-----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, Kr+KwsxQiHfJ9Yi2rDfSiORZJJdt/wVEqqv0+0nfXBY4pQto2+9YRlF4ieJxKgqJ tTigg+2zBhcQpAuhgcU6mQ== 0000950156-96-000646.txt : 19960816 0000950156-96-000646.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950156-96-000646 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960815 EFFECTIVENESS DATE: 19960815 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-11101 FILM NUMBER: 96615872 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 96615873 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 485BPOS 1 N.E. FUNDS TRUST II - GROWTH FUND OF ISRAEL Registration Nos. 2-11101 811-242 - - - - - - - - - - - - - - - SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 - - - - - - - - - - - - - - - FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] Pre-Effective Amendment No. ____ [ ] Post-Effective Amendment No. 105 [ X ] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ] ACT OF 1940 Amendment No. 39 [ X ] (Check appropriate box or boxes) - - - - - - - - - - - - - - - NEW ENGLAND FUNDS TRUST II (Exact Name of Registrant as Specified in Charter) 399 Boylston Street, Boston, Massachusetts 02116 (Address of Principal Executive Offices, including Zip Code) (617) 578-1388 (Registrant's Telephone Number, including Area Code) - - - - - - - - - - - - - - - Robert P. Connolly, Esq. New England Funds, L.P. 399 Boylston Street Boston, Massachusetts 02116 (Name and address of agent for service) Copy to: Edward A. Benjamin, Esq. Ropes & Gray One International Place Boston, Massachusetts 02110 - - - - - - - - - - - - - - - It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [ X ] on August 15, 1996 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485 [ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485 [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Registrant has registered an indefinite number of securities under the Securities Act of 1933 in accordance with Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant filed on February 28, 1996 the Rule 24f-2 Notice for the Registrant's fiscal year ended December 31, 1995. NEW ENGLAND FUNDS TRUST II (Prospectus and Statement of Additional Information) CROSS-REFERENCE SHEET Items required by Form N-1A
Item No. of Form N-1A Caption in Prospectus --------- --------------------- 1 . . . . . . . . . Cover page 2 . . . . . . . . . Schedule of Fees 3 . . . . . . . . . Financial Highlights 4 . . . . . . . . . Cover page; Additional Facts About the Fund; Investment Objectives; How the Fund Pursues Its Investment Objective; Fund Investments; Investment Risks 5 . . . . . . . . . Fund Management; Back cover page 6 . . . . . . . . . Cover page; Additional Facts About the Fund; 6 Ways to Buy Fund Shares; Fund Dividend Payments; Income Tax Considerations 7 . . . . . . . . . Cover page; Schedule of Fees; 6 Ways to Buy Fund Shares; How Fund Share Price is Determined; Sales Charges; Reduced Sales Charges; Back cover page 8 . . . . . . . . . 4 Ways to Sell Fund Shares; Repurchase Option; Exchanging Among New England Funds 9 . . . . . . . . . None Item No. of Caption in Statement of Form N-1A Additional Information --------- ---------------------- 10 . . . . . . . . . Cover page 11 . . . . . . . . . Table of Contents 12 . . . . . . . . . Description of the Trust and Ownership of Shares 13 . . . . . . . . . Miscellaneous Investment Practices; Investment Restrictions 14 . . . . . . . . . Management of the Trust 15 . . . . . . . . . Management of the Trust 16 . . . . . . . . . Fund Charges and Expenses; Management of the Trusts 17 . . . . . . . . . Fund Charges and Expenses; Portfolio Transactions and Brokerage 18 . . . . . . . . . Description of the Trusts and Ownership of Shares 19 . . . . . . . . . How to Buy Shares; Net Asset Value and Public Offering Price; Reduced Sales Charges; Shareholder Services; Redemptions 20 . . . . . . . . . Income Dividends, Capital Gain Distributions and Tax Status 21 . . . . . . . . . Fund Charges and Expenses; Management of the Trusts 22 . . . . . . . . . Performance Criteria (in Prospectus); Investment Performance of the Funds; Standard Performance Measures 23 . . . . . . . . . Financial Statements
GROWTH FUND OF ISRAEL SUPPLEMENT DATED AUGUST 15, 1996 TO PROSPECTUS DATED DECEMBER 29, 1995 Effective July 1, 1996, until further notice to the Fund, New England Funds Management, L.P. ("NEFM"), the Fund's adviser, has agreed to voluntarily waive its entire management fee. Accordingly, in the Schedule of Fees section on page 3 of the prospectus, the tables appearing under the captions "Annual Fund Operating Expenses" and "Example" are replaced with the following: ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Management Fees (after voluntary fee waiver)*.............................. 0.00% 0.00% 0.00% 0.00% 12b-1 Fees................................................................. 0.25% 1.00%** 1.00%** None Other Expenses***.......................................................... 2.59% 2.59% 2.59% 2.59% Total Expenses (after voluntary fee waiver)*............................... 2.84% 3.59% 3.59% 2.59% * Without the voluntary fee waiver by the Fund's adviser, Management Fees would be 1.10% for all classes and Total Fund Operating Expenses would be 3.94% for Class A shares, 4.69% for Class B shares, 4.69% for Class C shares and 3.69% for Class Y shares. This voluntary limitation can be terminated by the Fund's adviser at any time. ** Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by rules of the National Association of Securities Dealers, Inc. *** Other Expenses are based on estimated amounts for the Fund's first fiscal year.
EXAMPLE You would pay the following expenses on a $1,000 investment assuming (1) a 5% annual return and (2) unless otherwise noted, redemption at period end. The 5% return and expenses in the Example should not be considered indicative of actual or expected Fund performance or expenses, both of which will vary.
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- (1) (2) 1 Year........................................................... $ 85 $ 76 $ 36 $ 36 $26 3 Years.......................................................... $140 $140 $110 $110 $81 (1) Assumes redemption at end of period (2) Assumes no redemption at end of period
FINANCIAL HIGHLIGHTS (unaudited) The Financial Highlights presented below are for Class A, B and C shares of the Fund outstanding throughout the indicated period. The Financial Highlights should be read in conjunction with the financial statements of the Fund and the notes thereto incorporated by reference in Part II of the Fund's Statement of Additional Information dated August 15, 1996. (the "Financial Statements").
CLASS A CLASS B CLASS C ------------------ ----------------- ------------------ FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD MARCH 15 (a) MARCH 15 (a) MARCH 15 (a) THROUGH THROUGH THROUGH JUNE 30, JUNE 30, JUNE 30, ------------------ ----------------- ------------------ 1996 1996 1996 ---- ---- ---- Net Asset Value, Beginning of Period $ 12.50 $ 12.50 $ 12.50 ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) (0.03) (0.05) (0.05) Net Realized and Unrealized Gain (Loss) on Investments (0.04) (0.04) (0.02) ------- ------- ------- Total from Investment Operations (0.07) (0.08) (0.06) ------- ------- ------- Net Asset Value, End of Period $ 12.43 $ 12.41 $ 12.43 ======= ======= ======= Total Return (%)(b) (0.6) (0.7) (0.6) Ratio of Operating Expenses to Average Net Assets (%)(d) 2.95 (c) 3.70 (c) 3.70 (c) Ratio of Net Investment Income (Loss) to Average Net Assets (%) (0.78)(c) (1.53)(c) (1.53)(c) Portfolio Turnover Rate (%) 7 (c) 7 (c) 7 (c) Average Commission Rate 0.0086 0.0086 0.0086 Net Assets, End of Period (000) $ 9,250 $ 1,451 $ 150 (a) Commencement of operations. (b) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B shares are not reflected in total return calculations. Not annualized. (c) Computed on an annualized basis. (d) The ratio of operating expenses to average net assets without giving effect to the waiver of management fee described in note 3a to the Financial Statements would have been (%) 4.05 (c) 4.80 (c) 4.80 (c)
In addition, the following changes and made to the Fund's prospectus: o On page 14, the fifth bullet under the caption "Minimum Investments -- Classes A, B and C" is deleted. o On page 14 the paragraph under the caption "Minimum Investment -- Class Y is deleted and replaced with the following paragraph: Class Y shares of the Fund may be purchased by endowments, foundations, bank trust departments or trust companies. The minimum initial investment is $1 million for these entities and the minimum for each subsequent investment is $10,000. Class Y shares may also be purchased by plan sponsors of 401(a), 401(k), 457 or 403(b) plans ("Plans") that have total investment assets in these plans of at least $10 million, and by The New England and any other insurance company affiliated with The New England or any of their successor entities ("Insurance Company Accounts"). Plan sponsors' investment assets in multiple Plans can be aggregated for purposes of meeting this minimum. Class Y shares may also be purchased by any separate account of The New England or of any other insurance company affiliated with The New England ("Separate Accounts"), and by investment companies registered under the 1940 Act. Class Y shares may also be purchased by wrap fee programs of certain broker-dealers as to which no service or marketing fees are paid to broker-dealers by the Fund, NEFM or the Distributor ("Wrap Fee Programs"). There is no minimum initial or subsequent investment amount for Plans, Insurance Company Accounts, Wrap Fee Programs, Separate Accounts or registered investment companies. Investments in Class Y shares may also be made by certain individual retirement accounts if the amounts invested represent rollover distributions from investments by any of the foregoing Plans of amounts invested in Class Y shares. o Also on page 14, the last paragraph is replaced with the following: All purchases made by check should be in U.S. dollars and made payable to New England Funds, or, in the case of a retirement account, the custodian or trustee. Third party checks will not be accepted. When purchases are made by check or periodic account investment, redemptions will not be allowed until the investment being redeemed has been in the account for ten calendar days. o On page 15, the second paragraph under the caption "By electronic purchase through ACH" is deleted and replaced with the following paragraph: To purchase through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time). You may purchase shares through ACH by calling Tele#Facts at 1-800-346-5984 twenty-four hours a day. Under normal circumstances, the New York Stock Exchange (the "Exchange") closes at 4:00 p.m. (Eastern time). Purchase orders through ACH or Tele#Facts will be complete only upon receipt by New England Funds of funds from your bank and, on the day that funds are received, will be processed at the net asset value next determined at the close of regular trading on the Exchange on days that the Exchange is open. Proceeds of redemptions of Fund shares purchased through ACH may not be available for up to ten days after the purchase date. o On page 16, the footnote under the chart in the "Sales Charges" section is replaced with the following: The Distributor may, at its discretion, pay investment dealers who initiate and are responsible for such purchases (except investment by plans under Sections 401(a) and 401(k) of the Internal Revenue Code whose total investments amount to $1 million or more or that have 100 or more eligible employees ["Retirement Plans"]) a commission of up to the following amounts: 1% on the first $3 million invested; 0.50% on the next $2 million; and 0.25% on the excess over $5 million. For investments by Retirement Plans, the Distributor may, at its discretion, pay investment dealers who initiate and are responsible for such purchases a commission of up to the following amounts: 1% on the first $3 million invested; and 0.50% on amounts over $3 million and up to $10 million. These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months. o On page 19, in the carryover paragraph in the top right-hand column, the language "including, but not limited to, those defined in Section 401(a), 403(b) or 457 of the Internal Revenue Code" is deleted and replaced with the following: including, but not limited to, those defined in Section 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code. o The following paragraphs are added to the list appearing on page 19: o Shares of the Fund are available at net asset value for investments by non-discretionary and non-retirement accounts of bank trust departments or trust companies, but are unavailable if the trust department or institution is part of an organization not principally engaged in banking or trust activities. o Shares of the Fund are available at net asset value for investments in participant-directed 401(a) and 401(k) plans that have 100 or more eligible employees. o Shares of the Fund also may be purchased at net asset value through certain broker-dealers and/or financial services organizations without any transaction fee. Such organizations may receive compensation, in an amount of up to 0.35% annually of the average value of the Fund shares held by their customers. This compensation may be paid by NEFM and/or the Fund's subadviser out of their own assets, or may be paid indirectly by the Fund in the form of servicing, distribution or transfer agent fees. o On page 27, the fourth full paragraph in the right hand column is amended to read as follows: o The Fund's annual report contains additional performance information and is available upon request and without charge. The Fund will send a single copy of its annual and semi-annual reports to an address at which more than one shareholder of record with the same last name has indicated that mail is to be delivered. Shareholders may request additional copies of any annual or semi-annual report in writing or by telephone. o The following paragraph is added to the list appearing on pages 27-28: o The Trust's trustees have the authority without shareholder approval to issue other classes of shares of the Fund that represent interests in the Fund's portfolio but that have different sales load and fee arrangements. NEW ENGLAND FUNDS "Where The Best Minds Meet(TM)" - -------------------------------------------------------------------------------- GROWTH FUND OF ISRAEL PROSPECTUS AND APPLICATION DECEMBER 29, 1995 Growth Fund of Israel (the "Fund") is a newly organized, non-diversified mutual fund. The Fund is a series of New England Funds Trust II (the "Trust"), a registered open-end management investment company. Other series of the Trust are described in separate prospectuses. The Fund's investment objective is long-term growth of capital. The Fund will seek to achieve its objective by investing primarily in Israeli equity securities. There can be no assurance that the Fund will achieve its objective, which may be changed without shareholder approval. Investments in Israel involve substantial risks that are not typically associated with investments in the United States. An investment in the Fund should be considered speculative. See "Investment Risks" for a description of certain material factors that should be considered in connection with an investment in the Fund. Harris Associates L.P. ("Harris Associates") is the Fund's investment subadviser and Batucha Securities & Investments Ltd. ("Batucha") provides information to Harris Associates relating to Israel and its markets and industries. Batucha is a wholly-owned subsidiary of Clal (Israel) Ltd. ("Clal") and the major shareholders of Clal are Bank Hapoalim B.M. ("Bank Hapoalim"), Israel's largest bank, and I.D.B. Development Corporation Ltd. See "Fund Management." B'nai B'rith, an international fraternal and philanthropic organization, has entered into an arrangement whereby it provides consultation and assistance to New England Funds, L.P. (the "Distributor") with respect to the design and marketing of the Fund and with respect to matters of particular interest to B'nai B'rith, its members and others in the Jewish community in the United States. B'nai B'rith's broker-dealer affiliate receives compensation for this role. See "Sales Charges - General" for further information. The Fund offers three classes of shares to the general public (Classes A, B and C). The offering price is based on the net asset value per share next determined after an order is received. Class A share purchases generally involve a sales charge at the time of purchase. No initial sales charge applies to Class B share purchases. A contingent deferred sales charge ("CDSC"), however, is imposed upon certain redemptions of Class B shares. Class B shares automatically convert to Class A shares eight years after purchase. No initial sales charge or CDSC applies to purchases or redemptions of Class C shares, which do not have a conversion feature. Class B and Class C shares bear higher annual 12b-1 fees than Class A shares. See "Buying Fund Shares -- Sales Charges." SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. [FOR GENERAL INFORMATION ON THE FUND OR ANY OF ITS SERVICES AND FOR ASSISTANCE IN OPENING AN ACCOUNT, CONTACT YOUR INVESTMENT DEALER OR CALL THE DISTRIBUTOR TOLL FREE AT 1-800-225-5478.] An additional class of shares (Class Y) is not currently available for purchase, but may be offered for sale to qualified institutional investors at net asset value at a later date. Class Y shares bear no sales charges or 12b-1 fees. If and when Class Y shares of the Fund are offered for sale, the Fund will supplement its prospectus. This prospectus sets forth information you should know before investing in the Fund. Please read it carefully and keep it for future reference. A statement of additional information (the "SAI") about the Fund dated December 29, 1995 has been filed with the Securities and Exchange Commission (the "SEC") and is available free of charge. Write to the Distributor, SAI Fulfillment Desk, 399 Boylston Street, Boston, MA 02116 or call toll free at 1-800-225-5478. The SAI contains more detailed information about the Fund and is incorporated into this prospectus by reference. - ------------------------------------------------------------------------------------------------------------------------------- TABLE OF CONTENTS - ------------------------------------------------------------------------------------------------------------------------------- Page 2 NEW ENGLAND INVESTMENT COMPANIES AND THE FUND'S ADVISER AND SUBADVISERS - ------------------------------------------------------------------------------------------------------------------------------- 3 SCHEDULE OF FEES Sales charges, yearly operating expenses. - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT STRATEGY 4 How the Fund Pursues Its Investment Objective - ------------------------------------------------------------------------------------------------------------------------------- 7 INVESTMENT RISKS It is important to understand the risks inherent in the Fund before you invest. - ------------------------------------------------------------------------------------------------------------------------------- 12 FUND MANAGEMENT - ------------------------------------------------------------------------------------------------------------------------------- BUYING FUND SHARES 14 Minimum Investment -- Classes A, B and C Everything you need to know to open and add to 14 Minimum Investment -- Class Y a Growth Fund of Israel account 14 6 Ways to Buy Fund Shares * Through your investment dealer * By mail * By wire transfer of Federal Funds * By Investment Builder * By electronic purchase through ACH * By exchange from another New England Fund 16 Sales Charges 18 Reduced Sales Charges (Class A Shares Only) - ------------------------------------------------------------------------------------------------------------------------------- OWNING FUND SHARES 20 Exchanging Among New England Funds New England Funds offers three convenient 21 Fund Dividend Payments ways to exchange Fund shares. - ------------------------------------------------------------------------------------------------------------------------------- SELLING FUND SHARES 22 4 Ways to Sell Fund Shares How to withdraw money or close your account. * Through your investment dealer * By telephone * By mail * By Systematic Withdrawal Plan 23 Repurchase Option (Class A Shares Only) An opportunity to reinvest your redemption proceeds within 120 days for no sales charge. - ------------------------------------------------------------------------------------------------------------------------------- FUND DETAILS Additional information you may find important. 24 How Fund Share Price Is Determined 24 Income Tax Considerations 26 The Fund's Expenses 26 Performance Criteria 27 Additional Facts About the Fund - ------------------------------------------------------------------------------------------------------------------------------- 29 GLOSSARY OF TERMS
- ------------------------------------------------------------------------------- NEW ENGLAND INVESTMENT COMPANIES AND THE FUND'S ADVISER AND SUBADVISERS - ------------------------------------------------------------------------------- The investment adviser and investment subadviser of the Fund are independently-operated subsidiaries of New England Investment Companies, L.P. ("NEIC"), the fifth-largest publicly traded investment management firm in the United States. NEIC is listed on the New York Stock Exchange and through its subsidiaries or an affiliate manages over $78 billion in assets for individuals and institutions. The adviser and investment subadviser operate independently and are staffed by experienced investment professionals. The adviser and investment subadviser apply specialized knowledge and careful analysis to the pursuit of the Fund's objectives. NEIC's sole general partner, New England Investment Companies, Inc. ("NEIC Inc."), is a wholly-owned subsidiary of New England Mutual Life Insurance Company ("The New England"). The New England and Metropolitan Life Insurance Company ("MetLife") have entered into an agreement to merge, with MetLife to be the survivor of the merger. The merger is conditioned upon, among other things, approval by the policy holders of The New England and MetLife and receipt of certain regulatory approvals. After such merger, NEIC Inc. will be a wholly-owned subsidiary of MetLife. NEW ENGLAND FUNDS MANAGEMENT, L.P. ("NEFM") is the Fund's investment adviser. NEFM also serves as investment adviser to certain of the New England Funds. HARRIS ASSOCIATES L.P., investment subadviser to the Fund, has advised and managed mutual funds since 1970. Harris Associates also serves as investment adviser to other mutual funds and to individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships. Harris Associates has extensive experience in managing international equity portfolios. BATUCHA SECURITIES & INVESTMENTS LTD. serves as special economic and market subadviser for the Fund. In this capacity, Batucha provides Harris Associates with information, advice and assistance regarding economic, financial, political, technological and social matters, trends or changes relating to or affecting Israel and information on markets and industries in Israel. Batucha, based in Tel Aviv, Israel, is an indirect subsidiary of Clal, a publicly traded Israeli conglomerate, and is not affiliated with NEIC. B'NAI B'RITH has entered into an arrangement whereby it provides consultation and assistance to the Distributor with respect to the design and marketing of the Fund and with respect to matters of particular interest to B'nai B'rith, its members and others in the Jewish community in the United States. B'nai B'rith's broker-dealer affiliate receives compensation for this role. See "Sales Charges - - General" for further information. - -------------------------------------------------------------------------------- SCHEDULE OF FEES - -------------------------------------------------------------------------------- Expenses are one of several factors to consider when you invest in the Fund. The following table summarizes your maximum transaction costs from investing in the Fund and estimated annual expenses for each class of the Fund's shares. The Example shows the cumulative expenses attributable to a hypothetical $1,000 investment in each class of shares of the Fund for the periods specified. SHAREHOLDER TRANSACTION EXPENSES
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Maximum Initial Sales Charge Imposed on a Purchase (as a percentage of offering price) (1)(2) .................................................. 5.75% None None None Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable) (2).................. (3) 4.00% None None Redemption Fee............................................................. None None None None Exchange Fee............................................................... None None None None (1) Reduced sales charges on Class A shares apply in some cases. See "Buying Fund Shares - Reduced Sales Charges (Class A Shares Only)." (2) Does not apply to reinvested distributions. (3) A 1.00% contingent deferred sales charge applies with respect to any portion of certain purchases of Class A shares greater than $1,000,000 redeemed within approximately 1 year after purchase, but not to any other purchases or redemptions of Class A shares. See "Buying Fund Shares - Sales Charges." ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- Management Fees............................................................ 1.10% 1.10% 1.10% 1.10% 12b-1 Fees................................................................. 0.25% 1.00%* 1.00%* None Other Expenses**........................................................... 0.85% 0.85% 0.85% 0.85% Total Expenses............................................................. 2.20% 2.95% 2.95% 1.95% * Because of the higher 12b-1 fees, long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by rules of the National Association of Securities Dealers, Inc. ** Other Expenses are based on estimated amounts for the Fund's first fiscal year.
EXAMPLE You would pay the following expenses on a $1,000 investment assuming (1) a 5% annual return and (2) unless otherwise noted, redemption at period end. The 5% return and expenses in the Example should not be considered indicative of actual or expected Fund performance or expenses, both of which will vary.
CLASS A CLASS B CLASS C CLASS Y ------- ------- ------- ------- (1) (2) 1 Year........................................................... $ 79 $ 70 $30 $30 $20 3 Years.......................................................... $122 $121 $91 $91 $61 (1) Assumes redemption at end of period (2) Assumes no redemption at end of period
The purpose of this fee schedule is to assist you in understanding the various costs and expenses that you will bear directly or indirectly if you invest in the Fund. Please keep in mind that the Example shown above is hypothetical. The information above should not be considered a representation of past or future return or expenses; actual return or expenses may be more or less than those shown. A wire fee (currently $5.00) will be deducted from your proceeds if you elect to transfer redemption proceeds by wire. For additional information about the Fund's fees and other expenses, please see "Fund Management," "The Fund's Expenses," and "Additional Facts About the Fund." - -------------------------------------------------------------------------------- INVESTMENT STRATEGY - -------------------------------------------------------------------------------- The Fund's investment objective is long-term growth of capital. HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE The Fund seeks to attain its objective by investing primarily in equity securities (1) of issuers organized under the laws of the State of Israel, (2) of issuers that derive at least 50% of their revenues or profits from goods or services sold or produced in Israel or (3) whose principal securities trading market is Israel (collectively, "Israeli Equity Securities"). The Fund may also invest in other securities, as described below. Under normal market conditions, however, at least 65% of the Fund's total assets will be invested in Israeli Equity Securities. The Fund may invest up to 15% of its assets in unlisted, private Israeli Equity Securities. Under normal conditions, up to 35% of the Fund's assets may be invested in fixed-income securities, including U.S. or foreign government securities, obligations of U.S. or foreign corporate issuers rated in the top four rating categories by at least two major rating agencies or, if unrated, determined to be of comparable quality by the investment subadviser, and repurchase agreements that are fully collateralized by U.S. Government securities. Under unusual market conditions as determined by the investment subadviser, all or any portion of the Fund's assets may be invested, for temporary, defensive purposes, in such securities or in cash (including foreign currency). The Fund's investment adviser and investment subadviser believe that shares of the Fund could provide an attractive opportunity for investors seeking long term capital growth by investing in Israeli Equity Securities. While it is possible for investors to purchase equity securities of certain Israeli issuers in the United States, most such equity securities are traded on the Tel Aviv Stock Exchange (the "TASE") and relatively few U.S. investment firms follow or provide research on these securities. Batucha, as special economic and market subadviser, will provide Harris Associates with information, advice and assistance regarding economic, financial, political, technological and social matters, trends or changes relating to or affecting Israel and information on markets and industries in Israel. (Batucha will not, however, generally furnish advice or make recommendations regarding the purchase or sale of securities for the Fund's portfolio.) See "Fund Management." The Fund's investment adviser and investment subadviser expect the Fund to benefit from research and information about the Israeli economy and financial markets provided by Batucha that are not ordinarily available to investors other than Israeli institutional investors. The Fund's investment adviser and investment subadviser believe that during the next three to five years the Israeli economy could be favorably affected by several factors. Despite certain adverse conditions prevailing in Israel in recent years, including the negative effects of political uncertainty and high inflation, which are described elsewhere in this prospectus, the Israeli gross domestic product ("GDP") has increased in real terms in each of the last five years and a significant number of companies engaged in scientific and technological activities (including computer software and components, biotechnology, civil and military electronics, communications, aviation and space technology) have been funded and have grown during such period. The substantial immigration into Israel from the former Soviet Union, which has brought to Israel a significant number of educated and trained people, and the prospect for continued immigration (although potentially at reduced levels), enhance the prospects for further growth of the Israeli economy, especially in the areas of science and technology. Real wages have also been declining since 1989, aiding competitiveness and profitability. Israel also has preferential trade arrangements with the United States and the European Community, such as favorable tariff rates. In addition, the recent success of a number of Israeli companies, particularly in the area of high technology, along with the increase in daily trading on the TASE generally experienced in recent years and relaxation of restrictions on foreign investment, has prompted the potential entry of a number of investors in search of investment opportunities in Israel. The Fund's investment adviser and investment subadviser also believe that greater investment in listed shares by "provident" (e.g., pension) funds and savings plans in Israel may increase liquidity and demand for TASE-listed shares. Although the Fund's investment adviser and investment subadviser cannot predict whether recent negotiations among Israel, certain of its neighboring Arab countries and Palestinian representatives will result in a significant improvement in Israel's relations with such parties, should such a development occur, the Fund's investment adviser and investment subadviser believe that Israel's economy could potentially benefit in a number of respects, including the potential opening of new markets in and economic cooperation with such neighboring states, the attraction of new investments if the Arab boycott should end and partial relief of the burden on Israel's economy and manpower of military defense obligations. There can be no assurance that investment opportunities will be available at valuations and on terms that the Fund considers appropriate. See "Investment Risks". The government of Israel has announced a major privatization program and has privatized either wholly or partially several large and mid-sized government-owned companies, including the state telephone company, a chemical company and an oil marketing company. The government has announced its intention to continue to privatize many of the companies it now owns or controls in industries such as shipping, telecommunications, airlines, chemicals and banking (including some of the largest companies in Israel), through public issuance of shares on the TASE and other foreign exchanges or by private placements. Each privatization transaction is subject to its own political and economic factors which may vary the terms upon which investors, such as the Fund, may participate. No assurance can be given that privatizations will continue to occur or that the Fund will be able or will desire to participate in them. Companies in which the Fund may invest may have small, medium or large market capitalizations, and their equity securities may or may not pay dividends. When selecting industries and companies for investment by the Fund, Harris Associates will consider factors such as overall growth prospects, competitive position in domestic and export markets, technology, research and development, productivity, labor costs, raw material costs and sources, profit margins, return on investment, capital resources, governmental regulation and the experience of management. Consideration will also be given to companies that could benefit from the economic development of Israel and the West Bank and from the possible opening of the borders between Israel and its neighbors. * HEDGING TRANSACTIONS The Fund may, for hedging purposes only, engage in derivatives transactions, such as options, futures or forward transactions, designed to manage its exposure to changing security prices and currency exchange rates. The Fund may, subject to specified limitations, buy put and call options and write covered call options based on any type of security or index related to the Fund's investments, including options traded on foreign exchanges and in the over-the-counter markets. Buying puts and writing covered calls tends to hedge the Fund's investments against price fluctuations, whereas buying calls tends to increase the Fund's market exposure. The Fund will hedge no more than 25% of its total assets by buying puts and writing covered calls. In addition, the Fund will not purchase a put or call option if, as a result, more than 10% of the Fund's total assets would be committed to premiums for such options. The Fund may invest in options and futures contracts on various stock indices to hedge against changes in the value of securities it holds or expects to acquire. The Fund may also invest in options on stock index futures. The Fund will not invest more than 25% of its net assets in stock index futures or options on stock index futures. The Fund's ability to use derivatives successfully requires skills different from those needed to select the Fund's portfolio securities and involves Harris Associates' judgment as to the potential risks and rewards of these different types of strategies. Derivatives can be volatile investments and may not perform as expected. If the Fund applies a hedge at an inappropriate time or Harris Associates judges market trends incorrectly, derivatives strategies may lower the Fund's return. The Fund could also experience losses if the prices of its derivatives were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. When required by guidelines established by the SEC, the Fund will place the required amount of liquid, high-quality debt securities in a segregated custodial account to provide for payment of its obligations in connection with derivatives transactions. Derivatives transactions in which the Fund may engage are described in further detail in the SAI. * LENDING OF PORTFOLIO SECURITIES The Fund is permitted to lend up to 33 1/3% of the total value of its securities. These loans must be secured continuously by cash or equivalent collateral or by a letter of credit in an amount at least equal to the market value of the securities loaned plus accrued income. By lending its securities, the Fund may increase its income by continuing to receive income on the loaned securities as well as the opportunity to receive interest on the collateral. Any gain or loss in the market price of the borrowed securities which occurs during the term of the loan belongs to the Fund rather than to the borrower of the securities. The risks of lending portfolio securities, as with other extensions of credit, include possible delay in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. In considering whether the Fund will lend securities, Harris Associates will consider all relevant factors and circumstances, including the creditworthiness of the borrower. * OTHER INVESTMENTS AND INVESTMENT TECHNIQUES The Fund may also utilize the following investments and investment techniques and practices: securities not registered under the Securities Act of 1933 (the "Securities Act"), but that can be sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act ("Rule 144A Securities"), sponsored or unsponsored American Depository Receipts ("ADRs") or European Depository Receipts ("EDRs"), and when-issued and delayed-delivery securities. See "Investment Risks - Miscellaneous" below and Part II of the SAI for further information regarding these investments and investment techniques. - -------------------------------------------------------------------------------- INVESTMENT RISKS - -------------------------------------------------------------------------------- It is important to understand the following risks inherent in the Fund before you invest. * EQUITY SECURITIES Equity securities are securities that represent an ownership interest (or the right to acquire such an interest) in a company, and include common and preferred stocks and securities exercisable for or convertible into common or preferred stocks (such as warrants, convertible debt securities and convertible preferred stock). While offering greater potential for long-term growth, equity securities are more volatile and more risky than some other forms of investment. Therefore, the value of your investment in the Fund may sometimes decrease instead of increase. The Fund may invest in equity securities of companies with relatively small market capitalization. Securities of such companies may be more volatile than the securities of larger, more established companies and the broad equity market indices. See "Small Companies" below. The Fund's investments may include securities traded "over-the-counter" as well as those traded on a securities exchange. Some over-the-counter securities may be more difficult to sell under some market conditions. The Fund may invest in convertible securities, including corporate bonds, notes or preferred stocks that can be converted into common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally increase or decrease as the values of the underlying equity securities increase or decrease. The movements in the prices of convertible securities, however, may be smaller than the movements in the value of the underlying equity securities. The value of convertible securities that pay dividends or interest, like the value of other fixed-income securities, generally fluctuates inversely with changes in interest rates. Warrants have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. They do not represent ownership of the securities for which they are exercisable, but only the right to buy such securities at a particular price. The credit risk associated with convertible securities is generally reflected by their being rated, if at all, below investment grade by organizations such as Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P"). Less than 35% of the Fund's assets will be invested in convertible securities rated below investment grade and unrated convertible securities of comparable quality. For a detailed description of the ratings assigned by S&P and Moody's, please refer to Appendix A of the SAI. * FIXED-INCOME SECURITIES Fixed-income securities include debt obligations of governmental and corporate issuers. Because interest rates vary, it is impossible to predict the income of a fund that invests in fixed-income securities for any particular period. Fluctuations in the value of the Fund's investments in fixed-income securities will cause the Fund's net asset value to increase or decrease. 