<PAGE>
Registration Nos. 33-62061
811-7345
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 6 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 9 [X]
(Check appropriate box or boxes)
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NEW ENGLAND FUNDS TRUST III
(Exact name of registrant as specified in charter)
399 Boylston Street, Boston,
Massachusetts 02116 (Address of
principal executive offices)
(617) 578-1132
(Registrant's telephone number, including Area Code)
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John E. Pelletier, Esq.
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
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Copy to:
Edward Lawrence, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on ________ pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[X] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
[LOGO](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
New
England
Funds
- ---------------------------------
New England Core Equity Fund
New England Stock and Bond Fund
New England Select Fund
New England Small Cap Value Fund
New England Small Gap Growth Fund
New England Total Return Bond
PROSPECTUS
May 00, 1999
What's Inside
Our Goals, Strategies & Risks
Page [Graphic omitted]
-----------------------------
Our Management Team
Page [Graphic omitted]
-----------------------------
Our Fund Services
Page [Graphic omitted]
-----------------------------
Our Fund Performance
Page [Graphic omitted]
-----------------------------
The Securities and Exchange Commission has not
approved any fund's shares as an investment or
determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is
committing a crime.
For general information on the Funds or any of
their services and for assistance in opening an
account, contact your financial representative
or call New England Funds.
New England Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
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<PAGE>
TABLE OF CONTENTS
OUR GOALS, STRATEGIES AND RISKS
New England Core Equity Fund ..............................................
New England Stock and Bond Fund ...........................................
New England Select Fund ...................................................
New England Small Cap Value Fund ..........................................
New England Small Cap Growth Fund .........................................
New England Total Return Bond Fund ........................................
The Funds' Fees and Expenses ..............................................
More About Risk ...........................................................
OUR MANAGEMENT TEAM
Meet the Funds' and Portfolios' Investment Adviser ........................
Meet the Portfolio Managers ...............................................
OUR FUND SERVICES
Investing in the Funds ....................................................
How Sales Charges are Calculated ..........................................
Ways to Reduce or Eliminate Sales Charges .................................
It's Easy to Open an Account ..............................................
Buying Shares .............................................................
Selling Shares ............................................................
Selling Shares in Writing .................................................
Exchanging Shares .........................................................
How Fund Shares Are Priced ................................................
Dividends and Distributions ...............................................
Tax Consequences ..........................................................
Compensation to Securities Dealers ........................................
Additional Investor Services ..............................................
Glossary of Terms .........................................................
If you have any questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
<PAGE>
A SUMMARY OF THE FUNDS
This prospectus contains information about New England Core Equity Fund, New
England Stock and Bond Fund, New England Select Fund, New England Small Cap
Value Fund, New England Small Cap Growth Fund and New England Total Return Bond
Fund (each a "Fund" and collectively the "Funds"). Unlike a typical mutual fund
which purchases a selection of individual securities directly, each Fund invests
all or substantially all of its assets in the shares of an underlying mutual
fund. In this Prospectus, each of the Funds' underlying mutual funds are
referred to individually as a "Portfolio," and collectively as the "Portfolios."
A brief description of each Fund is listed below.
NEW ENGLAND CORE EQUITY FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Goal: Long term capital appreciation. The Fund pursues this goal by
investing all or substantially all of its assets in The Oakmark
Fund.
The Fund's goal may be changed without shareholder approval.
NEW ENGLAND STOCK AND BOND FUND
Adviser: NEFM
Goal: High current income as well as preservation and growth of capital.
The Fund pursues this goal by investing all or substantially all of
its assets in The Oakmark Equity and Income Fund.
The Fund's goal may be changed without shareholder approval.
NEW ENGLAND SELECT FUND
Adviser: NEFM
Goal: Long term capital appreciation. The Fund pursues this goal by
investing all or substantially all of its assets in The Oakmark
Select Fund.
The Fund's goal may be changed without shareholder approval.
NEW ENGLAND SMALL CAP VALUE FUND
Adviser: NEFM
Goal: Long term capital appreciation. The Fund pursues this goal by
investing all or substantially all of its assets in The Oakmark
Small Cap Fund.
The Fund's goal may be changed without shareholder approval.
NEW ENGLAND SMALL CAP GROWTH FUND
Adviser: NEFM
Goal: Long term capital growth. The Fund pursues this goal by investing
all or substantially all of its assets in the Loomis Sayles Small
Cap Growth Fund.
The Fund's goal may be changed without shareholder approval.
NEW ENGLAND TOTAL RETURN BOND FUND
Adviser: NEFM
Goal: High total investment return through a combination of current
income and capital appreciation. The Fund pursues this goal by
investing all or substantially all of its assets in the Loomis
Sayles Bond Fund.
The Fund's goal may be changed without shareholder approval.
THE STRATEGY OF "ACCESS SHARES": Each Fund invests only in its designated
Portfolio, giving shareholders access to that particular investment strategy
when they invest in the Fund. Because they hold the same investments, Fund
performance is directly related to Portfolio performance, but there is no
assurance that the investment goal of each Fund or its respective Portfolio will
be achieved. NEFM has filed an application with the U.S. Patent and Trademark
Office to register the term "Access Shares" which describes the two-tiered
investment structure developed for these Funds by NEFM.
INVESTMENT RISKS: The risks associated with each Fund are the same as those of
its Portfolio and depend on the nature of the Portfolio's investments. The value
of domestic and foreign investments varies in response to many factors. Equity
securities fluctuate in value based upon general market and economic conditions,
as well as in response to specific developments affecting their issuing
companies. Debt securities generally fluctuate in value due to changes in
interest rates and in the perceived creditworthiness of their issuers. Because
each Fund and its corresponding Portfolio have the same investment goal, the
ability of a Fund to meet its investment goal is directly related to the
performance of its Portfolio.
Fund shares are not bank deposits and are not guaranteed, insured or endorsed by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested. For more detailed information about the Portfolio's investment goals,
strategies and related risks, please refer to the appropriate section for each
Portfolio in the following pages.
<PAGE>
OUR GOALS, STRATEGIES AND RISKS
NEW ENGLAND CORE EQUITY FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Harris Associates L.P. High X
("Harris Associates")
-------- ------ ------
PORTFOLIO MANAGER: Robert J. Sanborn Mod. X X
-------- ------ ------
TICKER SYMBOL: Class A Class B Class C Low
INVESTMENT GOAL
The Portfolio seeks long-term capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest primarily in equity
securities. The Portfolio will principally invest in common stock or securities
that convert into common stock of U.S. companies with a medium to large
capitalization level. Although Harris Associates considers income producing
capability in its security selection, the Portfolio is not designed for
investors whose primary investment goal is income.
Harris Associates uses a value-oriented investment philosophy based upon its
belief that over time a stock's market price and value will converge. Harris
Associates believes that this philosophy provides the best opportunity to
achieve long-term capital growth. It uses this philosophy to seek companies with
the following characteristics, although not all of the companies selected will
have these attributes:
X discounted share price compared to X competitive return on equity
economic value X high level of insider ownership
X positive free cash flows
X favorable earnings growth potential
In making investment decisions, Harris Associates generally employs the
following methods:
o It uses a disciplined bottom-up approach, meaning that it focuses on
individual companies rather than industries, evaluating the fundamentals of
each on a case-by-case basis to select those companies that meet Harris
Associates' standards of quality and value.
o Harris Associates' analysts typically review a company's free cash flow and
market values as compared to other companies. It visits with companies and
talks to various industry sources to determine how a company can build its
value.
o Once Harris Associates determines that a stock sells at a significant
discount to its potential value, it will consider that stock for purchase by
analyzing the quality and motivation of the company's management as well as
the company's market position within its industry.
o Investments are continuously monitored by analysts and by a pricing
committee that sets specific "buy" and "sell" targets for each security held
in the Portfolio. These targets are repeatedly adjusted to reflect changes
in a company's fundamentals. Harris Associates will generally buy a stock
when it sells for a price below 60% of its estimated worth, and sells the
stock when its value approaches 90% of its estimated worth.
o Harris Associates builds focused portfolios so that the best ideas can make
a meaningful impact on investment performance.
The Portfolio may:
* Hold up to 25% of its total assets in securities of foreign issuers traded
over-the-counter or on foreign exchanges, but it does not expect to invest
more than 5% of its total assets in securities of issuers based in emerging
markets.
* Hold fixed-income securities, including up to 25% of its assets in
lower-quality fixed-income securities.
* Hold cash or purchase money market and/or high quality debt securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Portfolio from
achieving its goal.
INVESTMENT RISKS
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to sudden, unpredictable drops in value or
periods of below-average performance for a given stock or for
the stock market as a whole. Although the Portfolio is
diversified, its focused approach means that its relatively
small number of holdings may result in greater share price
fluctuations than a more diversified fund.
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk
SECURITIES: (lower quality fixed-income securities may be subject to these
risks to a greater extent).
FOREIGN May be affected by currency fluctuations, higher volatility
SECURITIES: than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign
securities, and these investments may be affected by the
conversion of the currency of several European countries to the
"euro" currency. Investments in emerging markets carry
additional risks including greater political uncertainties,
currency transfer restrictions, a very limited number of
potential buyers and a developing country's dependence on
revenues from particular commodities or international aid.
To learn more about the possible risks of the Portfolio, please refer to the
section entitled "More About Risk." This section details the risks
of practices in which the Portfolio may engage. Please read this
section carefully before you invest.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Core Equity Fund. The performance information below represents
the historical performance of The Oakmark Fund, restated to reflect New England
Core Equity Fund's operating expenses. The Portfolio's past performance does not
necessarily indicate how the Fund or the Portfolio will perform in the future.
The bar chart shows the Portfolio's adjusted total return for Class A shares for
each calendar year since its first full year of operations. The return for the
other classes of shares offered by this Prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
NEW ENGLAND CORE EQUITY FUND
(total return of the Portfolio adjusted to reflect the Fund's expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1992. The data
points are as follows:)
1992 48.55%
1993 30.15%
1994 2.96%
1995 34.07%
1996 15.86%
1997 32.24%
1998
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X Highest Quarterly Return: Fourth Quarter 1992, up 15.31%
X Lowest Quarterly Return: First Quarter 1994, down 4.27%
The table below shows the Portfolio's returns for one year, five years and since
its inception compared to those of the Standard & Poor's Composite Index of 500
Stocks (the "S&P 500"), a market value-weighted, unmanaged index of common stock
prices for 500 selected stocks, the Dow Jones Industrial Average, a market
value-weighted and unmanaged index of 30 large industrial stocks traded on the
New York Stock Exchange, and the Value Line Composite Index, an unweighted and
unmanaged average of more than 1,000 stocks. You may not invest directly in an
index. The Portfolio's total returns reflect its expenses and the maximum sales
charge that you may pay when you buy or redeem Fund shares. The S&P 500, Dow
Jones Industrial Average and the Value Line Composite Index percentages have not
been adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1998) PAST 1 YEAR PAST 5 YEARS SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A % % %
S&P 500 % % %
Dow Jones Industrial Average % % %
Value Line Composite Index % % %
- --------------------------------------------------------------------------------
The Portfolio: Class B % % %
S&P 500 % % %
Dow Jones Industrial Average % % %
Value Line Composite Index % % %
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The Portfolio: Class C % % %
S&P 500 % % %
Dow Jones Industrial Average % % %
Value Line Composite Index % % %
- --------------------------------------------------------------------------------
* These percentages reflect the returns since the inception of the Portfolio
on August 5, 1991.
<PAGE>
NEW ENGLAND STOCK AND BOND FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Harris Associates L.P. High X
("Harris Associates")
-------- ------ ------
PORTFOLIO MANAGER: Clyde S. McGregor Mod. X X
-------- ------ ------
TICKER SYMBOL: Class A Class B Class C Low
INVESTMENT GOAL
The Portfolio seeks high current income as well as preservation and growth of
capital.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest primarily in U.S.
equity and fixed-income securities. Loomis Sayles allocates its assets among
equity and debt securities depending on its view of the economic outlook, but
will generally invest approximately 50% to 65% of its total assets in equity
securities (including convertible securities) and approximately 25% to 50% of
its total assets in U.S. Government or other high quality debt securities.
However, it may only invest up to 20% of its total assets in lower quality debt
securities.
The Portfolio is intended to present a balanced investment program between
growth and income. In the fixed-income portion of the Portfolio, Harris
Associates relies on a value-based research process that enables it to discover
securities that they believe are underrated by credit rating agencies. In the
equity portion of the Portfolio, Harris Associates uses a value-oriented
investment philosophy based upon its belief that over time a stock's market
price and value will converge. It uses these philosophies to seek investments
with the following characteristics, although not all of the companies or
securities selected will have these attributes:
Equity securities: Fixed-income securities:
------------------ ------------------------
X discounted share price compared to X discounted price compared to
economic value current value
X positive free cash flows X high quality bonds (as rated by
X favorable earnings growth potential Standard & Poor's Corporation or
X competitive return on equity Moody's Investors Service)
X high level of insider ownership X short to intermediate maturity
In making investment decisions, Harris Associates generally employs the
following methods:
o For equity securities, it uses a disciplined bottom-up approach, meaning
that it focuses on individual companies rather than industries, evaluating
the fundamentals of each on a case-by-case basis to select those companies
that meet Harris Associates' standards of quality and value.
o Harris Associates' analysts typically review a company's free cash flow and
market values as compared to other companies. It visits with companies and
talks to various industry sources to determine how a company can build its
value.
o Once it determines that a stock sells at a significant discount to its
potential value, Harris Associates will consider that stock for purchase by
analyzing the quality and motivation of the company's management as well as
the company's market position within its industry. It will also consider a
stock's dividend yield to satisfy the Fund's income orientation.
o For fixed-income securities, Harris Associates uses a value approach similar
to that employed in its equity selection process by selecting securities
which appear to be selling at a significant discount compared to their
long-term underlying value or potential.
o Investments are continuously monitored by analysts and by a pricing
committee that sets specific "buy" and "sell" targets for each security held
in the Portfolio. These targets are repeatedly adjusted to reflect changes
in a company's fundamentals. Harris Associates will generally buy a stock
when it sells for a price below 60% of its estimated worth, and sell a stock
when its value approaches 90% of its estimated worth.
o Harris Associates builds focused Portfolios so that the best ideas can make
a meaningful impact on investment performance.
The Portfolio may:
* Hold up to 10% of its total assets in securities of foreign issuers traded
over-the-counter or on foreign exchanges, but it does not expect to invest
more than 5% of its total assets in securities of issuers based in emerging
markets.
* Hold cash or purchase money market securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Portfolio from achieving its goal.
INVESTMENT RISKS
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to sudden, unpredictable drops in value or
periods of below-average performance for a given stock or for
the stock market as a whole. Although the Portfolio is
diversified, its focused approach means that its relatively
small number of holdings may result in greater share price
fluctuations than a more diversified Portfolio.
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk
SECURITIES: (lower quality bonds may be subject to these risks to a greater
extent)
FOREIGN May be affected by currency fluctuations, higher volatility than
SECURITIES: U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities,
and these investments may be affected by the conversion of the
currency of several European countries to the "euro" currency.
Investments in emerging markets carry additional risks including
greater political uncertainties, currency transfer restrictions,
a very limited number of potential buyers and a developing
country's dependence on revenues from particular commodities or
international aid.
To learn more about the possible risks of the Portfolio, please refer to the
section entitled "More About Risk." This section details the risks
of practices in which the Portfolio may engage. Please read this
section carefully before you invest.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Stock and Bond Fund. The performance information below represents
the historical performance of The Oakmark Equity and Income Fund, restated to
reflect New England Stock and Bond Fund's operating expenses. The Portfolio's
past performance does not necessarily indicate how the Fund or the Portfolio
will perform in the future.
The bar chart shows the Portfolio's adjusted total return for Class A shares for
each calendar year since its first full year of operations. The return for the
other classes of shares offered by this prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
NEW ENGLAND STOCK AND BOND FUND
(total return of the Portfolio adjusted to reflect the Fund's expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1996. The data
points are as follows:)
1996 14.94%
1997 26.21%
1998
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Second Quarter 1997, up 10.42%
X Lowest Quarterly Return: Third Quarter 1996, up 0.54%
The table below shows the Portfolio's average annual total returns for one year
and since its inception compared to those of the S&P 500, a market
value-weighted, unmanaged index of common stock prices for 500 selected stocks
and the Lehman Government/Corporate Bond Index, a composite average of the
Lehman Government Index and the Lehman Corporate Bond Index. It is also compared
to the Lipper Balanced Fund Index, a composite index of annual total returns of
all mutual funds with an investment style similar to that of the Portfolio. You
may not invest directly in an index. The Portfolio's total returns reflect its
expenses and the maximum sales charges that you may pay when you buy or redeem
the Fund's shares. The S&P 500 and the Lehman Government/Corporate Bond Index
percentages have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments. The
Lipper Balanced Fund Index percentages have been adjusted for these expenses,
but do not reflect any sales charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING
DECEMBER 31, 1998) PAST 1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A % %
S&P 500 % %
Lehman Government/Corporate Bond Index % %
Lipper Balanced Fund Index % %
- --------------------------------------------------------------------------------
The Portfolio: Class B % %
S&P 500 % %
Lehman Government/Corporate Bond Index % %
Lipper Balanced Fund Index % %
- --------------------------------------------------------------------------------
The Portfolio: Class C % %
S&P 500 % %
Lehman Government/Corporate Bond Index % %
Lipper Balanced Fund Index % %
- --------------------------------------------------------------------------------
* These percentages reflect the returns since the inception of the Portfolio on
November 1, 1995.
<PAGE>
NEW ENGLAND SELECT FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Harris Associates L.P. High X
("Harris Associates")
-------- ------ ------
PORTFOLIO MANAGER: William C. Nygren Mod.
-------- ------ ------
TICKER SYMBOL: Class A Class B Class C Low X X
-------------------------
INVESTMENT GOAL
The Portfolio seeks long term capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will primarily invest in equity
securities. The Portfolio is non-diversified and will ideally hold securities of
20 or fewer companies. It invests principally in common stock of U.S. companies
that have a medium to large capitalization level and that represent any
industry.
Harris Associates uses a value-oriented investment philosophy based upon its
belief that over time a stock's market price and value will converge. Harris
Associates believes that this philosophy provides the best opportunity to
achieve long term capital growth. It uses this philosophy to seek companies with
the following characteristics, although not all of the companies selected will
have these attributes:
X discounted share price compared to X competitive return on equity
economic value X high level of insider ownership
X positive free cash flows
X favorable earnings growth potential
In making investment decisions, Harris Associates generally employs the
following methods:
o It uses a disciplined bottom-up approach, meaning that it focuses on
individual companies rather than industries, evaluating the fundamentals of
each on a case-by-case basis to select those companies that meet Harris
Associates' standards of quality and value.
o Harris Associates' analysts typically review a company's free cash flows and
market values as compared to other companies. It visits with companies and
talks to various industry sources to determine how a company can build its
value.
o Once Harris Associates determines that a stock sells at a significant
discount to its potential value, it will consider that stock for purchase by
analyzing the quality and motivation of the company's management as well as
the company's market position within its industry.
o Investments are continuously monitored by analysts and by a pricing
committee that sets specific "buy" and "sell" targets for each security held
by the Portfolio. These targets are repeatedly adjusted to reflect changes
in a company's fundamentals. Harris Associates will generally buy a stock
when it sells for a price below 60% of its estimated worth and sell a stock
when its value approaches 90% of its estimated worth.
o Harris Associates builds focused Portfolios so that the best ideas can make
a meaningful impact on investment performance.
The Portfolio may:
* Hold up to 25% of its total assets in securities of foreign issuers traded
over-the-counter or on foreign exchanges, but it does not expect to invest
more than 5% of its total assets in securities of issuers based in emerging
markets.
* Hold fixed-income securities, including up to 25% of its assets in lower
quality fixed-income securities.
* Hold cash or purchase money market and/or high quality debt securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Portfolio from
achieving its goal.
INVESTMENT RISKS
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to sudden, unpredictable drops in value or
periods of below-average performance for a given stock or for
the stock market as a whole.
NON- Compared with other funds, the Portfolio may invest a greater
DIVERSIFIED percentage of its assets in a particular company. Therefore,
STATUS: the Portfolio's return could be significantly affected by the
performance of any one of the small number of stocks that it
holds.
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk
SECURITIES: (lower quality bonds may be subject to these risks to a greater
extent).
FOREIGN May be affected by currency fluctuations, higher volatility than
SECURITIES: U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities,
and these investments may be affected by the conversion of the
currency of several European countries to the "euro" currency.
Investments in emerging markets carry additional risks including
greater political uncertainties, currency transfer restrictions,
a very limited number of potential buyers and a developing
country's dependence on revenues from particular commodities or
international aid.
To learn more about the possible risks of the Portfolio, please refer to the
section entitled "More About Risk." This section details the risks
of practices in which the Portfolio may engage. Please read this
section carefully before you invest.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Select Fund. The performance information below represents the
historical performance of The Oakmark Select Fund, restated to reflect New
England Select Fund's operating expenses. The Portfolio's past performance does
not necessarily indicate how the Fund or the Portfolio will perform in the
future.
The bar chart shows the Portfolio's adjusted total return for Class A shares for
each calendar year since its first full year of operations. The return for the
other classes of shares offered by this prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
NEW ENGLAND SELECT FUND
(total return of the Portfolio adjusted to reflect the Fund's expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1997. The data
points are as follows:)
1997 54.67%
1998
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Second Quarter 1997, up 16.71%
X Lowest Quarterly Return: First Quarter Quarter 1997, down 6.21%
The table below shows the Portfolio's average annual total returns since the
Portfolio's inception compared to those of the S&P 500, a market value-weighted,
unmanaged index of common stock prices for 500 selected stocks, the S&P MidCap
400 Index, an unmanaged index of 400 domestic stocks chosen for market size,
liquidity, and industry group representation, and the Value Line Composite
Index, an unweighted and unmanaged average of more than 1,000 stocks. You may
not invest directly in an index. The Portfolio's total returns reflect its
expenses and the maximum sales charge that you may pay when you buy or redeem
Fund shares. The S&P 500, the S&P MidCap 400 Index and the Value Line Composite
Index percentages have not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual fund investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998) 1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A % %
S&P 500 % %
S&P MidCap 400 Index % %
Value Line Composite Index % %
- --------------------------------------------------------------------------------
The Portfolio: Class B % %
S&P 500 % %
S&P MidCap 400 Index % %
Value Line Composite Index % %
- --------------------------------------------------------------------------------
The Portfolio: Class C % %
S&P 500 % %
S&P MidCap 400 Index % %
Value Line Composite Index % %
- --------------------------------------------------------------------------------
* These percentages reflect the returns since the inception of the Portfolio on
November 1, 1996.
<PAGE>
NEW ENGLAND SMALL CAP VALUE FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Harris Associates L.P. High
("Harris Associates")
-------- ------ ------
PORTFOLIO MANAGER: Steven J. Reid Mod. X X
-------- ------ ------
TICKER SYMBOL: Class A Class B Class C Low X
-------------------------
INVESTMENT GOAL
The Portfolio seeks long term capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest primarily in equity
securities. It generally invests at least 65% of its total assets in securities
of U.S. companies with a small capitalization level ("Small Cap Companies"),
defined by Harris Associates as no larger than the largest market capitalization
of the companies included in the Standard & Poor's Small Cap 600 Index as most
recently reported. Although income is considered in the selection of securities,
the Portfolio is not designed for investors whose primary investment objective
is income.
Harris Associates uses a value-oriented investment philosophy based upon its
belief that over time a stock's market price and value will converge. Harris
Associates believes that this philosophy provides the best opportunity to
achieve long term capital growth. It uses this philosophy to seek companies with
the following characteristics, although not all of the companies selected will
have these attributes:
X discounted share price compared to X competitive return on equity
economic value X high level of insider ownership
X positive free cash flows
X favorable earnings growth potential
In making investment decisions, Harris Associates generally employs the
following methods:
o It uses a disciplined bottom-up approach, meaning that it focuses on
individual companies rather than industries, evaluating the fundamentals of
each on a case-by-case basis to select those companies that meet Harris
Associates' standards of quality and value.
o Harris Associates' analysts typically review a company's free cash flows and
market values as compared to other companies. It visits with companies and
talks to various industry sources to determine how a company can build its
value.
o Once Harris Associates determines that a stock sells at a significant
discount to its potential value, it will consider that stock for purchase by
analyzing the quality and motivation of the company's management as well as
the company's market position within its industry.
o Investments are continuously monitored by analysts and by a pricing
committee that sets specific "buy" and "sell" targets for each security held
by the Portfolio. These targets are repeatedly adjusted to reflect changes
in a company's fundamentals. Harris Associates will generally buy a stock
when it sells for a price below 60% of its estimated worth and sell a stock
when its value approaches 90% of its estimated worth.
o Harris Associates builds focused Portfolios so that the best ideas can make
a meaningful impact on investment performance.
The Portfolio may:
* Hold up to 25% of its total assets in securities of foreign issuers traded
over-the-counter or on foreign exchanges, but it does not expect to invest
more than 5% of its total assets in securities of issuers based in emerging
markets.
* Purchase fixed-income securities, including up to 25% of its assets in lower
quality fixed-income securities.
* Hold cash or purchase money market and/or high quality debt securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Portfolio from
achieving its goal.
INVESTMENT RISKS
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to sudden, unpredictable drops in value or
periods of below-average performance for a given stock or for
the stock market as a whole. Although the Portfolio is
diversified, its focused approach means that its relatively
small number of holdings may result in greater share price
fluctuations than a more diversified Portfolio.
SMALL-CAP May be subject to more abrupt price movements, limited markets
COMPANIES: and less liquidity than larger, more established companies,
which could adversely affect the value of the Portfolio.
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk
SECURITIES: (lower quality bonds may be subject to these risks to a greater
extent).
FOREIGN May be affected by currency fluctuations, higher volatility than
SECURITIES: U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities,
and these investments may be affected by the conversion of the
currency of several European countries to the "euro" currency.
Investments in emerging markets carry additional risks including
greater political uncertainties, currency transfer restrictions,
a very limited number of potential buyers and a developing
country's dependence on revenues from particular commodities or
international aid.
To learn more about the possible risks of the Portfolio, please refer to the
section entitled "More About Risk." This section details the risks
of practices in which the Portfolio may engage. Please read this
section carefully before you invest.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Small Cap Value Fund. The performance information below
represents the historical performance of The Oakmark Small Cap Fund, restated to
reflect New England Small Cap Value Fund's operating expenses. The Portfolio's
past performance does not necessarily indicate how the Fund or the Portfolio
will perform in the future.
The bar chart shows the Portfolio's adjusted total return for Class A shares for
each calendar year since its first full year of operations. The return for the
other classes of shares offered by this prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
NEW ENGLAND SMALL CAP VALUE FUND
(total return of the Portfolio adjusted to reflect the Fund's expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1996. The data
points are as follows:)
1996 39.44%
1997 40.16%
1998
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Second Quarter 1997, up 15.94%
X Lowest Quarterly Return: Fourth Quarter 1997, down 0.34%
The table below shows the Portfolio's average annual total returns for one year
and since its inception compared to those of the Lipper Small Cap Fund Index, an
unmanaged index of 30 small cap funds, the Russell 2000 Index, an unmanaged
index measuring the performance of smaller companies, and represents
approximately 10% of the total value of publicly traded companies in the U.S.,
and the S&P Small Cap 600 Index, an unmanaged index measuring the performance of
selected small capitalization stocks. You may not invest directly in an index.
The Portfolio's total returns reflect its expenses and the maximum sales charge
that you may pay when you buy or redeem Fund shares. The Russell 2000 Index and
the S&P Small Cap 600 Index percentages have not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable to
mutual fund investments. The Lipper Small Cap Fund Index percentages have been
adjusted for these expenses but do not reflect any sales charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998) PAST 1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A % %
Lipper Small Cap Fund Index % %
Russell 2000 Index % %
S&P Small Cap 600 Index % %
- --------------------------------------------------------------------------------
The Portfolio: Class B % %
Lipper Small Cap Fund Index % %
Russell 2000 Index % %
S&P Small Cap 600 Index % %
- --------------------------------------------------------------------------------
The Portfolio: Class C % %
Lipper Small Cap Fund Index % %
Russell 2000 Index % %
S&P Small Cap 600 Index % %
- --------------------------------------------------------------------------------
* These percentages reflect the returns since the inception of the Portfolio on
November 1, 1995.
<PAGE>
NEW ENGLAND SMALL CAP GROWTH FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Loomis, Sayles & Company, L.P. High X
("Loomis Sayles")
------- ------ ------
PORTFOLIO MANAGERS: Christopher R. Ely, Mod. X X
Philip C. Fine ------- ------ ------
and David L. Smith
TICKER SYMBOL: Class A Class B Class C Low
-----------------------
INVESTMENT GOAL
The Portfolio seeks long-term capital growth.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of companies with market capitalizations that
fall within the range of companies within the Russell 2000 Index ("Small Cap
Companies") and it may invest up to 35% of its assets in companies with larger
capitalization levels.
The Portfolio focuses on rapidly growing companies which Loomis Sayles believes
have the potential for strong revenue growth, rising profit margins and
accelerating earnings growth. The stock selection process uses a "bottom-up"
approach that Loomis Sayles believes emphasizes those companies which possess
the best growth prospects. Loomis Sayles uses this approach to seek companies
with the following characteristics, although not all of the companies selected
will have these attributes:
X New and/or distinctive products, technologies or services
X Expected growth of at least 20% per year driven by strong sales and improving
profitability
X Strong, experienced management with the vision and the capability to grow a
large, profitable organization
In making investment decisions, Loomis Sayles generally employs the following
methods:
o Loomis Sayles begins with a universe of approximately 3,000 companies that
generally fall within the market capitalization range defined by the Russell
2000 Index.
o Next, the Portfolio managers evaluate this universe through screening
techniques to determine which companies appear to offer the best earnings
growth prospects.
o Once Loomis Sayles determines that a stock may have the potential for
earnings growth and rising profitability, it then considers that stock for
purchase. This process includes analysis of the company's income statements
and balance sheets, an assessment of the quality of management team and the
company's competitive position.
o Finally, Loomis Sayles builds a diversified portfolio of small cap growth
securities. The portfolio's holdings are generally equally weighted,
although under certain circumstances such as low liquidity or lack of near
term earnings prospects, positions will be reduced. Under normal
circumstances, the Portfolio remains fully invested with less than 5% of its
assets as cash.
o Investments are continuously monitored by the small cap growth team. Any
erosion to the fundamental characteristics of portfolio holdings may result
in the sale of that security. Additionally, securities are sold when they
are no longer deemed to be small cap - typically when the market
capitalization of the company exceeds $2 billion. Finally, stocks may be
sold if a better opportunity is identified by the Portfolio Managers.
The Portfolio may:
* Hold any portion of its assets in securities of Canadian issuers and up to
20% of its assets in securities of other foreign issuers.
* Hold cash or purchase fixed-income and any other securities deemed
appropriate by Loomis Sayles for temporary defensive purposes in response to
adverse market, economic or political conditions. These investments may
prevent the Portfolio from achieving its goal.
* Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital
gains. Such practices may lower the Portfolio's return.
Investment Risks
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to sudden, unpredictable drops in value or
periods of below-average performance for a given stock or for
the stock market as a whole.
SMALL-CAP May be subject to more abrupt price movements, limited markets
COMPANIES: and less liquidity than larger, more established companies,
which could adversely affect the value of the Portfolio.
FOREIGN May be affected by currency fluctuations, higher volatility than
SECURITIES: U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities,
and these investments may be affected by the conversion of the
currency of several European countries to the "euro" currency.
To learn more about the possible risks of the Portfolio, please refer to the
section entitled "More About Risk." This section details the risks
of practices in which the Portfolio may engage. Please read this
section carefully before you invest.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Small Cap Growth Fund. The performance information below
represents the historical performance of the Loomis Sayles Small Cap Growth
Fund, restated to reflect New England Small Cap Growth Fund's operating
expenses. The Portfolio's past performance does not necessarily indicate how the
Fund or the Portfolio will perform in the future.
The bar chart shows the Portfolio's adjusted total return for Class A shares for
each calendar year since its first full year of operations. The return for the
other classes of shares offered by this prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
NEW ENGLAND SMALL CAP GROWTH FUND
(total return of the Portfolio adjusted to reflect the Fund's expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1997. The data
points are as follows:)
1997 19.08%
1998
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Quarter 199 , up %
X Lowest Quarterly Return: Quarter 199 , down %
The table below shows the Portfolio's average annual total returns for one year
and since its inception compared to those of the Russell 2000 Index, an
unmanaged index measuring the performance of smaller companies, and represents
approximately 10% of the total performance of selected small capitalization
stocks, and the Lipper Small Cap Fund Average, a composite index of the annual
total returns of all mutual funds with an investment style similar to that of
the Portfolio. You may not invest directly in an index. The Portfolio's total
return reflect its expenses and the maximum sales charge that you may pay when
you buy or redeem Fund shares. The Russell 2000 Index percentages have not been
adjusted for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments. The Lipper Small Cap Fund Average
percentages have been adjusted for these expenses but do not reflect any sales
charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING DECEMBER 31, 1998) PAST 1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A % %
Russell 2000 Index % %
Lipper Small Cap Fund Average % %
- --------------------------------------------------------------------------------
The Portfolio: Class B % %
Russell 2000 Index % %
Lipper Small Cap Fund Average % %
- --------------------------------------------------------------------------------
The Portfolio: Class C % %
Russell 2000 Index % %
Lipper Small Cap Fund Average % %
- --------------------------------------------------------------------------------
* These percentages reflect the returns since the inception of the Portfolio on
January 2, 1997.
<PAGE>
NEW ENGLAND TOTAL RETURN BOND FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Loomis Sayles & Company, L.P. High X
("Loomis Sayles")
-------- ------ ------
PORTFOLIO MANAGER: Daniel J. Fuss and Mod. X X
Kathleen C. Gaffney -------- ------ ------
TICKER SYMBOL: Class A Class B Class C Low
------------------------
INVESTMENT GOAL
The Portfolio seeks high total investment return through a combination of
current income and capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest substantially all of
its assets in fixed-income securities of any maturity. It will invest at least
65% of its assets in either corporate or U.S. government bonds. However, it may
only invest up to 35% of its assets in securities below investment grade
quality, commonly known as junk bonds. It may also invest up to 20% of its
assets in preferred stock.
