<PAGE>
[LOGO](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
New
England Access
Funds Shares(SM)
- ---------------------------------
New England Core Equity Fund
New England Small Cap Value Fund
New England Small Gap Growth Fund
New England Total Return Bond
PROSPECTUS
March 1, 1999
What's Inside
Goals, Strategies & Risks
Page 2 [Graphic omitted]
-----------------------------
Fund Fees & Expenses
Page 11 [Graphic omitted]
-----------------------------
Management Team
Page 13 [Graphic omitted]
-----------------------------
Fund Services
Page 15 [Graphic omitted]
-----------------------------
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.
New England Funds
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
An Introduction to Access Shares .......................................... 1
GOALS, STRATEGIES & RISKS
New England Core Equity Fund .............................................. 2
New England Small Cap Value Fund .......................................... 4
New England Small Cap Growth Fund ......................................... 6
New England Total Return Bond Fund ........................................ 8
More About Risk ........................................................... 10
FUND FEES & EXPENSES
Fund Fees & Expenses ..................................................... 11
MANAGEMENT TEAM
Meet the Funds' and Portfolios' Investment Advisers ....................... 13
Meet the Portfolio Managers ............................................... 14
FUND SERVICES
Investing in the Funds .................................................... 15
How Sales Charges are Calculated .......................................... 16
Ways to Reduce or Eliminate Sales Charges ................................. 17
It's Easy to Open an Account .............................................. 18
Buying Shares ............................................................. 19
Selling Shares ............................................................ 20
Selling Shares in Writing ................................................. 21
Exchanging Shares ......................................................... 22
How Fund Shares Are Priced ................................................ 23
Dividends and Distributions ............................................... 24
Tax Consequences .......................................................... 24
Additional Fund Information ............................................... 24
Compensation to Securities Dealers ........................................ 25
Additional Investor Services .............................................. 26
Glossary of Terms ......................................................... 27
If you have questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
<PAGE>
AN INTRODUCTION TO ACCESS SHARES(SM)
New England Funds Access Shares is a unique fund structure specifically created
for investors who seek advice through financial professionals.
Unlike a typical fund, each Fund available through Access Shares invests all or
substantially all of its assets in shares of a single underlying mutual fund,
establishing a direct link to that Portfolio's goals, investment strategy and
performance. As with any mutual fund, there is no assurance that the investment
goal of each Fund or its respective Portfolio will be achieved. Each Fund's goal
may be changed without shareholder approval.
This Prospectus contains information on four Access Shares Funds outlined below
(each a "Fund" and collectively the "Funds"). New England Funds management, L.P.
("NEFM") is the adviser to each of the Funds. In this Prospectus, the underlying
mutual fund in which each Fund invests directly is referred to individually as a
"Portfolio," and collectively as the "Portfolios." As an alternative to
investing in the Funds, an investor, without the assistance or advice of a
financial advisor, could buy shares of the Portfolios directly from the
Portfolios or their distributors without paying a sales load. Also, each
Portfolio has a lower expense ratio than the corresponding Fund. Some of the
Portfolios may, however, if purchased directly, require higher minimum
investments or impose other eligibility requirements on investors.
NEW ENGLAND CORE EQUITY FUND
Portfolio Manager: Robert J. Sanborn, Harris Associates L.P.
("Harris Associates")
Goal: Long term capital appreciation. The Fund pursues this
goal by investing all or substantially all of its assets
in Class I shares of The Oakmark Fund.
NEW ENGLAND SMALL CAP VALUE FUND
Portfolio Manager: Steven J. Reid, Harris Associates
Goal: Long-term capital appreciation. The Fund pursues this
goal by investing all or substantially all of its assets
in Class I shares of The Oakmark Small Cap Fund.
NEW ENGLAND SMALL CAP GROWTH FUND
Portfolio Managers: Christopher P. Ely, Philip C. Fine, David L. Smith,
Loomis, Sayles & Company, L.P. ("Loomis Sayles")
Goal: Long-term capital growth. The Fund pursues this goal by
investing all or substantially all of its assets in
Institutional shares of the Loomis Sayles Small Cap
Growth Fund.
NEW ENGLAND TOTAL RETURN BOND FUND
Portfolio Managers: Daniel J. Fuss and Kathleen C. Gaffney, Loomis Sayles
Goal: High total investment return through a combination of
current income and capital appreciation. The Fund pursues
this goal by investing all or substantially all of its
assets in Institutional shares of the Loomis Sayles Bond
Fund.
INVESTMENT RISKS: The risks associated with each Fund generally are the same as
those of its Portfolio and depend on the nature of the Portfolio's investments.
The value of a Portfolio's domestic and foreign investments varies in response
to many factors. Equity securities fluctuate in value based upon general market
and economic conditions, as well as in response to specific developments
affecting their issuing companies. Fixed-income securities generally fluctuate
in value due to changes in interest rates and in the perceived creditworthiness
of their issuers. Because a Fund and its corresponding Portfolio have the same
investment goal, the ability of a Fund to meet its investment goal is directly
related to the performance of its Portfolio.
Fund shares are not bank deposits and are not guaranteed, insured or endorsed by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
For more detailed information about the Portfolios' investment goals, strategies
and related risks, please refer to the appropriate section for each Portfolio on
the following pages. 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 a Portfolio may engage. Please read this section carefully
before you invest.
<PAGE>
GOALS, STRATEGIES AND RISKS
NEW ENGLAND CORE EQUITY FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Harris Associates L.P. High X
("Harris Associates")
-------- ------ ------
PORTFOLIO MANAGER: Robert J. Sanborn Mod. X X
-------- ------ ------
CATEGORY: Large-Cap Equity Low
-------------------------
INVESTMENT GOAL
The Portfolio seeks long-term capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest primarily in equity
securities. The Portfolio will principally invest in common stock or securities
that convert into common stock of U.S. companies with a medium to large
capitalization level. Although Harris Associates considers income producing
capability in its security selection, the Portfolio is not designed for
investors whose primary investment goal is income.
Harris Associates uses a value-oriented investment philosophy based upon its
belief that over time a stock's market price and value will converge. Harris
Associates believes that this philosophy provides the best opportunity to
achieve long-term capital growth, and therefore uses this philosophy to identify
companies with the following characteristics, although not all of the companies
selected will have these attributes:
X discounted share price compared to X competitive return on equity
"true business value" X high level of insider ownership
X positive free cash flows
X favorable earnings growth potential
In making investment decisions for the Portfolio, Harris Associates generally
employs the following methods:
o Harris Associates builds focused portfolios by investing in a relatively
small number of securities. It uses a fundamental, bottom-up investment
approach. This means Harris focuses on individual companies rather than
macro-economic 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 flows, 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 security held
by the Portfolio. These targets are repeatedly adjusted to reflect changes
in a company's fundamentals. Harris Associates will generally buy a stock
when it sells for a price below 60% of its estimated worth, and will sell a
stock when its value approaches 90% of its estimated worth.
The Portfolio may:
* Hold up to 25% of its total assets in securities of foreign issuers traded
over-the-counter or on foreign exchanges, but it does not expect to invest
more than 5% of its total assets in securities of issuers based in emerging
markets.
* Hold fixed-income securities, including up to 25% of its assets in
lower-quality fixed-income securities.
* Hold cash or purchase money market and/or high quality debt securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Portfolio from
achieving its goal.
INVESTMENT RISKS
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to unpredictable drops in value or periods
of below-average performance for a given stock or for the stock
market as a whole. Although the Portfolio is diversified, its
focused approach means that its relatively small number of
holdings may result in greater share price fluctuations than a
more diversified mutual fund.
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk.
SECURITIES: Credit risk relates to the ability of an issuer to make payments
of principal and interest when due 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 May be affected by foreign currency fluctuations, higher
SECURITIES: volatility than U.S. securities and limited liquidity.
Political, economic and information risks are also associated
with foreign securities, and these investments may be affected
by the conversion of the currency of several European countries
to the "euro" currency. Investments in emerging markets may be
subject to these risks to a greater extent than those in more
developed markets.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Core Equity Fund. The performance information below represents
the historical performance of The Oakmark Fund, restated to reflect the
operating expenses of New England Core Equity Fund. The Portfolio's past
performance does not necessarily indicate how the Fund or the Portfolio will
perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1992. The data
points are as follows:)
1992 48.55%
1993 30.15%
1994 2.96%
1995 34.07%
1996 15.86%
1997 32.24%
1998 3.39%
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Fourth Quarter 1992, up 15.31%
X Lowest Quarterly Return: Third Quarter 1998, down 13.92%
The table below shows the Portfolio's average annual total returns for the
one-year, five-years and since-inception periods compared to those of the
Standard & Poor's Composite Index of 500 Stocks (the "S&P 500"), a market
value-weighted, unmanaged index of common stock prices for 500 selected stocks,
the Dow Jones Industrial Average, a market value-weighted and unmanaged index of
30 large industrial stocks traded on the New York Stock Exchange, and the Value
Line Composite Index, an unweighted and unmanaged average of more than 1,000
stocks. You may not invest directly in an index. The Portfolio's total returns
are adjusted to reflect the Fund's expenses for Class A, B and C shares and the
maximum sales charge that you may pay when you buy or redeem Fund shares. The
S&P 500, Dow Jones Industrial Average and the Value Line Composite Index returns
have not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED
DECEMBER 31, 1998) PAST 1 YEAR PAST 5 YEARS SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A -2.6% 15.6% 24.9%
The Portfolio: Class B -2.4% 16.0% 25.1%
The Portfolio: Class C 1.6% 16.2% 25.1%
- --------------------------------------------------------------------------------
S&P 500 28.5% 24.0% 19.8%
Dow Jones Industrial Average 18.1% 22.3% 19.3%
Value Line Composite Index -3.8% 8.2% 8.3%
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Class I shares is August 5, 1991.
The Value Line Composite Index is calculated from July 31, 1991.
For the expenses of Class A, B and C shares, see the section entitled "Fund
Fees & Expenses."
<PAGE>
NEW ENGLAND SMALL CAP VALUE FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Harris Associates L.P. High
("Harris Associates")
-------- ------ ------
PORTFOLIO MANAGER: Steven J. Reid Mod. X X
-------- ------ ------
CATEGORY: Small-Cap Equity Low X
-------------------------
INVESTMENT GOAL
The Portfolio seeks long-term capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest primarily in equity
securities. It generally invests at least 65% of its total assets in securities
of U.S. companies with a small capitalization level ("Small Cap Companies"),
defined by Harris Associates as no larger than the largest market capitalization
of the companies included in the Standard & Poor's ("S&P") Small Cap 600 Index
as most recently reported. Although income is considered in the selection of
securities, the Portfolio is not designed for investors whose primary investment
objective is income.
Harris Associates uses a value-oriented investment philosophy based upon its
belief that over time a stock's market price and value will converge. Harris
Associates believes that this philosophy provides the best opportunity to
achieve long term capital growth, and therefore uses this philosophy to identify
companies with the following characteristics, although not all of the companies
selected will have these attributes:
X discounted share price compared to X competitive return on equity
"true business value" X high level of insider ownership
X positive free cash flows
X favorable earnings growth potential
In making investment decisions for the Portfolio, Harris Associates generally
employs the following methods:
o Harris Associates builds focused Portfolios by investng in a relatively
small number of securities. It uses a fundamental, bottom-up investment
approach. This means Harris focuses on individual companies rather than
macro-economic 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 flows, 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 security held
by the Portfolio. These targets are repeatedly adjusted to reflect changes
in a company's fundamentals. Harris Associates will generally buy a stock
when it sells for a price below 60% of its estimated worth and will sell a
stock when its value approaches 90% of its estimated worth.
The Portfolio may:
* Hold up to 25% of its total assets in securities of foreign issuers traded
over-the-counter or on foreign exchanges, but it does not expect to invest
more than 5% of its total assets in securities of issuers based in emerging
markets.
* Purchase fixed-income securities, including up to 25% of its assets in
lower-quality fixed-income securities.
* Hold cash or purchase money market and/or high quality debt securities for
temporary defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Portfolio from
achieving its goal.
* Invest in Real Estate Investment Trusts ("REITS").
INVESTMENT RISKS
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to unpredictable drops in value or periods
of below-average performance for a given stock or for the stock
market as a whole. Although the Portfolio is diversified, its
focused approach means that its relatively small number of
holdings may result in greater share price fluctuations than a
more diversified mutual fund. 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 Subject to credit risk, interest rate risk and liquidity risk.
SECURITIES: Credit risk relates to the ability of an issuer to make payments
of principal and interest when due 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
bonds may be subject to these risks to a greater extent than
other fixed-income securities.
FOREIGN May be affected by foreign currency fluctuations, higher
SECURITIES: volatility than U.S. securities and limited liquidity.
Political, economic and information risks are also associated
with foreign securities, and these investments may be affected
by the conversion of the currency of several European countries
to the "euro" currency. Investments in emerging markets may be
subject to these risks to a greater extent than those in more
developed markets.
REAL ESTATE Subject to changes in underlying real estate values, rising
INVESTMENT interest rates, limited diversification of holdings, higher
TRUSTS: costs and prepayment risk associated with related mortgages.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Small Cap Value Fund. The performance information below
represents the historical performance of The Oakmark Small Cap Fund, restated to
reflect the operating expenses of New England Small Cap Value Fund. The
Portfolio's past performance does not necessarily indicate how the Fund or the
Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Funds Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1996. The data
points are as follows:)
1996 39.44%
1997 40.16%
1998 -13.51%
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Fourth Quarter 1998, up 17.61%
X Lowest Quarterly Return: Third Quarter 1998, down 26.92%
The table below shows the Portfolio's average annual total returns for the
one-year and since-inception periods compared to those of the Lipper Small Cap
Fund Index, an unmanaged index of 30 small cap mutual funds, the Russell 2000
Index, an unmanaged index measuring the performance of smaller companies, that
represents approximately 10% of the total value of publicly traded companies in
the United States, and the S&P Small Cap 600 Index, an unmanaged index measuring
the performance of selected small capitalization stocks. You may not invest
directly in an index. The Portfolio's total returns are adjusted to reflect the
Fund's expenses for Class A, B and C shares and the maximum sales charge that
you may pay when you buy or redeem Fund shares. The Russell 2000 Index and the
S&P Small Cap 600 Index 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 Index returns have been adjusted for
these expenses but do not reflect any sales charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1998) PAST 1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A -18.5% 17.0%
The Portfolio: Class B -18.5% 17.8%
The Portfolio: Class C -15.1% 18.5%
- --------------------------------------------------------------------------------
Lipper Small Cap Fund Index -0.9% 10.3%
Russell 2000 Index -2.5% 13.3%
S&P Small Cap 600 Index -1.3% 14.8%
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Class I shares is November 1, 1995.
The Lipper Small Cap Fund Index is calculated from October 31, 1995.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
NEW ENGLAND SMALL CAP GROWTH FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Loomis, Sayles & Company, L.P. High X
("Loomis Sayles")
------- ------ ------
PORTFOLIO MANAGERS: Christopher R. Ely, Mod. X X
Philip C. Fine ------- ------ ------
and David L. Smith
Low
CATEGORY: Small-Cap Equity -----------------------
INVESTMENT GOAL
The Portfolio seeks long-term capital growth.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of companies with market capitalizations that
fall within the range of companies within the Russell 2000 Index ("Small Cap
Companies") and may invest up to 35% of its assets in companies with larger
capitalization levels.
The Portfolio focuses on rapidly growing companies which Loomis Sayles believes
have the potential for strong revenue growth, rising profit margins and
accelerating earnings growth. The stock selection process uses a bottom-up
approach that Loomis Sayles believes identifies those companies which possess
the best growth prospects. Loomis Sayles uses this approach to seek companies
with the following characteristics, although not all of the companies selected
will have these attributes:
X New and/or distinctive products, technologies or services
X Expected growth of at least 20% per year driven by strong sales and improving
profitability
X Strong and experienced management with the vision and the capability to grow a
large, profitable organization
In making investment decisions for the Portfolio, 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 exhibited by the Russell 2000
Index.
o Next, the Portfolio managers, with the assistance and guidance of the Loomis
Sayles analysts evaluate and refine this universe through screening
techniques to determine which companies appear to offer the best earnings
growth prospects.
o Once Loomis Sayles determines that a stock may have the potential for
earnings growth and rising profitability, it then considers that stock for
purchase. This process includes analysis of the company's income statements
and balance sheets, an assessment of the quality of management team as well
as the company's competitive position.
o Finally, Loomis Sayles builds a diversified portfolio of small cap growth
securities that are generally equally weighted, although under certain
circumstances such as low liquidity or lack of near term earnings prospects,
positions will be reduced. Under normal circumstances, the Portfolio remains
fully invested with less than 5% of its assets held as cash.
o Investments are continuously monitored by the portfolio managers with the
assistance of small cap growth team at Loomis Sayles. Any erosion to the
fundamental characteristics of Portfolio holdings may result in the sale of
that security. In general, securities are sold when they are no longer
deemed to be small cap - typically when the market capitalization of the
company exceeds $2 billion. Finally, stocks may be sold if a better
opportunity is identified by the portfolio managers.
The Portfolio may:
* Hold any portion of its assets in securities of Canadian companies and up to
20% of its assets in securities of other foreign companies.
* Hold cash or purchase fixed-income and any other securities deemed
appropriate by Loomis Sayles for temporary defensive purposes in response to
adverse market, economic or political conditions. These investments may
prevent the Portfolio from achieving its goal.
* Engage in active and frequent trading of securities. Frequent trading may
produce higher transaction costs and a higher level of taxable capital
gains, which may lower the Portfolio's return.
Investment Risks
EQUITY Subject to market risks. This means that you may lose money on
SECURITIES: your investment due to unpredictable drops in value or periods
of below-average performance for a given stock or for 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.
FOREIGN May be affected by foreign currency fluctuations, higher
SECURITIES: volatility than U.S. securities and limited liquidity.
Political, economic and information risks are also associated
with foreign securities, and these investments may be affected
by the conversion of the currency of several European countries
to the "euro" currency.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Small Cap Growth Fund. The performance information below
represents the historical performance of the Loomis Sayles Small Cap Growth
Fund, restated to reflect the operating expenses of New England Small Cap Growth
Fund. The Portfolio's past performance does not necessarily indicate how the
Fund or the Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1997. The data
points are as follows:)
1997 19.08%
1998 18.38%
- --------------------------------------------------------------------------------
X Highest Quarterly Return: Fourth Quarter 1998, up 36.63%
X Lowest Quarterly Return: Third Quarter 1998, down 22.01%
The table below shows the Portfolio's average annual total returns for the
one-year and since-inception periods compared to those of the Russell 2000
Index, an unmanaged index measuring the performance of smaller companies that
represents approximately 10% of the total value of publicly traded companies in
the United States, and the Lipper Small Cap Fund Average, an average of the
total returns of all mutual funds with an investment style similar to that of
the Portfolio, as calculated by Lipper, Inc. You may not invest directly in an
index. The Portfolio's total returns are adjusted to reflect the Fund's expenses
for Class A, B and C shares and the maximum sales charge that you may pay when
you buy or redeem Fund 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 Average
returns have been adjusted for these expenses but do not reflect any sales
charges.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1998) PAST 1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
The Portfolio: Class A 11.6% 15.3%
The Portfolio: Class B 12.6% 16.3%
The Portfolio: Class C 16.6% 18.0%
- --------------------------------------------------------------------------------
Russell 2000 Index -2.5% 9.2%
Lipper Small Cap Fund Average -0.4% 9.6%
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Institutional Class is January 2, 1997.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
NEW ENGLAND TOTAL RETURN BOND FUND FUND FOCUS
Stability Income Growth
-------------------------
PORTFOLIO ADVISER: Loomis Sayles & Company, L.P. High X
("Loomis Sayles")
-------- ------ ------
PORTFOLIO MANAGER: Daniel J. Fuss and Mod. X X
Kathleen C. Gaffney -------- ------ ------
Low
CATEGORY: Corporate Income ------------------------
INVESTMENT GOAL
The Portfolio seeks high total return through a combination of current income
and capital appreciation.
INVESTMENT STRATEGIES
Under normal market conditions, the Portfolio will invest substantially all of
its assets in fixed-income securities of any maturity. It will invest at least
65% of its assets in either corporate or U.S. Government bonds. It may invest up
to 35% of its assets in securities below investment grade quality, commonly
known as junk bonds. It may also invest up to 20% of its assets in preferred
stock.
The Portfolio's approach to bond management seeks to add value by the diligent
selection of thoroughly researched corporate securities. Research analysts work
independently within specific industry groups to collectively cover a large
universe of companies. By concentrating on each security's fundamental
characteristics, the analysts make judgments regarding the best overall
investment ideas for the portfolio managers to consider. The analysts focus on
the following characteristics in deciding whether to recommend a security:
X cash flow projections X industry, company and political
X contact and visibility developments and trends
X economic forecast X comparative yield levels for
individual bonds, bond market
sectors and the bond market as a
whole
In making investment decisions for the Portfolio, Loomis Sayles generally
employs the following methods:
o It uses a fixed-income research process that thoroughly analyzes a selection
of corporate securities.
o Research analysts evaluate a security relative to the characteristics
described above to derive an independent credit rating for each security.
o It supplements this research process with information obtained from Wall
Street research, purchased independent research, company visits and credit
analyses published by rating agencies such as Standard & Poor's Ratings
Group and Moody's Investors Service, Inc. In particular, analysts seek to
anticipate credit rating changes with a goal of avoiding future credit
downgrades and participating in credit upgrades.
o The analysts present an unbiased overall credit analysis for use by the
portfolio managers and securities traders. Portfolio managers ultimately
decide whether to buy, sell or hold a particular security.
The Portfolio may:
* Purchase convertible securities, zero-coupon bonds and when-issued
securities.
* Hold any portion of its assets in securities of Canadian companies and up to
20% of its assets in securities of other foreign companies.
* Invest in mortgage- and asset-backed (including stripped mortgage-backed)
securities or collateralized mortgage obligations ("CMOs").
* Hold cash or purchase fixed-income or any other securities deemed
appropriate by Loomis Sayles for temporary defensive purposes in response to
adverse market, economic or political conditions. These investments may
prevent the Portfolio from achieving its goal.
INVESTMENT RISKS
FIXED-INCOME Subject to credit risk, interest rate risk and liquidity risk.
SECURITIES: Credit risk relates to the ability of an issuer to make payments
of principal and interest when due 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, zero-coupon bonds and when-issued
securities may be subject to these rises to a greater extent
than other fixed-income securities.
FOREIGN May be affected by foreign currency fluctuations, higher
SECURITIES: volatility than U.S. securities and limited liquidity.
Political, economic and information risks are also associated
with foreign securities, and these investments may be affected
by the conversion of the currency of several European countries
to the "euro" currency.
MORTGAGE- Subject to prepayment risk. With prepayment, the Portfolio may
AND ASSET- reinvest the prepaid amounts in securities with lower yields
RELATED than the prepaid obligations. The Portfolio may also incur a
SECURITIES/ realized loss when there is a prepayment of securities that
CMOs were purchased at a premium. Stripped mortgage-backed securities
are more sensitive to changes in the prevailing interest rates
and the rate of principal payments on the underlying assets than
mortgage-backed securities.
<PAGE>
EVALUATING THE FUND'S PAST PERFORMANCE
The bar chart and table shown below give an indication of the risks of investing
in New England Total Return Bond Fund. The performance information below
represents the historical performance of the Loomis Sayles Bond Fund, restated
to reflect the operating expenses of New England Total Return Bond Fund. The
Portfolio's past performance does not necessarily indicate how the Fund or the
Portfolio will perform in the future.
The bar chart shows the adjusted total returns for the Fund's Class A shares for
each calendar year since the Portfolio's first full year of operation. 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 of the Portfolio adjusted to reflect the Fund's Class A expenses)
- --------------------------------------------------------------------------------
(A bar chart appears here illustrating the total returns since 1992. The data
points are as follows:)
1992 13.94%
1993 21.87%
1994 (4.42)%
1995 31.61%
1996 9.94%
1997 12.34%
1998 4.35%
X Highest Quarterly Return: Second Quarter 1995, up 10.63%
X Lowest Quarterly Return: Third Quarter 1998, down 5.10%
The table below shows the Portfolio's average annual total returns for the
one-year, five-years and since-inception periods compared to those of the Lehman
Government/Corporate Bond Index, a composite average of the Lehman Government
Index and the Lehman Corporate Bond Index, and the Lipper BBB-Rated Corporate
Debt Fund Average, an average of the total returns of all mutual funds with an
investment style similar to that of the Portfolio, as calculated by Lipper, Inc.
You may not invest directly in an index. The Portfolio's total returns are
adjusted to reflect the Fund's expenses for Class A, B and C shares and the
maximum sales charge that you may pay when you buy or redeem Fund shares. The
Lehman Government/Corporate Bond Index returns have not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. The Lipper BBB-Rated Corporate Debt Fund
Average returns have been adjusted for these expenses but do not reflect any
sales charges.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(for the periods ended
December 31, 1998) Past 1 Year Past 5 Years Since Inception*
- --------------------------------------------------------------------------------
The Portfolio: Class A -0.3% 9.1% 11.8%
The Portfolio: Class B -1.4% 9.1% 11.7%
The Portfolio: Class C 2.6% 9.4% 11.7%
Lehman Government/Corporate
Bond Index 9.5% 7.3% 8.8%
Lipper BBB-Rated Corporate
Debt Fund Average 6.3% 7.0% 9.5%
- --------------------------------------------------------------------------------
* The inception date of the Portfolio's Institutional Class is May 16, 1991.
