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MANAGEMENT FEES
Pursuant to an advisory agreement dated August 30, 1996 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
management 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 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 which may be terminated at any time,
NEFM, the Distributor and Loomis Sayles bear all expenses (other than any
brokerage costs, interest, taxes or extraordinary expenses) of the Fund in
excess of 1.50% annually of the Fund's average daily net assets.
For the period from November 28, 1995 to December 31, 1995, and the
fiscal year ended December 31, 1996, the advisory fees for the Fund (before any
voluntary fee reductions) were $1,277 and $16,222, respectively. As a result of
the voluntary expense limitation in effect, the Fund paid $0 and $0 in advisory
fees for the period November 28, 1995 to December 31, 1995 and the fiscal year
ended December 31, 1996.
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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 intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
. Future Developments - The above discussion relates to the Fund's proposed use
of futures contracts, options and options on futures contracts currently
available. The relevant markets and related regulations are still in the
developing stage. In the event of future regulatory or market developments, the
Fund may also use additional types of futures contracts or options and other
investment techniques for the purposes set forth above.
<PAGE>
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MANAGEMENT OF THE TRUST
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The Trustees of the Trust, their ages (in parentheses), addresses and
principal occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR.--Trustee (56); 79 John F. Kennedy Street, Cambridge, MA
02138; Douglas Dillon Professor and Director for the Center of Science
and International Affairs, John F. Kennedy School of Government;
Special Advisor to the United States Secretary of Defense; formerly,
Assistant Secretary of Defense; formerly Dean, John F. Kennedy School
of Government.
DANIEL M. CAIN - Trustee (52); 452 Fifth Avenue, New York, NY 10018; President
and Chief Executive Officer, Cain Brothers & Company, Incorporated
(investment banking); Trustee, Universal Health Realty Income Trust
(REIT); Chairman, Inter Fish, Inc. (a Barbados aqua culture venture).
KENNETH J. COWAN -- Trustee (64); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Retired; formerly, Senior Vice President-Finance and
Chief Financial Officer, Blue Cross of Massachusetts, Inc. and Blue
Shield of Massachusetts, Inc.; formerly, Director, Neworld Bank for
Savings and Neworld Bancorp.
RICHARD DARMAN - Trustee (53); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Partner and Managing Director, The Carlyle Group (investments);
Trustee, Council for Excellence in Government (not-for-profit);
Director, Frontier Ventures (personal investment); Director, Highway
Master Communications (mobile communications); Managing Partner, Little
Falls Partners (family investment); Director, Sequana Therapeutics
(biotechnology/genomics); Director, Telcom Ventures
(telecommunications); formerly, Director of the U.S. Office of
Management and Budget and a member of President Bush's Cabinet.
SANDRA O. MOOSE -- Trustee (54); 135 E. 57th Street New York, NY 10022; Senior
Vice President and Director, The Boston Consulting Group, Inc.
(management consulting); Director, GTE Corporation and Rohm and Haas
Company (specialty chemicals).
HENRY L. P. SCHMELZER* -- Trustee and President (53); 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.
JOHN A. SHANE -- Trustee (63); 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
(49); 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 Trust, as defined in the 1940
Act.
PENDLETON P. WHITE -- Trustee (65); 6 Breckenridge Lane, North, Savannah,
Georgia 31411; Retired; formerly, President and Chairman of the
Executive Committee, Studwell Associates (executive search
consultants); formerly, Trustee, The Faulkner Corporation.
Officers of the Trust in addition to Messrs. Voss and Schmelzer, and
their ages (in parentheses), and principal occupations during the past five
years are as follows:
BRUCE R. SPECA - Executive Vice President (39); Executive Vice President, NEF
Corporation; Executive Vice President, New England Funds, L.P.;
Executive Vice President, NEFM.
FRANK NESVET -- Treasurer (53); 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.
ROBERT P. CONNOLLY -- Secretary and Clerk (43); 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).
The address of Messrs. Voss, Schmelzer, Speca, Nesvet and Connolly is
399 Boylston Street, Boston, Massachusetts 02116.
Trustees Fees
The Trust currently pays no compensation to any of its Trustees.
During the year ended December 31, 1996, the Trustees of the Trust who
are not "interested persons" of the Trust as defined in the 1940 Act received
the amounts set forth below for serving on the governing boards of 22 other
mutual fund portfolios that have NEFM or an affiliate thereof as investment
adviser or principal underwriter (the "Other Funds").
