<PAGE>
Registration Nos. 33-62061
811-7345
- - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - - - - - - - - - - - - -
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 7 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 10 [X]
(Check appropriate box or boxes)
- - - - - - - - - - - - - - -
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)
- - - - - - - - - - - - - - -
John E. Pelletier, Esq.
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
- - - - - - - - - - - - - - -
Copy to:
Edward Lawrence, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
- - - - - - - - - - - - - - -
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
[X] on April 30, 1999 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
[logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
New
England
Funds Stock
Funds
[graphic omitted]
- -------------------------------------------------
LARGE-CAP EQUITY
New England Capital Growth Fund
New England Growth Fund
New England Growth Opportunities Fund
New England Balanced Fund
New England Value Fund
ALL-CAP EQUITY
New England International Equity Fund
New England Equity Income Fund
New England Bullseye Fund
PROSPECTUS
May 01, 1999
WHAT'S INSIDE
Goals, Strategies & Risks [graphic omitted]
Page 2
- -------------------------------------------------
Fund Fees & Expenses [graphic omitted]
Page 18
- -------------------------------------------------
Management Team [graphic omitted]
Page 20
- -------------------------------------------------
Fund Services [graphic omitted]
Page 22
- -------------------------------------------------
Fund Performance [graphic omitted]
Page 34
- -------------------------------------------------
New England Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
The Securities and Exchange Commission has not approved any Fund's shares 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.
- -------------------------------------------------------------------------------
<PAGE>
Table of Contents
- -------------------------------------------------------------------------------
GOALS, STRATEGIES & RISKS
- -------------------------------------------------------------------------------
New England Capital Growth Fund ......................................... 2
New England Growth Fund ................................................. 4
New England Growth Opportunities Fund ................................... 6
New England Balanced Fund ............................................... 8
New England Value Fund .................................................. 10
New England International Equity Fund ................................... 12
New England Equity Income Fund .......................................... 14
New England Bullseye Fund ............................................... 16
More About Risk ......................................................... 17
- -------------------------------------------------------------------------------
FUND FEES & EXPENSES
- -------------------------------------------------------------------------------
Fund Fees & Expenses .................................................... 18
- -------------------------------------------------------------------------------
MANAGEMENT TEAM
- -------------------------------------------------------------------------------
Meet the Funds' Investment Advisers and Subadvisers ..................... 20
Meet the Funds' Portfolio Managers ...................................... 21
- -------------------------------------------------------------------------------
FUND SERVICES
- -------------------------------------------------------------------------------
Investing in the Funds .................................................. 22
How Sales Charges are Calculated ........................................ 23
Ways to Reduce or Eliminate Sales Charges ............................... 24
It's Easy to Open an Account ............................................ 25
Buying Shares ........................................................... 26
Selling Shares .......................................................... 27
Selling Shares in Writing ............................................... 28
Exchanging Shares ....................................................... 29
How Fund Shares Are Priced .............................................. 30
Dividends and Distributions ............................................. 31
Tax Consequences ........................................................ 31
Compensation to Securities Dealers ...................................... 32
Additional Investor Services ............................................ 33
- -------------------------------------------------------------------------------
FUND PERFORMANCE
- -------------------------------------------------------------------------------
New England Capital Growth Fund ......................................... 34
New England Growth Fund ................................................. 35
New England Growth Opportunities Fund ................................... 36
New England Balanced Fund ............................................... 37
New England Value Fund .................................................. 38
New England International Equity Fund ................................... 39
New England Equity Income Fund .......................................... 40
New England Bullseye Fund ............................................... 41
Glossary of Terms ....................................................... 42
If you have any questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
To learn more about the possible risks of a Fund, please refer to the section
entitled "More About Risk." This section details the risks of practices in which
the Funds may engage. Please read this section carefully before you invest.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
-------------------------- Stability Income Growth
NEW ENGLAND CAPITAL GROWTH FUND -----------------------
High X
ADVISER: New England Funds Management, L.P. --------- ------ ------
("NEFM") Mod. X
--------- ------ ------
SUBADVISER: Westpeak Investment Advisors, L.P. Low X
("Westpeak")
MANAGER: Gerald H. Scriver TICKER SYMBOL: CLASS A CLASS B CLASS C
---------------------------
CATEGORY: Large-Cap Equity NEFCX NECBX NECGX
INVESTMENT GOAL
The Fund seeks long-term capital growth.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in common stock of U.S. medium and large capitalization companies in any
industry.
Westpeak constructs a portfolio of reasonably-priced growth stocks by combining
its experience and judgment with a dynamic weighting process known as "portfolio
profiling." The portfolio emphasizes the characteristics that Westpeak believes
are most likely to be rewarded by the market in the period ahead. Using
proprietary research based on economic, market and company specific information,
Westpeak analyzes each stock and ranks them based on characteristics such as:
x earnings-to-price ratios
x earnings growth rates
x positive earnings surprises
x book-to-price ratios
In selecting investments for the Fund's portfolio, Westpeak employs the
following strategy:
o It starts with the Russell 3000 Growth Index of about 1,800 stocks and
generally eliminates stocks of companies below a $500 million market
capitalization threshold. This creates an overall valuation universe of about
1,200 stocks, with approximately 90% from the Russell 1000 Growth Index
(comprised of large and medium capitalization companies) and 10% from the
Russell 2000 Growth Index (comprised of small capitalization companies).
o Next, it screens these stocks using fundamental growth and value criteria and
calculates a "fundamental rank" for each stock. This rank reflects a
historical analysis of the company using approximately 70 growth and value
characteristics.
o All of the stocks are then screened using Wall Street analysts' projected
earnings estimates for the company and each is assigned an "expectations
rank." This rank accounts for the company's potential earnings revisions and
"positive earnings surprises"(whether its business has the potential to
improve in the near future).
o The final step is to calculate a "composite rank" for each stock by combining
their fundamental and expectation ranks and to evaluate whether to buy, sell
or hold a stock by comparing its composite rank to those of other stocks on a
stock valuation matrix.
o The desired result is a portfolio of 75 to 125 stocks that Westpeak believes
will produce the highest long-term returns consistent with the Fund's risk
parameters.
The Fund may:
o Hold up to 10% of its assets in smaller capitalization companies.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of capital gains, which
may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in a stock's value or periods
of below-average performance in a given stock or in the stock market as a
whole. Small capitalization companies may be subject to more abrupt price
movements, limited markets and less liquidity than larger, more established
companies, which could adversely affect the value of the portfolio.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Capital Growth Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future. The Fund's current
subadviser assumed that function on February 16, 1998. This chart and table
reflect results achieved by the previous subadviser using different investment
principles for periods prior to February 16, 1998.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this Prospectus 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.
[Total Return for Class A Shares]
1993 7.90%
1994 -1.40%
1995 30.90%
1996 17.10%
1997 17.20%
1998 00.00%
/\ Highest Quarterly Return: Quarter , up %
\/ Lowest Quarterly Return: Quarter , down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception, if shorter)
compared to those of the Russell 1000 Growth Index, an unmanaged subset of
stocks from the larger Russell 1000 Index, selected for their greater growth
orientation. They are also compared to the Lipper Growth Fund and Morningstar
Large Growth Averages, each an average of the total returns of all mutual funds
with an investment style similar to that of the Fund as calculated by Lipper,
Inc. and Morningstar, Inc. You may not invest directly in an index. The Fund's
total returns reflect its expenses and the maximum sales charge that you may pay
when you buy or redeem the Fund's shares. The Russell 1000 Growth Index returns
have not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments. The Lipper
Growth Fund and Morningstar Large Growth Average returns have been adjusted for
these expenses but do not reflect any sales changes.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England Capital Growth Fund: Class A (inception 8/3/92) % % %
Russell 1000 Growth Index % % %
Lipper Growth Fund Average % % %
Morningstar Large Growth Average % % %
New England Capital Growth Fund: Class B (inception 9/13/93) % % %
Russell 1000 Growth Index % % %
Lipper Growth Fund Average (calculated from 9/30/93) % % %
Morningstar Large Growth Average (calculated from 9/30/93) % % %
New England Capital Growth Fund: Class C (inception 12/30/94) % % %
Russell 1000 Growth Index % % %
Lipper Growth Fund Average % % %
Morningstar Large Growth Average % % %
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees and Expenses."
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
New England Growth Fund -----------------------
High X
ADVISER: Capital Growth Management --------- ------ ------
Limited Partnership ("CGM") Mod.
--------- ------ ------
MANAGER: G. Kenneth Heebner Low X X
CATEGORY: Large-Cap Equity TICKER SYMBOL: CLASS A CLASS B CLASS C
---------------------------
NEFGX NEBGX NEGCX
INVESTMENT GOAL
The Fund seeks long-term growth of capital through investment in equity
securities of companies whose earnings are expected to grow at a faster rate
than the United States economy.
INVESTMENT STRATEGIES
Under normal market conditions, the fund will invest substantially all of its
assets in equity securities. The fund will generally invest in common stock of
large capitalization companies that CGM expects will grow at a faster rate than
the United States economy. When market conditions warrant, however, CGM may
select stocks based upon overall economic factors such as the general economic
outlook, the level and direction of interest rates and potential impact of
inflation. The fund will not invest in small capitalization companies.
In general, CGM seeks companies with the following characteristics, although not
all of the companies selected will have these attributes:
x well-established with records of above-average growth
x promise of maintaining their leadership positions in their industries
x likely to benefit from internal revitalization or innovations, changes in
consumer demand, or basic economic forces
Rather than following a particular style, CGM employs a flexible approach and
seeks to take advantage of opportunities as they arise. In making an investment
decision, CGM will generally employ the following methods:
o It uses a top-down approach, meaning that it analyzes the overall economic
factors that may affect a potential investment.
o CGM then conducts a thorough analysis of certain industries and companies,
evaluating the fundamentals of each on a case-by-case basis and focusing on
companies that it determines are attractively valued.
o CGM's ultimate decision to purchase a security results from a thorough
assessment of all of the information that CGM deems to be relevant at the
time of investment.
o CGM will sell a stock if it determines that its investment expectations are
not being met, if better opportunities are identified or if its price
objective has been attained.
The Fund may:
o Invest in foreign securities.
o Invest in other investment companies.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that
you may lose money on your investment due to unpredictable drops in value or
periods of below-average performance in a given stock or in the stock market
as a whole. Although the Fund is diversified, its focused approach means that
its relatively small number of holdings may result in greater share price
fluctuations than a more diversified mutual fund.
INVESTMENTS IN OTHER INVESTMENT COMPANIES: May incur extra costs in addition to
its own expenses.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of
several European countries to the "euro" currency.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Growth Fund. The Fund's past performance does not necessarily
indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the other classes of shares offered by
this Prospectus 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.
[Total Return for Class A Shares]
1989 22.30%
1990 5.10%
1991 56.70%
1992 (6.30)%
1993 11.30%
1994 (7.40)%
1995 38.10%
1996 20.90%
1997 23.50%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception if shorter)
compared to those of the Standard & Poor's Composite Index of 500 Stocks ("S&P
500"), a market value-weighted, unmanaged index of common stock prices for 500
selected stocks. They are also compared to the Lipper Growth Fund and
Morningstar Large Blend Averages, each an average of the total returns of all
mutual funds with an investment style similar to that of the Fund as calculated
by Lipper, Inc and Morningstar, Inc. You may not invest directly in an index.
The Fund'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 returns have
not been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments. The Lipper Growth Fund
Average and Morningstar Large Blend Average returns have been adjusted for these
expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------- *Since inception
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England Growth Fund: Class A (inception 11/27/68) % % %
S&P 500 % % %
Lipper Growth Fund Average % % %
Morningstar Large Blend Average % % %
New England Growth Fund: Class B (inception 2/28/97) % %*
S&P 500 % %*
Lipper Growth Fund Average % %*
Morningstar Large Blend Average % %*
New England Growth Fund: Class C (inception 9/1/98) -%*
S&P 500 -%*
Lipper Growth Fund Average -%*
Morningstar Large Blend Average -%*
- --------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
NEW ENGLAND GROWTH -----------------------
OPPORTUNITIES FUND High X
--------- ------ ------
ADVISER: New England Funds Management, L.P. Mod. X
("NEFM") --------- ------ ------
Low X
SUBADVISER: Westpeak Investment Advisors, L.P.
("Westpeak")
TICKER SYMBOL: CLASS A CLASS B CLASS C
MANAGER: Gerald H. Scriver ---------------------------
NEFOX NEGBX NECOX
CATEGORY: Large-Cap Equity
INVESTMENT GOAL
The Fund seeks opportunities for long-term capital growth and income.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all its
assets in common stock of large capitalization companies in any industry.
Westpeak constructs a portfolio of recognizable, reasonably-priced growth stocks
by combining its experience and judgment with a dynamic weighting process known
as "portfolio profiling." The portfolio emphasizes the characteristics that
Westpeak feels are most likely to be rewarded by the market in the period ahead.
Using proprietary research based on economic, market and company specific
information, Westpeak analyzes each stock and ranks them based on
characteristics such as:
x earnings-to-price ratios
x earnings growth rates
x positive earnings surprises
x book-to-price ratios
x dividend yield
In selecting investments for the Fund, Westpeak employs the following strategy:
o It starts with an initial universe of approximately 1,300 stocks of large
capitalization companies and generally eliminates stocks of companies below a
$1.4 billion market capitalization threshold. This creates an overall
universe of about 900 stocks.
o Next, it screens these stocks using fundamental growth and value criteria and
calculates a "fundamental rank" for each stock. This rank reflects a
historical analysis of the company using approximately 70 growth and value
characteristics.
o All of the stocks are then screened using Wall Street analysts' projected
earnings estimates for the company and each is assigned an "expectations
rank." This rank accounts for the company's potential earnings revisions and
"positive earnings surprises"(whether its business has the potential to
improve in the near future).
o The final step is to calculate a "composite rank" for each stock by combining
their fundamental and expectation ranks and to evaluate whether to buy, sell
or hold a stock by comparing its composite rank to those of other stocks on a
stock valuation matrix;
o The desired result is a portfolio of 75 to 150 stocks, with a dividend yield
that approximates that of the Standard & Poor's Composite Rank of 500 stocks
("S&P 500"), which Westpeak believes will produce the highest long-term
returns consistent with the portfolio's risk parameters.
The Fund may:
o Invest in foreign securities traded in U.S. markets (through American
Depository Receipts ("ADRs") or stocks sold in U.S. dollars).
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
FOREIGN SECURITIES: ADRs may be more volatile than U.S. securities and carry
political, economic and information risks that are associated with foreign
securities.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Growth Opportunities Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future. The Fund's current
subadviser assumed that function on May 1, 1995. This chart and table reflect
results achieved by the previous subadviser using different investment
principles for periods prior to May 1, 1995.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the other classes of shares offered by
this Prospectus 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.
[Total Return for Class A Shares]
1989 27.60%
1990 (4.30)%%
1991 30.60%
1992 9.30%
1993 8.00%
1994 1.00%
1995 35.10%
1996 17.20%
1997 33.40%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception if shorter)
compared to those of the S&P 500, a market value-weighted, unmanaged index of
common stock prices of 500 selected stocks. They are also compared to the Lipper
Growth & Income and Morningstar Large Value Averages, each an average of the
total returns of all mutual funds with an investment style similar to that of
the Fund as calculated by Lipper, Inc. and Morningstar, Inc. You may not invest
directly in an index. The Fund's total returns reflect its expenses and the
maximum sales charge that you may pay when you buy or redeem the Fund's shares.
The S&P 500 returns have not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual fund investments.
The Lipper Growth & Income Average and Morningstar Large Value Average returns
have been adjusted for these expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------ *Since inception
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England Growth Opportunities Fund: Class A (inception 5/6/31) % % %
S&P 500 % % %
Lipper Growth & Income Average % % %
Morningstar Large Value Average % % %
New England Growth Opportunities Fund: Class B (inception 9/13/93) % % %*
S&P 500 % % %*
Lipper Growth & Income Average (calculated from 9/30/93) % % %*
Morningstar Large Value Average (calculated from 9/30/93) % % %*
New England Growth Opportunities Fund: Class C (inception 5/1/95) % %*
S&P 500 % %*
Lipper Growth & Income Average (calculated from 4/30/95) % %*
Morningstar Large Value Average (calculated from 4/30/95 ) % %*
- ----------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees and Expenses."
* Since inception.
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
NEW ENGLAND BALANCED FUND -----------------------
High
--------- ------ ------
ADVISER: New England Funds Management, L.P. Mod. X X X
("NEFM") --------- ------ ------
Low
SUBADVISER: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
MANAGERS: Equity: Jeff Wardlow and Gregg Watkins
Fixed Income: Meri Ann Beck,
John Hyll and Barr Segal
TICKER SYMBOL: CLASS A CLASS B CLASS C
----------------------------
NEFBX NEBBX NEBCX
CATEGORY: Large-Cap Equity
INVESTMENT GOAL
The Fund seeks a reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income.
INVESTMENT STRATEGIES
Generally, the Fund will invest appoximately 65% of its assets in equity
securities and approximately 35% of its assets in fixed-income securities. It
principally invests in dividend-paying common stocks of quality, large
capitalization companies of any industry and investment grade bonds. Loomis
Sayles uses a flexible approach to seek investments with the following
characteristics, although not all of the companies selected will have these
attributes:
EQUITY SECURITIES:
x discounted price compared to its current value
x below-average price-to-earnings ratios
x competitive current and estimated dividend yield
x attractive 5-year estimated earnings growth
FIXED-INCOME SECURITIES:
x greater yield-to-maturity than appropriate benchmarks
x maturities typically between 1 and 30 years
x investment grade bonds
x controlled duration variance compared to index
In order to maintain a balanced, flexible portfolio of investments, Loomis
Sayles employs the following strategy:
o Depending on Loomis Sayles' view of the economic outlook, the Fund may invest
more heavily in either equity or fixed-income securities. However, the Fund
will always invest a minimum of 50% of its assets in equity securities and a
minimum of 25% of its assets in fixed-income securities.
o It selects stocks from a universe of approximately 1,400 companies, primarily
those with a market capitalization in excess of $2 billion. It then uses a
proprietary valuation model to rank stocks based on valuation, earnings
estimate revisions and quality. Fundamental research is then used to identify
what Loomis Sayles believes are the most attractive 60 to 75 stocks for
purchase by the Fund.
o It selects bonds by placing a greater emphasis on security and sector
selection than interest rate anticipation. It conducts extensive research and
credit analysis of over 600 corporate issuers and assigns each a proprietary
rating. It combines these ratings with internal policy limitations to select
bonds for the Fund.
o Loomis Sayles will sell a stock when its price objective has been attained,
its fundamentals deteriorate or when more attractive opportunities are
identified. It sells bonds depending on expected credit deterioration or when
it identifies other securities with better total returns going forward.
The Fund may also invest in:
o Foreign securities.
o Mortgage- and asset-backed securities.
o Zero-coupon bonds and when-issued securities.
o Money market or high quality debt securities for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
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
rises when prevailing interest rates fall and falls when interest rates rise.
Zero-coupon bonds may be subject to these risks to a greater extent than
other fixed-income securities.
MORTGAGE- AND ASSET-BACKED SECURITIES: Subject to prepayment risk. With
prepayment, the Fund may reinvest the prepaid amounts in securities with
lower yields than the prepaid obligations. The Fund may also incur a realized
loss when there is a prepayment of securities that were purchased at a
premium.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Balanced Fund. The Fund's past performance does not necessarily
indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the other classes of shares offered by
this Prospectus 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.
[Total Return for Class A Shares]
1989 10.40%
1990 (10.60)%
1991 29.20%
1992 13.90%
1993 14.20%
1994 (2.70)%
1995 28.30%
1996 17.10%
1997 17.60%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception if shorter)
compared to those of a blend of the Standard & Poor's Composite Index of 500
stocks ("S&P 500") and the Lehman Government/ Corporate Bond Index ("S&P/Lehman
G/C Blend"). This index is represented by a 65% weighting in the S&P 500 and a
35% weighting in the Lehman G/C Index. Indices are rebalanced to 65% / 35% at
the end of each year. They are also compared to the Lipper Balanced and
Morningstar Domestic Hybrid Averages, each an average of the total returns of
all mutual funds with an investment style similar to that of the Fund as
calculated by Lipper, Inc. and Morningstar, Inc. You may not invest directly in
an index. The Fund'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/Lehman G/C Blend returns have not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable to mutual fund
investments. The Lipper Balanced Average and Morningstar Domestic Hybrid Average
returns have been adjusted for these expenses but do not reflect any sales
charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------- *Since inception
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) Past 1 Year Past 5 Years Past 10 Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England Balanced Fund: Class A (inception 11/27/68) % % %
S&P/Lehman G/C Blend % % %
Lipper Balanced Average % % %
Morningstar Domestic Hybrid Average % % %
New England Balanced Fund: Class B (inception 9/13/93) % % %*
S&P/Lehman G/C Blend (Lehman calculated from 9/30/93) % % %*
Lipper Balanced Average (calculated from 9/30/93) % % %*
Morningstar Domestic Hybrid Average (calculated from 9/30/93) % % %*
New England Balanced Fund: Class C (inception 12/30/94) % %*
S&P/Lehman G/C Blend % %*
Lipper Balanced Average % %*
Morningstar Domestic Hybrid Average % %*
- ----------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees and Expenses."
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
NEW ENGLAND VALUE FUND -----------------------
High X
--------- ------ ------
ADVISER: New England Funds Management, L.P. Mod. X
("NEFM") --------- ------ ------
Low X
SUBADVISER: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
MANAGERS: Jeff Wardlow and Lauriann Kloppenburg
TICKER SYMBOL: CLASS A CLASS B CLASS C
----------------------------
NEFVX NEVBX NECVX
CATEGORY: Large-Cap Equity
INVESTMENT GOAL
The Fund seeks a reasonable long-term investment return from a combination of
market appreciation and dividend income from equity securities.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities. The Fund primarily invests in common stock of large
capitalization companies of various industries, although investment in any one
industry is limited to 10% of the Fund's assets.
Loomis Sayles uses non-technical, fundamental research in a value-oriented
selection process to seek companies with the following characteristics, relative
to the Russell 1000 Value Index, although not all of the companies selected will
have these attributes:
x low price-to-earnings ratios based on earnings estimates
x competitive return on equity
x competitive current and estimated dividend yield
x high 5-year estimated earnings growth
In selecting investments for the Fund, Loomis Sayles employs the following
strategy:
o It starts with a universe of approximately 1,400 companies, primarily those
with a market capitalization in excess of $2 billion.
o Stocks are then ranked using the Loomis Sayles proprietary valuation model
based on low price-to-earnings ratios, earnings estimate revisions and
quality.
o Stocks that rank in the top third of the valuation model become prime
candidates for purchase and receive a more intensive fundamental research
effort.
o The Fund's portfolio is constructed by choosing approximately 60 to 70 stocks
which Loomis Sayles believes offer the best combination of attractive
valuation characteristics and positive fundamentals.
o The portfolio construction process also attempts to minimize risk through
careful evaluation of diversification and other risk factors.
o Loomis Sayles will generally sell a stock when its price objective has been
attained, if its fundamentals deteriorate, or when a stock with greater
potential is identified.
The Fund may:
o Invest in foreign securities.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Value Fund. The Fund's past performance does not necessarily
indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the other classes of shares offered by
this Prospectus 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.
[Total Return for Class A Shares]
1989 22.60%
1990 (13.60)%
1991 27.10%
1992 16.60%
1993 17.00%
1994 (1.40)%
1995 32.30%
1996 26.30%
1997 21.00%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception if shorter)
compared to those of the Russell 1000 Value Index, an unmanaged subset of stocks
from the larger Russell 1000 Index, selected for their greater value
orientation. They are also compared to the Lipper Growth & Income and
Morningstar Large Value Averages, each an average of the total returns of all
mutual funds with an investment style similar to that of the Fund as calculated
by Lipper, Inc. and Morningstar, Inc. You may not invest directly in an index.
The Fund'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 Russell 1000 Value
Index returns have not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments. The
Lipper Growth & Income Average and Morningstar Large Value Average returns have
been adjusted for these expenses but do not reflect any sales charges.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------- *Since inception
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England Value Fund: Class A (inception 6/5/70) % % %
Russell 1000 Value Index % % %
Lipper Growth & Income Average % % %
Morningstar Large Value Average % % %
New England Value Fund: Class B (inception 9/13/93) % % %*
Russell 1000 Value Index % % %*
Lipper Growth & Income Average (calculated from 9/30/93) % % %*
Morningstar Large Value Average (calculated from 9/30/93) % % %*
New England Value Fund: Class C (inception 12/30/94) % %*
Russell 1000 Value Index % %*
Lipper Growth & Income Average % %*
Morningstar Large Value Average % %*
- ----------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees and Expenses."
* Since inception.
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
NEW ENGLAND INTERNATIONAL -----------------------
EQUITY FUND High X
--------- ------ ------
ADVISER: New England Funds Management, L.P. Mod.
("NEFM") --------- ------ ------
Low X X
SUBADVISER: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
MANAGERS: Paul H. Drexler
TICKER SYMBOL: CLASS A CLASS B CLASS C
----------------------------
NEFIX NEIBX NECIX
CATEGORY: All-Cap Equity
INVESTMENT GOAL
The Fund seeks total return from long-term capital growth and dividend income.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at
least 65% of its assets in equity securities of companies headquartered outside
of the United States. The Fund will hold securities from at least 3 different
countries including those within emerging markets. It may also invest up to 20%
of its assets in foreign fixed-income securities, including lower-quality bonds.
Loomis Sayles uses a value-oriented stock selection process to identify
companies with the following characteristics, although not all of the companies
selected will have these attributes:
x below-market price-to-earnings ratios
x favorable earnings growth potential
x above-market return on equity
x quality management
In selecting investments for the Fund, Loomis Sayles employs the following
strategy:
o It begins with a 26 country universe.
o It then selects 12 to 16 attractively valued markets to effectively
diversify risk. The countries are selected based upon the portfolio
manager's judgment of value criteria.
o Next, Loomis Sayles typically selects 6 to 8 stocks to purchase from each
market, evaluating each stock based upon fundamental analysis of value
criteria and visits with company management.
o The desired result is a group of 80 to 100 securities that Loomis Sayles
believes will produce superior total returns while providing reasonable price
fluctuations and reduced risk.
The Fund may:
o Engage in active and frequent trading of its securities. Frequent trading
may produce higher transaction costs and a higher level of taxable capital
gains, which may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements,
limited markets and less liquidity than larger, more established companies,
which could adversely affect the value of the portfolio.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
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
rises when prevailing interest rates fall and falls when interest rates rise.
Lower-quality fixed-income securities may be subject to these risks to a
greater extent than other fixed-income securities.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency. Investments in emerging markets
may be subject to these risks to a greater extent than those in more
developed markets.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England International Equity Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future. The Fund's current
subadviser assumed that function on February 14, 1997. This chart and table
reflect results achieved by the previous subadviser under different investment
policies for periods prior to February 14, 1997.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this Prospectus 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.
[Total Return for Class A Shares]
1993 29.28%
1994 8.06%
1995 5.78%
1996 3.27%
1997 (7.96)%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and since-inception periods compared to those of the Morgan Stanley
Capital International ("MSCI") Europe, Australasia and Far East Index ("EAFE"),
an arithmetical average of the performance of over 1,000 companies representing
stock markets in Europe, Australia, New Zealand and the Far East. The returns
are also compared to the Lipper International and Morningstar Foreign Stock
Averages, each an average of the total returns of all mutual funds with an
investment style similar to that of the Fund as calculated by Lipper, Inc. and
Morningstar, Inc. You may not invest directly in an index. The Fund's total
returns reflect its expenses and the maximum sales charge that you may pay when
you buy or redeem the Fund's shares. The MSCI EAFE returns have not been
adjusted for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments. The Lipper International Average
and Morningstar Foreign Stock Average returns have been adjusted for these
expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England International Equity Fund: Class A (inception 5/21/92) % % %
MSCI EAFE % % %
Lipper International Average % % %
Morningstar Foreign Stock Average % % %
New England International Equity Fund: Class B (inception 9/13/93) % % %
MSCI EAFE % % %
Lipper International Average (calculated from 9/30/93) % % %
Morningstar Foreign Stock Average (calculated from 9/30/93) % % %
New England International Equity Fund: Class C (inception 12/30/94) % %
MSCI EAFE % %
Lipper International Average % %
Morningstar Foreign Stock Average % %
- ----------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
NEW ENGLAND EQUITY INCOME FUND -----------------------
High X
--------- ------ ------
ADVISER: New England Funds Management, L.P. Mod. X X
("NEFM") --------- ------ ------
Low
SUBADVISER: Loomis, Sayles & Company, L.P.
("Loomis Sayles")
MANAGERS: Peter B. Ramsden and Tom A. Kolefas
TICKER SYMBOL: CLASS A CLASS B CLASS C
----------------------------
NEEIX NEBEX NECEX
CATEGORY: All-Cap Equity
INVESTMENT GOAL
The Fund seeks current income and capital growth.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 80% of its assets
in dividend-paying common or preferred stocks.
Loomis Sayles uses a highly disciplined research methodology and a value-based
stock selection process to seek companies with the following characteristics,
although not all of the companies selected will have these attributes:
x discounted price compared to its current value
x favorable earnings growth potential
x below-average price-to-earnings ratios
x dividend yield greater than that of the Standard & Poor's Composite Index of
500 Stocks ("S&P 500")
x positive cash flows
x strong internal management
In selecting investments for the Fund, Loomis Sayles employs the following
strategy:
o It starts with proprietary investment research to form a universe of 1,800
companies. This research consists of broad, in-depth coverage including
regular contact with company management, near and long-term projections on
company fundamentals and evaluations of financial strength.
o Next, Loomis Sayles places each company through a series of quantitative
valuation and financial strength screens that creates what it believes to be
an "advantaged universe" of 150 to 200 stocks. These screens attempt to
identify undervalued companies with above-average financial and operating
strength.
o Loomis Sayles then narrows this universe to between 60 and 75 stocks using a
subjective measure of each company to identify stocks with a significant
"valuation gap." This gap is the difference between the market's perception
of a stock's value and its underlying fundamental value, supported by asset
values, earnings and cash flow streams. This list is then further scrutinized
to identify companies whose management is working actively to close this gap.
o The final result of this process is a diversified portfolio of 30 to 40
stocks. The Fund will not place more than 15% of its assets in any one
industry.
o Loomis Sayles will sell a stock when its earnings yield falls below the
market average, or if its fundamental outlook is deteriorating. When a
security underperforms the market by 15% or more within three months of
purchase, it is reviewed for possible sale.
The Fund may also invest in:
o Non-dividend paying stocks.
o Foreign securities.
o When-issued securities.
o Money market or high quality debt securities for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements
than larger companies.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Equity Income Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the other
classes of shares offered by this Prospectus 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.
[Total Return for Class A Shares]
1996 26.61%
1997 22.64%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the S&P 500, a market
value-weighted, unmanaged index of common stock prices for 500 selected stocks.
They are also compared to the Lipper Equity Income and Morningstar Large Value
Averages, each an average of the total returns of all mutual funds with an
investment style similar to that of the Fund as calculated by Lipper, Inc. and
Morningstar, Inc. You may not directly invest in an index. The Fund'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 returns have not been adjusted
for ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. The Lipper Equity Income Average and
Morningstar Large Value Average returns have been adjusted for these expenses
but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------------------
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New England Equity Income Fund: Class A (inception 11/28/95) % %
S&P 500 % %
Lipper Equity Income Average (calculated from 11/30/95) % %
Morningstar Large Value Average (calculated from 11/30/95) % %
New England Equity Income Fund: Class B (inception 9/15/97) % %
S&P 500 % %
Lipper Equity Income Average (calculated from 9/30/97) % %
Morningstar Large Value Average (calculated from 9/30/97) % %
New England Equity Income Fund: Class C (inception 9/15/97) % %
S&P 500 % %
Lipper Equity Income Average (calculated from 9/30/97) % %
Morningstar Large Value Average (calculated from 9/30/97) % %
- ----------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the section entitled, "Fund Fees and Expenses."
</TABLE>
<PAGE>
[graphic omitted] Goals, Strategies & Risks FUND FOCUS
------------------------- Stability Income Growth
NEW ENGLAND BULLSEYE FUND -----------------------
High X
--------- ------ ------
ADVISER: New England Funds Management, L.P. Mod.
("NEFM") --------- ------ ------
Low X X
SUBADVISER: Jurika & Voyles, L.P.
("Jurika & Voyles")
MANAGERS: William K. Jurika and Peter A. Goetz
CATEGORY: All-Cap Equity TICKER SYMBOL: CLASS A CLASS B CLASS C
---------------------------
NFBSX NFBBX NFBCX
INVESTMENT GOAL
The Fund seeks long-term capital growth.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in a non-diversified portfolio of equity securities. The Fund primarily
invests in the common stock of 15 to 20 quality companies representing different
capitalization levels and industries. Jurika & Voyles believes that the
companies that it chooses to invest in are undervalued based upon their current
operations and have the potential for future earnings growth.
It uses this "growth at a reasonable price" philosophy to build a portfolio it
believes will produce higher long-term returns than the Standard & Poor's
Composite Index of 500 Stocks(R) (S&P 500). It seeks companies with the
following characteristics, although not all of the companies selected will have
these attributes:
o discounted price compared to intrinsic value
o favorable earnings growth potential
o competitive advantages
o strong financial health
o positive cash flow
o strong management often with high insider ownership
Jurika & Voyles uses the following strategy to select its investments:
o It combines a bottom-up analysis and a top-down approach in managing the
Fund. A bottom-up approach analyzes individual companies on a case-by-case
basis. A top down approach analyzes the overall economic factors that may
affect a potential investment. The firm's analysts comb through the universe
of publicly traded companies seeking to identify stocks that meet their
growth and value criteria.
o Analysts then perform comprehensive research to understand the dynamics of
the company's business model and drivers of profitability to arrive at a
narrowed universe of 50 to 60 stocks.
o Jurika & Voyles takes the process a step further to include an assessment of
each stock's risk as well as its potential impact on the total portfolio.
Top-down analysis is incorporated into the construction of the portfolio as
well as the continual monitoring of portfolio investments and risk.
o The Fund will sell a stock when it becomes overvalued, if a company's
fundamentals deteriorate, if its management loses focus or when another
company shows greater growth potential at a more advantageous price.
The Fund may:
o Invest in convertible preferred stock and convertible debt securities
o Invest in real estate investment trusts ("REITs")
o Hold up to 20% of its assets in American Depository Receipts ("ADRs"),
which are foreign investments issued by a U.S. bank.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower the Fund's return.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements,
limited markets and less liquidity than larger, more established companies,
which may adversely affect the value of the portfolio.
NON-DIVERSIFIED STATUS: Compared with other mutual funds, the Fund may invest a
greater percentage of its assets in a particular company. Therefore, the
Fund's return could be significantly affected by the performance of any one
of the small number of stocks in its portfolio.
FOREIGN SECURITIES: ADRs may be more volatile than U.S. securities and carry
political, economic and information risks that are associated with foreign
securities.
REITs: Subject to changes in underlying real estate values, rising interest
rates, limited diversification of holdings, higher costs and prepayment risk
associated with related mortgages.
<PAGE>
Goals, Strategies & Risks
--------------------------
MORE ABOUT RISK [graphic omitted]
The Funds have principal investment strategies that come with inherent risks.
The following is a list of risks to which each Fund may be subject by investing
in various types of securities or engaging in various practices.
MARKET RISK (All Funds) 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 as well as overall market and economic conditions.
RISK OF SMALL CAPITALIZATION COMPANIES (Bullseye, International Equity, Capital
Growth and Equity Income Funds) These companies carry special risks, including
narrower markets, limited financial and management resources, less liquidity and
greater volatility than large company stocks.
MANAGEMENT RISK (All Funds) The risk that a strategy used by a Fund's portfolio
management may fail to produce the intended result.
CREDIT RISK (All Funds) 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 (All Funds) The risk that fluctuations in the exchange rates
between the U.S. dollar and foreign currencies may negatively affect an
investment.
EMERGING MARKETS RISK (International Equity Fund) The risk associated with
developing 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.
RISKS OF OPTIONS, FUTURES AND SWAP CONTRACTS (All Funds) These transactions are
subject to changes in the underlying security on which such transactions are
placed. It is important to note that even a small investment in these types of
derivative securities can have a significant impact on a Fund's exposure to
stock market values, interest rates or the currency exchange rate. These types
of transactions will be used primarily for hedging purposes.
LEVERAGE RISK (All Funds) The risk associated with securities or practices (e.g.
borrowing) that multiply small index or market movements into large changes in
value. When a derivative security (a security whose value is based on another
security or index) is used as a hedge against an offsetting position that a Fund
also holds, any loss generated by the derivative security should be
substantially offset by gains on the hedged instrument, and vice versa. To the
extent that a derivative security is not used as a hedge, a 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 (All Funds) The risk of market losses attributable to changes
in interest rates. In general, the prices of fixed-income securities rise when
interest rates fall, and fall when interest rates rise.
INFORMATION RISK (All Funds) The risk that key information about a security is
inaccurate or unavailable.
OPPORTUNITY RISK (All Funds) The risk of missing out on an investment
opportunity because the assets necessary to take advantage of it are tied up in
less profitable investments.
LIQUIDITY RISK (All Funds) 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 Fund.
CORRELATION RISK (All Funds) The risk that changes in the value of a hedging
instrument will not match those of the asset being hedged.
EXTENSION RISK (Bullseye and Balanced Funds) The risk that an unexpected rise in
interest rates will extend the life of a mortgage- or asset-backed security
beyond the expected prepayment time, typically reducing the security's value.
VALUATION RISK (All Funds) The risk that a Fund has valued certain securities at
a higher price than it can sell them for.
PREPAYMENT RISK (Bullseye and Balanced Funds) The risk that unanticipated
prepayments may occur, reducing the value of mortgage- or asset-backed
securities, or real estate investment trusts.
POLITICAL RISK (All Funds) The risk of losses directly attributable to
government or political actions.
YEAR 2000 PROBLEM (All Funds) 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 (All Funds) 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 unclear
presently. Such consequences may decrease the value and/or increase the
volatility of securities held by a Fund.
<PAGE>
[graphic omitted] FUND FEES & 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
- ----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)(1)(2) 5.75% None None
- ----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of offering price)(2) (3) 5.00% 1.00%
- ----------------------------------------------------------------------------------------------------
Redemption fees 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."
* Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or
overnight delivery.
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average
net assets)
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GROWTH FUND GROWTH OPPORTUNITIES FUND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.75% 0.75% 0.75% 0.67% 0.67% 0.67% 0.69% 0.69% 0.69%
Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses 0.45% 0.45% 0.45% 0.20% 0.20% 0.20% 0.31% 0.31% 0.31%
Total annual fund operating expenses 1.45% 2.20% 2.20% 1.12% 1.87% 1.87% 1.25% 2.00% 2.00%
Fee waiver and/or expense reimbursement 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net expenses 1.45% 2.20% 2.20% 1.12% 1.87% 1.87% 1.25% 2.00% 2.00%
<CAPTION>
BALANCED FUND VALUE FUND INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.73% 0.73% 0.73% 0.72% 0.72% 0.72% 0.90% 0.90% 0.90%
Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses 0.31% 0.31% 0.31% 0.28% 0.28% 0.28% 0.99% 0.99% 0.99%
Total annual fund operating expenses 1.29% 2.04% 2.04% 1.25% 2.00% 2.00% 2.14% 2.89% 2.89%
Fee waiver and/or expense reimbursement 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.14%** 0.14%** 0.14%**
Net expenses 1.29% 2.04% 2.04% 1.25% 2.00% 2.00% 2.00% 2.75% 2.75%
<CAPTION>
EQUITY INCOME FUND BULLSEYE FUND (1)
- ---------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fees 0.70% 0.70% 0.70% 0.95% 0.95% 0.95%
Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses 2.15% 2.15% 2.15% 0.80% 0.80% 0.80%
Total annual fund operating expenses 3.10% 3.85% 3.85% 2.00% 2.75% 2.75%
Fee waiver and/or expense reimbursement 1.60%** 1.60%** 1.60%** 0.25%** 0.25%** 0.25%**
Net expenses 1.50% 2.25% 2.25% 1.75% 2.50% 2.50%
(1) Based on the Fund's estimated expenses for the current fiscal year.
* 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.
** NEFM has given binding undertakings to Bullseye Fund, International Equity Fund and Equity Income Fund to limit the
amount of each Fund's total annual fund operating expenses to 1.75%, 2.50% and 2.50% of Bullseye Fund's average daily net assets
for Class A, B and C shares, respectively, 2.00%, 2.75% and 2.75% of International Equity Fund's average daily net assets for
Class A, B and C shares, respectively, and 1.50%, 2.25% and 2.25% of Equity Income Fund's average daily net assets for
Class A, B and C shares, respectively. These undertakings will be in effect for the life of the Fund's Prospectus.
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
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; and
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:
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GROWTH FUND GROWTH OPPORTUNITIES FUND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 710 $ 720 $ 220 $ 320 $ 220 $ 680 $ 690 $ 190 - - $ 700 $ 700 $ 200 $ 300 $ 200
3 years $1,010 $ 990 $ 690 $ 690 $ 690 $ 910 $ 890 $ 590 - - $ 950 $ 930 $ 630 $ 630 $ 630
5 years $1,320 $1,380 $1,180 $1,180 $1,180 $1,160 $1,210 $1,010 - - $1,220 $1,280 $1,080 $1,080 $1,080
10 years* $2,210 $2,350 $2,350 $2,530 $2,530 $1,860 $2,000 $2,000 - - $2,000 $2,140 $2,140 $2,330 $2,330
<CAPTION>
BALANCED FUND VALUE FUND INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 700 $ 710 $ 210 $ 310 $ 210 $ 700 $ 700 $ 200 $ 300 $ 200 $ 780 $ 792 $ 292 $ 392 $ 292
3 years $ 960 $ 940 $ 640 $ 640 $ 640 $ 950 $ 930 $ 630 $ 630 $ 630 $1,206 $1,195 $ 895 $ 895 $ 895
5 years $1,240 $1,300 $1,100 $1,100 $1,100 $1,220 $1,280 $1,080 $1,080 $1,080 $1,658 $1,723 $1,523 $1,523 $1,523
10 years* $2,040 $2,180 $2,180 $2,370 $2,370 $2,000 $2,140 $2,140 $2,330 $2,330 $2,905 $3,037 $3,037 $3,214 $3,214
<CAPTION>
EQUITY INCOME FUND BULLSEYE FUND
- --------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 870 $ 887 $ 387 $ 487 $ 387 $ 766 $ 778 $ 278 $ 378 $ 278
3 years $1,477 $1,475 $1,175 $1,175 $1,175 $1,166 $1,155 $ 853 $ 853 $ 853
5 years $2,107 $2,181 $1,981 $1,981 $1,981 - - - - -
10 years* $3,790 $3,918 $3,918 $4,079 $4,079 - - - - -
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period
* Class B shares automatically convert to Class A shares after 8 years; therefore, Class B
amounts are calculated using Class A expenses in years 9 and 10.
</TABLE>
<PAGE>
[graphic omitted] MANAGEMENT TEAM
---------------
MEET THE FUNDS' INVESTMENT ADVISERS
AND SUBADVISERS
The New England Funds family includes mutual ___ funds with a total of $__
billion in assets under management as of December 31, 1998. New England Funds
are distributed through New England Funds, L.P. (the "Distributor"). This
Prospectus covers New England Stock Funds (the "Funds" or each a "Fund"), which
along with New England Bond Funds, New England Star Funds, New England Access
Shares and 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 each Fund except Growth Fund (for
which CGM serves as adviser). 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
December 31, 1998. NEFM oversees, evaluates and monitors the subadvisory
services provided to each Fund except Growth Fund. It also provides general
business management and administration to the Funds. NEFM does not determine
what investments will be purchased by the Funds. The subadvisers and CGM listed
below make the investment decisions for their respective fund.
The combined advisory and subadvisory fees paid by the Funds (except Growth Fund
and Bullseye Fund) in 1998 as a percentage of each Fund's average net assets
were ______ for Capital Growth Fund, ______ for Growth Opportunities Fund,
______ for Balanced Fund, ______ for Value Fund, ______ for International Equity
Fund, and ______ for Equity Income Fund.
SUBADVISERS
JURIKA & VOYLES, L.P., located at Lake Merritt Plaza, 1999 Harrison, Suite 700,
Oakland, California 94612, serves as subadviser to Bullseye Fund. Jurika &
Voyles, founded in 1983, has discretionary management authority with respect to
approximately $7 billion of assets for various clients including corporations,
pension plans, 401(k) plans, profit sharing plans, trusts and estates,
foundations and charities, mutual funds and individuals. Jurika & Voyles is a
subsidiary of Nvest Companies. Bullseye Fund pays advisory and subadvisory fees
at the combined annual rate of 0.95% of the first $200 million of the Fund's
average daily net assets, 0.90% of the next $300 million of such assets and
0.85% of such assets in excess of $500 million.
LOOMIS SAYLES & COMPANY, L.P., located at One Financial Center, Boston,
Massachusetts 02111, serves as subadviser to International Equity, Value,
Balanced and Equity Income Funds. Loomis Sayles is 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.
WESTPEAK INVESTMENT ADVISORS, L.P., located at 1011 Walnut Street, Boulder,
Colorado 80302, serves as subadviser to Growth Opportunities Fund and Capital
Growth Fund. Westpeak is a subsidiary of Nvest Companies. Founded in 1991,
Westpeak manages over $6 billion in assets for mutual funds and other
institutional clients, including accounts of New England Financial.
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP (ADVISER) CGM, located at One
International Place, Boston, Massachusetts 02110, has served as adviser to
Growth Fund since CGM's inception in 1989. It also serves as investment adviser
to six additional mutual funds and various institutional investors. CGM is an
affiliate of Nvest Companies and has grown to manage over $7 billion in assets.
In 1998, Growth Fund paid % of its average net assets to CGM in advisory fees.
SUBADVISORY AGREEMENTS
Each Fund has received an exemptive order from the Securities and Exchange
Commission (the "SEC") which permits NEFM to amend or continue existing
subadvisory agreements when approved by the Fund's Board of Trustees, without
shareholder approval. The exemption also 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. Shareholders will be notified of any
subadviser changes.
<PAGE>
MANAGEMENT TEAM
----------------
MEET THE FUNDS' PORTFOLIO MANAGERS [graphic omitted]
G. KENNETH HEEBNER
[Photo of G. Kenneth Heebner]
G. Kenneth Heebner has managed Growth Fund since 1976. In 1989, Mr. Heebner
co-founded and is currently senior portfolio manager of CGM. He is also a
Chartered Financial Analyst. Mr. Heebner received a B.S. from Amherst College
and an M.B.A. from Harvard Business School, and is a highly regarded 30 year
veteran of the investment industry.
Tom A. Kolefas
[Photo of Tom A. Kolefas]
Tom Kolefas has co-managed Equity Income Fund since May 1996. Mr. Kolefas, Vice
President of Loomis Sayles, joined the company in 1996. Previously, he was a
director and portfolio manager at MacKay Shields Financial from ____ to ____. He
is also a Chartered Financial Analyst. Mr. Kolefas received a B.S. from the
Cooper Union School of Engineering and an M.B.A. from New York University School
of Business and has over 14 years of investment experience.
PAUL H. DREXLER
[Photo of Paul H. Drexler]
Paul Drexler has managed International Equity Fund since February 1997. Mr.
Drexler is Vice President of Loomis Sayles and has been at the firm since 1993.
Mr. Drexler received a B.A. from Stanford University and an M.A. from George
Washington University and has over 23 years of investment experience.
PETER A. GOETZ
[Photo of Peter A. Goetz]
Peter Goetz has co-managed Bullseye Fund since its inception in March 1998. Mr.
Goetz, Vice President of Jurika & Voyles, joined the company in 1996.
Previously, he served as a portfolio manager for nine years in the Private Asset
Division of Bank of America. He is also a Chartered Financial Analyst. Mr. Goetz
earned a B.S. from the University of California, Irvine and an M.B.A. from the
University of Southern California and has over 12 years of investment
experience.
GERALD H. SCRIVER
[Photo of George H. Scriver]
Gerald Scriver has managed Growth Opportunities Fund since May 1995 and Capital
Growth Fund since February 1998. Mr. Scriver is the founder, President and Chief
Executive Officer of Westpeak Investment Advisors. Mr Scriver is a graduate of
the State University of N.Y. at Buffalo and has over 33 years of investment
experience.
LAURIANN KLOPPENBURG
[Photo of Lauriann Kloppenburg]
Lauriann Kloppenburg has co-managed Value Fund since August 1998. Ms.
Kloppenburg is Vice President and Director of Equity Research at Loomis Sayles.
She is also a Chartered Financial Analyst. Ms. Kloppenburg received her B.A.
from Wellesley College and has over 16 years of investment experience.
WILLIAM K. JURIKA
[Photo of William K. Jurika]
William Jurika has co-managed Bullseye Fund since its inception in March 1998.
Mr. Jurika founded Jurika & Voyles in 1983 and presently acts as its President
and Principal. Mr. Jurika received a B.A. from the University of Denver and has
over 31 years of investment experience.
PETER B. RAMSDEN
[Photo of Peter B. Ramsden]
Peter Ramsden has co-managed Equity Income Fund since November 1995. Mr.
Ramsden, Vice President of Loomis Sayles, joined the company in 1991. He is also
a Charted Financial Analyst. Mr. Ramsden earned his B.A. from Dartmouth College
and his M.B.A. from the University of Michigan and has over 10 years of
investment experience.
JEFFREY W. WARDLOW
[Photo of Jeffrey W. Wardlow]
Jeffrey Wardlow has co-managed Value Fund since August 1998. Mr. Wardlow, Vice
President of Loomis Sayles, joined the company over 10 years ago. Mr. Wardlow
received both his B.B.A. and his M.B.A. from Michigan State University and has
over 16 years of investment experience.
ADVISER TEAMS
Balanced Fund is managed by an adviser team from Loomis Sayles. The adviser team
consists of 5 portfolio managers who jointly manage the Fund's investment
portfolio.
PORTFOLIO TRADES
In placing portfolio trades, each Fund's adviser or subadviser may use brokerage
firms that market the Fund's shares or are affiliated with Nvest Companies,
NEFM, CGM, Loomis Sayles, Westpeak or Jurika & Voyles. In placing trades, CGM ,
Loomis Sayles, Westpeak or Jurika & Voyles 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 Fund's Board of Trustees.
<PAGE>
[graphic omitted] 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 class 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 to you if you hold your shares in a street name
account. Your financial representative can help you decide which class of shares
is most appropriate for you.
CLASS A SHARES
o You pay a sales charge when you buy Fund shares. There are several ways to
reduce this charge. See the section entitled "Ways to Reduce or Eliminate
Sales Charges."
o You pay lower annual expenses than Class B and Class C shares, giving you the
potential for higher returns per share.
o You do not pay a sales charge on orders of $1 million or more, but you may
pay a charge on redemption if you redeem these shares within 1 year of
purchase.
CLASS B SHARES
o You do not pay a sales charge when you buy Fund shares. All of your money
goes to work for you right away.
o You pay higher annual expenses than Class A shares.
o You will pay a charge on redemptions if you sell your shares within 6 years
of purchase, as described in the section "How Sales Charges are Calculated."
o Your Class B shares will automatically convert into Class A shares after 8
years, which reduces your annual expenses.
o We will not accept an order for $1 million or more of Class B shares. You
may, however, purchase $1 million or more of Class A shares, which will have
no sales charge as well as lower annual expenses. You may pay a charge on
redemption if you redeem these shares within 1 year of purchase.
CLASS C SHARES
o You do not pay a sales charge when you buy Fund shares. All of your money
goes to work for you right away.
o You pay higher annual expenses than Class A shares.
o You will pay a charge on redemptions if you sell your shares within 1 year of
purchase.
o Your Class C shares will not automatically convert into Class A shares. If
you hold your shares for longer than 8 years, you'll pay higher expenses than
other classes.
o We will not accept an order for $1 million or more of Class C shares. You
may, however, purchase $1 million or more of Class A shares, which will have
no sales charge as well as lower annual expenses. You may pay a charge on
redemption if you redeem these shares within 1 year of purchase.
For actual past expenses of Class A, B and C shares, see the section entitled
"Fund Fees and Expenses" in this Prospectus.
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>
FUND SERVICES
-------------
HOW SALES CHARGES ARE CALCULATED [graphic omitted]
CLASS A SHARES
The price that you pay when you buy Class A shares ("offering price") is their
net asset value plus a sales charge (sometimes called a "front-end sales
charge") which varies depending upon the size of your purchase.
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES
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* 0.00% 0.00%
- -------------------------------------------------------------------------------
*For purchases of Class A shares of the Funds of $1 million or more or purchases
by Retirement Plans (Plans under Sections 401(a) or 401(k) of the Internal
Revenue Code with investments of $1 million or more or 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 your shares within
one year of the date of purchase. See the section entitled "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 that 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 to 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 0.00%
- ---------------------------------------------------------------
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 to 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 0.00%
- ---------------------------------------------------------------
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 your 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 that 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 shares of a Fund into shares of the Money Market Funds, the
holding period for purposes of determining the CDSC and conversion to 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>
[graphic omitted] FUND SERVICES
-------------
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 New England
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 mutual fund shares;
o Selling brokers, sales representatives or other intermediaries;
o Fund trustees and other individuals who are affiliated with any New England
Fund or Money Market Fund (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 New England Funds or Money Market Funds
by clients of an adviser or subadviser to any New England Fund or Money
Market Fund.
REPURCHASING FUND SHARES
You may apply proceeds from redeeming Class A shares of the Funds without paying
a sales charge to repurchase Class A shares of any 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 for how a
redemption would affect you. 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>
FUND SERVICES
-------------
IT'S EASY TO OPEN AN ACCOUNT [graphic omitted]
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MINIMUM TO OPEN AN
MINIMUM TO ACCOUNT USING MINIMUM FOR
TYPE OF ACCOUNT OPEN AN ACCOUNT INVESTMENT BUILDER EXISTING ACCOUNTS
<S> <C> <C> <C>
Any account other than those listed below $2,500 $100 $100
Accounts registered under the Uniform
Gifts to Minors Act or the Uniform $2,000 $100 $100
Transfers to Minors Act
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, $ 25 N/A $ 25
403(b)(7) and certain other retirement plans
- --------------------------------------------------------------------------------------------------------
</TABLE>
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 is easy with the services described below:
NEW ENGLAND FUNDS PERSONAL ACCESS LINE(TM) ("PAL")
800-346-5984
NEW ENGLAND FUNDS WEB SITE
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 review 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>
[graphic omitted] FUND SERVICES
-------------
BUYING SHARES
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
THROUGH YOUR
INVESTMENT DEALER
o Call your investment dealer for o Call your investment dealer for
information information
BY MAIL
[graphic omitted]
o Make out a check in U.S. dollars for the o Make out a check in U.S. dollars for the
investment amount, payable to "New England investment amount, payable to "New
Funds." Third party checks will generally England Funds." Third party checks will
not be accepted. generally not be accepted.
o Mail the check with your completed o Fill out the detachable investment slip
application to New England Funds, P.O. Box from an account statement. If no slip is
8551, Boston, MA 02266-8551. available, include with the check a
letter specifying the Fund name, your
class of shares, your account number and
the registered account name(s). 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 o The exchange must be for a minimum of
or for all of your shares. $1,000 or for all of your shares.
o Obtain a current prospectus for the Fund o Call your investment dealer or New
into which you are exchanging by calling England Funds at 800-225-5478 to request
your investment dealer or New England an exchange.
Funds at 800-225-5478.
o See the section entitled "Exchanging
o Call your investment dealer or New England Shares."
Funds to request an exchange.
o See the section entitled "Exchanging
Shares."
BY WIRE
[graphic omitted]
o Call New England Funds at 800-225-5478 to o Instruct your bank to transfer funds to
obtain an account number and wire transfer State Street Bank & Trust Company, ABA#
instructions. Your bank may charge you for 011000028, DDA# 99011538.
such a transfer.
o Specify the Fund name, your class of
shares, 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 o Please call New England Funds at
would like to begin an automatic 800-225-5478 for a Service Options Form.
investment plan through Investment Builder A signature guarantee may be required to
and the amount of the monthly investment add this privilege.
($100 minimum).
o Send a check marked "Void" or a deposit o See the section entitled "Additional
slip from your bank account along with Investor Services."
your application.
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[graphic omitted]
o Ask your bank or credit union whether it o Call New England Funds at 800-225-5478 to
is a member of the ACH system. add shares to your account through ACH.
o Complete the "Telephone Withdrawal and o If you have not signed up for the ACH
Exchange" and "Bank Information" sections system, please call New England Funds for
on your account application. a Service Options Form. A signature
guarantee may be required to add this
o Mail your completed application to New privilege.
England Funds, P.O. Box 8551, Boston, MA
02266-8551.
</TABLE>
<PAGE>
FUND SERVICES
-------------
SELLING SHARES [graphic omitted]
TO SELL SOME OR ALL OF YOUR SHARES
Certain restrictions may apply. See section entitled "Restrictions on Buying,
Selling and Exchanging Shares."
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for information.
BY MAIL
[graphic omitted]
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
[graphic omitted]
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
[graphic omitted]
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)
[graphic omitted]
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
[graphic omitted]
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
[graphic omitted]
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.
<PAGE>
[graphic omitted] FUND SERVICES
-------------
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 table shows 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 PROPRIETORSHIP, o The signatures on the letter
UGMA/UTMA (MINOR ACCOUNTS) must include all persons
authorized to sign, including
title, if applicable.
o Signature guarantee, if
applicable (see above).
CORPORATE OR ASSOCIATION ACCOUNTS o The signatures on the letter
must include all persons
authorized to sign, including
title.
OWNERS OR TRUSTEES OF TRUST ACCOUNTS o The signature on the letter
must include all 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
ARE DECEASED must include 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 signatures 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 PLANS o The signature on the letter
(EXCEPT NEW ENGLAND FUNDS PROTOTYPE must include all signatures of
DOCUMENTS) those authorized to sign
including title.
o Signature guarantee, if
applicable (see above).
EXECUTORS OF ESTATES, ADMINISTRATORS, o The signature on the letter
GUARDIANS, CONSERVATORS must include those authorized
to sign, including capacity.
o A signature guarantee.
o Certified copy of court
document where signer derives
authority, e.g.: Letters of
Administration,
Conservatorship, Letters
Testamentary.*
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) o Additional documentation and
distribution 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.
<PAGE>
FUND SERVICES
-------------
EXCHANGING SHARES [graphic omitted]
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
sections entitled "Buying Shares" and "Selling Shares"). The 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 New England Fund or Money Market 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. For federal income tax purposes,
an exchange of Fund shares for shares of another Fund is treated as a sale on
which gain or loss may be recognized. 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
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:
Restriction Situation
The Fund may suspend the right of redemption or o When the New York Stock
postpone payment for more than 7 days: Exchange is closed
(other than a
weekend/holiday)
o During an emergency
o Any other period
permitted by the SEC
The Fund reserves the right to suspend account o With a notice of a
services or refuse transaction requests: dispute between
registered owners
o With suspicion/evidence
of a fraudulent act
The Fund may pay the redemption price in whole or o When it is detrimental
part by a distribution in kind of readily for a Fund to make cash
marketable securities in lieu of cash or may take payments as determined
up to 7 days to pay a redemption request in order in the sole discretion
to raise capital: of the adviser or
subadviser
The Fund may close your account and send you the o When the Fund account
proceeds. You will have 60 days after being falls below a set
notified of the Fund's intention to close your minimum (currently
account to increase the account to the set $1,000 as set by the
minimum. This does not apply to certain qualified Fund's Board of
retirement plans, automatic investment plans or Trustees)
accounts that have fallen below the minimum solely
because of fluctuations in a Fund's net asset
value per share:
The Fund may withhold redemption proceeds until o When redemptions are
the check or funds have cleared: made within 10 calendar
days of purchase by
check or ACH of the
shares being redeemed
Telephone redemptions are not accepted for tax-qualified retirement accounts.
