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[New England Funds Logo(R)]
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NEW ENGLAND BULLSEYE FUND
Prospectus and Application
March 31, 1998
New England Bullseye Fund (the "Fund") is a newly organized,
non-diversified and actively managed mutual fund and is a series of New
England Funds Trust III (the "Trust"), a registered open-end management
investment company.
The Fund's investment objective is long-term capital growth. The Fund
intends to pursue its investment objective by investing primarily in equity
securities. There can be no assurance that the Fund will achieve its
objective, which may be changed without shareholder approval.
The Fund offers three classes of shares to the general public (Classes A, B
and C). The offering price is based on the net asset value per share next
determined after an order is received. Class A share purchases generally
involve a sales charge at the time of purchase. No initial sales charge
applies to Class B and Class C share purchases. A contingent deferred sales
charge (a "CDSC"), however, is imposed upon certain redemptions of Class B
and Class C shares. Class B shares automatically convert to Class A shares
eight years after purchase. Class C shares do not have a conversion
feature. Class B shares and Class C shares bear higher annual 12b-1 fees
than Class A shares. See "Buying Fund Shares -- Sales Charges." The Fund
may at a later date offer an additional class of shares, Class Y shares, to
certain institutional investors. If and when the Fund offers such
additional class of shares for sale, the Fund will supplement its
Prospectus.
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
March 31, 1998 has been filed with the Securities and Exchange Commission
(the "SEC") and is available free of charge. To obtain a copy of the
Statement, write to New England Funds, L.P. (the "Distributor"), SAI
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116, or call toll free
at 1-800-225-5478. The SEC maintains a Web site (http://www.sec.gov) that
contains the Statement, materials incorporated by reference and other
information regarding the Fund. 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 FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
For general
information on
the Fund or any
of its services
and for assis-
tance in opening
an account,
contact your
investment
dealer or call
the Distributor
toll free at
1-800-225-5478.
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TABLE OF CONTENTS
<TABLE>
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Page
<C> <S> <C>
FUND EXPENSES
1 Schedule of Fees Sales charges, yearly operating
expenses.
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INVESTMENT STRATEGY
2 How the Fund Pursues Its Investment
Objective
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3 INVESTMENT RISKS It is important to understand the risks
inherent in the Fund before you invest.
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6 FUND MANAGEMENT
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8 BUYING FUND SHARES
Everything you need to know to open and
8 Minimum Investment add to a New England Bullseye Fund
6 Ways to Buy Fund Shares account.
- Through your investment dealer
- By mail
- By wire transfer of Federal Funds
- By Investment Builder
- By electronic purchase through ACH
- By exchange from another New England
Fund
9 Sales Charges
12 Reduced Sales Charges
(Class A Shares Only)
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OWNING FUND SHARES
New England Funds offers three
14 Exchanging Among New England Funds convenient ways to exchange Fund shares.
15 Fund Dividend Payments
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SELLING FUND SHARES
How to withdraw money or close your
16 4 Ways to Sell Fund Shares account.
- Through your investment dealer
- By telephone
- By mail
- By Systematic Withdrawal Plan
An opportunity to reinvest your
18 Repurchase Option redemption proceeds within 120 days for
(Class A Shares Only) no sales charge.
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FUND DETAILS
Additional information you may find
19 How Fund Share Price is Determined important.
19 Income Tax Considerations
20 The Fund's Expenses
21 Performance Criteria
22 Additional Facts About the Fund
</TABLE>
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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 for the Fund. The Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment in the Fund
for the periods specified.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a
percentage of offering price)(1)(2)....................... 5.75% None None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)(2)............................................ (3) 5.00% 1.00%
</TABLE>
(1) A reduced sales charge applies in some cases. See "Buying Fund
Shares -- Reduced Sales Charges (Class A Shares Only)."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any portion
of certain purchases of Class A shares greater than $1,000,000 redeemed
within 1 year after purchase, but not to any other purchases or redemptions
of Class A shares. See "Buying Fund Shares -- Sales Charges."
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Management Fees (after voluntary fee deferral and expense
reduction)................................................ 0.70% 0.70% 0.70%
12b-1 Fees.................................................. 0.25% 1.00%* 1.00%*
Other Expenses**............................................ 0.80% 0.80% 0.80%
Total Fund Operating Expenses (after voluntary fee deferral
and expense reduction).................................... 1.75% 2.50% 2.50%
</TABLE>
* Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
** Other expenses are based on estimated expenses for the Fund's first full
fiscal year.
Without the voluntary fee deferral and expense reduction by the Fund's adviser
and subadviser, Management Fees and Total Fund Operating Expenses would be 0.95%
and 2.00%, respectively, for Class A shares and 0.95% and 2.75%, respectively,
for both Class B and Class C shares. See "Fund Management."
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (i) a 5%
annual return and (ii) unless otherwise indicated, redemption at period end. The
5% annual return and expenses in the Example should not be considered indicative
of actual or expected Fund performance or expenses, both of which may be more or
less than those shown.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
(1) (2) (1) (2)
<S> <C> <C> <C> <C> <C>
1 year...................................................... $ 74 $ 25 $ 75 $ 25 $ 35
- -------------------------------------------------------------------------------------------------------
3 years..................................................... $109 $ 78 $108 $ 78 $ 78
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
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 Fund's 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.
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INVESTMENT STRATEGY
The Fund's objective is long-term capital growth.
How the Fund Pursues
Its Investment Objective
The Fund's subadviser, Jurika & Voyles, L.P. ("Jurika & Voyles"), intends to
pursue the Fund's investment objective by assembling a portfolio of 15 to 20
stocks. The Fund looks to invest in stocks that represent ownership of quality
businesses whose equity the subadviser believes is undervalued based on their
current operations and price-earnings multiples relative to the market average.
The businesses must also possess significant potential or a catalyst for future
earnings growth in the judgment of the subadviser.
In selecting stocks for the Fund, the subadviser also considers other factors,
including:
- -- Competitive advantage -- what is it that a business does better? does a
business have better products or services, or are they the lowest cost
provider?
- -- Clear business focus -- does the company follow a consistent and focused line
of business, within a defined niche or segment of a broad market?
- -- Financial health -- does the business have stronger cash flows, less debt,
stronger balance sheets and higher returns on equity than the market average
(as measured by the Standard & Poor's Composite Index of 500 Stocks [the "S&P
500"])?
- -- Quality management -- does the business have experienced managers with little
turnover and a long track record, as well as substantial equity ownership
positions?
Although the subadviser seeks companies that have all of these characteristics,
there is no assurance that every company in which the Fund invests will have all
of these characteristics.
The subadviser believes the targeted strategy used by the Fund allows investors
to best capitalize on its in-depth fundamental research. The targeted approach
allows investors to own a small number of well-researched companies rather than
a broader portfolio holding a significantly greater number of stocks. The
targeted portfolio allows the subadviser to select only the stocks it considers
to have the greatest potential for future return. The subadviser believes the
targeted portfolio has the potential for a higher return than a broader
portfolio holding a significantly greater number of stocks. The Fund may invest
in stocks with different levels of market capitalization and different industry
focuses.
Due to the highly undiversified nature of the Fund, the performance may deviate
significantly from market averages. Non-diversified portfolios, such as the
Fund's, can be expected to exhibit more volatility and thus more risk than
market averages. By attempting to capitalize on this risk in conjunction with
strong stock selection, the Fund's subadviser will attempt to earn greater
returns than the S&P 500 over the long term, although this result cannot be
assured.
The Fund will invest primarily in common stocks, but also may invest in other
equity securities, including convertible preferred stock, convertible debt
securities and warrants. The Fund may also invest up to 20% of its total assets
in foreign securities, but will limit its investment in securities of the
issuers of any one foreign country to 10% of its total assets. There are no
assurances that the Fund will achieve its investment objective, and the Fund may
change its investment objective without shareholder approval.
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INVESTMENT RISKS
It is important to understand the following risks inherent in the Fund before
you invest.
- -- LACK OF DIVERSIFICATION
As a non-diversified mutual fund, the Fund is able to take larger positions
in a smaller number of companies than a comparable diversified fund.
Therefore, the value of the Fund will likely be subject to greater
fluctuations than a diversified fund as a result of any change in the value
of one or more equity securities or other instruments in its portfolio.
- -- 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 small and medium 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 and Medium Market Capitalization 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 increase or decrease as the values of the underlying equity
securities increase or decrease. The movements in the prices of convertible
securities, however, may be smaller than the movements in the value of the
underlying equity securities. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have
no voting rights, pay no dividends and have no rights with respect to the
assets of the corporation issuing them. They do not represent ownership of
the securities for which they are exercisable, but only the right to buy such
securities at a particular price.
- -- SMALL AND MEDIUM MARKET CAPITALIZATION COMPANIES
The Fund, in the discretion of its subadviser, may invest without limit in
the securities of companies of small and medium market capitalization.
Investments in such companies will generally entail greater risk than is
usually associated with larger, more well established companies. Small and
medium market capitalization companies tend to have smaller revenues,
narrower product lines, less management depth and experience and smaller
market shares of their products or services than larger capitalization
companies. In many instances, the frequency and volume of trading in small
and medium market capitalization companies is substantially less than is
typical of larger capitalization companies. Therefore, 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
than market averages in general. The net asset value of the Fund therefore
may fluctuate more widely than market averages.
- -- FOREIGN SECURITIES
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or traded
primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund may be affected
favorably or unfavorably by changes in currency exchange rates or exchange
control regulations. Because the Fund may purchase securities denominated in
foreign cur-
3
<PAGE> 6
rencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution.
In addition, although the Fund's income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after the Fund's income has been earned in that
currency, translated by the Fund (but not exchanged) into U.S. dollars and
declared as a dividend, but before payment of such dividend, the Fund could
be required to liquidate portfolio securities to pay such dividend.
Similarly, if the value of a currency relative to the U.S. dollar declines
between the time the Fund incurs expenses in U.S. dollars and the time such
expenses are paid, the amount of such currency required to be converted into
U.S. dollars in order to pay such expenses in U.S. dollars will be greater
than the equivalent amount in such currency, of such expenses, at the time
they were incurred.
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 may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository
receipts are instruments issued by a bank that represent an interest in
equity securities held by arrangement with the bank. Depository receipts can
be either "sponsored" or "unsponsored." Sponsored depository receipts are
issued by banks in cooperation with the issuer of the underlying equity
securities. Unsponsored depository receipts are arranged without involvement
by the issuer of the underlying equity securities. Less information about the
issuer of the underlying equity securities may be available in the case of
unsponsored depository receipts.
In determining whether to invest in securities of foreign issuers, the
subadviser of the Fund will consider the likely effects of foreign taxes on
the net yield available to the Fund and its shareholders. Compliance with
foreign tax law may reduce the Fund's net income available for distribution
to shareholders.
- -- FOREIGN CURRENCY
The Fund's portfolio may include securities denominated in foreign currencies
or traded in securities markets in which settlements are made in foreign
currencies. Any income on such securities is generally paid to the Fund in
foreign currencies. The value of these foreign currencies relating 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.
4
<PAGE> 7
- -- SECURITIES LENDING
The Fund may lend its portfolio securities to broker-dealers or other parties
under contracts calling for the deposit by the borrower with the Fund's
custodian of cash collateral equal to at least the market value of the
securities loaned, marked to market on a daily basis. The Fund will continue
to benefit from interest or dividends on the securities loaned and will also
receive interest through investment of the cash collateral in short-term
liquid investments. No loans will be made if, as a result, the aggregate
amount of such loans outstanding at any time would exceed 33 1/3% of the
Fund's total assets (taken at current value). Any voting rights or rights to
consent relating to the loaned securities 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 custodial
or placement fees.
- -- 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 credit risk, although the
Fund may be subject to various delays and risks of loss if the seller fails
to meet its obligation to repurchase. The staff of the SEC is currently of
the view that repurchase agreements maturing in more than 7 days are
illiquid.
- -- MISCELLANEOUS
The Fund will not invest more than 15% of its assets in "illiquid
securities," that is, securities which are not readily resalable, which may
include securities whose disposition is restricted by federal securities
laws.
The 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. 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 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 the security. For more
information on "when-issued" and "delayed-delivery" securities, see the
Statement.
The Fund does not trade actively for short-term profits. Therefore, the Fund
does not purchase securities with the intention of engaging in short-term
trading. The Fund, however, will sell any particular security and reinvest
the proceeds when it is deemed prudent by the Fund's subadviser, regardless
of the length of the holding period. This policy may result in higher
securities transaction costs than if the Fund were to follow a policy of
holding all securities for a longer period of time. To the extent that this
policy results in gains on investments, the Fund will make distributions to
its shareholders, which may accelerate the shareholders' tax liabilities. The
Fund's portfolio turnover rate is not expected to exceed 150% during its
initial year of operation, although the actual rate could be higher.
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<PAGE> 8
FUND MANAGEMENT
New England Funds Management, L.P. ("NEFM"), 399 Boylston Street, Boston,
Massachusetts 02116, serves as the Fund's adviser, and has delegated day-to-day
portfolio management responsibility to the Fund's subadviser, Jurika & Voyles,
Lake Merritt Plaza, 1999 Harrison, Suite 700, Oakland, California 94612. Founded
in 1983 by William K. Jurika and Glenn C. Voyles, Jurika & Voyles has
discretionary management authority with respect to approximately $7 billion of
assets for various clients including corporations, pension plans, 401(k) plans,
profit sharing plans, trusts and estates, foundations and charitable endowments,
mutual funds and individuals.
William K. Jurika, President and Principal of Jurika & Voyles, and Peter Goetz,
CFA, Vice President and Portfolio Manager of Jurika & Voyles, are primarily
responsible for the day-to-day management of the Fund. Messrs. Jurika and Goetz
manage the Fund's portfolio in accordance with company research provided by the
Jurika & Voyles research department, and report to the Investment Committee,
which has final responsibility for all Jurika & Voyles investments on behalf of
its clients. Members of the Investment Committee include Mr. Jurika, Mr. Goetz,
James Christensen, Karl Mills, Guy Elliffe and Paul Meeks. Mr. Jurika has been
associated with Jurika & Voyles since its founding in 1983. Mr. Goetz joined
Jurika & Voyles in 1996, prior to which he spent nine years as Portfolio Manager
in the Private Asset Division of Bank of America.
