<PAGE>
[LOGO](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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NEW ENGLAND GROWTH OPPORTUNITIES FUND
PROSPECTUS AND APPLICATION -- MAY 1, 1998 (AS REVISED NOVEMBER 30, 1998)
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.
New England Growth Opportunities Fund (the "Fund") is a series of New England
Funds Trust II (the "Trust"). New England Funds Trust I, New England Funds Trust
II and New England Funds Trust III are referred to in this Prospectus as the
"Trusts."
In this Prospectus the Fund offers two classes of shares to the general public
(Classes A and B). 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 (a "CDSC"),
however, is imposed upon certain redemptions of Class B shares. Class B shares
automatically convert to Class A shares eight years after purchase. Class B
shares bear higher annual 12b-1 fees than do Class A shares. See "Buying Fund
Shares -- Sales Charges." Through separate Prospectuses, the Fund offers two
additional classes of shares, Class C shares (to the general public) and Class Y
shares (to certain institutional investors). To obtain more information about
Class C or Class Y shares, please call New England Funds, L.P. (the
"Distributor") toll- free at 1-800-225-5478.
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 "Statement") about the Fund dated May
1, 1998 has been filed with the Securities and Exchange Commission (the "SEC")
and is available free of charge. Write to New England Funds, L.P., SAI
Fulfillment Desk, 399 Boylston Street, Boston, MA 02116, or call toll free at
1-800-225-5478. In addition, the SEC maintains a Web site (http://www.sec.gov)
that contains the Statement, materials incorporated by reference and other
information regarding the Fund. 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Page
FUND EXPENSES AND FINANCIAL INFORMATION
1 Schedule of Fees Sales charges, yearly
2 Financial Highlights operating expenses.
Historical information on
the Fund's performance.
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INVESTMENT STRATEGY
4 Investment Objective The investment goal for
4 Nvest Companies and the the Fund.
Fund's Adviser and Subadviser
4 How the Fund Pursues Its Objective
4 Fund Investments
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5 INVESTMENT RISKS It is important to
understand the risks
inherent in the Fund before
you invest.
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10 FUND MANAGEMENT
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BUYING FUND SHARES
11 Minimum Investment Everything you need to know
11 6 Ways to Buy Fund Shares to open and add to a New
[] Through your investment dealer England Funds account.
[] By mail
[] By wire transfer of Federal Funds
[] By Investment Builder
[] By electronic purchase through ACH
[] By exchange from another New England Fund
12 Sales Charges
15 Reduced Sales Charges (Class A Shares Only)
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OWNING FUND SHARES
17 Exchanging Among New England Funds New England Funds offers
18 Fund Dividend Payments three convenient ways to
exchange Fund shares.
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SELLING FUND SHARES
19 4 Ways to Sell Fund Shares How to withdraw money or
[] Through your investment dealer close your account.
[] By telephone
[] By mail
[] By Systematic Withdrawal Plan
21 Repurchase Option (Class A Shares Only) An opportunity to reinvest
your redemption proceeds
within 120 days for no
sales charge.
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FUND DETAILS
22 How Fund Share Price is Determined Additional information you
23 Income Tax Considerations may find important.
23 The Fund's Expenses
24 Performance Criteria
24 Additional Facts About the Fund
26 Glossary of Terms
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FUND EXPENSES AND FINANCIAL INFORMATION
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SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Fund. The
following tables summarize your maximum transaction costs from investing in
Class A and B shares of the Fund and estimated annual expenses for the Fund's
Class A and B shares. The Example below shows the cumulative expenses
attributable to a hypothetical $1,000 investment in Class A and B shares of the
Fund for the periods specified.
SHAREHOLDER TRANSACTION EXPENSES
CLASS A CLASS B
------- -------
Maximum Initial Sales Charge Imposed on a Purchase (as a
percentage of offering price)(1)(2) ........................ 5.75% None
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)(2) ............................................. (3) 5.00%
(1) A reduced sales charge on Class A shares applies 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 certain
purchases of Class A shares greater than $1,000,000 redeemed within 1 year
after purchase, but not to any other purchases or redemptions of Class A
shares. See "Buying Fund Shares -- Sales Charges."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS A CLASS B
------- -------
Management Fees .......................................... 0.69% 0.69%
12b-1 Fees ............................................... 0.25 1.00*
Other Expenses ........................................... 0.31 0.31
Total Fund Operating Expenses ............................ 1.25 2.00
* 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.