If you hold certificates representing your shares, they must be sent with your
request for it to be honored. The Funds recommend that certificates be sent by
registered mail.
<PAGE>
FUND SERVICES
- -------------
HOW FUND SHARES ARE PRICED [graphic omitted]
"Net asset value" is the price of one share of a Fund without a sales charge,
and is calculated each business day using this formula:
TOTAL MARKET VALUE OF SECURITIES + CASH AND
NET ASSET VALUE = OTHER ASSETS - LIABILITES
-------------------------------------------
NUMBER OF OUTSTANDING SHARES
The net asset value of Fund 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
"in good order" by State Street Bank and Trust Company, the Fund's custodian
(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 will be based on the net asset value determined on that day.
o A Fund 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 pm, but not later than 8:00 pm
Generally, 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 in "Buying Shares" and "Selling Shares".
Generally, Fund securities are valued as follows:
o EQUITY SECURITIES -- most recent sales or quoted bid price as provided by a
pricing service.
o DEBT SECURITIES (other than short-term obligations) -- based upon pricing
service valuations.
o SHORT-TERM OBLIGATIONS -- amortized cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES -- most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the close 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 Fund's Board of Trustees at the
close of regular trading on the 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 Fund's
Board of Trustees.
o ALL OTHER SECURITIES -- fair market value as determined by the adviser or
subadviser of the Fund under the direction of the Fund'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 priced by another method that the Fund's Board of
Trustees believes actually reflects fair value.
<PAGE>
FUND SERVICES
-------------
DIVIDENDS AND DISTRIBUTIONS [graphic omitted]
The Funds generally distribute most or all of their net investment income (other
than long-term capital gains) in the form of dividends. The following table
shows when each Fund expects to distribute dividends. Each Fund distributes all
net realized long- and short-term capital gains annually, after applying any
available capital loss carryovers. Each Fund's Board of Trustees may adopt a
different schedule as long as payments are made at least annually.
- --------------------------------------------------------------------------------
DIVIDEND PAYMENT SCHEDULE
ANNUALLY SEMI-ANNUALLY QUARTERLY
Value Growth Opportunities Balanced
Growth Equity Income
Bullseye
Capital Growth
International Equity
- --------------------------------------------------------------------------------
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 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 investment 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 gains from investments that a Fund owned for 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,
regardless of how long the shareholder has held Fund shares.
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.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive. Shareholders of International
Equity Fund should also consult their tax advisers about consequences of their
investments under foreign laws.
<PAGE>
[graphic omitted] FUND SERVICES
-------------
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.
The Distributor may, at its expense, pay concessions in addition to the payments
described above to dealers which satisfy certain criteria established from time
to time by the Distributor relating to increasing net sales of shares of the New
England Funds over prior periods, and certain other factors. See the SAI for
more details.
<PAGE>
FUND SERVICES [graphic omitted]
-------------
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
New England Funds offers a range of 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 "It's 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
or Money Market Fund, 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 front-end sales charge or CDSC on the
dividend record date. Before establishing a Dividend Diversification Program
into any other New England Fund or Money Market Fund, 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 or 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
that you specify in the plan may not exceed, on an annualized basis, 10% of the
value of your Fund account based upon the value of your Fund account 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) "PAL"
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 can also use PAL to purchase, exchange, or
redeem shares in any of your existing accounts. Certain restrictions may apply.
NEW ENGLAND FUNDS WEB SITE
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 on line to
purchase, exchange or redeem shares in any of your existing accounts. Certain
restrictions may apply.
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the return that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers, LLP, independent accountants, whose report, along with
each Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
<TABLE>
NEW ENGLAND CAPITAL GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.27 $15.02 $18.41 $19.27
Income from investment operations
Net investment income -0.08 -0.11(c) -0.14(d) -0.18(d)
Net gains or losses on securities
(both realized and unrealized -0.17 4.74 3.22 3.43
Total from investment operations -0.25 4.63 3.08 3.25
Less Distributions
Distributions (from net income) 0.00 0.00 0.00 0.00
Distributions (from capital gains) 0.00 -1.24 -2.22 -2.57
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions 0.00 -1.24 -2.22 -2.57
Net asset value, end of period $15.02 $18.41 $19.27 $19.95
Total Return (b) -1.6 30.7 17.1 17.2
Ratios/Supplemental Data
Net assets, end of period (000) $95,803 $123,504 $141,326 $149,734
Ratio of Operating Expenses to average net assets (%) 1.63 1.61 1.50 1.45
Ratio of net income to average net assets (%) -0.45 -0.67 -0.71 -0.87
Portfolio Turnover Rate (%) 82 69 74 48
<CAPTION>
Class B
Year Ended December 31,
1994 1995 1996 1997 1998
Net asset value, beginning of period $15.24 $14.89 $18.09 $18.74
Income from investment operations
Net investment income -0.08 -0.16(c) -0.28(d) -0.32(d)
Net gains or losses on securities
(both realized and unrealized -0.27 4.60 3.15 3.25
Total from investment operations -0.35 4.44 2.87 2.93
Less Distributions
Distributions (from net income) 0.00 0.00 0.00 0.00
Distributions (from capital gains) 0.00 -1.24 -2.22 -2.57
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions 0.00 -1.24 -2.22 -2.57
Net asset value, end of period $14.89 $18.09 $18.74 $19.10
Total Return (b) -2.3 29.7 16.2 15.9
Ratios/Supplemental Data
Net assets, end of period (000) $15,390 $26,234 $37,439 $45,546
Ratio of Operating Expenses to average net assets (%) 2.38 2.36 2.25 2.20
Ratio of net income to average net assets (%) -1.20 2.62 2.04 1.50
Portfolio Turnover Rate (%) 36 54 70 69
<CAPTION>
Class C
Year Ended December 31,
1995(a) 1996 1997 1998
Net asset value, beginning of period $14.89 $18.08 $18.74
Income from investment operations
Net investment income -0.09(c) -0.28(d) -0.34(d)
Net gains or losses on securities
(both realized and unrealized 4.52 3.16 3.28
Total from investment operations 4.43 2.88 2.94
Less Distributions
Distributions (from net income) 0.00 0.00 0.00
Distributions (from capital gains) -1.24 -2.22 -2.57
Returns of Capital 0.00 0.00 0.00
Total Distributions -1.24 -2.22 -2.57
Net asset value, end of period $18.08 $18.74 $19.11
Total Return (b) 29.7 16.2 15.9
Ratios/Supplemental Data
Net assets, end of period (000) $354 $504 $979
Ratio of Operating Expenses to average net assets (%) 2.36 2.25 2.20
Ratio of net income to average net assets (%) 2.62 2.04 1.50
Portfolio Turnover Rate (%) 54 70 69
(a) Class C shares were first offered on December 31, 1994.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return
calculations.
(c) Per share net investment income does not reflect current period's reclassification of permanent differences
between book and tax basis net investment income.
(d) Per share net investment income has been calculated using the average shares outstanding during the year. The
Fund's current subadviser assumed that function on February 16, 1998. These highlights reflect results
achieved by the previous subadviser under different investment policies.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND GROWTH FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.44 $8.87 $10.55 $11.63
Income from investment operations
Net investment income 0.11 0.05 0.04 0.01
Net gains or losses on securities
(both realized and unrealized) -0.84 3.30 2.07 2.79
Total from investment operations -0.73 3.35 2.11 2.80
Less Distributions
Distributions (from net income) -0.11 -0.05 -0.04 0.00
Distributions (from capital gains) -0.73 -1.62 -0.99 -4.02
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.84 -1.67 -1.03 -4.02
Net asset value, end of period $8.87 $10.55 $11.63 $10.41
Total Return (c) -7.1 38.1 20.9 23.5
Ratios/Supplemental Data
Net assets, end of period (000) $988,430 $1,201,110 $1,296,542 $1,459,747
Ratio of Operating Expenses
to average net assets (%) 1.19 1.20 1.18 1.12
Ratio of net income
to average net assets (%) 1.05 0.42 0.33 0.08
Portfolio Turnover Rate (%) 141 235 199 214
<CAPTION>
Class B
March 1 through December 31, Year Ended December 31,
1997(a) 1998
Net asset value, beginning of period $12.47
Income from investment operations
Net investment income -0.07(b)
Net gains or losses on securities
(both realized and unrealized) 1.94
Total from investment operations 1.87
Less Distributions
Distributions (from net income) 0.00
Distributions (from capital gains) -4.02
Returns of Capital 0.00
Total Distributions -4.02
Net asset value, end of period $10.32
Total Return (c) 14.4
Ratios/Supplemental Data
Net assets, end of period (000) $17,757
Ratio of Operating Expenses
to average net assets (%) 1.87(d)
Ratio of net income
to average net assets (%) -0.67(d)
Portfolio Turnover Rate (%) 214
- ----------------------------------------------------------------------------------------------------------------
(a) Class B shares were first offered on March 1, 1997.
(b) Net investment income per share has been calculated using the average shares outstanding during the year.
(c) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return
calculations. Periods of less than one year are not annualized.
(d) Computed on an annualized basis.
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.67 $12.41 $14.39 $13.87
Income from investment operations
Net investment income 0.22 0.18 0.13 0.07(b)
Net gains or losses on securities
(both realized and unrealized) -0.10 4.01 2.07 4.40
Total from investment operations 0.12 4.19 2.20 4.47
Less Distributions
Distributions (from net income) -0.21 -0.18 -0.13 -0.06
Distributions (from capital gains) 0.17 -2.03 -2.59 -2.93
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.38 -2.21 -2.72 -2.99
Net asset value, end of period $12.41 $14.39 $13.87 $15.35
Total Return (c) 1.0 35.1 17.2 33.4
Ratios/Supplemental Data
Net assets, end of period (000) $104,081 $150,693 $166,963 $220,912
Ratio of Operating Expenses
to average net assets (%) 1.28 1.38 1.30 1.25
Ratio of net income
to average net assets (%) 1.75 1.31 0.92 0.46
Portfolio Turnover Rate (%) 6 69 127 103
<CAPTION>
Class B
Year Ended December 31,
1994 1995 1996 1997 1998
Net asset value, beginning of period $12.66 $12.42 $14.40 $13.87
Income from investment operations
Net investment income 0.16 0.10 0.03 -0.05(b)
Net gains or losses on securities
(both realized and unrealized) -0.09 4.01 2.07 4.40
Total from investment operations 0.07 4.11 2.10 4.35
Less Distributions
Distributions (from net income) -0.14 -0.10 -0.04 0.01
Distributions (from capital gains) -0.17 -2.03 -2.59 -2.93
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.31 -2.13 -2.63 -2.94
Net asset value, end of period $12.42 $14.40 $13.87 $15.28
Total Return (c) 0.6 34.3 16.3 32.4
Ratios/Supplemental Data
Net assets, end of period (000) $5,185 $29,026 $46,856 $81,066
Ratio of Operating Expenses
to average net assets (%) 1.93 2.11 2.05 2.00
Ratio of net income
to average net assets (%) 1.10 0.56 0.17 -0.29
Portfolio Turnover Rate (%) 6 69 127 103
<CAPTION>
May 1(a)
through Class C
Dec 31, Year Ended December 31,
1995 1996 1997 1998
Net asset value, beginning of period $13.84 $14.39 $13.85
Income from investment operations
Net investment income 0.06 0.04 0.05(b)
Net gains or losses on securities
(both realized and unrealized) 2.58 2.05 4.42
Total from investment operations 2.64 2.09 4.37
Less Distributions
Distributions (from net income) -0.06 -0.04 -0.01
Distributions (from capital gains) -2.03 -2.59 -2.93
Returns of Capital 0.00 0.00 0.00
Total Distributions -2.09 -2.63 -2.94
Net asset value, end of period $14.39 $13.85 $15.28
Total Return (c) 20.2 16.3 32.6
Ratios/Supplemental Data
Net assets, end of period (000) $4,107 $3,912 $6,735
Ratio of Operating Expenses
to average net assets (%) 2.11(d) 2.05 2.00
Ratio of net income
to average net assets (%) 0.56(d) 0.17 -0.29
Portfolio Turnover Rate (%) 69 127 103
- ----------------------------------------------------------------------------------------------------------------
(a) Class C shares were first offered on May 1, 1995.
(b) Per share net investment income has been calculated using the average shares outstanding during the year.
(c) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return
calculations.
(d) Computed on an annualized basis.
The Fund's current subadviser assumed that function on May 1, 1995. These
highlights reflect results achieved by the previous subadviser under different investment policies.
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND BALANCED FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.13 $11.27 $13.14 $13.94
Income from investment operations
Net investment income 0.33 0.42 0.38 0.33
Net gains or losses on securities
(both realized and unrealized) -0.65 2.49 1.76 2.05
Total from investment operations -0.32 2.91 2.14 2.38
Less Distributions
Distributions (from net income) -0.33 -0.40 -0.39 -0.33
Distributions (from capital gains) -0.21 -0.64 -0.95 -1.74
Returns of Capital 0.00 0.00 0.00 .00
Total Distributions -0.54 -1.04 -1.34 -2.07
Net asset value, end of period $11.27 $13.14 $13.94 $14.25
Total Return (a) -2.7 26.3 17.1 17.5
Ratios/Supplemental Data
Net assets, end of period (000) $158,332 $196,514 $219,626 $233,421
Ratio of Operating Expenses
to average net assets (%) 1.40 1.36 1.33 1.29
Ratio of net income
to average net assets (%) 2.91 3.37 2.79 2.25
Portfolio Turnover Rate (%) 36 54 70 69
<CAPTION>
Class B
Year Ended December 31,
1994 1995 1996 1997 1998
Net asset value, beginning of period $12.11 $11.24 $13.08 $13.86
Income from investment operations
Net investment income 0.26 0.34 0.29 0.23
Net gains or losses on securities
(both realized and unrealized) -0.66 2.46 1.74 2.03
Total from investment operations -0.40 2.80 2.03 2.26
Less Distributions
Distributions (from net income) -0.26 -0.32 -0.30 -0.23
Distributions (from capital gains) -0.21 -0.64 -0.95 -1.74
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.47 -0.96 -1.25 -1.97
Net asset value, end of period $11.24 $13.08 $13.86 $14.15
Total Return (a) -3.4 25.3 16.3 16.7
Ratios/Supplemental Data
Net assets, end of period (000) $21,607 $40,361 $58,367 $76,558
Ratio of Operating Expenses
to average net assets (%) 2.15 2.11 2.08 2.04
Ratio of net income
to average net assets (%) 2.16 2.62 2.04 1.50
Portfolio Turnover Rate (%) 36 54 70 69
<CAPTION>
Class C
Year Ended December 31,
1995 1996 1997 1998
Net asset value, beginning of period $11.24 $13.05 $13.82
Income from investment operations
Net investment income 0.35 0.29 0.23
Net gains or losses on securities
(both realized and unrealized) 2.44 1.73 2.02
Total from investment operations 2.79 2.02 2.75
Less Distributions
Distributions (from net income) -0.34 -0.30 -0.23
Distributions (from capital gains) -0.64 -0.95 -1.74
Returns of Capital 0.00 0.00 0.00
Total Distributions -0.98 -1.25 -1.97
Net asset value, end of period $13.05 $13.82 $14.10
Total Return (a) 25.2 16.2 16.6
Ratios/Supplemental Data
Net assets, end of period (000) $718 $2,538 $4,596
Ratio of Operating Expenses
to average net assets (%) 2.11 2.08 2.04
Ratio of net income
to average net assets (%) 2.62 2.04 1.50
Portfolio Turnover Rate (%) 54 70 69
- ----------------------------------------------------------------------------------------------------------------
(a) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return
calculations. Periods of less than one year are not annualized.
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND VALUE FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.87 $ 7.27 $ 8.78 $ 9.60
Income from investment operations
Net investment income 0.08 0.10 0.06 0.03(a)
Net gains or losses on securities
(both realized and unrealized) -0.19 2.21 2.12 1.96
Total from investment operations -0.11 2.31 2.18 1.99
Less Distributions
Distributions (from net income) -0.08 -0.09 -0.06 -0.02
Distributions (from capital gains) -0.41 -0.71 -1.30 -1.43
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.49 -0.80 -1.36 -1.49
Net asset value, end of period $ 7.27 $ 8.78 $ 9.60 $10.14
Total Return (b) -1.4 32.3 26.3 21.0
Ratios/Supplemental Data
Net assets, end of period (000) $190,869 $241,038 $297,581 $348,998
Ratio of Operating Expenses
to average net assets (%) 1.37 1.37 1.31 1.25
Ratio of net income
to average net assets (%) 1.00 1.22 0.78 0.28
Portfolio Turnover Rate (%) 29 52 64 55
<CAPTION>
Class B
Year Ended December 31,
1994 1995 1996 1997 1998
Net asset value, beginning of period $ 7.85 $ 7.23 $ 8.70 $ 9.47
Income from investment operations
Net investment income 0.04 0.05 0.01 -0.05(a)
Net gains or losses on securities
(both realized and unrealized) -0.20 2.18 2.07 1.92
Total from investment operations -0.16 2.23 2.08 1.87
Less Distributions
Distributions (from net income) -0.05 -0.05 -0.01 0.00
Distributions (from capital gains) -0.41 -0.71 -1.30 -1.43
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.46 -0.76 -1.31 -1.43
Net asset value, end of period $ 7.23 $ 8.70 $ 9.74 $ 9.91
Total Return (b) -2.0 31.3 25.4 20.0
Ratios/Supplemental Data
Net assets, end of period (000) $13,830 $27,941 $48,210 $80,008
Ratio of Operating Expenses
to average net assets (%) 2.12 2.12 2.06 2.00
Ratio of net income
to average net assets (%) 0.25 0.47 0.03 -0.47
Portfolio Turnover Rate (%) 29 52 64 55
<CAPTION>
Class C
Year Ended December 31,
1995(a) 1996 1997 1998
Net asset value, beginning of period $7.23 $8.70 $9.46
Income from investment operations
Net investment income 0.05 0.01 -0.05(a)
Net gains or losses on securities
(both realized and unrealized) 2.18 2.06 1.94
Total from investment operations 2.23 2.07 1.89
Less Distributions
Distributions (from net income) -0.05 -0.01 0.00
Distributions (from capital gains) -0.71 -1.30 -1.43
Returns of Capital 0.00 0.00 0.00
Total Distributions -0.76 -1.31 -1.43
Net asset value, end of period $8.70 $9.46 $9.92
Total Return (b) 31.3 25.2 20.2
Ratios/Supplemental Data
Net assets, end of period (000) $1,224 $3,735 $6,527
Ratio of Operating Expenses
to average net assets (%) 2.12 2.06 2.00
Ratio of net income
to average net assets (%) 0.47 0.03 -0.47
Portfolio Turnover Rate (%) 52 64 55
- ----------------------------------------------------------------------------------------------------------------
(a) Per share net investment income has been calculated using the average shares outstanding during the year.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return
calculations.
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND INTERNATIONAL EQUITY FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A
Year Ended December 31
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.85 $15.50 $16.13 $16.31
Income from investment operations
Net investment income 0.00 0.27 0.02(c) 0.09(c)
Net gains or losses on securities
(both realized and unrealized) 1.19 0.63 0.51 -1.25
Total from investment operations 1.19 0.90 0.53 -1.16
Less Distributions
Distributions (from net income) 0.00 -0.27 -0.02 0.00
Distributions (from capital gains) -0.53 0.00 -0.33 -1.05
Returns of Capital -0.01 0.00 0.00 0.00
Total Distributions -0.54 -0.27 -0.35 -1.09
Net asset value, end of period $15.50 $16.13 $16.31 $14.06
Total Return (a) 8.1 5.8 3.3 -7.6
Ratios/Supplemental Data
Net assets, end of period (000) $142,917 $136,848 $109,773 $57,845
Ratio of Operating Expenses
to average net assets (%)(b) 1.75 1.75 1.75 1.75
Ratio of net income
to average net assets (%) 0.01 1.24 0.14 0.62
Portfolio Turnover Rate (%) 123 119 59 154
<CAPTION>
Class B
Year Ended December 31,
1994 1995 1996 1997 1998
Net asset value, beginning of period $14.81 $15.35 $15.93 $16.00
Income from investment operations
Net investment income 0.00 0.19 -0.10(c) -0.03(c)
Net gains or losses on securities
(both realized and unrealized) 1.08 0.58 0.50 -1.17
Total from investment operations 1.08 0.77 0.40 -1.20
Less Distributions
Distributions (from net income) 0.00 -1.19 0.00 0.00
Distributions (from capital gains) -0.53 0.00 -0.33 -1.05
Returns of Capital 0.01 0.00 0.00 0.00
Total Distributions -0.54 -1.09 -0.33 -1.09
Net asset value, end of period $15.35 $15.93 $16.00 $13.71
Total Return (a) 7.3 5.0 2.5 -8.0
Ratios/Supplemental Data
Net assets, end of period (000) $41,601 $52,895 $45,974 $25,216
Ratio of Operating Expenses
to average net assets (%)(b) 2.50 2.50 2.50 2.50
Ratio of net income
to average net assets (%) -0.74 0.49 -0.61 -0.13
Portfolio Turnover Rate (%) 123 119 59 154
<CAPTION>
Class C
Year Ended December 31,
1995 1996 1997 1998
Net asset value, beginning of period $15.35 $15.96 $16.03
Income from investment operations
Net investment income 0.19 -0.10(c) -0.03(c)
Net gains or losses on securities
(both realized and unrealized) 0.61 0.50 -1.17
Total from investment operations 0.80 0.40 -1.20
Less Distributions
Distributions (from net income) -0.19 0.00 0.00
Distributions (from capital gains) 0.00 -0.33 -1.05
Returns of Capital 0.00 0.00 0.00
Total Distributions -0.19 -0.33 -1.09
Net asset value, end of period $15.96 $16.03 $13.74
Total Return (a) 5.2 2.5 -8.0
Ratios/Supplemental Data
Net assets, end of period (000) $1,066 $850 $843
Ratio of Operating Expenses
to average net assets (%)(b) 2.50 2.50 2.50
Ratio of net income
to average net assets (%) 0.49 -0.61 -0.13
Portfolio Turnover Rate (%) 119 59 154
- ----------------------------------------------------------------------------------------------------------------
(a) A sales charge for Class A shares or a CDSC for Class B and C shares are not reflected in total return
calculations. Periods of less than one year are not annualized.
(b) The ratio of operating expenses to average net assets without giving effect to the voluntary expense
limitations would have been (%):
</TABLE>
<TABLE>
<CAPTION>
_________________Class A________________ _________________Class B________________ ___________Class C_____________
1994 1995 1996 1997 1998 1994 1995 1996 1997 1998 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.79 1.83 1.79 2.14 2.54 2.58 2.54 2.89 2.58 2.54 2.89
(c) Per share investment (loss) has been calculated using the average shares outstanding during the year. The
Fund's current subadviser assumed that function on February 14, 1997. These highlights reflect results
achieved by the previous subadviser under different investment policies.
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND EQUITY INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B Class C
Nov. 15
through September 13(a) September 13(a)
Dec. 31, Year Ended December 31, through December 31, through December 31,
1995(a) 1996 1997 1997 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.50 $12.86 $15.15 $17.06 $17.06
Income from investment operations
Net investment income 0.04 0.31 0.25 0.03 0.03
Net gains or losses on securities
(both realized and unrealized) 0.36 3.11 3.15 0.60 0.60
Total from investment operations 0.40 3.42 3.40 0.63 0.63
Less Distributions
Distributions (from net income) -0.04 -0.30 -0.26 -0.04 -0.04
Distributions (from capital gains) 0.00 -0.83 -0.70 -0.06 -0.06
Returns of Capital 0.00 0.00 0.00 0.00 0.00
Total Distributions -0.04 -1.13 -0.96 -0.10 -0.10
Net asset value, end of period $12.86 $15.15 $17.59 $17.59 $17.59
Total Return (c) 3.2 26.6 22.6 3.7 3.7
Ratios/Supplemental Data
Net assets, end of period (000) $2,064 $2,613 $14,681 $9,375 $1,596
Ratio of Operating Expenses
to average net assets (%) (d) 1.50(b) 1.50 1.50 2.25(b) 2.25(b)
Ratio of net income
to average net assets (%) 3.58(b) 2.06 1.76 1.01(b) 1.01(b)
Portfolio Turnover Rate (%) 0 45 33 33 33
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund commenced operations on November 15, 1995. Class B and Class C shares were first offered on September 15, 1997.
(b) Computed on an annualized basis.
(c) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations. Periods of
less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the expense limitation in effect would have
been (%):
5.97(b) 3.67 3.10 3.85(b) 3.85(b)
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
----------------
NEW ENGLAND BULLSEYE FUND
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B Class C
Year Ended December 31, 1998 Year Ended December 31, 1998 Year Ended December 31, 1998
<S> <C> <C> <C>
Net asset value, beginning of period
Income from investment operations
Net investment income
Net gains or losses on securities
(both realized and unrealized)
Total from investment operations
Less Distributions
Distributions (from net income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net asset value, end of period
Total Return (a)
Ratios/Supplemental Data
Net assets, end of period (000)
Ratio of Operating Expenses
to average net assets (%)(b)
Ratio of net income
to average net assets (%)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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 APPROACH -- The search for outstanding performance of individual
stocks before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS -- Payments to a Fund's shareholders of profits
earned from selling securities in a 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 or Moody's. Bonds with a credit rating of BBB or higher by S&P
or Baa or higher by Moody's are generally considered investment grade.
DERIVATIVE -- A financial instrument whose value and performance is based on the
value and performance of another security or financial instrument.
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 an individual company or 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 -- A measure of how much a bond's price inversely fluctuates with
changes in prevailing 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's price to rise.
FUNDAMENTAL ANALYSIS -- An analysis of the balance sheet and income statements
of a company in order to forecast its 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
its 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 a Fund's 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.
MARKET CAPITALIZATION -- Market price multiplied by number of shares
outstanding. 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. These capitalization figures may
vary depending upon the index being used and/or the guidelines set by the
portfolio manager.
MATURITY -- The final date on which the payment of a debt instrument (e.g.
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 Fund on any given
day without a front-end sales charge or CDSC. It is determined by dividing a
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.
PRICE-TO-EARNINGS RATIO -- Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price-to-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 net
income for the period after preferred stock dividends but before common stock
dividends by the common stock equity (net worth) average for the accounting
period. This tells common shareholders how effectively 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.
Technical analysis uses charts or computer programs to identify and project
price trends in a market, security, mutual fund or futures contract.
TOP-DOWN APPROACH -- The method in which an investor first looks at trends in
the general economy, selects attractive industries and then companies that
should benefit from those trends.
TOTAL RETURN -- The change in value of an investment in a Fund over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of a 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-to-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 upon 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>
<TABLE>
[GRAPHIC OMITTED]
IF YOU WOULD LIKE MORE INFORMATION ABOUT THE
FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:
<S> <C>
Annual and Semiannual Reports -- Provide
additional information about each Fund's
investments. Each report includes a discussion of
the market conditions and investment strategies
that significantly affected the Fund's performance
during its last fiscal year.
Statement of Additional Information (SAI) -- NEW ENGLAND FUNDS
Provides more detailed information about the STOCK FUNDS
Funds, has been filed with the Securities and
Exchange Commission and is incorporated into this New England Capital Growth Fund
Prospectus by reference. New England Growth Fund
New England Growth Opportunities Fund
TO ORDER A FREE COPY OF A FUND'S ANNUAL OR New England Balanced Fund
SEMIANNUAL REPORT OR ITS SAI, CONTACT YOUR New England Value Fund
FINANCIAL REPRESENTATIVE, OR THE FUNDS AT: New England International Equity Fund
New England Equity Income
New England Funds, L.P. New England Bullseye Fund
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 Web site 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 their Web site at
www.NASDR.com.
(Investment Company Act File No. 811-4323)
(Investment Company Act File No. 811-242)
(Investment Company Act File No. 811-7345)
XS51-0599
</TABLE>
<PAGE>
NEW
ENGLAND STOCK
FUNDS AND STAR
FUNDS
- -----------------
Class Y shares of:
New England Capital Growth Fund
New England Growth Fund
New England Growth Opportunities Fund
New England Balanced Fund
New England Value Fund
New England International Equity Fund
New England Equity Income Fund
New England Star Small Cap Fund
New England Star Advisers Fund
New England Star Worldwide Fund
The Securities and Exchange Commission has not approved any Fund's shares 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.
[Logo(R)]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
PROSPECTUS
May 01, 1999
WHAT'S INSIDE
GOALS, STRATEGIES & RISKS [GRAPHIC OMITTED]
PAGE 2
- --------------------------------------------------------------------------------
FUND FEES & EXPENSES [GRAPHIC OMITTED]
PAGE 32
- --------------------------------------------------------------------------------
MANAGEMENT TEAM [GRAPHIC OMITTED]
PAGE 34
- --------------------------------------------------------------------------------
FUND SERVICES [GRAPHIC OMITTED]
PAGE 40
- --------------------------------------------------------------------------------
FUND PERFORMANCE [GRAPHIC OMITTED]
PAGE 48
- --------------------------------------------------------------------------------
New England Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
<PAGE>
TABLE OF CONTENTS
-------------------------------------------------------------------
GOALS, STRATEGIES & RISKS
-------------------------------------------------------------------
New England Capital Growth Fund ............................. 2
New England Growth Fund ..................................... 4
New England Growth Opportunities Fund ....................... 6
New England Balanced Fund ................................... 8
New England Value Fund ...................................... 10
New England International Equity Fund ....................... 12
New England Equity Income Fund .............................. 14
New England Star Small Cap Fund ............................. 16
New England Star Advisers Fund .............................. 20
New England Star Worldwide Fund ............................. 24
More About Risk ............................................. 30
-------------------------------------------------------------------
FUND FEES & EXPENSES
-------------------------------------------------------------------
Fund Fees & Expenses ........................................ 32
-------------------------------------------------------------------
MANAGEMENT TEAM
-------------------------------------------------------------------
Meet the Funds' Investment Advisers and Subadvisers ......... 34
Meet the Funds' Portfolio Managers .......................... 36
-------------------------------------------------------------------
FUND SERVICES
-------------------------------------------------------------------
It's Easy to Open an Account ................................ 40
Buying Shares ............................................... 41
Selling Shares .............................................. 42
Selling Shares in Writing ................................... 43
Exchanging Shares ........................................... 44
How Fund Shares Are Priced .................................. 45
Dividends and Distributions ................................. 46
Tax Consequences ............................................ 46
Compensation to Securities Dealers .......................... 47
-------------------------------------------------------------------
FUND PERFORMANCE
-------------------------------------------------------------------
New England Capital Growth Fund ............................. 48
New England Growth Fund ..................................... 49
New England Growth Opportunities Fund ....................... 50
New England Balanced Fund ................................... 51
New England Value Fund ...................................... 52
New England International Equity Fund ....................... 53
New England Equity Income Fund .............................. 54
New England Star Small Cap Fund ............................. 55
New England Star Advisers Fund .............................. 56
New England Star Worldwide Fund ............................. 57
Glossary of Terms ........................................... 58
If you have any questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
To learn more about the possible risks of a Fund, please refer to the section
entitled "More About Risk." This section details the risks of practices in which
the Funds may engage. Please read this section carefully before you invest.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod. X
--------- ------ ------
Low X
[graphic omitted] GOALS, STRATEGIES & RISKS
-------------------------
NEW ENGLAND CAPITAL GROWTH FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadviser: Westpeak Investment Advisors, L.P. ("Westpeak")
Manager: Gerald H. Scriver
Category: Large-Cap Equity
INVESTMENT GOAL
The Fund seeks long-term capital growth.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in common stock of U.S. medium and large capitalization companies in any
industry.
Westpeak constructs a portfolio of reasonably-priced growth stocks by combining
its experience and judgment with a dynamic weighting process known as "portfolio
profiling." The portfolio emphasizes the characteristics that Westpeak believes
are most likely to be rewarded by the market in the period ahead. Using
proprietary research based on economic, market and company specific information,
Westpeak analyzes each stock and ranks them based on characteristics such as:
x earnings-to-price ratios
x earnings growth rates
x positive earnings surprises
x book-to-price ratios
In selecting investments for the Fund's portfolio, Westpeak employs the
following strategy:
o It starts with the Russell 3000 Growth Index of about 1,800 stocks and
generally eliminates stocks of companies below a $500 million market
capitalization threshold. This creates an overall valuation universe of about
1,200 stocks, with approximately 90% from the Russell 1000 Growth Index
(comprised of large and medium capitalization companies) and 10% from the
Russell 2000 Growth Index (comprised of small capitalization companies).
o Next, it screens these stocks using fundamental growth and value criteria and
calculates a "fundamental rank" for each stock. This rank reflects a
historical analysis of the company using approximately 70 growth and value
characteristics.
o All of the stocks are then screened using Wall Street analysts' projected
earnings estimates for the company and each is assigned an "expectations
rank." This rank accounts for the company's potential earnings revisions and
"positive earnings surprises" (whether its business has the potential to
improve in the near future).
o The final step is to calculate a "composite rank" for each stock by combining
their fundamental and expectation ranks and to evaluate whether to buy, sell
or hold a stock by comparing its composite rank to those of other stocks on a
stock valuation matrix.
o The desired result is a portfolio of 75 to 125 stocks that Westpeak believes
will produce the highest long-term returns consistent with the Fund's risk
parameters.
The Fund may:
o Hold up to 10% of its assets in smaller capitalization companies.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of capital gains, which
may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in a stock's value or periods
of below-average performance in a given stock or in the stock market as a
whole. Small capitalization companies may be subject to more abrupt price
movements, limited markets and less liquidity than larger, more established
companies, which could adversely affect the value of the portfolio.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Capital Growth Fund. The returns shown are those of the Fund's
Class A, B and C shares which are not offered in this Prospectus. Class Y shares
would have substantially similar annual returns because they would be invested
in the same portfolio of securities as the Class A, B and C shares and would
only differ to the extent that the classes do not have the same expenses. The
Fund's past performance does not necessarily indicate how it will perform in the
future. The Fund's current subadviser assumed that function on February 16,
1998. This chart and table reflect results achieved by the previous subadviser
using different investment principles for periods prior to February 16, 1998.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for the Class
B and C shares 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.
[Graphic Omitted] [Total Return for Class A Shares]
1993 7.90%
1994 (1.40)%
1995 30.90%
1996 17.10%
1997 17.20%
1998 00.00%
/\ Highest Quarterly Return: Quarter , up %
\/ Lowest Quarterly Return: Quarter , down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception, if shorter)
compared to those of the Russell 1000 Growth Index, an unmanaged subset of
stocks from the larger Russell 1000 Index, selected for their greater growth
orientation. They are also compared to the Lipper Growth Fund and Morningstar
Large Growth Averages, each an average of the total returns of all mutual funds
with an investment style similar to that of the Fund as calculated by Lipper,
Inc. and Morningstar, Inc. You may not invest directly in an index. The Fund's
total returns reflect its expenses and the maximum sales charge that you may pay
when you buy or redeem the Fund's shares. The Russell 1000 Growth Index returns
have not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments. The Lipper
Growth Fund and Morningstar Large Growth Average returns have been adjusted for
these expenses but do not reflect any sales changes.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------------------------------------------
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New England Capital Growth Fund: Class A (inception 8/3/92) % % %
Russell 1000 Growth Index % % %
Lipper Growth Fund Average % % %
Morningstar Large Growth Average % % %
New England Capital Growth Fund: Class B (inception 9/13/93) % %
Russell 1000 Growth Index % %
Lipper Growth Fund Average (calculated from 9/30/93) % %
Morningstar Large Growth Average (calculated from 9/30/93) % %
New England Capital Growth Fund: Class C (inception 12/30/94) % %
Russell 1000 Growth Index % %
Lipper Growth Fund Average % %
Morningstar Large Growth Average % %
- -------------------------------------------------------------------------------------------------------------------
For the expenses of Class Y shares, see the section entitled "Fund Fees and Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod.
--------- ------ ------
Low X X
GOALS, STRATEGIES & RISKS
NEW ENGLAND GROWTH FUND
Adviser: Capital Growth Management Limited Partnership ("CGM")
Manager: G. Kenneth Heebner
Category: Large-Cap Equity
INVESTMENT GOAL
The Fund seeks long-term growth of capital through investment in equity
securities of companies whose earnings are expected to grow at a faster rate
than the United States economy.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities. The Fund will generally invest in common stock of
large capitalization companies that CGM expects will grow at a faster rate than
the United States economy. When market conditions warrant, however, CGM may
select stocks based upon overall economic factors such as the general economic
outlook, the level and direction of interest rates and potential impact of
inflation. The Fund will not invest in small capitalization companies.
In general, CGM seeks companies with the following characteristics, although not
all of the companies selected will have these attributes:
x well-established with records of above-average growth
x promise of maintaining their leadership positions in their industries
x likely to benefit from internal revitalization or innovations, changes in
consumer demand, or basic economic forces
Rather than following a particular style, CGM employs a flexible approach and
seeks to take advantage of opportunities as they arise. In making an investment
decision, CGM will generally employ the following methods:
o It uses a top-down approach, meaning that it analyzes the overall economic
factors that may affect a potential investment.
o CGM then conducts a thorough analysis of certain industries and companies,
evaluating the fundamentals of each on a case-by-case basis and focusing on
companies that it determines are attractively valued.
o CGM's ultimate decision to purchase a security results from a thorough
assessment of all of the information that CGM deems to be relevant at the
time of investment.
o CGM will sell a stock if it determines that its investment expectations are
not being met, if better opportunities are identified or if its price
objective has been attained.
The Fund may:
o Invest in foreign securities.
o Invest in other investment companies.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Although the Fund is diversified, its focused approach means that its
relatively small number of holdings may result in greater share price
fluctuations than a more diversified mutual fund.
INVESTMENTS IN OTHER INVESTMENT COMPANIES: May incur extra costs in addition to
its own expenses.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Growth Fund. The returns shown are those of the Fund's Class A, B
and C shares which are not offered in this Prospectus. Class Y shares would have
substantially similar annual returns because they would be invested in the same
portfolio of securities as the Class A, B and C shares and would only differ to
the extent that the classes do not have the same expenses. The Fund's past
performance does not necessarily indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the Class B and C shares 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.
[Graphic Omitted] [Total Return for Class A Shares]
1989 22.30%
1990 5.10%
1991 56.70%
1992 (6.30)%
1993 11.30%
1994 (7.40)%
1995 38.10%
1996 20.90%
1997 23.50%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception if shorter)
compared to those of the Standard & Poor's Composite Index of 500 Stocks ("S&P
500"), a market value-weighted, unmanaged index of common stock prices for 500
selected stocks. They are also compared to the Lipper Growth Fund and
Morningstar Large Blend Averages, each an average of the total returns of all
mutual funds with an investment style similar to that of the Fund as calculated
by Lipper, Inc and Morningstar, Inc. You may not invest directly in an index.
The Fund'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 returns have
not been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments. The Lipper Growth Fund
Average and Morningstar Large Blend Average returns have been adjusted for these
expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------- *Since inception
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
New England Growth Fund: Class A (inception 11/27/68) % % %
S&P 500 % % %
Lipper Growth Fund Average % % %
Morningstar Large Blend Average % % %
New England Growth Fund: Class B (inception 2/28/97) % %*
S&P 500 % %*
Lipper Growth Fund Average % %*
Morningstar Large Blend Average % %*
New England Growth Fund: Class C (inception 9/1/98) %*
S&P 500 %*
Lipper Growth Fund Average %*
Morningstar Large Blend Average %*
- --------------------------------------------------------------------------------------------------------------
For the expenses of Class Y shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod. X
--------- ------ ------
Low X
GOALS, STRATEGIES & RISKS
NEW ENGLAND GROWTH
OPPORTUNITIES FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadviser: Westpeak Investment Advisors, L.P. ("Westpeak")
Manager: Gerald H. Scriver
Category: Large-Cap Equity TICKER SYMBOL: CLASS Y
INVESTMENT GOAL
The Fund seeks opportunities for long-term capital growth and income.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all its
assets in common stock of large capitalization companies in any industry.
Westpeak constructs a portfolio of recognizable, reasonably-priced growth stocks
by combining its experience and judgment with a dynamic weighting process known
as "portfolio profiling." The portfolio emphasizes the characteristics that
Westpeak feels are most likely to be rewarded by the market in the period ahead.
Using proprietary research based on economic, market and company specific
information, Westpeak analyzes each stock and ranks them based on
characteristics such as:
x earnings-to-price ratios
x earnings growth rates
x positive earnings surprises
x book-to-price ratios
x dividend yield
In selecting investments for the Fund, Westpeak employs the following strategy:
o It starts with an initial universe of approximately 1,300 stocks of large
capitalization companies and generally eliminates stocks of companies below a
$1.4 billion market capitalization threshold. This creates an overall
universe of about 900 stocks.
o Next, it screens these stocks using fundamental growth and value criteria and
calculates a "fundamental rank" for each stock. This rank reflects a
historical analysis of the company using approximately 70 growth and value
characteristics.
o All of the stocks are then screened using Wall Street analysts' projected
earnings estimates for the company and each is assigned an "expectations
rank." This rank accounts for the company's potential earnings revisions and
"positive earnings surprises" (whether its business has the potential to
improve in the near future).
o The final step is to calculate a "composite rank" for each stock by combining
their fundamental and expectation ranks and to evaluate whether to buy, sell
or hold a stock by comparing its composite rank to those of other stocks on a
stock valuation matrix;
o The desired result is a portfolio of 75 to 150 stocks, with a dividend yield
that approximates that of the Standard & Poor's Composite Rank of 500 Stocks
("S&P 500"), which Westpeak believes will produce the highest long-term
returns consistent with the portfolio's risk parameters.
The Fund may:
o Invest in foreign securities traded in U.S. markets (through American
Depository Receipts ("ADRs") or stocks sold in U.S. dollars).
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
FOREIGN SECURITIES: ADRs may be more volatile than U.S. securities and carry
political, economic and information risks that are associated with foreign
securities.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Growth Opportunities Fund. The returns shown are those of the
Fund's Class A, B and C shares which are not offered in this Prospectus. Class Y
shares would have substantially similar annual returns because they would be
invested in the same portfolio of securities as the Class A, B and C shares and
would only differ to the extent that the classes do not have the same expenses.
The Fund's past performance does not necessarily indicate how it will perform in
the future. The Fund's current subadviser assumed that function on May 1, 1995.
This chart and table reflect results achieved by the previous subadviser using
different investment principles for periods prior to May 1, 1995.
The bar chart shows the Fund's total returns for Class A shares for each of the
last ten calendar years. The returns for the Class B and C shares 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.
[Graphic Omitted] [Total Return for Class A Shares]
1989 27.60%
1990 (4.30)%
1991 30.60%
1992 9.30%
1993 8.00%
1994 1.00%
1995 35.10%
1996 17.20%
1997 33.40%
1998 00.00%
/\ Highest Quarterly Return: Third Quarter , up %
\/ Lowest Quarterly Return: Third Quarter , down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and ten-year periods (or since the class's inception if shorter)
compared to those of the S&P 500, a market value-weighted, unmanaged index of
common stock prices of 500 selected stocks. They are also compared to the Lipper
Growth & Income and Morningstar Large Value Averages, each an average of the
total returns of all mutual funds with an investment style similar to that of
the Fund as calculated by Lipper, Inc. and Morningstar, Inc. You may not invest
directly in an index. The Fund's total returns reflect its expenses and the
maximum sales charge that you may pay when you buy or redeem the Fund's shares.
The S&P 500 returns have not been adjusted for ongoing management, distribution
and operating expenses and sales charges applicable to mutual fund investments.
The Lipper Growth & Income Average and Morningstar Large Value Average returns
have been adjusted for these expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------ *Since
AVERAGE ANNUAL TOTAL RETURNS inception
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
New England Growth Opportunities Fund: Class A (inception 5/6/31) % % %
S&P 500 % % %
Lipper Growth & Income Average % % % %
Morningstar Large Value Average % % %
New England Growth Opportunities Fund: Class B (inception 9/13/93) % % %*
S&P 500 % % %*
Lipper Growth & Income Average (calculated from 9/30/93) % % %*
Morningstar Large Value Average (calculated from 9/30/93) % % %*
New England Growth Opportunities Fund: Class C (inception 5/1/95) % %*
S&P 500 % %*
Lipper Growth & Income Average (calculated from 4/30/95) % %*
Morningstar Large Value Average (calculated from 4/30/95 ) % %*
- ------------------------------------------------------------------------------------------------------------------------
For the expenses of Class Y shares, see the section entitled "Fund Fees and Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High
--------- ------ ------
Mod. X X X
--------- ------ ------
Low
GOALS, STRATEGIES & RISKS
NEW ENGLAND BALANCED FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Managers: Equity: Jeff Wardlow and Gregg Watkins
Fixed Income: Meri Ann Beck, John Hyll and Barr Segal
Category: Large-Cap Equity
TICKER SYMBOL: CLASS Y
-------
NEBYX
INVESTMENT GOAL
The Fund seeks a reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income.
INVESTMENT STRATEGIES
Generally, the Fund will invest appoximately 65% of its assets in equity
securities and approximately 35% of its assets in fixed-income securities. It
principally invests in dividend-paying common stocks of quality, large
capitalization companies of any industry and investment grade bonds. Loomis
Sayles uses a flexible approach to seek investments with the following
characteristics, although not all of the companies selected will have these
attributes:
EQUITY SECURITIES:
x discounted price compared to its current value
x below-average price-to-earnings ratios
x competitive current and estimated dividend yield
x attractive 5-year estimated earnings growth
FIXED-INCOME SECURITIES:
x greater yield-to-maturity than appropriate benchmarks
x maturities typically between 1 and 30 years
x investment grade bonds
x controlled duration variance compared to index
In order to maintain a balanced, flexible portfolio of investments, Loomis
Sayles employs the following strategy:
o Depending on Loomis Sayles' view of the economic outlook, the Fund may invest
more heavily in either equity or fixed-income securities. However, the Fund
will always invest a minimum of 50% of its assets in equity securities and a
minimum of 25% of its assets in fixed-income securities.
o It selects stocks from a universe of approximately 1,400 companies, primarily
those with a market capitalization in excess of $2 billion. It then uses a
proprietary valuation model to rank stocks based on valuation, earnings
estimate revisions and quality. Fundamental research is then used to identify
what Loomis Sayles believes are the most attractive 60 to 75 stocks for
purchase by the Fund.
o It selects bonds by placing a greater emphasis on security and sector
selection than interest rate anticipation. It conducts extensive research and
credit analysis of over 600 corporate issuers and assigns each a proprietary
rating. It combines these ratings with internal policy limitations to select
bonds for the Fund.
o Loomis Sayles will sell a stock when its price objective has been attained,
its fundamentals deteriorate or when more attractive opportunities are
identified. It sells bonds depending on expected credit deterioration or when
it identifies other securities with better total returns going forward.
The Fund may also invest in:
o Foreign securities.
o Mortgage- and asset-backed securities.
o Zero-coupon bonds and when-issued securities.
o Money market or high quality debt securities for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
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
rises when prevailing interest rates fall and falls when interest rates rise.
Zero-coupon bonds may be subject to these risks to a greater extent than
other fixed-income securities.
MORTGAGE- AND ASSET-BACKED SECURITIES: Subject to prepayment risk. With
prepayment, the Fund may reinvest the prepaid amounts in securities with
lower yields than the prepaid obligations. The Fund may also incur a realized
loss when there is a prepayment of securities that were purchased at a
premium.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Balanced Fund. The Fund's past performance does not necessarily
indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class Y shares for each
calendar year since it first offered Class Y shares. The returns for the Class
A, B and C shares are generally lower than the Class Y returns shown in the bar
chart because of the sales charges and higher expenses of those classes.
[Graphic Omitted] [Total Return for Class Y Shares]
1995 26.80%
1996 17.60%
1997 18.10%
1998 00.00%
/\ Highest Quarterly Return: Quarter up %
\/ Lowest Quarterly Return: Quarter down %
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of a blend of the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500") and the Lehman Government/
Corporate Bond Index ("S&P/Lehman G/C Blend"). This index is represented by a
65% weighting in the S&P 500 and a 35% weighting in the Lehman G/C Index.
Indices are rebalanced to 65% / 35% at the end of each year. The returns are
also compared to the Lipper Balanced and Morningstar Domestic Hybrid Averages,
each an average of the total returns of all mutual funds with an investment
style similar to that of the Fund as calculated by Lipper, Inc. and Morningstar,
Inc. You may not invest directly in an index. The Fund's total returns reflect
the expenses of the Fund's Class Y shares. The S&P/Lehman G/C Blend returns have
not been adjusted for ongoing management, distribution and operating expenses
applicable to mutual fund investments. The Lipper Balanced Average and the
Morningstar Domestic Hybrid Average returns have been adjusted for these
expenses.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
New England Balanced Fund: Class Y (Inception 3/8/94) % %
S&P/Lehman G/C Blend (Lehman calculated from 3/31/94) % %
Lipper Balanced Average (calculated from 3/31/94) % %
Morningstar Domestic Hybrid Average (calculated from 3/31/94) % %
- -----------------------------------------------------------------------------------------------------------
*For actual past expenses of Class Y shares, see the section entitled "Fund Fees and Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod. X
--------- ------ ------
Low X
GOALS, STRATEGIES & RISKS
NEW ENGLAND VALUE FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Managers: Jeff Wardlow and Lauriann Kloppenburg
Category: Large-Cap Equity TICKER SYMBOL: CLASS Y
-------
NEVYX
INVESTMENT GOAL
The Fund seeks a reasonable long-term investment return from a combination of
market appreciation and dividend income from equity securities.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities. The Fund primarily invests in common stock of large
capitalization companies of various industries, although investment in any one
industry is limited to 10% of the Fund's assets.
Loomis Sayles uses non-technical, fundamental research in a value-oriented
selection process to seek companies with the following characteristics, relative
to the Russell 1000 Value Index, although not all of the companies selected will
have these attributes:
x low price-to-earnings ratios based on earnings estimates
x competitive return on equity
x competitive current and estimated dividend yield
x high 5-year estimated earnings growth
In selecting investments for the Fund, Loomis Sayles employs the following
strategy:
o It starts with a universe of approximately 1,400 companies, primarily those
with a market capitalization in excess of $2 billion.
o Stocks are then ranked using the Loomis Sayles proprietary valuation model
based on low price-to-earnings ratios, earnings estimate revisions and
quality.
o Stocks that rank in the top third of the valuation model become prime
candidates for purchase and receive a more intensive fundamental research
effort.
o The Fund's portfolio is constructed by choosing approximately 60 to 70 stocks
which Loomis Sayles believes offer the best combination of attractive
valuation characteristics and positive fundamentals.
o The portfolio construction process also attempts to minimize risk through
careful evaluation of diversification and other risk factors.
o Loomis Sayles will generally sell a stock when its price objective has been
attained, if its fundamentals deteriorate, or when a stock with greater
potential is identified.
The Fund may:
o Invest in foreign securities.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Value Fund. The Fund's past performance does not necessarily
indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class Y shares for each
calendar year since it first offered Class Y shares. The returns for the Class
A, B and C shares are generally lower than the Class Y returns shown in the bar
chart because of the sales charges and higher expenses of those classes.
[Graphic Omitted] [Total Return for Class Y Shares]
1995 32.80%
1996 26.40%
1997 21.30%
1998 00.00%
/\ Highest Quarterly Return: Quarter , up %
\/ Lowest Quarterly Return: Quarter , down %
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the Russell 1000 Value Index,
an unmanaged subset of stocks from the larger Russell 1000 Index, selected for
their greater value orientation. The returns are also compared to the Lipper
Growth & Income and Morningstar Large Value Averages, each an average of the
total returns of all mutual funds with an investment style similar to that of
the Fund as calculated by Lipper, Inc. and Morningstar, Inc. You may not invest
directly in an index. The Fund's total returns reflect the expenses of the
Fund's Class Y shares. The Russell 1000 Value Index returns have not been
adjusted for ongoing management, distribution and operating expenses applicable
to mutual fund investments. The Lipper Growth & Income Average and the
Morningstar Large Value Average returns have been adjusted for these expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION
<S> <C> <C> <C>
New England Value Fund: Class Y (inception 3/31/94) % %
Russell 1000 Value Index % %
Lipper Growth & Income Average % %
Morningstar Large Value Average % %
- ---------------------------------------------------------------------------------------------------------------------------
For actual past expenses of Class Y shares, see the section entitled "Fund Fees and Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod.
--------- ------ ------
Low X X
GOALS, STRATEGIES & RISKS
NEW ENGLAND INTERNATIONAL EQUITY
FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Manager: Paul H. Drexler
Category: All-Cap Equity Ticker Symbol: CLASS Y
-------
NEIYX
INVESTMENT GOAL
The Fund seeks total return from long-term capital growth and dividend income.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 65% of its assets
in equity securities of companies headquartered outside of the United States.
The Fund will hold securities from at least 3 different countries including
those within emerging markets. It may also invest up to 20% of its assets in
foreign fixed-income securities, including lower-quality bonds.
Loomis Sayles uses a value-oriented stock selection process to identify
companies with the following characteristics, although not all of the companies
selected will have these attributes:
x below-market price-to-earnings ratios
x favorable earnings growth potential
x above-market return on equity
x quality management
In selecting investments for the Fund, Loomis Sayles employs the following
strategy:
o It begins with a 26 country universe.
o It then selects 12 to 16 attractively valued markets to effectively diversify
risk. The countries are selected based upon the portfolio manager's judgment
of value criteria.
o Next, Loomis Sayles typically selects 6 to 8 stocks to purchase from each
market, evaluating each stock based upon fundamental analysis of value
criteria and visits with company management.
o The desired result is a group of 80 to 100 securities that Loomis Sayles
believes will produce superior total returns while providing reasonable price
fluctuations and reduced risk.
The Fund may:
o Engage in active and frequent trading of its securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital gains,
which may lower the Fund's return.
o Purchase money market or high quality debt securities for temporary defensive
purposes in response to adverse market, economic or political conditions.
These investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements,
limited markets and less liquidity than larger, more established companies,
which could adversely affect the value of the portfolio.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
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
rises when prevailing interest rates fall and falls when interest rates rise.
Lower-quality fixed-income securities may be subject to these risks to a
greater extent than other fixed-income securities.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency. Investments in emerging markets
may be subject to these risks to a greater extent than those in more
developed markets.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England International Equity Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future. The Fund's current
subadviser assumed that function on February 14, 1997. This chart and table
reflect results achieved by the previous subadviser under different investment
policies for periods prior to February 14, 1997.
The bar chart shows the Fund's total returns for Class Y shares for each
calendar year since it first offered Class Y shares. The returns for Class A, B
and C shares are generally lower than the Class Y returns shown in the bar chart
because of the sales charges and higher expenses of those classes.
[Graphic Omitted] [Total Return for Class Y Shares]
1994 8.90%
1995 6.60%
1996 4.00%
1997 (6.70)%
1998 00.00%
/\ Highest Quarterly Return: Quarter , up %
\/ Lowest Quarterly Return: Quarter , down %
The table below shows the Fund's average annual total returns for the one-year,
five-year and since-inception periods compared to those of the Morgan Stanley
Capital International ("MSCI") Europe, Australasia and Far East Index ("EAFE"),
an arithmetical average of the performance of over 1,000 companies representing
stock markets in Europe, Australia, New Zealand and the Far East. The returns
are also compared to the Lipper International and Morningstar Foreign Stock
Averages, each an average of the total returns of all mutual funds with an
investment style similar to that of the Fund as calculated by Lipper, Inc. and
Morningstar, Inc. You may not invest directly in an index. The Fund's total
returns reflect the expenses of the Fund's Class Y shares. The MSCI EAFE returns
have not been adjusted for ongoing management, distribution and operating
expenses applicable to mutual fund investments. The Lipper International Average
and the Morningstar Foreign Stock Average returns have been adjusted for these
expenses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
(for the periods ended December 31, 1998) PAST 1 YEAR PAST 5 YEARS INCEPTION
<S> <C> <C> <C>
New England International Equity Fund: Class Y (inception 9/9/93) % % %
MSCI EAFE % % %
Lipper International Average (calculated from 9/30/93) % % %
Morningstar Foreign Stock Average (calculated from 9/30/93) % % %
- -------------------------------------------------------------------------------------------------------------
For actual past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
--------- ------ ------
High X
--------- ------ ------
Mod. X X
--------- ------ ------
Low
GOALS, STRATEGIES & RISKS
NEW ENGLAND EQUITY INCOME FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadviser: Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Managers: Peter B. Ramsden and Tom A. Kolefas
Category: All-Cap Equity
INVESTMENT GOAL
The Fund seeks current income and capital growth.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 80% of its assets
in dividend-paying common or preferred stocks.
Loomis Sayles uses a highly disciplined research methodology and a value-based
stock selection process to seek companies with the following characteristics,
although not all of the companies selected will have these attributes:
x discounted price compared to its current value
x favorable earnings growth potential
x below-average price-to-earnings ratios
x dividend yield greater than that of the Standard & Poor's Composite Index of
500 Stocks ("S&P 500")
x positive cash flows
x strong internal management
In selecting investments for the Fund, Loomis Sayles employs the following
strategy:
o It starts with proprietary investment research to form a universe of 1,800
companies. This research consists of broad, in-depth coverage including
regular contact with company management, near and long-term projections on
company fundamentals and evaluations of financial strength.
o Next, Loomis Sayles places each company through a series of quantitative
valuation and financial strength screens that creates what it believes to be
an "advantaged universe" of 150 to 200 stocks. These screens attempt to
identify undervalued companies with above-average financial and operating
strength.
o Loomis Sayles then narrows this universe to between 60 and 75 stocks using a
subjective measure of each company to identify stocks with a significant
"valuation gap." This gap is the difference between the market's perception
of a stock's value and its underlying fundamental value, supported by asset
values, earnings and cash flow streams. This list is then further scrutinized
to identify companies whose management is working actively to close this gap.
o The final result of this process is a diversified portfolio of 30 to 40
stocks. The Fund will not place more than 15% of its assets in any one
industry.
o Loomis Sayles will sell a stock when its earnings yield falls below the
market average, or if its fundamental outlook is deteriorating. When a
security underperforms the market by 15% or more within three months of
purchase, it is reviewed for possible sale.
The Fund may also invest in:
o Non-dividend paying stocks.
o Foreign securities.
o When-issued securities.
o Money market or high quality debt securities for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its goal.
A "snapshot" of the Fund's investments may be found in the current annual or
semiannual report (see back cover).
INVESTMENT RISKS
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in value or periods of
below-average performance in a given stock or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements
than larger companies.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Equity Income Fund. The returns shown are those of the Fund's
Class A, B and C shares which are not offered in this Prospectus. Class Y shares
would have substantially similar annual returns because they would be invested
in the same portfolio of securities as the Class A, B and C shares and would
only differ to the extent that the classes do not have the same expenses. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for Class B
and C shares 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.