Total Compensation from
Name of Trustee the Other Funds in 1996
--------------- -----------------------
Graham T. Allison, Jr. $54,500
Daniel M. Cain* 51,250
Kenneth J. Cowan 61,250
Richard Darman* 48,500
Sandra O. Moose 59,000
James H. Scott** 14,000
John A. Shane 59,000
Pendleton P. White 57,500
* Messrs. Cain and Darman became Trustees of the Trust on February 23, 1996.
** Mr. Scott resigned as a Trustee of the Trust on March 5, 1996.
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 April 1, 1997, the officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Trust.
Advisory and Subadvisory Agreements
The Fund 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 federal and 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. 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, formed in 1995, is a limited partnership whose sole general
partner, NEF Corporation, is a wholly-owned subsidiary of NEIC Holdings, Inc.
("NEIC Holdings"), which is a wholly-owned subsidiary of NEIC. NEF Corporation
is also the sole general partner of New England Funds, L.P., the distributor of
the Fund. NEIC owns the entire limited partnership interest in each of NEFM and
New England Funds, L.P.
NEIC's sole general partner, NEIC Inc., is a wholly-owned subsidiary of
Metropolitan life Insurance Company ("MetLife"), which owns a majority limited
partnership interest in NEIC. NEIC and its thirteen subsidiary or affiliated
asset management firms, collectively, have more than $100 billion of assets
under management or administration.
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 limited partnership
whose sole general partner, Loomis, Sayles & Company, Incorporated, is a
wholly-owned subsidiary of NEIC Holdings.
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 (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 1940 Act, the Plan was approved by
the sole initial shareholder 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.
From the period November 28, 1995 through December 31, 1995, and for
the fiscal year ended December 31, 1996, New England Funds, L.P. received no
commissions on sales of the Fund and, because of a voluntary waiver, received no
fees under the Plan.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), Boston, Massachusetts 02110, is the Trust's custodian. As such,
State Street Bank holds in safekeeping certificated securities and cash
belonging to the Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to the Fund. Upon instruction, State
Street Bank receives and delivers cash and securities of the Fund in connection
with Fund transactions and collects all dividends and other distributions made
with respect to Fund portfolio securities. State Street Bank also maintains
certain accounts and records of the Trust and calculates the total net asset
value, total net income and net asset value per share of the Fund on a daily
basis.
Independent Accountants. The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, MA 02110. The independent
accountants of the Fund conduct an annual audit of the Fund's financial
statements, assist in the preparation of federal and state income tax returns
and consult with the Fund as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectus and financial statements in the Fund's annual report for the year
ended December 31, 1996 and incorporated by reference into this Statement, have
been so included in reliance on the report of Price Waterhouse LLP, given on the
authority 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 a $250 monthly fee to New England Funds, L.P. for these services, which New
England Funds, L.P. pays in full to State Street Bank for it to provide, through
its subsidiary, Boston Financial Data Services, Inc. ("BFDS"), transaction
processing and other services. In addition, during the period from November 28,
1995 through December 31, 1995 and for the fiscal year ended December 31, 1996,
New England Funds, L.P. received $0 and $0, respectively in legal and accounting
service fees for the Fund.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
In placing orders for the purchase and sale of portfolio securities for
the Fund, Loomis Sayles always seeks 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 Fund's 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.
During the period from November 28, 1995 through December 31, 1995, and
for the fiscal year ended December 31, 1996, brokerage transactions for the Fund
aggregating $1,999,812 and $1,981,029 were allotted to brokers providing
research services and $624 and $48 in commissions were paid on these
transactions, respectively. During the fiscal years ended December 31, 1995 and
1996, the Fund paid total brokerage fees of $3,150 and $3,140, respectively.
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DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust in 1995. The
Fund, organized in 1995, commenced operations on November 28, 1995. The Fund
currently has one class of shares.
The Trust's Agreement and Declaration of Trust (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.
On April 29, 1997, Loomis Sayles Funded Pension Plan and Trust owned of
record or beneficially 100% of the Fund's shares.
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.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Fund are summarized in the
Prospectus. Banks may charge a fee for transmitting funds by wire. With respect
to shares purchased by federal funds, shareholders should bear in mind that wire
transfers may take two or more hours to complete.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange (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.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset
value per share is summarized in the Prospectus.