NEFM oversees, evaluates and monitors Jurika & Voyles' provision of subadvisory
services to the Fund and provides general business management and administration
to the Fund. The Fund pays NEFM a gross management fee at the annual rate of
0.95% of the first $200 million of the Fund's average daily net assets, 0.90% of
the next $300 million of such assets and 0.85% of such assets in excess of $500
million. The gross management fees are subject to reduction by any amount of
sub-advisory fees paid by the Fund directly to Jurika & Voyles. The Fund pays
Jurika & Voyles a sub-advisory fee at an annual rate of 0.57% of the first $200
million of the average daily assets of the Fund, 0.50% of the next $300 million
of such assets and 0.43% of such assets in excess of $500 million. In the
aggregate, the gross fee rate payable to NEFM by the Fund is higher than that
paid by some other mutual funds, but is believed to be appropriate for the
services received by the Fund and to be comparable to fees paid by some other
mutual funds investing in a manner similar to the Fund. In addition, under a fee
deferral arrangement and an expense reimbursement arrangement, NEFM and Jurika &
Voyles have agreed, until December 31, 1998, to defer their respective
management and subadvisory fees for the Fund and, if necessary, NEFM has agreed
to bear certain expenses associated with the Fund, to the extent necessary to
limit the Fund's expenses to the annual rate of 1.75% for Class A shares, 2.50%
for Class B shares and 2.50% for Class C shares, subject to the obligation of
the Fund to pay NEFM and/or Jurika & Voyles such deferred fees (but not expenses
borne) in later periods to the extent that the Fund's expenses fall below the
annual rate of 1.75% for Class A shares, 2.50% for Class B shares and 2.50% for
Class C shares; provided, however, that the Fund is not obligated to pay any
such deferred fees more than two years after the end of the fiscal year in which
the fee was deferred. Any deferral of fees by NEFM and Jurika & Voyles (and
repayment of such deferral fees by the Fund) under the fee deferral arrangement
will be made on a pro rata basis in accordance with the proportions that NEFM's
net fees and Jurika & Voyles' sub-advisory fees bear to the total gross fees
paid by the Fund to NEFM and Jurika & Voyles ) for providing management and
subadvisory services.
The transfer and dividend paying agent for the Fund is New England Funds Service
Corporation ("NEFSCO"), 399 Boylston Street, Boston, Massachusetts 02116. NEFSCO
has subcontracted certain of its obligations as such to State Street Bank and
Trust Company ("State Street Bank"), 225 Franklin Street, Boston, Massachusetts
02110.
The general partners of each of NEFM, Jurika & Voyles and the Distributor, and
the sole shareholder of NEFSCO, are special purpose corporations that are
indirect, wholly-owned subsidiaries of NVEST Companies, L.P. ("NVEST
Companies"). NVEST Companies' managing general partner, NVEST Corporation, is an
indirect wholly-owned subsidiary of Metropolitan Life Insurance Company
("MetLife"), a mutual life insurance company. MetLife owns in the aggregate,
directly and indirectly, 47% of the outstanding limited partnership interests in
NVEST Companies. NVEST Companies' advising general partner, NVEST L.P. is a
publicly-traded company listed on the New York Stock Exchange. NVEST Corporation
is the sole general partner of NVEST L.P.
In placing portfolio transactions for the Fund, Jurika & Voyles seeks the most
favorable price
6
<PAGE> 9
and execution available. Subject to applicable regulatory restrictions and such
policies as the Trust's trustees may adopt, Jurika & Voyles 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 Fund as conducted by
NEFM and Jurika & Voyles.
The Fund has received an exemptive order from the SEC to permit NEFM, subject to
certain conditions, to enter into subadvisory agreements with subadvisers,
including subadvisers other than the existing subadviser of the Fund, when
approved by the Board of Trustees, without obtaining shareholder approval. The
exemptive order also permits, without shareholder approval, the terms of an
existing subadvisory agreement to be changed or the employment of an existing
subadviser to be continued after events that would otherwise cause an automatic
termination of a subadvisory agreement, when such changes or continuation are
approved by the Trust's Board of Trustees. Shareholders would be notified of any
subadviser changes.
7
<PAGE> 10
BUYING FUND SHARES
Minimum Investment
$2,500 is the minimum for an initial investment in the Fund, and $100 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 Plans, 403(b)(7) retirement plans
and certain other retirement plans.
- -- $100 on initial and subsequent investments for automatic investing through
the Investment Builder program.
- -- $250 on initial and $100 on subsequent investments for retirement plans with
tax benefits such as corporate pension and profit sharing plans and Keogh
plans.
- -- $500 on initial and $100 on subsequent investments for IRAs.
- -- $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.
6 Ways to Buy Fund Shares
You may purchase Class A, Class B and Class C shares of the Fund in the
following ways:
[PROFILE LOGO] Through your investment dealer:
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[ENVELOPE LOGO] By Mail:
FOR AN INITIAL INVESTMENT, simply complete an application and return it, with a
check payable to New England Funds, to P.O. Box 8551, Boston, MA 02266-8551.
FOR SUBSEQUENT INVESTMENTS, please mail your check to New England Funds, P.O.
Box 8551, Boston, MA 02266-8551 along with a letter of instruction or an
additional deposit slip from your statements. To make investing even easier, you
can also order personalized investment slips by calling 1-800-225-5478 between
8:00 a.m. and 7:00 p.m. (Eastern time).
All purchases made by check should be in U.S. dollars and made payable to New
England Funds, or, in the case of a retirement account, the custodian or
trustee. Third party checks will generally not be accepted except under certain
circumstances approved by the Distributor. When purchases are made by check or
periodic account investment, redemptions may not be allowed until the investment
being redeemed has been in the account for a minimum of ten calendar days.
[LOGO] By wire transfer of Federal Funds:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and 7:00
p.m. (Eastern time) on a day when the Fund is open for business to obtain an
account number and wire transfer instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street
Bank and Trust Company, ABA #011000028, DDA #99011538, Credit New England
Bullseye Fund (class of shares), Shareholder Name, Shareholder Account Number.
Funds may be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time) on a day
when the Fund is open for business. Your bank may charge a fee for this service.
[LOGO] 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.
CALL
New England
Funds
Personal
Access Line(TM)
at 800-
346-5984 with
our 24 hour
automated
service system
you have
access to
your account.
Through your
touch-tone tele-
phone, you can
receive your
current account
balance, your
recent trans-
actions, Fund
prices and
recent
performance
information.
You can also
purchase, sell
or exchange
Class A or
Class C shares
of any
New England
Fund. For
more information
call us at
1-800-225-
5478.
8
<PAGE> 11
[Electric Plug Logo] By Electronic Purchase Through ACH:
You may purchase additional shares electronically through the Automated Clearing
House ("ACH") system as long as your bank or credit union is a member of the ACH
system and you have a completed, approved ACH application on file with the Fund.
To purchase through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Fund is open for business. You may also
purchase shares through ACH by calling New England Funds Personal Access
Line(TM) at 1-800-346-5984 twenty-four hours a day. Under normal circumstances,
the New York Stock Exchange (the "Exchange") closes at 4:00 p.m. (Eastern time).
Purchase orders accepted through ACH or New England Funds Personal Access
Line(TM) will be complete only upon the receipt by New England Funds of funds
from your bank and, on the day that the funds are received, will be processed at
the net asset value next determined at the close of regular trading on the
Exchange on days that the Exchange is open. Proceeds of redemptions of Fund
shares purchased through ACH may not be available for up to ten days after the
purchase date.
[Arrow Logo]By exchange from another New England Fund:
You may also purchase shares of the Fund by exchanging from another New England
Fund. Please see "Owning Fund Shares -- Exchanging Among New England Funds" for
complete details.
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 (except orders received by your investment dealer
before the close of trading on the Exchange and transmitted to the Distributor
by 5:00 p.m. (Eastern time) (or, under limited circumstances, such other time,
not later than 8:00 p.m. (Eastern time), as may be agreed upon between the
dealer and the Distributor) 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.
Class B shares and certain shareholder features may not be available to persons
whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless you request
them in writing from the Distributor. The Fund's "open account" system for
recording your investment eliminates the problems and expense of handling and
safekeeping certificates. Certificates will not be issued for Class B shares or
Class C shares. If you wish transactions in your account to be effected by
another person under a power of attorney from you, special rules apply. Please
contact your investment dealer or the Distributor for details.
Sales Charges
The Fund offers three classes of shares to the general public:
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge which varies
depending on the size of your purchase. They are also subject to a 0.25% annual
service fee. Class A shares are offered subject to the following sales charges:
<TABLE>
<CAPTION>
SALES CHARGES AS A % OF DEALER'S
----------------------- CONCESSION
PUBLIC NET AS A % OF
VALUE OF TOTAL OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
-------------- ----- -------- -----
<S> <C> <C> <C>
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 *
</TABLE>
* The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases (except investments by plans under
Sections 401(a) or 401(k) of the Code whose total investments amount to $1
million or more or that have 100 or more eligible employees ["Retirement
Plans"]) a commission of up to the following amounts: 1% on the first $3
million invested and 0.50% on the excess over $3 million. For investments by
Retirement Plans, the Distributor may, at its discretion, pay investment
dealers who initiate
9
<PAGE> 12
and are responsible for such purchases a commission of up to the following
amounts: 1% on the first $3 million invested and 0.50% on amounts over $3
million and up to $10 million. These commissions are not payable if the
purchase represents the reinvestment of a redemption made during the previous
12 calendar months.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more or purchases by Retirement Plans as defined above of Class A
shares of the Fund, 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 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 New England Funds Trust I, New England Funds Trust II or New England
Funds Trust III (the "Trusts"). If the Money Market Fund shares are redeemed
rather than exchanged back into the Trusts, then a CDSC as described above
applies to the redemption. For purposes of the CDSC, it is assumed that the
shares held the longest are the first to be redeemed. Year one ends one year
after the day on which the purchase was accepted, and so on.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales charge,
and are subject to a 0.25% annual service fee, a 0.75% annual distribution fee
for 8 years (at which time they automatically convert to Class A shares) and a
CDSC if they are redeemed within 6 years of purchase. The holding period for
purposes of timing the conversion to Class A shares and determining the CDSC
will continue to run after an exchange to Class B shares of another series of
the Trusts. If the exchange is made to Class B shares of a Money Market Fund,
then the holding period stops and will resume only when an exchange is made back
into Class B shares of a series of the Trusts. If the Money Market Fund shares
are redeemed rather than exchanged back into a series of the Trusts, then a CDSC
applies to the redemption, at the same rate as if the Class B shares of the Fund
had been redeemed at the time they were exchanged for Money Market Fund shares.
For the purpose of the CDSC, it is assumed that the shares held the longest are
the first to be redeemed.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. The CDSC equals the following percentages of the
dollar amounts subject to the charge:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHANGE
------------------- ------------------------
<S> <C>
1st.......................................... 5%
2nd.......................................... 4%
3rd.......................................... 3%
4th.......................................... 3%
5th.......................................... 2%
6th.......................................... 1%
thereafter................................... 0%
</TABLE>
Year one ends one year after the day on which the purchase was accepted, and so
on.
At the time of sale, the Distributor pays investment dealers a commission of
3.75% and advances the first year's service fee (up to 0.25%) on purchases of
Class B shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial sales charge,
are subject to a 0.25% annual service fee, a 0.75% annual distribution fee and a
CDSC of 1.00% on redemptions made within one year from the date of purchase and
do not convert into another class.
The Distributor pays to investment dealers at the time of sale a sales
commission of 1.00% of the sales price of Class C shares sold by such investment
dealer. Unlike Class B shares, there are no conversion features associated with
Class C shares; therefore, if Class C shares are held for more than eight years,
Class C shareholders will be subject to higher distribution fees than
shareholders of other classes.
The holding period for determining the CDSC will continue to run after an
exchange to Class C shares of another series of the Trusts. If an
A, B OR C SHARES-
WHICH SHOULD
YOU CHOOSE?
Your choice
of share class
depends on the
size of your
investment and
how long you
intend to hold
your shares.
In general,
there are only
minor differences
in performance
results for the
different classes
if held for
the long term.
Consult your
financial
representative
for help in
deciding which
class is
appropriate
for you.
10
<PAGE> 13
exchange is made to Class C shares of a Money Market Fund, then the holding
period for purposes of determining the expiration of the CDSC will stop and
resumes only when an exchange is made back into Class C shares of a series of
the Trusts. If the Money Market Fund shares are redeemed rather than exchanged
back into a series of the Trusts, then the CDSC applies to the redemption. For
purposes of the CDSC, it is assumed that the shares held the longest are the
first to be redeemed. Year one ends one year after the day on which the purchase
was accepted.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or Class C shares are more
appropriate for an investor depends on the amount and intended length of the
investment. Investors making large investments, qualifying for a reduced initial
sales charge, might consider Class A shares because Class A shares have lower
12b-1 fees and pay correspondingly higher dividends per share. For these
reasons, the Distributor will treat any order of $1 million or more for Class B
shares as a Class A order. Any order of $1 million or more for Class C shares
will be treated as an order for Class A shares, unless you indicate on the
relevant section of your application that you have been informed of the relative
advantages and disadvantages of Class A and Class C shares. Investors making
smaller investments might consider Class B or Class C shares because 100% of the
purchase is invested immediately. Investors making smaller investments who
anticipate redeeming their shares within six years may find Class C shares more
favorable than Class B shares, because Class B shares are subject to a CDSC on
redemptions made within six years after purchase. Class B shares are more
favorable than Class C shares for investors who anticipate holding their
investment for more than eight years, since Class B shares convert to Class A
shares (and thus bear lower ongoing fees) after eight years. Consult your
investment dealer for advice applicable to your particular circumstances.
GENERAL
The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
Fund purchased with reinvested dividends or capital gains distributions.
The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested, and is paid to the
Distributor. The CDSC may be eliminated for certain persons and organizations,
as described in the following paragraph and under "Reduced Sales Charges (Class
A Shares Only)".
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions by
retirement plans qualified under Sections 401(a) or 403(b)(7) of the Code, when
such redemptions are necessary to make distributions to plan participants; (2)
distributions from an IRA due to death, disability or a tax-free return of an
excess contribution; (3) distributions by other employee benefit plans to pay
benefits; and (4) distributions by a Section 401(a) plan due to death. For
403(b)(7) and IRA accounts established before January 3, 1995, the CDSC is
waived for redemptions made after attainment of age 59 1/2. The CDSC is waived
for redemptions made to make required minimum distributions after attainment of
age 70 1/2 for 403(b)(7) and IRA accounts established on or after January 3,
1995. There is also no CDSC on redemptions following the death or disability (as
defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is
made within one year after the shareholder's death or disability. In addition,
there is no CDSC on certain withdrawals pursuant to a Systematic Withdrawal
Plan. See "Selling Fund Shares -- 4 Ways to Sell Fund Shares -- By Systematic
Withdrawal Plan" below.