The Portfolio's approach to bond management seeks to add value through diligent
selection of thoroughly researched corporate securities. Research analysts work
independently within specific industry groups to collectively cover a large
universe of securities. By concentrating on each security's fundamental
characteristics, the analysts make judgments regarding the best overall
investment ideas for the Portfolio Managers to consider. The analysts focus on
the following characteristics in deciding whether to recommend a security:
X cash flow projections X industry, company and political
X contact and visibility developments and trends
X economic forecast X comparative yield levels for
individual bonds, bond market
sectors and the bond market as a
whole
In making investment decisions, Loomis Sayles generally employs the following
methods:
o It uses a fixed-income research process that analyzes 600 corporate and 500
municipal debt issuers.
o Research analysts evaluate a security relative to the characteristics
described above to derive an independent credit rating for each security.
o It supplements this research process with information obtained from Wall
Street research, purchased independent research, company visits and credit
analyses published by rating agencies such as Standard & Poor's and Moody's
Investors Service, Inc. In particular, analysts seek to anticipate credit
rating changes with a goal of avoiding future credit downgrades and
participating in credit upgrades.
o The analysts present an unbiased overall credit analysis for use by the
Portfolio's managers and traders. Portfolio Managers ultimately decide
whether to buy, sell or hold a particular security.
The Portfolio may:
* Purchase convertible securities, zero-coupon bonds and when-issued
securities.
* Hold any portion of its assets in securities of Canadian issuers and up to
20% of its assets in securities of other foreign issuers.
* Invest in mortgage and asset-backed (including stripped mortgage-backed)
securities or collateralized mortgage obligations ("CMOs").
* Hold cash or purchase fixed-income or any other securities deemed
appropriate by Loomis Sayles for temporary defensive purposes in response to
adverse market, economic or political conditions. These investments may
prevent the Portfolio from achieving its goal.
INVESTMENT RISKS
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk.
SECURITIES: Credit risk relates to the ability of an issuer to make payments
of principal and interest when due. Interest rate risk relates
to changes in a security's value as a result of changes in
interest rates. Generally, the value of fixed-income securities
rise when prevailing interest rates fall and fall when interest
rates rise. Lower quality fixed-income securities, zero-coupon
bonds and when-issued securities are generally subject to
greater credit, market and interest rate risk than other
fixed-income securities.
FOREIGN May be affected by currency fluctuations, higher volatility than
SECURITIES: U.S. securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities,
and these investments may be affected by the conversion of the
currency of several European countries to the "euro" currency.
MORTGAGE- Subject to prepayment risk. With prepayment, the Portfolio may
& ASSET- reinvest the prepaid amounts in securities with lower yields
BACKED than the prepaid obligations. The Portfolio may also incur a
SECURITIES/ realized loss when there is a prepayment of securities that
CMO's were purchased at a premium. Stripped mortgage-backed securities
are more sensitive to changes in the prevailing interest rates
and the rate of principal payments on the underlying assets than
mortgage-backed securities.
To learn more about the possible risks of the Portfolio, please refer to the
section entitled "More About Risk." This section details the risks
of practices in which the Portfolio may engage. Please read this
section carefully before you invest.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Total Return Bond Fund. The performance information below
represents the historical performance of the Loomis Sayles Bond Fund, restated
to reflect New England Total Return Bond Fund's operating expenses. The
Portfolio's past performance does not necessarily indicate how the Fund or the
Portfolio will perform in the future.
The bar chart shows the Portfolio's adjusted total return for Class A shares for
each calendar year since its first full year of operations. The return for the
other classes of shares offered by this prospectus will differ from the Class A
returns shown in the bar chart, depending upon the respective expenses of each
class. The chart does not reflect any sales charge that you may be required to
pay when you buy or redeem the Fund's shares. A sales charge will reduce your
return.
NEW ENGLAND TOTAL RETURN BOND FUND
(total return of the Portfolio adjusted to reflect the Fund's expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1992. The data
points are as follows:)
1992 13.94%
1993 21.87%
1994 (4.42)%
1995 31.61%
1996 9.94%
1997 12.34%
1998
X Highest Quarterly Return: Quarter 199 , up %
X Lowest Quarterly Return: Quarter 199 , down %
The table below shows the Portfolio's average annual total returns for one year,
five years and since its inception compared to those of the Lehman
Government/Corporate Bond Index, a composite average of the Lehman Government
Index and the Lehman Corporate Bond Index, and the Lipper BBB-Rated Corporate
Debt Fund Index, a composite index of annual total returns of all mutual funds
with an investment style similar to that of the Portfolio. You may not invest
directly in an index. The Portfolio's total returns reflect its expenses and the
maximum sales charge that you may pay when you buy or redeem Fund shares. The
Lehman Government/Corporate Bond Index percentages have not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. The Lipper BBB-Rated Corporate Debt Fund
Index percentages have been adjusted for these expenses but do not reflect any
sales charges.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ending
December 31, 1998) Past 1 Year Past 5 Years Since Inception*
- --------------------------------------------------------------------------------
The Portfolio: Class A % % %
Lehman Government/Corporate
Bond Index % % %
Lipper BBB-Rated Corporate
Debt Fund Index % % %
- --------------------------------------------------------------------------------
The Portfolio: Class B % % %
Lehman Government/Corporate
Bond Index % % %
Lipper BBB-Rated Corporate Debt
Fund Index % % %
- --------------------------------------------------------------------------------
The Portfolio: Class C % % %
Lehman Government/Corporate
Bond Index % % %
Lipper BBB-Rated Corporate Debt
Fund Index % % %
- --------------------------------------------------------------------------------
* These percentages reflect the returns since the inception of the Portfolio on
May 16, 1991.
<PAGE>
THE FUNDS' FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of each Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ALL FUNDS EXCEPT TOTAL RETURN BOND FUND TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases 5.75% None None 4.50% None None
(as a percentage of offering price)(1)(2)
Maximum deferred sales charge (load)
(as a percentage of offering price)(2) (3) 5.00% 1.00% (3) 5.00% 1.00%
Redemption fees None* None* None* None* None* None*
- --------------------------------------------------------------------------------------------------------------------------
(1) A reduced sales charge on Class A shares applies in some cases. See "Ways to Reduce or Eliminate Sales Charges."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to 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 "How Sales Charges are Calculated."
* A transaction fee of $5.00 will be charged for redemption proceeds paid by wire.
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets (estimated at $50 million), as a percentage of average net assets)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ENGLAND CORE EQUITY FUND NEW ENGLAND STOCK AND BOND FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fund Management fees* 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Distribution and/or service (12b-1)
fees 0.25% 1.00%** 1.00%** 0.25% 1.00%** 1.00%**
Other Expenses 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Total Annual Fund Operating Expenses+ 1.97% 2.72% 2.72% 2.20% 2.95% 2.95%
Fund Fee Waiver*** 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%
Portfolio Fee Waiver 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NET EXPENSES 1.43% 2.18% 2.18% 1.66% 2.41% 2.41%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ENGLAND SELECT FUND NEW ENGLAND SMALL CAP VALUE FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fund Management fees* 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Distribution and/or service (12b-1)
fees 0.25% 1.00%** 1.00%** 0.25% 1.00%** 1.00%**
Other Expenses 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Total Annual Fund Operating Expenses+ 2.11% 2.86% 2.86% 2.34% 3.09% 3.09%
Fund Fee Waiver*** 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%
Portfolio Fee Waiver 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NET EXPENSES 1.57% 2.32% 2.32% 1.80% 2.55% 2.55%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ENGLAND SMALL CAP GROWTH FUND NEW ENGLAND TOTAL RETURN BOND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fund Management fees* 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Distribution and/or service (12b-1)
fees 0.25% 1.00%** 1.00%** 0.25% 1.00%** 1.00%**
Other Expenses 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Total Annual Fund Operating Expenses+ 6.70% 7.45% 7.45% 1.66% 2.41% 2.41%
Fund Fee Waiver*** 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%
Portfolio Fee Waiver 4.81%**** 4.81%**** 4.81%**** 0.02%***** 0.02%***** 0.02%*****
NET EXPENSES 1.35% 2.10% 2.10% 1.10% 1.85% 1.85%
* The Portfolio's management fees are included in "Total Annual Fund Operating Expenses." The management fees for each Portfolio
are as follows: 0.93% for the Oakmark Fund, 0.74% for the Oakmark Equity and Income Fund, 0.98% for the Oakmark Select Fund,
1.28% for the Oakmark Small Cap Fund, ___% for the Loomis Sayles Small Cap Growth Fund and ___% for the Loomis Sayes Bond
Fund.
** 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. ("NASD").
*** Under an Expense Cap Agreement, NEFM has agreed to limit the Other Expenses of each Fund to 0.10% of its total net assets.
This agreement will terminate on December 31, 2001.
**** Loomis Sayles has entered into a contractual agreement to limit the amount of Portfolio Operating Expenses to 1.00%. This
contractual obligation will be in effect until December 31, 2001 and/or may be terminated by Trustee approval.
***** Loomis Sayles has entered into a contractual agreement to limit the amount of Portfolio Operating Expenses to 0.75%. This
contractual obligation will be in effect until December 31, 2001 and/or may be terminated by Trustee approval.
+ Total Annual Fund Operating Expenses reflect the expenses of both the Fund and its respective Portfolio without giving
effect to any expense limitations. The gross operating expenses of the Portfolios are as follows: 1.08% for The Oakmark
Fund, 1.70% for The Oakmark Equity and Income Fund, 1.12% for The Oakmark Select Fund, 1.37% for The Oakmark Small Cap Fund,
5.81% for the Loomis Sayles Small Cap Growth Fund and 0.77% for the Loomis Sayles Bond Fund.
</TABLE>
<PAGE>
This example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The example assumes that :
o You invest $10,000 in the Fund for the time periods indicated
o Your investment has a 5% return each year
o The Fund's operating expenses remain the same
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
- ------------------------------------------------------------------------------
NEW ENGLAND CORE EQUITY FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ --- $ --- $--- $ --- $ ---
3 years $ --- $ --- $--- $ --- $ ---
- ------------------------------------------------------------------------------
NEW ENGLAND STOCK AND BOND FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ --- $ --- $--- $ --- $ ---
3 years $ --- $ --- $--- $ --- $ ---
- ------------------------------------------------------------------------------
NEW ENGLAND SELECT FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ --- $ --- $--- $ --- $ ---
3 years $ --- $ --- $--- $ --- $ ---
- ------------------------------------------------------------------------------
NEW ENGLAND SMALL CAP VALUE FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ --- $ --- $--- $ --- $ ---
3 years $ --- $ --- $--- $ --- $ ---
- ------------------------------------------------------------------------------
NEW ENGLAND SMALL CAP GROWTH FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ --- $ --- $--- $ --- $ ---
3 years $ --- $ --- $--- $ --- $ ---
- ------------------------------------------------------------------------------
NEW ENGLAND TOTAL RETURN BOND FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ --- $ --- $--- $ --- $ ---
3 years $ --- $ --- $--- $ --- $ ---
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period.
<PAGE>
MORE ABOUT RISK
The Portfolios have principal investment strategies that come with inherent
risks, as discussed in more detail in the Portfolios' summary of investment
goals, strategies and risks. However, the Portfolios may invest in riskier
securities or engage in riskier practices to combat or to capitalize on certain
market conditions. The following is a list of risks to which the Portfolios
may be subject by investing in various types of securities or engaging in
various practices.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably, based upon change in a company's financial
condition and on overall market and economic conditions.
RISK OF SMALL CAPITALIZATION COMPANIES These companies carry special risks,
including narrower markets, limited financial and management sources, less
liquidity and greater volatility than large company stocks.
MANAGEMENT RISK The risk that a strategy used by a Portfolio's management may
fail to produce the intended result.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment.
EMERGING MARKET RISK The risk associated with securities markets of smaller
sizes or with short operating histories. Emerging markets involve risks in
addition to and greater than those generally associated with investing in
developed foreign markets. The extent of economic development, political
stability, market depth, infrastructure and capitalization, and regulatory
oversight in emerging market economies is generally less than in more developed
markets.
LEVERAGE RISK The risk associated with securities or practices (i.e. borrowing)
that multiply small index or market movements into large changes in value.
HEDGED When a derivative security (a security whose value is based
on another security or index) is used as a hedge against an
opposite position that the Portfolio also holds, any loss
generated by the derivative security should be substantially
offset by gains on the hedged instrument, and vice versa.
SPECULATIVE To the extent that a derivative security is not used as a
hedge, the fund is directly exposed to the risks of that
derivative security and any loss generated by the derivative
security will not be offset by a gain.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-income securities, a rise in interest rates typically causes a
fall in value.
INFORMATION RISK The risk that key information about a security is inaccurate or
unavailable.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and at the price that the seller would like. This may result
in a loss or may be costly to a Portfolio.
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged.
EXTENSION RISK The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
VALUATION RISK The risk that a Portfolio has valued certain securities at a
higher price than it can sell them for.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the
value of mortgage- or asset-backed securities.
POLITICAL RISK The risk of losses directly attributable to government or
political actions.
YEAR 2000 PROBLEM Many computer systems today cannot distinguish between the
year 1900 and the year 2000. New England Funds does not currently anticipate
that computer problems related to the year 2000 will have a material effect on
any Fund. However, there can be no assurances in this area, including the
possibility that year 2000 computer problems could negatively affect
communication systems, investment markets including investments by a Fund or the
economy in general.
EURO CONVERSION Many European countries have adopted a single European currency,
the "euro." The consequences of this conversion for foreign exchange rates,
interest rates and the value of European securities are presently unclear. Such
consequences may adversely affect the value and/or increase the volatility of
securities held by a Portfolio.
<PAGE>
OUR MANAGEMENT TEAM
MEET THE FUNDS' AND PORTFOLIOS' INVESTMENT ADVISERS
The New England Funds family includes funds with a total of $ billion in
assets. The New England Funds are distributed through New England Funds, L.P.
(the "Distributor"). The Funds, along with the New England Stock Funds, the New
England Bond Funds, the New England Star Funds and the New England Tax-Free
Funds, constitute the "New England Funds." New England Cash Management Trust
Money Market Series and New England Tax Exempt Money Market Trust constitute the
"Money Market Funds."
NEW ENGLAND FUNDS MANAGEMENT, L.P.
New England Funds Management, L.P., located at 399 Boylston Street, Boston,
Massachusetts, 02116, serves as the adviser to the Funds. NEFM is a subsidiary
of Nvest Companies, L.P. ("Nvest Companies"), which is part of an affiliated
group including Nvest, L.P., a publicly-traded company listed on the New York
Stock Exchange. Nvest Companies' 14 principal subsidiary or affiliated asset
management firms, collectively, had more than $____ billion in assets under
management as of ____________. NEFM oversees, evaluates and monitors the
performance of each Fund and furnishes general business management and
administration to the Fund. NEFM does not determine what investments will be
purchased by any of the Portfolios. Harris Associates and Loomis Sayles makes
the investment decisions for the respective Portfolios advised by them.
HARRIS ASSOCIATES L.P.
Harris Associates, located at Two North LaSalle Street, Chicago, Illinois 60602,
serves as adviser to The Oakmark Fund, The Oakmark Equity and Income Fund, The
Oakmark Select Fund and The Oakmark Small Cap Fund. Harris Associates, a
subsidiary of Nvest Companies, manages over $16 billion in assets, and, together
with its predecessor, has managed mutual funds since 1970. It also manages
investments for other mutual funds as well as assets of individuals, trusts,
retirement plans, endowments, foundations, and several private partnerships.
LOOMIS, SAYLES & COMPANY, L.P.
Loomis Sayles, located at One Financial Center, Boston, Massachusetts, 02111,
serves as adviser to the Loomis Sayles Small Cap Growth Fund and the Loomis
Sayles Bond Fund. Loomis Sayles is also a subsidiary of Nvest Companies. Founded
in 1926, Loomis Sayles is one of America's oldest and largest investment
advisory firms with over $64 billion in assets under management. Loomis Sayles
is well known for its professional research staff, which is one of the largest
in the industry.
ADVISORY AGREEMENTS
Under the terms of the advisory agreement with each Fund, NEFM WILL NOT RECEIVE
ANY MANAGEMENT FEE FROM A FUND, SO LONG AS SUBSTANTIALLY ALL OF THE INVESTABLE
ASSETS OF THE FUND ARE INVESTED IN THE SHARES OF ANOTHER MUTUAL FUND. If,
however, the Fund's Board of Trustees should vote to change the investment
strategy and elect to have NEFM provide portfolio management services to a Fund,
either directly or by entering into a subadvisory agreement with another
investment advisory firm, then NEFM would receive the following management fee
from the Fund as a percentage of the Fund's average daily net assets: 1% for the
New England Core Equity Fund, 0.75% of the first $200 million, 0.70% of the next
$300 million and 0.65% of amounts in excess of $500 million for the New England
Stock and Bond Fund, 1% for the New England Select Fund, 1% for the New England
Small Cap Value Fund, 1% for the New England Small Cap Growth Fund and 0.65% of
the first $200 million and 0.60% of amounts in excess of $200 million for the
New England Total Return Bond Fund.
No management fee would be payable to NEFM by a Fund until written notice of any
such change is communicated to the shareholders of the Fund and, in the event of
the appointment of a subadviser for a Fund that is affiliated with NEFM, the
subadvisory agreement has been approved by the shareholders of the Fund at a
special shareholders meeting.
SPECIAL SERVICING AGREEMENT
Under the terms of a Special Servicing Agreement between each Fund and its
corresponding Portfolio, the Fund will arrange for all services pertaining to
the operation of the Fund, including shareholder servicing and Fund
administration. Nvest Services Company, 399 Boylston Street, Boston,
Massachusetts 02116, is the transfer and dividend paying agent for the Funds,
and is an affiliate of NEFM. Nvest Services Company has subcontracted certain of
its obligations as such to State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110.
Each Portfolio has agreed to pay Nvest Services Company an annual fee
equal to 0.12% of the assets that the Fund has invested in that Portfolio.
However, the Portfolio will not be required to pay the Fund any amount in excess
of the financial benefits to the Portfolio derived from the operation of that
Fund. The cost-benefit analysis was initially reviewed by the Trustees of each
Portfolio before participating in any Special Servicing Arrangement. For future
years, each Portfolio's Trustees will review the Special Servicing Arrangement
on an annual basis to determine its continued appropriateness for the Portfolio.
<PAGE>
<TABLE>
MEET THE PORTFOLIO MANAGERS
<S> <C>
ROBERT J. SANBORN CLYDE S. MCGREGOR
Robert Sanborn has served as Portfolio Manager of The Oakmark Clyde McGregor has served as Portfolio Manager of The
Fund since August 1991. Mr. Sanborn, a chartered financial Oakmark Equity & Income Fund since November 1995. Mr.
analyst, joined Harris Associates as a Portfolio Manager and McGregor, a chartered financial analyst, joined Harris
analyst in 1988. He holds an M.B.A. in finance from the Associates as an analyst in 1981 and began managing
University of Chicago and a B.A. in economics from Dartmouth portfolios in 1986. He holds an M.B.A. in finance from the
College. University of Wisconsin and a B.A. in economics and
religion from Oberlin College.
WILLIAM C. NYGREN STEPHEN J. REID
William Nygren has served as Portfolio Manager of The Oakmark Stephen Reid has served as Portfolio Manager of The Oakmark
Select Fund since November 1996. Mr. Nygren, a chartered Small Cap Fund since November 1995. Mr. Reid, a chartered
financial analyst, joined Harris Associates as an analyst in financial analyst, joined Harris Associates as an
1983 and was its Director of Research from 1990 through April accountant in 1980 and has been an investment analyst since
1998. He holds an M.S. in Finance from the University of 1985. He holds a B.A. in Business from Roosevelt
Wisconsin and a B.S. in Accounting from the University of University.
Minnesota.
DANIEL J. FUSS KATHLEEN C. GAFFNEY
Daniel Fuss has served as Portfolio Manager of the Loomis Sayles Kathleen Gaffney has served as Portfolio Manager of the
Bond Fund since May 1991. Mr. Fuss is a chartered financial Loomis Sayles Bond Fund since November 1997. Ms. Gaffney,
analyst and Executive Vice president, Director and Managing a chartered financial analyst, joined Loomis Sayles in 1986
Partner of Loomis Sayles. He began his investment career in and is now a Vice President of the company. She holds a
1968 and joined Loomis Sayles in 1976. He holds a B.S. and an B.A. from the University of Massachusetts at Amherst.
M.B.A. from Marquette University.
CHRISTOPHER R. ELY PHILIP C. FINE
Christopher Ely has served as co-Portfolio Manager of the Loomis Philip Fine has served as co-Portfolio Manager of the
Sayles Small Cap Growth Fund since January 1997. Mr. Ely is a Loomis Sayles Small Cap Growth Fund since January 1997.
chartered financial analyst and is Vice President of Loomis Mr. Fine is a chartered financial analyst and is Vice
Sayles. He began his investment career in 1978 and joined president of Loomis Sayles. He began his investment career
Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr. Ely in 1988 and joined Loomis Sayles in 1996. Prior to joining
was Senior Vice President and Portfolio Manager at Keystone Loomis Sayles, Mr. Fine was a Vice President and Portfolio
Investment Management Company, Inc. He holds an B.A. from Brown Manager at Keystone Investment Management Company, Inc. He
University and an M.B.A. from Babson College. received an A.B. and a Ph.D from Harvard University.
DAVID L. SMITH
David Smith has served as co-Portfolio Manager of the Loomis
Sayles Small Cap Growth Fund since January 1997. Mr. Smith is a
chartered financial analyst and is Vice president of Loomis
Sayles. He began his investment career in 1986 and joined
Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr.
Smith was a Vice President and Portfolio Manager at Keystone
Investment Management Company, Inc. He holds an B.A. from the
University of Massachusetts at Amherst and an M.B.A. from
Cornell University.
</TABLE>
EXEMPTIVE ORDER
Each Fund has received an Exemptive Order from the Securities and Exchange
Commission (the "SEC"), which permits NEFM to enter into new subadvisory
agreements with subadvisers that are not affiliated with NEFM if approved by the
Fund's Board of Trustees, without shareholder approval. The exemption also
permits NEFM to amend or continue existing subadvisory agreements when approved
by the Fund's Board of Trustees. Shareholders will be notified of any subadviser
changes.
PORTFOLIO TRADES In placing Portfolio trades, Harris Associates or Loomis Sayles
may use brokerage firms that market the Fund's shares or are affiliated with
Nvest Companies, NEFM, Harris Associates or Loomis Sayles. Harris Associates or
Loomis Sayles will seek to obtain the best combination of price and execution,
which involves a number of judgmental factors. Such Portfolio trades are subject
to applicable regulatory restrictions and related procedures adopted by the
relevant Portfolio's Board of Trustees.
<PAGE>
OUR FUND SERVICES
INVESTING IN THE FUNDS
CHOOSING A SHARE CLASS
Each Fund offers Class A, Class B and Class C shares to the public. Each class
has different costs associated with buying, selling and holding fund shares,
which allow you to choose the one that best meets your needs. Which class you
choose will depend upon the size of your investment and how long you intend to
hold your shares. Class B shares, Class C shares and certain shareholder
features may not be available if you hold your shares in a street name account.
Your financial representative can help you decide which class is most
appropriate for you.
<TABLE>
CLASS A SHARES
<S> <C> <C>
o You pay a sales charge when you CLASS B SHARES CLASS C SHARES
buy Fund shares. There are several
ways to reduce this charge. See o You do not pay a sales charge when o You do not pay a sales charge when
the section entitled "Ways to you buy Fund shares. All of your you buy Fund shares. All of your
Reduce or Eliminate Sales money goes to work for you right money goes to work for you right
Charges." away. away.
o You pay lower annual expenses than o You pay higher annual expenses o You pay higher annual expenses
Class B and Class C shares, giving than Class A shares. than Class A shares.
you the potential for higher
returns per share. o You will pay a charge on o You will pay a charge on
redemptions if you sell your redemptions if you sell your
o You do not pay a sales charge on shares within 6 years of purchase, shares within 1 year of purchase.
orders of $1 million or more, but as described in the section
you may pay a charge on redemption entitled "How Sales Charges are o Your Class C shares will not
if you redeem these shares within Calculated. automatically convert into Class A
1 year of purchase. shares. If you hold your shares
o Your Class B shares will for longer than 8 years, you'll
automatically convert into Class A pay higher expenses than other
shares after 8 years, which classes.
reduces your annual expenses.
o We will not accept an order for $1
o We will not accept an order for $1 million or more of Class C shares.
million or more of Class B shares. You may, however, order $1 million
You may, however, order $1 million or more in Class A shares, which
or more in Class A shares, which will have no sales charge and
will have no sales charge and lower annual expenses for that
lower annual expenses. purchase.
For actual past expenses of Class A, B and C shares, see the section entitled "The Funds' Fees and Expenses" earlier in
this prospectus.
</TABLE>
CERTIFICATES
Certificates will not be automatically issued for any class of shares. Upon
written request, you may receive certificates for Class A shares only.
<PAGE>
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price you pay when you buy Class A shares ("offering price") is their net
asset value plus a sales charge ("front end sales charge") which varies
depending upon the size of your purchase.
- --------------------------------------------------------------------------------
CLASS A SALES CHARGES
All funds (except Total Return Bond Fund)
- --------------------------------------------------------------------------------
YOUR INVESTMENT AS A % OF OFFERING PRICE AS A % OF YOUR INVESTMENT
- --------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0% 0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
YOUR INVESTMENT AS A % OF OFFERING PRICE AS A % OF YOUR INVESTMENT
- --------------------------------------------------------------------------------
Less than $100,000 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0% 0%
- --------------------------------------------------------------------------------
* For purchases of Class A shares of $1 million or more or purchases by the
Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal
Revenue Code with investments of $1 million or more that have 100 or more
eligible employees), there is no front end sales charge, but a contingent
deferred sales charge of 1.00% may apply to redemptions of shares within one
year of the purchase date. See "Ways to Reduce or Eliminate Sales Charges."
CLASS B SHARES
The offering price of Class B shares is their net asset value, without a front
end sales charge. However, there is a contingent deferred sales charge ("CDSC")
on shares you sell within 6 years of buying them. The amount of the CDSC, if
any, declines each year that you own your shares. The holding period for
purposes of timing the conversion to Class A shares and determining the CDSC
will continue to run after an exchange into Class B shares of another New
England Fund. The CDSC equals the following percentages of the dollar amounts
subject to the charge:
-----------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGES
-----------------------------------------------------
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
-----------------------------------------------------
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
thereafter 0%
-----------------------------------------------------
CLASS C SHARES
The offering price of Class C shares is their net asset value, without a front
end sales charge. However, Class C shares are subject to a CDSC of 1.00% on
redemptions made within one year of the date of purchase. The holding period for
determining the CDSC will continue to run after an exchange into Class C shares
of another New England Fund.
-----------------------------------------------------
CLASS C CONTINGENT DEFERRED SALES CHARGES
-----------------------------------------------------
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
-----------------------------------------------------
1st 1.00%
thereafter 0%
-----------------------------------------------------
HOW THE CDSC IS APPLIED TO YOUR SHARES
The CDSC is a sales charge you pay when you redeem certain Fund shares.
The CDSC:
o is calculated based on the number of shares you are selling;
o is based on either your original purchase price or the current net asset
value of the shares being sold, whichever is lower;
o is deducted from the proceeds of the redemption, not from the amount
remaining in your account; and
o for year one applies to redemptions through the day one year after the date
on which the purchase was accepted, and so on for subsequent years.
A CDSC will not be charged on:
o increases in net asset value above the purchase price; or
o shares you acquired by reinvesting your dividends or capital gains
distributions.
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that carry no CDSC. If
there are not enough of these shares available to meet your request, we will
sell the shares with the lowest CDSC.
EXCHANGES INTO SHARES OF A MONEY MARKET FUND
If you exchange into shares of the Money Market Funds, the holding period for
purposes of determining the CDSC and conversion into Class A shares stops until
you exchange back into shares of another New England Fund. If you choose to
redeem those Money Market Fund shares, a CDSC may apply.
<PAGE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
CLASS A SHARES
REDUCING SALES CHARGES
There are several ways you can lower your sales charge, including:
o LETTER OF INTENT - allows you to purchase Class A shares of any New England
Fund over a 13-month period but pay sales charges as if you had purchased
all shares at once. This program can save you money if you plan to invest
$50,000 or more over 13 months. Purchases in Class B and Class C shares may
be used toward meeting the letter of intent.
o COMBINING ACCOUNTS - allows you to combine shares of multiple Funds and
classes for purposes of calculating your sales charge. You may combine your
purchases with those of qualified accounts of a spouse, parents, children,
siblings, grandparents, grandchildren, in-laws, individual fiduciary
accounts, sole proprietorships, single trust estates and any other group of
individuals acceptable to the Distributor.
These privileges do not apply to the Money Market Funds unless shares are
purchased through an exchange from another New England Fund.
ELIMINATING SALES CHARGES AND CDSC
Class A shares may be offered without front end sales charges or a CDSC to the
following individuals and institutions:
o Any government entity that is prohibited from paying a sales charge or
commission to purchase fund shares;
o Selling brokers, sales representatives or other intermediaries;
o Fund trustees and other individuals who are affiliated with any New England
Fund including the Money Market Funds (this also applies to any spouse,
parents, children, siblings, grandparents, grandchildren and in-laws of
those mentioned);
o Participants in certain Retirement Plans with at least 100 members (one-year
CDSC may apply);
o Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities; and
o Investments of $25,000 or more in the Funds by clients of an adviser or
subadviser to any New England Fund including the Money Market Funds.
REPURCHASING FUND SHARES
You may apply proceeds from redeeming Class A shares of any New England Fund
WITHOUT PAYING A SALES CHARGE to repurchase Class A shares of the same or any
other New England Fund. To qualify, you must reinvest some or all of the
proceeds within 120 days after your redemption and notify New England Funds or
your financial representative at the time of reinvestment that you are taking
advantage of this privilege. You may reinvest your proceeds either by returning
the redemption check or by sending a new 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.
If you repurchase Class A shares of $1 million or more within 30 days after you
redeem such shares, the Distributor will rebate the amount of the CDSC charged
on the redemption.
CLASS A, B OR C SHARES
ELIMINATING THE CDSC
As long as we are notified at the time you sell, the CDSC for any share class
will generally be eliminated in the following cases:
o to make distributions from a retirement plan;
o to make payments through a systematic withdrawal plan; or
o due to shareholder death or disability.
If you think you may be eligible for a sales charge elimination or reduction,
contact your financial representative or New England Funds.
<PAGE>
IT'S EASY TO OPEN AN ACCOUNT
TO OPEN AN ACCOUNT WITH NEW ENGLAND FUNDS:
(1) Read this prospectus carefulLy.
(2) Determine how much you wish to invest. The following chart shows the
investment minimums for various types of accounts:
- --------------------------------------------------------------------------------
MINIMUM TO
OPEN AN
ACCOUNT USING MINIMUM FOR
MINIMUM TO INVESTMENT EXISTING
TYPE OF ACCOUNT OPEN AN ACCOUNT BUILDER ACCOUNTS
- --------------------------------------------------------------------------------
Any account other than those
listed below $2,500 $100 $100
- --------------------------------------------------------------------------------
Accounts registered under the
Uniform Gifts to Minors Act or
the Uniform Transfers to
Minors Act $2,000 $100 $100
- --------------------------------------------------------------------------------
Individual Retirement Accounts
(IRAs) $500 $100 $100
- --------------------------------------------------------------------------------
Retirement plans with tax
benefits such as corporate
pension, profit sharing and
Keogh plans $250 $100 $100
- --------------------------------------------------------------------------------
Payroll Deduction Investment
Programs for 401(k), SARSEP,
SEP, SIMPLE, 403(b)(7) and
certain other retirement plans $25 N/A $25
- --------------------------------------------------------------------------------
(3) Complete the appropriate parts of the account application, carefully
following the instructions. If you have any questions, please call your
financial representative or New England Funds at 800-225-5478. For more
information on New England Funds' investment programs, refer to the section
entitled "Additional Investor Services" in this prospectus.
(4) Use the following sections as your guide for purchasing shares.
SELF-SERVICING YOUR ACCOUNT
Buying or selling shares automatically is easy with the services described
below:
NEW ENGLAND FUNDS PERSONAL
ACCESS LINE(TM) ("PAL") NEW ENGLAND FUNDS INTERNET WEBSite
800-346-5984 WWW.MUTUALFUNDS.COM
You have access to your account 24 hours a day by calling PAL from a touch-tone
telephone or by visiting us online. By using these customer service options, you
may:
o purchase, exchange or redeem shares in your existing accounts (certain
restrictions may apply);
o view your account balance, recent transactions, Fund prices and recent
performance;
o order duplicate account statements; and
o obtain tax information.
Please see the following pages for other ways to buy, exchange or sell your
shares.
<PAGE>
<TABLE>
BUYING SHARES
<CAPTION>
---------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THROUGH YOUR
INVESTMENT DEALER
[GRAPHIC OMITTED] o Call your investment dealer for information o Call your investment dealer for information
BY MAIL
[GRAPHIC OMITTED] o Make out a check in U.S. dollars for the investment o Make out a check in U.S. dollars for the
amount, payable to "New England Funds." Third party investment amount, payable to "New England
checks will generally not be accepted. Funds." Third party checks will generally not
o Mail the check with your completed application to be accepted.
New England Funds, P.O. Box 8551, Boston, MA o Fill out the detachable investment slip from
02266-8551. an account statement. If no slip is
available, include with the check a letter
specifying the Fund name, your share class,
your account number and the registered
account name(s) or to make investing even
easier, you can order more investment slips
by calling 800-225-5478.
BY EXCHANGE
[GRAPHIC OMITTED] o The exchange must be for a minimum of $1,000 or for o The exchange must be for a minimum of $1,000
all of your shares. or for all of your shares.
o Obtain a current prospectus for the Fund into which o Call your investment dealer or New England
you are exchanging by calling your investment dealer Funds at 800-225-5478 to request an exchange.
or New England Funds at 800-225-5478. o See the section entitled "Exchanging Shares"
o Call your investment dealer or New England Funds to for more details.
request an exchange.
o See the section entitled "Exchanging Shares" for
more details.