The total net asset value of 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, 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.
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REDUCED SALES CHARGES
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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. 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 to series of the Trusts; any director, officer or partner of a client
of an adviser or subadviser 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 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 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, 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.
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SHAREHOLDER SERVICES
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Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. New England Funds, L.P. may charge a fee for
providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and delivery of
stock certificates unnecessary, eliminates problems of handling and safekeeping,
and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by the 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.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures an
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level
of current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Bond Income Fund
invests primarily in corporate and U.S. Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholder's' capital. The 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 April 29, 1997, the net assets of the series in the Trusts
totaled over $5.9 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.
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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.
<TABLE>
INVESTMENTS AT 8% RATE OF RETURN
<CAPTION>
5 YRS. 10 15 20 25 30
------ -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
<CAPTION>
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
------ -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The Fund's advertising and sales literature may refer to historical,
current and prospective economic trends and may include historical and current
performance and total returns of investment alternatives to the New England
Funds. Articles, releases, advertising and literature may discuss the range of
services offered by the Trusts and New England Funds, L.P., as distributor and
transfer agent of the Fund, with respect to investing in shares of the Fund and
other series of the Trusts and customer service. Such materials may discuss the
multiple classes of shares available through the Trusts and their features and
benefits, including the details of the pricing structure.
Advertising and sales literature may also refer to the beta
coefficient of the New England Funds. A beta coefficient is a measure of
systematic or undiversifiable risk of a stock. A beta coefficient of more than 1
means that the company's stock has shown more volatility than the market index
(e.g., Standard & Poor's 500) to which it is being related. If the beta is less
than 1, it is less volatile than the market average to which it is being
compared. If it equals 1, its risk is the same as the market index. High
variability in stock price may indicate greater business risk, instability in
operations and low quality of earnings. The beta coefficients of the New England
Funds may be compared to the beta coefficients of other funds.
The Fund may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising and sales
literature developed to publicize such arrangements will explain the
relationship of the bank to New England Funds and New England Funds, L.P. as
well as the services provided by the bank relative to the Fund. The material may
identify the bank by name and discuss the history of the bank including, but not
limited to, the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Fund's prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Fund's prospectus, it is the policy of the Fund
to pay its shareholders, as dividends, substantially all net investment income
and to distribute annually all net realized capital gains, if any, after
offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full
and fractional shares of the Fund based upon the net asset value determined as
of the close of the Exchange on the record date for each dividend or
distribution. Shareholders, however, may elect to receive their income dividends
or capital gain distributions, or both, in cash. The election may be made at any
time by submitting a written request directly to New England Funds. In order for
a change to be in effect for any dividend or distribution, it must be received
by New England Funds on or before the record date for such dividend or
distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify, the Fund must,
among other things (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (ii) derive less
than 30% of its gross income from gains from the sale or other disposition of
securities held for less than three months; (iii) distribute at least 90% of its
dividend, interest and certain other taxable income each year; and (iv) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other regulated investment
companies, other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no more than 25% of its
assets invested in the securities (other than those of the U.S. government or
other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades and businesses. To the extent it qualifies for treatment as a
regulated investment company, the Fund will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if
any, of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
Shareholders of the Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by the Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for 12 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares received shortly after
their purchase, although in effect a return of capital, are subject to federal
income taxes.
The Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
The Fund may limit its investments in certain "passive foreign
investment companies" in order to avoid certain taxes that arise as a result of
such investments.
Redemptions and exchanges of Fund shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss, provided the shareholder holds the shares as a
capital asset. However, if a shareholder sells Fund shares at a loss within six
months after purchasing the shares, the loss will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions received
by the shareholder. Furthermore, no loss will be allowed on the sale of Fund
shares to the extent the shareholder acquired other shares of the same Fund
within 30 days prior to the sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax
law. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Fund and the related report of
independent accountants included in its annual report for the year ended
December 31, 1996 are incorporated herein by reference to the Fund's report
filed March 10, 1997.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group
AAA
This is the highest rating assigned by Standard & Poor's to a debt obligation
and indicates an extremely strong capacity to pay interest and repay principal.
AA
Bonds rated AA also qualify as high quality debt obligations. Capacity to pay
interest and repay principal is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to repay principal and pay interest for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC, C
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CI
The rating CI is reserved for income bonds on which no interest is being paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc.
