-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYCfa0VTpOWx0yIG2GgwEUSRN2O8ZAUhvc3RqueJpBDSVvyxlSFkTKLiYs0Bzrid s6jm1eLw5AClQbgC2l8A5w== 0000950156-96-000554.txt : 19960701 0000950156-96-000554.hdr.sgml : 19960701 ACCESSION NUMBER: 0000950156-96-000554 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960628 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND FUNDS TRUST II CENTRAL INDEX KEY: 0000052136 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-11101 FILM NUMBER: 96588276 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: INVESTMENT TRUST OF BOSTON FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WORLD INVESTMENT TRUST DATE OF NAME CHANGE: 19680529 497 1 NEW ENGLAND FUNDS TRUST II NEW ENGLAND HIGH INCOME FUND Supplement dated June 28, 1996 to Prospectus dated May 1, 1996 On June 28, 1996, the shareholders of New England High Income Fund (the "Fund") approved a new Sub-Advisory Agreement relating to the Fund between New England Funds Management, L.P. ("NEFM"), the Fund's adviser, and Loomis, Sayles & Company, L.P. ("Loomis Sayles"), to become effective on July 1, 1996. Accordingly, Loomis Sayles will become the Fund's subadviser, succeeding Back Bay Advisors, L.P., and will be responsible for day-to-day management of the Fund's investment operations under the oversight of NEFM. In connection with the new sub-advisory arrangements, the management fees payable by the Fund will be reduced from the current annual rate of 0.75% of the Fund's average daily net assets to the new annual rate of 0.70% of the first $200 million of the Fund's average daily net assets and 0.65% of any such assets in excess of $200 million. The sub-advisory fees payable by NEFM to Loomis Sayles under the new arrangements will be at the annual rate of 0.35% of the first $200 million of the Fund's average daily net assets and 0.30% of any such assets in excess of $200 million. Also, in connection with the adoption of the new sub-advisory arrangements, the Rule 12b-1 fees payable by the Fund's Class A shares will be reduced from 0.35% to 0.25% annually of the average daily net assets of the Class A shares. Furthermore, NEFM has indicated that it will voluntarily reduce its management fees and, when necessary, bear certain expenses in order to limit the Fund's expenses to an annual rate of 1.40% of the average daily net assets of the Fund's Class A shares and 2.15% of the average daily net assets of the Fund's Class B shares. Accordingly, in the Schedule of Fees section, beginning on page 1 of the prospectus, the information pertaining to the Fund is replaced with the following:
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) NEW ENGLAND HIGH INCOME FUND***** --------------------------------- Class A Class B ------- ------- Management Fees (after voluntary fee waiver and expense reduction) . . . . . . . 0.53%*** 0.53%*** 12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25% 1.00%* Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.62% 0.62% Total Fund Operating Expenses (after voluntary fee waiver and expense reduction) 1.40%*** 2.15%*** * 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 Security Dealers, Inc. *** Without the voluntary fee waiver and expense reduction by the Fund's adviser, Management Fees would be 0.70% for both classes and Total Fund Operating Expenses would be 1.57% for Class A shares and 2.32% for Class B shares. This voluntary limitation can be terminated by the Fund's adviser at any time. See "Fund Management." ***** The expense information contained in this table and its footnotes for New England Strategic Income Fund, New England Adjustable Rate U.S. Government Fund and New England High Income Fund has been restated to reflect fees and expenses currently in effect for those Funds.
EXAMPLE NEW ENGLAND HIGH INCOME FUND ---------------------------- Class A Class B ------- ------- (1) (2) 1 year . . . . . . . . . . . . . . . . $59 $62 $22 3 years . . . . . . . . . . . . . . . . $87 $97 $67 5 years . . . . . . . . . . . . . . . . $118 $125 $115 10 years* . . . . . . . . . . . . . . . $205 $229 $229 (1) Assumes redemption at end of period. (2) Assumes no redemption at end of period. * Class B shares automatically convert to Class A shares after 8 years; therefore, Class B amounts are calculated using Class A expenses in years 9 and 10. In connection with the new sub-advisory arrangements, Loomis Sayles has agreed to waive 50% of the sub-advisory fees payable to Loomis Sayles by NEFM under the new sub-advisory agreement through June 30, 1997. This waiver by Loomis Sayles will benefit NEFM, and will not reduce the Fund's expenses. The Fund has the ability to invest without limit in Rule 144A securities that have been determined to be liquid under guidelines established by the trustees of New England Funds Trust II. [LOGO](R) NEW ENGLAND FUNDS Where The Best Minds Meet(TM) - -------------------------------------------------------------------------------- NEW ENGLAND GOVERNMENT SECURITIES FUND NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND NEW ENGLAND STRATEGIC INCOME FUND NEW ENGLAND BOND INCOME FUND NEW ENGLAND HIGH INCOME FUND NEW ENGLAND MUNICIPAL INCOME FUND STATEMENT OF ADDITIONAL INFORMATION -- PART I MAY 1, 1996 AS REVISED JUNE 28, 1996 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 May 1, 1996 for Class A, Class B or Class C shares, or the Prospectus of the Funds dated May 1, 1996 for Class Y shares (the "Prospectus" or "Prospectuses"). The Statement should be read together with the Prospectus. Investors may obtain a free copy of any of the Prospectuses from New England Funds, L.P., Prospectus Fulfillment Desk, 399 Boylston Street, Boston, Massachusetts 02116. Part I of this Statement contains specific information about the Funds. Part II includes information about the Funds and other New England Funds. New England Government Securities Fund, New England Strategic Income Fund, New England Bond Income Fund and New England Municipal Income Fund (formerly named New England Tax Exempt Income Fund) are series of New England Funds Trust I, a registered management investment company that offers a total of eleven series, and New England Limited Term U.S. Government Fund, New England Adjustable Rate U.S. Government Fund and New England High Income Fund are series of New England Funds Trust II, a registered management investment company that offers a total of eight series. New England Funds Trust I and New England Funds Trust II are collectively referred to in this Statement as the "Trusts," and are each referred to as a "Trust." T A B L E O F C O N T E N T S Page PART I Investment Restrictions ii Fund Charges and Expenses xi Investment Performance of the Funds xviii PART II Miscellaneous Investment Practices 2 Management of the Trusts 14 Portfolio Transactions and Brokerage 23 Description of the Trusts and Ownership of Shares 26 How to Buy Shares 29 Net Asset Value and Public Offering Price 29 Reduced Sales Charges 30 Shareholder Services 32 Redemptions 36 Standard Performance Measures 38 Income Dividends, Capital Gain Distributions and Tax Status 43 Financial Statements 45 Appendix A - Description of Bond Ratings 46 Appendix B - Publications That May Contain Fund Information 48 Appendix C - Advertising and Promotional Literature 50 Appendix D - Portfolio Composition of the Municipal Income, Bond Income and California Funds 54 - -------------------------------------------------------------------------------- INVESTMENT RESTRICTIONS - -------------------------------------------------------------------------------- The following is a description of restrictions on the investments to be made by the Funds, some of which restrictions (which are marked with an asterisk) may not be changed without the approval of a majority of the outstanding voting securities of the relevant Fund (as defined in the Investment Company Act of 1940 [the "1940 Act"]). Except in the case of those restrictions marked with a dagger (+) below, the percentages set forth below and the percentage limitations set forth in the prospectus will apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. GOVERNMENT SECURITIES FUND New England Government Securities Fund (the "Government Securities Fund") will not: *(1) Invest in any securities other than U.S. Government securities, put and call options thereon, futures contracts, options on futures contracts and repurchase agreements; *(2) Purchase or sell commodities or commodity contracts, except that the Fund may purchase and sell interest rate futures contracts and related options; *(3) Purchase any security on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with interest rate futures contracts or related options transactions is not considered the purchase of a security on margin.); *(4) Make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at market value) is held as collateral for such sales at any one time. (It is the present intention of management to make such sales only for the purpose of deferring realization of gain or loss for federal income tax purposes; such sales would not be made with respect to securities subject to outstanding options.); *(5) Make loans to other persons (except as provided in restriction (6) below); provided that for purposes of this restriction the investment in repurchase agreements shall not be deemed to be the making of a loan; *(6) Lend