The Fund receives the net asset value next determined after an order is received
on sales of each class of shares. The sales charge is allocated between the
investment dealer and the Distributor. The Distributor receives the CDSC. For
purposes of the CDSC, an exchange from one series of the Trusts to another
series of the Trusts is not considered a redemption or a purchase. For federal
tax purposes, however, such an exchange is considered a redemption and a
purchase and, therefore, would be considered a taxable event on which you may
recognize a gain or a loss.
11
<PAGE> 14
The Distributor may, at its discretion, reallow the entire sales charge imposed
on the sale of Class A shares of the Fund to investment dealers from time to
time. The staff of the SEC is of the view that dealers receiving all or
substantially all of the sales charge may be deemed underwriters of the 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 (including in some cases,
exclusively to New England Securities Corporation, a broker-dealer affiliate of
the Distributor, and MetLife). In some instances additional compensation is
provided to certain dealers who achieve certain sales goals or who have sold or
may sell significant amounts of shares. Such compensation may include (i) full
reallowance of the sales charge on the Class A shares; (ii) additional
compensation with respect to the sale of Class A, B and C shares; or (iii)
financial assistance programs to dealers in connection with conferences, sales
or training programs, seminars, advertising and sales campaigns and/or
shareholder services arrangements. Certain broker-dealer firms and their
representatives who have sold or may sell significant amounts of shares, or have
achieved other objectives, may receive gifts of merchandise and/or incentives of
travel and lodging or the payment of these and other expenses incurred in
connection with trips to locations, within or outside the U.S., for educational
seminars or meetings of a business nature. Membership in the New England Funds
President's Council is based on sales achievement and other criteria and may
result in the provision of gifts of merchandise, a subscription to a financial
publication and participation in sales assistance programs and educational
seminars. The participation of firms and their representatives in compensation
and incentive programs is at the discretion of the firm. Compensation and
incentives shall conform with the Rules of the National Association of
Securities Dealers, Inc. then in effect.
Reduced Sales Charges (Class A Shares Only)
- -- LETTER OF INTENT -- if an investor indicates through a letter of intent that
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, in-laws, grandparents or grandchildren, individual
fiduciary accounts, sole proprietorships and/or single trust estates. The
values of all accounts are combined to determine the sales charge.
- -- UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust distributions
of less than $1 million may be invested in Class A shares of the Fund at a
reduced sales charge of 1.50% of the public offering price (or 1.52% of the
net amount invested). The dealer's concession on such sales is 1.50% of the
public offering price.
- -- 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 $25,000 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
12
<PAGE> 15
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 by investment
advisers, financial planners or other intermediaries who place trades for
their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisers, financial planners or other intermediaries who place
trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary
on the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used for those plans, including, but not
limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the
Code and "rabbi trusts." Investors may be charged a fee if they effect
transactions through a broker or agent.
- -- There is no sales charge, CDSC or initial investment minimum related to
investments by current and retired employees of the Trusts' investment
advisers or subadvisers, the Distributor, New England Life Insurance Company
("NELICO") or MetLife or any other company affiliated with NELICO or MetLife;
current and former directors and trustees of the Trusts, NELICO or MetLife or
their predecessor companies; agents and general agents of NELICO or MetLife
and their 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, in-laws, 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 NELICO or MetLife
or of any insurance company affiliated with NELICO or MetLife.
- -- Shares of the Fund are available at net asset value for investments by
participant-directed 401(a) and 401(k) plans that have 100 or more eligible
employees or by retirement plans whose third party administrator or dealer
has entered into a service agreement with the Distributor to perform certain
administrative services, subject to certain operational and minimum size
requirements specified from time to time by the Distributor.
- -- Shares of the Fund are available at net asset value for investments by
non-discretionary and non-retirement accounts of bank trust departments or
trust companies, but are unavailable if the trust department or institution
is part of an organization not principally engaged in banking or trust
activities.
- -- Shares of the Fund also may be purchased at net asset value through certain
broker-dealers and/or financial services organizations without any
transaction fee. Such organizations may receive compensation, in an amount of
up to 0.25% annually of the average value of the Fund shares held by their
customers. This compensation may be paid by NEFM and/or Jurika & Voyles out
of their own assets, or may be paid indirectly by the Fund in the form of
servicing, distribution or transfer agent fees.
- -- Shareholders of Reich and Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of the Fund at net asset value and
without imposition of a sales charge.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses associated
with such sales.
13
<PAGE> 16
OWNING FUND SHARES
Exchanging Among New
England Funds
CLASS A SHARES. Except as indicated in the next two sentences, you may exchange
Class A shares of any series of the Trusts (and Class A shares of the Money
Market Funds acquired through exchanges from any series of the Trusts) for Class
A shares of any other series of the Trusts without paying a sales charge; such
exchanges will be made at the next-determined net asset value of the shares.
Class A shares of New England Intermediate Term Tax Free Fund of California and
New England Intermediate Term Tax Free Fund of New York (the "California and New
York Funds") (and shares of the Money Market Funds acquired through exchanges of
such shares) may be exchanged for Class A shares of another series of the Trusts
at net asset value only if you have held the California or New York Fund shares
for at least six months; otherwise, you will pay the difference between any
sales charge you have already paid on your California or New York Fund shares
and the higher sales charge of the series into which you are exchanging. If you
exchange Class A shares of New England Adjustable Rate U.S. Government Fund (the
"Adjustable Rate Fund") (and shares of the Money Market Funds acquired through
exchanges of such shares) for shares of another series of the Trusts that has a
higher sales charge, you will pay the difference between any sales charge you
have already paid on your Adjustable Rate Fund shares and the higher sales
charge of the series into which you are exchanging. In addition, you may redeem
Class A shares of any Money Market Fund that were not acquired through exchanges
from any series of the Trusts and have the proceeds directly applied to the
purchase of shares of a series of the Trusts at the applicable sales charge.
CLASS B SHARES. You may exchange Class B shares of any series of the Trusts (and
Class B shares of the Money Market Funds or Class A shares of the Money Market
Funds which have not been subject to a previous sales charge) for Class B shares
of any other series of the Trusts. Such exchanges will be made at the
next-determined net asset value of the shares. Class B shares will automatically
convert on a tax-free basis to Class A shares eight years after they are
purchased (excluding the time the shares are held in a Money Market Fund). See
"Sales Charges -- Class B Shares" above.
CLASS C SHARES. You may exchange Class C shares of any series of the Trusts for
Class C shares of any other series of the Trusts which offers Class C shares or
for Class C shares of New England Cash Management Trust Money Market Series.
Such exchanges will be made at the next-determined net asset value of the
shares.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m.
(Eastern time) on a day when the Fund is open for business, call New England
Funds Personal Access Line(TM) at 1-800-346-5984 twenty-four hours a day or
write to New England Funds. Exchange requests after 4:00 p.m. will be processed
at the net asset value determined at the close of regular trading on the next
day the Exchange is open. The exchange must be for a minimum of $1,000 (or the
total net asset value of your account, whichever is less), except that under the
Automatic Exchange Plan the minimum is $100. 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 obtain and carefully read
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. The
Fund and NEFSCO 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. The Fund and NEFSCO 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.
MARKET TIMER RESTRICTIONS. Purchases and exchanges into the Fund should be made
for investment purposes only. The Fund and the Distributor reserve the right to
refuse or limit any purchase or exchange order by a particular purchaser (or
group of related purchasers) when such transaction is deemed harmful to the best
interests of the Fund's other shareholders or would disrupt the
14
<PAGE> 17
management of the Fund. Without limiting the generality of the foregoing, the
Fund and the Distributor reserve the right to restrict (e.g., by limiting to a
specified maximum dollar amount) purchases and exchanges for the account of
"market timers." An account will be deemed to be the account of a market timer
if (i) more than two exchange purchases of the Fund are effected for the account
in a calendar quarter or (ii) the account effects one or more exchange purchases
of the Fund in a calendar quarter in an aggregate amount in excess of 1.00% of
the Fund's total net assets.
For federal tax purposes, an exchange of shares from one series of the Trusts
for shares of another series is considered to be a redemption and purchase and,
therefore, is considered to be a taxable event on which you may recognize a gain
or a loss.
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 (other than long-term capital gains)
each year and distributes annually all net realized long- and short-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 or a capital gain distribution, you should be aware that a
portion of the purchase price may be returned to you as a taxable distribution.
You have the option to reinvest all distributions in
additional shares of the same class of the Fund or in shares of the same class
of other series of the Trusts, to receive distributions from dividends and
interest in cash while reinvesting distributions from capital gains in
additional shares of the same class of the Fund or of the same class of other
series of the Trusts, or to receive all distributions in cash. Income
distributions and capital gains distributions will be reinvested in shares of
the same class of the Fund at net asset value (without a sales charge or CDSC)
unless you select another option. You may change your distribution option by
notifying New England Funds in writing or by calling 1-800-225-5478. If you
elect to receive your dividends in cash and the dividend checks sent to you are
returned "undeliverable" to the Fund or remain uncashed for six months, your
cash election will automatically be changed and your future dividends will be
reinvested. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 shares of the same class of another New England Fund, subject
to the investor eligibility requirements of that other fund and to state
securities law requirements. Shares will be purchased at the selected
fund's net asset value (without a sales charge or CDSC) on the dividend
record date. A dividend diversification account must be in the same
registration (shareholder name) as the distributing fund account and, if a
new account in the purchased fund is being established, the purchased
fund's minimum investment requirements must be met. Before establishing a
dividend diversification program into any other New England Fund, you must
obtain and carefully read a copy of that fund's prospectus.
- --------------------------------------------------------------------------------
AUTOMATIC
EXCHANGE
PLAN
The Fund has
an automatic
exchange plan
under which
shares of a
class of the
Fund are
automatically
exchanged each
month for
shares of the
same class of
other series of
the Trusts.
The minimum
monthly
exchange
amount under
the plan
is $100.
There is no fee
for exchanges
made pursuant
to this
program, but
there may be a
sales charge as
described on
this page.
Shares of
the Adjustable
Rate Fund
that are
subject to a
differential
sales charge as
described on
the page may
not participate
in this
program.
15
<PAGE> 18
SELLING FUND SHARES
4 Ways to Sell Fund Shares
You may sell Class A, Class B and Class C shares of the Fund in the following
ways:
[Profile Logo] Through your investment dealer:
Call your authorized investment dealer for information.
[Telephone Logo] By telephone:
You or your investment dealer may redeem (sell) shares by telephone using any of
the three methods described below:
Wired to Your Bank Account -- If you have previously selected the telephone
redemption privilege on your account, shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
Fund is open for business. Class A and Class C shares only may also be redeemed
by calling New England Funds Personal Access Line(TM) at 1-800-346-5984
twenty-four hours a day. The proceeds (LESS ANY APPLICABLE CDSC) generally will
be wired on the next business day to the bank account previously chosen by you
on your application. A wire fee (currently $5.00) will be deducted from the
proceeds.
Your bank must be a member of the Federal Reserve System or have a correspondent
bank that is a member. If your account is with a savings bank, it must have only
one correspondent bank that is a member of the Federal Reserve System.
Mailed to Your Address of Record -- Shares may be redeemed by calling
1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the
Fund is open for business and requesting that a check for the proceeds (LESS ANY
APPLICABLE CDSC) be mailed to the address on your account, provided that the
address has not changed over the previous month and that the proceeds are for
$100,000 or less. Generally, the check will be mailed to your address of record
on the business day after your redemption request is received.
Through ACH -- Shares may be redeemed electronically through the ACH system,
provided that you have an approved ACH application on file with the Fund. To
redeem through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern
time) on a day when the Fund is open for business or, for Class A and Class C
shares only, call New England Funds Personal Access Line(TM) at 1-800-346-5984
twenty-four hours a day. The proceeds (LESS ANY APPLICABLE CDSC) generally will
arrive at your bank within three business days; their availability will depend
on your bank's particular rule.
Redemption requests accepted after 4:00 p.m. (Eastern time), or after the
Exchange closes if it closes before 4:00 p.m., will be processed at the net
asset value determined at the close of regular trading on the next day that the
Exchange is open.
[Envelope Logo] 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.
16
<PAGE> 19
If you hold certificates for your Class A shares, you must enclose them with
your redemption request or your request will not be honored. The Fund recommends
that certificates be sent by registered mail.
Calendar Logo 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 (based on the day you establish
your plan). Redemption of shares pursuant to the Systematic Withdrawal 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) (or, under limited
circumstances, such other time, no later than 8:00 p.m. (Eastern time), as may
be agreed upon between the dealer and the Distributor) on the same day will
receive that day's net asset value). Redemption proceeds (LESS ANY APPLICABLE
CDSC) will normally be mailed to you within seven days after State Street Bank
or the Distributor receives your request in good order. However, in those cases
where you have recently purchased your shares by check or an electronic funds
transfer through the ACH system and you make a redemption request within 10 days
after such purchase or transfer, the Fund may withhold redemption proceeds until
the Fund knows that the check or the funds have cleared.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If you are unable to contact the Distributor by
telephone, shares may be redeemed by delivering the redemption request in person
to the Distributor or by mail as described above.
Requests are processed at the net asset value next determined after the request
is received.
Special rules apply with respect to redemptions under powers of attorney. Please
call your investment dealer or the Distributor for more information.
Telephone redemptions are not available for tax qualified retirement plans or
for Fund shares held in certificate form. If certificates have been issued for
your investment, you must send them to New England Funds along with your request
before a redemption request can be honored. See the instructions for redemption
by mail above.
The 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.
The Fund reserves the right to suspend account services or refuse transaction
requests when notice has been received by the Fund of a dispute between the
registered or beneficial owners of an account or there is a suspicion or
evidence that a fraudulent act may result.
If NEFM or Jurika & Voyles determines, in its or their sole discretion, that it
would be detrimental to the best interests of the remaining shareholders of the
Fund to make payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by a distribution in kind of readily marketable
securities held by the Fund, in lieu of cash. Securities used to redeem Fund
shares in kind will be valued in accordance with the Fund's procedures for
valuation described under "Fund Details -- How Fund Share Price Is Determined."