The Lehman Government/Corporate Bond Index is calculated from May 31, 1991.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees
& Expenses."
<PAGE>
MORE ABOUT RISK
The Portfolios have principal investment strategies that come with inherent
risks. The following is a list of risks to which the Portfolios (and therefore
their respective Funds) 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 (Small Cap Value, Small Cap Growth 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 Portfolio's
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 MARKET RISK (Core Equity and Small Cap Value Funds) The risk associated
with securities markets of smaller sizes or with short operating histories.
Emerging markets involve risks in addition to and greater than those generally
associated with investing in developed foreign markets. The extent of economic
development, political stability, market depth, infrastructure and
capitalization and regulatory oversight in emerging market economies is
generally less than in more developed markets.
RISK 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 Portfolio's exposure to
stock market values, interest rates or the currency exchange rate. These types
of practices will be used primarily for hedging purposes, except for the
Portfolios advised by Harris Associates.
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 the
Portfolio 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, the Fund is directly
exposed to the risks of that derivative security and any loss generated by the
derivative security will not be offset by a gain.
INTEREST RATE RISK (All Funds) The risk of market losses attributable to changes
in interest rates. With fixed-income securities, a rise in interest rates
typically causes a fall in value.
INFORMATION RISK (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 advantageous 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 Portfolio.
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 (Total Return Bond and Small Cap Value Funds) The risk that an
unexpected rise in interest rates will extend the life of a mortgage-backed
security beyond the expected prepayment time, typically reducing the security's
value.
VALUATION RISK (All Funds) The risk that a Portfolio has valued certain
securities at a higher price than it can sell them for.
PREPAYMENT RISK (Total Return Bond and Small Cap Value 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
Portfolio 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
presently unclear. Such consequences may adversely affect the value and/or
increase the volatility of securities held by a Portfolio.
<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)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ALL FUNDS EXCEPT
NEW ENGLAND TOTAL RETURN BOND FUND NEW ENGLAND TOTAL RETURN BOND FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases 5.75% None None 4.50% None None
(as a percentage of offering price)(1)(2)
Maximum deferred sales charge (load)
(as a percentage of offering price)(2) (3) 5.00% 1.00% (3) 5.00% 1.00%
Redemption fees None* None* None* None* None* None*
- --------------------------------------------------------------------------------------------------------------------------
(1) A reduced sales charge on Class A shares applies in some cases. See "Ways to Reduce or Eliminate Sales Charges."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to certain purchases of Class A shares greater than
$1,000,000 redeemed within 1 year after purchase, but not to any other purchases or redemptions of Class A shares.
See "How Sales Charges are Calculated."
* Generally, a transaction fee will be charged for expedited payment of redemption proceeds such as by wire or overnight
delivery.
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average net assets)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ENGLAND CORE EQUITY FUND NEW ENGLAND SMALL CAP VALUE FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fees(1) 0.93% 0.93% 0.93% 1.28% 1.28% 1.28%
Distribution and/or service (12b-1)
fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses of the Fund and
Portfolio (less management fees)(2) 0.25% 0.25% 0.25% 0.27% 0.27% 0.27%
Total annual fund operating
expenses(3) 1.43% 2.18% 2.18% 1.80% 2.55% 2.55%
(1) There is no management fee paid to NEFM by the Fund. The management fee represents the fee paid by the Portfolio to its Adviser.
(2) Under an Administration Agreement between the Fund and NEFM, NEFM has agreed to pay all expenses (other than those paid by the
corresponding Portfolio under the Special Servicing agreement) of each Fund in excess of 0.10% annually of the Fund's average
daily net assets. This agreement will terminate on December 31, 2001.
(3) Total annual fund operating expenses reflect the aggregate expenses of both the Fund and its respective Portfolio.
* 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.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ENGLAND SMALL CAP GROWTH FUND NEW ENGLAND TOTAL RETURN BOND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fees(1) 0.75% 0.75% 0.75% 0.60% 0.60% 0.60%
Distribution and/or service (12b-1)
fees 0.25% 1.00%* 1.00%* 0.25% 1.00%* 1.00%*
Other expenses of Fund and
Portfolio (less management fees)(2) 1.50% 1.50% 1.50% 0.26% 0.26% 0.26%
Total annual fund operating
expenses(3) 2.50% 3.25% 3.25% 1.11% 1.86% 1.86%
Portfolio fee waiver and/or expense
reimbursement 1.15%** 1.15%** 1.15%** N/A N/A N/A
Net expenses 1.35% 2.10% 2.10% 1.11%*** 1.86%*** 1.86%***
(1) There is no management fee paid to NEFM by the Fund. The Management fee represents the fee paid by the Portfolio to its
Adviser.
(2) Under an Administration Agreement between the Fund and NEFM, NEFM has agreed to pay all expenses (other than those paid by the
corresponding Portfolio under the Special Servicing Agreement) of each Fund in excess of 0.10% annually of the Fund's average
daily net assets. This agreement will terminate on December 31, 2001.
(3) Total annual fund operating expenses reflect the expenses of both the Fund and its respective Portfolio without giving
effect to any expense limitations.
* 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.
** Loomis Sayles has given a binding undertaking to limit the total amount of the Loomis Sayles Small Cap Growth Fund's
(the Portfolio's) operating expenses to 1.00% annually of the Portfolio's average daily net assets. This undertaking
will be in effect for the life of the Fund's Prospectus.
*** Loomis Sayles has voluntarily agreed to limit the amount of the Loomis Sayles Bond Fund's (the Portfolio's) total expenses
to 0.75% annually of the Portfolio's average daily net asets. Taking into account this agreement, the Fund's actual net
expenses for 1998 were 1.10% for Class A shares and 1.85% for Class B and Class C shares.
</TABLE>
<PAGE>
This example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The example assumes that :
o You invest $10,000 in the Fund for the time periods indicated
o Your investment has a 5% return each year
o The Fund's operating expenses remain the same
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
- ------------------------------------------------------------------------------
NEW ENGLAND CORE EQUITY FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ 712 $ 721 $221 $321 $221
3 years $1,001 $ 982 $682 $682 $682
- ------------------------------------------------------------------------------
NEW ENGLAND SMALL CAP VALUE FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ 747 $ 758 $258 $358 $258
3 years $1,109 $1,094 $794 $794 $794
- ------------------------------------------------------------------------------
NEW ENGLAND SMALL CAP GROWTH FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ 705 $ 713 $213 $313 $213
3 years $ 978 $ 958 $658 $658 $658
- ------------------------------------------------------------------------------
NEW ENGLAND TOTAL RETURN BOND FUND
- ------------------------------------------------------------------------------
Class A Class B Class C
(1) (2) (1) (2)
- ------------------------------------------------------------------------------
1 year $ 557 $ 688 $188 $288 $188
3 years $ 784 $ 882 $582 $582 $582
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period.
<PAGE>
MANAGEMENT TEAM
MEET THE FUNDS' AND PORTFOLIOS' INVESTMENT ADVISERS
The New England Funds family includes 27 mutual funds with a total of over $7
billion in assets under management as of March 1, 1999. The New England Funds
are distributed through New England Funds, L.P. (the "Distributor"). This
Prospectus covers New England Access Shares which, along with New England Stock
Funds, New England Bond Funds, New England Star Funds 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 the Funds. NEFM is a subsidiary of
Nvest Companies, L.P. ("Nvest Companies"), which is part of an affiliated group
including Nvest, L.P., a publicly-traded company listed on the New York Stock
Exchange. Nvest Companies' 14 principal subsidiary or affiliated asset
management firms, collectively, had more than $135 billion in assets under
management as of December 31, 1998. NEFM oversees, evaluates and monitors the
performance of each Fund and furnishes general business management and
administration to each Fund. NEFM does not determine what investments will be
purchased by any of the Portfolios. Harris Associates or Loomis Sayles makes the
investment decisions for the Portfolios advised by them.
HARRIS ASSOCIATES L.P.
Harris Associates, located at Two North LaSalle Street, Chicago, Illinois 60602,
serves as adviser to The Oakmark Fund, The Oakmark Equity and Income Fund, The
Oakmark Select Fund and The Oakmark Small Cap Fund. Harris Associates, a
subsidiary of Nvest Companies, manages over $16 billion in assets, and, together
with its predecessor, has managed mutual funds since 1970. In addition to
managing investments for other mutual funds, Harris Associates manages assets of
individuals, trusts, retirement plans, endowments, foundations, and several
private partnerships.
LOOMIS, SAYLES & COMPANY, L.P.
Loomis Sayles, located at One Financial Center, Boston, Massachusetts 02111,
serves as adviser to the Loomis Sayles Small Cap Growth Fund and the Loomis
Sayles Bond Fund. Loomis Sayles is also a subsidiary of Nvest Companies. Founded
in 1926, Loomis Sayles is one of America's oldest and largest investment
advisory firms with over $64 billion in assets under management. Loomis Sayles
is well known for its professional research staff, which is one of the largest
in the industry.
ADVISORY AGREEMENTS
Under the terms of the advisory agreement with each Fund, NEFM WILL NOT RECEIVE
ANY MANAGEMENT FEE FROM A FUND, SO LONG AS SUBSTANTIALLY ALL OF THE INVESTABLE
ASSETS OF THE FUND ARE INVESTED IN THE SHARES OF ANOTHER MUTUAL FUND. If,
however, the Fund's Board of Trustees should vote to change the investment
strategy and elect to have NEFM provide portfolio management services to a Fund,
either directly or by entering into a subadvisory agreement with another
investment advisory firm, then NEFM would receive a management fee from the Fund
at the following annual rates as a percentage of the Fund's average daily net
assets: 1% for New England Core Equity Fund, 1% for New England Small Cap Value
Fund, 1% for New England Small Cap Growth Fund and 0.65% for New England Total
Return Bond Fund.
No management fee would be payable to NEFM by a Fund until written notice of any
such change is communicated to the shareholders of the Fund and, in the event of
the appointment of a subadviser for a Fund that is affiliated with NEFM, the
subadvisory agreement has been approved by the shareholders of the Fund at a
special shareholders meeting.
SPECIAL SERVICING AGREEMENT
New England Funds Service Company ("NEFSCO"), 399 Boylston Street, Boston,
Massachusetts 02116, is the transfer and dividend paying agent for the Funds,
and is an affiliate of NEFM. NEFSCO has subcontracted certain of
its obligations as such to State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110.
Under the terms of a Special Servicing Agreement (the "Special Service
Agreement") among each Fund, its corresponding Portfolio and NEFSCO, NEFSCO will
provide services pertaining to the operation of the Fund, including shareholder
servicing and fund administration. Each Portfolio has agreed to pay NEFSCO an
annual fee equal to 0.12% of the assets that the Fund has invested in that
Portfolio. However, the Portfolio will not be required to pay NEFSCO any amount
in excess of the financial benefits derived from the operation of the Fund. The
cost-benefit analysis was initially reviewed by the Trustees of each Portfolio
before participating in any Special Service Agreement. For future years, there
will be an annual review of the Special Service Agreement to determine its
continued appropriateness for each Portfolio. Currently, only the Portfolios
advised by Harris Associates will participate in the Special Service
Agreement.
<PAGE>
<TABLE>
MEET THE PORTFOLIO MANAGERS
<S> <C>
ROBERT J. SANBORN STEVEN J. REID
[Photo of Robert J. Sanborn] [Photo of Steven J. Reid]
Robert Sanborn has served as Portfolio Manager of The Oakmark Steven Reid has served as portfolio manager of The Oakmark
Fund since August 1991. Mr. Sanborn, a chartered financial Small Cap Fund since November 1995. Mr. Reid, a chartered
analyst, joined Harris Associates as a portfolio manager and financial analyst, joined Harris Associates as an accountant
analyst in 1988. He holds an M.B.A. from the University of in 1980 and has been an investment analyst at Harris
Chicago, a B.A. from Dartmouth College, and has 15 years of Associates since 1985. He holds a B.A. in Business from
investment experience. Roosevelt University and has 12 years of investment
experience.
DANIEL J. FUSS
[Photo of Daniel J. Fuss]
Daniel Fuss has served as portfolio manager of the Loomis KATHLEEN C. GAFFNEY
Sayles Bond Fund since May 1991. Mr. Fuss is a chartered [Photo of Kathleen C. Gaffney]
financial analyst and an Executive Vice President, Director Kathleen Gaffney has served as portfolio manager of the Loomis
and Managing Partner of Loomis Sayles. He began his investment Sayles Bond Fund since November 1997. Ms. Gaffney, a chartered
career in 1968 and joined Loomis Sayles in 1976. He holds a financial analyst, joined Loomis Sayles in 1984 and is now a
B.S. and an M.B.A. from Marquette University and has 30 years Vice President of the company. She holds a B.A. from the
of investment experience. University of Massachusetts at Amherst and has 14 years of
investment experience.
CHRISTOPHER R. ELY
[Photo of Christopher R. Ely] PHILIP C. FINE
Christopher Ely has served as co-portfolio manager of the [Photo of Philip C. Fine]
Loomis Sayles Small Cap Growth Fund since January 1997. Mr. Philip Fine has served as co-portfolio manager of the Loomis
Ely is a chartered financial analyst and is Vice President Sayles Small Cap Growth Fund since January 1997. Mr. Fine is a
of Loomis Sayles. He began his investment career in 1978 and chartered financial analyst and is a Vice President of Loomis
joined Loomis Sayles in 1996. Prior to joining Loomis Sayles. He began his investment career in 1988 and joined
Sayles, Mr. Ely was Senior Vice President and portfolio Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr. Fine
manager at Keystone Investment Management Company, Inc. He was a Vice President and Portfolio Manager at Keystone
holds an B.A. from Brown University, an M.B.A. from Babson Investment Management Company, Inc. He received an A.B. and a
College and has 20 years of investment experience. Ph.D. from Harvard University and has 11 years of investment
experience.
DAVID L. SMITH
[Photo of David L. Smith]
David Smith has served as co-portfolio manager of the Loomis
Sayles Small Cap Growth Fund since January 1997. Mr. Smith is a
chartered financial analyst and is a Vice president of Loomis
Sayles. He began his investment career in 1986 and joined
Loomis Sayles in 1996. Prior to joining Loomis Sayles, Mr.
Smith was a Vice President and portfolio manager at Keystone
Investment Management Company, Inc. He holds an B.A. from the
University of Massachusetts at Amherst, an M.B.A. from Cornell
University and has 13 years of investment experience.
</TABLE>
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement entered into between NEFM and each Fund,
each Fund will pay NEFM an administration fee at the annual rate of 0.10% of the
Fund's average daily net assets until May 1, 2001. At the expiration of this
period, each Fund will pay NEFM the lesser of (i) 0.25% of the Fund's average
daily net assets, or (ii) the actual expenses incurred by NEFM in providing
services to a Fund; provided however, that the minimum payment due to NEFM under
the Administration Agreement will be no less than 0.10% of the Fund's average
daily net assets. These services include the provision of necessary executive
and other personnel for managing the affairs of a Fund.
PORTFOLIO TRADES
In placing trades on behalf of the Portfolios, Harris Associates or Loomis
Sayles may use brokerage firms that market the Funds' or the Portfolios' shares
or are affiliated with Nvest Companies, NEFM, Harris Associates or Loomis
Sayles. Harris Associates or Loomis Sayles will seek to obtain the best
combination of price and execution, which involves a number of judgmental
factors. Such Portfolio trades are subject to applicable regulatory restrictions
and related procedures adopted by the relevant Portfolio's Board of Trustees.
<PAGE>
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 of
shares 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.
<TABLE>
CLASS A SHARES
<S> <C> <C>
o You pay a sales charge when you CLASS B SHARES CLASS C SHARES
buy Fund shares. There are several
ways to reduce this charge. See o You do not pay a sales charge when o You do not pay a sales charge when
the section entitled "Ways to you buy Fund shares. All of your you buy Fund shares. All of your
Reduce or Eliminate Sales money goes to work for you right money goes to work for you right
Charges." away. away.
o You pay lower annual expenses than o You pay higher annual expenses o You pay higher annual expenses
Class B and Class C shares, giving than Class A shares. than Class A shares.
you the potential for higher
returns per share. o You will pay a charge on o You will pay a charge on
redemptions if you sell your redemptions if you sell your
o You do not pay a sales charge on shares within 6 years of purchase, shares within 1 year of purchase.
orders of $1 million or more, but as described in the section
you may pay a charge on redemption entitled "How Sales Charges are o Your Class C shares will not
if you redeem these shares within Calculated. automatically convert into Class A
1 year of purchase. shares. If you hold your shares
o Your Class B shares will for longer than 8 years, you'll
automatically convert into Class A pay higher expenses than other
shares after 8 years, which classes.
reduces your annual expenses.
o We will not accept an order for $1 o We will not accept an order for $1
million or more of Class B shares. million or more of Class C shares.
You may, however, purchase $1 million You may, however, purchase $1
or more in Class A shares, which will million or more in Class A shares,
have no sales charge as well as lower which will have no sales charge as
annual expenses. You may pay a charge well as lower annual expenses for
on redemption if you redeem these that purchase. You may pay a charge
shares within 1 year of purchase. on redemption if you redeem these
shares within 1 year of purchase.
For the expenses of Class A, B and C shares, see the section entitled "Fund Fees & Expenses" in this Prospectus.
</TABLE>
CERTIFICATES
Certificates will not be automatically issued for any class of shares. Upon
written request, you may receive certificates for Class A shares only.
<PAGE>
HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CLASS A SALES CHARGES
All funds except New England Total Return Bond Fund Total Return Bond Fund
- -----------------------------------------------------------------------------------------------------------------------
AS A % OF AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 6.10% 4.50% 4.71%
$50,000 - $99,999 4.50% 4.71% 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63% 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56% 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04% 2.00% 2.04%
$1,000,000 or more* 0% 0% 0% 0%
- -----------------------------------------------------------------------------------------------------------------------
* For purchases of Class A shares of the Funds of $1 million or more or purchases by the Retirement Plans (Plans under
Sections 401(a) or 401(k) of the Internal Revenue Code with investments of $1 million or more that have 100 or more
eligible employees), there is no front-end sales charge, but a contingent deferred sales charge of 1.00% may apply to
redemptions of your shares within one year of the purchase date. See "Ways to Reduce or Eliminate Sales Charges."
</TABLE>
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 into Class B shares of another
New England Fund. The CDSC equals the following percentages of the dollar
amounts subject to the charge:
-----------------------------------------------------
CLASS B CONTINGENT DEFERRED SALES CHARGES
-----------------------------------------------------
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
-----------------------------------------------------
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
thereafter 0%
-----------------------------------------------------
CLASS C SHARES
The offering price of Class C shares is their net asset value, without a
front-end sales charge. However, Class C shares are subject to a CDSC of 1.00%
on redemptions made within one year of the date of purchase. The holding period
for determining the CDSC will continue to run after an exchange into Class C
shares of another New England Fund.
-----------------------------------------------------
CLASS C CONTINGENT DEFERRED SALES CHARGES
-----------------------------------------------------
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
-----------------------------------------------------
1st 1.00%
thereafter 0%
-----------------------------------------------------
HOW THE CDSC IS APPLIED TO YOUR SHARES
The CDSC is a sales charge you pay when you redeem certain Fund shares.
The CDSC:
o is calculated based on the number of shares you are selling;
o is based on either your original purchase price or the current net asset
value of the shares being sold, whichever is lower;
o is deducted from the proceeds of the redemption, not from the amount
remaining in your account; and
o for year one applies to redemptions through the day one year after the date
on which 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 into Class A
shares stops until you exchange back into shares of another New England Fund. If
you choose to redeem those Money Market Fund shares, a CDSC may apply.
<PAGE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
CLASS A SHARES
REDUCING SALES CHARGES
There are several ways you can lower your sales charge, including:
o LETTER OF INTENT - allows you to purchase Class A shares of any New England
Fund over a 13-month period but pay sales charges as if you had purchased
all shares at once. This program can save you money if you plan to invest
$50,000 or more over 13 months. Purchases in Class B and Class C shares may
be used toward meeting the letter of intent.
o COMBINING ACCOUNTS - allows you to combine shares of multiple 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 any New England Fund
WITHOUT PAYING A SALES CHARGE to repurchase Class A shares of the same or any
other New England Fund. To qualify, you must reinvest some or all of the
proceeds within 120 days after your redemption and notify New England Funds or
your financial representative at the time of reinvestment that you are taking
advantage of this privilege. You may reinvest your proceeds either by returning
the redemption check or by sending a new check for some or all of the redemption
amount. Please note: For federal income tax purposes, A REDEMPTION IS A SALE
THAT INVOLVES TAX CONSEQUENCES, EVEN IF THE PROCEEDS ARE LATER REINVESTED.
Please consult your tax adviser 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>
IT'S EASY TO OPEN AN ACCOUNT
TO OPEN AN ACCOUNT WITH NEW ENGLAND FUNDS:
(1) Read this Prospectus carefully.
(2) Determine how much you wish to invest. The following chart shows the
investment minimums for various types of accounts:
- --------------------------------------------------------------------------------
MINIMUM TO
OPEN AN
ACCOUNT USING MINIMUM FOR
MINIMUM TO INVESTMENT EXISTING
TYPE OF ACCOUNT OPEN AN ACCOUNT BUILDER ACCOUNTS
- --------------------------------------------------------------------------------
Any account other than those
listed below $2,500 $100 $100
- --------------------------------------------------------------------------------
Accounts registered under the
Uniform Gifts to Minors Act or
the Uniform Transfers to
Minors Act $2,000 $100 $100
- --------------------------------------------------------------------------------
Individual Retirement Accounts
(IRAs) $500 $100 $100
- --------------------------------------------------------------------------------
Retirement plans with tax
benefits such as corporate
pension, profit sharing and
Keogh plans $250 $100 $100
- --------------------------------------------------------------------------------
Payroll Deduction Investment
Programs for 401(k), SARSEP,
SEP, SIMPLE, 403(b)(7) and
certain other retirement plans $25 N/A $25
- --------------------------------------------------------------------------------
(3) Complete the appropriate parts of the account application, carefully
following the instructions. If you have any questions, please call your
financial representative or New England Funds at 800-225-5478. For more
information on New England Funds' investment programs, refer to the section
entitled "Additional Investor Services" in this Prospectus.
(4) Use the following sections as your guide for purchasing shares.
SELF-SERVICING YOUR ACCOUNT
Buying or selling shares is easy with the services described below:
NEW ENGLAND FUNDS PERSONAL
ACCESS LINE(TM) ("PAL") NEW ENGLAND FUNDS WEB site
800-225-5478, press 1 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>
<TABLE>
BUYING SHARES
<CAPTION>
---------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THROUGH YOUR
INVESTMENT DEALER
[GRAPHIC OMITTED] o Call your investment dealer for information o Call your investment dealer for information
BY MAIL
[GRAPHIC OMITTED] o Make out a check in U.S. dollars for the investment o Make out a check in U.S. dollars for the
amount, payable to "New England Funds." Third party investment amount, payable to "New England
checks will generally not be accepted. Funds." Third party checks will generally not
o Mail the check with your completed application to be accepted.
New England Funds, P.O. Box 8551, Boston, MA o Fill out the detachable investment slip from
02266-8551. an account statement. If no slip is
available, include with the check a letter
specifying the Fund name, your 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 or for o The exchange must be for a minimum of $1,000
all of your shares. or for all of your shares.
o Obtain a current prospectus for the Fund into which o Call your investment dealer or New England
you are exchanging by calling your investment dealer Funds at 800-225-5478 to request an exchange.
or New England Funds at 800-225-5478. o See the section entitled "Exchanging Shares"
o Call your investment dealer or New England Funds to for more details.
request an exchange.
o See the section entitled "Exchanging Shares" for
more details.
BY WIRE
[GRAPHIC OMITTED] o Call New England Funds at 800-225-5478 to obtain an o Instruct your bank to transfer funds to State
account number and wire transfer instructions. Street Bank & Trust Company, ABA# 011000028,
Your bank may charge you for such a transfer. DDA# 99011538.
o Specify the Fund name, your 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 would like to o Please call New England Funds at 800-225-5478
begin an automatic investment plan through for a Service Options Form. A signature
Investment Builder and the amount of the monthly guarantee may be required to add this
investment ($100 minimum). privilege.
o Send a check marked "Void" or a deposit slip from o See the section entitled "Additional Investor
your bank account along with your application. Services."
.
THROUGH AUTOMATED
CLEARING HOUSE (ACH)
[GRAPHIC OMITTED] o Ask your bank or credit union whether it is a o Call New England Funds at 800-225-5478 to add
member of the ACH system. shares to your account through ACH.
o Complete the "Telephone Withdrawal and Exchange" and o If you have not signed up for the ACH system,
"Bank Information" sections on your account please call New England Funds for a Service
application. Options Form. A signature guarantee may be
o Mail your completed application to New England required to add this privilege.