its portfolio securities in excess of 15% of its total assets, taken at market value; *(7) Issue senior securities, borrow money or pledge its assets; provided, however, that the Fund may borrow from a bank as a temporary measure for extraordinary or emergency purposes or to meet redemptions, in amounts not exceeding 10% (taken at the market value) of its total assets and pledge its assets to secure such borrowings; and, provided, further, that the Fund will not purchase any additional portfolio securities at any time that its borrowings exceed 5% of its total net assets. (For the purpose of this restriction, collateral arrangements with respect to the writing of options, interest rate futures contracts, options on interest rate futures contracts, and collateral arrangements with respect to initial and variation margin are not deemed to be a pledge of assets and neither such arrangements nor the purchase or sale of futures or related options are deemed to be the issuance of a senior security.); *(8) Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in selling portfolio securities; *(9) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to U.S. Government Securities and with respect to interest rate futures contracts; or *(10) Invest in the securities of other investment companies, except by purchases in the open market involving only customary brokers' commissions, or in connection with a merger, consolidation or similar transaction. Under the 1940 Act, the Fund may not (a) invest more than 10% of its total assets (taken at current value) in such securities, (b) own securities of any one investment company having a value in excess of 5% of the Fund's total assets [taken at current value], or (c) own more than 3% of the outstanding voting stock of any one investment company. Although the Government Securities Fund may from time to time loan its portfolio securities and issue senior securities, borrow money or pledge its assets to the extent permitted by investment restrictions (5), (6) and (7) above, the Fund has no current intention of engaging in such investment techniques. As a matter of operating policy, subject to change without shareholder approval, the Fund will not (1) purchase any security restricted as to disposition under federal securities laws if as a result of such purchase more than 10% of the Fund's total net assets would be invested in such securities (excluding Rule 144A securities); +(2) invest more than 15% of the Fund's total net assets in illiquid investments (excluding Rule 144A securities deemed to be liquid under guidelines established by the Trust's trustees and certain Section 4(2) commercial paper); (3) invest in any oil, gas and other mineral leases; (4) purchase or sell real property including limited partnership interests but excluding readily marketable interests in real estate investment trusts or readily marketable securities of companies which invest in real estate, or (5) invest more than 5% of its net assets in warrants, no more than 2% of which will be invested in warrants that are not listed on the New York Stock Exchange or American Stock Exchange, provided however, that for purposes of this limitation, warrants acquired by the Fund in units or attached to other securities may be deemed to be without value. LIMITED TERM U.S. GOVERNMENT FUND New England Limited Term U.S. Government Fund (the "Limited Term U.S. Government Fund") will not: *(1) Purchase any security on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or options transactions is not considered the purchase of a security on margin.); *(2) Make short sales of securities unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at current value) is held as collateral for such sales at any one time; *(3) Issue senior securities, borrow money or pledge its assets; provided, however, that the Fund may borrow from a bank as a temporary measure for extraordinary or emergency purposes or to meet redemptions, in amounts not exceeding 10% (taken at the current value) of its total assets and pledge its assets to secure such borrowings; and, provided, further, that the Fund will not purchase any additional portfolio securities at any time that its borrowings exceed 5% of its total net assets. (For the purpose of this restriction, collateral arrangements with respect to the writing of options, futures contracts and options on futures contracts, and collateral arrangements with respect to initial and variation margin, are not deemed to be a pledge of assets and neither such arrangements nor the purchase or sale of futures or options are deemed to be the issuance of a senior security.); *(4) Invest more than 25% of its total assets (taken at current value) in securities of businesses in the same industry (for this purpose, telephone, electric, water and gas utilities are considered separate industries); *(5) Make loans, except by the purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness that are a part of an issue to the public or to financial institutions, or by lending portfolio securities to the extent set forth in Part II of this Statement of Additional Information under "Miscellaneous Investment Practices -- Loans of Portfolio Securities" provided that for purposes of this restriction, investment in repurchase agreements shall not be deemed to be the making of a loan; *(6) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may purchase and sell financial futures contracts, currency futures contracts and options related to such futures contracts. (This restriction does not prevent the Fund from purchasing securities of companies investing or dealing in the foregoing.); *(7) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; *(8) Make investments for the purpose of exercising control or management; or *(9) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to financial instruments or indices thereof and currencies and with respect to futures contracts on financial instruments or indices thereof. Although the Fund may from time to time make short sales, issue senior securities, borrow money or pledge its assets to the extent permitted by the above investment restrictions, the Fund has no current intention of engaging in such investment techniques. As a matter of operating policy, subject to change without shareholder approval, the Fund will not (1) purchase any security restricted as to disposition under federal securities laws if as a result of such purchase more than 10% of the Fund's total net assets would be invested in such securities (excluding Rule 144A securities) or +(2) invest more than 15% of the Fund's total net assets in illiquid securities (excluding Rule 144A securities deemed to be liquid under guidelines established by the Trust's trustees and certain Section 4(2) commercial paper). The Fund may invest in the securities of other investment companies to the extent permitted by the 1940 Act. The Fund has given undertakings to certain state regulatory authorities that the Fund will not (i) invest in real estate limited partnership interests or (ii) invest more than 5% of its net assets in warrants, no more than 2% of which will be invested in warrants that are not listed on the New York Stock Exchange or American Stock Exchange; provided, however, that for purposes of this limitation, warrants acquired by the Fund in units or attached to other securities may be deemed to be without value. Such undertakings can be changed without shareholder approval, but the Statement will be revised to reflect any such changes. ADJUSTABLE RATE FUND New England Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund") will not: *(1) Purchase any security (other than U.S. Government securities) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer or 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries); *(2) Purchase any security on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with interest rate futures contracts or related options transactions is not considered the purchase of a security on margin.); *(3) Make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at market value) is held as collateral for such sales at any one time. (It is the current intention of the Fund, which may change without shareholder approval, to make such sales only for the purpose of deferring realization of gain or loss for federal income tax purposes; such sales would not be made with respect to securities covering outstanding options.); *(4) Acquire more than 10% of any class of securities of an issuer (taking all preferred stock issues of an issuer as a single class and all debt issues of an issuer as a single class) or acquire more than 10% of the outstanding voting securities of an issuer; *(5) Issue senior securities, borrow money or pledge its assets; provided, however, that the Fund may borrow from a bank as a temporary measure for extraordinary or emergency purposes or to meet redemptions, in amounts not exceeding 10% (taken at the market value) of its total assets and pledge its assets to secure such borrowings; and, provided, further, that the Fund will not purchase any additional portfolio securities at any time that its borrowings exceed 5% of its total net assets. (For the purpose of this restriction, collateral arrangements with respect to the writing of options, interest rate future contracts, and options on interest rate futures