Via Edgar
<PAGE>
November 7, 1995
Via EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: New England Funds Trust II
(File Nos.: 2-11101 and 811-242)
Dear Sir or Madam:
Pursuant to Rule 497(e) of the Securities Act of 1933, as
amended, transmitted for filing on behalf of New England Funds Trust
II (the OTrustO), is a supplement dated October 26, 1995 to the
prospectus dated May 1, 1995 for the TrustOs New England Massachusetts
Tax Free Income Fund. The supplement also contains information on the
TrustOs New England Intermediate Term Tax Free Fund of California and
New Engand Intermediate Term Tax Free Fund of New York, as well as New
Engand Cash Management Trust and New England Tax Exempt Money Market
Trust.
Acknowledgment of this filing will be confirmed through the
Compuserve System. If you have any questions regarding this filing,
please do not hesitate to call me at (617) 578-1669, or in my absence,
John Loder at Ropers & Gray at (617) 951-7405.
Very truly yours,
[SIGNATURE]
Sheila M. Barry
CC: R.P. Connolly
<PAGE>
NEW ENGLAND FUNDS TRUST II
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 CASH MANAGEMENT TRUST
MONEY MARKET SERIES
U.S. GOVERNMENT SERIES
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
Supplement dated October 26, 1995 to
New England State Tax Free Funds Prospectuses dated May 1, 1995 and
New England Money Market Funds Prospectus dated September 1, 1995
THE FOLLOWING PARAGRAPHS ARE ADDED TO THE SECTION OF THE PROSPECTUSES
CAPTIONED "FUND MANAGEMENT" FOR 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 CASH MANAGEMENT TRUST - MONEY MARKET SERIES, NEW ENGLAND
CASH MANAGEMENT TRUST - U.S. GOVERNMENT SERIES AND NEW ENGLAND TAX
EXEMPT MONEY MARKET TRUST (THE "FUNDS"):
Back Bay Advisors, L.P., the Funds' investment adviser, is a wholly-
owned subsidiary of New England Investment Companies, L.P. ("NEIC").
New England Mutual Life Insurance Company ("The New England") owns
NEIC's sole general partner and a majority of the limited
partnership interest in NEIC. 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 policyholders
of The New England and MetLife and receipt of certain regulatory
approvals. The merger is not expected to occur until after December
31, 1995.
The merger of The New England into MetLife is being treated, for
purposes of the Investment Company Act of 1940 (the "Act"), as an
"assignment" of the existing investment advisory agreements relating
to the Funds. Under the Act, such an "assignment" will result in
the automatic termination of the investment advisory agreements,
effective at the time of the merger. Prior to the merger,
shareholders of the Funds will be asked to approve new investment
advisory agreements and subadvisory agreements, intended to take
effect at the time of the merger. A proxy statement describing the
new agreements will be sent to shareholders of the Funds prior to
their being asked to vote on the new agreements.
THE FOLLOWING PARAGRAPHS ARE ADDED TO THE SECTION OF PROSPECTUSES
CAPTIONED "BUYING FUND SHARES" FOR EACH OF THE FUNDS:
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 check
is a check made payable to a New England Funds 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
New England Funds shareholder, but which has been ultimately
endorsed to New England Funds for deposit into an account.)
SP34-1095
<PAGE>
[LOGO]
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
PROSPECTUS AND APPLICATION
MAY 1, 1995
New England Massachusetts Tax Free Income Fund (the OFundO) is a non-
diversified mutual fund and a series of New England Funds Trust II
(the OTrustO), a registered open-end management investment company.
Six other series of the Trust are described in separate prospectuses.
The Trust and New England Funds Trust I are referred to in this
prospectus as the OTrusts.O
The Fund seeks as high a level of current income exempt from federal
income tax and Massachusetts personal income taxes as Back Bay
Advisors, L.P. (OBack Bay AdvisorsO), the FundOs investment adviser
and manager, believes is consistent with preservation of capital.
There can be no assurance that the Fund will achieve this objective.
The Fund offers two classes of shares to the general public. The
offering price is based on the next determined net asset value per
share. 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 (OCDSCO), however, is
imposed upon certain redemptions of Class B shares, which also bear
higher annual 12b-1 fees than Class A shares. Class B shares
automatically convert to Class A shares eight years after the Class B
shares were purchased. See OBuying Fund Shares - Sales Charges.O
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 in two parts (the
OStatementO) about the Fund dated May 1, 1995 has been filed with the
Securities and Exchange Commission (the OSECO) and is available free
of charge. Write to New England Funds, L.P. (the ODistributorO), SAI
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116 or call toll
free at 1-800-225-5478. The Statement contains more detailed
information about the Fund and is incorporated into this prospectus by
reference.
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.
[SIDEBAR]
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.
<PAGE>
TABLE OF CONTENTS
Page
FUND EXPENSES AND FINANCIAL INFORMATION
01 Schedule of Fees Sales charges, yearly
operating expenses.
02 Financial Highlights Historical information on the
FundOs performance.
- ----------------------------------------------------------------------
- --
INVESTMENT STRATEGY
03 How the Fund Pursues Its Investment Objective
- ----------------------------------------------------------------------
- --
06 INVESTMENT RISKS It is important to understand
the risks inherent in the Fund before you invest.
- ----------------------------------------------------------------------
- --
08 FUND MANAGEMENT
- ----------------------------------------------------------------------
- --
BUYING FUND SHARES
09 Minimum Investment Everything you need to know to
open and add to a New England Funds account.
09 6 Ways to Buy Fund Shares
- Through your investment dealer
- By mail
- By wire transfer
- By Investment Builder
- By electronic purchase through ACH
- By exchange from another New England Fund
10 Sales Charges
12 Reduced Sales Charges
(Class A Shares Only)
- ----------------------------------------------------------------------
- --
OWNING FUND SHARES
13 Exchanging Among New England Funds New England Funds offers three
convenient ways to exchange Fund shares.
13 Fund Dividend Payments
- ----------------------------------------------------------------------
- --
SELLING FUND SHARES
15 5 Ways to Sell Fund Shares How to withdraw money or close
your account.
- Through your investment dealer
- By telephone
- By mail
- By check
- By Systematic Withdrawal Plan
17 Repurchase Option
(Class A Shares Only) An opportunity to reinvest
your redemption proceeds within 120 days for no sales
charge.
- ----------------------------------------------------------------------
- --
FUND DETAILS
18 How Fund Share Price is Determined Additional information you may
find important.