Funds, P.O. Box 8551, Boston, MA 02266-8551.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
Certain Restrictions may apply. See the 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, the class of shares, your
account number, the exact registered account
name(s), the number of shares or the dollar amount
to be redeemed, and the method by which you wish to
receive your proceeds. Additional materials may be
required. See the section entitled "Selling Shares
in Writing".
o The request must be signed by all of the owners of
the shares including the capacity in which they are
signing, if appropriate.
o Mail your request to New England Funds, P.O. Box
8551, Boston, MA 02266-8551.
o Your proceeds (less any applicable CDSC) will be
delivered by the method chosen in your letter. If
you choose to have your proceeds delivered by mail,
they will generally be mailed to you on the business
day after the request is received. You may also
choose to redeem by wire or through ACH (see below).
BY EXCHANGE
o Obtain a current prospectus for the Fund into which
you are exchanging by calling your investment dealer
or New England Funds at 800-225-5478.
o Call New England Funds to request an exchange.
o See the section entitled "Exchanging Shares" for
more details.
BY WIRE
o Fill out the "Telephone Withdrawal and Exchange" and
"Bank Information" sections on your account
application.
o Call New England Funds at 800-225-5478 or indicate
in your redemption request letter (see above) that
you wish to have your proceeds wired to your bank.
o Proceeds (less any applicable CDSC) will generally
be wired on the next business day. A wire fee
(currently $5.00) will be deducted from the
proceeds.
THROUGH AUTOMATED
CLEARING HOUSE (ACH)
o Ask your bank or credit union whether it is a member
of the ACH system.
o Complete the "Telephone Withdrawal and Exchange" and
"Bank Information" sections on your account
application.
o If you have not signed up for the ACH system on your
application, please call New England Funds at
800-225-5478 for a Service Options Form.
o Call New England Funds to request a redemption
through this system.
o Proceeds (less any applicable CDSC) will generally
arrive at your bank within three business days.
BY SYSTEMATIC
WITHDRAWAL PLAN
o Please refer to the section entitled "Additional
Investor Services" or call New England Funds at
800-225-5478 or your financial representative for
information.
o Because withdrawal payments may have tax
consequences, you should consult your tax adviser
before establishing such a plan.
BY TELEPHONE
o You may receive your proceeds by mail, by wire or
through ACH (see above).
o Call New England Funds at 800-225-5478 to choose the
method you wish to use to redeem your shares.
- --------------------------------------------------------------------------------
SELLING SHARES IN WRITING
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations we also may require a signature guarantee or additional
documentation.
A signature guarantee protects you against fraudulent orders and is necessary
if:
o your address of record has been changed within the past 30 days;
o you are selling more than $100,000 worth of shares and you are requesting
the proceeds by check; or
o a proceeds check for any amount is mailed to an address other than the
address of record or not payable to the registered owner(s).
A notary public CANNOT provide a signature guarantee. A signature guarantee can
be obtained from one of the following sources:
o a financial representative or securities dealer;
o a federal savings bank, cooperative, or other type of bank;
o a savings and loan or other thrift institution;
o a credit union; or
o a securities exchange or clearing agency.
The following table shows some situations in which additional documentation may
be necessary. Please call your financial representative or New England Funds
regarding requirements for other account types.
- --------------------------------------------------------------------------------
SELLER (ACCOUNT TYPE) REQUIREMENTS FOR WRITTEN REQUESTS
- --------------------------------------------------------------------------------
INDIVIDUAL, JOINT, SOLE o The signatures on the letter must include
PROPRIETORSHIP, UGMA/UTMA all persons authorized to sign, including
(MINOR ACCOUNTS) title, if applicable.
o Signature guarantee, if applicable (see
above).
- --------------------------------------------------------------------------------
CORPORATE OR ASSOCIATION o The signatures on the letter must include
ACCOUNTS all persons authorized to sign, including
title.
- --------------------------------------------------------------------------------
OWNERS OR TRUSTEES OF o The signature on the letter must include all
TRUST ACCOUNTS trustees authorized to sign, including
title.
o If the names of the trustees are not
registered on the account, please provide a
copy of the trust document certified within
the past 60 days.
o Signature guarantee, if applicable (see
above).
- --------------------------------------------------------------------------------
JOINT TENANCY WHOSE CO-TENANTS o The signatures on the letter must include
ARE DECEASED all surviving tenants of the account.
o Copy of the death certificate.
o Signature guarantee if proceeds check is
issued to other than the surviving tenants.
- --------------------------------------------------------------------------------
POWER OF ATTORNEY (POA) o The 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 o The signature on the letter must include all
PLANS (EXCEPT signatures of those authorized to sign
NEW ENGLAND FUNDS including title.
PROTOTYPE DOCUMENTS) o Signature guarantee, if applicable.
(see above)
- --------------------------------------------------------------------------------
EXECUTORS OF ESTATES,
ADMINISTRATORS, GUARDIANS, o The signature on the letter must include
CONSERVATORS those authorized to sign, including
capacity.
o A signature guarantee.
o Certified copy of court document where
signer derives authority, e.g.: Letters of
Administration, Conservatorship, Letters
Testamentary.*
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT o Additional documentation and distribution
ACCOUNTS (IRAS) forms are required.
- --------------------------------------------------------------------------------
* Certification may be made on Court documents by the Court, usually certified
by the clerk of the court. POA certification may be made by a commercial bank,
broker/member of a domestic stock exchange or a practicing attorney.
EXCHANGING SHARES
In general, you may exchange shares of your Fund for shares of the same class of
another New England Fund without paying a sales charge or a CDSC (see the
sections entitled "Buying Shares" and "Selling Shares"). An exchange must be for
a minimum of $1,000 (or the total net asset value of your account, whichever is
less), or $100 if made under the Automatic Exchange Plan (see the section
entitled "Additional Investor Services"). All exchanges are subject to the
eligibility requirements of the 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 shares for shares in 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 o When the New York Stock
redemption or postpone payment for more Exchange is closed (other than
than 7 days: a weekend/holiday)
o During an emergency
o Any other period permitted
by the SEC
The Fund reserves the right to suspend o With a notice of a dispute
account services or refuse transaction between registered owners
requests: o With suspicion/evidence of a
fraudulent act
The Fund may pay the redemption price in o When it is detrimental for a
whole or part by a distribution in kind of Fund to make cash payments as
readily marketable securities in lieu of determined in the sole
cash or may take up to 7 days to pay a discretion of the adviser or
redemption request in order to raise subadviser
capital:
The Fund may close your account and send o When the Fund account falls
you the proceeds. Shareholders will have below a set minimum (currently
60 days after being notified of the Fund's $1,000 as set by the Fund's
intention to close the account to increase Board of Trustees)
the account to the set minimum. This does
not apply to certain qualified retirement
plans, automatic investment plans or
accounts that have fallen below the
minimum solely because of fluctuations in
a Fund's net asset value per share:
The Fund may withhold redemption proceeds o When redemptions are made
until the check or funds have cleared: 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.
- --------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The Funds are mutual funds that invest directly in shares of an underlying
mutual fund, which is referred to as a Portfolio in this Prospectus. A Fund
gains access to the investment management and research capabilities as well as
the investment strategies of its corresponding Portfolio by investing in shares
of that Portfolio at their net asset value. Fund shares are priced by applying
the Fund's sales charges to the net asset value of Portfolio shares. "Net asset
value" is the price of one share of a Portfolio without a sales charge, and is
calculated each business day using this formula:
Total market value of securities + Cash
and other assets - Liabilities
Net Asset Value = -----------------------------------------
Number of outstanding shares
The net asset value of Fund shares and Portfolio shares is determined according
to this schedule:
o A share's net asset value is determined at the close of regular trading on
the New York Stock Exchange (the "Exchange") on the days the Exchange is
open for trading. This is normally 4:00 p.m. Eastern time.
o The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated after your order is received
"in good order" by the 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 whose Portfolio is heavily invested in foreign securities may have
net asset value changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 p.m. and before 8:00 p.m.
Generally 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, the securities of the underlying Portfolios are valued as follows:
o EQUITY SECURITIES - most recent sales or quoted bid price as provided by a
pricing service.
o DEBT SECURITIES - (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 closing of the exchange
will materially affect its value. In that case, it is given fair value as
determined by or under the direction of the Portfolio's Board of Trustees at
the close of regular trading on the Exchange.
o OPTIONS - last sale price, or if not available, last offering price.
o FUTURES - unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be valued
at their fair value as determined by or under the direction of the
Portfolios Board of Trustees.
o ALL OTHER SECURITIES - fair market value as determined by the adviser of the
Portfolio under the direction of the Portfolio's Board of Trustees.
The effect of fair value pricing as described above under "Securities traded on
foreign exchanges" and "All other securities" is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded but rather, may be priced by another method that the Portfolio's Board of
Trustees believes accurately reflects fair value.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Funds generally distribute most or all of their net investment income in the
form of dividends (based on what the Portfolios distribute). All of the Funds
except New England Total Return Bond Fund distribute dividends annually. New
England Total Return Bond Fund declares and distributes dividends quarterly.
Each Fund distributes all net realized long- and short-term capital gains
annually, after applying any available capital loss carryovers. Each Portfolio's
Board of Trustees may adopt a different schedule as long as payments are made at
least annually.
Depending on your investment goals and priorities, you may choose to:
o participate in the Dividend Diversification Program, which allows you to
have all dividends and distributions automatically invested at net asset
value in shares of the same class of another New England Fund registered in
your name. Certain investment minimums and restrictions may apply. For more
information about this program, see the section entitled "Additional
Investor Services."
o receive distributions from dividends and interest in cash while reinvesting
distributions from capital gains in additional shares of the same class of
the Fund or in the same class of another New England Fund.
o receive all distributions in cash.
Unless you select one of the above options, distributions will automatically be
reinvested in shares of the same class of the Fund at net asset value.
For more information or to change your distribution option, contact New England
Funds in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a non-retirement plan
Fund, you will receive a Form 1099 to help you report the prior calendar year's
distributions on your federal income tax return. Be sure to keep the 1099 as a
permanent record. A fee may be charged for any duplicate information requested.
TAX CONSEQUENCES
Each Fund and each Portfolio intends to meet all requirements of the Internal
Revenue Code necessary to qualify as a "regulated investment company" and thus
does not expect to pay any federal income tax on income and capital gains
distributed to shareholders.
Fund distributions paid to you either in cash or reinvested in additional shares
are generally taxable to you either as ordinary income or as capital gains.
Distributions derived from short-term capital gains or 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.
Access Shares'(SM) use of a two tiered fund structure could adversely affect the
character of distributions to you.
You should consult your tax adviser about any federal, state and local taxes
that may apply to the distributions you receive.
ADDITIONAL FUND INFORMATION
Each Fund has received an Exemptive Order from the Securities and Exchange
Commission (the "SEC"), which permits NEFM to enter into new subadvisory
agreements with subadvisers that are not affiliated with NEFM if approved by the
Fund's Board of Trustees, without shareholder approval. The exemption also
permits NEFM to amend or continue existing subadvisory agreements when approved
by the Fund's Board of Trustees. A Fund will change to this subadvisory
structure when the Board of Trustees considers it to be in the best interest of
the Fund. Shareholders will be notified of any subadviser changes.
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.
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 Fund. 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 800-225-5478, press 1. With a touch-tone telephone,
you can obtain information about your current account balance, recent
transactions, Fund prices and recent performance. You may also use PAL to
purchase, exchange or redeem shares in any of your existing accounts. Certain
restrictions may apply.
NEW ENGLAND FUNDS 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 online to
purchase, exchange or redeem shares in any of your existing accounts.
Certain restrictions may apply.
GLOSSARY OF TERMS
BID PRICE -- The price a prospective buyer is ready to pay. This term is used by
traders who maintain firm bid and offer prices in a given security by standing
ready to buy or sell security units at publicly quoted prices.
BOTTOM-UP 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 creditworthiness. This
measurement is usually calculated through an index compiled by companies such as
Standard & Poor's Ratings Group or Moody's Investors Service Inc. Bonds with a
credit rating of BBB or higher by S&P or Baa or higher by Moody's are generally
considered investment grade.
DERIVATIVE --- A financial instrument whose value and performance are based upon
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 x 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. The capitalization figures may vary
depending upon the index being used and/or the guidelines used by a portfolio
manager.
MATURITY --- The final date on which the payment of a debt instrument (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 NEW ENGLAND FUNDS
about the Funds, the following ACCESS SHARES(SM)
documents are available free upon
request:
STATEMENT OF ADDITIONAL INFORMATION NEW ENGLAND CORE EQUITY FUND
(SAI) - Provides more detailed NEW ENGLAND SMALL CAP VALUE FUND
information about the Funds, has NEW ENGLAND SMALL CAP GROWTH FUND
been filed with the Securities and NEW ENGLAND TOTAL RETURN BOND FUND
Exchange Commission and is
incorporated into this Prospectus
by reference.
- -----------------------------------
To order a free copy of the SAI,
contact your financial
representative or the Funds at:
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Telephone: 800-225-5478
Internet: www.mutualfunds.com
Your financial representative or
New England Funds will also be
happy to answer your questions or
to provide any additional
information that you may require.
- -----------------------------------
You can review the Funds' SAI 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 (Investment Company
their Web site at www.NASDR.com. Act file no. 811-7345)
AS 51-0599
<PAGE>
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
NEW ENGLAND FUNDS ACCESS SHARES (SM)
New England Core Equity Fund
New England Small Cap Value Fund
New England Small Cap Growth Fund
New England Total Return Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
March 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 only authorized for
distribution when accompanied or preceded by the Prospectus of the Funds dated
March 1, 1999 for Class A, Class B or Class C shares, (the "Prospectus"). The
Statement should be read together with the Prospectus. Investors may obtain a
free copy of the Prospectus from New England Funds, L.P., Prospectus Fulfillment
Desk, 399 Boylston Street, Boston, Massachusetts 02116, by calling New England
Funds at 800-225-5478 or by placing an order online at www.mutualfunds.com.
New England Core Equity Fund, New England Small Cap Value Fund, New
England Small Cap Growth Fund and New England Total Return Bond Fund are
diversified series of New England Funds Trust III, a registered open-end
management investment company (the "Trust"). Capitalized terms not otherwise
defined herein have the same meaning as in the Prospectus.
TABLE OF CONTENTS
Investment Objectives and Policies ............................ 2
Management of the Trust ...................................... 11
Portfolio Transactions and Brokerage .......................... 22
Description of the Trust and Ownership of Shares .............. 24
How To Buy Shares ............................................. 27
Net Asset Value and Public Offering Price ..................... 28
Reduced Sales Charges ......................................... 29
Shareholder Services .......................................... 32
Redemptions ................................................... 39
Standard Performance Measures ................................. 42
Investment Performance of the Funds ........................... 47
Income Dividends, Capital Gain Distributions and Tax Status ... 50
Miscellaneous Investment Practices of the Portfolios .......... 54
Appendix A - Description of Bond Ratings ...................... A-1
Appendix B - Publications That May Contain Fund Information ... B-1
Appendix C - Advertising and Promotional Literature ........... C-1
Appendix D - Average Monthly Portfolio Composition Table ...... D-1
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
GENERAL INVESTMENT OBJECTIVES AND POLICIES
To achieve their respective investment objectives, each Fund invests
all or substantially all of its assets in shares of a single underlying mutual
fund offered by either Harris Associates L.P. ("Harris Associates") or Loomis,
Sayles & Company, L.P. ("Loomis Sayles"). Each such mutual fund is refered to
individually in the Prospectus and in this Statement as a "Portfolio" and
collectively as the "Portfolios." Harris Associates is the investment adviser of
The Oakmark Fund and The Oakmark Small Cap Fund, and is an affiliated investment
management subsidiary of Nvest Companies, L.P. ("Nvest Companies"). Loomis
Sayles is the investment adviser of the Loomis Sayles Small Cap Growth Fund and
the Loomis Sayles Bond Fund and is also an affiliated investment management
subsidiary of Nvest Companies. Achievement of each Fund's objective as set forth
below cannot be assured.
THE INVESTMENT OBJECTIVES OF THE FOUR FUNDS ARE AS FOLLOWS:
NEW ENGLAND CORE EQUITY FUND (THE "CORE EQUITY FUND")
The Core Equity Fund seeks long-term capital appreciation. The Fund
pursues this goal by investing all or substantially all of its assets in Class I
shares of The Oakmark Fund.
NEW ENGLAND SMALL CAP VALUE FUND (THE "SMALL CAP VALUE FUND")
The Small Cap Value Fund seeks long-term capital appreciation. The
Fund pursues this goal by investing all or substantially all of its assets in
Class I shares of The Oakmark Small Cap Fund.
NEW ENGLAND SMALL CAP GROWTH FUND (THE "SMALL CAP GROWTH FUND")
The Small Cap Growth Fund seeks long-term capital growth. The Fund
pursues this goal by investing all or substantially all of its assets in the
Institutional shares of Loomis Sayles Small Cap Growth Fund.
NEW ENGLAND TOTAL RETURN BOND FUND (THE "TOTAL RETURN BOND FUND")
The Total Return Bond Fund seeks high total investment return through
a combination of current income and capital appreciation. The Fund pursues this
goal by investing all or substantially all of its assets in the Institutional
shares of Loomis Sayles Bond Fund.
THE PORTFOLIOS
The Prospectus sets forth the principal investment strategies
employed by the Portfolios in attempting to achieve their respective goals. The
following paragraphs describe those strategies that are not considered principal
investment strategies for each Portfolio:
THE OAKMARK FUND
The Oakmark Fund seeks long-term capital appreciation by investing
primarily in equity securities.
Along with engaging in its principal strategies, the Portfolio may
also invest in repurchase agreements, participate in short sales against the
box, engage in currency exchange transactions, invest in other investment
companies, purchase when-issued and forward commitment securities, acquire
securities in private placements and purchase call or put options.
The Portfolio may also hold cash or purchase money market and/or high
quality debt securities for temporary defensive purposes in response to adverse
market, economic or political conditions. These investments may prevent the
Portfolio from achieving its goal.
THE OAKMARK SMALL CAP FUND
The Oakmark Small Cap Fund seeks long-term capital appreciation by
investing primarily in equity securities.
Along with engaging in its principal strategies, the Portfolio may
also invest in repurchase agreements, participate in short sales against the
box, engage in currency exchange transactions, invest in other investment
companies, purchase when-issued and forward commitment securities, lend its
portfolio securities, acquire securities in private placements and purchase call
or put options.
The Portfolio may also hold cash or purchase money market and/or high
quality debt securities for temporary defensive purposes in response to adverse
market, economic or political conditions. These investments may prevent the
Portfolio from achieving its goal.
LOOMIS SAYLES SMALL CAP GROWTH FUND
Loomis Sayles Small Cap Growth Fund seeks long-term capital growth
from investments in common stocks or their equivalent.
Along with engaging in its principal strategies, the Portfolio may
also engage in foreign currency hedging transactions, options and futures
transactions, securities lending, and purchase Rule 144A securities.
The Portfolio may hold cash or purchase fixed-income and any other
securities deemed appropriate by Loomis Sayles for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Portfolio from achieving its goal.
The Portfolio may also engage in active and frequent trading of
securities, leading to high turnover rates. Frequent trading may produce higher
transaction costs and a higher level of taxable capital gains. Such practices
may lower the Portfolio's return.
LOOMIS SAYLES BOND FUND
Loomis Sayles Bond Fund seeks high total investment return through a
combination of current income and capital appreciation.
Fixed-income securities other than those in which the Fund primarily
invests in include commercial paper, Rule 144A securities and repurchase
agreements. The Portfolio may also engage in options and futures transactions,
foreign currency hedging transactions and swap transactions.
The Portfolio may hold cash or purchase fixed-income and any other
securities deemed appropriate by Loomis Sayles for temporary defensive purposes
in response to adverse market, economic or political conditions. These
investments may prevent the Portfolio from achieving its goal.
RISK FACTORS OF THE PORTFOLIOS
In pursuing its respective investment objective, each of the
Portfolios is permitted to engage in a wide range of investment activities. The
Portfolios' risks are determined by the nature of the securities held and the
management activities used by their respective advisers. Certain of these
policies are described in the section entitled "Miscellaneous Investment
Practices of the Portfolios" elsewhere in this Statement and further information
about the Portfolios is contained in the prospectuses of such Portfolios.
Because each Fund invests in one of the Portfolios, shareholders of each Fund
will be affected by these investment policies.
NOTE ON SHAREHOLDER APPROVAL
Approval by the shareholders of each Fund or Portfolio requires
approval by the holders of a majority of the outstanding shares of the Fund or
Portfolio. As used in this Statement (and as defined in the Investment Company
Act of 1940 [the "1940 Act"]), the term "majority of the outstanding shares" of
the Fund or Portfolio means the lesser of (i) 67% of the shares of the Fund or
Portfolio represented at a meeting at which more than 50% of the outstanding
shares of the Fund or Portfolio are represented or (ii) more than 50% of the
outstanding shares of the Fund or Portfolio.
INVESTMENT RESTRICTIONS OF THE FUNDS
The investment restrictions set forth below are fundamental policies
of each Fund and, accordingly, without the approval of the holders of a majority
of the outstanding shares of the relevant Fund, each Fund will not:
1. With respect to 75% of its total assets, purchase any security if, as a
result, more than 5% of its total assets (based on current value) would
then be invested in the securities of a single issuer. This limitation
does not apply to Government Securities (as defined in the 1940 Act)
("U.S. Government Securities"). This restriction does not prevent the Fund
from investing all or substantially all of its assets in shares of another
investment company;
2. With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer. This restriction this does
not prevent the Fund from investing all or substantially all of its assets
in shares of another investment company;
3. Invest more than 25% of its total assets in any one industry. This
restriction does not apply to U.S. Government Securities. For purposes of
this restriction, telephone, gas and electric public utilities are each
regarded as separate industries and finance companies whose financing
activities are related primarily to the activities of their parent
companies are classified in the industry of their parents. For purposes of
this restriction with regard to bank obligations, bank obligations are
considered to be one industry, and asset-backed securities are not
considered to be bank obligations. This restriction does not prevent the
Fund from investing all or substantially all of its assets in shares of
another investment company.
4. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits
as necessary for the clearance of security transactions, and the Fund may
make any short sales or maintain any short positions where the short sales
or short positions would not constitute "senior securities" under the 1940
Act;
5. Borrow money except for temporary or emergency purposes; provided,
however, that each Fund may loan its securities, engage in reverse
repurchase agreements and dollar rolls, in an amount not exceeding 33 1/3%
of its total assets taken at cost;
6. Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies. This restriction
does not apply to repurchase agreements or loans of portfolio securities;
7. Act as an underwriter of securities of other issuers except that, in
connection with the disposition of portfolio securities, it may be deemed
to be an underwriter under the federal securities law;
8. Purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, securities which are secured by
interests in real estate, and securities which represent interests in real
estate, and it may acquire and dispose of real estate or interests in real
estate acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein;
9. Purchase or sell commodities, except that each Fund may purchase and sell
future contracts and options, may enter into foreign exchange contracts
and may enter into swap agreements and other financial transactions not
requiring the delivery of physical commodities;
10. Issue senior securities, except for permitted borrowings or as otherwise
permitted under the 1940 Act.
The percentages and percentage limitations set forth above in the
Statement, other than with respect to restriction (5) pertaining to borrowing,
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists immediately after and
as a result of a purchase of such security. Restrictions (4) and (10) shall be
interpreted based upon no-action letters and other pronouncements of the staff
of the Securities and Exchange Commission (the "SEC"). Under current
pronouncements, certain Fund positions are excluded from the definition of
"senior security" so long as the Fund maintains adequate cover, segregation of
assets or otherwise.
In addition, it is contrary to each Fund's present policy, which may
be changed without shareholder vote, to purchase any illiquid security,
including any securities whose disposition is restricted under federal
securities laws and securities that are not readily marketable, if, as a result,
more than 15% of the Fund's total assets (based on current value) would then be
invested in such securities. The staff of the SEC is presently of the view that
repurchase agreements maturing in more than seven days are illiquid securities
and therefore subject to this restriction. Until that position is revised,
modified or rescinded, each Fund will conduct its operations in a manner
consistent with this view. This limitation on investment in illiquid securities
does not apply to certain restricted securities, including securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain commercial
paper, that the Fund's adviser has determined to be liquid under procedures
approved by the Funds' Board of Trustees.
INVESTMENT RESTRICTIONS OF THE PORTFOLIOS
In addition to its investment goal and policies set forth in its
Prospectus, the following investment restrictions are policies of each Portfolio
advised by HARRIS ASSOCIATES (The Oakmark Fund and The Oakmark Small Cap Fund),
and those marked with an asterisk are fundamental policies of each Portfolio and
therefore cannot be changed without approval of the holders of a majority of the
outstanding shares of the relevant Portfolio (except for the bracketed
portions):
Each Portfolio advised by Harris Associates will not:
*1. In regard to 75% of its assets, invest more than 5% of its
assets (valued at the time of investment) in securities of any
one issuer, except that this limitation does not apply to U.S.