BY WIRE
[GRAPHIC OMITTED] o Call New England Funds at 800-225-5478 to obtain an o Instruct your bank to transfer funds to State
account number and wire transfer instructions. Street Bank & Trust Company, ABA# 011000028,
Your bank may charge you for such a transfer. DDA# 99011538.
o Specify the Fund name, your share class, your
account number and the registered account
name(s). Your bank may charge you for such a
transfer.
AUTOMATIC INVESTING
THROUGH
INVESTMENT BUILDER
[GRAPHIC OMITTED] o Indicate on your application that you would like to o Please call New England Funds at 800-225-5478
begin an automatic investment plan through for a Service Options Form. A signature
Investment Builder and the amount of the monthly guarantee may be required to add this
investment ($100 minimum). privilege.
o Send a check marked "Void" or a deposit slip from o See the section entitled "Additional Investor
your bank account along with your application. Services."
.
THROUGH AUTOMATED
CLEARING HOUSE (ACH)
[GRAPHIC OMITTED] o Ask your bank or credit union whether they are a o Call New England Funds at 800-225-5478 to add
member of the ACH system. shares to your account through ACH.
o Complete the "Telephone Withdrawal and Exchange" and o If you have not signed up for the ACH system,
"Bank Information" sections on your account please call New England Funds for a Service
application. Options Form. A signature guarantee may be
o Mail your completed application to New England required to add this privilege.
Funds, P.O. Box 8551, Boston, MA 02266-8551.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SELLING SHARES
Certain Restrictions may apply. See the section
entitled "Restrictions on Buying, Selling and
Exchanging Shares."
------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- --------------------------------------------------------------------------------
THROUGH YOUR
INVESTMENT DEALER
o Call your investment dealer for information.
BY MAIL
o Write a letter to request a redemption specifying
the name of the Fund, the class of shares, your
account number, the exact registered account
name(s), the number of shares or the dollar amount
to be redeemed, and the method by which you wish to
receive your proceeds. Additional materials may be
required. See the section entitled "Selling Shares
in Writing".
o The request must be signed by all of the owners of
the shares including the capacity in which they are
signing, if appropriate.
o Mail your request to New England Funds, P.O. Box
8551, Boston, MA 02266-8551.
o Your proceeds (less any applicable CDSC) will be
delivered by the method chosen in your letter. If
you choose to have your proceeds delivered by mail,
they will generally be mailed to you on the business
day after the request is received. You may also
choose to redeem by wire or through ACH (see below).
BY EXCHANGE
o Obtain a current prospectus for the Fund into which
you are exchanging by calling your investment dealer
or New England Funds at 800-225-5478.
o Call New England Funds to request an exchange.
o See the section entitled "Exchanging Shares" for
more details.
BY WIRE
o Fill out the "Telephone Withdrawal and Exchange" and
"Bank Information" sections on your account
application.
o Call New England Funds at 800-225-5478 or indicate
in your redemption request letter (see above) that
you wish to have your proceeds wired to your bank.
o Proceeds (less any applicable CDSC) will generally
be wired on the next business day. A wire fee
(currently $5.00) will be deducted from the
proceeds.
THROUGH AUTOMATED
CLEARING HOUSE (ACH)
o Ask your bank or credit union whether it is a member
of the ACH system.
o Complete the "Telephone Withdrawal and Exchange" and
"Bank Information" sections on your account
application.
o If you have not signed up for the ACH system on your
application, please call New England Funds at
800-225-5478 for a Service Options Form.
o Call New England Funds to request a redemption
through this system.
o Proceeds (less any applicable CDSC) will generally
arrive at your bank within three business days.
BY SYSTEMATIC
WITHDRAWAL PLAN
o Please refer to the section entitled "Additional
Investor Services" or call New England Funds at
800-225-5478 or your financial representative for
information.
o Because withdrawal payments may have tax
consequences, you should consult your tax adviser
before establishing such a plan.
BY TELEPHONE
o You may receive your proceeds by mail, by wire or
through ACH (see above).
o Call New England Funds at 800-225-5478 to choose the
method you wish to use to redeem your shares.
- --------------------------------------------------------------------------------
SELLING SHARES IN WRITING
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations we also may require a signature guarantee or additional
documentation.
A signature guarantee protects you against fraudulent orders and is necessary
if:
o your address of record has been changed within the past 30 days;
o you are selling more than $100,000 worth of shares and you are requesting
the proceeds by check; or
o a proceeds check for any amount is mailed to an address other than the
address of record or not payable to the registered owner(s).
A notary public CANNOT provide a signature guarantee. A signature guarantee can
be obtained from one of the following sources:
o a financial representative or securities dealer;
o a federal savings bank, cooperative, or other type of bank;
o a savings and loan or other thrift institution;
o a credit union; or
o a securities exchange or clearing agency.
The following table shows some situations in which additional documentation may
be necessary. Please call your financial representative or New England Funds
regarding requirements for other account types.
- --------------------------------------------------------------------------------
SELLER (ACCOUNT TYPE) REQUIREMENTS FOR WRITTEN REQUESTS
- --------------------------------------------------------------------------------
INDIVIDUAL, JOINT, SOLE o The signatures on the letter must include
PROPRIETORSHIP, UGMA/UTMA all persons authorized to sign, including
(MINOR ACCOUNTS) title, if applicable.
o Signature guarantee, if applicable (see
above).
- --------------------------------------------------------------------------------
CORPORATE OR ASSOCIATION o The signatures on the letter must include
ACCOUNTS all persons authorized to sign, including
title.
- --------------------------------------------------------------------------------
OWNERS OR TRUSTEES OF o The signature on the letter must include all
TRUST ACCOUNTS trustees authorized to sign, including
title.
o If the names of the trustees are not
registered on the account, please provide a
copy of the trust document certified within
the past 60 days.
o Signature guarantee, if applicable (see
above).
- --------------------------------------------------------------------------------
JOINT TENANCY WHOSE CO-TENANTS o The signatures on the letter must include
ARE DECEASED all surviving tenants of the account.
o Copy of the death certificate.
o Signature guarantee if proceeds check is
issued to other than the surviving tenants.
- --------------------------------------------------------------------------------
POWER OF ATTORNEY (POA) o The signature on the letter must include the
attorney-in-fact, indicating such title.
o A signature guarantee.
o Certified copy of the POA document stating
it is still in full force and effect,
specifying the exact fund and account
number, and certified within 30 days of
receipt of instructions.*
- --------------------------------------------------------------------------------
QUALIFIED RETIREMENT BENEFIT o The signature on the letter must include all
PLANS (EXCEPT signatures of those authorized to sign
NEW ENGLAND FUNDS including title.
PROTOTYPE DOCUMENTS) o Signature guarantee, if applicable.
(see above)
- --------------------------------------------------------------------------------
EXECUTORS OF ESTATES,
ADMINISTRATORS, GUARDIANS, o The signature on the letter must include
CONSERVATORS those authorized to sign, including
capacity.
o A signature guarantee.
o Certified copy of Court Document where
signer derives authority, i.e.: Letters of
Administration, Conservatorship, Letters
Testamentary.*
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT o Additional documentation and distribution
ACCOUNTS (IRAS) forms are required.
- --------------------------------------------------------------------------------
* Certification may be made on court documents by the Court, usually certified
by the Clerk of the Court. POA certification may be made by a commercial bank,
broker/member of a domestic stock exchange, or a practicing attorney.
EXCHANGING SHARES
In general, you may exchange shares of your Fund for shares of the same class of
another New England Fund without paying a sales charge or a CDSC (see the Buying
and Selling Shares charts above). In addition, you also may exchange Class B or
Class C shares from any New England Fund to Class A shares of the Money Market
Funds. An exchange must be for a minimum of $1,000 (or the total net asset value
of your account, whichever is less), or $100 if made under the Automatic
Exchange Plan (see the section entitled "Additional Investor Services"). All
exchanges are subject to the eligibility requirements of the Fund into which you
are exchanging. The exchange privilege may be exercised only in those states
where shares of the Funds may be legally sold. Please refer to the Statement of
Additional Information (the "SAI") for more detailed information on exchanging
Fund shares.
RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES
GENERAL
During times of substantial economic or market change, it may be difficult to
place your order by phone. During these times, you may deliver your order in
person to the Distributor or send your order by mail as described above.
PURCHASE AND EXCHANGE RESTRICTIONS
Although the Funds do not anticipate doing so, they reserve the right to suspend
or change the terms of purchasing or exchanging shares. The Funds and the
Distributor reserve the right to refuse or limit any purchase or exchange order
by a particular purchaser (or group of related purchasers) if the transaction is
deemed harmful to the best interest of the Fund's other shareholders or would
disrupt the management of the Fund. The Funds and the Distributor reserve the
right to restrict purchases and exchanges for the accounts of "market timers" by
limiting the transaction to a maximum dollar amount. An account will be deemed
to be one of a market timer if: (i) more than two exchange purchases of a given
Fund are made for the account in a calendar quarter or (ii) the account makes
one or more exchange purchases of a given Fund in a calendar quarter in an
aggregate amount in excess of 1% of the Fund's total net assets.
SELLING RESTRICTIONS
The table below describes restrictions placed on selling shares of any Fund
described in this prospectus:
- --------------------------------------------------------------------------------
SITUATION RESTRICTION
- --------------------------------------------------------------------------------
o When the New York Stock The Fund may suspend the right of
Exchange is closed (other than redemption or postpone payment for more
a weekend/holiday) than 7 days
o During an emergency
o Any other period permitted
by the SEC
o With a notice of a dispute The Fund reserves the right to suspend
between registered owners account services or refuse transaction
o Suspicion/evidence of a requests
fraudulent act
o Detrimental for a Fund to The Fund may pay the redemption price in
make cash payments as whole or part by a distribution in kind of
determined in the sole readily marketable securities in lieu of
discretion of the adviser or cash or may take up to 7 days to pay a
subadviser redemption request in order to raise
capital
o Fund account falls below a The Fund may close your account and send
set minimum (currently you the proceeds. Shareholders will have
$1,000 as set by the Fund's 60 days after being notified of the Fund's
Board of Trustees) intention to close the account to increase
the account to the set minimum. This does
not apply to certain qualified retirement
plans, automatic investment plans or
accounts that have fallen below the
minimum solely because of fluctuations in
a Fund's net asset value per share.
o Redemptions within 10 The Fund may withhold redemption proceeds
calendar days of purchase by until the check or funds have cleared.
check or ACH of the shares
being redeemed
o Tax-qualified retirement Telephone redemptions are not accepted for
plans these accounts. If you hold certificates,
o Shares held in certificate they must be sent with your request for it
form to be honored. The Funds recommend that
certificates be sent by registered mail.
- --------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The Funds are mutual funds that invest directly in shares of an underlying
mutual fund, which is referred to as a Portfolio in this Prospectus. A Fund
gains access to the investment management and research capabilities and the
investment strategies of its corresponding Portfolio by investing in shares of
that Portfolio at their net asset value. Fund shares are priced by applying the
Fund's sales charges and operating expenses to the net asset value of Portfolio
shares. Shares of the Portfolios may be available for purchase directly from the
Portfolios (or their distributors). Such shares are not subject to initial sales
charges or CDSCs, and will generally bear a lower level of expenses than shares
of the corresponding Funds. "Net asset value" is the price of one share of a
Portfolio without a sales charge, and is calculated each business day using this
formula:
Total Market Value of Securities + Cash
and other assets - Liabilities
Net Asset Value = -----------------------------------------
Outstanding shares
The net asset value of Fund shares and Portfolio shares is determined according
to this schedule:
o A share's net asset value is determined at the close of regular trading on
the New York Stock Exchange (the "Exchange") on the days the Exchange is
open for trading. This is normally 4:00 p.m. Eastern time.
o The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated after your order is received
by the Distributor (plus or minus applicable sales charges as described
earlier in this Prospectus).
o Requests received by the Distributor after the Exchange closes will be
processed based upon the net asset value determined at the close of regular
trading on the next day that the Exchange is open, with the exception that
those orders received by your investment dealer before the close of the
Exchange and received by the Distributor before 5:00 p.m. Eastern time* on
the same day which will be based on the net asset value determined on that
day.
o A Fund whose Portfolio is heavily invested in foreign securities may have
net asset value changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 p.m. and before 8:00 p.m.
Generally, the securities of the underlying Portfolios are valued as follows:
o EQUITY SECURITIES - most recent sales or quoted bid price as provided by a
pricing service.
o DEBT SECURITIES - based on pricing service valuations.
o SHORT-TERM OBLIGATIONS - amortized cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES - most recent sale/bid price as
provided by a pricing service, unless an occurrence after the closing of the
exchange will materially affect its value. In that case, it is given fair
value as determined by or under the direction of the Portfolio's Board of
Trustees at the close of regular trading on the U.S. Exchange.
o OPTIONS - last sale price, or if not available, last offering price.
o FUTURES - unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be valued
at their fair value as determined by or under the direction of the
Portfolios Board of Trustees.
o ALL OTHER SECURITIES - fair market value as determined by the adviser of the
Portfolio under the direction of the Portfolio's Board of Trustees.
The effect of fair value pricing as described above under "Securities traded on
foreign exchanges" and "All other securities" is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded but rather, may be priced by another method that the Portfolio's Board of
Trustees believes accurately reflects fair value.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Funds generally distribute most or all of their net investment income in the
form of dividends (based on what the Portfolios do). All of the Funds except New
England Total Return Bond Fund distribute dividends annually. New England Total
Return Bond Fund declares and distributes dividends quarterly. Each Fund
distributes all net realized long- and short-term capital gains annually, after
applying any available capital loss carryovers. The Portfolio's Board of
Trustees may adopt a different schedule as long as payments are made at least
annually.
Depending on your investment goals and priorities, you may choose to:
o participate in the Dividend Diversification Program, which allows you to
have all dividends and distributions automatically invested at net asset
value in shares of the same class of another New England Fund registered in
your name. Certain investment minimums and restrictions may apply. For more
information about this program, see the section entitled "Additional
Investor Services."
o 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 in the same class of another New England Fund.
o receive all distributions in cash.
Unless you select one of the above options, distributions will automatically be
reinvested in shares of the same class of the Fund at net asset value.
For more information or to change your distribution option, contact New England
Funds in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a non-retirement plan
Fund, you will receive a Form 1099 to help you report the prior calendar year's
distributions on your federal income tax return. Be sure to keep the 1099 as a
permanent record. A fee may be charged for any duplicate information requested.
TAX CONSEQUENCES
Each Fund and each Portfolio intends to meet all requirements of the Internal
Revenue Code necessary to qualify as a "regulated investment company" and thus
does not expect to pay any federal income tax on income and capital gains
distributed to shareholders.
Fund distributions paid to you either in cash or reinvested in additional shares
are generally taxable to you either as ordinary income or as capital gains.
Distributions derived from short-term capital gains or ordinary income are
generally taxable at ordinary income rates. If you are a corporation investing
in a Fund, a portion of these dividends may qualify for the dividends-received
deduction provided that you meet certain holding period requirements.
Distributions of net long-term capital gains (i.e., the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) that are designated by a Fund as capital gain
dividends will generally be taxable to a shareholder receiving such
distributions as long-term capital gain (generally taxed at a 20% tax rate for
noncorporate shareholders) regardless of how long the shareholder has held Fund
shares. Some dividends paid in January may be taxable as if they were received
in the previous December.
An exchange of shares for shares of another Fund is treated as a sale, and any
resulting gain or loss may be subject to federal income tax. If you purchase
shares of a Fund shortly before it declares a capital gain distribution or a
dividend, a portion of the purchase price may be returned to you as a taxable
distribution.
The Funds' use of a two tiered fund-of-funds structure could adversely affect
the character of distributions to you. You should consult your tax adviser about
any federal, state and local taxes that may apply to the distributions you
receive.
COMPENSATION TO SECURITIES DEALERS
As part of their business strategies, the Funds pay securities dealers that sell
their shares. This compensation originates from two sources: sales charges
(front end or deferred) and 12b-1 fees (comprising the annual service and/or
distribution fees of a plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940). The sales charges are detailed in the section entitled
"How Sales Charges are Calculated." Each class of Fund shares pays an annual
service fee of up to 0.25% of average daily net assets. In addition to this
service fee, Class B shares pay an annual distribution fee of up to 0.75% of
average daily net assets for 8 years (at which time they automatically convert
into Class A shares). Class C shares are subject to a distribution fee of up to
0.75% of average daily net assets. Generally, the 12b-1 fees are paid to
securities dealers on a quarterly basis. The Distributor retains the first year
of such fees for Class C shares. Because these distribution fees are paid out of
the Fund's assets on an ongoing basis, over time these fees for Class B and
Class C shares will increase the cost of your investment and may cost you more
than paying the front-end sales charge on Class A shares.
CLASS A SHARES
The portion of the various fees and expenses for Class A shares that are paid
(reallowed) to securities dealers are shown below:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A INVESTMENTS (All Funds except Total Return Bond Fund)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 5.00% 0.25% 5.25%
$50,000 - $99,999 4.50% 4.00% 0.25% 4.25%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
INVESTMENTS OF $1 MILLION OR MORE
First $3 Million none 1.00%(2) 0.25% 1.25%
Excess over $3 Million (1) none 0.50%(2) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE(3) none 0.00% 0.25% 0.25%
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A INVESTMENTS (Total Return Bond Fund)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C> <C>
Less than - $100,000 4.50% 4.00% 0.25% 4.25%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
INVESTMENTS OF $1 MILLION OR MORE
First $3 Million none 1.00%(2) 0.25% 1.25%
Excess over $3 Million (1) none 0.50%(2) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE(3) none 0.00% 0.25% 0.25%
(1) For investments by Retirement Plans, the Distributor may pay a 0.50% commission for investments in excess of $3 million and up
to $10 million.
(2) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12
calendar months.
(3) Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as described
earlier in this Prospectus.
</TABLE>
For Class A shares, the service fee is payable only to reimburse the Distributor
for amounts it pays in connection with providing personal services to investors
and/or maintaining shareholder accounts. To the extent that the Distributor's
reimbursable expenses in any year exceed the maximum amount payable for that
year under the relevant service plan, these expenses may be carried forward for
reimbursement in future years as long as the plan remains in effect.
CLASS B AND CLASS C SHARES
The Class B and Class C service fees are payable regardless of the amount of the
Distributor's related expenses. The portion of the various fees and expenses for
Class B and Class C shares that are paid to securities dealers are shown below:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
CLASS B & CLASS C INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM REALLOWANCE MAXIMUM FIRST YEAR MAXIMUM FIRST YEAR
OR COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
<S> <C> <C> <C>
All amounts for Class B 3.75% 0.25% 4.00%
All amounts for Class C 1.00% 0.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION TO SECURITIES DEALERS (CONTINUED)
Each Fund receives the net asset value next determined after an order is
received on sales of each class of shares. The sales charge is allocated between
the investment dealer and the Distributor. The Distributor receives the CDSC.
The Distributor may, at its discretion, pay (reallow) the entire sales charge
imposed on the sale of Class A shares to investment dealers from time to time.
For new amounts invested at net asset value by an eligible governmental
authority, the Distributor may, at its expense, pay investment dealers a
commission of 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 other
New England Fund or if the account is registered in street name.
The Distributor may, at its expense, provide additional promotional incentives
or payments to dealers who sell shares of the Funds (including in some cases,
exclusively to New England Securities Corporation and Metropolitan Life
Insurance Company, both affiliates of the Distributor). In some instances,
additional compensation is provided to certain dealers who achieve 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 broker-dealer firms and their representatives in
compensation and incentive programs is at the discretion of each firm.
Compensation and incentives shall conform with the applicable rules of the
National Association of Securities Dealers, Inc.
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
New England Funds offers a range of qualified retirement plans, including IRAs,
SEPs, SARSEPs, SIMPLEs, 401(k) plans, 403(b) plans and other pension and profit
sharing plans. Refer to the section entitled "Its Easy to Open an Account" for
investment minimums. For more information about our Retirement Plans, call us at
800-225-5478.
INVESTMENT BUILDER PROGRAM
This 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. To join the
Investment Builder Program, please refer to the section entitled "Buying
Shares."
DIVIDEND DIVERSIFICATION PROGRAM
This program allows you to have all dividends and any other distributions
automatically invested in shares of the same class of another New England Fund
(including the Money Market Funds), subject to the 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. Before establishing a dividend diversification
program into any other New England Fund (including the Money Market Funds),
please read its prospectus carefully.
AUTOMATIC EXCHANGE PLAN
New England Funds has an automatic exchange plan under which shares of a class
of a fund are automatically exchanged each month for shares of the same class of
other New England Funds (including the Money Market Funds). There is no fee for
exchanges made under this plan, but there may be a sales charge in certain
circumstances. Please refer to the SAI for more information on the Automatic
Exchange Plan.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem shares and receive payments from your Fund on a
regular schedule. Redemption of shares that are part of the Systematic
Withdrawal Plan are not subject to a CDSC. However, the amount or percentage you
specify in the plan may not exceed, on an annualized basis, 10% of the value of
your Fund account based on the day you establish your plan. To establish a
Systematic Withdrawal Plan, please refer to the section entitled "Selling
Shares."
NEW ENGLAND FUNDS PERSONAL ACCESS LINE(TM)
This automated customer service system allows you to have access to your account
24 hours a day by calling 800-346-5984. With a touch-tone telephone, you can
obtain information about your current account balance, recent transactions, Fund
prices and recent performance. You may also use PAL to purchase, exchange or
redeem shares in any of your existing accounts. Certain restrictions may apply.
NEW ENGLAND FUNDS INTERNET WEBSITE
Visit us at WWW.MUTUALFUNDS.COM to review your account balance and recent
transactions, to view daily prices and performance information or to order
duplicate account statements and tax information. You may also go online to
purchase, exchange or redeem shares in any of your existing accounts.
Certain restrictions may apply.
GLOSSARY OF TERMS
BID PRICE -- the price a prospective buyer is ready to pay. This term is used by
traders who maintain firm bid and offer prices in a given security by standing
ready to buy or sell security units at publicly quoted prices.
BOTTOM-UP ANALYSIS - The search for outstanding performance of individual stocks
before considering the impact of economic trends. The companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS --- Payments to shareholders of profits earned from
selling securities in the fund's Portfolio. Capital gain distributions are
usually paid once a year.
CREDIT RATING --- Independent evaluation of a bond's credit-worthiness. This
measurement is usually calculated through an index compiled by companies such as
Standard & Poor's Ratings Group or Moody's Investors Service, Inc. Bonds with a
credit rating of BBB or higher by Standard & Poor's or Baa or higher by Moody's
are generally considered investment grade.
DISCOUNTED PRICE - The difference between a bond's current market price and its
face or redemption value.
DIVERSIFICATION --- The strategy of investing in a wide range of companies or
industries to reduce the risk if one sector of the market suffers losses.
DIVIDEND YIELD --- The current or estimated annual dividend divided by the
market price per share of a security.
DURATION --- An estimate of how much a bond's price fluctuates with changes in
comparable interest rates.
EARNINGS GROWTH - A pattern of increasing rate of growth in earnings per share
from one period to another, which usually causes a stock price to rise.
FUNDAMENTAL ANALYSIS - An analysis of the balance sheet and income statements of
companies in order to forecast their future stock price movements. Fundamental
analysts consider past records of assets, earnings, sales, products, management
and markets in predicting future trends in these indicators of a company's
success or failure. By appraising a company's prospects, these analysts assess
whether a particular stock or group of stocks is undervalued or overvalued at
the current market price.
GROWTH INVESTING --- An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
INCOME DISTRIBUTIONS --- Payments to shareholders resulting from the net
interest or dividend income earned by a fund's portfolio.
INFLATION --- A general increase in prices coinciding with a fall in the real
value of money, as measured by the Consumer Price Index.
INTEREST RATE - rate of interest charged for the use of money, usually expressed
at an annual rate. The rate is derived by dividing the amount of interest by the
amount of principal borrowed.
MARKET CAPITALIZATION --- The total amount of a company's long-term financing,
including stock, bonds and retained earnings. Large capitalization companies
generally have over $5 billion in market capitalization; medium cap companies
between $1.5 billion and $5 billion; and small cap companies less than $1.5
billion. The capitalization figures may vary depending on the Index being used
and/or the guidelines used by a Portfolio Manager.
MATURITY --- The final date on which the payment of a debt instrument (i.e.
bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds
generally have maturities of up to 5 years; intermediate-term bonds between 5
and 15 years; and long-term bonds over 15 years.
NET ASSET VALUE (NAV) --- The market value of one share of a mutual fund on any
given day without sales charge or CDSC. It is determined by dividing the fund's
total net assets by the number of shares outstanding.
PRICE-TO-BOOK RATIO - Current market price of a stock divided by its book value,
or net asset value, of the stock.
PRICE-TO-EARNINGS RATIO --- Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different securities. Some firms
use the inverse ratio for this calculation (i.e. earnings-to-price ratio).
RETURN ON EQUITY - The amount, expressed as a percentage, earned on a company's
common stock investment for a given period. It is calculated by dividing common
stock equity (net worth) at the beginning of the accounting period into net
income for the period after preferred stock dividends but before common stock
dividends. This tells common shareholders how effectually their money is being
employed.
TECHNICAL ANALYSIS - The research into the demand and supply for securities,
options, mutual funds and commodities based on trading volume and price studies.
This analysis uses charts or computer programs to identify and project price
trends in a market, security, fund or futures contract.
TOP-DOWN APPROACH - The method in which an investor first looks at trends in the
general economy, and next selects industries and then companies that should
benefit from those trends.
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of the fund.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets are
not fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than growth stocks.
VOLATILITY - The general variability of a portfolio's value resulting from price
fluctuations of its investments. In most cases, the more diversified a portfolio
is, the less volatile it will be.
YIELD - The rate at which a fund earns income, expressed as a percentage. Mutual
fund yield calculations are standardized, based on a formula developed by the
SEC.
YIELD-TO-MATURITY - The concept used to determine the rate of return an investor
will receive if a long-term, interest-bearing investment, such as a bond, is
held to its maturity date. It takes into account purchase price, redemption
value, time to maturity, coupon yield (the interest rate on a debt security the
issuer promises to pay to the holder until maturity, expressed as an annual
percentage of face value) and the time between interest payments.
<PAGE>
If you would like more information NEW ENGLAND FUNDS
about the Funds, the following
documents are available free upon
request:
NEW ENGLAND CORE EQUITY FUND
NEW ENGLAND STOCK AND BOND FUND
ANNUAL AND SEMIANNUAL REPORTS - NEW ENGLAND SELECT FUND
Provide additional information NEW ENGLAND SMALL CAP VALUE FUND
about each Funds' investments. Each NEW ENGLAND SMALL CAP GROWTH FUND
report includes a discussion of the NEW ENGLAND TOTAL RETURN BOND FUND
market conditions and investment
strategies that significantly
affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
(SAI) - Provides more detailed
information about the Funds, has
been filed with the Securities and
Exchange Commission and is
incorporated into this prospectus
by reference.
- -----------------------------------
To order a free copy of a Fund's
annual or semiannual report or the
SAI, contact your financial
representative or the Funds at:
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Telephone: 800-225-5478
Internet: www.mutualfunds.com
Your financial representative or
New England Funds will also be
happy to answer your questions or
to provide any additional
information that you may require.
- -----------------------------------
You can review the Funds' reports
and SAIs at the Public Reference
Room of the Securities and Exchange
Commission. Text-only copies are
available free from the
Commission's Internet website at:
www.sec.gov.
Copies of these publications are
also available for a fee by writing
or calling the Public Reference
Room of the SEC, Washington, D.C.
20549-6009 Telephone: 800-SEC-0330
New England Funds, L.P., and other
firms selling shares of New England
Funds are members of the National
Association of Securities Dealers,
Inc. (NASD). As a service to
investors, the NASD has asked that
we inform you of the availability
of a brochure on its Public
Disclosure Program. The program
provides access to information
about securities firms and their
representatives. Investors may
obtain a copy by contacting the
NASD at 800-289-9999 or by visiting (Investment Company
their website at www.NASDR.com. Act file no. 811-7345)
<PAGE>
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England Core Equity Fund
New England Stock and Bond Fund
New England Select Fund
New England Small Cap Value Fund
New England Small Cap Growth Fund
New England Total Return Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
March , 1999
This Statement of Additional Information (the "Statement") contains
information which may be useful to investors but which is not included in the
Prospectus of the New England Funds listed above (the "Funds" and each a
"Fund"). This Statement is not a prospectus and is only authorized for
distribution when accompanied or preceded by the Prospectus of the Funds dated
[ ], 1999 for Class A, Class B or Class C shares, (the "Prospectus"). The
Statement should be read together with the Prospectus. Investors may obtain a
free copy of the Prospectus from New England Funds, L.P., Prospectus Fulfillment
Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling New England
Funds at 800-225-5478 or by placing an order online at www.mutualfunds.com.
New England Core Equity Fund, New England Stock and Bond Fund, New
England Select Fund, New England Small Cap Value Fund, New England Small Cap
Growth Fund and New England Total Return Bond Fund are non-diversified series of
New England Funds Trust III, a registered open-end management investment company
(the "Trust"). Capitalized terms not otherwise defined herein have the same
meaning as in the Prospectus.
<PAGE>
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES...................................... 1
MANAGEMENT OF THE TRUST................................................ 10
PORTFOLIO TRANSACTIONS AND BROKERAGE ................................... 17
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES........................ 19
HOW TO BUY SHARES....................................................... 21
NET ASSET VALUE AND PUBLIC OFFERING PRICE............................... 22
REDUCED SALES CHARGES................................................... 22
SHAREHOLDER SERVICES.................................................... 25
REDEMPTIONS............................................................. 29
STANDARD PERFORMANCE MEASURES........................................... 32
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS............. 36
MISCELLANEOUS INVESTMENT PRACTICES OF THE PORTFOLIOS ................... 39
APPENDIX A.............................................................. A-1
APPENDIX B.............................................................. B-1
APPENDIX C.............................................................. C-1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
GENERAL INVESTMENT OBJECTIVES AND POLICIES
To achieve their investment objectives, each Fund invests in a
particular mutual fund offered by either Harris Associates L.P. ("Harris
Associates") or Loomis, Sayles & Company, L.P. ("Loomis Sayles"), each a
"Portfolio." Harris Associates is the primary investment adviser of The Oakmark
Fund, The Oakmark Equity and Income Fund, The Oakmark Select Fund and The
Oakmark Small Cap Fund, and is an affiliated investment management subsidiary of
Nvest Companies, L.P. ("Nvest Companies"). Loomis Sayles is the primary
investment adviser of the Loomis Sayles Small Cap Growth Fund and the Loomis
Sayles Bond Fund and is also an affiliated investment management subsidiary of
Nvest Companies. Achievement of each Fund's objective as set forth below cannot
be assured.
THE INVESTMENT OBJECTIVES OF THE SIX FUNDS ARE AS FOLLOWS:
NEW ENGLAND CORE EQUITY FUND (THE "CORE EQUITY FUND")
The Core Equity Fund seeks long term capital appreciation. The Fund
pursues this goal by investing all or substantially all of its assets in The
Oakmark Fund.
NEW ENGLAND STOCK AND BOND FUND (THE "STOCK AND BOND FUND")
The Stock and Bond Fund seeks high current income as well as
preservation and growth of capital. The Fund pursues this goal by investing all
or substantially all of its assets in The Oakmark Equity and Income Fund.
NEW ENGLAND SELECT FUND (THE "SELECT FUND")
The Select Fund seeks long-term capital appreciation. The Fund pursues
this goal by investing all or substantially all of its assets in The Oakmark
Select Fund.
NEW ENGLAND SMALL CAP VALUE FUND (THE "SMALL CAP VALUE FUND").
The Small Cap Value Fund seeks long-term capital appreciation. The Fund
pursues this goal by investing all or substantially all of its assets in The
Oakmark Small Cap Fund.
NEW ENGLAND SMALL CAP GROWTH FUND (THE "SMALL CAP GROWTH FUND")
The Small Cap Growth Fund seeks long term capital growth. The Fund
pursues this goal by investing all or substantially all of its assets in the
Loomis Sayles Small Cap Growth Fund.
NEW ENGLAND TOTAL RETURN BOND FUND (THE "TOTAL RETURN BOND FUND")
The Total Return Bond Fund seeks high total investment return through a
combination of current income and capital appreciation. The Fund pursues this
goal by investing all or substantially all of its assets in the Loomis Sayles
Bond Fund.
<PAGE>
THE PORTFOLIOS
The Prospectus sets forth the principal investment strategies employed
by the Portfolios in attempting to achieve their respective goals. The following
paragraphs describe those strategies that are not considered primary for each
Portfolio:
THE OAKMARK FUND
The Oakmark Fund seeks long-term capital appreciation by investing
primarily in equity securities.
Along with engaging in its primary strategies, the Portfolio may also
invest in repurchase agreements, participate in short sales against the box,
engage in currency exchange transactions, invest in other investment companies,
purchase when-issued and forward commitment securities, acquire securities in
private placements and purchase call or put options.
The Portfolio may also hold cash or purchase money market and/or high
quality debt securities for temporary defensive purposes in response to adverse
market, economic or political conditions. These investments may prevent the
Portfolio from achieving its goal.
THE OAKMARK EQUITY AND INCOME FUND
The Oakmark Equity and Income Fund Seeks high current income and
preservation and growth of capital by investing in a diversified selection of
equity and fixed-income securities.
Along with engaging in its primary strategies, the Portfolio may also
invest in repurchase agreements, participate in short sales against the box,
engage in currency exchange transactions, invest in other investment companies,
purchase when-issued and forward commitment securities, lend its portfolio
securities, acquire securities in private placements and purchase call or put
options.
The Portfolio may also hold cash or purchase money market securities
for temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Portfolio from achieving
its goal.
THE OAKMARK SELECT FUND
The Oakmark Select Fund seeks long-term capital appreciation by
investing primarily in a non-diversified portfolio of equity securities.
Along with engaging in its primary strategies, the Portfolio may also
invest in repurchase agreements, participate in short sales against the box,
engage in currency exchange transactions, invest in other investment companies,
purchase when-issued and forward commitment securities, lend its portfolio
securities, acquire securities in private placements and purchase call or put
options.