contracts, collateral arrangements with respect to interest rate caps, floors or swap arrangements, and collateral arrangements with respect to initial and variation margin are not deemed to be a pledge of assets and neither (i) such arrangements, (ii) the purchase or sale of futures or related options, (iii) interest rate caps and floors nor (iv) interest rate swap agreements, where assets are segregated to cover the Fund's obligations thereunder, are deemed to be the issuance of a senior security.); *(6) Invest more than 5% of its total assets (taken at current value) in securities of businesses (including predecessors) less than three years old; *(7) Purchase or retain securities of any issuer if officers and trustees of the Trust or officers and directors of the investment adviser of the Fund who individually own more than 1/2 of 1% of the shares or securities of that issuer, together own more than 5%; *(8) Make loans, except by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, that are a part of an issue to the public or to financial institutions, or by lending portfolio securities to the extent set forth under "Miscellaneous Investment Practices - Loans of Portfolio Securities" in Part II of this Statement. (This restriction 8 does not limit the Fund's ability to engage in repurchase agreement transactions.); *(9) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may purchase and sell financial futures contracts, currency futures contracts and options related to such futures contracts, and may purchase interest rate caps and floors and enter into interest rate swap agreements. (This restriction does not prevent the Fund from purchasing securities of companies investing or dealing in the foregoing.); *(10) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; *(11) Make investments for the purpose of exercising control or management; *(12) Participate on a joint or joint and several basis in any trading account in securities; *(13) Write, purchase or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with respect to fixed income securities and currencies and with respect to futures contracts on fixed income securities or currencies; *(14) Purchase any illiquid security, including securities that are not readily marketable, if, as a result, more than 10% of the Fund's total net assets (based on current value) would then be invested in such securities. (The staff of the Securities and Exchange Commission (the "SEC") is presently of the view that repurchase agreements maturing in more than seven days are subject to this restriction. Until that position is revised, modified or rescinded, the Fund will conduct its operations in a manner consistent with this view); or *(15) Invest in the securities of other investment companies, except by purchases in the open market involving only customary brokers' commissions, or in connection with a merger, consolidation or similar transaction. Under the 1940 Act, the Fund may not (a) invest more than 10% of its total assets (taken at current value) in such securities, (b) own securities of any one investment company having a value in excess of 5% of the Fund's total assets (taken at current value), or (c) own more than 3% of the outstanding voting stock of any one investment company. Although the Fund may loan its portfolio securities and issue senior securities, borrow money, pledge its assets, and invest in the securities of other investment companies to the extent permitted by investment restrictions (5), (8) and (14) above, the Fund has no current intention of engaging in such investment activities. Also, the Fund will not invest in any stripped securities or other derivative investments. In addition, as a matter of current operating policy that may be changed without shareholder approval, the Fund (1) intends to limit certain of its investments in accordance with the provisions of the Federal Credit Union Act and Regulation 703 thereunder, (2) will not purchase or sell real property, including limited partnership interests but excluding readily marketable interests in real estate investment trusts or readily marketable securities of companies which invest in real estate, and (3) will not purchase any security restricted as to disposition under federal securities laws if as a result of such purchase more than 10% of the Fund's total net assets would be invested in such securities (excluding Rule 144A securities). STRATEGIC INCOME FUND New England Strategic Income Fund (the "Strategic Income Fund") will not: *(1) Purchase any security (other than U.S. Government securities) if , as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries, and each foreign country's government (together with subdivisions thereof) will be considered to be a separate industry); (2) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities), or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin); (3) Acquire more than 10% of any class of securities of an issuer (other than U.S. Government securities and taking all preferred stock issues of an issuer as a single class and all debt issues of an issuer as a single class) or acquire more than 10% of the outstanding voting securities of an issuer; *(4) Borrow money in excess of 25% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes; (5) Pledge more than 25% of its total assets (taken at cost). (For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and with respect to initial and variation margin are not deemed to be a pledge of assets); (6) Invest more than 5% of its total assets (taken at current value) in securities of businesses (including predecessors) less than three years old; (7) Purchase or retain securities of any issuer if officers and trustees of New England Funds Trust I or of any investment adviser of the Fund who individually own more than 1/2 of 1% of the shares or securities of that issuer, together own more than 5%; *(8) Make loans, except by entering into repurchase agreements or by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are a part of an issue to the public or to financial institutions, or through the lending of the Fund's portfolio securities; *(9) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, real estate or commodities or commodity contracts, except that the Fund may buy and sell futures contracts and related options. (This restriction does not prevent the Fund from purchasing securities of companies investing in the foregoing); *(10) Act as underwriter, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; (11) Make investments for the purpose of exercising control or management; (12) Except to the extent permitted by rule or order of the SEC, participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with any investment adviser or subadviser of the Fund or accounts under any such investment adviser's or subadviser's management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.); (13) Write, purchase or sell options or warrants, except that the Fund 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) write, purchase and sell put and call options on securities, securities indexes, currencies, futures contracts, swap contracts and other similar instruments and (c) enter into currency forward contracts; +(14) Purchase any illiquid security if, as a result, more than 15% of its net assets (taken at current value) would be invested in such securities (excluding Rule 144A securities deemed to be liquid under guidelines established by the Trust's trustees and certain Section 4(2) commercial paper); (15) Invest in the securities of other investment companies, except by purchases in the open market involving only customary brokers' commissions or no commissions. Under the 1940 Act, the Fund may not (a) invest more than 10% of its total assets (taken at current value) in such securities, (b) own securities of any one investment company having a value in excess of 5% of the total assets of the Fund (taken at current value), or (c) own more than 3% of the outstanding voting stock of any one investment company; or *(16) Issue senior securities. (For the purpose of this restriction none of the following is deemed to be a senior security: any pledge or other encumbrance of assets permitted by restrictions (2) or (5) above; any borrowing permitted by restriction (4) above; any collateral arrangements with respect to forward contracts, options, futures contracts, swap contracts or other similar contracts and options on futures contracts, swap contracts or other similar contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts or other similar contracts or options on futures contracts, swap contracts or other similar contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of New England Funds Trust I's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom.) As a matter of operating policy, subject to change without shareholder approval, the Fund will not (1) at the time of purchase, invest more than 5% of its assets the securities of any issuer, excluding government securities; and (2) purchase puts, calls, straddles, spreads and any combination thereof if by reason thereof the value of its aggregate investments in such will exceed 5% of its total assets. BOND INCOME FUND New England Bond Income Fund (the "Bond Income Fund") will not: *(1) Purchase any security (other than U.S. Government securities) if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer or 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries); *(2) Purchase securities on margin (but it may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities); or make short sales except where, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold, and the Fund will not deposit or pledge more than 10% of its total assets (taken at current value) as collateral for such sales; *(3) Acquire more than 10% of any class of securities of an issuer (taking all preferred stock issues of an issuer as a single class and debt issues of an issuer as a single class) or acquire more than 10% of the outstanding voting securities of an issuer; *(4) Borrow money, except as a temporary measure for extraordinary or emergency purposes, up to an amount not in excess of 10% of its total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower; *(5) Pledge more than 15% of its total assets (taken at cost); *(6) Invest more than 5% of its total assets (taken at current value) in securities of businesses (including predecessors) less than three years old; *(7) Purchase or retain securities of any company if officers and trustees of New England Funds Trust I or of any investment adviser or subadviser of the Bond Income Fund who individually own more than 1/2 of 1% of the shares or securities of that company, together own more than 5%; *(8) Make loans, except by purchase of bonds, debentures, commercial paper, corporate notes and similar evidences of indebtedness, which are part of an issue to the public, or by lending portfolio securities to the extent set forth under "Miscellaneous Investment Practices -- Loans of Portfolio Securities" in Part II of this Statement; *(9) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, commodities or commodity contracts or real estate (except that the Bond Income Fund may buy and sell marketable securities of companies, including real estate investment trusts, which may represent indirect interests in real estate; may buy and sell futures contracts on securities or on securities indexes and may write, purchase or sell put or call options on such futures contracts or indexes; and may enter into currency forward contracts); *(10) Act as underwriter; *(11) Make investments for the purpose of exercising control or management; *(12) Participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with Back Bay Advisors, L.P. ["Back Bay Advisors"] or accounts under its management to reduce brokerage commissions, to average prices among them, or to facilitate such transactions is not considered participating in a trading account in securities.); *(13) Write, purchase or sell options or warrants, except that the Fund 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, provided that such warrants or other rights to subscribe are attached to, or part of a unit offering involving, other securities, and (b) write, purchase or sell put or call options on securities, securities indexes or futures contracts; or *(14) Invest in the securities of other investment companies, except by purchases in the open market involving only customary brokers' commissions, or in connection with a merger, consolidation or similar transaction. (Under the 1940 Act, the Fund may not (a) invest more than 10% of its total assets [taken at current value] in such securities, (b) own securities of any one investment company having a value in excess of 5% of the Fund's total assets [taken at current value], or (c) own more than 3% of the outstanding voting stock of any one investment company.) *(15) Issue senior securities. For the purpose of this restriction, none of the following is deemed to be a senior security: any borrowing permitted by restriction (4) above; any pledge or other encumbrance of assets permitted by restriction (5) above; any collateral arrangements with respect to options, forward contracts, futures contracts, swap contracts and other similar contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts and other similar contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of New England Funds Trust I's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom. In order to comply with certain state requirements applicable to restriction (5) above, as a matter of operating policy, subject to change without shareholder approval, the Bond Income Fund will not pledge more than 2% of its assets. As a matter of operating policy subject to change without shareholder approval, the Fund will not (1) purchase any security restricted as to disposition under federal securities laws if as a result of such purchase more than 10% of the Fund's total net assets would be invested in such securities (excluding Rule 144A securities ); (2) invest more than 15% of the Fund's total net assets in illiquid investments (excluding Rule 144A securities deemed to be liquid under guidelines established by the Trust's trustees and certain Section 4(2) commercial paper); or (3) purchase or sell real property, including limited partnership interests but excluding readily marketable interests in real estate investment trusts or readily marketable securities of companies which invest in real estate. HIGH INCOME FUND New England High Income Fund (the "High Income Fund") will not: *(1) Buy more than 10% of the voting securities or more than 10% of all of the securities of any issuer, or invest to control or manage any company; *(2) Purchase securities on "margin," except for short-term credits as needed to clear securities purchases; *(3) Invest in securities issued by other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization, or by purchase in the open market of securities of closed-end investment companies where no underwriter or dealer commission or profit, other than a customary brokerage commission, is involved and only if immediately thereafter not more than 10% of the value of its total assets would be invested in such securities; *(4) Purchase securities, other than shares of the Fund, from or sell portfolio securities to its directors or officers, or firms they are affiliated with as principals, except as permitted by the regulations of the SEC; *(5) Purchase or sell commodities or commodity contracts, or write, purchase or sell options, except that the Fund may (a) buy or sell futures contracts on securities or on securities indexes and (b) write, purchase or sell put or call options on securities, on securities indexes or on futures contracts of the type referred to in clause (a) of this restriction; *(6) Make loans, except loans of portfolio securities and except to the extent that the purchase of notes, repurchase agreements, bonds, or other evidences of indebtedness or deposits with banks or other financial institutions may be considered loans; *(7) Make short sales of securities or maintain a short position; *(8) Purchase or sell real estate, provided that the Fund may invest in securities secured by real estate or interests therein or in securities issued by companies which invest in real estate or interests therein; *(9) Purchase or sell interests in oil and gas or other mineral exploration or development programs, provided that the Fund may invest in securities issued by companies which do invest in or sponsor such programs; *(10) Underwrite the securities of other issuers; or *(11) Invest more than 10% of the value of its total assets, in the aggregate, in repurchase agreements maturing in more than seven days and restricted securities. *(12) Purchase any security (other than U.S. Government securities) if, as a result, more than 25% of the Fund's total assets (taken at current value) would be invested in any one industry (in the utilities category, gas, electric, water, and telephone companies will be considered as being in separate industries); *(13) Borrow money, except as a temporary measure for extraordinary or emergency purposes, up to an amount not in excess of 33 1/3% of its total assets; or *(14) Issue senior securities. For the purpose of this restriction, none of the following is deemed to be a senior security: any borrowing permitted by restriction (13) above; any collateral arrangements with respect to options, forward contracts, futures contracts, swap contracts and other similar contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts, futures contracts, swap contracts or similar contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of New England Funds Trust II's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom. As a matter of operating policy, subject to change without shareholder approval, the Fund will not borrow money in amounts in excess of 10% of it total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower. As a matter of operating policy, subject to change without shareholder approval, the Fund will not (1) purchase any security restricted as to disposition under federal securities laws if as a result of such purchase more than 10% of the Fund's total net assets would be invested in such securities (excluding Rule 144A securities); or (2) invest more than 15% of the Fund's total net assets in illiquid investments (excluding Rule 144A securities deemed to be liquid under guidelines established by the Trust's trustees and certain Section 4(2) commercial paper). The Fund has given undertakings to certain state regulatory authorities that the Fund will not (1) invest more than 