Government Securities;
*2. Acquire securities of any one issuer which at the time of
investment (a) represent more than 10% of the voting securities
of the issuer or (b) have a value greater than 10% of the value
of the outstanding securities of the issuer;
*3. Invest more than 25% of its assets (valued at the time of
investment) in securities of companies in any one industry,
except that this restriction does not apply to investments in
U.S. Government Securities;
*4. Borrow money except from banks for temporary or emergency
purposes in amounts not exceeding 10% of the value of a
Portfolio's assets at the time of borrowing (a Portfolio will
not purchase additional securities when its borrowings, less
receivables from Portfolio securities sold, exceed 5% of the
value of a Portfolio's total assets);
*5. Issue any senior security except in connection with permitted
borrowings;
*6. Underwrite the distribution of securities of other issuers,
however a Portfolio may acquire "restricted" securities which,
in the event of a resale, might be required to be registered
under the Securities Act of 1933 on the ground that a Portfolio
could be regarded as an underwriter as defined by that act with
respect to such resale;
*7. Make loans, but this restriction shall not prevent a Portfolio
from (a) investing in debt obligations, (b) investing in
repurchase agreements1, or (c)[Portfolios other than The Oakmark
Fund] lending its securities [a Portfolio will not lend
securities having a value in excess of 33% of its assets,
including collateral received for loaned securities (valued at
the time of any loan)];
*8. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises
which invest in real estate or interests in real estate;
*9. Purchase and sell commodities or commodity contracts, except
that it may enter into forward foreign currency contracts;
*10. Acquire securities of other investment companies except (a) by
purchase in the open market, where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission or (b) where the acquisition
results from a dividend or a merger consolidation or other
reorganization;2
- ----------
1 A repurchase agreement involves a sale of securities to a Portfolio with the
concurrent agreement of the seller (bank or securities dealer) to repurchase
the securities at the same price plus an amount equal to an agreed-upon
interest rate within a specified time. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Portfolio could
experience both delays in liquidating the underlying securities and losses.
No Portfolio may invest more than 15% of its net assets in illiquid
securities which include repurchase agreements maturing in more than seven
days.
2 In addition to this investment restriction, the 1940 Act provides, subject
to exceptions, that a Portfolio may neither purchase more than 3% of the
voting securities of any one investment company nor invest more than 10% of
the Portfolio's assets (valued at the time of investment) in all investment
company securities purchased by the Portfolio. Investment in the shares of
another investment company would require the Portfolio to bear a portion of
the management and advisory fees paid by the investment company, which might
duplicate the fees paid by the Fund.
<PAGE>
11. Make margin purchases or participate in a joint or on a joint or
several basis in any trading account in securities;
12. Invest in companies for the purpose of management or the
exercise of control;
13. Invest more than 15% of its net assets (valued at the time of
investment) in illiquid securities, including repurchase
agreements maturing in more than seven days;
14. Invest in oil, gas or other mineral leases or exploration or
development programs, although it may invest in marketable
securities of enterprises engaged in oil, gas or mineral
exploration;
15. Invest more than 2% of its assets (valued at the time of
investment) in warrants not listed on the New York or American
stock exchanges, valued at cost, nor more than 5% of its net
assets in all warrants, provided that warrants acquired in units
or attached to other securities shall be deemed to be without
value for purposes of this restriction;
16. Invest more than 25% of its total assets (valued at the time of
investment) in securities of non-U.S. issuers (other than
securities represented by American Depository Receipts
("ADRs")3;
17. Make short sales of securities unless the Portfolio owns at
least an equal amount of such securities, or owns securities
that are convertible or exchangeable, without payment of further
consideration, into at least an equal amount of such securities;
18. Purchase a call option or put option if the aggregate premium
paid for all call and put options then held exceeds 20% of its
net assets (less the amount by which any such positions are
in-the-money);
19. Invest in futures or options on futures, except that it may
invest in forward foreign currency contracts.
Those restrictions not designated as "fundamental" which includes a
Portfolio's investment objective, may be changed by the Portfolio's Board of
Trustees without shareholder approval. However, a Portfolio's investment
objective will not be changed without at least 30 days notice to shareholders.
- ----------
3 Although securities represented by ADRs are not subject to restriction 16,
none of these Portfolios has any present intention to invest more than the
indicated percentage of its total assets in ADRs and securities of foreign
issuers.
<PAGE>
Notwithstanding the investment restrictions set forth above, a
Portfolio may purchase securities pursuant to the exercise of subscription
rights, provided that such purchase will not result in the Portfolio's ceasing
to be a diversified investment company. Japanese and European corporations
frequently issue additional capital stock by means of subscription rights
offerings to existing shareholders at a price substantially below the market
price of the shares. The failure to exercise such rights would result in a
Portfolio's interest in the issuing company being diluted. The market for such
rights is not well developed in all cases and, accordingly a Portfolio may not
always realize full value on the sale of rights. The exception to this general
rule applies in cases where the limits set forth in the investment restrictions
section of this Statement would otherwise be exceeded by exercising rights or
would have already been exceeded as a result of fluctuations in the market value
of a Portfolio's securities with the result that the Portfolio would be forced
either to sell securities at a time when it might not otherwise have done so, or
to forego exercising the rights.
In addition to its investment goal and policies set forth in its
Prospectus, the following investment restrictions are policies of each Portfolio
advised by LOOMIS SAYLES (the Loomis Sayles Small Cap Growth Fund and the Loomis
Sayles Bond Fund), and those marked with an asterisk are fundamental policies of
each Portfolio and therefore cannot be changed without approval of the holders
of a majority of the outstanding shares of the relevant Portfolio:
Each Portfolio advised by Loomis Sayles will not:
1. Invest in companies for the purpose of exercising control or
management.
*2. Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed
to be an underwriter under certain federal securities laws.
*3. Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts.
(This restriction does not prevent any Portfolio from engaging
in transactions in future contracts relating to securities
indexes, interest rates or financial instruments or options, or
from investing in issuers that invest or deal in the foregoing
types of assets or from purchasing securities that are secured
by real estate.)
*4. Make loans, except that Loomis Sayles Small Cap Growth Fund may
lend its portfolio securities to the extent permitted under the
1940 Act. (For purposes of this investment restriction, neither
(i) entering into repurchase agreements4 nor (ii) purchasing
bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the
public, is considered the making of a loan.)
- ----------
4 Although the Portfolios have no current intentions of investing in
repurchase agreements, they intend, based upon the views of the staff of the
SEC, to restrict their investments in repurchase agreements maturing in more
than seven days, together with other investments in illiquid securities, to
the percentage permitted by restriction (12) below.
<PAGE>
5. With respect to 75% of a Portfolio's assets, purchase any
security (other than a U.S. Government Security) if, as a
result, more than 5% of the Portfolio's total assets (taken at
current value) would then be invested in securities of a single
issuer.
6. With respect to 75% of a Portfolio's assets, acquire more than
10% of the outstanding voting securities of an issuer.
7. Pledge, mortgage, hypothecate or otherwise encumber any of its
assets, except that each Portfolio may pledge assets having a
value not exceeding 10% of its total assets to secure borrowings
permitted by restriction (9) below. (For the purpose of this
restriction, collateral arrangements with respect to options,
futures contracts, options on futures contracts and with respect
to initial and variation margin deemed to be a pledge or other
encumbrance of assets.)
8. Purchase any security (other than U.S. Government Securities)
if, as a result, more than 25% of the Portfolio's total assets
(taken at current value) would be invested in any one industry
(in the utilities category, gas, electric, water and telephone
companies will be considered as being in separate industries.)
Tax-exempt securities issued by governments or political
subdivisions of governments are not subject to this restriction,
since such issuers are not members of any industry.
9. Borrow money in excess of 10% of its total assets (taken at
cost) or 5% of its total assets (taken at current value),
whichever is lower, nor borrow any money except as a temporary
measure for extraordinary or emergency purposes.
10. Purchase securities on margin (except such short-term credits as
are necessary for clearance of transactions); or make short
sales (except where, by virtue of ownership of other securities,
it has the right to obtain, without payment of additional
consideration, securities equivalent in kind and amount to those
sold.)
11. Participate on a joint or joint and several basis in any trading
account in securities. (The "bunching" of orders for the
purchase or sale of portfolio securities with Loomis Sayles or
accounts under its management to reduce brokerage commissions,
to average prices among them or to facilitate such transactions
is not considered a trading account in securities for purposes
of this restriction.)
12. Purchase any illiquid security, including any security that is
not readily marketable, if, as a result, more than 15% of the
Portfolio's net assets (based on current value) would then be
invested in such securities.
13. Write or purchase put options, call options or combinations of
both except that each Portfolio may (a) acquire warrants or
rights to subscribe to securities of companies issuing such
warrants or rights, or of parents or subsidiaries of such
companies, (b) purchase and sell put options and call options on
securities and (c) write, purchase and sell put options and call
options on currencies and may enter into currency forward
contracts.
*14. Issue senior securities. (For the purpose of this restriction
none of the following is deemed to be a senior security: (i) any
pledge or other encumbrance of assets permitted by restriction
(7) above; (ii) any borrowing permitted by restriction (9)
above; (iii) any collateral arrangements with respect to
options, futures contracts and options on futures contracts and
with respect to initial and variation margin; and (iv) the
purchase or sale of options, forward contracts, futures
contracts or options on futures contracts.)
The investment policies of each Portfolio advised by Loomis Sayles
set forth in its Prospectus and in its Statement of Additional Information may
be changed by the Portfolio's adviser, subject to review and approval by its
respective Trust's Board of Trustees, without shareholder approval except that
the investment objective of each Portfolio as set forth in its Prospectus and
any Portfolio policy explicitly identified above as "fundamental" may not be
changed without the approval of the holders of a majority of the outstanding
shares of the relevant Portfolio. Except in the case of the 15% limitation on
illiquid securities, the percentage limitations set forth above and in each
Portfolio's Prospectus will apply at the time a security is purchased and will
not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such purchase.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
The Funds are governed by a Board of Trustees which is responsible
for generally overseeing the conduct of Fund business and for protecting the
interests of shareholders. The trustees meet periodically throughout the year to
oversee the Funds' activities, review contractual arrangements with companies
that provide services to the Funds and review the Funds' performance.
TRUSTEES
Trustees of the Trust and their ages (in parentheses), addresses and
principal occupations during the past five years are listed below. Those marked
with an asterisk (*) are deemed an "interested person" of the Trust, as defined
in the 1940 Act.
GRAHAM T. ALLISON, JR.--Trustee (58); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138; Member of the Contract Review and Governance
Committee for the Trust; Douglas Dillon Professor and Director for
the Center of Science and International Affairs, John F. Kennedy
School of Government; Special Advisor to the United States Secretary
of Defense; formerly, Assistant Secretary of Defense; formerly, Dean,
John F. Kennedy School of Government.
DANIEL M. CAIN - Trustee (54); 452 Fifth Avenue, New York, New York 10018;
Member of the Audit and Transfer Agent and Shareholder Services
Committee for the Trust; 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 (66); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701; Member of the Contract Review and Governance Committee
for the Trust; Retired; Director, A Young Woman's Residence;
formerly, Senior Vice President-Finance and Chief Financial Officer,
Blue Cross of Massachusetts, Inc. and Blue Shield of Massachusetts,
Inc.; formerly, Director, Neworld Bank for Savings and Neworld
Bancorp.
RICHARD DARMAN - Trustee (55); 1001 Pennsylvania Avenue, N.W., Washington,
D.C. 20004; Member of the Contract Review and Governance Committee
for the Trust; 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); Director, Sequana
Therapeutics (biotechnology); 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, MA 02109; Member of
the Audit and Transfer Agent and Shareholder Services Committee for
the Trust; Senior Vice President and Director, The Boston Consulting
Group, Inc. (management consulting); Director, GTE Corporation
(communications services); Director, Rohm and Haas Company (specialty
chemicals).
JOHN A. SHANE--Trustee (66); 200 Unicorn Park Drive, Woburn, Massachusetts
01801; Member of the Audit and Transfer Agent and Shareholder
Services Committee for the Trust; President, Palmer Service
Corporation (venture capital organization); General Partner, Palmer
Partners L.P.; Director, Abt Associates, Inc. (consulting firm);
Director, Arch Communications Group, Inc. (paging service); Director,
Dowden Publishing Company, Inc. (publisher of medical magazines);
Director, Eastern Bank Corporation; Director, Gensym Corporation
(developer of expert system software); Director, Overland Data, Inc.
(manufacturer of computer tape drives); Director, United Asset
Management Corporation (holding company for institutional money
management 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;
Chairman of the Board and Director, NEF Corporation; Chairman of the
Board and Director, BBAI; formerly, Director, New England Financial.
PENDLETON P. WHITE--Trustee (67); 6 Breckenridge Lane, Savannah, Georgia 31411;
Member of the Contract Review and Governance Committee for the Trust;
Retired; formerly, President and Chairman of the Executive Committee,
Studwell Associates (executive search consultants); formerly,
Trustee, The Faulkner Corporation (community hospital corporation).
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 as a forum in which the independent accountants can raise any issues or
problems identified in the audit with the Board of Trustees. This Committee
also reviews and monitors compliance with stated investment objectives and
policies, SEC and IRS regulations as well as operational issues relating to the
transfer agent.
OFFICERS
Officers of the Trusts, in addition to Mr. Voss, and their ages (in
parentheses) and principal occupations during at least the past five years are
as follows:
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 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 and 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).
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 Trust's trustees is also a trustee of certain other
investment companies for which New England Funds. L.P. acts as principal
underwriter. Except as indicated above, the address of each trustee and officer
of the Trust is 399 Boylston Street, Boston, Massachusetts 02116.
TRUSTEE FEES
The Trust pays no compensation to its officers or to its trustees who
are interested persons thereof.
Each trustee who is not an interested person of the Trust or an
interested person of New England Funds Trust I or New England Funds Trust II
(collectively the "Trusts") receives, in the aggregate for serving on the boards
of the Trusts and New England Cash Management Trust and New England Tax Exempt
Money Market Trust (all five trusts collectively, the "New England Funds
Trusts"), comprising as of March 1, 1999 a total of 27 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 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>
Aggregate
Aggregate Aggregate Compensation
Compensation from Compensation from from
New England Funds New England Fund New England Funds
Trust I Trust II Trust III
Name of Trustee in 1998 in 1998 in 1998
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Graham T. Allison, Jr. $40,637 $11,555 $1,195
Daniel M. Cain $43,528 $12,186 $1,219
Kenneth J. Cowan $43,528 $12,186 $1,219
Richard Darman $40,637 $11,555 $1,195
Sandra O. Moose $40,637 $11,555 $1,195
John A. Shane $40,637 $11,555 $1,195
Pendleton P. White $38,811 $10,490 $ 891
</TABLE>
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Accrued Annual Compensation
as Part of Fund Benefits from the
Expenses Upon New England Funds Trusts
Name of Trustee in 1998 Retirement in 1998
--------------- ---------------- ---------- ------------------------
<S> <C> <C> <C>
Graham T. Allison, Jr. $0 $0 $60,000
Daniel M. Cain $0 $0 $64,000
Kenneth J. Cowan $0 $0 $64,000
Richard Darman $0 $0 $60,000
Sandra O. Moose $0 $0 $60,000
John A. Shane $0 $0 $60,000
Pendleton P. White $0 $0 $56,500
</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.
As of March 1, 1999, the officers and trustees of the Trusts as a
group owned less than 1% of the outstanding shares of each Fund.
As of March 1, 1999, there were no shares of any Fund outstanding.
ADVISORY AGREEMENT
Under each Fund's advisory agreement between the Trust and New
England Funds Management, L.P. ("NEFM"), on behalf of the Fund, NEFM will
furnish or pay the expenses of the applicable Fund for office space, facilities
and equipment, services of executive and other personnel of the Trust and
certain administrative services. NEFM will invest all or substantially all of
the assets of a Fund in a registered, open-end management investment company, in
accordance with Section 12(d)(1)(E) under the 1940 Act. NEFM is responsible for
obtaining and evaluating such economic, statistical and financial data and
information and performing such additional investment research as is necessary
to manage the Fund's assets in accordance with the investment objectives and
policies.
Each Fund's advisory agreement provides that it will continue in
effect for two years from its date of execution and thereafter from year to year
if its continuance is approved at least annually (i) by the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
relevant Fund and (ii) by vote of a majority of the Trustees who are not
"interested persons" of the Trust, as that term is defined in the 1940 Act, cast
in person at a meeting called for the purpose of voting on such approval. Any
amendment to an advisory agreement must be approved by vote of a majority of
outstanding voting securities of the relevant Fund and by a vote of the majority
of the Trustees of the Trust who are not such interested persons, cast in person
at a meeting called for the purpose of voting on such approval. Each advisory
agreement may be terminated without penalty by vote of the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of the
relevant Fund, upon 60 days written notice, or by the Fund's advisor upon 90
days' written notice, and each terminates automatically in the event of its
assignment. In addition, each advisory agreement will automatically terminate if
the Trust or the Fund shall at any time be required by New England Funds, L.P.
to eliminate all reference to the words "New England" or the letters "NEFM" in
the name of the Trust or the relevant Fund, unless the continuance of the
agreement after such change of name is approved by a majority of the outstanding
voting securities of the relevant Fund and by a majority of the Trustees who are
not interested persons of the Trust or the Fund's adviser.
Each advisory agreement provides that the adviser shall not be
subject to any liability in connection with the performance of its service
thereunder in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
NEFM, formed in 1995, is a limited partnership whose sole general
partner, NEF Corporation, is a wholly-owned subsidiary of Nvest Holdings, L.P.
("Nvest Holdings"), which in turn is a wholly-owned subsidiary of Nvest
Companies. NEF Corporation is also the sole general partner of New England
Funds, L.P., (the "Distributor") and the sole shareholder of 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, 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 $135 billion of assets under management or administration as of December
31, 1998.
SPECIAL SERVICING AGREEMENT
The Trust has received an order from the Securities and Exchange
Commission (the "Order") pursuant to Section 17(d) and Rule 17d-1 under the 1940
Act which permits a Fund to invest all or substantially all of its assets in a
single underlying mutual fund (the Portfolios) pursuant to Section 12(d)(1)(E)
of the 1940 Act. Pursuant to the Order each Fund has entered into a Special
Servicing Agreement (the "Special Service Agreement") with an underlying fund (a
Portfolio) wherein certain shareholder related expenses of the Fund will be
borne by the underlying fund. Under the terms of the Special Service Agreement
among each Fund, its corresponding Portfolio and Nvest Services Company, Inc.,
Nvest Services Company, Inc. will provide services pertaining to the operation
of the Fund, including shareholder servicing and fund administration. Each
Portfolio has agreed to pay Nvest Services Company, Inc. an annual fee equal to
0.12% of the assets that a Fund has invested in that Portfolio. However, the
Portfolio will not be required to pay Nvest Services Company, Inc. any amount in
excess of the financial benefits derived from the operation of that Fund.
Currently, only the Portfolios advised by Harris Associates will participate in
the Special Service Agreement.
The cost-benefit analysis was initially reviewed by the Board of
Trustees of each Portfolio before participating in any Special Service
Agreement. For future years, there will be an annual review of the Special
Service Agreement to determine its continued appropriateness for each Portfolio.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement entered into between NEFM and
each Fund, a Fund will pay NEFM at the annual rate of 0.10% of the Fund's
average daily net assets until May 1, 2001. At the expiration of this period,
each Fund will pay NEFM the lesser of (i) 0.25% of the Fund's average daily net
assets, or (ii) the actual expenses incurred by NEFM in providing certain
services to a Fund; provided however, that the minimum payment due to NEFM under
the Administration Agreement will be no less than 0.10% of the Fund's average
daily net assets. These expenses consist of the provision of necessary executive
and other personnel for managing the affairs of a Fund. The Administration
Agreement is effective for a period of two years and may only be amended by a
majority vote of the non-interested Trustees of the Trust as that term is
defined in the 1940 Act.
SERVICE AGREEMENT
Pursuant to separate Service Agreements entered into between Harris
Associates and NEFM and Loomis Sayles and NEFM, for providing administrative
services to a Fund, Harris Associates or Loomis Sayles pays NEFM 0.25% annually
of a Fund's average daily net assets less the fee paid by the Portfolio to Nvest
Services Company, Inc. under the Special Servicing Agreement.
THE PORTFOLIO ADVISERS
Loomis, Sayles and Company, L.P. 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 are responsible for making
investment decisions for the Portfolios as well as the numerous other
institutional and individual clients to which Loomis Sayles provides investment
advice. 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.
Certain officers of Loomis Sayles have responsibility for the
management of other client portfolios. The Detroit office of Loomis Sayles makes
the investment decisions for the New England Value and New England Balanced
Funds, and for the segments of the New England Star Advisers and New England
Star Small Cap Funds' portfolios that are managed by Loomis Sayles, the Boston
office of Loomis Sayles makes the investment decisions for New England Strategic
Income Fund, New England International Equity Fund, Loomis Sayles Small Cap
Growth Fund and Loomis Sayles Bond Fund and the New York office of Loomis Sayles
makes the investment decisions for New England High Income Fund and New England
Equity Income Fund. These offices make investment decisions for the relevant
Fund or Portfolio independently of one another. The other investment companies
and clients served by Loomis Sayles sometimes invest in securities in which New
England Value, New England Balanced, New England Star Advisers, New England Star
Small Cap, New England High Income, New England Strategic Income, New England
Equity Income, New England International Equity, Loomis Sayles Small Cap Growth
and Loomis Sayles Bond 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 or Portfolios
purchases or sells. In other cases, however, it is believed that these practices
may benefit the relevant Fund or Portfolio. It is the opinion of the Trusts'
Trustees that the desirability of retaining Loomis Sayles as subadviser for New
England Strategic Income, New England Value, New England Balanced, New England
Star Advisers, New England Star Small Cap, New England High Income, New England
Equity Income, New England International Equity, Loomis Sayles Small Cap Growth
and Loomis Sayles Bond Funds outweighs the disadvantages, if any, which might
result from these practices.
Harris Associates L.P. 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 Associates 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 Associates also serves as investment adviser to individuals, trusts,
retirement plans, endowments and foundations, and manages numerous private
partnerships.
Certain officers and employees of Harris Associates have
respectability for portfolio management of other advisory accounts and clients
(including other registered investment companies and accounts of affiliates of
Harris Associates) that may invest in securities in which The Oakmark Fund, The
Oakmark Small Cap Fund, New England Star Advisers Fund, New England Star
Worldwide Fund and/or New England Star Small Cap Fund may invest. Where Harris
Associates 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 Associates to the participating accounts. Where
advisory accounts have competing interests in a limited investment opportunity,
Harris Associates 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 Associates' 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 Oakmark Fund, The Oakmark Small Cap Fund, New England Star
Advisers Fund, New England Star Worldwide Fund and New England Star Small Cap
Fund to participate in larger volume transactions in this manner will in some
cases produce better executions for these Funds and Portfolios. However, in some
cases, this procedure could have a detrimental effect on the price and amount of
a security available to these Funds and therefore the Portfolios 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 the New England Star
Advisers Fund, New England Star Worldwide Fund and New England Star Small Cap
Fund as well as an adviser to The Oakmark Fund and The Oakmark Small Cap Fund
outweigh the disadvantages, if any, that might result from participating in such
transactions.
DISTRIBUTION AGREEMENT AND RULE 12B-1 PLANS.
Under an agreement with the Trust, New England Funds, L.P., serves as
the principal distributor of each class of shares of the Funds. Under this
agreement, New England Funds, L.P. is not obligated to sell a specific number of
shares of any Fund. New England Funds, L.P. bears the cost of making information
about the Funds available through advertising and other means and the cost of
printing and mailing Prospectuses to persons other than shareholders. Except as
provided in the Administration Agreement, 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.
New England Funds, L.P. is compensated under the agreement through
receipt of the sales charges on Class A shares described below under "Net Asset
Value and Public Offering Price" and is paid by the Funds, or the Portfolios
under the Special Service Agreement, 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 to be 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 monthly fees out of its net assets. Pursuant to Rule 12b-1
under the 1940 Act, the Plan was approved by the shareholders of each Fund, and
(together with the related Distribution Agreement) by the Board of Trustees,
including a majority of the trustees who are not interested persons of the Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plans or the Distribution Agreement (the
"Independent Trustees").
Under Service Plans adopted under rule 12b-1, 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 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.
Each Fund's Class B and Class C shares also pays 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. 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. 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 Plans may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of the
relevant class of shares of the relevant Fund. The Plans may be amended by vote
of the trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose. Any change in a Plan that would
materially increase the fees payable thereunder by the relevant class of shares
of the relevant Fund requires approval by vote of the holders of a majority of
such shares outstanding. The Trust's Board of Trustees review quarterly a
written report of such costs as well as the purposes for which such costs have
been incurred. For so long as the Plans are in effect, selection and nomination
of those trustees who are not interested persons of the Trust shall be committed
to the discretion of such disinterested persons.
The Distributor has entered into selling agreements with investment
dealers, including New England Securities, an affiliate of the Distributor, for
the sale of the Funds' shares. New England Securities is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the "1934 Act"), as
amended. The Distributor may at its expense pay an amount not to exceed 0.50% of
the amount invested to dealers who have selling agreements with the Distributor.
The Distribution Agreement for the Funds may be terminated at any
time upon 60 days' written notice without payment of any penalty by the
Distributor or by vote of a majority of the outstanding voting securities of the
relevant Fund or by vote of a majority of the Independent Trustees.
The Distribution Agreements and the Plans will continue in effect for
successive one-year periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the outstanding
securities of a Fund (or the relevant class, in the case of the Plans).
With the exception of the Distributor, New England Securities and
their direct and indirect corporate parents, no interested person of the Trust
nor any trustee of the Trust has any direct or indirect financial interest in
the operation of the Plans or any related agreement.