18 Income Tax Considerations
19 The FundOs Expenses
20 Performance Criteria
21 Additional Facts About the Fund
22 Glossary of Terms
<PAGE>
FUND EXPENSES AND FINANCIAL 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 FundOs 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 - PAID DIRECTLY BY SHAREHOLDERS
<TABLE><CAPTION>
<S> <C> <C>
CLASS A SHARES CLASS B SHARES
--------------- ---------------
Maximum Initial Sales Charge
Imposed on a Purchase
(as a percentage of
offering price)(1)(2) 4.25% None
Maximum Contingent Deferred
Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable)(2) (3) 4.00%
Deferred Sales Charge None None
Redemption Fees None None
Exchange Fee None None
<FN>
(1) A reduced sales charge on Class A shares applies in some cases.
(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 one year after purchase.
See OSales Charges.O
</TABLE>
ANNUAL FUND OPERATING EXPENSES - PAID DIRECTLY BY THE FUND, AND
INDIRECTLY BY ITS SHAREHOLDERS
(as a percentage of average net assets)
<TABLE><CAPTION>
<S> <C> <C>
CLASS A SHARES CLASS B SHARES
--------------- ---------------
Management Fees
(after voluntary fee waiver) 0.19%** 0.19%**
12b-1 Fees 0.35% 1.00%*
Other Expenses 0.31% 0.31%
Total Expenses 0.85%** 1.50%**
<FN>
** 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.
*** Without the voluntary fee waiver, the FundOs Management Fees
would be 0.58% of the average net assets of the FundOs Class A
and Class B shares and Total Expenses would be 1.24% of the
average net assets of the FundOs Class A shares and 1.89% of the
Class B shares.
</TABLE>
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.
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A SHARES CLASS B SHARES
--------------- -----------------------
(1) (2)
1 year $51 $55 $15
- ----------------------------------------------------------------------
- --
3 years $68 $77 $47
- ----------------------------------------------------------------------
- --
5 years $88 $92 $82
- ----------------------------------------------------------------------
- --
10 years* $143 $161 $161
- ----------------------------------------------------------------------
- --
<FN>
(1) Assumes redemption at end of period.
(2) Assumes no redemption.
* Class B shares automatically convert to Class A shares after 8
years; therefore, Class B amounts are calculated using Class A
expenses in years 9 and 10.
</TABLE>
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.
For additional information about the FundOs management fees, 12b-1
fees and other expenses, please see OFund ManagementO and OThe FundOs
Expenses.O
A wire fee (currently $5.00) will be deducted from your proceeds if
you elect to transfer redemption proceeds by wire.
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.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share of the Fund outstanding throughout the indicated periods)
The Financial Highlights presented below have been included in the financial
statements of the Fund examined by Coopers & Lybrand LLP, independent
accountants. The Financial Highlights should be read in conjunction with the
financial statements and the notes thereto incorporated by reference in the
Statement.
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A
---------------------------------------------------
MARCH 23, TEN
1984 (a) YEAR ENDED MONTHS
FEB. 28, LAST DAY OF FEBRUARY, DEC. 31,
--------- -------------------------- -----------
1985 1986 1987 1988 1988(b)
- --------------------------------------------------------------------------------
- ----------------------
Net Asset Value, Beginning of Period $14.29 $14.63 $16.62 $17.23 $16.37
- --------------------------------------------------------------------------------
- ----------------------
Income From Investment Operations
Net Investment Income 1.07 1.23 1.15 1.11 0.90
Net Gains or Losses on Investments
(both realized and unrealized) 0.35 2.03 0.66 (0.80) (0.20)
- --------------------------------------------------------------------------------
- ----------------------
Total Income From Investment Operations 1.42 3.26 1.81 0.31 0.70
- --------------------------------------------------------------------------------
- ----------------------
Less Distributions
Distributions (from net investment income) (1.08) (1.22) (1.15) (1.11) (0.90)
Distributions (in excess of net investment income) 0.00 0.00 0.00 0.00 0.00
Distributions (from net realized capital gains) 0.00 (0.05) (0.05) (0.06) (0.01)
- --------------------------------------------------------------------------------
- ----------------------
Total Distributions (1.08) (1.27) (1.20) (1.17) (0.91)
- --------------------------------------------------------------------------------
- ----------------------
Net Asset Value, End of Period $14.63 $16.62 $17.23 $16.37 $16.16
- --------------------------------------------------------------------------------
- ----------------------
- --------------------------------------------------------------------------------
- ----------------------
Total Return (%) (e) 10.5 23.4 11.4 2.0 4.6
Ratios/Supplemental Data
Net Assets, End of Period (000) $22,608 $37,524 $50,734 $57,529 $50,770
Ratio of Operating Expenses to
Average Net Assets (%) (c) 1.24(d) 1.13 1.25 1.25 1.51(d)
Ratio of Net Investment Income to
Average Net Assets (%) 8.23(d) 7.92 6.84 6.89 6.63(d)
Portfolio Turnover Rate (%) 111(d) 65 36 28 18(d)
[TABLE CONTINUED]
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEPT. 13(a) YEAR
THROUGH ENDED
YEAR ENDED DECEMBER 31, DEC. 31, DEC.31,
------------------------------------------------------------- ------------- ------------
1989 1990 1991 1992 1993 1994 1993 1994
- --------------------------------------------------------------------------------
- ----------------------
$16.16 $16.27 $16.01 $16.37 $16.62 $17.27 $17.78 $17.26
1.06 1.04 1.08 1.03 0.97 0.89 0.25 0.77
0.19 (0.24) 0.69 0.40 1.05 (2.15) (0.15) (2.14)
- --------------------------------------------------------------------------------
- ----------------------
1.25 0.80 1.77 1.43 2.02 (1.26) 0.10 (1.37)
- --------------------------------------------------------------------------------
- ----------------------
(1.06) (1.03) (1.07) (1.03) (0.97) (0.89) (0.22) (0.79)
0.00 0.00 0.00 0.00 0.00 (0.02) 0.00 (0.02)
(0.08) (0.03) (0.34) (0.15) (0.40) 0.00 (0.40) 0.00
- --------------------------------------------------------------------------------
- ----------------------
(1.14) (1.06) (1.41) (1.18) (1.37) (0.91) (0.62) (0.81)
- --------------------------------------------------------------------------------
- ----------------------
$16.27 $16.01 $16.37 $16.62 $17.27 $15.10 $17.26 $15.08
- --------------------------------------------------------------------------------
- ----------------------
- --------------------------------------------------------------------------------
- ----------------------
8.0 5.2 11.5 9.1 12.4 (7.4) 0.4 (8.0)
$51,269 $55,903 $68,534 $91,932 $128,797 $107,565 $1,289 $4,523
1.41 1.35 1.00 0.85 0.85 0.85 1.50(d) 1.50
6.54 6.48 6.62 6.25 5.58 5.63 4.26(d) 4.98
24 21 86 29 42 48 42(f) 48
<FN>
(a) The Fund commenced operations on March 23, 1984. Class B shares
were first offered beginning September 13, 1993.