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. Credit risk relates to the ability of the issuer to make payments of principal and interest. * REPURCHASE AGREEMENTS In repurchase agreements, the Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal market risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligation to repurchase. * SHORT-TERM TRADING Although the Fund seeks long-term growth or return, the Fund may, consistent with its investment objective, engage in portfolio trading in anticipation of, or in response to, changing economic or market conditions and trends. These policies may result in higher turnover rates in the Fund's portfolio, which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit the investment subadviser's investment discretion in managing the Fund's assets. * SMALL COMPANIES The Fund, in the discretion of the investment subadviser, may invest without limit in the securities of companies with smaller capitalization. Investments in companies with relatively small capitalization may involve greater risk than is usually associated with more established companies. These companies often have sales and earnings growth rates which exceed those of companies with larger capitalization. Such growth rates may in turn be reflected in more rapid share price appreciation. However, companies with smaller capitalization often have limited product lines, markets or financial resources and they may be dependent upon a relatively small management group. The securities may have limited marketability and may be subject to more abrupt or erratic movements in price than securities of companies with larger capitalization or the market averages in general. The net asset value of funds that invest in companies with smaller capitalization therefore may fluctuate more widely than market averages. * ISRAELI AND OTHER FOREIGN SECURITIES Investments in Israeli and other foreign securities present risks not typically associated with investments in comparable securities of U.S. issuers. There may be less information publicly available about an Israeli or other foreign corporate or governmental issuer than about a U.S. issuer, and Israeli and other foreign 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 Israeli and other foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and securities custody costs are often higher than those in the United States, and judgments against foreign entities may be more difficult to obtain and enforce. With respect to certain foreign countries, including Israel, there is a possibility of confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuer's obligations. * FOREIGN CURRENCY Most securities in the Fund's portfolio will be denominated in Israeli shekels or traded in securities markets in which settlements are made in shekels. Similarly, any income on such securities is generally paid to the Fund in shekels. The value of the shekel and other foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of the Fund's portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of the Fund's income available for distribution to its shareholders. The effect of changes in the dollar value of foreign currencies on the dollar value of the Fund's assets and on the net investment income available for distribution may be favorable or unfavorable. The Fund may incur costs in connection with conversions between dollars and shekels or other foreign currencies. In addition, the Fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of the shekel or other foreign currencies occurring between the time when the Fund declares and pays a dividend, or between the time when the Fund accrues and pays an operating expense in U.S. dollars. * ISRAELI SECURITIES MARKET CHARACTERISTICS The Israeli securities market is substantially smaller, less liquid and more volatile than the major securities markets in the United States. Brokerage commissions and other transaction costs on the TASE are individually negotiated and are also generally somewhat higher than in the United States. Due to the relatively small equity market capitalization and small number of company listings in comparison to the U.S. securities markets, the Israeli equity market is subject to greater short-term price volatility and a relatively limited secondary trading environment. The securities listed on the TASE and various TASE indices have been subject to sharp declines in the recent past and no assurance can be given as to the future performance of TASE-listed securities. In addition, this market may be subject to greater influence from adverse events generally affecting the Israeli economy and may be more affected when a few investors trade significant blocks of securities than would the U.S. market. The regulations of the TASE may at times limit the maximum price swing for a specific security on a specific day. The limits vary depending on several factors, but they are typically 10% in the case of equity shares, convertible securities and warrants and 3% in the case of other debt securities. Among the factors that may affect the limits are whether there has been a suspension of trading in the securities and whether a convertible security is about to expire. As a result of the limits, the Fund may experience difficulties in liquidating certain assets. Trading on the TASE has been subject to disruption in the past. For example, in August 1994, upon the announcement by the Minister of Finance of the intention of the Israeli government to seek to eliminate the exemption from tax on capital gains realized on the sale of equity securities listed on the TASE, trading on the TASE was suspended for two days and, when trading resumed, limits on share price movement ordinarily in place were removed for one day. In March 1994, a strike by the personnel of the TASE interfered with trading on the TASE to the extent that trading time was slightly curtailed. Similarly, the TASE was closed briefly as a result of a strike by its personnel in 1990. Early in 1983, prices on the TASE experienced severe declines, and, in October 1983, following the termination by the major banks of their activities in support of their share prices, the TASE was closed for two weeks. The Israeli government intervened with a substantial bail-out by offering to purchase certain securities over a period of time at specified prices. No assurances can be given that the Israeli government would intervene in the market in any manner in the future. In the event a strike or other similar interruption were to occur again, the Fund's ability to effect transactions on the TASE could be materially affected. Disruption in trading on the TASE may also make it difficult to determine the value of shares of the Fund during periods of such disruption. There is less government supervision and regulation of the Israeli securities market, brokers, dealers and companies with respect to certain matters than exists in the United States. Foreign investment is regulated and controlled by the Bank of Israel and regulations could be imposed from time to time precluding foreign investment in certain types of securities, although the current trend is toward liberalizing such restrictions. The factors described above result in a limited supply of available equity investments, and may adversely affect the Fund's ability to become fully invested in accordance with its investment objective, as well as the Fund's performance. The relatively limited liquidity of the Israeli equity securities market may also affect the Fund's ability to acquire or dispose of securities at a desirable price when it wishes to do so. Accordingly, in periods of rising market prices, the Fund may be unable to participate fully in such price increases to the extent that it is unable to acquire desired portfolio positions quickly; conversely, the Fund's inability to dispose fully and promptly of positions in declining markets could cause its net asset value to decline as the market value of unsold positions declines. * ECONOMIC FACTORS Israel's economy has been subject to many destabilizing factors, including military conflicts and tension, a period of hyper-inflation in the early to mid-1980s, civil unrest in the West Bank and Gaza Strip since 1987, the closing of the TASE in 1983 for two weeks due to a collapse in the prices of the shares in the banking sector, large government deficits, recurring weaknesses in state-owned enterprises, low foreign exchange reserves and fluctuations in world commodity prices. For these and other reasons, the Israeli government has intervened in all sectors of the economy employing, among other means, fiscal, monetary and trade policies, import duties, foreign currency restrictions and controls of wages, prices and exchange rates, and other measures to pursue its various economic policies and goals. The Israeli government is in the process of reducing its direct involvement in economic activity, but there can be no assurance that this trend will continue. Foreign investment in Israel is regulated and controlled by the Bank of Israel, primarily through its regulation of currency exchange, although there are no current restrictions on the purchase and sale of securities that trade on the TASE. These regulations may at times limit or preclude foreign investment in certain types of equity securities. The repatriation of both investment income and capital from Israel is currently controlled to a limited degree under regulations of the Bank of Israel, although the Fund believes it can, generally, when acting in compliance with foreign currency regulations, convert and remit into dollars the proceeds of the sale of listed and non-listed securities as well as dividend and interest income, subject to the payment of applicable Israeli taxes. * REGIONAL POLITICAL FACTORS Many Israeli companies are heavily dependent upon sales of their products outside of Israel and upon imported components, primarily from the United States, Europe and Japan. Accordingly, operations of these companies could be adversely affected if major hostilities involving Israel should occur in the Middle East or if trade between Israel and its present trading partners should be curtailed. Certain countries participate in a boycott of Israeli firms and firms that do business in Israel or with Israeli companies. Despite measures to counteract the boycott, including anti-boycott legislation in the United States, and the recent increased willingness of certain countries and companies to commence diplomatic and trade relations with Israel and Israeli firms, the boycott has not officially ended and has had an indeterminate negative impact on trade and foreign investment in Israel. * CONCENTRATION OF CONTROL The Israeli economy is subject to a substantial amount of concentrated control. In addition to the government's direct involvement in and influence over the private sector, the government owns or controls numerous government corporations and other entities representing in the aggregate a substantial portion of the Israeli economy by measure of gross domestic product in 1994. A substantial portion of the Israeli private sector is controlled by relatively few companies. Many of the companies traded on the TASE are closely held by families that founded these companies. * FOREIGN AID It is uncertain whether the economy of Israel could sustain increases in gross domestic product without the continued receipt of external capital inflows, particularly from the United States. Direct foreign assistance from the U.S. government, in the form of grants for economic and military assistance, has totaled approximately $3 billion annually over the past several years. In addition, the State of Israel has received approximately $10 billion of U.S. Government loan guarantees. There can be no assurance that such capital inflows or loan guarantees will continue. A significant reduction in capital inflows or loan guarantees could have a material adverse effect on the Israeli economy and the Fund. * MISCELLANEOUS The Fund will not invest more than 15% of its net assets in illiquid securities, that is, securities which are not readily resalable, which include securities whose disposition is restricted by federal securities laws. The Fund may purchase Rule 144A Securities. These are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A Securities are treated as illiquid, unless Harris Associates has determined, under guidelines established by the Trust's trustees, that the particular issue of Rule 144A Securities is liquid. Investment in restricted or other illiquid securities involves the risk that the Fund may be unable to sell such a security at the desired time. Also, the Fund may incur expenses, losses or delays in the process of registering restricted securities prior to resale. The Fund may purchase securities on a when-issued or delayed-delivery basis. This means that the Fund enters into a commitment to buy the security before the security has been issued, or, in the case of a security that has already been issued, to accept delivery of the security on a date beyond the usual settlement period. If the value of a security purchased on a when-issued or delayed delivery basis falls or, in the case of a fixed-income security, market rates of interest increase, between the time the Fund commits to buy the security and the delivery date, the Fund may sustain a loss in value of or yield on the security. For more information on when-issued and delayed delivery securities, see Part II of the SAI. The Fund is a non-diversified fund and as such is not required to meet any diversification requirements under the Investment Company Act of 1940 (the "1940 Act"), although the Fund must meet certain diversification standards to qualify as a regulated investment company under the Internal Revenue Code (the "Code"). Since the Fund may invest a relatively high percentage of its assets in the obligations of a limited number of issuers, the Fund may be more susceptible than a more widely-diversified fund to any single economic, political or regulatory occurrence. Although it is not possible to predict the portfolio turnover rate with certainty, the Fund's investment subadviser does not expect the Fund's annual portfolio turnover rate to exceed approximately 25%. - -------------------------------------------------------------------------------- FUND MANAGEMENT - -------------------------------------------------------------------------------- NEW ENGLAND FUNDS MANAGEMENT, L.P., 399 Boylston Street, Boston, Massachusetts 02116, serves as the Fund's adviser. NEFM oversees, evaluates and monitors the subadvisers' provision of subadvisory services to the Fund and provides general business management and administration to the Fund. The Fund pays NEFM a management fee at the annual rate of 1.10% of the Fund's average daily net assets. This fee rate is higher than that paid by most other mutual funds, but is believed to be appropriate for the services received by the Fund and to be comparable to fees paid by other mutual funds investing in a manner similar to the Fund. For the services that Harris Associates provides to the Fund, NEFM pays Harris Associates a fee at the annual rate of 0.70% of the first $50 million of the Fund's average daily net assets, and 0.60% of such assets in excess of $50 million. For the services that Batucha provides to the Fund, NEFM pays Batucha a fee at the annual rate of 0.10% of the Fund's average daily net assets. Subject to the supervision of NEFM, Harris Associates manages the Fund's portfolio in accordance with the Fund's investment objective and policies, makes investment decisions for the portfolio, places orders to purchase and sell securities for the portfolio, and employs professional advisers and securities analysts who provide research services to the portfolio. Batucha provides Harris Associates with statistical and other factual information, advice and assistance regarding economic, financial, political, technological or social matters, trends or changes relating to or affecting Israel and information on markets and industries in Israel, but does not generally furnish advice or make recommendations regarding the purchase or sale of securities for the Fund's portfolio. The Fund pays no direct fees to either Harris Associates or Batucha. Below is a brief description of the subadvisers. HARRIS ASSOCIATES L.P., Two North LaSalle Street, Chicago, Illinois 60602, investment subadviser to the Fund, has advised and managed mutual funds since 1970. Harris Associates also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships. Harris Associates has extensive experience managing international equity portfolios. David G. Herro, C.F.A., one of the Fund's co-managers, joined Harris Associates in 1992 from the State of Wisconsin Investment Board, where he managed a $700 million international equity fund from 1989 through July 1992. Adam Schor, the Fund's other co-manager, has been a portfolio manager and analyst with Harris Associates since 1993; from 1992-1993 he was an analyst with American Family Insurance Group; prior to that time he was an analyst with the State of Wisconsin Investment Board. BATUCHA SECURITIES AND INVESTMENTS LTD, 8 Karl Netter Street, Tel Aviv, Israel, special economic and market subadviser for the Fund, is organized under the laws of the State of Israel and is a wholly-owned subsidiary of Clal (Israel) Ltd. Batucha and its subsidiaries had in excess of $600 million of assets under management as of November 30, 1995. The major shareholders of Clal are I.D.B. Development Corporation Ltd. and Bank Hapoalim, Israel's largest bank, which serves as the Fund's custodian in Israel, subject to the supervision of State Street Bank and Trust Company. B'nai B'rith has entered into an arrangement whereby it provides consultation and assistance to the Distributor with respect to the design and marketing of the Fund and with respect to matters of particular interest to B'nai B'rith, its members and others in the Jewish community in the United States. B'nai B'rith's broker-dealer affiliate receives compensation for this role. See "Sales Charges - - General" for further information. The general partners of NEFM, Harris Associates and the Distributor are special purpose corporations. These corporations are indirect wholly-owned subsidiaries of NEIC. The Trust's Board of Trustees supervises the affairs of the Trust as conducted by NEFM and Harris Associates. ADVISORY COUNCIL. NEFM has established an Advisory Council to provide assistance and consultation to NEFM on certain matters relating to Israel and the Fund, including advising on economic and other trends, the Fund's image, Israeli affairs and other matters that may enhance the success of the Fund. The names and background of Advisory Council members may be identified in advertising and sales literature created, published or used in promoting the Fund. The Advisory Council does not generally furnish advice or make recommendations regarding the purchase or sale of securities for the Fund's portfolio. Subject to applicable regulatory restrictions and such policies as the Trust's trustees may adopt, Harris Associates may consider sales of shares of the Fund and other mutual funds that it manages as a factor in the selection of broker-dealers to effect portfolio transactions for the Fund. Subject to procedures adopted by the Trust's Board of Trustees, Fund brokerage transactions may be executed by brokers that are affiliated with NEFM or Harris Associates. See "Portfolio Transactions and Brokerage" in Part II of the SAI. - -------------------------------------------------------------------------------- BUYING FUND SHARES - -------------------------------------------------------------------------------- [USING TELE#FACTS 1-800-346-5984 TELE#FACTS IS NEW ENGLAND FUNDS' AUTOMATED SERVICE SYSTEM THAT GIVES YOU 24-HOUR ACCESS TO YOUR ACCOUNT. THROUGH YOUR TOUCH-TONE TELEPHONE, YOU CAN RECEIVE YOUR CURRENT ACCOUNT BALANCE, YOUR LAST FIVE TRANSACTIONS, FUND PRICES AND RECENT PERFORMANCE INFORMATION. YOU CAN ALSO PURCHASE, SELL OR EXCHANGE SHARES OF ANY NEW ENGLAND FUND. FOR A FREE BROCHURE ABOUT TELE#FACTS INCLUDING A CONVENIENT WALLET CARD, CALL US AT 1-800-225-5478.] MINIMUM INVESTMENT -- CLASSES A, B AND C $2,500 is the minimum for an initial investment in Class A, Class B and Class C shares of the Fund and $50 is the minimum for each subsequent investment. There are special initial investment minimums for the following plans: * $25 (for initial and subsequent investments) for payroll deduction investment programs for 401(k), SARSEP, 403(b) retirement plans and certain other retirement plans. * $50 for automatic investing through the Investment Builder program. * $250 for retirement plans with tax benefits such as corporate pension and profit sharing plans, IRAs and Keogh plans. * $1,000 for accounts registered under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act. * $1,000 (per Fund) for Portfolio 1,2,3 investment programs. Subsequent investment minimums are $50 per Fund. See Part II of the SAI. MINIMUM INVESTMENT -- CLASS Y Class Y shares of the Fund may be purchased by endowments and foundations. The minimum initial investment is $1 million for these entities and the minimum for each subsequent investment is $100,000. Class Y shares may also be purchased by plan sponsors of 401(a), 401(k), 457 or 403(b) plans ("Retirement Plans") that have total investment assets in these plans of at least $10 million. Plan sponsors' investment assets in multiple Retirement Plans can be aggregated for purposes of meeting this minimum. Class Y shares may also be purchased by any separate account of The New England or of any other insurance company affiliated with The New England ("Separate Accounts"), and by investment companies registered under the 1940 Act. There is no minimum initial or subsequent investment amount for Retirement Plans, Separate Accounts or registered investment companies. Investments in Class Y shares may also be made by certain individual retirement accounts if the amounts invested represent rollover distributions from investments by any of the foregoing Retirement Plans of amounts invested in Class Y shares. 6 WAYS TO BUY FUND SHARES You may purchase Class A, Class B and Class C shares of the Fund in the following ways: [] THROUGH YOUR INVESTMENT DEALER: Many investment dealers have a sales agreement with the Distributor and would be pleased to accept your order. [] BY MAIL: For an initial investment, simply complete an application and return it, with a check payable to New England Funds, P.O. Box 8551, Boston, MA 02266-8551. Proceeds of redemptions of Fund shares purchased by check may not be available for up to ten days after the purchase date. FOR SUBSEQUENT INVESTMENTS, please mail your check to New England Funds, P.O. Box 8551, Boston, MA 02266-8551 along with a letter of instruction or an additional deposit slip from your statements. To make investing even easier, you can also order personalized investment slips by calling 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time). Investment checks should be made payable to New England Funds. New England Funds will accept second-party checks (up to $10,000) for investments into existing accounts only. (A second-party is a check made payable to a Fund shareholder which the shareholder has endorsed to New England Funds for deposit into an account registered to the shareholder.) New England Funds will NOT accept third-party checks, except certain third-party checks issued by other mutual fund companies, broker dealers or banks representing the transfer of retirement assets. (A third-party check is a check made payable to a party which is not a Fund shareholder, but which has been ultimately endorsed to New England Funds for deposit into an account.) [] BY WIRE TRANSFER OF FEDERAL FUNDS: For an initial investment, call us at 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) to obtain an account number and wire transfer instructions. FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street Bank and Trust Company, ABA #011000028, DDA #99011538, Credit Growth Fund of Israel, Class of shares, Shareholder Name, Shareholder Account Number. Funds may be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time). Your bank may charge a fee for this service. [] BY INVESTMENT BUILDER: Investment Builder is New England Funds' automatic investment plan. You may authorize automatic monthly transfers of $50 or more from your bank checking or savings account to purchase shares of one or more New England Funds. FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an automatic investment plan through Investment Builder on the enclosed application. Indicate the amount of the monthly investment and enclose a check marked "Void" or a deposit slip from your bank account. TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at 1-800-225-5478 for a Service Options form. [] BY ELECTRONIC PURCHASE THROUGH ACH: You may purchase additional shares electronically through the Automated Clearing House ("ACH") system as long as your bank or credit union is a member of the ACH system and you have a completed, approved ACH application on file with the Fund. To purchase through ACH, call us at 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) for instructions on a day when the Fund is open for business. You may also purchase shares through ACH by calling Tele#Facts at 1-800-346-5984 twenty-four hours a day. Under normal circumstances, the New York Stock Exchange (the "Exchange") closes at 4:00 p.m. (Eastern time). Purchase orders accepted through ACH or Tele#Facts after 4:00 p.m. (Eastern time), or after the Exchange closes if it closes earlier than 4:00 p.m., will be processed at the net asset value determined at the close of regular trading on the next day that the Exchange is open. Proceeds of redemptions of Fund shares purchased through ACH may not be available for up to ten days after the purchase date. [] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND: You may also purchase shares of the Fund by exchanging shares from another New England Fund. Please see "Exchanging Among New England Funds" for complete details. GENERAL All purchase orders are subject to acceptance by the Fund and will be effected at the net asset value next determined after the order is received in proper form by State Street Bank and Trust Company ("State Street Bank") (except orders received by your investment dealer before the close of trading on the Exchange and transmitted to the Distributor by 5:00 p.m. [Eastern time] on the same day, which will be effected at the net asset value determined on that day). Although the Fund does not anticipate doing so, it reserves the right to suspend or change the terms of sales of shares. Class B shares and certain shareholder features may not be available to persons whose shares are held in street name accounts. You will not receive any certificates for your Class A shares unless you request them in writing from New England Funds, L.P. The Fund's open account system for recording your investment eliminates the problems and expense of handling and safekeeping certificates. Certificates will not be issued for Class B or Class C shares. If you wish transactions in your account to be effected by another person under a power of attorney from you, special rules apply. Please contact your investment dealer or the Distributor for details. An eligible investor may purchase Class Y shares of the Fund by mail, by wire transfer of federal funds or by exchange from another New England Fund, as set forth above. SALES CHARGES CLASS A SHARES Shares are offered at net asset value plus a sales charge which varies depending on the size of your purchase. They are also subject to a 0.25% annual service fee. Class A shares are offered subject to the following initial sales charges:
SALES CHARGE AS A % OF ---------------------- DEALER'S CONCESSION PUBLIC AS A % OF VALUE OF TOTAL OFFERING AMOUNT OFFERING INVESTMENT PRICE INVESTED PRICE - ------------------------------------------------------------------------------------------------------------------------------- Less than $50,000 5.75% 6.10% 5.00% - ------------------------------------------------------------------------------------------------------------------------------- $50,000 - $99,999 4.50% 4.71% 4.00% - ------------------------------------------------------------------------------------------------------------------------------- $100,000 - $249,999 3.50% 3.63% 3.00% - ------------------------------------------------------------------------------------------------------------------------------- $250,000 - $499,999 2.50% 2.56% 2.15% - ------------------------------------------------------------------------------------------------------------------------------- $500,000 - $999,999 2.00% 2.04% 1.70% - ------------------------------------------------------------------------------------------------------------------------------- $1,000,000 or more None None * - ------------------------------------------------------------------------------------------------------------------------------- * The Distributor may, at its discretion, pay investment dealers who initiate and are responsible for such purchases a commission of up to the following amounts: 1% on the first $2 million invested; .80% on the next $1 million; .20% on the next $2 million; and .08% on the excess over $5 million. These commissions are not payable if the purchase represents the reinvestment of a redemption made during the previous 12 calendar months.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of $1,000,000 or more of Class A shares of the Fund, a CDSC, at the rate of 1% of the lesser of the purchase price or the net asset value at the time of redemption, applies to redemptions of shares within one year after purchase. If an exchange is made to Class A shares of any of New England Cash Management Trust Money Market Series or U.S. Government Series or New England Tax Exempt Money Market Trust (the "Money Market Funds"), then the one-year holding period for purposes of determining the expiration of the CDSC will stop and will resume only when an exchange is made back into Class A shares of a series of New England Funds Trust I or New England Funds Trust II (the "Trusts"). If the Money Market Fund shares are redeemed rather than exchanged back into the Trusts, then a CDSC applies to the redemptions. For purposes of the CDSC, it is assumed that the shares held the longest are the first to be redeemed. No CDSC applies to a redemption of shares followed by a reinvestment effected within 30 days after the date of the redemption. CLASS B SHARES Class B shares are offered at net asset value, without an initial sales charge, subject to a 0.25% annual service fee, a 0.75% annual distribution fee for 8 years (at which time they automatically convert to Class A shares) and a CDSC if they are redeemed within 5 years of purchase. The holding period for purposes of timing the conversion to Class A shares and determining the CDSC will continue to run after an exchange to Class B shares of any series of the Trusts. If the exchange is made to Class B shares of a Money Market Fund, then the holding period stops and will resume only when an exchange is made back into Class B shares of a series of the Trusts. If the Money Market Fund shares are redeemed rather than exchanged back into the Trusts, then a CDSC applies on the redemptions, at the same rate as if the Class B shares of the Fund had been redeemed at the time they were exchanged for Money Market Fund shares. For purposes of the CDSC, it is assumed that the shares held the longest are the first to be redeemed. The CDSC will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares of the Fund purchased with reinvested dividends or capital gains distributions. [TO MAKE INVESTING EVEN EASIER, YOU CAN ALSO ORDER PERSONALIZED INVESTMENT SLIPS BY CALLING 1-800-225-5478 BETWEEN 8:00 A.M. AND 7:00 P.M. (EASTERN TIME).] The amount of the CDSC, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. The CDSC equals the following percentages of the dollar amounts subject to the charge: CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE ------------------- ------------------------ 1st........................ 4% 2nd........................ 3% 3rd........................ 3% 4th........................ 2% 5th........................ 1% thereafter................. 0% Year one ends one year after the day on which the purchase was accepted, and so on. The CDSC is deducted from the proceeds of the redemption, unless otherwise requested, and is paid to the Distributor. The CDSC may be eliminated for certain persons and organizations. See "Sales Charges - General" below. At the time of sale, the Distributor pays investment dealers a commission of up to 3.75% and advances the first year's service fee (up to 0.25%) on purchases of Class B shares. CLASS C SHARES Class C shares are offered at net asset value, without an initial sales charge or CDSC; are subject to a 0.25% annual service fee and a 0.75% annual distribution fee; and do not convert into another class. CLASS Y SHARES Class Y shares are offered to eligible investors at net asset value, without an initial sales charge or CDSC, and are not subject to a service fee or distribution fee. DECIDING WHICH CLASS TO PURCHASE The decision as to whether Class A, Class B or Class C shares are more appropriate for an investor depends on the amount and intended length of the investment. Investors making large investments, qualifying for a reduced initial sales charge, might consider Class A shares because Class A shares have lower 12b-1 fees and pay correspondingly higher dividends per share. For these reasons, the Distributor will treat any order of $1 million or more for Class B shares as a Class A order. Any order of $1 million or more for Class C shares will be treated as an order for Class A shares, unless you indicate on the relevant section of your application that you have been informed of the relative advantages and disadvantages of Class A and Class C shares. Investors making smaller investments might consider Class B or Class C shares because 100% of the purchase is invested immediately. Investors making smaller investments who anticipate redeeming their shares within five years may find Class C shares more favorable than Class B shares, because Class B shares are subject to a CDSC on redemptions made within five years after purchase. Class B shares are more favorable than Class C shares for investors who anticipate holding their investment for more than eight years, since Class B shares convert to Class A shares (and thus bear lower ongoing fees) after eight years. In general, investors who are eligible to purchase Class Y shares should do so in preference over other Classes, because Class Y shares do not bear the sales loads, CDSCs or 12b-1 fees that apply to other classes. Consult your investment dealer for advice applicable to your particular circumstances. [A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE? YOUR CHOICE OF SHARE CLASS DEPENDS ON THE SIZE OF YOUR INVESTMENT AND HOW LONG YOU INTEND TO HOLD YOUR SHARES. IN GENERAL, THERE ARE ONLY MINOR DIFFERENCES IN PERFORMANCE RESULTS FOR THE DIFFERENT CLASSES IF HELD FOR THE LONG TERM. CONSULT YOUR FINANCIAL REPRESENTATIVE FOR HELP IN DECIDING WHICH CLASS IS APPROPRIATE FOR YOU.] GENERAL NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions by retirement plans qualified under Code Sections 401(a) or 403(b)(7) when such redemptions are necessary to make distributions to plan participants; (2) distributions from an IRA due to death, disability or a tax-free return of an excess contribution; (3) distributions by other employee benefit plans to pay benefits; and (4) distributions by a Section 401(a) plan due to death. For 403(b)(7) and IRA accounts established before January 3, 1995, the CDSC is waived for redemptions made after attainment of age 59 1/2. The CDSC is waived for redemptions made to make required minimum distributions after attainment of age 70 1/2 for 403(b)(7) and IRA accounts established on or after January 3, 1995. There is also no CDSC on redemptions following the death or disability (as defined in Section 72(m)(7) of the Code) of a shareholder if the redemption is made within one year after the shareholder's death or disability. Also, there is no CDSC on certain withdrawals pursuant to a Systematic Withdrawal Plan. See "Selling Fund Shares -- 4 Ways to Sell Fund Shares -- By Systematic Withdrawal Plan" below. The Fund receives the net asset value next determined after an order is received on sales of each class of shares. The sales charge is allocated between the investment dealer and the Distributor. The Distributor receives the CDSC. For purposes of the CDSC, an exchange from one series of one of the Trusts to another series of one of the Trusts is not considered a redemption or a purchase. For federal tax purposes, however, such an exchange is considered a redemption and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or a loss. The Distributor may, at its discretion, reallow the entire sales charge imposed on the sale of Class A shares to investment dealers from time to time. The staff of the SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of a fund's shares. For new amounts invested, the Distributor may, at its expense, pay investment dealers who sell shares of the Fund at net asset value to an eligible governmental authority .025% of the average daily net assets of an account at the end of each calendar quarter for up to one year. These commissions are not payable if the purchase represents the reinvestment of redemption proceeds from any series of the Trusts or if the account is registered in street name. The Distributor may, at its expense, provide additional promotional incentives or payments to dealers who sell shares of the Fund. In some instances these incentives are provided to certain dealers who achieve sales goals or who have sold or may sell significant amounts of shares. The Distributor from time to time may provide financial assistance programs to dealers in connection with conferences, sales or training programs, seminars, advertising and sales campaigns and/or shareholder services arrangements. Certain dealers who have sold or may sell significant amounts of shares also may receive compensation in the form of payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives to locations, within or outside of the U.S., for educational seminars or meetings of a business nature. The Distributor may provide non-cash incentives for achievement of specified sales levels by representatives of participating broker-dealers and financial institutions. Such incentives include, but are not limited to, merchandise from gift catalogues or other sources. The participation of representatives in such incentive programs is at the discretion of the broker-dealer or financial institution with which the representative is associated. The New England has entered into an arrangement (the "Program") with B'nai B'rith relating to the marketing of certain insurance and investment products of The New England and its affiliates to members of B'nai B'rith and certain other purchasers. New England Securities Corporation ("NES"), a broker-dealer subsidiary of The New England, may pay a broker-dealer affiliate of B'nai B'rith ("BBBD") an amount equal to 10% of the dealer concession or reallowance and servicing fees received by NES from the Distributor with respect to shares of the Fund and other series of the Trusts sold by NES under the Program. The Distributor has agreed to compensate BBBD to the extent that the foregoing payments by NES to BBBD fall short of 0.10% annually of the average daily net asset value of shares of the series of the Trusts sold under the Program that remain outstanding. REDUCED SALES CHARGES (CLASS A SHARES ONLY) * LETTER OF INTENT -- if aggregate purchases of all series and classes of the Trusts over a 13-month period will reach a breakpoint (a dollar amount at which a lower sales charge applies), smaller individual amounts can be invested at the sales charge applicable to that breakpoint. * COMBINING ACCOUNTS -- purchases by all qualifying accounts of all series and classes of the Trusts (which do not include the Money Market Funds unless the shares were purchased through an exchange from a series of the Trusts) may be combined with purchases of qualifying accounts of a spouse, parents, children, siblings, grandparents or grandchildren, individual fiduciary accounts, sole proprietorships and/or single trust estates. The values of all accounts are combined to determine the sales charge. * ENDOWMENTS, FOUNDATIONS AND CHARITABLE ORGANIZATIONS -- no sales charge applies to purchases of Class A shares by endowments, foundations and charitable organizations. (Note that endowments and foundations investing more than $1 million will be eligible to purchase Class Y shares when such shares become available for purchase. Class Y shares have a lower expense ratio than Class A shares because of the absence of 12b-1 fees.) * UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust distributions of less than $1 million may be invested in Class A shares of the Fund at a reduced sales charge of 1.50% of the public offering price (or 1.52% of the net amount invested). * ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC applies to investments by any state, county or city or any instrumentality, department, authority or agency thereof that has determined that the Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company. * CLIENTS OF AN ADVISER OR SUBADVISER -- no sales charge or CDSC applies to investments in the Fund 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 parents, spouses and children of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype Plan document of an adviser or subadviser to any series of the Trusts if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of an adviser or subadviser to any series of the Trusts. Any investor eligible for these arrangements should so indicate in writing at the time of the purchase. * Shares of the Fund may be purchased at net asset value by investment advisers, financial planners or other intermediaries who place trades for their own accounts or the accounts of their clients and who charge a management, consulting or other fee for their services; clients of such investment advisers, financial planners or other intermediaries who place trades for their own accounts if the accounts are linked to the master account of such investment adviser, financial planner or other intermediary on the books and records of the broker or agent; and retirement and deferred compensation plans and trusts used to fund those plans, including, but not limited to, those defined in Section 401(a), 403(b) or 457 of the Internal Revenue Code and rabbi trusts. Investors may be charged a fee if they effect transactions through a broker or agent. * There is no sales charge, CDSC or initial investment minimum related to investments by certain current and retired employees of the Trusts' investment advisers or subadvisers, the Distributor or any other company affiliated with The New England; current and former directors and trustees of the Trusts or their predecessor companies; agents and general agents of The New England and its insurance company subsidiaries; current and retired employees of such agents and general agents; registered representatives of broker-dealers that have selling arrangements with the Distributor; the spouse, parents, children, siblings, grandparents or grandchildren of the persons listed above; any trust, pension, profit sharing or other benefit plan for any of the foregoing persons; and any separate account of The New England or of any insurance company affiliated with The New England. * Shareholders of Reich & Tang Government Securities Trust may exchange their shares of that fund for Class A shares of any series of the Trusts at net asset value and without the imposition of a sales charge. The reduction or elimination of the sales charge in connection with sales described above reflects the absence or reduction of sales expenses associated with such sales. - -------------------------------------------------------------------------------- Owning Fund Shares - -------------------------------------------------------------------------------- EXCHANGING AMONG NEW ENGLAND FUNDS [AUTOMATIC EXCHANGE PLAN THE FUND HAS AN AUTOMATIC EXCHANGE PLAN UNDER WHICH SHARES OF A CLASS OF THE FUND ARE AUTOMATICALLY EXCHANGED EACH MONTH FOR SHARES OF THE SAME CLASS OF OTHER SERIES OF THE TRUSTS (OTHER THAN NEW ENGLAND GROWTH FUND, WHICH IS AVAILABLE ONLY TO CERTAIN ELIGIBLE INVESTORS). THE MINIMUM MONTHLY EXCHANGE AMOUNT UNDER THE PLAN IS $50. THERE IS NO FEE FOR EXCHANGES MADE PURSUANT TO THIS PROGRAM, BUT THERE MAY BE A SALES CHARGE AS DESCRIBED ON THIS PAGE.] CLASS A SHARES Except as indicated in the next two sentences, you may exchange Class A shares of any series of the Trusts (and Class A shares of the Money Market Funds acquired through exchanges from any of the series of the Trusts) for Class A shares of any other series of the Trusts (except New England Growth Fund, which is subject to special eligibility restrictions) without paying a sales charge; such exchanges will be made at the next-determined net asset value of the shares. Class A shares of New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York (and shares of the Money Market Funds acquired through exchanges of such shares) may be exchanged for Class A shares of another series of the Trusts at net asset value (or at a reduced sales charge) only if you have held them for at least six months; otherwise, sales charges apply to the exchange. If you exchange your Class A shares of New England Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund") for shares of another series of the Trusts that has a higher sales charge, you will pay the difference between any sales charge you have already paid on your Adjustable Rate Fund shares and the higher sales charge of the series into which you are exchanging. In addition, you may redeem Class A shares of any Money Market Fund that were not acquired through exchanges from any series of the Trusts and have the proceeds directly applied to the purchase of shares of a series of the Trusts at the applicable sales charge. CLASS B SHARES You may exchange Class B shares of the Fund or any series of the Trusts (and Class B shares of the Money Market Funds or Class A shares of the Money Market Funds which have not been subject to a previous sales charge) for Class B shares of any other series of the Trusts (except New England Growth Fund, which does not offer Class B shares). Such exchanges will be made at the next determined net asset value of the shares. Class B shares will automatically convert on a tax-free basis to Class A shares eight years after they are purchased (excluding the time the shares are held in a Money Market Fund). See "Sales Charges - Class B Shares" above. CLASS C SHARES You may exchange Class C shares of the Fund or any other series of the Trusts for Class C shares of any other series of the Trusts which offers Class C shares or for Class A shares of the Money Market Funds. CLASS Y SHARES A shareholder may exchange Class Y shares of the Fund or any other series of the Trusts for Class Y shares of any other series of the Trusts which offers Class Y shares or for Class A shares of the Money Market Funds. TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time), call Tele#Facts at 1-800-346-5984 twenty-four hours a day or write to New England Funds. Exchange requests accepted after 4:00 p.m. (Eastern time), or after the Exchange closes if it closes earlier than 4:00 p.m., will be processed at the net asset value determined at the close of regular trading on the next day that the Exchange is open. The exchange must be for a minimum of $500 (or the total net asset value of your account, whichever is less), except that under the Automatic Exchange Plan the minimum is $50. All exchanges are subject to the minimum investment and eligibility requirements of the series into which you are exchanging. In connection with any exchange, you must receive a current prospectus of the series into which you are exchanging. The exchange privilege may be exercised only in those states where shares of such other series may be legally sold. You have the automatic privilege to exchange your Fund shares by telephone. New England Funds, L.P. will employ reasonable procedures to confirm that your telephone instructions are genuine, and, if it does not, it may be liable for any losses due to unauthorized or fraudulent instructions. New England Funds, L.P. will require a form of personal identification prior to acting upon your telephone instructions, will provide you with written confirmations of such transactions and will record your instructions. Except as otherwise permitted by SEC rule, shareholders will receive at least 60 days' advance notice of any material change to the exchange privilege. FUND DIVIDEND PAYMENTS The Fund pays dividends annually. The Fund pays as dividends substantially all net investment income (other than long-term capital gains) each year and distributes annually all net realized long-term capital gains (after applying any available capital loss carryovers). The trustees of the Trust may adopt a different schedule as long as payments are made at least annually. If you intend to purchase shares of the Fund shortly before it declares a dividend, you should be aware that a portion of the purchase price may be returned to you as a taxable dividend. You have the option to reinvest all distributions in additional shares of the same class of the Fund or in shares of the same class of other series of the Trusts, to receive distributions from dividends and interest in cash while reinvesting distributions from capital gains in additional shares of the same class of the Fund or the same class of shares of other series of the Trusts, or to receive all distributions in cash. Income distributions and capital gains distributions will be reinvested in shares of the same class of the Fund at net asset value (without a sales charge or CDSC) unless you select another option. You may change your distribution option by notifying New England Funds in writing or by calling 1-800-225-5478. If you elect to receive your dividends in cash and the dividend checks sent to you are returned undeliverable to the Fund or remain uncashed for six months, your cash election will automatically be changed and your future dividends will be reinvested. - -------------------------------------------------------------------------------- DIVIDEND DIVERSIFICATION PROGRAM - -------------------------------------------------------------------------------- You may also establish a dividend diversification program that allows you to have all dividends and any other distributions automatically invested in shares of the same class of another New England Fund, subject to the investor eligibility requirements of that other fund and to state securities law requirements. Shares will be purchased at the selected fund's net asset value (without a sales charge or CDSC) on the dividend record date. A dividend diversification account must be in the same registration (shareholder name) as the distributing fund account and, if a new account in the purchased fund is being established, the purchased fund's minimum investment requirements must be met. Before establishing a dividend diversification program into any other New England Fund, you must obtain a copy of that fund's prospectus. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Selling Fund Shares - -------------------------------------------------------------------------------- 4 WAYS TO SELL FUND SHARES You may sell shares of the Fund in the following ways: [] THROUGH YOUR INVESTMENT DEALER (CLASS A, CLASS B AND CLASS C ONLY): Call your authorized investment dealer for information. [] BY TELEPHONE: You or your investment dealer may redeem (sell) shares by telephone using any of the three methods described below: WIRED TO YOUR BANK ACCOUNT -- If you have previously selected the telephone redemption privilege on your account, shares may be redeemed by calling 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) or by calling Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds (less any applicable CDSC) generally will be wired on the next business day to the bank account previously chosen by you on your application. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank must be a member of the Federal Reserve System or have a correspondent bank that is a member. If your account is with a savings bank, it must have only one correspondent bank that is a member of the System. MAILED TO YOUR ADDRESS OF RECORD -- Shares may be redeemed by calling 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) and requesting that a check for the proceeds (less any applicable CDSC) be mailed to the address on your account, provided that the address has not changed over the previous month and that the proceeds are for $100,000 or less. Generally, the check will be mailed to you on the business day after your redemption request is received. THROUGH ACH -- Class A, Class B and Class C shares may be redeemed electronically through the ACH system, provided that you have an approved ACH application on file with the Fund. To redeem through ACH, call 1-800-225-5478 between 8:00 a.m. and 7:00 p.m. (Eastern time) on a day when the Fund is open for business or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. The proceeds (less any applicable CDSC) generally will arrive at your bank within three business days; their availability will depend on your bank's particular rule. Redemption requests accepted after 4:00 p.m. (Eastern time), or after the Exchange closes if it closes earlier than 4:00 p.m., will be processed at the net asset value determined at the close of regular trading on the next day that the Exchange is open. [] BY MAIL: You may redeem your shares at their net asset value (less any applicable CDSC) next determined after receipt of your request in good order by sending a written request (including any necessary special documentation) to New England Funds, P.O. Box 8551, Boston, MA 02266-8551. The request must include the name of the Fund, your account number, the exact name(s) in which your shares are registered, the number of shares or the dollar amount to be redeemed and whether you wish the proceeds mailed to your address of record, wired to your bank account or transmitted through ACH. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on your confirmation statement) and indicate any special capacity in which you are signing (such as trustee, custodian, under power of attorney or on behalf of a partnership, corporation or other entity). If you are redeeming shares worth less than $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address, no signature guarantee is required. Otherwise, you generally must have your signature guaranteed by an eligible guarantor institution in accordance with procedures established by New England Funds, L.P. Signature guarantees by notaries public are not acceptable. Additional written information may be required for redemptions by certain benefit plans and IRAs. Contact the Distributor or your investment dealer for details. If you hold certificates for your Class A shares, you must enclose them with your redemption request or your request will not be honored. The Fund recommends that certificates be sent by registered mail. [] BY SYSTEMATIC WITHDRAWAL PLAN (CLASS A, CLASS B AND CLASS C ONLY): You may establish a Systematic Withdrawal Plan that allows you to redeem shares and receive payments on a regular schedule. In the case of shares subject to a CDSC, the amount or percentage you specify may not exceed, on an annualized basis, 10% of the value of your Fund account. Redemption of shares pursuant to the Plan will not be subject to a CDSC. For information, contact the Distributor or your investment dealer. Since withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. GENERAL. Redemption requests will be effected at the net asset value next determined after your redemption request is received in proper form by State Street Bank or your investment dealer (except that orders received by your investment dealer before the close of regular trading on the Exchange and transmitted to the Distributor by 5:00 p.m. (Eastern time) on the same day will receive that day's net asset value). Redemption proceeds (LESS ANY APPLICABLE CDSC) will normally be mailed to you within seven days after State Street Bank or the Distributor receives your request in good order. However, in those cases where you have recently purchased your shares by check or an electronic funds transfer through the ACH system and you make a redemption request within 10 days after such purchase or transfer, the Fund may withhold redemption proceeds until the Fund knows that the check or funds have cleared. During periods of substantial economic or market change, telephone redemptions may be difficult to implement. If you are unable to contact the Distributor by telephone, shares may be redeemed by delivering the redemption request in person to the Distributor or by mail as described above. Requests are processed at the net asset value next determined after the request is received. Special rules apply with respect to redemptions under powers of attorney. Please call your investment dealer or the Distributor for more information. Telephone redemptions are not available for tax qualified retirement plans or for Fund shares held in certificate form. If certificates have been issued for your investment, you must send them to New England Funds along with your request before a redemption request can be honored. See the instructions for redemption by mail above. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. REPURCHASE OPTION (CLASS A SHARES ONLY) You may apply your Class A share redemption proceeds (without a sales charge) to the repurchase of Class A shares of any series of the Trusts. To qualify, you must reinvest some or all of the proceeds within 120 days after your redemption and notify New England Funds or your investment dealer at the time of reinvestment that you are taking advantage of this privilege. You may reinvest the proceeds either by returning the redemption check or by sending your check for some or all of the redemption amount. Please note: For federal income tax purposes, a redemption is a sale that involves tax consequences (even if the proceeds are later reinvested). Please consult your tax adviser. - -------------------------------------------------------------------------------- Fund Details - -------------------------------------------------------------------------------- HOW FUND SHARE PRICE IS DETERMINED The net asset value of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern time) on the Exchange on each day that the Exchange is open for trading. A security that is primarily traded on a domestic or foreign securities exchange will be valued at the last sale price on that exchange or, if no sales occurred during the day, at the last quoted bid price. Securities traded primarily on an exchange outside the United States which closes before the close of the Exchange, such as the TASE, generally will be valued for purposes of calculating the Fund's net asset value at the last sale or bid price on that non-U.S. exchange, except that when an occurrence after the closing of that exchange is likely to have materially changed such a security's value, such security will be valued at fair value as of the close of regular trading on the Exchange. An option that is written by the Fund generally will be valued at the last sale price or, in the absence of the last sale price, the last offer price. An option that is purchased by the Fund is generally valued at the last sale price or, in the absence of the last sale price, at the last bid price. The value of a futures contract will be equal to the unrealized gain or loss on the contract that is determined by marking the contract to the current settlement price. A settlement price may not be used if the market makes a limit move with respect to a particular futures contract or if the securities underlying the futures contract experience significant price fluctuations after the determination of the settlement price. When a settlement price cannot be used, futures contracts will be valued at their fair value as determined by or under the direction of the Trust's Board of Trustees. Any assets initially expressed in terms of shekels or other foreign currency will be translated into U.S. dollars at the prevailing market rate on the date of net asset value computation, or, if no such rate is quoted at such time, at such other appropriate rate as may be determined by or under the direction of the Trust's Board of Trustees. The TASE trades on Sundays and certain other customary U.S. business holidays on which the Exchange is not open for trading. Even though the Fund's assets traded on the TASE may continue to trade on these days, the Fund will not accept orders and the net asset value of the Fund's shares will not be determined on these days. As a result, investors will not be able to purchase, sell or exchange shares on these days even though the TASE is open for trading on those days and the net asset value may be significantly affected by trading on the TASE. The net asset value per share of each class is determined by dividing the value of each class's securities (the current U.S. dollar value, in the case of securities principally traded outside the United States) plus any cash and other assets (including dividends and interest receivable but not collected) less all liabilities (including accrued expenses), by the number of shares of such class outstanding. The public offering price of the Fund's Class A shares is determined by adding the applicable sales charge to the net asset value. See "Buying Fund Shares - Sales Charges" above. The public offering price of Class B, Class C and Class Y shares is the net asset value per share. The price you pay for a share will be determined using the next set of calculations made after your order is accepted by New England Funds, L.P. In other words, if, on a Tuesday morning, your properly completed application is received, your wire is received or your dealer places your trade for you, the price you pay will be determined by the calculations made as of the close of regular trading on the Exchange on Tuesday. If you buy shares through your investment dealer, the dealer must receive your order by the close of regular trading on the Exchange and transmit it to the Distributor by 5:00 p.m. (Eastern time) to receive that day's public offering price. INCOME TAX CONSIDERATIONS The Fund intends to meet all requirements of the Code necessary to qualify as a regulated investment company and thus does not expect to pay any U.S. federal income tax on investment income and capital gains distributed to shareholders in cash or in additional shares. Unless you are a tax-exempt entity, your distributions derived from the Fund's short-term capital gains and ordinary income are taxable to you as ordinary income. (These distributions are unlikely to qualify for the dividends-received deduction for corporations.) Distributions derived from the Fund's long-term capital gains ("capital gains distributions"), if designated as such by the Fund, are taxable to you as long-term capital gains, regardless of how long you have owned shares in the Fund. Both income distribution and capital gains distributions are taxable whether you elected to receive them in cash or additional shares. To avoid an excise tax, the Fund intends to distribute prior to calendar year end virtually all the Fund's ordinary income and net capital gains earned during that calendar year. If declared in December to shareholders of record in that month, and paid the following January, these distributions will be considered for federal income tax purposes to have been received by shareholders on December 31. The Fund is required to withhold 31% of all income dividends and capital gains distributions it pays to you if you do not provide a correct, certified taxpayer identification number, if the Fund is notified that you have underreported income in the past or if you fail to certify to the Fund that you are not subject to such withholding. In addition, the Fund will be required to withhold 31% of the gross proceeds of Fund shares you redeem if you have not provided a correct, certified taxpayer identification number. If you are a tax-exempt shareholder, however, these back-up withholding rules will not apply so long as you furnish the Fund with an appropriate certification. Annually, if you earn more than $10 in taxable income from the Fund, you will receive a Form 1099 to assist you in reporting the prior calendar year's distributions on your federal income tax return. You should consult your tax adviser about any state or local taxes that may apply to such distributions. Be sure to keep the Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. The Fund may be liable to foreign governments for taxes relating primarily to investment income or capital gains on foreign securities in the Fund's portfolio. See "Israeli Taxes" below. The Fund may in some circumstances be eligible to, and in its discretion may, make an election under the Code which would allow Fund shareholders who are U.S. citizens or U.S. corporations to claim a foreign tax credit or deduction (but not both) on their U.S. income tax return. If the Fund makes the election, the amount of each shareholder's distribution reported on the information returns filed by the Fund with the Internal Revenue Service must be increased by the amount of the shareholder's portion of the Fund's foreign tax paid. The foregoing is a summary of certain federal income tax consequences of an investment in the Fund for shareholders who are U.S. citizens or corporations. Shareholders should consult a competent tax adviser as to the effect of an investment in the Fund on their particular federal, state and local tax situations and about consequences of their investment under Israeli tax law. [AVERAGE COST STATEMENT IF YOU HAVE EXCHANGED OR REDEEMED SHARES DURING THE YEAR, YOU WILL RECEIVE A STATEMENT THAT SHOWS THE COST BASIS OF THOSE SHARES, WHICH SHOULD HELP YOU DETERMINE YOUR GAIN OR LOSS FOR TAX PURPOSES.] ISRAELI TAXES The following is a short summary of the tax structure applicable to corporations in Israel with reference to its effect on the Fund. The following discussion relates in part to enacted Israeli legislation that has not been subjected to judicial or administrative interpretation. There can be no assurance that views expressed herein will be accepted by the courts or by the Israeli Tax Commission. Capital Gains Tax. The Israeli Income Tax Ordinance [New Version] imposes a tax on capital gains derived by residents of Israel, or by non-residents of Israel who sell assets which represent a direct or an indirect interest in Israeli assets. The Fund, however, will generally be exempt from such capital gains tax. Pursuant to the tax treaty between the United States and Israel (the "Treaty"), the sale, exchange or disposition of securities by a person, such as the Fund, qualifying as a resident of the United States within the meaning of the Treaty and entitled to claim the benefits afforded to such resident by the Treaty will generally not be subject to the Israeli capital gains tax. See the SAI for further details. Withholding Tax on Payments of Dividends and Interest. Non-residents of Israel, including the Fund, are subject to Israeli income tax on income accrued or derived from sources in Israel or received in Israel. Generally, on distributions of dividends other than bonus shares (stock dividends), income tax at a rate of 25% is withheld at the source. Interest paid on debt securities is generally subject to income tax a rate of 25%. However, pursuant to the Treaty, such rate is reduced to 17.5% for U.S. residents. OTHER TAXATION Distributions also may be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. This discussion is limited only to U.S. federal income tax and Israeli income tax. Moreover, the U.S. federal income tax and Israeli income tax discussion set forth above is a summary included for general information purposes only. In view of the individual nature of tax consequences, each investor is advised to consult its own tax adviser with respect to the specific tax consequences to it of participation in the Fund, including the effect and applicability of state, local, foreign and other tax laws and the possible effects of changes in federal or other tax laws. THE FUND'S EXPENSES In addition to the management fee paid to NEFM, the Fund pays all expenses not borne by NEFM, the subadvisers or the Distributor, including, but not limited to, the charges and expenses of the Fund's custodian and transfer agent, independent auditors and legal counsel for the Fund and the Trust's independent trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under federal and state securities laws, all expenses of shareholders' and trustees' meetings, preparing, printing and mailing prospectuses and reports to shareholders and the compensation of trustees of the Trust who are not directors, officers or employees of The New England or its affiliates, other than affiliated registered investment companies. Under a Service Plan in the case of Class A shares, and a Service and Distribution Plan in the case of Class B and Class C shares, adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor a monthly service fee at an annual rate not to exceed 0.25% of the Fund's average daily net assets attributable to 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, for providing personal services to investors in shares of the Fund and/or the maintenance of shareholder accounts. In the case of the Class B shares, the Distributor pays investment dealers at the time of the sale the first year's service fee, in the amount of up to 0.25% of the amount invested. The Class A service fee is payable only to reimburse the Distributor for amounts it pays or expends in connection with the provision of personal services to investors and/or the maintenance of shareholder accounts. To the extent that the Distributor's reimbursable expenses in any year exceed the maximum amount payable under the relevant Service Plan for that year, such expenses may be carried forward for reimbursement in future years in which the Plan remains in effect. The Class B and Class C service fees are payable regardless of the amount of the Distributor's related expenses. The Fund's Class B and Class C shares also pay the Distributor a monthly distribution fee at an annual rate not to exceed 0.75% of the average net assets of the 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. The Distributor retains the balance of the fee as compensation for its services as distributor of the Class B and Class C shares. PERFORMANCE CRITERIA The Fund may include total return information for each class of shares in advertisements or other written sales material. The Fund may show each class's average annual total return for the one-, five- and ten-year periods (or the life of the class, if shorter) through the end of the most recent calendar quarter. Total return is measured by comparing the value of a hypothetical $1,000 investment in a class at the beginning of the relevant period to the value of the investment at the end of the period (assuming deduction of the current maximum sales charge on Class A shares, automatic reinvestment of all dividends and capital gains distributions and, in the case of Class B shares, imposition of the CDSC relevant to the period quoted). Total return may be quoted with or without giving effect to any voluntary expense limitations in effect for the class in question during the relevant period. The class may also show total return over other periods, on an aggregate basis for the period presented, or without deduction of a sales charge. If a sales charge is not deducted in calculating total return, the class's total return will be higher. Total return will generally be higher for Class A shares than for Class B and Class C shares, because of the higher levels of expenses borne by Class B and Class C shares. An investor should balance this expected lower total return against the benefit gained by 100% immediate investment of the purchase price of Class B or Class C shares. As a result of lower operating expenses, Class Y shares can be expected to achieve a higher investment return than Class A, Class B or Class C shares. All performance information is based on past results and is not an indication of likely future performance. ADDITIONAL FACTS ABOUT THE FUND * New England Funds Trust II was organized in 1931 as a Massachusetts business trust and is authorized to issue an unlimited number of full and fractional shares in multiple series. The Fund is a newly organized series of the Trust. * When you invest in the Fund, you acquire freely transferable shares of beneficial interest that entitle you to receive dividends as determined by the Trust's trustees and to cast a vote for each share you own at shareholder meetings. Shares of the Fund vote separately from shares of other series of the Trust, except as otherwise required by law. Shares of all classes of the Fund vote together, except as to matters relating to the Rule 12b-1 plan that applies to the Class A, Class B or Class C shares, on which only shares of that class are entitled to vote. No Rule 12b-1 plan applies to the Class Y shares of the Fund. * Except for matters that are explicitly identified as "fundamental" in this prospectus or the SAI, the investment policies of the Fund may be changed without shareholder approval or, in most cases, prior notice. The investment objective of the Fund is not fundamental. If there is a change in the Fund's objective, shareholders should consider whether the Fund remains an appropriate investment in light of their current financial position and needs. * The Trust does not generally hold regular shareholder meetings and will do so only when required by law. Shareholders of the Trust may remove the trustees of the Trust from office by votes cast at a shareholder meeting or by written consent. * The transfer and dividend paying agent for the Fund is New England Funds, L.P., 399 Boylston Street, Boston, MA 02116. New England Funds, L.P. has subcontracted certain of its obligations as such to State Street Bank, 225 Franklin Street, Boston, MA 02110. * If the balance in your account with the Fund is less than a minimum amount set by the trustees of the Trust from time to time (currently $500 for all accounts, except for those indicated below and for Individual Retirement Accounts, which have a $25 minimum), the Fund may close your account and send the proceeds to you. Shareholders who are affected by this policy will be notified of the Fund's intention to close the account and will have 60 days immediately following the notice to bring the account up to the minimum. The minimum does not apply to Keogh, pension and profit sharing plans, automatic investment plans or accounts that have fallen below the minimum solely because of fluctuations in the Fund's net asset value per share. * The Fund's annual report contains additional performance information and will be made available upon request and without charge. * The Class A, Class B, Class C and Class Y structure could be terminated should certain IRS rulings be rescinded. * Summit Cash Reserves Fund (the "Cash Fund"), a series of Financial Institutions Series Trust, is related to the Fund for purposes of investment and investor services. Shares of all classes of the Fund may be exchanged for shares of the Cash Fund at net asset value. If shares of the Fund that are exchanged for shares of the Cash Fund are subject to a CDSC, the holding period for purposes of determining the expiration of the CDSC will stop and resume only when an exchange is made back into shares of the Fund. If Fund shares subject to a CDSC are exchanged for Cash Fund shares and the Cash Fund shares are later redeemed rather than being exchanged back into shares of any series of the Trusts, then a CDSC will apply at the same rate as if the Fund shares were redeemed at the time of the exchange. - -------------------------------------------------------------------------------- Glossary of Terms - -------------------------------------------------------------------------------- CAPITAL GAIN DISTRIBUTIONS -- Payments to shareholders of profits earned from selling securities in a fund's portfolio. Capital gain distributions are usually paid once a year. CONTINGENT DEFERRED SALES CHARGE (CDSC) -- A fee that may be charged when a shareholder sells fund shares. DISTRIBUTION FEE -- An annual asset-based sales charge that is used to pay for sales-related expenses. INCOME DISTRIBUTIONS -- Payments to shareholders resulting from interest or dividend income earned by a fund's portfolio. MUTUAL FUND -- The pooled assets of a group of investors, professionally managed in pursuit of a specific objective. NET ASSET VALUE (NAV) -- The market value of one share of a mutual fund on any given day without sales charge or CDSC. Determined by dividing the fund's total net assets by the number of fund shares outstanding. NEW ENGLAND FUNDS, L.P. -- The distributor and transfer agent of the New England Funds. OPEN END INVESTMENT MANAGEMENT COMPANY -- A mutual fund that allows investors to redeem fund shares directly from the fund company on any business day. PUBLIC OFFERING PRICE -- The price of one share of a mutual fund, including its initial sales charge, if there is one. RECORD DATE -- The date on which mutual fund investors must own a fund's shares to be eligible to receive specific income or capital gain distributions. SERVICE FEE -- Payments by a fund for personal services to investors and/or for maintenance of shareholder accounts by the fund's distributor or a financial representative. TOTAL RETURN -- The change in value of an investment in a fund investment over a specific time period, assuming all earnings are reinvested in additional shares of the fund. Expressed as a percentage. 12B-1 FEES -- Fees paid by a mutual fund under a plan adopted under 1940 Act Rule 12b-1. Can include both distribution fees and service fees. [LOGO] NEW ENGLAND FUNDS Where The Best Minds Meet(TM) - -------------------------------------------------------------------------------- GROWTH FUND OF ISRAEL STATEMENT OF ADDITIONAL INFORMATION December 29, 1995 As revised August 15, 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 Growth Fund of Israel (the "Fund"). This Statement is not a prospectus and is only authorized for distribution when accompanied or preceded by the prospectus of the Fund dated December 29, 1995, as supplemented from time to time (the "prospectus"). The Statement should be read together with the prospectus. Investors may obtain a free copy of the prospectus from New England Funds, L.P., Prospectus Fulfillment Desk, 399 Boylston Street, Boston, MA 02116. This Statement contains information about the Class A, B, C and Y shares of the Fund. The Fund is a series of New England Funds Trust II (the "Trust"), a registered investment company that offers a total of eight series. T a b l e o f C o n t e n t s Page PART I Investment Restrictions 2 Fund Charges and Expenses 4 PART II Miscellaneous Investment Practices 4 Management of the Trust 11 Portfolio Transactions and Brokerage 17 Description of the Trust and Ownership of Shares 18 How to Buy Shares 21 Net Asset Value and Public Offering Price 21 Reduced Sales Charges 22 Shareholder Services 24 Redemptions 28 Standard Performance Measures 30 Income Dividends, Capital Gain Distributions and Tax Status 34 Financial Statements 37 Appendix A - Description of Bond Ratings 38 Appendix B - Publications That May Contain Fund Information 40 Appendix C - Advertising and Promotional Literature 43 PART I INVESTMENT RESTRICTIONS The following is a description of restrictions on the investments to be made by the Fund, some of which restrictions (those restrictions marked with an asterisk) may not be changed without the approval of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940 [the "1940 Act"]). Except in the case of restriction (14) below, the percentages set forth below and the percentage limitations set forth in the prospectus will apply at the time of the purchase of a security and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of a purchase of such security. The Fund may not: *(1) 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 it owns or, by virtue of ownership of other securities, it has the right to obtain, without payment of further consideration, securities equivalent in kind and amount to those sold. (For this purpose, the deposit or payment by the Fund of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin); (3) 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 33 1/3% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes; (5) Pledge more than 33 1/3% of its total assets (taken at cost). (For the purpose of this restriction, reverse repurchase agreements, collateral arrangements with respect to options, futures contracts, swap contracts and other similar instruments 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 the Trust or of the investment adviser of the Fund who individually own more than 1/2 of 1% of the shares or securities of that issuer, together own more than 5%; *(8) Make loans, except by 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, swap contracts, currency forward contracts, structured notes and other similar instruments. (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 Securities and Exchange Commission (the "SEC"), participate on a joint or joint and several basis in any trading account in securities. (The "bunching" of orders for the purchase or sale of portfolio securities with the Fund's investment subadviser or accounts under its management to reduce brokerage commissions, to average prices among them or to facilitate such transactions is not considered a trading account in securities for purposes of this restriction.); (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, (c) enter into currency forward contracts and (d) invest in structured notes; (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; *(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 restriction (5) above; any borrowing permitted by restriction (4) above; any collateral arrangements with respect to options or 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 instruments; and the issuance of shares of beneficial interest permitted from time to time by the provisions of the Trust's Declaration of Trust and by the 1940 Act, the rules thereunder, or any exemption therefrom. (The Fund is required, under regulatory provisions applicable to it as interpreted by the staff of the SEC, to set aside in a segregated account with its custodian bank liquid, high grade assets in amounts sufficient at all times to satisfy its obligations under options, futures, contracts, forward contracts, swap contracts and other similar instruments.); or (17) Lend its portfolio securities if, as a result, the aggregate amount of such loans outstanding at any one time would exceed 33 1/3% of the Fund's total assets (taken at current value). The staff of the Securities and Exchange Commission (the "SEC") is currently of the view that repurchase agreements maturing in more than seven days are subject to restriction (14) above. As a matter of operating policy, subject to change without shareholder approval, the Fund will not (i) invest more than 5% of the value of its net assets in warrants, or more than 2% of the value of its net assets in warrants that are not listed on either the New York Stock Exchange or the American Stock Exchange (for purposes of this restriction, warrants acquired in units or attached to other securities may be deemed to be without value); (ii) invest in real estate limited partnership interests; or (iii) purchase puts, calls, straddles, spreads and any combination thereof, if by reason thereof the value of its aggregate investment in such classes of securities will exceed 5% of its total assets. FUND CHARGES AND EXPENSES INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES Pursuant to an Advisory Agreement dated December 29, 1995, New England Funds Management, L.P. ("NEFM") has agreed, subject to the supervision of the board of trustees of the Trust, to manage the investment and reinvestment of the assets of the Fund and to provide a range of administrative services to the Fund. For the services described in the Advisory Agreement, the Fund pays NEFM a fee at the annual rate of 1.10% of the Fund's average daily net assets. The Advisory Agreement provides that NEFM may delegate its responsibilities thereunder to other parties. NEFM has delegated responsibility for the investment and reinvestment of the assets of the portfolio to Harris Associates L.P. ("Harris"). NEFM pays Harris a fee for managing the portfolio, at the annual rate of 0.70% of the average daily net assets of the Fund up to $50 million, and 0.60% of such assets in excess of $50 million. Batucha Securities & Investments Ltd. ("Batucha") provides information, advice to the Fund on various matters relating to or affecting Israel, and information on markets and industries in Israel, pursuant to an agreement between NEFM and Batucha. NEFM pays Batucha a fee for such services at the annual rate of 0.10% of the Fund's average daily net assets. For more information about the Fund's investment advisory and subadvisory agreements, see "Management of the Trust" in Part II of this Statement. PART II MISCELLANEOUS INVESTMENT PRACTICES The following information relates to certain investment practices in which the Fund may engage. Loans of Portfolio Securities. The Fund may lend its portfolio securities to broker-dealers under contracts calling for cash collateral equal to at least the market value of the securities loaned, marked to the market on a daily basis. (The Fund at the present time has no intention to engage in the lending of portfolio securities.) The Fund will continue to benefit from interest or dividends on the securities loaned and will also receive interest through investment of the cash collateral in short-term liquid investments, which may include shares of money market funds subject to any investment restriction listed in Part I. Any voting rights, or rights to consent, relating to securities loaned pass to the borrower. However, if a material event affecting the investment occurs, such loans will be called so that the securities may be voted by the Fund. The Fund pays various fees in connection with such loans, including shipping fees and reasonable custodian and placement fees approved by the board of trustees of the Trust or persons acting pursuant to the direction of the board. These transactions must by fully collateralized at all times, but involve some credit risk to the Fund if the other party should default on its obligation and the Fund is delayed in or prevented from recovering the collateral. U.S. Government Securities. The Fund may invest in some or all of the following U.S. Government securities: o U.S. Treasury Bills - Direct obligations of the United States Treasury which are issued in maturities of one year or less. No interest is paid on Treasury bills; instead, they are issued at a discount and repaid at full face value when they mature. They are backed by the full faith and credit of the United States Government. o U.S. Treasury Notes and Bonds - Direct obligations of the United States Treasury issued in maturities that vary between one and 40 years, with interest normally payable every six months. These obligations are backed by the full faith and credit of the United States Government. o "Ginnie Maes" - Debt securities issued by a mortgage banker or other mortgagee which represent an interest in a pool of mortgages insured by the Federal Housing Administration or the Farmer's Home Administration or guaranteed by the Veterans Administration. The Government National Mortgage Association ("GNMA") guarantees the timely payment of principal and interest when such payments are due, whether or not these amounts are collected by the issuer of these certificates on the underlying mortgages. An assistant attorney general of the United States has rendered an opinion that the guarantee by GNMA is a general obligation of the United States backed by its full faith and credit. Mortgages included in single family or multi-family residential mortgage pools backing an issue of Ginnie Maes have a maximum maturity of up to 30 years. Scheduled payments of principal and interest are made to the registered holders of Ginnie Maes (such as the Fund) each month. Unscheduled prepayments may be made by homeowners, or as a result of a default. Prepayments are passed through to the registered holder (such as the Fund, which reinvests any prepayments) of Ginnie Maes along with regular monthly payments of principal and interest. o "Fannie Maes" - The Federal National Mortgage Association ("FNMA") is a government-sponsored corporation owned entirely by private stockholders that purchases residential mortgages from a list of approved seller/servicers. Fannie Maes are pass-through securities issued by FNMA that are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the United States Government. o "Freddie Macs" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the United States Government. Freddie Macs are participation certificates issued by FHLMC that represent an interest in residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but Freddie Macs are not backed by the full faith and credit of the United States Government. U.S. Government securities generally do not involve the credit risks associated with investments in other types of fixed-income securities, although, as a result, the yields available from U.S. Government securities are generally lower than the yields available from corporate fixed-income securities. Like other fixed-income securities, however, the values of U.S. Government securities change as interest rates fluctuate. Fluctuations in the value of portfolio securities will not affect interest income on existing portfolio securities but will be reflected in the Fund's net asset value. Since the magnitude of these fluctuations will generally be greater at times when the Fund's average maturity is longer, under certain market conditions the Fund may, for temporary defensive purposes, accept lower current income from short-term investments rather than investing in higher yielding long-term securities. When-Issued Securities. The Fund may enter into agreements with banks or broker-dealers for the purchase or sale of securities at an agreed-upon price on a specified future date. Such agreements might be entered into, for example, when the Fund anticipates a decline in interest rates and is able to obtain a more advantageous yield by committing currently to purchase securities to be issued later. When the Fund purchases securities in this manner (i.e. on a when-issued or delayed-delivery basis), it is required to create a segregated account with the Trust's custodian and to maintain in that account cash or U.S. Government securities in an amount equal to or greater than, on a daily basis, the amount of the Fund's when-issued or delayed-delivery commitments. The Fund will make commitments to purchase on a when-issued or delayed-delivery basis only securities meeting the Fund's investment criteria. The Fund may take delivery of these securities or, if it is deemed advisable as a matter of investment strategy, the Fund may sell these securities before the settlement date. When the time comes to pay for when-issued or delayed-delivery securities, the Fund will meet its obligations from the then available cash flow or the sale of securities, or from the sale of the when-issued or delayed-delivery securities themselves (which may have a value greater or less than the Fund's payment obligation). Repurchase Agreements. The Fund may enter into repurchase agreements by which the Fund purchases a security and obtains a simultaneous commitment from the seller to repurchase the security at an agreed-upon price and date. The resale price is in excess of the purchase price and reflects an agreed-upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash at minimal market risk. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government and there is a risk that the seller may fail to repurchase the underlying security. In such event, the Fund would attempt to exercise rights with respect to the underlying security, including possible disposition in the market. However, the Fund may be subject to various delays and risks of loss, including (a) possible declines in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto, (b) possible reduced levels of income and lack of access to income during this period and (c) inability to enforce rights and the expenses involved in the attempted enforcement. Zero Coupon Securities. Zero coupon securities are debt obligations that do not entitle the holder to any periodic payments of interest either for the entire life of the obligation or for an initial period after the issuance of the obligations. Such securities are issued and traded at a discount from their face amounts. The amount of the discount varies depending on such factors as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than do non-zero coupon securities having similar maturities and credit quality. In order to satisfy a requirement for qualification as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund must distribute each year at least 90% of its net investment income, including the original issue discount accrued on zero coupon securities. Because the Fund will not on a current basis receive cash payments from the issuer of a zero coupon security in respect of accrued original issue discount, in some years the Fund may have to distribute cash obtained from other sources in order to satisfy the 90% distribution requirement under the Code. Such cash might be obtained from selling other portfolio holdings of the Fund. In some circumstances, such sales might be necessary in order to satisfy cash distribution requirements even though investment considerations might otherwise make it undesirable for the Fund to sell such securities at such time. Convertible Securities. The Fund may invest in convertible securities including corporate bonds, notes or preferred stocks of U.S. or foreign issuers that can be converted into (that is, exchanged for) common stocks or other equity securities. Convertible securities also include other securities, such as warrants, that provide an opportunity for equity participation. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. Options and Futures FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy and sell a particular commodity (e.g., an interest-bearing security) for a specified price on a specified future date. In the case of futures on an index, the seller and buyer agree to settle in cash, at a future date, based on the difference in value of the contract between the date it is opened and the settlement date. The value of each contract is equal to the value of the index from time to time multiplied by a specified dollar amount. For example, Standard & Poor's 500 Index futures trade in contracts equal to $500 multiplied by the Standard & Poor's 500 Index. When a trader, such as the Fund, enters into a futures contract, it is required to deposit with (or for the benefit of) its broker as "initial margin" an amount of cash or short-term high-quality securities (such as U.S. Treasury Bills or high-quality tax exempt bonds acceptable to the broker) equal to approximately 2% to 5% of the delivery or settlement price of the contract (depending on applicable exchange rules). Initial margin is held to secure the performance of the holder of the futures contract. As the value of the contract changes, the value of futures contract positions increases or declines. At the end of each trading day, the amount of such increase and decline is received and paid respectively by and to the holders of these positions. The amount received or paid is known as "variation margin." If the Fund has a long position in a futures contract it will establish a segregated account with the Fund's custodian containing cash or certain illiquid assets equal to the purchase price of the contract (less any margin on deposit). For short positions in futures contracts, the Fund will establish a segregated account with the custodian with cash or high grade liquid debt assets that, when added to the amounts deposited as margin, equal the market value of the instruments or currency underlying the futures contracts. Although futures contracts by their terms require actual delivery and acceptance of securities (or cash in the case of index futures), in most cases the contracts are closed out before settlement. A futures sale is closed by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity and with the same delivery date. Similarly, the closing out of a futures purchase is closed by the purchaser selling an offsetting futures contract. Gain or loss on a futures position is equal to the net variation margin received or paid over the time the position is held, plus or minus the amount received or paid when the position is closed, minus brokerage commissions. OPTIONS. An option on a futures contract obligates the writer, in return for the premium received, to assume a position in a futures contract (a short position if the option is a call and a long position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option generally will be accompanied by delivery of the accumulated balance in the writer's futures margin account, which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying contract, the remaining term of the option, supply and demand and interest rates. Options on futures contracts traded in the United States may only be traded on a United States board of trade licensed by the Commodity Futures Trading Commission (the "CFTC"). An option on a security entitles the holder to receive (in the case of a call option) or to sell (in the case of a put option) a particular security at a specified exercise price. An "American style" option allows exercise of the option at any time during the term of the option. A "European style" option allows an option to be exercised only at the end of its term. Options on securities may be traded on or off a national securities exchange. A call option on a futures contract written by the Fund is considered by the Fund to be covered if the Fund owns the security subject to the underlying futures contract or other securities whose values are expected to move in tandem with the values of the securities subject to such futures contract, based on historical price movement volatility relationships. A call option on a security written by the Fund is considered to be covered if the Fund owns a security deliverable under the option. A written call option is also covered if the Fund holds a call on the same futures contract or security as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash, Treasury bills or other high grade liquid obligations in a segregated account with its custodian. A put option on a futures contract written by the Fund, or a put option on a security written by the Fund, is covered if the Fund maintains cash, U.S. Treasury bills or other high-grade liquid debt obligations with a value equal to the exercise price in a segregated account with the Fund's custodian, or else holds a put on the same futures contract (or security, as the case may be) as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer of an option wishes to terminate its position, it may effect a closing purchase transaction by buying an option identical to the option previously written. The effect of the purchase is that the writer's position will be canceled. Likewise, the holder of an option may liquidate its position by selling an option identical to the option previously purchased. Closing a written call option will permit the Fund to write another call option on the portfolio securities used to cover the closed call option. Closing a written put option will permit the Fund to write another put option secured by the segregated cash, U.S. Treasury bills or other high-grade liquid obligations used to secure the closed put option. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any futures contract or securities subject to the option to be used for other Fund investments. If the Fund desires to sell particular securities covering a written call option position, it will close out its position or will designate from its portfolio comparable securities to cover the option prior to or concurrent with the sale of the covering securities. The Fund will realize a profit from closing out an option if the price of the offsetting position is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from closing out an option transaction if the price of the offsetting option position is more than the premium received from writing the option or is less than the premium paid to purchase the option. Because increases in the market price of a call option will generally reflect increases in the market price of the covering securities, any loss resulting from the closing of a written call option position is expected to be offset in whole or in part by appreciation of such covering securities. Since premiums on options having an exercise price close to the value of the underlying securities or futures contracts usually have a time value component (i.e. a value that diminishes as the time within which the option can be exercised grows shorter) an option writer may profit from the lapse of time even though the value of the futures contract (or security in some cases) underlying the option (and of the security deliverable under the futures contract) has not changed. Consequently, profit from option writing may or may not be offset by a decline in the value of securities covering the option. If the profit is not entirely offset, the Fund will have a net gain from the options transaction, and the Fund's total return will be enhanced. Likewise, the profit or loss from writing put options may or may not be offset in whole or in part by changes in the market value of securities acquired by the Fund when the put options are closed. RISKS. The use of futures contracts and options involves risks. One risk arises because of the imperfect correlation between movements in the price of futures contracts and movements in the price of the securities that are the subject of the hedge. The Fund's hedging strategies will not be fully effective unless the Fund can compensate for such imperfect correlation. There is no assurance that the Fund will be able to effect such compensation. The correlation between the price movement of the futures contract and the hedged security may be distorted due to differences in the nature of the markets. If the price of the futures contract moves more than the price of the hedged security, the Fund would experience either a loss or a gain on the future that is not completely offset by movements in the price of the hedged securities. In an attempt to compensate for imperfect price movement correlations, the Fund may purchase or sell futures contracts in a greater dollar amount than the hedged securities if the price movement volatility of the hedged securities is historically greater than the volatility of the futures contract. Conversely, the Fund may purchase or sell fewer contracts if the volatility of the price of hedged securities is historically less than that of the futures contracts. The price of index futures may not correlate perfectly with movement in the relevant index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the index and futures markets. Secondly, the deposit requirements in the futures market are less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. In addition, trading hours for foreign stock index futures may not correspond perfectly to hours of trading on the foreign exchange to which a particular foreign stock index future relates. This may result in a disparity between the price of index futures and the value of the relevant index due to the lack of continuous arbitrage between the index futures price and the value of the underlying index. Finally, hedging transactions using stock indices involve the risk that movements in the price of the index may not correlate with price movements of the particular portfolio securities being hedged. Price movement correlation also may be distorted by the illiquidity of the futures and options markets and the participation of speculators in such markets. If an insufficient number of contracts are traded, commercial users may not deal in futures contracts or options because they do not want to assume the risk that they may not be able to close out their positions within a reasonable amount of time. In such instances, futures and options market prices may be driven by different forces than those driving the market in the underlying securities, and price spreads between these markets may widen. The participation of speculators in the market enhances its liquidity. Nonetheless, speculators trading spreads between futures markets may create temporary price distortions unrelated to the market in the underlying securities. Positions in futures contracts and options on futures contracts may be established or closed out only on an exchange or board of trade. There is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract or at any particular time. The liquidity of markets in futures contracts and options on futures contracts may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which limit the amount of fluctuation in a futures or options price during a single trading day. Once the daily limit has been reached in a contract, no trades may be entered into at a price beyond the limit, which may prevent the liquidation of open futures or options positions. Prices have in the past exceeded the daily limit on a number of consecutive trading days. If there is not a liquid market at a particular time, it may not be possible to close a futures or options position at such time, and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, if futures or options are used to hedge portfolio securities, an increase in the price of the securities, if any, may partially or completely offset losses on the futures contract. An exchange-traded option may be closed out only on a national securities or commodities exchange which generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option, with the result that the Fund would have to exercise the option in order to realize any profit. If the Fund is unable to effect a closing purchase transaction in a secondary market, it will be not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation or other clearing organization may not at all times be adequate to handle current trading volume or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. Because the specific procedures for trading foreign stock index futures on futures exchanges are still under development, additional or different margin requirements as well as settlement procedures may be applicable to foreign stock index futures at the time the Fund purchases foreign stock index futures. The successful use of transactions in futures and options depends in part on the ability of Harris to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent interest rates move in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. In addition, whether or not interest rates move during the period that the Fund holds futures or options positions, the Fund will pay the cost of taking those positions (i.e. brokerage costs). As a result of these factors, the Fund's total return for such period may be less than if it had not engaged in the hedging transaction. Options trading involves price movement correlation risks similar to those inherent in futures trading. Additionally, price movements in options on futures may not correlate with price movements in the futures underlying the options. Like futures, options positions may become less liquid because of adverse economic circumstances. The securities covering written option positions are expected to offset adverse price movements if those options positions cannot be closed out in a timely manner, but there is no assurance that such offset will occur. Also, an option writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. OVER-THE-COUNTER OPTIONS. An over-the-counter option (an option not traded on a national securities exchange) may be closed out only with the other party to the original option transaction. While the Fund will seek to enter into over-the-counter options only with dealers who agree to or are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate an over-the-counter option at a favorable price at any time prior to its expiration. Accordingly, the Fund might have to exercise an over-the-counter option it holds in order to realize any profit thereon and thereby would incur transactions costs on the purchase or sale of the underlying assets. If the Fund cannot close out a covered call option written by it, it will not be able to sell the underlying security until the option expires or is exercised. Furthermore, over-the-counter options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organizations. ECONOMIC EFFECTS AND LIMITATIONS. Income earned by the Fund from its hedging activities will be treated as capital gain and, if not offset by net recognized capital losses incurred by the Fund, will be distributed to shareholders in taxable distributions. Although gain from futures and options transactions may hedge against a decline in the value of the Fund's portfolio securities, that gain, to the extent not offset by losses, will be distributed in light of certain tax considerations and will constitute a distribution of that portion of the value preserved against decline. The Fund intends to comply with guidelines of eligibility for exclusion from the definition of the term "commodity pool operator" adopted by the CFTC and the National Futures Association, which regulate trading in the futures markets. The Fund will use futures contracts and related options primarily for bona fide hedging purposes within the meaning of CFTC regulations. To the extent that the Fund holds positions in futures contracts and related options that do not fall within the definition of bona fide hedging transactions, the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the Fund's net assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into. FUTURE DEVELOPMENTS. The above discussion relates to the Fund's proposed use of futures contracts, options and options on futures contracts currently available. The relevant markets and related regulations are still in the developing stage. In the event of future regulatory or market developments, the Fund may also use additional types of futures contracts or options and other investment techniques for the purposes set forth above. FOREIGN CURRENCY HEDGING TRANSACTIONS. To protect against a change in the foreign currency exchange rate between the date on which the Fund contracts to purchase or sell a security and the settlement date for the purchase or sale, or to "lock in" the equivalent of a dividend or interest payment in another currency, the Fund might purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate. If conditions warrant, the Fund may also enter into contracts with banks or broker-dealers to purchase or sell foreign currencies at a future date ("forward contracts"). The Fund will maintain cash or high-quality debt obligations in a segregated account with the custodian in an amount at least equal to (i) the difference between the current value of the Fund's liquid holdings that settle in the relevant currency and the Fund's outstanding obligations under currency forward contracts, or (ii) the current amount, if any, that would be required to be paid to enter into an offsetting forward currency contract which would have the effect of closing out the original forward contract. The Fund's use of currency hedging transactions may be limited by tax considerations. The Fund may also purchase or sell foreign currency futures contracts traded on futures exchanges. Foreign currency futures contract transactions involve risks similar to those of other futures transactions. See "Options and Futures" above. MANAGEMENT OF THE TRUST Trustees Trustees of the Trust and their ages (in parentheses), addresses and principal occupations during the past five years are as follows: GRAHAM T. ALLISON, JR. -- Trustee (55); 79 John F. Kennedy Street, Cambridge, MA 02138; Douglas Dillon Professor and Director for the Center of Science and International Affairs, John F. Kennedy School of Government; Special Advisor to the United States Secretary of Defense; formerly, Assistant Secretary of Defense; formerly, Dean, John F. Kennedy School of Government. DANIEL M. CAIN - Trustee (51); 452 Fifth Avenue, New York, NY 10018; President and CEO, Cain Brothers & Company, Incorporated (investment banking); Trustee, Universal Health Realty Income Trust (REIT); Chairman, Inter Fish, Inc., (an aqua venture in Barbados). KENNETH J. COWAN -- Trustee (63); One Beach Drive, S.E. #2103, St. Petersburg, Florida 33701; Retired; 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 (52); 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004; Partner and Managing Director, The Carlyle Group (investments); Trustee, Council for Excellence in Government (not-for-profit); Director, Frontier Ventures (personal investment); Director, Highway Master Communications (mobile communications); Managing Partner, Little Falls Partners (family investment); Director, Sequana Therapeutics (biotechnology/genomics); Director, Telcom Ventures (telecommunications); formerly, Director of the U.S. Office of Management and Budget and a member of President Bush's Cabinet. SANDRA O. MOOSE -- Trustee (53); 135 E. 57th Street New York, NY 10022; Senior Vice President and Director, The Boston Consulting Group, Inc. (management consulting); Director, GTE Corporation and Rohm and Haas Company (specialty chemicals). HENRY L.P. SCHMELZER* -- Trustee and President (52); President, Chief Executive Officer and Director, NEF Corporation; President and Chief Executive Officer, New England Funds, L.P.; President and Chief Executive Officer, NEFM; Director, Back Bay Advisors, Inc.; formerly, Director, New England Securities Corporation ("New England Securities"). JAMES H. SCOTT -- Trustee (53); 2001 Bryan Street, Suite 1850, Dallas, Texas 75201; Vice President, TU Services (electric utility); formerly, Treasurer, The Trustees of Amherst College. JOHN A. SHANE -- Trustee (62); 300 Unicorn Park Drive, Woburn, Massachusetts 01801; President, Palmer Service Corporation (venture capital organization); General Partner, The Palmer Organization and Palmer Partners L.P.; Director, Arch Communications Group, Inc. (paging service); Director, Dowden Publishing Company, Inc. (publishers of medical magazines); Director, Eastern Bank Corporation; Director, Gensym Corporation (expert system software); Director, Overland Data, Inc. (manufacturer of computer tape drives);Director, Summa Four, Inc. (manufacturer of telephone switching equipment); Director, United Asset Management Corporation (holding company for institutional money management); formerly, Director, Abt Associates, Inc. (consulting firm); formerly, Director, Aviv Corporation (manufacturer of controllers); formerly, Director, Banyan Systems, Inc. (manufacturer of network software); formerly, Director, Cerjac Inc. (manufacturer of telephone testing equipment). PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and Trustee (49); President and Chief Executive Officer, New England Investment Companies, L.P. ("NEIC"); Director, President and Chief Executive Officer, New England Investment Companies, Inc.; Chairman of the Board and Director, NEF Corporation; Chairman of the Board and Director, Back Bay Advisors, Inc.; Director, New England Mutual Life Insurance Company ("The New England"); formerly, Executive Vice President, Bank of America; formerly, Group Head of International Banking, Trading and Securities, Security Pacific National Bank, and Chief Executive Officer of the Security Pacific Investment Group. PENDLETON P. WHITE -- Trustee (64); 6 Breckenridge Lane, Savannah, Georgia 31411; Retired; formerly, President and Chairman of the Executive Committee, Studwell Associates (executive search consultants); formerly, Trustee, The Faulkner Corporation (community hospital corporation). Officers Officers of the Trust, in addition to Messrs. Schmelzer and Voss, and their ages (in parentheses) and principal occupations during the past five years are as follows: BRUCE R. SPECA -- Vice President (40); Executive Vice President, NEF Corporation; Executive Vice President, New England Funds, L.P.; Executive Vice President, NEFM. FRANK NESVET -- Treasurer (52); Senior Vice President and Chief Financial Officer, NEF Corporation; Senior Vice President and Chief Financial Officer, New England Funds, L.P.; Senior Vice President and Chief Financial Officer, NEFM; formerly, Executive Vice President, SuperShare Services Corporation. ROBERT P. CONNOLLY -- Secretary and Clerk (42); Senior Vice President and General Counsel, NEF Corporation; Senior Vice President and General Counsel, New England Funds, L.P.; Senior Vice President and General Counsel, NEFM; formerly, Managing Director and General Counsel, Kroll Associates, Inc. (business consulting company); formerly, Managing Director and General Counsel, Equitable Capital Management Corporation (investment management company). The address of each officer is 399 Boylston Street, Boston, Massachusetts 02116. - ---------------------------- * Trustee deemed an "interested person" of the Trust, as defined in the Investment Company Act of 1940 (the "1940 Act"). Trustees Fees The Trust pays no compensation to its officers or to its trustees who are interested persons thereof. Each trustee who is not an interested person of the Trust receives, in the aggregate for serving on the boards of the Trust and New England Funds Trust I, New England Cash Management Trust and New England Tax Exempt Money Market Trust (all four trusts collectively, the "New England Funds Trusts"), comprising a total of 22 mutual fund portfolios, a retainer fee at the annual rate of $40,000 and meeting attendance fees of $2,500 for each meeting of the boards he or she attends and $1,500 for each meeting he or she attends of a committee of the board of which he or she was a member. Each committee chairman receives an additional retainer fee at the annual rate of $2,500. These fees are allocated among the Fund and the 21 other mutual fund portfolios based on a formula that takes into account, among other factors, the net assets of each fund. During the fiscal year ended December 31, 1994 the persons who were then trustees of the Trust received the amounts set forth in the following table for serving as a trustee of the Trust and for also serving on the governing boards of the other New England Funds Trusts, New England Zenith Fund ("Zenith") and New England Variable Annuity Fund I ("NEVA"), comprising as of December 29, 1995 a total of 37 mutual fund portfolios (not all of which were in existence during 1994).
Pension or Total Compensation Aggregate Retirement Benefits from the New Compensation Accrued as Part of Estimated Annual England Funds from the Trust Fund Expenses Benefits Trusts, Zenith and Name of Trustee in 1994 in 1994 Upon Retirement NEVA in 1994 - --------------- ------- ------- --------------- ------------ Graham T. Allison, Jr.(a) $ 0 $0 $0 $ 0 Daniel M. Cain(b) $ 0 $0 $0 $ 0 Kenneth J. Cowan $18,244 $0 $0 $59,375 Richard Darman(b) $ 0 $0 $0 $ 0 Joseph M. Hinchey(c) $17,507 $0 $0 $56,875 Richard S. Humphrey, Jr.(c) $17,507 $0 $0 $56,875 Robert B. Kittredge(c) $17,951 $0 $0 $89,279(e) Laurens MacLure(c) $18,688 $0 $0 $91,779(e) Sandra O. Moose $16,326 $0 $0 $52,875 James H. Scott(d) $17,507 $0 $0 $56,875 John A. Shane $17,211 $0 $0 $55,875 Joseph F. Turley(c) $17,951 $0 $0 $58,375 Pendleton P. White $17,951 $0 $0 $58,375 (a) Became a trustee of the Trust effective April 1, 1995. (b) Became a trustee of the Trust effective February 23, 1996. (c) Resigned as a trustee of the Trust effective May 1, 1995. (d) Resigned as a trustee of the Trust effective March 5, 1996. (e) Also includes compensation paid by the 5 CGM Funds, a group of mutual funds for which Capital Growth Management Limited Partnership, the investment adviser of New England Funds Trust I's New England Growth Fund, Zenith's Capital Growth Series and NEVA, serves as investment adviser.
The Trust provides no pension or retirement benefits to trustees, but has adopted a deferred payment arrangement under which each trustee may elect not to receive fees from the Trust on a current basis but to receive in a subsequent period an amount equal to the value that such fees would have if they had been invested in each of the funds in the Trust on the normal payment date for such fees. As a result of this method of calculating the deferred payments, the Fund, upon making the deferred payments, will be in the same financial position as if the fees had been paid on the normal payment dates. As of December 29, 1995, the officers and trustees of the Trust as a group owned less than 1% of the outstanding shares of the Trust. Advisory and Subadvisory Agreements The Fund's advisory agreement provides that NEFM will furnish or pay the expenses of the Fund for office space, facilities and equipment, services of executive and other personnel of the Trust and certain administrative services. The Fund pays all expenses not borne by its adviser or subadviser including, but not limited to, the charges and expenses of the Fund's custodian and transfer agent, independent auditors and legal counsel, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under the federal or state securities laws, all expenses of shareholders' and trustees' meetings and of preparing, printing and mailing reports to shareholders and the compensation of trustees who are not directors, officers or employees of the Fund's adviser, subadviser or their affiliates, other than affiliated registered investment companies. The Fund also pays NEFM for certain legal and accounting services provided to the Fund by NEFM. Under the Fund's advisory agreement, if the total ordinary business expenses of the Fund or the Trust as a whole for any fiscal year exceed the lowest applicable limitation (based on percentage of average net assets or income) prescribed by any state in which the shares of the Fund or Trust are qualified for sale, NEFM shall pay such excess. At present, the most restrictive state annual expense limitation is 2 1/2% of the average annual net assets up to $30,000,000, 2% of the next $70,000,000 and 1 1/2% of such assets in excess of $100,000,000. NEFM will not be required to reduce its fee or pay such expenses to an extent or under circumstances which might result in the Fund's inability to qualify as a regulated investment company under the Code. The term "expenses" is defined in the advisory agreement and excludes brokerage commissions, taxes, interest, distribution-related expenses and extraordinary expenses. This means that the distribution fees payable to New England Funds, L.P. under the Fund's Distribution Agreement and the Distribution Plan would be excluded from "expenses." The advisory agreement and the subadvisory agreement between NEFM and Harris provides that it will continue in effect for two years from its date of execution and thereafter from year to year if its continuance is approved at least annually (i) by the board of trustees of the Trust or by vote of a majority of the outstanding voting securities of the Fund and (ii) by vote of a majority of the trustees who are not "interested persons" of the Trust, as that term is defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. Any amendment to the advisory agreement or the subadvisory agreement must be approved by vote of a majority of the outstanding voting securities of the Fund and by vote of a majority of the trustees of the Trust who are not such interested persons, cast in person at a meeting called for the purpose of voting on such approval. Each agreement may be terminated without penalty by vote of the Trust's board of trustees or by vote of a majority of the outstanding voting securities of the Fund, upon 60 days' written notice, or by NEFM upon 90 days' written notice, and each terminates automatically in the event of its assignment. The subadvisory agreement also may be terminated by Harris upon 90 days' notice and is automatically terminated upon termination of the related advisory agreement. In addition, the advisory agreement will automatically terminate if the Trust or the Fund shall at any time be required by the Distributor to eliminate all reference to the words "New England" or the letters "TNE" in the name of the Trust, unless the continuance of the agreement after such change of name is approved by a majority of the outstanding voting securities of the Fund and by a majority of the Trustees who are not interested persons of the Trust or NEFM. The advisory agreement and sub-advisory agreement each provide that the adviser and subadviser shall not be subject to any liability in connection with the performance of its services thereunder in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties. NEFM, organized in 1995, is an independently operated subsidiary of NEIC, and serves as the investment adviser to New England Growth Opportunities Fund, New England Strategic Income Fund, New England Equity Income Fund and New England Star Worldwide Fund, and will serve, beginning January 2, 1996, as investment adviser to each of the remaining funds in the New England Funds Trusts except New England Growth Fund. Harris was organized in 1995 to succeed to the business of a predecessor limited partnership also named Harris Associates L.P., which together with its predecessor had advised and managed mutual funds since 1970. Harris is a wholly-owned subsidiary of NEIC, having been acquired by NEIC in 1995. Harris also serves as investment adviser to individuals, trusts, retirement plans, endowments and foundations, and manages numerous private partnerships. Certain officers and employees of Harris have responsibility for portfolio management of other advisory accounts and clients (including other registered investment companies and accounts of affiliates of Harris) that may invest in securities in which the Fund may invest. Where Harris determines that an investment purchase or sale opportunity is appropriate and desirable for more than one advisory account, purchase and sale orders may be executed separately or may be combined and, to the extent practicable, allocated by Harris to the participating accounts. Where advisory accounts have competing interests in a limited investment opportunity, Harris will allocate investment opportunities based on numerous considerations, including the time the competing accounts have had funds available for investment, and the relative amounts of available funds, an account's cash requirements and the time the competing accounts have had investments available for sale. It is Harris's policy to allocate, to the extent practicable, investment opportunities to each client over a period of time on a fair and equitable basis relative to its other clients. It is believed that the ability of the Fund to participate in larger volume transactions in this manner will in some cases produce better executions for the Fund. However, in some cases, this procedure could have a detrimental effect on the price and amount of a security available to the Fund or the price at which a security may be sold. The trustees are of the view that the benefits of retaining Harris as investment manager outweigh the disadvantages, if any, that might result from participating in such transactions. Distribution Agreement and Rule 12b-1 Plans. Under an agreement with the Fund (the "Distribution Agreement"), New England Funds, L.P. serves as the general distributor of each class of shares of the Fund. Under this agreement, New England Funds, L.P. is not obligated to sell a specific number of shares. New England Funds, L.P. bears the cost of making information about the Fund available through advertising and other means and the cost of printing and mailing prospectuses to persons other than shareholders. The Fund pays the cost of registering and qualifying its shares under state and federal securities laws and the distribution of prospectuses to existing shareholders. New England Funds, L.P. is compensated under the Distribution Agreement through receipt of the sales charges on Class A shares described below under "Net Asset Value and Public Offering Price" and is paid by the Fund the service and distribution fees described in the prospectus. As described in the prospectuses, the Fund has adopted Rule 12b-1 plans (the "Plans") for its Class A, Class B and Class C shares which, among other things, permit it to pay the Fund's distributor (currently New England Funds, L.P.) monthly fees out of its net assets. Pursuant to Rule 12b-1 under the 1940 Act, each Plan was approved by the shareholders of the Fund, and (together with the 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 Plan or the Distribution Agreement (the "Independent Trustees"). Each Plan may be terminated by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of the relevant class of shares of the Fund. Each Plan may be amended by vote of the trustees, including a majority of the Independent Trustees, cast in person at a meeting called for that purpose. Any change in any Plan that would materially increase the fees payable thereunder by the relevant class of shares of the Fund requires approval of the holders of such shares. The Trust's trustees review quarterly written reports of such costs and the purposes for which such costs have been incurred. For so long as a Plan is in effect, selection and nomination of those trustees who are not interested persons of the Trust shall be committed to the discretion of such disinterested persons. The Distributor has entered into selling agreements with investment dealers, including New England Securities, an affiliate of the Distributor, for the sale of the Fund's shares. New England Securities is registered as a broker-dealer under the Securities Exchange Act of 1934. The Distributor may at its expense pay an amount not to exceed 0.50% of the amount invested to dealers who have selling agreements with the Distributor. If they become available, Class Y shares of the Fund may be offered by registered representatives of New England Securities who are also employees of New England Investment Associates, Inc. ("NEIA"), an indirect, wholly-owned subsidiary of NEIC. NEIA may receive compensation from NEFM with respect to sales of Class Y shares. The Distribution Agreement may be terminated at any time on 60 days' written notice without payment of any penalty by New England Funds, L.P. or by vote of a majority of the outstanding voting securities of the Fund or by vote of a majority of the Independent Trustees. The Distribution Agreement and the Plans will continue in effect for successive one-year periods, provided that each such continuance is specifically approved (i) by the vote of a majority of the Independent Trustees and (ii) by the vote of a majority of the entire board of trustees cast in person at a meeting called for that purpose or by a vote of a majority of the outstanding securities of Fund (or the relevant class, in the case of the Plans). With the exception of New England Funds, L.P., New England Securities and their direct and indirect corporate parents (NEIC and The New England), no interested person of the Trust nor any trustee of the Trust had any direct or indirect financial interest in the operation of the Plans or any related agreement. Benefits to the Fund and its shareholders resulting from the Plans are believed to include (1) enhanced shareholder service, (2) asset retention, (3) enhanced bargaining position with third party service providers and economies of scale arising from having higher asset levels and (4) portfolio management opportunities arising from having an enhanced positive cash flow. New England Funds, L.P. controls the words "New England" in the name of New England Funds Trust II and the Fund and if it should cease to be the distributor, New England Funds Trust II or the Fund may be required to change their names and delete these words or letters. New England Funds, L.P. also acts as general distributor for New England Cash Management Trust, New England Tax Exempt Money Market Trust, New England Funds Trust I, New England Funds Trust III and the other series of the Trust besides the Fund. During the years ended December 31, 1992, 1993 and 1994 (the last year for which information is available), New England Funds, L.P. received commissions on the sale of the Class A shares of New England Funds Trust II aggregating $7,195,240, $5,970,295, and $2,071,744, respectively, of which $6,475,716, $573,825 and $1,780,651, respectively, were reallowed to other securities dealers and the balance retained by New England Funds, L.P. Custodial Arrangements. State Street Bank and Trust Company ("State Street Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Trust's custodian. As such, State Street Bank holds in safekeeping certificated securities and cash belonging to the Fund and, in such capacity, is the registered owner of securities in book-entry form belonging to the Fund. Upon instruction, State Street Bank receives and delivers cash and securities of the Fund in connection with Fund transactions and collects all dividends and other distributions made with respect to Fund portfolio securities. State Street Bank also maintains certain accounts and records of the Trust and calculates the total net asset value, total net income and net asset value per share of the Fund on a daily basis. Independent Accountants. The Fund's independent accountants are Price Waterhouse LLP, 160 Federal Street, Boston, MA 02109. The independent accountants of the Trust conduct an annual audit of that Trust's financial statements, assist in the preparation of federal and state income tax returns and consult with the Trust as to matters of accounting and federal and state income taxation. Other Arrangements Pursuant to a contract between the Fund and New England Funds, L.P., New England Funds, L.P. acts as shareholder servicing and transfer agent for the Fund and is responsible for services in connection with the establishment, maintenance and recording of shareholder accounts, including all related tax and other reporting requirements and the implementation of investment and redemption arrangements offered in connection with the sale of the Fund's shares. The Fund pays per account fees to New England Funds, L.P. for these services in the amount of $17.25. New England Funds, L.P. has subcontracted with State Street Bank for it to provide, through its subsidiary Boston Financial Data Services, Inc. ("BFDS") transaction processing, mail and other services. For these services, New England Funds, L.P. pays BFDS a per account fee of $9.40. PORTFOLIO TRANSACTIONS AND BROKERAGE In placing orders for the purchase and sale of portfolio securities for the Fund, Harris always seeks best execution, subject to the considerations set forth below. Transactions in unlisted securities are carried out through broker-dealers who make the market for such securities unless, in the judgment of Harris, a more favorable execution can be obtained by carrying out such transactions through other brokers or dealers. Harris selects only brokers or dealers which it believes are financially responsible, will provide efficient and effective services in executing, clearing and settling an order and will charge commission rates which, when combined with the quality of the foregoing services, will produce best execution for the transaction. This does not necessarily mean that the lowest available brokerage commission will be paid. However, the commissions are believed to be competitive with generally prevailing rates. Harris will use its best efforts to obtain information as to the general level of commission rates being charged by the brokerage community from time to time and will evaluate the overall reasonableness of brokerage commissions paid on transactions by reference to such data. In making such evaluation, all factors affecting liquidity and execution of the order, as well as the amount of the capital commitment by the broker in connection with the order, are taken into account. Receipt of brokerage or research services from brokers may sometimes be a factor in selecting a broker which Harris believes will provide best execution for a transaction. These services include not only a wide variety of reports on such matters as economic and political developments, industries, companies, securities, portfolio strategy, account performance, daily prices of securities, stock and bond market conditions and projections, asset allocation and portfolio structure, but also meetings with management representatives of issuers and with other analysts and specialists. Although it is not possible to assign an exact dollar value to these services, they may, to the extent used, tend to reduce Harris's expenses. Such services may be used by Harris in servicing other client accounts and in some cases may not be used with respect to the Fund. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best execution, Harris may, however, consider purchases of shares of the Fund by customers of broker-dealers as a factor in the selection of broker-dealers to execute the Fund's securities transactions. Harris may cause the Fund to pay a broker-dealer that provides brokerage and research services to Harris an amount of commission for effecting a securities transaction for the Fund in excess of the amount another broker-dealer would have charged for effecting that transaction. Harris must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or Harris's overall responsibilities to the Fund and its other clients. Harris's authority to cause the Fund to pay such greater commissions is also subject to such policies as the trustees of the Trust may adopt from time to time. Subject to procedures adopted by the Board of Trustees of the Trust, the Fund's brokerage transactions may be executed by brokers that are affiliated with the Distributor, NEFM or Harris. Any such transactions will comply with Rule 17e-1 under the Investment Company Act of 1940. Portfolio turnover is not a limiting factor with respect to investment decisions. The Fund anticipates that their portfolio turnover rates will vary significantly from time to time depending on the volatility of economic and market conditions. Under the 1940 Act, persons affiliated with the Trust are prohibited from dealing with the Fund as a principal in the purchase and sale of securities. Since transactions in the over-the-counter market usually involve transactions with dealers acting as principals for their own accounts, affiliated persons of the Trust, such as New England Securities, may not serve as the Fund's dealer in connection with such transactions. It is expected that the portfolio transactions in fixed-income securities will generally be with issuers or dealers on a net basis without a stated commission. Securities firms may receive brokerage commissions on transactions involving options, futures and options on futures and the purchase and sale of underlying securities upon exercise of options. The brokerage commissions associated with buying and selling options may be proportionately higher than those associated with general securities transactions. DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES New England Funds Trust II was organized in 1931 as a Massachusetts business trust and consisted of a single investment portfolio (now New England Growth Opportunities Fund) until January 1989. The Fund is a newly organized series of the Trust. The other series of the Trust are New England Adjustable Rate U.S. Government Fund, New England High Income Fund, New England Massachusetts Tax Free Income Fund, New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York, each of which currently offers two classes of shares; New England Growth Opportunities Fund, which currently offers three classes of shares; and New England Limited Term U.S. Government Fund, which currently offers four classes of shares. Until December 1988, the name of the Trust was "Investment Trust of Boston"; from December 1988 until April 1992, its name was "Investment Trust of Boston Funds." New England High Income Fund and New England Massachusetts Tax Free Income Fund are successors to separate investment companies that were organized in 1983 and 1984, respectively, and reorganized as series of the Trust in January 1989. New England Limited Term U.S. Government Fund was organized in 1988 and commenced operations in January 1989. New England Adjustable Rate U.S. Government Fund was organized in 1991 and commenced operations on October 18 of that year. New England Intermediate Term Tax Free Fund of New York and New England Intermediate Term Tax Free Fund of California were organized in 1993 and commenced operations on April 23 of that year. The Agreement and Declaration of Trust of the Trust (the "Declaration of Trust") currently permits the Trust's trustees to issue an unlimited number of full and fractional shares of each series. The Fund is represented by a series of shares of the Trust. The Declaration of Trust further permits the Trust's trustees to divide the shares of each series into any number of separate classes, each having such rights and preferences relative to other classes of the same series as the trustees may determine. The shares of Fund do not have any preemptive rights. Upon termination of the Fund, whether pursuant to liquidation of the Trust or otherwise, shareholders of each class of the Fund are entitled to share pro rata in the net assets attributable to that class of shares of the Fund available for distribution to shareholders. The Declaration of Trust also permits the trustees to charge shareholders directly for custodial, transfer agency and servicing expenses. The shares of the Fund are divided into four classes, Class A, Class B, Class C and Class Y. The Fund currently offers Class A, Class B and Class C shares. Class Y shares are not currently available for purchase but may be offered at a later date to certain eligible institutional investors, with higher minimum purchase requirements than Classes A, B and C. All expenses of the Fund [excluding transfer agency fees and expenses of printing and mailing prospectuses to shareholders ("Other Expenses")] are borne by its Class A, B, C and Y shares on a pro rata basis, except for 12b-1 fees, which are borne only by Classes A, B and C and may be charged at a separate rate to each such class. Other Expenses of Classes A, B and C are borne by such classes on a pro rata basis, but Other Expenses relating to the Class Y shares may be allocated separately to the Class Y shares. The assets received by each class of the Fund for the issue or sale of its shares and all income, earnings, profits, losses and proceeds therefrom, subject only to the rights of creditors, are allocated to, and constitute the underlying assets of, that class. The underlying assets of each class of the Fund are segregated and are charged with the expenses with respect to that class and with a share of the general expenses of the Trust. Any general expenses of the Trust that are not readily identifiable as belonging to a particular class of a fund in the Trust are allocated by or under the direction of the trustees in such manner as the trustees determine to be fair and equitable. While the expenses of the Trust are allocated to the separate books of account of each fund in the Trust, certain expenses may be legally chargeable against the assets of all classes of the funds in the Trust. The Declaration of Trust also permits Trust's trustees, without shareholder approval, to subdivide any series or class of shares or fund into various sub-series or sub-classes with such dividend preferences and other rights as the trustees may designate. While the trustees have no current intention to exercise this power, it is intended to allow them to provide for an equitable allocation of the impact of any future regulatory requirements which might affect various classes of shareholders differently. The trustees may also, without shareholder approval, establish one or more additional series or classes or merge two or more existing series or classes. The Declaration of Trust provides for the perpetual existence of the Trust. The Trust or any fund of the Trust, however, may be terminated at any time by vote of at least two-thirds of the outstanding shares of each fund affected. Similarly, any class within a fund may be terminated by vote of at least two-thirds of the outstanding shares of such class. While the Declaration of Trust further provides that the board of trustees may also terminate the Trust upon written notice to its shareholders, the 1940 Act requires that the Trust receive the authorization of a majority of its outstanding shares in order to change the nature of its business so as to cease to be an investment company. Voting Rights As summarized in the prospectus, shareholders are entitled to one vote for each full share held (with fractional votes for each fractional share held) and may vote (to the extent provided therein) in the election of trustees and the termination of the Trust and on other matters submitted to the vote of shareholders. The Declaration of Trust provides that on any matter submitted to a vote of all shareholders of the Trust, all Trust shares entitled to vote shall be voted together irrespective of series or class unless the rights of a particular series or class would be adversely affected by the vote, in which case a separate vote of that series or class shall also be required to decide the question. Also, a separate vote shall be held whenever required by the 1940 Act or any rule thereunder. Rule 18f-2 under 1940 Act provides in effect that a series or class shall be deemed to be affected by a matter unless it is clear that the interests of each series or class in the matter are substantially identical or that the matter does not affect any interest of such series or class. On matters affecting an individual series or class, only shareholders of that series or class are entitled to vote. Consistent with the current position of the SEC, shareholders of all series and classes vote together, irrespective of series or class, on the election of trustees and the selection of the Trust's independent accountants, but shareholders of each series vote separately on other matters requiring shareholder approval, such as certain changes in investment policies of that series or the approval of the investment advisory and subadvisory agreements relating to that series, and shareholders of each class within a series vote separately as to the Rule 12b-1 plan (if any) relating to that class. There will normally be no meetings of shareholders for the purpose of electing trustees except that, in accordance with the 1940 Act, (i) the Trust will hold a shareholders' meeting for the election of trustees at such 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 one of its series' name or to cure technical problems in the Declaration of Trust, (ii) to establish and designate new series or classes of Trust shares and (iii) to establish, designate or modify new and existing series or classes of Trust shares or other provisions relating to Trust shares in response to applicable laws or regulations. Shareholder and Trustee Liability Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees. The Declaration of Trust provides for indemnification out of the Fund's property for all loss and expense of any shareholder held personally liable for the obligations of the Fund by reason of owning shares of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and the Fund itself would be unable to meet its obligations. The Declaration of Trust further provides that the board of trustees will not be liable for errors of judgment or mistakes of fact or law. However, nothing in the Declaration of Trust protects a trustee against any liability to which the trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. The By-Laws of the Trust provide for indemnification by the Trust of trustees and officers of the Trust, except with respect to any matter as to which any such person did not act in good faith in the reasonable belief that his or her action was in or not opposed to the best interests of the Trust. Such persons may not be indemnified against any liability to the Trust or the Trust's shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. HOW TO BUY SHARES The procedures for purchasing shares of the Fund are summarized in the prospectus. Banks may charge a fee for transmitting funds by wire. With respect to shares purchased by federal funds, shareholders should bear in mind that wire transfers may take two or more hours to complete. For purchase of Fund shares by mail, the settlement date is the first business day after receipt of the check by the transfer agent so long as it is received by the close of regular trading of the New York Stock Exchange on a day when the Exchange is open; otherwise the settlement date is the following business day. For telephone orders, the settlement date is the fifth business day after the order is made. Shares may also be purchased either in writing, by phone or, in the case of Class A, B and C shares, by electronic funds transfer using Automated Clearing House ("ACH"), or by exchange as described in the prospectus through firms that are members of the National Association of Securities Dealers, Inc. and that have selling agreements with the Distributor. The Distributor may at its discretion accept a telephone order for the purchase of $5,000 or more of the Fund's Class A, B or C shares. Payment must be received by the Distributor within five 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. In a redemption offer that is the first of its nature, the Government of Israel will give notice to holders of certain of its bond issues that they may redeem those bonds prior to maturity from March 15, 1996 through July 15, 1996. The redemption period may be extended at the discretion of the Government of Israel. Investors may wish to invest the proceeds from the bond redemptions in New England Growth Fund of Israel. Contact your investment dealer for information about the reinvestment of the bond proceeds. NET ASSET VALUE AND PUBLIC OFFERING PRICE The method for determining the public offering price and net asset value per share is summarized in the prospectus The total net asset value of each class of shares of the Fund (the excess of the assets of the Fund attributable to such class over the liabilities attributable to such class) is determined as of the close of regular trading (normally 4:00 p.m. Eastern time) on each day that the New York Stock Exchange is open for trading. The weekdays that the New York Stock Exchange is expected to be closed are New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities listed on a national securities exchange or on the NASDAQ National Market System are valued at their last sale price, or, if there is no reported sale during the day, the last reported bid price estimated by a broker. Unlisted securities traded in the over-the-counter market are valued at the last reported bid price in the over-the-counter market or on the basis of yield equivalents as obtained from one or more dealers that make a market in the securities. U.S. Government Securities are traded in the over-the-counter market. Options, interest rate futures and options thereon that are traded on exchanges are valued at their last sale price as of the close of such exchanges. Securities for which current market quotations are not readily available and all other assets are taken at fair value as determined in good faith by the board of trustees, although the actual calculations may be made by persons acting pursuant to the direction of the board. Generally, trading in equity securities in markets outside the United States, as well as trading in foreign government securities and other fixed-income securities, is substantially completed each day at various times prior to the close of the New York Stock Exchange. Securities traded on a non-U.S. exchange will be valued at their last sale price (or the last reported bid price, if there is no reported sale during the day), on the exchange on which they principally trade, as of the close of regular trading on such exchange. The value of other securities principally traded outside the United States will be computed as of the completion of substantial trading for the day on the markets on which such securities principally trade. Securities principally traded outside the United States will generally be valued several hours before the close of regular trading on the New York Stock Exchange, generally 4:00 p.m. Eastern time, at which time the Fund computes the net asset value of its shares. Occasionally, events affecting the value of securities principally traded outside the United States may occur between the completion of substantial trading of such securities for the day and the close of the New York Stock Exchange. If events materially affecting the value of the Fund's securities occur during such period, then these securities will be valued at their fair value as determined in good faith by or in accordance with procedures approved by the trustees. The per share net asset value of a class of the Fund's shares is computed by dividing the number of shares outstanding into the total net asset value attributable to such class. The public offering price of a Class A share of the Fund is the net asset value per share next determined after a properly completed purchase order is accepted by New England Funds, L.P. or State Street Bank, plus a sales charge as set forth in the Fund's prospectus. The public offering price of a Class B, C or Y share of the Fund is the next-determined net asset value. REDUCED SALES CHARGES Class A Shares Only Special purchase plans are enumerated in the text of the prospectus. Cumulative Purchase Discount. A Fund shareholder making an additional purchase of Class A shares may be entitled to a discount on the sales charge payable on that purchase. (This discount will not be available to purchases of Fund shares during the Fund's Initial Subscription Period described in the supplement dated December 29, 1995 to the prospectus.) This discount will be available if the shareholder's "total investment" in the Fund reaches the breakpoint for a reduced sales charge in the table under "Buying Fund Shares - Sales Charges" in the prospectus. The total investment is determined by adding the amount of the additional purchase, including sales charge, to the current public offering price of all series and classes of shares of New England Funds Trust I and the Trust (the "Trusts") held by the shareholder in one or more accounts. If the total investment exceeds the breakpoint, the lower sales charge applies to the entire additional investment even though some portion of that additional investment is below the breakpoint to which a reduced sales charge applies. For example, if a shareholder who already owns shares of one or more funds in the Trusts with a value at the current public offering price of $30,000 makes an additional purchase of $20,000 of Class A shares of the Fund, the reduced sales charge of 4.5% of the public offering price will apply to the entire amount of the additional investment. Letter of Intent. A Letter of Intent (a "Letter"), which can be effected at any time, is a privilege available to investors which reduces the sales charge on investments in Class A shares. Ordinarily, reduced sales charges are available for single purchases of Class A shares only when they reach certain breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a shareholder indicates an intention to invest enough money in Class A shares within 13 months to reach a breakpoint. If the shareholder's intended aggregate purchases of all series and classes of the Trusts over a defined 13-month period will be large enough to qualify for a reduced sales charge, the shareholder may invest the smaller individual amounts at the public offering price calculated using the sales load applicable to the 13-month aggregate investment. A Letter is a non-binding commitment, the amount of which may be increased, decreased or canceled at any time. The effective date of a Letter is the date it is received in good order at New England Funds, L.P., or, if communicated by a telephone exchange or order, at the date of telephoning provided a signed Letter, in good order, reaches New England Funds, L.P. within five business days. A reduced sales charge is available for aggregate purchases of all series and classes of shares of the Trusts pursuant to a written Letter effected within 90 days after any purchase. In the event the account was established prior to 90 days before the Letter effective date, the account will be credited with Rights of Accumulation ("ROA") towards the breakpoint level that will be reached upon the completion of the 13 months' purchases. The ROA credit is the value of all shares held as of the effective date of the Letter based on the "public offering price computed on such date." The cumulative purchase discount, described above, permits the aggregate value at the current public offering price of Class A shares of any accounts with the Trusts held by a shareholder to be added to the dollar amount of the intended investment under a Letter, provided the shareholder lists them on the account application. State Street Bank will hold in escrow shares with a value at the current public offering price of 5% of the aggregate amount of the intended investment. The amount in escrow will be released when the Letter is completed. If the shareholder does not purchase shares in the amount indicated in the Letter, the shareholder agrees to remit to State Street Bank the difference between the sales charge actually paid and that which would have been paid had the Letter not been in effect, and authorizes State Street Bank to redeem escrowed shares in the amount necessary to make up the difference in sales charges. Reinvested dividends and distributions are not included in determining whether the Letter has been completed. Combining Purchases. Purchases of all series and classes of the Trusts by or for an investor, the investor's spouse, parents, children, siblings, grandparents or grandchildren and any other account of the investor, including sole proprietorships, in either Trust may be treated as purchases by a single individual for purposes of determining the availability of a reduced sales charge. Purchases for a single trust estate or a single fiduciary account may also be treated as purchases by a single individual for this purpose, as may purchases on behalf of a participant in a tax-qualified retirement plan and other employee benefit plans, provided that the investor is the sole participant in the plan. Combining with Other Series and Classes of the Trusts. A shareholder's total investment for purposes of the cumulative purchase discount and purchases under a Letter of Intent includes the value at the current public offering price of any shares of series and classes of the Trusts that the shareholder owns (which includes shares of New England Cash Management Trust and New England Tax Exempt Money Market Trust [the "Money Market Funds"] if such shares were purchased by exchanging shares of either of the Trusts). Shares owned by persons described in the preceding paragraph may also be included. Unit Holders of Unit Investment Trusts. Unit investment trust distributions may be invested in Class A shares of the Fund at a reduced sales charge of 1.50% of the public offering price (or 1.52% of the net amount invested); for large purchases on which a sales charge of less than 1.50% would ordinarily apply, such lower charge also applies to investments of unit investment trust distributions. Clients of Advisers or Subadvisers. No sales charge or contingent deferred sales charge applies to investments of $100,000 or more in Class A shares of the Fund by (1) clients of an adviser or subadviser to the Trusts; any director, officer or partner of a client of an adviser or subadviser to the Trusts; and the spouse, parents, children, siblings, grandparents or grandchildren of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype of an adviser or subadviser to the Trusts if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of an adviser or subadviser to the Trusts. Any investor eligible for this arrangement should so indicate in writing at the time of the purchase. Offering to Employees of The New England and Associated Entities. There is no sales charge, CDSC or initial investment minimum related to investments in Class A shares of the Fund by any of the Trusts' investment advisers or subadvisers, New England Funds, L.P. or any other company affiliated with The New England; current and former directors and trustees of the Trusts; agents and general agents of The New England and its insurance company subsidiaries; current and retired employees of such agents and general agents; registered representatives of broker-dealers that have selling arrangements with New England Funds, L.P.; the spouse, parents, children, siblings, 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 The New England or any other company affiliated with The New England. Eligible Governmental Authorities. There is no sales charge or contingent deferred sales charge related to investments in Class A shares of the Fund by any state, county or city or any instrumentality, department, authority or agency thereof that has determined that the Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company. Investment Advisory Accounts. Shares of the Fund may be purchased at net asset value by investment advisers, financial planners or other intermediaries who place trades for their own accounts or the accounts of their clients and who charge a management, consulting or other fee for their services; clients of such investment advisers, financial planners or other intermediaries who place trades for their own accounts if the accounts are linked to the master account of such investment adviser, financial planner or other intermediary on the books and records of the broker or agent; and retirement and deferred compensation plans and trusts used to fund those plans, including, but not limited to, those defined in Section 401(a), 403(b) or 457 of the Code and rabbi trusts. Investors may be charged a fee if they effect transactions through a broker or agent. Shareholders of Reich and Tang Government Securities Trust. Shareholders of Reich and Tang Government Securities Trust may exchange their shares of that fund for Class A shares of the Fund at net asset value and without imposition of a sales charge. The reduction or elimination of the sales charge in connection with sales described above reflects the absence or reduction of sales expenses associated with such sales. SHAREHOLDER SERVICES Open Accounts A shareholder's investment is automatically credited to an open account maintained for the shareholder by State Street Bank. Following each transaction in the account, a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each calendar year, State Street Bank will send each shareholder a statement providing federal tax information on dividends and distributions paid to the shareholder during the year. This statement should be retained as a permanent record. New England Funds, L.P. may charge a fee for providing duplicate information. The open account system provides for full and fractional shares expressed to three decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. The costs of maintaining the open account system are paid by the Fund and no direct charges are made to shareholders. Although the Fund has no present intention of making such direct charges to shareholders, it reserves the right to do so. Shareholders will receive prior notice before any such charges are made. Automatic Investment Plans (Class A, B and C Shares) Subject to the Fund's investor eligibility requirements, investors may automatically invest in additional shares of the Fund on a monthly basis by authorizing New England Funds, L.P. to draw checks on an investor's bank account. The checks are drawn under the Investment Builder Program, a program designed to facilitate such periodic payments, and are forwarded to New England Funds, L.P. for investment in the Fund. A plan may be opened with an initial investment of $50 or more and thereafter regular monthly checks of $50 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. This program is voluntary and may be terminated by New England Funds, L.P. upon notice to existing plan participants. The Investment Builder Program plan may be discontinued at any time by the investor by written notice to New England Funds, L.P., which must be received at least five business days prior to any payment date. The plan may be discontinued by State Street Bank at any time without prior notice if any check is not paid upon presentation; or by written notice to you at least thirty days prior to any payment date. State Street Bank is under no obligation to notify shareholders as to the nonpayment of any check. Retirement Plans Offering Tax Benefits (Class A, B and C Shares) The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of the Fund or with certain other investments. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRAs), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, i.e., 403(b) plans. The reduced minimum initial investment available to retirement plans offering tax benefits is referred to in the prospectus. For these plans, initial investments in the Fund must be at least $250 for each participant in corporate pension and profit sharing plans, IRAs and Keogh plans and $50 for subsequent investments. There is a special initial and subsequent investment minimum of $25 for payroll deduction investment programs for 401(k), SARSEP, 403(b) and certain other retirement plans. Income dividends and capital gain distributions must be reinvested (unless the investor is over age 59 1/2 or disabled). Plan documents and further information can be obtained from New England Funds, L.P. An investor should consult a competent tax or other adviser as to the suitability of the Fund's shares as a vehicle for funding a plan, in whole or in part, under the Employee Retirement Income Security Act of 1974 and as to the eligibility requirements for a specific plan and its state as well as federal tax aspects. Certain retirement plans may also be eligible to purchase Class Y shares. See the prospectus. Systematic Withdrawal Plans (Class A, B and C Shares) An investor owning Fund shares having a value of $5,000 or more at the current public offering price may establish a Systematic Withdrawal Plan 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. No CDSC applies to a redemption pursuant to the Plan. All shares under the Plan must be held in an open (uncertificated) account. Income dividends and capital gain distributions will be reinvested (without a sales charge in the case of Class A shares) at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the value of the account, particularly in the event of a decline in net asset value. Accordingly, the shareholder should consider whether a Systematic Withdrawal Plan and the specified amounts to be withdrawn are appropriate in the circumstances. The Fund and New England Funds, L.P. make no recommendations or representations in this regard. It may be appropriate for the shareholder to consult a tax adviser before establishing such a plan. It may be disadvantageous for a shareholder to purchase on a regular basis additional Fund shares with a sales charge while redeeming shares under a Systematic Withdrawal Plan. Accordingly, the Fund and New England Funds, L.P. do not recommend additional investments in Class A shares by a shareholder who has a 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 in the Trusts (in the case of Class A shares of New England Adjustable Rate U.S. Government Fund, New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York, only if such shares have been held for at least six months) for shares of the same class of any other fund of the Trusts (subject to the investor eligibility requirements of the fund into which the exchange is being made) on the basis of relative net asset values at the time of the exchange without any sales charge. If you own Class A or Class C shares, you may also elect to exchange your shares of the Fund for Class A shares of the Money Market Funds. On all exchanges of Class A shares subject to a CDSC, the exchange stops the aging period relating to the CDSC. The aging resumes only when an exchange is made back into shares of one of the Trusts. If you own Class Y shares of the Fund, you may exchange those shares for Class Y shares of other funds in the Trusts or for the Class A shares of the Money Market Funds. These options are summarized in the prospectus. An exchange may be effected, provided that neither the registered name nor address of the accounts are different and provided that a certificate representing the shares being exchanged has not been issued to the shareholder, by (1) a telephone request to New England Funds, L.P. at (800) 223-7124 or (2) a written exchange request to New England Funds, P.O. Box 8551, Boston, MA 02266-8551. You must acknowledge receipt of a current prospectus for a Fund before an exchange for that Fund can be effected. The investment objectives of the other funds (besides the Fund) in the Trusts and the Money Market Funds are as follows: STOCK FUNDS: NEW ENGLAND GROWTH FUND seeks long-term growth of capital through investments in equity securities of companies whose earnings are expected to grow at a faster rate than the United States economy. NEW ENGLAND CAPITAL GROWTH FUND seeks long-term growth of capital. NEW ENGLAND VALUE FUND seeks a reasonable long-term investment return from a combination of market appreciation and dividend income from equity securities. NEW ENGLAND BALANCED FUND seeks a reasonable long-term investment return from a combination of long-tern capital appreciation and moderate current income. NEW ENGLAND GROWTH OPPORTUNITIES FUND seeks opportunities for long-term growth of capital and income. NEW ENGLAND INTERNATIONAL EQUITY FUND seeks total return from long-term growth of capital and dividend income primarily through investment in a diversified portfolio of marketable international equity securities. NEW ENGLAND STAR ADVISERS FUND seeks long-term growth of capital. NEW ENGLAND STAR WORLDWIDE FUND seeks long-term growth of capital. BOND FUNDS: NEW ENGLAND GOVERNMENT SECURITIES FUND seeks a high level of current income consistent with safety of principal by investing in U.S. Government securities and engaging in transactions involving related options, futures and options on futures. NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND seeks a high current return consistent with preservation of capital. NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND seeks a high level of current income consistent with low volatility of principal. NEW ENGLAND STRATEGIC INCOME FUND seeks high current income with a secondary objective of capital growth. NEW ENGLAND BOND INCOME FUND seeks a high level of current income consistent with what the Fund considers reasonable risk. The Bond Income Fund invests primarily in corporate and U.S. Government bonds. NEW ENGLAND HIGH INCOME FUND seeks high current income plus the opportunity for capital appreciation to produce a high total return. NEW ENGLAND MUNICIPAL INCOME FUND seeks as high a level of current income exempt from federal income taxes as is consistent with reasonable risk and protection of shareholders' capital. The Municipal Income Fund invests primarily in debt securities of municipal issuers, the interest of which is exempt from federal income tax but may be subject to the federal alternative minimum tax, and may engage in transactions in financial futures contracts and options on futures. NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of current income exempt from federal income tax and Massachusetts personal income taxes as Back Bay Advisors, the Fund's 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 INTERMEDIATE TERM TAX FREE FUND OF NEW YORK seeks as high a level of current income exempt from federal income tax and its state personal income tax and New York City personal income tax as is consistent with preservation of capital. MONEY MARKET FUNDS: NEW ENGLAND CASH MANAGEMENT TRUST - Money Market Series -- seeks maximum current income consistent with preservation of capital and liquidity. U.S. Government Series -- seeks highest current income consistent with preservation of capital and liquidity. NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST seeks current income exempt from federal income taxes consistent with preservation of capital and liquidity. As of December 15, 1995, the net assets of the funds in the Trusts and the Money Market Funds totaled over $5 billion. An exchange constitutes a sale of shares for federal income tax purposes in which the investor may realize a long- or short-term capital gain or loss. Automatic Exchange Plan (Class A, B and C Shares) As described in the prospectus following the caption "Owning Fund Shares", a shareholder may establish an Automatic Exchange Plan under which shares of the Fund are automatically exchanged each month for shares of the same class of one or more of the other funds in the Trusts. Registration on all accounts must be identical. The exchanges are made on the 15th of each month or the first business day thereafter if the 15th is not a business day until the account is exhausted or until New England Funds, L.P. is notified in writing to terminate the plan. Exchanges may be made in amounts of $500 or over ($1000 for spousal IRAs). The Service Options Form is available from New England Funds, L.P. or your financial representative to establish an Automatic Exchange Plan. REDEMPTIONS The procedures for redemption of shares of a Fund are summarized in the prospectus. As described in the prospectus, a contingent deferred sales charge (a "CDSC") may be imposed on certain purchases of Class A shares and on purchases of Class B shares. For purposes of the CDSC, an exchange of shares from the Fund to another series of the Trusts is not considered a redemption or a purchase. For federal tax purposes, however, such an exchange is considered a sale and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or loss. In determining whether a CDSC is applicable to a redemption of Class B shares, the calculation will be determined in the manner that results in the lowest rate being charged. Therefore, 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 five years, third of shares issued in connection with dividend reinvestment and fourth of shares held longest during the five-year period. 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 shares at $10 per share (at a cost of $1,000) and in the second year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares under dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the CDSC is applied only to the original cost of $10 per share and not to the increase in the asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 3% (the applicable rate in the second year after purchase). Signatures on redemption requests must be guaranteed by an "Eligible Guarantor Institution," as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. However, a signature guarantee will not be required if the proceeds of the redemption do not exceed $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address. If you select the telephone redemption service in the manner described in the next paragraph, shares of the Fund may be redeemed by calling toll free (800) 225-5478. A wire fee, currently $5.00, will be deducted from the proceeds. Telephone redemption requests must be received by the close of regular trading on the New York Stock Exchange. Requests made after that time or on a day when the New York Stock Exchange is not open for business cannot be accepted and a new request on a later day will be necessary. The proceeds of a telephone withdrawal will normally be sent on the first business day following receipt of a proper redemption request. In order to redeem shares by telephone, a shareholder must either select this service when completing the Fund application or must do so subsequently on the Service Options Form, available from your investment dealer. When selecting the service, a shareholder must designate a bank account to which the redemption proceeds should be sent. Any change in the bank account so designated may be made by furnishing to your investment dealer a completed Service Options Form with a signature guarantee. Whenever the Service Options Form is used, the shareholder's signature must be guaranteed as described above. Telephone redemptions may only be made if the designated bank is a member of the Federal Reserve System or has a correspondent bank that is a member of the System. If the account is with a savings bank, it must have only one correspondent bank that is a member of the System. The redemption price will be the net asset value per share (less any applicable CDSC) next determined after the redemption request and any necessary special documentation are received by State Street Bank or your investment dealer in proper form. Payment normally will be made by State Street Bank on behalf of the Fund within seven days thereafter. However, in the event of a request to redeem shares for which the Fund has not yet received good payment, the Fund reserves the right to withhold payments of redemption proceeds if the purchase of shares was made by a check which was deposited less than fifteen days prior to the redemption request (unless the Fund is aware that the check has cleared). The CDSC may be waived on redemptions made from IRA accounts due to attainment of age 59 1/2 for IRA shareholders who established accounts prior to January 3, 1995. The CDSC may also be waived on redemptions made from IRA accounts due to death, disability, return of excess contribution, required minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of the account, and redemptions made from the account to pay custodial fees. The CDSC may be waived on redemptions made from 403(b)(7) custodial accounts due to attainment of age 59 1/2 for shareholders who established custodial accounts prior to January 3, 1995. The CDSC may also be waived on redemptions necessary to pay plan participants or beneficiaries from qualified retirement plans under Section 401 of the Code, including profit sharing plans, money purchase plans, 401(k) and custodial accounts under Section 403(b)(7) of the Code. Distributions necessary to pay plan participants and beneficiaries include payments made due to death, disability, separation from service, normal or early retirement as defined in the plan document, loans from the plan and hardship withdrawals, return of excess contributions, required minimum distributions at age 70 1/2 (waivers only apply to amounts necessary to meet the required minimum amount), certain withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually of the value of your account, and redemptions made from qualified retirement accounts or Section 403(b)(7) custodial accounts necessary to pay custodial fees. A CDSC will apply in the event of plan level transfers, including transfers due to changes in investment where assets are transferred outside of New England Funds, including IRA and 403(b)(7) participant-directed transfers of assets to other custodians (except for the reasons given above) or qualified transfers of assets due to trustee-directed movement of plan assets due to merger, acquisition or addition of additional funds to the plan. The Fund will normally redeem shares for cash; however, the Fund reserves the right to pay the redemption price wholly or partly in kind if the Trust's board of trustees determines it to be advisable and in the interest of the remaining shareholders of the Fund. If portfolio securities are distributed in lieu of cash, the shareholder will normally incur brokerage commissions upon subsequent disposition of any such securities. However, the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash for any shareholder during any 90-day period up to the lesser of $250,000 or 1% of the total net asset value of the Trust at the beginning of such period. The Fund does not currently intend to impose any redemption charge (other than the CDSC imposed by the Distributor), although it reserves the right to charge a fee not exceeding 1% of the redemption price. A redemption constitutes a sale of shares for federal income tax purposes on which the investor may realize a long- or short-term capital gain or loss. See also "Income Dividends, Capital Gain Distributions and Tax Status," below. Reinstatement Privilege (Class A shares only) The prospectus describes redeeming shareholders' reinstatement privileges for Class A shares. Written notice and the investment check from persons wishing to exercise this reinstatement privilege must be received by your investment dealer within 120 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and the investment check and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. Even though an account is reinstated, the redemption will constitute a sale for federal income tax purposes. Investors who reinstate their accounts by purchasing shares of the Fund should consult with their tax advisers with respect to the effect of the "wash sale" rule if a loss is realized at the time of the redemption. STANDARD PERFORMANCE MEASURES Calculation of Total Return. Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes that any dividends or capital gains distributions are automatically reinvested in shares of the same class of the Fund rather than paid to the investor in cash. The formula for total return used by the Fund is prescribed by the Securities and Exchange Commission and includes three steps: (1) adding to the total number of shares of the particular class that would be purchased by a hypothetical $1,000 investment in the Fund (with or without giving effect to the deduction of sales charge or CDSC, if applicable) all additional shares that would have been purchased if all dividends and distributions paid or distributed during the period had been automatically reinvested; (2) calculating the value of the hypothetical initial investment as of the end of the period by multiplying the total of shares owned at the end of the period by the net asset value per share of the relevant class on the last trading day of the period; (3) dividing this account value for the hypothetical investor by the amount of the initial investment, and annualizing the result for periods of less than one year. Total return may be stated with or without giving effect to any expense limitations in effect for the Fund. Performance Comparisons Total Return. Total returns will generally be higher for Class A shares than for Class B and C shares of the Fund, because of the higher levels of expenses borne by the Class B and C shares. Because of its lower operating expenses, Class Y shares of the Fund can be expected to achieve a higher total return than the Fund's Class A, B and C shares. The Fund may from time to time include total return in advertisements or in information furnished to present or prospective shareholders. The Funds may from time to time include in advertisements its total return and the ranking of those performance figures relative to such figures for groups of mutual funds categorized by Lipper Analytical Services as having similar investment objectives. Total return may also be used to compare the performance of the Fund against certain widely acknowledged standards or indices for stock and bond market performance or against the U.S. Bureau of Labor Statistics' Consumer Price Index. The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is a market value-weighted and unmanaged index showing the changes in the aggregate market value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed almost entirely of common stocks of companies listed on the New York Stock Exchange, although the common stocks of a few companies listed on the American Stock Exchange or traded over-the-counter are included. The 500 companies represented include 400 industrial, 60 transportation and 40 financial services concerns. The S&P 500 represents about 80% of the market value of all issues traded on the New York Stock Exchange. The Salomon Brothers World Government Bond Index includes a broad range of institutionally-traded fixed-rate government securities issued by the national governments of the nine countries whose securities are most actively traded. The index generally excludes floating- or variable-rate bonds, securities aimed principally at non-institutional investors (such as U.S. Savings Bonds) and private-placement type securities. The Shearson Lehman Government Bond Index (the "SL Government Index") is a measure of the market value of all public obligations of the U.S. Treasury; all publicly issued debt of all agencies of the U.S. Government and all quasi-federal corporations; and all corporate debt guaranteed by the U.S. Government. Mortgage backed securities, flower bonds and foreign targeted issues are not included in the SL Government Index. The Shearson Lehman Government/Corporate Bond Index (the "SL 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 SL Government/Corporate Index, an issue must have amounts outstanding in excess of $1 million, have at least one year to maturity and be rated "Baa" or higher ("investment grade") by a nationally recognized rated agency. The Dow Jones Industrial Average is a market value-weighted and unmanaged index of 30 large industrial stocks traded on the New York Stock Exchange. The Merrill Lynch High Yield Index includes over 750 issues and represents public debt greater than $10 million (original issuance rated BBB/BB and below), and the First Boston High Yield Index includes over 350 issues and represents all public debt greater than $100 million (original issuance and rated BBB/BB and below). The Salomon Brothers Broad Investment Grade Bond Index is a price composite of a broad range of institutionally based U.S. Government mortgage-backed and corporate debt securities of investment outstanding of at least $1 million and with a remaining period to maturity of at least one year. The Consumer Price Index, published by the U.S. Bureau of Labor Statistics, is a statistical measure of changes, over time, in the prices of goods and services in major expenditure groups. Lipper Analytical Services, Inc. is an independent service that monitors the performance of over 1,300 mutual funds, and calculates total return for the funds grouped by investment objective. The Morgan Stanley Capital International Europe, Australia and Far East (Gross Domestic Product) Index (the "EAFE Index") is a market-value weighted and unmanaged index of common stocks traded outside the U.S. The stocks in the index are selected with reference to national and industry representation and weighted in the EAFE Index according to their relative market value (market price per share times the number of shares outstanding). The Morgan Stanley Capital International Europe, Australia and Far East 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 Mishtanim is an unmanaged index of the 100 most liquid securities on the Tel Aviv Stock Exchange. The Maof is an unmanaged index of the 30 largest securities traded on the Tel Aviv Stock Exchange. The Karam is an unmanaged index of smaller or less liquid securities traded on the Tel Aviv Stock Exchange. The Fund may compare its performance to the Salomon-Russell Broad Market Index Global X-US and to universes of similarly managed investment pools compiled by Frank Russell Company and Intersec Research Corporation. Articles and releases, developed by the Fund and other parties, about the Fund regarding performance, rankings, statistics and analyses of the Fund's and the fund group's asset levels and sales volumes, numbers of shareholders by fund or in the aggregate for New England Funds, statistics and analyses of industry sales volumes and asset levels, and other characteristics may appear in advertising, promotional literature, 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 the Fund. References to or reprints of such articles may be used in the Funds' advertising and promotional literature. Such advertising and promotional material may refer to NEIC, its structure, goals and objectives and the advisory subsidiaries of NEIC, 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 NEIC, its advisory subsidiaries and their personnel. For additional information about the Fund's advertising and promotional literature, see Appendix C. The Fund may enter into arrangements with banks exempted from registration under the Securities Exchange Act of 1934. Advertising and sales literature developed to publicize such arrangements will explain the relationship of the bank to New England Funds and New England Funds, L.P. as well as the services provided by the bank relative to the Fund. The material may identify the bank by name and discuss the history of the bank including, but not limited to, the type of bank, its asset size, the nature of its business and services and its status and standing in the industry. The Fund may use the accumulation charts below in their advertisements to demonstrate the benefits of monthly savings at an 8% and 10% rate of return, respectively. INVESTMENTS AT 8% RATE OF RETURN