Benefits to the Funds and their shareholders resulting from the Plans
are believed to include (1) enhanced shareholder service, (2) asset retention,
(3) enhanced bargaining position with third party service providers and
economies of scale arising from having higher asset levels and (4) portfolio
management opportunities arising from having an enhanced positive cash flow.
The Distributor controls the words "New England" in the names of the
Trust and the Funds and if it should cease to be the principal distributor of
the Funds' shares, the Trust 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 Funds Trust I, New England Funds Trust II,
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 C shares that
are paid (reallowed) to securities dealers are shown below:
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 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 $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 none 0.00% 0.25% 0.25%
CHARGE (3)
</TABLE>
* Total Return Bond Fund may impose a maximum sales charge of 4.50% for all
investments made under $100,000.
(1) For investments by Retirement Plans, the Distributor may pay a 0.50%
commission for investments in excess of $3 million and and up to $10
million.
(2) These commissions are not payable if the purchase represents the
reinvestment of a redemption made during the previous 12 calendar months.
(3) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members as described 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:
<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%
All amounts for Class C 1.00% 0.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 ("CDSC"). Proceeds from the CDSC on Class A and
Class C shares are paid to the Distributor and are used to defray the expenses
for services that it provides the Trust. Proceeds from the CDSC on Class B
shares are paid to New England Funds, L.P. and are remitted to FEP Capital, L.P.
to compensate FEP Capital, L.P. for financing the sale of Class B shares
pursuant to certain Class B financing and servicing agreements between the
Distributor and FEP Capital, L.P.
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, (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 recordkeeping 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.
CUSTODIAL ARRANGEMENTS
State Street Bank and Trust Company ("State Street Bank"), 225
Franklin Street, Boston, Massachusetts 02110, is the Trust's custodian. As such,
State Street Bank holds in safekeeping certified securities and cash belonging
to each Fund and, in such capacity, is the registered owner of securities in
book-entry form belonging to each Fund. Upon instruction, State Street Bank
receives and delivers cash and securities of each of the Funds in connection
with Fund transactions and collects all dividends and other distributions made
with respect to portfolio securities. State Street Bank also maintains certain
accounts and records of the Trust and calculates the total net asset value,
total net income and net asset value per share of each Fund on a daily basis.
INDEPENDENT ACCOUNTANTS
The Trust's independent accountants are PricewaterhouseCoopers, LLP,
160 Federal Street, Boston, Massachusetts, 02110. The independent accountants of
the Trust conduct an annual audit of that Trust's financial statements, assist
in the preparation of federal and state income tax returns and consult with the
Trust as to matters of accounting and federal and state income taxation.
YEAR 2000 PROBLEM
The investment management services provided to each Fund by the
Adviser and its respective Portfolio and the services provided to shareholders
by Nvest Services Company, Inc. depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative impact on
a Fund's operations, including the handling of securities trades, pricing and
account services. The Adviser, each Portfolio Manager and Nvest Services
Company, Inc. have advised each Fund that they have been reviewing all of their
computer systems and actively working on necessary changes to their systems to
prepare for the year 2000 and expect that their systems will be compliant before
that date. In addition, the Adviser has been advised by the Fund's custodian,
transfer agent and accounting service agent that they are also in the process of
modifying their systems with the same goal. There can, however, be no assurance
that the Adviser, each Portfolio Manager, Nvest Services Company, Inc. or any
other service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time. In
addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by then
adequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as
wide-spread or as affecting trading markets.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER
Each Fund's average annual portfolio turnover rate is the ratio of
the lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. Purchases and
sales are made for each Fund whenever necessary, in management's opinion, to
meet that Fund's objective. Each Fund expects to have an annual portfolio
turnover rate not exceeding 20% for its initial fiscal year. The portfolio
turnover rate for each Portfolio's last fiscal year were as follows: 43% for The
Oakmark Fund, 34% for The Oakmark Small Cap Fund, 211% for the Loomis Sayles
Small Cap Growth Fund and 41% for the Loomis Sayles Bond Fund.
BROKERAGE TRANSACTIONS
FOR PORTFOLIOS ADVISED BY HARRIS ASSOCIATES (THE OAKMARK FUND AND THE OAKMARK
SMALL CAP FUND):
In placing orders for the purchase and sale of securities for its
Portfolios, Harris Associates always seeks best execution, subject to the
considerations set forth below. Transactions in unlisted securities are carried
out through broker-dealers who make the market for such securities unless, in
the judgment of Harris Associates, a more favorable execution can be obtained by
carrying out such transactions through other brokers or dealers.
Harris Associates selects only brokers or dealers which it believes
are financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best execution for the transaction. This does not necessarily mean that the
lowest available brokerage commission will be paid. However, the commissions are
believed to be competitive with generally prevailing rates. Harris Associates
will use its best efforts to obtain information as to the general level of
commission rates being charged by the brokerage community from time to time and
will evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
Receipt of brokerage or research services from brokers may sometimes
be a factor in selecting a broker which Harris Associates believes will provide
best execution for a transaction. These services include not only a wide variety
of reports on such matters as economic and political developments, industries,
companies, securities, portfolio strategy, account performance, daily prices of
securities, stock and bond market conditions and projections, asset allocation
and portfolio structure, but also meetings with management representatives of
issuers and with other analysts and specialists. Although it is not possible to
assign an exact dollar value to these services, they may, to the extent used,
tend to reduce Harris Associates' expenses. Such services may be used by Harris
Associates in servicing other client accounts and in some cases may not be used
with respect to the Portfolios. Consistent with the Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
Harris Associates may, however, consider purchases of shares of the Portfolios
by customers of broker-dealers as a factor in the selection of broker-dealers to
execute Portfolio transactions.
Harris Associates may cause its Portfolios to pay a broker-dealer
that provides brokerage and research services to Harris Associates an amount of
commission for effecting a securities transaction for the Portfolio in excess of
the amount another broker-dealer would have charged for effecting that
transaction. Harris Associates must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or Harris Associates' overall responsibilities to the
Portfolios and its other clients. Harris Associates' authority to cause the
Portfolios to pay such greater commissions is also subject to such policies as
the trustees of the Trust may adopt from time to time.
FOR THE PORTFOLIOS ADVISED BY LOOMIS SAYLES (LOOMIS SAYLES SMALL CAP GROWTH FUND
AND LOOMIS SAYLES BOND FUND):
In placing orders for the purchase and sale of portfolio securities
for each Portfolio, Loomis Sayles always seeks the best price and execution.
Transactions in unlisted securities are carried out through broker-dealers who
make the primary market for such securities unless, in the judgment of Loomis
Sayles, a more favorable price can be obtained by carrying out such transactions
through other brokers or dealers.
Loomis Sayles selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commissions will be paid. However, the
commissions are believed to be competitive with generally prevailing rates.
Loomis Sayles will use its best efforts to obtain information as to the general
level of commission rates being charged by the brokerage community from time to
time and will evaluate the overall reasonableness of brokerage commissions paid
on transactions by reference to such data. In making such evaluation, all
factors affecting liquidity and execution of the order, as well as the amount of
the capital commitment by the broker in connection with the order, are taken
into account. The Portfolios will not pay a broker a commission at a higher rate
than otherwise available for the same transaction in recognition of the value of
research services provided by the broker or in recognition of the value of any
other services provided by the broker which do not contribute to the best price
and execution of the transaction.
Receipt of research services from brokers may sometimes be a factor
in selecting a broker which Loomis Sayles believes will provide best price and
execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although it
is not possible to assign an exact dollar value to these services, they may, to
the extent used, tend to reduce Loomis Sayles' expenses. Such services may be
used by Loomis Sayles in servicing other client accounts and in some cases may
not be used with respect to the Portfolios. Receipt of services or products
other than research from brokers is not a factor in the selection of brokers.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
- --------------------------------------------------------------------------------
New England Funds Trust III is organized as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and Declaration of Trust
(the "Declaration of Trust") dated August 22, 1995, and is a "series" company as
described in Section 18(f)(2) of the 1940 Act. The Trust has eight separate
funds. Each fund in the Trust currently offers three classes of shares. The
funds in the Trust other than the Funds are New England Stock and Bond Fund, New
England Select Fund, New England Bullseye Fund and New England Equity Income
Fund. New England Equity Income Fund was organized in 1995 and commenced
operations on November 28, 1995. New England Bullseye Fund was organized in 1998
and commenced operations on March 31, 1998. The Funds were organized in 1999 and
will commence operations on April 30, 1999. New England Stock and Bond Fund and
New England Select Fund were organized in April 1999 but are not currently
offered to the public.
The Declaration of Trust of New England Funds Trust III currently
permits the Trust's Board of Trustees to issue an unlimited number of full and
fractional shares of each series. Each Fund is represented by a particular
series of shares. The Declaration of Trust further permits the Trust's Board of
Trustees to divide the shares of each series into any number of separate
classes, each having such rights and preferences relative to other classes of
the same series as the Board of Trustees may determine. 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 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 Declaration of Trust also permits the Board of
Trustees to charge shareholders directly for custodial, transfer agency and
servicing expenses.
The shares of all the Funds are divided into three classes, Class A,
Class B and Class C. Each Fund offers such classes of shares as set forth in
such Fund's Prospectus. Absent the Service Agreement, all expenses of each Fund
(excluding transfer agency fees and expenses of printing and mailing
Prospectuses to shareholders ("Other Expenses")) would be borne by its Class A,
B and C shares on a pro rata basis. The Class A, Class B and Class C structure
could be terminated should certain applicable IRS rulings be rescinded.
The assets received by each class of a Fund for the issue or sale of
its shares and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of the creditors, are allocated to, and constitute
the underlying assets of, that class of a Fund. The underlying assets of each
class of a Fund are segregated and are charged, absent the Service Agreement,
with the expenses with respect to that class of a Fund and with a share of the
general expenses of the Trust. Any general expenses of the Trust that are not
readily identifiable as belonging to a particular class of a Fund are allocated
by or under the direction of the Trust's Board of Trustees in such manner as it
determines to be fair and equitable. While the expenses of the Trust are
allocated to the separate books of account of each Fund, certain expenses may be
legally chargeable against the assets of all of the Funds in the Trust.
The Declaration of Trust also permits the Board of Trustees, without
shareholder approval, to subdivide any series or class of shares into various
sub-series or sub-classes with such dividend preferences and other rights as the
Board of Trustees may designate. While the Board of Trustees has no current
intention to exercise this power, it is intended to allow it to provide for an
equitable allocation of the impact of any future regulatory requirements which
might affect various classes of shareholders differently. The 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 Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any Fund, however, may be terminated at any time by vote of
at least two-thirds of the outstanding shares of each Fund affected. Similarly,
any class within a Fund may be terminated by vote of at least two-thirds of the
outstanding shares of such class. While the Declaration of Trust further
provides that the Board of Trustees may also terminate the Trust upon written
notice to its shareholders, the 1940 Act requires that the Trust receive the
authorization of a majority of its outstanding shares in order to change the
nature of its business so as to cease to be an investment company.
VOTING RIGHTS
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.
Matters submitted by a Portfolio to its shareholders for a vote will
be passed along by the appropriate Fund to its shareholders and the Fund will
vote its entire interest in the Portfolio in proportion to the voters actually
received from the Fund's shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all shareholders of the Trust, all Trust shares entitled to vote shall
be voted together irrespective of series or class unless the rights of a
particular series or class would be adversely affected by the vote, in which
case a separate vote of that series or class shall also be required to decide
the question. Also, a separate vote shall be held whenever required by the 1940
Act or any rule thereunder. Rule 18f-2 under 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of Trustees and the selection of the Trust's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreement relating to that series, and shareholders of each
class within a series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset
value of at least $25,000 or at least 1% of the outstanding shares stating that
such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a trustee, the Trust has undertaken to provide a list of shareholders
or to disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Shareholder voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust except (i)
to change the Trust's or a Fund's name or to cure technical problems in the
Declaration of Trust, (ii) to establish and designate new series or classes of
Trust shares and (iii) to establish, designate or modify new and existing series
or classes of Trust shares or other provisions relating to Trust shares in
response to applicable laws or regulations.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and require that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or the Trustees. The Declaration of Trust provides for indemnification out of
each Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund by reason of owning shares of such Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and a Fund itself would be unable to meet
its obligations.
The Declaration of Trust further provides that the Board of Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a trustee against any liability to
which the trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The by-laws of the Trust provide for
indemnification by the Trust of trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in or not opposed to the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the Trust's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The procedures for purchasing shares of the Funds are summarized in
the Prospectus. Banks may charge a fee for transmitting funds by wire. With
respect to shares purchased by federal funds, shareholders should bear in mind
that wire transfers may take two or more hours to complete.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the New York Stock Exchange (the
"Exchange") on a day when the Exchange is open; otherwise the settlement date is
the following business day. For telephone orders, the settlement date is the
third business day after the order is made.
Shares may also be purchased either in writing, by wire or, in the
case of Class A, B and C shares, by electronic funds transfer using Automated
Clearing House ("ACH"), or by exchange, as described in the Prospectus through
firms that are members of the National Association of Securities Dealers, Inc.
and that have selling agreements with the Distributor. You may also use New
England Funds Personal Access Line(TM) (800-225-5478, press 1) or New England
Funds Web site (www.mutualfunds.com) to purchase Fund shares. For more
information, see the section entitled "Shareholder Services."
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 net asset value of Fund shares is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of a Fund, less
all liabilities, by the total number of shares outstanding.
The net asset value of each Portfolio is determined based upon the
nature of the securities as set forth in the prospectus and statement of
additional information of such Portfolio. Shares of each Portfolio in which a
Fund may invest are valued at the net asset value per share of each Portfolio as
of the close of regular trading on the Exchange on each day the Exchange is open
for trading. The net asset value per share of the Portfolios will be calculated
and reported to a Fund by each Portfolio's accounting agent.
- --------------------------------------------------------------------------------
REDUCED SALES CHARGES
Class A Shares Only
- --------------------------------------------------------------------------------
Special purchase plans are summarized in the text of the Prospectus.
CUMULATIVE PURCHASE DISCOUNT. A Fund shareholder may make an initial
or an additional purchase of Class A shares and 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 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 sales charge or contingent
deferred sales charge applies to investments of $25,000 or more in Class A
shares of the Funds by (1) clients of an adviser or subadviser to any series of
the Trusts; any director, officer or partner of a client of an adviser or
subadviser to any series of the Trusts; and the spouse, parents, children,
siblings, in-laws, grandparents or grandchildren of the foregoing; (2) any
individual who is a participant in a Keogh or IRA Plan under a prototype of an
adviser or subadviser to any series of the Trusts if at least one participant in
the plan qualifies under category (1) above; and (3) an individual who invests
through an IRA and is a participant in an employee benefit plan that is a client
of an adviser or subadviser to any series of the Trusts. Any investor eligible
for this arrangement should so indicate in writing at the time of the purchase.
OFFERING TO EMPLOYEES OF METLIFE AND ASSOCIATED ENTITIES. There is no
sales charge, CDSC or initial investment minimum related to investments in Class
A shares of the Funds by any of the Trusts' advisers or subadvisers, New England
Funds, L.P. or any other company affiliated with New England 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.
The reduction or elimination of the sales charges in connection with
the special purchase plans 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
financial transaction in the account, a shareholder will receive a confirmation
statement disclosing the current balance of shares owned and the details of
recent transactions in the account. After the close of each calendar year, State
Street Bank will send each shareholder a statement providing federal tax
information on dividends and distributions paid to the shareholder during the
year. This statement should be retained as a permanent record. 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
Portfolios under the Service Agreement and no direct charges are made to
shareholders. Although the Funds have no present intention of making such direct
charges to shareholders, they each reserve the right to do so. Shareholders will
receive prior notice before any such charges are made.
AUTOMATIC INVESTMENT PLANS (CLASS A, B AND C SHARES)
Subject to each Fund's investor eligibility requirements, investors
may automatically invest in additional shares of a Fund on a monthly basis by
authorizing New England Funds, L.P. to draw checks on an investor's bank
account. The checks are drawn under the Investment Builder Program, a program
designed to facilitate such periodic payments, and are forwarded to 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 New England Funds, L.P. at 800-225-5478 or your
investment dealer.
The Investment Builder Program is voluntary and may be terminated at
any time by Nvest Services Company upon notice to existing plan participants or
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
The federal tax laws provide for a variety of retirement plans
offering tax benefits. These plans may be funded with shares of the Funds or
with certain other investments. The plans include H.R. 10 (Keogh) plans for
self-employed individuals and partnerships, individual retirement accounts
(IRAs), corporate pension trust and profit sharing plans, including 401(k)
plans, and retirement plans for public school systems and certain tax exempt
organizations, i.e., 403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the Prospectus. For these plans, initial
investments in a Fund must be at least $250 for each participant in corporate
pension and profit sharing plans and Keogh plans, and $100 for subsequent
investments. There is a special initial and subsequent investment minimum of $25
for payroll deduction investment programs for 401(k), SARSEP, SEP, SIMPLE Plans,
403(b) and certain other retirement plans. Income dividends and capital gain
distributions must be reinvested (unless the investor is over age 59 1/2 or
disabled). Plan documents and further information can be obtained from New
England Funds, L.P.
An investor should consult a competent tax or other adviser as to the
suitability of a Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and as to the eligibility requirements for a specific plan and its
state as well as federal tax aspects.
SYSTEMATIC WITHDRAWAL PLANS
An investor owning a Fund's shares having a value of $5,000 or more
at the current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of a Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or, to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in your account. No CDSC applies to a redemption pursuant to
the Plan.
All shares under the Plan must be held in an open (uncertified)
account. Income dividends and capital gain distributions will be reinvested
(without a sales charge in the case of Class A shares) at net asset value
determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, a
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The
Funds and New England Funds, L.P. make no recommendations or representations in
this regard. It may be appropriate for a shareholder to consult a tax adviser
before establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a regular
basis additional Fund shares with a sales charge while redeeming shares under a
Systematic Withdrawal Plan. Accordingly, the Funds and New England Funds, L.P.
do not recommend additional investments in Class A shares by a shareholder who
has a withdrawal plan in effect and who would be subject to a sales load on such
additional investments.
Because of statutory restrictions, this plan is not available to
pension or profit-sharing plans, IRAs or 403(b) plans that have State Street
Bank as trustee.
EXCHANGE PRIVILEGE
A shareholder may exchange the shares of any Fund for shares of the
same class of any other New England Fund (subject to the investor eligibility
requirements, if any, of the 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. 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 New England
Fund, the shares received in exchange will have the same age characteristics as
the shares exchanged. The age of the shares determines the expiration of the
CDSC and, 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 Class 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 New England 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. 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 Nvest Services Company, P.O. Box 8551, Boston, MA 02266-8551. You
must acknowledge receipt of a current Prospectus for a New England Fund before
an exchange for that Fund can be effected. For federal income tax purposes, an
exchange is treated as a sale of shares, and, therefore, would be considered a
taxable event on which you may realize a gain or a loss.
For Class B shares purchased prior to May 1, 1997, the CDSC will be
calculated as follows: 4% if redemption occurs within the first year, 3% if
redemption occurs within the second or third year, 2% if redemption occurs
within the fourth year, 1% if redemption occurs within the 5th year and no CDSC
for redemptions after the fifth year. Class C shares purchased prior to March 1,
1998 are not subject to CDSC on redemption.
Except as otherwise permitted by SEC rule, shareholders will receive
at least 60 days advance notice of any material change to the exchange
privilege.
The investment objectives of the New England Funds and the Money
Market Funds are as follows:
STOCK FUNDS:
NEW ENGLAND GROWTH FUND seeks long-term growth of capital through
investments in equity securities of companies whose earnings are expected to
grow at a faster rate than the United States economy.
NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital.
NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return
from a combination of market appreciation and dividend income from equity
securities.
NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment
return from a combination of long-term capital appreciation and moderate current
income.
NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for
long-term growth of capital and income.
NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from
long-term growth of capital and dividend income primarily through investment in
a diversified portfolio of marketable international equity securities.
NEW ENGLAND EQUITY INCOME FUND seeks current income and capital
growth.
NEW ENGLAND BULLSEYE FUND seeks long-term growth of capital.
NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital.
NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital.
NEW ENGLAND STAR SMALL CAP FUND seeks capital appreciation.
BOND FUNDS:
NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
Securities and engaging in transactions involving related options, futures and
options on futures.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current
return consistent with preservation of capital.
NEW ENGLAND SHORT TERM CORPORATE INCOME FUND (FORMERLY NEW ENGLAND
ADJUSTABLE RATE U.S. GOVERNMENT FUND) seeks a high level of current income
consistent with preservation of capital.
NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with the
secondary objective of capital growth.
NEW ENGLAND BOND INCOME FUND seeks a high level of current income
consistent with what Back Bay Advisors, the Fund's subadviser, considers
reasonable risk. The Bond Income Fund invests primarily in corporate and U.S.
Government bonds.
NEW ENGLAND HIGH INCOME FUND seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current
income exempt from federal income taxes as is consistent with reasonable risk
and protection of shareholders' capital. The Municipal Income Fund invests
primarily in debt securities of municipal issuers, the interest of which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax, and may engage in transactions in financial futures contracts and
options on futures.
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level
of current income exempt from federal income tax and Massachusetts personal
income taxes as Back Bay Advisors, the Fund's subadviser, believes is consistent
with preservation of capital.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as
high a level of current income exempt from federal income tax and its state
personal income tax as is consistent with preservation of capital.
NEW ENGLAND TAX FREE INCOME FUND OF NEW YORK (FORMERLY NEW ENGLAND
INTERMEDIATE TAX FREE FUND OF NEW YORK) seeks as high a level of current income
exempt from federal income tax, its state personal income tax and New York City
personal income tax as is consistent with preservation of capital.
MONEY MARKET FUNDS:
NEW ENGLAND CASH MANAGEMENT TRUST -MONEY MARKET SERIES 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 March 1, 1999 the net assets of the New England Funds and the
Money Market Funds totaled over $7 billion.
AUTOMATIC EXCHANGE PLAN (CLASS A, B AND C SHARES)
As described in the Prospectus in the "Additional Investor Services"
section, a shareholder may establish an Automatic Exchange Plan under which
shares of a Fund are automatically exchanged each month for shares of the same
class of one or more of the other New England Funds. Registration on all
accounts must be identical. The exchanges are made on the 15th of each month or
the first business day thereafter if the 15th is not a business day until the
account is exhausted or until New England Funds, L.P. is notified in writing to
terminate the plan. Exchanges may be made in amounts of $100 or over. The
Service Options Form is available from New England Funds, L.P. or your financial
representative to establish an Automatic Exchange Plan.
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 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 on-line 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.
- --------------------------------------------------------------------------------
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).
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the 1934 Act, as
amended. However, a signature guarantee will not be required if the proceeds of
the redemption do not exceed $100,000 and the proceeds check is made payable to
the registered owner(s) and mailed to the record address.
If you select the telephone redemption service in the manner
described in the next paragraph, shares of a Fund may be redeemed by calling
toll free 800-225-5478. A wire fee, currently $5.00, will be deducted from the
proceeds. Telephone redemption requests must be received by the close of regular
trading on the Exchange. Requests made after that time or on a day when the
Exchange is not open for business cannot be accepted and a new request on a
later day will be necessary. The proceeds of a telephone withdrawal will
normally be sent on the first business day following receipt of a proper
redemption request.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form, available from your investment dealer.
When selecting the service, a shareholder must designate a bank account to which
the redemption proceeds should be sent. Any change in the bank account so
designated may be made by furnishing to your investment dealer a completed
Service Options Form with a signature guarantee. Whenever the Service Options
Form is used, the shareholder's signature must be guaranteed as described above.
Telephone redemptions may only be made if the designated bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of the
System. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the System.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by State Street Bank or your investment
dealer in proper form. Payment normally will be made by State Street Bank on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Funds reserve the right to withhold payments of redemption proceeds if the
purchase of shares was made by a check which was deposited less than fifteen
days prior to the redemption request (unless the Fund is aware that the check
has cleared).
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59 1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not 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 Internal Revenue Code of 1986, as amended (the "Code"), including profit
sharing plans, money purchase plans, 401(k) and custodial accounts under Section
403(b)(7) of the Code. Distributions necessary to pay plan participants and
beneficiaries include payment made due to death, disability, separation from
service, normal or early retirement as defined in the plan document, loans from
the plan and hardship withdrawals, return of excess contributions, required
minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not to exceed 10% annually of the value of your account, and
redemptions made from qualified retirement accounts or Section 403(b)(7)
custodial accounts necessary to pay custodial fees.
A CDSC will apply in the event of plan level transfers, including
transfers due to changes in investment where assets are transferred outside of
New England Funds, including IRA and 403(b)(7) participant-directed transfers of
assets to other custodians (except for the reasons given above) or qualified
transfers of assets due to trustee-directed movement of plan assets due to
merger, acquisition or addition of additional funds to the plan.
The Funds will normally redeem shares for cash; however, the Funds
reserve the right to pay the redemption price wholly or partly in kind if the
Trust's board of Trustees determines it to be advisable and in the interest of
the remaining shareholders of a Fund. If portfolio securities are distributed in
lieu of cash, the shareholder may incur fees upon subsequent disposition of any
such securities. Securities distributed by a Fund in kind will be selected by
the adviser or subadviser in light of the Fund's objective and will not
generally represent a pro rata distribution of each security held in the Fund's
portfolio. The Funds do not currently intend to impose any redemption charge
(other than the CDSC imposed by the Funds' distributor), although they reserve
the right to charge a fee not exceeding 1% of the redemption price. A redemption
constitutes a sale of shares for federal income tax purposes on which the
investor may realize a long- or short-term capital gain or loss. See also
"Income Dividends, Capital Gain Distributions and Tax Status," below.