The Portfolio may also hold cash or purchase money market and/or high
quality debt securities for temporary defensive purposes in response to adverse
market, economic or political conditions. These investments may prevent the
Portfolio from achieving its goal.
THE OAKMARK SMALL CAP FUND
The Oakmark Small Cap Fund seeks long-term capital appreciation by
investing primarily in equity securities.
Along with engaging in its primary strategies, the Portfolio may also
invest in repurchase agreements, participate in short sales against the box,
engage in currency exchange transactions, invest in other investment companies,
purchase when-issued and forward commitment securities, lend its portfolio
securities, acquire securities in private placements and purchase call or put
options.
The Portfolio may also hold cash or purchase money market and/or high
quality debt securities for temporary defensive purposes in response to adverse
market, economic or political conditions. These investments may prevent the
Portfolio from achieving its goal.
LOOMIS SAYLES SMALL CAP GROWTH FUND
Loomis Sayles Small Cap Growth Fund's objective is long-term capital
growth from investments in common stocks or their equivalent.
The Portfolio may also engage in foreign currency hedging transactions,
options and futures transactions, securities lending, and purchase Rule 144A
securities.
The Portfolio may hold cash or purchase fixed-income and any other
securities deemed appropriate by Loomis Sayles for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Portfolio from achieving its goal.
The Portfolio may also engage in active and frequent trading of
securities, leading to high turnover rates. Frequent trading may produce higher
transaction costs and a higher level of taxable capital gains. Such practices
may lower the Portfolio's return.
LOOMIS SAYLES BOND FUND
Loomis Sayles Bond Fund's investment objective is high total investment
return through a combination of current income and capital appreciation.
Fixed-income securities other than those in which the Fund primarily
invests in include commercial paper, Rule 144A securities and repurchase
agreements. The Portfolio may also engage in options and futures transactions,
foreign currency hedging transactions and swap transactions.
The Portfolio may hold cash or purchase fixed-income and any other
securities deemed appropriate by Loomis Sayles for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Portfolio from achieving its goal.
RISK FACTORS OF THE PORTFOLIOS
In pursuing its respective investment objective, each of the Portfolios
is permitted to engage in a wide range of investment activities. The Portfolios
risks are determined by the nature of the securities held and the management
activities used by their respective advisers and subadvisers. Certain of these
policies are described in the section entitled "Miscellaneous Investment
Practices of the Portfolios" and further information about the Portfolios is
contained in the statement of additional information as well as the prospectuses
of such Portfolios. Because each Fund invests in one of the Portfolios,
shareholders of each Fund will be affected by these investment policies.
INVESTMENT RESTRICTIONS OF THE FUNDS
The investment restrictions set forth below are fundamental policies of each
Fund and, accordingly, without the approval of the holders of a majority of the
outstanding shares of each Fund, each Fund will not:
1. With respect to 75% of its total assets, purchase any security if, as a
result, more than 5% of its total assets (based on current value) would
then be invested in the securities of a single issuer. This limitation does
not apply to Government Securities (as defined in the 1940 Act) ("U.S.
Government Securities") as long as this does not prevent the Fund from
investing all or substantially all of its assets in shares of another
investment company;
2. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer as long as this does not
prevent the Fund from investing all or substantially all of its assets in
shares of another investment company;
3. As long as this does not prevent the Fund from investing all or
substantially all of its assets in shares of another investment company,
invest more than 25% of its total assets in any one industry. This
restriction does not apply to U.S. Government Securities. For purposes of
this restriction, telephone, gas and electric public utilities are each
regarded as separate industries and finance companies whose financing
activities are related primarily to the activities of their parent
companies are classified in the industry of their parents. For purposes of
this restriction with regard to bank obligations, bank obligations are
considered to be one industry, and asset-backed securities are not
considered to be bank obligations;
4. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions, and the Fund may make
any short sales or maintain any short positions where the short sales or
short positions would not constitute "senior securities" under the 1940
Act;
5. Borrow money except for temporary or emergency purposes; provided, however,
that each Fund may loan its securities, engage in reverse repurchase
agreements and dollar rolls, in an amount not exceeding 33 1/3% of its
total assets taken at cost;
6. Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies. This restriction
does not apply to repurchase agreements or loans of portfolio securities;
7. Act as an underwriter of securities of other issuers except that, in the
disposition of portfolio securities, it may be deemed to be an underwriter
under the federal securities law;
8. Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in real
estate, and it may acquire and dispose of real estate or interests in real
estate acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein;
9. Purchase or sell commodities, except that each Fund may purchase and sell
future contracts and options, may enter into foreign exchange contracts and
may enter into swap agreements and other financial transactions not
requiring the delivery of physical commodities;
10. Issue senior securities, except for permitted borrowings or as otherwise
permitted under the 1940 Act.
Unless otherwise indicated, the objective and investment policies of
the Funds are not fundamental and may be changed without shareholder approval.
Approval by the shareholders of each Fund requires approval by the holders of a
majority of the outstanding shares of the Fund. As used in this Statement, the
term "majority of the outstanding shares" of the Fund means the lesser of (i)
67% of the shares of the Fund represented at a meeting at which more than 50% of
the outstanding shares of the Fund are represented or (ii) more than 50% of the
outstanding shares of the Fund.
The percentages and percentage limitations set forth above in the
Statement, other than with respect to restriction (5) pertaining to borrowing,
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. Restrictions (4) and (10) shall be
interpreted based upon no-action letters and other pronouncements of the staff
of the Securities and Exchange Commission (the "SEC"). Under current
pronouncements, certain Fund positions are excluded from the definition of
"senior security" so long as the Fund maintains adequate cover, segregation of
assets or otherwise.
In addition, it is contrary to each Fund's present policy, which may be
changed without shareholder vote, to purchase any illiquid security, including
any securities whose disposition is restricted under federal securities laws and
securities that are not readily marketable, if, as a result, more than 15% of
the Fund's total assets (based on current value) would then be invested in such
securities. The staff of the SEC is presently of the view that repurchase
agreements maturing in more than seven days are illiquid securities and
therefore subject to this restriction. Until that position is revised, modified
or rescinded, the Fund will conduct its operations in a manner consistent with
this view. This limitation on investment in illiquid securities does not apply
to certain restricted securities, including securities issued pursuant to Rule
144A under the Securities Act of 1933 and certain commercial paper, that the
Fund's adviser has determined to be liquid under procedures approved by the
Funds' Board of Trustees.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
In addition to its investment goal and policies set forth in its
Prospectus, the following investment restrictions are policies of each Portfolio
advised by HARRIS ASSOCIATES (The Oakmark Fund, The Oakmark Equity and Income
Fund, The Oakmark Select Fund, and The Oakmark Small Cap Fund), and those marked
with an asterisk are fundamental policies of each Portfolio:
Each Portfolio advised by Harris Associates will not:
*1. [This Restriction does not apply to Oakmark Select Fund] In regard
to 75% of its assets, invest more than 5% of its assets (valued at
the time of investment) in securities of any one issuer, except in
U.S. Government Securities;
*2. Acquire securities of any one issuer which at the time of
investment (a) represent more than 10% of the voting securities of
the issuer or (b) have a value greater than 10% of the value of
the outstanding securities of the issuer;
*3. Invest more than 25% of its assets (valued at the time of
investment) in securities of companies in any one industry, except
that this restriction does not apply to investments in U.S.
Government Securities;
*4. Borrow money except from banks for temporary or emergency purpose
in amounts not exceeding 10% of the value of a Portfolio's assets
at the time of borrowing (a Portfolio will not purchase additional
securities when its borrowings, less receivable from Portfolio
securities sold, exceed 5% of the value of a Portfolio's total
assets];
*5. Issue any senior security except in connection with permitted
borrowings;
*6. Underwrite the distribution of securities of other issuers,
however a Portfolio may acquire "restricted" securities which, in
the event of a resale, might be required to be registered under
Securities Act of 1933 on the ground that a Portfolio could be
regarded as an underwriter as defined by that act with respect to
such resale;
*7. Make loans, but this restriction shall not prevent a Portfolio
from (a) investing in debt obligations, (b) investing in
repurchase agreements(1), or (c) [Portfolios other than The
Oakmark Fund] lending its securities [a Portfolio will not lend
securities having a value in excess of 33% of its assets,
including collateral received for loaned securities (valued at the
time of any loan)];
- --------
(1) A repurchase agreement involves a sale of securities to a Portfolio with the
concurrent agreement of the seller (bank or securities dealer) to repurchase
the securities at the same price plus an amount equal to an agreed-upon
interest rate within a specified time. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could
experience both delays in liquidating the underlying securities and losses.
No Portfolio may invest more than 15% of its net assets in illiquid
securities which include repurchase agreements maturing in more than seven
days.
*8. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises
which invest in real estate or interests in real estate;
*9. Purchase and sell commodities or commodity contracts, except that
it may enter into forward foreign currency contracts;
*10. Acquire securities of other investment companies except (a) by
purchase in the open market, where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission or (b) where the acquisition results
from a dividend or a merger consolidation or other
reorganization;(2)
11. Make margin purchases or participate in a joint or on a joint or
several basis in any trading account in securities;
12. Invest in companies for the purpose of management or the exercise
of control;
13. Invest more than 15% of its net assets (valued at the time of
investment) in illiquid securities, including repurchase
agreements maturing in more than seven days;
14. Invest in oil, gas or other mineral leases or exploration or
development programs, although it may invest in marketable
securities of enterprises engaged in oil, gas or mineral
exploration;
15. Invest more than 2% of its assets (valued at the time of
investment) in warrants not listed on the New York or American
stock exchanges, valued at cost, nor more than 5% of its net
assets in all warrants, provided that warrants acquired in units
or attached to other securities shall be deemed to be without
value for purposes of this restriction;
16. [The Oakmark Fund, The Oakmark Select Fund and The Oakmark Small
Cap Fund only] Invest more than 25% of its total assets (valued at
the time of investment) in securities of non-U.S. issuers (other
than securities represented by American Depository Receipts
("ADRs")) [The Oakmark Equity and Income Fund only]. Invest more
than 10% of its total assets (valued at the time of investment) in
securities of non-U.S. issuers (other than securities represented
by ADRs)(3);
- --------
(2) In addition to this investment restriction, the 1940 Act provides that a
Fund may neither purchase more than 3% of the voting securities of any one
investment company nor invest more than 10% of the Fund's assets (value at
the time of investment) in all investment company securities purchased by
the Fund. Investment in the shares of another investment company would
require the fund to bear a portion of the management and advisory fees paid
by the investment company, which might duplicate the fees paid by the Fund.
(3) Although securities represented by ADRs are not subject to restriction 16,
none of these Portfolios has any present intention to invest more than the
indicated percentage of its total assets in ADRs and securities of foreign
issuers.
17. Make short sales of securities unless the Portfolio owns at least
an equal amount of such securities, or owns securities that are
convertible or exchangeable, without payment of further
consideration, into at least an equal amount of such securities;
18. Purchase a call option or put option if the aggregate premium paid
for all call and put options then held exceeds 20% of its net
assets (less the amount by which any such positions are
in-the-money);
19. Invest in futures or options on futures, except that it may invest
in forward foreign currency contracts.
The fundamental restrictions noted above (except for the bracketed
portions) may be changed only with the approval of the holders of a "majority of
the outstanding voting securities" of the respective Portfolio, which is defined
in the 1940 Act as the lesser of (i) 67% of the shares of the Portfolio present
a meeting if more than 50% of the outstanding shares of the Portfolio are
present in person or represented by proxy or (ii) more than 50% of the
outstanding shares of the Portfolio. Those restrictions not designated as
"fundamental" which includes a Portfolio's investment objective, may be changed
by the board of Trustees without shareholder approval. However, a Portfolio's
investment objective will not be changed without at least 30 days notice to
shareholders.
Notwithstanding the investment restrictions set forth above, a
Portfolio may purchase securities pursuant to the exercise of subscription
rights, provided, in the case of each Portfolio other than The Oakmark Select
Fund which is a non-diversified open-end management investment company, that
such purchase will not result in the Portfolio's ceasing to be a diversified
investment company. Japanese and European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in a Portfolio's interest in the
issuing company being diluted. The market for such rights is not well developed
in all cases and, accordingly a Portfolio may not always realize full value on
the sale of rights. The exception to this general rule applies in cases where
the limits set forth in the investment restrictions section of this Statement
would otherwise be exceeded by exercising rights or would have already been
exceeded as a result of fluctuations in the market value of a Portfolio's
securities with the result that the Portfolio would be forced either to sell
securities at a time when it might not otherwise have done so, or to forego
exercising the rights.
In addition to its investment goal and policies set forth in its Prospectus, the
following investment restrictions are policies of each Portfolio advised by
LOOMIS SAYLES (the Loomis Sayles Small Cap Growth Fund and the Loomis Sayles
Bond Fund), and those marked with an asterisk are fundamental policies of each
Portfolio:
Each Portfolio advised by Loomis Sayles will not:
1. Invest in companies for the purpose of exercising control or
management.
*2. 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.
*3. Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts.
(This restriction does not prevent any Portfolio from engaging in
transactions in future contracts relating to securities index,
interest rates or financial instruments or options, or from
investing in issuers that invest or deal in the foregoing types of
assets or from purchasing securities that are secured by real
estate.)
*4. Make loans, except that Loomis Sayles Small Cap Growth Fund may
lend its portfolio securities to the extent permitted under the
1940 Act. (For purposes of this investment restriction, neither
(i) entering into repurchase agreements(4) nor (ii) purchasing
bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the
public, is considered the making of a loan.)
- --------
(4) Although the Portfolios have no current intentions of investing in
repurchase agreements, they intend, based upon the views of the staff of the
SEC, to restrict their investments in repurchase agreements maturing in more
than seven days, together with other investments in illiquid securities, to
the percentage permitted by restriction (12) above.
5. With respect to 75% of a Portfolio's assets, purchase any security
(other than a U.S. Government Security) if, as a result, more than
5% of the Portfolio's total assets (taken at current value) would
then be invested in securities of a single issuer.
6. With respect to 75% of its assets, acquire more than 10% of the
outstanding voting securities of an issuer.
7. Pledge, mortgage, hypothecate or otherwise encumber any of its
assets, except that each Portfolio may pledge assets having a
value not exceeding 10% of its total assets to secure borrowings
permitted by restriction (9) below. (For the purpose of this
restriction, collateral arrangements with respect to options,
futures contracts options on futures contracts and with respect to
initial and variation margin deemed to be a pledge or other
encumbrance of assets.)
*8. Purchase any security (other than U.S. Government Securities) if,
as a result, more than 25% of the Portfolio's total assets (taken
at current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies
will be considered as being in separate industries.) Tax-exempt
securities issued by governments or political subdivisions of
governments are not subject to this restriction, since such
issuers are not members of any industry.
*9. Borrow money in excess of 10% of its total assets (taken at cost)
or 5% of its total assets (taken at current value), whichever is
lower, nor borrow any money except as a temporary measure for
extraordinary or emergency purposes.
10. Purchase securities on margin (except such short-term credits as
are necessary for clearance of transactions); or make short sales
(except where, by virtue of ownership of other securities, it has
the right to obtain, without payment of additional consideration,
securities equivalent in kind and amount to those sold.)
11. Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the purchase
or sale of portfolio securities with Loomis Sayles or accounts
under its management to reduce brokerage commissions, to average
prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.
12. Purchase any illiquid security, including any security that is not
readily marketable, if, as a result, more than 15% of the
Portfolio's net assets (based on current value) would then be
invested in such securities.
13. Write or purchase put options, call options or combinations of
both except that each Portfolio may (1) acquire warrants or rights
to subscribe to securities of companies issuing such warrants or
rights, or of parents or subsidiaries of such companies, (2)
purchase and sell put options and call options on securities and
(3) write, purchase and sell put options and call options on
currencies and may enter into currency forward contracts.
*14. Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: (i) any pledge
or other encumbrance of assets permitted by restriction (7) above;
(ii) any borrowing permitted by restriction (9) above; (iii) any
collateral arrangements with respect to options, futures contracts
and options on futures contracts and with respect to initial and
variation margin; and (iv) the purchase or sale of options,
forward contracts, futures contracts or options on futures
contracts.)
The investment policies of each Loomis Sayles Portfolio set forth in
its Prospectus and in its Statement of Additional Information may be changed by
the Portfolio's adviser, subject to review and approval by its respective
Trust's Board of Trustees, without shareholder approval except that the
investment objective of each Portfolio as set forth in its Prospectus and any
Portfolio policy explicitly identified above as "fundamental" may not be changed
without the approval of the holders of a majority of the outstanding shares of
the relevant Portfolio (which in its Prospectus and its Statement of Additional
Information means the lesser of (i) 67% of the shares of that Portfolio
represented at a meeting at which 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). Except in the case of the 15%
limitation on illiquid securities, the percentage limitations set forth below
and in their Prospectuses will apply at the time a security is purchased and
will not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such purchase.
<PAGE>
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MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
The Funds are governed by a Board of Trustees which is responsible for
generally overseeing the conduct of Fund business and for protecting the
interests of shareholders. The Trustees meet periodically throughout the year to
oversee the Funds' activities, review contractual arrangements with companies
that provide services to the Funds and review the Funds' performance.
TRUSTEES
Trustees of the Trusts and their ages (in parentheses), addresses and
principal occupations during the past five years are as follows:
GRAHAM T. ALLISON, JR.--Trustee (58); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138; Member of the Contract Review Committee for the
Trust; 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;
Member of the Audit Committee for the Trust; President and CEO, Cain
Brothers & Company, Incorporated (investment banking); formerly,
Trustee, Universal Health Realty Income Trust; Chairman, Inter Fish,
Inc. (an aqua culture venture in Barbados).
KENNETH J. COWAN -- Trustee (67); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Member of the Contract Review Committee for the Trust;
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 (56); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Member of the Contract Review Committee for the Trust; 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
(telecommunications); 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, HighwayMaster Communications (mobile
communications).
SANDRA O. MOOSE -- Trustee (57); 135 E. 57th Street, New York, New York 10022;
Member of the Audit Committee for the Trust; Senior Vice President and
Director, The Boston Consulting Group, Inc. (management consulting);
Director, GTE Corporation (communications services); Director, Rohm and
Haas Company (specialty chemicals).
JOHN A. SHANE -- Trustee (66); 200 Unicorn Park Drive, Woburn, Massachusetts
01801; Member of the Audit Committee for the Trust; 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. (publisher of medical magazines);
Director, Eastern Bank Corporation; Director, Gensym Corporation
(developer of expert system software); Director, Overland Data, Inc.
(manufacturer of computer tape drives); Director, United Asset
Management Corporation (holding company for institutional money
management).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee
(52); President and Chief Executive Officer, Nvest, L.P. 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, BBAI; formerly, Director, New England Life
Insurance Company ("NELICO").
PENDLETON P. WHITE -- Trustee (67); 6 Breckenridge Lane, Savannah, Georgia
31411; Member of the Contract Review Committee for the Trust; Retired;
formerly, President and Chairman of the Executive Committee, Studwell
Associates (executive search consultants); formerly, Trustee, The
Faulkner Corporation (community hospital corporation).
* Trustee deemed an " interested person" of the Trust, as defined in the 1940
Act.
The Contract Review and Governance Committee of the New England Funds
is comprised solely of disinterested Trustees and considers matters relating to
advisory, subadvisory and distribution arrangements, potential conflicts of
interest between the adviser and the Funds, and governance matters relating to
the Funds.
The Audit and Transfer Agent and Shareholders Services Committee of the
New England Funds is comprised solely of disinterested Trustees and considers
matters relating to the scope and results of the Funds' audits and serves a
forum in which the independent accountants can raise any issues or problems with
the Board identified in the audits. This Committee also reviews and monitors
compliance with stated investment objectives and policies, SEC and IRS
regulations as well as operational issues relating to the transfer agent.
OFFICERS
Officers of the Trusts, in addition to Mr. Voss, and their ages (in
parentheses) and principal occupations during the past five years are as
follows:
BRUCE R. SPECA -- President (43); Executive Vice President, NEF Corporation;
President and Chief Executive Officer, New England Funds, L.P.;
President and Chief Executive Officer, NEFM.
PAUL C. MCCLINTOCK -- Assistant Treasurer (33); Assistant Vice President, New
England Funds, L.P.; Assistant Vice President, NEFM; formerly, Fund
Manager, Investors Bank & Trust (mutual fund custodian).
JOHN E. PELLETIER -- Secretary and Clerk (34); 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; Executive Vice President and General Counsel, NEFSCO;
formerly, Senior Vice President and General Counsel, Funds Distributor,
Inc. (mutual funds service company); 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. As indicated below under "Trustee Fees," each of the
Trusts' trustees is also a trustee of certain other investment companies for
which New England Funds. L.P. acts as principal underwriter. Except as indicated
above, the address of each trustee and officer of the Trusts is 399 Boylston
Street, Boston, Massachusetts 02116.
TRUSTEE FEES
The Trusts pay no compensation to their officers or to their trustees
who are interested persons thereof.
Each trustee who is not an interested person of the Trusts receives, in
the aggregate for serving on the boards of the Trusts and New England Cash
Management Trust and New England Tax Exempt Money Market Trust (all five trusts
collectively, the "New England Funds Trusts"), comprising as of May 1, 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 boards 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 committee member retainer fee) at the annual rate of
$4,000. These fees are allocated among the 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, 1998, the trustees of the
Trusts received the amounts set forth in the following table for serving as a
trustee of the Trusts and for also serving as trustees of the other New England
Funds Trusts.
<TABLE>
<CAPTION>
Pension or
Aggregate Aggregate Aggregate Retirement
Compensation Compensation Compensation Benefits Total Compensation
from from from New Accrued as Part from the
New England New England England Funds of Fund Estimated New England Funds
Funds Trust I Funds Trust II Trust III Expenses Annual Benefits Trusts
Name of Trustee in 1998 in 1998 in 1998 in 1998 Upon Retirement in 1998
--------------- ------- ------- ------- ------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
Graham T. Allison, Jr. $ $ $ $0 $0 $
Daniel M. Cain $ $ $ $0 $0 $
Kenneth J. Cowan $ $ $ $0 $0 $
Richard Darman $ $ $ $0 $0 $
Sandra O. Moose $ $ $ $0 $0 $
John A. Shane $ $ $ $0 $0 $
Pendleton P. White $ $ $ $0 $0 $
</TABLE>
The Funds provide no pension or retirement benefits to trustees, but
have adopted a deferred payment arrangement under which each trustee may elect
not to receive fees from the Funds on a current basis but to receive in a
subsequent period an amount equal to the value that such fees would have if they
had been invested in each Fund on the normal payment date for such fees. As a
result of this method of calculating the deferred payments, each Fund, upon
making the deferred payments, will be in the same financial position as if the
fees had been paid on the normal payment dates.
As of April 10, 1998, the officers and trustees of the Trusts as a
group owned less than 1% of the outstanding shares of each Fund.
As of November 16, 1998, there were no shares of any Fund outstanding.
ADVISORY AGREEMENT
Under each Fund's advisory agreement between the Trust and New England
Funds Management, L.P. ("NEFM"), on behalf of the Fund, NEFM will furnish or pay
the expenses of the applicable Fund for office space, facilities and equipment,
services of executive and other personnel of the Trust and certain
administrative services. NEFM will invest all or substantially all of the assets
of a Fund in a registered, open-end management company, or sources thereof, in
accordance with Section 12(d)(1)(E) under the 1940 Act. NEFM is responsible for
obtaining and evaluating such economic, statistical and financial data and
information and performing such additional investment research as is necessary
to manage the Fund's assets in accordance with the investment objectives and
policies.
Each Fund's advisory agreement 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 Trust's Board of Trustees
or by vote of a majority of the outstanding voting securities of the relevant
Fund and (ii) by vote of a majority of the Trustees who are not "interested
persons" of the Trust, as far as that term is defined in the 1940 Act, cast in
person at a meeting called for the purpose of voting on such approval. Any
amendment to an advisory agreement must be approved by vote of a majority of
outstanding voting securities of the relevant Fund and by a vote of the 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 advisory
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
relevant Fund, upon 60 days written notice, or by the Fund's advisor upon 90
days' written notice, and each terminates automatically in the event of its
assignment. In addition, each advisory agreement will automatically terminate if
the Trust or the Fund shall at any time be required by New England Funds, L.P.
to eliminate all reference to the words "New England" or the letters "NEFM" in
the name of the Trust or the relevant Fund, unless the continuance of the
agreement after such change of name is approved by a majority of the outstanding
voting securities of the relevant Fund and by a majority of the Trustees who are
not interested persons of the Trust or the Fund's adviser.
Each advisory agreement provides that the adviser shall not be subject
to any liability in connection with the performance of its service 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, L.P.
("Nvest Holdings"), which in turn is a wholly-owned subsidiary of Nvest
Companies. NEF Corporation is also the sole general partner of New England
Funds, L.P., (the "Distributor") and the sole shareholder of New England Fund
Service Corporation ("NEFSCO"), the transfer and dividend disbursing agent of
the Funds. Nvest Companies owns the entire limited partnership interest in each
of NEFM and New England Funds, L.P.
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 MetLife, a mutual life insurance company. MetLife
owns approximately 46% (and in the aggregate, directly and indirectly,
approximately 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. The fourteen principal subsidiary or
affiliated asset management firms of Nvest Companies, collectively, have more
than $__________ billion of assets under management or administration as of
____________.
SPECIAL SERVICING AGREEMENT
Under the terms of the Special Servicing Agreement (the "Service
Agreement") between each Fund and its corresponding Portfolio, a Fund will
arrange for all services pertaining to the operation of the Fund, including
shareholder servicing and fund administration. Each Portfolio has agreed to pay
a Fund an annual fee equal to 0.12% of the assets that a Fund has invested in
that Portfolio. However, the Portfolio will not be required to pay a Fund any
amount in excess of the financial benefits derived from the operation of that
Fund.
The cost-benefit analysis was initially reviewed by the Trustees of
each Portfolio before participating in any Service Agreement. For future years,
there will be an annual review of the Service Agreement to determine its
continued appropriateness for each Portfolio.
The Trust has received an order from the Securities and Exchange
Commission (the "Order") pursuant to Section 17(d) and Rule 17d-1 under the 1940
Act which permits a Fund to invest all or substantially all of its assets in a
single underlying fund pursuant to Section 12(d)(1)(E) of the 1940 Act. Pursuant
to such Order each Fund has entered into a Service Agreement with an underlying
fund wherein certain shareholder related expenses of the Fund will be borne by
the underlying fund. The Service Agreement entered into between a Fund and an
underlying fund, and any payments made to a Fund under the Service Agreement,
must be approved annually by the Trustees of the underlying fund, including a
majority of the Trustees who are not interested persons as defined under the
1940 Act.
EXPENSE CAP AGREEMENT
Pursuant to an Expense Cap Agreement entered into between NEFM and each
Fund, NEFM bears the expenses of a Fund (other than the expenses paid for a by a
Portfolio under the Special Servicing Agreement and interest, taxes and
extraordinary expenses) in excess of 0.10% annually of a Fund's average daily
net assets, subject to the obligation of a Fund to repay NEFM such expenses in
future years, if any, when a Fund's expenses fall below 0.10% of the Fund's
average daily net assets. Such deferred expenses may be charged to a Fund in
subsequent year to the extent that the charge does not cause the total expenses
of the Fund in such year to exceed the Fund's stated expense limit; however, no
Fund is obligated to repay any expense paid by NEFM more than two years after
the end of the fiscal year in which such expense was incurred. The Expense Cap
Agreement is effective for a period of two years and may only be amended by a
majority vote of the interested Trustees of the Trust as that term is defined in
the 1940 Act.
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLANS.
Under an agreement with the Trust, New England Funds, L.P. , serves as
the general distributor of each class of shares of the Funds. Under this
agreement, New England Funds, L.P. is not obligated to sell a specific number of
shares of any Fund. New England Funds, L.P. bears the cost of making information
about the Funds available through advertising and other means and the cost of
printing and mailing Prospectuses to persons other than shareholders.
New England Funds, L.P. is compensated under the agreement through
receipt of the sales charges on Class A shares described below under "Net asset
Value and Public Offering Price" and is paid by the Funds, or the Underlying
Portfolios under the Service Agreement, the service and distribution fees
described in the Prospectus.
As described in the Prospectus, each fund has adopted Rule 12b-1 plans
(the "Plans") for its Class A, Class B and Class C shares which, among other
things, permit it to pay the Fund's Distributor monthly fees out of its net
assets. Pursuant to Rule 12b-1 under the 1940 Act, the Plan was approved by the
shareholders of each Fund, and (together with related Distribution Agreement) by
the Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plans or the
Distribution Agreement (the "Independent Trustees").
The Plans 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 relevant Fund. The Plans 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 a Plan that would
materially increase the fees payable thereunder by the relevant class of shares
of the relevant Fund requires approval by vote of the holders of a majority of
such shares outstanding. The Trust's Board of Trustees review quarterly a
written report of such costs as well as the purposes for which such costs have
been incurred. For so long as the Plans are 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 Funds' shares. New England Securities is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the "1934 Act"), as
amended. 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 for the Funds may be terminated at any time
upon 60 days' written notice without payment of any penalty by the Distributor
or by vote of a majority of the outstanding voting securities of the relevant
Fund or by vote of a majority of the Independent Trustees.
The Distribution Agreements and the Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the outstanding
securities of a Fund (or the relevant class, in the case of the Plans).
With the exception of the Distributor, New England Securities and their
direct and indirect corporate parents, no interested person of the Trust nor any
trustee of the Trust has any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Funds and their shareholders resulting from the Plans
are believed to include (1) enhanced shareholder service, (2) asset retention,
(3) enhanced bargaining position with third party service providers and
economies of scale arising from having higher asset levels and (4) portfolio
management opportunities arising from having an enhanced positive cash flow.
The Distributor controls the words "New England" in the names of the
Trust and the Funds and if it should cease to be the distributor, the Trust or
the affected Fund may be required to change their names and delete these words
or letters. The Distributor also acts as general distributor for New England
Funds Trust I, New England Funds Trust II, New England Cash Management Trust and
New England Tax Exempt Money Market Trust.
Proceeds from the Contingent Deferred Sales Charge ("CDSC") on Class A
and Class C shares are paid to the Distributor and are used to defray the
expenses for services that it provides the Trust. Proceeds from the CDSC on
Class B shares are paid to New England Funds, L.P. and are remitted to FEP
Capital, L.P. to compensate FEP Capital, L.P. for financing the sale of Class B
shares pursuant to certain Class B financing and servicing agreements between
the Distributor and FEP Capital, L.P.
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 certified securities and cash belonging
to each Fund and, in such capacity, is the registered owner of securities in
book-entry form belonging to each Fund. Upon instruction, State Street Bank
receives and delivers cash and securities of each of the Funds in connection
with Fund transactions and collects all dividends and other distributions made
with respect to 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 each Fund on a daily basis.
INDEPENDENT ACCOUNTANTS
The Trust's independent accountants are PricewaterhouseCoopers, LLP,
160 Federal Street, Boston, Massachusetts, 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 Funds and New England Funds, L.P.,
New England Funds, L.P. acts as shareholder servicing and transfer agent for the
Funds and is responsible for services in connection with the establishment,
maintenance and recording of shareholder accounts, including all related tax and
other reporting requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Funds' shares. The Funds
pay an annual per-account fee to New England Funds, L.P. for these services in
the amount of $[ ], which fees are anticipated to be assumed by the Portfolios
pursuant to the Service Agreement. New England Funds, L.P. has subcontracted
with State Street Bank for it to provide, through its subsidiary, Boston
Financial Data Services, Inc. ("BFDS"), transaction processing, mail and other
services. For these services, New England Funds, L.P. pays BFDS a monthly per
account fee of $[ ].
In addition, New England Funds, L.P. performs certain accounting and
administrative services for the Funds. Each Fund reimburses, subject to the
Service Agreement, New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting, and financial reporting
functions and clerical functions relating to the Fund, (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, registration of shares in various states, shareholder reports
and notices, proxy solicitation material furnished to shareholders of the Fund
or regulatory authorities and reports and questionnaires for SEC compliance.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
Each Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. Purchases and
sales are made for each Fund whenever necessary, in management's opinion, to
meet that Fund's objective. Each Fund expects to have an annual portfolio
turnover rate not exceeding 20% for its initial fiscal year. The portfolio
turnover rate for each Portfolio's last fiscal year were as follows: 43% for The
Oakmark Fund, 46% for The Oakmark Equity and Income Fund, 56% for The Oakmark
Select Fund, 34% for The Oakmark Small Cap Fund, 211% for the Loomis Sayles
Small Cap Growth Fund and 41% for the Loomis Sayles Bond Fund.
BROKERAGE TRANSACTIONS
FOR PORTFOLIOS ADVISED BY HARRIS ASSOCIATES:
In placing orders for the purchase and sale of portfolio securities for
its Portfolios, Harris Associates 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 Harris Associates, a more favorable execution can be obtained by
carrying out such transactions through other brokers or dealers.
Harris Associates 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. Harris Associates
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 Harris Associates 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 Harris Associates' expenses. Such services may be used by Harris
Associates in servicing other client accounts and in some cases may not be used
with respect to the Portfolios. Consistent with the Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
Harris Associates may, however, consider purchases of shares of the Portfolios
by customers of broker-dealers as a factor in the selection of broker-dealers to
execute Portfolio transactions.
Harris Associates may cause its Portfolios to pay a broker-dealer that
provides brokerage and research services to Harris Associates an amount of
commission for effecting a securities transaction for the Portfolio in excess of
the amount another broker-dealer would have charged for effecting that
transaction. Harris Associates 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 Harris Associates' overall responsibilities to the
Portfolios and its other clients. Harris Associates' authority to cause the
Portfolios to pay such greater commissions is also subject to such policies as
the trustees of the Trusts may adopt from time to time.
FOR THE PORTFOLIOS ADVISED BY LOOMIS SAYLES:
In placing orders for the purchase and sale of portfolio securities for
each Portfolio, Loomis Sayles always seeks the best price and execution.
Transactions in unlisted securities are carried out through broker-dealers who
make the primary market for such securities unless, in the judgment of Loomis
Sayles, a more favorable price can be obtained by carrying out such transactions
through other brokers or dealers.