Securities distributed by the Fund in kind will be selected by NEFM and Jurika &
Voyles in light of the Fund's objective and will not generally represent a pro
rata distribution of each security held in the Fund's portfolio. Investors may
incur brokerage charges on the sale of any such securities so received in
payment of redemptions. The Fund's right to pay redemptions in kind is limited
by an election made by the Fund under Rule 18f-1
17
<PAGE> 20
under the Investment Company Act of 1940, as amended (the "1940 Act"). See
"Redemptions" in the Statement.
Repurchase Option
(Class A Shares Only)
You may apply your proceeds from the redemption of Class A shares of the Fund
(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.
18
<PAGE> 21
FUND DETAILS
How Fund Share Price Is
Determined
The net asset value of the Fund is determined as of the close of regular trading
(normally 4:00 p.m. Eastern time) on the Exchange on each day the Exchange is
open. The Fund's holdings of equity securities are valued at the most recent
sales prices on an applicable exchange or on the Nasdaq National Market System,
or, in the case of unlisted securities (or listed securities which were not
traded during the day), at the last quoted bid prices. Price information on
listed securities is generally taken from the closing price on the exchange
where the security is primarily traded. Securities traded primarily on an
exchange outside the United States except equity securities traded on the London
Stock Exchange ("British Equities"), which closes before the close of the
Exchange, generally will be valued for purposes of calculating the Fund's net
asset value at the last sale or bid price on that non-U.S. exchange, except that
when an occurrence after the closing of that exchange is likely to have
materially changed such a security's value, such securities will be valued at
fair value as determined by or under the direction of the Trust's Board of
Trustees as of the close of regular trading on the Exchange. British Equities
will be valued at the mean between the last bid and last asked prices on the
London Stock Exchange. 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's portfolio are valued at
their fair market value as determined in good faith by the adviser or subadviser
of the Fund (or a pricing service selected by the adviser or subadviser) under
the supervision of the Trust's Board of Trustees. The value of any assets for
which the market price is expressed in terms of a foreign currency will be
translated into U.S. dollars at the prevailing market rate on the date of the
net asset value computation, or, if no such rate is quoted at such time, at such
appropriate rate as may be determined by or under the direction of the Trust's
Board of Trustees.
The net asset value per share of each class is determined by dividing the value
of each class's securities (determined as explained above) plus any cash and
other assets (including dividends and interest receivable but not collected)
less all liabilities (including accrued expenses), by the number of shares of
such class outstanding. The public offering price of the Fund's Class A shares
is determined by adding the applicable sales charge to the net asset value. See
"Buying Fund Shares -- Sales Charges" above. The public offering price of the
Fund's Class B and Class C shares is the net asset value per share.
The price you pay for a share will be determined using the next set of
calculations made after your order is accepted by NEFSCO. 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) (or, under
limited circumstances, such other time no later than 8:00 p.m. (Eastern time) as
may be agreed upon between the dealer and the Distributor) to receive that day's
public offering price.
CALCULATING THE PRICE OF SHARES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Market Value Other Any Net Asset
of Portfolio Securities + Assets - Liabilities = Value (NAV)
- ------------------------------------------
Total Number of Outstanding Shares in a Class
</TABLE>
THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE APPLICABLE
SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B AND CLASS C SHARES IS THE
NAV.
Income Tax Considerations
The Fund intends to meet all requirements of the Code necessary to qualify as a
"regulated investment company" (including certain diversification requirements)
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 generally taxable to you as
ordinary income. (A
19
<PAGE> 22
portion of these distributions may qualify for the dividends-received deduction
for corporations.) Distributions designated by the Fund as deriving from net
gains on securities held for more than one year but not more than 18 months
(i.e., 28% Rate Gains) and from net gains on securities held for more than 18
months (i.e., 20% Rate Gains) are taxable to you as such, 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 earned during that calendar
year, and virtually all of the capital gain net income the Fund realized during
the twelve months ending October 31 but has not previously distributed. 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 of the year in
which they were declared.
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
In addition to the management fee paid to its adviser, the Fund pays all
expenses not borne by its adviser or subadviser 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, 12b-1 fees, all brokerage commissions and transfer
taxes in connection with portfolio transactions, all taxes and filing fees, the
fees and expenses for registration or qualification of its shares under federal
and state securities laws, all expenses of shareholders' and trustees' meetings,
preparing, printing and mailing prospectuses and reports to shareholders and the
compensation of trustees who are not directors, officers or employees of NELICO
or MetLife or their affiliates, other than affiliated registered investment
companies. Certain expenses may be allocated differently between the Fund's
Class A, Class B and Class C shares, on the one hand, and its Class Y shares, on
the other hand. (See "Additional Facts about the Fund" below.)
Under Service Plans, adopted pursuant to Rule 12b-1 under the 1940 Act, 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 attributable to Class A, Class B and
Class C shares. The Distributor may pay up to the entire amount of this fee to
securities dealers who are dealers of record with respect to the Fund's shares,
for providing personal services to investors in shares of the Fund and/or the
maintenance of shareholder accounts. Such payments will be made on a quarterly
basis, unless other arrangements are made between the Distributor and the
securities dealer. The Class A service fee is payable only to reimburse the
Distributor for amounts it pays or expends in connection with the provision of
personal services to investors and/or the maintenance of shareholder accounts.
To the extent that the Distributor's reimbursable expenses in any year exceed
the maximum amount payable for that year under the Service Plan, such expenses
20
<PAGE> 23
may be carried forward for reimbursement in future years in which the Plan
remains in effect. For Class B shares, the Distributor pays investment dealers,
at the time of sale, the first year's service fee in the amount of up to 0.25%
of the amount invested, but in the case of Class C shares, the Distributor
retains the 0.25% service fee assessed against Class C shares during the first
year of investment.
Under Distribution Plans, adopted pursuant to Rule 12b-1 under the 1940 Act, the
Fund's Class B and C shares also pay the Distributor a monthly distribution fee
at an annual rate not to exceed 0.75% of the average net assets of the Fund's
Class B and C shares. The Distributor may pay up to the entire amount of this
fee to securities dealers who are dealers of record with respect to the Fund's
shares, as distribution fees in connection with the sale of the Fund's shares.
Such payments will be made on a quarterly basis, unless other arrangements are
made between the Distributor and the securities dealer. The Distributor retains
the balance of the fee as compensation for its services as distributor of the
Fund's Class B and Class C shares. In the case of the distribution fee on Class
C shares, the Distributor retains the 0.75% assessed during the first year of
investment.
The service and distribution fees on Class C shares that are retained by the
Distributor during the first year of investment are used to compensate the
Distributor for providing distribution-related services to the Fund in
connection with the sale of Class C shares, and to reimburse the Distributor, in
whole or in part, for the commissions paid (and related financing costs) to
investment dealers at the time of sale of Class C shares.
In addition, NEFM performs certain accounting and administrative services for
the Fund. For those services the Fund reimburses NEFM for all or part of its
expenses of providing these services to the Fund, which includes the following:
(i) expenses for personnel performing bookkeeping, accounting, internal
auditing, financial reporting and clerical functions relating to the Fund, (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and notices, proxy
solicitation materials furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance, and (iii)
registration, filing and other fees in connection with requirements of
regulatory authorities.
Performance Criteria
The Fund may include total return information for each class of shares in
advertisements or other written sales material. The Fund will show each class's
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 class at the beginning of the relevant period to the
value of the investment at the end of the period (assuming deduction of the
current maximum sales charge on Class A shares, automatic reinvestment of all
dividends and capital gains distributions and, in the case of Class B and C
shares, imposition of the CDSC relevant to the period quoted). Total return may
be quoted with or without giving effect to any voluntary expense limitations in
effect during the relevant period. The Fund or classes may also show total
return over other periods, on an aggregate basis for the period presented, or
without deduction of a sales charge. If a sales charge is not deducted in
calculating total return, the class's total return will be higher.
Total return will generally be higher for Class A shares than for Class B and
Class C shares of the Fund, because of the higher levels of expenses borne by
the Class B and Class C shares. An investor should balance this expected lower
total return against the benefit gained by 100% immediate investment of the
purchase price of Class B or Class C Shares. As a result of lower operating
expenses, Class Y shares of the Fund can be expected to achieve a higher
investment return than the Fund's Class A, Class B or Class C shares.
All performance information is based on past results and is not an indication of
likely future performance.
21
<PAGE> 24
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 is a newly organized series of the Trust.
- -- When you invest in the Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive annual dividends as
determined by the trustees of the Trust 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. Shares of
all classes of the Fund vote together, except as to matters relating to a
class's Rule 12b-1 plan, on which only shares of that class are entitled to
vote. No Rule 12b-1 plan applies to the Class Y shares of the Fund.
- -- 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 trustees of the Trust 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 Fund offers Class Y shares to certain qualified investors. Class Y shares
are identical to Class A, B and C shares, except that Class Y shares have no
sales charge or CDSC, bear no Rule 12b-1 fees and have separate voting rights
in certain circumstances. Class Y shares may bear their own transfer agency
and prospectus printing costs and, if so, will not bear any portion of those
costs relating to other classes of shares.
- -- 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.
- -- 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 $1,000 for all
accounts except as indicated below), 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 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. The Fund will send a single copy
of its annual and semi-annual reports to an address to which more than one
shareholder of record with the same last name has indicated that mail is to
be delivered. Shareholders may request additional copies of any annual or
semi-annual report in writing or by telephone.
- -- The Class A, Class B, Class C and Class Y structure could be terminated
should certain IRS rulings be rescinded.
- -- The trustees of the Trust have the authority without shareholder approval to
issue other classes of shares of the Fund that represent interest in the
Fund's portfolio but that have different sales load and fee arrangements.
Printed on Recycled Paper XL51-0398
22
<PAGE> 25
NEW ENGLAND BULLSEYE FUND
Supplement dated March 31, 1998 to Prospectus dated March 31, 1998
The following information supplements the section in the Prospectus captioned
"Buying Fund Shares -- Sales Charges," which begins on page 9.
Through May 31, 1998, or until total net assets of the Fund reach $25 million,
whichever occurs first, the Distributor may reallow to participating investment
dealers (excluding New England Securities Corporation) 100% of the sales charge
on sales of Class A shares on which a sales charge is paid. During this period,
the Distributor may pay a commission of 0.50% in addition to the dealer's
concession as set forth in the Prospectus on sales of Class A shares by New
England Securities Corporation on which a sales charge is paid. During this
period, the Distributor may pay participating investment dealers (including New
England Securities Corporation) an additional commission of 0.50% on sales of
Class B shares and on sales of $1,000,000 or more of Class A shares, and an
additional commission of 0.25% on sales of Class C shares.
For the purposes of the foregoing, "sales" do not include exchanges made at net
asset value from another New England Fund.
<PAGE> 26
[NEW ENGLAND FUNDS LOGO]
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
NEW ENGLAND BULLSEYE FUND
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1998
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 Bullseye Fund (the "Fund"). This Statement is not a
prospectus and is only authorized for distribution when accompanied or preceded
by the prospectus of the Fund dated March 31, 1998, as supplemented from time to
time (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, MA 02116.
This Statement contains information about the Class A, B, C and Y
shares of the Fund. The Fund is a series of New England Funds Trust III (the
"Trust"), a registered management investment company that offers a total of two
series.
Table of Contents
Page
PART I
Investment Restrictions 2
Fund Charges and Expenses 3
PART II
Miscellaneous Investment Practices 4
Management of the Trust 6
Portfolio Transactions and Brokerage 12
Description of the Trust and Ownership of Shares 13
How to Buy Shares 15
Net Asset Value and Public Offering Price 16
Reduced Sales Charges 17
Shareholder Services 19
Redemptions 24
Standard Performance Measures 26
Income Dividends, Capital Gain Distributions and Tax Status 29
Appendix A - Publications That May Contain Fund Information 32
Appendix B - Advertising and Promotional Literature 34
1
<PAGE> 27
PART I
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments to be
made by the Fund, some of which (those restrictions marked with an asterisk) may
not be changed without the approval of a majority of the outstanding voting
securities of the Fund (as defined in the Investment Company Act of 1940 [the
"1940 Act"]). Except in the case of restriction (7) below, the percentages set
forth below and the percentage limitations set forth in the Prospectus will
apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists immediately after and
as a result of a purchase of such security.
The Fund may not:
*(1) Invest more than 25% of the Fund's total assets in the securities of
issuers engaged in any one industry (except securities issued by the
U.S. Government, its agencies or instrumentalities);
(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 it owns or, 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. (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) Borrow money in excess of 33 1/3% of its total assets;
*(4) 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;
*(5) Buy or sell real estate or commodities or commodity contracts, except
that the Fund may buy and sell financial futures contracts and options,
swap contracts, currency forward contracts, structured notes and other
similar instruments. (This restriction does not prevent the Fund from
purchasing securities of issuers that invest in the foregoing);
*(6) 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;
(7) 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 (excluding Rule 144A securities and certain Section 4(2)
commercial paper deemed to be liquid under guidelines established by
the Trust's trustees);
*(8) Issue senior securities, except as permitted by the 1940 Act or any
relevant exemption thereunder. (For the purpose of this restriction
none of the following is deemed to be a senior security: any pledge or
other encumbrance of assets; any borrowing permitted by restriction (3)
above; any collateral arrangements with respect to options or futures
contracts, and with respect to initial and variation margin; and the
purchase or sale of options, forward contracts, futures contracts, swap
contracts and other similar instruments.)
Although the Fund is permitted to borrow money to a limited extent, it
does not currently intend to do so.
2
<PAGE> 28
The staff of the Securities and Exchange Commission (the "SEC") is
currently of the view that repurchase agreements maturing in more than seven
days are illiquid and thus subject to restriction (7) above.
FUND CHARGES AND EXPENSES
MANAGEMENT FEES
Pursuant to an Advisory Agreement dated March 16, 1998, 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, the Fund pays NEFM a
gross management fee at the annual rate of 0.95% of the first $200 million of
the Fund's average daily net assets, 0.90% of the next $300 million of such
assets and 0.85% of such assets in excess of $500 million, reduced by the amount
of any sub-advisory fees paid by the Fund to Jurika & Voyles pursuant to any
sub-advisory agreement.