(b) Fiscal year end changed in 1988 from February 28/29 to December
31. The Fund's current adviser assumed that function on July 27,
1988.
(c) Commencing May 1, 1991, expenses were voluntarily limited to
0.85% of average net assets. The ratio of operating expenses to
average net assets without giving effect to this expense
limitation would have been 1.34%, 1.26%, 1.21% and 1.24% for the
years ended December 31, 1991, 1992, 1993 and 1994, respectively,
for the Fund's Class A shares and 1.86% (on an annualized basis)
for the period from September 13, 1993 through December 31, 1993
and 1.89% for the year ended December 31, 1994, for the Fund's
Class B shares. From May 18, 1989 through April 30, 1991,
expenses were voluntarily limited to 1.35% of average net assets
of Class A shares. The ratio of operating expenses to average net
assets without giving effect to this expense limitation would
have been 1.43% and 1.37% for the years ended December 31, 1989
and 1990, respectively. For all periods prior to May 18, 1988,
expenses were limited to 1.25% of average net assets of Class A
shares. The ratio of operating expenses to average net assets
without giving effect to this expense limitation would have been
1.39% and 1.56% (annualized) for the year ended February 29, 1988
and the period ended December 31, 1988, respectively.
(d) Computed on an annualized basis.
(e) 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. Periods of less than one
year are not annualized.
(f) Represents portfolio turnover rate for the Fund as a whole for
the entire fiscal year.
</TABLE>
<PAGE>
INVESTMENT STRATEGY
HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE
The Fund invests primarily in Massachusetts Tax Exempt Bonds (which
are described below). Massachusetts law provides that to the extent
distributions by the Fund are derived from interest on Massachusetts
Tax Exempt Bonds, they shall be exempt from Massachusetts personal
income taxes. It is a fundamental Fund policy that at least 90% of the
FundOs income distributions will be exempt from federal income tax and
Massachusetts personal income taxes, except during times of adverse
market conditions when the Fund is investing for temporary defensive
purposes (in which case more than 10% of the FundOs income
distributions could be subject to federal income tax and/or
Massachusetts personal income taxes). Under normal conditions, at
least 65% of the FundOs assets will be invested in Massachusetts Tax
Exempt Bonds. During the FundOs fiscal year ended December 31, 1994,
98.9% of the FundOs income dividend distributions were exempt from
federal income tax and 98.9% were exempt from Massachusetts personal
income taxes. During that period, 4.7% of the FundOs distributions
were derived from Oprivate activity bonds,O the income from which is
an item of tax preference for purposes of the federal alternative
minimum tax for individuals. It is a fundamental policy of the Fund
that distributions from interest income on private activity bonds,
together with distributions of interest income from investments other
than Massachusetts Tax Exempt Bonds, will not normally exceed 10% of
the total amount of the FundOs income distributions. The Fund may
invest up to 5% of its assets in so-called Oinverse floating
obligationsO or Oresidual interest bonds.O
Securities purchased by the Fund will be largely of investment grade
quality. Immediately after the Fund purchases an investment, at least
85% of the FundOs assets will consist of securities rated AAA, AA, A
or BBB by Standard & PoorOs; Aaa, Aa, A or Baa by MoodyOs or
securities that are not rated by Standard & PoorOs or MoodyOs but that
are determined by the FundOs adviser to be of comparable quality to
securities in those rating categories.
The other 15% of the FundOs assets may be invested in securities rated
below investment grade (below BBB or Baa) or unrated but securities
determined by the FundOs adviser to be of comparable quality to bonds
rated below BBB or Baa.
Bonds rated BBB or Baa are considered investment grade but may have
speculative characteristics. Unfavorable changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity of issuers of these bonds to make principal and
interest payments than is the case with higher grade bonds. Bonds of
below investment grade quality involve high risk and are sometimes
referred to as Ojunk bonds.O See OInvestment Risks - Lower Quality
Fixed-Income SecuritiesO for more information about these bonds. The
Fund may invest in bonds rated in the lowest rating categories, D by
Standard and PoorOs or C by MoodyOs. These classes of bonds can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
For temporary purposes (such as pending new investments), for
liquidity purposes (such as to meet repurchase or redemption
obligations, or to pay expenses), or for temporary defensive purposes,
the Fund may invest in taxable obligations such as obligations of the
U.S. Government, its agencies or instrumentalities, other debt
securities rated within the four highest grades by either MoodyOs or
Standard & PoorOs, commercial paper rated in the two highest grades by
either of such rating services, certificates of deposit, bankers
acceptances and repurchase agreements. The Fund may also hold its
assets in other cash equivalents or in cash.
Except for policies of the Fund that are explicitly described in this
prospectus or in Part I of the Statement as fundamental, and the
policies that under normal market conditions at least 90% of the
FundOs income distributions will be exempt from federal income tax and
Massachusetts personal income taxes, and that distributions from
interest income on private activity bonds, together with distributions
of interest income from investments other than Massachusetts Tax
Exempt Bonds, will not normally exceed 10% of the FundOs income
distributions, the investment policies of the Fund, including the
investment objective, may be changed without shareholder approval or
prior notice. As a matter of policy, however, the trustees would not
change the FundOs investment objective without shareholder approval.
<PAGE>
Although the yield of a tax exempt fund generally will be lower than that of a
taxable income fund, the net after-tax return to investors may be greater. The
table below illustrates what tax-free investing can mean for you.
The following table does not take into account the effect of income taxes on
social security benefits which may arise as a result of receiving tax exempt
income, or any alternative minimum tax. Also, a portion of the FundOs
distributions may consist of ordinary income or short-term or long-term capital
gain and will be taxable to you as such.
The following table shows, for different assumed levels of taxable income and
marginal tax rates, the equivalent taxable yield that would be required to
achieve certain levels of tax-exempt yield. Yields shown do not represent actual
yields achieved by the Fund and are not intended as a prediction of future
yields.