[Graphic Omitted] [Total Return for Class A Shares]
1996 26.61%
1997 22.46%
1998 00.00%
/\ Highest Quarterly Return: Quarter , up %
\/ Lowest Quarterly Return: Quarter , up %
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the S&P 500, a market
value-weighted, unmanaged index of common stock prices for 500 selected stocks.
They are also compared to the Lipper Equity Income and Morningstar Large Value
Averages, each an average of the total returns of all mutual funds with an
investment style similar to that of the Fund as calculated by Lipper, Inc. and
Morningstar, Inc. You may not directly invest in an index. The Fund'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 returns have not been adjusted
for ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. The Lipper Equity Income Average and
Morningstar Large Value Average returns have been adjusted for these expenses
but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION
<S> <C> <C>
New England Equity Income Fund: Class A (inception 11/28/95) % %
S&P 500 % %
Lipper Equity Income Average (calculated from 11/30/95) % %
Morningstar Large Value Average (calculated from 11/30/95) % %
New England Equity Income Fund: Class B (inception 9/15/97) % %
S&P 500 % %
Lipper Equity Income Average (calculated from 9/30/97) % %
Morningstar Large Value Average (calculated from 9/30/97) % %
New England Equity Income Fund: Class C (inception 9/15/97) % %
S&P 500 % %
Lipper Equity Income Average (calculated from 9/30/97) % %
Morningstar Large Value Average (calculated from 9/30/97) % %
- ---------------------------------------------------------------------------------------------------------
For the expenses of Class Y shares, see the section entitled, "Fund Fees and Expenses."
</TABLE>
<PAGE>
FUND FOCUS
Stability Income Growth
--------- ------ ------
High X
--------- ------ ------
Mod.
--------- ------ ------
Low X X
[graphic omitted] GOALS, STRATEGIES & RISKS
NEW ENGLAND STAR SMALL CAP FUND
ADVISER: New England Funds Management, L.P. ("NEFM")
SUBADVISERS: Harris Associates L.P. ("Harris Associates")
Montgomery Asset Management, LLC ("Montgomery")
Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Robertson Stephens & Company Investment Management
("Robertson Stephens")
CATEGORY: Small-Cap Equity
INVESTMENT GOAL
The Fund seeks capital appreciation.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
The Fund seeks to attain its goal by investing primarily in equity securities of
small capitalization companies. The Fund's potential investment universe
includes companies whose total market capitalization, at the time of purchase,
falls within the range of the Russell 2000 Index. The Fund may, however, invest
in companies with larger capitalizations.
NEFM allocates capital invested in the Fund equally among the four subadvisers
set forth above. Each subadviser manages its segment of the Fund's assets in
accordance with its own investment style and strategy. Although the Fund
primarily invests in equity securities, it may also:
o Invest up to 35% of its assets in fixed-income securities, including U.S.
Government bonds as well as lower-quality debt securities.
o Invest in convertible preferred stock and convertible debt securities
o Purchase U.S. Government securities, certificates of deposits, commercial
paper, and/or high quality fixed-income securities or hold cash for temporary
defensive purposes in response to adverse market, economic or political
conditions. Such positions may prevent the Fund from achieving its goal.
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and higher levels of taxable capital gains,
which may lower the Fund's return.
o Invest in real estate investment trusts (REITs).
o Enter into options, futures and currency hedging transactions.
For more detailed information on each subadviser's investment strategies please
refer to the section entitled "Star Small Cap Fund - More On Investment
Strategies."
A recent "snapshot" of the Fund's investments may be found in the current annual
or semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS OF THE STAR SMALL CAP FUND
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in a stock's value or periods
of below-average performance in a given stock or in the stock market as a
whole. Small capitalization companies may be subject to more abrupt price
movements limited markets and less liquidity than larger, more established
companies.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S securities and limited liquidity. Political, economic and
information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency. Investments in emerging markets
may be subject to these risks to a greater extent than those in more
developed markets.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
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
rises when prevailing interest rates fall and falls when interest rates rise.
Lower-quality fixed-income securities may be subject to these risks to a
greater extent than other fixed-income securities.
REITS: Subject to changes in underlying real estate values, rising interest
rates, limited diversification of holdings, higher costs and prepayment risk
associated with related mortgages.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Star Small Cap Fund. The returns shown are those of the Fund's
Class A, B and C shares which are not offered in this Prospectus. Class Y shares
would have substantially similar annual returns because they would be invested
in the same portfolio of securities as the Class A, B and C shares and would
only differ to the extent that the classes do not have the same expenses. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The return for Class B
and C shares 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.
[Graphic Omitted] [Total Return for Class A Shares]
1997 27.00%
1998 00.00%
/\ Highest Quarterly Return: Xxxx Quarter 199x, up xx.xx%
\/ Lowest Quarterly Return: Xxxx Quarter 199x, down xx.xx%
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the Russell 2000 Index, a
market value-weighted, unmanaged index of small company common stocks. The
returns are also compared to the Lipper Small Cap Fund and Morningstar Small
Growth Averages, each an average of the total returns of all mutual funds with
an investment style similar to that of the Fund, as calculated by Lipper, Inc.
and Morningstar, Inc. You may not invest directly in an index. The Fund's total
returns reflect its expenses and the maximum sales charge that you may pay when
you buy or redeem the Fund's shares. The Russell 2000 Index returns have not
been adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments. The Lipper Small Cap Fund
and Morningstar Small Growth Average returns performance numbers have been
adjusted for these expenses but do not reflect any sales charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------- *The inception date of the Fund's
AVERAGE ANNUAL TOTAL RETURNS Class A, B and C shares is
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION* December 31, 1996.
<S> <C> <C>
New England Star Small Cap Fund: Class A xx.x% xx.x%
New England Star Small Cap Fund: Class B xx.x% xx.x%
New England Star Small Cap Fund: Class C xx.x% xx.x%
Russell 200 Index xx.x% xx.x%
Lipper Small Cap Fund Average xx.x% xx.x%
Morningstar Small Growth Average xx.x% xx.x%
- -------------------------------------------------------------------------------------
For the expenses of Class Y shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
GOALS, STRATEGIES & RISKS
STAR SMALL CAP FUND -
MORE ON INVESTMENT STRATEGIES
The Fund's portfolio is divided among four different subadvisers set forth
below. These subadvisers pursue the Fund's overall goal by employing the
strategies and techniques described below.
HARRIS ASSOCIATES
Harris Associates uses a value-oriented investment philosophy to arrive at its
opinion of a company's "true business value." This philosophy is 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 and therefore it uses this philosophy to
identify companies with the following characteristics, although not all of the
companies selected by Harris Associates will have these attributes:
x discounted share price compared to "true business value"
x positive free cash flow x competitive return on equity
x high level of insider ownership x favorable earnings growth potential
In making investment decisions for its segment of the Fund, Harris Associates
generally employs the following methods:
o Harris Associates uses a fundamental bottom-up investment approach. This
means that Harris focuses on individual companies rather than macroeconomic
factors specific industries. Each company is analyzed on a case-by-case basis
to select those which meet Harris' standards of quality and value.
o Harris Associates analysts typically look for companies that generate free
cash flow, review a company's market value as compared to other companies,
companies and talk to various industry sources.
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 both analysts and a pricing
committee that sets specific "buy" and "sell" targets for each company. These
targets are repeatedly adjusted to reflect changes in a company's
fundamentals. Harris Associates will generally buy a stock for its segment of
the Fund when it sells for a price below 60% of its estimated worth, and will
generally sell a stock when it approaches 90% of its estimated worth.
LOOMIS SAYLES
Under normal market conditions, Loomis Sayles will invest at least 65% of its
segment's total assets in equity securities of companies with market
capitalizations that, at the time of purchase fall within the capitalization
range of those companies constituting the Russell 2000 Index. Loomis Sayles may
also invest up to 35% of its assets in companies with larger capitalization
levels.
This segment of the Star Small Cap Fund 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
companies which possess the best growth prospects. Loomis Sayles uses this
approach to identify 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 It begins with a universe of approximately 3,000 companies that generally
fall within the market capitalization range of those companies constituting
the Russell 2000 Index.
o Next, the portfolio managers with the assistance and guidance of the Loomis
Sayles analysts 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 company may have the potential for
earnings growth and rising profitability, it considers that company's stock
for purchase. This process includes analysis of the company's income
statements and balance sheets, an assessment of the quality of its management
team as well as the company's competitive position.
o Out of the remaining candidates, 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 market conditions, the portfolio remains fully invested with less than
5% of its assets held as cash.
o Investments are continuously monitored by the Loomis Sayles small cap growth
team. Any erosion in 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.
ROBERTSON STEPHENS
Robertson Stephens pursues the Fund's objective by selecting securities for its
segment based on a flexible, research driven, bottom-up approach to value
recognition and trend analysis. Stock selection focuses on growth that is
expected to drive earnings and valuations higher over the one to three year time
horizon. The catalysts that spur growth in these small companies may consist of:
x a new product launch x a new management team
x expansion into new markets x realization of undervalued assets
In making investment decisions, Robertson Stephens generally employs the
following methods:
o First, Robertson Stephens begins with a broad universe of companies which it
believes possess the prospect for superior long-term growth.
o It identifies this initial universe of potential investments by conducting
proprietary, fundamental research, focusing on a company's level of available
cash, its existing cash flow rate, its price-to-earnings ratio and the
company's expected return on capital.
o Next, Robertson Stephens evaluates the company's management teams to identify
how they allocate the company's capital as well as to discern the sources and
management's intended use of cash.
o Robertson Stephens will then consider the current stock price relative to its
future price projections. Only after this thorough analysis has been made
will Robertson Stephens make a decision to buy a particular stock.
o Robertson Stephens considers selling or initiating the sell process when
- A stock has reached the price objective set by Robertson Stephens;
- A stock declines 15% from the original purchase price. If this
occurs, Robertson Stephens will generally sell a portion of the
position and reevaluate the company to ensure that a growth catalyst
remains.
- Negative fundamental changes occur relating to management, product
definition or economic environment
- More attractive opportunities are identified.
MONTGOMERY
Montgomery seeks capital appreciation by investing in growth-oriented U.S. small
capitalization companies whose stock price appears to be undervalued relative to
their growth potential. Potential investments are rigorously analyzed and
subjected to the following three steps of its investment process:
x Quantitative screen identifying growth-oriented companies with
improving business fundamentals
x Fundamental analysis to determine the long-term sustainability of the
company's growth characteristics
x Valuation to ensure that the company's growth prospects have not
yet been discovered by the market
In making investment decisions, Montgomery generally employs the following
methods:
o First, it uses a quantitative screen to identify growth oriented
companies. This screening process provides the means for narrowing a very
large universe of companies to a smaller universe of companies which display
the characteristics that Montgomery desires. Montgomery begins with a
database of over 2,000 companies which is continuously updated with the most
current financial information on such companies. After identifying those
companies with the market capitalizations desired (generally less than $1.5
billion), Montgomery's proprietary interface allows it to quickly visualize
changes in revenue and earnings growth and generate a research pipeline of
companies that appear to have improving business fundamentals.
o Once those companies displaying desirable quantitative characteristics are
identified, Montgomery performs fundamental analysis to validate the nature
and sustainability of the observed trends in revenues and earnings.
o Montgomery uses several valuation measures for those companies that pass both
the quantitative screen and the qualitative analysis. Montgomery compares
each company's price-to-earnings ratio to its earnings-per-share growth
rate. It invests in companies selling at substantial discounts to their
earnings growth rates and sells its investments in companies trading at a
premium to their earnings growth rates. Montgomery also compares each
company's price-to-earnings, price-to-sales and price-to-cash flow ratios to
its industry group. Each investment selected by Montgomery must be
inexpensive versus its internal growth rate on an absolute basis and relative
to its peer group.
o Investments are continuously monitored by analysts and portfolio managers.
The analysts along with portfolio managers will evaluate the companies to
determine whether they continue to possess the fundamental characteristics
for growth which made them a candidate for purchase originally.
o Montgomery will sell a stock when its return objective has been achieved and
the stock is no longer attractive on a valuation basis. Earnings
disappointments, fundamental outlook deterioration and more appealing
investment opportunities also trigger sell decisions.
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod.
--------- ------ ------
Low X X
GOALS, STRATEGIES & RISKS
NEW ENGLAND STAR ADVISERS FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadvisers: Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Harris Associates L.P. ("Harris Associates")
Janus Capital Corporation ("Janus")
Founders Asset Management LLC ("Founders")
Category: All-Cap Equity Ticker Symbol: CLASS Y
-------
NESYX
INVESTMENT GOAL
The Fund seeks long term growth of capital.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest substantially all of its
assets in equity securities. NEFM allocates capital invested in the Fund equally
among the four subadvisers set forth above. Each subadviser manages its segment
of the Fund's assets in accordance with its own investment style and strategy.
Although the Fund primarily invests in equity securities, it may also:
o Hold securities of foreign issuers traded over the counter or on foreign
exchanges, including securities in emerging markets.
o Invest in fixed-income securities, including U.S. Government bonds and lower
quality corporate bonds.
o Invest in real estate investment trusts ("REITs")
o Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and higher levels of taxable capital gains,
which may lower the Fund's return.
o Purchase U.S. Government securities, certificates of deposits, commercial
paper, and/or high quality debt securities or hold cash for temporary
defensive purposes in response to adverse market, economic or political
conditions. These investments may prevent the Fund from achieving its goal.
o Invest in convertible preferred stock and convertible debt securities.
o Enter into options, futures, swap contracts and currency hedging
transactions.
For more detailed information on each subadviser's investment strategies please
refer to the section entitled "Star Advisers Fund - More On Investment
Strategies."
A recent "snapshot" of the Fund's investments may be found in the current annual
or semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS OF THE STAR ADVISERS FUND
EQUITY SECURITIES: Subject to market risks. This means that
you may lose money on your investment due to unpredictable drops in a value
or periods of below-average performance or in the stock market as a whole.
Small capitalization companies may be subject to more abrupt price movements,
limited markets and less liquidity than larger more established companies.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
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
rises when prevailing interest rates fall and falls when interest rates rise.
Lower-quality fixed-income securities may be subject to these risks to a
greater extent than other fixed-income securities.
FOREIGN SECURITIES: May be affected by foreign currency fluctuations, higher
volatility than U.S. securities and limited liquidity. Political, economic
and information risks are also associated with foreign securities. These
investments may also be affected by the conversion of the currency of several
European countries to the "euro" currency. Investments in emerging markets
may be subject to these risks to a greater extent than those in more
developed markets.
REITS: Subject to changes in underlying real estate values, rising interest
rates, limited diversification of holdings, higher costs and prepayment risk
associated with related mortgages.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Star Advisers Fund. The Fund's past performance does not
necessarily indicate how it will perform in the future.
The bar chart shows the Fund's total returns for Class Y shares for each
calendar year since it first offered Class Y shares. The returns for Class A, B
and C shares are generally lower than the Class Y returns shown in the bar chart
because of the sales charges and higher expenses of those classes.
[Graphic Omitted] [Total Return for Class Y Shares]
1995 34.80%
1996 19.60%
1997 20.50%
1998 00.00%
/\ Highest Quarterly Return: Xxxx Quarter 199x, up xx.xx%
\/ Lowest Quarterly Return: Xxxx Quarter 199x, down xx.xx%
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the Standard & Poor's Composite
Index of 500 Stocks ("S&P 500"), a market value-weighted, unmanaged index of
common stock prices for 500 selected stocks. The returns are also compared to
the Lipper Growth Fund and Morningstar Mid Cap Growth Averages, each an average
of the total returns of all mutual funds with an investment style similar to
that of the Fund as calculated by Lipper, Inc. and Morningstar, Inc. You may not
invest directly in an index. The Fund's total returns reflect the expenses of
the Fund's Class Y shares. The S&P 500 returns have not been adjusted for
ongoing management, distribution and operating expenses applicable to mutual
fund investments. The Lipper Growth Fund Average and Morningstar Mid Cap Growth
Average returns have been adjusted for these expenses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION
<S> <C> <C>
New England Star Advisers Fund: Class Y (Inception 11/15/94) xx.xx% xx.xx%
S&P 500 xx.xx% xx.xx%
Lipper Growth Fund Average (calculated from 11/30/94) xx.xx% xx.xx%
Morningstar Mid Cap Growth Average (calculated from 11/30/94) xx.xx% xx.xx%
- ----------------------------------------------------------------------------------------------------------------
For the actual past expenses of Class Y shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
GOALS, STRATEGIES & RISKS
STAR ADVISERS FUND -
MORE ON INVESTMENT STRATEGIES
The Fund's portfolio is divided among four different subadvisers set forth
below. These subadvisers pursue the Fund's overall goal by employing the
strategies and techniques described below.
HARRIS ASSOCIATES
The segment of the Star Advisers Fund managed by Harris Associates will invest
primarily in common stock of large capitalization companies which Harris
Associates believes are trading at a substantial discount to the company's "true
business value."
Harris Associates uses a value-oriented investment philosophy to arrive at its
opinion of a company's "true business value." This philosophy is 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 and therefore uses this philosophy to locate
companies with the following characteristics, although not all of the companies
selected by Harris Associates will have these attributes:
x discounted share price compared to "true business value"
x positive free cash flow x competitive return on equity
x high level of insider ownership x favorable earnings growth potential
In making investment decisions, Harris Associates generally employs the
following methods:
o Harris Associates uses a fundamental bottom-up investment approach. This
means that Harris focuses on individual companies rather than macroeconomic
factors or specific industries. Each company is analyzed on a case-by-case
basis to select those which meet Harris' standards of quality and value.
o Harris Associates analysts typically look for companies that generate free
cash flow, review a company's market value as compared to other companies,
visit companies and talk to various industry sources.
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 both analysts and
a pricing committee that sets specific "buy" and "sell" targets for each
company. These targets are adjusted periodically to reflect changes in a
company's fundamentals. Harris Associates will generally buy a stock for this
segment of the Fund when it sells for a price below 60% of its estimated
worth, and will generally sell a stock when it approaches 90% of its
estimated worth.
LOOMIS SAYLES
The segment of the Star Advisers Fund subadvised by Loomis Sayles will invest
primarily in common stocks with a market capitalization, at the time of the
investment, within the range of the market capitalization of those companies
constituting the Russell 2000 Index. Loomis Sayles may also invest up to 35% of
its segment of the Fund's assets in companies with larger capitalization levels.
Loomis Sayles seeks to achieve the objective of the Fund by emphasizing both
undervalued securities and securities with significant growth potential. This
segment of the Fund is value-oriented with emphasis on security selection rather
than sector rotation and market timing. The securities selected by Loomis Sayles
for the segment typically have the following characteristics relative to those
companies constituting the Russell 2000 Index:
x above average growth rates x higher than average cash flows
x low price-to-earnings ratio x strong balance sheets
Loomis Sayles will build a core portfolio of companies which in its opinion
possess the attributes set forth above. It will also invest a smaller portion of
the segment's assets in companies which it believes are undergoing a "special
situation" or turnaround. These types of companies may have experienced
significant business problems but, in the opinion of Loomis Sayles, are believed
to have favorable prospects for recovery.
In making investment decisions, Loomis Sayles generally employs the following
methods:
o It begins with a universe of approximately 3,000 companies, identified
through the intensive research of Loomis Sayles analysts. This research
consists of broad, in-depth coverage, including regular contact with company
management, near and long-term projections of company fundamentals and
evaluations of potential earnings growth. The market capitalization of these
companies will generally be within the range of the Russell 2000 Index.
o Next, the portfolio managers with the assistance and guidance
of the Loomis Sayles analysts put the companies through several screens to
determine which companies provide the best earnings growth potential while at
the same time appear to be the most undervalued by the market relative to the
Russell 2000 Index.
o Out of the remaining candidates, Loomis Sayles builds a diversified portfolio
across many economic sectors so that the portfolio is protected against the
inherent volatility of small capitalization companies.
o Investments are continuously monitored by analysts and portfolio
managers. The analysts and portfolio managers will evaluate the companies as
to whether they continue to possess the same fundamental characteristics for
growth which made them candidates for investment originally.
o Loomis Sayles will sell a position when earnings growth falls below the
market average, when the fundamental outlook is deteriorating or when other
more favorable opportunities arise.
JANUS
The segment of the Star Advisers Fund managed by Janus will invest substantially
all of its assets in common stocks of companies in the U.S. and foreign
(including emerging) markets. Janus takes a bottom-up approach in managing its
segment of the Fund which means that it seeks to identify individual companies
with good earnings growth potential that may not be recognized by the market at
large. Although themes may emerge, securities are generally selected without
regard to any defined industry sector or other similarly defined selection
procedure. Realization of income is not a significant investment consideration
for this segment of the Fund. Generally, Janus seeks companies which, in Janus'
opinion, possess the following attributes:
x Strong competitive position in a particular industry
x Secure current and expected financial position
x Proven and capable management teams
x Attractive valuations relative to growth prospects and peer group
x High return on equity x Special situation or catalyst
In making investment decisions, Janus employs the following methods:
o Janus's analysis and selection process focuses on stocks that, in its
opinion, possess earnings growth potential that may not be recognized in by
the market.
o Janus does not focus on particular market capitalization. The
companies it selects to include in its segment may be of any size, including
large, well-established companies as well as medium and smaller emerging
growth companies.
o During its selection process, Janus may also look for "special situation"
companies. A special situation may include significant changes in a company's
allocation of existing capital, a restructuring of assets or a redirection of
free cash flows. Special situations may also exist where there is a change in
a company's management or business strategy.
o Investments are continuously monitored by analysts and portfolio managers.
The analysts and portfolio managers will evaluate the companies to determine
whether they continue to possess the same fundamental characteristics for
growth which made them candidates for purchase originally.
o Janus will generally sell a position when earnings growth falls below the
market average, the fundamental outlook is deteriorating or when other more
appealing investment opportunities arise.
FOUNDERS
The segment of the Star Advisers Fund managed by Founders will invest
substantially all of its assets in common stocks of companies established in the
U.S. This segment of the Fund will invest primarily in stocks of established
large and mid capitalization companies (i.e. companies with at least $1.0
billion of market capitalization). The Founders approach to investment
management emphasizes fundamental financial, marketing and operating
characteristics of individual companies. As managers with a bottom-up focus,
Founders seeks investments one company at a time, searching for individual
companies that in its opinion demonstrate the best potential for significant
earnings growth. Founders seeks stocks that generally possess the following
characteristics:
x Demonstrated, consistent above average earnings growth
x Strong and growing brands x Recurring revenues
x Unique or proprietary product
x Ability to capitalize on its industry's inefficiencies
x Leading company exploiting societal trends
x Above average return on capital
x Seasoned and respected management x Willingness to buy back shares
x Priced at or below Founders' view of the company's worth
In making investment decisions, Founders employs the following methods:
o Founders identifies those companies that in its opinion
demonstrate the characteristics described above. The ultimate decision to
purchase a security results from a thorough assessment of all the information
deemed relevant at the time of investment.
o Founders takes a long-term perspective on investing and places less emphasis
on short-term fluctuations in a company's stock price.
o Founders analysts and portfolio managers monitor existing
positions and research new companies to determine whether
they meet the above stated criteria which may include contacting management,
competitors and affiliated entities directly.
o Founders will consider selling a position when the quality of earnings
deteriorate, the original rationale for owning the company no longer applies,
key management departs or if the stock price is excessive relative to
Founders' estimate of its inherent worth.
<PAGE>
FUND FOCUS
Stability Income Growth
-----------------------
High X
--------- ------ ------
Mod.
--------- ------ ------
Low X X
GOALS, STRATEGIES & RISKS
NEW ENGLAND STAR WORLDWIDE FUND
Adviser: New England Funds Management, L.P. ("NEFM")
Subadvisers: Harris Associates L.P. ("Harris Associates")
Montgomery Asset Management LLC ("Montgomery")
Founders Asset Management, LLC ("Founders")
Janus Capital Corporation ("Janus")
Category: All-Cap Equity
INVESTMENT GOAL
The Fund seeks long-term growth of capital.
The Fund's investment goal may be changed without shareholder approval.
INVESTMENT STRATEGIES
The Fund seeks to attain its goal by investing substantially all of its assets
in equity securities. The Fund is a global mutual fund, which means that it will
seek to invest in equity securities traded on foreign stock markets as well as
the markets of the United States. Foreign markets represent two-thirds of the
value of all stocks traded in the world and offer opportunities for investment
in addition to those found in the United States. Foreign markets may be located
in large developed countries such as Great Britain or in smaller, developing
markets like Singapore.
NEFM allocates capital invested in the Fund equally among its five segments
which are managed by the four subadvisers listed above. Each subadviser manages
its segment or segments of the Fund's assets in accordance with its own
investment style and strategy.
Aside from investing primarily in equity securities of foreign and domestic
companies, the Fund may:
o Enter into options, futures, swap contracts and currency hedging transactions
o Invest up to 35% of its assets in fixed-income securities, including
government bonds and lower-quality debt securities.
o Invest in convertible preferred stock and convertible debt securities
o Purchase U.S. Government securities, certificates of deposit, commercial
paper, and/or high quality debt securities or hold cash for temporary
defensive purposes in response to adverse market, economic or political
conditions. Such positions may prevent the Fund from achieving its goal.
o Invest in real estate investment trusts ("REITs")
For more detailed information on each subadviser's investment strategies please
refer to the section entitled "Star Worldwide Fund - More On Investment
Strategies."
A recent "snapshot" of the Fund's investments may be found in the current annual
or semiannual report (see back cover).
PRINCIPAL INVESTMENT RISKS OF THE FUND
EQUITY SECURITIES: Subject to market risks. This means that you may lose money
on your investment due to unpredictable drops in a stock's value or periods
of below-average performance in a given stock or in the stock market as a
whole. Small capitalization companies may be subject to more abrupt price
movements, limited markets and less liquidity than larger more established
companies.
FOREIGN SECURITIES: May be affected by foreign currency
fluctuations, higher volatility than U.S securities and limited liquidity.
Political, economic and information risks are also associated with foreign
securities. These investments may also be affected by the conversion of the
currency of several European countries to the "euro" currency. Investments in
emerging markets may be subject to these risks to a greater extent than those
in more developed markets.
FIXED-INCOME SECURITIES: Subject to credit risk, interest rate risk and
liquidity risk. Credit risk relates to the ability of an issuer to make
payments of principal and interest when due and includes the risk of default.
Interest rate risk relates to changes in a securities value as a result of
changes in interest rate. Generally, the value of fixed-income securities
rises when prevailing interest rates fall and falls when interest rates rise.
Lower-quality fixed-income securities may be subject to these risks to a
greater extent than other fixed-income securities.
REITS: Subject to changes in underlying real estate values, rising interest
rates, limited diversification of holdings, higher costs and prepayment risk
associated with related mortgages.
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Star Worldwide Fund. The returns shown are those of the Fund's
Class A, B and C shares which are not offered in this Prospectus. Class Y shares
would have substantially similar annual returns because they would be invested
in the same portfolio of securities as the Class A, B and C shares and would
only differ to the extent that the classes do not have the same expenses. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
The bar chart shows the Fund's total returns for Class A shares for each
calendar year since its first full year of operations. The returns for Class B
and C shares 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.
[Graphic Omitted] [Total Return for Class A Shares]
1996 16.70%
1997 12.70%
1998 00.00%
/\ Highest Quarterly Return: Xxxx Quarter 199x, up xx.xx%
\/ Lowest Quarterly Return: Xxxx Quarter 199x, down xx.xx%
The table below shows the Fund's average annual total returns for the one-year
and since-inception periods compared to those of the Morgan Stanley Capital
International World Index ("MSCI World Index"), an unmanaged index of stocks
throughout the world. The returns are also compared to the Lipper Global Fund
and Morningstar World Stock Averages, each an average of the total returns of
all mutual funds with an investment style similar to that of the Fund as
calculated by Lipper, Inc. and Morningstar, Inc. You may not invest directly in
an index. The Fund's total returns reflect the maximum sales charge that you may
pay when you buy or redeem the Fund's shares. The MSCI World Index returns have
not been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments. The Lipper Global Fund
Average and Morningstar Worldstock Average have been adjusted for these fees but
do not reflect sales charges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------ *The inception date of the
AVERAGE ANNUAL TOTAL RETURNS Fund's Class A, B and C
(for the periods ended December 31, 1998) PAST 1 YEAR SINCE INCEPTION* shares is December 29, 1995.
<S> <C> <C>
New England Star Worldwide Fund: Class A xx.x% xx.x%
New England Star Worldwide Fund: Class B xx.x% xx.x%
New England Star Worldwide Fund: Class C xx.x% xx.x%
MSCI World Index xx.x% xx.x%
Lipper Global Fund Average xx.x% xx.x%
Morningstar World Stock Average xx.x% xx.x%
- ------------------------------------------------------------------------------------
For the expenses of Class Y shares, see the section entitled "Fund Fees & Expenses."
</TABLE>
<PAGE>
GOALS, STRATEGIES & RISKS
STAR WORLDWIDE FUND -
MORE ON INVESTMENT STRATEGIES
The Fund's portfolio is divided among four different subadvisers set forth
below. These subadvisers pursue the Fund's overall goal by employing the
strategies and techniques described below.
HARRIS ASSOCIATES - U.S. SEGMENT
The U.S. segment of the Star Worldwide Fund subadvised by Harris Associates will
primarily invest in common stock of large capitalization companies which Harris
Associates believes are trading at a substantial discount to the company's "true
business value."
Harris Associates uses a value-oriented investment philosophy to arrive at its
opinion of a company's "true business value." This philosophy is based on 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 and therefore uses this philosophy to locate
companies with the following characteristics, although not all of the companies
selected by Harris Associates will have these attributes:
x discounted share price compared to "true business value"
x positive free cash flow x competitive return on equity
x high level of insider ownership x favorable earnings growth potential
In making investment decisions, Harris Associates generally employs the
following methods:
o Harris Associates uses a fundamental bottom-up approach. This means that
Harris focuses on individual companies rather than macroeconomic factors or
specific industries. Each company is analyzed on a case-by-case basis to
select those which meet Harris'standards of quality and value.
o Harris Associates analysts typically look for companies that generate free
cash flow, review a company's market value compared to other companies,
visit companies and talk to various industry sources.
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 both analysts and a pricing
committee that sets specific "buy" and "sell" targets for each company. These
targets are adjusted periodically to reflect changes in a company's
fundamentals. Harris Associates will generally buy a stock for this segment
of the fund when it sells for a price below 60% of its estimated worth, and
will generally sell a stock when it approaches 90% of its estimated worth.
HARRIS ASSOCIATES - INTERNATIONAL SEGMENT
In managing its international segment of the Fund, Harris Associates generally
employs the same screening techniques that it uses for its U.S. segment;
however, due to the inherent risks associated with investing in foreign
securities, Harris Associates evaluates:
x the relative political and economic stability of the issuer's home country
x the ownership structure of the company
x the company's accounting practices
This segment of the Fund may invest in securities traded in both developed and
emerging markets. There are no limits to this segment's geographic asset
distribution, but to provide adequate diversification, this segment of the Fund
will generally be invested in at least five countries outside the United States.
JANUS
The segment of the Star Worldwide Fund managed by Janus will invest
substantially all of its assets in common stocks of companies in the U.S. and
foreign (including emerging) markets. Janus takes a bottom-up approach in
managing its segment of the Fund. Though certain trends may emerge, it seeks to
identify individual companies with good earnings growth potential that may not
be recognized by the market at large. Securities are generally selected without
regard to any defined industry sector or other similarly defined selection
parameters. Realization of income is not a significant investment consideration
for this segment of the Fund. Generally, Janus seeks companies which, in Janus'
opinion, possess the following attributes:
x Strong competitive position in a particular industry
x Secure current and expected financial position
x Proven and capable management teams
x Attractive valuations relative to growth prospects and peer group
x High return on equity x Special situation or catalyst
In making investment decisions, Janus employs the following methods:
o Janus identifies those companies that in its opinion have the potential to
maintain above average earnings growth over the near and long term. These
companies may be of any size including small emerging growth companies as
well as larger more established companies.
o After these companies are identified, Janus' broad in-depth research process
focuses on each company's near and long-term projections on its fundamentals
as well as evaluations of current and potential earnings growth.
o During the research process, Janus may also look for "special
situation" companies. A special situation may include significant changes in
a company's allocation of its existing capital, a restructuring of its
assets, or a redirection of its free cash flows. Special situations may also
exist where there is a change in management or business strategy.
o Investments are continuously monitored by analysts and portfolio managers.
The analysts and portfolio managers will evaluate the companies to determine
whether they continue to possess the same fundamental characteristics for
growth which made them candidates for purchase in the first place.
o Janus will generally sell a position when earnings growth falls below the
market average, the fundamental outlook is deteriorating or other more
appealing investment opportunities arise.
FOUNDERS
Founders' segment of the Star Worldwide Fund may invest in both small and
established growth companies, in both emerging and established markets
throughout the world. Founders' approach to investment management emphasizes
fundamental financial, marketing and operating characteristics of individual
companies. As managers with a bottom-up focus, Founders seeks investments one
company at a time, searching for individual companies that in its opinion
demonstrate the best potential for significant growth. Founders seeks stocks
that generally possess the following characteristics:
x Strong competitive position in a particular industry
x Proven and capable management teams
x Revenues and earnings growth greater than industry and country averages
x Attractive valuations
In making investment decisions, Founders employs the following methods:
o Founders identifies those companies that in its opinion demonstrate the
characteristics described above. The ultimate decision to purchase a security
results from a thorough assessment of all the information deemed relevant at
the time of investment.
o Founders takes a long-term perspective on investing and places less emphasis
on short-term fluctuations in a company's stock prices.
o Founders' analysts and portfolio managers monitor existing positions and
research new cocmpanies to determine whether they meet the above stated
criteria.
o Founders will consider selling a position when earnings growth falls below
the market average, the fundamental outlook is deteriorating, other more
appealing investment opportunities arise, the original rationale for owning
the company no longer applies, key management departs or if the stock price
is excessive relative to Founders' estiate of its inherent worth.
<PAGE>
GOALS, STRATEGIES & RISKS
STAR WORLDWIDE FUND -
MORE ON INVESTMENT STRATEGIES
MONTGOMERY
Montgomery will invest at least 65% of its segment of the Fund in equity
securities of companies of any size located throughout the world. This global
equities investment strategy employs a bottom-up selection process complemented
by proprietary sector and country research. Montgomery's process is
distinguished by extensive use of primary (original) research as opposed to
secondary (broker) research and global sector specialization. The end result is
a global equity portfolio diversified across industries and countries, designed
to deliver consistent returns versus a designated benchmark.
o Primary (original) research is the foundation of Montgomery's investment
process and should be distinguished from secondary (broker) research. Its
team of global equity analysts' primary responsibilities are allocated on a
global sector basis. Sector analysis is bottom-up in nature and supports
Montgomery's specific security research. Analysts' secondary responsibilities
are allocated on a country basis. Country research is a valuable complement
to its bottom-up sector and specific security work, and is focused on
macroeconomic and sociopolitical forces that impact markets, sectors and
companies that they follow. Roughly 85% of the analysts' time is spent on
specific security and sector research, 15% on country research.
o Montgomery's investment process begins with its original ideas. New ideas are
generated from both primary research and strategic universe screening with
the assistance of Montgomery's advanced information technology. Montgomery's
goal is to identify companies that are attractive on the basis of valuation,
near-term earnings/business momentum, and long-term projected earnings
growth.
o A formal process to evaluate the new ideas generated from sector-level
analysis and strategic universe screening results in a short list of
potential investments warranting further research. All potential investments
are subjected to rigorous fundamental analysis before a recommendation to buy
is made.
o At Montgomery, security selection is a result of a peer review process
conducted by sector/country specialists and senior portfolio management. The
peer review process encourages thorough research, accountability and
articulation of analysis. Value is added through earnings estimates that are
different from the analysts' consensus and analysts' insight to companies
ratings within their peer groups.
o Investments are monitored continuously versus Montgomery's price objective
and their respective peer groups, to identify potential deterioration in any
of the fundamental reasons for purchase.
o There are four specific factors that bring about a decision to sell in
Montgomery's process which include but are not limited to: premium valuation,
negative business momentum, lack of management credibility, and accessibility
and competitive force-out.
<PAGE>
GOALS, STRATEGIES & RISKS
MORE ABOUT RISK
The Funds have principal investment strategies that come with inherent risks.
The following is a list of risks to which each Fund may be subject by investing
in various types of securities or engaging in various practices.
MARKET RISK (All Funds) 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 as well as overall market and economic conditions.
RISK OF SMALL CAPITALIZATION COMPANIES (International Equity, Capital Growth,
Equity Income, Star Advisers, Star Small Cap and Star Worldwide Funds) These
companies carry special risks, including narrower markets, limited financial and
management resources, less liquidity and greater volatility than large company
stocks.
MANAGEMENT RISK (All Funds) The risk that a strategy used by a Fund's portfolio
management may fail to produce the intended result.
CREDIT RISK (All Funds) 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 (All Funds) The risk that fluctuations in the exchange rates
between the U.S. dollar and foreign currencies may negatively affect an
investment.
EMERGING MARKETS RISK (International Equity, Star Advisers, Star Small Cap and
Star Worldwide Funds) The risk associated with developing 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.
RISKS OF OPTIONS, FUTURES AND SWAP CONTRACTS (All Funds) These transactions are
subject to changes in the underlying security on which such transactions are
placed. It is important to note that even a small investment in these types of
derivative securities can have a significant impact on a Fund's exposure to
stock market values, interest rates or the currency exchange rate. These types
of transactions will be used primarily for hedging purposes.
LEVERAGE RISK (All Funds) The risk associated with securities or practices (e.g.
borrowing) that multiply small index or market movements into large changes in
value. When a derivative security (a security whose value is based on another
security or index) is used as a hedge against an offsetting position that a Fund
also holds, any loss generated by the derivative security should be
substantially offset by gains on the hedged instrument, and vice versa. To the
extent that a derivative security is not used as a hedge, a 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 (All Funds) The risk of market losses attributable to changes
in interest rates. In general, the prices of fixed-income securities rise when
interest rates fall, and fall when interest rates rise.
INFORMATION RISK (All Funds) The risk that key information about a security is
inaccurate or unavailable.
OPPORTUNITY RISK (All Funds) The risk of missing out on an investment
opportunity because the assets necessary to take advantage of it are tied up in
less profitable investments.
LIQUIDITY RISK (All Funds) 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 Fund. These types of risks may apply
to restricted securites, Section 4(2) Commercial Paper or Rule 144A securities.
CORRELATION RISK (All Funds) The risk that changes in the value of a hedging
instrument will not match those of the asset being hedged.
EXTENSION RISK (Balanced, Star Advisers, Star Small Cap and Star Worldwide
Funds) The risk that an unexpected rise in interest rates will extend the life
of a mortgage- or asset-backed security beyond the expected prepayment time,
typically reducing the security's value.
VALUATION RISK (All Funds) The risk that a Fund has valued certain securities at
a higher price than it can sell them for.
PREPAYMENT RISK (Balanced, Star Advisers, Star Small Cap and Star Worldwide
Funds) The risk that unanticipated prepayments may occur, reducing the value of
mortgage- or asset-backed securities, or real estate investment trusts.
POLITICAL RISK (All Funds) The risk of losses directly attributable to
government or political actions.
YEAR 2000 PROBLEM (All Funds) 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 (All Funds) 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 unclear
presently. Such consequences may decrease the value and/or increase the
volatility of securities held by a Fund.
<PAGE>
FUND FEES & 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)
ALL FUNDS
CLASS Y
Maximum sales charge (load) imposed on purchases None
Maximum deferred sales charge (load) None
Redemption fees *None*
* Generally, a transaction fee will be charged for expedited payment of
redemption proceeds such as by wire or overnight delivery.
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average net assets)
<CAPTION>
GROWTH OPPORTUNITIES
CAPITAL GROWTH FUND GROWTH FUND FUND
CLASS Y CLASS Y CLASS Y
<S> <C> <C> <C>
Management fees 0.75% 0.67% 0.69%
Distribution and/or service (12b-1) fees 0.00% 0.00% 0.00%
Other expenses 0.45% 0.20% 0.31%
Total annual fund operating expenses 1.20% 0.87% 1.00%
Fee waiver and/or expense reimbursement 0.00% 0.00% 0.00%
Net expenses 1.20% 0.87% 1.00%
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND VALUE FUND INTERNATIONAL EQUITY FUND
CLASS Y CLASS Y CLASS Y
<S> <C> <C> <C>
Management fees 0.73% 0.72% 0.90%
Distribution and/or service (12b-1) fees 0.00% 0.00% 0.00%
Other expenses 0.15% 0.28% 0.51%
Total annual fund operating expenses 0.88% 1.00% 1.41%
Fee waiver and/or expense reimbursement 0.00% 0.00% 0.01%*
Net expenses 0.88% 1.00% 1.40%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND STAR SMALL CAP FUND STAR ADVISERS FUND STAR WORLDWIDE FUND
CLASS Y CLASS Y CLASS Y CLASS Y
<S> <C> <C> <C> <C>
Management fees 0.70% 1.05% 1.05% 1.05%
Distribution and/or service (12b-1) fees 0.00% 0.00% 0.00% 0.00%
Other expenses 2.15% 0.90% 1.36% 0.77%
Total annual fund operating expenses 2.85% 1.95% 1.41% 1.82%
Fee waiver and/or expense reimbursement 1.60%* 0.00% 0.00% 0.00%
Net expenses 1.25% 1.95% 1.41% 1.82%
* NEFM has given binding undertakings to the International Equity Fund and Equity Income Fund to limit the amount of each Fund's
total fund operating expenses to 1.40% of International Equity Fund's average daily net assets for Class Y shares and 1.25%
of Equity Income Fund's average daily net assets for Class Y shares. These undertakings will be in effect for the life of the
Funds' Prospectus.
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
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; and
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:
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GROWTH FUND
CLASS Y CLASS Y
<S> <C> <C> <C>
1 year
3 years
5 years
10 years
<CAPTION>
GROWTH OPPORTUNITIES FUND BALANCED FUND VALUE FUND
CLASS Y CLASS Y CLASS Y
1 year
3 years
5 years
10 years
<CAPTION>
INTERNATIONAL EQUITY FUND EQUITY INCOME FUND
CLASS Y CLASS Y
1 year
3 years
5 years
10 years
<CAPTION>
STAR SMALL CAP FUND STAR ADVISERS FUND STAR WORLDWIDE FUND
CLASS Y CLASS Y CLASS Y
1 year
3 years
5 years
10 years
</TABLE>
<PAGE>
MANAGEMENT TEAM
MEET THE FUNDS' INVESTMENT ADVISERS
AND SUBADVISERS
The New England Funds family includes __ mutual funds with a total of $_____
billion in assets under management as of March 31, 1999. New England Funds are
distributed through New England Funds, L.P. (the "Distributor"). This Prospectus
covers Class Y shares of New England Stock Funds and New England Star Funds (the
"Funds" or each a "Fund"), which along with New England Bond Funds, New England
Access Shares and 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 each Fund except Growth Fund (for
which CGM serves as adviser). 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
December 31, 1998. NEFM oversees, evaluates and monitors the subadvisory
services provided to each Fund except Growth Fund. It also provides general
business management and administration to the Funds. NEFM does not determine
what investments will be purchased by the Funds. The subadvisers and CGM listed
below make the investment decisions for their respective Fund.
The combined advisory and subadvisory fees paid by the Funds (except Growth
Fund) in 1998 as a percentage of each Fund's average net assets were ______ for
International Equity Fund, ______ for Capital Growth Fund, ______ for Growth
Opportunities Fund, ______ for Value Fund, ______ for Equity Income Fund, ______
for Balanced Fund, _____ for Star Advisers Fund, _____ for Star Small Cap Fund
and _____ for Star Worldwide Fund.
SUBADVISERS OF STOCK FUNDS
LOOMIS SAYLES, located at One Financial Center, Boston, Massachusetts 02111,
serves as subadviser to INTERNATIONAL EQUITY, VALUE, BALANCED and EQUITY INCOME
Funds. Loomis Sayles is 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.
WESTPEAK, located at 1011 Walnut Street, Boulder, Colorado 80302, serves as
subadviser to GROWTH OPPORTUNITIES Fund and CAPITAL GROWTH Fund. Westpeak is a
subsidiary of Nvest Companies. Founded in 1991, Westpeak manages over $6 billion
in assets for mutual funds and other institutional clients, including accounts
of New England Financial.
CAPITAL GROWTH MANAGEMENT LIMITED PARTNERSHIP (ADVISER)
CGM, located at One International Place, Boston, Massachusetts 02110, has served
as adviser to GROWTH FUND since CGM's inception in 1989. It also serves as
investment adviser to six additional mutual funds and various institutional
investors. CGM is an affiliate of Nvest Companies and has grown to manage over
$7 billion in assets. In 1998, Growth Fund paid __% of its average net assets to
CGM in advisory fees.
SUBADVISERS OF STAR FUNDS
HARRIS ASSOCIATES, located at Two North LaSalle Street, Chicago, Illinois 60602,
serves as subadviser to segments of the Star Advisers, Star Worldwide and Star
Small Cap Funds. 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, foundation,
and several private partnerships.
LOOMIS SAYLES, located at One Financial Center, Boston, Massachusetts, 02111,
serves as subadviser to segments of the Star Advisers Fund and Star Small Cap
Fund. 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, a subsidiary of Nvest Companies, is well known for its
professional research staff, which is one of the largest in the industry.
FOUNDERS, located at 2930 East Third Avenue, Denver, Colorado 80206, serves as a
subadviser to segments of each the Star Advisers and Star Worldwide Funds.
Founders and its predecessor companies have been offering tools to help
investors pursue their financial goals since 1938. Founders is a 90%-owned
subsidiary of Mellon Bank, N.A., with the remaining 10% held by certain Founders
executives and portfolio managers. Mellon Bank, N.A. is a wholly owned
subsidiary of Mellon Bank Corporation, a publicly owned multibank holding
company which provides a comprehensive range of financial products and services
in domestic and selected international markets.
JANUS CAPITAL, located at 100 Fillmore Street, Denver, Colorado 80206, serves as
a subadviser to segments of the Star Advisers and Star Worldwide Funds. Janus
Capital has managed mutual funds since 1970 and also advises individual,
corporate, charitable and retirement accounts. Kansas City Southern Industries
Inc., ("KCSI") a publicly traded holding company, owns approximately 83% of the
outstanding voting stock of Janus Capital. Thomas H. Baily, President and
Chairman of the Board of Janus Capital, owns approximately 12% of its voting
stock and, by agreement with KCSI, selects a majority of Janus Capital's Board.
MONTGOMERY, located at 101 California Street, San Francisco, California 94111,
serves as subadviser to the Star Small Cap Fund and Star Worldwide Fund.
Montgomery was formed in 1990 and advises institutional separate accounts as
well as a family of no-load mutual funds. Montgomery is a subsidiary of
Commerzbank AG, a German commercial bank.
ROBERTSON STEPHENS, located at 555 California Street, San Francisco, California
94104, serves as subadviser to a segment of the Star Small Cap Fund. Robertson
Stephens was formed in 1993 and provides advisory services to both private and
public investment funds. Members of senior management of Robertson Stephens have
agreed to purchase Robertson Stephens Investment Management Co., Inc., Robertson
Stephens' parent company, from BankAmerica Corporation, in a transaction
expected to be completed in March 1999. Robertson Stephens will continue to
serve as a subadviser to the Star Small Cap Fund following the transaction. The
Trustees of the New England Funds Trust I approved the continuation of the
Fund's current arrangement with Robertson Stephens following consummation of the
transaction.
SUBADVISORY AGREEMENTS
Each Fund has received an exemptive order from the Securities and Exchange
Commission (the "SEC") which permits NEFM to amend or continue existing
subadvisory agreements when approved by the Fund's Board of Trustees, without
shareholder approval. The exemption also 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. Shareholders will be notified of any
subadviser changes.
PORTFOLIO TRADES
In placing portfolio trades, a Fund's subadviser may use brokerage firms that
market the Fund's shares or are affiliated with Nvest Companies, NEFM or the
subadvisers. In placing such trades the subadvisers will seek to obtain the best
combination of price and execution, which involves a number of judgmental
factors. Such Fund trades are subject to applicable regulatory restrictions and
related procedures adopted by the Fund's Board of Trustees.
<PAGE>
MANAGEMENT TEAM
MEET THE FUNDS' PORTFOLIO MANAGERS
[Photo of G. Kenneth Heebner]
G. KENNETH HEEBNER
G. Kenneth Heebner has managed GROWTH FUND since 1976. In 1989, Mr. Heebner
co-founded and is currently senior portfolio manager of CGM. He is also a
Chartered Financial Analyst. Mr. Heebner received a B.S. from Amherst College
and an M.B.A. from Harvard Business School, and is a highly regarded 30 year
veteran of the investment industry.
[Photo of Tom Kolefas]
TOM A. KOLEFAS
Tom Kolefas has co-managed EQUITY INCOME FUND since May 1996. Mr. Kolefas, Vice
President of Loomis Sayles, joined the company in 1996. Previously, he was a
director and portfolio manager at MacKay Shields Financial from ____ to ____. He
is also a Chartered Financial Analyst. Mr. Kolefas received a B.S. from the
Cooper Union School of Engineering and an M.B.A. from New York University School
of Business and has over 14 years of investment experience.
[Photo of Paul Drexler]
PAUL H. DREXLER
Paul Drexler has managed INTERNATIONAL EQUITY FUND since February 1997. Mr.
Drexler is Vice President of Loomis Sayles and has been at the firm since 1993.
Mr. Drexler received a B.A. from Stanford University and an M.A. from George
Washington University and has over 23 years of investment experience.
[Photo of Gerald Scriver]
GERALD H. SCRIVER
Gerald Scriver has managed GROWTH OPPORTUNITIES FUND since May 1995 and CAPITAL
GROWTH FUND since February 1998. Mr. Scriver is the founder, President and Chief
Executive Officer of Westpeak Investment Advisors. Mr Scriver is a graduate of
the State University of N.Y. at Buffalo and has over 33 years of investment
experience.
[Photo of Lauriann Kloppenburg]
LAURIANN KLOPPENBURG
Lauriann Kloppenburg has co-managed VALUE FUND since August 1998. Ms.
Kloppenburg is Vice President and Director of Equity Research at Loomis Sayles.
She is also a Chartered Financial Analyst. Ms. Kloppenburg received her B.A.
from Wellesley College and has over 16 years of investment experience.
[Photo of Peter Ramsden]
PETER B. RAMSDEN
Peter Ramsden has co-managed EQUITY INCOME FUND since November 1995. Mr.
Ramsden, Vice President of Loomis Sayles, joined the company in 1991. He is also
a Charted Financial Analyst. Mr. Ramsden earned his B.A. from Dartmouth College
and his M.B.A. from the University of Michigan and has over 10 years of
investment experience.
[Photo of Jeffrey Wardlow]
JEFFREY W. WARDLOW
Jeffrey Wardlow has co-managed VALUE FUND since August 1998. Mr. Wardlow, Vice
President of Loomis Sayles, joined the company over 10 years ago. Mr. Wardlow
received both his B.B.A. and his M.B.A. from Michigan State University and has
over 16 years of investment experience.
ADVISER TEAMS
BALANCED FUND is managed by an adviser team from Loomis Sayles. The adviser team
consists of 5 portfolio managers who jointly manage the Fund's investment
portfolio.
STAR SMALL CAP FUND
[Photo of Christopher R. Ely]
CHRISTOPHER R. ELY
Mr. Ely has managed the Loomis Sayles segment of the Fund since its inception in
December 1996. Mr. Ely, Vice President of Loomis Sayles, joined the firm in
1996. Prior to joining Loomis Sayles, Mr. Ely was Senior Vice President and
Portfolio Manager at Keystone Investment Management Company, Inc. from
________________ to ____________________. He holds a B.A. from Brown University
and an M.B.A. from Babson College. He has 20 years of investment management
experience.
[Photo of Philip C. Fine]
PHILIP C. FINE
Dr. Fine has co-managed the Loomis Sayles segment of the Star Small Cap Fund
since its inception in December 1996. Dr. Fine, Vice President of Loomis Sayles,
joined the firm in 1996. Prior to joining Loomis Sayles, Dr. Fine was a Vice
President and Portfolio Manager at Keystone Investment Management Company, Inc.
from ___ to ___. He received an A.B. and a Ph.D. from Harvard University. He has
11 years of investment management experience.
[Photo of David L. Smith]
DAVID L. SMITH
Mr. Smith has co-managed the Loomis Sayles segment of the Star Small Cap Fund
since its inception in December 1996. Mr. Smith, Vice President of Loomis
Sayles, joined the firm in 1996. Prior to joining Loomis Sayles, Mr. Smith was a
Vice President and Portfolio Manager at Keystone Investment Management Company,
Inc. from ___ to ___. He holds an M.B.A. from Cornell University and a B.A. from
the University of Massachusetts at Amherst. He has 13 years of investment
management experience.
[Photo of Steven J. Reid]
STEVEN J. REID
Mr. Reid has served as portfolio manager of the Harris Associates segment of the
Star Small Cap Fund since its inception in December 1996. Mr. Reid has also
managed the Oakmark Small Cap Fund since its inception in November 1995. Mr.
Reid, Vice President of Harris Associates, joined the firm in 1980. Mr. Reid is
a Chartered Financial Analyst. He holds a B.A. from Roosevelt University. He has
12 years of investment experience.
[Photo of Kathryn Peters]
KATHRYN PETERS
Ms. Peters has served as portfolio manager of Montgomery's segment of the Star
Small Cap Fund since March 1999. Ms. Peters, Vice President of Montgomery,
joined the firm in 1995. Prior to that she was an associate in the investment
banking division of Donaldson, Lufkin & Jenrette in New York. Ms. Peters is a
graduate of ______________. She has ___ years of investment management
experience.
[Photo of John L. Wallace]
JOHN L. WALLACE
Mr. Wallace has been portfolio manager of the Robertson Stephens segment of the
Star Small Cap Fund since its inception in December 1996. He also serves as
portfolio manager to the Robertson Stephens Growth & Income Fund as well as the
Robertson Stephens Diversified Growth Fund. Mr. Wallace, Vice President of
Robertson Stephens, joined the firm in 1995. Prior to Robertson Stephens, Mr.
Wallace managed over $4 billion in assets at Oppenheimer as portfolio manager of
Main Street Income & Growth Fund and Total Return Fund. He holds a B.A. from the
University of Idaho and an M.B.A. from Pace University. He has __ years of
investment experience.
[Photo of John H. Seabern]
JOHN H. SEABERN
Mr. Seabern has served as co-portfolio manager for the Robertson Stephens
segment of the Star Small Cap Fund since October 1997. Mr. Seabern, Vice
President of Robertson Stephens, joined the firm in 1993. He is also co-manager
of the Robertson Stephens Growth and Income Fund. Prior to joining Robertson
Stephens, he served as a performance analyst at Duncan-Hurst Capital Management.
Mr. Seabern holds a B.S. degree in finance from the University of Colorado and
has ___ years of investment management experience.
STAR ADVISERS FUND
[Photo of Robert J. Sanborn]
ROBERT J. SANBORN
Mr. Sanborn has managed the Harris Associates segment of the Star Advisers Fund
since June 1997 and Harris Associates domestic segment of the Star Worldwide
Fund since its inception in December 1995. He also has managed the Oakmark Fund
since its inception in August 1991. Mr. Sanborn, Vice President of Harris
Associates, joined the firm in 1988. He is also a Chartered Financial Analyst.
He received an M.B.A. from the University of Chicago, his B.A. from Dartmouth
College, and has 15 years of investment experience.
[Photo of Thomas M. Arrington]
THOMAS M. ARRINGTON
Thomas M. Arrington has co-managed the Founders segment of the Star Advisers
Fund since December 1998. Mr. Arrington, Vice President of Investments of
Founders, joined the company in 1998. Prior to joining Founders, he was Vice
President and Director of Income Equity Strategy at HighMark Capital Management.
Mr. Arrington is a Chartered Financial Analyst and also co-manages the Founders
Growth Fund. He received a bachelor's degree in economics from the University of
California, Los Angeles and an M.B.A. from San Francisco State University. He
has ___ years of investment management experience.
[Photo of Scott A. Chapman]
SCOTT A. CHAPMAN
Scott A. Chapman has co-managed the Founders segment of the Star Advisers Fund
since January 1998. Mr. Chapman, Vice President of Investments of Founders,
joined the company in 1998. Before joining Founders, he was Vice President and
Director of Growth Strategy at HighMark Capital. He is a Chartered Financial
Analyst and also manages the Founders Growth Fund. Mr. Chapman received an
M.B.A. from Golden State University and a B.S. from Santa Clara University. He
has more than 10 years of investment experience.
[Photo of Mary C. Champagne]
MARY C. CHAMPAGNE
Mary C. Champagne has co-managed the Loomis Sayles segment of the Star Advisers
Fund since 1995. Ms. Champagne, Vice President of Loomis Sayles, joined the firm
in 19--. She is a Chartered Financial Analyst and a member of the Detroit
Financial Analyst Society. She graduated from Michigan State University where
she also earned her M.B.A. She has - years of investment experience.
[Photo of Jeffrey C. Petherick]
JEFFREY C. PETHERICK
Mr. Petherick has co-managed the Loomis Sayles segment of the Fund since the
Star Advisers Fund's inception in July 1994. Mr. Petherick, Vice President of
Loomis Sayles, joined the firm in 19__. He is a Chartered Financial Analyst and
Chartered Investment Counselor. Mr. Petherick graduated from Albion College in
1985 and earned an M.B.A. from the University of Michigan in 1989. He has ___
years of investment management experience.
[Photo of Warren B. Lammert]
WARREN B. LAMMERT
Warren B. Lammert has served as portfolio manager for the Janus segment of the
Star Advisers Fund since its inception in July 1994. Mr. Lammert, Vice President
of Janus, joined the firm in 199_. He is also a Chartered Financial Analyst and
portfolio manager of Janus Mercury Fund. He holds an undergraduate degree from
Yale University and has ___ years of investment experience.
STAR WORLDWIDE FUND
[Photo of Robert J. Sanborn]
ROBERT J. SANBORN
Mr. Sanborn has managed the Harris Associates domestic segment of the Star
Worldwide Fund since its inception in December 1995 and Harris Associates
segment of the Star Advisers Fund since June 1997. He also has managed the
Oakmark Fund since its inception in August 1991. Mr. Sanborn, a Vice President
of Harris Associates, joined the firm in 1988. He is also a Chartered Financial
Analyst. He received an M.B.A. from the University of Chicago and a B.A. from
Dartmouth College, and has 15 years of investment experience.
[Photo of David G. Herro]
DAVID G. HERRO
Mr. Herro has co-managed the Harris Associates international segment of the Star
Worldwide Fund since the Fund's inception in December 1995. He also serves as
co-portfolio manager of the Oakmark International Fund and Oakmark International
Small Cap Fund. Mr. Herro, Portfolio Manager at Harris Associates, joined the
firm in 1992. He is a Chartered Financial Analyst and holds an M.A. and a B.S.
from the University of Wisconsin. He has ___ years of investment experience.
[Photo of Michael J. Welsh]
MICHAEL J. WELSH
Mr. Welsh has co-managed the Harris Associates international segment of the Star
Worldwide Fund since the Fund's inception in December 1995. He has also
co-managed the Oakmark International Fund and Oakmark International Small Cap
Fund. Mr. Welsh, Vice President of Harris Associates, joined the firm in ____.