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large, or by an exceptionally stable,
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A
Bonds that are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa
Bonds that are rated Baa are considered as medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, if fact, have
speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default of
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, and B1.
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
PUBLICATIONS THAT MAY BE REFERRED TO IN FUND 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
World Wide Web
Worth Magazine
WRKO
<PAGE>
NEW ENGLAND FUNDS TRUST III
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Per share income and capital changes for New England Equity
Income Fund is included in the prospectus filed as Part A
hereof. The following financial statements are incorporated in
the statement of additional information included in Part B
hereof by reference to the annual report to shareholders of
the New England Equity Income Fund for the fiscal year ended
December 31, 1996, which was filed with the Commission on the
date appearing in parentheses below:
New England Equity Income Fund (March 10, 1996)
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
<TABLE>
(b) Exhibits:
<S> <C> <C>
1. The Registrant's Agreement and Declaration of Trust is incorporated herein by reference to the
Registration Statement on Form N-1A (File No. 33-62061), filed on August 23, 1995.
2. By-Laws of the Registrant are incorporated herein by reference to the Registration Statement on
Form N-1A (File No. 33-62061), filed on August 23, 1995.
3. Not applicable.
4. Not applicable.
5.(A) Form of Advisory Agreement between the Registrant, on behalf of its New England Equity Income
Fund, and New England Funds Management, L.P. is incorporated herein by reference to the
Registration Statement on Form N-1A (File No. 33-62061), filed on August 23, 1995.
(B) Form of Subadvisory Agreement for New England Equity Income Fund between New England Funds
Management, L.P. and Loomis, Sayles & Company, L.P. is incorporated herein by reference to the
Registration Statement on Form N-1A (File No. 33-62061), filed on August 23, 1995.
6. Form of Distribution Agreement between the Registrant, on behalf of its New England Equity
Income Fund, and New England Funds, L.P. (the "Distributor") is incorporated herein by
reference to the Registration Statement on Form N-1A (File No. 33-62061), filed on August 23,
1995.
7. Not applicable.
8. Form of Custodian Agreement between the Registrant and State Street Bank and Trust Company is
incorporated herein by reference to Pre-Effective Amendment No. 2 to the Registration Statement
on Form N-1A (File No. 33-62061), filed on October 30, 1995.
9.(A) Form of Transfer Agency Agreement between the Registrant and New England Funds, L.P. is
incorporated herein by reference to Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-1A (File No. 33-62061), filed on October 30, 1995.
(B) Form of Dealer Agreement of New England Funds, L.P., the Registrant distributor, is incorporated
herein by reference to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A
(File No. 33-62061), filed on October 30, 1995.
(C) Powers of Attorney for Trustees, except Daniel M. Cain and Richard Darman, of the Registrant
are incorporated herein by reference to Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 33-62061), filed on October 30, 1995. Powers of Attorney for
Messrs. Cain and Darman are incorporated herein by reference to Post-Effective Amendment No. 1
to the Registration Statement on Form N-1A (File No. 33-62061), filed on April 29, 1996.
10. Opinion of Ropes & Gray with respect to New England Equity Income Fund is incorporated herein
by reference to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File
No. 33-62061), filed on November 22, 1995.
11. Consent of Price Waterhouse is filed herewith.
12. Not applicable.
13. Investment Letter of Loomis Sayles Funded Pension Plan and Trust is incorporated herein by
reference to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A (File No.
33-62061), filed on November 22, 1995.
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.
17. Financial data schedule is filed herewith.
18. Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940 for New England Funds
Trust III is incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-62061), filed on October 30, 1995.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders
of each class of securities of the Registrant as of March 31,
1996:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders-Class A
-------------- --------------------------------
<S> <C>
Shares of Beneficial Interest 1
New England Equity Income Fund
No Par Value
</TABLE>
Item 27. Indemnification
See Article 4 of the Registrant's By-Laws filed as Exhibit 2
incorporated by reference herein.