Loomis Sayles 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 price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commissions will be paid. However, the
commissions are believed to be competitive with generally prevailing rates.
Loomis Sayles will use its best efforts to obtain information as to the general
level of commission rates being charged by the brokerage community from time to
time and will evaluate the overall reasonableness of brokerage commissions paid
on transactions by reference to such data. In making such evaluation, all
factors affecting liquidity and execution of the order, as well as the amount of
the capital commitment by the broker in connection with the order, are taken
into account. The Portfolios will not pay a broker a commission at a higher rate
than otherwise available for the same transaction in recognition of the value of
research services provided by the broker or in recognition of the value of any
other services provided by the broker which do not contribute to the best price
and execution of the transaction.
Receipt of research services from brokers may sometimes be a factor in
selecting a broker which Loomis Sayles believes will provide best price and
execution for a transaction. These research 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 Loomis Sayles' expenses. Such services may be
used by Loomis Sayles in servicing other client accounts and in some cases may
not be used with respect to the Portfolios. Receipt of services or products
other than research from brokers is not a factor in the selection of brokers.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
- --------------------------------------------------------------------------------
New England Funds Trust III is organized as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and Declaration of Trust
(the "Declaration of Trust") dated August 22, 1995, and is a "series" company as
described in Section 18(f)(2) of the 1940 Act. The Trust has eight separate
Funds. Each Fund currently offers three classes of shares. The Funds in the
Trust other than the Funds are New England Bullseye Fund and New England Equity
Income Fund.
The Declaration of Trust of New England Funds Trust III currently
permits the Trust's Board of Trustees to issue an unlimited number of full and
fractional shares of each series. Each Fund is represented by a particular
series of shares. The Declaration of Trust further permits the Trust's Board of
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 Board of Trustees may determine. The shares of each Fund
are freely transferable shares of a beneficial interest of the Fund and do not
have any preemptive rights. Upon termination of any Fund, whether pursuant to
liquidation of the Trust or otherwise, shareholders of each class of the Fund
are entitled to share pro rata in the net assets attributable to that class of
shares of the Fund available for distribution to shareholders. The Declaration
of Trust also permits the Trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The shares of all the Funds are divided into three classes, Class A,
Class B and Class C. Each Fund offers such classes of shares as set forth in
such Fund's Prospectus. Absent the Service Agreement, all expenses of each Fund
(excluding transfer agency fees and expenses of printing and mailing
Prospectuses to shareholders ("Other Expenses")) would be borne by its Class A,
B and C shares on a pro rata basis. The Class A, Class B and Class C structure
could be terminated should certain applicable IRS rulings be rescinded.
The assets received by each class of a Fund for the issue or sale of
its shares and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of the creditors, are allocated to, and constitute
the underlying assets of, that class of a Fund. The underlying assets of each
class of a Fund are segregated and are charged, absent the Service Agreement,
with the expenses with respect to that class of a Fund and with a share of the
general expenses of the Trust. Any general expenses of the Trust that are not
readily identifiable as belonging to a particular class of a Fund are allocated
by or under the direction of the Trust's Board of Trustees in such manner as it
determines to be fair and equitable. While the expenses of the Trust are
allocated to the separate books of account of each Fund, certain expenses may be
legally chargeable against the assets of all of the Funds in the Trust.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series or class of shares 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, 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 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of Trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreement relating to that series, and shareholders of each
class within a series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the purpose of
electing Trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of Trustees at such time as
less than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may 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 a Fund's name or to cure technical problems in the
Declaration of Trust, (ii) to establish and designate new series or classes of
Trust shares and (iii) to establish, designate or modify new and existing series
or classes of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and require 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
each Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund by reason of owning shares of such Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and a Fund itself would be unable to meet
its obligations.
The Declaration of Trust further provides that the board of Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The by-laws of the Trust provide for
indemnification by the Trust of Trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
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HOW TO BUY SHARES
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The procedures for purchasing shares of the Funds are summarized in the
Prospectus. Banks may charge a fee for transmitting funds by wire. With respect
to shares purchased by federal funds, shareholders should bear in mind that wire
transfers may take two or more hours to complete.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange (the
"Exchange") on a day when the Exchange is open; otherwise the settlement date is
the following business day. For telephone orders, the settlement date is the
third business day after the order is made.
Shares may also be purchased either in writing, by wire 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. You may also use New
England Funds Personal Access Line(TM) (800-346-5984) or New England Funds
website (www.mutualfunds.com) to purchase Fund shares.
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of a Fund's Class A, B and C shares. Payment must be
received by 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.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
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The method for determining the public offering price and net asset
value per share is summarized in the Prospectus.
The net asset value of Fund shares is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of a Fund, less
all liabilities, by the total number of shares outstanding.
The net asset value of each Portfolio is determined based upon the
nature of the securities as set forth in the prospectus and statement of
additional information of such Portfolio. Shares of each Portfolio in which a
Fund may invest are valued at the net asset value per share of each Portfolio as
of the close of regular trading on the Exchange on each day the Exchange is open
for trading. The net asset value per share of the Underlying Portfolios will be
calculated and reported to a Fund by each Underlying Portfolio's accounting
agent.
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REDUCED SALES CHARGES
Class A Shares Only
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Special purchase plans are summarized in the text of the Prospectus.
CUMULATIVE PURCHASE DISCOUNT. A Fund shareholder may make an initial or
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 "How Sales Charges are Calculated-Class
A shares" in the Prospectus. The total investment is determined by adding the
amount of the additional purchase, including sales charge, to the current public
offering price of all series and classes of shares of the New England 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 or other of the New
England Funds with a value at the current public offering price of $30,000 makes
an additional purchase of $20,000 of Class A shares of another Fund or New
England 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 by the Distributor, or, if communicated by
a telephone exchange or order, at the date of telephoning provided a signed
Letter, in good order, reaches the Distributor within five business days.
A reduced sales charge is available for aggregate purchases of all
series and classes of shares of the Trusts pursuant to a written Letter effected
within 90 days after any purchase. In the event the account was established
prior to 90 days before the Letter effective date, the account will be credited
with the 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 dates 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 ACCOUNTS. Purchases of all series and classes of the New
England Funds by or for an investor, the investor's spouse, parents, children,
siblings, in-laws, grandparents or grandchildren and any other account of the
investor, including sole proprietorships, in any 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. Any other group of individuals acceptable to
the Distributor may also combine accounts for such purpose. The vale of all
accounts are combined to determine the sales charge.
COMBINING WITH OTHER SERIES AND CLASSES OF THE NEW ENGLAND FUNDS. A
shareholder's total investment for purposes of the cumulative purchase discount
includes the value at the current public offering price of any shares of series
and classes of the Trusts that the shareholder owns (which excludes shares of
New England Cash Management Trust and New England Tax Exempt Money Market Trust
(the "Money Market Funds") unless such shares were purchased by exchanging
shares of 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 may be invested in Class A shares of any Fund at a reduced sales
charge of 1.50% of the public offering price (or 1.52% of the net amount
invested); for large purchases on which a sales charge of less than 1.50% would
ordinarily apply, such lower charge also applies to investments of unit
investment trust distributions.
CLIENTS OF ADVISERS OR SUBADVISERS. No sales charge or contingent
deferred sales charge applies to investments of $25,000 or more in Class A
shares of the Funds by (1) clients of an adviser or subadviser to any series of
the Trusts; any director, officer or partner of a client of an adviser or
subadviser to any series of the Trusts; and the spouse, parents, children,
siblings, in-laws, grandparents or grandchildren of the foregoing; (2) any
individual who is a participant in a Keogh or IRA Plan under a prototype of an
adviser or subadviser to 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 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 Funds by any of the Trusts' advisers or subadvisers, New England
Funds, L.P. or any other company affiliated with New England Life Insurance
Company ("NELICO") or Metropolitan Life Insurance Company ("MetLife"); current
and former directors and Trustees of the Trusts; 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 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
plans 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 any
Fund by any state, county or city or any instrumentality, department, authority
or agency thereof that has determined that a Fund is a legally permissible
investment and that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered investment company.
INVESTMENT ADVISORY ACCOUNTS. Shares of any Fund may be purchased at
net asset value by investment advisers, financial planners or other
intermediaries who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
clients of such investment advisers, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary on
the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the Code
and "rabbi trusts." Investors may be charged a fee if they effect transactions
through a broker or agent.
CERTAIN BROKER-DEALERS AND FINANCIAL SERVICES ORGANIZATIONS. Shares of
any Fund also may be purchased at net asset value through certain broker-dealers
and/or financial services organizations without any transaction fee. Such
organizations may receive compensation based upon the average value of the Fund
shares held by their customers. This compensation may be paid by NEFM, Loomis
Sayles and/or Harris Associates out of its own assets, and/or be paid indirectly
by the Fund in the form of servicing, distribution or transfer agent fees.
CERTAIN RETIREMENT PLANS. Shares of the Funds 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. This compensation may be paid indirectly by the Fund in the form of
service and/or distribution fees.
BANK TRUST DEPARTMENTS OR TRUST COMPANIES. Shares of the Funds are
available at net asset value for investments by non-discretionary and
non-retirement accounts of bank trust departments or trust companies, but are
unavailable if the trust department or institution is part of an organization
not principally engaged in banking or trust activities.
SHAREHOLDERS OF REICH AND TANG GOVERNMENT SECURITIES TRUST.
Shareholders of Reich and Tang Government Securities Trust may exchange their
shares of that fund for Class A shares of the Funds at net asset value and
without imposition of a sales charge.
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SHAREHOLDER SERVICES
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OPEN ACCOUNTS
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each financial
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. The Distributor may charge a
fee for providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and delivery of
stock certificates unnecessary, eliminates problems of handling and safekeeping,
and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.
The costs of maintaining the open account system are paid by the
Portfolios under the Service Agreement and no direct charges are made to
shareholders. Although the Funds have no present intention of making such direct
charges to shareholders, they each reserve the right to do so. Shareholders will
receive prior notice before any such charges are made.
AUTOMATIC INVESTMENT PLANS (CLASS A, B AND C SHARES)
Subject to each Fund's investor eligibility requirements, investors may
automatically invest in additional shares of a Fund on a monthly basis by
authorizing New England Funds, L.P. to draw checks on an investor's bank
account. The checks are drawn under the Investment Builder Program, a program
designed to facilitate such periodic payments, and are forwarded to New England
Funds, L.P. for investment in the Fund. A plan may be opened with an initial
investment of $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 800-225-5478 or your investment dealer.
The Investment Builder Program is voluntary and may be terminated at
any time by the Distributor upon notice to existing plan participants or at any
time by the investor by written notice to the Distributor, 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
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the Funds or with certain
other investments. The plans include H.R. 10 (Keogh) plans for self-employed
individuals and partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans, and retirement
plans for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the Prospectus. For these plans, initial
investments in a Fund must be at least $250 for each participant in corporate
pension and profit sharing plans and Keogh plans, and $100 for 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 a Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and as to the eligibility requirements for a specific plan and its
state as well as federal tax aspects.
SYSTEMATIC WITHDRAWAL PLANS
An investor owning a Fund's shares having a value of $5,000 or more at
the current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or, to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in your account. No CDSC applies to a redemption pursuant to
the Plan.
All shares under the Plan must be held in an open (uncertified)
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, a
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The
Funds and New England Funds, L.P. make no recommendations or representations in
this regard. It may be appropriate for a shareholder to consult a tax adviser
before establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a regular
basis additional Fund shares with a sales charge while redeeming shares under a
Systematic Withdrawal Plan. Accordingly, the Funds and New England Funds, L.P.
do not recommend additional investments in Class A shares by a shareholder who
has a withdrawal plan in effect and who would be subject to a sales load on such
additional investments.
Because of statutory restrictions, this plan is not available to
pension or profit-sharing plans, IRAs or 403(b) plans that have State Street
Bank as trustee.
EXCHANGE PRIVILEGE
A shareholder may exchange the shares of any Fund for shares of the
same class of any other New England Fund (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. When an exchange is made from the Class B shares of one Fund to the
Class B shares of another New England Fund, the shares received in exchange will
have the same age characteristics as the shares exchanged. The age of the shares
determines the expiration of the CDSC and the conversion date. If you own Class
A or Class B shares, you may also elect to exchange your shares of any Fund for
shares of the same class of the Money Market Funds. Class C shares may also be
exchanged for Class A shares of the Money Market Funds. On all exchanges of
Class A shares subject to a CDSC and Class B shares into the Money Market Funds,
the exchange stops the aging period relating to the CDSC and, for Class B shares
only, conversion to Class A shares. The aging resumes only when an exchange is
made back into Class B shares of a New England Fund. These options are
summarized in the Prospectus. An exchange may be effected, provided that neither
the registered name nor address of the accounts are different and provided that
a certificate representing the shares being exchanged has not been issued to the
shareholder, by (1) a telephone request to New England Funds, L.P. at
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 New England Fund before an exchange for that Fund can be
effected. For federal income tax purposes, an exchange is treated as a sale of
shares, and, therefore, would be considered a taxable event on which you may
realize 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.
The investment objectives of the New England Funds 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 EQUITY INCOME FUND seeks current income and capital growth.
NEW ENGLAND BULLSEYE FUND seeks long-term growth of capital.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND SHORT TERM CORPORATE INCOME FUND (FORMERLY NEW ENGLAND
ADJUSTABLE RATE U.S. GOVERNMENT FUND) seeks a high level of current income
consistent with preservation of capital.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with the
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what Back Bay Advisors, the Fund's subadviser, considers
reasonable risk. The Bond Income Fund invests primarily in corporate and U.S.
Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of
current income exempt from federal income tax and Massachusetts personal income
taxes as Back Bay Advisors, the Fund's subadviser, believes is consistent with
preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high
a level of current income exempt from federal income tax and its state personal
income tax as is consistent with preservation of capital.
NEW ENGLAND TAX FREE INCOME FUND OF NEW YORK (FORMERLY NEW ENGLAND
INTERMEDIATE TAX FREE FUND OF NEW YORK) seeks as high a level of current income
exempt from federal income tax and its state personal income tax and New York
City personal income tax as is consistent with preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST -MONEY MARKET SERIES--maximum current
income consistent with preservation of capital and liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST- current income exempt from
federal income taxes consistent with preservation of capital and liquidity.
AUTOMATIC EXCHANGE PLAN (CLASS A, B AND C SHARES)
As described in the Prospectus in the "Additional Investor Services"
section, a shareholder may establish an Automatic Exchange Plan under which
shares of a Fund are automatically exchanged each month for shares of the same
class of one or more of the other New England Funds. Registration on all
accounts must be identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business day until the
account is exhausted or until New England Funds, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $100 or over. The
Service Options Form is available from New England Funds, L.P. or your financial
representative to establish an Automatic Exchange Plan.
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REDEMPTIONS
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The procedures for redemption of shares of a Fund are summarized in the
Prospectus. As described in the Prospectus, a CDSC may be imposed on certain
purchases of Class A, Class B, and Class C shares. For purposes of the CDSC, an
exchange of shares from one Fund to another Fund 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 A, 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 and Class A shares subject to CDSC, it will be
assumed that the redemption is first of any shares that have been in the
shareholder's Fund account for over a year, and second of any share 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 net 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).
For Class B shares purchased prior to May 1, 1997, the CDSC will be
calculated as follows: 4% if redemption occurs within the first year, 3% if
redemption occurs within the second or third year, 2% if redemption occurs
within the fourth year, 1% if redemption occurs within the 5th year and no CDSC
for redemptions after the fifth year. Class C shares purchased prior to March 1,
1998 are not subject to CDSC on redemption.
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the 1934 Act, as
amended. However, a signature guarantee will not be required if the proceeds of
the redemption do not exceed $100,000 and the proceeds check is made payable to
the registered owner(s) and mailed to the record address.
If you select the telephone redemption service in the manner described
in the next paragraph, shares of a Fund may be redeemed by calling toll free
800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds.
Telephone redemption requests must be received by the close of regular trading
on the Exchange. Requests made after that time or on a day when the Exchange is
not open for business cannot be accepted and a new request on a later day will
be necessary. The proceeds of a telephone withdrawal will normally be sent on
the first business day following receipt of a proper redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form, available from your investment dealer.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Funds reserve the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59 1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not be exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59 1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Internal Revenue Code of 1986, as amended (the "Code"), including profit
sharing plans, money purchase plans, 401(k) and custodial accounts under Section
403(b)(7) of the Code. Distributions necessary to pay plan participants and
beneficiaries include payment made due to death, disability, separation from
service, normal or early retirement as defined in the plan document, loans from
the plan and hardship withdrawals, return of excess contributions, required
minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not to exceed 10% annually of the value of your account, and
redemptions made from qualified retirement accounts or Section 403(b)(7)
custodial accounts necessary to pay custodial fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
New England Funds, including IRA and 403(b)(7) participant-directed transfers of
assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
The Funds will normally redeem shares for cash; however, the Funds
reserve the right to pay the redemption price wholly or partly in kind if the
Trust's board of Trustees determines it to be advisable and in the interest of
the remaining shareholders of a Fund. If portfolio securities are distributed in
lieu of cash, the shareholder may incur fees upon subsequent disposition of any
such securities. Securities distributed by a Fund in kind will be selected by
the adviser or subadviser 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. The Funds do not currently intend to impose any redemption charge
(other than the CDSC imposed by the Funds' distributor), although they reserve
the right to charge a fee not exceeding 1% of the redemption price. A redemption
constitutes a sale of shares for federal income tax purposes on which the
investor may realize a long- or short-term capital gain or loss. See also
"Income Dividends, Capital Gain Distributions and Tax Status," below.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY)
The 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 Funds should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
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STANDARD PERFORMANCE MEASURES
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CALCULATIONS OF YIELD. Each Fund may advertise the yield of its Class
A, Class B and Class C shares. Yield for each class will be computed by
annualizing net investment income per share for a recent 30-day period and
dividing that amount by the maximum offering price per share of the relevant
class (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed-income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. Each Fund's yield will vary from time to
time depending upon market conditions, the composition of its portfolio and
operating expenses of the Trust allocated to each Fund. These factors, possible
differences in the methods used in calculating yield and the tax exempt status
of distributions should be considered when comparing a Fund's yield to yields
published for other investment companies and other investment vehicles. Yield
should also be considered relative to changes in the value of the Fund's shares
and to the relative risks associated with the investment objectives and policies
of the Fund. Yields do not take into account any applicable sales charges or
CDSC. Yield may be stated with or without giving effect to any expense
limitations in effect for a Fund.
At any time in the future, yields and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Funds are specifically advised that share prices,
expressed as the net asset values per share, will vary just as yield will vary.
An investor's focus on the yield of a Fund to the exclusion of the consideration
of the share price of that Fund may result in the investor's misunderstanding
the total return he or she may derive from the Fund.
CALCULATION OF TOTAL RETURN. Total return is a measure of the change in
value of an investment in a Fund over the period covered, which assumes that any
dividends or capital gains distributions are automatically reinvested in shares
of the same class of that Fund rather than paid to the investor in cash. The
formula for total return used by the Funds is prescribed by the SEC and includes
three steps: (1) adding to the total number of shares of the particular class
that would be purchased by a hypothetical $1,000 investment in the Fund (with or
without giving effect to the deduction of sales charge or CDSC, if applicable)
all additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total of shares owned at the end of
the period by the net asset value per share of the relevant class on the last
trading day of the period; (3) dividing this account value for the hypothetical
investor by the amount of the initial investment, and annualizing the result for
periods of less than one year. Total return may be stated with or without giving
effect to any expense limitations in effect for a Fund.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Yields and total returns will generally be
higher for Class A shares than for Class B and Class C shares of the same Fund,
because of the higher levels of expenses borne by the Class B and Class C
shares. The Funds may from time to time include their yield and total return in
advertisements or in information furnished to present or prospective
shareholders. The Funds may from time to time include in advertisements its
total return and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having similar investment objectives.
Total return may also be used to compare the performance of the Fund
against certain widely acknowledged standards or indices for stock and bond
market performance or against the U.S. Bureau of Labor Statistics' Consumer
Price Index.
The 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 __ industrial, ____
transportation, ___ financial services concerns and ___ utilities. The S&P 500
represents about _____ (as of , 1998) of the market value of all issues traded
on the New York Stock Exchange.
The S & P MidCap 400 Index consists of 400 domestic stocks chosen for
market size, liquidity, and industry group representation. It is also a
market-value weighted index and was the first benchmark of midcap stock price
movement.
The S & P SmallCap 600 Index consists of 600 domestic stocks chosen for
market size, liquidity, (bid-asked spread, ownership, share turnover and number
of no trade days) and industry group representation. It is a market-value
weighted index (stock price times the number of shares outstanding), with each
stock's weight in the Index proportionate to its market value.
The Salomon Brothers World Government Bond Index includes a broad range
of institutionally-traded fixed-rate government securities issued by the
national governments of the nine countries whose securities are most actively
traded. The index generally excludes floating- or variable-rate bonds,
securities aimed principally at non-institutional investors (such as U.S.
Savings Bonds) and private-placement type securities.
The Lehman Government Bond Index (the "Lehman Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted issues
are not included in the Lehman Government Index.
The Lehman Government/Corporate Bond Index (the "Lehman
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the Lehman Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rated
agency.
The Lehman Brothers Municipal Bond Index is a composite measure of the
total return performance of the municipal bond market. This index is computed
from prices on approximate _____ bonds.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The Merrill Lynch High Yield Index includes over ___ issues and
represents public debt greater than $10 million (original issuance rated BBB/BB
and below), and the First Boston High Yield Index includes over ____issues and
represents all public debt greater than $100 million (original issuance and
rated BBB/BB and below).
The Salomon Brothers Broad Investment Grade Bond Index is a price
composite of a broad range of institutionally based U.S. Government
mortgage-backed and corporate debt securities of investment outstanding of at
least $1 million and with a remaining period to maturity of at least one year.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the prices of
goods and services in major expenditure groups.
Lipper Analytical Services, Inc. is an independent service that
monitors the performance of over ____ 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 3000 Index is a capitalization-weighted index, which
comprises 3,000 of the largest capitalized U.S. companies whose common stock is
traded on the New York Stock Exchange, the American Stock Exchange and the
NASDAQ Stock Market, by market capitalizations. The Russell 2000 Index
represents the top 2,000 stocks traded on the New York Stock Exchange, American
Stock Exchange and The Nasdaq Stock Market, by market capitalizations.
The Morgan Stanley Capital International Europe, Australia 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, Australia 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.
Articles and releases, developed by the Funds and other parties, about
the Funds regarding performance, rankings, statistics and analyses of the
individual Funds' and the fund group's asset levels and sales volumes, numbers
of shareholders by Fund or in the aggregate for New England Funds, statistics
and analyses of industry sales volumes and asset levels, and other
characteristics may appear in advertising, promotional literature, publications,
including, but not limited to, those publications listed in Appendix B to this
Statement, and on various computer networks, for example, the Internet. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including, 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
Funds' advertising and promotional literature, see Appendix C.
The Funds may use the accumulation charts below in their advertisements
to demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
------ ------ ------- ------- ------- -------
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
------ ------ ------- ------- ------- -------
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Funds' advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the New England Funds. The Funds' advertising and sales literature may
include historical and current performance and total returns of investment
alternatives to the New England Funds. Articles, releases, advertising and
literature may discuss the range of services offered by the Trust and New
England Funds, L.P., as distributor and transfer agent of the Funds, with
respect to investing in shares of the Funds and customer service. Such materials
may discuss the multiple classes of shares available through the Trust 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 rates including, but not limited to
Dalbar's Quality Tested Service Seal and Key Honors Award. Such reference may
explain the criteria for the award, indicate the nature and significance of the
honor and provide statistical and other information about the award and New
England Funds, L.P.'s selection including, but not limited to, the scores and
categories in which New England Funds, L.P. excelled, the names of funds and
fund companies that have previously won the award and comparative information
and data about those against whom New England Funds, L.P. competed for the
award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in its
advertising and sales literature testimonials from shareholders, clients,
brokers who sell or own shares, broker-dealers, industry organizations and
officials and other members of the public, including, but not limited to, fund
performance, features and attributes, or service and assistance provided by
departments within the organization, employees or associates of New England
Funds, L.P.
Advertising and sales literature may also refer to the beta coefficient
of the New England Funds. A beta coefficient is a measure of systematic or
undiversifiable risk of a stock. A beta coefficient of more than 1 means that
the company's stock has shown more volatility than the market index (e.g., the
S&P 500) to which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If it equals 1,
its risk is the same as the market index. High variability in stock price may
indicate greater business risk, instability in operations and low quality of
earnings. The beta coefficients of the New England Funds may be compared to the
beta coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
broker-dealer registration under the 1934 Act. 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 Funds. The material may identify
the bank by name and discuss the history of the bank including, but not limited
to, the type of bank, its asset size, the nature of its business and services
and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Funds' prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
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INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
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As described in the Prospectus, it is the policy of each Fund to pay
its shareholders, as dividends, substantially all net investment income and net
short-term capital gains and to distribute annually all net realized long-term
capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full and
fractional shares of the relevant class of the particular Fund based upon the
net asset value determined as of the close of business on the Exchange on the
record date for each dividend or distribution. Shareholders, however, may elect
to receive their income dividends or capital gain distributions, or both, in
cash. The election may be made at any time by submitting a written request
directly to New England Funds, L.P. In order for a change to be in effect for
any dividend or distribution, it must be received by New England Funds, L.P. on
or before the record date for such dividend or distribution. 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 dividend
or redemption checks.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify, each Fund must,
among other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from 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 and cash items, including receivables, U.S. Government Securities,
securities of other regulated investment companies, and other securities limited
generally, with respect to any one 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 is invested in the
securities (other than U.S. Government Securities or securities of 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, a Fund generally will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gains
distributions.
If a Fund failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the Fund would be subject to tax on
its taxable income at corporate rates, and all distributions from earnings and
profits, including any distributions of net tax-exempt income and net long-term
capital gains, would be taxable to shareholders as ordinary income. In addition,
the Fund could be required to recognize unrealized gains, pay substantial taxes
and interest and make substantial distributions before requalifying as a
regulated investment company that is accorded special tax treatment.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund is so permitted to elect and so elects) plus undistributed amounts from
prior years. Each Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Distributions declared by a Fund during October,
November or December to shareholders of record on a date in any such month and
paid by the Fund during the following January will be treated for federal tax
purposes as paid by the Fund and received by shareholders on December 31 of the
year in which declared.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by each Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. If an Portfolio
derives dividends from domestic corporations, a portion of the dividends paid by
a Fund that invests in the Portfolio may qualify for the deduction for dividends
received by corporations. Properly designated distributions of long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of the Fund. A loss on
the sale of shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain dividends paid to the
shareholder with respect to such shares.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
If a Fund were to choose to invest in more than one Portfolio, a Fund
would not be able to offset gains realized by one Portfolio in which such Fund
invests against losses realized by another Portfolio in which such Fund invests.
The Fund's use of a fund of funds structure could therefore adversely affect the
amount, timing and character of distributions to shareholders.
Income received by a Portfolio from sources within a foreign country
may be subject to withholding and other taxes imposed by that country. If more
than 50% of the value of an Underlying Portfolio's total assets at the close of
its taxable year consists of stock or securities of foreign corporations, the
Portfolio will be eligible and may elect to "pass-through" to its shareholders,
including a Fund, the amount of foreign income and similar taxes paid by the
Portfolio. Pursuant to this election, the Fund would be required to include in
gross income (in addition to taxable dividends actually received) its pro rata
share of the foreign income and similar taxes paid by the Portfolio, and would
be entitled either to deduct its pro rata share of foreign income and similar
taxes in computing its taxable income or to use it as a foreign tax credit
against its U.S. federal income taxes, subject to limitations. The Fund would
not, however, be eligible to elect to "pass-through" to its shareholders the
ability to claim a deduction or credit with respect to foreign income and
similar taxes paid by the Portfolio.
Each Portfolio's transactions, if any, in foreign currencies are likely
to result in a difference between the Portfolio's book income and taxable
income. This difference may cause a portion of the Portfolio's income
distributions to constitute a return of capital gain for tax purposes or require
the Portfolio's to make distributions exceeding book income to avoid excise tax
liability and to qualify as a regulated investment company.
A Fund may receive exempt-interest dividends from its investment in a
Portfolio. The Fund is not, however, eligible to "pass-through" to its
shareholders such tax-exempt income since it holds share only of a Portfolio.
Redemptions and exchanges of each Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions.
Currently, if shares have been held for more than one year, gain or loss
realized will be taxed at long-term federal tax rates (generally 20% for
noncorporate shareholders), provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the same Fund within 30
days prior to the sale of the loss shares or 30 days after such sale. In some
cases, shareholders will not be permitted to take sales charges into account for
purposes of determining the amount of gain or loss realized on the disposition
of their Fund shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the shares, (2) the shares are
disposed of before the 91st day after the date on which they were acquired, and
(3) the shareholder subsequently acquires shares of the same or another Fund or
fund and the otherwise applicable sales charge is reduced under a "reinvestment
right" received upon the initial purchase of shares. The term "reinvestment
right" means any right to acquire stock of one or more funds (including a Fund)
without the payment of a sales charge or with the payment of a reduced sales
charge. Sales charges affected by this rule are treated as if they were incurred
with respect to the shares acquired under the reinvestment right. This provision
may be applied to successive acquisitions of Fund shares.
Each Fund may be required to withhold U.S. federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
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 a 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).
Each Portfolio intends to qualify annually and elects to be treated as
a regulated investment company under the Code. In any year in which a Portfolio
qualifies as a regulated investment company and timely distributes all of its
taxable income, the Portfolio generally will not pay any federal income or
excise tax.
Distributions of an Portfolio's ordinary income and net short-term
capital gains are treated as ordinary income by a Fund that invests in the
Portfolio. Properly designated distributions of an Portfolio's net long-term
capital gains are treated as long-term capital gain by a Fund that invests in
the Portfolio, regardless of how long the Fund held the Portfolio's shares.
Depending on a Fund's percentage ownership in a Portfolio both before
and after a redemption, a Fund's redemption of shares of such Portfolio may
cause the Fund to be treated as not receiving capital gain income on the amount
by which the distribution exceeds the Fund's tax basis in the shares of the
Portfolio, but instead to be treated as receiving a dividend taxable as ordinary
income on the full amount of the distribution. This could cause shareholders of
the Fund to recognize higher amounts of ordinary income than if the shareholders
had held the shares of the Portfolio directly.
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MISCELLANEOUS INVESTMENT PRACTICES OF THE PORTFOLIOS
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HARRIS ASSOCIATES
The following information relates to certain investment practices in
which certain Portfolios advised by Harris Associates may engage:
EQUITY SECURITIES
The equity securities in which each Fund may invest include common and
preferred stocks and warrants or other similar rights and convertible
securities. The chief consideration in the selection of equity securities for
each Fund is the size of the discount of Harris Associates' market price
relative to the economic value of the security as determined by Harris
Associates investment philosophy for those investments is predicated on the
belief that over time market price and value converge and that investment in
securities priced significantly below long-term value presents the best
opportunity to achieve long-term capital appreciation.
Harris Associates uses several qualitative and quantitative methods in
analyzing economic value, but considers the primary determinant of value to be
the enterprise's long-run ability to generate cash for its owners. Once Harris
Associates has determine that a security is undervalued, it will consider it for
purchase by a Portfolio, taking into account the quality and motivation of the
management, the firm's market position within its industry and its degree of
pricing power. Harris Associates believes that the risks of equity investing are
often reduced if management's interests are strongly aligned with the interests
of its stockholders.
SMALL CAP COMPANIES
During some periods, the securities of small cap companies, as a class,
have performed better than the securities of large companies, and in some
periods they have performed worse. Stocks of small cap companies tend to be more
volatile and less liquid than stocks of large companies. Small cap companies, as
compared to larger companies, may have a shorter history of operations, may not
have as great an ability to raise additional capital, may have a less
diversified product line making them susceptible to market pressure, and may
have a smaller public market for their shares.
SECURITIES OF NON-U.S. ISSUERS
The Oakmark Fund and The Oakmark Select Fund each may invest up to 25%
of their assets, and The Oakmark Equity and Income Fund may invest up to 10% of
it's assets in securities of non-U.S. issuers. International investing permits
an investor to take advantage of the growth in markets outside the United
States. Investing in securities of non-U.S. issuers may entail a greater degree
of risk (including risks relating to exchange rate fluctuations, tax provisions,
or expropriation of assets) than does investment in securities of domestic
issuers. The Portfolios may invest in securities of non-U.S. issuers directly or
in the form of ADRs, European Depository Receipts (EDRs), Global Depositary
Receipts (GDRs), or other securities representing underlying shares of foreign
issuers. Positions in these securities are not necessarily denominated in the
same currency as the common stocks into which they may be converted. ADRs are
receipts typically issued by an American bank or trust company and trading in
U.S. markets evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. Generally ADRs, in
registered form, are designed for use the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets. GDRs are
receipts that may trade in U.S. or non-U.S. markets. The Portfolios may invest
in both "sponsored" and "unsponsored" ADRs, EDRs or GDRs. In a sponsored
depositary receipt, the issuer typically pays some or all of the expenses of the
depository and agrees to provide its regular shareholder communications to
depository receipt holders. An unsponsored depositary receipt is created
independently of the issuer of the underlying security. The depository receipt
holders generally pay the expenses of the depository and do not have an
undertaking from the issuer of the underlying security to furnish shareholder
communications.
With respect to portfolio securities of non-U.S. issuers or denominated
in foreign currencies, a Portfolio's investment performance is affected by the
strength or weakness of the U.S. dollar against these currencies. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions."
You should understand and consider carefully the risks involved in
international investing. Investing in securities of non-U.S. issuers, positions
which are generally denominated in foreign currencies, and utilization of
forward foreign currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically associated with investing
in U.S. securities. These considerations include: fluctuations in exchange rates
of foreign currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought back to the
United States; less public information with respect to issuers of securities;
different accounting, auditing and financial reporting standards; different
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; imposition of
foreign taxes; and sometimes less advantageous legal, operational and financial
protections applicable to foreign subcustodial arrangements.
Although the Portfolios try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation of assets, confiscatory taxation, seizure or nationalization of
foreign bank deposits or other assets, establishment of exchange controls, the
adoption of foreign government restrictions, or other adverse political, social
or diplomatic developments that could affect investment in these nations.