He is a Chartered Financial Analyst and a Certified Public Accountant. He holds
an M.M. from Northwestern University and a B.S. from the University of Kansas,
and has ___ years of investment management experience.
[Photo of Michael Gerding]
MICHAEL GERDING
Mr. Gerding has also co-managed the Founder's segment of the Star Worldwide Fund
since the Fund's inception in December 1995. He is also the portfolio manager of
Founders Worldwide Growth and Passport Funds. He has also served as a portfolio
manager for Founders International Equity Fund since 1996. Mr. Gerding, Vice
President of Founders, joined the firm in ____. Mr. Gerding earned an M.B.A and
a B.B.A. from Texas Christian University and has ___ years of investment
experience.
[Photo of Laurence Chang]
LAURENCE CHANG
Mr. Chang has assisted the portfolio manager, Helen Hayes, in the management of
the Janus' segment of the Star Worldwide Fund since May 1992. He received an
undergraduate degree from Dartmouth College and a Masters degree from Stanford
University in 1993. He has __ years of investment experience.
[Photo of Oscar Castro]
OSCAR CASTRO
Mr. Castro has co-managed the Montgomery segment of the Star Worldwide Fund
since August 1998. Mr. Castro, Senior Portfolio Manager of Montgomery, has been
employed by the firm since 1993. He is a graduate of ____________________ and
has ___ years of investment experience.
[Photo of Helen Young Hayes]
HELEN YOUNG HAYES
Ms. Hayes has served as portfolio manager of the Janus segment of the Star
Worldwide Fund since the Fund's inception in December 1995. Ms. Hayes, Vice
President of Janus, joined the firm in ____ and is also portfolio manager of
Janus Worldwide Fund and Janus Overseas Fund. She is also a Chartered Financial
Analyst. She is a graduate from Yale University and has ___ years investment
experience.
[Photo of John Boich]
JOHN BOICH
Mr. Boich has co-managed the Montgomery segment of the Star Worldwide Fund since
August 1998. Mr. Boich, Senior Portfolio Manager of Montgomery, joined the firm
in 1993. He is a graduate of _________________ and has ___ years of investment
experience.
FUND SERVICES
IT'S EASY TO OPEN AN ACCOUNT
To open an Account with New England Funds:
1. Read this Prospectus carefully.
2. Read the following eligibility and minimum investment requirements to
determine if you may purchase Class Y shares.
Class Y shares of the Funds may be purchased by the following entities at the
following investment minimums. A minimum initial investment is $1 million and
$10,000 is the minimum subsequent investment for:
o Other mutual funds, endowments, foundations, bank trust departments or
trust companies.
There is no initial or subsequent investment minimum for:
o RETIREMENT PLANS (401(a), 401(k), 457 or 403(b) plans) that have total
investment assets of at least $10 million. Plan sponsor accounts can be
aggregated to meet this minimum.
o INSURANCE COMPANY ACCOUNTS of New England Financial, Metropolitan Life
Insurance Company ("MetLife") or their affiliates.
o SEPARATE ACCOUNTS of New England Financial, MetLife, or their
affiliates.
o SPECIAL ACCOUNTS for International Equity Fund (including bank common
trusts, bank collective trust funds and dedicated corporate or trust
funds, such as nuclear decommissioning trusts and hospital depreciation
funds.)
o WRAP FEE PROGRAMS of certain broker-dealers not being paid by the Funds,
NEFM or the Distributor. Such wrap fee programs may be subject to
additional or different conditions, including a wrap account fee. Each
broker-dealer is responsible for transmitting to its customer a schedule
of fees and other information regarding any such conditions. If the
participant who purchased Class Y shares through a wrap fee program
should terminate the wrap fee arrangement with the broker-dealer, then
the Class Y shares will, at the discretion of the broker-dealer,
automatically be converted to a number of Class A shares of the same
Fund having the same net asset value of the shares converted, and the
broker-dealer may thereafter be entitled to receive from that Fund an
annual service fee of 0.25% of the value of Class A shares owned by that
shareholder.
o CERTAIN INDIVIDUAL RETIREMENT ACCOUNTS if the amounts invested represent
rollover distributions from investments by any of the Retirement Plans
set forth above.
o NEW ENGLAND FINANCIAL DEFERRED COMPENSATION PLAN ACCOUNTS for agents,
general agents, directors and senior officers of New England Financial
and its insurance company subsidiaries.
o SERVICE ACCOUNTS through an omnibus account by investment advisers,
financial planners, broker-dealers or other intermediaries who have
entered into a service agreement with a Fund. A fee may be charged to
shareholders purchasing through a service account if they effect
transactions through such parties and should contact such parties
regarding information regarding such fees.
3. You should contact New England Funds at 800-225-5478 before attempting to
purchase Fund shares.
4. Use the sections of this Prospectus that follow as your guide for purchasing
shares.
CERTIFICATES
You will not receive certificates representing Class Y shares.
NEW ENGLAND FUNDS WEB SITE
You may have access to your account 24 hours a day by visiting us online at
WWW.MUTUALFUNDS.COM.
<PAGE>
FUND SERVICES
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
THROUGH YOUR INVESTMENT DEALER
[Graphic Omitted] o Call your investment o Call your investment
dealer for information dealer for information
BY MAIL
o Make out a check in o Make out a check in
U.S. dollars for the U.S. dollars for the
investment amount, investment amount,
payable to "New payable to "New
[Graphic Omitted] England Funds." Third England Funds." Third
party checks will party checks will
generally not be generally not be
accepted. accepted.
o Mail the check with o Fill out the
your completed detachable investment
application to New slip from an account
England Funds, P.O. statement. If no slip
Box 8551, Boston, MA is available, include
02266-8551. with the check a
letter specifying the
Fund name, your
account number and the
registered account
name(s). To make
investing even easier,
you can order more
investment slips by
calling 800-225-5478.
BY EXCHANGE
o Obtain a current o Call your investment
prospectus for the dealer or New England
Fund into which you Funds at 800-225-5478
are exchanging by to request an
calling your exchange.
investment dealer or
New England Funds at o See the section
800-225-5478. entitled "Exchanging
Shares."
[Graphic Omitted] o Call your investment
dealer or New England
Funds to request an
exchange.
o See the section
entitled "Exchanging
Shares."
BY WIRE
o Call New England Funds o Instruct your bank to
at 800-225-5478 to transfer funds to
obtain an account State Street Bank &
number and wire Trust Company, ABA#
transfer instructions. 011000028, DDA#
Your bank may charge 99011538.
you for such a
[Graphic Omitted] transfer. o Specify the Fund name,
your account number
and the registered
account name(s). Your
bank may charge you
for such a transfer.
THROUGH AUTOMATED CLEARING HOUSE (ACH)
o Ask your bank or o Call New England Funds
credit union whether at 800-225-5478 to add
it is a member of the shares to your account
ACH system. through ACH.
o Complete the o If you have not signed
"Telephone Withdrawal up for the ACH system,
and Exchange" and please call New
"Bank Information" England Funds for a
sections on your Service Options Form.
account application. A signature guarantee
may be required to add
o Mail your completed this privilege.
application to New
England Funds, P.O.
Box 8551, Boston, MA
02266-8551.
<PAGE>
FUND SERVICES
SELLING SHARES
To Sell Some or All of Your Shares
Certain restrictions may apply. See section entitled "Restrictions on Buying,
Selling and Exchanging 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, 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.
[Graphic Omitted]
o Mail your request to New England Funds, P.O. Box
8551, Boston, MA 02266-8551.
o Your proceeds 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.
[Graphic Omitted]
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
[Graphic Omitted] in your redemption request letter (see above) that
you wish to have your proceeds wired to your bank.
o Proceeds 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.
[Graphic Omitted]
o Proceeds will generally arrive at your bank within
three business days.
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.
[Graphic Omitted]
<PAGE>
FUND SERVICES
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.
<PAGE>
FUND SERVICES
EXCHANGING SHARES
You may exchange Class Y shares of your Fund for Class Y shares of any other New
England Fund which offers Class Y shares or for Class A shares of the Money
Market Funds. Agents, general agents, directors and senior officers of NELICO
and its insurance company subsidiaries may, at the discretion of NELICO, elect
to exchange Class Y shares of any New England Fund in a NELICO Deferred
Compensation Account for Class A shares of any other New England Fund which does
not offer Class Y shares. Class A shares of any New England Fund in a NELICO
Deferred Compensation Account may also be exchanged for Class Y shares of any
New England Fund. All exchanges are subject to the eligibility requirements of
the New England Fund or Money Market 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. For federal income tax purposes, an exchange of Fund
shares for shares of another Fund is treated as a sale on which gain or loss may
be recognized. 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
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:
RESTRICTION SITUATION
The Fund may suspend the right of redemption or o When the New York
postpone payment for more than 7 days: Stock Exchange is
closed (other than a
weekend/holiday)
o During an emergency
o Any other period
permitted by the SEC
The Fund reserves the right to suspend account o With a notice of a
services or refuse transaction requests: dispute between
registered owners
o With
suspicion/evidence of
a fraudulent act
The Fund may pay the redemption price in whole or o When it is detrimental
part by a distribution in kind of readily marketable for a Fund to make
securities in lieu of cash or may take up to 7 days cash payments as
to pay a redemption request in order to raise determined in the sole
capital: discretion of the
adviser or subadviser
The Fund may withhold redemption proceeds until the o When redemptions are
check or funds have cleared: made within 10
calendar days of
purchase by check or
ACH of the shares
being redeemed
Telephone redemptions are not accepted for
tax-qualified retirement accounts.
<PAGE>
FUND SERVICES
HOW FUND SHARES ARE PRICED
"Net asset value" is the price of one share of a Fund 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 = ----------------------------------
NUMBER OF OUTSTANDING SHARES
The net asset value of Fund 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
"in good order" by State Street Bank and Trust Company, the Fund's custodian
(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 will be based on the net asset value determined on that day.
o A Fund 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 pm, but not later than
8:00 pm
Generally, 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 in
"Buying Shares" and "Selling Shares".
Generally, Fund securities are valued as follows:
o EQUITY SECURITIES - most recent sales or quoted bid price as provided by a
pricing service.
o DEBT SECURITIES (other than short-term obligations) - based upon pricing
service valuations.
o SHORT-TERM OBLIGATIONS - amortized cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES - most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the close 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 Fund's Board of Trustees at the
close of regular trading on the 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 Fund's
Board of Trustees.
o ALL OTHER SECURITIES - fair market value as determined by the adviser or
subadviser of the Fund under the direction of the Fund'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 priced by another method that the Fund's Board of
Trustees believes actually reflects fair value.
<PAGE>
[graphic omitted] FUND SERVICES
DIVIDENDS AND DISTRIBUTIONS
The Funds generally distribute most or all of their net investment income (other
than long-term capital gains) in the form of dividends. The following table
shows when each Fund expects to distribute dividends. Each Fund distributes all
net realized long- and short-term capital gains annually, after applying any
available capital loss carryovers. Each Fund's Board of Trustees may adopt a
different schedule as long as payments are made at least annually.
Dividend Payment Schedule
- --------------------------------------------------------------------------------
Annually Semi-Annually Quarterly
- --------------------------------------------------------------------------------
Value Growth Opportunities Balanced
Growth Equity Income
Capital Growth
International Equity
Star Advisers
Star Small Cap
Star Worldwide
- --------------------------------------------------------------------------------
Depending on your investment goals and priorities, you may choose to:
o receive distributions from dividends and interest in cash while reinvesting
distributions from capital gains in additional Class Y shares of the Fund
or in Class Y shares 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 Class Y shares of the Fund.
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 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 investment 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 gains from investments that a Fund owned for 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,
regardless of how long the shareholder has held Fund shares.
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.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive. Shareholders of International
Equity Fund, Star Small Cap Fund and Star Worldwide Fund should also consult
their tax advisers about consequences of their investments under foreign laws.
FUND SERVICES
COMPENSATION TO SECURITIES DEALERS [graphic omitted]
The Distributor may, at its expense, pay concessions to dealers which satisfy
certain criteria established from time to time by the Distributor relating to
increasing net sales of shares of the New England Funds over prior periods, and
certain other factors. See the SAI for more details.
<PAGE>
[graphic omitted] FUND PERFORMANCE
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the return that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
each Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
NEW ENGLAND CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.27 $ 15.02 $ 18.41 $ 19.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income -0.08 -0.11(c) -0.14(d) -0.18(d)
Net gains or losses on securities
(both realized and unrealized) -0.17 4.74 3.22 3.43
Total from investment operations -0.25 4.63 3.08 3.25
LESS DISTRIBUTIONS
Distributions (from net income) 0.00 0.00 0.00 0.00
Distributions (from capital gains) 0.00 -1.24 -2.22 -2.57
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions 0.00 -1.24 -2.22 -2.57
Net asset value, end of period $ 15.02 $ 18.41 $ 19.27 $ 19.95
TOTAL RETURN (b) -1.6 30.7 17.1 17.2
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 95,803 $123,504 $141,326 $149,734
Ratio of Operating Expenses
to average net assets (%) 1.63 1.61 1.50 1.45
Ratio of net income
to average net assets (%) -0.45 -0.67 -0.71 -0.87
Portfolio Turnover Rate (%) 82 69 74 48
<CAPTION>
CLASS B
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.24 $ 14.89 $ 18.09 $ 18.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income -0.08 -0.16(c) -0.28(d) -0.32(d)
Net gains or losses on securities
(both realized and unrealized) -0.27 4.60 3.15 3.25
Total from investment operations -0.35 4.44 2.87 2.93
LESS DISTRIBUTIONS
Distributions (from net income) 0.00 0.00 0.00 0.00
Distributions (from capital gains) 0.00 -1.24 -2.22 -2.57
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions 0.00 -1.24 -2.22 -2.57
Net asset value, end of period $ 14.89 $ 18.09 $ 18.74 $ 19.10
TOTAL RETURN (b) -2.3 29.7 16.2 15.9
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 15,390 $ 26,234 $ 37,439 $ 45,546
Ratio of Operating Expenses
to average net assets (%) 2.38 2.36 2.25 2.20
Ratio of net income
to average net assets (%) -1.20 2.62 2.04 1.50
Portfolio Turnover Rate (%) 36 54 70 69
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31,
1995(a) 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.89 $ 18.08 $ 18.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income -0.09(c) -0.28(d) -0.34(d)
Net gains or losses on securities
(both realized and unrealized) 4.52 3.16 3.28
Total from investment operations 4.43 2.88 2.94
LESS DISTRIBUTIONS
Distributions (from net income) 0.00 0.00 0.00
Distributions (from capital gains) -1.24 -2.22 -2.57
Returns of Capital 0.00 0.00 0.00
Total Distributions -1.24 -2.22 -2.57
Net asset value, end of period $ 18.08 $ 18.74 $ 19.11
TOTAL RETURN (B) 29.7 16.2 15.9
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 354 $ 504 $ 979
Ratio of Operating Expenses
to average net assets (%) 2.36 2.25 2.20
Ratio of net income
to average net assets (%) 2.62 2.04 1.50
Portfolio Turnover Rate (%) 54 70 69
</TABLE>
(a) Class C shares were first offered on December 31, 1994.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not
reflected in total return calculations.
(c) Per share net investment income does not reflect current period's
reclassification of permanent differences between book and tax basis net
investment income.
(d) Per share net investment income has been calculated using the average
shares outstanding during the year.
The Fund's current subadviser assumed that function on February 16, 1998. These
highlights reflect results achieved by the previous subadviser under different
investment policies.
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.44 $8.87 $10.55 $11.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11 0.05 0.04 0.01
Net gains or losses on securities
(both realized and unrealized) -0.84 3.30 2.07 2.79
Total from investment operations -0.73 3.35 2.11 2.80
LESS DISTRIBUTIONS
Distributions (from net income) -0.11 -0.05 -0.04 0.00
Distributions (from capital gains) -0.73 -1.62 -0.99 -4.02
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions -0.84 -1.67 -1.03 -4.02
Net asset value, end of period $8.87 $10.55 $11.63 $10.41
TOTAL RETURN (C) -7.1 38.1 20.9 23.5
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $988,430 $1,201,110 $1,296,542 $1,459,747
Ratio of Operating Expenses
to average net assets (%) 1.19 1.20 1.18 1.12
Ratio of net income
to average net assets (%) 1.05 0.42 0.33 0.08
Portfolio Turnover Rate (%) 141 235 199 214
<CAPTION>
CLASS B
MARCH 1 THROUGH DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 (a) 1998
<S> <C> <C>
Net asset value, beginning of period $12.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income -0.07(b)
Net gains or losses on securities
(both realized and unrealized) 1.94
Total from investment operations 1.87
LESS DISTRIBUTIONS
Distributions (from net income) 0.00
Distributions (from capital gains) -4.02
Returns of Capital 0.00
Total Distributions -4.02
Net asset value, end of period $10.32
TOTAL RETURN (C) 14.4
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $17,757
Ratio of Operating Expenses
to average net assets (%) 1.87(d)
Ratio of net income
to average net assets (%) -0.67(d)
Portfolio Turnover Rate (%) 214
</TABLE>
(a) Class B shares were first offered on March 1, 1997.
(b) Net investment income per share has been calculated using the average shares
outstanding during the year.
(c) A sales charge for Class A shares or a CDSC for Class B and C shares is not
reflected in total return calculations. Periods of less than one year are
not annualized.
(d) Computed on an annualized basis.
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND GROWTH OPPORTUNITIES FUND
<TABLE>
<CAPTION>
CLASS Y
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
INCOME FROM INVESTMENT OPERATIONS
Net investment income
Net gains or losses on securities (both realized and unrealized)
Total from investment operations
LESS DISTRIBUTIONS
Distributions (from net income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net asset value, end of period
TOTAL RETURN
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)
Ratio of Operating Expenses to average net assets (%)
Ratio of net income to average net assets (%)
Portfolio Turnover Rate (%)
</TABLE>
(a) Class Y shares were first offered on ________.
(b) Per share net investment income has been calculated using the average
shares outstanding during the year.
(c) Computed on an annualized basis.
The Fund's current subadviser assumed that function on May 1, 1995. These
highlights reflect results achieved by the previous subadviser under
different investment policies.
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND BALANCED FUND
<TABLE>
<CAPTION>
CLASS Y
MARCH 8
TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
INCOME FROM INVESTMENT OPERATIONS
Net investment income
Net gains or losses on securities (both realized and unrealized)
Total from investment operations
LESS DISTRIBUTIONS
Distributions (from net income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net asset value, end of period
TOTAL RETURN (a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)
Ratio of Operating Expenses to average net assets (%)
Ratio of net income to average net assets (%)
Portfolio Turnover Rate (%)
</TABLE>
(a) Periods of less than one year are not annualized.
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND VALUE FUND
<TABLE>
<CAPTION>
CLASS Y
MARCH 31
TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
INCOME FROM INVESTMENT OPERATIONS
Net investment income
Net gains or losses on securities (both realized and unrealized)
Total from investment operations
LESS DISTRIBUTIONS
Distributions (from net income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net asset value, end of period
TOTAL RETURN
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)
Ratio of Operating Expenses to average net assets (%)
Ratio of net income to average net assets (%)
Portfolio Turnover Rate (%)
</TABLE>
(a) Per share net investment income has been calculated using the average shares
outstanding during the year.
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS Y
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
INCOME FROM INVESTMENT OPERATIONS
Net investment income
Net gains or losses on securities (both realized and unrealized)
Total from investment operations
LESS DISTRIBUTIONS
Distributions (from net income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net asset value, end of period
TOTAL RETURN
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)
Ratio of Operating Expenses to average net assets (%)
Ratio of net income to average net assets (%)
Portfolio Turnover Rate (%)
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND EQUITY INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
NOV. 15 SEPTEMBER 13(a) SEPTEMBER 13(a)
THROUGH THROUGH THROUGH
DEC. 31, YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995(a) 1996 1997 1997 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.50 $ 12.86 $ 15.15 $ 17.06 $ 17.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.31 0.25 0.03 0.03
Net gains or losses on securities
(both realized and unrealized) 0.36 3.11 3.15 0.60 0.60
Total from investment operations 0.40 3.42 3.40 0.63 0.63
LESS DISTRIBUTIONS
Distributions (from net income) -0.04 -0.30 -0.26 -0.04 -0.04
Distributions (from capital gains) 0.00 -0.83 -0.70 -0.06 -0.06
Returns of Capital 0.00 0.00 0.00 0.00 0.00
Total Distributions -0.04 -1.13 -0.96 -0.10 -0.10
Net asset value, end of period $ 12.86 $ 15.15 $ 17.59 $ 17.59 $ 17.59
TOTAL RETURN (c) 3.2 26.6 22.6 3.7 3.7
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 2,064 $ 2,613 $ 14,681 $ 9,375 $ 1,596
Ratio of Operating Expenses
to average net assets (%) (d) 1.50(b) 1.50 1.50 2.25(b) 2.25(b)
Ratio of net income
to average net assets (%) 3.58(b) 2.06 1.76 1.01(b) 1.01(b)
Portfolio Turnover Rate (%) 0 45 33 33 33
(a) The Fund commenced operations on November 15, 1995. Class B and Class C shares were first offered on September 15, 1997.
(b) Computed on an annualized basis.
(c) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations.
Periods of less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the expense limitation in effect would
have been (%):
5.97(b) 3.67 3.10 3.85(b) 3.85(b)
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND STAR SMALL CAP FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1998 1997 1998 1997 1998
<S> <C> <C> <C>
Net asset value, beginning of period (a) 12.50 12.50 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.20) (0.30) (0.30)
Net gains or losses on securities
(both realized and unrealized) 3.55 3.54 3.54
Total from investment operations 3.35 3.24 3.24
LESS DISTRIBUTIONS
Distributions (from capital gains) (0.48) (0.48) (0.48)
Total Distributions (0.48) (0.48) (0.48)
Net asset value, end of period 15.37 15.37 15.37
TOTAL RETURN (b) 27.0 26.1 26.1
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) 52,066 52,616 13,970
Ratio of Operating Expenses
to average net assets (%) 2.20 2.95 2.95
Ratio of net income
to average net assets (%) (1.44) (2.19) (2.19)
Portfolio Turnover Rate (%) 140 140 140
(a) Commencement of operations December 31, 1996.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations.
Periods of less than one year are not annualized.
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND STAR ADVISERS FUND
<TABLE>
<CAPTION>
CLASS Y
NOVEMBER 15(a)
THROUGH
DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period
INCOME FROM INVESTMENT OPERATIONS
Net investment income
Net gains or losses on securities (both realized and unrealized)
Total from investment operations
LESS DISTRIBUTIONS
Distributions (from net income)
Distributions (from capital gains)
Returns of Capital
Total Distributions
Net asset value, end of period
TOTAL RETURN
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)
Ratio of Operating Expenses to average net assets (%)
Ratio of net income to average net assets (%)
Portfolio Turnover Rate (%)
(a) Commencement of operations
(b) Computed on an annualized basis
(c) The ratio of operating expenses to average net assets (computed on an annualized basis) giving effect to the voluntary expense
limitations in effect from July 7, 1994 through December 31, 1994 was
</TABLE>
<PAGE>
[graphic omitted] FUND PERFORMANCE
NEW ENGLAND STAR WORLDWIDE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1997 1998 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period (a) 12.50 14.40 12.40 14.30
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.03) (0.02)
Net gains or losses on securities
(both realized and unrealized) 2.11 1.88 2.10 1.87
Total from investment operations 1.86
LESS DISTRIBUTIONS
Distributions (from net income) (0.18) (0.76) (0.18) (0.76)
Distributions (from capital gains) 0.00 (0.04) 0.00 (0.04)
Total Distributions (0.18) (0.80) (0.18) (0.80)
Net asset value, end of period 14.40 15.46 14.30 15.23
TOTAL RETURN (b) 16.7 12.7 15.9 11.9
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) 68,509 118,381 65,367 123,467
Ratio of Operating Expenses
to average net assets (%) (d) 2.58 2.07 3.33 2.82
Ratio of net income
to average net assets (%) (0.21) (0.12) (0.96) (0.87)
Portfolio Turnover Rate (%) 57 80 57 80
<CAPTION>
CLASS C
YEAR ENDED DECEMBER 31,
1996 1997 1998
<S> <C> <C> <C>
Net asset value, beginning of period (a) 12.50 14.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.12) (0.13)
Net gains or losses on securities
(both realized and unrealized) 2.11 1.86
Total from investment operations 1.99 1.73
LESS DISTRIBUTIONS
Distributions (from net income) (0.18) (0.76)
Distributions (from capital gains) 0.00 (0.04)
Total Distributions (0.18) (0.80)
Net asset value, end of period 14.31 15.24
TOTAL RETURN (b) 15.9 11.8
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) 617,980 36,137
Ratio of Operating Expenses
to average net assets (%) (d) 3.33 2.82
Ratio of net income
to average net assets (%) (0.96) (0.87)
Portfolio Turnover Rate (%) 57 80
(a) The Fund commenced operation December 31, 1995.
(b) A sales charge for Class A shares or a CDSC for Class B and C shares is not reflected in total return calculations.
Periods of less than one year are not annualized.
</TABLE>
<PAGE>
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 APPROACH - The search for outstanding performance of individual stocks
before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS - Payments to a Fund's shareholders of profits earned
from selling securities in a 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 or Moody's. Bonds with a credit rating of BBB or higher by S&P
or Baa or higher by Moody's are generally considered investment grade.
DERIVATIVE - A financial instrument whose value and performance is based on the
value and performance of another security or financial instrument.
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 an individual company or 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 - A measure of how much a bond's price inversely fluctuates with
changes in prevailing 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's price to rise.
FUNDAMENTAL ANALYSIS - An analysis of the balance sheet and income statements of
a company in order to forecast its 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
its 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 a Fund's 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.
MARKET CAPITALIZATION - Market price multiplied by number of shares outstanding.
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. These capitalization figures may
vary depending upon the index being used and/or the guidlines set by the
portfolio manager.
MATURITY - The final date on which the payment of a debt instrument (e.g. 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 Fund on any given day
without a front-end sales charge or CDSC. It is determined by dividing a 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.
PRICE-TO-EARNINGS RATIO - Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price-to-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 net
income for the period after preferred stock dividends but before common stock
dividends by the common stock equity (net worth) average for the accounting
period. This tells common shareholders how effectively 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.
Technical analysis uses charts or computer programs to identify and project
price trends in a market, security, mutual fund or futures contract.
TOP-DOWN APPROACH - The method in which an investor first looks at trends in the
general economy, selects attractive industries and then companies that should
benefit from those trends.
TOTAL RETURN - The change in value of an investment in a Fund over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of a 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-to-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 upon 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 ABOUT THE FUNDS, THE
FOLLOWING DOCUMENTS ARE AVAILABLE FREE UPON REQUEST:
Annual and Semiannual Reports -- Provide additional
information about each Fund's investments. Each
report includes a discussion of the 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 ITS 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 Web site 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 their Web site
at www.NASDR.com.
NEW ENGLAND FUNDS
STOCK AND STAR FUNDS
Class Y Shares of:
New England Capital Growth Fund
New England Growth Fund
New England Growth Opportunities Fund
New England Balanced Fund
New England Value Fund
New England International Equity Fund
New England Equity Income Fund
New England Star Small Cap Fund
New England Star Advisers Fund
New England Star Worldwide Fund
Investment Company Act File No. 811-4323
Investment Company Act File No. 811-242
Investment Company Act File No. 811-7345
YS51-0599
<PAGE>
[LOGO](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
NEW ENGLAND CAPITAL GROWTH FUND NEW ENGLAND BALANCED FUND
NEW ENGLAND GROWTH OPPORTUNITIES FUND NEW ENGLAND GROWTH FUND
NEW ENGLAND INTERNATIONAL EQUITY FUND NEW ENGLAND VALUE FUND
NEW ENGLAND EQUITY INCOME FUND NEW ENGLAND BULLSEYE FUND
STATEMENT OF ADDITIONAL INFORMATION -- PART I
MAY 1, 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 authorized for distribution
only when accompanied or preceded by the Prospectus of the Funds dated May 1,
1999 for Class A, Class B and Class C shares or the Prospectus of the Funds
dated May 1, 1999 for Class Y shares (the "Prospectus" or "Prospectuses"). 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. Part
I of this Statement contains specific information about the Funds. Part II
includes information about the Funds as well as other New England Funds.
New England Growth Fund, New England Capital Growth Fund, New England
Balanced Fund, New England International Equity Fund and New England Value Fund
are each a diversified fund of New England Funds Trust I, a registered open-end
management investment company that offers a total of twelve funds; New England
Growth Opportunities Fund is a diversified fund of New England Funds Trust II, a
registered open-end management investment company that offers a total of seven
funds; and New England Equity Income Fund and New England Bullseye Fund are
diversified and non-diversified, respectively, funds of New England Funds Trust
III, a registered open-end management investment company that offers a total of
six funds. New England Funds Trust I, New England Funds Trust II and New England
Funds Trust III are collectively referred to in this Statement as the "Trusts"
and are each referred to as a "Trust."
The Funds' financial statements and accompanying notes are incorporated
by reference into this Statement. Each Fund's annual and semiannual report
contains additional performance information and is available upon request and
without charge, by calling 800-225-5478.
TABLE OF CONTENTS
PART I Page
Investment Restrictions ii
Fund Charges and Expenses viii
Ownership of Fund Shares xvii
Investment Performance of the Funds xx
PART II
Miscellaneous Investment Practices 2
Management of the Trusts 25
Portfolio Transactions and Brokerage 40
Description of the Trusts and Ownership of Shares 48
How to Buy Shares 51
Net Asset Value and Public Offering Price 51
Reduced Sales Charges - Class A Shares Only 52
Shareholder Services 55
Redemptions 62
Standard Performance Measures 64
Income Dividends, Capital Gain Distributions and Tax Status 69
Financial Statements 73
Appendix A - Description of Bond Ratings 74
Appendix B - Publications That May Contain Fund Information 76
Appendix C - Advertising and Promotional Literature 79
Appendix D - Portfolio Composition of the Municipal Income,
Bond Income and California Funds 83
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following is a description of restrictions on the investments to be
made by the Funds. The restrictions marked with an asterisk may not be changed
without the vote of a majority of the outstanding voting securities of the
relevant Fund (as defined in the Investment Company Act of 1940 [the "1940
Act"]). Except in the case of restrictions marked with a dagger (+) below, the
percentages set forth below and the percentage limitations set forth in the
Prospectus will apply at the time of the purchase of a security and shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
NEW ENGLAND GROWTH FUND, NEW ENGLAND VALUE FUND AND NEW ENGLAND BALANCED FUND
New England Growth Fund (the "Growth Fund"), New England Value Fund (the "Value
Fund") and New England Balanced Fund (the "Balanced Fund") each will not:
*(1) Purchase any security (other than U.S. Government securities) if, as a
result, more than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer or 25% of the
Fund's total assets (taken at current value) would be invested in any
one industry;
*(2) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold,
and the Fund will not deposit or pledge more than 10% of its total
assets (taken at current value) as collateral for such sales;
*(3) Acquire more than 10% of any class of securities of an issuer (taking
all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer;
*(4) Borrow money in excess of 10% of its total assets (taken at cost) or 5%
of its total assets (taken at current value), whichever is lower, and
then only as a temporary measure for extraordinary or emergency
purposes;
*(5) Pledge more than 15% of its total assets (taken at cost);
*(6) Invest more than 5% of its total assets (taken at current value) in
securities of businesses (including predecessors) less than three years
old;
*(7) Purchase or retain securities of any issuer if officers and trustees of
New England Funds Trust I or of the investment adviser of the Fund who
individually own more than 1/2 of 1% of the shares or securities of that
issuer together own more than 5%;
*(8) Make loans, except by purchase of bonds, debentures, commercial paper,
corporate notes and similar evidences of indebtedness, which are a part
of an issue to the public or to financial institutions;
*(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts. Also, the
Value Fund will not buy or sell real estate or interests in real estate
which are not readily marketable. (This restriction does not prevent
such Funds from purchasing securities of companies investing in the
foregoing);
*(10) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
*(11) Make investments for the purpose of exercising control or management;
*(12) Participate on a joint or joint and several basis in any trading account
in securities;
*(13) Purchase options or warrants if, as a result, more than 1% of its total
assets (taken at current value) would be invested in such securities;
*(14) Write options or warrants;
*(15) Invest in the securities of other investment companies, except by
purchases in the open market involving only customary brokers'
commissions. (Under the 1940 Act, the Growth Fund, the Value Fund and
the Balanced Fund each may not (a) invest more than 10% of its total
assets [taken at current value] in such securities, (b) own securities
of any one investment company having a value in excess of 5% of the
total assets of such Fund [taken at current value], or (c) own more than
3% of the outstanding voting stock of any one investment company);
*(16) Issue senior securities. For the purpose of this restriction, none of
the following is deemed to be a senior security: any borrowing permitted
by restriction (4) above; any pledge or other encumbrance of assets
permitted by restriction (5) above; any collateral arrangements with
respect to options, forward contracts, futures contracts, swap contracts
and other similar contracts and options on futures contracts and with
respect to initial and variation margin; the purchase or sale of
options, forward contracts, futures contracts, swap contracts and other
similar contracts or options on futures contracts; and the issuance of
shares of beneficial interest permitted from time to time by the
provisions of New England Funds Trust I's Agreement and Declaration of
Trust and by the 1940 Act, the rules thereunder, or any exemption
therefrom; or
+(17) Invest more than 15% of the Fund's total net assets in illiquid
securities (excluding Rule 144A securities and certain Section 4(2)
commercial paper deemed to be liquid under guidelines established by New
England Funds Trust I's trustees.)
NEW ENGLAND CAPITAL GROWTH FUND
New England Capital Growth Fund (the "Capital Growth Fund") may not:
(1) With respect to 75% of its total assets, purchase any security (other
than U.S. Government securities) if, as a result, more than 5% of the
Fund's total assets (taken at current value) would then be invested in
securities of a single issuer;
*(2) Purchase any security (other than U.S. Government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current
value) would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as being
in separate industries, and each foreign country's government [together
with subdivisions thereof] will be considered to be a separate
industry);
(3) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold,
and the Fund will not deposit or pledge more than 10% of its total
assets (taken at current value) as collateral for such sales. (For this
purpose, the deposit or payment by the Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin);
(4) Acquire more than 10% of any class of securities of an issuer (other
than U.S. Government securities and taking all preferred stock issues of
an issuer as a single class and all debt issues of an issuer as a single
class) or with respect to 75% of its total assets, acquire more than 10%
of the outstanding voting securities of an issuer;
*(5) 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, and
then only as a temporary measure for extraordinary or emergency
purposes;
(6) Pledge more than 15% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and with
respect to initial and variation margin are not deemed to be a pledge of
assets);
*(7) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's
portfolio securities;
*(8) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except
that the Fund may buy and sell futures contracts and related options.
(This restriction does not prevent the Fund from purchasing securities
of companies investing in the foregoing);
*(9) 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;
(10) Except to the extent permitted by rule or order of the Securities and
Exchange Commission (the "SEC"), 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 the Fund's
adviser or subadviser 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.);
(11) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities or securities
indexes and (b) enter into currency forward contracts;
+(12) Invest more than 15% of its net assets (taken at current value) in
illiquid securities (excluding Rule 144A securities and certain Section
4(2) commercial paper deemed to be liquid under guidelines established
by New England Funds Trust I's trustees); or
*(13) Issue senior securities. (For the purpose of this restriction, none of
the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts
and with respect to initial and variation margin; the purchase or sale
of options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted
from time to time by the provisions of New England Funds Trust I's
Agreement and Declaration of Trust and by the 1940 Act, the rules
thereunder, or any exemption therefrom.)
NEW ENGLAND INTERNATIONAL EQUITY FUND
New England International Equity Fund (the "International Equity Fund") may not:
(1) With respect to 75% of its total assets, purchase any security (other
than U.S. Government securities) if, as a result, more than 5% of the
Fund's total assets (taken at current value) would then be invested in
securities of a single issuer;
*(2) Purchase any security (other than U.S. Government securities) if, as a
result, more than 25% of the Fund's total assets (taken at current
value) would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as being
in separate industries, and each foreign country's government (together
with subdivisions thereof) will be considered to be a separate
industry);
(3) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold,
and the Fund will not deposit or pledge more than 10% of its total
assets (taken at current value) as collateral for such sales. (For this
purpose, the deposit or payment by the Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin);
(4) Acquire more than 10% of any class of securities of an issuer (other
than U.S. Government securities and taking all preferred stock issues of
an issuer as a single class and all debt issues of an issuer as a single
class) or with respect to 75% of its total assets, acquire more than 10%
of the outstanding voting securities of an issuer;
*(5) 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, and
then only as a temporary measure for extraordinary or emergency
purposes;
(6) Pledge more than 15% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and with
respect to initial and variation margin are not deemed to be a pledge of
assets);
*(7) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's
portfolio securities;
*(8) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except
that the Fund may buy and sell futures contracts and related options.
(This restriction does not prevent the Fund from purchasing securities
of companies investing in the foregoing);
*(9) 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;
(10) Except to the extent permitted by rule or order of the SEC, 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 the Fund's adviser or subadviser 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.);
(11) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities, securities
indexes, currencies, futures contracts, swap contracts and other similar
instruments and (b) enter into currency forward contracts;
+(12) Purchase any illiquid security if, as a result, more than 15% of its
total assets (taken at current value) would be invested in such
securities (excluding Rule 144A securities and certain Section 4(2)
commercial paper deemed to be liquid under guidelines established by New
England Funds Trust I's trustees); or
*(13) Issue senior securities. For the purpose of this restriction none of the
following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (6) above; any borrowing
permitted by restriction (5) above; any collateral arrangements with
respect to options, futures contracts and options on futures contracts
and with respect to initial and variation margin; the purchase or sale
of options, forward contracts, futures contracts or options on futures
contracts; and the issuance of shares of beneficial interest permitted
from time to time by the provisions of New England Funds Trust I's
Agreement and Declaration of Trust and by the 1940 Act, the rules
thereunder, or any exemption therefrom.
NEW ENGLAND GROWTH OPPORTUNITIES FUND
New England Growth Opportunities Fund (the "Growth Opportunities Fund") will
not:
*(1) Purchase securities of an issuer if such purchase would cause more than
5% of the market value of the total Fund assets to be invested in the
securities of such issuer (exclusive of United States or Canadian
government obligations), or if such purchase would cause more than 10%
of the securities of such issuer to be held by the Fund;
*(2) Purchase or retain the securities of any issuer if the officers and
trustees of New England Funds Trust II owning beneficially 1/2 of 1% of
the securities of such issuer together own beneficially more than 5% of
the securities of such issuer;
*(3) Purchase the securities issued by any other investment company, except
that a purchase involving no commission or profit to a sponsor or dealer
(other than a customary broker's commission) is permitted and except
that a purchase that is part of a plan of merger or consolidation is
permitted;
*(4) Purchase securities issued by companies with a record (including that of
their predecessors) of less than three years' continuous operation;
*(5) Purchase securities for the portfolio on margin, make short sales or
make loans to persons affiliated with New England Funds Trust II;
*(6) Act as underwriter of securities of other issuers, or invest directly in
real estate or in commodities or commodity contracts; or
*(7) Make loans to other persons, provided, however, that this restriction
shall not prohibit the Fund from entering into repurchase agreements
with respect to not more than 25% of the Fund's total assets taken at
current value. The purchase of a portion of an issue of bonds, notes or
debentures publicly distributed or of a type customarily purchased by
institutional investors does not constitute the making of loans within
the meaning of this restriction;
*(8) Borrow money, except that the Fund may make secured or unsecured bank
borrowings, provided that an asset coverage of at least 300% for all
such borrowings (including the amount then being borrowed) is maintained
as required by the 1940 Act;
*(9) Issue senior securities. For the purpose of this restriction, none of
the following is deemed to be a senior security; any borrowing permitted
by restriction (8) above; any collateral arrangements with respect to
options, futures contracts, swap contracts and other similar contracts
and options on futures contracts and with respect to initial and
variation margin; the purchase or sale of options, forward contracts,
futures contracts, swap contracts and other similar contracts or options
on futures contracts; and the issuance of shares of beneficial interest
permitted from time to time by the provisions of New England Funds Trust
II's Agreement and Declaration of Trust and by the 1940 Act, the rules
thereunder, or any exemption therefrom;
+(10) Invest more than 15% of the Fund's total net assets in illiquid
securities (excluding Rule 144A securities and certain Section 4(2)
commercial paper deemed to be liquid under guidelines established by New
England Funds Trust II's trustees).
It is a fundamental policy of the Fund that it will not concentrate its
assets in the securities of issuers in the same industry. The Fund intends to
abide by the views of the SEC staff on what constitutes industry concentration.
Accordingly, the Fund will not make an investment if, immediately thereafter,
the Fund would hold more than 25% of its total assets in securities of issuers
in any one industry. This limitation does not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
The Fund has no present intention of borrowing money except on a
temporary basis, as may be needed, to cover redemptions of shares. Should this
intention change, the Prospectus will be amended.
NEW ENGLAND EQUITY INCOME FUND
New England Equity Income Fund (the "Equity Income Fund") will not:
*(1) Purchase any security (other than U.S. Government securities) if, as a
result, more that 25% of the Fund's total assets (taken at current
value) would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as being
in separate industries, and each foreign country's government (together
with subdivisions thereof) will be considered to be a separate
industry);
(2) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where, by virtue of ownership of
other securities, it has the right to obtain, without payment of further
considerations, securities equivalent in kind and amount to those sold,
and the Fund will not deposit or pledge more than 10% of its total
assets (taken at current value) as collateral for such sales. (For this
purpose, the deposit or payment by the Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin);
*(3) Borrow money in excess of 25% of its total assets, and then only as a
temporary measure for extraordinary or emergency purposes;
(4) Pledge more than 25% of its total assets (taken at cost). (For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts, options on futures contracts and swap
contracts and with respect to initial and variation margin are not
deemed to be a pledge of assets);
*(5) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's
portfolio securities;
*(6) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts, except
that the Fund may buy and sell futures contracts, swap contracts and
related options. (This restriction does not prevent the Fund from
purchasing securities of companies investing in the foregoing);
*(7) 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;
(8) 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 the Fund's adviser or subadviser 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;
(9) Write, purchase or sell options, except that the Fund may (a) write,
purchase and sell put and call options on securities, securities indexes
or futures contracts and (b) enter in to currency forward contracts;
+(10) Purchase any illiquid security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in such securities
(excluding Rule 144A securities and certain Section 4(2) commercial
paper deemed to be liquid under guidelines established by New England
Funds Trust III's trustees);
*(11) Issue senior securities. (For the purpose of this restriction none of
the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restrictions (2) or (4) above; any
borrowing permitted by restriction (3) above; any collateral
arrangements with respect to forward contracts, options, futures
contracts, swap contracts and options on futures contracts or swap
contracts and with respect to initial and variation margin, the purchase
or sale of options, forward contracts, future contracts, swap contracts
or options on futures contracts or swap contracts; and the issuance of
shares of beneficial interest permitted from time to time by the
provisions of the New England Funds Trust III's Agreement and
Declaration of Trust and by the 1940 Act, the rules thereunder, or any
exemption therefrom.)
NEW ENGLAND BULLSEYE FUND
New England Bullseye Fund (the "Bullseye Fund") may not:
*(1) Invest more than 25% of the Fund's total assets in the securities of
issuers engaged in any one industry (except securities issued by the
U.S. Government, its agencies or instrumentalities);
(2) Purchase securities on margin (but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of
securities), or make short sales except where it owns or, by virtue of
ownership of other securities, it has the right to obtain, without
payment of further consideration, securities equivalent in kind and
amount to those sold. (For this purpose, the deposit or payment by the
Fund of initial or variation margin in connection with futures contracts
or related options transactions is not considered the purchase of a
security on margin);
*(3) Borrow money in excess of 33 1/3% of its total assets;
*(4) Make loans, except by entering into repurchase agreements or by purchase
of bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public or
to financial institutions, or through the lending of the Fund's
portfolio securities;
*(5) Buy or sell real estate or commodities or commodity contracts, except
that the Fund may buy and sell financial futures contracts and options,
swap contracts, currency forward contracts, structured notes and other
similar instruments. (This restriction does not prevent the Fund from
purchasing securities of issuers that invest in the foregoing);
*(6) Act as underwriter, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
+(7) Purchase any illiquid security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in such securities
(excluding Rule 144A securities and certain Section 4(2) commercial
paper deemed to be liquid under guidelines established by New England
Fund Trust III's trustees);
*(8) Issue senior securities, except as permitted by the 1940 Act or any
relevant exemption thereunder. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets; any borrowing permitted by restriction (3) above;
any collateral arrangements with respect to options or futures
contracts, and with respect to initial and variation margin; and the
purchase or sale of options, forward contracts, futures contracts, swap
contracts and other similar instruments.)
Although the Fund is permitted to borrow money to a limited extent, it
does not currently intend to do so.
The staff of the Securities and Exchange Commission (the "SEC") is
currently of the view that repurchase agreements maturing in more than
seven days are liquid and thus subject to restriction (7) above.
- --------------------------------------------------------------------------------
FUND CHARGES AND EXPENSES
- --------------------------------------------------------------------------------
MANAGEMENT FEES
Pursuant to an advisory agreement dated August 30, 1996, Capital Growth
Management Limited Partnership ("CGM") has agreed to manage the investment and
reinvestment of the assets of the Growth Fund, subject to the supervision of the
Board of Trustees of New England Funds Trust I. Under the advisory agreement,
the Fund pays CGM an advisory fee at the annual rate of 0.75% of the first $200
million of the Fund's average daily net assets, 0.70% of the next $300 million
of such assets and 0.65% of such assets in excess of $500 million. Prior to
August 30, 1996, CGM served as adviser to the Growth Fund pursuant to an
advisory agreement providing for an advisory fee at the same rate as currently
in effect for such Fund.
Pursuant to separate advisory agreements, each dated August 30, 1996
and amended May 1, 1998 (dated March 16, 1998 in the case of Bullseye Fund), New
England Funds Management, L.P. ("NEFM") has agreed, subject to the supervision
of the Board of Trustees of the relevant Trust, to manage the investment and
reinvestment of the assets of the Capital Growth, Value, Balanced, International
Equity, Growth Opportunities, Equity Income and Bullseye Funds and to provide a
range of administrative services to such Funds. For the services described in
the advisory agreements, each such Fund has agreed to pay NEFM a gross
management fee at the annual rate set forth in the following table, reduced by
the amount of any sub-advisory fees paid by the Fund to the subadviser pursuant
to any sub-advisory agreement:
<TABLE>
<CAPTION>
Management fee payable by Fund to NEFM
Fund (as a percentage of average daily net assets of the Fund)
- ----------------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Balanced Fund, 0.75% of the first $200 million
Capital Growth Fund and 0.70% of the next $300 million
Value Fund 0.65% of amounts in excess of $500 million
Growth Opportunities Fund and Equity Income 0.70% of the first $200 million
Fund 0.65% of the next $300 million
0.60% of amounts in excess of $500 million
International Equity Fund 0.90% of the first $200 million
0.85% of the next $300 million
0.80% of amounts in excess of $500 million
Bullseye Fund 0.95% of the first $200 million
0.90% of the next $300 million
0.85% of amounts in excess of $500 million
</TABLE>
The advisory agreements for the Capital Growth, Value, Balanced,
International Equity, Growth Opportunities, Equity Income and Bullseye Funds
each provide that NEFM may delegate its responsibilities thereunder to other
parties. Pursuant to separate subadvisory agreements, each dated August 30, 1996
and amended May 1, 1998 (dated February 14, 1997, and amended May 1, 1998, March
16, 1998 and April 17, 1998 in the case of International Equity, Bullseye and
the Capital Growth Funds, respectively), NEFM has delegated responsibility for
managing the investment and reinvestment of each of these Funds' assets to a
subadviser. The subadviser is Loomis Sayles & Company, L.P. ("Loomis Sayles"),
in the case of the International Equity, Balanced, Value and Equity Income
Funds, Westpeak Investment Advisors, L.P. ("Westpeak"), in the case of the
Growth Opportunities and Capital Growth Funds and Jurika & Voyles, L.P. ("Jurika
& Voyles") in the case of the Bullseye Fund. For the services described in the
subadvisory agreements, each such Fund has agreed to pay its respective
subadviser a subadvisory fee at the annual rate set forth in the following
table:
<TABLE>
<CAPTION>
Subadvisory fee payable by NEFM to subadviser
Fund Subadviser (as a percentage of average daily net assets of the Fund)
- --------------------------------------- ------------------ ---------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund and Loomis Sayles 0.535% of the first $200 million
Value Fund 0.350% of the next $300 million
0.300% of amounts in excess of $500 million
Capital Growth Fund Westpeak 0.40% of the first $200 million
0.35% of the next $300 million
0.30% of amounts in excess of $500 million
Growth Opportunities Fund Westpeak 0.50% the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of the next $200 million
International Equity Fund Loomis Sayles 0.40% of the first $200 million
0.35% of amounts in excess of $200 million
Equity Income Fund Loomis Sayles 0.400% of the first $200 million
0.325% of the next $300 million
0.275% of amounts in excess of $500 million
Bullseye Fund Jurika & Voyles 0.57% of the first $200 million
0.50% of the next $300 million
0.43% of amounts in excess of $500 million
</TABLE>
From August 30, 1996 to January 30, 1998, Loomis Sayles served as
subadviser to the Capital Growth Fund pursuant to a subadvisory agreement
between NEFM and Loomis Sayles providing for the same subadvisory fee as is
currently payable by the Capital Growth Fund to Westpeak. From January 2, 1996
(November 28, 1995 in the case of the Equity Income Fund) to August 30, 1996,
NEFM served as adviser and Loomis Sayles served as subadviser to the Capital
Growth, Balanced, Value and Equity Income Funds pursuant to separate advisory
and subadvisory agreements providing for the same management and subadvisory
fees as are currently in effect for these Funds. Prior to January 2, 1996,
Loomis Sayles served as adviser to the Capital Growth, Balanced and Value Funds
pursuant to separate advisory agreements, each of which provided for an advisory
fee payable by such Fund to Loomis Sayles at the same rate as the management fee
currently payable by such Fund to NEFM.
From May 1, 1995 until August 30, 1996, NEFM served as adviser and
Westpeak served as subadviser to the Growth Opportunities Fund pursuant to
advisory and subadvisory agreements providing for the same management and
subadvisory fee rates as are currently in effect for the Fund.
From December 29, 1995 until February 14, 1997, Draycott Partners, Ltd.
("Draycott") served as subadviser to the International Equity Fund pursuant to
successive subadvisory agreements providing for a subadvisory fee payable by
NEFM to Draycott at the annual rate of 0.54% of the first $200 million of the
Fund's average daily net assets, 0.49% of the next $300 million of such assets
and 0.44% of such assets in excess of $500 million. From December 29, 1995 to
August 30, 1996, NEFM served as adviser to the International Equity Fund
pursuant to an advisory agreement providing for a management fee at the same
rate as is currently in effect for such Fund.
NEFM has given a binding undertaking to International Equity Fund to
reduce its fees and, if necessary, to bear certain expenses related to operating
the Fund in order to limit the Fund's expenses to an annual rate of 2.00% of the
average daily net assets of the Fund's Class A shares, 2.75% of the average
daily net assets of the Fund's Class B shares, 2.75% of the average daily net
assets of the Fund's Class C shares and 1.40% (prior to December 31, 1996,
1.00%) of the average daily net assets of the Fund's Class Y shares. This
undertaking will be binding on NEFM until April 30, 2000 or until it is
terminated by the Fund's Board of Trustees. Loomis Sayles voluntarily agreed to
waive in its entirety its subadvisory fee for the International Equity Fund from
February 14, 1997 through February 13, 1998. From December 29, 1995 until April
30, 1998, NEFM had voluntarily agreed to reduce its fees and if necessary, to
bear certain operating expenses in order to limit the Fund's expenses to an
annual rate of 1.75% for Class A shares, 2.50% for Class B shares and 2.50% for
Class C shares and 1.15% for Class Y shares (prior to December 31, 1996, 1.00%)
of the Fund's average daily net assets and prior to December 29, 1995, similar
voluntary limitations were in effect with respect to Draycott, the Distributor
and the Fund.
Since September 1, 1997, Loomis Sayles has voluntarily agreed, until
further notice to the Equity Income Fund, to waive its entire subadvisory fee
for such Fund. This waiver by Loomis Sayles does not reduce the Fund's expenses.
This agreement may be terminated by Loomis Sayles at any time. In addition, NEFM
has given a binding undertaking to Equity Income Fund to reduce its management
fee and, if necessary, to bear certain expenses associated with operating the
Fund to the extent necessary to limit the Fund's expenses to the annual rate of
1.50% of average daily net assets for Class A shares, 2.25% for Class B shares,
2.25% for Class C shares and 1.25% for Class Y shares. This undertaking will be
binding on NEFM until April 30, 2000 or until it is terminated by the Fund's
Board of Trustees (subject to the obligation of the Fund to pay NEFM such
deferred fees in later periods to the extent that the Fund's expenses fall below
the annual rate of 1.50% of average daily net assets for Class A shares, 2.25%
for Class B shares, 2.25% for Class C shares and 1.25% for Class Y shares;
provided, however, that the Fund is not obligated to pay any such deferred fees
more than two years after the end of the fiscal year in which the fee was
deferred).
For the period January 30, 1998 to April 17, 1998, Westpeak served as
subadviser to the Capital Growth Fund under an interim subadvisory agreement
dated January 30, 1998 providing for the same fee that was paid to Loomis
Sayles.
NEFM has given a binding undertaking to Bullseye Fund to reduce its
management fee and, if necessary, to bear certain expenses associated with the
Fund, to the extent necessary to limit the Fund's expenses to the annual rate of
1.75% for Class A shares, 2.50% for Class B shares and 2.50% for Class C shares.
This undertaking will be binding on NEFM until April 30, 2000 or until it is
terminated by the Fund's Board of Trustees (subject to the obligation of the
Fund to pay NEFM such deferred fees (but not expenses borne) in later periods to
the extent that the Funds expenses fall below the annual rate of 1.75% for Class
A shares, 2.50% for Class B shares and 2.50% for Class C shares; provided,
however, that the Fund is not obligated to pay any such deferred fees more than
two years after the end of the fiscal year in which the fee was deferred).
As of May 1, 1998, each subadvisory agreement between NEFM and Loomis
Sayles or Westpeak was amended to add the relevant Fund as a party and to
provide that the subadvisory fees payable under such agreement are payable by
the Fund rather than by NEFM. Also as of May 1, 1998, the advisory agreement for
each Fund, except the Growth Fund and the Bullseye Fund, was amended to provide
that the management fees payable by the Fund to NEFM are reduced by the amounts
of any subadvisory fees paid directly by the Fund to its subadviser (the
advisory agreement for the Bullseye Fund already provided for such payment
arrangements). These amendments to the Funds' advisory and subadvisory
agreements did not change the management and subadvisory fee rates under the
agreements, nor the services to be provided to the Funds by NEFM and the
subadvisers under the agreements. Furthermore, these amendments did not change
the overall level of fees payable by any Fund.
For the last three fiscal years (or for the period from March 31, 1998
to December 31, 1998 in the case of the Bullseye Fund), the advisory or
management fees payable by the Funds (before any voluntary fee reductions and
any reduction by the amount of any subadvisory fees paid by the Fund to its
subadviser) were as follows:
<TABLE>
<CAPTION>
FUND 1996** 1997*** 1998****
------------------------------ ------ ------- --------
<S> <C> <C> <C>
Growth Fund $8,300,884 $9,757,792 $
Capital Growth Fund $1,245,009 $1,436,893 $
Value Fund $2,241,498 $3,030,220 $
Balanced Fund $2,355,084 $2,830,754 $
International Equity Fund* $2,439,442 $1,241,968 $
Growth Opportunities Fund $1,414,997 $1,809,523 $
Equity Income Fund***** $16,222 $41,756 $
Bullseye Fund****** N/A N/A $
* As a result of the voluntary expense limitation in effect, the International Equity Fund
paid $2,183,655, $734,003 and $_____ , respectively, in advisory or management fees for
the fiscal years ended December 31, 1996, 1997 and 1998.
** For the fiscal year ended December 31, 1996, NEFM paid subadvisory fees of $1,497,544,
$882,259 and $1,440,747 to Loomis Sayles for the Balanced, Capital Growth and Value
Funds, respectively. For the fiscal year ended December 31, 1996, NEFM paid subadvisory
fees of $1,296,747 to Draycott (after the waiver) and $781,353 to Westpeak for the
International Equity and Growth Opportunities Funds, respectively. Without the voluntary
fee waiver, NEFM would have paid Draycott a subadvisory fee of $1,448,652 for the
International Equity Fund for the fiscal year ended December 31, 1996.
*** For the fiscal year ended December 31, 1997, NEFM paid subadvisory fees of $1,735,375,
$1,020,031 and $1,835,110 to Loomis Sayles for the Balanced, Capital Growth and Value
Funds, respectively. For the fiscal year ended December 31, 1997, NEFM paid subadvisory
fees of $0 to Loomis Sayles (after the waiver) and $964,009 to Westpeak for the Equity
Income and Growth Opportunities Funds, respectively. For the period January 1 to February
13, 1997, NEFM paid subadvisory fees of $77,259 to Draycott for the International Equity
Fund, and for the period February 14 to December 31, 1997, no subadvisory fees were paid
by NEFM to Loomis Sayles as a result of the voluntary fee waiver by Loomis Sayles.
Without the voluntary fee waiver, NEFM would have paid Draycott a subadvisory fee for the
International Equity Fund of $128,701 for the period January 1, to February 13, 1997 and
a subadvisory fee of $347,719 to Loomis Sayles for the period February 14 to December 31,
1997.
**** For the period January 1 to April 30, 1998, NEFM paid subadvisory fees of $_____, $_____
and $_____ to Loomis Sayles for the Balanced, Capital Growth and Value Funds,
respectively. For the period May 1 to December 31, 1998, the Balanced, Capital Growth and
Value Funds paid subadvisory fees to Loomis Sayles of $_____, $_____ and $_____,
respectively. For the period January 1 to April 30, 1998, NEFM paid subadvisory fees of $0
to Loomis Sayles (after the waiver) and $_____ to Westpeak for the Equity Income and
Growth Opportunity Funds, respectively. For the period May 1 to December 31, 1998, the
Equity Income Fund and Growth Opportunities Fund paid $0 to Loomis Sayles (after the
waiver) and $_____ to Westpeak, respectively. Without the voluntary fee waiver, NEFM and
the Equity Income Fund would have paid Loomis Sayles a subadvisory fee of $_____ and
$_____, respectively, for such periods. For the period January 1 to February 14, 1998, no
subadvisory fees were paid by NEFM to Loomis Sayles for the International Equity Fund as a
result of the voluntary fee waiver by Loomis Sayles. For the period February 15, 1998 to
April 30, 1998, NEFM paid Loomis Sayles a subadvisory fee of $____. Without a voluntary
fee waiver by Loomis Sayles, the total subadvisory fee would have been $____ for that
period. For the period May 1, 1998 to December 31, 1998, the Fund paid a subadvisory fee
of $____ to Loomis Sayles. Without a voluntary fee waiver by Loomis Sayles, the amount of
the subadvisory fee that the Fund would have paid to Loomis Sayles would have been $_____.