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
COMBINED
MA AND IF TAX EXEMPT YIELD IS
TAXABLE INCOME* FEDERAL 4.00% 5.00% 6.00% 7.00% 8.00%
SINGLE JOINT TAX THEN THE EQUIVALENT
RETURN RETURN BRACKET** TAXABLE YIELD WOULD BE:
- --------------------------------------------------------------------------------
- ----------
$0 D $23,350 $0 D$39,000 25.20% 5.35% 6.68% 8.02% 9.36% 10.70%
23,351 D 56,550 39,001 D 94,250 36.64% 6.31% 7.89% 9.47% 11.05% 12.63%
56,551 D 117,950 94,251 D 143,600 39.28% 6.59% 8.23% 9.88% 11.53% 13.18%
117,951 D 256,500 143,601 D 256,500 43.68% 7.10% 8.88% 10.65% 12.43% 14.20%
over 256,500 over 256,500 46.85% 7.53% 9.41% 11.29% 13.17%
15.05%
<FN>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the Massachusetts Personal Income Tax law;
however, Massachusetts taxable income may differ due to differences in
exemptions, itemized deductions and other items.
** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1995, including indexing for inflation, and are subject
to change as a result of amendments to existing tax laws. These rates
include the effect of deducting state and city taxes on your Federal
return.
</TABLE>
MASSACHUSETTS TAX EXEMPT BONDS
Massachusetts Tax Exempt Bonds are debt obligations issued by The
Commonwealth of Massachusetts and its political subdivisions (for
example, counties, cities, towns, villages, districts and
authorities), the interest from which is, in the opinion of bond
counsel, exempt from both federal income tax and Massachusetts
personal income taxes (other than the possible incidence of any
alternative minimum taxes). These bonds are issued to obtain funds for
various public purposes, such as the construction of public
facilities, the payment of general operating expenses, the refunding
of outstanding debts, or the lending of funds to public or private
institutions for the construction of housing, educational or medical
facilities.
They may also include certain types of industrial development bonds or
private activity bonds issued by public authorities to finance
privately owned or operated facilities. Massachusetts Tax Exempt Bonds
also include debt obligations issued by other governmental entities
(for example, U.S. possessions such as Puerto Rico) if such debt
obligations generate interest income that is exempt from federal
income taxes and Massachusetts personal income taxes.
The two principal classifications of Massachusetts Tax Exempt Bonds
are general obligation and limited obligation (limited purpose or
revenue) bonds. General obligation bonds involve the credit of an
issuer possessing taxing power and are payable from the issuerOs
general unrestricted revenues. Their payment may depend on an
appropriation by the issuerOs legislative body. The characteristics
and methods of enforcement of general obligation bonds vary according
to the law applicable to the particular issuer. Limited obligation
bonds are payable only from the revenues derived from a particular
facility or class of facilities, or a specific revenue source, and
generally are not payable from the unlimited revenues of the issuer.
Industrial development and private activity bonds are in most cases
limited obligation bonds, the creditworthiness of which is directly
related to the user of the facilities.
<PAGE>
Certain Massachusetts Tax Exempt Bonds which may be held by the Fund
may permit the issuer at its option to Ocall,O or redeem, its
securities. If an issuer were to redeem Massachusetts Tax Exempt Bonds
held by the Fund during a time of declining interest rates, the Fund
may not be able to reinvest the proceeds in tax exempt securities
providing as high a level of investment return as the securities
redeemed.
Although the FundOs investment objective refers to preservation of
capital, the net asset value of Fund shares will fluctuate based on
changes in the prevailing market interest rates and other factors.
During a period of declining interest rates, many of the FundOs
portfolio investments will likely bear coupon rates which are higher
than current market rates, regardless of whether such securities were
originally purchased at a premium. Such securities would generally
carry market values greater than the principal amounts payable on
maturity, which would be reflected in the net asset value of the
FundOs shares. The value of such OpremiumO securities tends to
approach the principal amount as they approach maturity (or call price
in the case of securities approaching a call date). As a result, an
investor who holds shares of the Fund during such periods would
initially receive higher monthly distributions (derived from the
higher coupon rates payable on the FundOs investments) than might be
available from alternative investments bearing current market interest
rates, but may face an increased risk of capital loss as these higher
coupon securities approach maturity (or the call date). In evaluating
the potential performance of an investment in the Fund, investors may
find it useful to compare the FundOs current dividend rate with the
FundOs Oyield,O which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization of
market premiums. See OPerformance Criteria.O
<PAGE>
INVESTMENT RISKS
It is important to understand the following risks inherent in the Fund
before you invest. The FundOs ability to achieve its investment
objective depends on the ability of the issuers of Massachusetts Tax
Exempt Bonds to meet their continuing obligations to pay principal and
interest.
Since the Fund invests primarily in Massachusetts Tax Exempt Bonds,
the value of the FundOs shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors
specifically affecting the ability of issuers of Massachusetts Tax
Exempt Bonds to meet their obligations. As a result, the value of the
FundOs shares may fluctuate more widely than the value of shares of a
portfolio investing in securities relating to a number of different
states. The ability of Massachusetts and its political subdivisions to
meet their obligations will depend primarily on the availability of
tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available
to governmental issuers of Massachusetts Tax Exempt Bonds may be
affected from time to time by economic, political and demographic
conditions within Massachusetts. In addition, constitutional or
statutory restrictions may limit a governmentOs power to raise
revenues or increase taxes. The availability of federal, state and
local aid to an issuer of Massachusetts Tax Exempt Bonds may also
affect that issuerOs ability to meet its obligations. Payments of
principal and interest on limited obligation bonds will depend on the
economic condition of the facility or specific revenue source from
whose revenues the payments will be made, which in turn could be
affected by economic, political and demographic conditions in
Massachusetts or a particular locality. Any reduction in the actual or
perceived ability of an issuer of Massachusetts Tax Exempt Bonds to
meet its obligations (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market value
and marketability of its obligations and could affect adversely the
values of other Massachusetts Tax Exempt Bonds as well.
Like other northeastern states, Massachusetts suffered significant
adverse effects from the recession of the early 1990s, including the
loss of substantial numbers of jobs, declining real estate values and
reduced tax receipts. Weakness in the local or national economy could
adversely affect the credit ratings and creditworthiness of
Massachusetts Tax Exempt Bonds, which in turn could adversely affect
the value of an investment in the Fund.
At certain times the secondary market for Massachusetts Tax Exempt
Bonds may be less liquid than that for other fixed-income securities.
Accordingly, the ability of the Fund to buy and sell securities at
those times may be limited. The amount of publicly available
information about the financial condition of an issuer of
Massachusetts Tax Exempt Bonds may not be as extensive as that which
is made available by corporations whose securities are publicly
traded. As a result, monitoring the creditworthiness of issuers of
Massachusetts Tax Exempt Bonds may be more difficult than monitoring
the creditworthiness of issuers of corporate bonds.