5% of its net assets in warrants, no more than 2% of which will be invested in warrants that are not listed on the New York Stock Exchange or the American Stock Exchange; provided, however, that for purposes of this limitation, warrants acquired by the Fund in units or attached to other securities may be deemed to be without value, (2) invest in mineral leases or (3) invest in real estate limited partnership interests. Such undertakings can be changed without shareholder approval, but the Statement will be revised to reflect any such changes. MUNICIPAL INCOME FUND New England Municipal Income Fund (the "Municipal Income Fund") will not: *(1) Purchase any security if, as a result, more than 5% of the Fund's total assets (taken at current value) would then be invested in securities of a single issuer. This limitation does not apply to U.S. Government securities. (The Fund will treat each state and each separate political subdivision, agency, authority or instrumentality of such state, each multistate agency or authority, and each guarantor, if any, as a separate issuer); (2) Invest more than 25% of its total assets (taken at current value) in industrial development revenue bonds that are based, directly or indirectly, on the credit of private entities in any one industry or in securities of private issuers in any one industry. (For the purpose of this restriction, "private activity bonds" under the Internal Revenue Code of 1986, as amended [the "Code"], will be treated as industrial revenue bonds.) (In the utilities category, gas, electric, water and telephone companies will be considered as being in separate industries); *(3) Purchase any security on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities; or make short sales. For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with interest rate futures contracts or tax exempt bond index futures contracts is not considered the purchase of a security on margin; *(4) Purchase more than 10% of the total value of the outstanding securities of an issuer; *(5) Borrow money, except as a temporary measure for extraordinary or emergency purposes (but not for the purpose of investment) up to an amount not in excess of 10% of its total assets (taken at cost) or 5% of its total assets (taken at current value), whichever is lower; *(6) Pledge, mortgage or hypothecate more than 15% of its total assets (taken at cost). In order to comply with certain state requirements, as a matter of operating policy subject to change without shareholder approval, the Fund will not pledge, mortgage or hypothecate more than 5% of such assets; *(7) Invest more than 5% of its total assets (taken at current value) in securities of businesses less than three years old and industrial development revenue bonds where the private entity on whose credit the security is based, directly or indirectly, is less than three years old (including predecessor businesses and entities); *(8) Purchase or retain securities of any issuer if, to the knowledge of the Fund, officers and trustees of New England Funds Trust I or of any investment adviser or subadviser of the Fund who individually own beneficially more than 1/2 of 1% of the securities of that issuer, together own beneficially more than 5% of such securities; *(9) Make loans, except by purchase of debt obligations in which the Fund may invest consistent with its investment policies. This limitation does not apply to repurchase agreements; *(10) Buy or sell oil, gas or other mineral leases, rights or royalty contracts, commodities or real estate (except that the Fund may buy tax exempt bonds or other permitted investment secured by real estate or an interest therein); *(11) 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; *(12) Purchase voting securities or make investments for the purpose of exercising control or management; *(13) Participate on a joint or joint and several basis in any trading account in securities; *(14) Write, purchase, or sell puts, calls or combinations thereof, except that the Fund may write, purchase and sell puts, calls or combinations thereof with regard to futures contracts; *(15) Invest in the securities of other investment companies, except in connection with a merger, consolidation or similar transaction. (Under the 1940 Act, the Fund may not (a) invest more than 10% of its total assets (taken at current value) in such securities, (b) own securities of any one investment company having a value in excess of 5% of the Fund's total assets (taken at current value), or (c) own more than 3% of the outstanding voting stock of any one investment company); *(16) Issue senior securities. For the purpose of this restriction, none of the following is deemed to be a senior security: any borrowing permitted by restriction (5) above; any collateral arrangements with respect to forward contracts, options, futures contracts, swap contracts and other similar contracts and options on futures contracts and with respect to initial and variation margin; the purchase or sale of options, forward contracts or options on futures contracts; and the issuance of shares of beneficial interest permitted from time to time by the provisions of New England Funds Trust I's Agreement and Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom. The Fund may invest more than 25% of its assets in industrial development revenue bonds, subject to limitation (2) above. In addition, as a matter of such operating policy subject to change without shareholder approval, the Fund will not invest more than 25% of its assets in securities of issuers located in the same state, and the Fund will not (1) purchase any security restricted as to disposition under federal securities laws if as a result of such purchase more than 10% of the Fund's total net assets would be invested in such securities (excluding Rule 144A securities) or (2) invest more than 15% of the Fund's total net assets in illiquid investments (excluding Rule 144A securities deemed to be liquid under guidelines established by the Trust's trustees and certain Section 4(2) commercial paper).+ - -------------------------------------------------------------------------------- FUND CHARGES AND EXPENSES - -------------------------------------------------------------------------------- INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES Pursuant to separate advisory agreements, each dated January 2, 1996 (May 1, 1995, in the case of the Strategic Income Fund), New England Funds Management, L.P. ("NEFM") has agreed, subject to the supervision of the Board of Trustees of the relevant Trust, to manage the investment and reinvestment of the assets of each Fund and to provide a range of administrative services to each Fund. For the services described in the advisory agreements, each Fund pays NEFM a management fee at the annual rate set forth in the following table:
Management fee paid by Fund to NEFM Fund (as a percentage of average daily net assets of the Fund) - ---------------------------------------------------- ----------------------------------------------------------- Adjustable Rate Fund 0.55% of the first $200 million 0.51% of the next $300 million 0.47% of amounts in excess of $500 million Bond Income Fund 0.500% of the first $100 million 0.375% of amounts in excess of $100 million Government Securities Fund 0.650% of the first $200 million 0.625% of the next $300 million 0.600% of amounts in excess of $500 million High Income Fund 0.75% of all assets Limited Term U.S. Government Fund 0.650% of the first $200 million 0.625% of the next $300 million 0.600% of amounts in excess of $500 million Strategic Income Fund 0.65% of the first $200 million 0.60% of amounts in excess of $200 million Municipal Income Fund 0.500% of the first $100 million 0.375% of amounts in excess of $100 million
Each advisory agreement provides that NEFM may delegate its responsibilities thereunder to another party. Pursuant to a subadvisory agreement dated May 1, 1995, NEFM has delegated responsibility for managing the investment and reinvestment of the Strategic Income Fund's assets to Loomis Sayles & Company, L.P. ("Loomis Sayles"), as subadviser. Pursuant to separate subadvisory agreements, each dated January 2, 1996, NEFM has delegated responsibility for managing the investment and reinvestment of the other Funds' assets to Back Bay Advisors, as subadviser. The Funds pay no direct fees to Loomis Sayles or Back Bay Advisors. For providing such subadvisory services to the Funds, NEFM pays each subadviser a subadvisory fee at the annual rate set forth in the following table:
Subadvisory fee payable by NEFM to subadviser Fund Subadviser (as a percentage of average daily net assets of the Fund) - -------------------------------------------- ------------------ ----------------------------------------------------------- Adjustable Rate Fund Back Bay Advisors 0.275% of the first $200 million 0.255% of the next $300 million 0.235% of amounts in excess of $500 million Bond Income Fund Back Bay Advisors 0.2500% of the first $100 million 0.1875% of amounts in excess of $100 million Government Securities Fund Back Bay Advisors 0.3250% of the first $200 million 0.3125% of the next $300 million 0.3000% of amounts in excess of $500 million High Income Fund Back Bay Advisors 0.375% of all assets Limited Term U.S. Government Fund Back Bay Advisors 0.3250% of the first $200 million 0.3125% of the next $300 million 0.3000% of amounts in excess of $500 million Strategic Income Fund Loomis Sayles 0.35% of the first $200 million 0.30% of amounts in excess of $200 million Municipal Income Fund Back Bay Advisors 0.2500% of the first $100 million 0.1875% of amounts in excess of $100 million