The Advisory Agreement provides that NEFM may delegate its
responsibilities thereunder to other parties. Pursuant to a Sub-Advisory
Agreement dated March 16, 1998 among NEFM, Jurika & Voyles, L.P. ("Jurika &
Voyles") and the Fund, NEFM has delegated responsibility for the investment and
reinvestment of the assets of the portfolio to Jurika & Voyles. The Fund pays
Jurika & Voyles a fee for managing the portfolio at an annual rate of 0.57% of
the first $200 million of the average daily net assets of the Fund, 0.50% of the
next $300 million of such assets and 0.43% of such assets in excess of $500
million.
For more information about the Fund's investment advisory and
subadvisory agreements, see "Management of the Trust" in Part II of this
Statement.
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<PAGE> 29
PART II
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 will continue to benefit from interest or dividends on the securities
loaned and will also receive interest through investment of the cash collateral
in short-term liquid investments, which may include shares of money market funds
subject to any investment restriction listed in Part I. 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 be 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.
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<PAGE> 30
- - "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is
a corporate instrumentality of the United States Government. Freddie Macs
are participation certificates issued by FHLMC that represent an interest
in residential mortgages from FHLMC's National Portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of
principal, but Freddie Macs are not backed by the full faith and credit
of the United States Government.
U.S. Government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may, for temporary defensive
purposes, accept lower current income from short-term investments rather than
investing in higher yielding long-term securities.
When-Issued Securities. The Fund may enter into agreements with banks or
broker-dealers for the purchase or sale of securities at an agreed-upon price on
a specified future date. Such agreements might be entered into, for example,
when the Fund anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued later. When the Fund purchases securities in this manner (i.e. on a
when-issued or delayed-delivery basis), it is required to segregate with the
Trust's custodian cash or liquid securities eligible for purchase by a Fund in
an amount equal to or greater than, on a daily basis, the amount of the Fund's
when-issued or delayed-delivery commitments. The Fund will make commitments to
purchase on a when-issued or delayed-delivery basis only securities meeting the
Fund's investment criteria. The Fund may take delivery of these securities or,
if it is deemed advisable as a matter of investment strategy, the Fund may sell
these securities before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Fund will meet its obligations
from the then available cash flow or the sale of securities, or from the sale of
the when-issued or delayed- delivery securities themselves (which may have a
value greater or less than the Fund's payment obligation).
Repurchase Agreements. The Fund may enter into repurchase agreements, by which
the Fund purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed-upon price and date. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
relatively low market risk. While the underlying security may be a bill,
certificate of indebtedness, note or bond issued by an agency, authority or
instrumentality of the United States Government, the obligation of the seller is
not guaranteed by the United States Government and there is a risk that the
seller may fail to repurchase the underlying security. In such event, the Fund
would attempt to exercise rights with respect to the underlying security,
including possible disposition in the market. However, the Fund may be subject
to various delays and risks of loss, including (a) possible declines in the
value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce rights and the
expenses involved in the attempted enforcement.
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.
5
<PAGE> 31
Borrowing. The Fund may borrow for liquidity purposes. At all times when
borrowings are outstanding the Fund must maintain at least 300% "asset
coverage," -- meaning that total assets of the Fund must have a value of at
least 300% of all amounts borrowed. Leverage by means of borrowing will
exaggerate the effect of an increase or decrease in the value of the securities
or other investments in the Fund's portfolio on the Fund's net assets and,
therefore, may increase the volatility of the Fund. Money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances), which costs may exceed the
income received from the securities or other instruments purchased with borrowed
funds. It is anticipated that such borrowings would be pursuant to a negotiated
loan agreement with a bank or by means of reverse repurchase agreements with
other institutional lenders, such as broker-dealers. The Fund's borrowing
policies are fundamental and, therefore, may not be changed without shareholder
approval.
Foreign Currency Hedging Transactions. To protect against a change in the
foreign currency exchange rate between the date on which the Fund contracts to
purchase or sell a security and the settlement date for the purchase or sale, or
to "lock in" the equivalent of a dividend or interest payment in another
currency, the Fund may purchase or sell a foreign currency on a spot (i.e.,
cash) basis at the prevailing spot rate. If conditions warrant, the Fund may
also enter into contracts with banks or broker-dealers to purchase or sell
foreign currencies at a future date ("forward contracts"). The Fund will
maintain cash or other liquid assets in a segregated account with the custodian
in an amount at least equal to the lesser of (i) the difference between the
current value of the Fund's liquid holdings that settle in the relevant currency
and the Fund's outstanding obligations under currency forward contracts, or (ii)
the current amount, if any, that would be required to be paid to enter into an
offsetting forward currency contract which would have the effect of closing out
the original forward contract. The Fund's use of currency hedging transactions
may be limited by tax considerations. The Fund may also purchase or sell foreign
currency futures contracts traded on futures exchanges.
MANAGEMENT OF THE TRUST
Trustees
Trustees of the Trust and their ages (in parentheses), addresses and
principal occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR. -- Trustee (58); 79 John F. Kennedy Street, Cambridge,
Massachusetts 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 (53); 452 Fifth Avenue, New York, New York 10018;
President and CEO, Cain Brothers & Company, Incorporated (investment
banking); formerly, Trustee, Universal Health Realty Income Trust;
Chairman, Inter Fish, Inc. (an aqua venture in Barbados).
KENNETH J. COWAN -- Trustee (65); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Retired; Director, A Young Woman's Residence; 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 (54); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Senior Advisor, Partner, and former Managing Director, The
Carlyle Group (investments); Public Service Professor, Harvard Graduate
School of Government; Trustee, Council for Excellence in Government
(not-for-profit); Director, Frontier Ventures (personal investment);
Director, Telcom Ventures
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<PAGE> 32
(telecommunication); Director, Genesis Cable (cable communications);
Director, Prime Communications (cable communications); Director,
Neptune Communications (undersea cable systems); Director, Sequana
Therapeutics (biotechnology); formerly, Director of the U.S. Office of
Management and Budget and a member of President Bush's Cabinet;
formerly, Director, Master Highway Communications (mobile
communications).
SANDRA O. MOOSE -- Trustee (56); 135 E. 57th Street New York, New York 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 (54); 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"); Chief Executive
Officer, New England Funds Service Corporation ("NEFSCO"); Director,
Back Bay Advisors, Inc. ("BBAI"); Director, Maine Bank & Trust Company;
formerly, Director, New England Securities Corporation ("New England
Securities").
JOHN A. SHANE -- Trustee (64); 200 Unicorn Park Drive, Woburn, Massachusetts
01801; President, Palmer Service Corporation (venture capital
organization); General Partner, Palmer Partners, L.P.; Director, Abt
Associates, Inc. (consulting firm); 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).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee
(51); President and Chief Executive Officer, Nvest, L.P. ("Nvest") and
Nvest Companies, L.P. ("Nvest Companies"); Chairman of the Board and
Director, President and Chief Executive Officer, Nvest Corporation;
Chairman of the Board and Director, NEF Corporation; Chairman of the
Board and Director, BBAIB; formerly, Director, New England Life
Insurance Company ("NELICO").
PENDELTON P. WHITE -- Trustee (66); 6 Breckenridge Lane, Savannah, Georgia
31411; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants);
formerly, Trustee, The Faulkner Corporation (community hospital
corporation).
Officers
Officers of the Trust, in addition to Messrs. Schmelzer and Voss, and
their ages (in parentheses) and principal occupations during the past five years
are as follows:
BRUCE R. SPECA -- Vice President (42); Executive Vice President, NEF
Corporation; Executive Vice President, New England Funds, L.P.;
Executive Vice President, NEFM; Executive Vice President and Chief
Operating Officer, NEFSCO.
- ------------------------
* Trustee deemed an "interested person" of the Trust, as defined in the
1940 Act.
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<PAGE> 33
FRANK NESVET -- Treasurer (54); Senior Vice President and Chief Financial
Officer, NEF Corporation; Senior Vice President and Chief Financial
Officer, New England Funds, L.P.; Senior Vice President and Chief
Financial Officer, NEFM; Senior Vice President and Chief Financial
Officer, NEFSCO.
JOHN E. PELLETIER-- Secretary and Clerk (33); Senior Vice President and General
Counsel, NEF Corporation; 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; Senior
Vice President , General Counsel and Chief Legal Officer, NEFSCO;
formerly, Senior Vice President and General Counsel, Funds Distributor,
Inc.; formerly, Counsel, The Boston Company Advisors, Inc.; formerly,
Associate, Ropes & Gray (law firm).
Previous positions during the past five years with NELICO or
Metropolitan Life Insurance Company ("MetLife"), New England Funds, L.P. or NEFM
are omitted, if not materially different from a trustee's or officer's current
position with such entity. Each of the Trusts' trustees is also a trustee of
certain other investment companies for which New England Funds, L.P. acts as
principal underwriter. Except as indicated above, the address of each trustee
and officer of the Trust is 399 Boylston Street, Boston, Massachusetts 02116.
Trustees Fees
The Trust pays no compensation to its officers or to its trustees who
are interested persons thereof.
Each trustee who is not an interested person of the Trust receives, in
the aggregate for serving on the boards of the Trust and New England Funds Trust
I, New England Funds Trust II, New England Cash Management Trust and New England
Tax Exempt Money Market Trust (all five trusts collectively, the "New England
Funds Trusts"), comprising as of March 31, 1998 a total of 23 mutual fund
portfolios, a retainer fee at the annual rate of $40,000 and meeting attendance
fees of $3,500 for each meeting of the board he or she attends. Each committee
member receives an additional retainer fee at the annual rate of $6,000.
Furthermore, each committee chairman receives an additional retainer fee (beyond
the $6,000) at the annual rate of $4,000. These fees are allocated among the
Fund and the 22 other mutual fund portfolios in the New England Funds Trusts
based on a formula that takes into account, among other factors, the net assets
of each fund.
During the fiscal year ended December 31, 1997 the persons who were
then trustees of the Trust received the amounts set forth in the following table
for serving as a trustee of the Trust and for also serving on the governing
boards of the other New England Funds Trusts.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from the New
Compensation as Part of Fund Estimated Annual England Funds
from the Expenses Benefits Trusts
Name of Trustee Trust in 1997 Upon Retirement in 1997
- --------------- ----- ------- --------------- -------
<S> <C> <C> <C> <C>
Graham T. Allison, Jr $0 $0 $0 $52,000
Daniel M. Cain $0 $0 $0 $58,500
Kenneth J. Cowan $0 $0 $0 $61,500
Richard Darman $0 $0 $0 $54,500
Sandra O. Moose $0 $0 $0 $56,000
John A. Shane $0 $0 $0 $57,500
Pendelton P. White $0 $0 $0 $57,500
</TABLE>
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<PAGE> 34
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 each of the funds in the Trust on the normal payment date
for such fees. As a result of this method of calculating the deferred payments,
the Fund, upon making the deferred payments, will be in the same financial
position as if the fees had been paid on the normal payment dates.
As of February 2, 1998, 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's advisory agreement provides that NEFM will furnish or pay
the expenses of the Fund for office space, facilities and equipment, services of
executive and other personnel of the Trust and certain administrative services.
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 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 the federal or
state securities laws, all expenses of shareholders' and trustees' meetings and
of preparing, printing and mailing reports to shareholders and the compensation
of trustees who are not directors, officers or employees of the Fund's adviser,
subadviser or their affiliates, other than affiliated registered investment
companies. The Fund also pays NEFM for certain legal and accounting services
provided to the Fund by NEFM.
The advisory agreement and the sub-advisory agreement between NEFM and
Jurika & Voyles 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 or 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 the advisory agreement or
the subadvisory-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 Trust's Board of Trustees or by vote
of a majority of the outstanding voting securities of the Fund, upon 60 days'
written notice, or by NEFM upon 90 days' written notice, and each terminates
automatically in the event of its assignment. The sub-advisory agreement also
may be terminated by Jurika & Voyles upon 90 days' notice and is automatically
terminated upon termination of the advisory agreement. In addition, the advisory
agreement will automatically terminate if the Trust or the Fund shall at any
time be required by New England Funds, L.P. (the "Distributor") to eliminate all
reference to the words "New England" or the letters "TNE" in the name of the
Trust, 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 NEFM.
The advisory agreement and sub-advisory agreement each 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 Nvest Holdings, Inc.
("Nvest Holdings"), which is in turn a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). NEF Corporation is also the sole general
partner of New England Funds, L.P., the distributor of the Funds, and the sole
shareholder of NEFSCO, the transfer and
9
<PAGE> 35
dividend disbursing agent of the Funds. Nvest Companies owns the entire limited
partnership interest in each of NEFM and New England Funds, L.P.
Jurika & Voyles is a limited partnership whose sole general partner,
Jurika & Voyles, Inc., is a wholly-owned subsidiary of Nvest Holdings. Nvest
Companies owns the entire limited partnership interest in Jurika & Voyles. As of
February 27, 1998, Jurika & Voyles had discretionary management authority for
approximately $7 billion of assets.
Nvest Companies' managing general partner, Nvest Corporation, is a
wholly-owned subsidiary of MetLife New England Holdings, Inc., which in turn is
a wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife"), a
mutual life insurance company. MetLife owns in the aggregate, directly and
indirectly, approximately 47% of the outstanding limited partnership interests
in Nvest Companies. Nvest Companies' advising general partner, Nvest, is a
publicly-traded company listed on the New York Stock Exchange; Nvest Corporation
is the sole general partner of Nvest. Nvest Companies' 14 principal subsidiary
or affiliated asset management firms, collectively, had more than $125 billion
of assets under management as of December 31, 1997.
Certain officers and employees of Jurika & Voyles have responsibility
for portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Jurika & Voyles)
that may invest in securities in which the Fund may invest. Where Jurika &
Voyles determines that an investment purchase or sale opportunity is appropriate
and desirable for more than one advisory account, purchase and sale orders may
be executed separately or may be combined and, to the extent practicable,
allocated by Jurika & Voyles to the participating accounts. Where advisory
accounts have competing interests in a limited investment opportunity, Jurika &
Voyles will allocate investment opportunities based on numerous considerations,
including the time the competing accounts have had funds available for
investment, and the relative amounts of available funds, an account's cash
requirements and the time the competing accounts have had investments available
for sale. It is Jurika & Voyles' policy to allocate, to the extent practicable,
investment opportunities to each client over a period of time on a fair and
equitable basis relative to its other clients.