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 may be more or
less than those shown.
CLASS A CLASS B
----------- ----------------
(1) (2)
1 year ......................................... $ 70 $ 70 $ 20
3 years ........................................ $ 95 $ 93 $ 63
5 years ........................................ $122 $128 $108
10 years* ...................................... $200 $214 $214
(1) Assumes redemption at end of period
(2) Assumes no redemption at end of period.
* Class B shares automatically convert to Class A shares after 8 years;
therefore, Class B amounts are calculated using Class A expenses in years
9 and 10.
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 Fund's management fees and
other expenses, please see "Fund Management," "The Fund's Expenses" and
"Additional Facts About the Fund."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect
to transfer redemption proceeds by wire.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Class A and B share of the Fund outstanding throughout the indicated
periods.)
The Financial Highlights have been included in financial statements for the
Fund, which have been examined by PricewaterhouseCoopers LLP, independent
accountants. The reports of PricewaterhouseCoopers LLP are incorporated by
reference in Part II of the Statement and may be obtained by shareholders. The
Financial Highlights should be read in conjunction with the financial
statements and the notes thereto incorporated by reference in Part II of the
Statement. The Fund's annual report contains additional performance
information and is available upon request and without charge.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
SEVEN
YEAR MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
MAY 31, DECEMBER 31, ----------------------------------------
1988 1988(b) 1989 1990 1991 1992
---- ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $11.92 $10.37 $ 9.55 $10.88 $ 9.54 $11.79
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.33 0.19 0.29 0.30 0.26 0.23
Net gains or losses on
investments (both realized
and unrealized) (1.22) 0.25 2.32 (0.76) 2.63 0.86
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations (0.89) 0.44 2.61 (0.46) 2.89 1.09
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.35) (0.18) (0.29) (0.30) (0.26) (0.23)
Distributions in excess of net
investment income 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from net realized
capital gains (0.30) (1.08) (0.95) (0.56) (0.38) (0.45)
Distributions from paid-in
capital (0.01) 0.00 (0.04) (0.02) 0.00 0.00
------ ------ ------ ------ ------ ------
Total distributions (0.66) (1.26) (1.28) (0.88) (0.64) (0.68)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.37 $ 9.55 $10.88 $ 9.54 $11.79 $12.20
====== ====== ====== ====== ====== ======
Total return (%)(f) (7.3) 7.3 (e) 27.6 (4.3) 30.6 9.3
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $58,552 $55,041 $62,688 $55,726 $70,263 $90,945
Ratio of operating expenses to
average net assets (%) 1.25(d) 1.33(e) 1.15 1.18 1.23 1.94
Ratio of net investment income
to average net assets (%) 2.90 3.10(e) 2.68 2.92 2.28 1.18
Portfolio turnover rate (%) 8 83(e) 17 6 12 10
Average commission rate (g) -- -- -- -- -- --
<CAPTION>
CLASS A
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993(a) 1994 1995 1996 1997
------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $12.20 $12.67 $12.41 $14.39 $13.87
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.21 0.22 0.18 0.13 0.07(c)
Net gains or losses on
investments (both realized
and unrealized) 0.75 (0.10) 4.01 2.07 4.40
------ ------ ------ ------ ------
Total income (loss) from
investment operations 0.96 0.12 4.19 2.20 4.47
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.21) (0.21) (0.18) (0.13) (0.06)
Distributions in excess of net
investment income (0.01) 0.00 0.00 0.00 0.00
Distributions from net realized
capital gains (0.27) (0.17) (2.03) (2.59) (2.93)
Distributions from paid-in
capital 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions (0.49) (0.38) (2.21) (2.72) (2.99)
------ ------ ------ ------ ------
Net asset value, end of period $12.67 $12.41 $14.39 $13.87 $15.35
====== ====== ====== ====== ======
Total return (%)(f) 8.0 1.0 35.1 17.2 33.4
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $109,168 $104,081 $150,693 $166,963 $220,912
Ratio of operating expenses to
average net assets (%) 1.21 1.28 1.38 1.30 1.25
Ratio of net investment income
to average net assets (%) 1.70 1.75 1.31 0.92 0.46
Portfolio turnover rate (%) 4 6 69 127 103
Average commission rate (g) -- -- -- $0.0348 $0.0334
(a) As of January 1, 1993, the Fund discontinued the use of equalization accounting.