Prior to January 2, 1996, Back Bay Advisors served as adviser to the Government Securities, Limited Term U.S. Government, Bond Income, High Income and Municipal Income Funds, pursuant to separate advisory agreements each of which provided for an advisory fee payable by such Fund to Back Bay Advisors at the same rate as the management fee currently payable by such Fund to NEFM. Prior to January 2, 1996, Back Bay Advisors served as adviser to the Adjustable Rate Fund, pursuant to an advisory agreement which provided for an advisory fee payable by the Fund to Back Bay Advisors at the annual rate of 0.40% of the first $200 million of the Fund's average daily net assets, 0.375% of the next $300 million of such assets and 0.35% of such assets in excess of $500 million. Back Bay Advisors was paid $955,078, $1,056,207 and $911,184, respectively, for investment management services it rendered to the Adjustable Rate Fund during the fiscal years ended December 31, 1993, 1994 and 1995, after reduction pursuant to the expense limitation arrangement described below. Had the voluntary expense limitation not been in effect Back Bay Advisors would have been paid $2,011,626, $2,351,792 and $1,619,477, respectively, for investment management services it rendered to the Adjustable Rate Fund during the fiscal years ended December 31, 1993, 1994 and 1995. Prior to January 2, 1996, New England Funds, L.P. (the "Distributor"), an affiliate of Back Bay Advisors, provided the Adjustable Rate Fund with office space, facilities and equipment, services of executive and other personnel and certain administrative services, pursuant to an administrative services agreement. Under this agreement, the Adjustable Rate Fund paid the Distributor a fee at the annual rate of 0.15% of the first $200 million of the Fund's average daily net assets, 0.135% of the next $300 million of such assets and 0.12% of such assets in excess of $500 million. The Adjustable Rate Fund's current management fee rate represents the sum of the fee rates under the prior advisory and administrative services agreements. Until further notice to the Adjustable Rate Fund, NEFM and the Distributor have voluntarily agreed to reduce their fees and, if necessary, to bear certain expenses related to operating the Fund in order to limit the Fund's expenses to an annual rate of 0.70%, 1.45% and 0.45% of the average daily net assets of the Fund's Class A, Class B and Class Y shares, respectively. Prior to January 2, 1996, similar voluntary limitations were in effect with respect to Back Bay Advisors, the Distributor and the Fund. For the fiscal years ended December 31, 1993, 1994 and 1995, the Government Securities Fund paid advisory fees to Back Bay Advisors of $1,211,057, $1,102,880 and $1,008,846, respectively. The Limited Term U.S. Government Fund paid Back Bay Advisors $3,390,740, $3,163,619 and $2,560,201 in advisory fees for the fiscal years ended December 31, 1993, 1994 and 1995, respectively, after reduction pursuant to the voluntary expense limitations then in effect. For the fiscal years ended December 31, 1993, 1994 and 1995, the Bond Income Fund paid advisory fees to Back Bay Advisors of $751,948, $774,457 and $872,560, respectively; and the Municipal Income Fund paid advisory fees to Back Bay Advisors of $911,990, $925,947 and $890,150, respectively. Prior to July 1, 1995, the advisory agreement for the Municipal Income Fund included a provision under which Loomis Sayles served as a subadviser and furnished regularly to Back Bay Advisors, without additional cost to the Fund, statistical and research information and advice relating to the Fund's investments. For its services, Loomis Sayles received a fee, paid by Back Bay Advisors not less often than quarterly, equal to 40% of the compensation paid by the Fund to Back Bay Advisors on the first $10 million of the Fund's average daily net assets, 30% of the compensation paid on the next $10 million of such assets and 20% of the compensation paid on such assets in excess of $20 million. For the fiscal years ended December 31, 1993 and 1994, and the period from January 1 to June 30, 1995, the compensation from Back Bay Advisors to Loomis Sayles under this agreement was $197,398, $200,190 and $94,978, respectively. In addition to the expense limitations discussed in Part II of this Statement under "Management of the Trusts," Back Bay Advisors' compensation under its advisory agreement with the High Income Fund was subject to reduction to the extent that, for any calendar month, the Fund's expenses, including the management fee, but exclusive of brokerage, taxes, interest, distribution fees and extraordinary items, exceed an annual rate of 1.50% of the Fund's average daily net assets. Until further notice to the Fund, NEFM has voluntarily agreed to reduce its management fee and, if necessary, to bear certain expenses related to operating the High Income Fund to an annual rate of 1.50% of the Fund's average daily net assets. Prior to January 2, 1996, similar voluntary limitations were in effect with respect to Back Bay Advisors and the Fund. Back Bay Advisors was paid $131,833, $190,955 and $288,711 in advisory fees by the High Income Fund during the fiscal years ended December 31, 1993, 1994 and 1995, respectively, after reduction pursuant to the foregoing voluntary expense limitations. Had the voluntary expense limitation not been in effect, Back Bay Advisors would have been paid $207,486, $273,994 and $342,554, respectively, in advisory fees by the High Income Fund during the fiscal years ended December 31, 1993, 1994 and 1995. Loomis Sayles has voluntarily agreed, until further notice to the Strategic Income Fund, to waive its entire subadvisory fee (which is paid by NEFM), and NEFM has agreed to reduce its management fee (which is paid by the Fund) by an equal amount. These agreements may be terminated by Loomis Sayles or NEFM at any time. In addition, under an expense deferral arrangement, which NEFM may terminate at any time, NEFM has agreed to defer its management fee (to the extent not waived as provided in the preceding sentences) for the Strategic Income Fund until further notice, to the extent necessary to limit the Fund's expenses to the annual rate of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C shares, subject to the obligation of the Fund to pay NEFM such deferred fees in later periods to the extent that the Fund's expenses fall below the annual rate of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C shares; provided, however, that, the Fund is not obligated to pay any such deferred fees more than two years after the end of the fiscal year in which such fee was deferred. For the period May 1, 1995 (commencement of operations) to December 31, 1995, the Strategic Income Fund paid no management fees to NEFM. Had the voluntary expense deferral arrangements described above not been in effect, the Fund would have paid NEFM $241,019 in management fees for this period. Under the terms of the expense deferral arrangement, the Fund may be obligated to pay up to $111,240 of such fees to NEFM in future periods. BROKERAGE COMMISSIONS In 1993, 1994 and 1995, the Funds paid no commissions on brokerage transactions. For more information about the Funds' portfolio transactions, see "Portfolio Transactions and Brokerage" in Part II of this Statement. SALES CHARGES AND 12B-1 FEES As explained in Part II of this Statement, the Class A, Class B and, in the case of the Limited Term U.S. Government, Bond Income and Strategic Income Funds, Class C shares of each Fund pay a fee pursuant to a plan adopted pursuant to Rule 12b-1 under the 1940 Act. The following table shows the amounts of Rule 12b-1 fees paid by the Class A, Class B and Class C shares of each Fund during the fiscal year ended Decembers 31, 1993, 1994 and 1995:
FUND 1993 1994 1995 - ------------------------------------------------- ---- ---- ---- Government Securities Fund $465,401 $409,909 $366,630 (Class A) $1,582 $23,270 $37,075 (Class B)** Limited Term U.S. Government Fund $1,873,424 $1,705,012 $1,332,412 (Class A) $7,721 $98,717 $147,768 (Class B)** $15,410 (Class C)*** Adjustable Rate Fund $1,322,743 $1,551,366 $1,040,897 (Class A) $1,444 $14,092 $21,684 (Class B)* Bond Income Fund $416,977 $416,918 $453,844 (Class A) $3,957 $30,717 $158,962 (Class B)* $2,428 (Class C)*** High Income Fund $96,279 $117,107 $130,876 (Class A) $1,574 $30,717 $82,798 (Class B)** $0 (Class C)*** Municipal Income Fund $523,343 $512,288 $483,317 (Class A) $5,363 $66,711 $107,048 (Class B)* Strategic Income Fund**** $39,090 (Class A) $155,887 (Class B) $58,847 (Class C) * Class B shares were first offered on September 13, 1993. ** Government Securities Fund Class B shares were first offered September 23, 1993; Limited Term U.S. Government Fund Class B shares were first offered September 27, 1993; High Income Fund Class B shares were first offered September 20, 1993. *** Class C shares were first offered on January 3, 1995. **** The Strategic Income Fund commenced operations on May 1, 1995.