It is believed that the ability of the Fund to participate in larger
volume transactions in this manner will in some cases produce better executions
for the Fund. However, in some cases, this procedure could have a detrimental
effect on the price and amount of a security available to the Fund or the price
at which a security may be sold. The trustees are of the view that the benefits
of retaining Jurika & Voyles as investment manager outweigh the disadvantages,
if any, that might result from participating in such transactions.
Distribution Agreement and Rule 12b-1 Plans. Under an agreement with
the Fund (the "Distribution Agreement"), New England Funds, L.P. serves as the
general distributor of each class of shares of the Fund. Under this 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 the Distribution 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
and distribution fees described in the Prospectus.
As described in the Prospectus, the Fund has adopted Rule 12b-1 plans
(the "Plans") for its Class A, Class B and Class C shares which, among other
things, permit it to pay the Fund's distributor (currently New England Funds,
L.P.) monthly fees out of its net assets. Pursuant to Rule 12b-1 under the 1940
Act, each Plan, together with the Distribution Agreement, was approved by the
Board of Trustees of the Trust, including a
10
<PAGE> 36
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").
Each 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
relevant class of shares of the Fund. Each 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 any Plan that would materially
increase the fees payable thereunder by the relevant class of shares of the Fund
requires approval by vote of the holders of a majority of such shares
outstanding. The trustees of the Trust review quarterly written reports of such
costs and the purposes for which such costs have been incurred. For so long as a
Plan is in effect, selection and nomination of those trustees who are not
interested persons of the Trust shall be committed to the discretion of such
disinterested persons.
The Distributor has entered into selling agreements with investment
dealers, including New England Securities, an affiliate of the Distributor, for
the sale of the Fund's shares. New England Securities is registered as a
broker-dealer under the Securities Exchange Act of 1934. The Distributor may at
its expense pay an amount not to exceed 0.50% of the amount invested to dealers
who have selling agreements with the Distributor.
The Distribution Agreement 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 Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire board of trustees of the Trust cast in
person at a meeting called for that purpose or by a vote of a majority of the
outstanding securities of the Fund (or the relevant class, in the case of the
Plans).
With the exception of New England Funds, L.P., New England Securities
and their direct and indirect corporate parents, no interested person of the
Trust nor any trustee of the Trust had any direct or indirect financial interest
in the operation of the Plans or any related agreement.
Benefits to the Fund and its shareholders resulting from the Plans are
believed to include (1) enhanced shareholder service, (2) asset retention, (3)
enhanced bargaining position with third party service providers and economies of
scale arising from having higher asset levels and (4) portfolio management
opportunities arising from having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the name of
New England Funds Trust III and the Fund and if it should cease to be the
distributor, New England Funds Trust III or the Fund may be required to change
their names and delete these words or letters. New England Funds, L.P. also acts
as general distributor for New England Cash Management Trust, New England Tax
Exempt Money Market Trust, New England Funds Trust I, New England Funds Trust
III and the other series of the Trust besides the Fund.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), 225 Franklin Street, 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.
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<PAGE> 37
Independent Accountants. The Fund's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, MA 02110. The independent
accountants of the Trust conduct an annual audit of that Trust's financial
statements, assist in the preparation of federal and state income tax returns
and consult with the Trust as to matters of accounting and federal and state
income taxation.
Other Arrangements.
Pursuant to a contract between the Fund and NEFSCO, NEFSCO 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 an annual
per-account fee to NEFSCO for these services in the amount of $17.75. NEFSCO has
subcontracted with State Street Bank for it to provide, through its subsidiary
Boston Financial Data Services, Inc. ("BFDS"), transaction processing, mail and
other services. For these services, NEFSCO pays BFDS a monthly per-account fee
of $0.78.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In placing orders for the purchase and sale of portfolio securities for
the Fund, Jurika & Voyles always seeks best execution, subject to the
considerations set forth below. Transactions in unlisted securities are carried
out through broker-dealers who make the market for such securities unless, in
the judgment of Jurika & Voyles, a more favorable execution can be obtained by
carrying out such transactions through other brokers or dealers.
Jurika & Voyles selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best 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. Jurika & Voyles 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.
Receipt of brokerage or research services from brokers may sometimes be
a factor in selecting a broker which Jurika & Voyles believes will provide best
execution for a transaction. These services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce Jurika & Voyles' expenses. Such services may be used by Jurika &
Voyles in servicing other client accounts and in some cases may not be used with
respect to the Fund. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
Jurika & Voyles may, however, consider purchases of shares of the Fund by
customers of broker-dealers as a factor in the selection of broker-dealers to
execute the Fund's securities transactions.
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Jurika & Voyles may cause the Fund to pay a broker-dealer that provides
brokerage and research services to Jurika & Voyles an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. Jurika & Voyles
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or Jurika
& Voyles' overall responsibilities to the Fund and its other clients. Jurika &
Voyles' authority to cause the Fund to pay such greater commissions is also
subject to such policies as the trustees of the Trust may adopt from time to
time.
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 Nvest Companies, NEFM or Jurika & Voyles. Any such transactions will comply
with Rule 17e-1 under the 1940 Act.
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.
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 Fund's dealer in connection with such transactions.
It is expected that the portfolio transactions in fixed-income
securities will generally be with issuers or dealers on a net basis without a
stated commission. Securities firms may receive brokerage commissions on
transactions involving options, futures and options on futures and the purchase
and sale of underlying securities upon exercise of options. The brokerage
commissions associated with buying and selling options may be proportionately
higher than those associated with general securities transactions.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
New England Funds Trust III was organized as a Massachusetts business
trust pursuant to a Declaration of Trust dated August 22, 1995. The Trust has
two separate portfolios (New England Equity Income Fund and the Fund) each
currently offering three classes of shares, Classes A, B, and C. New England
Equity Income Fund also offers Class Y shares. New England Equity Income Fund
was organized in 1995. The Fund was organized in 1998.
The Agreement and Declaration of Trust of the Trust (the "Declaration
of Trust") currently permits the Trust's trustees to issue an unlimited number
of full and fractional shares of each series. The Fund is represented by a
series of shares of the Trust. 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 of each class of the Fund
are entitled to share pro rata in the net assets attributable to that class of
shares of the Fund available for distribution to shareholders. The Declaration
of Trust also permits the trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The shares of the Fund are divided into four classes, Classes A, B, C
and Y. The Fund currently offers Classes A, B and C shares. Class Y shares are
not currently available for purchase but may be offered at a later date to
certain eligible institutional investors, with higher minimum purchase
requirements than Classes A, B and C. All expenses of the Fund (excluding
transfer agency fees and expenses of printing and mailing prospectuses to
shareholders ("Other Expenses") are borne by its Class A, B, C and Y shares on a
pro rata basis, except for
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12b-1 fees, which are borne only by Classes A, B and C and may be charged at a
separate rate to each of such classes. Other Expenses of Classes A, B and C are
borne by such classes on a pro rata basis, but Other Expenses relating to the
Class Y shares may be allocated separately to the Class Y shares.
The assets received by each class of 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 creditors, are allocated to, and constitute the
underlying assets of, that class. The underlying assets of each class of the
Fund are segregated and are charged with the expenses with respect to that class
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 a particular class
of a fund in the Trust 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 each
fund in the Trust, certain expenses may be legally chargeable against the assets
of the funds in the Trust.
The Declaration of Trust also permits the trustees of the Trust,
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 or any fund of the Trust, however, may be terminated at any
time by vote of at least two-thirds of the outstanding shares of each fund
affected. Similarly, any class within a fund may be terminated by vote of at
least two-thirds of the outstanding shares of such class. While the Declaration
of Trust further provides that the board of trustees may also terminate the
Trust upon written notice to its shareholders, the 1940 Act requires that the
Trust receive the authorization of a majority of its outstanding shares in order
to change the nature of its business so as to cease to be an investment company.
Voting Rights
As summarized in the 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 the 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 the 1940 Act provides in effect
that a series or class shall be deemed to be affected by a matter unless it is
clear that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreements 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
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<PAGE> 40
time as less than a majority of the trustees holding office have been elected by
shareholders, and (ii) in the case of a vacancy on the Board of Trustees,
unless, after filling such vacancy, at least two-thirds of the trustees holding
office shall have been elected by the shareholders, such vacancy may be filled
only by a vote of the shareholders. In addition, trustees may be removed from
office by a written consent signed by the holders of two-thirds of the
outstanding shares and filed with the 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. Shareholder 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 one of its series' name or to cure technical problems
in the Declaration of Trust, (ii) to establish and designate new series or
classes of Trust shares and (iii) to establish, designate or modify new and
existing series or classes of Trust shares or other provisions relating to Trust
shares in response to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the trustees. The Declaration of Trust provides for indemnification out of
the Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund by reason of owning shares of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and the Fund itself would be unable to
meet its obligations.
The Declaration of Trust further provides that the Board of Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The By-Laws of the Trust provide for
indemnification by the Trust of trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
HOW TO BUY SHARES
The procedures for purchasing shares of the Fund are summarized in the
Prospectus. Banks may charge a fee for transmitting funds by wire. With respect
to shares purchased by federal funds, shareholders should bear in mind that wire
transfers may take two or more hours to complete.
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<PAGE> 41
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange on a day
when the Exchange is open; otherwise the settlement date is the following
business day. For telephone orders, the settlement date is the fifth business
day after the order is made.
Shares may also be purchased either in writing, by phone or, in the
case of Class A, B and C shares, by electronic funds transfer using Automated
Clearing House ("ACH"), or by exchange as described in the Prospectus through
firms that are members of the National Association of Securities Dealers, Inc.
and that have selling agreements with the Distributor.
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of the Fund's Class A, B or C shares. Payment must be
received by the Distributor within three business days following the transaction
date or the order will be subject to cancellation. Telephone orders must be
placed through the Distributor or your investment dealer.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price and net asset
value per share is summarized in the Prospectus.
The total net asset value of each class of shares of the Fund (the
excess of the assets of the Fund attributable to such class over the liabilities
attributable to such class) is determined as of the close of regular trading
(normally 4:00 p.m. Eastern time) on each day that the New York Stock Exchange
is open for trading. The weekdays that the New York Stock Exchange is expected
to be closed are New Year's Day, Martin Luther King 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 of the Trust, although the actual calculations may be made by persons
acting pursuant to the direction of the board.
Generally, trading in equity securities in markets outside the United
States, as well as trading in foreign government securities and other
fixed-income securities, is substantially completed each day at various times
prior to the close of the New York Stock Exchange. Securities traded on a
non-U.S. exchange will be valued at their last sale price (or the last reported
bid price, if there is no reported sale during the day), on the exchange on
which they principally trade, as of the close of regular trading on such
exchange. The value of other securities principally traded outside the United
States will be computed as of the completion of substantial trading for the day
on the markets on which such securities principally trade. Securities
principally traded outside the United States will generally be valued several
hours before the close of regular trading on the New York Stock Exchange,
generally 4:00 p.m. Eastern time, at which time the Fund computes the net asset
value of its shares. Occasionally, events affecting the value of securities
principally traded outside the United States may occur between the completion of
substantial trading of such securities for the day and the close of the New York
Stock Exchange, which events will not be reflected in the computation of a
Fund's net asset value. If events materially affecting the value of the Fund's
securities occur during such
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<PAGE> 42
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.
Trading in some of the portfolio securities of the Fund takes place in
various markets outside the United States on days and at times other than when
the New York Stock Exchange is open for trading. Therefore, the calculation of
the Fund's net asset value does not take place at the same time as the prices of
many of its portfolio securities are determined, and the value of the Fund's
portfolio may change on days when the Fund is not open for business and its
shares may not be purchased or redeemed.
The per share net asset value of a class of the Fund's shares is
computed by dividing the number of shares outstanding into the total net asset
value attributable to such class. The public offering price of a Class A share
of the Fund is the net asset value per share next determined after a properly
completed purchase order is accepted by NEFSCO or State Street Bank, plus a
sales charge as set forth in the Fund's Prospectus. The public offering price of
a Class B, C or Y share of the Fund is the next-determined net asset value.
REDUCED SALES CHARGES
Class A Shares Only
Special purchase plans are enumerated in the text of the prospectus.
Cumulative Purchase Discount. A Fund shareholder making an additional
purchase of Class A shares may be entitled to a discount on the sales charge
payable on that purchase. This discount will be available if the shareholder's
"total investment" in the Fund reaches the breakpoint for a reduced sales charge
in the table under "Buying Fund Shares - Sales Charges" in the prospectus. The
total investment is determined by adding the amount of the additional purchase,
including sales charge, to the current public offering price of all series and
classes of shares of New England Funds Trust I, New England Funds Trust II and
the Trust (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 funds in 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 another fund, the reduced
sales charge of 4.5% of the public offering price will apply to the entire
amount of the additional investment.
Letter of Intent. A letter of intent (a "Letter"), which can be
effected at any time, is a privilege available to investors which reduces the
sales charge on investments in Class A shares. Ordinarily, reduced sales charges
are available for single purchases of Class A shares only when they reach
certain breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a
shareholder indicates an intention to invest enough money in Class A shares
within 13 months to reach a breakpoint. If the shareholder's intended aggregate
purchases of all series and classes of the Trusts over a defined 13-month period
will be large enough to qualify for a reduced sales charge, the shareholder may
invest the smaller individual amounts at the public offering price calculated
using the sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be
increased, decreased or canceled at any time. The effective date of a Letter is
the date it is received in good order at NEFSCO, or, if communicated by a
telephone exchange or order, at the date of telephoning provided a signed
Letter, in good order, reaches NEFSCO within five business days.
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A reduced sales charge is available for aggregate purchases of all
series and classes of shares of the Trusts pursuant to a written Letter effected
within 90 days after any purchase. In the event the account was established
prior to 90 days before the Letter effective date, the account will be credited
with Rights of Accumulation ("ROA") towards the breakpoint level that will be
reached upon the completion of the 13 months' purchases. The ROA credit is the
value of all shares held as of the effective date of the Letter based on the
"public offering price computed on such date."
The cumulative purchase discount, described above, permits the
aggregate value at the current public offering price of Class A shares of any
accounts with the Trusts held by a shareholder to be added to the dollar amount
of the intended investment under a Letter, provided the shareholder lists them
on the account application.
State Street Bank will hold in escrow shares with a value at the
current public offering price of 5% of the aggregate amount of the intended
investment. The amount in escrow will be released when the Letter is completed.