The value of the FundOs investments will change as the general level
of interest rates fluctuates. During periods of falling interest
rates, the values of fixed-income securities generally rise.
Conversely, during periods of rising interest rates, the values of
such securities generally decline. Changes in the credit ratings of
obligations as well as in the ability of an issuer to make payments of
interest and principal will also affect the value of these
investments. The value of the FundOs shares will fluctuate with the
value of its investments.
* LOWER QUALITY FIXED-INCOME SECURITIES
Lower quality fixed-income securities generally provide higher
yields than higher quality securities, but are subject to greater
credit and market risk. Lower quality fixed-income securities are
considered predominantly speculative with respect to the ability
of the issuer to meet principal and interest payments.
Achievement of the investment objective of a fund investing in
lower quality fixed-income securities may be more dependent on
the investment adviserOs own credit analysis than is the case for
higher quality bonds. The market for lower quality fixed-income
securities may be more severely affected than some other
financial markets by economic recession or substantial interest
rate increases, by changing public perceptions of this market or
by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. In
addition, the secondary market may be less liquid for lower
quality fixed-income securities. This lack of liquidity at
certain times may affect the valuation of these securities and
may make the valuation and sale of these securities more
difficult.
* Miscellaneous
In periods of rapidly fluctuating interest rates, there may be
frequent changes in investments. From time to time, consistent
with its investment objective, the Fund may also trade securities
for the purpose of seeking short-term profits. A change in the
securities held by the Fund is known as Oportfolio turnover.O
Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in
other securities. To the extent that such sales result in net
realized capital gains, shareholders ordinarily are taxed on such
gains at applicable income tax rates. See OIncome Tax
ConsiderationsO below. Under certain market conditions, the
FundOs portfolio turnover rate may be higher than that of similar
mutual funds.
The Fund reserves the right to enter into repurchase agreements
for amounts up to 15% of its assets. 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. These transactions
must be fully collateralized at all times, but may involve some
credit risk to the Fund. The Fund may also purchase securities
for future delivery (i.e., forward commitments), which may
increase its overall investment exposure. Part II of the
Statement contains more detailed information about these
transactions and about limitations designed to reduce the risks
associated with them.
The Fund is a Onon-diversifiedO fund and as such is not required
to meet any diversification requirements under the Investment
Company Act of 1940 (the O1940 ActO), although the Fund must meet
certain diversification standards to qualify as a regulated
investment company under the Internal Revenue Code of 1986 (the
OCodeO). 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.
<PAGE>
FUND MANAGEMENT
FUND MANAGEMENT
The FundOs adviser, Back Bay Advisors, 399 Boylston Street, Boston,
Massachusetts 02116, provides discretionary investment management
services to mutual funds and other institutional investors. Formed in
1986, Back Bay Advisors now manages 15 mutual fund portfolios and over
$6 billion of securities. Back Bay Advisors is an independently-
operated subsidiary of New England Investment Companies, L.P.
(ONEICO). NEIC is listed on the New York Stock Exchange (the
OExchangeO), and manages over $60 billion in assets for individuals
and institutions.
The general partners of Back Bay Advisors and the Distributor are
special purpose organizations that are wholly-owned subsidiaries of
NEIC. NEICOs sole general partner, New England Investment Companies,
Inc., is a wholly-owned subsidiary of New England Mutual Life
Insurance Company (OThe New EnglandO). James S. Welch, Vice President
of Back Bay Advisors and the Trust, has served as the FundOs portfolio
manager since May 1995. Prior to joining Back Bay Advisors in 1993,
Mr. Welch was a Vice President at Putnam Management Company.
Subject to overall supervision by the TrustOs trustees, Back Bay
Advisors furnishes a continuous investment program for the Fund and
recommends what securities should be purchased or sold. Also, Back Bay
Advisors is obligated to furnish the Fund with office space and
administrative and certain other services. Back Bay Advisors is
responsible for all the compensation of officers and trustees of the
Fund who are also employees, officers or directors of Back Bay
Advisors or its affiliates.
Back Bay Advisors is paid at the annual rate of 0.60% of the average
daily net asset value of the Fund up to $100,000,000 and 0.50% of such
value in excess of $100,000,000. Back Bay Advisors has voluntarily
agreed, however, until further notice to the Fund, to reduce its
management fee and, if necessary, to bear certain expenses associated
with operating the Fund in order to limit the FundOs expenses to an
annual rate of 0.85% of the average daily net assets of the FundOs
Class A shares and 1.50% of the average daily net assets of the FundOs
Class B shares. Back Bay Advisors may terminate this voluntary
agreement at any time. In that event the Fund would supplement its
prospectus.
Under an agreement between Back Bay Advisors and the Distributor, the
Distributor provides certain administrative services to the Fund, at
no extra cost to the Fund.
In placing portfolio transactions for the Fund, Back Bay Advisors
seeks the most favorable price and execution available. Subject to
this policy, Back Bay Advisors may consider sales of shares of the
Fund and shares of the other mutual funds it advises as a factor in
the selection of broker-dealers.
<PAGE>
BUYING FUND SHARES
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in the Fund and $50 is
the minimum for each subsequent investment. There are special initial
investment minimums for the following plans:
* $50 for automatic investing through the Investment Builder
program.
* $1,000 for accounts registered under the Uniform Gifts to Minors
Act or the Uniform Transfers to Minors Act.
6 WAYS TO BUY FUND SHARES
You may purchase Class A and Class B shares of the Fund in the
following ways:
[GRAPHIC] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor
and would be pleased to accept your order.
[GRAPHIC] BY MAIL:
FOR AN INITIAL INVESTMENT, simply complete an application and return
it, with a check payable to New England Funds, to 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.
[GRAPHIC] BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m.
and 6:00 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 New England Massachusetts Tax Free Income Fund, 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.
[GRAPHIC] BY INVESTMENT BUILDER:
Investment Builder is New England FundsO 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.
Indicate the amount of the monthly investment on the enclosed
application and enclose a void check or 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.
[GRAPHIC] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the
Automated Clearing House (OACHO) 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 a.m. and
6 p.m. (Eastern time) for instructions or call Tele#Facts at 1-800-346-
5984 twenty-four hours a day. If you purchase your shares through ACH,
you will receive the net asset value next determined after your order
is received. Proceeds of redemptions of Fund shares purchased through
ACH may not be available for up to ten days after the purchase date.
[GRAPHIC] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND
You may also purchase shares of a Fund by exchanging shares from
another New England Fund. Please see OExchanging Among New England
FundsO for complete details.