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 Fund's advertising and sales literature may refer to historical, current and prospective political, social, economic and financial trends and developments that affect domestic and international investment as it relates to any of the New England Funds. For example, the advertising and sales literature of any of the New England Funds, but particularly that of Growth Fund of Israel, New England Star Worldwide Fund and New England International Equity Fund, may discuss all of the above international developments, including but not limited to, international developments involving Europe, North and South America, Asia, the Middle East and Africa, as well as events and issues affecting specific countries, including but not limited to, the United States and Israel, that directly or indirectly may have had consequences for the New England Funds or may have influenced past performance or may influence current or prospective performance of the New England Funds. The Fund's advertising and sales literature may also include historical and current performance and total returns of investment alternatives to the New England Funds. Articles, releases, advertising and literature may discuss the range of services offered by the Trusts and New England Funds, L.P., as distributor and transfer agent of the Trusts, with respect to investing in shares of the Trusts and customer service. Such materials may discuss the multiple classes of shares available through the Trusts and their features and benefits, including the details of the pricing structure. New England Funds, L.P. will make reference in its advertising and sales literature to awards, citations and honors bestowed on it by industry organizations and other observers and rathers including, but not limited to, Dalbar's Quality Tested Service Seal and Key Honors Award. Such references may explain the criteria for the award, indicate the nature and significance of the honor and provide statistical and other information about the award and New England Funds, L.P.'s selection including, but not limited to, the scores and categories in which New England Funds, L.P. excelled, the names of funds and fund companies that have previously won the award and comparative information and data about those against whom New England Funds, L.P. competed for the award, honor or citation. New England Funds, L.P. may publish, allude to or incorporate in its advertising and sales literature testimonials from shareholders, clients, brokers who sell or own shares, distributing 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. Also, New England Funds may incorporate testimonials and endorsements of officials of Israel and the U.S. governments, B'nai B'rith officials and spokespersons, brokers, members of the Jewish community and other individuals and persons in the general public. 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. In addition, sales literature may be published concerning topics of general investor interest for the benefit of registered representatives and the Fund's prospective shareholders. These materials may include, but are not limited to, discussions of college planning, retirement planning, reasons for investing and historical examples of the investment performance of various classes of securities, securities markets and indices. INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS As described in the Fund's prospectus, it is the policy of the Fund to pay its shareholders, as dividends, substantially all net investment income and to distribute annually all net realized long-term capital gains, if any, after offsetting any capital loss carryovers. Income dividends and capital gain distributions are payable in full and fractional shares of the relevant class of the Fund based upon the net asset value determined as of the close of the New York Stock Exchange on the record date for each dividend or distribution. Shareholders, however, may elect to receive their income dividends or capital gain distributions, or both, in cash. The election may be made at any time by submitting a written request directly to New England Funds. In order for a change to be in effect for any dividend or distribution, it must be received by New England Funds on or before the record date for such dividend or distribution. As required by federal law, detailed federal tax information will be furnished to each shareholder for each calendar year on or before January 31 of the succeeding year. The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Code. In order to qualify, the Fund must, among other things (i) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from 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) derive less than 30% of its gross income from gains from the sale or other disposition of securities held for less than three months; (iii) distribute at least 90% of its dividend, interest and certain other taxable income each year; and (iv) at the end of each fiscal quarter maintain at least 50% of the value of its total assets in cash, government securities, securities of other regulated investment companies, other securities of issuers which represent, with respect to each issuer, no more than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and with no more than 25% of its assets invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades and businesses. So long as it qualifies for treatment as a regulated investment company, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends or capital gains distributions. An excise tax at the rate of 4% will be imposed on the excess, if any, of the Fund's "required distribution" over its actual distributions in any calendar year. Generally, the "required distribution" is 98% of the Fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on October 31 (or December 31, if the Fund so elects) plus undistributed amounts from prior years. The Fund intends to make distributions sufficient to avoid imposition of the excise tax. Distributions declared by the Fund during October, November or December to shareholders of record on a date in any such month and paid by the Fund during the following January will be treated for federal tax purposes as paid by the Fund and received by shareholders on December 31 of the year in which declared. Shareholders of the Fund will be subject to federal income taxes on distributions made by the Fund whether received in cash or additional shares of the Fund. Distributions by the Fund of net income and short-term capital gains, if any, will be taxable to shareholders as ordinary income. Distributions 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 6 months or less will be treated as a long-term capital loss to the extent of any long-term capital gain dividend paid to the shareholder with respect to such shares. Dividends and distributions on Fund shares received shortly after their purchase, although in effect a return of capital, are subject to federal income taxes. The Fund may be eligible to make and, if eligible, may make an election under Section 853 of the Code so that its shareholders will be able to claim a credit or deduction on their income tax returns for, and will be required to treat as part of the amounts distributed to them, their pro rata portion of qualified taxes paid by the Fund to Israel and other foreign countries. The ability of shareholders of the Fund to claim a foreign tax credit is subject to certain limitations imposed by Section 904 of the Code, which in general limit the amount of foreign tax that may be used to reduce a shareholder's U.S. tax liability to that amount of U.S. tax which would be imposed on the amount and type of income in respect of which the foreign tax was paid. A shareholder who for U.S. income tax purposes claims a foreign tax credit in respect of Fund distributions may not claim a deduction for foreign taxes paid by the Fund, regardless of whether the shareholder itemizes deductions. Also, under Section 63 of the Code, no deduction in respect of income taxes paid by the Fund to foreign countries may be claimed by shareholders who do not itemize deductions on their federal income tax returns. The Fund will notify shareholders each year of the amount for dividends and distributions and the shareholder's pro rata share of qualified taxes paid by the Fund to foreign countries. The Fund's transactions, if any, in foreign currencies are likely to result in a difference between the Fund's book income and taxable income. This difference may cause a portion of the Fund's income distributions to constitute a return of capital for tax purposes or require the Fund to make distributions exceeding book income to avoid excise tax liability and to qualify as a regulated investment company. The Fund may own shares in certain foreign investment entities, referred to as "passive foreign investment companies." In order to avoid U.S. federal income tax, and an additional charge on a portion of any "excess distribution" from such companies or gain from the disposition of such shares, the Fund may elect to "mark to market" annually its investments in such entities and to distribute any resulting net gain to shareholders. As a result, the Fund may be required to sell securities it would have otherwise continued to hold in order to make distributions to shareholders in order to avoid any Fund-level tax. Redemptions and exchanges of the Fund's shares are taxable events and, accordingly, shareholders may realize gains and losses on these transactions. If shares have been held for more than one year, gain or loss realized will be long-term capital gain or loss, 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 Fund within 30 days prior to the sale of the loss shares or 30 days after such sale. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and related regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative actions. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state or local taxes. The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S. investors should consult their tax advisers concerning the tax consequences of ownership of shares of the Fund, including the possibility that distributions may be subject to a 30% United States withholding tax (or a reduced rate of withholding provided by treaty). ISRAELI TAXES The following is a short summary of the tax structure applicable to corporations in Israel with reference to its effect on the Fund. The following discussion is partially based on enacted Israeli legislation that has not been subjected to judicial or administrative interpretation. There can be no assurance that views expressed herein will be accepted by the courts or by the Israeli Tax Commission. Capital Gains Tax. The Israeli Income Tax Ordinance [New Version] (the "Ordinance") imposes a tax on capital gains derived by residents of Israel, or by non-residents of Israel who sell assets which represent a direct or an indirect interest in Israeli assets. The Fund, however, will generally be exempt from such capital gains tax, as discussed below. The Ordinance distinguishes between the "Real Gain" and the "Inflationary Surplus." The Real Gain is the excess of the total capital gain over the Inflationary Surplus, computed on the basis of the increase in the Consumer Price Index (the "CPI"), or in the case of foreign residents, on the basis of the devaluation of the New Israel Shekel against the currency of the purchase, between the date of purchase and the date of sale. The Inflationary Surplus accumulated until December 31, 1993 is taxed at a rate of 10% for residents of Israel, and is reduced to no tax for non-residents if calculated according to the exchange rate of the foreign currency lawfully invested in shares of an Israeli resident company. The Real Gain is added to ordinary income which is taxed at ordinary rates of 30% to 50% for individuals and 37% for corporations (declining to 36% in 1996 and thereafter). Inflationary Surplus accumulated from and after December 31,1993 is exempt from any capital gains tax. Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income (the "Treaty"), the sale, exchange or disposition of securities by a person, such as the Fund, qualifying as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and entitled to claim the benefits afforded to such resident by the Treaty (a "Treaty U.S. Resident") will not be subject to the Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting power of the corporation whose securities the Treaty U.S. Resident sells, exchanges or disposes of, during any part of the 12-month period preceding such sale, exchange or disposition. It is expected that the Fund will rarely, if ever, hold 10% or more than 10% of the outstanding voting securities of any issuer.) A Treaty U.S. Resident who is not exempt from Israeli capital gains tax would be permitted to claim a credit for such taxes against the U.S. income tax imposed with respect to such sale, exchange or disposition, subject to the limitation in U.S. laws applicable to foreign tax credits. Israeli law currently provides for an exemption from capital gains tax on gains from the sale of securities (including shares, debt securities and warrants) that are traded on the TASE, provided that the seller did not hold the securities prior to their listing on the TASE. In addition, gains from the sale of shares of Israeli corporations defined as "Industrial Companies" or "Industrial Holding Companies" that are traded on certain non-Israeli (including U.S.) exchanges or through NASDAQ are exempted from capital gains tax, provided that the shares were not acquired by the seller prior to their listing. The securities to which the exemption currently applies are referred to in this section as "Exchange-Listed Securities" The current exemptions apply only where the gains from the sale of securities are deemed "capital gains." Persons who are engaged in the business of buying and selling securities in Israel are subject to ordinary income tax, and therefore the exemptions from capital gains tax are inapplicable to such investors. Pursuant to the Treaty, business profits of Treaty U.S. Residents, including those of Treaty U.S. Residents engaged in the business of buying and selling securities in Israel, are exempt from Israeli income tax, unless such Treaty U.S. Resident has a permanent establishment in Israel within the meaning of the Treaty. The Fund has been advised it will qualify as a Treaty U.S. Resident and that its activities will not cause the Fund to be deemed to have a permanent establishment in Israel pursuant to the Treaty, and thus the Fund anticipates that it will not be subject to Israeli income tax on gains from the purchase and sale of securities. Withholding Tax on Payments of Dividends and Interest. Non-residents of Israel, including the Fund, are subject to Israeli income tax on income accrued or derived from sources in Israel or received in Israel. Generally, on distributions of dividends other than bonus shares (stock dividends), income tax at a rate of 25% is withheld at the source. This tax is reduced to 15% with respect to dividends distributed from income generated by an "Approved Enterprise" (i.e. from those portions of a company's operations which have been granted such status under Israel's Law for the Encouragement of Capital Investments) to a corporation (which would include the Fund for this purpose) that holds 10% or more of the voting stock interests in the paying corporation. (As noted above, it is expected that the Fund will rarely, if ever, hold 10% or more of a corporation's voting stock.) Interest paid on debt securities is generally subject to income tax a rate of 25%. However, pursuant to the Treaty, such rate is reduced to 17.5% for Treaty U.S. Residents. - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial statements of Growth Fund of Israel included in its semi-annual report for the period ended June 30, 1996 are incorporated herein by reference. APPENDIX A DESCRIPTION OF BOND RATINGS STANDARD & POOR'S CORPORATION 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. APPENDIX B PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION ABC and affiliates Adam Smith's Money World America On Line Anchorage Daily News Atlanta Constitution Atlanta Journal Arizona Republic Austin American Statesman Baltimore Sun Bank Investment Marketing Barron's Bergen County Record (NJ) Bloomberg Business News Bond Buyer B'nai B'rith Jewish Monthly Boston Business Journal Boston Globe Boston Herald Broker World Business Radio Network Business Week CBS and affiliates CFO Changing Times Chicago Sun Times Chicago Tribune Christian Science Monitor Christian Science Monitor News Service Cincinnati Enquirer Cincinnati Post CNBC CNN Columbus Dispatch CompuServe Dallas Morning News Dallas Times-Herald Denver Post Des Moines Register Detroit Free Press Donoghues Money Fund Report Dorfman, Dan (syndicated column) Dow Jones News Service Economist FACS of the Week Fee Adviser Financial News Network Financial Planning Financial Planning on Wall Street Financial Research Corp. Financial Services Week Financial World Fitch Insights Forbes Fort Worth Star-Telegram Fortune Fox Network and affiliates Fund Action Fund Decoder Global Finance (the) Guarantor Hartford Courant Houston Chronicle INC Indianapolis Star Individual Investor Institutional Investor International Herald Tribune Internet Investment Advisor Investment Company Institute Investment Dealers Digest Investment Profiles Investment Vision Investor's Daily IRA Reporter Journal of Commerce Kansas City Star KCMO (Kansas City) KOA-AM (Denver) LA Times Leckey, Andrew (syndicated column) Lear's Life Association News Lifetime Channel Miami Herald Milwaukee Sentinel Money Money Maker Money Management Letter Morningstar Mutual Fund Market News Mutual Funds Magazine National Public Radio National Underwriter NBC and affiliates New England Business New England Cable News New Orleans Times-Picayune New York Daily News New York Times Newark Star Ledger Newsday Newsweek Nightly Business Report Orange County Register Orlando Sentinel Palm Beach Post Pension World Pensions and Investments Personal Investor Philadelphia Inquirer Porter, Sylvia (syndicated column) Portland Oregonian Prodigy Public Broadcasting Service Quinn, Jane Bryant (syndicated column) Registered Representative Research Magazine Resource Reuters Rocky Mountain News Rukeyser's Business (syndicated column) Sacramento Bee San Diego Tribune San Francisco Chronicle San Francisco Examiner San Jose Mercury Seattle Post-Intelligencer Seattle Times Securities Industry Management Smart Money St. Louis Post Dispatch St. Petersburg Times Standard & Poor's Outlook Standard & Poor's Stock Guide Stanger's Investment Advisor Stockbroker's Register Strategic Insight Tampa Tribune Time Tobias, Andrew (syndicated column) Toledo Blade UPI US News and World Report USA Today USA TV Network Value Line Wall St. Journal Wall Street Letter Wall Street Week Washington Post WBZ WBZ-TV WCVB-TV WEEI WHDH Worcester Telegram World Wide Web Worth Magazine WRKO APPENDIX C ADVERTISING AND PROMOTIONAL LITERATURE References may be included in New England Funds' advertising and promotional literature to New England Investment Companies ("NEIC") and its affiliates that perform advisory functions for New England Funds including, but not limited to: Back Bay Advisors, L.P., Harris Associates L.P., Loomis, Sayles and Company, L.P., Westpeak Investment Advisors, L.P., Capital Growth Management Limited Partnership and Draycott Partners, Ltd. References may be included in New England Funds' advertising and promotional literature to NEIC affiliates that do not perform advisory or subadvisory functions for the Funds including, but not limited to, New England Investment Associates, L.P., Copley Real Estate Advisors, L.P., Marlborough Capital Advisors, L.P., Reich & Tang Capital Management and Reich and Tang Mutual Funds Group. References to subadvisers unaffiliated with NEIC that perform subadvisory functions on behalf of New England Funds may be contained in New England Funds' advertising and promotional literature including, but not limited to, Berger Associates, Inc., Janus Capital Corporation, Founders Asset Management, Inc. and Montgomery Asset Management, L.P. New England Funds' advertising and promotional material will include, but is not limited to, discussions of the following information about the above entities: Specific and general investment emphasis, specialties, competencies, operations and functions Specific and general investment philosophies, strategies, processes and techniques Specific and general sources of information, economic models, forecasts and data services utilized, consulted or considered in the course of providing advisory or other services The corporate histories, founding dates and names of founders of the entities Awards, honors and recognition given to the firms The names of those with ownership interest and the percentage of ownership Current capitalization, levels of profitability and other financial information Identification of portfolio managers, researchers, economists, principals and other staff members and employees The specific credentials of the above individuals, including but not limited to, previous employment, current and past positions, titles and duties performed, industry experience, educational background and degrees, awards and honors Specific identification of, and general reference to, current individual, corporate and institutional clients, including pension and profit sharing plans Current and historical statistics about: -total dollar amount of assets managed -New England Funds' assets managed in total and by Fund -the growth of assets -asset types managed -numbers of principal parties and employees, and the length of their tenure, including officers, portfolio managers, researchers, economists, technicians and support staff -the above individuals' total and average number of years of industry experience and the total and average length of their service to the adviser or the subadviser 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, including but not limited to, New England Star Advisers Fund (the "Star Advisers Fund") portfolio manager Rodney L. Linafelter of Berger Associates, Inc. and Berger Funds, who also serves as portfolio manager of the Berger 100 Fund; Star Advisers Fund portfolio manager Warren B. Lammert of Janus Capital Corporation and Janus Funds, who also serves as portfolio manager of Janus Mercury Fund, and New England Star Worldwide Fund (the "Star Worldwide Fund") portfolio manager Helen Young Hayes, also of Janus Capital Corporation and Janus Funds, who serves as portfolio manager of the Janus Worldwide Fund, IDEX II Series Fund - IDEX II Global Portfolio and Janus Aspen Series - Worldwide Growth Portfolio; Star Worldwide Fund portfolio managers Josephine S. Jimenez and Bryan L. Sudweeks of Montgomery Asset Management, L.P., who also serve as portfolio managers of Montgomery Emerging Markets Fund; Star Advisers Fund portfolio manager Edward F. Keely and Star Worldwide Fund portfolio manager Michael W. Gerding of Founders Asset Management, Inc. and Founders Funds, who also serve as portfolio managers of Founders Growth Fund and Founders Worldwide Growth Fund, respectively; and Star Advisers Fund portfolio managers Jeffrey C. Petherick and Mary Champagne of Loomis, Sayles & Company, L.P. and Loomis Sayles Funds, who also serve as portfolio managers of the Loomis Sayles Small Cap Fund. Specific and general references may be made to the Loomis Sayles Funds, the Loomis Sayles Bond Fund and Daniel Fuss, who serves as portfolio manager of New England Strategic Income Fund and the Loomis Sayles Bond Fund; and Star Worldwide Fund portfolio manager Robert J. Sanborn and Fund and Star Worldwide Fund portfolio manager David G. Herro of Harris Associates L.P. and Oakmark Funds, who also serve as portfolio managers of The Oakmark Fund and The Oakmark International Fund, respectively. 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 Star Worldwide Fund and other funds managed by that fund's subadvisers, including but not limited to those provided by Morningstar, Lipper Analytical Services, Forbes and Worth. The Growth Fund of Israel's advertising, sales literature and promotional material will include discussions of current, or prospective programs for the liquidation of Israeli bond issues including, but not limited to, references to communications from the bond issuer and/or its financial agents and the details of those communications; descriptions of the bonds eligible for redemption, their characteristics and conditions applicable to redemption; liquidation procedures and requirements of the bond issuer and/or financial agent with respect to liquidation; instructions for directing proceeds to broker-dealers and/or New England Funds for investment; and the comparative merits, features, benefits and distinctions to be made between investments in Israeli bonds and the Growth Fund of Israel, including, but not limited to, the lack of governmental guarantee and fluctuation of net asset value associated with Growth Fund of Israel and the differences in income generation, appreciation potential and other features of the investments. The material may identify benefits to investing redemption proceeds in the Fund including but not limited to advancing Israel's privatization effort, furthering its economic growth, and diminishing its reliance on governmental ownership while lowering Israel's debt level and may state that the Growth Fund of Israel is the only open-ended mutual fund investing in the securities of Israeli issuers. In addition, communications and materials developed by New England Funds will make reference to the following information about NEIC and its affiliates: NEIC is the fifth largest publicly traded manager in the U.S. listed on the New York Stock Exchange. NEIC maintains over $78 billion in assets under management. Clients serviced by NEIC and its affiliates, besides New England Funds, are wealthy individuals, major corporations and large institutions. Back Bay Advisors, L.P. employs a conservative style of management emphasizing short and intermediate term securities to reduce volatility, adds value through careful continuous credit analysis and has expertise in government, corporate and tax-free municipal bonds and equity securities. Among its clients are Boston City Retirement System, Public Service Electric and Gas of New Jersey, Petrolite Corp. and General Mills. Draycott Partners, Ltd. specializes in international stocks and tracks key world markets and economic trends from offices in London and Boston. Its investment approach is based on concentration on "blue chip" companies in stable, growing economies and is guided by independent, non-consensus thinking. It monitors country weightings with strict attention to risk control to promote long-term returns. Capital Growth Management, L.P. seeks to deliver exceptional growth for its clients through the selection of stocks with the potential to outperform the market and grow at a faster rate than the U.S. economy. Among its approaches are pursuit of growth 50% above the Standard & Poor's Index of 500 Common Stocks, prompt responses to changes in the market or economy and aggressive, highly concentrated portfolios. Loomis, Sayles & Company, L.P. is one of the oldest and largest investment firms in the U.S. and has provided investment counseling to individuals and institutions since 1926. Characteristic of Loomis Sayles is that it has one of the largest staffs of research analysts in the industry, practices strict buy and sell disciplines and focuses on sound value in stock and bond selection. Among its clients are large corporations such as Chrysler, Mobil Oil and Revlon. Westpeak Investment Advisors, L.P. ("Westpeak") employs proprietary research and a disciplined stock selection process that seeks rigorously to control unnecessary risk. Its investment process is designed to evaluate when value and growth styles - two primary approaches to stock investing - hold potential for reward. Over seventy fundamental attributes are continuously analyzed by Westpeak's experienced analysts and sophisticated computer systems. The results are assessed against Wall Street's consensus thinking, in pursuit of returns in excess of appropriate benchmarks. The value/growth strategy is a unique blend of investment styles, seeking opportunities for increased return with reduced risk. Among the keys to Westpeak's investment process are continuous review of timely, accurate data on over 3600 companies, analysis of dozens of factors for excess return potential and identification of overvalued and undervalued stocks. Harris Associates L.P. is a Chicago-based investment management company with more than $7.6 billion in assets under management, comprised of the $4 billion Oakmark Fund Group and $3.6 billion in individual and institutional assets. Harris Associates L.P.'s investment philosophy is predicated on the belief that over time market price and value coverage and that investment in securities priced significantly below long-term value presents that best opportunity to achieve long-term growth of capital. On June 30, 1995, NEIC purchased the assets of Graystone Partners, L.P. ("Graystone"), a Chicago-based consulting firm focusing exclusively on working with the wealthiest families in the country. Founded in 1993, Graystone specializes in assisting high net worth families in developing asset allocation strategies, identifying appropriate portfolio managers and the monitoring of investment performance. References may be included in New England Funds' advertising and promotional literature about its 401(k) and retirement plans. The information may include, but is not limited to: Specific and general references to industry statistics regarding 401(k) and retirement plans including historical information 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. 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. Specific and general discussion of economic, legislative, and other environmental factors affecting 401(k) and retirement plans, including but not limited to, statistics, detailed explanations or broad summaries of: -past, present and prospective tax regulation, IRS 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 -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 -current and prospective ERISA regulation and requirements. Specific and general discussion of the benefits of 401(k) investment and retirement plans, and, in particular, the New England Funds 401(k) and retirement plans, to the participant and plan sponsor, including explanations, statistics and other data, about: -increased employee retention -reinforcement or creation of morale -deductibility of contributions for participants -deductibility of expenses for employers -tax deferred growth, including illustrations and charts -loan features and exchanges among accounts -educational services materials and efforts, including, but not limited to, videos, slides, presentation materials, brochures, an investment calculator, payroll stuffers, quarterly publications, releases and information on a periodic basis and the availability of wholesalers and other personnel. Specific and general reference to the benefits of investing in mutual funds for 401(k) and retirement plans, and, in particular, New England Funds and investing in its 401(k) and retirement plans, including but not limited to: -the significant economies of scale experienced by mutual fund companies in the 401(k) and retirement benefits arena -broad choice of investment options and competitive fees -plan sponsor and participant statements and notices -the plan prototype, summary descriptions and board resolutions -plan design and customized proposals -trusteeship, record keeping and administration -the services of State Street Bank, including but not limited to, trustee services and tax reporting -the services of DST and BFDS, including but not limited to, mutual fund processing support, participant 800 numbers and participant 401(k) statements -the services of Trust Consultants Inc. (TCI), including but not limited to, sales support, plan record keeping, document service support, plan sponsor support, compliance testing and Form 5500 preparation. Specific and general reference to the role of the investment dealer and the benefits and features of working with a financial professional including: -access to expertise on investments -assistance in interpreting past, present and future market trends and economic events -providing information to clients including participants during enrollment and on an ongoing basis after participation -promoting and understanding the benefits of investing, including mutual fund diversification and professional management. NEW ENGLAND FUNDS TRUST II PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Highlights for the Registrant's Growth Fund of Israel are included in Part A hereof. The following financial statements are incorporated in Part II of the statement of additional information filed as Part B hereof by reference to the semi-annual report to shareholders of Growth Fund of Israel listed below for the semi-annual period ended June 30, 1996, which was filed with the Commission on August 14, 1996: (1) Growth Fund of Israel (August 14, 1996) (i) Portfolio Composition (ii) Statement of Assets & Liabilities (iii) Statement of Operations (iv) Statement of Changes in Net Assets (v) Per Share Data and Ratios (b) Exhibits: 1. (a) Second Amended and Restated Agreement and Declaration of Trust of the Registrant is incorporated herein by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. (b) Amendment No. 5 to Second Amended and Restated Agreement and Declaration of Trust of the Registrant is incorporated herein by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. (c) Amendment No. 6 to Second Amended and Restated Agreement and Declaration of Trust of the Registrant is incorporated herein by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. 2. (a) Amended and Restated By-Laws of the Registrant are filed herein. (b) Amendment to the By-Laws of the Registrant is filed herein. 3. Not applicable. 4. Rights of shareholders are described in Article III, Section 6 of the Second Amended and Restated Agreement and Declaration of Trust of the Registrant filed as Exhibit 1(a) to this Registration Statement. 5. (a) Advisory Agreement between the Registrant and New England Funds Management, L.P. ("NEFM") relating to the High Income series of the Registrant is filed herewith. (b) Advisory Agreements between the Registrant and NEFM relating to the following series of the Registrant are incorporated herein by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996: (i) New England Growth Opportunities Fund (ii) Growth Fund of Israel (iii) New England Limited Term U.S. Government Fund (iv) New England Adjustable Rate U.S. Government Fund (v) New England Massachusetts Tax Free Income Fund (vi) New England Intermediate Term Tax Free Fund of California (vii) New England Intermediate Term Tax Free Fund of New York (c) Sub-Advisory Agreement relating to the High Income series of the Registrant between NEFM and Loomis, Sayles & Co., L.P. is filed herein. (d) Sub-Advisory Agreements relating to the following series of the Registrant between NEFM and the subadvisers indicated in parentheses are incorporated herein by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996: (i) New England Growth Opportunities Fund (Westpeak Investment Advisors, L.P. ("Westpeak")) (ii) Growth Fund of Israel (Harris Associates L.P. ("Harris")) (iii) New England Limited Term U.S. Government Fund (Back Bay Advisors, L.P. ("Back Bay Advisors")) (iv) New England Adjustable Rate U.S. Government Fund (Back Bay Advisors) (v) New England Massachusetts Tax Free Income Fund (Back Bay Advisors) (vi) New England Intermediate Term Tax Free Fund of California (Back Bay Advisors) (vii) New England Intermediate Term Tax Free Fund of New York (Back Bay Advisors) 6. (a) Form of Distribution Agreement between the Registrant, on behalf of each of its series, and New England Funds, L.P. is incorporated herein by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. 7. Not applicable. 8. (a) Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Custodian Contract and the Transfer and Service Agency Agreement to New England Adjustable Rate U.S. Government Fund is incorporated herein by reference to Exhibit 8(A) to Post-Effective Amendment No. 91 to this Registration Statement, filed on December 14, 1992. (b) Form of Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Custodian Contract and the Transfer Agency and Service Agreement to New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York is incorporated herein by reference to Exhibit 8(B) to Post-Effective Amendment No. 91 to this Registration Statement, filed on December 14, 1992. (c) Form of Letter Agreement between the Registrant and State Street Bank and Trust Company relating to the applicability of the Custodian Contract and the Transfer Agency and Service Agreement to Growth Fund of Israel is incorporated herein by reference to Post-Effective Amendment No. 100 to this Registration Statement, filed on October 11, 1995. (d) Custodian Agreement between the Registrant and State Street Bank and Trust Company is filed herein. 9. (a) Form of Service Agreement between Back Bay Advisors and the Distributor is incorporated herein by reference to Post-Effective Amendment No. 83 to this Registration Statement, filed on November 4, 1988. (b) Form of Transfer Agency Agreement between the Registrant and State Street Bank and Trust Company is incorporated herein by reference to Post-Effective Amendment No. 83 to this Registration Statement, filed on November 4, 1988. (c) Form of Dealer Agreement of New England Funds, L.P., the Registrant's principal underwriter, is incorporated herein by reference to Post-Effective Amendment No. 88 to this Registration Statement, filed on August 2, 1991. (d) Organizational Expense Reimbursement Agreement between the Registrant, on behalf of its New England Adjustable Rate U.S. Government Fund, and New England Funds, L.P. is incorporated herein by reference to Post-Effective Amendment No. 89 to this Registration Statement, filed on January 30, 1992. (e) Form of Organizational Expense Reimbursement Agreement between the Registrant, on behalf of its New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York, and New England Funds, L.P. is incorporated herein by reference to Post-Effective Amendment No. 91 to this Registration Statement, filed December 14, 1992. (f) Form of Class B Shares Remittance Agreement between the Registrant and New England Funds, L.P., relating to each series of the Registrant, is incorporated by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. (g) Organizational Expense Reimbursement Agreement between the Registrant, on behalf of its Growth Fund of Israel, and New England Funds, L.P. is incorporated by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. (h) Form of Economic and Market Subadvisory Agreement relating to the Registrant's Growth Fund of Israel, between NEFM and Batucha Securities & Investments, Ltd. is incorporated by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. 10. (a) Opinion and consent of counsel with respect to the Registrant's New England Growth Opportunities Fund, New England High Income Fund, New England Limited Term U.S. Government Fund, and New England Massachusetts Tax Free Income Fund is incorporated herein by reference to Post-Effective Amendment No. 84 to this Registration Statement, filed on January 3, 1989. (b) Opinion and consent of counsel with respect to the Registrant's New England Adjustable Rate U.S. Government Fund is incorporated by reference to Post-Effective Amendment No. 88 to this Registration Statement, filed on August 2, 1991. (c) Opinions and consents of counsel with respect to the Registrant's New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York are incorporated herein by reference to Post-Effective Amendment No. 92 to this Registration Statement, filed on March 2, 1993. (d) Opinion and consent of counsel with respect to offering multiple classes of shares for all series of the Registrant is incorporated herein by reference to Post-Effective Amendment No. 95 to this Registration Statement, filed on December 2, 1993. (e) Opinion and consent of counsel with respect to the Registrant's Rule 24e-2 Notice is incorporated herein by reference to Exhibit 10(E) to Post-Effective Amendment No. 98 to this Registration Statement, filed on March 2, 1995. (f) Opinion and consent of counsel with respect to the Registrant's Growth Fund of Israel is incorporated herein to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. (g) Opinion and consent of counsel with respect to the Registrant's Rule 24e-2 Notice is incorporated herein to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. 11. None. 12. None. 13. Not applicable. 14. Model Retirement Plans. (a) Keogh Plan is incorporated herein by reference to Exhibit 14(a) to Post-Effective Amendment No. 78 to this Registration Statement, filed on August 1, 1985. (b) IRA Plan is incorporated herein by reference to Exhibit 14(b) to Post-Effective Amendment No. 78 to this Registration Statement, filed on August 1, 1985. 15. (a) Rule 12b-1 Plans relating to Class A shares of the Registrant's New England Massachusetts Tax Free Income Fund, New England Intermediate Term Tax Free Fund of California, New England Intermediate Term Tax Free Fund of New York, New England High Income Fund, New England Growth Opportunities Fund, New England Limited Term U.S. Government Fund and New England Adjustable Rate U.S. Government Fund are filed herein. (b) Form of Rule 12b-1 Plan relating to the Class B shares of each series of the Registrant is incorporated by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. (c) Rule 12b-1 Plan relating to the Class C shares of New England Limited Term U.S. Government Fund is filed herein. (d) Rule 12b-1 Plan relating to Class C shares of New England Growth Opportunities Fund is filed herein. (e) Forms of Rule 12b-1 Plans relating to the Class A and Class C shares of Growth Fund of Israel are incorporated herein by reference to Post-Effective Amendment No. 100 to this Registration Statement, filed on October 11, 1995. 16. Schedule for computation of performance quotations is incorporated herein by reference to Exhibit 16 to Post-Effective Amendment No. 83 to this Registration Statement, filed on November 4, 1988. 17. Financial Data Schedule is filed herewith. 18. Plan adopted pursuant to Rule 18f-3 under the 1940 Act is incorporated herein by reference to Exhibit 18 to Post-Effective Amendment No. 99 to this Registration Statement, filed on May 1, 1995. 19. (a) Powers of Attorney designating Edward A. Benjamin, Frank Nesvet, Henry L. P. Schmelzer and Robert P. Connolly as attorneys to sign for Kenneth J. Cowan, Peter S. Voss, Henry L.P. Schmelzer, Graham T. Allison, Jr., Pendleton P. White, John A. Shane and Sandra O. Moose are incorporated herein by reference to Exhibit 19 to Post-Effective Amendment No. 100 to this Registration Statement, filed on October 11, 1995. (b) Powers of Attorney designating Edward A. Benjamin, Frank Nesvet, Henry L. P. Schmelzer and Robert P. Connolly as attorneys to sign for Daniel M. Cain and Richard Darman are incorporated by reference to Post-Effective Amendment No. 104 to this Registration Statement filed on April 19, 1996. Item 25. Persons Controlled by or under Common Control with Registrant None. Item 26. Number of Holders of Securities The following table sets forth the number of record holders of each class of securities of the Registrant as of May 31, 1996.