If the shareholder does not purchase shares in the amount indicated in the
Letter, the shareholder agrees to remit to State Street Bank the difference
between the sales charge actually paid and that which would have been paid had
the Letter not been in effect, and authorizes State Street Bank to redeem
escrowed shares in the amount necessary to make up the difference in sales
charges. Reinvested dividends and distributions are not included in determining
whether the Letter has been completed.
Combining Purchases. Purchases of all series and classes of the Trusts
by or for an investor, the investor's spouse, parents, children, siblings,
grandparents or grandchildren and any other account of the investor, including
sole proprietorships, in either Trust may be treated as purchases by a single
individual for purposes of determining the availability of a reduced sales
charge. Purchases for a single trust estate or a single fiduciary account may
also be treated as purchases by a single individual for this purpose, as may
purchases on behalf of a participant in a tax-qualified retirement plan and
other employee benefit plans, provided that the investor is the sole participant
in the plan.
Combining with Other Series and Classes of the Trusts. A shareholder's
total investment for purposes of the cumulative purchase discount and purchases
under a Letter includes the value at the current public offering price of any
shares of series and classes of the Trusts that the shareholder owns (which
includes shares of New England Cash Management Trust and New England Tax Exempt
Money Market Trust [the "Money Market Funds"] if such shares were purchased by
exchanging shares of any of the Trusts). Shares owned by persons described in
the preceding paragraph may also be included.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions of less than $1 million may be invested in Class A shares of 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 applies to investments of $25,000 or more in Class A
shares of the Fund by (1) clients of an adviser or subadviser to the Trusts; any
director, officer or partner of a client of an adviser or subadviser to 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 sub-adviser to 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 the Trusts. Any
investor eligible for this arrangement should so indicate in writing at the time
of the purchase.
Offering to Employees of MetLife and Associated Entities. There is no
sales charge, CDSC or initial investment minimum related to investments in Class
A shares of the Fund by current and retired employees of the Trusts' investment
advisers or subadvisers, New England Funds, L.P., NELICO or MetLife or any other
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<PAGE> 44
company affiliated with NELICO or MetLife; current and former directors and
trustees of the Trusts, NELICO or MetLife or their predecessor companies; agents
and general agents of NELICO or MetLife and their 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, in-laws,
grandparents or grandchildren of the persons listed above and any trust,
pension, profit sharing or other benefit plan for any of the foregoing persons
and any separate account of NELICO or MetLife or any insurance company
affiliated with NELICO or MetLife.
Eligible Governmental Authorities. There is no sales charge or
contingent deferred sales charge related to investments in Class A shares of the
Fund 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.
Investment Advisory Accounts. Shares of the Fund may be purchased at
net asset value by investment advisers, financial planners or other
intermediaries who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
clients of such investment advisers, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary on
the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Section 401(a), 403(b), 401(k) and 457 of the Code
and "rabbi trusts". Investors may be charged a fee if they effect transactions
through a broker or agent.
Certain Broker-Dealers and Financial Services Organizations. Shares of
the Fund also may be purchased at net asset value through certain broker-dealers
and/or financial services organizations without any transaction fee. Such
organizations may receive compensation, in an amount of up to 0.25% annually of
the average value of the Fund shares held by their customers. This compensation
may be paid by NEFM and/or Jurika & Voyles out of their own assets, or may be
paid indirectly by the Fund in the form of servicing, distribution or transfer
agent fees.
Shareholders of Reich and Tang Government Securities Trust.
Shareholders of Reich and Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of the Fund at net asset value and
without imposition of a sales charge.
The reduction or elimination of the sales charge in connection with
sales described above reflects the absence or reduction of sales expenses
associated with such sales.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. NEFSCO may charge a fee for providing duplicate
information.
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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 Fund
and no direct charges are made to shareholders. Although the Fund 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 (Class A, B and C Shares)
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 NEFSCO for
investment in the Fund. A plan may be opened with an initial investment of $100
or more and thereafter regular monthly checks of $100 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 by NEFSCO upon notice
to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by
the investor by written notice to NEFSCO, which must be received at least five
business days prior to any payment date. The plan may be discontinued by State
Street Bank at any time without prior notice if any check is not paid upon
presentation; or by written notice to you at least thirty days prior to any
payment date. State Street Bank is under no obligation to notify shareholders as
to the nonpayment of any check.
Retirement Plans Offering Tax Benefits (Class A, B and C Shares)
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the 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
investments in the Fund must be at least $250 for each participant in corporate
pension and profit sharing plans and Keogh plans, at least $500 for IRAs, and at
least $100 for any subsequent investments. There is a special initial and
subsequent investment minimum of $25 for payroll deduction investment programs
for 401(k), SARSEP, SEP, SIMPLE Plans, 403(b) and certain other retirement
plans. Income dividends and capital gain distributions must be reinvested
(unless the investor is over age 59 1/2 or disabled). Plan documents and further
information can be obtained from New England Funds, L.P.
An investor should consult a competent tax or other adviser as to the
suitability of 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.
Certain retirement plans may also be eligible to purchase Class Y
shares. See the Prospectus relating to Class Y shares.
20
<PAGE> 46
Systematic Withdrawal Plans (Class A, B and C Shares)
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 (a
"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 Plan may elect to receive payments monthly,
quarterly, semiannually or annually for a fixed amount of not less than $50 or a
variable amount based on (1) the market value of a stated number of shares, (2)
a specified percentage of the account's market value or (3) a specified number
of years for liquidating the account (e.g., a 20-year program of 240 monthly
payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.).
The initial payment under a variable payment option may be $50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or, to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares in your account. No CDSC applies to a redemption pursuant to the Plan.
All shares under the Plan must be held in an open (uncertificated)
account. Income dividends and capital gain distributions will be reinvested
(without a sales charge in the case of Class A shares) at net asset value
determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, the
shareholder should consider whether a 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 Class A shares by a shareholder who has
a 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.
21
<PAGE> 47
Exchange Privilege
A shareholder may exchange the shares of any fund in the Trusts (except
for shares of New England Adjustable Rate U.S. Government Fund (the "Adjustable
Rate Fund") and, in the case of Class A shares of New England Intermediate Term
Tax Free Fund of California and New England Intermediate Term Tax Free Fund of
New York, only if such shares have been held for at least six months) for shares
of the same class of any other fund of the Trusts (subject to the investor
eligibility requirements, if any, of the fund into which the exchange is being
made) on the basis of relative net asset values at the time of the exchange
without any sales charge. In the case of Class A shares of the Adjustable Rate
Fund, if exchanged for shares of any other fund that has a higher sales charge,
shareholders will pay the difference between any sales charge already paid on
their Adjustable Rate Fund shares and the higher sales charge of the fund into
which they are exchanging, at the time of the exchange. When an exchange is made
from the Class A, Class B, or Class C shares of one fund to the same class of
shares of another fund, the shares received by the shareholder in the exchange
will have the same age characteristics as the shares exchanged. The age of the
shares determines the expiration of the CDSC and, for Class B shares, the
conversion date. If you own Class A, B, or C shares, you may also elect to
exchange your shares of any fund for shares of the same class of the Money
Market Funds. On all exchanges of Class A, B or C shares into the Money Market
Funds, the exchange stops the aging period relating to the CDSC, if any, and,
for Class B shares only, conversion to Class A shares. The aging resumes only
when an exchange is made back into shares of a fund of the Trusts. If you own
Class Y shares, you may exchange those shares for Class Y shares of other funds
of the Trusts or for Class A shares of the Money Market Funds. These options are
summarized in the Prospectus. An exchange may be effected, provided that neither
the registered name nor address of the accounts are different and provided that
a certificate representing the shares being exchanged has not been issued to the
shareholder, by (1) a telephone request to the fund or NEFSCO at 1-800-225-5478
or (2) a written exchange request to New England Funds, P.O. Box 8551, Boston,
MA 02266-8551. You must acknowledge receipt of a current Prospectus for a fund
before an exchange for that fund can be effected. The minimum amount for an
exchange is $1,000.
The investment objectives of the other funds (besides the Fund) in the Trusts
and the Money Market Funds are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return
from a combination of market appreciation and dividend income from equity
securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-term capital appreciation and moderate current
income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for long-term
growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from long-term
growth of capital and dividend income primarily through investment in a
diversified portfolio of marketable international equity securities.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
22
<PAGE> 48
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
NEW ENGLAND EQUITY-INCOME FUND seeks current income and growth of
capital.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level of
current income consistent with low volatility of principal.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk. The Bond Income Fund
invests primarily in corporate and U.S. Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of
current income exempt from federal income tax and Massachusetts personal income
taxes as Back Bay Advisors, the Fund's sub-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 FUND OF NEW YORK seeks as high a
level of current income exempt from federal income tax and its state personal
income tax and New York City personal income tax as is consistent with
preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST
23
<PAGE> 49
Money Market Series -- seeks maximum current income consistent with
preservation of capital and liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST seeks current income exempt
from federal income taxes consistent with preservation of capital and liquidity.
As of February 15, 1998, the net assets of the funds in the Trusts and
the Money Market Funds totaled over $7 billion.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term capital gain or
loss.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the prospectus following the caption "Owning Fund
Shares," a shareholder may establish an Automatic Exchange Plan under which
shares of the Fund are automatically exchanged each month for shares of the same
class of one or more of the other funds in the Trusts. Registration on all
accounts must be identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business day until the
account is exhausted or until NEFSCO is notified in writing to terminate the
plan. Exchanges may be made in amounts of $100 or more. The Service Options Form
is available from NEFSCO or your financial representative to establish an
Automatic Exchange Plan.
REDEMPTIONS
The procedures for redemption of shares of a Fund are summarized in the
prospectus. As described in the Prospectus, a contingent deferred sales charge
(a "CDSC") may be imposed on certain purchases of Class A shares and on
purchases of Class B and Class C shares. For purposes of the CDSC, an exchange
of shares from the Fund to another series of the Trusts is not considered a
redemption or a purchase. For federal tax purposes, however, such an exchange is
considered a sale and a purchase and, therefore, would be considered a taxable
event on which you may recognize a gain or loss. In determining whether a CDSC
is applicable to a redemption of Class B or Class C shares, the calculation will
be determined in the manner that results in the lowest rate being charged.
Therefore, for Class B shares, it will be assumed that the redemption is first
of any Class A shares in the shareholder's Fund account, second of shares held
for over six years, third of shares issued in connection with dividend
reinvestment and fourth of shares held longest during the six-year period. For
Class C shares, it will be assumed that the redemption is first of any shares
that have been purchased prior to March 1, 1998, second of shares that have been
in the shareholder's Fund account for over a year, third of shares issued in
connection with dividend reinvestment and fourth of shares that have been in the
shareholder's Fund account for under a year. The charge will not be applied to
dollar amounts representing an increase in the net asset value of shares since
the time of purchase or reinvested distributions associated with such shares.
Unless you request otherwise at the time of redemption, the CDSC is deducted
from the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 Class B shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional shares under dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 4% (the
applicable rate in the second year after purchase).
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934. However, a signature guarantee will not be
24
<PAGE> 50
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 New York Stock Exchange. Requests made after that time or on a day when
the New York Stock Exchange is not open for business cannot be accepted and a
new request on a later day will be necessary. The proceeds of a telephone
withdrawal will normally be sent on the first business day following receipt of
a proper redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form, available from your investment dealer.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
Federal Reserve System. If the account is with a savings bank, it must have only
one correspondent bank that is a member of the System.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Fund reserves the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59-1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70-1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a Systematic
Withdrawal Plan, not to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59-1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include payments made due to death,
disability, separation from service, normal or early retirement as defined in
the plan document, loans from the plan and hardship withdrawals, return of
excess contributions, required minimum distributions at age 70-1/2 (waivers only
apply to amounts necessary to meet the required minimum amount), certain
withdrawals pursuant to a Systematic Withdrawal Plan, not to exceed 10% annually
of the value of your account, and redemptions made from qualified retirement
accounts or Section 403(b)(7) custodial accounts necessary to pay custodial
fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
New England Funds, including IRA and 403(b)(7) participant-directed
25
<PAGE> 51
transfers of assets to other custodians (except for the reasons given above) or
qualified transfers of assets due to trustee-directed movement of plan assets
due to merger, acquisition or addition of additional funds to the plan.
The 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
trustees of the Trust determine 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 (Class A shares only)
The Prospectus describes redeeming shareholders' reinstatement
privileges for Class A shares. Written notice and the investment check from
persons wishing to exercise this reinstatement privilege must be received by
your investment dealer within 120 days after the date of the redemption. The
reinstatement or exchange will be made at net asset value next determined after
receipt of the notice and the investment check and will be limited to the amount
of the redemption proceeds or to the nearest full share if fractional shares are
not purchased.
Even though an account is reinstated, the redemption will constitute a
sale for federal income tax purposes. Investors who reinstate their accounts by
purchasing shares of the Fund 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
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 same class 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 of the particular
class that would be purchased by a hypothetical $1,000 investment in the Fund
(with or without giving effect to the deduction of sales charge or CDSC, if
applicable) all additional shares that would have been purchased if all
dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the value of the hypothetical initial
investment as of the end of the period by multiplying the total of shares owned
at the end of the period by the net asset value per share of the relevant class
on the last trading day of the period; (3) dividing this account value for the
hypothetical investor by the amount of the initial investment, and annualizing
the result for periods of less than one year. Total return may be stated with or
without giving effect to any expense limitations in effect for the Fund.
Performance Comparisons
Total Return. Total returns will generally be higher for Class A shares
than for Class B and C shares of the Fund, because of the higher levels of
expenses borne by the Class B and C shares. Because of its lower operating
expenses, Class Y shares of the Fund can be expected to achieve a higher total
return than the Fund's Class A, B and C shares. The Fund may from time to time
include total return in advertisements or in
26
<PAGE> 52
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 New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The 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. Lipper's Mutual Fund Performance
Analysis, Small Cap Company Analysis and Mutual Fund Indices measure total
return and average current yield for the mutual fund industry. Rankings of
individual mutual fund performance over specified time periods assume
reinvestment of all distributions, exclusive of sales charges.
The Russell 2000 Index represents the top 2,000 stocks traded on the
New York Stock Exchange, American Stock Exchange and National Association of
Securities Dealers Automated Quotations, by market capitalizations.
The Morgan Stanley Capital International Europe, Australasia and Far
East Index (the "EAFE Index") is a market-value weighted and unmanaged index of
common stocks traded outside the U.S. The stocks in the index are selected with
reference to national and industry representation and weighted in the EAFE Index
according to their relative market value (market price per share times the
number of shares outstanding).