***** As a result of the voluntary expense limitations in effect, the Equity Income Fund paid
no management fees to NEFM and NEFM paid no subadvisory fees to Loomis Sayles for the
fiscal years ended December 31, 1996 and 1997 and the Fund paid no subadvisory fees to
NEFM for the fiscal year ended December 31, 1998. Without the voluntary fee waiver, NEFM
would have paid Loomis Sayles subadvisory fees of $9,155, $23,861 and $_____ for the
fiscal years ended December 31, 1996 and 1997 and for the period from January 1 to April
30, 1998, respectively, and the Fund would have paid Loomis Sayles a subadvisory fee of
$_____ for the period from May 1 to December 31, 1998.
****** The Bullseye Fund commenced operations on March 31, 1998. As a result of the voluntary
fee deferral and expense limitations in effect, the Fund paid no management fees to NEFM
and no subadvisory fees to Jurika & Voyles for the fiscal period ending December 31,
1998. Without the voluntary fee deferral and expense limitation, the Fund would have paid
NEFM a management fee of $_____ and Jurika & Voyles a subadvisory fee of $_____.
</TABLE>
For more information about the Funds' advisory and subadvisory
agreements, see "Management of the Trusts" in Part II of this Statement.
BROKERAGE COMMISSIONS
In 1996, 1997and 1998, brokerage transactions for Growth Fund
aggregating $729,976,367, $782,645,000 and $_____, respectively, were allocated
to brokers providing research services, and $804,468, $782,645 and $____,
respectively, in commissions were paid on these transactions in such years.
During 1996, 1997 and 1998 the Fund paid total brokerage commissions of
$6,700,404, $6,669,194 and $_____, respectively.
In 1996, 1997 and 1998, brokerage transactions for Value Fund
aggregating $27,447,729, $19,208,488 and $_____, respectively, were allocated to
brokers providing research services, and $42,841, $29,690 and $_____,
respectively, in commissions were paid on these transactions in such years.
During 1996, 1997 and 1998, the Fund paid total brokerage commissions of
$563,181, $618,342 and $_____, respectively.
In 1996, 1997 and 1998, brokerage transactions for Balanced Fund
aggregating $17,564,632, $17,718,990 and $_____, respectively, were allocated to
brokers providing research services, and $26,139 ,$24,900 and $_____,
respectively, in commissions were paid on these transactions in such years.
During 1996, 1997 and 1998, the Fund paid total brokerage commissions of
$373,304, $376,805 and $_____, respectively.
In 1996, 1997 and 1998, brokerage transactions for Growth Opportunities
Fund aggregating $180,664,244, $531,986,567 and $_____, respectively, were
allocated to brokers providing research services and $157,185, $162,980 and
$_____, respectively, in commissions were paid on these transactions in such
years. During 1996, 1997 and 1998, the Fund paid total brokerage commissions of
$352,661, $351,050 and $_____, respectively.
In 1996, 1997 and 1998, brokerage transactions for International Equity
Fund aggregating $375,687,256, $462,898,584 and $_____, respectively, were
allocated to brokers providing research services and $836,718, $0 and $_____,
respectively, in commissions were paid on these transactions in such years.
During 1996, 1997 and 1998, the Fund paid total brokerage commissions of
$836,718, $1,222,767 and $_____, respectively.
In 1996, 1997 and 1998, brokerage transactions for Captial Growth Fund
aggregating $7,402,475, $105,213,412 and $_____, respectively, were allocated to
brokers providing research services and $4,500, $4,000 and $_____, respectively,
in commissions were paid on these transactions in such years. During 1996, 1997
and 1998, the Fund paid total brokerage commissions of $174,585, $103,244 and
$_____, respectively.
In 1996, 1997 and 1998, brokerage transactions for Equity Income Fund
aggregating $1,981,029, $0 and $_____, respectively, were allocated to brokers
providing research services and $48, $0 and $_____, respectively, in commissions
were paid on these transactions in such years. During 1996, 1997 and 1998, the
Fund paid total brokerage commissions of $3,140, $29,840 and $_____,
respectively.
For the period from March 31, 1998 to December 31, 1998, brokerage
transactions for Bullseye Fund aggregating $_____ were allocated to brokers
providing research services, and $_____ in commissions were paid on these
transactions. During 1998, the Bullseye Fund paid total brokerage commissions of
$_____.
For more information about the Funds' portfolio transactions, see
"Portfolio Transactions and Brokerage" in Part II of this Statement.
SALES CHARGES AND 12B-1 FEES
As explained in Part II of this Statement, the Class A, Class B and
Class C shares of each Fund pay fees under plans adopted pursuant to Rule 12b-1
under the 1940 Act. The following table shows the amounts of Rule 12b-1 fees
paid by each Fund during the fiscal years ended December 31, 1996, 1997 and
1998:
<TABLE>
<CAPTION>
FUND 1996 1997 1998
------------------------------ ---- ---- ----
<S> <C> <C> <C>
Growth Fund*** $3,058,031 $3,600,444 (Class A)
$71,751 (Class B)
(Class C)
Value Fund $646,962 $819,873 (Class A)
$359,799 $661,091 (Class B)
$21,301 $52,413 (Class C)*
Balanced Fund $510,417 $567,385 (Class A)
$486,789 $680,895 (Class B)
$15,702 $36,277 (Class C)*
Growth Opportunities Fund $397,330 $487,914 (Class A)
$389,526 $626,147 (Class B)
$45,844 $52,226 (Class C)**
International Equity Fund $316,834 $197,567 (Class A)
$513,700 $347,996 (Class B)
$10,445 $8,625 (Class C)*
Capital Growth Fund $333,455 $370,087 (Class A)
$321,106 $426,954 (Class B)
$5,079 $9,279 (Class C)*
Equity Income Fund**** $0 $11,355 (Class A)
$0 $12,154 (Class B)
$0 $2,076 (Class C)
Bullseye Fund***** N/A N/A (Class A)
N/A N/A (Class B)
N/A N/A (Class C)
* Class C shares were first offered on January 3, 1995.
** Growth Opportunities Fund Class C shares were first offered on May 1, 1995.
*** The Growth Fund offered only Class A shares during 1995 and 1996. Class B shares were
first offered on February 28, 1997. Class C shares were first offered on September 1,
1998.
**** The Equity Income Fund commenced operations on November 25, 1995 with an initial
distribution of its Class A shares. Class B and C shares first became available on
September 1, 1997.
***** The Bullseye Fund commenced operations on March 31, 1998, offering Class A, Class B and
Class C shares.
</TABLE>
During the fiscal year ended December 31, 1998, expenses relating to
each Fund's 12b-1 plans were as follows:
GROWTH FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
VALUE FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
BALANCED FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
GROWTH OPPORTUNITIES FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
INTERNATIONAL EQUITY FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
CAPITAL GROWTH FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
EQUITY INCOME FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
BULLSEYE FUND
(Class A shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class B shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
(Class C shares)
Compensation to Investment Dealers
Compensation to Distributor's Sales Personnel and Other Related Costs
TOTAL
Of the amounts listed above as compensation to investment dealers, the
following amounts were paid by the Distributor to New England Securities
Corporation ("New England Securities"), a broker-dealer affiliate of the
Distributor: $_____ relating to the Class A shares, $_____ relating to the Class
B shares and $_____ relating to the Class C shares of the Growth Fund; $_____
relating to the Class A shares, $_____ relating to the Class B shares and $_____
relating to the Class C shares of the Value Fund; $_____ relating to the Class A
shares, $_____ relating to the Class B shares and $_____ relating to the Class C
shares of the Balanced Fund; $_____ relating to the Class A shares, $_____
relating to the Class B shares and $_____ relating to the Class C shares of the
Growth Opportunities Fund; $_____ relating to the Class A shares, $_____
relating to the Class B shares and $_____ relating to the Class C shares of the
International Equity Fund; $_____ relating to the Class A shares, $_____
relating to the Class B shares and $_____ relating to the Class C shares of the
Capital Growth Fund; $_____ relating to the Class A shares, $_____ relating to
the Class B shares and $_____ relating to the Class C shares of the Equity
Income Fund; and $_____ relating to the Class A shares, $_____ relating to the
Class B shares and $_____ relating to the Class C shares of the Bullseye Fund.
New England Securities paid substantially all of the fees it received from the
Distributor (a) in commissions to its sales personnel and (b) to defray
sales-related overhead costs.
- --------------------------------------------------------------------------------
OWNERSHIP OF FUND SHARES
- --------------------------------------------------------------------------------
As of _____________, to the Trusts' knowledge, the following persons
owned of record or beneficially 5% or more of the outstanding shares of the
indicated classes of the Funds set forth below. In addition, each person that
has direct or indirect beneficial ownership of more than 25% of the outstanding
shares of the indicated classes of the Funds set forth below may be deemed to
control that Fund as defined in the 1940 Act.
<TABLE>
<CAPTION>
FUND SHAREHOLDER AND ADDRESS OWNERSHIP PERCENTAGE
---- ----------------------- --------------------
<S> <C> <C>
CAPITAL GROWTH FUND
Class C shares Larry A. Minnick 10.06%
8105 Bromlay Place
Indianapolis, IN 46219-2851
NFSC FEBO # OBV-655821 6.41%
Diana Piscopo
59 Silver Lake Road
Staten Island, NY 10301-3012
BALANCED FUND
Class C shares John W. Perdue III 12.08%
Renee F. Perdue TTEE
Nova Enterprises, Inc. 401(k) Plan
P.O. Box 5594
Asheville, NC 28813-5594
CNA Trust Corp. 9.00%
FBO Dimension One Spas Inc.
PSP DTD 1/13/87
A/C #1050504559/68/77/76
P.O. Box 5024
Costa Mesa, CA 92628-5024
Class Y shares New England Mutual Life Insurance Co. 73.39%
Separate Investment Accounting
Attn: Victor SooHoo
501 Boylston Street - 6th Floor
Boston, MA 02116-3706
GROWTH OPPORTUNITIES FUND
Class C shares FTC & Co. 6.38%
Attn: Datalynx #231
P.O. Box 173736
Denver, CO 80217-3736
INTERNATIONAL EQUITY FUND
Class C shares NFSC FEBO # 041-717169 8.68%
Advanced Data Systems Corp.
Attn: David Barzillai
255 Spring Valley Ave.
Maywood, NJ 07601-1643
State Street Bank and Trust Company 7.76%
Cust. for the IRA of
Roy O Der Miner
2236 Abbottwoods Lane
Orange City, FL 32763-9214
Class Y shares NEIC Master Retirement Trust 59.29%
c/o Defined Contribution Svcs - T
P.O. Box 755
Boston, MA 02119-0755
Metropolitan Life Insurance Co. 39.65%
c/o GADC-Gerald Hart - Agency
Operations NELICO
501 Boylston Street - 10th Floor
Boston, MA 02116-3706
VALUE FUND
Class Y shares New England Mutual Life Insurance Co. 62.72%
Separate Investment Accounting
Attn: Victor SooHoo
501 Boylston Street - 6th Floor
Boston, MA 02116-3706
Hawaii Sheet Metal Workers 18.55%
Health & Welfare Fund
c/o Melvyn T. Murakami
1405 North King Street - Room 403
Honolulu, HI 96817-4227
New England Life Insurance Co. 8.29%
Debbie Milliner
c/o Financial Admin.
501 Boylston Street
Boston, MA 02116-3706
Metropolitan Life Insurance Co. 8.27%
c/o GADC-Gerald Hart - Agency
Operations NELICO
501 Boylston Street - 10th Floor
Boston, MA 02116-3706
EQUITY INCOME FUND
Class A shares Loomis Sayles Funded Pension Plan 14.96%
FBO Loomis Sayles & Co., LP
Attn: Paul Sherba - Comptroller
One Financial Center
Boston, MA 02111-2621
Class C shares Wexford Clearing Services Corp. 7.64%
Prudential Securities C/F Doris McGinnis
Butler IRA Rollover DTD 07/07/97 P.O. Box
84 Scott, AR 72142-0084
State Street Bank and Trust Co. 5.26%
Cust. for the IRA of
William D. McCarthy
401 Bounty Way #221
Avon Lake, OH 44012-2480
Dorothy Spencer 5.11%
34829 Fairview Road
Oconomowoc, WI 53066-3310
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUNDS
- ----------------------------------------------------------------------------------------------------------------------
PERFORMANCE RESULTS - PERCENT CHANGE*
For The Periods Ended 12/31/98
<CAPTION>
GROWTH FUND**
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- --------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Average Annual
Total Return
Aggregate Since Inception
Total Return 2/28/97***
-------------------------- -------------------- ------------------------
Class B shares: As a % of 1 Year Since 2/28/97***
- --------------------------------- ------ ----------------
<S> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
Since Since Inception
9/1/98*** 9/1/98***
-------------------------- -------------------- ------------------------
Class C shares: As a % of
- ---------------------------------
<S> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
VALUE FUND
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- --------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
---------------------------------------- ------------------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- --------------------------------- ------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- --------------------------------- ------ ----------- -----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
3/31/94*** Since
Class Y shares: As a % of 1 Year Since 3/31/94***
- --------------------------------- ------ ---------- ----------
<S> <C> <C>
Net Asset Value
<CAPTION>
BALANCED FUND
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- --------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- ------------------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- --------------------------------- ------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- --------------------------------- ------ ----------- -----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/8/94*** 3/8/94***
- --------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
<CAPTION>
GROWTH OPPORTUNITIES FUND****
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -------------------------------
Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years
- --------------------------------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -------------------------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- --------------------------------- ------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- --------------------------------------
Since Since
Class C shares: As a % of 1 Year 5/1/95*** 5/1/95***
- --------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Annualized
Total Return Total Return
-------------------------------------- --------------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/31/94*** 3/31/94***
- --------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value n/a n/a n/a
<CAPTION>
INTERNATIONAL EQUITY FUND+
Aggregate Average Annual
Total Return Total Return
---------------------------------------- -------------------------------
Since Since
Class A shares: As a % of 1 Year 5 Years 5/21/92*** 5 Years 5/21/92***
- --------------------------------- ------ -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ---------------------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- --------------------------------- ------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ----------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- --------------------------------- ------ ----------- -----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- -----------------------------------
Since Since
Class Y shares: As a % of 1 Year 5 Years 9/9/93*** 5 Years 9/13/93***
- --------------------------------- ------ ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
<CAPTION>
CAPITAL GROWTH FUND++
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ----------------------------------
Since Since
Class A shares: As a % of 1 Year 5 Years 8/3/92*** 5 Years 8/3/92***
- --------------------------------- ------ ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- ---------------------------------
Since Since
Class B shares: As a % of 1 Year 5 Years 9/13/93*** 5 Years 9/13/93***
- --------------------------------- ------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ----------------------------------
Since Since
Class C shares: As a % of 1 Year 12/30/94*** 12/30/94***
- --------------------------------- ------ ----------- -----------
<S> <C> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ----------------------------------
Since Since
Class Y shares: As a % of 1 Year 3/31/94*** 3/31/94***
- --------------------------------- ------ ---------- ----------
<S> <C> <C> <C>
Net Asset Value n/a n/a n/a
<CAPTION>
EQUITY INCOME FUND+++
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ----------------------------------
Since Since
Class A shares: As a % of 1 Year 11/28/95*** 11/28/95***
- --------------------------------- ------ ----------- -----------
<S> <C> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Average Annual
Total Return Since Total Return Since
9/1/97*** 9/1/97***
--------------------------------------- ---------------------------------
Class B shares: As a % of
- ---------------------------------
<S> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Total Return Average Annual Total Return
Since 9/1/97*** Since 9/1/97***
--------------------------------------- ---------------------------------
Class C shares: As a % of
- ---------------------------------
<S> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Average Annual
Total Return Total Return
-------------------------------------- ----------------------------------
Since Since
Class Y shares: As a % of 1 Year 9/1/97*** 9/1/97***
- --------------------------------- ------ --------- ---------
<S> <C> <C> <C>
Net Asset Value
<CAPTION>
BULLSEYE FUND++++
Aggregate Total Return Average Annual Total Return Since
Since 3/31/98*** 3/31/98***
-------------------------------------- -----------------------------------
Class A shares: As a % of
- ---------------------------------
<S> <C> <C>
Net Asset Value
Maximum Offering Price
<CAPTION>
Aggregate Total Return Since Average Annual Total Return
3/31/98*** Since 3/31/98***
--------------------------------------- ----------------------------------
Class B shares: As a % of
- ---------------------------------
<S> <C> <C>
Net Asset Value
Redemption at End of Period
<CAPTION>
Aggregate Total Return Average Annual Total Return
3/31/98*** Since 3/31/98***
--------------------------------------- ----------------------------------
<S> <C> <C>
Class C shares: As a % of
- ---------------------------------
Net Asset Value
Redemption at End of Period
* Federal regulations require this example to be calculated using a $1,000 investment. The normal minimum initial
investment in shares of the Funds is $2,500, however.
** The numbers presented for Class A shares reflect the maximum front-end sales charge currently in effect. Prior to
March 3, 1997, a higher maximum front-end sales charge was in effect, so that the total returns achieved by
investors may have been lower than those shown above.
*** Commencement of Fund operations or offering of specified class of shares.
**** Assuming deduction of the current maximum sales load, Growth Opportunities Fund's Class A shares' ten-year average
annual total return would have been _____%, had a voluntary expense limitation by the Fund's former investment
adviser not been in effect, and their ten-year aggregate total return would have been _____%. Based on net asset
values, the Fund's Class A shares' ten-year average annual total return would have been _____%, had this
limitation not been in effect, and their ten-year aggregate total return would have been _____%.
+ Assuming deduction of the current maximum sales load, International Equity Fund's Class A shares' five-year and
since-inception average annual total return would have been _____% and ____%, respectively, and their aggregate
one-year, five-year and since-inception aggregate total returns would have been _____%, _____% and _____%,
respectively, had a voluntary expense limitation not been in effect. Based on net asset values, the Fund's Class A
shares' five-year and since-inception average annual total return would have been _____% and ____%, respectively,
and their one-year, five-year and since-inception aggregate total returns would have been _____%, _____% and
_____%, respectively, without the voluntary limitation. Assuming redemption at the end of the period, the Fund's
Class B shares' five-year and since-inception average annual total return would have been _____% and ____%,
respectively, had a voluntary expense limitation not been in effect, and their aggregate total returns for the
one-year, five-year and since-inception periods would have been _____%, ____% and _____%, respectively. Based on
net asset values, the Fund's Class B shares' average annual total return for the five-year and since-inception
periods would have been _____% and ____%, respectively, and their aggregate total returns for the one-year,
five-year and since-inception periods would have been _____%, _____% and _____%, respectively, without the
voluntary limitation. The Fund's Class C shares' annualized total returns for the one-year and since-inception
period would have been _____% and ____%, respectively, and their one-year and since-inception aggregate total
returns would have been _____% and _____% without the voluntary limitation. Assuming deduction of the current
maximum sales load, the Fund's Class Y shares' five-year and since-inception average annual total return would
have been _____% and ____%, respectively, and their aggregate one-year, five-year and since-inception aggregate
total returns would have been _____%, _____% and _____%, respectively, had a voluntary expense limitation not been
in effect. Based on net asset values, the Fund's Class A shares' five-year and since-inception average annual
total return would have been _____% and ____%, respectively, and their one-year, five-year and since-inception
aggregate total returns would have been _____%, _____% and _____%, respectively, without the voluntary limitation.
++ Assuming deduction of the current maximum sales load, Capital Growth Fund's Class A shares' five-year and
since-inception average annual total return would have been _____% and _____%, and their aggregate five-year and
since-inception total returns would have been _____% and _____%, respectively, had a voluntary expense limitation
not been in effect. Based on net asset values, their since-inception average annual total return would have been
_____%, and their since inception aggregate total return would have been _____% without the voluntary limitation.
+++ Assuming deduction of the current maximum sales load, the Equity Income Fund's Class A shares' since-inception
average annual total return would have been _____% had the voluntary expense limitation not been in effect, and
their aggregate one year and since-inception total returns would have been _____% and _____%, respectively, had
the voluntary expense limitation not been in effect. Based on net asset values, their since-inception average
annual total return would have been _____%, and their since-inception aggregate total return would have been
_____% without the voluntary limitation. Assuming redemption at the end of the period, the Fund's Class B shares'
since-inception average annual total return would have been _____%, had a voluntary limitation not been in effect,
and their since-inception aggregate total return would have been _____%. Based on net asset values, the Fund's
Class B shares' average annual total return for the since-inception period would have been _____%, and their
since-inception aggregate total return would have been _____%. The Fund's Class C shares' since-inception average
annual total return would have been _____%, and their since-inception aggregate average annual total return would
have been _____% without the voluntary limitation. Equity Income Fund first became available to the public on
November 28, 1995.
++++ Assuming deduction of the current maximum sales load, Bulleye Fund's Class A shares' since-inception average
annual total return would have been _____% had the voluntary limitations not been in effect. Based on net asset
values, their since-inception average annual total return would have been _____% without the voluntary limitation.
Assuming redemption at the end of the period, the Fund's Class B shares' since-inception average annual total
return would have been _____% had a voluntary limitation not been in effect. Based on net asset values, the Fund's
Class B shares' since-inception average annual total return would have been _____%. The Fund's Class C shares'
since-inception average annual total return would have been _____% without the voluntary limitation.
</TABLE>
The foregoing data represent past performance only and are not a
prediction as to the future returns of any Fund. The investment return and
principal value of an investment in any Fund will fluctuate so that the
investor's shares, when redeemed, may be worth more or less than this original
cost.
<PAGE>
[OBJECT OMITTED]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND FUNDS TRUST II
NEW ENGLAND FUNDS TRUST III
STATEMENT OF ADDITIONAL INFORMATION -- PART II
MAY 1, 1999
The following information applies generally to the funds listed below
(the "Funds" and each a "Fund"). The Funds constitute all of the series of New
England Funds Trust I, New England Funds Trust II and New England Funds Trust
III (the "Trusts" and each a "Trust"), except for New England Access Shares (New
England Core Equity Fund, New England Small Cap Value Fund, New England Small
Cap Growth Fund and New England Total Return Bond Fund), which are described in
a separate Statement of Additional Information. In certain cases, the discussion
applies to some but not all of the Funds. Certain data applicable to particular
Funds is found in Part I of this Statement of Additional Information (the
"Statement") as well as in the Prospectuses of the Funds dated May 1, 1999 for
Class A, Class B and Class C shares and May 1, 1999 for Class Y shares (the
"Prospectus" or "Prospectuses"). The following Funds are described in this
Statement:
<TABLE>
SERIES OF NEW ENGLAND FUNDS TRUST I
- -----------------------------------
<S> <C>
New England Strategic Income Fund (the "Strategic Income Fund")
New England Bond Income Fund (the "Bond Income Fund")
New England Municipal Income Fund (the "Municipal Income Fund")
New England Government Securities Fund (the "Government Securities Fund")
New England International Equity Fund (the "International Equity Fund")
New England Growth Fund (the "Growth Fund")
New England Capital Growth Fund (the "Capital Growth Fund")
New England Value Fund (the "Value Fund")
New England Balanced Fund (the "Balanced Fund")
New England Star Advisers Fund (the "Star Advisers Fund")
New England Star Worldwide Fund (the "Star Worldwide Fund")
New England Star Small Cap Fund (the "Star Small Cap Fund")
SERIES OF NEW ENGLAND FUNDS TRUST II
- ------------------------------------
New England High Income Fund (the "High Income Fund")
New England Short Term Corporate Income Fund (the "Short Term Corporate Income Fund")
(formerly New England Adjustable Rate U.S. Government Fund)
New England Limited Term U.S. Government Fund (the "Limited Term U.S. Government Fund")
New England Massachusetts Tax Free Income Fund (the "Massachusetts Fund")
New England Tax Free Income Fund of New York (formerly New England (the "New York Fund")
Intermediate Term Tax Free Fund of New York)
New England Intermediate Term Tax Free Fund of California (the "California Fund")
New England Growth Opportunities Fund (the "Growth Opportunities Fund")
SERIES OF NEW ENGLAND FUNDS TRUST III
- -------------------------------------
New England Bullseye Fund (the "Bullseye Fund")
New England Equity Income Fund (the "Equity Income Fund")
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES
- ------------------------------------------------------------------------------------------------------------------------
The following is a list of certain investment practices in which a Fund may engage as SECONDARY investment
strategies. A Fund's primary strategies are detailed in its prospectus.
<CAPTION>
HIGH INCOME FUND STRATEGIC INCOME FUND BOND INCOME FUND
- ---------------- --------------------- ----------------
<S> <C> <C>
Equity Securities Equity Securities (warrants) Equity Securities (warrants)
U.S. Government Securities When-issued Securities Mortgage-backed Securities
Mortgage-backed Securities Asset-backed Securities Asset-backed Securities
Asset-backed Securities Collateralized Mortgage Obligations Collateralized Mortgage Obligations
Collateralized Mortgage Obligations Repurchase Agreements When-issued Securities
Stripped Securities When-issued Securities Convertible Securities
Repurchase Agreements Foreign Currency Hedging Securities in Emerging Markets
When-issued Securities Transactions Foreign Currency Hedging
Convertible Securities Futures, Options and Swap Transactions
Foreign Currency Hedging Contracts Illiquid Securities
Transactions Short Sales (including Rule 144A Securities)
Illiquid Securities Illiquid Securities Loans of Portfolio Securities
(including Rule 144A Securities) (including Rule 144A Securities) Short-term Investments
Short-term Investments Loans of Portfolio Securities Money Market Instruments
Money Market Instruments Borrowing/Reverse Repurchase
Agreements
Short-term Investments
Money Market Instruments
MUNICIPAL INCOME FUND SHORT TERM CORPORATE INCOME FUND LIMITED TERM U.S. GOVERNMENT FUND
- --------------------- -------------------------------- ---------------------------------
Repurchase Agreements Convertible Bonds Corporate Fixed Income Securities
Stripped Securities Stripped Securities Mortgage-backed Securities
When-issued Securities Repurchase Agreements Collateralized Mortgage Obligations
Futures and Options When-issued Securities Stripped Securities
Short-term Investments Securities in Emerging Markets Repurchase Agreements
Money Market Instruments Foreign Currency Hedging When-issued Securities
Transactions/Forward Foreign Securities
Commitments (Global Markets,
Futures and Options Supranational Agencies)
Short Sales Foreign Currency Hedging Transactions
Illiquid Securities Futures and Options
(including Rule 144A Securities) Loans of Portfolio Securities
Loans of Portfolio Securities Short-term Investments
Short-term Investments Money Market Instruments
Money Market Instruments
GOVERNMENT SECURITIES FUND MASSACHUSETTS FUND NEW YORK FUND
- -------------------------- ------------------ -------------
Asset-backed Securities U.S. Government Securities U.S. Government Securities
Repurchase Agreements Stripped Securities Stripped Securities
When-issued Securities Repurchase Agreements Repurchase Agreements
Futures and Options When-issued Securities When-issued Securities
Loans of Portfolio Securities Futures and Options Futures and Options
Short-term Investments Illiquid Securities Illiquid Securities
Money Market Instruments (including Rule 144A Securities) (including Rule 144A Securities)
Money Market Instruments Money Market Instruments
CALIFORNIA FUND BULLSEYE FUND INTERNATIONAL EQUITY FUND
- ---------------- ------------- -------------------------
U.S. Government Securities Equity Securities (warrants) U.S. Equity Securities (Common Stock,
Stripped Securities U.S. Government Securities Convertible Preferred Stock and
Repurchase Agreements Repurchase Agreements Bonds and Warrants)
When-issued Securities When-issued Securities U.S. Government Securities
Futures and Options Foreign Securities (Global Markets, U.S. Corporate Fixed Income Securities
Illiquid Securities Supranational agencies) Lower-quality U.S. Fixed
(including Rule 144A Securities) Securities of Emerging Markets Income Securities
Money Market Instruments Foreign Currency Hedging Repurchase Agreements
Transactions Zero Coupon Securities
Futures, Options and Swap When-issued Securities
Contracts Foreign Securities (Depository Receipts)
Short Sales Against the Box Foreign Currency Hedging
Illiquid Securities Transactions
(including Rule 144A Securities) Investments in Closed-end
Loans of Portfolio Securities Investment Companies
Borrowing/Reverse Repurchase Futures, Options and Swap
Agreements Contracts
Short-term Investments Short Sales Against the Box
Money Market Instruments Illiquid Securities
(including Rule 144A Securities)
Loans of Portfolio Securities
Borrowing/Reverse Repurchase
Agreements
Short-term Investments
Money Market Instruments
GROWTH FUND CAPITAL GROWTH FUND GROWTH OPPORTUNITIES FUND
- ----------- ------------------- -------------------------
Equity Securities (warrants and Equity Securities (warrants) Equity Securities (warrants and Mid-
mid-cap companies) Corporate Fixed Income Securities cap and Small- Cap companies)
Corporate Fixed Income Securities (investment grade) Corporate Fixed Income Securities
(investment grade) U.S. Government Securities (investment grade)
U.S. Government Securities Repurchase Agreements U.S. Government Securities
Repurchase Agreements Zero Coupon Securities Zero Coupon Securities
Zero Coupon Securities Convertible Securities Repurchase Agreements
Convertible Securities Foreign Securities (Global markets, Convertible Securities
Futures, Options and Swap Supranational agencies, Foreign Securities (Global Markets,
Contracts Depository receipts) Supranational agencies)
Short Sales Against the Box Foreign Currency Hedging Foreign Currency Hedging
Illiquid Securities Transactions Transactions
(including Rule 144A Securities) Investments in Other Investment Investments in Other Investment
Borrowing/Reverse Repurchase Companies Companies
Agreements Futures, Options and Swap Futures, Options and Swap Contracts
Short-term Investments Contracts Short Sales Against the Box
Money Market Instruments Short Sales Against the Box Illiquid Securities
Illiquid Securities (including Rule 144A Securities)
(including Rule 144A Securities) Loans of Portfolio Securities
Loans of Portfolio Securities Borrowing/Reverse Repurchase
Borrowing/Reverse Repurchase Agreements
Agreements Short-term Investments
Short-term Investments Money Market Instruments
Money Market Instruments
VALUE FUND EQUITY INCOME FUND BALANCED FUND
- ---------- ------------------ -------------
Equity Securities (warrants, mid- Equity Securities (warrants) Equity Securities (warrants, mid-cap
cap and small-cap companies) Corporate Fixed Income Securities and small-cap companies)
Corporate Fixed Income Securities (investment grade) Non-Convertible Preferred Stock
(investment grade) Lower Quality Corporate Fixed Lower Quality Corporate Fixed
U.S. Government Securities Income Securities Income Securities
Repurchase Agreements U.S. Government Securities Repurchase Agreements
Zero Coupon Securities Repurchase Agreements Convertible Securities
When-issued Securities Zero Coupon Securities Investments in Other Investment
Convertible Securities Convertible Bonds Companies
Foreign Currency Hedging Foreign Securities (Global Markets) Foreign Currency Hedging
Transactions Securities of Emerging Markets Transactions
Investments in Other Investment Foreign Currency Hedging Futures, Options and Swap Contracts
Companies Transactions Short Sales Against the Box
Futures, Options and Swap Investments in Other Investment Illiquid Securities
Contracts Companies (including Rule 144A Securities)
Short Sales Against the Box Futures, Options and Swap Loans of Portfolio Securities
Illiquid Securities Contracts Borrowing/Reverse Repurchase
(including Rule 144A Securities) Short Sales Against the Box Agreements
Loans of Portfolio Securities Illiquid Securities Short-term Investments
Borrowing/Reverse Repurchase (including Rule 144A Securities) Money Market Instruments
Agreements Loans of Portfolio Securities
Short-term Investments Borrowing/Reverse Repurchase
Money Market Instruments Agreements
Short-term Investments
Money Market Instruments
The following is a list of some of the investment practices employed by the various subadvisers of New England Star
Funds as SECONDARY strategies. Due to the multi-subadviser approach of New England Star Funds, investing in a certain
security may be a primary strategy for one segment of the Fund and a secondary strategy for another segment.
STAR ADVISERS FUND STAR WORLDWIDE FUND STAR SMALL CAP FUND
- ------------------ ------------------- -------------------
Equity Securities Equity Securities Equity Securities
Lower Quality Fixed- Lower Quality Fixed-income Lower Quality Fixed-income
income Securities Securities Securities
U.S. Government Securities U.S. Government Securities U.S. Government Securities
Repurchase Agreements Repurchase Agreements Repurchase Agreements
Structured Notes Structured Notes Structured Notes
Zero Coupon; Pay-in Kind; Zero Coupon and Strips When-issued; Forward
Step Coupon and Strips When-issued; Forward Commitments
When-issued; Forward Commitments Foreign Currency Hedging
Commitments Foreign Currency Hedging Transactions
Foreign Currency Hedging Transactions Privitizations
Transactions Privitizations Investments in Other Investment
Privitizations Investments in Other Investment Companies
Investments in Other Investment Companies Futures, Options and Swap
Companies Futures, Options and Swap Contracts
Futures, Options and Swap Contracts Short Sales
Contracts Short Sales Against the Box Illiquid Securities
Short Sales Against the Box Illiquid Securities (including Rule 144A Securities
Illiquid Securities (including Rule 144A Securities and Section 4(2) Commercial Paper)
(including Rule 144A Securities and Section 4(2) Borrowing/Reverse Repurchase
and Section 4(2) Commercial Commercial Agreements
Paper) Paper) Short-term Investments
Borrowing/Reverse Repurchase Borrowing/Reverse Repurchase Money Market Instruments
Agreements Agreements Mortgage- and Asset-backed
Short-term Investments Short-term Investments Loans of Portfolio Securities
Money Market Instruments Money Market Instruments
Loans of Portfolio Securities Loans of Portfolio Securities
Mortgage- and Asset backed Mortgage- and Asset-backed
</TABLE>
The following is a description of the various investment practices in which a
Fund may engage, whether as a primary or secondary strategy:
Equity Securities Equity securities are securities that represent an ownership
interest (or the right to acquire such an interest) in a company and include
common and preferred stocks and securities exercisable for or convertible into
common or preferred stocks (such as warrants, convertible debt securities and
convertible preferred stock). While offering greater potential for long-term
growth, equity securities are more volatile and more risky than some other forms
of investment. Therefore, the value of your investment in a Fund may sometimes
decrease instead of increase. A Fund may invest in equity securities of
companies with relatively small market capitalization. Securities of such
companies may be more volatile than the securities of larger, more established
companies and the broad equity market indices. See "Small Companies" below. A
Fund's investments may include securities traded "over-the-counter" as well as
those traded on a securities exchange. Some over-the-counter securities may be
more difficult to sell under some market conditions.
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 sales and earnings growth rates which
exceed those of companies with larger capitalization. Such growth rates may in
turn be reflected in more rapid share price appreciation. However, companies
with smaller capitalization often have limited product lines, markets or
financial resources and may be dependent upon a relatively small management
group. The securities may have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of companies with larger
capitalization or market averages in general. The net asset value of Funds that
invest in companies with smaller capitalization therefore may fluctuate more
widely than market averages.
WARRANTS A Fund may invest in warrants. A warrant is an instrument that gives
the holder a right to purchase a given number of shares of a particular security
at a specified price until a stated expiration date. Buying a warrant generally
can provide a greater potential for profit or loss than an investment of
equivalent amounts in the underlying common stock. The market value of a warrant
does not necessarily move with the value of the underlying securities. If a
holder does not sell the warrant, it risks the loss of its entire investment if
the market price of the underlying security does not, before the expiration
date, exceed the exercise price of the warrant plus the cost thereof. Investment
in warrants is a speculative activity. Warrants pay no dividends and confer no
rights (other than the right to purchase the underlying securities) with respect
to the assets of the issuer.
REAL ESTATE INVESTMENT TRUSTS (REITs) Certain Funds may invest in REITs. REITs
are pooled investment vehicles that invest primarily in either real estate or
real estate related loans. The value of a REIT is affected by changes in the
value of the properties owned by the REIT or securing mortgage loans held by the
REIT. REITs are dependent upon cash flow from their investments to repay
financing costs and the ability of the REITs' manager. REITs are also subject to
risks generally associated with the investments in real estate. A Fund will
indirectly bear its proportionate share of expenses, including management fees,
paid by each REIT in which it invests.
Fixed-income Securities A Fund may invest in fixed-income securities. Because
interest rates vary, it is impossible to predict the income of a Fund for any
particular period. The net asset value of your shares will vary as a result of
changes in the value of the bonds and other securities in a Fund's portfolio.
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the securities, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities are subject to market and credit risk. Credit risk
relates to the ability of the issuer to make payments of principal and interest
and includes the risk of default. In the case of municipal bonds, the issuer may
make these payments from money raised through a variety of sources, including
(1) the issuer's general taxing power, (2) a specific type of tax such as a
property tax, or (3) a particular facility or project such as a highway. The
ability of an issuer of municipal bonds to make these payments could be affected
by litigation, legislation or other political events, or the bankruptcy of the
issuer. U.S. Government Securities do not involve the credit risks associated
with other types of fixed-income securities; as a result, the yields available
from U.S. Government Securities are generally lower than the yields available
from corporate fixed-income securities. Market risk is the risk that the value
of the security will fall because of changes in market rates of interest.
(Generally, the value of fixed-income securities falls when market rates of
interest are rising.) Some fixed-income securities also involve prepayment or
call risk. This is the risk that the issuer will repay a Fund the principal on
the security before it is due, thus depriving the Fund of a favorable stream of
future interest payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of a Fund's investments in fixed-income securities will cause the
Fund's net asset value to increase or decrease.
Lower Quality Fixed-income Securities Fixed-income securities rated BB or lower
by Standard & Poor's Ratings Group ("Standard & Poor's" or "S&P") or Ba or lower
by Moody's Investor's Service, Inc. ("Moody's") (and comparable unrated
securities) are of below "investment grade" quality. Lower quality fixed-income
securities generally provide higher yields, but are subject to greater credit
and market risk, than higher quality fixed-income securities, including U.S.
Government and many foreign government securities. Lower quality fixed-income
securities are considered predominantly speculative with respect to the ability
of the issuer to meet principal and interest payments. Achievement of the
investment objective of a mutual fund investing in lower quality fixed-income
securities may be more dependent on the Fund's adviser's or subadviser's own
credit analysis than for a fund investing in higher quality bonds. The market
for lower quality fixed-income securities may be more severely affected than
some other financial markets by economic recession or substantial interest rate
increases, by changing public perceptions of this market or by legislation that
limits the ability of certain categories of financial institutions to invest in
these securities. In addition, the secondary market may be less liquid for lower
rated fixed-income securities. This lack of liquidity at certain times may
affect the valuation of these securities and may make the valuation and sale of
these securities more difficult. Securities of below investment grade quality
are considered high yield, high risk securities and are commonly known as "junk
bonds." For more information, including a detailed description of the ratings
assigned by S&P and Moody's, please refer to the Statement's "Appendix A --
Description of Bond Ratings."
Structured Notes Certain Funds may invest in a broad category of instruments
known as "structured notes." These instruments are debt obligations issued by
industrial corporations, financial institutions or governmental or international
agencies. Traditional debt obligations typically obligate the issuer to repay
the principal plus a specified rate of interest. Structured notes, by contrast,
obligate the issuer to pay amounts of principal or interest that are determined
by reference to changes in some external factor or factors. For example, the
issuer's obligations could be determined by reference to changes in the value of
a commodity (such as gold or oil), a foreign currency, an index of securities
(such as the Standard & Poor's Composite Index of 500 Stocks ("S&P 500")) or an
interest rate (such as the U.S. Treasury bill rate). In some cases, the issuer's
obligations are determined by reference to changes over time in the difference
(or "spread") between two or more external factors (such as the U.S. prime
lending rate and the total return of the stock market in a particular country,
as measured by a stock index). In some cases, the issuer's obligations may
fluctuate inversely with changes in an external factor or factors (for example,
if the U.S. prime lending rate goes up, the issuer's interest payment
obligations are reduced). In some cases, the issuer's obligations may be
determined by some multiple of the change in an external factor or factors (for
example, three times the change in the U.S. Treasury bill rate). In some cases,
the issuer's obligations remain fixed (as with a traditional debt instrument) so
long as an external factor or factors do not change by more than the specified
amount (for example, if the value of a stock index does not exceed some
specified maximum), but if the external factor or factors change by more than
the specified amount, the issuer's obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of a mutual
fund. For example, they can be used to increase the fund's exposure to changes
in the value of assets that the fund would not ordinarily purchase directly
(such as stocks traded in a market that is not open to U.S. investors). They can
also be used to hedge the risks associated with other investments the fund
holds. For example, if a structured note has an interest rate that fluctuates
inversely with general changes in a country's stock market index, the value of
the structured note would generally move in the opposite direction to the value
of holdings of stocks in that market, thus moderating the effect of stock market
movements on the value of the fund's portfolio as a whole.
Structured notes involve special risks. As with any debt obligation, structured
notes involve the risk that the issuer will become insolvent or otherwise
default on its payment obligations. This risk is in addition to the risk that
the issuer's obligations (and thus the value of the Fund's investment) will be
reduced because of adverse changes in the external factor or factors to which
the obligations are linked. The value of structured notes will in many cases be
more volatile (that is, will change more rapidly or severely) than the value of
traditional debt instruments. Volatility will be especially high if the issuer's
obligations are determined by reference to some multiple of the change in the
external factor or factors. Many structured notes have limited or no liquidity,
so that the Fund would be unable to dispose of the investment prior to maturity.
(The Funds are not permitted to invest more than 15% of their net assets in
illiquid investments.) As with all investments, successful use of structured
notes depends in significant part on the accuracy of the relevant subadviser's
analysis of the issuer's creditworthiness and financial prospects, and of the
subadviser's forecast as to changes in relevant economic and financial market
conditions and factors. In instances where the issuer of a structured note is a
foreign entity, the usual risks associated with investments in foreign
securities (described below) apply.
U.S. Government Securities. Certain Funds may invest in some or all of the
following U.S. Government securities:
o 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.
o U.S. Treasury Notes and Bonds - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with
interest normally payable every six months. These obligations are backed by
the full faith and credit of the United States Government.
o "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee
which represent an interest in a pool of mortgages insured by the Federal
Housing Administration or the Farmer's Home Administration or guaranteed by
the Veterans Administration. The Government National Mortgage Association
("GNMA") guarantees the timely payment of principal and interest when such
payments are due, whether or not these amounts are collected by the issuer of
these certificates on the underlying mortgages. An assistant attorney general
of the United States has rendered an opinion that the guarantee by GNMA is a
general obligation of the United States backed by its full faith and credit.
Mortgages included in single family or multi-family residential mortgage pools
backing an issue of Ginnie Maes have a maximum maturity of up to 30 years.
Scheduled payments of principal and interest are made to the registered
holders of Ginnie Maes (such as the Fund) each month. Unscheduled prepayments
may be made by homeowners, or as a result of a default. Prepayments are passed
through to the registered holder (such as the Fund, which reinvests any
prepayments) of Ginnie Maes along with regular monthly payments of principal
and interest.
o "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.
o "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
U.S. Government securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may, for temporary defensive
purposes, accept lower current income from short-term investments rather than
investing in higher yielding long-term securities.
Tax Exempt Bonds. Certain Funds may invest in 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 known 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 revenues bonds but retains 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, as noted in the Prospectus.
These Funds may not be a desirable investment for "substantial users"
of facilities financed by industrial development bonds or for "related persons"
of substantial users.
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. The characteristics and methods of general obligation bonds
vary according to the law applicable to the particular issuer. Limited
obligation bonds are payable only from the revenues derived from a particular
facility or 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 is 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.
The ratings of Moody's and S&P represent their opinions and are not
absolute standards of quality. Tax exempt bonds with the same maturity, interest
rate and rating may have different yields while tax exempt bonds of the same
maturity and interest rate with different ratings may have the same yield.
Although the yield of a tax-exempt Fund generally will be lower than
that of a taxable income Fund, the net after-tax return to investors may be
greater. The table below illustrates what tax-free investing can mean. It shows
what you must earn from a taxable investment to equal a tax-free yield ranging
from 4% to 6%, under current federal tax rates. You can see that as your tax
rate goes up, so do the benefits of tax-free income. For example, a married
couple with a taxable income of $40,000 filing a joint return would have to earn
a taxable yield of 7.06% to equal a tax-free yield of 6.0%. This example and the
following table do not take into account the effect of state or local income
taxes, if any, or federal income taxes on social security benefits which may
arise as a result of receiving tax-exempt income, or the federal alternative
minimum tax that may be payable to the extent that Fund dividends are derived
from interest on "private activity" bonds (see the section entitled "Income
Dividends, Capital Gains Distributions and Tax Status"). Also, a portion of the
Fund's distributions may consist of ordinary income or short-term or long-term
capital gains and will be taxable to you as such.
<TABLE>
TAXABLE EQUIVALENT YIELDS - MUNICIPAL INCOME FUND
<CAPTION>
TAXABLE INCOME*
FEDERAL IF TAX EXEMPT YIELD IS
SINGLE RETURN ($) JOINT RETURN ($) MARGINAL 4.0% 4.5% 5.0% 5.5% 6.0%
TAX RATE** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 - 25,350 0 - 42,350 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
25,351 - 61,400 42,351 - 102,300 28.00% 5.56% 6.25% 6.94% 7.64% 8.33%
61,401 - 128,100 102,301 - 155,950 31.00% 5.80% 6.52% 7.25% 7.97% 8.70%
128,101 - 278,450 155,951 - 278,450 36.00% 6.25% 7.03% 7.81% 8.59% 9.38%
278,451 and over 278,451 and over 39.60% 6.62% 7.45% 8.28% 9.11% 9.93%
* This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code").
** These rates do not reflect any potential state income tax.
</TABLE>
Obligations of issuers of tax exempt bonds are subject to the
provisions of bankruptcy, insolvency and other laws, such as the 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 Fund's tax exempt bonds in the
same manner.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on debt obligations issued by states and their political subdivisions
and similar proposals may well be introduced in the future. If such a proposal
were enacted, the availability of tax exempt securities for investment by the
Fund and the value of the Fund's portfolio could be materially affected, in
which event the Fund would reevaluate its investment objective and policies and
consider changes in the structure of the Fund or dissolution.
All debt securities, including tax exempt bonds, are subject to credit
and market risk. Generally, for any given change in the level of interest rates,
prices for longer maturity issues tend to fluctuate more than prices for shorter
maturity issues. The ability of the Fund to invest in securities other than tax
exempt bonds is limited by a requirement of the Code that at least 50% of the
Fund's total assets be invested in tax exempt bonds at the end of each calendar
quarter.
State Tax Exempt Securities. Certain Funds may invest in "State Tax Exempt
Securities" which term refers to debt securities the interest from which is, in
the opinion of bond counsel, exempt from federal income tax and State personal
income taxes (other than the possible incidence of any alternative minimum
taxes). State Tax Exempt Securities consist primarily of bonds of the Fund's
named state (and, in the case of the New York Fund, New York City income taxes),
their political subdivisions (for example, counties, cities, towns, villages and
school districts) and authorities issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
certain State Tax Exempt Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses, or
obtaining funds to lend to public or private institutions for the construction
of facilities such as educational, hospital and housing facilities. In addition,
certain types of industrial development bonds and private activity bonds have
been or may be issued by public authorities or on behalf of state or local
governmental units to finance privately operated housing facilities, sports
facilities, convention or trade facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Other types of industrial development and
private activity bonds are used to finance the construction, equipment, repair
or improvement of privately operated industrial or commercial facilities.
Industrial development bonds and private activity bonds are included within the
term "State Tax Exempt Securities" if the interest paid thereon is, in the
opinion of bond counsel, exempt from federal income tax and State personal
income taxes (other than the possible incidence of any alternative minimum
taxes). The Fund may invest more than 25% of the value of its total assets in
such bonds, but not more than 25% in bonds backed by non-governmental users in
any one industry (see "Investment Restrictions" in Part I of this Statement).
However, as described in the Fund's Prospectus, the income from certain private
activity bonds is an item of tax preference for purposes of the federal
alternative minimum tax, and it is a fundamental policy of the Fund that
distributions from interest income on such private activity bonds, together with
distributions of interest income on investments other than State Tax Exempt
Securities, will normally not exceed 10% of the total amount of the Fund's
income distributions.
In addition, the term "State Tax Exempt Securities" includes debt
obligations issued by other governmental entities (for example, U. S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax and State personal income taxes (other than any
alternative minimum taxes).
There are, of course, variations in the quality of State Tax Exempt
Securities, both within a particular classification and between classifications,
depending on numerous factors (see Appendix A).
The yields on State Tax Exempt Securities are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the State Tax Exempt Securities market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of Moody's and Standard and Poor's represent their
opinions as to the quality of the State Tax Exempt Securities which they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, State Tax Exempt
Securities with the same maturity, interest rate and rating may have different
yields while State Tax Exempt Securities of the same maturity and interest rates
with different ratings may have the same yield. Subsequent to its purchase by
the Fund, an issue of State Tax Exempt Securities or other investments may cease
to be rated or the rating may be reduced below the minimum rating required for
purchase by the Fund. Neither event will require the elimination of an
investment from the Fund's portfolio, but the Fund's subadviser will consider
such an event as part of its normal, ongoing review of all the Fund's portfolio
securities.
Although the yield of a tax exempt Fund generally will be lower than
that of a taxable income Fund, the net after-tax return to investors may be
greater. The tables below illustrate what tax-free investing can mean for you.
It does not take into account the effect of income taxes on social security
benefits which may arise as a result of receiving tax-exempt income, or any
alternative minimum tax. Also, a portion of the Funds' distributions may consist
of ordinary income, short-term capital gain or long-term capital gain and will
be taxable to you as such. The tables show, for different assumed levels of
taxable income and marginal tax rates, the equivalent taxable yield that would
be required to achieve certain levels of tax exempt yield. Yields shown do not
represent actual yields achieved by the Fund and are not intended as a
prediction of future yields.
<PAGE>
<TABLE>
TAX FREE INVESTING
<CAPTION>
MASSACHUSETTS FUND 1998
COMBINED MA
TAXABLE INCOME* AND IF TAX EXEMPT YIELD IS
- -------------------------------------- FEDERAL -------------------------------------------------
SINGLE JOINT TAX 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN ($) RETURN ($) BRACKET** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 - 25,350 0 - 42,350 25.20% 5.35% 6.68% 8.02% 9.36% 10.70%
25,351 - 61,400 42,351 - 102,300 36.64% 6.31% 7.89% 9.47% 11.05% 12.63%
61,401 - 128,100 102,301 - 155,950 39.28% 6.59% 8.23% 9.88% 11.53% 13.18%
128,101 - 278,450 155,951 - 278,450 43.68% 7.10% 8.88% 10.65% 12.43% 14.20%
278,450 and over 278,450 and over 46.85% 7.53% 9.41% 11.29% 13.17% 15.05%
<CAPTION>
NEW YORK FUND 1998
COMBINED
FEDERAL,
TAXABLE INCOME* STATE AND IF TAX EXEMPT YIELD IS
- --------------------------------------- CITY --------------------------------------------
SINGLE JOINT TAX 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN ($) RETURN ($) BRACKET** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 - 8,000 0 - 16,000 21.02% 5.06% 6.33% 7.60% 8.86% 10.13%
8,001 - 11,000 16,001 - 21,600 21.44% 5.09% 6.36% 7.64% 8.91% 10.18%
21,601 - 22,000 22.02% 5.13% 6.41% 7.69% 8.98% 10.26%
11,001 - 12,000 22.08% 5.13% 6.42% 7.70% 8.98% 10.27%
12,001 - 13,000 22,001 - 26,000 22.66% 5.17% 6.46% 7.76% 9.05% 10.34%
13,001 - 20,000 26,001 - 40,000 23.21% 5.21% 6.51% 7.81% 9.12% 10.42%
20,001 - 25,000 40,001 - 42,350 24.02% 5.26% 6.58% 7.90% 9.21% 10.53%
25,001 - 25,350 24.07% 5.27% 6.59% 7.90% 9.22% 10.54%
42,351 - 45,000 35.64% 6.22% 7.77% 9.32% 10.88% 12.43%
25,001 - 50,000 45,001 - 90,000 35.68% 6.22% 7.77% 9.33% 10.88% 12.44%
50,001 - 61,400 90,001 - 102,300 35.72% 6.22% 7.78% 9.33% 10.89% 12.45%
61,401 - 128,100 102,301 - 155,950 34.80% 6.49% 8.12% 9.74% 11.36% 12.99%
128,101 - 278,450 155,951 - 278,450 42.86% 7.00% 8.75% 10.50% 12.25% 14.00%
278,451 and over 278,451 and over 46.08% 7.42% 9.27% 11.13% 12.98% 14.84%
<CAPTION>
CALIFORNIA FUND 1998
COMBINED
FEDERAL
TAXABLE INCOME* AND IF TAX EXEMPT YIELD IS
- --------------------------------------- CALIFORNIA --------------------------------------------
SINGLE JOINT MARGINAL 4.00% 5.00% 6.00% 7.00% 8.00%
RETURN ($) RETURN ($) TAX RATE** THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 -5,016 0 - 10,032 15.85% 4.75% 6.94% 7.13% 8.32% 9.51%
5,017 - 11,888 10,033 - 23,776 16.70% 4.80% 6.00% 7.20% 8.40% 9.60%
11,889 - 18,761 23,777 - 37,522 18.40% 4.90% 6.13% 7.35% 8.58% 9.80%
18,762 - 25,350 37,523 - 42,350 20.10% 5.01% 6.26% 7.51% 8.76% 10.01%
25,351 - 26,045 42,351 - 52,090 32.32% 5.91% 7.39% 8.87% 10.34% 11.82%
26,046 - 32,916 52,091 - 65,832 33.76% 6.04% 7.55% 9.06% 10.57% 12.08%
32,917 - 61,400 65,833 - 102,300 34.70% 6.13% 7.66% 9.19% 10.72% 12.25%
61,401 - 128,100 102,301 - 155,950 37.42% 6.39% 7.99% 9.59% 11.19% 12.78%
128,101 - 278,450 155,951 - 278,450 41.95% 6.89% 8.61% 10.34% 12.06% 13.78%
278,451 and over 278,451 and over 45.22% 7.30% 9.13% 10.95% 12.78% 14.60%
* This amount represents taxable income as defined in the Internal Revenue Code and the Massachusetts,
New York State and City, and California tax law. Note that Massachusetts, New York and California
taxable income and federal taxable income may differ due to differences in exemptions, itemized
deductions, and other items.
** For federal tax purposes, these combined rates reflect the applicable marginal rates for 1998. These
rates include the effect of deducting state taxes on a federal return.
</TABLE>
These Funds do not currently intend to invest in so-called "moral
obligation" bonds, where repayment is backed by a moral commitment of an entity
other than the issuer, unless the credit of the issuer itself, without regard to
the "moral obligation," meets the investment criteria established for
investments by the Fund.
Securities in which the Fund may invest, including State Tax Exempt
Securities, are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted by Congress or the State
legislature extending the time for payment of principal or interest, or both, or
imposing 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 State Tax Exempt Securities may be materially affected or
that their obligations may be found to be invalid and unenforceable.
The Fund's named state and certain of its cities and towns and public
bodies have from time to time encountered financial difficulties which have
adversely affected their respective credit standings and borrowing abilities.
Such difficulties could, of course, affect outstanding obligations of such
entities, including obligations held by the Fund.
Mortgage-Related Securities Mortgage-related securities, such as GNMA or FNMA
certificates, 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 Fund 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 have the opposite effect of increasing yield to maturity. If a Fund
purchases mortgage-related 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 Fund, 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. In addition, an increase in interest rates would also increase the
inherent volatility of the Fund by increasing the average life of the Fund's
portfolio securities.
An Adjustable Rate Mortgage security ("ARM"), like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in the
underlying mortgage pool are paid off by the borrowers. ARMs have interest rates
that are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. Although the rate adjustment feature may act as a
buffer to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rates are reset only periodically, changes in the interest rate on ARMs may lag
changes in prevailing market interest rates. Also, some ARMs (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security. As a
result, changes in the interest rate on an ARM may not fully reflect changes in
prevailing market interest rates during certain periods. Because of the
resetting of interest rates, ARMs are less likely than non-adjustable rate
securities of comparable quality and maturity to increase significantly in value
when market interest rates fall.
Asset-backed Securities The securitization techniques used to develop mortgage
securities are also being applied to a broad range of other assets. Through the
use of trusts and special purpose corporations, assets such as automobile and
credit card receivables are being securitized in pass- through structures
similar to mortgage pass- through structures or in a pay-through structure
similar to a Collateralized Mortgage Obligation 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 pre-paid, the Fund will ordinarily reinvest the prepaid amounts
in securities the yields of which reflect interest rates prevailing at the time.
Therefore, the Fund's ability to maintain a portfolio which includes
high-yielding asset-backed securities will be adversely affected to the extent
that prepayments of principal must be reinvested in securities which have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
Collateralized Mortgage Obligations ("CMO") A CMO is a security backed by a
portfolio of mortgages or mortgage securities held under an indenture. The
underlying mortgages or mortgage securities are issued or guaranteed by the U.S.
Government or an agency or instrumentality thereof. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage 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 CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage
pass-through security. CMOs may be considered derivative securities.
"Stripped" Securities Stripped securities are usually structured with two or
more classes that receive different proportions of the interest and principal
distribution on a pool of U.S. Government or foreign government securities or
mortgage assets. In some cases, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Stripped securities commonly have
greater market volatility than other types of fixed-income securities. In the
case of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, a Fund may fail to
recoup fully its investments in IOs. The staff of the SEC has indicated that it
views stripped mortgage securities as illiquid unless the securities are issued
by the U.S. Government or its agencies and are backed by fixed-rate mortgages.
The Funds intend to abide by the staff's position. Stripped securities may be
considered derivative securities.
Zero-coupon Securities; Pay-in-Kind and Step Coupon Zero-coupon securities are
debt obligations that do not entitle the holder to any periodic payments of
interest either for the entire life of the obligation or for an initial period
after the issuance of the obligations. Pay-in-kind securities pay dividends or
interest in the form of additional securities of the issuer, rather than in
cash. These securities are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the time
remaining until maturity of the securities, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. The
market prices of zero-coupon and pay-in-kind securities generally are more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to changes in interest rates to a greater degree than do
non-zero-coupon securities having similar maturities and credit quality. In
order to satisfy a requirement for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), a
Fund must distribute each year at least 90% of its net investment income,
including the original issue discount accrued on zero-coupon securities. Because
the Fund will not on a current basis receive cash payments from the issuer of a
zero-coupon security in respect of accrued original issue discount, in some
years the Fund may have to distribute cash obtained from other sources in order
to satisfy the 90% distribution requirement under the Code. Such cash might be
obtained from selling other portfolio holdings of the Fund. In some
circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might otherwise
make it undesirable for the Fund to sell such securities at such time. Step
coupon bonds trade at a discount from their face value and pay coupon interest.
The coupon rate is low for an initial period and then increases to a higher
coupon rate thereafter. Market values of these types of securities generally
fluctuate in response to changes in interest rates to a greater degree than do
conventional interest-paying securities of comparable term and quality. Under
many market conditions, investments in such securities may be illiquid, making
it difficult for the Fund to dispose of them or determine their current value.