Number of Record Holders ------------------------ Title of Series Class A Class B Class C Class Y - --------------- ------- ------- ------- ------- New England Adjustable Rate U.S. Government Fund 3,886 264 --- N/A New England Growth Opportunities Fund 9,373 4,593 254 N/A New England Limited Term U.S. Government Fund 15,102 1,401 200 3 New England High Income Fund 2,240 778 --- --- New England Massachusetts Tax Free Income Fund 5,847 295 --- --- New England Intermediate Term Tax Free Fund of California 581 143 --- --- New England Intermediate Term Tax Free Fund of New York 566 108 --- --- Growth Fund of Israel 580 245 --- ---
Item 27. Indemnification See Article 4 of the Trust's Amended and Restated By-Laws, filed as Exhibit 2(B) to Post-Effective Amendment No. 83 to Registration Statement, filed on November 4, 1988, which is incorporated herein by reference. In addition, New England Mutual Life Insurance Company ("The New England"), the parent company of the Registrant's adviser and distributor, maintains a directors and officers liability insurance policy with maximum coverage of $15 million, under which the trustees and officers of the Registrant are named insured. Item 28. Business and Other Connections of Investment Adviser (a) Back Bay Advisors, the subadviser of the Registrant's New England Massachusetts Tax Free Income Fund, New England Intermediate Term Tax Free Fund of California, New England Intermediate Term Tax Free Fund of New York, New England Limited Term U.S. Government Fund and New England Adjustable Rate U.S. Government Fund, is wholly owned by NEIC. Back Bay Advisors serves as investment adviser to a number of other registered investment companies. Back Bay Advisors' general partner, directors and officers have been engaged during the past two fiscal years in the following businesses, professions, vocations or employments of a substantial nature (former affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of Back Bay Advisors Other Affiliations Connection ----------------- ------------------ ---------- Back Bay Advisors, Inc. None None General Partner Charles T. Wallis, NEF Corporation Director President and Chief Executive Officer 399 Boylston Street Boston, MA 02116 Back Bay Advisors, Inc. President, Chief Executive 399 Boylston Street Officer and Director Boston, MA 02116 Charles G. Glueck, None None Senior Vice President Scott A. Millimet, Chicago Board of Trade* Senior Vice President and Executive Vice President 141 West Jackson Boulevard Manager of Carroll, McEntee & Chicago, IL 60604 McGinley Edgar M. Reed, Aetna Capital Management* Head of Fixed Income Management Executive Vice President and Chief 151 Farmington Avenue Group Investment Officer Hartford, CT 06156 J. Scott Nicholson, None None Senior Vice President Nathan R. Wentworth, None None Vice President Paul Zamagni, None None Vice President and Treasurer Peter Hanson, NEIC Counsel and Senior Vice Secretary and Clerk President, Assistant Secretary and Assistant Clerk Draycott Partners, Ltd* ("Draycott") Assistant Secretary and 8 City Road Assistant Clerk London EC2Y 1HE, England Harold B. Bjornson, None None Vice President Peter Palfrey, None None Vice President Eric Gutterson, None None Vice President
(b) NEFM, a registered investment adviser that is wholly owned by NEIC, serves as investment adviser to each of the series of the Registrant. NEFM, organized in 1995, also serves as investment adviser to most of the series of New England Funds Trust I and to New England Cash Management Trust, New England Tax Exempt Money Market Trust and New England Equity Income Fund. NEFM's general partner, directors and officers have been engaged during the past two fiscal years in the following businesses, professions, vocations or employments of a substantial nature (former affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of NEFM Other Affiliations Connection NEF Corporation New England Funds, L.P. General Partner General Partner 399 Boylston Street Boston, MA 02116 Henry L.P. Schmelzer, New England Funds, L.P. President and Chief Executive Officer President and Chief Executive Officer NEF Corporation President, Chief Executive Officer and Director Back Bay Advisors, Inc. Director New England Securities* Director 399 Boylston Street Boston, MA 02116 Frank Nesvet, New England Funds, L.P. Senior Vice President and Chief Senior Vice President, Chief Financial Financial Officer Officer and Treasurer NEF Corporation Senior Vice President, Chief Financial Officer and Treasurer Robert P. Connolly, NEF Corporation Senior Vice President, General Senior Vice President, General Counsel, Counsel, Secretary and Clerk Assistant Secretary and Clerk New England Funds, L.P. Senior Vice President, General Counsel, Secretary and Clerk Kroll Associates, Inc.* Managing Director and General Counsel 900 3rd Avenue New York, NY 10022 Bruce R. Speca, NEF Corporation Executive Vice President Executive Vice President New England Funds, L.P. Executive Vice President Peter H. Duffy, NEF Corporation Vice President Vice President New England Funds, L.P. Vice President Martin G. Dyer NEF Corporation Vice President New England Funds, L.P. Vice President Ralph M. Greggs NEF Corporation Vice President New England Funds, L.P. Vice President Beatriz A. Pina-Smith NEF Corporation Assistant Controller New England Funds, L.P. Assistant Controller
(c) Westpeak serves as subadviser to the Registrant's New England Growth Opportunities Fund, and is wholly owned by NEIC. Organized in 1991, Westpeak provides investment management services to other mutual funds and institutional clients. Westpeak's general partner, directors and officers have been engaged during the past two fiscal years in the following businesses, professions, vocations or employments of a substantial nature (former affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of Westpeak Other Affiliations Connection -------- ------------------ ---------- Westpeak Investment Advisors, Inc. None None General Partner Gerald H. Scriver None None President, Chief Executive Officer and Chief Investment Officer Edward N. Wadsworth NEIC Executive Vice President, Clerk, Clerk, Secretary, Chief Legal Officer Secretary and General Counsel NEIC Inc. Executive Vice President, Clerk, Secretary and General Counsel Marlborough Capital Advisors, Inc. Assistant Clerk 399 Boylston Street Boston, MA 02116 New England Investment Associates, Secretary Inc. ("NEIA") 399 Boylston Street Boston, MA 02116 Draycott* General Counsel, Clerk and Secretary Robert A. Franz None None Senior Vice President Philip J. Cooper None None Vice President Portfolio Management Beverly J. DeWitt The New England Attorney and Assistant Secretary Assistant Secretary and Assistant Clerk TNE Advisers, Inc. Chief Legal Officer, Secretary and Clerk 501 Boylston Street Boston, MA 02117
(d) Harris serves as subadviser to the Registrant's Growth Fund of Israel. Harris, which is wholly owned by NEIC, serves as investment adviser to mutual funds, individuals, trusts, retirement plans, endowments and foundations, and manages several private partnerships, and is a registered commodity trading adviser and commodity pool operator. Harris's general partner, directors and officers have been engaged during the past two fiscal years in the following businesses, professions, vocations or employments of a substantial nature:
Name and Office with Name and Address of Nature of Harris Other Affiliations Connection ------ ------------------ ---------- Harris Associates Inc. Harris Associates Securities, L.P. General Partner General Partner Two North LaSalle Street Chicago, IL 60602 Victor Morgenstern None None President and Chief Executive Officer Donald Terao None None Chief Financial Officer, Treasurer and Secretary Robert M. Levy None None Vice President Roxanne M. Martino None None Vice President Anita Nagler None None Vice President
Item 29. Principal Underwriter (a) New England Funds, L.P., the Registrant's principal underwriter, also serves as principal underwriter for: New England Funds Trust I New England Funds Trust III New England Tax Exempt Money Market Trust New England Cash Management Trust (b) The general partner and officers of the Registrant's principal underwriter, New England Funds, L.P., and their address are as follows:
Positions and Offices with Principal Positions and Offices Name Underwriter with Registrant ---- ----------- --------------- NEF Corporation General Partner None Henry L.P. Schmelzer President and Chief Executive Officer President and Trustee Bruce R. Speca Executive Vice President Executive Vice President Robert P. Connolly Senior Vice President, General Counsel, Secretary Secretary and Clerk Frank Nesvet Senior Vice President and Chief Financial Treasurer Officer Munish Agrawal Vice President None Elizabeth P. Burns Vice President None James H. Davis Vice President None Peter H. Duffy Vice President None Martin G. Dyer Vice President None Tracy A. Fagan Vice President None William H. Finnegan Vice President None Raymond K. Girouard Vice President, Treasurer and Controller None Ralph M. Greggs Vice President None Lynne H. Johnson Vice President None Caren I. Leedom Vice President None Marie G. McKenzie Vice President None Bernard M. Shavelson Vice President None Christine L. Swanson Vice President None Kristine E. Swanson Vice President None Beatriz A. Pina-Smith Assistant Controller None
The principal business address of all the above persons or entities is 399 Boylston Street, Boston, MA 02116. (c) Not applicable. Item 30. Location of Accounts and Records The following companies maintain possession of the documents required by the specified rules: (a) Registrant Rule 31a-1(b)(4) Rule 31a-2(d) (b) State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Rule 31a-1(a) Rule 31a(b)(1), (2), (3), (5), (6), (7), (8) Rule 31a-2(d) (c) (i) For series of the Registrant managed by Back Bay Advisors: New England Funds Management, L.P. 399 Boylston Street Boston, Massachusetts 02116 Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f) Rule 31a-2(d), (e) Back Bay Advisors, L.P. New England Funds Management L.P. 399 Boylston Street Boston, Massachusetts 02116 Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f) Rule 31a-2(d); and 31a-2(e) (ii) For New England Growth Opportunities Fund: New England Funds Management, L.P. 399 Boylston Street Boston, Massachusetts 02116 Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f) Rule 31a-2(d), (e) Westpeak Investment Advisors, L.P. 1011 Walnut Street Boulder, Colorado 80302 Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f) Rule 31a-2(d), 31a-2(e) (iii) For Growth Fund of Israel: New England Funds Management, L.P. 399 Boylston Street Boston, Massachusetts 02116 Rule 31a-1(a); Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f) Rule 31a-2(d), (e) Harris Associates L.P. Two North LaSalle Street Chicago, Illinois 60602 Rule 31a-1(b)(9), (10), (11); Rule 31a-1(f); Rule 31a-2(d), (e) (d) New England Funds, L.P. 399 Boylston Street Boston, Massachusetts 02116 Rule 31a-1(d) Rule 31a-2(c) Item 31. Management Services None. Item 32. Undertakings The Registrant undertakes to provide the annual report of any of its series to any person who receives a prospectus for such series and who requests the annual report. NEW ENGLAND FUNDS TRUST II SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that this Post-Effective Amendment No. 105 to its Registration Statement meets all the requirements for effectiveness under paragraph (b) of Rule 485 under the Securities Act of 1933, and that it has duly caused this Post-Effective Amendment No. 105 to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Boston, in the Commonwealth of Massachusetts on the 15th day of August, 1996. New England Funds Trust II By: PETER S. VOSS* ------------------------- Peter S. Voss Chief Executive Officer *By:/s/ROBERT P. CONNOLLY ------------------------- Robert P. Connolly Attorney-in-fact Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signature
Signature Title Date --------- ----- ---- PETER S. VOSS* Chairman of the Board; Chief Executive August 15, 1996 - ----------------------- Officer; Principal Executive Officer; Peter S. Voss Trustee /s/FRANK NESVET Treasurer August 15, 1996 - ----------------------- Frank Nesvet HENRY L. P. SCHMELZER* Trustee August 15, 1996 - ----------------------- Henry L. P. Schmelzer GRAHAM T. ALLISON, JR.* Trustee August 15, 1996 - ----------------------- Graham T. Allison, Jr. DANIEL M. CAIN* Trustee August 15, 1996 - ----------------------- Daniel M. Cain KENNETH J. COWAN* Trustee August 15, 1996 - ----------------------- Kenneth J. Cowan RICHARD DARMAN* Trustee August 15, 1996 - ----------------------- Richard Darman SANDRA O. MOOSE* Trustee August 15, 1996 - ----------------------- Sandra O. Moose JOHN A. SHANE* Trustee August 15, 1996 - ----------------------- John A. Shane PENDLETON P. WHITE* Trustee August 15, 1996 - ----------------------- Pendleton P. White *By: /s/ROBERT P. CONNOLLY ---------------------- Robert P. Connolly Attorney-In-Fact August 15, 1996
NEW ENGLAND FUNDS TRUST II EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT -------------- ------- 2(a) Amended and Restated By-Laws of the Registrant 2(b) Amendment to the By-Laws of the Registrant 5(a) Advisory Agreement between the Registrant and NEFM relating to the High Income series 5(c) Sub-Advisory Agreement relating to the High Income series of the Registrant between NEFM and Loomis Sayles 8(d) Custodian Agreement between the Registrant and State Street Bank 15(a) Rule 12b-1 Plans relating to Class A shares of the Registrant's Massachusetts Tax Free Income Fund, Intermediate Term Tax Free Fund of California, Intermediate Term Tax Free Fund of New York, High Income Fund, Growth Opportunities Fund, Limited Term U.S. Government Fund and Adjustable Rate U.S. Government Fund 15(c) Rule 12b-1 Plan relating to Class C shares of Limited Term U.S. Government Fund 15(d) Rule 12b-1 Plan relating to Class C shares of Growth Opportunities Fund 17 Financial Data Schedule EX-99.2(A) 2 AMENDED AND RESTATED BY-LAWS EXHIBIT 99.2(A) BY-LAWS OF INVESTMENT TRUST OF BOSTON FUNDS ARTICLE I Agreement and Declaration of Trust and Principal Office 1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of Investment Trust of Boston Funds (the "Trust"), the Massachusetts business trust established by the Declaration of Trust. 1.2 Principal Office of the Trust. The principal office of the Trust shall be located in Boston, Massachusetts. ARTICLE 2 Meetings of Trustees 2.1 Regular Meetings. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. 2.2 Special Meetings. Special meetings of the Trustees may be held, at any time and at any place designated in the call of the meeting, when called by the Chairman of the Board, if any, the President or the Treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the Clerk or an Assistant Clerk or by the officer or the Trustees calling the meeting. 2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or as its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 2.5 Action by Vote. When a quorum is present at any meeting, a majority of Trustees present may take any action, except when a larger vote is expressly required by law, by the Declaration of Trust or by these By-Laws. 2.6 Action by Writing. Except as required by law, any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting if a majority of the Trustees (or such larger proportion thereof as shall be required by any express provision of the Declaration of Trust or these By-Laws) consent to the action in writing and such written consents are filled with the records of the meetings of the Trustees. Such consent shall be treated for all purposes as a vote taken at a meeting of Trustees. 2.7 Presence through Communications Equipment. Except as required by law, the Trustees may participate in a meeting of Trustees by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. ARTICLE 3 Officers 3.1 Enumeration; Qualification. The officers of the Trust shall be a President, a Treasurer, a Clerk, and such other officers, if any, as the Trustees from time to time may in their discretion effect. The Trust may also have such agents as the Trustees from time to time may in their discretion appoint. If a Chairman of the Board is elected, he shall be a Trustee and may but none need by a Trustee or Shareholder. Any two or more offices may be held by the same person. 3.2 Election and Tenure. The President, the Treasurer, the Clerk and such other officers as the Trustees may in their discretion from time to time elect shall each be elected by the Trustees to serve until his successor is elected or qualified, or until he sooner dies, resigns, is removed or becomes disqualified. Each officer shall hold office and each agent shall retain authority at the pleasure of the Trustees. 3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to the office occupied by him or her as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate. 3.4 President and Vice Presidents. The President shall have the duties and powers specified in these By-Laws and shall have such other duties and powers as may be determined by the Trustees. Any Vice Presidents shall have such duties and powers as shall be designated from time to time by the Trustees. 3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be the Chairman of the Board, the President or such other officer as is designated by the Trustees and shall, subject to the control of the Trustees, have general charge and supervision of the business of the Trust and, except as the Trustees shall otherwise determine, preside at all meetings of the stockholders and of the Trustees. If no such designation is made, the President shall be the Chief Executive Officer. 3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he shall have the duties and powers specified in these By-Laws and shall have such other duties and powers as may be determined by the Trustees. 3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer of the Trust, and shall, subject to the provisions of the Declaration of Trust and to any arrangement made by the Trustees with a custodian, investment adviser or manager or transfer, shareholder servicing or similar agent, be in charge of the valuable papers, books of account and accounting records of the Trust, and shall have such other duties and powers as may be designated from time to time by the Trustees or by the President. 3.8 Clerk. The Clerk shall record all proceedings of the Shareholders and the Trustees in books to be kept therefor, which books or a copy thereof shall be kept at the principal office of the Trust. In the absence of the Clerk from any meeting of the Shareholders or Trustees, an assistant Clerk, or if there be none or if he is absent, a temporary clerk chosen at such meeting shall record the proceedings thereof in the aforesaid books. 3.9 Resignations and Removals. Any officer may resign at any time by written instrument signed by him and delivered to the President or the Clerk or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. The Trustees may remove any officer with or without cause. Except to the extent expressly provided in a written agreement with the Trust, no officer resigning and no officer removed shall have any right to any compensation for any period following his resignation or removal, or any right to damages on account on such removal. ARTICLE 4 Indemnification 4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of any alleged act or omission as a Trustee or officer or by reason of his being or having been such a Trustee or officer, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interest of the Trust and except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person, may be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding on the condition that the amounts so paid shall be repaid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article. 4.2 Compromise Payment. As to any matter disposed of by a compromise payment by any such Covered Person referred to in Section 4.1 above, pursuant to a consent decree or otherwise, no such indemnification either for said payment or for any other expenses shall be provided unless such compromise shall be approved as in the best interests of the Trust, after notice that it involved such indemnification, (a) by a disinterested majority of the Trustees then in office; or (b) by a majority of the disinterested person or persons to whom the question may be referred by the Trustees, provided that in the case of approval pursuant to clause (b) or (c) there has been obtained an opinion in writing of independent legal counsel to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust and that such indemnification would not protect such person against any liability to the Trust or its Shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of office; or (d) by vote of Shareholders holding a majority of the Shares entitled to vote thereon, exclusive of any Shares beneficially owned by any interested Covered Person. Approval by the Trustees pursuant to clause (a) or (b) or by any disinterested person or persons pursuant to clause (c) of this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with any of such clauses as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. 4.3 Indemnification Not Exclusive. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article 4, the term "Covered Person" shall include such person's heirs, executors and administrators; an "interested Covered Person" is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or has been pending; and a "disinterested Trustee" or "disinterested person" is a Trustee or a person against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of any such person. ARTICLE 5 Reports 5.1 General. The Trustees and officers shall render reports at the time and in the manner required by the Declaration of Trust or any applicable law. Officers shall render such additional reports as they may deem desirable or as may from time to time be required by the Trustees. ARTICLE 6 Fiscal Year 6.1 General. Except as from time to time otherwise provided by the Trustees, fiscal year of the Trust shall end on December 31 in each year. ARTICLE 7 Seal 7.1 General. The seal of the Trust shall consist of a flat-faced die with the word "Massachusetts", together with the name of the Trust and the year of its organization out or engraved thereon, but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. ARTICLE 8 Execution of Papers 8.1 General. Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all checks, notes, drafts and other obligations and all registration statements and amendments thereto and all applications and amendments thereto to the Securities and Exchange Commission shall be signed by the Chairman, if any, the President, any Vice President or the Treasurer or any of such other officers or agents as shall be designated for that purpose by a vote of the Trustees. ARTICLE 9 Provisions Relating to the Conduct of the Trust's Business 9.1 Certain Definitions. When used herein the following words shall have the following meanings: "Distributor" shall mean any one or more corporations, firms or associations which have distributor's or principal underwriter's contracts in effect with the Trust providing that redeemable shares of any class or series issued by the Trust shall be offered and sold by such Distributor. "Adviser" shall mean any corporation, firm or association which may at the time have an advisory or management contract with the Trust. 9.2 Limitation on Dealings with Officers or Trustees. The Trust will not lend any of its assets to the Distributor or Adviser or to any officer or director of the Distributor or Adviser or any officer or Trustee of the Trust and shall not permit any officer or Trustee or any officer or director of the Distributor or Adviser, to deal for or on behalf of the Trust with himself as principal or agent, or with any partnership, association or corporation in which he has a financial interest; provided that the foregoing provisions shall not prevent (a) officers and Trustees of the Trust or officers and directors of or otherwise financially interested in the Distributor or the Adviser; (b) a purchase or sale of securities or other property if such transaction is permitted by or is exempt of exempted from the provisions of the Investment Company Act of 1940 and does not involve any commission or profit to any securities dealer who is, or one or more of whose partners, shareholders, officers or directors is, an officer or Trustee of the Trust or an officer or director of the Distributor or Adviser; (c) employment of legal counsel, registrars, transfer agents, shareholder servicing agents, dividend disbursing agents or custodians who are, or any one of which has a partner, shareholder, officer or director who is, an officer or Trustee of the Trust or an officer or director of the Distributor or Adviser if only customary fees are charged for services to the Trust; (d) sharing of statistical, research, legal and management expenses and office hire and expenses with any other investment company in which an officer or Trustee of the Trust or an officer or director of the Distributor or Adviser is an officer or director or otherwise financially interested. 9.3 Limitation on Dealing in Securities of the Trust by Certain Officers, Trustees, Distributor or Adviser. Neither the Distributor nor Adviser, nor any officer or Trustee of the Trust or officer or director of the Distributor or Adviser shall take long or short positions in securities issued by the Trust; provided, however, that: (a) The Distributor may purchase from the Trust and otherwise deal in shares issued by the Trust pursuant to the terms of its contract with the Trust; (b) Any officer or Trustee of the Trust or officer or director of the Distributor or Adviser or any trustee or fiduciary for the benefit of any of them may at any time, or from time to time, purchase from the Trust or from the Distributor shares issued by the Trust at the price available to the public or to such officer, Trustee, director or fiduciary, no such purchase to be in contravention of any applicable state or federal requirement; and (c) The Distributor or the Adviser may at any time, or from time to time, purchase for investment shares issued by the Trust. 9.4 Securities and Cash of the Trust to be Held by Custodian Subject to Certain Terms and Conditions. (a) All securities and cash owned by the Trust shall, as hereinafter provided, be held by or deposited with one or more banks or trust companies having (according to its last published report) not less than $2,000,000 aggregate capital, surplus and undivided profits (any such bank or trust company being hereby designated as "Custodian"), provided such a Custodian can be found ready and willing to act. The Trust may, or may permit any Custodian to, deposit all or any part of the securities owned by any class or series of shares of the Trust in a system for the central handling of securities established by a national securities exchange or national securities association registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, or such other person as may be permitted by said Commission, including, without limitation, a clearing agency registered under Section 17A of said Securities and Exchange Act of 1934, pursuant to which system all securities of any particular class or series of any issue deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry, without physical delivery of such securities. (b) The Trust shall enter into a written contract with each Custodian regarding the powers, duties and compensation of such Custodian with respect to the cash and securities of the Trust held by such Custodian. Said contract and all amendments thereto shall be approved by the Trustees. (c) The Trust shall upon the resignation or inability to serve of any Custodian or upon change of any Custodian: (i) in case of such resignation or inability to serve, use its best efforts to obtain a successor Custodian; (ii) require that the cash and securities owned by any class of series of shares of the Trust and in the possession of the resigning or disqualified Custodian be delivered directly to the successor Custodian; and (iii) in the event that no successor Custodian can be found, submit to the shareholders, before permitting delivery of the cash and securities owned by any class or series of shares of the Trust and in the possession of the resigning or disqualified Custodian otherwise than to a successor Custodian, the question whether that class or series shall be liquidated or shall function without a Custodian. 9.5 Limitations on Investment by the Trust in Securities of Any One Issuer. The Trust may not purchase for its portfolio or for the portfolio of any class or series of the Trust's shares the securities of any issuer if immediately after such purchase the Trust or that class or series would thereupon hold securities representing more than 10% of the voting securities of such issuer as disclosed in the last available financial statements of such issuer. This limitation shall not apply to obligations issued or guaranteed by the government of the United States of America or to obligations of any corporation organized under a general Act of Congress if such corporation is an instrumentality of the United States. For purposes of this limitation, each state and each political subdivision, agency, authority or instrumentality thereof and each multistate agency and authority shall be considered a separate issuer. 9.6 Determination of Net Asset Value. The Trustees or any officer or officers or agent or agents of the Trust designated from time to time for this purpose by the Trustees shall determine at least once daily the net income and the value of all the assets attributable to any class or series of shares of the Trust on each day upon which the New York Stock Exchange is open for unrestricted trading and at such other times as the Trustees shall designate. In determining asset values, all securities for which representative market quotations are readily available shall be valued at market value and other securities and assets shall be valued at fair value, all as determined in good faith by the Trustees or an officer or officers or agent or agents, as aforesaid, in accordance with accounting principles generally accepted at the time. Notwithstanding the foregoing, the assets belonging to any class or series of shares of the Trust may, if so authorized by the Trustees, be valued in accordance with the amortized cost method, subject to the power of the Trustees to alter the assets so determined, less total liabilities belonging to that class or series of shares (exclusive of capital stock and surplus) shall be the net asset value until a new asset value is determined by the Trustees or such officers or agents. In determining the net asset value the Trustees or such officers or agents may include in liabilities such reserves for taxes, estimated accrued expenses and contingencies in accordance with accounting principles generally accepted at the time as the Trustees or such officers or agents may in their best judgment deem fair and reasonable under the circumstances. The manner of determining net asset value may from time to time be altered as necessary or desirable in the judgment of the Trustees to conform it to any other method prescribed or permitted by applicable law or regulation. Determinations of net asset value made by the Trust or such officers or agents in good faith shall be binding on all parties concerned. The foregoing sentence shall not be construe to protect any Trustee, officer or agent of the Trust against any liability to the Trust or its security holders to which he 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 office. ARTICLE 10 Amendments to the By-Laws 10.1 General. These By-Laws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees. EX-99.2(B) 3 AMENDMENT TO THE BY-LAWS EXHIBIT 99.2(B) NEW ENGLAND FUNDS TRUST II Amendment to the By-Laws (adopted January 27, 1995) The following Article 11 is hereby added to the By-Laws: ARTICLE 11 11.1 Proxy Instructions Transmitted by Telephonic or Electronic Means. The placing of a shareholder's name on a proxy pursuant to telephonic or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution of such proxy by or on behalf of such shareholder. EX-99.5(A) 4 ADVISORY AGREEMENT EXHIBIT 99.5(A) NEW ENGLAND HIGH INCOME FUND ADVISORY AGREEMENT (AMENDED JULY 1, 1996) AGREEMENT made the 2nd day of January, 1996, and amended July 1, 1996, by and between NEW ENGLAND FUNDS TRUST II, a Massachusetts business trust (the "Fund"), with respect to its New England High Income Fund series (the "Series"), and NEW ENGLAND FUNDS MANAGEMENT, L.P., a Delaware limited partnership (the "Manager"). WITNESSETH: WHEREAS, the Fund and the Manager originally entered into its Agreement setting forth the terms upon which the Manager (or certain other parties acting pursuant to delegation from the Manager) performs certain services for the Series, effective January 2, 1996; WHEREAS, the Fund and the Manager wish to amend this Agreement, effective July 1, 1996, the sole purpose of such amendment being to reduce the rate of fees payable by the Fund to the Manager hereunder; NOW, THEREFORE, in consideration of the premises and covenants hereinafter contained, the parties agree as follows: 1. (a) The Fund hereby employs the Manager to furnish the Fund with Portfolio Management Services (as defined in Section 2 hereof) and Administrative Services (as defined in Section 3 hereof), subject to the authority of the Manager to delegate any or all of its responsibilities hereunder to other parties as provided in Sections 1(b) and (c) hereof. The Manager hereby accepts such employment and agrees, at its own expense, to furnish such services (either directly or pursuant to delegation to other parties as permitted by Sections 1(b) and (c) hereof) and to assume the obligations herein set forth, for the compensation herein provided. The Manager shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. (b) The Manager may delegate any or all of its responsibilities hereunder with respect to the provision of Portfolio Management Services (and assumption of related expenses) to one or more other parties (each such party, a "Sub-Adviser"), pursuant in each case to a written agreement with such Sub-Adviser that meets the requirements of Section 15 of the Investment Company Act of 1940 and the rules thereunder (the "1940 Act") applicable to contracts for service as investment adviser of a registered investment company (including without limitation the requirements for approval by the trustees of the Fund and the shareholders of the Series), subject, however, to such exemptions as may be granted by the Securities and Exchange Commission. Any Sub-Adviser may (but need not) be affiliated with the Manager. If different Sub-Advisers are engaged to provide Portfolio Management Services with respect to different segments of the portfolio of the Series, the Manager shall determine, in the manner described in the prospectus of the Series from time to time in effect, what portion of the assets belonging to the Series shall be managed by each Sub-Adviser. (c) The Manager may delegate any or all of its responsibilities hereunder with respect to the provision of Administrative Services to one or more other parties (each such party, an "Administrator") selected by the Manager. Any Administrator may (but need not) be affiliated with the Manager. 2. As used in this Agreement, "Portfolio Management Services" means management of the investment and reinvestment of the assets belonging to the Series, consisting specifically of the following: (a) obtaining and evaluating such economic, statistical and financial data and information and undertaking such additional investment research as shall be necessary or advisable for the management of the investment and reinvestment of the assets belonging to the Series in accordance with the Series' investment objectives and policies; (b) taking such steps as are necessary to implement the investment policies of the Series by purchasing and selling of securities, including the placing of orders for such purchase and sale; and (c) regularly reporting to the Board of Trustees of the Fund with respect to the implementation of the investment policies of the Series. 3. As used in this Agreement, "Administrative Services" means the provision to the Fund, by or at the expense of the Manager, of the following: (a) office space in such place or places as may be agreed upon from time to time by the Fund and the Manager, and all necessary office supplies, facilities and equipment; (b) necessary executive and other personnel for managing the affairs of the Series (exclusive of those related to and to be performed under contract for custodial, transfer, dividend and plan agency services by the entity or entities selected to perform such services and exclusive of any managerial functions described in Section 4); (c) compensation, if any, of trustees of the Fund who are directors, officers or employees of the Manager, any Sub-Adviser or any Administrator or of any affiliated person (other than a registered investment company) of the Manager, any Sub-Adviser or any Administrator; and (d) supervision and oversight of the Portfolio Management Services provided by each Sub-Adviser, and oversight of all matters relating to compliance by the Fund with applicable laws and with the Series' investment policies, restrictions and guidelines, if the Manager has delegated to one or more Sub-Advisers any or all of its responsibilities hereunder with respect to the provision of Portfolio Management Services. 4. Nothing in section 3 hereof shall require the Manager to bear, or to reimburse the Fund for: (a) any of the costs of printing and mailing the items referred to in sub-section (n) of this section 4; (b) any of the costs of preparing, printing and distributing sales literature; (c) compensation of trustees of the Fund who are not directors, officers or employees of the Manager, any Sub-Adviser or any Administrator or of any affiliated person (other than a registered investment company) of the Manager, any Sub-Adviser or any Administrator; (d) registration, filing and other fees in connection with requirements of regulatory authorities; (e) the charges and expenses of any entity appointed by the Fund for custodial, paying agent, shareholder servicing and plan agent services; (f) charges and expenses of independent accountants retained by the Fund; (g) charges and expenses of any transfer agents and registrars appointed by the Fund; (h) brokers' commissions and issue and transfer taxes chargeable to the Fund in connection with securities transactions to which the Fund is a party; (i) taxes and fees payable by the Fund to federal, state or other governmental agencies; (j) any cost of certificates representing shares of the Fund; (k) legal fees and expenses in connection with the affairs of the Fund, including registering and qualifying its shares with Federal and State regulatory authorities; (l) expenses of meetings of shareholders and trustees of the Fund; (m) interest, including interest on borrowings by the Fund; (n) the costs of services, including services of counsel, required in connection with the preparation of the Fund's registration statements and prospectuses, including amendments and revisions thereto, annual, semiannual and other periodic reports of the Fund, and notices and proxy solicitation material furnished to shareholders of the Fund or regulatory authorities; and (o) the Fund's expenses of bookkeeping, accounting, auditing and financial reporting, including related clerical expenses. 5. All activities undertaken by the Manager or any Sub-Adviser or Administrator pursuant to this Agreement shall at all times be subject to the supervision and control of the Board of Trustees of the Fund, any duly constituted committee thereof or any officer of the Fund acting pursuant to like authority. 6. The services to be provided by the Manager and any Sub-Adviser or Administrator hereunder are not to be deemed exclusive and the Manager and any Sub-Adviser or Administrator shall be free to render similar services to others, so long as its services hereunder are not impaired thereby. 7. As full compensation for all services rendered, facilities furnished and expenses borne by the Manager hereunder, the Fund shall pay the Manager compensation at the annual rate of 0.70% of the first $200 million of the Series' average daily net assets and 0.65% of the excess of such assets over $200 million (or such lesser amount as the Manager may from time to time agree to receive). Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Board of Trustees of the Fund may from time to time determine and specify in writing to the Manager. The Manager hereby acknowledges that the Fund's obligation to pay such compensation is binding only on the assets and property belonging to the Series. 8. If the total of all ordinary business expenses of the Fund as a whole (including investment advisory fees but excluding interest, taxes, portfolio brokerage commissions, distribution-related expenses and extraordinary expenses) for any fiscal year exceeds the lowest applicable percentage of average net assets or income limitations prescribed by any state in which shares of the Series are qualified for sale, the Manager shall pay such excess. Solely for purposes of applying such limitations in accordance with the foregoing sentence, the Series and the Fund shall each be deemed to be a separate fund subject to such limitations. Should the applicable state limitation provisions fail to specify how the average net assets of the Fund or belonging to the Series are to be calculated, that figure shall be calculated by reference to the average daily net assets of the Fund or the Series, as the case may be. 9. It is understood that any of the shareholders, trustees, officers, employees and agents of the Fund may be a shareholder, director, officer, employee or agent of, or be otherwise interested in, the Manager, any affiliated person of the Manager, any organization in which the Manager may have an interest or any organization which may have an interest in the Manager; that the Manager, any such affiliated person or any such organization may have an interest in the Fund; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Fund, the partnership agreement of the Manager or specific provisions of applicable law. 10. This Agreement, as amended, shall become effective as of July 1, 1996, and (a) unless otherwise terminated, this Agreement shall continue in effect until January 2, 1998, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manger, cast in person at a meeting called for the purpose of voting on, such approval; (b) this Agreement may at any time be terminated on sixty days' written notice to the Manager either by vote of the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Series; (c) this Agreement shall automatically terminate in the event of its assignment; (d) this Agreement may be terminated by the Manager on ninety days' written notice to the Fund; (e) if New England Funds, L.P., the Fund's principal underwriter, requires the Fund or the Series to change its name as to eliminate all references to the words "New England" or the letters "TNE" pursuant to the provisions of the Fund's Distribution Agreement relating to the Series with said principal underwriter, this Agreement shall automatically terminate at the time of such change unless the continuance of this Agreement after such change shall have been specifically approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manger, cast in person at a meeting called for the purpose of voting on such approval. Termination of this Agreement pursuant to this Section 10 shall be without the payment of any penalty. 11. This Agreement may be amended at any time by mutual consent of the parties, provided that such consent on the part of the Fund shall have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Fund who are not interested persons of the Fund or the Manager, cast in person at a meeting called for the purpose of voting on such approval. 12. For the purpose of this Agreement, the terms "vote of a majority of the outstanding voting securities," "interested person," "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. References in this Agreement to any assets, property or liabilities "belonging to" the Series shall have the meaning defined in the Fund's Agreement and Declaration of Trust as amended from time to time. 13. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Manger, or reckless disregard of its obligations and duties hereunder, the Manager shall not be subject to any liability to the Fund, to any shareholder of the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder. IN WITNESS WHEREOF, the parties hereto have executed this amended Agreement. NEW ENGLAND FUNDS TRUST II NEW ENGLAND FUNDS MANAGEMENT, L.P. on behalf of its New England High Income Fund series By NEF Corporation, its general partner By: /s/ Henry L.P. Schmelzer By: /s/ Bruce R. Speca ---------------------------- --------------------------------- Henry L.P. Schmelzer Bruce R. Speca President Executive Vice President NOTICE A copy of the Agreement and Declaration of Trust establishing New England Funds Trust II (the "Fund") is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed with respect to the Fund's New England High Income Fund series (the "Series") on behalf of the Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property belonging to the Series. EX-99.5(C) 5 SUB-ADVISORY AGREEMENT EXHIBIT 99.5(C) NEW ENGLAND HIGH INCOME FUND SUB-ADVISORY AGREEMENT (LOOMIS SAYLES) This Sub-Advisory Agreement (this "Agreement") is entered into as of July 1, 1996 by and between New England Funds Management, L.P., a Delaware limited partnership (the "Manager"), and Loomis, Sayles & Company, L.P., a Delaware limited partnership (the "Sub-Adviser"). WHEREAS, the Manager has entered into an Advisory Agreement dated January 2, 1996 (as amended July 2, 1996, the "Advisory Agreement") with New England Funds Trust II (the "Trust"), pursuant to which the Manager provides portfolio management and administrative services to New England High Income Fund, a series of the Trust (the "Series"). WHEREAS, the Advisory Agreement provides that the Manager may delegate any or all of its portfolio management responsibilities under the Advisory Agreement to one or more sub-advisers; WHEREAS, the Manager and the trustees of the Trust desire to retain the Sub-Adviser to render portfolio management services in the manner and on the terms set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the Manager and the Sub-Adviser agree as follows: 1. Sub-Advisory Services: a. The Sub-Adviser shall, subject to the supervision of the Manager and of any administrator appointed by the Manager (the "Administrator"), manage the investment and reinvestment of the assets of the Series, and have the authority on behalf of the Series to vote all proxies and exercise all other rights of the Series as a security holder of companies in which the Series from time to time invests. The Sub-Adviser shall manage the Series in conformity with (1) the investment objective, policies and restrictions of the Series set forth in the Trust's prospectus and statement of additional information relating to the Series, (2) any additional policies or guidelines established by the Manager or by the Trust's trustees that have been furnished in writing to the Sub-Adviser, and (3) the provisions of the Internal Revenue Code (the "Code") applicable to "regulated investment companies" (as defined in Section 851 of the Code), all as from time to time in effect (collectively, the "Policies"), and with all applicable provisions of law, including without limitation all applicable provisions of the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder. Subject to the foregoing, the Sub-Adviser is authorized, in its discretion and without prior consultation with the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and other securities and investment instruments on behalf of the Series, without regard to the length of time the securities have been held and the resulting rate of portfolio turnover or any tax considerations; and the majority or the whole of the Series may be invested in such proportions of stocks, bonds, other securities or investment instruments, or cash, as the Sub-Adviser shall determine. b. The Sub-Adviser shall furnish the Manager and the Administrator monthly, quarterly and annual reports concerning portfolio transactions and performance of the Series in such form as may be mutually agreed upon, and agrees to review the Series and discuss the management of it. The Sub-Adviser shall permit all books and records with respect to the Series to be inspected and audited by the Manager and the Administrator at all reasonable times during normal business hours, upon reasonable notice. The Sub-Adviser shall also provide the Manager with such other information and reports as may reasonably be requested by the Manager from time to time, including without limitation all material requested by or required to be delivered to the Trustees of the Trust. c. The Sub-Adviser shall provide to the Manager a copy of the Sub-Adviser's Form ADV as filed with the Securities and Exchange Commission and a list of the persons whom the Sub-Adviser wishes to have authorized to give written and/or oral instructions to custodians of assets of the Series. 2. Obligations of the Manager. a. The Manger shall provide (or cause the Series' Custodian (as defined in Section 3 hereof) to provide) timely information to the Sub-Adviser regarding such matters as the composition of assets of the Series, cash requirements and cash available for investment in the Series, and all other information as may be reasonably necessary for the Sub-Adviser to perform its responsibilities hereunder. b. The Manager has furnished the Sub-Adviser a copy of the prospectus and statement of additional information of the Series and agrees during the continuance of this Agreement to furnish the Sub-Adviser copies of any revisions or supplements thereto at, or, if practicable, before the time the revisions or supplements become effective. The Manager agrees to furnish the Sub-Adviser with minutes of meetings of the trustees of the Trust applicable to the Series to the extent they may affect the duties of the Sub-Adviser, and with copies of any financial statements or reports made by the Series to its shareholders, and any further materials or information which the Sub-Adviser may reasonably request to enable it to perform its functions under this Agreement. 3. Custodian. The Manager shall provide the Sub-Adviser with a copy of the Series' agreement with the custodian designated to hold the assets of the Series (the "Custodian") and any modifications thereto (the "Custody Agreement"), copies of such modifications to be provided to the Sub-Adviser a reasonable time in advance of the effectiveness of such modifications. The assets of the Series shall be maintained in the custody of the Custodian identified in, and in accordance with the terms and conditions of, the Custody Agreement (or any sub-custodian properly appointed as provided in the Custody Agreement). The Sub-Adviser shall have no liability for the acts or omissions of the Custodian, unless such act or omission is taken in reliance upon instruction given to the Custodian by a representative of the Sub-Adviser properly authorized to give such instruction under the Custody Agreement. Any assets added to the Series shall be delivered directly to the Custodian. 4. Proprietary Rights. The Manager agrees and acknowledges that the Sub-Adviser is the sole owner of the name "Loomis, Sayles & Company, L.P." and that all use of any designation consisting in whole or part of "Loomis, Sayles & Company, L.P." under this Agreement shall inure to the benefit of the Sub-Adviser. The Manager on its own behalf and on behalf of the Series agrees not to use any such designation in any advertisement or sales literature or other materials promoting the Series, except with the prior written consent of the Sub-Adviser. Without the prior written consent of the Sub-Adviser, the Manager shall not, and the Manager shall use its best efforts to cause the Series not to, make representations regarding the Sub-Adviser in any disclosure document, advertisement or sales literature or other materials relating to the Series. Upon termination of this Agreement for any reason, the Manager shall cease, and the Manager shall use its best efforts to cause the Series to cease, all use of any such designation as soon as reasonably practicable. 5. Expenses. Except for expenses specifically assumed or agreed to be paid by the Sub-Adviser pursuant hereto, the Sub-Adviser shall not be liable for any organizational, operational or business expenses of the Manager or the Trust including, without limitation, (a) interest and taxes, (b) brokerage commissions and other costs in connection with the purchase or sale of securities or other investment instruments with respect to the Series, and (c) custodian fees and expenses. Any reimbursement of advisory fees required by any expense limitation provision of any law shall be the sole responsibility of the Manager. The Manager and the Sub-Adviser shall not be considered as partners or participants in a joint venture. The Sub-Adviser will pay its own expenses incurred in furnishing the services to be provided by it pursuant to this Agreement. Neither the Sub-Adviser nor any affiliated person thereof shall be entitled to any compensation from the Manager or the Trust with respect to service by any affiliated person of the Sub-Adviser as an officer or trustee of the Trust (other than the compensation to the Sub-Adviser payable by the Manager pursuant to Section 7 hereof). 6. Purchase and Sale of Assets. The Sub-Adviser shall place all orders for the purchase and sale of securities for the Series with brokers or dealers selected by the Sub-Adviser, which may include brokers or dealers affiliated with the Sub-Adviser, provided such orders comply with Rule 17e-1 under the 1940 Act in all respects. To the extent consistent with applicable law, purchase or sell orders for the Series may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Adviser. The Sub-Adviser shall use its best efforts to obtain execution of transactions for the Series at prices which are advantageous to the Series and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Adviser may select brokers or dealers on the basis that they provide brokerage, research or other services or products to the Series and/or other accounts serviced by the Sub-Adviser. To the extent consistent with applicable law, the Sub-Adviser may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research services or products, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Adviser and its affiliates have with respect to the Series or to accounts over which they exercise investment discretion. Not all such services or products need be used by the Sub-Adviser in managing the Series. 7. Compensation of the Sub-Adviser. As full compensation for all services rendered, facilities furnished and expenses borne by the Sub-Adviser hereunder, the Manager shall pay the Sub-Adviser compensation at the annual rate of 0.350% of the first $200 million of the average daily net assets of the Series and 0.300% of any excess of such assets over $200 million (or such lesser amount as the Sub-Adviser may from time to time agree to receive). Such compensation shall be payable monthly in arrears or at such other intervals, not less frequently than quarterly, as the Manager is paid by the Series pursuant to the Advisory Agreement. 