During the fiscal year ended December 31, 1995, the Distributor's expenses relating to each Fund's 12b-1 plans were as follows:
GOVERNMENT SECURITIES FUND (Class A shares) Compensation to Investment Dealers $366,286 Compensation to Distributor's Sales Personnel $345 TOTAL $366,631 (Class B shares) Compensation to Investment Dealers $65,747 TOTAL $65,747 LIMITED TERM U.S. GOVERNMENT FUND (Class A shares) Compensation to Investment Dealers $950,359 Compensation to Distributor's Sales Personnel $382,055 TOTAL $1,332,414 (Class B shares) Compensation to Investment Dealers $207,134 TOTAL $207,134 (Class C shares) Compensation to Investment Dealers $15,410 Compensation to Distributor's Sales Personnel $0 TOTAL $15,410 ADJUSTABLE RATE FUND (Class A shares) Compensation to Investment Dealers $1,038,424 Compensation to Distributor's Sales Personnel $2,475 TOTAL $1,040,899 (Class B shares) Compensation to Investment Dealers $23,182 TOTAL $23,182 STRATEGIC INCOME FUND (Class A shares) Compensation to Investment Dealers $0 Compensation to Distributor's Sales Personnel $39,091 TOTAL $39,091 (Class B shares) Compensation to Investment Dealers $1,440,926 TOTAL $1,440,926 (Class C shares) Compensation to Investment Dealers $58,548 Compensation to Distributor's Sales Personnel $0 TOTAL $58,548 BOND INCOME FUND (Class A shares) Compensation to Investment Dealers $454,410 Compensation to Distributor's Sales Personnel $0 TOTAL $454,410 (Class B shares) Compensation to Investment Dealers $424,667 TOTAL $424,667 (Class C shares) Compensation to Investment Dealers $2,428 Compensation to Distributor's Sales Personnel $0 TOTAL $2,428 HIGH INCOME FUND (Class A shares) Compensation to Investment Dealers $93,316 Compensation to Distributor's Sales Personnel $37,563 TOTAL $130,879 (Class B shares) Compensation to Investment Dealers $227,854 TOTAL $227,854 MUNICIPAL INCOME FUND (Class A shares) Compensation to Investment Dealers $483,199 Compensation to Distributor's Sales Personnel $118 TOTAL $483,317 (Class B shares) Compensation to Investment Dealers $167,871 TOTAL $167,871
Of the amounts listed above as compensation to investment dealers, the following amounts were paid by the Distributor to New England Securities Corporation ("New England Securities"), a broker-dealer affiliate of the Distributor: $314,477 relating to the Class A shares and $24,892 relating to the Class B shares of the Government Securities Fund; $218,479 relating to the Class A shares and $17,849 relating to the Class B shares of the Adjustable Rate Fund; $379,050 relating to the Class A shares and $337,627 relating to the Class B shares and $2,025 relating to the Class C shares of the Bond Income Fund; $54,412 relating to the Class A shares and $74,624 relating to the Class B shares of the High Income Fund; $402,169 relating to the Class A shares and $113,310 relating to the Class B shares of the Municipal Income Fund; $653,488 relating to the Class A shares, $156,687 relating to Class B shares and $2,609 relating to the Class C shares of the Limited Term U.S. Government Fund; and $-0- to the Class A shares, $605,340 relating to the Class B shares and $4,133 relating to the Class C shares of the Strategic Income Fund. New England Securities paid substantially all of the fees it received from the Distributor (a) in commissions to its sales personnel and (b) to defray sales-related overhead costs. At April 1, 1996, to the Trust's knowledge, the following persons owned of record or beneficially 5% or more of the indicated Fund:
Adjustable Rate U.S. Government Fund Class A shares San Bernardino County 25.28% Treasurer 172 W. 3rd Street, 1st Floor San Bernardino, CA 92415-1001 Molten Metal Technology, Inc. 7.13% 51 Sawyer Road Waltham, MA 02154-3448 Class B shares Smith Barney, Inc. 6.31% 388 Greenwich Street New York, NY 10013-2375 Lynn C. Knarr 6.23% 14 Canal Road Westport, CT 06880-6904 High Income Fund Class A shares Deferred Compensation Plan 7.10% for General Agents of The New England 501 Boylston Street, 6th Floor Boston, MA 02116 Limited Term U.S. Government Fund Class C shares Samuel Oschin 15.35% Michael H. Oschin P.O. Box 48289 Los Angeles, CA 90048-0289 Hook's Concrete Construction Corp. 5.55% Defined Benefit Pension Plan and Trust 529 East 169th Street South Holland, IL 60478-2925 Class Y shares NEIC Master Retirement Trust 54.95% c/o Defined Contribution Services P.O. Box 755 Boston, MA 02117-0755 New England Mutual Life Insurance Company, 45.05% Separate Investment Accounting 501 Boylston Street, 6th Floor Boston, MA 02116-2706 Bond Income Fund Class Y shares NEIC Master Retirement Trust 99.99% c/o Defined Contribution Services P.O. Box 755 Boston, MA 02117-0755 Municipal Income Fund Class B shares Smith Barney 5.32% 388 Greenwich Street New York, NY 10013-2375 Government Securities Fund Class B shares State Street Bank & Trust Company 5.23% Custodian for the IRA Rollover of Edith H. Crowson 22410 Provincial Katy, TX 77450-1624 Class Y shares New England Mutual Life Insurance Company, 100.00% Separate Investment Accounting 501 Boylston Street, 6th Floor Boston, MA 02116-3706 Strategic Income Fund Class A shares Merrill Lynch Pierce Fenner & Smith Inc. 5.03% Mutual Fund Operations 4800 Deer Lake Drive East Jacksonville, FL 32246-6484
- -------------------------------------------------------------------------------- INVESTMENT PERFORMANCE OF THE FUNDS - -------------------------------------------------------------------------------- PERFORMANCE RESULTS - PERCENT CHANGE For the Periods Ended 12/31/95*
GOVERNMENT SECURITIES FUND Aggregate Average Annual Total Return Total Return ------------------------------------ ----------------------------------- Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years - ---------------------------------------------- ------ ------- ------- ------- -------- Net Asset Value 20.03 51.67 116.06 8.69 8.01 Maximum Offering Price 14.65 44.80 106.38 7.68 7.51 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 1 Year 9/23/93** 9/23/93** - ---------------------------------------------- ------ --------- --------- Net Asset Value 19.24 10.50 4.49 Redemption at End of Period 15.24 7.63 3.29 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class Y shares: As a % of 1 Year 3/31/94** 3/31/94** - ---------------------------------------------- ------ --------- --------- Net Asset Value 20.31 17.83 9.80 LIMITED TERM U.S. GOVERNMENT FUND Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class A shares: As a % of 1 Year 5 Years 1/3/89** 5 Years 1/3/89** - ---------------------------------------------- ------ ------- -------- ------- -------- Net Asset Value 13.01 41.32 72.49 7.16 8.11 Maximum Offering Price 9.57 37.13 67.47 6.52 7.64 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 1 Year 9/27/93** 9/27/93** - ---------------------------------------------- ------ --------- --------- Net Asset Value 12.30 8.32 3.60 Redemption at End of Period 8.30 5.73 2.48 Aggregate Annualized Total Return Total Return ------------------------------------ ------------------------------- Since Since Class C shares: As a % of 1/3/95** 1/3/95** - ---------------------------------------------- -------- -------- Net Asset Value 11.35 11.35 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class Y shares: As a % of 1 Year 3/31/94** 3/31/94** - ---------------------------------------------- ------ --------- --------- Net Asset Value 13.33 13.02 7.25 ADJUSTABLE RATE FUND*** Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class A shares: As a % of 1 Year 10/19/91** 3 Years 10/19/91** - ---------------------------------------------- ------ ---------- ------- ---------- Net Asset Value 8.62 20.92 4.42 4.63 Maximum Offering Price 7.57 19.64 4.05 4.36 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 1 Year 9/13/93** 9/13/93** - ---------------------------------------------- ------ --------- --------- Net Asset Value 7.81 7.82 3.32 Redemption at End of Period 3.81 4.88 2.09 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class Y shares: As a % of 1 Year 3/31/94** 3/31/94** - ---------------------------------------------- ------ --------- --------- Net Asset Value n/a n/a n/a STRATEGIC INCOME FUND***** Aggregate Annualized Total Return Total Return ------------------------------------ ------------------------------- Since Since Class A shares: As a % of 5/1/95** 5/1/95** - ---------------------------------------------- -------- -------- Net Asset Value 10.27 15.71 Maximum Offering Price 5.30 8.01 Aggregate Annualized Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 5/1/95** 5/1/95** - ---------------------------------------------- -------- -------- Net Asset Value 9.73 14.87 Redemption at End of Period 5.73 8.68 Aggregate Annualized Total Return Total Return ------------------------------------ ------------------------------- Since Since Class C shares: As a % of 5/1/95** 5/1/95** - ---------------------------------------------- -------- -------- Net Asset Value 9.65 14.75 Aggregate Annualized Total Return Total Return ------------------------------------ ------------------------------- Since