(b) Fiscal year end changed in 1988 from May 31 to December 31. The Fund's former adviser, Back Bay
Advisors, L.P., assumed that function on July 27, 1988.
(c) Per share net investment income has been calculated using the average shares outstanding during
the year.
(d) Until May 18, 1988, the Fund's former adviser, Back Bay Advisors, L.P., voluntarily agreed to
limit total Fund expenses to 1.25% of the Fund's average annual net assets. Without such
limitation, the ratio of operating expenses to average net assets for the year ended May 31,
1988 would have been 1.31%.
(e) Computed on an annualized basis.
(f) A sales charge is not reflected in total return calculations.
(g) For the fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for trades on which commissions are charged. This rate
generally does not reflect mark-ups, mark-downs or spreads on shares traded on a principal
basis.
</TABLE>
The Fund's current adviser and subadviser assumed those functions on May 1,
1995. These financial highlights prior to that date reflect results achieved
by earlier advisers under investment policies that are no longer in effect.
<PAGE>
<TABLE>
<CAPTION>
CLASS B
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SEPTEMBER 13(a)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $12.95 $12.66 $12.42 $14.40 $13.87
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.06 0.16 0.10 0.03 (0.05)(e)
Net gains or losses on
investments (both realized
and unrealized) 0.01 (0.09) 4.01 2.07 4.40
------ ------ ------ ------ ------
Total income from investment
operations 0.07 0.07 4.11 2.10 4.35
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.14) (0.10) (0.04) (0.01)
Distributions in excess of
net investment income (0.06) 0.00 0.00 0.00 0.00
Distributions from net
realized capital gains (0.27) (0.17) (2.03) (2.59) (2.93)
Distributions from paid-in
capital 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total distributions (0.36) (0.31) (2.13) (2.63) (2.94)
------ ------ ------ ------ ------
Net asset value, end of
period $12.66 $12.42 $14.40 $13.87 $15.28
------ ------ ------ ------ ------
Total return (%)(c) 0.6 0.6 34.3 16.3 32.4
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $1,498 $5,185 $29,026 $46,856 $81,066
Ratio of operating expenses
to average net assets (%) 2.08(b) 1.93 2.11 2.05 2.00
Ratio of net investment
income to average net assets (%) 0.71(b) 1.10 0.56 0.17 (0.29)
Portfolio turnover rate (%) 4 6 69 127 103
Average commission rate (d) -- -- -- $0.0348 $0.0334
(a) Class B shares were first offered on September 13, 1993.
(b) Computed on an annualized basis.
(c) A CDSC is not reflected in total return calculations. Periods of less than one year are not annualized.
(d) For the fiscal years beginning on or after September 1, 1995, a fund is required to disclose its
average commission rate per share for trades on which commissions are charged. This rate
generally does not reflect mark-ups, mark-downs or spreads on shares traded on a principal
basis.
(e) Per share net investment income (loss) has been calculated using the average shares outstanding
during the year.
</TABLE>
The Fund's current adviser and subadviser assumed those functions on May 1,
1995. These financial highlights prior to that date reflect results achieved
by earlier advisers under investment policies that are no longer in effect.
<PAGE>
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INVESTMENT STRATEGY
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INVESTMENT OBJECTIVE
The Fund seeks opportunities for long-term growth of capital and income. The
Fund's subadviser is Westpeak Investment Advisors, L.P. ("Westpeak").
NVEST COMPANIES AND THE FUND'S ADVISER AND SUBADVISER
Westpeak is an independently operated subsidiary of Nvest Companies, L.P.