CURRENCY EXCHANGE TRANSACTIONS
The Portfolios may enter into currency exchange transactions either on
a spot (i.e. cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through a forward currency exchange
contract ("forward contract"). A forward contract is an agreement to purchase or
sell a specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are usually
entered into with banks, foreign exchange dealers or broker-dealers, are not
exchange traded and are usually less than one year but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a Portfolio may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. A Portfolio's currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of a Portfolio accruing in connection with
the purchase or sale or portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. When the Portfolio owns
or anticipated owning securities in countries whose currencies are linked, the
Adviser may aggregate such positions as to the currency hedged.
If a Portfolio enters into a forward contract hedging an anticipated
purchase of securities, liquid assets of the Portfolio, which may include
equities, debt obligations, U.S. Government Securities or cash, having a value
at least as great as the commitment under the forward contract will be
segregated on the books of the Portfolio marked to market daily, and held by the
Portfolio's custodian while contract is outstanding.
At the maturity of a forward contract to deliver a particular currency,
a Portfolio may either sell the portfolio security related to such contract and
make delivery of the currency, or it may retain the security and wither acquire
the currency on the spot market or terminate its contractual obligation to
deliver the currency by purchasing an offsetting contract with the same currency
trader obligating it to purchase on the same maturity date the same amount of
the currency.
It is impossible to forecast with absolute precision the market value
of securities at the expiration of a forward contract. Accordingly, it may be
necessary for a Portfolio to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Portfolio is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss to the extent
that there has been movement in forward contract prices. If the Portfolio
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the currency. Should forward prices decline the period
between the Portfolio's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Portfolio will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Portfolio will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. A default on the contract would deprive
the Portfolio of unrealized profits or force the Portfolio to cover its
commitments for purchase or sale of currency, if any, at the current market
price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Portfolio of engaging in currency exchange transactions varies with such factors
as the currency involved, the length of the contract period, and prevailing
market conditions. Since currency exchange transactions are usually conducted on
a principal basis, no fees or commissions are involved.
DEBT SECURITIES
Each Portfolio may invest in debt securities, including lower-rated
securities (i.e. securities rated BB or lower by S&P or Ba or lower by Moody's,
commonly called "junk bonds") and securities that are not rated. There are no
restrictions as to the ratings of debt securities acquired by a Portfolio the
portion of a Portfolio's assets that may be invested in debt securities in a
particular ratings category, except that The Oakmark Equity and Income Fund will
not invest more than 20% of its total assets in such securities, and each of the
other Portfolios will not invest more than 25% of its total assets in such
securities.
Securities rated BB or Baa are considered to be medium grade and to
have speculative characteristics. Lower-rated debt securities are predominately
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest
payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked price is likely to
increase significantly, and a Portfolio may have greater difficulty selling its
portfolio securities. See "Net Asset Value." The market value of these
securities and their liquidity may be affected by adverse publicity and investor
perceptions.
A description of the characteristics of bonds in each rating is
included in the appendix to this statement of additional information.
REPURCHASE AGREEMENTS
Each Portfolio may invest in repurchase agreements, which is a sale of
securities to a Portfolio with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price plus an amount
equal to an agreed-upon interest rate within a specified time. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Portfolio
could experience both delays in liquidating the underlying securities and
losses. No Portfolio may invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Portfolio may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest of these securities
are established at the time a Portfolio enters into the commitment, the
securities may be delivered and paid for a month or more after the date of
purchase, when their value may have changed. A Portfolio makes such commitments
only with the intention of actually acquiring the securities, but may sell the
securities before settlement date if the adviser deems it advisable for
investment reasons. A Portfolio may utilize spot and forward foreign currency
exchange transactions to reduce the risk inherent in fluctuations in the
exchange rate between one currency and another when securities are purchased or
sold on a when-issued or delayed-delivery basis.
At the time a Portfolio enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets of the Portfolio having a value
at least as great as the purchase price of the securities to be purchased will
be segregated on the books of the Portfolio and held by the custodian throughout
the period of the obligation. The use of these investment strategies, as well as
any borrowing by a Portfolio may increase net asset value fluctuation.
ILLIQUID SECURITIES
No Portfolio may invest in illiquid securities, if as a result such
securities would comprise more than 15% of the value of the Portfolio's assets.
If through the appreciation of illiquid securities or the depreciation
of illiquid securities the Portfolio should be in a position where more than 15%
of the value of its net assets are invested in illiquid assets, including
restricted securities, the Portfolio will take appropriate steps to protect
liquidity.
Illiquid securities may include restricted securities which may be sold
in privately negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities Act of 1933
("the 1933 Act"). Where a Portfolio holds restricted securities and registration
is required, the Portfolio may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the board of
Trustees.
Notwithstanding the above, each Portfolio purchase securities that,
although privately placed, are eligible for purchase and sale under Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Portfolios, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The adviser, under the
supervision of the Board of Trustees, may consider whether securities purchased
under Rule 144A are liquid and thus not subject to the Portfolio's restriction
of investing no more than 15% of its assets in illiquid securities. (See
restriction 13 under "Investment Restrictions of the Portfolios.") A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination the adviser will consider the trading markets
for the specific security taking into account the unregistered nature of a Rule
144A security. In addition, the adviser could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, (4) and the nature of the security and of market
place trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of a Portfolio's assets invested in illiquid
securities if qualified institutional buyers are willing to purchase such
securities.
OTHER INVESTMENT COMPANIES
Certain markets are closed in whole or in part to equity investments by
foreigners. A Portfolio may be able to invest in such markets solely or
primarily through governmentally authorized investment vehicles or companies.
Each Portfolio may invest up to 10% of its assets in the aggregate in shares of
other investment companies and up to 5% of its assets in any one investment
company, as long as no investment represents more than 3% of the outstanding
voting stock of the acquired investment company at the time of investment.
Investments in other investment companies may involve the payment of a
premium above the value of such issuers' portfolio securities, and is subject to
market availability. The Portfolios' Trust does not intend to invest in such
vehicles or funds unless, in the judgment of the Portfolio's adviser, the
potential benefits of the investment justify the payment of any applicable
premium or sales charge. As a shareholder in an investment company, a Portfolio
would bear its ratable share of that investment company's expenses, including
its advisor and administration fees. At the same time the portfolio would
continue to pay its own management fees and other expenses.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio except The Oakmark Fund may lend its Portfolio
securities to broker-dealers and banks to the extent indicated in the section
entitled "Investment Restrictions of the Portfolios" located in this Statement.
Any such loan must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least equal to the
market value of the securities loaned by a Portfolio. The Portfolio would
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned, and would also receive an additional return
that may be in the form of a fixed fee or a percentage of the collateral. The
Portfolio would have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. In the event of
bankruptcy or other default of the borrower, the Portfolio could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and losses including (a) possible decline in the value of the collateral or in
the value of the securities loaned during the period while the Portfolio seeks
to enforce its rights thereto, (b) possible subnormal levels of income and lack
of access to income during this period, and (c) expenses of enforcing its
rights.
PRIVATE PLACEMENTS
Each Portfolio may acquire securities in private placements. Because an
active trading market may not exist for such securities, the sale of such
securities may be subject to delay and additional costs. No Portfolio will
purchase such a security if more than 15% of the value of such Portfolio's net
assets would be invested in illiquid securities.
SHORT SALES
Each Portfolio may sell securities short against the box, that is (1)
enter into short sales of securities that it currently owns or has the right to
acquire through the conversion or exchange of other securities that it owns
without additional consideration; and (2) enter into arrangements with the
broker-dealers through which such securities are sold short to receive income
with respect to the proceeds of short sales during the period the Portfolio's
short positions remain open. A Portfolio may make short sales of securities only
if at all times when a short position is open the Portfolio owns at least an
equal amount of such securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issue
as, and equal in amount to, the securities sold short.
In a short sale against the box, a Portfolio does not deliver from its
portfolio the securities sold and does not receive immediately the proceeds from
the short sale. Instead, the Portfolio borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Portfolio, to the purchaser of such
securities. Such broker-dealer is entitled to retain the proceeds from the short
sale until the Portfolio delivers to such broker-dealer the securities sold
short. In addition, the Portfolio is required to pay to the broker-dealer the
amount of any dividends paid on shares sold short. Finally, to secure its
obligation to deliver to such broker-dealer the securities sold short, the
Portfolio must deposit and continuously maintain in a separate account with the
Portfolio's custodian an equivalent amount of the securities sold short or
securities convertible into or exchangeable for such securities without the
payment of additional consideration. A Portfolio is said to have a short
position in the securities sold until it delivers to the broker-dealer the
securities sold, at which time the Portfolio receives the proceeds of the sale.
A Portfolio may close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities sold short,
rather than by delivering portfolio securities.
Short sales may protect a Portfolio against the risk of losses in the
value of its portfolio securities because any unrealized losses with respect to
such portfolio securities should be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in such
portfolio securities should be wholly or partially offset by a corresponding
loss in the short position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to the amount the
Portfolio owns, either directly or indirectly, and, in the case where the
Portfolio owns convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time a
Portfolio replaces the borrowed security, the Portfolio will incur a loss and if
the price declines this period, the Portfolio will realize a short-term capital
gain. Any realized short-term capital gain will be decreased, and any incurred
loss increased, by the amount of transaction costs and any premium, dividend or
interest which the Portfolio may have to pay in connection with such short sale.
Certain provisions of the Code may limit the degree to which a Portfolio is able
to enter into short sales. There is no limitation on the amount of each
Portfolio's assets that, in the aggregate, may be deposited as collateral for
the obligation to replace securities borrowed to effect short sales and
allocated to segregated accounts in connection with short sales. No Portfolio
currently expects that more than 20% of its total assets would be involved in
short sales against the box.
OPTIONS
Each Portfolio may purchase both call options and put options on
securities. A call or put option is a contract that gives the Portfolio, in
return for a premium paid upon purchase of the option, the right during the term
of the option to buy from, or to sell to, the seller of the option the security
underlying the option at a specified exercise price. The option is valued
initially at the premium paid for the option. Thereafter, the value of the
option is marked-to-market daily. It is expected that a Portfolio will not
purchase a call option or a put option if the aggregate value of all call and
put options held by the Portfolio would exceed 5% of such Portfolio's assets.
TEMPORARY STRATEGIES
Each Portfolio has the flexibility to respond promptly to changes in
market and economic conditions. In the interest of preserving shareholders'
capital, the adviser may employ a temporary defensive strategy if it determines
such a strategy to be warranted. Pursuant to such a defensive strategy a
Portfolio temporarily may hold cash (U. S. dollars, foreign currencies, or
multinational currency units) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U. S. or foreign issuers.
It is impossible to predict whether, when or for how long a Portfolio will
employ defensive strategies.
In addition, pending investment of proceeds from new sales of Portfolio
shares or to meet ordinary daily cash needs, each Portfolio temporarily may hold
cash (U.S. dollars, foreign currencies or multinational currency units) and may
invest any portion of its assets in money instruments.
LOOMIS SAYLES
The following information relates to certain investment practices in which
certain Portfolios advised by Loomis Sayles may engage:
COMMON STOCKS AND OTHER EQUITY SECURITIES
Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of investment.
The value of an investment in a Portfolio that invests in equity securities may
sometimes decrease. Equity securities of companies with relatively small market
capitalization may be more volatile than the securities of larger, more
established companies and than the broad equity market indexes.
FOREIGN SECURITIES
Although investing in foreign securities may increase a Portfolio's
diversification and reduce portfolio volatility, foreign securities may present
risks not associated with investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than in the United States. 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. A
Fund's receipt of interest of foreign government securities may depend on the
availability of tax or other revenues to satisfy the issuer's obligations.
A Portfolio's investments in foreign securities may include investments
in countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement procedures.
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 a Portfolio investing in these
securities may be affected favorably or unfavorably by changes in currency
exchange rates, exchange control regulations or foreign withholding taxes.
Changes in the value relative to the U.S. dollar of a foreign currency in which
a Portfolio's holdings are denominated will result in a change in the U.S.
dollar value of the Portfolio's assets and the Portfolio's income available for
distribution.
In addition, although part of a Portfolio's income may be received or
realized in foreign currencies, the Portfolio 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 Portfolio's income has been
earned in that currency, translated into U.S. dollars and declared as a
dividend, but before payment of the dividend, the Portfolio could be required to
liquidate portfolio securities to pay the dividend. Similarly, if the value of a
currency relative to the U.S. dollar declines between the time the Portfolio
accrues 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 will be greater than
the equivalent amount in such currency of such expenses at the time they were
incurred.
In determining whether to invest assets of the Portfolios in securities
of a particular foreign issuer, Loomis Sayles will consider the likely effects
of foreign taxes on the net yield available to the Portfolio and its
shareholders. Compliance with foreign tax law may reduce a Portfolio's net
income available for distribution to shareholders.
DEBT AND OTHER FIXED INCOME SECURITIES
Fixed income securities pay a specified rate of interest or dividends,
or a rate that is adjusted periodically by reference to some specified index or
market rate. Fixed income securities include securities issued by federal,
state, local and foreign governments and related agencies, and by a wide range
of private issuers. Because interest rates vary, it is impossible to predict the
income of a portfolio that invests in fixed income securities for any
particular period. The net asset value of such a portfolio's shares will vary as
a result of changes in the value of the securities in the portfolio.
Fixed income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S.
Treasury, as well as securities issued or guaranteed by U.S. Government
agencies, authorities and instrumentalities, including, among others, the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Federal Housing
Administration, the Resolution Funding Corporation, the Federal Farm Credit
Banks, the Federal Home Loan Bank, the Tennessee Valley Authority, the Student
Loan Marketing Association and the Small Business Administration. More detailed
information about some of these categories of U.S. Government Securities
follows.
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 forty years, with
interest normally payable every six months. They 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 incurred 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 Government 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 of Ginnie Maes along with regular monthly payments of
principal and interest.
"Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers. Fannie
Maes are pass-through securities issued by FNMA that are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
"Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
is a corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
U.S. Government Securities generally do not involve the same 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 that 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.
MORTGAGE-BACKED SECURITIES
The Bond Fund may invest in mortgage-backed securities, such as GNMA or
Federal National Mortgage Association certificates, which differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans generally may
be prepaid at any time. As a result, if a Portfolio purchases these assets at a
premium, a faster-than-expected prepayment rate will reduce yield to maturity,
and a slower than-expected prepayment rate will increase yield to maturity. If a
Portfolio purchases mortgage-backed securities at a discount,
faster-than-expected prepayments will increase, and slower-than expected
prepayments will reduce, yield to maturity. Prepayments, and resulting amounts
available for reinvestment by the Portfolio, are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower interest rates. Accelerated prepayments on securities purchased at a
premium may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will decrease in
value as a result of increases in interest rates generally, they are likely' to
appreciate less than other fixed-income securities when interest rates decline
because of the risk of prepayments.
STRIPPED MORTGAGE-BACKED SECURITIES
The Bond Fund may invest in interest-only and principal-only classes of
mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO or
PO is extremely sensitive not only to changes in prevailing interest rates but
also to the rate of principal payments (including prepayments) on the underlying
assets. A rapid rate of principal prepayments may have a measurably adverse
effect on a Portfolio's yield to maturity to the extent it invests in IOs. If
the assets underlying the IOs experience greater than anticipated prepayments of
principal, the Portfolio may fail to recoup fully its initial investment in
these securities. Conversely, POs tend to increase in value if prepayments are
greater than anticipated and decline if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may be
more volatile and less liquid than that for other mortgage-backed securities,
potentially limiting a Portfolio's ability to buy or sell those securities at
any particular time.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Bond Fund may invest in CMOs. A CMO is a security backed by a
portfolio of mortgages or mortgage-backed securities held under an indenture.
CMOs may be issued either by U.S. Government instrumentality's or by
non-governmental entities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
which have different maturities and which may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of CMOs
first to mature generally will be retired prior to its maturity. As with other
mortgage-backed securities, the early retirement of a particular class or series
of CMOs held by a Fund could involve the loss of any premium the Portfolio paid
when it acquired the investment and could result in the Portfolio's reinvesting
the proceeds at a lower interest rate than the retired CMO paid. Because of the
early retirement feature, CMOs may be more volatile than many other fixed-income
investments.
ASSET-BACKED SECURITIES
The Bond Fund may invest in asset-backed securities. Through the use of
trusts and special purpose corporations, automobile and credit card receivables
are securitized in pass-through structures similar to mortgage pass-through
structures or in a pass-through structure similar to the CMO structure.
Generally, the issuers of asset-backed bonds, notes or pass-through certificates
are special purpose entities and do not have any significant assets other than
the receivables securing such obligations. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans. Instruments
backed by pools of receivables are similar to mortgage-backed securities in that
they are subject to unscheduled prepayments of principal prior to maturity. When
the obligations are prepaid, the Portfolio will ordinarily reinvest the prepaid
amounts in securities the yields of which reflect interest rates prevailing at
the time. Therefore, a Portfolio ability to maintain a portfolio that includes
high-yielding asset-backed securities will be adversely affected to the extent
that prepayments of principal must be reinvested in securities that have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
WHEN-ISSUED SECURITIES
As described in the Prospectus, each Portfolio 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 a Portfolio that invests in fixed income
securities 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 a Portfolio purchases securities in this manner (i.e. on a
when-issued or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account liquid assets
in an amount equal to or greater than, on a daily basis, the amount of the
Portfolio's when-issued or delayed-delivery commitments. Each Portfolio will
make commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting that Portfolio's investment criteria. The Portfolio may take
delivery of these securities or, if it is deemed advisable as a matter of
investment strategy, the Portfolio may sell these securities before the
settlement date. When the time comes to pay for when-issued or delayed-delivery
securities, the Portfolio will meet its obligations from 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 Portfolio's payment obligation).
CONVERTIBLE SECURITIES
Convertible securities include 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.
ZERO-COUPON BONDS
Zero-coupon bonds are debt obligations that do not entitle the holder
to any periodic payments of interest either for the entire life of the
obligation or for an initial period after the issuance of the obligations. Such
bonds are issued and traded at a discount from their face amounts. The amount of
the discount varies depending on such factors as the time remaining until
maturity of the bonds, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. The market prices of zero-coupon
bonds generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon bonds having similar maturities and
credit quality. In order to satisfy a requirement for qualification as a
"regulated investment company" under the Code, each Portfolio must distribute
each year at least 90% of its net investment income, including the original
issue discount accrued on zero-coupon bonds. Because a Portfolio investing in
zero coupon bonds will not on a current basis receive cash payments from the
issuer in respect of accrued original issue discount, the Portfolio may have to
distribute cash obtained from other sources in order to satisfy the 90%
distribution requirement under the Code. Such cash might be obtained from
selling other Portfolio holdings of the Portfolio. In some circumstances, such
sales might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
Portfolio to sell such securities at such time.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements, by which the
Portfolio purchases a security and obtains a simultaneous commitment from the
seller (a bank or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed upon price and date
(usually seven days or less from the date of original purchase). 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 Portfolios the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the United States Government, the obligation of the seller is not guaranteed by
the U.S. Government and there is a risk that the seller may fail to repurchase
the underlying security. In such event, the Portfolio would attempt to exercise
rights with respect to the underlying security, including possible disposition
in the market. However, the Portfolio 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 Portfolio seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of income during this period and (c)
ability to enforce rights and the expenses involved in attempted enforcement.
SECURITIES LENDING
The Small Cap Growth Fund may lend its Portfolio securities to
broker-dealers or other parties under contracts calling for the deposit by the
borrower with the Portfolio's custodian of cash collateral equal to at least the
market value of the securities loaned, marked to market on a daily basis. The
Portfolio will continue to benefit form 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 Portfolio's total assets (taken at current value). Any voting rights, or
rights to consent, relating to securities loaned pass to the borrower. However,
if a material event affecting the investment occurs, such loans will be called
so that the securities may be voted by the Portfolio. The Portfolio pays various
fees in connection with such loans, including shipping fees and reasonable
custodial or placement fees.
Securities loans must be fully collateralized at all times, but involve
some credit risk to the Portfolio if the borrower defaults on its obligation and
the Portfolio is delayed or prevented from recovering the collateral.
RULE 144A SECURITIES
Each of the Portfolios may purchase Rule 144A securities. These are
privately offered securities that can be resold only to certain qualified
institutional buyers. Rule 144A securities are treated as illiquid, unless
Loomis Sayles has determined, under guidelines established by the Trust's
Trustees, that the particular issue of Rule 144A securities is liquid. Under the
guidelines, Loomis Sayles considers such factors as: (1) the frequency of trades
and quotes for a security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades therefor.
TAX-EXEMPT BONDS
Tax-exempt bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as bridges, highways, hospitals, housing, mass transportation,
schools, streets, and water and sewer works. Other public purposes for which tax
exempt bonds may be issued include the refunding of outstanding obligations,
obtaining funds for general operating expenses, and obtaining funds to lend to
other public institutions and facilities. In addition, prior to the Tax Reform
Act of 1986, certain debt obligations know as industrial development bonds could
be issued by or on behalf of public authorities to obtain funds to provide
privately operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Such obligations are included
within the term tax-exempt bonds if the interest paid thereon is, in the opinion
of bond counsel, exempt from federal income tax. Interest on certain industrial
development bonds used to fund the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities may also
be exempt from federal income tax. The Tax Reform Act of 1986 eliminated some
types of tax exempt industrial revenue bonds, but retained others under the
general category of "private activity bonds." The interest on so-called "private
activity bonds" is exempt from ordinary federal income taxation but is treated
as a tax preference item in computing a shareholder's alternative minimum tax
liability.
The two principal classifications of tax-exempt bonds are general
obligation bonds and limited obligation (or revenue) bonds. General obligation
bonds are obligations involving the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon an appropriation by the issuer's
legislative body. Limited obligation bonds are payable only from the revenues
derived from a particular facility of class of facilities, or in some cases from
the proceeds of a special excise or other specific revenue source such as the
user of the facility. Tax-exempt industrial development bonds and private
activity bonds are in most cases revenue bonds and generally are not payable
from the unrestricted revenues of the issuer. The credit and quality of such
bonds are usually directly related to the credit standing of the corporate user
of the facilities. Principal and interest on such bonds is the responsibility of
the corporate user (and any guarantor).
Prices and yields on tax-exempt bonds are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the tax-exempt bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of tax-exempt bonds may not be as extensive as that made available
by corporations whose securities are publicly traded.
As noted in the Prospectus, obligations of issuers of tax-exempt bonds
are subject to the provisions of bankruptcy, insolvency and other laws, such as
the Federal Bankruptcy Reform Act of 1978, affecting the rights and remedies of
creditors. Congress or state legislatures may seek to extend the time for
payment of principal or interest, or both, or to impose other constraints upon
enforcement of such obligations. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their tax-exempt bonds
may be materially affected, or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of introducing uncertainties in the market for tax-exempt bonds or
certain segments thereof, or materially affecting the credit risk with respect
to particular bonds. Adverse economic, business, legal or political developments
might affect all or a substantial portion of the Portfolio's tax-exempt bonds in
the same manner.
FOREIGN CURRENCY TRANSACTIONS
Each of the Portfolios may invest in securities of foreign issuers and
may enter into forward foreign currency exchange contracts, or buy or sell
options on foreign currencies, in order to protect against uncertainty in the
level of future foreign exchange rates. Since investment in securities of
foreign issuers will usually involve currencies of foreign countries, and since
a Portfolio may temporarily hold funds in bank deposits in foreign currencies
during the course of investment programs, the value of the assets of a Portfolio
as measured in United States dollars may be affected by changes in currency
exchange rates and exchange control regulations, and a Portfolio may incur costs
in connection with conversion between various currencies.
A Portfolio may enter into forward contracts under two circumstances.
First, when a Portfolio enters into a contract for the purchase or sale of a
security denominated or traded in a market in which settlement is made in a
foreign currency, it may desire to "lock in" the US dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the investment is purchased or sold and the date on which payment is
made or received.
Second, when Loomis Sayles believes that the currency of a particular
country may suffer a substantial decline against another currency, it may enter
into a forward contract to sell, for a fixed amount of another currency, the
amount of the first currency approximating the value of some or all of the
portfolio's investments denominated in the first currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in a
currency will change as a consequence of market movements in the value of those
investments between the date the forward contract is entered into and the date
it matures.
The Portfolios generally will not enter into forward contracts with a
term of greater than one year. Options on foreign currencies are similar to
forward contracts, except that one party to the option (the holder) is not
contractually bound to buy or sell the specified currency. Instead, the holder
has the discretion whether to "exercise" the option and thereby require the
other party to buy or sell the currency on the terms specified in the option.
Options transactions involve transaction costs and, like forward contract
transactions, involve the risk that the other party may default on its
obligations (if the options are not traded on an established exchange) and the
risk that expected movements in the relative value of currencies may not occur,
resulting in an imperfect hedge or a loss to the Portfolio.
Each Portfolio in conjunction with its transactions in forward
contracts, options and futures, will maintain in a segregated account with its
custodian liquid assets with a value, marked to market on a daily basis,
sufficient to satisfy the Portfolio's outstanding obligations under such
contracts, options and futures.
SWAP CONTRACTS
The Bond Fund may enter into interest rate or currency swaps. The
Portfolio will enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its Portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. Interest rate swaps involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal). A currency swap is an
agreement to exchange cash flows on a notional amount based on changes in the
relative values of the specified currencies. The Portfolio will maintain liquid
assets in a segregated custodial account to cover its current obligations under
swap agreements. Because swap agreements are not exchange-traded, but are
private contracts into which the Portfolio and a swap counterparty enter as
principals, the Portfolio may experience a loss or delay in recovering assets if
the counterparty were to default on its obligations.
OPTIONS
As described in the Prospectus, each of the Portfolios, may for hedging
purposes or to enhance investment return, purchase and sell call and put
options.
An option entitles the holder to receive (in the case of a call option)
or to sell (in the case of a put option) a particular security at a specified
exercise price. An "American style" option allows exercise of the option at any
time during the term of the option. A "European style" option allows an option
to be exercised only at the end of its term. Options may be traded on or off an
established securities exchange.
If the holder of an option wishes to terminate its position, it may
seek to effect a closing sale transaction by selling an option identical to the
option previously purchased. The effect of the purchase is that the previous
option position will be canceled. A Portfolio will realize a profit from closing
out an option if the price received for selling the offsetting position is more
than the premium paid to purchase the option; the Portfolio will realize a loss
from closing out an option transaction if the price received for selling the
offsetting option is less than the premium paid to purchase the option.
The use of options involves risks. One risk arises because of the
imperfect correlation between movements in the price of options and movements in
the price of the securities that are the subject of the hedge. The Portfolio's
hedging strategies will not be fully effective if such imperfect correlation
occurs.
Price movement correlation may be distorted by illiquidity in the
options markets and the participation of speculators in such markets. If an
insufficient number of contracts are traded, commercial users may not deal in
options because they do not want to assume the risk that they may not be able to
close out their positions within a reasonable amount of time. In such instances,
options market prices may be driven by different forces than those driving the
market in the underlying securities, and price spreads between these markets may
widen. The participation of speculators in the market enhances its liquidity.
Nonetheless, the trading activities of speculators in the options markets may
create temporary price distortions unrelated to the market in the underlying
securities.
An exchange-traded option may be closed out only on an exchange which
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that the Portfolio would have to exercise the
option in order to accomplish the desired hedge. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide to be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The successful use of options depends in part on the ability of Loomis
Sayles to forecast correctly the direction and extent of interest rate, stock
price or currency value movements within a given time frame. To the extent
interest rates, stock prices or currency values move in a direction opposite to
that anticipated, the Portfolio may realize a loss on the hedging transaction
that is not fully or partially offset by an increase in the value of portfolio
securities. In addition, whether or not interest rates or the relevant stock
price or relevant currency values move during the period that the Portfolio
holds options positions, the Portfolio will pay the cost of taking those
positions (i.e., brokerage costs). As a result of these factors, the Portfolio's
total return for such period may be less than if it had not engaged in the
hedging transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original option
transaction. While the Portfolio will seek to enter into over-the-counter
options only with dealers who agree to or are expected to be capable of entering
into closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate an over-the-counter option at a favorable
price at any time prior to its expiration. Accordingly, the Portfolio might have
to exercise an over-the-counter option it holds in order to achieve the intended
hedge. Over-the-counter options are not subject to the protections afforded
purchasers or listed options by the Options Clearing Corporation or other
clearing organization.
The staff of the SEC has taken the position that over-the-counter
options should be treated as illiquid securities for purposes of each
Portfolio's investment restriction prohibiting it from investing more that 15%
of its net assets in illiquid securities. The Portfolio intends to comply with
this position.
Income earned by a Portfolio from its hedging activities will be
treated as capital gain and, if not offset by net recognized capital losses
incurred by the Portfolio will be distributed to shareholders in taxable
distributions. Although gain from options transactions may hedge against a
decline in the value of a Portfolio's securities, that gain, to the extent not
offset by losses, will be distributed in light of certain tax considerations and
will constitute a distribution of that portion of the value preserved against
decline.
SMALL COMPANIES
Investments in companies with relatively small capitalization may
involve greater risk than is usually associated with more established companies.
These companies often have limited product lines, markets or financial resources
and they may be dependent upon a relatively small management group. Their
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 market averages in general. The net asset values of the Funds
that invest in companies with smaller capitalization therefore may fluctuate
more widely than market averages or companies with larger capitalization.
<PAGE>
APPENDIX A-1
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C--Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, if
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, and B1.
FITCH INVESTOR SERVICES, INC.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C--Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
APPENDIX B-1
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and Affiliates Fortune
Adam Smith's Money World Fox Network and Affiliates
America On Line Fund Action
Anchorage Daily News Fund Decoder
Atlanta Constitution Global Finance
Atlanta Journal (the) Guarantor
Arizona Republic Hartford Courant
Austin American Statesman Houston Chronicle
Baltimore Sun INC
Bank Investment Marketing Indianapolis Star
Barron's Individual Investor
Bergen County Record (NJ) Institutional Investor
Bloomberg Business News International Herald Tribune
Bnai Brith Jewish Monthly Internet
Bond Buyer Investment Advisor
Boston Business Journal Investment Company Institute
Boston Globe Investment Dealers Digest
Boston Herald Investment Profiles
Broker World Investment Vision
Business Radio Network Investor's Daily
Business Week IRA Reporter
CBS and affiliates Journal of Commerce
CFO Kansas City Star
Changing Times KCMO (Kansas City)
Chicago Sun Times KOA-AM (Denver)
Chicago Tribune LA Times
Christian Science Monitor Leckey, Andrew (syndicated column)
Christian Science Monitor News Service Lears
Cincinnati Enquirer Life Association News
Cincinnati Post Lifetime Channel
CNBC Miami Herald
CNN Milwaukee Sentinel
Columbus Dispatch Money
CompuServe Money Maker
Dallas Morning News Money Management Letter
Dallas Times-Herald Morningstar
Denver Post Mutual Fund Market News
Des Moines Register Mutual Funds Magazine
Detroit Free Press National Public Radio
Donoghues Money Fund Report National Underwriter
Dorfman, Dan (syndicated column) NBC and affiliates
Dow Jones News Service New England Business
Economist New England Cable News
FACS of the Week New Orleans Times-Picayune
Forbes Palm Beach Post
Fort Worth Star-Telegram Pension World
Pensions and Investments Standard & Poor's Stock Guide
Personal Investor Stanger's Investment Advisorx
Philadelphia Inquirer Stockbrokers Register
Porter, Sylvia (syndicated column) Strategic Insight
Portland Oregonian Tampa Tribune
Prodigy Time
Public Broadcasting Service Tobias, Andrew (syndicated column)
Quinn, Jane Bryant (syndicated column) Toledo Blade
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business (syndicated column) Wall St. Journal
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry Management WHDH
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook WRKO
<PAGE>
APPENDIX C-1
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 also including, but not
limited to: Back Bay Advisors, L.P. ("Back Bay Advisors") 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, the Loomis Sayles Funds and the Oakmark Funds.
References may be included in New England Funds' advertising and
promotional literature to other Nvest Companies affiliates including, but not
limited to, Nvest Corporation, 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 group.
References to subadvisers 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, Janus Capital Corporation
("Janus Capital"), Founders Asset Management, Inc. ("Founders"), Montgomery
Asset Management, L.P. ("Montgomery") and Robertson, Stephens & Company
Investment Management, L.P. ("Robertson Stephens").
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:
o Specific and general assessments and forecasts regarding U.S., world
economies, the economics of specific nations and their impact on the New
England Funds
o Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions
o Specific and general investment philosophies, strategies, processes,
techniques and types of analysis
o Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
o The corporate histories, founding dates and names of founders of the entities
o Awards, honors and recognition given to the firms
o The names of those with ownership interest and the percentage of ownership
o 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
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists, principals and
other staff members and employees
o The specific credentials of the above individuals, including, but not limited
to, previous employment, current and past positions, titles and duties
performed, industry experience, educational background and degrees, awards
and honors
o The specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments
o Current and historical statistics about:
o total dollar amount of assets managed
o New England Funds' assets managed in total and by Fund
o the growth of assets
o asset types managed
o numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers, economists,
technicians and support staff
o the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or the subadviser.
o The general and specific strategies applied by the advisers in the management
of New England Funds portfolios including, but not limited to:
o the pursuit of growth, value, income oriented, risk management or other
strategies
o the manner and degree to which the strategy is pursued
o whether the strategy is conservative, moderate or extreme and an
explanation of other features, attributes
o the types and characteristics of investments sought and specific portfolio
holdings
o the actual or potential impact and result from strategy implementation
o through its own areas of expertise and operations, the value added by
subadvisers to the management process
o 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
o 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.
o Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than New England Funds, and those
families of funds, other than New England Funds. 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' adviser and subadvisers,
including, but not limited to, those provided by Morningstar, Lipper
Analytical Services, Forbes and Worth.