[SIDEBAR]
USING TELE#FACTS
1-800-346-5984
Tele#Facts is New England FundsO 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 Class A 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.
<PAGE>
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 (OState
Street BankO) (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 the Distributor. The FundOs Oopen
accountO system for recording your investment eliminates the problems
and expense of handling and safekeeping certificates. Certificates
will not be issued for Class B 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.
[SIDEBAR]
To make investing even easier, you can also order personalized
investment slips by calling 1-800-225-5478.
SALES CHARGES
The Fund offers two classes of shares:
CLASS A SHARES
Class A 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. The current sales charges are:
<TABLE><CAPTION>
<S> <C> <C> <C>
Sales Charge as a % of Dealers
------------------------- Concession
Net as % of
Offering Amount Offering
--------- --------- -----------
Value of Total Investment Price Invested Price**
- ----------------------------------------------------------------------
- --
Up to $50,000 4.25% 4.44% 3.75%
- ----------------------------------------------------------------------
- --
$50,000 - $99,999 4.00% 4.17% 3.50%
- ----------------------------------------------------------------------
- --
$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 *
- ----------------------------------------------------------------------
- --
<FN>
* 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.
** A 1.5% sales charge applies to investments of less than $500,000
of distributions from unit investment trusts. The dealer
concession is 1.5% on these sales.
</TABLE>
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases
of $1,000,000 or more of Class A shares 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 Class A shares purchased within
one year before the redemption. If an exchange is made to Class A
shares of any of the New England Cash Management Trust Money Market
Series or U.S. Government Series or the New England Tax Exempt Money
Market Trust (the OMoney Market FundsO), 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 the Trusts. For purposes of the CDSC, it is
assumed that the Class A shares held the longest are the first to be
redeemed. No CDSC applies to a redemption of Class A shares followed
by a reinvestment effected within 30 days after the date of
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 eight years (at which time they automatically
convert to Class A shares) and to a CDSC if they are redeemed within
five 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 the Fund. 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.
<PAGE>
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 same fund purchased with reinvested
dividends or capital gains distributions.
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.
<TABLE><CAPTION>
<S> <C>
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%
</TABLE>
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, not the
amount remaining in the account and is paid to the Distributor. The
CDSC may be eliminated for certain persons and organizations. See
OSales Charges - GeneralO below. At the time of sale, the Distributor
pays investment dealers a commission of 3.75% and advances the first
yearOs service fee (up to 0.25%) on purchases of Class B shares.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A or Class B 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.
Investors making small investments might consider Class B shares
because 100% of the purchase price is invested immediately. Consult
your investment dealer for advice applicable to your particular
circumstances.
[SIDEBAR]
CHOOSING BETWEEN CLASS A AND B SHARES
Whether you purchase Class A or Class B shares depends on your
investing goals. If you qualify for a reduced sales charge, or invest
for the long term, you might consider purchasing Class A shares. Class
A shares have lower annual fees and as a result, pay higher dividends
per share. If you are making a smaller investment, you might consider
Class B shares since 100% of your purchasing dollars are invested
immediately and the amount of your deferred sales charge diminishes
over time. Consult your financial representative for deciding which
class is appropriate for you.
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES to redemptions following the
death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code) of a shareholder if the redemption is made within one
year after the shareholderOs death or disability. In addition, no CDSC
applies to certain withdrawals pursuant to a Systematic Withdrawal
Plan. See OSystematic Withdrawal PlanO below.
The Fund receives the net asset value next determined after your order
is received on sales of both classes of shares. The Class A sales
charge is allocated between the investment dealer and the Distributor.
The Distributor receives the CDSC. For purposes of the CDSC, an
exchange from the Fund to another series 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 the FundOs shares.
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. New England Funds, L.P., 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.
<PAGE>
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,
gift certificates or vouchers through membership in the New England
Funds Flagship Club. 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.
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 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
the 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.
- - UNIT HOLDERS OF UNIT INVESTMENT TRUSTS - unit investment trust
distributions of up to $1 million may be invested in 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).
- - CLIENTS OF AN ADVISER OR SUBADVISER (AFFILIATED WITH NEIC) - no
sales charge or CDSC applies to investments of $100,000 or more
in the Fund by clients of an adviser or subadviser (affiliated
with NEIC) to any series of the Trusts; any director, officer or
partner of a client of an adviser or subadviser (affiliated with
NEIC) to any series of the Trusts; and the parents, spouses and
children of the foregoing. 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 with no
sales charge or CDSC by advisory accounts through investment
advisers that are registered under the Investment Advisers Act of
1940 and affiliated with broker-dealers.
- - There is no sales charge, CDSC or initial investment minimum
related to investments by certain current and retired employees
of the TrustsO investment advisers or subadvisers (affiliated
with NEIC), 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 who have selling
arrangements with the Distributor; the spouse, parents, children,
siblings, grandparents or grandchildren of the persons listed
above and any trust 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.
<PAGE>
OWNING FUND SHARES
EXCHANGING AMONG NEW ENGLAND FUNDS
CLASS A SHARES. Except as indicated in the next two sentences, you may
exchange Class A shares of the Fund (and Class A shares of the Money
Market Funds acquired through exchanges from any of the series of the
Trusts) for the 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. 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 the Fund at net asset
value 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 for shares
of another fund that has a higher sales charge, you will pay the
difference between any sales charge you have already paid on your New
England Adjustable Rate U.S. Government Fund shares and the higher
sales charge of the fund into which you are exchanging. In addition,
you may redeem the Class A shares of any Money Market Fund that were
not acquired through exchanges from the Fund and have the proceeds
directly applied to the purchase of Fund shares at the applicable
sales charge.
CLASS B SHARES. You may exchange Class B shares of any Fund or 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). 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 OSales Charges - Class B SharesO above.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8 a.m. and 6
p.m. (Eastern time), write to New England Funds or call Tele#Facts at
1-800-346-5984 twenty-four hours a day. 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 daysO advance notice of any material change to the
exchange privilege.
[SIDEBAR]
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.
FUND DIVIDEND PAYMENTS
The Fund declares dividends daily and pays them monthly. The Fund pays
as dividends substantially all net investment income (tax exempt and
taxable 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 ordinary income in
cash while reinvesting distributions from capital gains in additional
shares of the same class of the Fund or the same class 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 OundeliverableO
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. For Class A shareholders,
investments will be made at the appropriate offering price, which may
include a sales charge. For Class B shareholders, shares acquired
through this program will be subject to a CDSC if they are redeemed
from the account. Dividends will be invested in the selected fundOs
shares 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 fundOs 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 fundOs prospectus.