In addition, Metropolitan 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):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
---- ------------------ ----------
<S> <C> <C>
NEF Corporation None None
General Partner
Henry L.P. Schmelzer, New England Funds, L.P. President and CEO
President and Chief Executive Officer 399 Boylston Street
Boston, MA 02116
NEF Corporation President, CEO and Director
399 Boylston Street
Boston, MA 02116
Back Bay Advisors, Inc. Director
399 Boylston Street
Boston, MA 02116
New England Securities Corporation* Director
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, L.P. Senior Vice President and CFO
Senior Vice President and CFO 399 Boylston Street
Boston, MA 02116
NEF Corporation Senior Vice President and CFO
399 Boylston Street
Boston, MA 02116
Robert E. O'Hare, NEF Corporation Vice President, Assistant Secretary
Vice President, Assistant Secretary 399 Boylston Street and Assistant Clerk
and Assistant Clerk Boston, MA 02116
New England Funds, L.P. Vice President, Assistant Secretary
399 Boylston Street and Assistant Clerk
Boston, MA 02116
Robert P. Connolly, NEF Corporation Senior Vice President, General
Senior Vice President, General Counsel, 399 Boylston Street Counsel, Secretary and Clerk
Assistant Secretary and Clerk Boston, MA 02116
New England Funds, L.P. Senior Vice President, General
399 Boylston Street Counsel, Secretary and Clerk
Boston, MA 02116
Bruce R. Speca, NEF Corporation Executive Vice President
Executive Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Executive Vice President
399 Boylston Street
Boston, MA 02116
Peter H. Duffy, NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Vice President
399 Boylston Street
Boston, MA 02116
Martin G. Dyer, NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Vice President
399 Boylston Street
Boston, MA 02116
Ralph M. Greggs, NEF Corporation Vice President
Vice President 399 Boylston Street
Boston, MA 02116
New England Funds, L.P. Vice President
399 Boylston Street
Boston, MA 02116
</TABLE>
(b) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the
subadviser to New England Equity Income Fund, provides
investment advice to a number of other registered investment
companies and to other organizations and individuals.
Such subadviser's directors and officers have been engaged
during the past two years in the following other businesses,
vocations or employments of a substantial nature (former
affiliations are marked with an asterisk):
<TABLE>
<CAPTION>
Name and Office with Name and Address of Nature of
Loomis Sayles Other Affiliations Connection
------------- ------------------ ----------
<S> <C> <C>
Loomis Sayles & Company, Incorporated None None
General Partner
Robert J. Blanding, None None
President and Chief Executive Officer
Daniel J. Fuss, None None
Executive Vice President, Managing
Partner, Director
Jeffrey L. Meade, None None
Executive Vice President and Chief
Operating Officer
Sandra Tichenor, Heller, Ehrman White & McAuliffe* Partner
Vice President, General Counsel, 333 Bush Street
Secretary and Clerk San Francisco, CA 94104
Meri Anne Beck, None None
Vice President
Mary C. Champagne, None None
Vice President
Scott A. Pape, None None
Vice President
Douglas D. Ramos, None None
Vice President
Carol C. McMurtie, None None
Vice President, Director and Managing
Partner
Tricia H. Mills, None None
Vice President
Jeffrey C. Petherick, None None
Vice President
</TABLE>
Item 29. Principal Underwriter
(a) New England Funds, L.P. also serves as principal underwriter
for:
New England Funds Trust I
New England Funds Trust II
New England Tax Exempt Money Market Trust
New England Cash Management Trust
(b) The general partner and officers of the Registrant's principal
underwriter, New England Funds, L.P., and their address are as
follows:
<TABLE>
<CAPTION>
Positions and Offices with Positions and Offices
Name Principal Underwriter with Registrant
---- --------------------- ---------------
<S> <C> <C>
NEF Corporation General Partner None
Henry L.P. Schmelzer President and Chief Executive Officer President and Trustee
Bruce R. Speca Executive Vice President Executive Vice President
Robert P. Connolly Senior Vice President, General Counsel, Secretary
Secretary and Clerk
Frank Nesvet Senior Vice President and Chief Financial Treasurer
Officer
Munish Agrawal Vice President None
Robert E. O'Hare Vice President, Assistant Secretary and Assistant Secretary
Assistant Clerk
Elizabeth P. Burns Vice President None
James H. Davis Vice President None
Peter H. Duffy Vice President Assistant Treasurer
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
William H. Finnegan Vice President None
Raymond K. Girouard Vice President, Treasurer and Controller None
Ralph M. Greggs Vice President None
Lynne H. Johnson Vice President None
Caren I. Leedom Vice President None
Marie G. McKenzie Vice President None
Bernard M. Shavelson Vice President None
Christine L. Swanson Vice President None
Kristine E. Swanson Vice President None
Beatriz A. Pina Assistant Comptroller None
</TABLE>
The principal business address of all the above persons or entities is
399 Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents
required by the specified rules:
(a) Registrant
Rule 31a-1(b)(4)
Rule 31a-2(d)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(d)
(c) New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(d); and 31a-2(e)
(d) Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 311a-1(f)
Rule 31a-2(e)
(e) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant undertakes to provide a copy of the annual
report of any of its series to any person who receives a Fund
prospectus and who requests the annual report.