("Nvest Companies"), which is part of an affiliated group including Nvest,
L.P., a publicly traded company listed on the New York Stock Exchange. New
England Funds Management, L.P. ("NEFM"), the adviser to the Fund is also an
independently operated subsidiary of Nvest Companies. Nvest Companies' 14
principal subsidiary or affiliated asset management firms, collectively, had
more than $125 billion of assets under management as of December 31, 1997. The
subadviser operates independently and is staffed by experienced investment
professionals. The subadviser applies specialized knowledge and careful
analysis to the pursuit of the Fund's objective.
NEW ENGLAND FUNDS MANAGEMENT, L.P. is the adviser to the Fund, as well as most
of the other New England Funds.
WESTPEAK INVESTMENT ADVISORS, L.P., with over $3 billion of assets under
management, acts as subadviser to the Fund and also provides investment
management services to other mutual funds and institutional clients, including
accounts of New England Life Insurance Company ("NELICO").
HOW THE FUND PURSUES ITS OBJECTIVE
Investments in the Fund will be pooled with money from other investors in the
Fund to invest in a managed portfolio consisting of securities appropriate to
the Fund's investment objective and policies. There can be no assurance that
the Fund will achieve its objective. The Fund is a "diversified" mutual fund.
FUND INVESTMENTS
It is normally the policy of the Fund to invest in a diversified portfolio of
common stocks considered by the Fund's subadviser to have possibilities for
long-term appreciation of capital and income. Emphasis will be given to both
undervalued securities ("value" style) and securities of companies with growth
potential ("growth" style). The Fund will ordinarily invest substantially all
of its assets in equity securities.
The Fund seeks to attain its objective by normally investing primarily in
equity securities. When the Fund's adviser or subadviser deems it appropriate,
however, the Fund may, for temporary defensive purposes, hold a substantial
portion of its assets in cash or fixed-income investments, including U.S.
Government obligations, investment grade (and comparable unrated) corporate
bonds or notes, money market instruments and repurchase agreements. Corporate
obligations in the lowest investment grade category (rated BBB by Standard &
Poor's Ratings Group ["S&P"] or Baa by Moody's Investors Service, Inc.
["Moody's"]) have some speculative characteristics and may be more adversely
affected by changing economic conditions than are higher grade obligations. No
estimate can be made as to when or for how long the Fund will employ defensive
strategies.
The Fund may invest in foreign securities only if such securities are traded
in the U.S. markets. The Fund may also engage in certain options and futures
transactions.
<PAGE>
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INVESTMENT RISKS
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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. Less than
35% of the Fund's net assets will be invested in convertible securities
rated below investment grade and unrated convertible securities of
comparable quality.
[ ] SMALL COMPANIES
Investments in companies with relatively small capitalization may involve
greater risk than is usually associated with more established companies.
These companies often have sales and earnings growth rates which exceed
those of companies with larger capitalization. Such growth rates may in turn
be reflected in more rapid share price appreciation. However, companies with
smaller capitalization often have limited product lines, markets or
financial resources and may be dependent upon a relatively small management
group. The securities may have limited marketability and may be subject to
more abrupt or erratic movements in price than securities of companies with
larger capitalization or market averages in general. The net asset value of
funds that invest in companies with smaller capitalization therefore may
fluctuate more widely than market averages.
[ ] FOREIGN SECURITIES
Investments in foreign securities present risks not typically associated
with investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate
or government issuer than about a U.S. issuer, and foreign corporate issuers
are not generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States. The
securities of some foreign issuers are less liquid and at times more
volatile than securities of comparable U.S. issuers. Foreign brokerage
commissions and securities custody costs are often higher than those in the
United States, and judgments against foreign entities may be more difficult
to obtain and enforce. With respect to certain foreign countries, there is a
possibility of governmental expropriation of assets, confiscatory taxation,
political or financial instability and diplomatic developments that could
affect the value of investments in those countries. The receipt of interest
on foreign government securities may depend on the availability of tax or
other revenues to satisfy the issuer's obligations.