<PAGE>
SELLING FUND SHARES
5 WAYS TO SELL FUND SHARES
[GRAPHIC] THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[GRAPHIC] 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, Class A and Class B
shares may be redeemed by calling 1-800-225-5478 between 8 a.m. and 6
p.m. (Eastern time). Class A shares only may also be redeemed by
calling Tele#Facts at 1-800-346-5984 twenty-four hours a day.
Redemption requests accepted after the Exchange has closed (4:00 p.m.
[Eastern time]) will be processed at the next determined net asset
value. 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 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 - 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 prior to
3:00 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. If your
telephone call is made to Tele#Facts before 4:00 p.m., the redemption
will be processed the day the call is made, unless it is a day when
the Exchange closes before 4:00 p.m. and your call is made after the
Exchange closes. The proceeds (LESS ANY APPLICABLE CDSC) generally
will arrive at your bank within three business days; their
availability will depend on your bankOs particular rule. If you have
recently purchased your shares through the ACH system, the Fund may
withhold redemption proceeds until the funds have cleared, which may
take up to ten days.
[GRAPHIC] 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 and 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 or 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.
<PAGE>
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.
[GRAPHIC] BY CHECK:
Checkwriting is available on Class A shares of the Fund only. To elect
checkwriting for your account, select the checkwriting option on your
application and complete the attached signature card. To add
checkwriting to an existing account, please call 1-800-225-5478 for
our Service Option Form. The Fund will send you checks drawn on State
Street Bank. You will continue to earn dividends on shares redeemed by
check until the check clears. There is currently a $5.00 fee to
establish this service. Each check must be written for $500 or more.
The checkwriting privilege does not apply to shares for which you have
requested share certificates to be issued. Checkwriting is not
available for investor accounts containing Class A or Class B shares
subject to a CDSC.
If you use withdrawal checks, you will be subject to State Street
BankOs rules governing checking accounts. The Fund and the Distributor
are in no way responsible for any checkwriting account established
with State Street Bank.
You may not close your account by withdrawal check because the exact
balance of your account will not be known until after the check is
received by State Street Bank.
[GRAPHIC] BY SYSTEMATIC WITHDRAWAL PLAN:
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 dayOs 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.
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 to redemptions under powers of attorney. Please
call your investment dealer or the Distributor for more information.
Telephone redemptions are not available for Fund shares in certificate
form. If certificates have been issued for your investment, you must
send them along with your request to New England Funds, L.P. 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.
<PAGE>
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your Class A share redemption proceeds without sales
charge to the repurchase of Class A shares of any series of the
Trusts. To qualify, you must reinvest the entire 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 the entire
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.
<PAGE>
FUND DETAILS
HOW FUND SHARE PRICE IS DETERMINED
Back Bay Advisors, under the direction of the TrustOs Board of
Trustees, determines the value of the total net assets of the Fund as
of the close of regular trading (ordinarily 4:00 p.m. Eastern time) on
the Exchange each day the Exchange is open. Securities for which
market quotations are readily available are generally valued at market
value on the basis of market quotations. In all other cases, the value
of the FundOs assets is determined in good faith by Back Bay Advisors,
or by a pricing service selected by it, subject to the general
supervision of the trustees.
The net asset value per share of each class is determined by dividing
the value of the assets attributable to that class, less all
liabilities (including accrued expenses) attributable to such class,
by the number of shares of the class outstanding. The public offering
price of the FundOs Class A shares is determined by adding the
applicable sales charge to the net asset value. See OSales ChargesO
above. The public offering price of Class B shares is the net asset
value per share.
The exact price you pay for a share will be determined by the next set
of calculations made after your order is accepted by the 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 of 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 dayOs public offering price.
INCOME TAX CONSIDERATIONS
The Fund intends to meet all requirements of the Internal Revenue Code
of 1986, as amended, necessary to ensure that it is qualified to pay
Oexempt-interest dividends,O which in general means that the Fund can
pass on to shareholders the federal tax-exempt status of interest
received by it from obligations paying tax-exempt interest. Such
dividends derived from interest on Massachusetts Tax Exempt Bonds are
also exempt from Massachusetts personal income taxes.
For federal income tax and Massachusetts personal income tax purposes,
your proportionate share of taxable dividends derived from the FundOs
other net interest (and other ordinary) income and short-term capital
gains, if any, will be taxable as ordinary income, whether received in
cash or additional shares. Distributions derived from the FundOs long-
term capital gains are generally taxable as long-term capital gains
regardless of how long you have held your Fund shares. However,
certain capital gains distributions may qualify for exemptions from
Massachusetts personal income taxes, to the extent designated as such
by the Fund. Distributions by the Fund are not eligible for the
dividends-received deduction for corporations.
In general any gain or loss realized upon a disposition of shares will
be treated as a long-term capital gain or loss if the shares have been
held for more than twelve months, and otherwise as a short-term gain
or loss assuming the shares are held as capital assets. Losses
incurred on the disposition of shares of the Fund held for six months
or less will be disallowed as deductions for federal income tax
purposes to the extent of exempt-interest dividends received with
respect to such shares and thereafter treated as long-term capital
losses to the extent of capital gain distributions received with
respect to such shares.
CALCULATING THE PRICE OF SHARES
Total Maket Value of Portfolio Securities
plus
Other Assets
minus
Any Liabilities
divided by
Total Number of Outstanding Shares in a Class
equals
Net Asset Value (NAV)
THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE
APPLICABLE SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B SHARES
IS THE NAV.
<PAGE>
If you receive social security benefits, you may be taxed on a portion
of those benefits as a result of receiving tax-exempt income. Also,
income from certain private activity bonds issued after August 7, 1986
is an item of tax preference for purposes of the federal alternative
minimum tax at the maximum rate of 28% for individuals and 20% for
corporations. If the Fund invests in such private activity bonds,
shareholders may become subject to, or have increased liability under,
the alternative minimum tax. However, it is a fundamental policy of
the Fund that distributions from interest income on such bonds,
together with distributions from interest income on investments other
than Massachusetts Tax Exempt Bonds, will normally not exceed 10% of
the total amount of the FundOs income distributions.
Exempt interest dividends are included in Oadjusted current earningsO
for purposes of computing the alternative minimum tax applicable to
corporations. Seventy-five percent of the excess of adjusted current
earnings over the amount of income otherwise subject to the
alternative minimum tax is added to the corporationOs alternative
minimum taxable income, potentially giving rise to alternative minimum
tax liability.
All tax exempt bonds issued after August 16, 1986 (September 1, 1986
in the case of certain bonds) are now subject to certain rules
formerly applicable only to industrial development bonds. If the
issuer of bonds issued after such date fails to observe these rules,
the interest on the bonds could become taxable retroactive to the date
the bonds were issued.