When-Issued Securities; Forward Commitments. Certain Funds 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 Fund anticipates a decline in interest rates
and is able to obtain a more advantageous yield by committing currently to
purchase securities to be issued later. When a Fund purchases securities in this
manner (i.e., on a when-issued or delayed-delivery basis), it is required to
segregate with the Trust's custodian cash or liquid securities eligible for
purchase by a Fund in an amount equal to or greater than, on a daily basis, the
amount of the Fund's when-issued or delayed-delivery commitments. A Fund will
make commitments to purchase on a when-issued or delayed-delivery basis only
securities meeting the Fund's investment criteria. The Fund may take delivery of
these securities or, if it is deemed advisable as a matter of investment
strategy, the Fund may sell these securities before the settlement date. When
the time comes to pay for when-issued or delayed-delivery securities, a Fund
will meet its obligations from the then available cash flow or the sale of
securities, or from the sale of the when-issued or delayed-delivery securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
Repurchase Agreements. Certain Funds may enter into repurchase agreements, by
which the Fund purchases a security and obtains a simultaneous commitment from
the seller to repurchase the security at an agreed-upon price and date. The
resale price is in excess of the purchase price and reflects an agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford the Fund the opportunity to earn a return on temporarily
available cash at relatively low market risk. While the underlying security may
be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States Government, the obligation of
the seller is not guaranteed by the United States Government and there is a risk
that the seller may fail to repurchase the underlying security. In such event,
the Fund would attempt to exercise rights with respect to the underlying
security, including possible disposition in the market. However, the Fund may be
subject to various delays and risks of loss, including (a) possible declines in
the value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce rights and the
expenses involved in the attempted enforcement.
Convertible Securities. Certain Funds may invest in convertible securities,
including corporate bonds, notes or preferred stocks of U.S. or foreign issuers
that can be converted into (that is, exchanged for) common stocks or other
equity securities. Convertible securities also include other securities, such as
warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
Foreign Securities Investments in foreign securities present risks not typically
associated with investments in comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because a Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution.
In addition, although a Fund's income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after a Fund's income has been earned in that currency,
translated into U.S. dollars and declared as a dividend, but before payment of
such dividend, the Fund could be required to liquidate portfolio securities to
pay such dividend. Similarly, if the value of a currency relative to the U.S.
dollar declines between the time a Fund incurs expenses in U.S. dollars and the
time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater than the equivalent amount in such currency of such expenses at the
time they were incurred.
There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
securities custody costs are often higher than those in the United States, and
judgments against foreign entities may be more difficult to obtain and enforce.
With respect to certain foreign countries, there is a possibility of
governmental expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments that could affect the value of
investments in those countries. The receipt of interest on foreign government
securities may depend on the availability of tax or other revenues to satisfy
the issuer's obligations.
Investments in foreign securities may include investments in emerging
or developing 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.
Certain Funds may invest in foreign equity securities either by
purchasing such securities directly or by purchasing "depository receipts."
Depository receipts are instruments issued by a bank that represent an interest
in equity securities held by arrangement with the bank. Depository receipts can
be either "sponsored" or "unsponsored." Sponsored depository receipts are issued
by banks in cooperation with the issuer of the underlying equity securities.
Unsponsored depository receipts are arranged without involvement by the issuer
of the underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
In addition, certain Funds may invest in securities issued by
supranational agencies. Supranational agencies are those agencies whose member
nations determine to make capital contributions to support the agencies'
activities, and include such entities as the International Bank of
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Coal and Steel Community and the Inter-American Development Bank.
In determining whether to invest in securities of foreign issuers, NEFM
or the subadviser of each Fund will consider the likely effects of foreign taxes
on the net yield available to the Fund and its shareholders. Compliance with
foreign tax law may reduce the Fund's net income available for distribution to
shareholders.
Foreign Currency Most foreign securities in the Funds' portfolios will be
denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Similarly, any income on such
securities is generally paid to the Fund in foreign currencies. The value of
these foreign currencies relative to the U.S. dollar varies continually, causing
changes in the dollar value of the Fund's portfolio investments (even if the
local market price of the investments is unchanged) and changes in the dollar
value of the Fund's income available for distribution to its shareholders. The
effect of changes in the dollar value of a foreign currency on the dollar value
of the Fund's assets and on the net investment income available for distribution
may be favorable or unfavorable.
A Fund may incur costs in connection with conversions between various
currencies. In addition, a Fund may be required to liquidate portfolio assets,
or may incur increased currency conversion costs, to compensate for a decline in
the dollar value of a foreign currency occurring between the time when the Fund
declares and pays a dividend, or between the time when the Fund accrues and pays
an operating expense in U.S. dollars.
Foreign Currency Hedging Transactions To protect against a change in the foreign
currency exchange rate between the date on which a Fund contracts to purchase or
sell a security and the settlement date for the purchase or sale, or to "lock
in" the equivalent of a dividend or interest payment in another currency, a Fund
might purchase or sell a foreign currency on a spot ( i.e., cash) basis at the
prevailing spot rate. If conditions warrant, a Fund may also enter into
contracts with banks or broker-dealers to purchase or sell foreign currencies at
a future date ("forward contracts"). A Fund will maintain cash or other liquid
assets eligible for purchase by the Fund in a segregated account with the
custodian in an amount at least equal to the lesser of (i) the difference
between the current value of the Fund's liquid holdings that settle in the
relevant currency and the Fund's outstanding obligations under currency forward
contracts, or (ii) the current amount, if any, that would be required to be paid
to enter into an offsetting forward currency contract which would have the
effect of closing out the original forward contract. The Fund's use of currency
hedging transactions may be limited by tax considerations. The Fund may also
purchase or sell foreign currency futures contracts traded on futures exchanges.
Foreign currency futures contract transactions involve risks similar to those of
other futures transactions. See "Futures, Options and Swap Contracts" below.
Privatizations In a number of countries around the world, governments have
undertaken to sell to investors interests in enterprises that the government has
historically owned or controlled. These transactions are known as
"privatizations" and may in some cases represent opportunities for significant
capital appreciation. In some cases, the ability of U.S. investors, such as the
Funds, to participate in privatizations may be limited by local law, or the
terms of participation may be less advantageous than for local investors. Also,
there is no assurance that privatized enterprises will be successful, or that an
investment in such an enterprise will retain its value or appreciate in value.
Investments in Other Investment Companies Because of restrictions on direct
investment by U.S. entities in certain countries, investing indirectly in such
countries (by purchasing shares of another fund that is permitted to invest in
such countries) may be the most practical or efficient way for a Fund to invest
in such countries. In other cases, where a Fund's subadviser desires to make
only a relatively small investment in a particular country, investing through
another fund that holds a diversified portfolio in that country may be more
effective than investing directly in issuers in that country. As an investor in
another investment company, the Fund will indirectly bear its share of the
expenses of that investment company. These expenses are in addition to the
Fund's own costs of operations. In some cases, investing in an investment
company may involve the payment of a premium over the value of the assets held
in that investment company's portfolio.
Futures, Options and Swap Contracts
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a particular commodity (e.g., an interest-bearing security) for a
specified price on a specified future date. In the case of futures on an index,
the seller and buyer agree to settle in cash, at a future date, based on the
difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to $1000
multiplied by the Bond Buyer Municipal Bond Index, and Standard & Poor's 500
Index futures trade in contracts equal to $500 multiplied by the Standard &
Poor's 500 Index.
When a trader, such as a Fund, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker as "initial margin"
an amount of cash or short-term high-quality securities (such as U.S. Treasury
Bills or high-quality tax exempt bonds acceptable to the broker) equal to
approximately 2% to 5% of the delivery or settlement price of the contract
(depending on applicable exchange rules). Initial margin is held to secure the
performance of the holder of the futures contract. As the value of the contract
changes, the value of futures contract positions increases or declines. At the
end of each trading day, the amount of such increase and decline is received and
paid respectively by and to the holders of these positions. The amount received
or paid is known as "variation margin." If the Fund has a long position in a
futures contract it will establish a segregated account with the Fund's
custodian containing cash or liquid securities eligible for purchase by the Fund
equal to the purchase price of the contract (less any margin on deposit). For
short positions in futures contracts, the Fund will establish a segregated
account with the custodian with cash or liquid securities eligible for purchase
by the Fund that, when added to the amounts deposited as margin, equal the
market value of the instruments or currency underlying the futures contracts.
Although futures contracts by their terms require actual delivery and
acceptance of securities (or cash in the case of index futures), in most cases
the contracts are closed out before settlement. A futures sale is closed by
purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or commodity and with the same delivery date. Similarly,
the closing out of a futures purchase is closed by the purchaser selling an
offsetting futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
OPTIONS. An option on a futures contract obligates the writer, in return for the
premium received, to assume a position in a futures contract (a short position
if the option is a call and a long position if the option is a put), at a
specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option generally will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option. The premium paid by the purchaser of an option
will reflect, among other things, the relationship of the exercise price to the
market price and volatility of the underlying contract, the remaining term of
the option, supply and demand and interest rates. Options on futures contracts
traded in the United States may only be traded on a United States board of trade
licensed by the Commodity Futures Trading Commission (the "CFTC").
An option on a security entitles the holder to receive (in the case of
a call option) or to sell (in the case of a put option) a particular security at
a specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options on
securities may be traded on or off a national securities exchange.
A call option on a futures contract written by a Fund is considered by
the Fund to be covered if the Fund owns the security subject to the underlying
futures contract or other securities whose values are expected to move in tandem
with the values of the securities subject to such futures contract, based on
historical price movement volatility relationships. A call option on a security
written by the Fund is considered to be covered if the Fund owns a security
deliverable under the option. A written call option is also covered if the Fund
holds a call on the same futures contract or security as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash or liquid securities
eligible for purchase by the Fund in a segregated account with its custodian.
A put option on a futures contract written by a Fund, or a put option
on a security written by the Fund, is covered if the Fund maintains cash or
liquid securities eligible for purchase by the Fund with a value equal to the
exercise price in a segregated account with the Fund's custodian, or else holds
a put on the same futures contract (or security, as the case may be) as the put
written where the exercise price of the put held is equal to or greater than the
exercise price of the put written.
If the writer of an option wishes to terminate its position, it may
effect a closing purchase transaction by buying an option identical to the
option previously written. The effect of the purchase is that the writer's
position will be canceled. Likewise, the holder of an option may liquidate its
position by selling an option identical to the option previously purchased.
Closing a written call option will permit the Fund to write another
call option on the portfolio securities used to cover the closed call option.
Closing a written put option will permit the Fund to write another put option
secured by the segregated assets used to secure the closed put option. Also,
effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any futures contract or securities subject to the option to
be used for other Fund investments. If the Fund desires to sell particular
securities covering a written call option position, it will close out its
position or will designate from its portfolio comparable securities to cover the
option prior to or concurrent with the sale of the covering securities.
The Fund will realize a profit from closing out an option if the price
of the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Fund will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the value
of the underlying securities or futures contracts usually have a time value
component (i.e., a value that diminishes as the time within which the option can
be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Fund will have a net gain from the
options transaction, and the Fund's total return will be enhanced. Likewise, the
profit or loss from writing put options may or may not be offset in whole or in
part by changes in the market value of securities acquired by the Fund when the
put options are closed.
As an alternative to purchasing call and put options on index futures,
a Fund may purchase or sell call or put options on the underlying indices
themselves. Such options would be used in a manner identical to the use of
options on index futures.
Certain Funds may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more specified securities
indices ("index warrants"). Index warrants are generally issued by banks or
other financial institutions and give the holder the right, at any time during
the term of the warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the time of
exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
a time when, in the case of a call warrant, the exercise price is less than the
value of the underlying index, or in the case of a put warrant, the exercise
price is less than the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund would lose the
amount of the purchase price paid by it for the warrant.
A Fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the Fund's use of index warrants
are generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Fund will normally
invest only in exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing agency. In
addition, the terms of index warrants may limit the Fund's ability to exercise
the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
Certain Funds may buy and write options on foreign currencies in a
manner similar to that in which futures or forward contracts on foreign
currencies will be utilized. For example, a decline in the U.S. dollar value of
a foreign currency in which portfolio securities are denominated will reduce the
U.S. dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of the portfolio securities, the Fund may buy put options on the foreign
currency. If the value of the currency declines, the Fund will have the right to
sell such currency for a fixed amount in U.S. dollars, thereby offsetting, in
whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transactions
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Fund could sustain losses on transactions in foreign
currency options that would require the Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
Certain Funds may also write options on foreign currencies. For
example, to hedge against a potential decline in the U.S. dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates, the Fund could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of portfolio securities be
offset at least in part by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a
potential increase in the U.S. dollar cost of securities to be acquired, the
Fund could write a put option on the relevant currency which, if rates move in
the manner projected, will expire unexercised and allow the Fund to hedge the
increased cost up to the amount of the premium. If exchange rates do not move in
the expected direction, the option may be exercised and the Fund would be
required to buy or sell the underlying currency at a loss, which may not be
fully offset by the amount of the premium. Through the writing of options on
foreign currencies, the Fund also may lose all or a portion of the benefits
which might otherwise have been obtained from favorable movements in exchange
rates.
All call options written by a Fund on foreign currencies will be
"covered." A call option written on a foreign currency by the Fund is "covered"
if the Fund owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if the Fund has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by the Fund in cash or liquid
securities eligible to be purchased by the Fund in a segregated account with the
Fund's custodian. For this purpose, a call option is also considered covered if
the Fund owns securities denominated in (or which trade principally in markets
where settlement occurs in) the same currency, which securities are readily
marketable, and the Fund maintains in a segregated account with its custodian
cash or liquid securities eligible to be purchased by the Fund in an amount that
at all times at least equals the excess of (x) the amount of the Fund's
obligation under the call option over (y) the value of such securities.
FUTURES AND OPTIONS ON TAX-EXEMPT BONDS AND BOND INDICES. Municipal Income Fund,
Massachusetts Fund, New York Fund and California Fund may also purchase and sell
interest rate futures contracts and tax-exempt bond index futures contracts and
may write and purchase related options. Transactions involving futures and
options on futures may help to reduce the volatility of the Fund's net asset
value, and the writing of options on futures may yield additional income for the
Fund, but these results cannot be assured. Income from options and futures
transactions is not tax-exempt.
SWAP CONTRACTS. Interest rate swaps involve the exchange by a Fund 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. An index swap is an agreement to make or receive payments
based on the different returns that would be achieved if a notional amount were
invested in a specified basket of securities (such as the Standard & Poor's
Composite Index of 500 Stocks [the "S&P 500"]) or in some other investment (such
as U.S. Treasury securities). The Fund will maintain at all times in a
segregated account with its custodian cash or liquid securities eligible to be
purchased by the Fund in amounts sufficient to satisfy its obligations under
swap contracts.
RISKS. The use of futures contracts, options and swap contracts involves risks.
One risk arises because of the imperfect correlation between movements in the
price of futures contracts and movements in the price of the securities that are
the subject of the hedge. A Fund's hedging strategies will not be fully
effective unless the Fund can compensate for such imperfect correlation. There
is no assurance that the Fund will be able to effect such compensation.
Options, futures and swap contracts fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use of
options, futures or swaps for other than hedging purposes may be considered a
speculative activity, involving greater risks than are involved in hedging.
The correlation between the price movement of the futures contract and
the hedged security may be distorted due to differences in the nature of the
markets. For example, to the extent that the Municipal Income Fund enters into
futures contracts on securities other than tax exempt bonds, the value of such
futures may not vary in direct proportion to the value of tax exempt bonds that
the Fund owns or intends to acquire, because of an imperfect correlation between
the movement of taxable securities and tax exempt bonds. If the price of the
futures contract moves more than the price of the hedged security, the relevant
Fund would experience either a loss or a gain on the future that is not
completely offset by movements in the price of the hedged securities. In an
attempt to compensate for imperfect price movement correlations, the Fund may
purchase or sell futures contracts in a greater dollar amount than the hedged
securities if the price movement volatility of the hedged securities is
historically greater than the volatility of the futures contract. Conversely,
the Fund may purchase or sell fewer contracts if the volatility of the price of
hedged securities is historically less than that of the futures contracts.
The price of index futures may not correlate perfectly with movement in
the relevant index due to certain market distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the index and futures markets. Secondly, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market, and as a result the futures market may attract more
speculators than does the securities market. In addition, trading hours for
foreign stock index futures may not correspond perfectly to hours of trading on
the foreign exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and the value
of the relevant index due to the lack of continuous arbitrage between the index
futures price and the value of the underlying index. Finally, hedging
transactions using stock indices involve the risk that movements in the price of
the index may not correlate with price movements of the particular portfolio
securities being hedged.
Price movement correlation also may be distorted by the illiquidity of
the futures and options markets and the participation of speculators in such
markets. If an insufficient number of contracts are traded, commercial users may
not deal in futures contracts or options because they do not want to assume the
risk that they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices may be
driven by different forces than those driving the market in the underlying
securities, and price spreads between these markets may widen. The participation
of speculators in the market enhances its liquidity. Nonetheless, speculators
trading spreads between futures markets may create temporary price distortions
unrelated to the market in the underlying securities.
Positions in futures contracts and options on futures contracts may be
established or closed out only on an exchange or board of trade. There is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. The liquidity of markets in
futures contracts and options on futures contracts may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures or options price during a single trading
day. Once the daily limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent the liquidation of
open futures or options positions. Prices have in the past exceeded the daily
limit on a number of consecutive trading days. If there is not a liquid market
at a particular time, it may not be possible to close a futures or options
position at such time, and, in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin.
However, if futures or options are used to hedge portfolio securities, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid secondary
market for an option of the same series. If a liquid secondary market for an
exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option with the result that the
Fund would have to exercise the option in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will be not be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise. Reasons for the absence of
a liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Because the specific procedures for trading foreign stock index futures
on futures exchanges are still under development, additional or different margin
requirements as well as settlement procedures may be applicable to foreign stock
index futures at the time the International Equity Fund purchases foreign stock
index futures.
The successful use of transactions in futures and options depends in
part on the ability of a Fund's adviser or subadviser(s) to forecast correctly
the direction and extent of interest rate movements within a given time frame.
To the extent interest rates move in a direction opposite to that anticipated,
the Fund may realize a loss on the hedging transaction that is not fully or
partially offset by an increase in the value of portfolio securities. In
addition, whether or not interest rates move during the period that the Fund
holds futures or options positions, the Fund will pay the cost of taking those
positions (i.e., brokerage costs). As a result of these factors, the Fund's
total return for such period may be less than if it had not engaged in the
hedging transaction.
Options trading involves price movement correlation risks similar to
those inherent in futures trading. Additionally, price movements in options on
futures may not correlate with price movements in the futures underlying the
options. Like futures, options positions may become less liquid because of
adverse economic circumstances. The securities covering written option positions
are expected to offset adverse price movements if those options positions cannot
be closed out in a timely manner, but there is no assurance that such offset
will occur. Also, an option writer may not effect a closing purchase transaction
after it has been notified of the exercise of an option.
OVER-THE-COUNTER OPTIONS. An over-the-counter option (an option not traded on a
national securities exchange) may be closed out only with the other party to the
original option transaction. While the Fund will seek to enter into
over-the-counter options only with dealers who agree to or are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an over-the-counter option at
a favorable price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order to realize
any profit thereon and thereby would incur transactions costs on the purchase or
sale of the underlying assets. If the Fund cannot close out a covered call
option written by it, it will not be able to sell the underlying security until
the option expires or is exercised. Furthermore, over-the-counter options are
not subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation or other clearing organizations.
The staff of the Securities and Exchange Commission (the "SEC") has
taken the position that over-the-counter options on U.S. Government securities
and the assets used as cover for written over-the-counter options on U.S.
Government securities should generally be treated as illiquid securities for
purposes of the investment restrictions prohibiting the Government Securities
Fund from investing more than 15% of its net assets in illiquid securities.
However, if a dealer recognized by the Federal Reserve Bank of New York as a
"primary dealer" in U.S. Government securities is the other party to an option
contract written by the Fund, and the Fund has the absolute right to repurchase
the option from the dealer at a formula price established in a contract with the
dealer, the SEC staff has agreed that the Fund only needs to treat as illiquid
that amount of the "cover" assets equal to the amount at which (i) the formula
price exceeds (ii) any amount by which the market value of the securities
subject to the options exceeds the exercise price of the option (the amount by
which the option is "in-the-money"). Although Back Bay Advisors, L.P. ("Back Bay
Advisors"), the Government Securities Fund's subadviser, does not believe that
over-the-counter options on U.S. Government securities are generally illiquid,
the Fund has agreed that pending resolution of this issue it will conduct its
operations in conformity with the views of the SEC staff on such matters.
Back Bay Advisors has established standards for the creditworthiness of
the primary dealers with which the Government Securities Fund may enter into
over-the-counter option contracts having the formula-price feature referred to
above. Those standards, as modified from time to time, are implemented and
monitored by Back Bay Advisors. Such contracts will provide that the Fund has
the absolute right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by the Fund for writing the option, plus the amount, if any, by
which the option is "in-the-money." The formula will also include a factor to
account for the difference between the price of the securities and the exercise
price of the option if the option is written out-of-the-money. Although each
agreement will provide that the Fund's repurchase price shall be determined in
good faith (and that it shall not exceed the maximum determined pursuant to the
formula), the formula price will not necessarily reflect the market value of the
option written, and therefore the Fund might pay more to repurchase the option
contract than the Fund would pay to close out a similar exchange-traded option.
ECONOMIC EFFECTS AND LIMITATIONS. Income earned by a Fund from its hedging
activities will be treated as capital gain and, if not offset by net recognized
capital losses incurred by the Fund, will be distributed to shareholders in
taxable distributions. Although gain from futures and options transactions may
hedge against a decline in the value of the Fund's portfolio securities, that
gain, to the extent not offset by losses, will be distributed in light of
certain tax considerations and will constitute a distribution of that portion of
the value preserved against decline. If the Municipal Income Fund is required to
use taxable fixed-income securities as margin, the portion of the Fund's
dividends that is taxable to shareholders will be larger than if that Fund is
permitted to use tax exempt bonds for that purpose.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
FUTURE DEVELOPMENTS. The above discussion relates to the Fund's proposed use of
futures contracts, options and options on futures contracts currently available.
The relevant markets and related regulations are still in the developing stage.
In the event of future regulatory or market developments, the Fund may also use
additional types of futures contracts or options and other investment techniques
for the purposes set forth above.
Short Sales and Short Sales "Against the Box". A short sale is a transaction in
which a party borrows a security and then sells the borrowed security to another
party. Certain Funds may engage in short sales if it owns (or has the right to
acquire without further consideration) the security it has sold, a practice
known as selling short "against the box." The Star Small Cap Fund, however, may
engage in short sales that are not against the box (i.e. does not own or have
the right to acquire the security sold). A Fund may engage in short sales of
securities in order to profit from an anticipated decline in the value of a
security or may also engage in short sales to attempt to limit its exposure to a
decline in the value of its portfolio securities. In a short sale, the Fund does
not deliver from its portfolio the securities sold and does not receive
immediately the proceeds from the short sale. Instead, the Fund 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 Fund,
to the purchaser of such securities. The Fund is then obligated to replace the
security borrowed by delivering such security to the broker-dealer. Until the
security is replaced, the Fund is required to pay to the lender any accrued
interest or dividends paid on the security sold short and may also be required
to pay a premium to the broker-dealer. The broker-dealer is entitled to retain
the proceeds from the short sale until the Fund delivers to the broker-dealer
the securities sold short. To secure its obligation to deliver to such
broker-dealer the securities sold short, the Fund must deposit and continuously
maintain in a separate account with the Fund's custodian an equivalent amount of
(a) the securities sold short, (b) securities convertible into or exchangeable
for such securities without the payment of additional consideration or (c) cash
or certain liquid assets. The Fund 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 Fund receives the proceeds of the sale. The Fund 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, or, if such
securities are owned by the Fund, by delivering from its portfolio an equal
amount of the securities sold short.
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
the Fund replaces the borrowed security, the Fund will incur a loss, and there
can be no assurance that the Fund will be able to close out the position at any
particular time or at an acceptable price. If the price declines during this
period, the Fund 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 Fund may
have to pay in connection with such short sale. The Fund will also incur
transaction costs in connection with short sales. Certain provisions of the Code
limit tax advantages previously available to the Fund with respect to short
sales. Star Small Cap Fund and Star Worldwide Fund currently expect that no more
than 25% and 20% of their total assets, respectively, would be involved in short
sales.
Illiquid Securities (Rule 144 and Section 4(2) commercial paper) Illiquid
securities are those which are not readily resalable, which may include
securities whose disposition is restricted by federal securities laws.
Rule 144A securities are privately offered securities that can be
resold only to certain qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933. Certain Funds may also purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933. Investing in Rule
144A securities and Section 4(2) commercial paper could have the effect of
increasing the level of a Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. Rule 144A securities and Section 4(2) commercial paper are treated
as illiquid, unless a subadviser has determined, under guidelines established by
each Trust's Board of Trustees, that the particular issue of Rule 144A
securities is liquid. Investment in restricted or other illiquid securities
involves the risk that a Fund may be unable to sell such a security at the
desired time. Also, a Fund may incur expenses, losses or delays in the process
of registering restricted securities prior to resale.
Loans of Portfolio Securities. Certain Funds may lend their portfolio securities
to broker-dealers under contracts calling for cash collateral equal to at least
the market value of the securities loaned, marked to market on a daily basis.
These Funds will continue to benefit from interest or dividends on the
securities loaned and will also receive interest through investment of the cash
collateral in short-term liquid investments, which may include shares of money
market funds subject to any investment restriction listed in Part I of this
Statement. Any voting rights, or rights to consent, relating to securities
loaned pass to the borrower. However, if a material event affecting the
investment occurs, such loans will be called so that the securities may be voted
by the Fund. The Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodian and placement fees approved by the boards
of trustees of the Trusts or persons acting pursuant to the direction of the
boards.
These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default on its
obligation and the Fund is delayed in or prevented from recovering the
collateral.
Short-Term Trading Certain Funds may, consistent with their investment
objectives, engage in portfolio trading in anticipation of, or in response to,
changing economic or market conditions and trends. These policies may result in
higher turnover rates in the Fund's portfolio, which may produce higher
transaction costs and a higher level of taxable capital gains. Portfolio
turnover considerations will not limit any subadviser's investment discretion in
managing its segment or segments of a Fund's assets.
Money Market Instruments A Fund may seek to minimize risk by investing in money
market instruments, which are high-quality, short-term securities. Although
changes in interest rates can change the market value of a security, a Fund
expects those changes to be minimal and that the Fund will be able to maintain
the net asset value of its shares at $1.00, although this value cannot be
guaranteed.
Money market obligations of foreign banks or of foreign branches or
subsidiaries of U.S. banks may be subject to different risks than obligations of
domestic banks, such as foreign economic, political and legal developments and
the fact that different regulatory requirements apply.
Temporary Strategies A Fund 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 Fund
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 Fund will employ defensive
strategies.
In addition, pending investment of proceeds from new sales of Fund
shares or to meet ordinary daily cash needs, a Fund may temporarily hold cash
(U.S. dollars, foreign currencies or multinational currency units) and may
invest any portion of its assets in money instruments. The use of defensive
strategies may prevent a Fund from achieving its goal.
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUSTS
- --------------------------------------------------------------------------------
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 the
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 at least the past five years are listed below.
Those marked with an asterisk (*) may be deemed to be an "interested person" of
the Trusts as defined in the 1940 Act.
GRAHAM T. ALLISON, JR.-- Trustee (59); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138; Member of the Contract Review and Governance
Committee for the Trusts; 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 (54); 452 Fifth Avenue, New York, New York 10018;
Member of the Audit and Transfer Agent and Shareholder Services
Committee for the Trusts; President and CEO, Cain Brothers & Company,
Incorporated (investment banking); Trustee, Universal Health Realty
Income Trust (NYSE); Norman Rockwell Museum; Sharon Health Corporation
and National Committee for Quality Healthcare (all not-for-profit
organizations);
KENNETH J. COWAN -- Trustee (67); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Member of the Contract Review and Governance Committee
for the Trusts; 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 (55); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004; Member of the Contract Review and Governance Committee for the
Trusts; Partner, 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); formerly, Director of the U.S. Office of
Management and Budget and a member of President Bush's Cabinet;
formerly, Managing Director, Shearson Lehman Brothers (Investments);
SANDRA O. MOOSE -- Trustee (57); Exchange Place, Boston, Massachusetts 02109;
Member of the Audit and Transfer Agent and Shareholder Services
Committee for the Trusts; 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 and Transfer Agent and Shareholder Services
Committee for the Trusts; 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 firms).
*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;
Director, Nvest Services Company; Chairman of the Board and Director,
NEF Corporation; Chairman of the Board and Director, BBAI; formerly,
Director, New England Financial.
PENDLETON P. WHITE -- Trustee (68); 6 Breckenridge Lane, Savannah, Georgia
31411; Member of the Contract Review and Governance Committee for the
Trusts; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants); formerly,
Trustee, The Faulkner Corporation (community hospital corporation).
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 or subadviser 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 of Trustees identified in the audits. This Committee also
reviews and monitors compliance with stated investment objectives and polices,
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 at least the past five years are
listed below.
BRUCE R. SPECA -- President (43); Director and Executive Vice President, NEF
Corporation; Managing Director, President and Chief Executive Officer,
New England Funds, L.P.; Managing Director, President and Chief
Executive Officer, NEFM;.
THOMAS P. CUNNINGHAM -- Treasurer (53); Senior Vice President, Nvest Services
Company; Senior Vice President, NEFM; formerly, Vice President,
Allmerica Financial Life Insurance and Annuity Company; formerly,
Treasurer, Allmerica Investment Trust; formerly, Vice President,
First Data Investor Services Group.
JOHN E. PELLETIER -- Secretary and Clerk (34); Senior Vice President, General
Counsel, Secretary and Clerk, NEF Corporation; Senior Vice President,
General Counsel, Secretary and Clerk, New England Funds, L.P.; Senior
Vice President, General Counsel, Secretary and Clerk, NEFM; Executive
Vice President and General Counsel, Nvest Services Company; 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).
Each person listed above holds the same position(s) with all three
Trusts. Previous positions during the past five years with New England Financial
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 Board of Trustees 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,
1999 a total of ___ mutual fund portfolios, a retainer fee at the annual rate of
$40,000 and meeting attendance fees of $3,500 for each meeting of the Board of
Trustees that he or she attends. Each committee member receives an additional
retainer fee at the annual rate of $6,000. Furthermore, each committee chairman
receives an additional retainer fee (beyond the $6,000 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 relative 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 Total
Compensation Compensation Compensation Benefits Estimated Compensation
from from from New Accrued as Annual from the New
New England New England England Funds Part of Fund Benefits England Funds
Funds Trust I Funds Trust II Trust III Expenses Upon Trusts
Name of Trustee in 1998 in 1998 in 1998 in 1998 Retirement in 1998
--------------- ------- ------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Graham T. Allison, Jr.
Daniel M. Cain
Kenneth J. Cowan
Richard Darman
Sandra O. Moose
John A. Shane
Pendleton P. White
</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 been 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.
At April 9, 1999, the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of each Fund.
Advisory and Subadvisory Agreements
Each Fund's advisory agreement between the Fund and NEFM (between the
Fund and Capital Growth Management Limited Partnership ("CGM"), in the case of
Growth Fund) provides that the adviser (NEFM or CGM) 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 is responsible for obtaining and evaluating such
economic, statistical and financial data and information and performing such
additional research as is necessary to manage each Fund's assets in accordance
with its investment objectives and policies.
Each Fund pays all expenses not borne by its adviser or subadviser(s)
including, but not limited to, the charges and expenses of the Fund's custodian
and transfer agent, independent auditors and legal counsel for the Fund and the
Trusts' independent trustees, 12b-1 fees, all brokerage commissions and transfer
taxes in connection with portfolio transactions, all taxes and filing fees, the
fees and expenses for registration or qualification of its shares under federal
and state securities laws, all expenses of shareholders' and trustees' meetings
and of preparing, printing and mailing reports to shareholders and the
compensation of trustees who are not directors, officers or employees of the
Fund's adviser, subadviser(s) or their affiliates, other than affiliated
registered investment companies. In the case of Funds with Class Y shares,
certain expenses may be allocated differently between the Fund's Class A, Class
B and Class C shares, on the one hand, and Class Y shares on the other hand.
Each Fund (except Growth Fund) also pays NEFM for certain legal and accounting
services provided to the Fund by NEFM.
Each Fund's advisory agreement and (except in the case of Growth Fund)
each Fund's subadvisory agreement between NEFM and the subadviser that manages
the Fund (or, in the case of Star Advisers Fund, Star Worldwide Fund and Star
Small Cap Fund, each subadvisory agreement between NEFM and the subadviser that
manages a segment or segments of the Fund's portfolio) provides that it will
continue in effect for two years from its date of execution and thereafter from
year to year if its continuance is approved at least annually (i) by the Board
of Trustees of the relevant Trust 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 relevant Trust, as that term is
defined in the 1940 Act, cast in person at a meeting called for the purpose of
voting on such approval. Each Fund has received an exemptive order from the
Securities and Exchange Commission which permits NEFM to amend or continue
existing subadvisory agreements when approved by the Fund's Board of Trustees,
without shareholder approval. The exemption also 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. Shareholders will be notified of any
subadviser changes. Each advisory and subadvisory agreement may be terminated
without penalty by vote of the Board of Trustees of the relevant Trust 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 adviser upon 90 days' written
notice, and each terminates automatically in the event of its assignment. Each
subadvisory agreement also may be terminated by the subadviser upon 90 days'
notice and automatically terminates upon termination of the related advisory
agreement. 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 relevant 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 relevant Trust or the Fund's
adviser or subadviser.
Each advisory and subadvisory agreement provides that the adviser or
subadviser shall not be subject to any liability in connection with the
performance of its services thereunder in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and duties.
NEFM, formed in 1995, is a limited partnership whose sole general
partner, NEF Corporation, is a wholly-owned subsidiary of Nvest Holdings, 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 Nvest Services
Company, 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 Services Company has subcontracted certain of its
obligations as the transfer and dividend disbursing agent of the Funds to State
Street Bank and Trust Company (see "Custodial Arrangements".) Nvest Services
Company, Inc. will also do business as Nvest Services Company, Nvest Services
Co. and New England Funds Service Company.
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
_______________.
Back Bay Advisors, formed in 1986, is a limited partnership whose sole
general partner, BBAI, is a wholly-owned subsidiary of Nvest Holdings. Nvest
Companies owns the entire limited partnership interest in Back Bay Advisors.
Back Bay Advisors provides investment management services to institutional
clients, including other registered investment companies and accounts of New
England Financial and its affiliates. Back Bay Advisors specializes in
fixed-income management and currently manages over $___ billion in total assets.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") was organized in 1926
and is one of the oldest and largest investment management firms in the country.
An important feature of the Loomis Sayles investment approach is its emphasis on
investment research. Recommendations and reports of the Loomis Sayles research
department are circulated throughout the Loomis Sayles organization and are
available to the individuals in the Loomis Sayles organization who have been
assigned the responsibility for making investment decisions for the Funds'
portfolios. Loomis Sayles provides investment advice to numerous other
institutional and individual clients. These clients include some accounts of New
England Financial and MetLife and their affiliates. Loomis Sayles is a limited
partnership whose sole general partner, Loomis, Sayles & Company, Incorporated,
is a wholly-owned subsidiary of Nvest Holdings. Nvest Companies owns the entire
limited partnership interest in Loomis Sayles.
CGM is a limited partnership whose sole general partner, Kenbob, Inc.,
is a corporation owned in equal shares by Robert L. Kemp and G. Kenneth Heebner.
Nvest Companies owns a majority limited partnership interest in CGM. Prior to
March 1, 1990, Growth Fund was managed by Loomis Sayles' Capital Growth
Management Division. On March 1, 1990, Loomis Sayles reorganized its Capital
Growth Management Division into CGM. In addition to advising the Growth Fund,
CGM acts as investment adviser of CGM Capital Development Fund, CGM Trust, New
England Zenith Fund's Capital Growth Series and New England Variable Annuity
Fund I. CGM also provides investment advice to other mutual funds and other
institutional and individual clients.
Westpeak Investment Advisors, L.P. ("Westpeak"), organized in 1991,
provides investment management services to institutional clients, including
accounts of New England Financial and its affiliates. Westpeak is a limited
partnership whose sole general partner, Westpeak Investment Advisors, Inc., is a
wholly-owned subsidiary of Nvest Holdings. Nvest Companies owns the entire
limited partnership interest in Westpeak.
Founders Asset Management LLC ("Founders") serves as an investment
adviser to the Founders mutual funds as well as to other mutual funds and
private accounts. Founders is a 90% owned subsidiary of Mellon Bank, N.A., which
is a wholly-owned subsidiary of Mellon Bank Corporation ("MBC"), a publicly
owned multibank holding company. MBC provides a comprehensive range of financial
products and services in domestic and selected international markets. Founders
is the successor to Founders Asset Management, Inc., which was organized in
1938.
Janus Capital Corporation ("Janus Capital") serves as investment
adviser to the Janus mutual funds and to other mutual funds, individual,
charitable, corporate and retirement accounts. Kansas City Southern Industries,
Inc. ("KCSI"), a publicly traded holding company, owns approximately 83% of the
outstanding voting stock of Janus Capital. Thomas H. Bailey, President and
Chairman of the Board of Janus Capital, owns approximately 12% of Janus
Capital's voting stock and, by agreement with KCSI, selects a majority of Janus
Capital's board.
Jurika & Voyles, L.P., founded in 1983, has discretionary management
authority with respect to approximately $___ billion of assets for various
clients including corporations, pension plans, 401(k) plans, profit sharing
plans, trusts and estates, foundations and charities, mutual funds and
individuals.
Harris Associates L.P. ("Harris") was organized in 1995 to succeed to
the business of a predecessor limited partnership also named Harris Associates
L.P., which together with its predecessor had advised and managed mutual funds
since 1970. Harris is a limited partnership whose sole general partner is Harris
Associates Inc., a wholly-owned subsidiary of Nvest Holdings. Nvest Companies
owns the entire limited partnership interest in Harris Associates. Harris also
serves as investment adviser to individuals, trusts, retirement plans,
endowments and foundations, and manages numerous private partnerships.
Montgomery Asset Management, LLC ("Montgomery"), a Delaware limited
liability company, was formed in 1997 as an investment adviser. Montgomery is
the successor to Montgomery Asset Management, L.P., a California limited
partnership formed in 1990. Montgomery is a wholly-owned subsidiary of
Commerzbank AG, a German commercial bank.
Robertson, Stephens & Company Investment Management, L.P. ("Robertson
Stephens"), a California limited partnership, was formed in 1993. Members of
senior management of Robertson Stephens have agreed to purchase Robertson
Stephens Investment Management Co., Inc., Robertson Stephens' parent company,
from BankAmerica Corporation, in a transaction expected to be completed in March
1999. Robertson Stephens will continue to serve as subadviser to the Star Small
Cap Fund following the transaction. The trustees of the New England Funds Trust
I approved the continuation of the Fund's current management with Robertson
Stephens following consummation of the transaction.
Certain officers and employees of Back Bay Advisors have responsibility
for portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Back Bay Advisors)
that may invest in securities in which the Funds may invest. Where Back Bay
Advisors determines that an investment purchase or sale opportunity is
appropriate and desirable for more than one advisory account, purchase and sale
orders may be executed separately or may be combined and, to the extent
practicable, allocated by Back Bay Advisors to the participating accounts. Where
advisory accounts have competing interests in a limited investment opportunity,
Back Bay Advisors will allocate an investment purchase opportunity based on the
relative time the competing accounts have had funds available for investment,
and the relative amounts of available funds, and will allocate an investment
sale opportunity based on relative cash requirements and the time the competing
accounts have had investments available for sale. It is Back Bay Advisors'
policy to allocate, to the extent practicable, investment opportunities to each
client over a period of time on a fair and equitable basis relative to its other
clients. It is believed that the ability of the Funds for which Back Bay
Advisors acts as subadviser to participate in larger volume transactions in this
manner will in some cases produce better executions for the Funds. However, in
some cases, this procedure could have a detrimental effect on the price and
amount of a security available to a Fund or the price at which a security may be
sold. The Trusts' trustees are of the view that the benefits of retaining Back
Bay Advisors as investment manager outweigh the disadvantages, if any, that
might result from participating in such transactions.
Certain officers of Loomis Sayles have responsibility for the
management of other client portfolios. The Pasadena office of Loomis Sayles buys
and sells portfolio securities for the Value and Balanced Funds, the Detroit
office buys and sells portfolio securities for the segments of the Star Advisers
and Star Small Cap Funds' portfolios that are managed by Loomis Sayles, the
Boston office buys and sells portfolio securities for Strategic Income Fund and
International Equity Fund and the New York office buys and sells portfolio
securities for High Income Fund and Equity Income Fund. These offices buy and
sell securities independently of one another. The other investment companies and
clients served by Loomis Sayles sometimes invest in securities in which Value,
Balanced, Star Advisers, Star Small Cap, High Income, Strategic Income, Equity
Income and International Equity Funds also invest. If one of these Funds and
such other clients advised by the same office of Loomis Sayles desire to buy or
sell the same portfolio securities at about the same time, purchases and sales
will be allocated, to the extent practicable, on a pro rata basis in proportion
to the amounts desired to be purchased or sold for each. It is recognized that
in some cases the practices described in this paragraph could have a detrimental
effect on the price or amount of the securities which each of the Funds
purchases or sells. In other cases, however, it is believed that these practices
may benefit the relevant Fund. It is the opinion of the Trusts' trustees that
the desirability of retaining Loomis Sayles as subadviser for Strategic Income,
Value, Balanced, Star Advisers, Star Small Cap, High Income, Equity Income and
International Equity Funds outweighs the disadvantages, if any, which might
result from these practices.
The segments of Star Advisers Fund and Star Worldwide Fund managed by
Founders and one or more of the other mutual funds or clients to which Founders
serves as investment adviser may own the same securities from time to time. If
purchases or sales of securities for the segments of the Funds advised by
Founders and other funds or clients advised by Founders arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds and clients in a manner deemed equitable
to all by Founders. To the extent that transactions on behalf of more than one
client during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on the price and amount of the security being purchased or sold for the Funds.
However, the ability of the Funds to participate in volume transactions may
possibly produce better executions for the Funds in some cases. It is the
opinion of the trustees of the Trusts that the desirability of retaining
Founders as a subadviser to Star Advisers Fund and Star Worldwide Fund outweighs
the disadvantages, if any, which might result from these procedures.
Janus Capital performs investment advisory services for other mutual
funds, individual, charitable, corporate and retirement accounts, as well as for
its segments of the portfolios of Star Advisers Fund and Star Worldwide Fund.
Although the overall investment objectives of the Funds may differ from the
objectives of the other investment accounts and other funds served by Janus
Capital, there may be securities that are suitable for the portfolio of the
Funds as well as for one or more of the other funds or the other investment
accounts. Therefore, purchases and sales of the same investment securities may
be recommended for the Funds and for one or more of the other funds or other
investment accounts. To the extent that the Funds and one or more of the other
funds or other investment accounts seek to acquire or sell the same security at
the same time, either the price obtained by the Funds or the amount of
securities that may be purchased or sold by the Funds at one time may be
adversely affected. In such cases, the purchase and sale transactions are
allocated among the Funds, the other funds and the other investment accounts in
a manner believed by the management of Janus Capital to be equitable to each. It
is the opinion of the trustees of the Trusts that the desirability of retaining
Janus Capital as a subadviser to Star Advisers Fund and Star Worldwide Fund
outweighs the disadvantages, if any, which might result from these procedures.
Certain officers of Westpeak have responsibility for portfolio
management for other clients (including affiliates of Westpeak), some of which
may invest in securities in which Growth Opportunities Fund and Capital Growth
Fund also may invest. When the Funds and other clients desire to purchase or
sell the same security at or about the same time, the purchase and sale orders
are ordinarily placed and confirmed separately but may be combined to the extent
practicable and allocated as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold for each. It is
believed that the ability of those clients to participate in larger volume
transactions will in some cases produce better executions for the Funds.
However, in some cases this procedure could have a detrimental effect on the
price and amount of a security available to the Fund or the price at which a
security may be sold. It is the opinion of the trustees of the Trusts that the
desirability of retaining Westpeak as subadviser for the Funds outweighs the
disadvantages, if any, which might result from these practices.
Certain officers and employees of Jurika & Voyles have responsibility
for portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Jurika & Voyles)
that may invest in securities in which the Fund may invest. Where Jurika &
Voyles determines that an investment purchase or sale opportunity is appropriate
and desirable for more than one advisory account, purchase and sale orders may
be executed separately or may be combined and, to the extent practicable,
allocated by Jurika & Voyles to the participating accounts. Where advisory
accounts have competing interests in a limited investment opportunity, Jurika &
Voyles will allocate investment opportunities based on numerous considerations,
including the time the competing accounts have had funds available for
investment, and the relative amounts of available funds, an account's cash
requirements and the time the competing accounts have had investments available
for sale. It is Jurika & Voyles' policy to allocate, to the extent practicable,
investment opportunities to each client over a period of time on a fair and
equitable basis relative to its other clients. It is believed that the ability
of the Fund to participate in larger volume transactions in this manner will in
some cases produce better executions for the Fund. However, in some cases, this
procedure could have a detrimental effect on the price and amount of a security
available to the Fund or the price at which a security may be sold. The trustees
are of the view that the benefits of retaining Jurika & Voyles as investment
manager outweigh the disadvantages, if any, that might result from participating
in such transactions.
Certain officers and employees of Harris have responsibility for
portfolio management of other advisory accounts and clients (including other
registered investment companies and accounts of affiliates of Harris) that may
invest in securities in which Star Advisers Fund, Star Worldwide Fund and/or
Star Small Cap Fund may invest. Where Harris determines that an investment
purchase or sale opportunity is appropriate and desirable for more than one
advisory account, purchase and sale orders may be executed separately or may be
combined and, to the extent practicable, allocated by Harris to the
participating accounts. Where advisory accounts have competing interests in a
limited investment opportunity, Harris will allocate investment opportunities
based on numerous considerations, including the time the competing accounts have
had funds available for investment, the amounts of available funds, an account's
cash requirements and the time the competing accounts have had investments
available for sale. It is Harris's policy to allocate, to the extent
practicable, investment opportunities to each client over a period of time on a
fair and equitable basis relative to its other clients. It is believed that the
ability of Star Advisers Fund, Star Worldwide Fund and Star Small Cap Fund to
participate in larger volume transactions in this manner will in some cases
produce better executions for these Funds. However, in some cases, this
procedure could have a detrimental effect on the price and amount of a security
available to these Funds or the price at which a security may be sold. The
trustees of the Trusts are of the view that the benefits of retaining Harris as
a subadviser to Star Advisers Fund, Star Worldwide Fund and Star Small Cap Fund
outweigh the disadvantages, if any, that might result from participating in such
transactions.
In addition to managing segments of Star Worldwide Fund and Star Small
Cap Fund portfolios, Montgomery serves as investment adviser to other mutual
funds, pension and profit-sharing plans, and other institutional and private
investors. At times, Montgomery may effect purchases and sales of the same
investment securities for Star Worldwide Fund and/or Star Small Cap Fund and for
one or more other investment accounts. In such cases, it will be the practice of
Montgomery to allocate the purchase and sale transactions among the Funds and
the accounts in such manner as it deems equitable. In making such allocation,
the main factors to be considered are the respective investment objectives of
the Funds and the accounts, the relative size of portfolio holdings of the same
or comparable securities, the current availability of cash for investment by the
Funds and each account, the size of investment commitments generally held by the
Funds and each account and the opinions of the persons at Montgomery responsible
for selecting investments for the Funds and the accounts. It is the opinion of
the trustees of the Trusts that the desirability of retaining Montgomery as a
subadviser to Star Worldwide Fund and Star Small Cap Fund outweighs the
disadvantages, if any, which might result from these procedures.
Investment decisions for its segment of Star Small Cap Fund and for
other investment advisory clients of Robertson Stephens and its affiliates are
made with a view to achieving their respective investment objectives. Investment
decisions are the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may be bought or
sold for certain clients even though it could be bought or sold for other
clients at the same time. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the same security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in Robertson Stephens' opinion is equitable to each and in
accordance with the amount being purchased or sold by each client. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients. Robertson Stephens employs
staffs of portfolio managers who draw upon a variety of resources, including
Robertson Stephens & Company, Inc., for research information. It is the opinion
of the trustees of the Trusts that the desirability of retaining Robertson
Stephens as a subadviser to Star Small Cap Fund outweighs the disadvantages, if
any, which could result from these procedures.
NEFM believes that Star Funds' multi-adviser approach to equity
investing -- one that combines the varied styles of the subadvisers in selecting
securities for the Funds' portfolios -- offers a different investment
opportunity than funds managed by a single adviser using a single style. NEFM
believes that assigning portfolio management responsibility for a Fund to
several subadvisers, whose varying management styles have resulted in records of
success, may increase the likelihood that the Fund may produce superior results
for its shareholders, with less variability of return and less risk of
persistent under-performance than a fund managed by a single adviser. Of course,
past results should not be considered a prediction of future performance, and
there is no assurance that a Fund will in fact achieve superior results over any
period of time.
On a daily basis, capital activity will be allocated equally by NEFM
among the segments of each Star Fund. However, NEFM may, subject to review of
the Trust's Board of Trustees, allocate new investment capital differently among
any of the subadvisers. This action may be necessary, if, for example, a
subadviser determines that it desires no additional investment capital.
Similarly, because each segment of each Fund will perform differently from the
other segments of the Fund depending upon the investments it holds and changing
market conditions, one segment may be larger or smaller at various times than
other segments. For example, as of December 31, 1998, the percentages of Star
Advisers Fund's net assets held in the segments of the Fund managed by Harris,
Founders, Janus Capital and Loomis Sayles were -- %,-- %, --% and --%,
respectively. As of December 31, 1998, the percentages of Star Worldwide Fund's
net assets held in the segments of the Fund managed by Harris (international
segment), Harris (domestic segment), Montgomery, Founders and Janus Capital were
- --%, --%, --%, --% and --%, respectively. As of December 31, 1998, the
percentages of the Star Small Cap Fund's net assets held in the segment of the
Fund managed by Robertson Stephens, Montgomery, Loomis Sayles and Harris were
- --%, --%, --%, and --%, respectively.
Although it reserves the right to do so, subject to the review of the
Trust's trustees, NEFM does not intend to reallocate the assets of any Fund
among the segments to reduce these differences in size.
NEFM oversees the portfolio management services provided to the Funds
by each of the subadvisers. Subject to the review of the Trust's trustees, NEFM
monitors each subadviser to assure that the subadviser is managing its segment
of a Fund consistently with the Fund's investment objective and restrictions and
applicable laws and guidelines, including, but not limited to, compliance with
the diversification requirements set forth in the 1940 Act and Subchapter M of
the Code. In addition, NEFM also provides each Fund with administrative services
which include, among other things, day-to-day administration of matters related
to the Fund's existence, maintenance of its records, preparation of reports and
assistance in the preparation of the Fund's registration statement under federal
and state laws. NEFM does not, however, determine what investments will be
purchased or sold for any segment of any Fund. Because each subadviser will be
managing its segment of the portfolio independently from the others, the same
security may be held in two different segments of a Fund or may be acquired for
one segment of the Fund at a time when the subadviser of another segment deems
it appropriate to dispose of the security from that other segment. Similarly,
under some market conditions, one or more of the subadvisers may believe that
temporary, defensive investments in short-term instruments or cash are
appropriate when another subadviser or subadvisers believe continued exposure to
the equity markets is appropriate for its or their segment of the Fund. Because
each subadviser directs the trading for its own segment of the Fund, and does
not aggregate its transactions with those of the other subadvisers, the Fund may
incur higher brokerage costs than would be the case if a single adviser or
subadviser were managing the entire Fund.
NEFM may terminate any subadvisory agreement without shareholder
approval. In such case, NEFM may either enter into an agreement with another
subadviser to manage the segment or will allocate the segment's assets among the
other segments of the Fund.
Distribution Agreements and Rule 12b-1 Plans. Under a separate
agreement with each Fund, the Distributor serves as the principal distributor of
each class of shares of the Funds. Under these agreements, the Distributor is
not obligated to sell a specific number of shares. The Distributor 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. Each Fund pays the cost of registering and qualifying its
shares under state and federal securities laws and the distribution of
Prospectuses to existing shareholders.
The Distributor is compensated under each agreement through receipt of
the sales charges on Class A shares described below under "Net Asset Value and
Public Offering Price" and is paid by the Funds the service and distribution
fees described in the Prospectus. The Distributor may, at its discretion,
reallow the entire sales charge imposed on the sale of Class A shares of each
Fund to investment dealers from time to time. The SEC is of the view that
dealers receiving all or substantially all of the sales charge may be deemed
underwriters of a Fund's shares.
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 (currently New England Funds, L.P.) monthly fees out of its
net assets. Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved by
the shareholders of each Fund, and (together with the related Distribution
Agreement) by the Board of Trustees, including a majority of the trustees who
are not interested persons of the relevant Trust (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of the
Plan or the Distribution Agreement (the "Independent Trustees").
Under the Plans, each Fund pays the Distributor a monthly service fee
at an annual rate not to exceed 0.25% of the Fund's average daily net assets
attributable to the Class A, Class B and Class C shares. The Distributor may pay
up to the entire amount of this fee to securities dealers who are dealers of
record with respect to the Fund's shares, on a quarterly basis, unless other
arrangements are made between the Distributor and the securities dealer, for
providing personal services to investors in shares of the Fund and/or the
maintenance of shareholder accounts. In the case of the Class B shares, the
Distributor pays investment dealers at the time of sale the first year's service
fee, in the amount of up to 0.25% of the amount invested. The Class A service
fee for all Funds is payable only to reimburse the Distributor for amounts it
pays or expends in connection with the provision of personal services to
investors and/or the maintenance of shareholder accounts.
To the extent that the Distributor's reimbursable expenses in any year
exceed the maximum amount payable under the relevant Plan for that year, such
expenses may be carried forward for reimbursement in future years in which the
Plan remains in effect. The amounts of unreimbursed Class A expenses carried
over into 1998 from previous plan years for the Stock Funds were as follows:
$563,284 for Capital Growth Fund, $2,041,399 for Balanced Fund, $2,030,882 for
Growth Fund, $514,256 for International Equity Fund and $1,651,994 for Value
Fund. The Class B and C service fees for all Funds which have such classes of
shares, and the Class A service fee for Growth Opportunities Fund, are payable
regardless of the amount of the Distributor's related expenses. The amounts of
unreimbursed expenses carried over into 1998 from previous plan years with
respect to the Class A shares of the Bond Funds are as follows: $1,583,658 for
Government Securities Fund; $2,272,723 for the Limited Term U.S. Government
Fund; $1,929,283 for Short Term Corporate Income Fund (formerly Adjustable Rate
U.S. Government Fund); $1,919,349 for Bond Income Fund; $0 for Strategic Income
Fund; $1,700,600 for Municipal Income Fund and $0 for High Income Fund. The
Class B service fees for all Funds, and the Class C service fees for Limited
Term U.S. Government Fund, Strategic Income Fund, Bond Income Fund, and High
Income Fund are payable regardless of the amount of the Distributor's related
expenses.
Each Fund's Class B and Class C shares also pay the Distributor a
monthly distribution fee at an annual rate not to exceed 0.75% of the average
net assets of the respective Fund's Class B and Class C shares. Also, Class A
shares of Limited Term U.S. Government Fund pays a monthly distribution fee at
an annual rate not to exceed 0.10% of the Fund's average daily net assets. The
Distributor may pay up to the entire amount of this fee to securities dealers
who are dealers of record with respect to the Fund's shares, as distribution
fees in connection with the sale of the Fund's shares on a quarterly basis,
unless other arrangements are made between the Distributor and the securities
dealer. Except in the case of Limited Term U.S. Government Fund, the Distributor
retains the balance of the fee as compensation for its services as distributor
of the Class B and Class C shares. In the case of Class C shares, the
Distributor retains the 0.75% distribution fee assessed against such shares
during the first year of investment. The distribution fee of the Limited Term
U.S. Government Fund is payable only to reimburse the Distributor for expenses
incurred in connection with the distribution of the Fund's shares, but
unreimbursed expenses can be carried forward into future years.
Each Plan may be terminated by vote of a majority of the relevant
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the relevant class of shares of the relevant Fund. Each Plan may
be amended by vote of the relevant trustees, including a majority of the
relevant Independent Trustees, cast in person at a meeting called for that
purpose. Any change in any Plan that would materially increase the fees payable
thereunder by the relevant class of shares of the relevant Fund requires
approval by vote of the holders of a majority of such shares outstanding. The
Trusts' trustees review quarterly a written report of such costs and the
purposes for which such costs have been incurred. For so long as a Plan is in
effect, selection and nomination of those trustees who are not interested
persons of the relevant 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. 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. Class Y shares of the Funds may be offered by
registered representatives of New England Securities who are also employees of
New England Investment Associates, Inc. ("NEIA"), an indirect, wholly-owned
subsidiary of Nvest Companies. NEIA may receive compensation from each Fund's
adviser or subadviser with respect to sales of Class Y shares.
The Distribution Agreement for any Fund may be terminated at any time
on 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 relevant 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 relevant 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 parent companies, no interested person of the Trusts nor any
trustee of the Trusts had 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
Trusts and the Funds and if it should cease to be the distributor, New England
Funds Trust I, New England Funds Trust II, New England Funds Trust III or the
affected Fund may be required to change their names and delete these words or
letters. The Distributor also acts as principal distributor for New England Cash
Management Trust and New England Tax Exempt Money Market Trust.
The portion of the various fees and expenses for Class A, B, and with
respect to certain Funds, C shares that are paid (reallowed) to securities
dealers are shown below:
BOND FUNDS
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ALL FUNDS EXCEPT SHORT TERM CORPORATE INCOME FUND AND LIMITED TERM U.S. GOVERNMENT FUNDS
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%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SHORT TERM CORPORATE INCOME AND LIMITED TERM U.S. GOVERNMENT FUNDS
<S> <C> <C> <C> <C>
Less than $100,000 3.00% 2.70% 0.25% 2.95%
$100,000 - $249,999 2.50% 2.15% 0.25% 2.40%
$250,000 - $499,999 2.00% 1.70% 0.25% 1.95%
$500,000 - $999,999 1.25% 1.00% 0.25% 1.25%
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 (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), the Distributor may pay a 0.50%
commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10
million are eligible to purchase Class Y shares of the Funds (except Municipal Income Fund), which are described in
a separate prospectus.
(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 the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
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 of the Bond Funds that are paid to
securities dealers are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
HIGH INCOME, STRATEGIC INCOME, BOND INCOME, MUNICIPAL INCOME AND GOVERNMENT SECURITIES FUNDS
- ------------------------------------------------------------------------------------------------------------------------
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%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SHORT TERM CORPORATE INCOME AND LIMITED TERM U.S. GOVERNMENT FUNDS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All amounts for Class B 2.75% 0.25% 3.00%
All amounts for Class C 1.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
MASSACHUSETTS TAX FREE INCOME FUND AND TAX FREE INCOME FUND OF NEW YORK
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.
<TABLE>
<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 4.25% 3.75% 0.25% 4.00%
$50,000 - $99,999 4.00% 3.50% 0.25% 3.75%
$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%(1) 0.25% 1.25%
Excess over $3 Million none 0.50%(1) 0.25% 0.75%
INVESTMENTS WITH NO
SALES CHARGE(2) none 0.00% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------------------------
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the
previous 12 calendar months.