8. Non-Exclusivity. The Manager and the Series agree that the services of the Sub-Adviser are not to be deemed exclusive and that the Sub-Adviser and its affiliates are free to act as investment manager and provide other services to various investment companies and other managed accounts, except as the Sub-Adviser and the Manager or the Administrator may otherwise agree from time to time in writing before or after the date hereof. This Agreement shall not in any way limit or restrict the Sub-Adviser or any of its directors, officers, employees or agents from buying, selling or trading any securities or other investment instruments for its or their own account or for the account of others for whom it or they may be acting, provided that such activities do not adversely affect or otherwise impair the performance by the Sub-Adviser of its duties and obligations under this Agreement. The Manager and the Series recognize and agree that the Sub-Adviser may provide advice to or take action with respect to other clients, which advice or action, including the timing and nature of such action, may differ from or be identical to advice given or action taken with respect to the Series. The Sub-Adviser shall for all purposes hereof be deemed to be an independent contractor and shall, unless otherwise provided or authorized, have no authority to act for or represent the Series or the Manager in any way or otherwise be deemed an agent of the Series or the Manager. 9. Liability. Except as may otherwise be provided by the 1940 Act or other federal securities laws, neither the Sub-Adviser nor any of its officers, directors, partners, employees or agents (the `Indemnified Parties") shall be subject to any liability to the Manager, the Trust, the Series or any shareholder of the Series for any error of judgment, any mistake of law or any loss arising out of any investment or other act or omission in the course of, connected with, or arising out of any service to be rendered under this Agreement, except by reason of willful misfeasance, bad faith or gross negligence in the performance of the Sub-Adviser's duties or by reason of reckless disregard by the Sub-Adviser of its obligations and duties hereunder. The Manager shall hold harmless and indemnify the Sub-Adviser for any loss, liability, cost, damage or expense (including reasonable attorneys fees and costs) arising from any claim or demand by any past or present shareholder of the Series that is not based upon the obligations of the Sub-Adviser under this Agreement. 10. Effective Date and Termination. The Agreement shall become effective as of the date of its execution, and a. unless otherwise terminated, this Agreement shall continue in effect for two years from the date of execution, and from year to year thereafter so long as such continuance is specifically approved at least annually (i) by the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series, and (ii) by vote of a majority of the trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval; b. this Agreement may at any time be terminated on sixty days' written notice to the Sub-Adviser either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Series; c. this Agreement shall automatically terminate in the event of its assignment or upon the termination of the Advisory Agreement; d. this Agreement may be terminated by the Sub-Adviser on ninety days' written notice to the Manager and the Trust, or by the Manager on ninety days' written notice to the Sub-Adviser. Termination of this Agreement pursuant to this Section 10 shall be without the payment of any penalty. 11. Amendment. This Agreement may be amended at any time by mutual consent of the Manager and the Sub-Adviser, provided that, if required by law, such amendment shall also have been approved by vote of a majority of the outstanding voting securities of the Series and by vote of a majority of the trustees of the Trust who are not interested persons of the Trust, the Manager or the Sub-Adviser, cast in person at a meeting called for the purpose of voting on such approval. 12. Certain Definitions. For the purpose of this Agreement, the terms "vote of a majority of the outstanding voting securities," "interested person," "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the 1940 Act. 13. General. a. The Sub-Adviser may perform its services through any employee, officer or agent of the Sub-Adviser, and the Manager shall not be entitled to the advice, recommendation or judgment of any specific person; provided, however, that the persons identified in the prospectus of the Series shall perform the day-to-day portfolio management duties described therein until the Sub-Adviser notifies the Manager that one or more other employees, officers or agents of the Sub-Adviser, identified in such notice, shall assume such duties as of a specific date. b. If any term or provision of this Agreement or the application thereof to any person or circumstances is held to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the fullest extent permitted by law. c. The Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts. NEW ENGLAND FUNDS LOOMIS, SAYLES & COMPANY, L.P. MANAGEMENT, L.P. By NEF Corporation, its general partner By Loomis, Sayles & Company, Inc., its general partner By: /s/ Bruce R. Speca By: /s/ Jeffrey L. Meade ------------------------------- ------------------------------- Name: Bruce R. Speca Name: Jeffrey L. Meade Title: Executive Vice President Title: Chief Operating Officer EX-99.8(D) 6 CUSTODIAN AGREEMENT EXHIBIT 99.8(D) CUSTODIAN CONTRACT Between INVESTMENT TRUST OF BOSTON FUNDS and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS Page 1. Employment of Custodian and Property to be Held By It............. 2 2. Duties of the Custodian with Respect to Property of the Fund Held by the Custodian in the United States............. 3 2.1 Holding Securities......................................... 3 2.2 Delivery of Securities..................................... 3 2.3 Registration of Securities................................. 9 2.4 Bank Accounts.............................................. 9 2.5 Availability of Federal Funds.............................. 10 2.6 Collection of Income....................................... 10 2.7 Payment of Fund Monies..................................... 11 2.8 Liability for Payment in Advance of Receipt of Securities Purchased.......................... 14 2.9 Appointment of Agents...................................... 15 2.10 Deposit of Fund Assets in Securities System................ 15 2.10A Fund Assets Held in the Custodian's Direct Paper System.... 18 2.11 Segregated Account......................................... 20 2.12 Ownership Certificates for Tax Purposes.................... 21 2.13 Proxies.................................................... 21 2.14 Communications Relating to Portfolio Securities............ 22 3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States...................... 23 3.1 Appointment of Foreign Sub-Custodians...................... 23 3.2 Assets to be Held.......................................... 23 3.3 Foreign Securities Depositories............................ 24 3.4 Segregation of Securities.................................. 24 3.5 Agreements with Foreign Banking Institutions............... 25 3.6 Access of Independent Accountants of the Fund.............. 25 3.7 Reports by Custodian....................................... 26 3.8 Transactions in Foreign Custody Account.................... 26 3.9 Liability of Foreign Sub-Custodians........................ 27 3.10 Liability of Custodian..................................... 28 3.11 Reimbursement for Advances................................. 29 3.12 Monitoring Responsibilities................................ 30 3.13 Branches of U.S. Banks..................................... 31 4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund............................................................ 32 5. Proper Instructions............................................... 33 6. Actions Permitted Without Express Authority....................... 33 7. Evidence of Authority............................................. 34 8. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value and Net Income............... 35 9. Records........................................................... 35 10. Opinion of Fund's Independent Accountants......................... 36 11. Reports to Fund by Independent Public Accountants................. 36 12. Compensation of Custodian......................................... 37 13. Responsibility of Custodian....................................... 37 14. Effective Period, Termination and Amendment....................... 40 15. Successor Custodian............................................... 42 16. Interpretive and Additional Provisions............................ 43 17. Additional Funds.................................................. 44 18. Massachusetts Law to Apply........................................ 44 19. Prior Contracts................................................... 44 CUSTODIAN CONTRACT This Contract between Investment Trust of Boston Funds, a business trust organized and existing under the laws of Massachusetts, having its principal place of business at 399 Boylston Street, Boston, Massachusetts hereinafter called the "Fund", and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to offer shares in six series, the Growth Opportunities Portfolio, High Income Portfolio, Premium Income Portfolio, Liquid Reserves Portfolio, and World Income Portfolio (such series together with all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 17, being herein referred to as the "Portfolio(s)"); NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It The Fund hereby employs the Custodian as the custodian of the assets of the Portfolio(s), including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities") pursuant to the provisions of the Fund's Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund representing interests in the Portfolios ("Shares") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees of the Fund on behalf of the applicable Portfolio(s), and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. The Custodian may employ as sub-custodian for the Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedule A hereto but only in accordance with the provisions of Article 3. 2. Duties of the Custodian with Respect to Property of the Fund Held By the Custodian in the United States 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property to be held by it in the United States including all domestic securities owned by such Portfolio, other than (a) securities which are maintained pursuant to Section 2.10 in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities and Exchange Act of 1934 which acts as a securities depository or in a book-entry System authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System", and (b) commercial paper of an issuer for which State Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper") which is deposited and/or maintained in the Direct Paper System of the Custodian pursuant to Section 2.10A. 2.2 Delivery of Securities. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian or in a Securities System account of the Custodian or in the Custodian's Direct Paper book entry system account ("Direct Paper System Account") only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.10 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.9 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the amount of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumental ities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of the Portfolio, but only against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio; 13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Portfolio; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund, related to the Portfolio ("Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, specifying the securities of the Portfolio to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.9 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Contract shall be in "street name" or other good delivery form. 2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board of Trustees of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on behalf of each applicable Portfolio and the Custodian, the Custodian shall, upon the receipt of Proper Instructions from the Fund on behalf of a Portfolio, made federal funds available to such Portfolio as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of such Portfolio which are deposited into the Portfolio's account. 2.6 Collection of Income. The Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled. 2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.10 hereof; (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.10A; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Portfolio or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined in Article 5; 2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Portfolio as set forth in Article 4 hereof; 4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends on Shares of the Portfolio declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions from the Fund on behalf of the Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except as specifically stated otherwise in this Contract, in any and every case where payment for purchase of domestic securities for the account of a Portfolio is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund on behalf of such Portfolio to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian. 2.9 Appointment of Agents. The Custodian may at any time or time in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit and/or maintain securities owned by a Portfolio in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System", in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Portfolio in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Portfolio which are maintained in a Securities System shall identify by book-entry those securities belonging to the Portfolio; 3) The Custodian shall pay for securities purchased for the account of the Portfolio upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Portfolio. The Custodian shall transfer securities sold for the account of the Portfolio upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Portfolio. Copies of all advices from the Securities System of transfers of securities for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio in the form of a written advice or notice and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Portfolio. 4) The Custodian shall provide the Fund for the Portfolio with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Custodian shall have received from the Fund on behalf of the Portfolio the initial or annual certificate, as the case may be, required by Article 14 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for the benefit of the Portfolio for any loss or damage to the Portfolio resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Portfolio has not been made whole for any such loss or damage. 2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may deposit and/or maintain securities owned by a Portfolio in the Direct Paper System of the Custodian subject to the following provisions: 1) No transaction relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions from the Fund on behalf of the Portfolio; 2) The Custodian may keep securities of the Portfolio in the Direct Paper System only if such securities are represented in an account ("Account") of the Custodian in the Direct Paper System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3) The records of the Custodian with respect to securities of the Portfolio which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Portfolio; 4) The Custodian shall pay for securities purchased for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such payment and transfer of securities to the account of the Portfolio. The Custodian shall transfer securities sold for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Portfolio; 5) The Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Portfolio; 6) The Custodian shall provide the Fund on behalf of the Portfolio with any report on its system of internal accounting control as the Fund may reasonably request from time to time. 2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions from the Fund on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes. 2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities. 2.13 Proxies. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities. 2.14 Communications Relating to Portfolio Securities. The Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Portfolio all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Portfolio desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Portfolio shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. 3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States 3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and instructs the Custodian to employ as sub-custodians for the Portfolio's securities and other assets maintained outside the United States the foreign banking institutions and foreign securities depositories designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions", as defined in Section 5 of this Contract, together with a certified resolution of the Fund's Board of Trustees, the Custodian and the Fund may agree to amend Schedule A hereto from time to time to designate additional foreign banking institutions and foreign securities depositories to act as sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct the Custodian to cease the employment of any one or more such sub-custodians for maintaining custody of the Portfolio's assets. 3.2 Assets to be Held. The Custodian shall limit the securities and other assets maintained in the custody of the foreign sub-custodians to: (a) "foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, and (b) cash and cash equivalents in such amounts as the Custodian or the Fund may determine to be reasonably necessary to effect the Portfolio's foreign securities transactions. 3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in writing by the Custodian and the Fund, assets of the Portfolio(s) shall be maintained in foreign securities depositories only through arrangements implemented by the foreign banking institutions serving as sub-custodians pursuant to the terms hereof. Where possible, such arrangements shall include entry into agreements containing the provisions set forth in Section 3.5 hereof. 3.4 Segregation of Securities. The Custodian shall identify on its books as belonging to each applicable Portfolio of the Fund, the foreign securities of such Portfolios held by each foreign sub-custodian. Each agreement pursuant to which the Custodian employs a foreign banking institution shall require that such institution establish a custody account for the Custodian on behalf of the Fund for each applicable Portfolio of the Fund and physically segregate in each account, securities and other assets of the Portfolios, and, in the event that such institution deposits the securities of one or more of the Portfolios in a foreign securities depository, that it shall identify on its books as belonging to the Custodian, as agent for each applicable Portfolio, the securities so deposited. 3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign banking institution shall be substantially in the form set forth in Exhibit 1 hereto and shall provide that: (a) the assets of each Portfolio will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign banking institution or its creditors or agent, except a claim of payment for their safe custody or administration; (b) beneficial ownership for the assets of each Portfolio will be freely transferable without the payment of money or value other than for custody or administration; (c) adequate records will be maintained identifying the assets as belonging to each applicable Portfolio; (d) officers of or auditors employed by, or other representatives of the Custodian, including to the extent permitted under applicable law the independent public accountants for the Fund, will be given access to the books and records of the foreign banking institution relating to its actions under its agreement with the Custodian; and (e) assets of the Portfolios held ny the foreign sub-custodian will be subject only to the instructions of the Custodian or its agents. 3.6 Access of Independent Accountants of the Fund. Upon request of the Fund, the Custodian will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution enjoyed as a foreign sub-custodian insofar as much books and records relate to the performance of such foreign banking institution under its agreement with the Custodian. 3.7 Reports by Custodian. The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of the Portfolio(s) held by foreign sub-custodians, including but not limited to an identification of entities having possession of the securities of the Portfolio(s) and other assets and advices or notifications of any transfers of securities to or from each custodial account maintained by a foreign banking institution for the Custodian on behalf of each applicable Portfolio indicating, as to securities acquired for a Portfolio, the identity of the entity having physical possession of such securities. 3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided in paragraph (b) of this Section 3.8, the provisions of Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis, to the foreign securities of the Fund held outside the United States by foreign sub-custodians. (b) Notwithstanding any provision of this Contract to the contrary, settlement and payment for securities received for the account of each applicable Portfolio and delivery of securities maintained for the account of each applicable Portfolio may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. (c) Securities maintained in the custody of a foreign sub-custodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of this Contract, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such securities. 3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the Custodian employs a foreign banking institution as a foreign sub-custodian shall require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Custodian and the Fund from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the institution's performance of such obligations. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a foreign banking institution as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim. 3.10 Liability of Custodian. The Custodian shall be liable for the acts or omissions of a foreign banking institution to the same extent as such foreign banking institution is liable for such acts and omissions pursuant to the agreement pursuant to which the Custodian employs each foreign banking institution as foreign sub-custodian. Regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions or acts of war or terrorism or any similar act or event beyond the Custodian's control or any loss where the sub-custodian has otherwise exercised reasonable care. Notwithstanding the foregoing provisions of this paragraph 3.10, in delegating custody duties to State Street London Ltd., the Custodian shall not be relieved of any responsibility to the Fund for any loss due to such delegation, except such loss as may result from (a) political risk (including, but not limited to, exchange control restrictions, confiscation, expropriation, nationalization, insurrection, civil strife or armed hostilities) or (b) other losses (excluding a bankruptcy or insolvency of State Street London Ltd. not caused by political risk) due to Acts of God, nuclear incident or other losses under circumstances where the Custodian and State Street London Ltd. have exercised reasonable care. 3.11 Reimbursement for Advances. The Fund agrees to indemnify and hold harmless the Custodian and its nominee from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee in connection with the performance of this Contract, except such as may arise from it or its nominee's own negligent action, negligent failure to act or willful misconduct. The Custodian is authorized to charge any account of the Fund for such items and its fees. To secure any such authorized charges and any advances of cash or securities made by the Custodian to or for the benefit of the Fund for any purposes which result in the Fund incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Fund hereby grants to the Custodian a security interest in and pledges to the Custodian securities held for it by the Custodian, in an amount not to exceed the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, the specific securities to be designated in writing from time to time by the Fund or its investment adviser; provided, however, that (1) if from time to time neither the Fund nor its investment adviser shall have designated in writing specific securities in an amount at least equal to the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, or (2) if as a result of the delivery by the Custodian out of its custody, pursuant to Proper Instructions, of any securities previously so designated, the remaining amount of securities so designated shall be less than the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets then the Custodian shall have a security interest in the Fund's securities; in an amount that, taken together with amounts of securities from time to time designated in writing by the Fund or its investment adviser that have not been delivered out of the custody of the Custodian pursuant to Proper Instructions, does not exceed the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets. Should the Fund fail to repay promptly any advances of cash or securities, the Custodian shall be entitled to use available cash and to dispose of pledged securities and property as is necessary to repay any such advances. 3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the Fund, during the month of June, information concerning the foreign sub-custodians employed by the Custodian. Such information shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval of this Contract. In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition of a foreign sub-custodian or any material loss of the assets of the Fund or, in the case of any foreign sub-custodian not the subject of an exemptive order from the Securities and Exchange Commission permitting it to serve as a foreign sub-custodian notwithstanding that its shareholders' equity is less than $300 million, is notified by such foreign sub-custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (U.S. dollars or the equivalent thereof) or that its shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted U.S. accounting principles). 3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this Contract, the provisions of this Article III shall not apply where the custody of the assets of the Portfolio(s) are maintained in a foreign branch of a banking institution which is a "bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification set forth in Section 26(a) of said Act. The appointment of any such branch as a sub-custodian shall be governed by the third paragraph of Article 1 of this Contract. (b) Cash held for each Portfolio of the Fund in the United Kingdom shall be maintained in an interest bearing account established for the Fund with the Custodian's London branch, which account shall be subject to the direction of the Custodian, State Street London Ltd. Or both. 4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund. The Custodian shall receive from the distributor for the Shares or from the Transfer Agent of the Fund and deposit into the account of the appropriate Portfolio such payments as are received for Shares of that Portfolio issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund, on behalf of each such Portfolio, and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio. From such funds as may be available for the purpose but subject to the limitations of the Declaration of Trust and any applicable votes of the Board of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholder. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 5. Proper Instructions. Proper Instructions as used throughout this Contract means a writing signed or initialed by one or more person or persons as the Board of Trustees of the Fund shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Trustees of the Fund accompanied by a detailed description of procedures approved by the Board of Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the assets of the Portfolio(s). For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any three - party agreement which requires a segregated asset account in accordance with Section 2.11. 6. Actions Permitted without Express Authority. The Custodian may in its discretion, without express authority from the Fund, on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board of Trustees of the Fund. 7. Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Trustees of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Trustees pursuant to the Declaration of Trust as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 8. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Trustees of the Fund to keep the books of account of each Portfolio and/or compute the net asset value per share of the outstanding shares of each Portfolio or, if directed in writing to do so by the Fund on behalf of the Portfolio, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Portfolio as described in the Fund's currently effective prospectus related to such Portfolio and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of each Portfolio shall be made at the time or times described from time to time in the Fund's currently effective prospectus related to such Portfolio. 9. Records The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. 10. Opinion of Fund's Independent Accountant The Custodian shall take all reasonable action, as the Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A and Form N-SAR or other periodic reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 11. Reports to Fund by Independent Public Accountants The Custodian shall provide the Fund, on behalf of each Portfolio, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports shall be of sufficient scope and in sufficient detail as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 12. Compensation of Custodian The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund, on behalf of each Portfolio, and the Custodian. 13. Responsibility of Custodian So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three - party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement, if any, entered into between the Custodian and the Fund. The Custodian shall be liable for the acts or omissions of a foreign banking institution appointed pursuant to the provisions of Article 3 to the same extent as it is liable for the acts or omissions of sub-custodians located in the United States set forth in Article 1 hereof (except as otherwise specifically provided in Article 3.10) and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a foreign branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Fund to maintain custody or any securities or cash of the Fund of a foreign country including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism and not resulting from the negligence of the Custodian or such foreign banking institution, foreign securities depository or foreign branch of a U.S. bank. If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. The Fund agrees to indemnify and hold harmless the Custodian and its nominee from and against all taxes, charges, expenses, assessments, claims and liabilities (including counsel fees) incurred or assessed against it or its nominee in connection with the performance of this Contract, except such as may arise from it or its nominee's own negligent action, negligent failure to act or willful misconduct. The Custodian is authorized to charge any account of the Fund for such items and its fees. To secure any such authorized charges and any advances of cash or securities made by the Custodian to or for the benefit of the Fund for any purposes which result in the Fund incurring an overdraft at the end of any business day or for extraordinary or emergency purposes during any business day, the Fund hereby grants to the Custodian a security interest in and pledges to the Custodian securities held for it by the Custodian, in an amount not to exceed the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, the specific securities to be designated in writing from time to time by the Fund or its investment adviser; provided, however, that (1) if from time to time neither the Fund nor its investment adviser shall have designated in writing specific securities in an amount at least equal to the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets, or (2) if as a result of the delivery by the Custodian out of its custody, pursuant to Proper Instructions, of any securities previously so designated, the remaining amount of securities so designated shall be less than the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets then the Custodian shall have a security interest in the Fund's securities; in an amount that, taken together with amounts of securities from time to time designated in writing by the Fund or its investment adviser that have not been delivered out of the custody of the Custodian pursuant to Proper Instructions, does not exceed the lesser of the dollar amounts borrowed or ten percent of the Fund's gross assets. Should the Fund fail to repay promptly any advances of cash or securities, the Custodian shall be entitled to use available cash and to dispose of pledged securities and property as is necessary to repay any such advances. 14. Effective Period, Termination and Amendment This Contract shall become effective as of the date as of which it is executed, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid, to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary of the Fund that the Board of Trustees of the Fund has approved the initial use of a particular Securities System by such Portfolio and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Trustees has reviewed the use by such Portfolio of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended and that the Custodian shall not with respect to a Portfolio act under Section 2.10A hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary of the Fund that the Board of Trustees has approved the initial use of the Direct Paper System by such Portfolio and the receipt of an annual certificate of the Secretary or an Assistant Secretary of the Fund that the Board of Trustees has reviewed the use by such Portfolio of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Declaration of Trust, and further provided that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board of Trustees (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund on behalf of each Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements reasonably incurred by the Custodian in the performance of its duties under this Contract. 15. Successor Custodian If a successor custodian for the assets of any Portfolio(s) shall be appointed by the Board of Trustees of the Fund, the Custodian shall, upon the effectiveness of such appointment, deliver to such successor custodian, at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Trustees of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Trustees shall have been delivered to the Custodian on or before the date when a termination of this Contract as to any Portfolio(s) shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Contract on behalf of each applicable Portfolio and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties of any Portfolio(s) remain in the possession of the Custodian after the date of the termination of this Contract as to such Portfolio(s) owing to failure of the Fund to procure the certified copy of the vote referred to above or of the Board of Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties, and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 16. Interpretive and Additional Provisions In connection with the operation of this Contract, the Custodian and the Fund, on behalf of each Portfolio, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Declaration of Trust of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 17. Additional Funds In the event that the Fund establishes one or more series of Shares in addition to New England Global Government Fund with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. 18. Massachusetts Law to Apply This Contract shall be construed and the provisions hereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 19. Prior Contracts This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund on behalf of each Portfolio and the Custodian relating to the custody of the Fund's assets. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 3rd day of January, 1989. ATTEST INVESTMENT TRUST OF BOSTON FUNDS /s/ KATHARINE SANDERSON HEIDLAGE By /s/ HENRY L.P. SCHMELZER ATTEST STATE STREET BANK AND TRUST COMPANY /s/ By /s/ W. J. HAYES ------------------------------ ------------------------------ Assistant Secretary Vice President EX-99.15(A) 7 12B-1 PLANS FOR CLASS A SHARES EXHIBIT 99.15(A) THE MASSACHUSETTS TAX FREE INCOME FUND CLASS A SERVICE PLAN (as amended effective September 13, 1993) This Plan (the "Plan") constitutes the Service Plan relating to the Class A shares of TNE MASSACHUSETTS TAX FREE INCOME FUND (the "Series"), a series of TNE Funds Trust, a Massachusetts business trust (the "Trust"). Section 1. The Trust, on behalf of the Series, will pay to TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor in connection with the provision of personal services provided to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Service Plan are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time. Section 2. The Service Fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors in Class A shares of the Series and/or in connection with the maintenance of shareholder accounts (including such expenses incurred after the original adoption of this Plan but prior to September 13, 1993 that have not previously been reimbursed hereunder), including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in Class A shares of the Series or in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 3. This Plan shall continue in effect for a period of more than one year after September 1, 1993 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 4. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in classes (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. THE INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA CLASS A SERVICE PLAN (as amended effective September 13, 1993) This Plan (the "Plan") constitutes the Service Plan relating to the Class A shares of TNE INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA (the "Series"), a series of TNE Funds Trust, a Massachusetts business trust (the "Trust"). Section 1. The Trust, on behalf of the Series, will pay to TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor in connection with the provision of personal services provided to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Service Plan are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time. Section 2. The Service Fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors in Class A shares of the Series and/or in connection with the maintenance of shareholder accounts (including such expenses incurred after the original adoption of this Plan but prior to September 13, 1993 that have not previously been reimbursed hereunder), including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in Class A shares of the Series or in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 3. This Plan shall continue in effect for a period of more than one year after September 1, 1993 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 4. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in classes (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. TNE INTERMEDIATE TERM TAX FREE FUND OF NEW YORK CLASS A SERVICE PLAN (as amended effective September 13, 1993) This Plan (the "Plan") constitutes the Service Plan relating to the Class A shares of TNE INTERMEDIATE TERM TAX FREE FUND OF NEW YORK (the "Series"), a series of TNE Funds Trust, a Massachusetts business trust (the "Trust"). Section 1. The Trust, on behalf of the Series, will pay to TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor in connection with the provision of personal services provided to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Service Plan are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time. Section 2. The Service Fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors in Class A shares of the Series and/or in connection with the maintenance of shareholder accounts (including such expenses incurred after the original adoption of this Plan but prior to September 13, 1993 that have not previously been reimbursed hereunder), including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in Class A shares of the Series or in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 3. This Plan shall continue in effect for a period of more than one year after September 1, 1993 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 4. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in classes (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. TNE HIGH INCOME FUND CLASS A DISTRIBUTION AND SERVICE PLAN (as amended effective September 23, 1993) This Plan (the "Plan") constitutes the Distribution and Service Plan relating to the Class A shares of TNE HIGH INCOME FUND (the "Series"), a series of TNE Funds Trust, a Massachusetts business trust (the "Trust"). Section 1. Service Fee. The Trust, on behalf of the Series, will pay to TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor in connection with the provision of personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Section 1 are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time (the "NASD Rule"). The Distributor may retain any or all of the amounts paid to it as Service Fees hereunder or may use any or all of such amounts to make payments to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 2. Distribution Fee. In addition to the Service Fee, the Trust will pay to the Distributor a fee (the "Distribution Fee") at an annual rate not to exceed .10% of the Series' average daily net assets attributable to the Class A shares, for acting as Principal Distributor with respect to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Distribution Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Section 2 are intended to qualify as "asset-based sales charges" as defined in the NASD Rules. The Distributor may retain any or all of the amounts paid to it as Distribution Fees hereunder or may use any or all of such amounts to defray its costs of (i) payments to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) of asset-based sales charges or "trail commissions" with respect to Class A shares of the Series, (ii) compensation to and expenses, including overhead and telephone expenses, of registered representatives or other employees of the Distributor relating to activities which are primarily intended to result in the sale of Class A shares of the Series, (iii) advertising, (iv) the printing and mailing of prospectuses relating to the Series to other than current shareholders of the Series and (v) the printing and mailing of sales literature relating to the Series. Section 3. This Plan shall continue in effect for a period of more than one year after September 1, 1993 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 3. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. NEW ENGLAND GROWTH OPPORTUNITIES FUND CLASS A SERVICE PLAN (AS AMENDED EFFECTIVE MAY 1, 1995) This Plan (the "Plan") constitutes the Service Plan relating to the Class A shares of NEW ENGLAND GROWTH OPPORTUNITIES FUND (the "Series"), a series of New England Funds Trust II, a Massachusetts business trust (the "Trust"). Section 1. Service Fee. The Trust, on behalf of the Series, will pay to New England Funds, L.P., a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") relating to the provision of personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 6 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Section 1 are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time (the "NASD Rule"). The Distributor may retain any or all of the amounts paid to it as Service Fees hereunder or may use any or all of such amounts to make payments to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 2. This Plan shall continue in effect for a period of more than one year after May 1, 1995 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 3. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 4. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 5. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 6. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 2. Section 7. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and (c) the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. THE LIMITED TERM U.S. GOVERNMENT FUND CLASS A SERVICE PLAN (as amended effective September 13, 1993) This Plan (the "Plan") constitutes the Service Plan relating to the Class A shares of TNE LIMITED TERM U.S. GOVERNMENT FUND (the "Series"), a series of TNE Funds Trust, a Massachusetts business trust (the "Trust"). Section 1. The Trust, on behalf of the Series, will pay to TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor in connection with the provision of personal services provided to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Service Plan are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time. Section 2. The Service Fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors in Class A shares of the Series and/or in connection with the maintenance of shareholder accounts (including such expenses incurred after the original adoption of this Plan but prior to September 13, 1993 that have not previously been reimbursed hereunder), including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in Class A shares of the Series or in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 3. This Plan shall continue in effect for a period of more than one year after September 1, 1993 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 4. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in classes (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. TNE ADJUSTABLE RATE U.S. GOVERNMENT FUND CLASS A SERVICE PLAN (as amended effective September 13, 1993) This Plan (the "Plan") constitutes the Service Plan relating to the Class A shares of TNE ADJUSTABLE RATE U.S. GOVERNMENT FUND (the "Series"), a series of TNE Funds Trust, a Massachusetts business trust (the "Trust"). Section 1. The Trust, on behalf of the Series, will pay to TNE INVESTMENT SERVICES CORPORATION, a Massachusetts corporation which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") for expenses borne by the Distributor in connection with the provision of personal services provided to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class A shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. All payments under this Service Plan are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time. Section 2. The Service Fee may be paid only to reimburse the Distributor for expenses of providing personal services to investors in Class A shares of the Series and/or in connection with the maintenance of shareholder accounts (including such expenses incurred after the original adoption of this Plan but prior to September 13, 1993 that have not previously been reimbursed hereunder), including, but not limited to, (i) expenses (including overhead expenses) of the Distributor for providing personal services to investors in Class A shares of the Series or in connection with the maintenance of shareholder accounts and (ii) payments made by the Distributor to any securities dealer or other organization (including, but not limited to, any affiliate of the Distributor) with which the Distributor has entered into a written agreement for this purpose, for providing personal services to investors in Class A shares of the Series and/or the maintenance of shareholder accounts, which payments to any such organization may be in amounts in excess of the cost incurred by such organization in connection therewith. Section 3. This Plan shall continue in effect for a period of more than one year after September 1, 1993 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class A shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class A shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 1 hereof without approval by a vote of at least a majority of the outstanding Class A shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 4. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class A shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in classes (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. EX-99.15(C) 8 12B-1 PLAN FOR CLASS C SHARES - LTD TERM EXHIBIT 99.15(C) NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND CLASS C DISTRIBUTION AND SERVICE PLAN This Plan (the "Plan") constitutes the Distribution and Service Plan relating to the Class C shares of New England Limited Term U.S. Government Fund (the "Series"), a series of New England Funds Trust II, a Massachusetts business trust (the "Trust"). Section 1. Service Fee. The Trust, on behalf of the Series, will pay to New England Funds, L.P., a Delaware limited partnership which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class C shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. The Distributor may pay all or any portion of the Service Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as service fees pursuant to agreements with such organizations for providing personal services to investors in Class C shares of the Series and/or the maintenance of shareholder accounts, and may retain all or any portion of the Service Fee as compensation for providing personal services to investors in Class C shares of the Series and/or the maintenance of shareholder accounts. All payments under this Section 1 are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time (the "NASD Rule"). Section 2. Distribution Fee. In addition to the Service Fee, the Trust will pay to the Distributor a fee (the "Distribution Fee") at an annual rate not to exceed .75% of the Series' average daily net assets attributable to the Class C shares, as compensation for the Distributor's services as principal underwriter of the Class C shares of the Series. Subject to such limit and subject to the provisions of Section 7 hereof, the Distribution Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. The Distributor may pay all or any portion of the Distribution Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Class C shares of the Series, and may retain all or any portion of the Distribution Fee as compensation for the Distributor's services as principal underwriter of the Class C shares of the Series. All payments under this Section 2 are intended to qualify as "asset-based sales charges" as defined in the NASD Rules. Section 3. This Plan shall continue in effect for a period of more than one year after January 1, 1995 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class C shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class C shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval by a vote of at least a majority of the outstanding Class C shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 3. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class C shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. EX-99.15(D) 9 RULE 12B-1 PLAN FOR CLASS C SHARES - GOP EXHIBIT 99.15(D) NEW ENGLAND GROWTH OPPORTUNITIES FUND CLASS C DISTRIBUTION AND SERVICE PLAN This Plan (the "Plan") constitutes the Distribution and Service Plan relating to the Class C shares of New England Growth Opportunities Fund (the "Series"), a series of New England Funds Trust II, a Massachusetts business trust (the "Trust"). Section 1. Service Fee. The Trust, on behalf of the Series, will pay to New England Funds, L.P., a Delaware limited partnership which acts as the Principal Distributor of the Series' shares, or such other entity as shall from time to time act as the Principal Distributor of the Series' shares (the "Distributor"), a fee (the "Service Fee") at an annual rate not to exceed .25% of the Series' average daily net assets attributable to the Class C shares. Subject to such limit and subject to the provisions of Section 7 hereof, the Service Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Service Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. The Distributor may pay all or any portion of the Service Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as service fees pursuant to agreements with such organizations for providing personal services to investors in Class C shares of the Series and/or the maintenance of shareholder accounts, and may retain all or any portion of the Service Fee as compensation for providing personal services to investors in Class C shares of the Series and/or the maintenance of shareholder accounts. All payments under this Section 1 are intended to qualify as "service fees" as defined in Section 26 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time (the "NASD Rule"). Section 2. Distribution Fee. In addition to the Service Fee, the Trust will pay to the Distributor a fee (the "Distribution Fee") at an annual rate not to exceed .75% of the Series' average daily net assets attributable to the Class C shares, as compensation for the Distributor's services as principal underwriter of the Class C shares of the Series. Subject to such limit and subject to the provisions of Section 7 hereof, the Distribution Fee shall be as approved from time to time by (a) the Trustees of the Trust and (b) the Independent Trustees of the Trust. The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine. The Distributor may pay all or any portion of the Distribution Fee to securities dealers or other organizations (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of Class C shares of the Series, and may retain all or any portion of the Distribution Fee as compensation for the Distributor's services as principal underwriter of the Class C shares of the Series. All payments under this Section 2 are intended to qualify as "asset-based sales charges" as defined in the NASD Rules. Section 3. This Plan shall continue in effect for a period of more than one year after January 1, 1995 only so long as such continuance is specifically approved at least annually by votes of the majority (or whatever other percentage may, from time to time, be required by Section 12(b) of the Investment Company Act of 1940 (the "Act") or the rules and regulations thereunder) of both (a) the Trustees of the Trust, and (b) the Independent Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 5. This Plan may be terminated at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Class C shares of the Series. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: A. That such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding Class C shares of the Series, on not more than 60 days' written notice to any other party to the agreement; and B. That such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Sections 1 or 2 hereof without approval by a vote of at least a majority of the outstanding Class C shares of the Series, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 3. Section 8. As used in this Plan, (a) the term "Independent Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Class C shares of the Series" shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission. EX-27 10 CLASS A FDS
6 01 CLASS A 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 11,128,687 11,007,436 572,022 120,097 0 692,119 887,018 0 (55,742) 831,276 0 9,328,917 748,714 0 (12,067) (12,067) 0 0 (121,252) 10,868,279 41,878 21,220 207 75,371 (12,067) 39,050 (121,252) (94,268) 0 0 0 0 748,714 4,370 0 0 0 0 0 0 30,308 0 113,727 9,421,391 12.50 0 0 0 0 0 12.45 2.95 0 0
EX-27 11 CLASS B FDS
6 02 CLASS B 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 11,128,687 11,007,436 572,022 120,097 0 692,119 887,018 0 (55,742) 831,276 0 1,481,289 119,044 0 (12,067) (12,067) 0 0 (121,252) 10,868,279 41,878 21,220 207 75,371 (12,067) 39,050 (121,252) (94,268) 0 0 0 0 119,044 2,107 0 0 0 0 0 0 30,308 0 113,727 9,421,391 12.50 0 0 0 0 0 12.42 3.70 0 0
EX-27 12 CLASS C FDS
6 03 CLASS C 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 11,128,687 11,007,436 572,022 120,097 0 692,119 887,018 0 (55,742) 831,276 0 151,380 12,087 0 (12,067) (12,067) 0 0 (121,252) 10,868,279 41,878 21,220 207 75,371 (12,067) 39,050 (121,252) (94,268) 0 0 0 0 12,087 41 0 0 0 0 0 0 30,308 0 113,727 9,421,391 12.50 0 0 0 0 0 12.44 3.70 0 0
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