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 the 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 may advertise the yield of its Class
A, Class B and Class C shares. Yield for each class will be computed by
annualizing net investment income per share for a recent 30-day period and
dividing that amount by the maximum offering price per share of the relevant
class (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed-income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. Each Fund's yield will vary from time to
time depending upon market conditions, the composition of its portfolio and
operating expenses of the Trust allocated to each Fund. These factors, possible
differences in the methods used in calculating yield and the tax exempt status
of distributions should be considered when comparing a Fund's yield to yields
published for other investment companies and other investment vehicles. Yield
should also be considered relative to changes in the value of the Fund's shares
and to the relative risks associated with the investment objectives and policies
of the Fund. Yields do not take into account any applicable sales charges or
CDSC. Yield may be stated with or without giving effect to any expense
limitations in effect for a Fund.
At any time in the future, yields and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Funds are specifically advised that share prices,
expressed as the net asset values per share, will vary just as yield will vary.
An investor's focus on the yield of a Fund to the exclusion of the consideration
of the share price of that Fund may result in the investor's misunderstanding
the total return he or she may derive from the Fund.
CALCULATION OF TOTAL RETURN. Total return is a measure of the change
in value of an investment in a Fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically reinvested in
shares of the same class of that Fund rather than paid to the investor in cash.
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 $1,000 investment in the Fund (with or without
giving effect to the deduction of sales charge or CDSC, if applicable) all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total of shares owned at the end of
the period by the net asset value per share of the relevant class on the last
trading day of the period; (3) dividing this account value for the hypothetical
investor by the amount of the initial investment, and annualizing the result for
periods of less than one year. Total return may be stated with or without giving
effect to any expense limitations in effect for a Fund.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Yields and total returns will generally be
higher for Class A shares than for Class B and Class C shares of the same Fund,
because of the higher levels of expenses borne by the Class B and Class C
shares. The Funds may from time to time include their yield and total return in
advertisements or in information furnished to present or prospective
shareholders. The Funds may from time to time include in advertisements its
total return and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper, Inc., 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 New York Stock Exchange, although the common stocks of a few companies
listed on the American Stock Exchange or traded over-the-counter are included.
The Standard & Poor's MidCap 400 Index consists of 400 domestic
stocks chosen for market size, liquidity, and industry group representation. It
is also a market-value weighted index and was the first benchmark of midcap
stock price movement.
The Standard & Poor's SmallCap 600 Index consists of 600 domestic
stocks chosen for market size, liquidity, (bid-asked spread, ownership, share
turnover and number of no trade days) and industry group representation. It is a
market-value weighted index (stock price times the number of shares
outstanding), with each stock's weight in the Index proportionate to its market
value.
The Salomon Brothers World Government Bond Index includes a broad
range of institutionally-traded fixed-rate government securities issued by the
national governments of the nine countries whose securities are most actively
traded. This index generally excludes floating- or variable-rate bonds,
securities aimed principally at non-institutional investors (such as U.S.
Savings Bonds) and private-placement type securities.
The Lehman Government Bond Index (the "Lehman Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted issues
are not included in the Lehman Government Index.
The Lehman Government/Corporate Bond Index (the "Lehman
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the Lehman Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rated
agency such as standard & Poor's Ratings Group ("S&P") and Moody's Investors
Service, Inc. ("Moody's").
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 approximately 39,800 bonds.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The 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, Inc. is an independent service that monitors the performance
of over 10,000 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 on the New York Stock Exchange, the American Stock Exchange and
the NASDAQ Stock Market. 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-value weighted and unmanaged index of
common stocks traded outside the U.S. The stocks in the index are selected with
reference to national and industry representation and weighted in the EAFE Index
according to their relative market value (market price per share times the
number of shares outstanding).
The Morgan Stanley Capital International Europe, Australasia and Far
East (Gross Domestic Product) Index (the "EAFE (GDP) Index") is a market-value
weighted and unmanaged index of common stocks traded outside the U.S. The stocks
in the index are selected with reference to national and industry representation
and weighted in the EAFE (GDP) Index according to their relative market values.
The relative market value of each country is further weighted with reference to
the country's relative gross domestic product.
The Value Line Index is an unmanaged and unweighted average of more
than 1,000 stocks.
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, Inc.
and Morningstar. References to these rankings or reviews or reprints of such
articles may be used in the Funds' advertising and promotional literature. Such
advertising and promotional material may refer to Nvest Companies, its
structure, goals and objectives and the advisory subsidiaries of Nvest
Companies, including their portfolio management responsibilities, portfolio
managers and their categories and background; their tenure, styles and
strategies and their shared commitment to fundamental investment principles and
may identify specific clients, as well as discuss the types of institutional
investors who have selected the advisers to manage their investment portfolios
and the reasons for that selection. The references may discuss the independent,
entrepreneurial nature of each advisory organization and allude to or include
excerpts from articles appearing in the media regarding Nvest Companies, its
advisory subsidiaries and their personnel. For additional information about the
Funds' advertising and promotional literature, see Appendix C.
The Funds may use the accumulation charts below in their
advertisements to demonstrate the benefits of monthly savings at an 8% and 10%
rate of return, respectively.
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
------ ------ ------- ------- ------- -------
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
INVESTMENTS AT 10% RATE OF RETURN
5 YRS. 10 15 20 25 30
------ ------- ------- ------- ------- ---------
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Funds' advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
any of the New England Funds. The Funds' advertising and sales literature may
include historical and current performance and total returns of investment
alternatives to the New England Funds. Articles, releases, advertising and
literature may discuss the range of services offered by the Trust and New
England Funds, L.P., as distributor and transfer agent of the Funds, with
respect to investing in shares of the Funds and customer service. Such materials
may discuss the multiple classes of shares available through the Trust and their
features and benefits, including the details of the pricing structure.
New England Funds, L.P. will make reference in its advertising and
sales literature to awards, citations and honors bestowed on it by industry
organizations and other observers and rates including, but not limited to
Dalbar's Quality Tested Service Seal and Key Honors Award. Such reference may
explain the criteria for the award, indicate the nature and significance of the
honor and provide statistical and other information about the award and New
England Funds, L.P.'s selection including, but not limited to, the scores and
categories in which New England Funds, L.P. excelled, the names of funds and
fund companies that have previously won the award and comparative information
and data about those against whom New England Funds, L.P. competed for the
award, honor or citation.
New England Funds, L.P. may publish, allude to or incorporate in its
advertising and sales literature testimonials from shareholders, clients,
brokers who sell or own shares, broker-dealers, industry organizations and
officials and other members of the public, including, but not limited to, fund
performance, features and attributes, or service and assistance provided by
departments within the organization, employees or associates of New England
Funds, L.P.
Advertising and sales literature may also refer to the beta
coefficient of the New England Funds. A beta coefficient is a measure of
systematic or undiversifiable risk of a stock. A beta coefficient of more than 1
means that the company's stock has shown more volatility than the market index
(e.g., the S&P 500) to which it is being related. If the beta is less than 1, it
is less volatile than the market average to which it is being compared. If it
equals 1, its risk is the same as the market index. High variability in stock
price may indicate greater business risk, instability in operations and low
quality of earnings. The beta coefficients of the New England Funds may be
compared to the beta coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
broker-dealer registration under the 1934 Act. Advertising and sales literature
developed to publicize such arrangements will explain the relationship of the
bank to the New England Funds and New England Funds, L.P. as well as the
services provided by the bank relative to the Funds. The material may identify
the bank by name and discuss the history of the bank including, but not limited
to, the type of bank, its asset size, the nature of its business and services
and its status and standing in the industry.
In addition, sales literature may be published concerning topics of
general investor interest for the benefit of registered representatives and the
Funds' prospective shareholders. These materials may include, but are not
limited to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
- --------------------------------------------------------------------------------
INVESTMENT PERFORMANCE OF THE FUNDS
- --------------------------------------------------------------------------------
The Performance information below shows each Portfolio's aggregate
and average annual total returns for the one-year, five-year and since-inception
periods as of December 31, 1998, as applicable. Each Portfolio's total returns
are adjusted to reflect a Fund's expenses for Class A, B and C shares.
<TABLE>
PERFORMANCE RESULTS - PERCENT CHANGE
For The Periods Ended 12/31/98
CORE EQUITY FUND
<CAPTION>
Aggregate Average Annual
Total Return Total Return
----------------------------------------- ---------------------------------
Since Since
CLASS A SHARES: AS A % OF 1 Year 5 Years 8/5/91 5 Years 8/5/91
<S> <C> <C> <C> <C> <C>
------ ------- ------ ------- ------
Net Asset Value 3.4 118.7 449.8 16.9 25.9
Maximum Offering Price -2.6 106.1 418.2 15.6 24.9
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
------------------------------------------ --------------------------------
Since Since
CLASS B SHARES: AS A % OF 1 Year 5 Years 8/5/91 5 Years 8/5/91
------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value 2.6 111.7 425.3 16.2 25.1
Redemption at End of Period -2.4 109.7 425.3 16.0 25.1
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
----------------------------------------- ---------------------------------
Since Since
CLASS C SHARES: AS A % OF 1 Year 5 Years 8/5/91 5 Years 8/5/91
------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value 2.6 111.7 425.3 16.2 25.1
Redemption at End of Period 1.6 111.7 425.3 16.2 25.1
</TABLE>
<TABLE>
SMALL CAP VALUE FUND
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -----------------------------------
Since Since
CLASS A SHARES: AS A % OF 1 Year 11/1/95 11/1/95
------ -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value -13.5 74.5 19.2
Maximum Offering Price -18.5 64.5 17.0
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -----------------------------------
Since Since
CLASS B SHARES: AS A % OF 1 Year 11/1/95 11/1/95
------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value -14.3 71.0 18.5
Redemption at End of Period -19.3 68.0 17.8
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -----------------------------------
Since Since
CLASS C SHARES: AS A % OF 1 Year 11/1/95 11/1/95
------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value -14.3 71.0 18.5
Redemption at End of Period -15.3 71.0 18.5
</TABLE>
<TABLE>
SMALL CAP GROWTH FUND*
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -----------------------------------
Since Since
CLASS A SHARES: AS A % OF 1 Year 12/31/96 12/31/96
------ -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value 18.4 41.0 18.7
Maximum Offering Price 11.6 32.9 15.3
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -----------------------------------
Since Since
CLASS B SHARES: AS A % OF 1 Year 12/31/96 12/31/96
------ -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value 17.6 39.2 18.0
Redemption at End of Period 12.6 35.2 16.3
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
--------------------------------------- -----------------------------------
Since Since
CLASS C SHARES: AS A % OF 1 Year 12/31/96 12/31/96
------ -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value 17.6 39.2 18.0
Redemption at End of Period 16.6 39.2 16.6
</TABLE>
<TABLE>
TOTAL RETURN BOND FUND**
<CAPTION>
Aggregate Average Annual
Total Return Total Return
----------------------------------------- ---------------------------------
Since Since
CLASS A SHARES: AS A % OF 1 Year 5 Years 5/15/91 5 Years 5/15/91
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value 4.4 62.1 144.7 10.1 12.4
Maximum Offering Price -0.3 54.8 133.6 9.1 11.8
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
----------------------------------------- ---------------------------------
Since Since
CLASS B SHARES: AS A % OF 1 Year 5 Years 5/15/91 5 Years 5/15/91
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value 3.6 56.6 132.4 9.4 11.7
Redemption at End of Period -1.4 54.6 132.4 9.1 11.7
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Annual
Total Return Total Return
----------------------------------------- ---------------------------------
Since Since
CLASS C SHARES: AS A % OF 1 Year 5 Years 5/15/91 5 Years 5/15/91
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value 3.6 56.6 132.4 9.4 11.7
Redemption at End of Period 2.6 56.6 132.4 9.4 11.7
</TABLE>
* Assuming deduction of the current maximum sales load, Small Cap Growth Fund's
Class A shares' aggregate total return for the one-year and since-inception
periods would have been 10.5% and 26.3%, respectively, had the voluntary
expense limitation not been in effect, and their average annual total returns
since inception would have been 12.4% had the voluntary expense limitation
not been in effect. Based on net asset values, Class A shares' aggregate total
return for the one-year and since-inception periods would have been 17.2% and
34.0%, respectively and their average annual total return since-inception
would have been 15.7% without the voluntary limitation. Assuming redemption
at the end of the period, the Fund's Class B shares' aggregate total return
for the one-year and since-inception periods would have been 11.5% and 28.2%,
respectively, had a voluntary limitation not been in effect, and their average
annual total return since-inception would have been 13.2%. Based on net asset
values, the Fund's Class B shares' aggregate annual total return for the
one-year and since-inception periods would have been 16.5% and 32.2%,
respectively, and their average annual total return since-inception would have
been 15.0%. The Fund's Class C shares' aggregate total return for the
one-year and since-inception periods would have been 15.5% and 32.2%,
respectively, and their average annual total return since-inception would have
been 15.0% without the voluntary limitation. Based on net asset values, the
Fund's Class C shares' aggregate annual total return for the one-year and
since-inception periods would have been 16.5% and 32.2%, respectively, and
their average annual total return since-inception would have been 15.0%.
**Assuming deduction of the current maximum sales load, Total Return Bond
Fund's Class A shares' aggregate total return for the one-year, five-year and
since-inception periods would have been -0.4%, 54.8% and 130.7%, respectively,
had the voluntary expense limitation not been in effect, and their average
annual total returns for the five-year and since-inception periods would have
been 9.1% and 11.6%, respectively, had the voluntary expense limitation not
been in effect. Based on net asset values, Class A shares' aggregate total
return for the one-year, five-year and since-inception periods would have been
4.3%, 62.1% and 141.6%, respectively and their average annual total return
for the five-year and since-inception periods would have been 10.1% and
12.3%, respectively, without the voluntary limitation. Assuming redemption at
the end of the period, the Fund's Class B shares' aggregate total return for
the one-year, five-year and since-inception periods would have been -1.4%,
54.6% and 129.5%, respectively, had a voluntary limitation not been in effect,
and their average annual total return for the five-year and since-inception
periods would have been 9.1% and 11.5%, respectively. Based on net asset
values, the Fund's Class B shares' aggregate annual total return for the
one-year, five-year and since-inception periods would have been 3.6%, 56.6%
and 129.5%, respectively, and their average annual total return for the
five-year and since-inception periods would have been 9.1% and 11.5%,
respectively, without the voluntary limitation. The Fund's Class C shares'
aggregate total return for the one-year, five-year and since-inception periods
would have been 2.6%, 56.6% and 129.5%, respectively, and their average
annual total return for the five-year and since-inception periods would have
been 9.4% and 11.5%, respectively, without the voluntary limitation. Based
on net asset values, the Fund's Class C shares' aggregate annual total return
for the one-year, five-year and since-inception periods would have been
3.6%, 56.6% and 129.5%, respectively, and their average annual total return
for the five-year and since-inception periods would have been 9.4% and
11.5%, respectively, without the voluntary limitation.
- --------------------------------------------------------------------------------
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 net
short-term capital gains and to distribute annually all net realized long-term
capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in full
and fractional shares of the relevant class of the particular Fund based upon
the net asset value determined as of the close of business on the Exchange on
the record date for each dividend or distribution. Shareholders, however, may
elect to receive their income dividends or capital gain distributions, or both,
in cash. The election may be made at any time by submitting a written request
directly to New England Funds, L.P. In order for a change to be in effect for
any dividend or distribution, it must be received by New England Funds, L.P. on
or before the record date for such dividend or distribution. If you elect to
receive your dividends in cash and the dividend checks sent to you are returned
"undeliverable" to the Fund or remain uncashed for six months, your cash
election will automatically be changed and your future dividends will be
reinvested. No interest will accrue on amounts represented by uncashed dividend
or redemption checks.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify, each Fund must,
among other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from the sale
of securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; (ii)
distribute at least 90% of its dividend, interest and certain other taxable
income each year; and (iii) diversify its holdings so that at the end of each
fiscal quarter, (a) at least 50% of the value of its total assets consists of
cash and cash items, including receivables, U.S. Government Securities,
securities of other regulated investment companies, and other securities limited
generally, with respect to any one issuer, to no more than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of its assets is invested in the
securities (other than U.S. Government Securities or securities of other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses. So long as it qualifies for treatment as a regulated
investment company, a Fund generally will not be subject to federal income tax
on income paid to its shareholders in the form of dividends or capital gains
distributions.
If a Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund would be subject to
tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to shareholders as ordinary
income. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
An excise tax at the rate of 4% will be imposed on the excess, if
any, of each Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund is so permitted to elect and so elects) plus undistributed amounts from
prior years. Each Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Distributions declared by a Fund during October,
November or December to shareholders of record on a date in any such month and
paid by the Fund during the following January will be treated for federal tax
purposes as paid by the Fund and received by shareholders on December 31 of the
year in which declared.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by the Fund whether received in cash or additional shares of
the Fund. Distributions by each Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. If a Portfolio
derives dividends from domestic corporations, a portion of the dividends paid by
a Fund that invests in the Portfolio may qualify for the deduction for dividends
received by corporations. Properly designated distributions of long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of the Fund. A loss on
the sale of shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain dividends paid to the
shareholder with respect to such shares.
Dividends and distributions on a Fund's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
If a Fund were to choose to invest in more than one Portfolio, a Fund
would not be able to offset gains realized by one Portfolio in which such Fund
invests against losses realized by another Portfolio in which such Fund invests.
The Fund's use of a fund of funds structure could therefore adversely affect the
amount, timing and character of distributions to shareholders.
Income received by a Portfolio from sources within a foreign country
may be subject to withholding and other taxes imposed by that country. If more
than 50% of the value of an underlying Portfolio's total assets at the close of
its taxable year consists of stock or securities of foreign corporations, the
Portfolio will be eligible and may elect to "pass-through" to its shareholders,
including a Fund, the amount of foreign income and similar taxes paid by the
Portfolio. Pursuant to this election, the Fund would be required to include in
gross income (in addition to taxable dividends actually received) its pro rata
share of the foreign income and similar taxes paid by the Portfolio, and would
be entitled either to deduct its pro rata share of foreign income and similar
taxes in computing its taxable income or to use it as a foreign tax credit
against its U.S. federal income taxes, subject to limitations. The Fund would
not, however, be eligible to elect to "pass-through" to its shareholders the
ability to claim a deduction or credit with respect to foreign income and
similar taxes paid by the Portfolio.
Each Portfolio's transactions, if any, in foreign currencies are
likely to result in a difference between the Portfolio's book income and taxable
income. This difference may cause a portion of the Portfolio's income
distributions to constitute a return of capital gain for tax purposes or require
the Portfolios to make distributions exceeding book income to avoid excise tax
liability and to qualify as a regulated investment company.
A Fund may receive exempt-interest dividends from its investment in a
Portfolio. The Fund is not, however, eligible to "pass-through" to its
shareholders such tax-exempt income since it holds share only of a Portfolio.
Redemptions and exchanges of each Fund's shares are taxable events
and, accordingly, shareholders may realize gains and losses on these
transactions. Currently, if shares have been held for more than one year, gain
or loss realized will be taxed at long-term federal tax rates (20% for
noncorporate shareholders), provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the same Fund within 30
days prior to the sale of the loss shares or 30 days after such sale. In some
cases, shareholders will not be permitted to take sales charges into account for
purposes of determining the amount of gain or loss realized on the disposition
of their Fund shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the shares, (2) the shares are
disposed of before the 91st day after the date on which they were acquired, and
(3) the shareholder subsequently acquires shares of the same or another Fund or
fund and the otherwise applicable sales charge is reduced under a "reinvestment
right" received upon the initial purchase of shares. The term "reinvestment
right" means any right to acquire stock of one or more funds (including a Fund)
without the payment of a sales charge or with the payment of a reduced sales
charge. Sales charges affected by this rule are treated as if they were incurred
with respect to the shares acquired under the reinvestment right. This provision
may be applied to successive acquisitions of Fund shares.
Each Fund may be required to withhold U.S. federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income tax
law. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of a Fund, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
Each Portfolio intends to qualify annually and elects to be treated
as a regulated investment company under the Code. In any year in which a
Portfolio qualifies as a regulated investment company and timely distributes all
of its taxable income, the Portfolio generally will not pay any federal income
or excise tax, and the corresponding Fund will qualify as a regulated investment
company.
Distributions of a Portfolio's ordinary income and net short-term
capital gains are treated as ordinary income by a Fund that invests in the
Portfolio. Properly designated distributions of a Portfolio's net long-term
capital gains are treated as long-term capital gain by a Fund that invests in
the Portfolio, regardless of how long the Fund held the Portfolio's shares.
Depending on a Fund's percentage ownership in a Portfolio both before
and after a redemption, a Fund's redemption of shares of such Portfolio may
cause the Fund to be treated as not receiving capital gain income on the amount
by which the distribution exceeds the Fund's tax basis in the shares of the
Portfolio, but instead to be treated as receiving a dividend taxable as ordinary
income on the full amount of the distribution. This could cause shareholders of
the Fund to recognize higher amounts of ordinary income than if the shareholders
had held the shares of the Portfolio directly.
- --------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
HARRIS ASSOCIATES
The following information relates to certain investment practices in
which certain Portfolios advised by Harris Associates may engage, whether as a
primary or secondary strategy:
EQUITY SECURITIES
The equity securities in which each Portfolio may invest include
common and preferred stocks and warrants or other similar rights and convertible
securities. The chief consideration in the selection of equity securities for
each Portfolio is the size of the discount of market price relative to the
economic value of the security as determined by Harris Associates. This
investment philosophy is predicated on Harris Associates' belief that over time
market price and value converge and that investment in securities priced
significantly below long-term value presents the best opportunity to achieve
long-term capital appreciation.
Harris Associates uses several qualitative and quantitative methods
in analyzing economic value, but considers the primary determinant of value to
be the enterprise's long-run ability to generate cash for its owners. Once
Harris Associates has determined that a security is undervalued, it will
consider it for purchase by a Portfolio, taking into account the quality and
motivation of the management, the firm's market position within its industry and
its degree of pricing power. Harris Associates believes that the risks of equity
investing are often reduced if management's interests are strongly aligned with
the interests of its stockholders.
SMALL CAP COMPANIES
During some periods, the securities of small capitalization
companies, as a class, have performed better than the securities of companies
having a larger capitalization, and in some periods they have performed worse.
Stocks of small cap companies tend to be more volatile and less liquid than
stocks of larger companies. Small cap companies, as compared to larger
companies, may have a shorter history of operations, may not have as great an
ability to raise additional capital, may have a less diversified product line
making them susceptible to market pressure, and may have a smaller public market
for their shares.
SECURITIES OF NON-U.S. ISSUERS
The Oakmark Fund may invest up to 25% of its assets in securities of
non-U.S. issuers. International investing permits an investor to take advantage
of the growth in markets outside the United States. Investing in securities of
non-U.S. issuers may entail a greater degree of risk (including risks relating
to exchange rate fluctuations, tax provisions, or expropriation of assets) than
does investment in securities of domestic issuers. The Portfolios may invest in
securities of non-U.S. issuers directly or in the form of ADRs, European
Depository Receipts (EDRs), Global Depositary Receipts (GDRs), or other
securities representing underlying shares of foreign issuers. Positions in these
securities are not necessarily denominated in the same currency as the common
stocks into which they may be converted. ADRs are receipts typically issued by
an American bank or trust company and trading in U.S. markets evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in U.S. securities markets and EDRs, in bearer form, are designed for use in
European securities markets. GDRs are receipts that may trade in U.S. or
non-U.S. markets. The Portfolio may invest in both "sponsored" and "unsponsored"
ADRs, EDRs or GDRs. In a sponsored depositary receipt, the issuer typically pays
some or all of the expenses of the depository and agrees to provide its regular
shareholder communications to depository receipt holders. An unsponsored
depositary receipt is created independently of the issuer of the underlying
security. The depository receipt holders generally pay the expenses of the
depository and do not have an undertaking from the issuer of the underlying
security to furnish shareholder communications.
With respect to securities of non-U.S. issuers or denominated in
foreign currencies, a Portfolio's investment performance is affected by the
strength or weakness of the U.S. dollar against these currencies. For example,
if the dollar falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions."
You should understand and consider carefully the risks involved in
international investing. Investing in securities of non-U.S. issuers, positions
which are generally denominated in foreign currencies, and utilization of
forward foreign currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically associated with investing
in U.S. securities. These considerations include: fluctuations in exchange rates
of foreign currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought back to the
United States; less public information with respect to issuers of securities;
different accounting, auditing and financial reporting standards; different
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; imposition of
foreign taxes; and sometimes less advantageous legal, operational and financial
protections applicable to foreign subcustodial arrangements.
Although the Portfolios try to invest in companies and governments
of countries having stable political environments, there is the possibility of
expropriation of assets, confiscatory taxation, seizure or nationalization of
foreign bank deposits or other assets, establishment of exchange controls, the
adoption of foreign government restrictions, or other adverse political, social
or diplomatic developments that could affect investment in these nations.