(2) Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as
described earlier in the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
The Class B 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 shares that are paid to securities dealers are shown below:
<TABLE>
<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%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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. The portion
of the various fees and expenses for Class A shares of the California Fund that
are paid to securities dealers are shown below:
<TABLE>
<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 2.50% 2.15% 0.25% 2.40%
$100,000 - $249,999 2.00% 1.70% 0.25% 1.95%
$250,000 - $499,999 1.50% 1.25% 0.25% 1.50%
$500,000 - $999,999 1.25% 1.00% 0.25% 1.25%
INVESTMENTS OF $1 MILLION
OR MORE
First $3 Million none 1.00%(1) 0.25% 1.25%
Excess over $3 Million none 0.50%(1) 0.25% 0.75%
INVESTMENTS WITH NO
SALES CHARGE(2) none 0.00% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------------------------
(1) These commissions are not payable if the purchase represents the reinvestment of a redemption made during the
previous 12 calendar months.
(2) Refers to any investments made by municipalities, financial institutions, trusts and affinity group members as
described earlier in the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
The Class B 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 shares of the Fund that are paid to securities dealers are shown below:
<TABLE>
<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%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK FUNDS AND STAR FUNDS
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.
<TABLE>
<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%
* (Growth Fund only) For accounts established prior to February 28, 1997 having a total investment value of between
(and including) $25,000 and $49,000, a reduced sales charge of 5.50% of the offering price (or 5.82% of the net
amount invested), with a dealer's concession of 4.25% as a percentage of offering price, will be charged on the sale
of additional Class A shares of Growth Fund if the total investment value of Growth Fund account after such sale is
between (and including) $25,000 and $49,000.
(1) For investments by 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), the Distributor may pay a 0.50%
commission for investments in excess of $3 million and up to $10 million. Those Plans with investments of over $10
million are eligible to purchase Class Y shares of the funds, which are described in a separate prospectus.
(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 the Prospectus under the section entitled "Ways to Reduce or Eliminate Sales Charges."
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:
<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>
ALL FUNDS
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
Contingent Deferred Sales Charge (the "CDSC"). Proceeds from the CDSC on Class A
and C shares are paid to the Distributor and are used by the Distributor to
defray the expenses for services the Distributor provides the Trusts. Proceeds
from the CDSC on Class B shares are paid to the Distributor 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. 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 concessions to
dealers who sell shares of the Funds, including: (i) full reallowance of the
sales charge of Class A shares, (ii) additional compensation with respect to the
sale of Class A, B and C shares and (iii) financial assistance programs to firms
who sell or arrange for the sale of Fund shares including, but not limited to,
remuneration for: the firm's internal sales contests and incentive programs,
marketing and sales fees, expenses related to advertising or promotional
activity and events, and shareholder record keeping or miscellaneous
administrative services. Payment for travel, lodging and related expenses may be
provided for attendance at New England Funds' seminars and conferences, e.g.,
due diligence meetings held for training and educational purposes. The payment
of these concessions and any other compensation offered will conform with state
and federal laws and the rules of any self-regulatory organization, such as the
National Association of Securities Dealers, Inc. The participation of such firms
in financial assistance programs is at the discretion of the firm.
During the fiscal years ended December 31, 1996, 1997, and 1998, the
Distributor received commissions on the sale of Class A shares of New England
Funds Trust I aggregating $10,735,444, $11,172,220, and $________, respectively,
of which $9,418,244, $9,669,150 and $________, respectively, was reallowed to
other securities dealers and the balance retained by the Distributor. During the
fiscal years ended December 31, 1996, 1997 and 1998, the Distributor received
contingent deferred sales charges ("CDSCs") on the redemption of Class A and
Class B shares of New England Funds Trust I aggregating $1,256,009, $2,391,360
and $__________, respectively, of which $1,236,000, $2,286,280 and
$____________, respectively, was paid to FEP Capital, L.P. and the balance
retained by the Distributor. See "Other Arrangements" for information about
amounts received by the Distributor from New England Funds Trust I's investment
advisers and subadvisers or the Funds directly for providing certain
administrative services relating to New England Funds Trust I.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Distributor received commissions on the sale of the Class A shares of New
England Funds Trust II aggregating $1,674,883, $1,493,346 and $__________,
respectively, of which $1,429,970, $1,286,296 and $___________, respectively,
was reallowed to other securities dealers and the balance retained by the
Distributor. During the fiscal years ended December 31, 1996, 1997 and 1998, the
Distributor received CDSCs on the redemption of Class A and Class B shares of
New England Funds Trust II aggregating $318,167, $375,973 and $_________,
respectively, of which $313,465, $343,457 and $________, respectively, was paid
to FEP Capital, L.P. and the balance retained by the Distributor. See "Other
Arrangements" for information about amounts received by the Distributor from New
England Funds Trust II's investment advisers and subadvisers or the Funds
directly for providing certain administrative services relating to New England
Funds Trust II.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Distributor received commissions on the sales of the Class A shares of New
England Funds Trust III aggregating $-0-, $262,310 and $________, respectively,
of which $-0-, $236,902 and $___________, respectively, was reallowed to other
securities dealers and the balance retained by the Distributor. During the
fiscal years ended December 31, 1996, 1997 and 1998, the Distributor received
CDSCs on the redemption of Class A and Class B shares of New England Funds Trust
III aggregating $-0-, $1,953 and $_________, respectively, of which $-0-, $1,953
and $________ respectively, was paid to FEP Capital, L.P. and the balance
retained by the Distributor. See "Other Arrangements" for information about
amounts received by the Distributor from New England Funds Trust III's
investment advisers and subadvisers or the Funds directly for providing certain
administrative services relating to New England Funds Trust III.
Custodial Arrangements. State Street Bank and Trust Company ("State
Street Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Trusts'
custodian. As such, State Street Bank holds in safekeeping certificated
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
Fund in connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Trusts 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 Trusts' independent accountants are
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110. The
independent accountants conduct an annual audit of each Trust's financial
statements, assist in the preparation of federal and state income tax returns
and consult with the Trusts as to matters of accounting and federal and state
income taxation. The information concerning financial highlights in the
Prospectuses, and financial statements contained in the Funds' annual reports
for the year ended December 31, 1997 and incorporated by reference into this
Statement, have been so included in reliance on the reports of each Trusts'
independent accountants, given on the authority of such firms as experts in
auditing and accounting. Prior to fiscal year ended 12/31/97, Coopers & Lybrand
L.L.P., One Post Office Square, Boston, Massachusetts 12109, conducted the
annual audit of the financial statements of the Trusts, assisted in the
preparation of federal and state income tax returns and consulted with the
Trusts as to matters of accounting and federal and state income taxation.
Other Arrangements
Pursuant to a contract between the Funds and Nvest Services Company,
Nvest Services Company 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 Nvest Services Company for these services in
the amount of $17.75 for Bullseye Fund, Balanced Fund, Growth Fund, Capital
Growth Fund, Value Fund, International Equity Fund, Star Advisers Fund, Star
Worldwide Fund, Star Small Cap Fund, Growth Opportunities Fund and Strategic
Income Fund, and $15.95 for High Income Fund, Massachusetts Fund, Limited Term
U.S. Government Fund, Short Term Corporate Income Fund, California Fund, New
York Fund, Bond Income Fund, Municipal Income Fund and Government Securities
Fund. Nvest Services Company 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, Nvest
Services Company pays BFDS a monthly per account fee of $0.95 for California
Fund, New York Fund, Bond Income Fund, Municipal Income Fund, Short Term
Corporate Income Fund, Government Securities Fund and Strategic Income Fund;
$0.87 for Massachusetts Fund, High Income Fund and Limited Term U.S. Government
Fund; $0.78 for Bullseye Fund, International Equity Fund, Capital Growth Fund,
Balanced Fund, Value Fund, Growth Fund, Star Advisers Fund, Star Worldwide Fund
and Star Small Cap Fund; and $0.70 for Growth Opportunities Fund. Equity Income
Fund pays a $250 monthly fee to Nvest Services Company for these services which
Nvest Services Company pays in full to State Street Bank for it to provide
through BFDS transaction processing and other services.
In addition, during the fiscal year ended December 31, 1998 Nvest
Services Company performed certain accounting and administrative services for
the Funds. Each Fund reimbursed Nvest Services Company for all or part of New
England Funds' expenses of providing these services which include the following:
(i) expenses for personnel performing bookkeeping, accounting, internal auditing
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, and (iii) registration, filing and other fees
in connection with requirements of regulatory authorities.
During the fiscal year ended December 31, 1996, NEFM received legal and
accounting services fees paid by Growth Fund, Balanced Fund, Value Fund, Bond
Income Fund, Municipal Income Fund, Government Securities Fund, International
Equity Fund, Capital Growth Fund, Equity Income Fund, Star Advisers Fund and
Star Worldwide Fund in the amounts of $173,071, $56,069, $54,574, $44,322,
$40,947, $34,007, $51,077, $36,732, $0, $98,321 and $24,445, respectively.
During the fiscal year ended December 31, 1997, NEFM received legal and
accounting services fees paid by Growth Fund, Balanced Fund, Value Fund, Bond
Income Fund, Municipal Income Fund, Government Securities Fund, International
Equity Fund, Capital Growth Fund, Equity Income Fund, Star Advisers Fund and
Star Worldwide Fund in the amounts of $194,847, $63,400, $66,675, $43,165,
$38,598, $30,213, $32,743, $38,845, $3,543, $129,628 and $43,298.
During the fiscal year ended December 31, 1998, NEFM received legal and
accounting services fees paid by Bullseye Fund, Growth Fund, Balanced Fund,
Value Fund, Bond Income Fund, Municipal Income Fund, Government Securities Fund,
International Equity Fund, Capital Growth Fund, Equity Income Fund, Star
Advisers Fund and Star Worldwide Fund in the amounts of $___________,
$_________, $________, $_________, $_________, $_________, $_________,
$________, $____________, $_________, $_________ and $__________.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
All Fixed-Income Funds. In placing orders for the purchase and sale of
portfolio securities for each Fund, Back Bay Advisors and Loomis Sayles always
seek the best price and execution. Some of each Fund's portfolio transactions
are placed with brokers and dealers who provide Back Bay Advisors or Loomis
Sayles with supplementary investment and statistical information or furnish
market quotations to that Fund, the other Funds or other investment companies
advised by Back Bay Advisors or Loomis Sayles. The business would not be so
placed if the Funds would not thereby obtain the best price and execution.
Although it is not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce the expenses of Back Bay Advisors
or Loomis Sayles. The services may also be used by Back Bay Advisors or Loomis
Sayles in connection with their other advisory accounts and in some cases may
not be used with respect to the Funds.
All Equity Funds. In placing orders for the purchase and sale of equity
securities, each Fund's adviser or subadviser selects only brokers which it
believes are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge commission
rates that, when combined with the quality of the foregoing services, will
produce best price and execution for the transaction. This does not necessarily
mean that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates. Each
Fund's adviser or subadviser 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.
Star Advisers Fund and Star Worldwide Fund (segments advised by Janus
Capital). Decisions as to the assignment of portfolio business for the segments
of Star Advisers and Star Worldwide Funds' portfolios advised by Janus Capital
and negotiation of its commission rates are made by Janus Capital, whose policy
is to obtain the "best execution" (prompt and reliable execution at the most
favorable securities price) of all portfolio transactions. In placing portfolio
transactions for its segments, Janus Capital may agree to pay brokerage
commissions for effecting a securities transaction, in an amount higher than
another broker or dealer would have charged for effecting that transaction as
authorized, under certain circumstances, by the Securities Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including, but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the securities being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting that transaction if Janus Capital determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall responsibilities of Janus
Capital. Research may include furnishing advice, either directly or through
publications or writing, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services, and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Janus Capital in carrying out its responsibilities. Research received
from brokers or dealers is supplemental to Janus Capital's own research efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to Star Advisers Fund and Star Worldwide Fund. If Janus
Capital determines that any research product or service has a mixed use, such
that it also serves functions that do not assist in the investment
decision-making process, Janus Capital may allocate the costs of such service or
product accordingly. Only that portion of the product or service that Janus
Capital determines will assist it in the investment decision-making process may
be paid for in brokerage commission dollars. Such allocation may create a
conflict of interest for Janus Capital.
Janus Capital may also consider sales of shares of mutual funds advised
by Janus Capital by a broker-dealer or the recommendation of a broker-dealer to
its customers that they purchase shares of such funds as a factor in the
selection of broker-dealers to execute portfolio transactions for Star Advisers
Fund and Star Worldwide Fund. In placing portfolio business with such
broker-dealers, Janus Capital will seek the best execution of each transaction.
Star Advisers Fund and Star Worldwide Fund (segments advised by
Founders). It is the policy of Founders, in effecting transactions in portfolio
securities, to seek the best execution of orders at the most favorable prices.
The determination of what may constitute best execution in a securities
transaction involves a number of judgmental considerations, including, without
limitation, the overall direct net economic result to the segment of the Fund
(involving both price paid or received and any commissions and other costs), the
efficiency with which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, the availability of the
broker to stand ready to execute possibly difficult transactions for the segment
in the future, and the financial strength and stability of the broker.
Subject to the policy of seeking best execution of orders at the most
favorable prices, Founders may execute transactions with brokerage firms that
provide research services and products to Founders. The phrase "research
services and products" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, the availability
of securities or purchasers or sellers of securities, the furnishing of analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts, and obtaining
products such as third-party publications, computer and electronic access
equipment, software programs, and other information and accessories that may
assist Founders in furtherance of its investment advisory responsibilities to
its advisory clients. Such services and products permit Founders to supplement
its own research and analysis activities, and provide it with information from
individuals and research staffs of many securities firms. Generally, it is not
possible to place a dollar value on the benefits derived from specific research
services and products. Founders may receive a benefit from these research
services and products which is not passed on, in the form of a direct monetary
benefit, to the segment of the Fund. If Founders determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Founders will allocate in
good faith the cost of such service or product accordingly. The portion of the
product or service that Founders determines will assist it in the investment
decision-making process may be paid for with Fund brokerage commissions, i.e.
with "soft dollars." The non-research part must be paid for in "hard dollars,"
i.e. from Founders, own Funds. Any such allocation may create a conflict of
interest for Founders.
Neither the research services nor the amount of brokerage given to a
particular broker-dealer are made pursuant to any agreement or commitment with
any of the selected broker-dealers that would bind Founders to compensate the
selected broker-dealer for research provided. However, Founders maintains an
internal allocation procedure to identify those broker-dealers that have
provided it with research and endeavors to direct sufficient commissions to them
to ensure continued receipt of research Founders believes is useful.
Research services and products may be useful to Founders in providing
investment advice to any of the funds or clients it advises. Likewise,
information made available to Founders from brokers effecting securities
transactions for such other funds and clients may be utilized on behalf of
another fund. Thus, there may be no correlation between the amount of brokerage
commissions generated by a particular fund or client and the indirect benefits
received by that fund or client.
Subject to the policy of seeking the best execution of orders at the
most favorable prices, sales of shares of the Fund may also be considered as a
factor in the selection of brokerage firms to execute portfolio transactions for
the segment of the Fund.
Because selection of executing brokers is not based solely on net
commissions, the segment of the Fund advised by Founders may pay an executing
broker a commission higher than that which might have been charged by another
broker for that transaction. Founders will not knowingly pay higher mark-ups on
principal transactions to brokerage firms as consideration for receipt of
research services or products. While it is not practicable for Founders to
solicit competitive bids for commissions on each portfolio transaction,
consideration is regularly given to available information concerning the level
of commissions charged in comparable transactions by various brokers.
Transactions in over-the-counter securities are normally placed with principal
market makers, except in circumstances where, in the opinion of Founders, better
prices and execution are available elsewhere.
All Equity Funds advised by Loomis Sayles. In placing orders for the
purchase and sale of securities for Balanced Fund, International Equity Fund,
Value Fund, Equity Income Fund and the segments of Star Advisers Fund and Star
Small Cap Fund advised by Loomis Sayles, Loomis Sayles follows the same policies
as for the other Funds for which it acts as subadviser, except that Loomis
Sayles may cause these Funds or segments to pay a broker-dealer that provides
brokerage and research services to Loomis Sayles an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. Loomis Sayles
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 Loomis
Sayles' overall responsibilities to the Fund and its other clients. Loomis
Sayles' authority to cause these Funds or segments to pay such greater
commissions is also subject to such policies as the trustees of the Trusts may
adopt from time to time.
Growth Opportunities Fund and Capital Growth Fund (advised by
Westpeak). In placing orders for the purchase and sale of securities, Westpeak
always seeks best execution. Westpeak 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. This does not necessarily mean that the lowest
available brokerage commission will be paid. Westpeak 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. Westpeak may cause
the Fund to pay a broker-dealer that provides brokerage and research services to
Westpeak an amount of commission for effecting a securities transaction for the
Fund in excess of the amount another broker-dealer would have charged effecting
that transaction. Westpeak 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 Westpeak's overall responsibilities to the Fund and
its other clients. Westpeak's authority to cause the Fund it manages to pay such
greater commissions is also subject to such policies as the trustees of the
Trusts may adopt from time to time.
Bullseye Fund (advised by Jurika & Voyles). In placing orders for the
purchase and sale of portfolio securities for the Fund, Jurika & Voyles always
seeks best execution, subject to the considerations set forth below.
Transactions in unlisted securities are carried out through broker-dealers who
make the market for such securities unless, in the judgment of Jurika & Voyles,
a more favorable execution can be obtained by carrying out such transactions
through other brokers or dealers.
Jurika & Voyles selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best execution for the transaction. This does not necessarily mean that the
lowest available brokerage commission will be paid. However, the commissions are
believed to be competitive with generally prevailing rates. Jurika & Voyles will
use its best efforts to obtain information as to the general level of commission
rates being charged by the brokerage community from time to time and will
evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
Receipt of brokerage or research services from brokers may sometimes be
a factor in selecting a broker which Jurika & Voyles believes will provide best
execution for a transaction. These services include not only a wide variety of
reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce Jurika & Voyles' expenses. Such services may be used by Jurika &
Voyles in servicing other client accounts and in some cases may not be used with
respect to the Fund. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
Jurika & Voyles may, however, consider purchases of shares of the Fund by
customers of broker-dealers as a factor in the selection of broker-dealers to
execute the Fund's securities transactions.
Jurika & Voyles may cause the Fund to pay a broker-dealer that provides
brokerage and research services to Jurika & Voyles an amount of commission for
effecting a securities transaction for the Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. Jurika & Voyles
must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or Jurika
& Voyles' overall responsibilities to the Fund and its other clients. Jurika &
Voyles' authority to cause the Fund to pay such greater commissions is also
subject to such policies as the trustees of the Trust may adopt from time to
time.
Star Advisers, Star Worldwide and Star Small Cap Funds (segments
advised by Harris). In placing orders for the purchase and sale of portfolio
securities for the segments of Star Advisers Fund, Star Worldwide Fund and Star
Small Cap Fund advised by Harris, Harris 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, a more favorable execution can be obtained by
carrying out such transactions through other brokers or dealers.
Harris 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 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 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's expenses. Such services may be used by Harris in servicing other client
accounts and in some cases may not be used with respect to the Funds. Consistent
with the Rules of the National Association of Securities Dealers, Inc., and
subject to seeking best execution, Harris may, however, consider purchases of
shares of Star Advisers Fund, Star Worldwide Fund and Star Small Cap Fund by
customers of broker-dealers as a factor in the selection of broker-dealers to
execute Fund portfolio transactions.
Harris may cause its segments of Star Advisers Fund, Star Worldwide
Fund and Star Small Cap Fund to pay a broker-dealer that provides brokerage and
research services to Harris an amount of commission for effecting a securities
transaction for the Fund in excess of the amount another broker-dealer would
have charged for effecting that transaction. Harris 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's overall responsibilities to
the Funds and its other clients. Harris's authority to cause the Funds to pay
such greater commissions is also subject to such policies as the trustees of the
Trusts may adopt from time to time.
Star Worldwide and Star Small Cap Funds (segments advised by
Montgomery). In all purchases and sales of securities for its segments of the
Funds, Montgomery's primary consideration is to obtain the most favorable
execution available. Pursuant to the subadvisory agreements between NEFM and
Montgomery, Montgomery determines which securities are to be purchased and sold
by its segments and which broker-dealers are eligible to execute its segments'
portfolio transactions, subject to the instructions of, and review by, NEFM and
the trustees. Purchases and sales of securities within the U.S. other than on a
securities exchange will generally be executed directly with a market-maker
unless, in the opinion of Montgomery, a better price and execution can otherwise
be obtained by using a broker for the transaction.
For Star Worldwide Fund, Montgomery contemplates purchasing most equity
securities directly in the securities markets located in emerging or developing
countries or in the over-the-counter markets. In purchasing American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs") (and other similar
instruments), Montgomery's segments of Star Worldwide Fund may purchase those
listed on stock exchanges, or traded in the over-the-counter markets in the U.S.
or Europe, as the case may be. ADRs, like other securities traded in the U.S.,
will be subject to negotiated commission rates. The foreign and domestic debt
securities and money market instruments in which Montgomery's segment of Star
Worldwide Fund may invest may be traded in the over-the-counter markets.
Purchases of portfolio securities for the segments also may be made
directly from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities which this segment will be holding, unless better
executions are available elsewhere. Dealers and underwriters usually act as
principals for their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and the asked price. If the execution and
price offered by more than one dealer or underwriter are comparable, the order
may be allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, Montgomery will use its best efforts
to choose a broker-dealer capable of providing the services necessary generally
to obtain the most favorable execution available. The full range and quality of
services available will be considered in making these determinations, such as
the firm's ability to execute trades in a specific market required by the
segment of the Fund, such as in an emerging market, the size of the order, the
difficulty of execution, the operational facilities of the firm involved, the
firm's risk in positioning a block of securities, and other factors.
Montgomery may also consider the sale of Star Worldwide Fund and Star
Small Cap Fund shares as a factor in the selection of broker-dealers to execute
portfolio transactions for its segments. The placement of portfolio transactions
with broker-dealers who sell shares of the Funds is subject to rules adopted by
the National Association of Securities Dealers, Inc.
While Montgomery's general policy is to seek first to obtain the most
favorable execution available, in selecting a broker-dealer to execute portfolio
transactions, weight may also be given to the ability of a broker-dealer to
furnish brokerage, research and statistical services to Montgomery, even if the
specific services were not imputed just to the Fund and may be lawfully and
appropriately used by Montgomery in advising other clients. Montgomery considers
such information, which is in addition to, and not in lieu of, the services
required to be performed by it under its subadvisory agreements with NEFM, to be
useful in varying degrees, but of indeterminable value. In negotiating any
commissions with a broker or evaluating the spread to be paid to a dealer, the
segments of the Funds may therefore pay a higher commission or spread than would
be the case if no weight were given to the furnishing of these supplemental
services, provided that the amount of such commission or spread has been
determined in good faith by Montgomery to be reasonable in relation to the value
of the brokerage and/or research services provided by such broker-dealer, which
services either produce a direct benefit to the segments of the Funds or assist
Montgomery in carrying out its responsibilities to the segments of the Funds.
The standard of reasonableness is to be measured in light of Montgomery's
overall responsibilities to its segments. The trustees of the Trusts review all
brokerage allocations where services other than best execution capabilities are
a factor to ensure that the other services provided meet the criteria outlined
above and produce a benefit to the Fund.
On occasion, situations may arise in which legal and regulatory
considerations will preclude trading for the segments' accounts by reason of
activities of Montgomery Securities, a broker-dealer affiliated with Montgomery,
or its affiliates. It is the judgment of the trustees that the Funds will not be
materially disadvantaged by any such trading preclusion and that the
desirability of continuing their subadvisory arrangements with Montgomery and
Montgomery's affiliation with Montgomery Securities and other affiliates of
Montgomery Securities outweigh any disadvantages that may result from the
foregoing.
Montgomery's sell discipline for the segments' investments is based on
the premise of a long-term investment horizon; however, sudden changes in
valuation levels arising from, for example, new macroeconomic policies,
political developments, and industry conditions could change the assumed time
horizon. Liquidity, volatility, and overall risk of a position are other factors
considered by Montgomery in determining the appropriate investment horizon.
At the company level, sell decisions are influenced by a number of
factors, including current stock valuation relative to the estimated fair value
range, or a high P/E relative to expected growth. Negative changes in the
relevant industry sector, or a reduction in international competitiveness and
declining financial flexibility, may also signal a sell.
Star Small Cap Fund (segment advised by Robertson Stephens). It is the
policy of Robertson Stephens, in effecting transactions in portfolio securities,
to seek the best execution of orders. The determination of what may constitute
best execution in a securities transaction involves a number of judgmental
considerations, including, without limitation, the overall direct net economic
result to this segment of the Fund (involving both price paid or received and
any commissions and other costs), the efficiency with which the transaction is
effected, the ability to effect the transaction at all when a large block is
involved, the availability of the broker to stand ready to execute possibly
difficult transactions for this segment in the future, and the financial
strength and stability of the broker.
Subject to the policy of seeking best execution of orders at the most
favorable prices, Robertson Stephens may execute transactions with brokerage
firms which provide research services and products to Robertson Stephens. The
phrase "research services and products" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
the availability of securities or purchasers or sellers of securities, the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts,
and the obtainment of products such as third-party publications, computer and
electronic access equipment, software programs, and other information and
accessories that may assist Robertson Stephens in furtherance of its investment
advisory responsibilities to its advisory clients. Such services and products
permit Robertson Stephens to supplement its own research and analysis
activities, and provide it with information from individuals and research staffs
of many securities firms. Generally, it is not possible to place a dollar value
on the benefits derived from specific research services and products. Robertson
Stephens may receive a benefit from these research services and products which
is not passed on, in the form of a direct monetary benefit, to this segment of
the Fund. If Robertson Stephens determines that any research product or service
has a mixed use, such that it also serves functions that do not assist in the
investment decision-making process, Robertson Stephens may allocate the cost of
such service or product accordingly. The portion of the product or service that
Robertson Stephens determines will assist it in the investment decision-making
process may be paid for in brokerage commission dollars. Any such allocation may
create a conflict of interest for Robertson Stephens. Subject to the standards
outlined in this and the preceding paragraph, Robertson Stephens may arrange to
execute a specified dollar amount of transactions through a broker that has
provided research products or services. Such arrangements do not constitute
commitments by Robertson Stephens to allocate portfolio brokerage upon any
prescribed basis, other than upon the basis of seeking best execution of orders.
Research services and products may be useful to Robertson Stephens in
providing investment advice to any of the funds or clients it advises. Likewise,
information made available to Robertson Stephens from brokers effecting
securities transactions for such other funds and clients may be utilized on
behalf of another fund. Thus, there may be no correlation between the amount of
brokerage commissions generated by a particular fund or client and the indirect
benefits received by that fund or client.
Subject to the policy of seeking the best execution of orders, sales of
shares of the Fund may also be considered as a factor in the selection of
brokerage firms to execute portfolio transactions for this segment of the Fund.
Because selection of executing brokers is not based solely on net
commissions, the segment of the Fund advised by Robertson Stephens may pay an
executing broker a commission higher than that which might have been charged by
another broker for that transaction. Robertson Stephens will not knowingly pay
higher mark-ups on principal transactions to brokerage firms as consideration
for receipt of research services or products. While it is not practicable for
Robertson Stephens to solicit competitive bids for commissions on each portfolio
transaction, consideration is regularly given to available information
concerning the level of commissions charged in comparable transactions by
various brokers. Transactions in over-the-counter securities are normally placed
with principal market makers, except in circumstances where, in the opinion of
Robertson Stephens, better prices and execution are available elsewhere.
Portfolio Trades of All Subadvisers Subject to the overriding objective of
obtaining the best possible execution of orders, each of the subadvisers may
allocate brokerage transactions to affiliated brokers. In order for the
affiliated broker to effect portfolio transactions for the Fund, the
commissions, fees or other remuneration received by the affiliated broker must
be reasonable and fair compared to the commissions, fees and other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period. Furthermore, the trustees of the Trusts, including a majority
of those trustees who are not "interested persons" of the Trusts as defined in
the 1940 Act have adopted procedures which are reasonably designed to provide
that any commissions, fees or other remuneration paid to an affiliated broker
are consistent with the foregoing standard.
General
Portfolio turnover is not a limiting factor with respect to investment
decisions. The Funds anticipate that their portfolio turnover rates will vary
significantly from time to time depending on the volatility of economic and
market conditions.
Subject to procedures adopted by the Board of Trustees of the Trusts,
the Funds' brokerage transactions may be executed by brokers that are affiliated
with Nvest Companies or the Funds' advisers or subadvisers. Any such
transactions will comply with Rule 17e-1 under the 1940 Act.
The Bond Income, Government Securities and Municipal Income Funds and
all the Funds of New England Funds Trust II may pay brokerage commissions to New
England Securities for acting as the respective Fund's agent on purchases and
sales of securities. SEC rules require that the commissions paid to New England
Securities by a Fund for portfolio transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The trustees
of the Trusts, including those who are not "interested persons" of the Trusts,
have adopted procedures for evaluating the reasonableness of commissions paid to
New England Securities and will review these procedures periodically.
Under the 1940 Act, persons affiliated with each Trust are prohibited
from dealing with each Trust's Funds as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts,
affiliated persons of the Trusts, such as New England Securities, may not serve
as the Funds' dealer in connection with such transactions.
It is expected that the portfolio transactions in fixed-income
securities will generally be with issuers or dealers on a net basis without a
stated commission. Securities firms may receive brokerage commissions on
transactions involving options, futures and options on futures and the purchase
and sale of underlying securities upon exercise of options. The brokerage
commissions associated with buying and selling options may be proportionately
higher than those associated with general securities transactions.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES
- --------------------------------------------------------------------------------
New England Funds Trust I is organized as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and Declaration of Trust
(a "Declaration of Trust") dated June 7, 1985, as amended, and is a "series"
company as described in Section 18(f)(2) of the 1940 Act. Until September 1986,
the name of the Trust was "New England Life Government Securities Trust"; from
September 1986 to April 1994, its name was "The New England Funds." Prior to
January 5, 1996, the name of the Municipal Income Fund was "New England Tax
Exempt Income Fund." The initial Fund of the Trust (the Fund now called New
England Government Securities Fund) commenced operations on September 16, 1985.
International Equity Fund commenced operations on May 22, 1992. The Capital
Growth Fund was organized in 1992 and commenced operations on August 3, 1992.
Star Advisers Fund was organized in 1994 and commenced operations on July 7,
1994. Strategic Income Fund was organized in 1995 and commenced operations on
May 1, 1995. Star Worldwide Fund was organized in 1995 and commenced operations
on December 29, 1995. Star Small Cap Fund was organized in 1996 and commenced
operations on December 31, 1996. The remaining Funds in the Trust are successors
to the following corporations which commenced operations in the years indicated:
Corporation Date of Commencement
----------- --------------------
NEL Growth Fund, Inc. 1968
NEL Retirement Equity Fund, Inc.* 1969
NEL Equity Fund, Inc.** 1968
NEL Income Fund, Inc.*** 1973
NEL Tax Exempt Bond Fund, Inc.**** 1976
* Predecessor of the Value Fund
** Predecessor of the Balanced Fund
*** Predecessor of the Bond Income Fund
**** Predecessor of the Municipal Income Fund
New England Funds Trust II is organized as a Massachusetts business
trust pursuant to a Declaration of Trust dated May 6, 1931, as amended, and
consisted of a single Fund (now the Growth Opportunities Fund) until January
1989, when the Trust was reorganized as a "series" company as described in
Section 18(f)(2) of the 1940 Act. The Trust has seven separate portfolios. Until
December 1988, the name of the Trust was "Investment Trust of Boston"; from
December 1988 until April 1992, its name was "Investment Trust of Boston Funds";
from April 1992 until April 1994, its name was "TNE Funds Trust." High Income
Fund and Massachusetts Fund are successors to separate investment companies that
were organized in 1983 and 1984, respectively, and reorganized as series of the
Trust in January 1989. Limited Term U.S. Government Fund was organized in 1988
and commenced operations in January 1989. Short Term Corporate Income Fund was
organized in 1991 and commenced operations on October 18 of that year.
California and New York Funds were organized in 1993 and commenced operations on
April 23 of that year. Prior to May 1, 1998, the name of New York Fund was "New
England Intermediate Term Tax Free Fund of New York." Prior to December 1, 1998,
the name of Short Term Corporate Income Fund was "New England Adjustable Rate
U.S. Government Fund."
New England Funds Trust III was organized as a Massachusetts business
trust pursuant to a Declaration of Trust dated August 22, 1995. The Trust has
eight separate funds (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 Bond Fund). New England Equity Income Fund was
organized in 1995 and commenced operations on November 28, 1995. New England
Bullseye 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 Bond Fund were organized in 1998. New
England Bullseye Fund commenced operations on March 31, 1998. New England Core
Equity Fund, New England Small Cap Value Fund, New England Small Cap Growth Fund
and New England Total Return Bond Fund commenced operations on April 30, 1999.
New England Stock and Bond Fund and New England Select Fund are not currently
offered to the public.
The Declarations of Trust of New England Funds Trust I, New England
Funds Trust II and New England Funds Trust III permit each Trust's 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 Declarations of Trust
further permit each 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 each Trust's Board
of Trustees may determine. When you invest in a Fund, you acquire freely
transferable shares of beneficial interest that entitle you to receive annual or
quarterly dividends as determined by the respective Trust's Board of Trustees
and to cast a vote for each share you own at shareholder meetings. The shares of
each Fund 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 Declarations of Trust also permit the Board of Trustees to charge
shareholders directly for custodial, transfer agency and servicing expenses.
The shares of all the Funds (except as noted in the preceding
paragraphs of this section) are divided into four classes, Class A, Class B,
Class C and Class Y. Each Fund offers such classes of shares as set forth in
such Fund's Prospectus. Class Y shares are available for purchase only by
certain eligible institutional investors and have higher minimum purchase
requirements than Classes A, B and C. All expenses of each Fund (excluding
transfer agency fees and expenses of printing and mailing Prospectuses to
shareholders ["Other Expenses"]) are borne by its Class A, B, C and Y shares on
a pro rata basis, except for 12b-1 fees, which are borne only by Classes A, B
and C and may be charged at a separate rate to each such class. Other Expenses
of Classes A, B and C are borne by such classes on a pro rata basis, but Other
Expenses relating to the Class Y shares may be allocated separately to the Class
Y shares. The Class A, Class B, Class C and Class Y structure could be
terminated should certain 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 with the expenses with respect to
that class of a Fund and with a share of the general expenses of the relevant
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 trustees in such manner as the trustees determine to be fair
and equitable. While the expenses of each 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 a Trust.
The Declarations of Trust also permit each Trust's Board of Trustees,
without shareholder approval, to subdivide any series or class of shares or Fund
into various sub-series or sub-classes with such dividend preferences and other
rights as the trustees may designate. While each Trust's Board of 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.
Each Trust's Board of Trustees may also, without shareholder approval, establish
one or more additional series or classes or merge two or more existing series or
classes.
The Declarations of Trust provide for the perpetual existence of the
Trusts. Any 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 each Declaration of Trust further
provides that the Board of Trustees may also terminate the relevant 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
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 Declarations of Trust provide that on any matter submitted to a
vote of all shareholders of a Trust, all Trust shares entitled to vote shall be
voted together irrespective of series or class unless the rights of a particular
series or class would be adversely affected by the vote, in which case a
separate vote of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory 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) a 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 there is a vacancy on the Board of Trustees, such
vacancy may be filled only by a vote of the shareholders unless, after filing
such vacancy by other means, at least two-thirds of the trustees holding office
shall have been elected by the shareholders. In addition, trustees may be
removed from office by a written consent signed by the holders of two-thirds of
the outstanding shares and filed with a Trust's custodian or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for
that purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
of at least $25,000 or at least 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Trusts have 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 a Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the relevant 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 a Trust.
However, the Declarations of Trust disclaim shareholder liability for acts or
obligations of a Trust and require that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by a Trust or
the trustees. The Declarations of Trust provide 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 Declarations of Trust further provide that the relevant Board of
Trustees will not be liable for errors of judgment or mistakes of fact or law.
However, nothing in the Declarations 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 each Trust provide
for indemnification by the Trust of trustees and officers of the relevant 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. Each Trust offers only its own Funds' shares for sale, but it is
possible that a Trust might become liable for any misstatements in a Prospectus
that relate to another Trust. The trustees of each Trust have considered this
possible liability and approved the use of the combined Prospectus for Funds of
all three Trusts.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The procedures for purchasing shares of the Funds are summarized in the
Prospectuses. All purchases made by check should be in U.S. dollars and made
payable to New England Funds, or, in the case of a retirement account, the
custodian or trustee. 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 on a day
when the Exchange is open; otherwise the settlement date is the following
business day. For telephone orders, the settlement date is the third business
day after the order is made.
Shares may also be purchased either in writing, by phone or, 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 Prospectuses 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 Web
site (www.mutualfunds.com) to purchase Fund shares. For more information, see
the section entitled "Shareholder Services" in this Statement.
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.
If you wish transactions in your account to be effected by another
person under a power of attorney from you, special rules as summarized in the
Prospectus may apply.
- --------------------------------------------------------------------------------
NET ASSET VALUE AND PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
The method for determining the public offering price and net asset
value per share is summarized in the Prospectus.
The total net asset value of each class of shares of a Fund (the excess
of the assets of such Fund attributable to such class over the liabilities
attributable to such class) is determined as of the close of regular trading
(normally 4:00 p.m. Eastern time) on each day that the New York Stock Exchange
(the "NYSE") is open for trading. The weekdays that the NYSE is expected to be
closed are New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities listed on a national securities exchange or on the NASDAQ National
Market System are valued at their last sale price, or, if there is no reported
sale during the day, the last reported bid price estimated by a broker. Unlisted
securities traded in the over-the-counter market are valued at the last reported
bid price in the over-the-counter market or on the basis of yield equivalents as
obtained from one or more dealers that make a market in the securities. U.S.
Government securities are traded in the over-the-counter market. Options,
interest rate futures and options thereon that are traded on exchanges are
valued at their last sale price as of the close of such exchanges. Securities
for which current market quotations are not readily available and all other
assets are taken at fair value as determined in good faith by the Board of
Trustees, although the actual calculations may be made by persons acting
pursuant to the direction of the board.
Generally, trading in foreign government securities and other
fixed-income securities, as well as trading in equity securities in markets
outside the United States, is substantially completed each day at various times
prior to the close of the NYSE. Securities traded on a non-U.S. exchange will be
valued at their last sale price (or the last reported bid price, if there is no
reported sale during the day), on the exchange on which they principally trade,
as of the close of regular trading on such exchange except for securities traded
on the London Stock Exchange ("British Equities"). British Equities will be
valued at the mean between the last bid and last asked prices on the London
Stock Exchange. The value of other securities principally traded outside the
United States will be computed as of the completion of substantial trading for
the day on the markets on which such securities principally trade. Securities
principally traded outside the United States will generally be valued several
hours before the close of regular trading on the NYSE, generally 4:00 p.m.
Eastern time, when the Funds compute the net asset value of their shares.
Occasionally, events affecting the value of securities principally traded
outside the United States may occur between the completion of substantial
trading of such securities for the day and the close of the NYSE, which events
will not be reflected in the computation of a Fund's net asset value. If events
materially affecting the value of a Fund's securities occur during such period,
then these securities will be valued at their fair value as determined in good
faith by or in accordance with procedures approved by the Trusts' trustees. The
effect of fair value pricing is that securities may not be priced ont he basis
of quotations from the primary market in which they are traded but rather, may
be priced by another method that the Board of Trustees believes accurately
reflects fair value.
Trading in some of the portfolio securities of some of the Funds takes
place in various markets outside the United States on days and at times other
than when the NYSE is open for trading. Therefore, the calculation of these
Funds' net asset value does not take place at the same time as the prices of
many of its portfolio securities are determined, and the value of the Fund's
portfolio may change on days when the Fund is not open for business and its
shares may not be purchased or redeemed.
The per share net asset value of a class of a Fund's shares is computed
by dividing the number of shares outstanding into the total net asset value
attributable to such class. The public offering price of a Class A share of a
Fund is the net asset value per share next-determined after a properly completed
purchase order is accepted by Nvest Services Company or State Street Bank, plus
a sales charge as set forth in the Fund's Prospectus. The public offering price
of a Class B, C or Y share of a Fund is the next-determined net asset value.
- --------------------------------------------------------------------------------
REDUCED SALES CHARGES
CLASS A SHARES ONLY
- --------------------------------------------------------------------------------
The following special purchase plans are summarized in the Prospectuses.
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 effective date of the Letter, 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 (excluding the Money Market Funds unless the shares were purchased
through an exchange another New England Fund) 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 values 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 other New England Fund). 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 front-end 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
front-end 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 Financial or MetLife; current and former directors and Trustees of the
Trusts; agents and general agents of New England Financial 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 New England Financial or MetLife
or any insurance company affiliated with New England Financial 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.
CERTAIN ACCOUNTS OF GROWTH FUND. For accounts established prior to
February 28, 1997 having a total investment value of between (and including)
$25,000 and $49,000, a reduced sales charge of 5.50% of the offering price (or
5.82% of the net amount invested), with a dealer's concession of 4.25% as a
percentage of offering price, will be charged on the sale of additional Class A
shares of Growth Fund if the total investment value of Growth Fund account after
such sale is between (and including) $25,000 and $49,000.
The reduction or elimination of the sales charges in connection with
sales described above reflects the absence or reduction of expenses associated
with such sales.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Open Accounts
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by State Street Bank. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, State Street Bank will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. Nvest Services Company 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. Certificates will not be issued for Class B or Class C shares.
The costs of maintaining the open account system are paid by the Funds
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 the Distributor 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 Nvest Services Company
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 the
Distributor at 800-225-5478 or your investment dealer.
This program is voluntary and may be terminated at any time by Nvest
Services Company upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by
the investor by written notice to Nvest Services Company, which must be received
at least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if any check
is not paid upon presentation; or by written notice to you at least thirty days
prior to any payment date. State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
Retirement Plans Offering Tax Benefits (Class A, B and C Shares)
The federal tax laws provide for a variety of retirement plans offering
tax benefits. These plans may be funded with shares of the 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, at least $500 for IRAs and at
least $100 for any subsequent investments. There is a special initial and
subsequent investment minimum of $25 for payroll deduction investment programs
for 401(k), SARSEP, SEP, SIMPLE Plans, 403(b) and certain other retirement
plans. Income dividends and capital gain distributions must be reinvested
(unless the investor is over age 59 1/2 or disabled). Plan documents and further
information can be obtained from the Distributor.
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.
Certain retirement plans may also be eligible to purchase Class Y
shares. See the Prospectus relating to Class Y shares.
Systematic Withdrawal Plans (Class A, B and C Shares)
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 the Distributor.
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 (uncertificated)
account. Income dividends and capital gain distributions will be reinvested
(without a sales charge in the case of Class A shares) at net asset value
determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, a
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The
Funds and the Distributor 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 the Distributor 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.
Dividend Diversification Program
You may also establish a Dividend Diversification Program, which allows
you to have all dividends and any other distributions automatically invested in
shares of the same class of another New England Fund, subject to the investor
eligibility requirements of that other Fund and to state securities law
requirements. Shares will be purchased at the selected Fund's net asset value
(without a sales charge or CDSC) on the dividend record date. A dividend
diversification account must be in the same registration (shareholder name) as
the distributing Fund account and, if a new account in the purchased Fund is
being established, the purchased Fund's minimum investment requirements must be
met. Before establishing a Dividend Diversification Program into any other New
England Fund, you must obtain and carefully read a copy of that Fund's
Prospectus.
Exchange Privilege
A shareholder may exchange the shares of any Fund (except for Class A
shares of the California Fund, only if such shares have been held for at least
six months) for shares of the same class of any other New England Fund (subject
to the investor eligibility requirements, if any, of the New England 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. An exchange of shares in one
Fund for shares of another Fund is a taxable event on which gain or loss may be
recognized. In the case of Class A shares of the California Fund held less than
six months, if exchanged for shares of any other Fund that has a higher sales
charge, shareholders will pay the difference between any sales charge already
paid on their shares and the higher sales charge of the Fund into which they are
exchanging at the time of the exchange. Exchanges of Class A shares of Short
Term Corporate Income Fund (formerly Adjustable Rate U.S. Government Fund)
purchased before December 1, 1998 will also pay the difference between any sales
charge already paid on their shares and the higher sales charge of the Fund into
which they are exchanging. When an exchange is made from the Class A, Class B or
Class C shares of one Fund to the same class of shares of another Fund, the
shares received by the shareholder in the exchange will have the same age
characteristics as the shares exchanged. The age of the shares determines the
expiration of the CDSC and, for the Class B shares, the conversion date. If you
own Class A, Class B or Class C shares, you may also elect to exchange your
shares of any Fund for shares of the same class of the Money Market Funds. On
all exchanges of Class A or C 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
period resumes only when an exchange is made back into Class B shares of a Fund.
In addition, you may also exchange Class A shares of the Money Market Funds that
have not previously paid a sales charge to Class B or Class C shares of any New
England Fund. If you own Class Y shares, you may exchange those shares for Class
Y shares of other Funds or for Class A shares of the Money Market Funds. These
options are summarized in the Prospectus. An exchange may be effected, provided
that neither the registered name nor address of the accounts are different and
provided that a certificate representing the shares being exchanged has not been
issued to the shareholder, by (1) a telephone request to the Fund or Nvest
Services Company at 800-225-5478 or (2) a written exchange request to the Fund
or Nvest Services Company, P.O. Box 8551, Boston, MA 02266-8551. You must
acknowledge receipt of a current Prospectus for a Fund before an exchange for
that Fund can be effected. The minimum amount for an exchange is $1,000.
Agents, general agents, directors and senior officers of New England
Financial and its insurance company subsidiaries may, at the discretion of New
England Financial, elect to exchange Class A shares of any series of the Trusts
acquired in connection with deferred compensation plans offered by New England
Financial for Class Y shares of any series of the Trusts which offers Class Y
shares. To obtain a prospectus and more information about Class Y shares, please
call the Distributor toll free at 800-225-5478.
Except as otherwise permitted by SEC rule, shareholders will receive at
least 60 days advance notice of any material change to the exchange privilege.
Broker Trading Privileges
The Distributor may, from time to time, enter into agreements with one or more
brokers or other intermediaries to accept purchase and redemption orders for
Fund shares until the close of regular trading on the NYSE (normally, 4:00 p.m.
Eastern Time on each day that the Exchange is open for trading); such purchase
and redemption orders will be deemed to have been received by the Fund when the
authorized broker or intermediary accepts such orders; and such orders will be
priced using that Fund's net asset value next computed after the orders are
placed with and accepted by such brokers or intermediaries. Any purchase and
redemption orders received by a broker or intermediary under these agreements
will be transmitted daily to the Distributor no later than the time specified in
such agreement; but, in any event, no later than 6:00 a.m. following the day
that such purchase or redemption orders are received by the broker or
intermediary.
The investment objectives of the New England Funds and the Money Market Funds as
set forth in the Prospectuses are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return
from a combination of market appreciation and dividend income from equity
securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-term capital appreciation and moderate current
income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for long-term
growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from long-term
growth of capital and dividend income primarily through investment in a
diversified portfolio of marketable international equity securities.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
NEW ENGLAND EQUITY INCOME FUND seeks current income and capital growth.
NEW ENGLAND BULLSEYE FUND seeks long-term growth of capital.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND SHORT TERM CORPORATE INCOME FUND seeks a high level of
current income consistent with preservation of capital.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what the Fund considers reasonable risk.
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.
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 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 seeks as high a level of
current income exempt from federal income tax, its state personal income tax and
New York City personal income tax as is consistent with preservation of capital.
ACCESS SHARES:
NEW ENGLAND CORE EQUITY FUND seeks long-term capital appreciation by
investing all or substantially all of its assets in The Oakmark Fund.
NEW ENGLAND SMALL CAP VALUE FUND seeks long-term capital appreciation
by investing all or substantially all of its assets in The Oakmark Small Cap
Fund.
NEW ENGLAND SMALL CAP GROWTH FUND seeks long-term capital growth by
investing all or substantially all of its assets in the Loomis Sayles Small Cap
Growth Fund.
NEW ENGLAND TOTAL RETURN BOND FUND seeks high total investment return
through a combination of current income and capital appreciation by investing
all or substantially all of its assets in the Loomis Sayles Bond Fund.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST - MONEY MARKET SERIES seeks maximum
current income consistent with preservation of capital and liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST - seeks current income exempt
from federal income taxes consistent with preservation of capital and liquidity.
As of December 31, 1998, the net assets of the New England Funds and
the Money Market Funds totaled over $____ billion.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the Prospectus following the caption "Additional
Investor Services," 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 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 Nvest Services Company is notified in writing to terminate
the plan. Exchanges may be made in amounts of $100 or more. The Service Options
Form is available from Nvest Services Company or your financial representative
to establish an Automatic Exchange Plan.
Self-Servicing Your Account with New England Funds Personal Access
Line(TM) and Web site
New England Funds shareholders may access account information,
including share balances and recent account activity online, by visiting our Web
site at www.mutualfunds.com. Transactions may also be processed online for
certain accounts (restrictions may apply). Such transactions include purchases,
redemptions and exchanges, and shareholders are automatically eligible for these
features. New England Funds has taken measures to ensure the security of
shareholder accounts, including the encryption of data and the use of personal
identification (PIN) numbers. In addition, you may restrict these privileges
from your account by calling New England Funds at 800-225-5478, or writing to us
at P.O. Box 8551, Boston, MA 02116. More information regarding these features
may be found on our Web site at www.mutualfunds.com.
Investor activity through these mediums are subject to the terms and conditions
outlined in the following NEW ENGLAND FUNDS ONLINE AND TELEPHONIC CUSTOMER
AGREEMENT. This agreement is also posted on our Web site. The initiation of any
activity through the New England Funds Personal Access Line(TM), or Web site at
www.mutualfunds.Com by an investor shall indicate agreement with the following
terms and conditions:
NEW ENGLAND FUNDS ONLINE AND TELEPHONIC CUSTOMER AGREEMENT
NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS
SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS
AND CONDITIONS.
The accuracy, completeness and timeliness of all mutual fund information
provided is the sole responsibility of the mutual fund company which provides
the information. No party which provides a connection between this web site and
a mutual fund or its transfer agency system can verify or ensure the receipt of
any information transmitted to or from a mutual fund or its transfer agent, or
the acceptance by, or completion of any transaction with, a mutual fund.
The online acknowledgments or other messages which appear on your screen for
transactions entered do not mean that the transactions have been received,
accepted or rejected by the mutual fund. These acknowledgments are only an
indication that the transactional information entered by you has either been
transmitted to the mutual fund, or that it cannot be transmitted. It is the
responsibility of the mutual fund to confirm to you that it has received the
information and accepted or rejected a transaction. It is the responsibility of
the mutual fund to deliver to you a current prospectus, confirmation statement
and any other documents or information required by applicable law.
NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION
FROM THE FUND COMPANY.
You are responsible for reviewing all mutual fund account statements received by
you in the mail in order to verify the accuracy of all mutual fund account
information provided in the statement and transactions entered through this
site. You are also responsible for promptly notifying the mutual fund of any
errors or inaccuracies relating to information contained in, or omitted from
your mutual fund account statements, including errors or inaccuracies arising
from the transactions conducted through this site.
TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH
IN THE PROSPECTUS OF THE SELECTED FUND.
THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS
TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH
THE NEW ENGLAND FUNDS PERSONAL ACCESS LINE(TM) (PAL).
You are responsible for the confidentiality and use of your personal
identification numbers, account numbers, social security numbers and any other
personal information required to access the site or transmit telephonically. Any
individual that possesses the information required to pass through all security
measures will be presumed to be you. All transactions submitted by an individual
presumed to be you will be solely your responsibility.
You agree that New England Funds does not have the responsibility to inquire as
to the legitimacy or propriety of any instructions received from you or any
person believed to be you, and is not responsible or liable for any losses that
may occur from acting on such instructions.
New England Funds is not responsible for incorrect data received via the
Internet or telephonically from you or any person believed to be you.
Transactions submitted over the Internet and telephonically are solely your
responsibility and New England Funds makes no warranty as to the correctness,
completeness, or the accuracy of any transmission. Similarly New England Funds
bears no responsibility for the performance of any computer hardware, software,
or the performance of any ancillary equipment and services such as telephone
lines, modems, or Internet service providers.
The processing of transactions over this site or telephonically will involve the
transmission of personal data including social security numbers, account numbers
and personal identification numbers. While New England Funds has taken
reasonable security precautions including data encryption designed to protect
the integrity of data transmitted to and from the areas of our Web site that
relate to the processing of transactions, we disclaim any liability for the
interception of such data.
You agree to immediately notify New England Funds if any of the following
occurs:
1. You do not receive confirmation of a transaction submitted via the Internet
or telephonically within five (5) business days.
2. You receive confirmation of a transaction of which you have no knowledge
and was not initiated or authorized by you.
3. You transmit a transaction for which you do not receive a confirmation
number.
4. You have reason to believe that others may have gained access to your
personal identification number (PIN) or other personal data.
5. You notice an unexplained discrepancy in account balances or other changes
to your account, including address changes, and banking instructions on any
confirmations or statements.
Any costs incurred in connection with the use of the New England Funds Personal
Access Line(TM) or the New England Funds Internet site including telephone line
costs, and Internet service provider costs are solely your responsibility.
Similarly New England Funds makes no warranties concerning the availability of
Internet services, or network availability.
New England Funds reserves the right to suspend, terminate or modify the
Internet capabilities offered to shareholders without notice.
You have the ability to restrict internet AND Telephonic access to your accounts
by notifying New England Funds of your desire to do so.
Written notifications to New England Funds should be sent to:
New England Funds
P O Box 8551
Boston, MA 02266-8551
Notification may also be made by calling 800-225-5478 during normal business
hours.
<PAGE>
- --------------------------------------------------------------------------------
REDEMPTIONS
- --------------------------------------------------------------------------------
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 shares that have
been in the shareholder's Fund account for under a year. The charge will not be
applied to dollar amounts representing an increase in the net asset value of
shares since the time of purchase or reinvested distributions associated with
such shares. Unless you request otherwise at the time of redemption, the CDSC is
deducted from the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 Class B shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional shares under dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the 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 year 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 a CDSC on redemption.
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934. However, a signature guarantee will not be required if the proceeds
of the redemption do not exceed $100,000 and the proceeds check is made payable
to the registered owner(s) and mailed to the record address.
If you select the telephone redemption service in the manner described
in the next paragraph, shares of 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 NYSE. Requests made after that time or on a day when the NYSE 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.
Checkwriting is available on Class A shares of Limited Term U.S.
Government Fund and Short Term Corporate Income Fund. To elect checkwriting for
your account, select the checkwriting option on your application and complete
the attached signature card. To add checkwriting to an existing account, please
call 800-225-5478 for our Service Options Form. The Funds will send you checks
drawn on State Street Bank. You will continue to earn dividends on shares
redeemed by check until the check clears. Each check must be written for $500 or
more. The checkwriting privilege does not apply to shares for which you have
requested share certificates to be issued. Checkwriting is not available for
investor accounts containing Class A shares subject to a CDSC. If you use
withdrawal checks, you will be subject to State Street Bank's rules governing
checking accounts. Limited Term U.S. Government Fund, Short Term Corporate
Income Fund and the Distributor are in no way responsible for any checkwriting
account established with State Street Bank. You may not close your account by
withdrawal check because the exact balance of your account will not be known
until after the check is received by State Street Bank.
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 to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59 1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include 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
relevant Trust's Board of Trustees determines it to be advisable and in the
interest of the remaining shareholders of a Fund. The redemptions in kind will
be selected by the Fund's 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. If portfolio securities are distributed in lieu of cash, the
shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Funds have elected to be
governed by Rule 18f-1 under the 1940 Act, pursuant to which the Funds are
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
relevant Fund at the beginning of such period. The Funds do not currently intend
to impose any redemption charge (other than the CDSC imposed by the Funds'
distributor), although it reserves the right to charge a fee not exceeding 1% of
the redemption price. A redemption constitutes a sale of shares for federal
income tax purposes on which the investor may realize a long- or short-term
capital gain or loss. See also "Income Dividends, Capital Gain Distributions and
Tax Status," below.
The Funds may also close your account and send you the proceeds if the
balance in your account falls below a minimum amount set by each Trust's Board
of Trustees (currently $1,000 for all accounts except Keogh, pension and profit
sharing plans, automatic investment plans and accounts that have fallen below
the minimum solely because of fluctuations in the net asset value per share).
Shareholders who are affected by this policy will be notified of the Fund's
intention to close the account and will have 60 days immediately following the
notice to bring the account up to the minimum.
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.
- --------------------------------------------------------------------------------
STANDARD PERFORMANCE MEASURES
- --------------------------------------------------------------------------------
Calculations of Yield
Each Fund (except Growth, Value, Growth Opportunities, Star Advisers,
Star Worldwide, Star Small Cap, International Equity, Equity Income, Bullseye
and Capital Growth Funds) may advertise the yield of its Class A, Class B, Class
C and Class Y 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
relevant 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.
Each Fund may also present one or more distribution rates for each
class in its sales literature. These rates will be determined by annualizing the
class's distributions from net investments income and net short-term capital
gain over a recent 12-month, 3-month or 30-day period and dividing that amount
by the maximum offering price or the net asset value, rather than the maximum
offering price, is used to calculate the distribution rate, the rate will be
higher.
The Municipal Income Fund, the Massachusetts Fund, the California Fund
and the New York Fund each may also advertise a taxable equivalent yield,
calculated as described above except that, for any given tax bracket, net
investment income will be calculated using as gross investment income an amount
equal to the sum of (i) any taxable income of the Fund plus (ii) the tax-exempt
income of the Fund divided by the difference between 1 and the effective federal
(or combined federal and state) income tax rate for taxpayers in that tax
bracket. To see the taxable equivalent yield calculation charts for these Funds,
see the section entitled "Miscellaneous Investment Practices of the Funds."
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. Each
Fund may show each class's average annual total return for the one-year,
five-year and ten-year periods (or for the life of the class, if shorter)
through the end of the most recent calendar quarter. 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 $10,000 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. Because of its lower operating expenses, Class Y shares of each Fund can
be expected to achieve a higher yield and total return than the same Fund's
Class A, 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 Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is
a market capitalization-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
NYSE, 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 and ____ financial services
concerns and ____ utilities. The S&P 500 represents about ___% (as of March 31,
1999) of the market value of all issues traded on the NYSE.
The Standard & Poor's Composite Index of 400 Stocks (the "S&P 400") is
a market capitalization-weighted and unmanaged index that includes approximately
10% of the capitalization of U.S. equity securities. This index is comprised of
stocks in the middle capitalization range. Any midcap stocks already included in
the S&P 500 are excluded from this index.
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 Aggregate Bond Index is a market capitalization-weighted
aggregate index that includes nearly all debt issued by the U.S. Treasury, U.S.
Government agencies, U.S. corporations rated investment grade, and U.S. agency
debt backed by mortgage pools.
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 SL Government Index.
The Lehman Intermediate Government Bond Index (the "Lehman Int.
Government Index") is a market capitalization-weighted and unmanaged index of
bonds issued by the U.S. Government and its agencies having maturities between
one and ten years.
The Lehman Government/Corporate Bond Index (the "Lehman G/C Index") is
a measure of the market value of approximately _____ bonds with a face value
currently in excess of $____ trillion. To be included in the Lehman G/C 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 such as S&P or Moody's.
The Lehman Intermediate Government/Corporate Bond Index (the "Lehman
Int. G/C Index") is a market capitalization-weighted and unmanaged index
composed of the Lehman Government and Corporate Bond indices which include bonds
with maturities of up to ten years.