The Morgan Stanley Capital International Europe, Australasia and Far
East (Gross Domestic Product) Index (the "EAFE [GDP] Index") is a market-value
weighted and unmanaged index of common stocks traded outside the U.S. The stocks
in the index are selected with reference to national and industry representation
and weighted in the EAFE (GDP) Index according to their relative market values.
The relative market value of each country is further weighted with reference to
the country's relative gross domestic product.
The Fund may compare its performance to the Salomon-Russell Broad
Market Index Global X-US and to universes of similarly managed investment pools
compiled by Frank Russell Company and Intersec Research Corporation.
Articles and releases, developed by the Fund and other parties, about
the Fund regarding performance, rankings, statistics and analyses of the Fund's
and the fund group's asset levels and sales volumes, numbers of shareholders by
fund or in the aggregate for New England Funds, statistics and analyses of
industry sales volumes and asset levels, and other characteristics may appear in
advertising, promotional literature,
27
<PAGE> 53
publications, including, but not limited to, those publications listed in
Appendix A to this Statement and on various computer networks, for example, the
Internet. In particular, some or all of these publications may publish their own
rankings or performance reviews of mutual funds, including but not limited to,
Lipper Analytical Services and Morningstar. References to these rankings or
reviews or reprints of such articles may be used in the Funds' advertising and
promotional literature. Such advertising and promotional material may refer to
Nvest Companies, its structure, goals and objectives and the advisory
subsidiaries of Nvest Companies, 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
Nvest Companies, its advisory subsidiaries and their personnel. For additional
information about the Fund's advertising and promotional literature, see
Appendix B.
The Fund may use the accumulation charts below in their advertisements
to demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
INVESTMENTS AT 8% RATE OF RETURN
<TABLE>
<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
</TABLE>
INVESTMENTS AT 10% RATE OF RETURN
<TABLE>
<CAPTION>
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 political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the New England Funds. For example, the advertising and sales literature
of any of the New England Funds, but particularly that of New England Bullseye
Fund, New England Star Worldwide Fund and New England International Equity Fund,
may discuss all of the above international developments, including but not
limited to, international developments involving Europe, North and South
America, Asia, the Middle East and Africa, as well as events and issues
affecting specific countries that directly or indirectly may have had
consequences for the New England Funds or may have influenced past performance
or may influence current or prospective performance of the New England Funds.
The Fund's advertising and sales literature may also 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, as the distributor, and the transfer
agent of the Trusts, with respect to investing in shares of the Trusts and
customer
28
<PAGE> 54
service. Such materials may discuss the multiple classes of shares available
through the Trusts and their features and benefits, including the details of the
pricing structure.
New England Funds, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and rathers including, but not limited to,
Dalbar's Quality Tested Service Seal and Key Honors Award. Such references may
explain the criteria for the award, indicate the nature and significance of the
honor and provide statistical and other information about the award and New
England Funds, L.P.'s selection including, but not limited to, the scores and
categories in which New England Funds, L.P. excelled, the names of funds and
fund companies that have previously won the award and comparative information
and data about those against whom New England Funds, L.P. competed for the
award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in its
advertising and sales literature testimonials from shareholders, clients,
brokers who sell or own shares, broker-dealers, industry organizations and
officials and other members of the public, including, but not limited to, fund
performance, features and attributes, or service and assistance provided by
departments within the organization, employees or associates of New England
Funds, L.P.
Advertising and sales literature may also refer to the beta coefficient
of the New England Funds. A beta coefficient is a measure of systematic or
undiversifiable risk of a stock. A beta coefficient of more than 1 means that
the company's stock has shown more volatility than the market index (e.g. the
S&P 500) to which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If it equals 1,
its risk is the same as the market index. High variability in stock price may
indicate greater business risk, instability in operations and low quality of
earnings. The beta coefficients of the New England Funds may be compared to the
beta coefficients of other funds.
The Fund may enter into agreements with banks exempted from
broker-dealer 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 the 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 long-term capital gains, if any, after
offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the relevant class of the Fund based upon the net asset
value determined as of the close of the New York Stock Exchange on the record
date for each dividend or distribution. Shareholders, however, may elect to
receive their income dividends or capital gain distributions, or both, in cash.
The election may be made at any time by submitting a written request directly to
New England Funds. In order for a change to be in effect for any dividend or
distribution, it must be received by New England Funds on or before the record
date for such dividend or distribution.
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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 the 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) distribute
at least 90% of its dividend, interest and certain other taxable income each
year; and (iii) diversify its holdings so that at the end of each fiscal
quarter, (a) at least 50% of the value of its total assets consists of cash,
U.S. government securities, securities of other regulated investment companies,
and other securities limited generally, with respect to each issuer, to no more
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value 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 or businesses. So long as 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 and payable 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
designated by the Fund as deriving from net gains on securities held for more
than one year but not more than 18 months ("28% Rate Gain") and from net gains
on securities held for more than 18 months ("20% Rate Gain") will be taxable to
shareholders as, such, without regard to how long a shareholder has held shares
of the Fund. A loss on the sale of shares held for 6 months or less will be
treated as a long-term capital loss to the extent of any long-term capital gain
dividend paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares received shortly after their
purchase, although in effect a return of capital, are subject to federal income
taxes.
The 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.
Redemptions and exchanges of the Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. In
general, any gain realized upon a taxable disposition of shares will be treated
as 28% Rate Gain if the shares have been held for more than one year but not
more than 18 months, and as 20% Rate Gain if the shares have been held for more
than 18 months. Otherwise, the gain on the sale, exchange or redemption of Fund
shares will be treated as short-term capital gain. Furthermore, no loss will
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be allowed on the sale of Fund shares to the extent the shareholder acquired
other shares of the 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).
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APPENDIX A
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates Financial Services Week
Adam Smith's Money World Financial World
America On Line Fitch Insights
Anchorage Daily News Forbes
Atlanta Constitution Fort Worth Star-Telegram
Atlanta Journal Fortune
Arizona Republic Fox Network and affiliates
Austin American Statesman Fund Action
Baltimore Sun Fund Decoder
Bank Investment Marketing Global Finance
Barron's (the) Guarantor
Bergen County Record (NJ) Hartford Courant
Bloomberg Business News Houston Chronicle
Bond Buyer INC
Boston Business Journal Indianapolis Star
Boston Globe Individual Investor
Boston Herald Institutional Investor
Broker World International Herald Tribune
Business Radio Network Internet
Business Week Investment Advisor
CBS and affiliates Investment Company Institute
CFO Investment Dealers Digest
Changing Times Investment Profiles
Chicago Sun Times Investment Vision
Chicago Tribune Investor's Daily
Christian Science Monitor IRA Reporter
Christian Science Monitor News Service Journal of Commerce
Cincinnati Enquirer Kansas City Star
Cincinnati Post KCMO (Kansas City)
CNBC KOA-AM (Denver)
CNN LA Times
Columbus Dispatch Leckey, Andrew (syndicated column)
CompuServe Lear's
Dallas Morning News Life Association News
Dallas Times-Herald Lifetime Channel
Denver Post Miami Herald
Des Moines Register Milwaukee Sentinel
Detroit Free Press Money
Donoghues Money Fund Report Money Maker
Dorfman, Dan (syndicated column) Money Management Letter
Dow Jones News Service Morningstar
Economist Mutual Fund Market News
FACS of the Week Mutual Funds Magazine
Fee Adviser National Public Radio
Financial News Network National Underwriter
Financial Planning NBC and affiliates
Financial Planning on Wall Street New England Business
Financial Research Corp. New England Cable News
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New Orleans Times-Picayune Wall Street Letter
New York Daily News Wall Street Week
New York Times Washington Post
Newark Star Ledger WBZ
Newsday WBZ-TV
Newsweek WCVB-TV
Nightly Business Report WEEI
Orange County Register WHDH
Orlando Sentinel Worcester Telegram
Palm Beach Post World Wide Web
Pension World Worth Magazine
Pensions and Investments WRKO
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
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APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to Nvest Companies and its affiliates that perform
advisory and subadvisory functions for New England Funds including, but not
limited to: Back Bay Advisors, L.P., Harris Associates L.P., Loomis, Sayles &
Company, L.P. ("Loomis Sayles"), Capital Growth Management Limited Partnership
("CGM") and Westpeak Investment Advisors, L.P. ("Westpeak"). Reference also may
be made to the funds of their respective fund groups, namely, Loomis Sayles
Funds and the Oakmark Funds advised by Harris Associates, L.P.
References may be included in New England Funds' advertising and
promotional literature to other Nvest Companies affiliates including, but not
limited to, Nvest Associates, Inc., AEW Capital Management, L.P., Marlborough
Capital Advisors, L.P., Reich & Tang Capital Management, Reich and Tang Mutual
Funds Group and Jurika & Voyles and their fund groups.
References to sub-advisers unaffiliated with Nvest Companies that
perform subadvisory functions on behalf of New England Funds and their
respective fund groups may be contained in New England Funds' advertising and
promotional literature including, but not limited to, Berger Associates, Inc.,
Janus Capital Corporation, Founders Asset Management Inc., Montgomery Asset
Management, LLC, and Robertson, Stephens & Company Investment Management, L.P.
New England Funds' advertising and promotional material will include,
but is not limited to, discussions of the following information about both
affiliated and unaffiliated entities:
- - Specific and general assessments and forecasts regarding U.S. and world
economies, and the economics of specific nations and their impact on the New
England Funds;
- - Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions;
- - Specific and general investment philosophies, strategies, processes,
techniques and types of analysis;
- - Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services;
- - The corporate histories, founding dates and names of founders of the
entities;
- - Awards, honors and recognition given to the entities;
- - The names of those with ownership interest and the percentage of ownership
interest;
- - The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans;
- - Current capitalizations, levels of profitability and other financial and
statistical information;
- - Identification of portfolio managers, researchers, economists, principals
and other staff members and employees;
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- - The specific credentials of the above individuals, including, but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and degrees,
awards and honors.
- - Specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments.
- - Current and historical statistics regarding:
-total dollar amount of assets managed
-New England Funds' assets managed in total and by fund
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers, economists,
technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or sub-adviser
- - The general and specific strategies applied by the advisers in the
management of New England Funds portfolios including, but not limited to:
-the pursuit of growth, value, income oriented, risk management or other
strategies
-the manner and degree to which the strategy is pursued
-whether the strategy is conservative, moderate or extreme and an
explanation of other features and attributes
-the types and characteristics of investments sought and specific
portfolio holdings
-the actual or potential impact and result from strategy implementation
-through its own areas of expertise and operations, the value added by
sub-advisers to the management process
-the disciplines it employs, e.g., in the case of Loomis Sayles, the
strict buy/sell guidelines and focus on sound value it employs, and goals
and benchmarks that it establishes in management, e.g., CGM pursues
growth 50% above the S&P 500
-the systems utilized in management, the features and characteristics of
those systems and the intended results from such computer analysis, e.g.,
Westpeak's efforts to identify overvalued and undervalued issues.
- - Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than New England Funds, and those
families of funds, other than New England Funds. Any such references will
indicate that New England Funds and the other funds of the managers differ
as to performance, objectives, investment restrictions and limitations,
portfolio composition, asset size and other characteristics, including fees
and expenses. References may also be made to industry rankings and ratings
of the Funds and other funds managed by the Funds' advisers and
sub-advisers, including, but not limited to, those provided by Morningstar,
Lipper Analytical Services, Forbes and Worth.
In addition, communications and materials developed by New England
Funds will make reference to the following information about Nvest Companies and
its affiliates:
Nvest Companies is part of an affiliated group, including Nvest, a
publicly traded company listed on the New York Stock Exchange. Nvest Companies
has 14 principal subsidiary or affiliated asset management firms, which
collectively had more than $125 billion of assets under management as of
December 31, 1997. In addition, promotional materials may include:
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- - Specific and general references to New England Funds multi-manager approach
through Nvest Companies affiliates and outside firms including, but not
limited to, the following:
-that each adviser/manager operates independently on a day-to-day basis
and maintains an image and identity separate from Nvest Companies and the
other investment managers
-other fund companies are limited to a "one size fits all" approach but
New England Funds draws upon the talents of multiple managers whose
expertise best matches the fund objective
-in this and other contexts reference may be made to New England Funds
slogan "Where The Best Minds Meet"(R) and that New England Funds ability
to match the talent to the task is one more reason it is becoming known
as "Where The Best Minds Meet."
Financial Adviser Services ("FAS"), a division of Nvest Companies, may
be referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest Companies-affiliated fund groups
including: New England Funds, Loomis Sayles Funds, Oakmark Funds and Reich &
Tang Funds.
FAS will provide marketing support to Nvest Companies affiliated fund
groups targeting financial advisers, financial intermediaries and institutional
clients who may transact purchases and other fund-related business directly with
these fund groups. Communications will contain information including, but not
limited to: descriptions of clients and the marketplaces to which it directs its
efforts; the mission and goals of FAS and the types of services it provides
which may include: seminars; its 1-800 number, web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper Analytical
Services; statistics about the advisers', fund groups' or a specific fund's
assets under management; the histories of the advisers and biographical
references to portfolio managers and other staff including, but not limited to,
background, credentials, honors, awards and recognition received by the advisers
and their personnel; and commentary about the advisers, their funds and their
personnel from third-party sources including newspapers, magazines, periodicals,
radio, television or other electronic media.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
- - Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information, industry trends and
forecasts regarding the growth of assets, numbers of plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and firms including, but not limited to, DC Xchange,
William Mercer and other organizations involved in 401(k) and retirement
programs with whom New England Funds may or may not have a relationship.
- - Specific and general references to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the New England Funds as
a 401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
- - Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
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-past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and other
relevant forms and documents, Department of Labor rules and standards and
other regulations. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about the
past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of 401(k) and
retirement plans;
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs; and
-current and prospective ERISA regulation and requirements.
- - Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the New England Funds 401(k) and
retirement plans, to the participant and plan sponsor, including
explanations, statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers and
other personnel.
- - Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, New England Funds and
investing in its 401(k) and retirement plans, including, but not limited to:
-the significant economies of scale experienced by mutual fund companies
in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including, but not limited to, trustee
services and tax reporting
-the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
-the services of Trust Consultants Inc. (TCI), including, but not limited
to, sales support, plan record keeping, document service support, plan
sponsor support, compliance testing and Form 5500 preparation.
- - Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during enrollment
and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
37