(b) The Registrant hereby undertakes that, if requested to do so
by holders of at least 10% of the Fund's outstanding shares,
it will call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or trustees
and will assist in communications between shareholders for
such purpose as provided in Section 16(c) of the Investment
Company Act of 1940.
<PAGE>
NEW ENGLAND FUNDS TRUST III
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment No. 2 to its Registration Statement meets all the
requirements for effectiveness under paragraph (b) of Rule 485 under the
Securities Act of 1933, and that it has duly caused this Post-Effective
Amendment No. 2 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, in the Commonwealth
of Massachusetts on the 30th day of April, 1997.
New England Funds Trust III
By: PETER S. VOSS*
-----------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ROBERT P. CONNOLLY
-----------------------
Robert P. Connolly
Attorney-In-Fact
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PETER S. VOSS* Chairman of the Board; Chief Executive April 30, 1997
- ------------------------- Officer; Principal Executive Officer;
Peter S. Voss Trustee
/s/FRANK NESVET Treasurer April 30, 1997
- -------------------------
Frank Nesvet
GRAHAM T. ALLISON, JR.* Trustee April 30, 1997
- -------------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee April 30, 1997
- -------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee April 30, 1997
- -------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee April 30, 1997
- -------------------------
Richard Darman
SANDRA O. MOOSE* Trustee April 30, 1997
- -------------------------
Sandra O. Moose
HENRY L. P. SCHMELZER* Trustee April 30, 1997
- -------------------------
Henry L. P. Schmelzer
JOHN A. SHANE* Trustee April 30, 1997
- -------------------------
John A. Shane
PENDLETON P. WHITE* Trustee April 30, 1997
- -------------------------
Pendleton P. White
*By: /s/ROBERT P. CONNOLLY
-----------------------
Robert P. Connolly
Attorney-In-Fact
April 30, 1997
</TABLE>
<PAGE>
N-1A EXHIBITS ITEM 24(b)
EXHIBIT NUMBER EXHIBIT
EX-99.b11 Consent of Price Waterhouse
<PAGE>
Exhibit 99.b11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 2 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 21, 1997 relating to the financial
statements and the financial highlights appearing in the December 31, 1996
Annual Report to Shareholders of New England Fund Equity Income Fund, which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Independent Accountants" in such
Prospectus and to the reference to us under the heading "Financial Statements"
in the Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 29, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> NEW ENGLAND TRUST 3
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,200,434
<INVESTMENTS-AT-VALUE> 2,604,763
<RECEIVABLES> 126,511
<ASSETS-OTHER> 11,609
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,742,883
<PAYABLE-FOR-SECURITIES> 72,310
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,327
<TOTAL-LIABILITIES> 129,637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,184,076
<SHARES-COMMON-STOCK> 172,505
<SHARES-COMMON-PRIOR> 160,510
<ACCUMULATED-NII-CURRENT> 81,411
<OVERDISTRIBUTION-NII> 2,276
<ACCUMULATED-NET-GAINS> 22,565
<OVERDISTRIBUTION-GAINS> 404,329
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,613,246
<DIVIDEND-INCOME> 77,261
<INTEREST-INCOME> 4,150
<OTHER-INCOME> 0
<EXPENSES-NET> 34,334
<NET-INVESTMENT-INCOME> 47,077
<REALIZED-GAINS-CURRENT> 155,307
<APPREC-INCREASE-CURRENT> 346,416
<NET-CHANGE-FROM-OPS> 548,800
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 48,153
<DISTRIBUTIONS-OF-GAINS> 132,742
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 180,895
<NET-CHANGE-IN-ASSETS> 548,800
<ACCUMULATED-NII-PRIOR> 9,270
<ACCUMULATED-GAINS-PRIOR> 57,913
<OVERDISTRIB-NII-PRIOR> (27)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,334
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 12.86
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 3.11
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.30)
<RETURNS-OF-CAPITAL> (0.83)
<PER-SHARE-NAV-END> 15.15
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