In addition, communications and materials developed by New England
Funds will make reference to the following information about Nvest Companies and
its affiliates:
Nvest Companies is part of an affiliated group including Nvest, L.P., a
publicly traded company listed on the NYSE. Nvest Companies has 14 principal
subsidiary or affiliated asset management firms, which collectively had more
than $____billion of assets under management as of December 31, 1998. In
addition, promotional materials may include:
o 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:
o 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
o 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
o 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: the New England Funds, the Loomis Sayles Funds, the Oakmark Funds and
the 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 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:
o Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating to plans,
participants and sponsors, third party and other administrators, benefits
consultants and firms including, but not limited to, DC Xchange, William
Mercer and other organizations involved in 401(k) and retirement programs
with whom New England Funds may or may not have a relationship.
o Specific and general reference to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the New England Funds as
a 401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
o Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
o past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and other
relevant forms and documents, Department of Labor rules and standards and
other regulation. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about the
past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of 401(k) and
retirement plans
o 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
o current and prospective ERISA regulation and requirements.
o Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the New England Funds 401(k) and
retirement plans, to the participant and plan sponsor, including
explanations, statistics and other data, about:
o increased employee retention
o reinforcement or creation of morale
o deductibility of contributions for participants
o deductibility of expenses for employers
o tax deferred growth, including illustrations and charts
o loan features and exchanges among accounts
o 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:
o the significant economies of scale experienced by mutual fund companies in
the 401(k) and retirement benefits arena
o broad choice of investment options and competitive fees
o plan sponsor and participant statements and notices
o the plan prototype, summary descriptions and board resolutions
o plan design and customized proposals
o Trusteeship, record keeping and administration
o the services of State Street Bank, including, but not limited to, trustee
services and tax reporting
o the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements o the services of Trust Consultants Inc. (TCI), including, but
not limited to, sales support, plan record keeping, document service
support, plan sponsor support, compliance testing and Form 5500
preparation.
o Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
o access to expertise on investments
o assistance in interpreting past, present and future market trends and
economic events
o providing information to clients including participants during enrollment
and on an ongoing basis after participation
o promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
New England Funds advertising and sales literature will include but it is not
limited to, discussions of the following information regarding Access Shares.
Access Shares are:
o an innovative, new fund structure that was created specifically for investors
who seek advice through financial representatives.
o offered in recognition of the demand for high quality investment choices and
sound financial advice. Investors who seek advice through financial
representatives may purchase the funds of prominent money managers and pursue
the benefits of:
-- access to some of the top investment managers in the business who are
among New England Funds Best Minds.
-- advantages of advice and sound strategies offered through/by their
financial representative.
-- proven track record of the underlying fund.
o sold by commission-based financial intermediaries and representatives. With
public focus on advice and assistance through financial advisers and
consultants, investors are offered a commission-based alternative to wrap
and other advisory arrangements.
o provide financial intermediaries the ability to tap into existing no-load
Funds with strong performance records and rankings by recognized ratings
services such as, but not limited to, Morningstar and Lipper.
o intended to bridge the gap between load and no-load Funds by providing access
to existing no-load funds on a load basis, including, but not limited to,
-- targeting investors who seek advice through financial intermediaries.
-- focusing on pursuing long-term strategies with the help of an investment
adviser.
o intended to level the playing field between fee-based financial adviser
arrangements and the sale of front-end and back-end (contingent deferred
sales charge) shares. e.g., a purchase of Class C Access shares with an
annual 100 basis point 12b-1 fee may compare favorably on an annual basis
with fee-based financial adviser advisory charges.
o intended to increase and diversify the pool of potential investors available
to the underlying mutual fund with the potential to reduce the underlying
fund's expense ratio attributable to fixed costs.
Comparisons and distinctions may be made between the structure and other aspects
of Master Feeder Funds, which are an underlying master fund or trust to one or
more feeder funds; Clone Funds, which replicate the investment policies and
management of an existing fund; Fund of Funds, which involve layered fees,
expenses and multiple underlying funds, and Access Shares, which are invested in
one underlying fund, including but not limited to:
o the differences in expenses and costs
o methods of operation
o benefits and rewards to the investors, including not not limited to, the
expense structure arrangements, the ability to access established funds and
the merits relative to fee-based, wrap and other advisory programs
o comparisons of the costs of advisory and wrap-fee arrangements
Comparisons and distinctions also may be made to funds in the same asset
categories and details and explanations may be provided regarding how the funds
fit into New England Funds overall product line, including but not limited to:
product overlap, style, diversification, risk/reward potential and funds
strategies, objectives and goals.
In addition, statistics and other information regarding consumer's demand,
desire and interest in investment and financial advice may be referenced and
incorporated including, but not limited to, information from the Forum for
Investment Advice, the Investment Company Institute, International Association
of Financial Planners, the International Board of Certified Financial Planners,
Cerulli and Associates and other financial services organizations.
<PAGE>
NEW ENGLAND FUNDS TRUST III
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation
(1) The Registrant's Agreement and Declaration of Trust is
incorporated herein by reference to the Registration
Statement on Form N-1A (File No. 33-62061), filed on
August 23, 1995.
(2) Amendment No. 1 to Agreement and Declaration of Trust of
the Registrant is inorporated herein by reference to PEA
No. 5 to the Registration Statement on Form N-1A (File No.
33-62061), filed on April 30, 1998.
(b) By-Laws
The By-Laws of the Registrant are incorporated herein by
reference to the Registration Statement on Form N-1A (File No.
33-62061), filed on August 23, 1995.
(c) Instruments Defining Rights of Securities Holders.
Rights of shareholders are described in Article III, Section 6
of the Agreement and Declaration of Trust incorporated by
reference as Exhibit a (1) to this Registration Statement.
(d) Investment Advisory Contracts
(1) Form of Advisory Agreement between the Registrant, on
behalf of its New England Equity Income Fund, and New
England Funds Management, L.P. ("NEFM") is incorporated
herein by reference to the Registration Statement on Form
N-1A (File No. 33-62061), filed on August 23, 1995.
(2) Form of Subadvisory Agreement for New England Equity
Income Fund between NEFM and Loomis, Sayles & Company,
L.P. is incorporated herein by reference to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on August 23, 1995.
(3) Form of Advisory Agreement between the Registrant, on
behalf of its New England Bullseye Fund, and NEFM is
incorporated herein by reference to PEA No. 4 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on December 31, 1997.
(4) Form of Subadvisory Agreement for New England Bullseye
Fund between NEFM and Jurika & Voyles, L.P. is
incorporated herein by reference to PEA No. 4 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on December 31, 1997.
(5) Form of Advisory Agreement between the Registrant and
NEFM, relating to the following series of the Registrant,
is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(e) Underwriting Contracts
(1) Form of Distribution Agreement between the Registrant, on
behalf of its New England Equity Income Fund, and New
England Funds, L.P. (the "Distributor") is incorporated
herein by reference to the Registration Statement on Form
N-1A (File No. 33-62061), filed on August 23, 1995.
(2) Form of Distribution Agreement between the Registrant, on
behalf of its New England Bullseye Fund and the
Distributor is incorporated herein by reference to PEA No.
4 to the Registration Statement on Form N-1A (File No.
33-62061), filed on December 31, 1997.
(3) Form of Distribution Agreement between the Registrant and
the Distributor, relating to the following series of the
Registrant is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(f) Bonus or Profit Sharing Contracts
Not applicable.
(g) Custodian Agreements
(1) Form of Custodian Agreement between the Registrant and
State Street Bank and Trust Company is incorporated herein
by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on October 30, 1995.
(2) Letter Agreement between the Registrant and State Street
Bank and Trust Company relating to the applicability of
the Custodian Contract and the Sub-Transfer and Service
Agreement to New England Bullseye Fund is filed herewith.
(h) Other Material Contracts
(1) Form of Transfer Agency Agreement between the Registrant
and New England Funds, L.P. is incorporated herein by
reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on October 30, 1995.
(2) Form of Dealer Agreement of New England Funds, L.P., the
Registrant's Distributor, is incorporated herein by
reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on October 30, 1995.
(3) Powers of Attorney for Trustees are filed herewith.
(4) Form of Special Servicing Agreement between the Registrant
and the Underlying Trust, relating to the following series
of the Registrant (and its corresponding Underlying
Portfolio) is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(5) Form of Expense Cap Agreement between the Registrant and
NEFM, relating to the following series of the Registrant,
is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(i) Legal Opinion
Opinion of Ropes & Gray with respect to New England Equity
Income Fund is incorporated herein by reference to
Pre-Effective Amendment No. 3 to the Registration Statement on
Form N-1A (File No. 33-62061), filed on November 22, 1995.
(j) Other Opinions
Not Applicable.
(k) Omitted Financial Statements
Not applicable.
(l) Initial Capital Agreements
Investment Letter of Loomis Sayles Funded Pension Plan and
Trust is incorporated herein by reference to Pre-Effective
Amendment No. 3 to the Registration Statement on Form N-1A
(File No. 33-62061), filed on November 22, 1995.
(m) Rule 12b-1 Plans
(1) Form of Rule 12b-1 Plan relating to Class A shares of New
England Equity Income Fund is incorporated herein by
reference to the Registration Statement on Form N-1A (File
No. 33-62061) filed on August 23, 1995.
(2) Form of Rule 12b-1 Plan relating to Class B shares of New
England Equity Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on June 10, 1997.
(3) Form of Rule 12b-1 Plan relating to Class C shares of New
England Equity Income Fund is incorporated herein by
reference to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on June 10, 1997.
(4) Form of Rule 12b-1 Plan relating to Class A shares of New
England Bullseye Fund is incorporated herein by reference
to PEA No. 4 to the Registration Statement on Form N-1A
(File No. 33-62061), filed on December 31, 1997.
(5) Form of Rule 12b-1 Plan relating to Class B shares of New
England Bullseye Fund is incorporated herein by reference
to PEA No. 4 to the Registration Statement on Form N-1A
(File No. 33-62061), filed on December 31, 1997.
(6) Form of Rule 12b-1 Plan relating to Class C shares of New
England Bullseye Fund is incorporated herein by reference
to PEA No. 4 to the Registration Statement on Form N-1A
(File No. 33-62061), filed on December 31, 1997.
(7) Form of Rule 12b-1 Plan relating to Class A shares of the
following series of the Registrant is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(8) Form of Rule 12b-1 Plan relating to Class B shares of the
following series of the Registrant is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(9) Form of Rule 12b-1 Plan relating to Class C shares of the
following series of the Registrant is filed herewith:
(i) New England Core Equity Fund
(ii) New England Stock and Bond Fund
(iii) New England Select Fund
(iv) New England Small Cap Value Fund
(v) New England Small Cap Growth Fund
(vi) New England Total Return Bond Fund
(n) Financial Data Schedule
Not applicable.
(o) Rule 18f-3 Plan
Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940 with respect to New England Funds Trusts I, II,
III & IV is incorporated herein by reference to PEA No. 4 to
the Registration Statement on Form N-1A (File No. 33-62061),
filed on December 31, 1997.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
See Article 4 of the Registrant's By-Laws filed as Exhibit (b)
incorporated by reference herein.
In addition, Metropolitan Life Insurance Company, the parent
company of the Registrant's adviser and distributor, maintains
a directors and officers liability insurance policy with
maximum coverage of $15 million, under which the trustees and
officers of the Registrant are named insureds.
Item 26. Business and Other Connections of Investment Adviser
(a) New England Funds Management, L.P. ("NEFM"), a wholly-owned
subsidiary of Nvest, L.P., serves as investment adviser to New
England Bullseye Fund, New England Equity Income Fund, New England
Core Equity Fund, New England Stock and Bond Fund, New England
Select Fund, New England Small Cap Value Fund, New England Small
Cap Growth Fund and New England Total Return Fund. NEFM was
organized in 1995.
The list required by this Item 26 (a) regarding any other
business, profession, vocation or employment of a substantial
nature engaged in by officers and directors of NEFM during the
past two years is incorporated herein by reference to Schedules A
and D of Form ADV filed by NEFM pursuant to the Investment
Advisers Act of 1940, as amended (the "Advisers Act")(File No.
801-48408) filed on March 24, 1998.
(b) (1) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the
subadviser to New England Equity Income Fund, provides investment
advice to a number of other registered investment companies and to
other organizations and individuals.
The list required by this Item 26(b) regarding any other business,
profession, vocation or employment of a substantial nature engaged
in by officers and directors of Loomis Sayles during the past two
years is incorporated herein by reference to Schedules A and D of
Form ADV filed by Loomis Sayles pursuant to the Advisers Act (File
No. 801-170) filed on March 27, 1998.
(2) Jurika & Voyles, L.P. ("Jurika & Voyles"), the subadviser to
New England Bullseye Fund, provides investment advice to a number
of other registered investment companies and to other
organizations and individuals. Jurika & Voyles succeeded Jurika &
Voyles, Inc. in January 1997.
The list required by this Item 26(b) regarding any other business,
profession, vocation or employment of a substantial nature engaged
in by officers and directors of Jurika & Voyles during the past
two years is incorporated herein by reference to Schedules A and D
of Form ADV filed by Jurika & Voyles pursuant to the Advisers Act
(File No. 801-53366) filed on May 22, 1998.
Item 27. Principal Underwriter
(a) New England Funds, L.P. also serves as principal underwriter for:
New England Funds Trust I
New England Funds Trust II
New England Funds Trust IV
New England Tax Exempt Money Market Trust
New England Cash Management Trust
(b) The general partner and officers of the Registrant's principal
underwriter, New England Funds, L.P., and their addresses are as
follows:
Positions and Offices with Positions and Offices
Name Principal Underwriter with Registrant
---- --------------------- ---------------
NEF Corporation General Partner None
Bruce R. Speca Managing Director, Executive President
Vice President
John E. Pelletier Managing Director, Senior Vice Secretary and Clerk
President, General Counsel,
Secretary and Clerk
James H. Davis Managing Director and Senior None
Vice President
Caren I. Leedom Managing Director and Senior None
Vice President
Scott Wennerholm Managing Director, Chief None
Financial Officer and Senior
Vice President
Christopher L. Wilson Managing Director and Senior None
Vice President
Raymond K. Girouard Senior Vice President, None
Assistant Treasurer and
Comptroller
Robert E. O'Hare Vice President, Senior None
Counsel, Assistant Secretary
and Assistant Clerk
Martin G. Dyer Vice President and Assistant None
Secretary
Beatriz A. Pina Smith Vice President, Assistant None
Comptroller and Assistant
Treasurer
Frank Maselli Senior Vice President None
Philip J. Graham Vice President None
The principal business address of all the above persons or entities is 399
Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 28. Location of Accounts and Records
The following companies maintain possession of the documents
required by the specified rules:
(a) Registrant
Rule 31a-1(b)(4)
Rule 31a-2(d)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(d)
(c) New England Funds Management, L.P. 399 Boylston
Street Boston, MA 02116 Rule 31a-1(a); 31a-1(b)(9),
(10), (11); 31a-1(f) Rule 31a-2(d); and 31a-2(e)
(d) Jurika & Voyles, L.P. (for Bullseye Fund) Lake
Merritt Plaza, 1999 Harrison, Suite 700 Oakland, CA
94612 Rule 31a-1(a); 31a-1(b)(9), (10), (11);
311a-1(f) Rule 31a-2(e)
(e) Loomis, Sayles & Company, L.P.
(for Equity Income Fund)
One Financial Center, 34th Floor,
Boston, MA 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 311a-1(f)
Rule 31a-2(e)
(f) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
Item 29. Management Services
None.
Item 30. Undertakings
(a) The Registrant undertakes to provide a copy of the annual report
of any of its series to any person who receives a prospectus for
such series and who requests the annual report.
(b) The Registrant hereby undertakes that, if requested to do so by
holders of at least 10% of the Fund's outstanding shares, it will
call a meeting of shareholders for the purpose of voting upon the
question of removal of a trustee or trustees and will assist in
communications between shareholders for such purpose as provided
in Section 16(c) of the Investment Company Act of 1940.
<PAGE>
NEW ENGLAND FUNDS TRUST III
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 5 to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Boston, in the Commonwealth of Massachusetts on the 2nd day of December, 1998.
New England Funds Trust III
By: /s/ PETER S. VOSS*
----------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ JOHN E. PELLETIER
----------------------
John E. Pelletier
Attorney-In-Fact
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board;
Chief Executive Officer;
Principal Executive
PETER S. VOSS* Officer; Trustee December 2, 1998
- ---------------------------
Peter S. Voss
/s/ PAUL C. MCCLINTOCK Assistant Treasurer December 2, 1998
- ---------------------------
Paul C. McClintock
GRAHAM T. ALLISON, JR.* Trustee December 2, 1998
- ---------------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee December 2, 1998
- ---------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee December 2, 1998
- ---------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee December 2, 1998
- ---------------------------
Richard Darman
SANDRA O. MOOSE* Trustee December 2, 1998
- ---------------------------
Sandra O. Moose
JOHN A. SHANE* Trustee December 2, 1998
- ---------------------------
John A. Shane
PENDELTON P. WHITE* Trustee December 2, 1998
- ---------------------------
Pendelton P. White
*By: /s/JOHN E. PELLETIER
----------------------
John E. Pelletier
Attorney-In-Fact
December 2, 1998
<PAGE>
N-1A exhibits ITEM 23
EXHIBIT NUMBER EXHIBIT
-------------- -------
Exhibit d(5) Form of Advisory Agreement
Exhibit e(3) Form of Distribution Agreement
Exhibit g(2) Letter Agreement to the Custodian Agreement
Exhibit h(3) Power of Attorney
Exhibit h(4) Form of Special Servicing Agreement
Exhibit h(5) Form of Expense Cap Agreement
Exhibit m(7) Form of Rule 12b-1 Plan relating to Class A shares
Exhibit m (8) Form of Rule 12b-1 Plan relating to Class B shares
Exhibit m(9) Form of Rule 12b-1 Plan relating to Class C shares
<PAGE>
EXHIBIT d(5)
FORM OF
ADVISORY AGREEMENT
AGREEMENT made the [ ] day of [ ] 1999, by and between
NEW ENGLAND FUNDS TRUST III, a Massachusetts business trust (the "Fund"), with
respect to its [ ] series (the "Series"), and NEW ENGLAND FUNDS MANAGEMENT,
L.P., a Delaware limited partnership (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement
setting forth the terms upon which the Manager (or certain other parties acting
pursuant to delegation from the Manager) will perform certain services for the
Series;
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties agree as follows:
1. (a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Sections
1(b) and (c) hereof. The Manager hereby accepts such employment and
agrees, at its own expense, to furnish such services (either directly
or pursuant to delegation to other parties as permitted by Sections
1(b) and (c) hereof) and to assume the obligations herein set forth,
for the compensation herein provided; provided, however, that the
Manager shall have no obligation to pay the fees of any Sub-Adviser (as
defined in Section 1(b) hereof), to the extent that the Fund agrees,
under any contract to which the Fund and the Sub-Adviser are parties (a
"Sub-Advisory Agreement") to pay such fees. The Manager shall, unless
otherwise expressly provided or authorized, have no authority to act
for or represent the Fund in any way or otherwise be deemed an agent of
the Fund.
(b) The Manager is expected to invests all (or substantially all) of
its investment assets in a registered, open-end management company, or
separate series thereof, in accordance with Section 12(d)(1)(E) under
the 1940 Act; however, with the approval of the Trustees, the Manager
may delegate any or all of its responsibilities hereunder with respect
to the provision of Portfolio Management Services (and assumption of
related expenses) to one or more other parties (each such party, a
"Sub-Adviser"), pursuant in each case to a written agreement with such
Sub-Adviser that meets the requirements of Section 15 of the Investment
Company Act of 1940 and the rules thereunder (the "1940 Act")
applicable to contracts for service as investment adviser of a
registered investment company (including without limitation the
requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission. Any
Sub-Adviser may (but need not) be affiliated with the Manager. If
different Sub-Advisers are engaged to provide Portfolio Management
Services with respect to different segments of the portfolio of the
Series, the Manager shall determine, in the manner described in the
prospectus of the Series from time to time in effect, what portion of
the assets belonging to the Series shall be managed by each
Sub-Adviser.
(c) The Manager may delegate any or all of its
responsibilities hereunder with respect to the provision of
Administrative Services to one or more other parties (each such party,
an "Administrator") selected by the Manager. Any Administrator may (but
need not) be affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and
financial data and information and undertaking such additional
investment research as shall be necessary or advisable for the
management of the investment and reinvestment of the assets belonging
to the Series in accordance with the Series' investment objectives and
policies;
(b) taking such steps as are necessary to implement the
investment policies of the Series by purchasing and selling of
securities, including the placing of orders for such purchase and sale
which may include, but is not limited to, the investment of all or
substantially all of the assets of the Series in an underlying fund
that is a registered, open-end management company, or separate series
thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act (the
"Underlying Fund");
(c) regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of the
Series. Such reports shall be made in such form and manner and with
respect to such matters regarding the Series, as the Trustees of the
Trust shall request.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon
from time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Series (exclusive of those related to and to be
performed under contract for custodial, transfer, dividend and plan
agency services by the entity or entities selected to perform such
services and exclusive of any managerial functions described in Section
4);
(c) compensation, if any, of trustees of the Fund who are
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator; and
(d) supervision and oversight of the Portfolio Management
Services provided by each Sub-Adviser, or, in the case that the Series
invested its assets in an Underlying Fund, by that Underlying Fund's
investment adviser and oversight of all matters relating to compliance
by the Fund with applicable laws and with the Series' investment
policies, restrictions and guidelines, if the Manager has delegated to
one or more Sub-Advisers any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and mailing the items
referred to in sub-section (n) of this section 4;
(b) any of the costs of preparing, printing and distributing
sales literature;
(c) compensation of trustees of the Fund who are not
directors, officers or employees of the Manager, any Sub-Adviser or any
Administrator or of any affiliated person (other than a registered
investment company) of the Manager, any Sub-Adviser or any
Administrator;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of any entity appointed by the
Fund for custodial, paying agent, shareholder servicing and plan agent
services;
(f) charges and expenses of independent accountants retained
by the Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes
chargeable to the Fund in connection with securities transactions to
which the Fund is a party;
(i) taxes and fees payable by the Fund to federal, state or
other governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of
the Fund, including registering and qualifying its shares with Federal
and State regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the
Fund;
(m) interest, including interest on borrowings by the Fund;
(n) the costs of services, including services of counsel,
required in connection with the preparation of the Fund's registration
statements and prospectuses, including amendments and revisions
thereto, annual, semiannual and other periodic reports of the Fund, and
notices and proxy solicitation material furnished to shareholders of
the Fund or regulatory authorities; and
(o) the Fund's expenses of bookkeeping, accounting, auditing
and financial reporting, including related clerical expenses.
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation in an amount equal to the annual rate of [ ] Series' average daily
net assets (or such lesser amount as the Manager may from time to time agree to
receive) minus any fees payable by the Fund, with respect to the period in
question, to any one or more Sub-Advisers pursuant to any Sub-Advisory
Agreements in effect with respect to such period. Such compensation shall be
payable monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Board of Trustees of the Fund may from time to time determine
and specify in writing to the Manager. The Manager hereby acknowledges that the
Fund's obligation to pay such compensation is binding only on the assets and
property belonging to the Series. No fee shall be payable to the Manager under
this Agreement with respect to the Fund during any period in which the Fund
invests all (or substantially all) of its investment assets in a registered,
open-end management company, or separate series thereof, in accordance with
Section 12(d)(1)(E) under the 1940 Act.
8. If the total of all ordinary business expenses of the Fund as a
whole (including investment advisory fees but excluding interest, taxes,
portfolio brokerage commissions, distribution-related expenses and extraordinary
expenses) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the Agreement and Declaration of Trust of the Fund, the partnership
agreement of the Manager or specific provisions of applicable law.
10. This Agreement shall become effective as of the date set forth
above, and
(a) unless otherwise terminated, this Agreement shall continue
in effect until [ ], and from year to year thereafter so
long as such continuance is specifically approved at least annually (i)
by the Board of Trustees of the Fund or by vote of a majority of the
outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of
the Fund or the Manager, cast in person at a meeting called for the
purpose of voting on, such approval;
(b) this Agreement may at any time be terminated on sixty
days' written notice to the Manager either by vote of the Board of
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Series;
(c) this Agreement shall automatically terminate in the event
of its assignment;
(d) this Agreement may be terminated by the Manager on ninety
days' written notice to the Fund;
(e) if New England Funds, L.P., the Fund's principal
underwriter, requires the Fund or the Series to change its name so as
to eliminate all references to the words "New England" or the letters
"TNE" pursuant to the provisions of the Fund's Distribution Agreement
relating to the Series with said principal underwriter, this Agreement
shall automatically terminate at the time of such change unless the
continuance of this Agreement after such change shall have been
specifically approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of
the Fund who are not interested persons of the Fund or the Manager,
cast in person at a meeting called for the purpose of voting on such
approval.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's Agreement and Declaration of Trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of its obligations
and duties hereunder, the Manager shall not be subject to any liability to the
Fund, to any shareholder of the Fund or to any other person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this amended
Agreement.
NEW ENGLAND FUNDS TRUST III
on behalf of its [ ] series
By: ---------------------------------
Name: Bruce Speca
Title: President
NEW ENGLAND FUNDS MANAGEMENT, L.P.
By NEF Corporation, its general partner
By: ---------------------------------
Name: John E. Pelletier
Title: Managing Director, Senior Vice President, General Counsel, Secretary &
Clerk
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Fund") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Fund's [ ] series (the "Series") on behalf
of the Fund by officers of the Fund as officers and not individually and that
the obligations of or arising out of this Agreement are not binding upon any of
the trustees, officers or shareholders individually but are binding only upon
the assets and property belonging to the Series.
<PAGE>
EXHIBIT e(3)
NEW ENGLAND [NAME] FUND
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT made this ____th of February, 1999 by and between NEW ENGLAND
FUNDS TRUST III, a Massachusetts business trust (the "Trust"), and NEW ENGLAND
FUNDS, L.P., a Delaware limited partnership (the "Distributor").
W I T N E S S E T H:
WHEREAS, this Agreement has been approved by the Trustees of the Trust
in contemplation of the transfer by the Distributor of its rights to receive the
Class [ ] Distribution Fee (as defined in the Class [ ] Distribution and Service
Plan attached hereto as Exhibit A) and/or contingent deferred sales charges to a
financing party in order to raise funds to cover distribution expenditures;
WHEREAS, the Trustees of the Trust recognize the importance to the
Trust of the Distributor being able to obtain financing with which to pay
commissions on Class [ ] shares at the time of sale;
WHEREAS, the Trustees of the Trust acknowledge that by providing
financing to the Distributor the financing party enables the Distributor to
provide valuable services to the Series (as defined below); and
WHEREAS, the Trustees of the Trust, in the context of considering the
best interests of the Series and its shareholders at the time of and in
preparation for any vote, consent or other action that the Trustees of the Trust
may from time to time take relating to the continued receipt by the Distributor
(and/or the financing party) of the Distribution Fee, intend to consider the
effect on the Distributor and any financing party of any such vote, consent or
action.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the Trust and the Distributor agree as follows:
1. Distributor. The Trust hereby appoints the Distributor as general
distributor of shares of beneficial interest ("Series shares") of the
Trust's NEW ENGLAND [NAME] FUND series (the "Series") during the term
of this Agreement. The Trust reserves the right, however, to refuse at
any time or times to sell any Series shares hereunder for any reason
deemed adequate by the Board of Trustees of the Trust.
2. Sale and Payment. Under this agreement, the following provisions shall
apply with respect to the sale of and payment for Series shares:
(a) The Distributor shall have the right, as principal, to
purchase Series shares from the Trust at their net asset value
and to sell such shares to the public against orders therefor
at the applicable public offering price, as defined in Section
4 hereof. The Distributor shall also have the right, as
principal, to sell shares to dealers against orders therefor
at the public offering price less a concession determined by
the Distributor.
(b) Prior to the time of delivery of any shares by the Trust
to, or on the order of, the Distributor, the Distributor shall
pay or cause to be paid to the Trust or to its order an amount
in Boston or New York clearing house funds equal to the
applicable net asset value of such shares. The Distributor
shall retain so much of any sales charge or underwriting
discount as is not allowed by it as a concession to dealers.
3. Fees. For its services as general distributor of the Class [ ] Series
shares, the Trust shall cause the Series to pay to the Distributor (or
its designee or transferee) in addition to the sales charge, if any,
referred to in Section 4 below, the Class [ ] Distribution Fee at the
rate and upon the terms and conditions set forth in the Class [ ]
Distribution and Service Plan attached as Exhibit A hereto, and as
amended from time to time, and the Distributor shall also be entitled
to receive any contingent deferred sales charges that may be payable
upon redemption or repurchase of Class [ ] Series shares. The Class [ ]
Distribution Fee shall be accrued daily and paid monthly to the
Distributor (or, at its direction, to its designee or transferee) as
soon as practicable after the end of the calendar month in which it
accrues, but in any event within five business days following the last
day of the month. So long as this agreement and the Class [ ]
Distribution and Service Plan have not been terminated in accordance
with their respective terms, the Series' obligation to pay the Class
[ ] Distribution Fee to the Distributor shall be absolute and
unconditional and shall not be subject to any dispute, offset,
counterclaim or defense whatsoever (it being understood that nothing in
this sentence shall be deemed a waiver by the Trust or the Series of
its right separately to pursue any claims it may have against the
Distributor and to enforce such claims against any assets (other than
its rights to be paid the Class [ ] Distribution Fee and to be paid
contingent deferred sales charges with respect to Class [ ] Series
shares) of the Distributor).
4. Public Offering Price. The public offering price shall be the net asset
value of Series shares, plus any applicable sales charge, all as set
forth in the current prospectus and statement of additional information
("prospectus") of the Trust relating to the Series shares. In no event
shall the public offering price exceed 1000/935 of such net asset
value, and in no event shall any applicable sales charge or
underwriting discount exceed 6.5% of the public offering price. The net
asset value of Series shares shall be determined in accordance with the
provisions of the agreement and declaration of trust and by-laws of the
Trust and the current prospectus of the Trust relating to the Series
shares.
5. Trust Issuance of Series Shares. The delivery of Series shares shall be
made promptly by a credit to a shareholder's open account for the
Series or by delivery of a share certificate. The Trust reserves the
right (a) to issue Series shares at any time directly to the
shareholders of the Series as a stock dividend or stock split, (b) to
issue to such shareholders shares of the Series, or rights to subscribe
to shares of the Series, as all or part of any dividend that may be
distributed to shareholders of the Series or as all or part of any
optional or alternative dividend that may be distributed to
shareholders of the Series, and (c) to sell Series shares in accordance
with the current applicable prospectus of the Trust relating to the
Series shares.
6. Redemption or Repurchase. The Distributor shall act as agent for the
Trust in connection with the redemption or repurchase of Series shares
by the Trust to the extent and upon the terms and conditions set forth
in the current applicable prospectus of the Trust relating to the
Series shares, and the Trust agrees to reimburse the Distributor, from
time to time upon demand, for any reasonable expenses incurred in
connection with such redemptions or repurchases. The Trust will remit
to the Distributor any contingent deferred sales charges imposed on
redemptions or repurchases of Series shares (other than Class [ ]
shares) upon the terms and conditions set forth in the then current
prospectus of the Trust. The Trust will also remit to the Distributor
(or its designee or transferee), in addition to the Class [ ]
Distribution Fee, any contingent deferred sales charges imposed on
redemptions or repurchases of Class [ ] shares, in accordance with the
Remittance Agreement attached hereto as Exhibit B.
7. Undertaking Regarding Sales. The Distributor shall use reasonable
efforts to sell Series shares but does not agree hereby to sell any
specific number of Series shares and shall be free to act as
distributor of the shares of other investment companies. Series shares
will be sold by the Distributor only against orders therefor. The
Distributor shall not purchase Series shares from anyone except in
accordance with Sections 2 and 6 and shall not take "long" or "short"
positions in Series shares contrary to the agreement and declaration of
trust or by-laws of the Trust.
8. Compliance. The Distributor shall conform to the Rules of Fair Practice
of the NASD and the sale of securities laws of any jurisdiction in
which it sells, directly or indirectly, any Series shares. The
Distributor agrees to make timely filings, with the Securities and
Exchange Commission in Washington, D.C. (the "SEC"), the NASD and such
other regulatory authorities as may be required, of any sales
literature relating to the Series and intended for distribution to
prospective investors. The Distributor also agrees to furnish to the
Trust sufficient copies of any agreements or plans it intends to use in
connection with any sales of Series shares in adequate time for the
Trust to file and clear them with the proper authorities before they
are put in use (which the Trust agrees to use its best efforts to do as
expeditiously as reasonably possible), and not to use them until so
filed and cleared.
9. Registration and Qualification of Series Shares. The Trust agrees to
execute such papers and to do such acts and things as shall from time
to time be reasonably requested by the Distributor for the purpose of
qualifying and maintaining qualification of the Series shares for sale
under the so-called Blue Sky Laws of any state or for maintaining the
registration of the Trust and of the Series shares under the federal
Securities Act of 1933 and the federal Investment Company Act of 1940
(the "1940 Act"), to the end that there will be available for sale from
time to time such number of Series shares as the Distributor may
reasonably be expected to sell. The Trust shall advise the Distributor
promptly of (a) any action of the SEC or any authorities of any state
or territory, of which it may be advised, affecting registration or
qualification of the Trust or the Series shares, or rights to offer
Series shares for sale, and (b) the happening of any event which makes
untrue any statement or which requires the making of any change in the
Trust's registration statement or its prospectus relating to the Series
shares in order to make the statements therein not misleading.
10. Distributor Independent Contractor. The Distributor shall be an
independent contractor and neither the Distributor nor any of its
officers or employees as such is or shall be an employee of the Trust.
The Distributor is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to such
agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employer taxes
thereunder.
11. Expenses Paid by Distributor. While the Distributor continues to act as
agent of the Trust to obtain subscriptions for and to sell Series
shares, the Distributor shall pay the following:
(a) all expenses of printing (exclusive of typesetting) and
distributing any prospectus for use in offering Series shares
for sale, and all other copies of any such prospectus used by
the Distributor, and
(b) all other expenses of advertising and of preparing,
printing and distributing all other literature or material for
use in connection with offering Series shares for sale.
12. Interests in and of Distributor. It is understood that any of the
shareholders, trustees, officers, employees and agents of the Trust may
be a shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an
interest or any organization which may have an interest in the
Distributor; that the Distributor, any such affiliated person or any
such organization may have an interest in the Trust; and that the
existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in
the agreement and declaration of trust or by-laws of the Trust, in the
limited partnership agreement of the Distributor or by specific
provision of applicable law.