The Lehman High Yield Bond Index is a market capitalization-weighted
and unmanaged index of fixed-rate, noninvestment grade debt. Generally
securities in the index must be rated Ba1 or lower by Moody's Investors Service,
including defaulted issues. If no Moody's rating is available, bonds must be
rated BB+ or lower by S&P; and if no S&P rating is available, bonds must be
rated below investment grade by Fitch Investor's Service. A small number of
unrated bonds is included in the index; to be eligible they must have previously
held a high yield rating or have been associated with a high yield issuer, and
must trade accordingly.
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 42,000 bonds.
The Lehman: Mutual Fund Short (1-5) Investment Grade Debt Index is an
unmanaged index composed of publicly issued, fixed-rate nonconvertible
investment grade domestic corporate debt with maturities of 1 to 5 years.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the NYSE.
The Merrill Lynch High Yield Index includes over 951 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 1,400 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 market capitalization-weighted index which
comprises 3,000 of the largest capitalized U.S. companies whose common stock is
traded in the United States on the NYSE, the American Stock Exchange and NASDAQ.
The Russell 2000 Index represents the smallest 2,000 companies within the
Russell 3000 Index as measured by market capitalization. The Russell 1000 Index
represents the largest 1,000 companies within the Russell 3000 Index. The
Russell 1000 Growth Index is an unmanaged subset of stocks from the larger
Russell 1000 Index, selected for their greater growth orientation. The Russell
1000 Value Index is an unmanaged subset of stocks from the larger Russell 1000
Index, selected for their greater value orientation.
The Morgan Stanley Capital International Europe, Australasia and Far
East Index (the "EAFE Index") is a market capitalization-weighted and unmanaged
index of common stocks traded outside the United States. 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 values (market price per
share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australasia and Far
East(Gross Domestic Product) Index (the "EAFE (GDP) Index") is a market
capitalization-weighted and unmanaged index of common stocks traded outside the
United States. The stocks in the index are selected with reference to national
and industry representation and weighted in the EAFE (GDP) Index according to
their relative market values. The relative market value of each country is
further weighted with reference to the country's relative gross domestic
product.
The Morgan Stanley Capital International World ND Index (the "MSCI
World Index") is a market capitalization-weighted and unmanaged index that
includes common stock from all 23 MSCI developed market countries. The "ND"
indicates that the index is listed in U.S. dollars, with net dividends
reinvested.
International Equity and Star Worldwide Funds may compare their
performance to the Salomon-Russell Broad Market Index Global X-US and to
universes of similarly managed investment pools compiled by Frank Russell
Company and Intersec Research Corporation.
The current interest rate on many FNMA adjustable rate mortgage
securities ("ARMs") is set by reference to the 11th District Cost of Funds Index
published monthly by the Federal Reserve. Since June 1987, the current interest
rate on these ARMs, measured on a monthly basis, has been higher than the
average yield of taxable money market funds represented by Donoghue's Taxable
Money Fund Average and current rates on newly issued one year bank certificates
of deposit. The interest rates on other ARMs and the yield on the Adjustable
Rate Fund's portfolio may be higher or lower than the interest rates on FNMA
ARMs and there is also no assurance that historical yield relationships among
different types of investments will continue.
Advertising and promotional materials may refer to the maturity and
duration of the Bond Funds. Maturity refers to the period of time before a bond
or other debt instrument becomes due. Duration is a commonly used measure of the
price responsiveness of a fixed-income security to an interest rate change
(i.e., the change in price one can expect from a given change in yield).
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.
<TABLE>
INVESTMENTS AT 8% RATE OF RETURN
<CAPTION>
5 YRS. 10 15 20 25 30
---------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
<CAPTION>
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
---------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The 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. For example, the advertising and sales
literature of any of the New England Funds, but particularly that of Star
Worldwide Fund and International Equity Fund, may discuss all of the above
international developments, including, but not limited to, international
developments involving Europe, North and South America, Asia, the Middle East
and Africa, as well as events and issues affecting specific countries that
directly or indirectly may have had consequences for the New England Funds or
may have influenced past performance or may influence current or prospective
performance of the New England Funds. Articles, releases, advertising and
literature may discuss the range of services offered by the Trusts, the
Distributor, and the 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 Trusts and their features and
benefits, including the details of the pricing structure.
The Distributor may make reference in its advertising and sales
literature to awards, citations and honors bestowed on it by industry
organizations and other observers and raters 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 the
Distributor's selection including, but not limited to, the scores and categories
in which the Distributor excelled, the names of funds and fund companies that
have previously won the award and comparative information and data about those
against whom the Distributor competed for the award, honor or citation.
The Distributor 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 the Distributor
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 Securities Exchange Act of 1934.
Advertising and sales literature developed to publicize such arrangements will
explain the relationship of the bank to the New England Funds and the
Distributor 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.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
As described in the Prospectus, it is the policy of each Fund to pay
its shareholders, as dividends, substantially all net investment income and to
distribute annually all net realized long-term capital gains, if any, after
offsetting any capital loss carryovers.
Ordinary 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 the NYSE on the record
date for each dividend or distribution. Shareholders, however, may elect to
receive their ordinary income dividends or capital gain distributions, or both,
in cash. The election may be made at any time by submitting a written request
directly to New England Funds. In order for a change to be in effect for any
dividend or distribution, it must be received by New England Funds on or before
the record date for such dividend or distribution.
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, 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 those of the
U.S. Government or other regulated investment companies) of any one issuer or of
two or more issuers which the Fund controls and which are engaged in the same,
similar or related trades or businesses. So long as it qualifies for treatment
as a regulated investment company, a Fund will not be subject to federal income
tax on income paid to its shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of 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 and payable 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.
Fund distributions paid to you either in cash or reinvested in
additional shares (other than "exempt-interest dividends" paid by the Municipal
Income, Massachusetts, New York and California Funds, as described in the
relevant Prospectuses) are generally taxable to you either as ordinary income or
as capital gains. Distributions derived from short-term capital gains or
investment 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. To avoid an excise tax, each Fund intends to distribute dividends prior
to calendar year-end. Some dividends paid in January may be taxable as if they
were received in the previous December.
A loss on the sale of shares held for six months or less will be
disallowed for federal income tax purposes to the extent of exempt-interest
dividends received with respect to such shares and thereafter treated as a
long-term capital loss to the extent of any long-term capital gain dividend paid
to the shareholder with respect to such shares.
Dividends and distributions on 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.
Under the Code, the interest on so-called "private activity" bonds is
an item of tax preference, which, depending on the shareholder's particular tax
situation, might subject the shareholder to an alternative minimum tax with a
maximum rate of 28%. The interest on tax exempt bonds issued after certain dates
in 1986 is retroactively taxable from the date of issuance if the issuer does
not comply with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.
Each Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital or capital gain for tax purposes or require the Fund to make
distributions exceeding book income to avoid excise tax liability and to qualify
as a regulated investment company.
International Equity, Star Worldwide and Star Small Cap Funds may own
shares in certain foreign investment entities, referred to as "passive foreign
investment companies." In order to avoid U.S. federal income tax, and an
additional charge on a portion of any "excess distribution" from such companies
or gain from the disposition of such shares, each Fund has elected to "mark to
market" annually its investments in such entities and to distribute any
resulting net gain to shareholders. Each Fund may also elect to treat the
passive foreign investment company as a "qualified electing fund." As a result,
each Fund may be required to sell securities it would have otherwise continued
to hold in order to make distributions to shareholders to avoid any Fund-level
tax.
International Equity Fund, Star Advisers Fund, Star Worldwide Fund and
Star Small Cap Fund may be liable to foreign governments for taxes relating
primarily to investment income or capital gains on foreign securities in the
Fund's portfolio. The Fund may in some circumstances be eligible to, and in its
discretion may, make an election under the Code which would allow Fund
shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax
credit or deduction (but not both) on their U.S. income tax return. If the Fund
makes the election, the amount of each shareholder's distribution reported on
the information returns filed by the Fund with the Internal Revenue Service must
be increased by the amount of the shareholder's portion of the Fund's foreign
tax paid.
A Fund's transactions in foreign currency-denominated debt securities
and its hedging activities will likely produce a difference between its book
income and its taxable income. This difference may cause a part or all of a
Fund's income distributions to constitute returns of capital for tax purposes or
require the Fund to make distributions exceeding book income to avoid federal
income tax liability.
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 (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.
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.
Each Fund (possibly excepting Municipal Income Fund, Massachusetts
Fund, New York Fund and California Fund) is required to withhold 31% of all
income dividends and capital gains distributions it pays to you if you do not
provide a correct, certified taxpayer identification number, if a Fund is
notified that you have underreported income in the past or if you fail to
certify to a Fund that you are not subject to such withholding. If you are a
tax-exempt shareholder, however, these backup withholding rules will not apply
so long as you furnish the Fund with an appropriate certification.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Funds and the related reports of
independent accountants included in the Funds' annual reports for the year ended
December 31, 1998 are incorporated herein by reference. Each Fund's annual and
semi-annual report is available upon request and without charge. Each Fund will
send a single copy of its annual and semi-annual reports to an address at which
more than one shareholder of record with the same last name has indicated that
mail is to be delivered. Shareholders may request additional copies of any
annual or semi-annual report in writing or by telephone.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
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 a 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
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
B'nai B'rith Jewish Monthly
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
<PAGE>
APPENDIX C
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, Harris, Loomis Sayles, CGM, Westpeak and Jurika &
Voyles, L.P. Reference also may be made to the Funds of their respective fund
groups, namely, the Loomis Sayles Funds and the Oakmark Funds advised by Harris.
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, L.P. and their fund groups.
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, Founders,
Montgomery and 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:
|X| Specific and general assessments and forecasts regarding U.S. and world
economies, and the economies of specific nations and their impact on the New
England Funds;
|X| Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions;
|X| Specific and general investment philosophies, strategies, processes,
techniques and types of analysis;
|X| 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;
|X| The corporate histories, founding dates and names of founders of the
entities;
|X| Awards, honors and recognition given to the entities;
|X| The names of those with ownership interest and the percentage of ownership
interest;
|X| 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;
|X| Current capitalizations, levels of profitability and other financial and
statistical information;
|X| Identification of portfolio managers, researchers, economists, principals
and other staff members and employees;
|X| 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;
|X| Specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments;
|X| Current and historical statistics regarding:
-total dollar amount of assets managed
-New England Funds' assets managed in total and by fund
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers, economists,
technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or sub-adviser;
|X| The general and specific strategies applied by the advisers in the
management of New England Funds portfolios including, but not limited to:
-the pursuit of growth, value, income oriented, risk management or other
strategies
-the manner and degree to which the strategy is pursued
-whether the strategy is conservative, moderate or extreme and an
explanation of other features and attributes
-the types and characteristics of investments sought and specific
portfolio holdings
-the actual or potential impact and result from strategy implementation
-through its own areas of expertise and operations, the value added by
sub-advisers to the management process
-the disciplines it employs, e.g., in the case of Loomis Sayles, the
strict buy/sell guidelines and focus on sound value it employs, and goals
and benchmarks that it establishes in management, e.g., CGM pursues
growth 50% above the S&P 500
-the systems utilized in management, the features and characteristics of
those systems and the intended results from such computer analysis, e.g.,
Westpeak's efforts to identify overvalued and undervalued issues; and
|X| Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than New England Funds, and those
families of funds, other than New England Funds. Any such references will
indicate that New England Funds and the other funds of the managers differ
as to performance, objectives, investment restrictions and limitations,
portfolio composition, asset size and other characteristics, including fees
and expenses. References may also be made to industry rankings and ratings
of the Funds and other funds managed by the Funds' advisers and
sub-advisers, including, but not limited to, those provided by Morningstar,
Lipper Analytical Services, Forbes and Worth.
In addition, communications and materials developed by New England
Funds will make reference to the following information about Nvest Companies and
its affiliates:
Nvest Companies is part of an affiliated group including Nvest, 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:
|X| Specific and general references to New England Funds multi-manager approach
through Nvest Companies affiliates and outside firms including, but not
limited to, the following:
-that each adviser/manager operates independently on a day-to-day basis
and maintains an image and identity separate from Nvest Companies and the
other investment managers
-other fund companies are limited to a "one size fits all" approach but
New England Funds draws upon the talents of multiple managers whose
expertise best matches the fund objective
-in this and other contexts reference may be made to New England Funds'
slogan "Where The Best Minds Meet"(R) and that New England Funds' ability
to match the talent to the task is one more reason it is becoming known
as "Where The Best Minds Meet."
Financial Adviser Services ("FAS"), a division of Nvest Companies, may
be referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest Companies affiliated fund groups
including: New England Funds, Loomis Sayles Funds, Oakmark Funds and Reich &
Tang Funds.
FAS will provide marketing support to Nvest Companies affiliated fund
groups targeting financial advisers, financial intermediaries and institutional
clients who may transact purchases and other fund-related business directly with
these fund groups. Communications will contain information including, but not
limited to: descriptions of clients and the marketplaces to which it directs its
efforts; the mission and goals of FAS and the types of services it provides
which may include: seminars; its 1-800 number, web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper Analytical
Services; statistics about the advisers', fund groups' or a specific fund's
assets under management; the histories of the advisers and biographical
references to portfolio managers and other staff including, but not limited to,
background, credentials, honors, awards and recognition received by the advisers
and their personnel; and commentary about the advisers, their funds and their
personnel from third-party sources including newspapers, magazines, periodicals,
radio, television or other electronic media.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
|X| Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information, industry trends and
forecasts regarding the growth of assets, numbers of plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and firms including, but not limited to, DC Xchange,
William Mercer and other organizations involved in 401(k) and retirement
programs with whom New England Funds may or may not have a relationship.
|X| Specific and general references to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the New England Funds
as a 401(k) or retirement plan funding vehicle produced by, including, but
not limited to, Access Research, Dalbar, Investment Company Institute and
other industry authorities, research organizations and publications.
|X| 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:
-past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and other
relevant forms and documents, Department of Labor rules and standards and
other regulations. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about the
past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of 401(k) and
retirement plans;
-information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs; and
-current and prospective ERISA regulation and requirements.
|X| Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the New England Funds 401(k) and
retirement plans, to the participant and plan sponsor, including
explanations, statistics and other data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers and
other personnel.
|X| Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, New England Funds and
investing in its 401(k) and retirement plans, including, but not limited
to:
-the significant economies of scale experienced by mutual fund companies
in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including, but not limited to, trustee
services and tax reporting
-the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
-the services of Trust Consultants Inc. (TCI), including, but not limited
to, sales support, plan record keeping, document service support, plan
sponsor support, compliance testing and Form 5500 preparation.
|X| Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market trends and
economic events
-providing information to clients including participants during enrollment
and on an ongoing basis after participation
-promoting and understanding the benefits of investing, including mutual
fund diversification and professional management.
<PAGE>
APPENDIX D
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
HIGH INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Common Stock.............................................. %
Preferred Stock........................................... %
Short-term Obligations and Other Assets................... %
Debt - Unrated............................................ %
Debt -- Standard and Poor's Rating
AAA....................................................... %
BBB....................................................... %
BB........................................................ %
B......................................................... %
CCC.............................................. %
The chart above indicates the composition of the High Income Fund for the fiscal
year ended December 31, 1998, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the High
Income Fund's net assets invested in each category as of the end of each month
during the year. Loomis Sayles does not rely primarily on ratings designed by
any rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
STRATEGIC INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Preferred Stock........................................... %
Short-term Obligations and Other Assets................... %
Common Stock.............................................. %
Debt - Unrated............................................ %
Debt -- Standard and Poor's Rating
AAA.............................................. %
BBB.............................................. %
BB............................................... %
B................................................ %
CCC and lower.................................... %
The chart above indicates the composition of the Strategic Income Fund for the
fiscal year ended December 31, 1998, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Strategic Income Fund's net assets invested in each category as of the end of
each month during the year. Loomis Sayles does not rely primarily on ratings
designed by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Fund's portfolio will be in
subsequent fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
MUNICIPAL INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Preferred Stock .......................................... ---%
Short-term Obligations and Other Assets .................. %
Debt -- Unrated .......................................... %
Debt -- Standard & Poor's Rating
AAA.............................................. %
AA............................................... %
A................................................ %
BBB.............................................. %
BB............................................... %
B................................................ ---%
CCC.............................................. ---%
C/D.............................................. ---%
The chart above indicates the composition of the Municipal Income Fund for the
fiscal year ended December 31, 1998, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Back Bay Advisors does not rely primarily on ratings designed by any
rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
BOND INCOME FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Preferred Stock .......................................... ---%
Short-term Obligations and Other Assets................... %
Debt -- Unrated .......................................... ---%
Debt -- Standard & Poor's Rating
AAA.............................................. %
AA............................................... %
A................................................ %
BBB.............................................. %
BB............................................... %
B................................................ ---%
CCC.............................................. ---%
C/D.............................................. ---%
The chart above indicates the composition of the Bond Income Fund for the fiscal
year ended December 31, 1998, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Back Bay Advisors does not rely primarily on ratings designed by any
rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
CALIFORNIA FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Preferred Stock .......................................... ---%
Short-term Obligations and Other Assets................... %
Debt -- Unrated .......................................... %
Debt -- Standard & Poor's Rating
AAA.............................................. %
AA............................................... %
A................................................ %
BBB.............................................. %
BB............................................... %
B................................................ %
CCC.............................................. ---%
C/D.............................................. ---%
The chart above indicates the composition of the California Fund for the fiscal
year ended December 31, 1998, with the debt securities rated by S&P separated
into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Back Bay Advisors does not rely primarily on ratings designed by any
rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
MASSACHUSETTS FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Preferred Stock .......................................... ---%
Short-term Obligations and Other Assets .................. ---%
Debt -- Unrated .......................................... ---%
Debt -- Standard & Poor's Rating
AAA.............................................. %
AA............................................... %
A................................................ %
BBB.............................................. %
BB............................................... %
B................................................ %
CCC.............................................. ---%
C/D.............................................. ---%
The chart above indicates the composition of the Massachusetts Fund for the
fiscal year ended December 31, 1998, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Back Bay Advisors does not rely primarily on ratings designed by any
rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF
INTERNATIONAL EQUITY FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
PERCENTAGE
SECURITY OF NET ASSETS
-------- -------------
Common Stock ............................................. %
Short-term Obligations and Other Assets .................. %
Convertible Securities ................................... %
Debt-- Unrated ........................................... %
Debt -- Standard & Poor's Rating
AAA ............................................. %
AA .............................................. %
A ............................................... %
BBB.............................................. %
BB............................................... %
B................................................ %
CCC.............................................. %
C/D.............................................. %
The chart above indicates the composition of International Equity Fund for the
fiscal year ended December 31, 1998, with the debt securities rated by S&P
separated into the indicated categories. The percentages were calculated on a
dollar-weighted average basis by determining monthly the percentage of the
Fund's net assets invested in each category as of the end of each month during
the year. Loomis Sayles does not rely primarily on ratings designed by any
rating agency in making investment decisions. The chart does not necessarily
indicate what the composition of the Fund's portfolio will be in subsequent
fiscal years.
<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 incorporated herein by reference to PEA
No. 5 to the Registration Statement on Form N-1A (File No.
33-62061), filed on April 30, 1998.
(3) Amendment No.2 to Agreement and Declaration of Trust of
the Registrant is filed herewith.
(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 Security 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 PEA No. 6 to the Registration
Statement on Form N-1A (File No. 33-62061), filed on December
2, 1998.
(d) Investment Advisory Contracts
(1) Form of Advisory Agreement between the Registrant and New
England Funds Management, L.P. ("NEFM"), relating to the
fillowing series of the Registrant, is filed herewith:
(i) New England Equity Income Fund
(ii) New England Bullseye Fund
(2) Form of Subadvisory Agreement between the Registrant, NEFM
and the Registrant's subadviser, relating to the following
series of the Registrant, is filed herewith:
(i) New England Equity Income Fund
(ii) New England Bullseye Fund
(3) 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 incorporated herein by reference to the
Registration Statement on Form N-1A (File No. 33-62061),
filed on December 2, 1998.
(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 ("State Street") 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
relating to the applicability of the Custodian Contract
and the Sub-Transfer and Service Agreement to 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 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) Power of Attorney for Trustees are filed herewith.
(4) Form of Special Servicing Agreement between the
Registrant, its Underlying Portfolios and Nvest Services
Company, Inc., 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 Administration 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
(6) Form of Service Agreement between Registrant, each Adviser
of the Underlying Portfolio and NEFM is filed herewith.
(7) Form of Fee Waiver/Expense Reimbursement Undertakings
between NEFM and the Registrant and its respective series
enumerated in such undertakings is filed herewith.
(i) Legal Opinion
Opinion of Ropes & Gray with respect to New England Bullseye
Fund is filed herewith.
(j) Other Opinions
Consent of PricewaterhouseCoopers LLC will be filed by
amendment.
(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 incorporated by
reference to PEA No. 6 to the Registration Statement on
Form N-1A (File No. 33-62061), filed on December 2, 1998.
(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 incorporated by
reference to PEA No. 6 to the Registration Statement on
Form N-1A (File No. 33-62061), filed on December 2, 1998.
(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 incorporated by
reference to PEA No. 6 to the Registration Statement on
Form N-1A (File No. 33-62061), filed on December 2, 1998.
(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, as amended 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)(2) to the Registration Statement on Form N-1A (File No.
33-62061), filed on August 23, 1995, and incorporated by
reference herein.
In addition, Nvest, L.P., 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) 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, New England Small
Cap Growth Fund and New England Total Return Bond 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.
(3) Harris Associates L.P. ("Harris Associates"), the subadviser
to New England Core Equity Fund, New England Stock and Bond Fund,
New England Select Fund and New England Small Cap Value 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 Harris Associates during the past
two years is incorporated herein by reference to Schedules A and D
of Form ADV filed by Harris Associates pursuant to the Advisers
Act (File No. 801-50333) filed on April 4, 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, President President
and Chief Executive Officer
John E. Pelletier Senior Vice President, General Secretary and Clerk
Counsel, Secretary and Clerk
John Hailer Managing Director and None
Executive Vice President
Caren I. Leedom Managing Director and Senior None
Vice President
Scott Wennerholm Managing Director, Chief None
Financial Officer, Treasurer
and Senior Vice President
Diane Whelan Managing Director and Senior None
Vice President
Raymond K. Girouard Senior Vice President, None
Assistant Treasurer and
Comptroller
Ralph M. Greggs Senior Vice President None
Robert E. O'Hare Vice President, Senior None
Counsel, Assistant Secretary
and Assistant Clerk
Martin G. Dyer Vice President and Assistant None
Secretary
Frank Maselli Managing Director and Senior None
Vice President
Philip J. Graham Vice President None
Beatriz A. Pina Smith Vice President None
Sharon M. Wratchford 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) For the series of the Registrant managed by Jurika &
Voyles:
Jurika & Voyles, L.P.
Lake Merritt Plaza, 1999 Harrison, Suite 700
Oakland, CA 94612
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f);
Rule 31a-2(e)
(e) For the series of the Registrant managed by Loomis
Sayles:
Loomis, Sayles & Company, L.P.
One Financial Center, 34th Floor,
Boston, MA 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f);
Rule 31a-2(e)
(f) For the series of the Registrant managed by Harris
Associates:
Harris Associates, L.P. 2 North LaSalle Street,
Chicago, IL 60602
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f);
Rule 31a-2(e)
(g) 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. 7 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 16th day of February, 1999.
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 February 16, 1999
- ---------------------------
Peter S. Voss
/s/ THOMAS P. CUNNINGHAM Treasurer February 16, 1999
- ---------------------------
Thomas P. Cunningham
GRAHAM T. ALLISON, JR.* Trustee February 16, 1999
- ---------------------------
Graham T. Allison, Jr.
DANIEL M. CAIN* Trustee February 16, 1999
- ---------------------------
Daniel M. Cain
KENNETH J. COWAN* Trustee February 16, 1999
- ---------------------------
Kenneth J. Cowan
RICHARD DARMAN* Trustee February 16, 1999
- ---------------------------
Richard Darman
SANDRA O. MOOSE* Trustee February 16, 1999
- ---------------------------
Sandra O. Moose
JOHN A. SHANE* Trustee February 16, 1999
- ---------------------------
John A. Shane
PENDELTON P. WHITE* Trustee February 16, 1999
- ---------------------------
Pendelton P. White
*By: /s/JOHN E. PELLETIER
----------------------
John E. Pelletier
Attorney-In-Fact
February 16, 1999
<PAGE>
N-1A exhibits ITEM 23
EXHIBIT NUMBER EXHIBIT
-------------- -------
Exhibit a(3) Amendment No. 2 to Agreement and Declaration of Trust
Exhibit d(1) Form of Advisory Agreement
Exhibit d(2) Form of Subadvisory Agreement
Exhibit d(3) Form of Advisory Agreement for New England Funds
Access Shares
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 Administration Agreement
Exhibit h(6) Form of Service Agreement
Exhibit h(7) Form of Fee Waiver/Expense Reimbursement
Exhibit (i) Legal Opinion
<PAGE>
EXHIBIT a(3)
NEW ENGLAND FUNDS TRUST III
Amendment No. 2 to Agreement
and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New England
Funds Trust III (the "Trust"), having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, hereby amend the
Trust's Agreement and Declaration of Trust (the "Declaration of Trust"), a copy
of which is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, as follows:
1. The first sentence of Section 6 of Article III of the Declaration of
Trust is hereby amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or to
modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated as a
Multi-Class Series: (1) New England Equity Income Fund; (2) New England
Bullseye Fund; (3) New England Core Equity Fund; (4) New England Stock and
Bond Fund; (5) New England Select Fund; (6) New England Small Cap Value
Fund; (7) New England Small Cap Growth Fund; (8) New England Total Return
Bond Fund.
The foregoing amendment shall become effective as of the time it is filed
with the Secretary of State of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto set our hand for ourselves and for our
successors and assigns as of the 12th day of February, 1999.
- -------------------------------------- --------------------------------------
Graham T. Allison, Jr. Richard Darman
- -------------------------------------- --------------------------------------
Sandra O. Moose Kenneth J. Cowan
- -------------------------------------- --------------------------------------
Daniel M. Cain John A. Shane
- -------------------------------------- --------------------------------------
Peter S. Voss Pendleton P. White
<PAGE>
EXHIBIT d(1)
[NAME OF FUND]
Advisory Agreement
AGREEMENT made the ____ day of ______, 199_, and amended this ___ day
of ______, 199_, by and between [NAME OF TRUST], a Massachusetts business trust
(the "Fund"), with respect to its [NAME OF SERIES] 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 has
agreed, 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 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; and
(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
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, 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 ____% of the first $___
million of the Series' average daily net assets and ____% of the excess of such
assets over $___ million (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.
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, as amended, shall become effective as of July 1,
1996, and
(a) unless otherwise terminated, this Agreement shall continue in
effect until January 2, 1998, 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.
[NAME OF TRUST],
on behalf of its [NAME OF SERIES]
By: ________________________________
Name: Henry L.P. Schmelzer
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 [NAME OF
TRUST] (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 [NAME OF 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 d(2)
[NAME OF FUND]
Sub-Advisory Agreement
[NAME OF SUBADVISER]
Sub-Advisory Agreement (this "Agreement") entered into as of _________,
199_, and amended this ___ day of _______, 199_, by and among [NAME OF TRUST], a
Massachusetts business trust (the "Trust"), with respect to its [NAME OF SERIES]
series (the "Series"), New England Funds Management, L.P., a Delaware limited
partnership (the "Manager"), and [NAME OF SUBADVISER], a Delaware limited
partnership (the "Sub-Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
_________, 199_ with the Trust, relating to the provision of portfolio
management and administrative services to the Series;
WHEREAS, the Advisory Agreement provides that the Manager may delegate
any or all of its portfolio management responsibilities under the Advisory
Agreement to one or more sub-advisers;
WHEREAS, the Manager and the trustees of the Trust desire to retain the
Sub-Adviser to render portfolio management services in the manner and on the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Trust, the Manager and the Sub-Adviser agree as
follows:
1. Sub-Advisory Services.
a. The Sub-Adviser shall, subject to the supervision of the Manager
and of any administrator appointed by the Manager (the
"Administrator"), manage the investment and reinvestment of the assets
of the Series, and have the authority on behalf of the Series to vote
all proxies and exercise all other rights of the Series as a security
holder of companies in which the Series from time to time invests. The
Sub-Adviser shall manage the Series in conformity with (1) the
investment objective, policies and restrictions of the Series set forth
in the Trust's prospectus and statement of additional information
relating to the Series, (2) any additional policies or guidelines
established by the Manager or by the Trust's trustees that have been
furnished in writing to the Sub-Adviser and (3) the provisions of the
Internal Revenue Code (the "Code") applicable to "regulated investment
companies" (as defined in Section 851 of the Code), all as from time to
time in effect (collectively, the "Policies"), and with all applicable
provisions of law, including without limitation all applicable
provisions of the Investment Company Act of 1940 (the "1940 Act") and
the rules and regulations thereunder. Subject to the foregoing, the
Sub-Adviser is authorized, in its discretion and without prior
consultation with the Manager, to buy, sell, lend and otherwise trade
in any stocks, bonds and other securities and investment instruments on
behalf of the Series, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover
or any tax considerations; and the majority or the whole of the Series
may be invested in such proportions of stocks, bonds, other securities
or investment instruments, or cash, as the Sub-Adviser shall determine.
b. The Sub-Adviser shall furnish the Manager and the Administrator
monthly, quarterly and annual reports concerning portfolio transactions
and performance of the Series in such form as may be mutually agreed
upon, and agrees to review the Series and discuss the management of it.
The Sub-Adviser shall permit all books and records with respect to the
Series to be inspected and audited by the Manager and the Administrator
at all reasonable times during normal business hours, upon reasonable
notice. The Sub-Adviser shall also provide the Manager with such other
information and reports as may reasonably be requested by the Manager
from time to time, including without limitation all material requested
by or required to be delivered to the Trustees of the Trust.
c. The Sub-Adviser shall provide to the Manager a copy of the
Sub-Adviser's Form ADV as filed with the Securities and Exchange
Commission and a list of the persons whom the Sub-Adviser wishes to
have authorized to give written and/or oral instructions to custodians
of assets of the Series.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Series' Custodian (as
defined in Section 3 hereof) to provide) timely information to the
Sub-Adviser regarding such matters as the composition of assets of the
Series, cash requirements and cash available for investment in the
Series, and all other information as may be reasonably necessary for
the Sub-Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Sub-Adviser a copy of the
prospectus and statement of additional information of the Series and
agrees during the continuance of this Agreement to furnish the
Sub-Adviser copies of any revisions or supplements thereto at, or, if
practicable, before the time the revisions or supplements become
effective. The Manager agrees to furnish the Sub-Adviser with minutes
of meetings of the trustees of the Trust applicable to the Series to
the extent they may affect the duties of the Sub-Adviser, and with
copies of any financial statements or reports made by the Series to its
shareholders, and any further materials or information which the
Sub-Adviser may reasonably request to enable it to perform its
functions under this Agreement.
3. Custodian. The Manager shall provide the Sub-Adviser with a copy of
the Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"), copies of such modifications to be provided to the Sub-Adviser a
reasonable time in advance of the effectiveness of such modifications. The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Sub-Adviser shall have no liability for the acts or omissions of
the Custodian, unless such act or omission is taken in reliance upon instruction
given to the Custodian by a representative of the Sub-Adviser properly
authorized to give such instruction under the Custody Agreement. Any assets
added to the Series shall be delivered directly to the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
Sub-Adviser is the sole owner of the name "[NAME OF SUBADVISER]" and that all
use of any designation consisting in whole or part of "[NAME OF SUBADVISER]"
under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager
on its own behalf and on behalf of the Series agrees not to use any such
designation in any advertisement or sales literature or other materials
promoting the Series, except with the prior written consent of the Sub-Adviser.
Without the prior written consent of the Sub-Adviser, the Manager shall not, and
the Manager shall use its best efforts to cause the Series not to, make
representations regarding the Sub-Adviser in any disclosure document,
advertisement or sales literature or other materials relating to the Series.
Upon termination of this Agreement for any reason, the Manager shall cease, and
the Manager shall use its best efforts to cause the Series to cease, all use of
any such designation as soon as reasonably practicable.
5. Expenses. Except for expenses specifically assumed or agreed to be
paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for
any organizational, operational or business expenses of the Manager or the Trust
including, without limitation, (a) interest and taxes, (b) brokerage commissions
and other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Series, and (c) custodian fees and
expenses. Any reimbursement of advisory fees required by any expense limitation
provision of any law shall be the sole responsibility of the Manager. The
Manager and the Sub-Adviser shall not be considered as partners or participants
in a joint venture. The Sub-Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement. Neither
the Sub-Adviser nor any affiliated person thereof shall be entitled to any
compensation from the Manager or the Trust with respect to service by any
affiliated person of the Sub-Adviser as an officer or trustee of the Trust
(other than the compensation to the Sub-Adviser payable by the Manager pursuant
to Section 7 hereof).
6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders
for the purchase and sale of securities for the Series with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers affiliated
with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940
Act in all respects. To the extent consistent with applicable law, purchase or
sell orders for the Series may be aggregated with contemporaneous purchase or
sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its
best efforts to obtain execution of transactions for the Series at prices which
are advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Adviser may select brokers
or dealers on the basis that they provide brokerage, research or other services
or products to the Series and/or other accounts serviced by the Sub-Adviser. To
the extent consistent with applicable law, the Sub-Adviser may pay a broker or
dealer an amount of commission for effecting a securities transaction in excess
of the amount of commission or dealer spread another broker or dealer would have
charged for effecting that transaction if the Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research services or
products, may be viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Adviser and its affiliates have with
respect to the Series or to accounts over which they exercise investment
discretion. Not all such services or products need be used by the Sub-Adviser in
managing the Series.
7. Compensation of the Sub-Adviser. As full compensation for all
services rendered, facilities furnished and expenses borne by the Sub-Adviser
hereunder, the Sub-Adviser shall be paid at the annual rate of _____% of the
average daily net assets of the Series and _____% of any excess of such assets
over $___________ (or such lesser amount as the Sub-Adviser may from time to
time agree to receive). Such compensation shall be paid by the Trust (except to
the extent that the Trust, the Sub-Adviser and the Manager otherwise agree in
writing from time to time). Such compensation shall be payable monthly in
arrears or at such other intervals, not less frequently than quarterly, as the
Manager is paid by the Series pursuant to the Advisory Agreement.
8. Non-Exclusivity. The Manager and the Series agree that the services
of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and
its affiliates are free to act as investment manager and provide other services
to various investment companies and other managed accounts, except as the
Sub-Adviser and the Manager or the Administrator may otherwise agree from time
to time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Sub-Adviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Sub-Adviser of its
duties and obligations under this Agreement. The Manager and the Series
recognize and agree that the Sub-Adviser may provide advice to or take action
with respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Series. The Sub-Adviser shall for all purposes hereof
be deemed to be an independent contractor and shall, unless otherwise provided
or authorized, have no authority to act for or represent the Series or the
Manager in any way or otherwise be deemed an agent of the Series or the Manager.
9. Liability. Except as may otherwise be provided by the 1940 Act or
other federal securities laws, neither the Sub-Adviser nor any of its officers,
directors, partners, employees or agents (the "Indemnified Parties") shall be
subject to any liability to the Manager, the Trust, the Series or any
shareholder of the Series for any error of judgment, any mistake of law or any
loss arising out of any investment or other act or omission in the course of,
connected with, or arising out of any service to be rendered under this
Agreement, except by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Sub-Adviser's duties or by reason of
reckless disregard by the Sub-Adviser of its obligations and duties hereunder.
The Manager shall hold harmless and indemnify the Sub-Adviser for any loss,
liability, cost, damage or expense (including reasonable attorneys fees and
costs) arising from any claim or demand by any past or present shareholder of
the Series that is not based upon the obligations of the Sub-Adviser under this
Agreement.
10.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 for two years from the date of execution, 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 Trust 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 Trust who are not
interested persons of the Trust, the Manager or the Sub-Adviser, 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 Sub-Adviser either by vote of the Board of
Trustees of the Trust 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 or upon the termination of the Advisory Agreement; and
d. this Agreement may be terminated by the Sub-Adviser on ninety
days' written notice to the Manager and the Trust, or by the Manager on
ninety days' written notice to the Sub-Adviser.
Termination of this Agreement pursuant to this Section 10 shall be
without the payment of any penalty.
11. Amendment. This Agreement may be amended at any time by mutual
consent of the Manager and the Sub-Adviser, provided that, if required by law,
such amendment shall also 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 Trust who are not interested persons of the Trust, the Manager
or the Sub-Adviser, cast in person at a meeting called for the purpose of
voting on such approval.
12. Certain Definitions. 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.
13. General.
a. The Sub-Adviser may perform its services through any employee,
officer or agent of the Sub-Adviser, and the Manager shall not be
entitled to the advice, recommendation or judgment of any specific
person; provided, however, that the persons identified in the
prospectus of the Series shall perform the day-to-day portfolio
management duties described therein until the Sub-Adviser notifies the
Manager that one or more other employees, officers or agents of the
Sub-Adviser, identified in such notice, shall assume such duties as of
a specific date.
b. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or
unenforceable to any extent, the remainder of this Agreement or the
application of such provision to other persons or circumstances shall
not be affected thereby and shall be enforced to the fullest extent
permitted by law.
c. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
<PAGE>
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
[NAME OF TRUST]
on behalf of its [NAME OF SERIES] series
By: ______________________________
Name: Henry L.P. Schmelzer
Title: President
[NAME OF SUBADVISER]
By [NAME OF SUBADVISER], its general partner
By: ____________________________
Name: ____________________________
Title: ____________________________
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust establishing [NAME OF
TRUST] (the "Fund") is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that his Agreement is executed with
respect to the Fund's [NAME OF SERIES] 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 d(3)
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 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,
subject to Section 8 hereof, 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;
and
(c) regularly reporting to the Board of Trustees of the Fund
with respect to the implementation of the investment policies of the
Series.
3. As used in this Agreement, "Administrative Services" means, subject
to Section 8 hereof, 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, 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, subject to
Section 8 hereof, 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.
8. During any period in which the Fund invests all (or substantially
all) of the Series' investment assets in one or more registered, open-end
management investment companies, or separate series thereof, in accordance with
Section 12(d)(1)(E) or 12(d)(1)(G) of the 1940 Act, the following provisions
shall apply, notwithstanding anything to the contrary contained in this
Agreement:
(a) No fee shall be payable to the Manager under Section 7;
(b) "Portfolio Management Services" shall not include the
services specified in Section 2(a) and 2(b), but shall include
regularly considering and making recommendations to the Fund's Board of
Trustees as to whether the Series should continue to invest all or
substantially all of its investment assets in one or more registered,
open-end management investment companies or separate series thereof;
and
(c) "Administrative Services" shall not include the services
specified in Section 3(a) through (d) but shall include oversight of
all matters relating to compliance by the Fund with applicable laws and
with the Series' investment policies, restrictions and guidelines.
9. 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.
10. 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.
11. This Agreement shall become effective as of the date set forth
above, and
(a) unless otherwise terminated, this Agreement shall continue
in effect until two years following its initial effectiveness, 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.
12. 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.
13. 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.
14. 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 Agreement as
of the date first written above.
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 g(2)
[LOGO]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- -------------------------------------------------------------------------------
February 12, 1999
State Street Bank and Trust Company
1776 Heritage Drive
Fiduciary Control 42N
North Quincy, MA 02171
Re: 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
Gentlemen:
This is to advise you that New England Funds Trust III (the "Trust")
has established six new series of shares: 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. 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 Company and State Street
Bank, the Trust and New England Funds Service Company 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 12th day of February, 1999:
By: /s/ Bruce R. Speca By: /s/ Christopher S. Wilson
---------------------------- ----------------------------
Bruce R. Speca Christopher S. Wilson
President President
New England Funds Trust III New England Funds Service Company
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
o New England Core Equity Fund
o New England Stock and Bond Fund
o New England Select Fund
o New England Small Cap Value Fund
o New England Small Cap Growth Fund
o New England Total Return Bond Fund
<PAGE>
EXHIBIT h(3)
POWER OF ATTORNEY
We, the undersigned, hereby constitute Thomas P. Cunningham, 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 capacity indicated below, any and all
registration statements and any and all amendments thereto to be filed with the
Securities and Exchange Commission for the purpose of registering from time to
time investment companies of which we are now or hereafter a Director or Trustee
and to register the shares of such companies and generally 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 12th day of February, 1999.
/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 Series designated
[Name of Fund] series (the "Fund"), Nvest Services Company, Inc., a Delaware
corporation ("NSC"), and [Name of Underlying Trust], a Massachusetts business
trust (the "Underlying Trust"), on behalf of its Series designated [Name of
Portfolio] (the "Portfolio").
W I T N E S S E T H:
WHEREAS, the Trust and the 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 New England Funds
Management, L.P. ("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 or
Fund expenses;
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 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 fact that the assets invested in the Portfolio by the Fund will
be invested in a single omnibus account;
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. OMNIBUS ACCOUNT
The Portfolio will have a single omnibus account on its books for the
Fund which will hold shares of the Portfolio.
2. 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 the 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 and such additional
information, as the Underlying Trust may reasonably request, to enable
it to estimate the benefits to each Portfolio from the operation of the
Fund, such as, the number of open and closed shareholder accounts,
transactions processed and telephone calls received, as well as other
shareholder services rendered. The Underlying Trust will use this
information to timely determine if any fee paid pursuant to Schedule A,
paragraph (i) is in excess of such benefits received, as set forth in
paragraph (ii) therein, and timely notify the Fund. The Fund will, in
turn, promptly refund any excess fee paid to the Underlying Trust. 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.
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.
The Fund acknowledges and agrees that the Underlying Trust, any of its
series, trustees, officers (each an "[Name of Underlying Trust] Party")
shall not be responsible for: (i) any information contained in any
registration statement, prospectus, statement of additional
information, periodic reports to shareholders, proxy statements,
supplements, or advertising or marketing materials prepared by or on
behalf of the Trust or the Fund, except for information provided to the
Fund by any [Name of Underlying Trust] Party for that purpose; or (ii)
the compliance or failure to comply by the Fund or its agents with
applicable federal or state law, rule or regulation of any
administrative or self-regulatory organization with jurisdiction over
the Fund or any such agent, except to the extent that the Fund's or
such agent's failure to comply with such law, rule or regulation is
caused by any [Name of Underlying Trust] Party's failure to comply with
any applicable law, rule or regulation.
The Fund shall indemnify, defend and protect each [Name of Underlying
Trust] Party and hold them harmless from and against any and all
claims, demands, actions, losses, damages, liabilities, cost, charges,
reasonable counsel fees and expenses of any nature it or they incur
arising out of or from: (i) any statement or representation or omission
of material fact that the Fund or its officers, directors, employees or
agents make concerning the Portfolio that is inconsistent with or not
included in the Portfolio's current prospectus, statement of additional
information, periodic reports, proxy statements or supplements or
provided by any [Name of Underlying Trust] Party in writing to the
Fund; or (ii) any failure by the Fund or its agents to comply with any
applicable federal or state law, rule or regulation of any
administrative or self-regulatory organization with jurisdiction over
the Fund or its agent, except to the extent that the Fund's or such
agent's failure to comply with such law, rule or regulation is caused
by the failure of any [Name of Underlying Trust] Party to comply with
any applicable law, rule or regulation.
The Portfolio shall indemnify, defend and protect the Trust, any of its
series, trustees or officers (each a "Trust Party"), and hold them
harmless from any and all claims, demands, actions losses, damages,
liabilities, cost, charges, reasonable attorney fees and expenses of
any nature it or they may incur arising out of or from: (i) any untrue
statement of material fact contained in the Portfolio's current
prospectus, statement of additional information, periodic reports to
shareholders, proxy statements or supplements; or any omission
therefrom of a material fact required to be stated therein or necessary
to make the statement therein not misleading; or (ii) any failure by
any [Name of Underlying Trust] Party to comply with applicable federal
or state law, rule or regulation of any administrative or
self-regulatory organization with jurisdiction over the Fund or its
agents, except to the extent that such failure is caused by any Trust
Party.
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 Underlying Trust, and (ii) by vote of a
majority of the Trustees of the Underlying Trust who are not
"interested persons" of the 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 the 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 the 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
This 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 the 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 the
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 the Underlying Trust's ________ series on behalf of the Underlying
Trust by officers of the 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:
NVEST SERVICES COMPANY, INC.
By: ______________________
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 shares of the Portfolio held in the Fund during
the calendar quarter or (ii) the amount of the estimated fees for the quarter
that would have been payable by the Portfolio to its transfer agent with regard
to the accounts of the shareholders of the Fund if their accounts had been
registered directly on the books of the Portfolio with the Portfolio's transfer
agent, as determined by the Portfolio.
<PAGE>
EXHIBIT h(5)
ADMINISTRATION 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 have entered into an Advisory
Agreement pursuant to which the Manager (or certain other parties acting
pursuant to delegation from the Manager) performs certain portfolio management
and administrative services for the Series;
WHEREAS, the Fund and the Manager wish to enter into a further
agreement whereby the Manager provides or procures certain additional services
necessary to the operation of 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
Administrative Services (as defined in Section 2 hereof), subject to
the authority of the Manager to delegate any or all of its
responsibilities hereunder to other parties as provided in Section 1(b)
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 Section 1(b) hereof) and to
assume the obligations herein set forth, for the compensation herein
provided.
(b) 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, "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); and
(c) compensation, if any, of trustees of the Fund who are directors,
officers or employees of the Manager, any Sub-Adviser (as defined in
the Advisory Agreement) or any Administrator or of any affiliated
person (other than a registered investment company) of the Manager, any
Sub-Adviser or any Administrator.
3. The Manager shall bear, or reimburse the Fund for, each of the
following expenses:
(a) the costs of printing and mailing the items referred to in
sub-section (k) of this section 3;
(b) 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;
(c) registration, filing and other fees in connection with
requirements of regulatory authorities;
(d) the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;
(e) charges and expenses of independent accountants retained by the
Fund;
(f) charges and expenses of any transfer agents and registrars
appointed by the Fund; provided, that the Manager shall not be required
to pay the charges and expenses of any such transfer agent to the
extent that such charges and expenses are paid by any third party;
(g) taxes and fees payable by the Fund to federal, state or other
governmental agencies;
(h) the cost of certificates representing shares of the Fund;
(i) legal fees and expenses in connection with the routine affairs
of the Fund, including registering and qualifying its shares with
Federal and State regulatory authorities;
(j) expenses of meetings of shareholders and trustees of the Fund;
(k) 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
(l) the Fund's expenses of bookkeeping, accounting, auditing and
financial reporting, including related clerical expenses.
4. Nothing in this Agreement shall require the Manager to bear or
reimburse the Fund for:
(a) any of the costs of preparing, printing and distributing sales
literature;
(b) brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund
is a party;
(c) interest, including interest on borrowings by the Fund; or
(d) extraordinary expenses, including litigation expenses, incurred
by the Fund.
5. All activities undertaken by the Manager or any 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 Administrator
hereunder are not to be deemed exclusive and the Manager and any
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 the amount set forth in Schedule A hereto (or
such lesser amount as the Manager may from time to time agree to
receive). 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.
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) 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;
(b) this Agreement shall automatically terminate in the event of its
assignment;
(c) this Agreement may be terminated by the Manager on [ninety]
days' written notice to the Fund;
(d) 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; and
(e) this Agreement shall terminate automatically at such time as the
Series shall no longer invest all (or substantially all) of its
investment assets in one or more registered, open-end management
investment companies, or separate series thereof, in accordance with
Section 12(d)(1)(E) or 12(d)(1)(G) of the Investment Company Act of
1940 (the "1940 Act").
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 trustees of the Fund
[who are not interested persons of the Fund or the Manager].
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 Agreement as
of the date first written above.
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 h(6)
FORM OF
SERVICE AGREEMENT
This SERVICE AGREEMENT ("Agreement"), made as of this [ ] day of [ ] by
and between New England Funds Management L.P. ("NEFM"), a Delaware limited
partnership and investment adviser to the funds listed on Attachment A (referred
to individually as the "Fund" and collectively as the "Funds"), and[Name of
Advisor], a Delaware limited partnership and investment adviser to the
portfolios listed on Attachment B (referred to individually as the "Portfolio"
and collectively as the "Portfolios").
W I T N E S S E T H:
WHEREAS, each Fund and each Portfolio are registered as open-end,
diversified or non-diversified management investment companies under the
Investment Company Act of 1940, as amended;
WHEREAS, New England Funds Trust III (the "Trust") has entered into
agreements with NEFM ("Investment Advisory Agreement") for the provision of
advisory services to the Funds;
WHEREAS, the Trust has entered into an agreement with Nvest Services
Company, Inc. ("Transfer Agency Agreement") under which Nvest Services Company,
Inc. provides the Trust with shareholder servicing, account management, transfer
and dividend disbursing services, shareholder reports, proxies, prospectuses and
similar shareholder communication services and other related recordkeeping
services for each Fund;
WHEREAS, the Trust has entered into agreements with New England Funds,
L.P. ("Distribution Agreement") for the provision of distribution services in
connection with the shares of each Fund;
WHEREAS, the Trust has entered into agreements with NEFM
("Administrative Agreement") for the provision of certain administrative
services to each Fund;
WHEREAS, each Fund intends to invest its assets exclusively in a
Portfolio, except for temporary defensive purposes and cash or cash items
pending investment in the Portfolio or necessary to meet current redemptions or
Fund expenses;
WHEREAS, each Fund is expected to provide a means by which a Portfolio
can increase its asset base without adding a substantial number of shareholder
accounts which are, or would be, invested directly in the Portfolio; and
WHEREAS, [Name of Advisor] has determined that it is reasonable to
expect that the services provided by NEFM under the Investment Advisory
Agreements and the Administration Agreement, New England Funds, L.P., under the
Distribution Agreements, and Nvest Services Company, Inc., under the Transfer
Agency Agreement, to the Funds will result in benefits to [Name of Advisor.]
NOW, THEREFORE, in consideration of the promises and mutual covenants
made herein, it is agreed by and among the parties hereto as follows:
1. OMNIBUS ACCOUNTS
The Portfolio will have a single omnibus account on its books for a
Fund which will hold shares of the Portfolio.
2. SERVICE FEE
In recognition of the services provided by NEFM, New England Funds,
L.P and Nvest Services Company, Inc. to each Fund and the
corresponding benefits that said services have to each Portfolio and
to [Name of Advisor], [Name of Advisor] will pay an annual fee as set
forth in Schedule A hereto. Nvest Services Company, Inc. shall
provide an invoice for each Fund to [Name of Advisor] 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 20 days
following the receipt of the monthly invoice and shall be paid to
NEFM.
3. LIABILITIES
No party hereto shall be liable to any other party hereto for any
action taken or thing done by it or its agent 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.
NEFM acknowledges and agrees that the Underlying Trust, any of its
series, trustees, officers, or [Name of Advisor], any of its officers,
employees or agents (collectively referred to as a " [Name of Advisor]
Party") shall not be responsible for: (i) any information contained in
any registration statement, prospectus, statement of additional
information, periodic reports to shareholders, proxy statements,
supplements, or advertising or marketing materials prepared by or on
behalf of the Trust or the Fund, except for information reviewed by
any [Name of Advisor] Party concerning the Portfolio's disclosure
contained in the Trust's Registration Statement pursuant to Items 2,
3, 4, 5, 12, 15 and/or 16 under Form N-1A ("N-1A Disclosure"), or
provided to the Fund or NEFM by any [Name of Advisor] Party for that
purpose; or (ii) the compliance or failure to comply by the Fund or
its agents with applicable federal or state law, rule or regulation of
any administrative or self-regulatory organization with jurisdiction
over the Fund or any such agent, except to the extent that the Fund's
or such agent's failure to comply with such law, rule or regulation is
caused by any [Name of Advisor] Party's failure to comply with any
applicable law, rule or regulation.
NEFM shall indemnify, defend and protect each [Name of Advisor] Party,
and hold them harmless from and against and all claims, demands,
actions, losses, damages, liabilities, cost, charges, reasonable
attorney fees and expenses of any nature it or they may incur arising
out of or from (i) any statement or representation or omission of
material fact that NEFM makes concerning the Portfolio that is
inconsistent with or not included in the Portfolio's current
prospectus, statement of additional information, periodic reports,
proxy statement, supplements, sales materials; such other materials
that has been reviewed by any [Name of Advisor] Party concerning the
N-1A Disclosure contained in the Trust's Registration Statement; or
such other materials as, from time to time, is provided to NEFM in
writing by any [Name of Advisor] Party; or (ii) any failure by NEFM to
comply with any applicable federal or state law, rule or regulation of
any administrative or self-regulatory organization with jurisdiction
over NEFM except to the extent that NEFM's failure to comply with such
law, rule or regulation is caused by any [Name of Advisor] Party.
Each [Name of Advisor] Party shall indemnify, defend and protect the
Trust, its series, trustees and officers, NEFM , NEF, any of their
officers, employees and agents (collectively referred to as a "NEFM
Party"), and hold them harmless from any and all claims, demands,
actions losses, damages, liabilities, cost, charges, reasonable
attorney fees and expenses of any nature it or they may incur arising
out of or from: (i) any untrue statement of a material fact contained
in the Portfolio's current prospectus, statement of additional
information, periodic reports to shareholders, proxy statements or
supplements, such other materials that has been reviewed by any [Name
of Advisor] Party concerning the Portfolio's N-1A Disclosure contained
in the Trust's Registration Statement or such other materials as, from
time to time, is provided to NEFM in writing by any [Name of Advisor]
Party or any omission therefrom of a material fact required to be
stated therein or necessary to make the statement therein not
misleading; or (ii) any failure of any [name of Advisor] Party to
comply with applicable federal or state law, rule or regulation of any
administrative or self-regulatory organization with jurisdiction over
any NEFM Party, except to the extent that such failure is caused by
any NEFM Party.
4. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date of its execution
and shall continue in effect until terminated. Any party may terminate
this Agreement as to itself, by written notice delivered to the other
parties; but such termination shall not operate to terminate this
Agreement among the other parties.
Termination of this Agreement pursuant to this section 4 shall be
without payment of any penalty. Upon termination hereof, outstanding
obligations hereunder shall survive.
5. AMENDMENT OF THE AGREEMENT
The Agreement may be modified or amended from time to time by mutual
written agreement between the parties hereto. This Agreement may be
amended in the future to include as additional parties to the
Agreement, including but not limited to, other investment companies
affiliated with [Name of Advisor].
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. Also, no existing
provision of this Agreement, or interpretive or additional provision
described above, shall be effective if, as a result, a Fund or any
Underlying Fund would lose its status as a regulated investment
company under Subchapter M of the Internal Revenue Code.
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.
IN WITNESS WHEREOF, the parties have caused the Agreement to be
executed as of the day and year first above written.
New England Funds Management, L.P. [Name of Advisor]
By: _______________________ By: _______________________
Name: _____________________ Name: _____________________
Title: ____________________ Title: ____________________
<PAGE>
SCHEDULE A
For the services rendered to a Fund, [Name of Advisor] agrees to pay NEFM a
quarterly fee equal to the 0.25% (at an annual rate) of the average daily net
asset value of the shares of the Portfolio held in that Fund during the calendar
quarter, less any fees paid by a Portfolio to Nvest Services Company, Inc.
pursuant to the Special Servicing Agreement entered into among the Fund, the
Portfolio and Nvest Services Company, Inc. Any payment due in such invoice shall
be adjusted to reflect the amount of any charges billed to a Portfolio under the
Special Services Agreement.
<PAGE>
EXHIBIT h(7)
[New England Funds Management, L.P.]
February , 1999
New England Funds Trust I
New England Funds Trust II
New England Funds Trust III
399 Boylston Street
Boston, Massachusetts 02116
Re: Fee Waiver/Expense Reimbursement
--------------------------------
Ladies and Gentlemen:
New England Funds Management, L.P. notifies you that it will waive its
management fees (and, to the extent necessary, bear other expenses of the above
captioned Funds) through May 1, 2000 to the extent that expenses of each class
of a Fund, exclusive of brokerage, interest, taxes and deferred organizational
and extraordinary expenses, would excess the following annual rates:
Name of Fund Expense Cap
------------ -----------
New England International Equity Fund
2.00% for Class A shares
2.75% for Class B shares
2.75% for Class C shares
1.40% for Class Y shares
New England Bullseye Fund 1.75% for Class A shares
2.50% for Class B shares
2.50% for Class C shares
New England Equity Income Fund
1.50% for Class A shares
2.25% for Class B shares
2.25% for Class C shares
New England Massachusetts Tax Free 1.00% for Class A shares
Income Fund 1.65% for Class B shares
New England Tax Free Income 0.85% for Class A shares
Fund of New York 1.60% for Class B shares
New England Intermediate Term Tax 0.85% for Class A shares
Free Fund of California 1.60% for Class B shares
New England Short Term Corporate 0.70% for Class A shares
Income Fund 1.45% for Class B shares
1.45% for Class C shares
During the period covered by this letter agreement, the expense cap
arrangement set forth above for each of the Funds may only be modified by a
majority vote of the "non-interested" Trustees of the Trust or Trusts affected.
For purposes of determining any such waiver or expense reimbursement,
expenses of the class of the Funds shall not reflect the application of
custodial, transfer agency or other credits or expenses offset arrangements that
may reduce Fund expenses.
We understand and intend that you will rely on this undertaking in
preparing and filing the Registration Statements for the above captioned Funds
on Form N-1A with the Securities and Exchange Commission, in accruing each
Fund's expenses for purposes of calculating its net asset value per share and
for other purposes permitted under Form N-1A and/or the Investment Company Act
of 1940, as amended, and expressly permit you to do so.
New England Funds Management, L.P.
By:
------------------------------
Title:
----------------------------
<PAGE>
EXHIBIT (i)
[ROPES & GRAY LETTERHEAD]
February 16, 1999
New England Funds Trust III
399 Boylston Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
You have informed us that you propose to register under the Securities
Act of 1933, as amended (the "Act"), and offer and sell from time to time shares
of beneficial interest, without par value, of your New England Bullseye Fund
series ("Shares"), at not less than net asset value.
We have examined an executed copy of your Agreement and Declaration of
Trust dated August 22, 1995, as amended by Amendments Nos. 1 and 2 thereto (the
"Declaration of Trust"), and are familiar with the action taken by your trustees
to authorize the issue and sale to the public from time to time of authorized
and unissued Shares. We have further examined a copy of your By-Laws and such
other documents and records as we have deemed necessary for the purpose of this
opinion.
Based on the foregoing, we are of the opinion that:
1. The beneficial interest in your New England Bullseye Fund series is
divided into an unlimited number of Shares.
2. The issue and sale of the authorized but unissued Shares has been
duly authorized under Massachusetts law. Upon the original issue and sale of any
of such authorized but unissued Shares and upon receipt of the authorized
consideration therefor in an amount not less than the applicable net asset
value, the Shares so issued will be validly issued, fully paid and nonassessable
by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or its trustees. The Declaration of Trust provides for indemnification out of
the property of the New England Bullseye Fund series (the "Series") for all loss
and expense of any shareholder of the Series held personally liable solely by
reason of his or her being or having been such a shareholder. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Series itself would be unable to meet its
obligations.
We understand that this opinion is to be used in connection with the
registration of an indefinite number of Shares for offering and sale pursuant to
the Act. We consent to the filing of this opinion with and as part of your
Registration Statement on Form N-1A (File No. 033-62061) relating to such
offering and sale.
Very truly yours,
/s/ Ropes & Gray
ROPES & GRAY