To avoid an excise tax, the Fund intends to distribute prior to
calendar year end virtually all the FundOs ordinary income earned
during that calendar year, and virtually all of the capital gain net
income the Fund realized in the twelve-month period ending December 31
but has not previously distributed.
Distributions declared in December to shareholders of record on a date
in that month and paid in January will be considered for federal
income tax purposes to have been received by shareholders on December
31.
If at least 95% of the FundOs dividends are Oexempt-interest
dividends,O federal back-up withholding rules do not apply. However,
if the percentage should ever drop below 95%, the Fund will be
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. 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 a Fund, you
will receive a Form 1099 from the Fund to assist you in reporting the
prior calendar yearOs 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 foregoing is a summary of certain federal and Massachusetts income
tax consequences of an investment in the Fund. 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.
THE FUNDOS EXPENSES
In addition to the management fee paid to Back Bay Advisors and the
fees paid to the Distributor, the Fund pays all expenses not borne by
Back Bay Advisors or the Distributor, including, but not limited to,
the charges and expenses of the FundOs 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 shareholdersO and trusteesO meetings and of
preparing, printing and mailing reports to shareholders and the
compensation of trustees who are not directors, officers or employees
of Back Bay Advisors or its affiliates, other than affiliated
registered investment companies.
<PAGE>
Under a Plan adopted pursuant to Rule 12b-1 under the 1940 Act, each
class of shares of the Fund pays the Distributor a monthly service fee
at an annual rate not to exceed 0.25% of each classOs average daily
net assets. The Distributor may pay up to the entire amount of the
service fee to securities dealers who are dealers of record with
respect to Fund shares, for providing personal services to investors
in shares of the Fund and/or the maintenance of shareholder accounts.
The Distributor retains the balance of the fees as compensation for
providing personal service to investors in the Fund and/or the
maintenance of shareholder accounts. In the case of the Class B
shares, the Distributor currently pays investment dealers at the time
of sale the first yearOs service fee in the amount of up to 0.25% of
the amount invested. The Distributor may also use all or any portion
of the fee to pay its expenses in connection with the provision or
personal services to investors and/or the maintenance of shareholder
accounts. The FundOs Class A shares also pay the Distributor a
distribution fee not to exceed an annual rate of 0.10% of the average
daily net assets of the Class A shares, and the FundOs Class B shares
pay the Distributor a distribution fee at an annual rate not to exceed
0.75% of the average net assets of the Class B shares. The Distributor
may pay up to the entire amount of the distribution fee to securities
dealers who are dealers of record with respect to the FundOs shares,
as distribution fees in connection with the sale of Fund shares. The
Distributor retains the balance of the fee as compensation for its
services as distributor of the relevant class of shares.
PERFORMANCE CRITERIA
Each class of the Fund may include tax-equivalent yield, yield and
total return information in advertisements or other written sales
material. Each class of shares of the Fund will show its 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, or in the case of the Class A shares, for the period
since July 27, 1988, when Back Bay Advisors became the FundOs
investment adviser. Total return is measured by comparing the value of
an investment in the 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 imposition of the CDSC relevant to the period of
time quoted in the case of the Class B shares). Each class may also
show total return over other periods, or on an aggregate basis for the
period presented, or without deduction of a sales charge or CDSC. If a
sales charge or CDSC is not deducted in calculating total return, the
classOs total return will be higher.
Total return will generally be higher for Class A shares than for
Class B shares of the same Fund, because of the higher levels of
expenses borne by the Class B 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 shares.
Yield is computed in accordance with the SECOs standardized formula by
dividing the adjusted net investment income per share earned during a
recent 30-day period by the maximum offering price of a share of the
relevant class on the last day of the period (reduced by any earned
income expected to be declared shortly as a dividend). Tax-equivalent
yield is the taxable yield an investor would have to earn to receive
the equivalent of the classOs yield after payment of federal income
tax and Massachusetts personal income taxes. Tax-equivalent yield is
calculated by adjusting the classOs standardized yield for a recent
thirty day period, using effective combined federal and Massachusetts
tax rates for individuals.
Each class may also present one or more distribution rates in its
sales literature. These rates will be determined by annualizing the
classOs distributions from net investment income and net short-term
capital gains over a recent 12-month, 3-month or 30-day period and
dividing that amount by the maximum offering price or the net asset
value on the last day of such period. If the net asset value rather
than the maximum offering price is used to calculate the distribution
rate, the rate will be higher.
All performance information is based on past performance and does not
predict future performance. See Part II of the Statement for more
detail.
<PAGE>
ADDITIONAL FACTS ABOUT THE FUND
* The Trust 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 was organized in
1983 as a Massachusetts business trust and conducted investment
operations as a separate organization until its reorganization as
a series of the Trust in January 1989.
* When you invest in the Fund, you acquire freely transferable
shares of beneficial interest that entitle you to receive
dividends 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 a classOs 12b-1 plan, for which only
shares of that class are entitled to vote.
* The Trust does not hold regular shareholder meetings and will do
so only when required by law. Shareholders may remove trustees
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, Massachusetts
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 is less than a minimum dollar
amount set by the trustees from time to time (currently $500),
the Fund may close your account and send the proceeds to you.
Shareholders who are affected by this policy will be notified of
the FundOs 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 automatic investment plans
or accounts that have fallen below the minimum solely because of
fluctuations in the FundOs net asset value per share.
* The FundOs annual report contains additional performance
information and will be made available upon request and without
charge.
* The Class A and Class B structure could be terminated should
certain IRS rulings be rescinded. See Part II of the Statement
for more details.
<PAGE>
GLOSSARY OF TERMS
Capital gain distributions - Payments to shareholders of profits
earned from selling securities in the fundOs 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 fundOs 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 fundOs 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 (POP) - 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
fundOs shares to be eligible to receive specific income or capital
gain distributions.
Service fee - Payments by a fund for personal service to investors
and/or for maintenance of shareholder accounts by the Distributor or a
financial representative.
Taxable equivalent yield - the yield an investor would have to earn
prior to paying income taxes, in order to retain a net-after-tax
amount equivalent to the yield on a tax-free fund.
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.
Yield - The rate at which a fund earns income, expressed as a
percentage. Yield calculations are standardized among mutual funds,
based on a formula developed by the Securities and Exchange
Commission.
12b-1 fees - Fees paid by a mutual fund under a plan adopted under SEC
Rule 12b-1. Can include both distribution fees and service fees.
XM51