13. Words "New England" and Letters "TNE". The Distributor and/or its
parent organization and Nvest, L.P. ("Nvest"), retain proprietary
rights in the words "New England" and the letters "TNE", which may be
used by the Trust and the Series only with the consent of the
Distributor, which is authorized by Nvest to give such consent as
provided herein. The Distributor consents to the use by the Series of
the name "New England [NAME] Fund" or any other name embodying the
words "New England" or the letters "TNE", in such forms as the
Distributor shall in writing approve, but only on condition and so long
as (i) this Agreement shall remain in full force and (ii) the Trust
shall fully perform, fulfill and comply with all provisions of this
Agreement expressed herein to be performed, fulfilled or complied with
by it. No such name shall be used by the Trust or the Series at any
time or in any place or for any purposes or under any conditions except
as in this section provided. The foregoing authorization by the
Distributor as agent of Nvest to the Trust and the Series to use said
words or letters as part of a business or name is not exclusive of the
right of the Distributor itself to use, or to authorize others to use,
the same; the Trust acknowledges and agrees that as between the
Distributor and the Trust and the Series, the Distributor has the
exclusive right so to use, or authorize others to use, said words and
letters, and the Trust agrees to take such action as may reasonably be
requested by the Distributor to give full effect to the provisions of
this section (including, without limitation, consenting to such use of
said words or letters). Without limiting the generality of the
foregoing, the Trust agrees that, upon any termination of this
Agreement by either party or upon the violation of any of its
provisions by the Trust, the Trust will, at the request of the
Distributor made within six months after the Distributor has knowledge
of such termination or violation, use its best efforts to change the
name of the Trust and the Series so as to eliminate all reference, if
any, to the words "New England" or the letters "TNE" and will not
thereafter transact any business in a name containing the words "New
England" or the letters "TNE" in any form or combination whatsoever, or
designate itself as the same entity as or successor to any entity of
such name, or otherwise use the words "New England" or the letters
"TNE" or any other reference to the Distributor. Such covenants on the
part of the Trust and the Series shall be binding upon it, its
trustees, officers, shareholders, creditors and all other persons
claiming under or through it.
14. Effective Date and Termination. This Agreement shall become effective
as of the date of its execution, and
(a) Unless otherwise terminated, this Agreement shall continue
in effect with respect to the shares of the Series so long as
such continuation is specifically approved at least annually
(i) by the Board of Trustees of the Trust or by the vote of a
majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of
Trustees of the Trust who are not interested persons of the
Distributor or the Trust, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Agreement may at any time be terminated on sixty
days' notice to the Distributor either by vote of a majority
of the Trust's Board of Trustees then in office or by the vote
of a majority of the votes which may be cast by shareholders
of the Series.
(c) This Agreement shall automatically terminate in the event
of its assignment (excluding for this purpose any assignment
of rights to payment described in the recitals and in Section
19 of the Agreement which are hereby ratified and approved).
(d) This Agreement may be terminated by the Distributor on
ninety days' written notice to the Trust.
Termination of this Agreement pursuant to this section shall be without payment
of any penalty.
15. Definitions. For purposes of this Agreement, the following definitions
shall apply:
(a) The "vote of a majority of the votes which may be cast by
shareholders of the Series" means (1) 67% or more of the votes
of the Series present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Series entitled to vote at such
meeting are present; or (2) the vote of the holders of more
than 50% of the outstanding shares of the Series entitled to
vote at such meeting, whichever is less.
(b) The terms "affiliated person," "interested person" and
"assignment" shall have their respective meanings as defined
in the 1940 Act subject, however, to such exemptions as may be
granted by the SEC under the 1940 Act.
16. Amendment. This Agreement may be amended at any time by mutual consent
of the parties, provided that such consent on the part of the Series
shall be approved (i) by the Board of Trustees of the Trust or by vote
of a majority of the votes which may be cast by shareholders of the
Series and (ii) by a vote of a majority of the Board of Trustees of the
Trust who are not interested persons of the Distributor or the Trust
cast in person at a meeting called for the purpose of voting on such
approval.
17. Applicable Law and Liabilities. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts. All sales hereunder are to be made, and title to the
Series shares shall pass, in Boston, Massachusetts.
18. Limited Recourse. The Distributor hereby acknowledges that the Trust's
obligations hereunder with respect to the shares of the Series are
binding only on the assets and property belonging to the Series.
19. Payments to Distributor's Transferees. The Distributor may transfer its
rights to payments hereunder with respect to Class [ ] shares (but not
its obligations hereunder) in order to raise funds to cover
distribution expenditures, and any such transfer shall be effective
upon written notice from the Distributor to the Trust. In connection
with the foregoing, the Series is authorized to pay all or a part of
the Distribution Fee and/or contingent deferred sales charges in
respect of Class [ ] shares directly to such transferee as directed by
the Distributor.
20. Liquidation etc. As long as the Class [ ] Distribution and Service Plan
is in effect, the Series shall not change the manner in which the
Distribution Fee is computed (except as may be required by a change in
applicable law after the date hereof) or adopt a plan of liquidation
without the consent of the Distributor (or any designee or transferee
of the Distributor's rights to receive payment hereunder in respect of
Class [ ] shares) except in circumstances where a surviving entity or
transferee of the Series' assets adopts the Class [ ] Distribution and
Service Plan and assumes the obligations of the Series to make payments
to the Distributor (or its transferee) hereunder in respect of Class
[ ] shares.
21. "Distributor's Shares" etc. The Trust, on behalf of the Series, agrees
that it will not pay any portion of the Class [ ] Distribution Fee
which is calculated by reference to the "Distributor's Shares" (nor
shall it pay a Distribution Fee calculated by reference to Class [ ]
shares ("Other Class [ ] Shares") other than the Distributor's Shares
at a rate exceeding 0.75% per annum of the net assets attributable to
Other Class [ ] Shares) to any person other than the Distributor (or
its designee or transferee) without the written consent of the
Distributor. "Distributor's Shares" shall mean (i) Class [ ] shares of
the Series that were sold by the Distributor, plus (ii) Class [ ]
shares of the Series issued in connection with the exchange, for Class
[ ] shares of the Series, of Class [ ] shares of another fund in the
New England fund group that were sold by the Distributor, plus (iii)
Class [ ] shares of the Series issued in connection with the exchange,
for Class [ ] shares of the Series, of Class [ ] shares of another fund
in the New England fund group issued in respect of the automatic
reinvestment of dividends or capital gain distributions in respect of
Class [ ] shares of such other fund that were sold by the Distributor,
plus (iv) Class [ ] shares of the Series issued in respect of the
automatic reinvestment of dividends or capital gain distributions in
respect of Class [ ] shares of the Series described in clauses (i),
(ii) and (iii). To the extent permitted under the 1940 Act, the terms
of this Section 21 shall survive the termination of this Agreement.
22. Limitation on Reduction of Class [ ] Distribution Fee. The Trust, on
behalf of the Series, agrees that it will not reduce the Distribution
Fee in respect of Series' assets attributable to Class [ ] shares below
the annual rate of 0.75% unless it has ceased (and not resumed) paying
all "service fees" (within the meaning of Section 26 of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
or any successor provision thereto) to the Distributor, to any
affiliate of the Distributor and to any other person in circumstances
where substantially all of the services and functions relating to the
distribution of Class [ ] Series shares have been delegated to, or are
being performed by, the Distributor or an affiliate of the Distributor.
To the extent permitted under the 1940 Act, the terms of this Section
22 shall survive the termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEW ENGLAND FUNDS TRUST III, NEW ENGLAND FUNDS, L.P.
on behalf of its New England [NAME] By: NEF Corporation, its general
series partner
By: By:
Name: Name:
Title: Title:
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III (the "Trust") is on file with the Secretary of The
Commonwealth of Massachusetts, and notice is hereby given that this Agreement is
executed with respect to the Trust's New England [NAME] Fund series (the
"Series") on behalf of the Trust by officers of the Trust as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders of the Trust
individually but are binding only upon the assets and property of the Series.
<PAGE>
EXHIBIT g(2)
[LOGO]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- -------------------------------------------------------------------------------
March 16, 1998
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: New England Bullseye Fund
Gentlemen:
This is to advise you that New England Funds Trust III (the "Trust")
has established a new series of shares, New England Bullseye Fund. In accordance
with the Additional Funds provisions in Section 17 of the Custodian Contract
dated November 15, 1995 between the Trust and State Street Bank and Trust
Company and the provisions of Section 1.01 of the Sub-Transfer and Service
Agreement between New England Funds Service Corporation and State Street Bank,
the Trust and New England Funds Service Corporation hereby requests that you
act as Custodian and Sub-Transfer Agent for the new series under the terms of
the respective contracts. A revised Exhibit A to the Custodian Contract and to
the Sub-Transfer and Service Agreements are attached to this letter.
Acknowledged and Agreed to this 16th day of March, 1998:
By: /s/ Henry L.P. Schmelzer
-------------------------------------
Henry L.P. Schmelzer
President
New England Funds Trust III
New England Funds Service Corporation
By: /s/ Timothy Panaro
--------------------------------------
Vice President
State Street Bank and Trust Company
<PAGE>
Schedule A
New England Funds Trust III
Custodian Contract
New England Funds Trust III
- ---------------------------
o New England Equity Income Fund
o New England Bullseye Fund
<PAGE>
EXHIBIT h(3)
POWER OF ATTORNEY
We, the undersigned, hereby constitute Edward P. Lawrence, John M.
Loder, Bruce R. Speca and John E. Pelletier, each of them singly, our true and
lawful attorneys, with full power to them and each of them to sign for us, and
in our names in the capaciy indicated below, any and all registration statements
and any and all amendments thereto to be filed with the Securities and Exchange
Commission for the purpose of registering from time to time investment companies
of which we are now or hereafter a Director or Trustee and to register the
shares of such companies and generlly to do all such things in our names and on
our behalf to enable such regisered invesment companies to comply with the
provisions of the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, and all requirements and regulations of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as it
may be signed by our said attorneys and any and all registration statements and
amendments thereto
Witness our hands on the 30th day of October, 1998.
/s/ Graham Allison /s/ Sandra O. Moose
- ------------------------------ --------------------------------
Graham Allison -- Trustee Sandra O. Moose -- Trustee
/s/ Daniel M. Cain /s/ John A. Shane
- ------------------------------ --------------------------------
Daniel M. Cain -- Trustee John A. Shane -- Trustee
/s/ Kenneth J. Cowan /s/ Peter S. Voss
- ------------------------------ --------------------------------
Kenneth J. Cowan -- Trustee Peter S Voss -- Trustee
/s/ Richard Darman /s/ Pendleton P. White
- ------------------------------ --------------------------------
Richard Darman -- Trustee Pendleton P. White -- Trustee
<PAGE>
EXHIBIT h(4)
FORM OF
SPECIAL SERVICING AGREEMENT
This SPECIAL SERVICING AGREEMENT (the "Agreement"), is made as of this
[ ] day of [ ], 1999 by and among [New England Funds Trust III, a
Massachusetts business trust (the "Trust"), on behalf of its [Name of Fund]
series (the "Fund"),] Nvest Services Corp., a Delaware corporation ("NSC"), New
England Funds Management, L.P., a Delaware limited partnership ("NEFM"), and
[Name of Underlying Trust], a Massachusetts business trust, on behalf of its
[Name of Portfolio] series (the "Portfolio").
W I T N E S S E T H:
WHEREAS, the Trust and the [Name of Underlying Trust] are registered as
open-end management investment companies under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust has entered into an agreement with NEFM (the
"Investment Advisory Agreement") for the provision of advice and services to the
Fund;
WHEREAS, the Trust has entered into an agreement with NEFM (the
"[Administration] Agreement") whereby NEFM has agreed to provide, or to procure
at NEFM's expense, certain services necessary to the operation of the Fund;
WHEREAS, the Trust has entered into an agreement with NSC (the
"Transfer Agency Agreement") under which NSC provides the Fund with shareholder
servicing, account management, transfer and dividend disbursing agency services,
shareholder reports, proxies, prospectuses and similar shareholder communication
services and other related recordkeeping services for the Fund (the "Shareholder
Related Services");
[WHEREAS, the Trust has entered into an agreement with New England
Funds, L.P. ("Distribution Agreement") for the provision of distribution
services in connection with shares of the Fund;]
WHEREAS, the Fund intends to invest its assets exclusively in the
Portfolio, except for [temporary defensive purposes and] cash or cash items
[pending investment in the Portfolio or] necessary to meet current redemptions;
WHEREAS, the Fund is expected to provide a means by which the Portfolio
can increase its asset base without adding a substantial number of shareholder
accounts;
WHEREAS, the absence of such additional shareholder accounts can reduce
the expenses of the Portfolio that would otherwise be incurred by the Portfolio
for Shareholder Related Services as a result of such increased asset base; and
WHEREAS, the Board of Trustees of the [Name of Underlying Trust], on
behalf of the Portfolio, has determined that by operation of the Fund, it is
reasonable to expect the Shareholder Related Services provided by NSC to the
Fund will result in quantifiable benefits to the Portfolio as a whole and to
each class of its shareholders that are in excess of the fees payable by the
Portfolio hereunder; and such determination by the Board of Trustees is based on
some or all of the following factors, as they apply to the Portfolio:
a. The amount of assets expected to be and/or actually invested in the
Portfolio by the Fund;
b. The expectation that the assets invested in the Portfolio by the
Fund will be invested in a single omnibus account; and
c. The expenses that the Portfolio would have incurred for such
Shareholder Related Services if the assets invested by individual
investors in the Fund were invested directly by such individual
investors in the Portfolio instead of indirectly through the Fund's
omnibus account position in the Portfolio; and
d. The reduction of the Portfolio's fixed expenses (e.g. accounting,
custodial, auditing and legal services, state qualifications and
filings, director fees and organizational and various miscellaneous
expenses) as a percentage of the Portfolio's net assets attributable to
the investment by the Fund in the Portfolio.
NOW, THEREFORE, in consideration of the promises and mutual covenants
made herein, it is agreed between and among the parties hereto as follows:
1. PAYMENT OF TRANSFER AGENCY FEE
In recognition of the benefits to the Portfolio for the Shareholder
Related Services rendered to the Fund under the Transfer Agency
Agreement, the Portfolio will pay to NSC on behalf of the Fund a
portion of the fee due to NSC under the Transfer Agency Agreement, as
set forth in Schedule A hereto. The Treasurer of NSC shall provide an
invoice for the Fund to [Name of Underlying Trust] with regards to the
Portfolio at the end of each quarter, and such invoice shall include
the information on which the fee is calculated. The fee shall be
payable within 10 business days following the receipt of the quarterly
invoice. The parties agree that the payment of the fee is only for the
Shareholder Related Services provided by NSC and not for legal,
advisory, distribution or other services.
2. OPINION OF COUNSEL
At any time any of the parties hereto may consult legal counsel in
respect of any matter arising in connection with this Agreement, and no
such party shall be liable for any action taken or omitted by it in
good faith in accordance with such instruction or with the advice or
opinion of such legal counsel.
3. LIABILITIES
No party hereto shall be liable to any other party hereto for any
action taken or thing done by it or its agents or contractors in
carrying out the terms and provisions of this Agreement provided such
party has acted in good faith and without negligence or willful
misconduct and selected its agents and contractors with reasonable
care.
4. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, this Agreement shall continue
in effect for one year from the date of its execution, and
from year to year thereafter only so long as such continuance
is specifically approved at least annually (i) by the Board of
Trustees of the [Name of Underlying Trust], and (ii) by vote
of a majority of the Trustees of the [Name of Underlying
Trust] who are not "interested persons" of [Name of Underlying
Trust], as that term is defined in the 1940 Act (the
"Independent Trustees");
(b) this Agreement may at any time be terminated on sixty
days' written notice to the other parties by either the Trust
or [Name of Underlying Trust] by vote of the terminating
party's Board of Trustees; and
(c) this Agreement shall not be assigned or transferred,
either voluntarily or involuntarily, by operation of law or
otherwise, without the prior written consent of the Trust's
and [Name of Underlying Trust]'s respective Boards of Trustees
and shall automatically and immediately terminate in the event
of its assignment without the prior written consent of the
parties hereto.
Termination of this Agreement pursuant to this section 4 shall be
without payment of any penalty.
5. AMENDMENT OF THE AGREEMENT
The Agreement may be modified or amended from time to time by mutual
written agreement between the parties hereto, with the approval of the
Board of Trustees of [Name of Underlying Trust], including a majority
of the Independent Trustees.
6. NOTICE
Any notice under this Agreement shall be in writing, addressed and
delivered or sent by registered or certified mail, postage prepaid, to
the other party at such address as such other party may designate for
the receipt of such notices.
7. INTERPRETIVE PROVISIONS
In connection with the operation of this Agreement, the parties may
agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions are to be signed by all
parties and annexed hereto, but no such provisions shall contravene any
applicable Federal or State law or regulation.
8. STATE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts.
9. CAPTIONS
The captions in the Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Notice
A copy of the Agreement and Declaration of Trust establishing New
England Funds Trust III is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Trust's ________ series on behalf of the Trust by officers of the
Trust as officers and not individually and that the obligations of or arising
out of this Agreement are not binding upon any of the trustees, officers or
shareholders individually but are binding only upon the assets and property
belonging to the Fund.
A copy of the Agreement and Declaration of Trust establishing [Name of
Underlying Trust] is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to [Name of Underlying Trust]'s ________ series on behalf of [Name of
Underlying Trust] by officers of [Name of Underlying Trust] as officers and not
individually and that the obligations of or arising out of this Agreement are
not binding upon any of the trustees, officers or shareholders individually but
are binding only upon the assets and property belonging to the Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed as of the day and year first above written.
NEW ENGLAND FUNDS TRUST III, [Name of Underlying Trust],
on behalf of its [Name of Fund] series on behalf of its [Name of
Underlying Fund] series
By: _______________________ By: ______________________
Name: Name:
Title: Title:
NEW ENGLAND FUNDS NVEST SERVICES CORP.
MANAGEMENT, L.P.
By: NEF Corporation, its general partner By: ______________________
Name:
By: ______________________ Title:
Name:
Title:
<PAGE>
SCHEDULE A
For the services rendered to the Fund, the Portfolio agrees to pay NSC a
quarterly fee equal to the lesser of (i) 0.12% (at an annual rate) of the
average daily net asset value of monies that the Fund has invested in the
Portfolio during the quarter, and (ii) the total amount of the fees due to NSC
under the Transfer Agency Agreement in respect of the quarter.
<PAGE>
EXHIBIT h(5)
Subject to change
FORM OF
EXPENSE CAP AGREEMENT
AGREEMENT dated this day of 1999 by and
between New England Funds Trust III, a Massachusetts business trust (the
"Trust"), and New England Funds Management, L.P., a Delaware limited partnership
(the "Adviser").
WHEREAS, the Adviser has been appointed the investment adviser to the
[Name of the Fund] (the "Fund") pursuant to an Advisory Agreement;
WHEREAS, the Fund is expected to invest all (or substantially all) of
its investment assets in a registered, open-end management company, or separate
series thereof (the "Portfolio"), in accordance with Section 12(d)(1)(E) under
the Investment Company Act of 1940 (the " 1940 Act");
WHEREAS, the Fund has entered into a Special Servicing Agreement (the
"Special Servicing Agreement") with the Portfolio to compensate the Fund for
expenses incurred by the Fund in providing shareholder servicing, account
management, transfer and dividend disbursing agency services, and shareholder
reports, proxies, prospectuses and similar communications and other related
services to its shareholders; and
WHEREAS, the Adviser has agreed to subsidize the expenses of the Fund
so as to limit the operating expenses of the Fund (exclusive of the expenses
paid for by the Portfolio under the Special Servicing Agreement, and of any
interest, taxes and extraordinary expenses) to 0.10% of its average daily
assets.
NOW, THEREFORE, the Trust and the Adviser hereby agree as follows:
1. The Adviser shall pay such portion of the expenses incurred in the
operation of the Fund, as is necessary to reduce the total operating expenses
borne by the Fund (exclusive of expenses paid by the Portfolio under Special
Servicing Agreement, and of any interest, taxes or extraordinary expenses) to
0.10% of the average daily net assets of the Fund.
2. The Fund agrees to repay to the Adviser the amount of fees waived
and expenses borne by the Adviser with respect to the Fund pursuant to Section 1
of this Agreement, subject to the limitation provided in this Section 2. Such
repayment shall be made monthly, but only if the operating expenses of the Fund
(exclusive of expenses paid by the Portfolio under the Special Servicing
Agreement, and of any interest, taxes and extraordinary expenses), without
regard to such repayment, are at an annual rate (as a percentage of the Fund'
average daily net assets) that is less than the percentage rate for the Fund set
forth in Section 1. Furthermore, the amount repaid by the Fund in any month
shall be limited so that the sum of (a) the amount of such repayment and (b) the
other operating expenses of the Fund (exclusive of expenses paid by the
Portfolio under the Special Servicing Agreement, and of any interest, taxes and
extraordinary expenses) do not exceed the annual rate (as a percentage of the
Fund's average daily net assets) for the Fund set forth in Section 1.
Amounts of fees waived and expenses borne by the Adviser with respect
to the Fund pursuant to Section 1 during any fiscal year of the Trust shall not
be repayable if the amounts repayable by the Fund pursuant to the immediately
preceding two sentences during the period ending two years after the end of such
fiscal year are not sufficient to completely repay such amounts of fees waived
and expenses borne.
3. The Adviser may not terminate its obligation under Section I to
waive fees or bear expenses with respect to the Fund in any period covered by
this Agreement without the prior written consent of the Independent Trustees as
that term is defined in the 1940 Act. Any termination under this section shall
not affect the obligation (including the amount of the obligation) of the Fund
to repay amounts of fees waived or expenses borne by the Adviser during periods
prior to the termination date.
4. This Agreement shall become effective as of the date set forth
above, and unless otherwise terminated, this Agreement shall continue in effect
for a period of two years from such date.
A copy of the Agreement and Declaration of Trust establishing New
England The Funds Trust III is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to each Fund on behalf of the Trust by officers of the Trust as officers
and not individually and that the obligations of or arising out of this
Agreement are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property belonging to the
Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NEW ENGLAND THE FUNDS TRUST III,
on behalf of [Name of The Fund]
By: ------------------------------
Name -----------------------------
Title ----------------------------
NEW ENGLAND THE FUNDS MANAGEMENT, L.P.
By NEF Corp., its general partner
By: ------------------------------
Name -----------------------------
Title ----------------------------
<PAGE>
EXHIBIT m(7)
NEW ENGLAND [NAME] FUND
Class A Service Plan
This Plan (the "Plan") entered into on February st, 1999 constitutes
the Service Plan relating to the Class A shares of New England [NAME] Fund (the
"Series"), a series of New England Funds Trust III, a Massachusetts business
trust (the "Trust").
Section 1. The Trust, on behalf of the Series, will pay to New England
Funds, L.P., a Delaware limited partnership which acts as the Principal
Distributor of the Series' shares, or such other entity as shall from time to
time act as the Principal Distributor of the Series' shares (the "Distributor"),
a fee (the "Service Fee") for expenses borne by the Distributor in connection
with the provision of personal services provided to investors in Class A shares
of the Series and/or the maintenance of shareholder accounts, at an annual rate
not to exceed 0.25% of the Series' average daily net assets attributable to the
Class A shares. Subject to such limit and subject to the provisions of Section 7
hereof, the Service Fee shall be as approved from time to time by (a) the
Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service
Fee shall be accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. All payments under this Service Plan are intended to
qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. (or any successor
provision) as in effect from time to time.
Section 2. The Service Fee may be paid only to reimburse the
Distributor for expenses of providing personal services to investors in Class A
shares of the Series, including, but not limited to, (i) expenses (including
overhead expenses) of the Distributor for providing personal services to
investors in Class A shares of the Series or in connection with the maintenance
of shareholder accounts and (ii) payments made by the Distributor to any
securities dealer or other organization (including, but not limited to, any
affiliate of the Distributor) with which the Distributor has entered into a
written agreement for this purpose, for providing personal services to investors
in Class A shares of the Series, and/ or the maintenance of shareholder
accounts, which payments to any such organization may be in amounts in excess of
the cost incurred by such organization in connection therewith.
Section 3. This Plan shall continue in effect for a period of more than
one year after February th, 2001 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class A shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees or by vote of
a majority of the outstanding Class A shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Section 1 hereof without approval by a
vote of at least a majority of the outstanding Class A shares of the Series, and
all material amendments of this Plan shall be approved in the manner provided
for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
EXHIBIT m(8)
NEW ENGLAND [NAME] FUND
CLASS B DISTRIBUTION AND SERVICE PLAN
This Plan (the "Plan") entered into on February ____th, 1999
constitutes the Distribution and Service Plan relating to the Class B shares of
NEW ENGLAND [NAME] FUND (the "Series"), a series of New England Funds Trust III,
a Massachusetts business trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P. ("NEF"), a Delaware limited partnership which acts as
the Principal Distributor of the Series' shares, or such other entity as shall
from time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed 0.25%
of the Series' average daily net assets attributable to the Class B shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Service Fee shall be as approved from time to time by (a) the Trustees of the
Trust and (b) the Independent Trustees of the Trust; provided, however, that no
Service Fee or other fee that is a "service fee" as defined in Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(or any successor provision thereto) as in effect from time to time (the "NASD
Rule") shall be paid, with respect to Class B shares of the Series, to NEF (or
to any affiliate of NEF, or to any other person in circumstances where
substantially all of the services and functions relating to the distribution of
Class B shares of the Series have been delegated to, or are being performed by,
NEF or an affiliate of NEF), under this Plan or otherwise, if the Distribution
Fee is terminated or is reduced below the rate set forth in Section 2. The
Service Fee shall be accrued daily and paid monthly or at such other intervals
as the Trustees shall determine. The Distributor may pay all or any portion of
the Service Fee to securities dealers or other organizations (including, but not
limited to, any affiliate of the Distributor) as service fees pursuant to
agreements with such organizations for providing personal services to investors
in Class B shares of the Series and/or the maintenance of shareholder accounts,
and may retain all or any portion of the Service Fee as compensation for
providing personal services to investors in Class B shares of the Series and/or
the maintenance of shareholder accounts. All payments under this Section 1 are
intended to qualify as "service fees" as defined in the NASD Rule.
Section 2. Distribution Fee. In addition to the Service Fee, the Trust,
on behalf of the Series, will pay to the Distributor a fee (the "Distribution
Fee") at an annual rate of 0.75% (unless reduced as contemplated by and
permitted pursuant to the next sentence hereof) of the Series' average daily net
assets attributable to the Class B shares in consideration of the services
rendered in connection with the sale of such shares by the Distributor. The
Trust will not terminate the Distribution Fee in respect of Series assets
attributable to Class B shares, or pay such fee at an annual rate of less than
0.75% of the Series' average daily net assets attributable to the Class B
shares, unless it has ceased, and not resumed, paying the Service Fee (or any
other fee that constitutes a "service fee" as defined in the NASD Rule) to NEF
(or to any affiliate of NEF, or to any other person in circumstances where
substantially all of the services and functions relating to the distribution of
Class B shares of the Series have been delegated to, or are being performed by,
NEF or an affiliate of NEF). Subject to such restriction and subject to the
provisions of Section 7 hereof, the Distribution Fee shall be as approved from
time to time by (a) the Trustees of the Trust and (b) the Independent Trustees
of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
The obligation of the Series to pay the Distribution Fee shall
terminate upon the termination of this Plan or the relevant distribution
agreement between the Distributor and the Trust relating to the Series, in
accordance with the terms hereof or thereof, but until any such termination
shall not be subject to any dispute, offset, counterclaim or defense whatsoever
(it being understood that nothing in this sentence shall be deemed a waiver by
the Trust or the Series of its right separately to pursue any claims it may have
against the Distributor and enforce such claims against any assets of the
Distributor (other than its right to be paid the Distribution Fee and to be paid
contingent deferred sales charges)).
The right of NEF to receive the Distribution Fee (but not the relevant
distribution agreement or NEF's obligations thereunder) may be transferred by
NEF in order to raise funds which may be useful or necessary to perform its
duties as principal underwriter, and any such transfer shall be effective upon
written notice from NEF to the Trust. In connection with the foregoing, the
Series is authorized to pay all or part of the Distribution Fee directly to such
transferee as directed by NEF.
The Distributor may pay all or any portion of the Distribution Fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the Distributor) as commissions, asset-based sales charges or other
compensation with respect to the sale of Class B shares of the Series, and may
retain all or any portion of the Distribution Fee as compensation for the
Distributor's services as principal underwriter of the Class B shares of the
Series. All payments under this Section 2 are intended to qualify as
"asset-based sales charges" as defined in the NASD Rule.
Section 3. This Plan shall continue in effect for a period of more than
one year after February ____, 2001 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class B shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding Class B shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class B shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class B shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
<PAGE>
EXHIBIT m(9)
NEW ENGLAND [NAME] FUND
CLASS C DISTRIBUTION AND SERVICE PLAN
This Plan (the "Plan") entered into on February ____th, 1999
constitutes the Distribution and Service Plan relating to the Class C shares of
NEW ENGLAND [NAME] FUND (the "Series"), a series of New England Funds Trust III,
a Massachusetts business trust (the "Trust").
Section 1. Service Fee. The Trust, on behalf of the Series, will pay to
New England Funds, L.P. ("NEF"), a Delaware limited partnership which acts as
the Principal Distributor of the Series' shares, or such other entity as shall
from time to time act as the Principal Distributor of the Series' shares (the
"Distributor"), a fee (the "Service Fee") at an annual rate not to exceed 0.25%
of the Series' average daily net assets attributable to the Class C shares.
Subject to such limit and subject to the provisions of Section 7 hereof, the
Service Fee shall be as approved from time to time by (a) the Trustees of the
Trust and (b) the Independent Trustees of the Trust; provided, however, that no
Service Fee or other fee that is a "service fee" as defined in Section 26 of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(or any successor provision thereto) as in effect from time to time (the "NASD
Rule") shall be paid, with respect to Class C shares of the Series, to NEF (or
to any affiliate of NEF, or to any other person in circumstances where
substantially all of the services and functions relating to the distribution of
Class C shares of the Series have been delegated to, or are being performed by,
NEF or an affiliate of NEF), under this Plan or otherwise, if the Distribution
Fee is terminated or is reduced below the rate set forth in Section 2. The
Service Fee shall be accrued daily and paid monthly or at such other intervals
as the Trustees shall determine. The Distributor may pay all or any portion of
the Service Fee to securities dealers or other organizations (including, but not
limited to, any affiliate of the Distributor) as service fees pursuant to
agreements with such organizations for providing personal services to investors
in Class C shares of the Series and/or the maintenance of shareholder accounts,
and may retain all or any portion of the Service Fee as compensation for
providing personal services to investors in Class C shares of the Series and/or
the maintenance of shareholder accounts. All payments under this Section 1 are
intended to qualify as "service fees" as defined in the NASD Rule.
Section 2. Distribution Fee. In addition to the Service Fee, the Trust,
on behalf of the Series, will pay to the Distributor a fee (the "Distribution
Fee") at an annual rate of 0.75% (unless reduced as contemplated by and
permitted pursuant to the next sentence hereof) of the Series' average daily net
assets attributable to the Class C shares in consideration of the services
rendered in connection with the sale of such shares by the Distributor. The
Trust will not terminate the Distribution Fee in respect of Series assets
attributable to Class C shares, or pay such fee at an annual rate of less than
0.75% of the Series' average daily net assets attributable to the Class C
shares, unless it has ceased, and not resumed, paying the Service Fee (or any
other fee that constitutes a "service fee" as defined in the NASD Rule) to NEF
(or to any affiliate of NEF, or to any other person in circumstances where
substantially all of the services and functions relating to the distribution of
Class C shares of the Series have been delegated to, or are being performed by,
NEF or an affiliate of NEF). Subject to such restriction and subject to the
provisions of Section 7 hereof, the Distribution Fee shall be as approved from
time to time by (a) the Trustees of the Trust and (b) the Independent Trustees
of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
The obligation of the Series to pay the Distribution Fee shall
terminate upon the termination of this Plan or the relevant distribution
agreement between the Distributor and the Trust relating to the Series, in
accordance with the terms hereof or thereof, but until any such termination
shall not be subject to any dispute, offset, counterclaim or defense whatsoever
(it being understood that nothing in this sentence shall be deemed a waiver by
the Trust or the Series of its right separately to pursue any claims it may have
against the Distributor and enforce such claims against any assets of the
Distributor (other than its right to be paid the Distribution Fee and to be paid
contingent deferred sales charges)).
The right of NEF to receive the Distribution Fee (but not the relevant
distribution agreement or NEF's obligations thereunder) may be transferred by
NEF in order to raise funds which may be useful or necessary to perform its
duties as principal underwriter, and any such transfer shall be effective upon
written notice from NEF to the Trust. In connection with the foregoing, the
Series is authorized to pay all or part of the Distribution Fee directly to such
transferee as directed by NEF.
The Distributor may pay all or any portion of the Distribution Fee to
securities dealers or other organizations (including, but not limited to, any
affiliate of the Distributor) as commissions, asset-based sales charges or other
compensation with respect to the sale of Class C shares of the Series, and may
retain all or any portion of the Distribution Fee as compensation for the
Distributor's services as principal underwriter of the Class C shares of the
Series. All payments under this Section 2 are intended to qualify as
"asset-based sales charges" as defined in the NASD Rule.
Section 3. This Plan shall continue in effect for a period of more than
one year after February ____, 2001 only so long as such continuance is
specifically approved at least annually by votes of the majority (or whatever
other percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 4. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Class C shares of the Series.
Section 6. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the
Independent Trustees or by vote of a majority of the
outstanding Class C shares of the Series, on not more than 60
days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 7. This Plan may not be amended to increase materially the
amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval
by a vote of at least a majority of the outstanding Class C shares of the
Series, and all material amendments of this Plan shall be approved in the manner
provided for continuation of this Plan in Section 3.
Section 8. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the Act and
the rules and regulations thereunder, and the term "majority of the outstanding
Class C shares of the Series" shall mean the lesser of the 67% or the 50% voting
requirements specified in clauses (A) and (B), respectively, of the third
sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may
be granted by the Securities and Exchange Commission.