Since Class Y shares: As a % of 5/1/95** 5/1/95** - ---------------------------------------------- -------- -------- Net Asset Value n/a n/a BOND INCOME FUND Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years - ---------------------------------------------- ------ ------- -------- ------- -------- Net Asset Value 20.77 64.46 148.94 10.47 9.55 Maximum Offering Price 15.29 57.12 137.72 9.46 9.05 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 1 Year 9/13/93** 9/13/93** - ---------------------------------------------- ------ --------- --------- Net Asset Value 19.89 13.04 5.48 Redemption at End of Period 15.89 10.20 4.31 Aggregate Annualized Total Return Total Return ------------------------------------ ------------------------------- Since Since Class C shares: As a % of 1/3/95** 1/3/95** - ---------------------------------------------- -------- -------- Net Asset Value 18.11 18.11 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class Y shares: As a % of 1 Year 3/31/94** 3/31/94** - ---------------------------------------------- ------ --------- --------- Net Asset Value 20.99 20.99 20.99 HIGH INCOME FUND Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years - ---------------------------------------------- ------ ------- -------- ------- -------- Net Asset Value 11.78 98.94 100.02 14.75 7.18 Maximum Offering Price 6.73 89.91 90.98 13.69 6.68 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 1 Year 9/20/93** 9/20/93** - ---------------------------------------------- ------ --------- --------- Net Asset Value 11.19 11.37 4.83 Redemption at End of Period 7.19 8.64 3.70 MUNICIPAL INCOME FUND Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Class A shares: As a % of 1 Year 5 Years 10 Years 5 Years 10 Years - ---------------------------------------------- ------ ------- -------- ------- -------- Net Asset Value 17.23 47.57 124.16 8.09 8.41 Maximum Offering Price 12.00 40.93 114.21 7.10 7.92 Aggregate Average Annual Total Return Total Return ------------------------------------ ------------------------------- Since Since Class B shares: As a % of 1 Year 9/13/93** 9/13/93** - ---------------------------------------------- ------ --------- --------- Net Asset Value 16.31 7.28 3.10 Redemption at End of Period 12.31 4.44 1.91 * Federal regulations require this example to be calculated using a $1,000 investment. The normal minimum initial investment in shares of the Funds is $2,500, however. ** Commencement of Fund operations or offering of indicated class of shares. *** Assuming deduction of current maximum sales load, the Adjustable Rate Fund's Class A shares' average one-year and since-inception aggregate total returns would have been 7.34% and 17.72%, respectively, and their average annual since-inception total return would have been 2.44% had a voluntary expense limitation not been in effect. Based on net asset values, the Fund's Class A shares' one-year and since-inception aggregate total returns would have been 8.39% and 19.00%, respectively, and their since-inception average annual total return would have been 2.71%, without the voluntary limitation. Assuming redemption at the end of the period, the Fund's Class B shares' one-year and since-inception aggregate total returns would have been 3.57% and 4.10%, respectively, had a voluntary expense limitation not been in effect, and their average annual total return for the since-inception period would have been 1.31%. Based on net asset values, the Fund's Class B shares' aggregate total returns for the one-year and since-inception periods would have been 7.57% and 7.58%, respectively, and their average annual total returns for the since-inception period would have been 2.54%, without the voluntary limitation. The Fund's Class Y shares' one-year and since-inception aggregate total returns would have been n/a% and n/a%, respectively, and their since-inception average annual total return would have been n/a%, without the voluntary limitation. **** Assuming deduction of current maximum sales load, the High Income Fund's Class A shares' one-year, five-year and ten-year aggregate total returns would have been 6.61%, 86.45% and 83.70%, respectively, had a voluntary expense limitation for certain periods not been in effect, and their five-year and ten-year average annual total returns would have been 10.25% and -0.60%, respectively. Based on net asset values, the High Income Fund's Class A shares' one-year, five-year and ten-year aggregate total returns would have been 11.66%, 95.48% and 92.74%, respectively, without the voluntary limitation, and their five-year and ten-year average annual total returns would have been 11.29% and -0.10%, respectively. Assuming redemption at the end of the period, the Fund's Class B shares' aggregate total returns for the one-year and since-inception periods would have been 7.07% and 8.01%, respectively, had a voluntary expense limitation not been in effect, and their average annual total return for the since-inception period would have been 3.07%. Based on net asset values, the Fund's Class B shares' aggregate total returns for the one-year and since-inception periods would have been 11.07% and 10.74%, respectively, without the voluntary limitation, and their average annual total return for the since-inception period would have been 4.20%. ***** Assuming deduction of the current maximum sales load, the Strategic Income Fund's Class A, Class B, Class C and Class Y shares' aggregate total returns for the since-inception period would have been 4.65%, 5.08%, 9.00% and n/a%, respectively, had a voluntary expense deferral arrangement not been in effect, and their annualized total returns for the since-inception would have been 7.36%, 8.03%, 14.10% and n/a%, respectively.
YIELD FOR THE 30-DAY PERIOD ENDED 12/31/95 FUND CLASS A CLASS B CLASS C CLASS Y - ------------------------------------------------------------ ------- ------ ------- ------- Government Securities Fund 4.41 3.83 n/a 4.90 Limited Term U.S. Government Fund 4.90 4.42 4.46 5.40 Adjustable Rate U.S. Government Fund 5.79 5.10 n/a n/a Strategic Income Fund 8.36 7.99 8.05 n/a Bond Income Fund 6.09 5.63 5.63 6.61 High Income Fund 9.48 9.27 n/a n/a Municipal Income Fund 5.11 4.60 n/a n/a * Yields for the Class A shares of the Funds are based on the public offering price of a Class A share of the Funds and yields for the Class B, Class C and Class Y shares are based on the net asset value of a share of the Funds.
Distribution Rate. The Government Securities, Limited Term U.S. Government, Adjustable Rate, Bond Income and High Income Funds may include in their written sales material distribution rates based on the Funds' distributions from net investment income and short-term capital gains for a recent 30 day, three month or one year period. Distributions of less than one year are annualized by multiplying by the factor necessary to produce twelve months of distributions. The distribution rates are determined by dividing the amount of the particular Fund's distributions per share over the relevant period by either the maximum offering price or the net asset value of a share of the Fund on the last day of the period.
DISTRIBUTION RATES FOR PERIODS ENDING 12/31/95 AS A % OF 30 DAY 3 MONTHS 12 MONTHS GOVERNMENT SECURITIES FUND ------ -------- --------- (Class A shares) Net Asset Value 6.39 6.39 6.20 Maximum Offering Price 6.11 6.11 5.92 (Class B shares) Net Asset Value 5.67 5.67 5.48 (Class Y shares) Net Asset Value 8.30 7.62 6.70 LIMITED TERM U.S. GOVERNMENT FUND (Class A shares) Net Asset Value 7.69 7.45 6.94 Maximum Offering Price 7.46 7.23 6.73 (Class B shares) Net Asset Value 7.05 6.83 6.32 (Class C shares) Net Asset Value 7.04 6.83 n/a (Class Y shares) Net Asset Value 7.22 7.39 7.16 ADJUSTABLE RATE FUND (Class A shares) Net Asset Value 5.62 5.53 5.91 Maximum Offering Price 5.57 5.47 5.85 (Class B shares) Net Asset Value 4.87 4.81 5.17 (Class Y shares) Net Asset Value n/a n/a n/a STRATEGIC INCOME FUND (Class A shares) Net Asset Value 8.58 8.14 n/a Maximum Offering Price 8.20 7.77 n/a (Class B shares) Net Asset Value 7.85 7.61 n/a (Class C shares) Net Asset Value 7.57 7.44 n/a (Class Y shares) Net Asset Value n/a n/a n/a BOND INCOME FUND (Class A shares) Net Asset Value 6.80 6.80 6.47 Maximum Offering Price 6.49 6.49 6.18 (Class B shares) Net Asset Value 6.02 6.05 5.77 (Class C shares) Net Asset Value 6.02 6.18 n/a (Class Y shares) Net Asset Value 6.24 6.48 n/a HIGH INCOME FUND (Class A shares) Net Asset Value 9.69 10.04 10.27 Maximum Offering Price 9.25 9.59 9.81 (Class B shares) Net Asset Value 9.03 9.39 9.62 MUNICIPAL INCOME FUND (Class A shares) Net Asset Value 5.37 5.37 5.36 Maximum Offering Price 5.13 5.13 5.12 (Class B shares) Net Asset Value 4.58 4.58 4.59
The foregoing data represent past performance only, and are not a representation as to the future results of any Fund. The investment return and principal value of an investment in any Fund will fluctuate so that the investor's shares, when redeemed, may be worth more or less than the original cost. -----END PRIVACY-ENHANCED MESSAGE-----