CURRENCY EXCHANGE TRANSACTIONS
The Portfolios may enter into currency exchange transactions either
on a spot (i.e. cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through a forward currency exchange
contract ("forward contract"). A forward contract is an agreement to purchase or
sell a specified currency at a specified future date (or within a specified time
period) and price set at the time of the contract. Forward contracts are usually
entered into with banks, foreign exchange dealers or broker-dealers, are not
exchange traded and are usually less than one year but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which a Portfolio may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. A Portfolio's currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of a Portfolio accruing in connection with
the purchase or sale or portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. When the Portfolio owns
or anticipates owning securities in countries whose currencies are linked, the
Portfolio's adviser may aggregate such positions as to the currency hedged.
If a Portfolio enters into a forward contract hedging an anticipated
purchase of securities, liquid assets of the Portfolio, which may include
equities, debt obligations, U.S. Government securities or cash, having a value
at least as great as the commitment under the forward contract will be
segregated on the books of the Portfolio marked to market daily, and held by the
Portfolio's custodian while contract is outstanding.
At the maturity of a forward contract to deliver a particular
currency, a Portfolio may either sell the security related to such contract and
make delivery of the currency, or it may retain the security and acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value
of securities at the expiration of a forward contract. Accordingly, it may be
necessary for a Portfolio to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Portfolio is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the security if its market value exceeds the amount of
currency the Portfolio is obligated to deliver.
If the Portfolio retains the security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss to the extent that there
has been movement in forward contract prices. If the Portfolio engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the currency. Should forward contract prices decline the period between the
Portfolio's entering into a forward contract for the sale of a currency and the
date it enters into an offsetting contract for the purchase of the currency, the
Portfolio will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would deprive the
Portfolio of unrealized profits or force the Portfolio to cover its commitments
for purchase or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Portfolio of engaging in currency exchange transactions varies with such factors
as the currency involved, the length of the contract period, and prevailing
market conditions. Since currency exchange transactions are usually conducted on
a principal basis, no fees or commissions are involved.
DEBT SECURITIES
Each Portfolio may invest in debt securities, including lower-rated
securities (i.e. securities rated BB or lower by S&P or Ba or lower by Moody's
commonly called "junk bonds") and securities that are not rated. There are no
restrictions as to the ratings of debt securities acquired by a Portfolio nor
the portion of a Portfolio's assets that may be invested in debt securities in a
particular ratings category, except that each of the Portfolios will not invest
more than 25% of its total assets in such securities.
Securities rated BB or Baa are considered to be medium grade and to
have speculative characteristics. Lower-rated debt securities are predominately
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, issuers of such
bonds may experience difficulty in servicing their principal and interest
payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked price is likely to
increase significantly, and a Portfolio may have greater difficulty selling its
securities. See "Net Asset Value." The market value of these securities and
their liquidity may be affected by adverse publicity and investor perceptions.
A description of the characteristics of bonds in each rating is
included as Appendix A to this Statement.
REPURCHASE AGREEMENTS
Each Portfolio may invest in repurchase agreements, which is a sale
of securities to a Portfolio with the concurrent agreement of the seller (bank
or securities dealer) to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate within a specified time. In the
event of a bankruptcy or other default of a seller of a repurchase agreement,
the Portfolio could experience both delays in liquidating the underlying
securities and losses. No Portfolio may invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days and other illiquid
securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Portfolio may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest of these securities
are established at the time a Portfolio enters into the commitment, the
securities may be delivered and paid for a month or more after the date of
purchase, when their value may have changed. A Portfolio makes such commitments
only with the intention of actually acquiring the securities, but may sell the
securities before settlement date if the adviser deems it advisable for
investment reasons. A Portfolio may utilize spot and forward foreign currency
exchange transactions to reduce the risk inherent in fluctuations in the
exchange rate between one currency and another when securities are purchased or
sold on a when-issued or delayed-delivery basis.
At the time a Portfolio enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets of the Portfolio having a value
at least as great as the purchase price of the securities to be purchased will
be segregated on the books of the Portfolio and held by the custodian throughout
the period of the obligation. The use of these investment strategies, as well as
any borrowing by a Portfolio may increase net asset value fluctuation.
A Portfolio may also enter into a contract with a third party that
provides for the sale of securities held by the Portfolio at a set price, with a
contingent right for the Portfolio to receive additional proceeds from the
purchaser upon the occurrence of designated future events, such as a tender
offer for the securities of the subject company by the purchaser, and
satisfaction of any applicable conditions. Under such an arrangement, the amount
of contingent proceeds that the Portfolio will receive from the purchaser, if
any, will generally not be determinable at the time such securities are sold.
The Portfolio's rights under such an arrangement will not be secured and the
Portfolio may not receive the contingent payment if the purchaser does not have
the resources to make the payment. The Portfolio's rights under such an
arrangement also generally will be illiquid and subject to the Portfolio's
limitations on ownership of illiquid securities.
ILLIQUID SECURITIES
No Portfolio may invest in illiquid securities, if as a result such
securities would comprise more than 15% of the value of the Portfolio's assets.
If through the appreciation of illiquid securities or the
depreciation of illiquid securities the Portfolio should be in a position where
more than 15% of the value of its net assets are invested in illiquid assets,
including restricted securities, the Portfolio will take appropriate steps to
protect liquidity.
Illiquid securities may include restricted securities which may be
sold in privately negotiated transactions or in a public offering with respect
to which a registration statement is in effect under the Securities Act of 1933
(the "1933 Act"). Where a Portfolio holds restricted securities and registration
is required, the Portfolio may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the Portfolio's
Board of Trustees.
Notwithstanding the above, each Portfolio purchase securities that,
although privately placed, are eligible for purchase and sale under Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Portfolios, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The adviser, under the
supervision of the Board of Trustees, may consider whether securities purchased
under Rule 144A are liquid and thus not subject to the Portfolio's restriction
of investing no more than 15% of its assets in illiquid securities. (See
restriction 13 under "Investment Restrictions of the Portfolios.") A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination the adviser will consider the trading markets
for the specific security taking into account the unregistered nature of a Rule
144A security. In addition, the adviser could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, (4) and the nature of the security and of market
place trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Portfolio's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Portfolio does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A securities could have
the effect of increasing the amount of a Portfolio's assets invested in illiquid
securities if qualified institutional buyers are willing to purchase such
securities.
OTHER INVESTMENT COMPANIES
Certain markets are closed in whole or in part to equity investments
by foreigners. A Portfolio may be able to invest in such markets solely or
primarily through governmentally authorized investment vehicles or companies.
Each Portfolio may invest up to 10% of its assets in the aggregate in shares of
other investment companies and up to 5% of its assets in any one investment
company, as long as no investment represents more than 3% of the outstanding
voting stock of the acquired investment company at the time of investment.
Investments in other investment companies may involve the payment of
a premium above the value of such issuers' portfolio securities, and is subject
to market availability. The Portfolios' Trust does not intend to invest in such
vehicles or funds unless, in the judgment of the Portfolio's adviser, the
potential benefits of the investment justify the payment of any applicable
premium or sales charge. As a shareholder in an investment company, a Portfolio
would bear its ratable share of that investment company's expenses, including
its advisory and administration fees. At the same time the Portfolio would
continue to pay its own management fees and other expenses.
LENDING OF PORTFOLIO SECURITIES
The Oakmark Small Cap Fund may lend its securities to broker-dealers
and banks to the extent indicated in the section entitled "Investment
Restrictions of the Portfolios" located in this Statement. Any such loan must be
continuously secured by collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value of the securities
loaned by the Portfolio. The Portfolio would continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form of a fixed fee
or a percentage of the collateral. The Portfolio would have the right to call
the loan and obtain the securities loaned at any time on notice of not more than
five business days. In the event of bankruptcy or other default of the borrower,
the Portfolio could experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible decline in
the value of the collateral or in the value of the securities loaned during the
period while the Portfolio seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income during this period, and
(c) expenses of enforcing its rights.
PRIVATE PLACEMENTS
Each Portfolio may acquire securities in private placements. Because
an active trading market may not exist for such securities, the sale of such
securities may be subject to delay and additional costs. No Portfolio will
purchase such a security if more than 15% of the value of such Portfolio's net
assets would be invested in illiquid securities.
SHORT SALES
Each Portfolio may sell securities short against the box, that is (1)
enter into short sales of securities that it currently owns or has the right to
acquire through the conversion or exchange of other securities that it owns
without additional consideration; and (2) enter into arrangements with the
broker-dealers through which such securities are sold short to receive income
with respect to the proceeds of short sales during the period the Portfolio's
short positions remain open. A Portfolio may make short sales of securities only
if at all times when a short position is open the Portfolio owns at least an
equal amount of such securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issue
as, and equal in amount to, the securities sold short.
In a short sale against the box, a Portfolio does not deliver the
securities sold and does not receive immediately the proceeds from the short
sale. Instead, the Portfolio borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Portfolio, to the purchaser of such
securities. Such broker-dealer is entitled to retain the proceeds from the short
sale until the Portfolio delivers to such broker-dealer the securities sold
short. In addition, the Portfolio is required to pay to the broker-dealer the
amount of any dividends paid on shares sold short. Finally, to secure its
obligation to deliver to such broker-dealer the securities sold short, the
Portfolio must deposit and continuously maintain in a separate account with the
Portfolio's custodian an equivalent amount of the securities sold short or
securities convertible into or exchangeable for such securities without the
payment of additional consideration. A Portfolio is said to have a short
position in the securities sold until it delivers to the broker-dealer the
securities sold, at which time the Portfolio receives the proceeds of the sale.
A Portfolio may close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities sold short,
rather than by delivering securities.
Short sales may protect a Portfolio against the risk of losses in the
value of its securities because any unrealized losses with respect to such
securities should be wholly or partially offset by a corresponding gain in the
short position. However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position. The extent to
which such gains or losses are offset will depend upon the amount of securities
sold short relative to the amount the Portfolio owns, either directly or
indirectly, and, in the case where the Portfolio owns convertible securities,
changes in the conversion premium.
Short sale transactions involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time a
Portfolio replaces the borrowed security, the Portfolio will incur a loss and if
the price declines this period, the Portfolio will realize a short-term capital
gain. Any realized short-term capital gain will be decreased, and any incurred
loss increased, by the amount of transaction costs and any premium, dividend or
interest which the Portfolio may have to pay in connection with such short sale.
Certain provisions of the Code may limit the degree to which a Portfolio is able
to enter into short sales. There is no limitation on the amount of each
Portfolio's assets that, in the aggregate, may be deposited as collateral for
the obligation to replace securities borrowed to effect short sales and
allocated to segregated accounts in connection with short sales. No Portfolio
currently expects that more than 20% of its total assets would be involved in
short sales against the box.
OPTIONS
Each Portfolio may purchase both call options and put options on
securities. A call or put option is a contract that gives the Portfolio, in
return for a premium paid upon purchase of the option, the right during the term
of the option to buy from, or to sell to, the seller of the option the security
underlying the option at a specified exercise price. The option is valued
initially at the premium paid for the option. Thereafter, the value of the
option is marked-to-market daily. It is expected that a Portfolio will not
purchase a call option or a put option if the aggregate value of all call and
put options held by the Portfolio would exceed 5% of such Portfolio's assets.
TEMPORARY STRATEGIES
Each Portfolio has the flexibility to respond promptly to changes in
market and economic conditions. In the interest of preserving shareholders'
capital, the Portfolio's adviser, Harris Associates, may employ a temporary
defensive strategy if it determines such a strategy to be warranted. Pursuant to
such a defensive strategy a Portfolio temporarily may hold cash (U. S. dollars,
foreign currencies, or multinational currency units) and/or invest up to 100% of
its assets in high quality debt securities or money market instruments of U. S.
or foreign issuers. It is impossible to predict whether, when or for how long a
Portfolio will employ defensive strategies.
In addition, pending investment of proceeds from new sales of
Portfolio shares or to meet ordinary daily cash needs, each Portfolio
temporarily may hold cash (U.S. dollars, foreign currencies or multinational
currency units) and may invest any portion of its assets in money instruments.
The use of defensive strategies may prevent a Portfolio from achieving its goal.
LOOMIS SAYLES
The following information relates to certain investment practices in which
certain Portfolios advised by Loomis Sayles may engage, whether as a primary or
secondary strategy:
COMMON STOCKS AND OTHER EQUITY SECURITIES
Common stocks and similar equity securities, such as warrants and
convertibles, are volatile and more risky than some other forms of investment.
The value of an investment in a Portfolio that invests in equity securities may
sometimes decrease. Equity securities of companies with relatively small market
capitalization may be more volatile than the securities of larger, more
established companies as well as more volatile than the broad equity market
indexes.
FOREIGN SECURITIES
Although investing in foreign securities may increase a Portfolio's
diversification and reduce portfolio volatility generally, foreign securities
may present risks not associated with investments in comparable securities of
U.S. issuers. There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more volatile
than securities of comparable U.S. issuers. Foreign brokerage commissions and
custody costs of securities are often higher than in the United States. With
respect to certain foreign countries, there is a possibility of governmental
expropriation of assets, confiscatory taxation, political or financial
instability and diplomatic developments that could affect the value of
investments in those countries. A Fund's receipt of interest of foreign
government securities may depend on the availability of tax or other revenues to
satisfy the issuer's obligations.
A Portfolio's investments in foreign securities may include
investments in countries whose economies or securities markets are not yet
highly developed. Special considerations associated with these investments (in
addition to the considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or development
assistance, currency transfer restrictions, highly limited numbers of potential
buyers for such securities and delays and disruptions in securities settlement
procedures.
Since most foreign securities are denominated in foreign currencies
or traded primarily in securities markets in which settlements are made in
foreign currencies, the value of these investments and the net investment income
available for distribution to shareholders of a Portfolio investing in these
securities may be affected favorably or unfavorably by changes in currency
exchange rates, exchange control regulations or foreign withholding taxes.
Changes in the value relative to the U.S. dollar of a foreign currency in which
a Portfolio's holdings are denominated will result in a change in the U.S.
dollar value of the Portfolio's assets and the Portfolio's income available for
distribution.
In addition, although part of a Portfolio's income may be received or
realized in foreign currencies, the Portfolio will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a currency
relative to the U.S. dollar declines after the Portfolio's income has been
earned in that currency, translated into U.S. dollars and declared as a
dividend, but before payment of the dividend, the Portfolio could be required to
liquidate portfolio securities to pay the dividend. Similarly, if the value of a
currency relative to the U.S. dollar declines between the time the Portfolio
accrues expenses in U.S. dollars and the time such expenses are paid, the amount
of such currency required to be converted into U.S. dollars will be greater than
the equivalent amount in such currency of such expenses at the time they were
incurred.
In determining whether to invest assets of the Portfolios in
securities of a particular foreign issuer, Loomis Sayles will consider the
likely effects of foreign taxes on the net yield available to the Portfolio and
its shareholders. Compliance with foreign tax law may reduce a Portfolio's net
income available for distribution to shareholders.
DEBT AND OTHER FIXED-INCOME SECURITIES
Fixed-income securities pay a specified rate of interest or
dividends, or a rate that is adjusted periodically by reference to some
specified index or market rate. Fixed-income securities include securities
issued by federal, state, local and foreign governments and related agencies,
and by a wide range of private issuers. Because interest rates vary, it is
impossible to predict the income of a Portfolio that invests in fixed-income
securities for any particular period. The net asset value of such a Portfolio's
shares will vary as a result of changes in the value of the securities in the
Portfolio.
Fixed-income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed-income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest and includes the risk of default.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities include direct obligations of the U.S.
Treasury, as well as securities issued or guaranteed by U.S. Government
agencies, authorities and instrumentalities, including, among others, the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Federal Housing
Administration, the Resolution Funding Corporation, the Federal Farm Credit
Banks, the Federal Home Loan Bank, the Tennessee Valley Authority, the Student
Loan Marketing Association and the Small Business Administration. More detailed
information about some of these categories of U.S. Government Securities
follows.
U.S. Treasury Bills - Direct obligations of the United States
Treasury which are issued in maturities of one year or less. No interest is paid
on Treasury bills; instead, they are issued at a discount and repaid at full
face value when they mature. They are backed by the full faith and credit of the
United States Government.
U.S. Treasury Notes and Bonds - Direct obligations of the United
States Treasury issued in maturities that vary between one and forty years, with
interest normally payable every six months. They are backed by the full faith
and credit of the United States Government.
"Ginnie Maes" - Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages incurred by the
Federal Housing Administration or the Farmer's Home Administration or guaranteed
by the Veterans Administration. The Government National Mortgage Association
("GNMA") guarantees the timely payment of principal and interest when such
payments are due, whether or not these amounts are collected by the issuer of
these certificates on the underlying mortgages. An assistant attorney general of
the United States has rendered an opinion that the guarantee by GNMA is a
general obligation of the United States Government backed by its full faith and
credit. Mortgages included in single family or multi-family residential mortgage
pools backing an issue of Ginnie Maes have a maximum maturity of up to 30 years.
Scheduled payments of principal and interest are made to the registered holders
of Ginnie Maes (such as the Fund) each month. Unscheduled prepayments may be
made by homeowners, or as a result of a default. Prepayments are passed through
to the registered holder of Ginnie Maes along with regular monthly payments of
principal and interest.
"Fannie Maes" - The Federal National Mortgage Association ("FNMA") is
a government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers. Fannie
Maes are pass-through securities issued by FNMA that are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
"Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC")
is a corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
U.S. Government Securities generally do not involve the same credit
risks associated with investments in other types of fixed-income securities,
although, as a result, the yields available from U.S. Government Securities are
generally lower that the yields available from corporate fixed-income
securities. Like other fixed-income securities, however, the values of U.S.
Government Securities change as interest rates fluctuate. Fluctuations in the
value of a Portfolio's securities will not affect interest income on existing
securities but will be reflected in the Fund's net asset value.
MORTGAGE-BACKED SECURITIES
The Loomis Sayles Bond Fund may invest in mortgage-backed securities,
such as GNMA or Federal National Mortgage Association certificates, which differ
from traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Portfolio purchases
these assets at a premium, a faster-than-expected prepayment rate will reduce
yield to maturity, and a slower-than-expected prepayment rate will increase
yield to maturity. If a Portfolio purchases mortgage-backed securities at a
discount, faster-than-expected prepayments will increase, and
slower-than-expected prepayments will reduce yield to maturity. Prepayments,
and resulting amounts available for reinvestment by the Portfolio, are likely to
be greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates. Accelerated prepayments on
securities purchased at a premium may result in a loss of principal if the
premium has not been fully amortized at the time of prepayment. Although these
securities will decrease in value as a result of increases in interest rates
generally, they are likely to appreciate less than other fixed-income securities
when interest rates decline because of the risk of prepayments.
STRIPPED MORTGAGE-BACKED SECURITIES
The Bond Fund may invest in interest-only and principal-only classes
of mortgage-backed securities ("IOs" and "POs"). The yield to maturity on an IO
or PO is extremely sensitive not only to changes in prevailing interest rates
but also to the rate of principal payments (including prepayments) on the
underlying assets. A rapid rate of principal prepayments may have a measurably
adverse effect on a Portfolio's yield to maturity to the extent it invests in
IOs. If the assets underlying the IOs experience greater than anticipated
prepayments of principal, the Portfolio may fail to recoup fully its initial
investment in these securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if prepayments are slower
than anticipated.
The secondary market for stripped mortgage-backed securities may be
more volatile and less liquid than that for other mortgage-backed securities,
potentially limiting a Portfolio's ability to buy or sell those securities at
any particular time.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs")
The Loomis Sayles Bond Fund may invest in CMOs. A CMO is a security
backed by a portfolio of mortgages or mortgage-backed securities held under an
indenture. CMOs may be issued either by U.S. Government instrumentality's or by
non-governmental entities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or series
which have different maturities and which may represent interests in some or all
of the interest or principal on the underlying collateral or a combination
thereof. CMOs of different classes are generally retired in sequence as the
underlying mortgage loans in the mortgage pool are repaid. In the event of
sufficient early prepayments on such mortgages, the class or series of CMOs
first to mature generally will be retired prior to its maturity. As with other
mortgage-backed securities, the early retirement of a particular class or series
of CMOs held by a Fund could involve the loss of any premium the Portfolio paid
when it acquired the investment and could result in the Portfolio's reinvesting
the proceeds at a lower interest rate than the retired CMO paid. Because of the
early retirement feature, CMOs may be more volatile than many other
fixed-income investments.
ASSET-BACKED SECURITIES
The Loomis Sayles Bond Fund may invest in asset-backed securities.
Through the use of trusts and special purpose corporations, automobile and
credit card receivables are securitized in pass-through structures similar to
mortgage pass-through structures or in a pass-through structure similar to the
CMO structure. Generally, the issuers of asset-backed bonds, notes or
pass-through certificates are special purpose entities and do not have any
significant assets other than the receivables securing such obligations. In
general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans. Instruments backed by pools of receivables are
similar to mortgage-backed securities in that they are subject to unscheduled
prepayments of principal prior to maturity. When the obligations are prepaid,
the Portfolio will ordinarily reinvest the prepaid amounts in securities the
yields of which reflect interest rates prevailing at the time. Therefore, a
Portfolio's ability to maintain a portfolio of securities that includes
high-yielding asset-backed securities will be adversely affected to the extent
that prepayments of principal must be reinvested in securities that have lower
yields than the prepaid obligations. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
WHEN-ISSUED SECURITIES
Each Portfolio may enter into agreements with banks or broker-dealers
for the purchase or sale of securities at an agreed-upon price on a specified
future date. Such agreements might be entered into, for example, when a
Portfolio that invests in fixed income securities anticipates a decline in
interest rates and is able to obtain a more advantageous yield by committing
currently to purchase securities to be issued later. When a Portfolio purchases
securities in this manner (i.e. on a when-issued or delayed-delivery basis), it
is required to create a segregated account with the Trust's custodian and to
maintain in that account liquid assets in an amount equal to or greater than, on
a daily basis, the amount of the Portfolio's when-issued or delayed-delivery
commitments. Each Portfolio will make commitments to purchase on a when-issued
or delayed-delivery basis only securities meeting that Portfolio's investment
criteria. The Portfolio may take delivery of these securities or, if it is
deemed advisable as a matter of investment strategy, the Portfolio may sell
these securities before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Portfolio will meet its
obligations from then available cash flow or the sale of securities, or from the
sale of the when-issued or delayed-delivery securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).
CONVERTIBLE SECURITIES
Convertible securities include corporate bonds, notes or preferred
stocks of U.S. or foreign issuers that can be converted into (that is, exchanged
for) common stocks or other equity securities. Convertible securities also
include other securities, such as warrants, that provide an opportunity for
equity participation. Because convertible securities can be converted into
equity securities, their values will normally vary in some proportion with those
of the underlying equity securities. Convertible securities usually provide a
higher yield than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of the
underlying equity security.
ZERO-COUPON BONDS
Zero-coupon bonds are debt obligations that do not entitle the holder
to any periodic payments of interest either for the entire life of the
obligation or for an initial period after the issuance of the obligations. Such
bonds are issued and traded at a discount from their face amounts. The amount of
the discount varies depending on such factors as the time remaining until
maturity of the bonds, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. The market prices of zero-coupon
bonds generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon bonds having similar maturities and
credit quality. In order to satisfy a requirement for qualification as a
"regulated investment company" under the Code, each Portfolio must distribute
each year at least 90% of its net investment income, including the original
issue discount accrued on zero-coupon bonds. Because a Portfolio investing in
zero-coupon bonds will not on a current basis receive cash payments from the
issuer in respect of accrued original issue discount, the Portfolio may have to
distribute cash obtained from other sources in order to satisfy the 90%
distribution requirement under the Code. Such cash might be obtained from
selling other Portfolio holdings of the Portfolio. In some circumstances, such
sales might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
Portfolio to sell such securities at such time.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements, by which the
Portfolio purchases a security and obtains a simultaneous commitment from the
seller (a bank or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed upon price and date
(usually seven days or less from the date of original purchase). The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Portfolios the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill, certificate of
indebtedness, note or bond issued by an agency, authority or instrumentality of
the U. S. Government, the obligation of the seller is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to repurchase the
underlying security. In such event, the Portfolio would attempt to exercise
rights with respect to the underlying security, including possible disposition
in the market. However, the Portfolio may be subject to various delays and risks
of loss, including (a) possible declines in the value of the underlying security
during the period while the Portfolio seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of income during this period and (c)
ability to enforce rights and the expenses involved in attempted enforcement.
SECURITIES LENDING
The Loomis Sayles Small Cap Growth Fund may lend its Portfolio
securities to broker-dealers or other parties under contracts calling for the
deposit by the borrower with the Portfolio's custodian of cash collateral equal
to at least the market value of the securities loaned, marked to market on a
daily basis. The Portfolio will continue to benefit from interest or dividends
on the securities loaned and will also receive interest through investment of
the cash collateral in short-term liquid investments. No loans will be made if,
as a result, the aggregate amount of such loans outstanding at any time would
exceed 33 1/3% of the Portfolio's total assets (taken at current value). Any
voting rights, or rights to consent, relating to securities loaned pass to the
borrower. However, if a material event affecting the investment occurs, such
loans will be called so that the securities may be voted by the Portfolio. The
Portfolio pays various fees in connection with such loans, including shipping
fees and reasonable custodial or placement fees.
Securities loans must be fully collateralized at all times, but
involve some credit risk to the Portfolio if the borrower defaults on its
obligation and the Portfolio is delayed or prevented from recovering the
collateral.
RULE 144A SECURITIES
Each of the Portfolios may purchase Rule 144A securities. These are
privately offered securities that can be resold only to certain qualified
institutional buyers. Rule 144A securities are treated as illiquid, unless
Loomis Sayles has determined, under guidelines established by the Portfolio's
Board of Trustees, that the particular issue of Rule 144A securities is liquid.
Under the guidelines, Loomis Sayles considers such factors as: (1) the frequency
of trades and quotes for a security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades therefor.
TAX-EXEMPT BONDS
Tax-exempt bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as bridges, highways, hospitals, housing, mass transportation,
schools, streets, and water and sewer works. Other public purposes for which tax
exempt bonds may be issued include the refunding of outstanding obligations,
obtaining funds for general operating expenses, and obtaining funds to lend to
other public institutions and facilities. In addition, prior to the Tax Reform
Act of 1986, certain debt obligations know as industrial development bonds could
be issued by or on behalf of public authorities to obtain funds to provide
privately operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Such obligations are included
within the term tax-exempt bonds if the interest paid thereon is, in the opinion
of bond counsel, exempt from federal income tax. Interest on certain industrial
development bonds used to fund the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities may also
be exempt from federal income tax. The Tax Reform Act of 1986 eliminated some
types of tax exempt industrial revenue bonds, but retained others under the
general category of "private activity bonds." The interest on so-called "private
activity bonds" is exempt from ordinary federal income taxation but is treated
as a tax preference item in computing a shareholder's alternative minimum tax
liability.
The two principal classifications of tax-exempt bonds are general
obligation bonds and limited obligation (or revenue) bonds. General obligation
bonds are obligations involving the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues and not from any
particular fund or source. The characteristics and method of enforcement of
general obligation bonds vary according to the law applicable to the particular
issuer, and payment may be dependent upon an appropriation by the issuer's
legislative body. Limited obligation bonds are payable only from the revenues
derived from a particular facility of class of facilities, or in some cases from
the proceeds of a special excise or other specific revenue source such as the
user of the facility. Tax-exempt industrial development bonds and private
activity bonds are in most cases revenue bonds and generally are not payable
from the unrestricted revenues of the issuer. The credit and quality of such
bonds are usually directly related to the credit standing of the corporate user
of the facilities. Principal and interest on such bonds is the responsibility of
the corporate user (and any guarantor).
Prices and yields on tax-exempt bonds are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the tax-exempt bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of tax-exempt bonds may not be as extensive as that made available
by corporations whose securities are publicly traded.
Obligations of issuers of tax-exempt bonds are subject to the
provisions of bankruptcy, insolvency and other laws, such as the Federal
Bankruptcy Reform Act of 1978, affecting the rights and remedies of creditors.
Congress or state legislatures may seek to extend the time for payment of
principal or interest, or both, or to impose other constraints upon enforcement
of such obligations. There is also the possibility that, as a result of
litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their tax-exempt bonds
may be materially affected, or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of introducing uncertainties in the market for tax-exempt bonds or
certain segments thereof, or materially affecting the credit risk with respect
to particular bonds. Adverse economic, business, legal or political developments
might affect all or a substantial portion of the Portfolio's tax-exempt bonds in
the same manner.
FOREIGN CURRENCY TRANSACTIONS
Each of the Portfolios may invest in securities of foreign issuers
and may enter into forward foreign currency exchange contracts, or buy or sell
options on foreign currencies, in order to protect against uncertainty in the
level of future foreign exchange rates. Since investment in securities of
foreign issuers will usually involve currencies of foreign countries, and since
a Portfolio may temporarily hold funds in bank deposits in foreign currencies
during the course of investment programs, the value of the assets of a Portfolio
as measured in United States dollars may be affected by changes in currency
exchange rates and exchange control regulations, and a Portfolio may incur costs
in connection with conversion between various currencies.
A Portfolio may enter into forward contracts under two circumstances.
First, when a Portfolio enters into a contract for the purchase or sale of a
security denominated or traded in a market in which settlement is made in a
foreign currency, it may desire to "lock in" the US dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the investment is purchased or sold and the date on which payment is
made or received.
Second, when Loomis Sayles believes that the currency of a particular
country may suffer a substantial decline against another currency, it may enter
into a forward contract to sell, for a fixed amount of another currency, the
amount of the first currency approximating the value of some or all of the
portfolio's investments denominated in the first currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of such securities in a
currency will change as a consequence of market movements in the value of those
investments between the date the forward contract is entered into and the date
it matures.
The Portfolios generally will not enter into forward contracts with a
term of greater than one year. Options on foreign currencies are similar to
forward contracts, except that one party to the option (the holder) is not
contractually bound to buy or sell the specified currency. Instead, the holder
has the discretion whether to "exercise" the option and thereby require the
other party to buy or sell the currency on the terms specified in the option.
Options transactions involve transaction costs and, like forward contract
transactions, involve the risk that the other party may default on its
obligations (if the options are not traded on an established exchange) and the
risk that expected movements in the relative value of currencies may not occur,
resulting in an imperfect hedge or a loss to the Portfolio.
Each Portfolio in conjunction with its transactions in forward
contracts, options and futures, will maintain in a segregated account with its
custodian liquid assets with a value, marked to market on a daily basis,
sufficient to satisfy the Portfolio's outstanding obligations under such
contracts, options and futures.
SWAP CONTRACTS
The Loomis Sayles Bond Fund may enter into interest rate or currency
swaps. The Portfolio will enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its Portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. Interest rate swaps involve the exchange
by a Portfolio with another party of their respective commitments to pay or
receive interest (for example, an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal). A currency swap
is an agreement to exchange cash flows on a notional amount based on changes in
the relative values of the specified currencies. The Portfolio will maintain
liquid assets in a segregated custodial account to cover its current obligations
under swap agreements. Because swap agreements are not exchange-traded, but are
private contracts into which the Portfolio and a swap counterparty enter as
principals, the Portfolio may experience a loss or delay in recovering assets if
the counterparty were to default on its obligations.
OPTIONS
Each of the Portfolios may purchase and sell call and put options.
An option entitles the holder to receive (in the case of a call
option) or to sell (in the case of a put option) a particular security at a
specified exercise price. An "American style" option allows exercise of the
option at any time during the term of the option. A "European style" option
allows an option to be exercised only at the end of its term. Options may be
traded on or off an established securities exchange.
If the holder of an option wishes to terminate its position, it may
seek to effect a closing sale transaction by selling an option identical to the
option previously purchased. The effect of the purchase is that the previous
option position will be canceled. A Portfolio will realize a profit from closing
out an option if the price received for selling the offsetting position is more
than the premium paid to purchase the option; the Portfolio will realize a loss
from closing out an option transaction if the price received for selling the
offsetting option is less than the premium paid to purchase the option.
The use of options involves risks. One risk arises because of the
imperfect correlation between movements in the price of options and movements in
the price of the securities that are the subject of the hedge. The Portfolio's
hedging strategies will not be fully effective if such imperfect correlation
occurs.
Price movement correlation may be distorted by illiquidity in the
options markets and the participation of speculators in such markets. If an
insufficient number of contracts are traded, commercial users may not deal in
options because they do not want to assume the risk that they may not be able to
close out their positions within a reasonable amount of time. In such instances,
options market prices may be driven by different forces than those driving the
market in the underlying securities, and price spreads between these markets may
widen. The participation of speculators in the market enhances its liquidity.
Nonetheless, the trading activities of speculators in the options markets may
create temporary price distortions unrelated to the market in the underlying
securities.
An exchange-traded option may be closed out only on an exchange which
generally provides a liquid secondary market for an option of the same series.
If a liquid secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to a
particular option, with the result that the Portfolio would have to exercise the
option in order to accomplish the desired hedge. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the Options Clearing Corporation
or other clearing organization may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide to be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The successful use of options depends in part on the ability of
Loomis Sayles to forecast correctly the direction and extent of interest rate,
stock price or currency value movements within a given time frame. To the extent
interest rates, stock prices or currency values move in a direction opposite to
that anticipated, the Portfolio may realize a loss on the hedging transaction
that is not fully or partially offset by an increase in the value of portfolio
securities. In addition, whether or not interest rates or the relevant stock
price or relevant currency values move during the period that the Portfolio
holds options positions, the Portfolio will pay the cost of taking those
positions (i.e., brokerage costs). As a result of these factors, the Portfolio's
total return for such period may be less than if it had not engaged in the
hedging transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original option
transaction. While the Portfolio will seek to enter into over-the-counter
options only with dealers who agree to or are expected to be capable of entering
into closing transactions with the Portfolio, there can be no assurance that the
Portfolio will be able to liquidate an over-the-counter option at a favorable
price at any time prior to its expiration. Accordingly, the Portfolio might have
to exercise an over-the-counter option it holds in order to achieve the intended
hedge. Over-the-counter options are not subject to the protections afforded
purchasers or listed options by the Options Clearing Corporation or other
clearing organization.
The staff of the SEC has taken the position that over-the-counter
options should be treated as illiquid securities for purposes of each
Portfolio's investment restriction prohibiting it from investing more that 15%
of its net assets in illiquid securities. The Portfolio intends to comply with
this position.
Income earned by a Portfolio from its hedging activities will be
treated as capital gain and, if not offset by net recognized capital losses
incurred by the Portfolio will be distributed to shareholders in taxable
distributions. Although gain from options transactions may hedge against a
decline in the value of a Portfolio's securities, that gain, to the extent not
offset by losses, will be distributed in light of certain tax considerations and
will constitute a distribution of that portion of the value preserved against
decline.
SMALL COMPANIES
Investments in companies with relatively small capitalization may
involve greater risk than is usually associated with investing in more
established companies. These companies often have limited product lines, markets
or financial resources and they may be dependent upon a relatively small
management group. Their securities may have limited marketability and may be
subject to more abrupt or erratic movements in price than securities of
companies with larger capitalization or market averages in general. The net
asset values of the Funds that invest in companies with smaller capitalization
therefore may fluctuate more widely than market averages or companies with
larger capitalization.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS GROUP
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C--Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A--Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, if
fact, have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy. 3. There is a lack of essential data pertaining to the issue
or issuer. 4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, and B1.
FITCH INVESTOR SERVICES, INC.
AAA--This is the highest rating assigned by Fitch 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 Fortune
Adam Smith's Money World Fox Network and Affiliates
America On Line Fund Action
Anchorage Daily News Fund Decoder
Atlanta Constitution Global Finance
Atlanta Journal (the) Guarantor
Arizona Republic Hartford Courant
Austin American Statesman Houston Chronicle
Baltimore Sun INC
Bank Investment Marketing Indianapolis Star
Barron's Individual Investor
Bergen County Record (NJ) Institutional Investor
Bloomberg Business News International Herald Tribune
Bnai Brith Jewish Monthly Internet
Bond Buyer Investment Advisor
Boston Business Journal Investment Company Institute
Boston Globe Investment Dealers Digest
Boston Herald Investment Profiles
Broker World Investment Vision
Business Radio Network Investor's Daily
Business Week IRA Reporter
CBS and affiliates Journal of Commerce
CFO Kansas City Star
Changing Times KCMO (Kansas City)
Chicago Sun Times KOA-AM (Denver)
Chicago Tribune LA Times
Christian Science Monitor Leckey, Andrew (syndicated column)
Christian Science Monitor News Service Lears
Cincinnati Enquirer Life Association News
Cincinnati Post Lifetime Channel
CNBC Miami Herald
CNN Milwaukee Sentinel
Columbus Dispatch Money
CompuServe Money Maker
Dallas Morning News Money Management Letter
Dallas Times-Herald Morningstar
Denver Post Mutual Fund Market News
Des Moines Register Mutual Funds Magazine
Detroit Free Press National Public Radio
Donoghues Money Fund Report National Underwriter
Dorfman, Dan (syndicated column) NBC and affiliates
Dow Jones News Service New England Business
Economist New England Cable News
FACS of the Week New Orleans Times-Picayune
Forbes Palm Beach Post
Fort Worth Star-Telegram Pension World
Pensions and Investments Standard & Poor's Stock Guide
Personal Investor Stanger's Investment Advisorx
Philadelphia Inquirer Stockbrokers Register
Porter, Sylvia (syndicated column) Strategic Insight
Portland Oregonian Tampa Tribune
Prodigy Time
Public Broadcasting Service Tobias, Andrew (syndicated column)
Quinn, Jane Bryant (syndicated column) Toledo Blade
Registered Representative UPI
Research Magazine US News and World Report
Resource USA Today
Reuters USA TV Network
Rocky Mountain News Value Line
Rukeyser's Business (syndicated column) Wall St. Journal
Sacramento Bee Wall Street Letter
San Diego Tribune Wall Street Week
San Francisco Chronicle Washington Post
San Francisco Examiner WBZ
San Jose Mercury WBZ-TV
Seattle Post-Intelligencer WCVB-TV
Seattle Times WEEI
Securities Industry Management WHDH
Smart Money Worcester Telegram
St. Louis Post Dispatch World Wide Web
St. Petersburg Times Worth Magazine
Standard & Poor's Outlook WRKO
<PAGE>
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising and
promotional literature to Nvest Companies and its affiliates that perform
advisory and subadvisory functions for New England Funds also including, but not
limited to: Back Bay Advisors, L.P. ("Back Bay Advisors") Harris Associates
L.P., Loomis, Sayles & Company, L.P. ("Loomis Sayles"), Capital Growth
Management Limited Partnership ("CGM") and Westpeak Investment Advisors, L.P.
("Westpeak"). Reference also may be made to the Funds of their respective fund
groups, namely, the Loomis Sayles Funds and the Oakmark Funds.
References may be included in New England Funds' advertising and
promotional literature to other Nvest Companies affiliates including, but not
limited to, Nvest Corporation, AEW Capital Management, L.P., Marlborough Capital
Advisors, L.P., Reich & Tang Capital Management, Reich and Tang Mutual Funds
Group and Jurika & Voyles and their fund group.
References to subadvisers unaffiliated with Nvest Companies that
perform subadvisory functions on behalf of New England Funds and their
respective fund groups may be contained in New England Funds' advertising and
promotional literature including, but not limited to, Janus Capital Corporation
("Janus Capital"), Founders Asset Management, Inc. ("Founders"), Montgomery
Asset Management, L.P. ("Montgomery") and Robertson, Stephens & Company
Investment Management, L.P. ("Robertson Stephens").
New England Funds' advertising and promotional material will include,
but is not limited to, discussions of the following information about both
affiliated and unaffiliated entities:
o Specific and general assessments and forecasts regarding U.S., world
economies, the economics of specific nations and their impact on the New
England Funds
o Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions
o Specific and general investment philosophies, strategies, processes,
techniques and types of analysis
o Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services
o The corporate histories, founding dates and names of founders of the entities
o Awards, honors and recognition given to the firms
o The names of those with ownership interest and the percentage of ownership
o The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans
o Current capitalization, levels of profitability and other financial
information
o Identification of portfolio managers, researchers, economists, principals and
other staff members and employees
o The specific credentials of the above individuals, including, but not limited
to, previous employment, current and past positions, titles and duties
performed, industry experience, educational background and degrees, awards
and honors
o The specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments
o Current and historical statistics about:
o total dollar amount of assets managed
o New England Funds' assets managed in total and by Fund
o the growth of assets
o asset types managed
o numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
o the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or the subadviser.
o The general and specific strategies applied by the advisers in the management
of New England Funds portfolios including, but not limited to:
o the pursuit of growth, value, income oriented, risk management or other
strategies
o the manner and degree to which the strategy is pursued
o whether the strategy is conservative, moderate or extreme and an
explanation of other features, attributes
o the types and characteristics of investments sought and specific portfolio
holdings
o the actual or potential impact and result from strategy implementation
o through its own areas of expertise and operations, the value added by
subadvisers to the management process
o the disciplines it employs, e.g., in the case of Loomis Sayles, the
strict buy/sell guidelines and focus on sound value it employs and
goals and benchmarks that it establishes in management, e.g., CGM
pursues growth 50% above the S&P 500
o the systems utilized in management, the features and characteristics
of those systems and the intended results from such computer
analysis, e.g., Westpeak's efforts to identify overvalued and
undervalued issues.
o Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than New England Funds, and those
families of funds, other than New England Funds. Specific references may
include actual performance of the underlying Portfolio in addition to
adjusted performance of the New England Fund. Any such references will
indicate that New England Funds and the other funds of the managers differ as
to performance, objectives, investment restrictions and limitations,
portfolio composition, asset size and other characteristics, including fees
and expenses. References may also be made to industry rankings and ratings of
the Funds and other funds managed by the Funds' adviser and subadvisers,
including, but not limited to, those provided by Morningstar, Lipper
Analytical Services, Forbes and Worth.
In addition, communications and materials developed by New England
Funds will make reference to the following information about Nvest Companies and
its affiliates:
Nvest Companies is part of an affiliated group including Nvest, L.P.,
a publicly traded company listed on the NYSE. Nvest Companies has 14 principal
subsidiary or affiliated asset management firms, which collectively had more
than $135 billion of assets under management as of December 31, 1998. In
addition, promotional materials may include:
o Specific and general references to New England Funds multi-manager approach
through Nvest Companies affiliates and outside firms including, but not
limited to, the following:
o that each adviser/manager operates independently on a day-to-day
basis and maintains an image and identity separate from Nvest
Companies and the other investment managers
o other fund companies are limited to a "one size fits all" approach
but New England Funds draws upon the talents of multiple managers
whose expertise best matches the fund objective
o in this and other contexts reference may be made to New England
Funds slogan "Where The Best Minds Meet"(R) and that New England
Funds' ability to match the talent to the task is one more reason it
is becoming known as "Where The Best Minds Meet."
Financial Adviser Services ("FAS"), a division of Nvest Companies,
may be referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest Companies-affiliated fund groups
including: the New England Funds, the Loomis Sayles Funds, the Oakmark Funds and
the Reich & Tang Funds.
FAS will provide marketing support to Nvest Companies affiliated fund
groups targeting financial advisers, financial intermediaries and institutional
clients who may transact purchases and other fund-related business directly with
these fund groups. Communications will contain information including, but not
limited to: descriptions of clients and the marketplaces to which it directs its
efforts; the mission and goals of FAS and the types of services it provides
which may include: seminars; its 800 number, web site, Internet or other
electronic facilities; qualitative information about the funds' investment
methodologies; information about specific strategies and management techniques;
performance data and features of the funds; institutional oriented research and
portfolio manager insight and commentary. Additional information contained in
advertising and promotional literature may include: rankings and ratings of the
funds including, but not limited to, those of Morningstar and Lipper Analytical
Services; statistics about the advisers', fund groups' or a specific fund's
assets under management; the histories of the advisers and biographical
references to portfolio managers and other staff including, but not limited to,
background, credentials, honors, awards and recognition received by the advisers
and their personnel; and commentary about the advisers, their funds and their
personnel from third-party sources including newspapers, magazines, periodicals,
radio, television or other electronic media.
References may be included in New England Funds' advertising and
promotional literature about its 401(k) and retirement plans. The information
may include, but is not limited to:
o Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating to plans,
participants and sponsors, third party and other administrators, benefits
consultants and firms including, but not limited to, DC Xchange, William
Mercer and other organizations involved in 401(k) and retirement programs
with whom New England Funds may or may not have a relationship.
o Specific and general reference to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the New England Funds as
a 401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Access Research, Dalbar, Investment Company Institute and other
industry authorities, research organizations and publications.
o Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
o past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and
other relevant forms and documents, Department of Labor rules and
standards and other regulation. This includes past, current and future
initiatives, interpretive releases and positions of regulatory
authorities about the past, current or future eligibility,
availability, operations, administration, structure, features,
provisions or benefits of 401(k) and retirement plans
o information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits
and costs
o current and prospective ERISA regulation and requirements.
o Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the New England Funds 401(k) and
retirement plans, to the participant and plan sponsor, including
explanations, statistics and other data, about:
o increased employee retention
o reinforcement or creation of morale
o deductibility of contributions for participants
o deductibility of expenses for employers
o tax deferred growth, including illustrations and charts
o loan features and exchanges among accounts
o educational services materials and efforts, including, but not
limited to, videos, slides, presentation materials, brochures, an
investment calculator, payroll stuffers, quarterly publications,
releases and information on a periodic basis and the availability of
wholesalers and other personnel.
Specific and general reference to the benefits of investing in mutual
funds for 401(k) and retirement plans, and, in particular, New England
Funds and investing in its 401(k) and retirement plans, including, but
not limited to:
o the significant economies of scale experienced by mutual fund
companies in the 401(k) and retirement benefits arena
o broad choice of investment options and competitive fees
o plan sponsor and participant statements and notices
o the plan prototype, summary descriptions and board resolutions
o plan design and customized proposals
o Trusteeship, record keeping and administration
o the services of State Street Bank, including, but not limited to,
trustee services and tax reporting
o the services of DST and BFDS, including, but not limited to,
mutual fund processing support, participant 800 numbers and
participant 401(k) statements
o the services of Trust Consultants Inc. (TCI), including, but not
limited to, sales support, plan record keeping, document service
support, plan sponsor support, compliance testing and Form 5500
preparation.
o Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
o access to expertise on investments
o assistance in interpreting past, present and future market trends
and economic events
o providing information to clients including participants during
enrollment and on an ongoing basis after participation
o promoting and understanding the benefits of investing, including
mutual fund diversification and professional management.
New England Funds advertising and sales literature will include but
it is not limited to, discussions of the following information regarding Access
Shares. They are:
o a unique new fund structure that was created specifically for investors
who seek advice through financial representatives.
o offered in recognition of the demand for high quality investment choices and
sound financial advice. Investors who seek advice through financial
representatives may purchase the funds of prominent money managers and pursue
the benefits of:
o - access to some of the top investment managers in the business who are
among New England Funds Best Minds.
o - advantages of advice and sound strategies offered through/by their
financial representative.
o - proven track record of the underlying fund.
o sold by commission-based financial intermediaries and representatives. With
public focus on advice and assistance through financial advisers and
consultants, investors are offered a commission-based alternative to wrap and
other advisory arrangements.
o provide financial intermediaries the ability to tap into existing no-load
funds with strong performance records and rankings by recognized ratings
services such as, but not limited to, Morningstar and Lipper
o intended to bridge the gap between load and no-load funds by providing access
to existing no-load funds on a load basis, including but not limited to,
o - targeting investors who seek advice through financial intermediaries
o - focusing on pursuing long-term strategies with the help of an
investment adviser.
o intended to level the playing field between fee-based financial advisor
arrangements and the sale of front-end and back-end (contingent deferred
sales charge) shares. e.g., a purchase of Class C Access shares with an
annual 100 basis point 12b-1 fee may compare favorably on an annual basis
with fee-based financial advisor advisory charges.
o intended to increase and diversify the pool of potential investors available
to the underlying mutual fund with the potential to reduce the underlying
fund's expense ratio attributable to fixed costs.
In addition, statistics and other information regarding consumer's
demand, desire and interest in investment and financial advice may be referenced
and incorporated including, but not limited to, information from the Forum for
Investment Advice, the Investment Company Institute, International Association
of Financial Planners, the International Board of Certified Financial Planners
and other financial services organizations.
Comparisons and distinctions may be made between the structure and
other aspects of Master Feeder Funds, which are an underlying master fund or
trust to one or more feeder funds; Clone Funds, which replicate the investment
policies and management of an existing fund; Fund of Funds, which involve
layered fees, expenses and multiple underlying funds, and Access Shares, which
are invested in one underlying fund, including but not limited to:
o the differences in expenses and costs
o methods of operations
o benefits and rewards to investors, including but not limited to, the expense
structure arrangements, the ability to access established funds and the
merits relative to fee-based, wrap and other advisory programs
o comparisons of the costs of advisory and wrap-fee arrangements
Comparisons and distinctions also may be made to funds in the same
asset categories and details and explanations may be provided regarding how the
funds fit into New England Funds overall product line, including but not limited
to: product overlap, style, diversification, risk/reward potential and funds
strategies, objectives and goals.
<PAGE>
APPENDIX D
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF
LOOMIS SAYLES BOND FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
The percentages of the Loomis Sayles Bond Fund's assets invested as of December
31, 1998 in securities assigned to the various rating categories by S&P and
Moody's at the time of purchase or, if unrated, determined by Loomis Sayles to
be of comparable quality, were as follows:
S & P UNRATED* MOODY'S UNRATED**
AAA/Aaa 12.80% 1.47% 10.55% --
AA/Aa 12.88% -- 16.40% 0.30%
A/A 13.88% 0.05% 11.93% 0.40%
BBB/Baa 24.00% 1.21% 24.41% 0.86%
BB/Ba 12.92% 5.89% 10.59% 3.31%
B/B 8.47% 0.31% 15.65% --
CCC/Caa 5.91% -- 5.15% --
CC/Ca 0.14% -- 0.36% --
C/C 0.06% -- 0.09% --
D -- -- -- --
- --------------------------------------------------------------------------------
* Unrated by S & P's but determined to be of comparable quality by Loomis
Sayles.
** Unrated by Moody's but determined to be of comparable quality by Loomis
Sayles.
The percentages were calculated on a dollar-weighted average basis by
determining monthly the percentage of the Loomis Sayles Bond 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 Loomis Sayles Bond Fund's investments will be in subsequent
fiscal years.