The Fund may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository
receipts are instruments issued by a bank that represent an interest in
equity securities held by arrangement with the bank. Depository receipts can
be either "sponsored" or "unsponsored." Sponsored depository receipts are
issued by banks in cooperation with the issuer of the underlying equity
securities. Unsponsored depository receipts are arranged without involvement
by the issuer of the underlying equity securities. Less information about
the issuer of the underlying equity securities may be available in the case
of unsponsored depository receipts.
In addition, the Fund may invest in securities issued by supranational
agencies. Supranational agencies are those agencies whose member nations
determine to make capital contributions to support the agencies' activities,
and include such entities as the International Bank of Reconstruction and
Development (the World Bank), the Asian Development Bank, the European Coal
and Steel Community and the Inter-American Development Bank.
In determining whether to invest in securities of foreign issuers, the
adviser or subadviser of the Fund will consider the likely effects of
foreign taxes on the net yield available to the Fund and its shareholders.
Compliance with foreign tax laws may reduce the Fund's net income available
for distribution to shareholders.
[ ] FIXED-INCOME SECURITIES
Fixed-income securities include a broad array of short, medium and long term
obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of
various types. Some fixed-income securities represent uncollateralized
obligations of their issuers; in other cases, the securities may be backed
by specific assets (such as mortgages or other receivables) that have been
set aside as collateral for the issuer's obligation. Fixed-income securities
generally involve an obligation of the issuer to pay interest or dividends
on either a current basis or at the maturity of the security, as well as the
obligation to repay the principal amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk. Credit
risk is the risk that the security's issuer will fail to fulfill its
obligation to pay interest, dividends or principal on the security. Market
risk is the risk that the value of the security will fall because of changes
in market rates of interest. (Generally, the value of fixed-income
securities falls when market rates of interest are rising.) Some
fixed-income securities also involve prepayment or call risk. This is the
risk that the issuer will repay the Fund the principal on the security
before it is due, thus depriving the Fund of a favorable stream of future
interest or dividend payments.
Because interest rates vary, it is impossible to predict the income of the
Fund resulting from its investment 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.
All non-convertible fixed-income securities purchased by the Fund will, at
the time of purchase, either be rated investment grade by at least one major
rating agency or be unrated but determined to be of investment grade quality
by the Fund's adviser or subadviser.
[ ] LOWER QUALITY FIXED-INCOME SECURITIES
Fixed-income securities rated BB or lower by S&P or Ba or lower by Moody's
(and unrated securities of comparable quality) are below "investment grade"
quality. Lower quality fixed-income securities generally provide higher
yields, but are subject to greater credit and market risk, than higher
quality fixed-income securities. Lower quality fixed- income securities are
considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Generally, achievement of
the investment objective of a mutual fund investing in lower quality
fixed-income securities may be more dependent on the fund's adviser's or
subadviser's own credit analysis than for a fund investing in higher quality
bonds. The market for lower quality fixed- income securities may be more
severely affected than some other financial markets by economic recession or
substantial interest rate increases, by changing public perceptions of this
market or by legislation that limits the ability of certain categories of
financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed-income securities.
This lack of liquidity at certain times may affect the valuation of these
securities and may make the valuation and sale of these securities more
difficult. Securities of below investment grade quality are considered high
yield, high risk securities and are commonly known as "junk bonds." For more
information, including a detailed description of the ratings assigned by S&P
and Moody's, please refer to the Statement's "Appendix A -- Description of
Bond Ratings."
[ ] REPURCHASE AGREEMENTS
Under a repurchase agreement, 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. If the
seller fails to repurchase the securities, the Fund has rights to sell the
securities to third parties. Repurchase agreements can be regarded as loans
by the Fund to the seller, collateralized by the securities that are the
subject of the agreement. Repurchase agreements afford an opportunity for
the Fund to earn a return on available cash at relatively low credit risk,
although the Fund may be subject to various delays and risks of loss if the
seller fails to meet its obligation to repurchase. The staff of the SEC is
currently of the view that repurchase agreements maturing in more than 7
days are illiquid securities.
[ ] INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in securities of other
investment companies. Because of restrictions on direct investment by U.S.
entities in certain countries, investing indirectly in such countries (by
purchasing shares of another fund that is permitted to invest in such
countries) may be the most practical or efficient way for the Fund to invest
in such countries. In other cases, where the Fund's adviser or subadviser
desires to make only a relatively small investment in a particular country,
investing through another fund that holds a diversified portfolio in that
country may be more effective than investing directly in issuers in that
country. As an investor in another investment company, the Fund will
indirectly bear its share of the expenses of that investment company. These
expenses are in addition to the Fund's own costs of operations. In some
cases, investing in an investment company may involve the payment of a
premium over the value of the assets held in that investment company's
portfolio.
[ ] SHORT-TERM TRADING
Although the Fund seeks long-term growth or return, it 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 subadviser's
investment discretion in managing the Fund's assets.
Recent portfolio turnover rates of the Fund are set forth above under
"Financial Highlights."
[ ] OPTIONS, FUTURES, SWAP CONTRACTS AND CURRENCY TRANSACTIONS
The Fund may buy and sell futures contracts on a variety of stock indexes.
The Fund would buy such a futures contract only when it is experiencing
significant cash inflows, and then only for the purpose of maintaining its
exposure to the equity markets during the time before it has fully invested
incoming cash in equity securities directly. Similarly, the Fund would sell
stock index futures only during periods of cash outflows for the purpose of
reducing equity market exposure before holdings of stock are liquidated. The
Fund will not use futures contracts for speculative purposes or to hedge
against changes in the value of the its securities portfolio.
Options, futures and swap contracts fall into the broad category of
financial instruments known as "derivatives" and involve special risks. Use
of options, futures or swaps for other than hedging purposes may be
considered a speculative activity, involving greater risks than are involved
in hedging.
Options can generally be classified as either "call" or "put" options. There
are two parties to a typical options transaction: the "writer" and the
"buyer." A call option gives the buyer the right to buy a security or other
asset (such as an amount of currency or a futures contract) from, and a put
option the right to sell a security or other asset to, the option writer at
a specified price, on or before a specified date. The buyer of an option
pays a premium when purchasing the option, which reduces the return on the
underlying security or other asset if the option is exercised, and results
in a loss if the option expires unexercised. The writer of an option
receives a premium from writing an option, which may increase its return if
the option expires or is closed out at a profit. If the Fund as the writer
of an option is unable to close out an unexpired option, it must continue to
hold the underlying security or other asset until the option expires, to
"cover" its obligations under the option.
A futures contract creates an obligation by the seller to deliver and the
buyer to take delivery of the type of instrument or cash at the time and in
the amount specified in the contract. Although many futures contracts call
for the delivery (or receipt) of the specified instrument, futures are
usually closed out before the settlement date through the purchase (or sale)
of a comparable contract. If the price of the sale of the futures contract
by the Fund exceeds (or is less than) the price of the offsetting purchase,
the Fund will realize a gain (or loss). The Fund may not purchase or sell
futures contracts or purchase related options if immediately thereafter the
sum of the amount of deposits for initial margin or premiums on the existing
futures and related options positions would exceed 5% of the market value of
the Fund's net assets. Transactions in futures and related options involve
the risks of (1) imperfect correlation between the price movement of the
contracts and the underlying securities, (2) significant price movement in
one but not the other market because of different hours, (3) the possible
absence of a liquid secondary market at any point in time, and the risk that
if the subadviser's prediction on interest rates or other economic factors
is inaccurate, the Fund may be worse off than if it had not hedged. Futures
transactions involve potentially unlimited risk of loss.
The Fund may enter into interest rate, currency and securities index swaps.
It will enter into these transactions primarily to seek to preserve a return
or spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations or to protect against an increase in the price
of securities the Fund anticipates purchasing at a later date. Interest rate
swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest (for example, an exchange
of floating rate payments for fixed rate payments with respect to a notional
amount of principal). A currency swap is an agreement to exchange cash flows
on a notional amount based on changes in the relative values of the
specified currencies. An index swap is an agreement to make or receive
payments based on the different returns that would be achieved if a notional
amount were invested in a specified basket of securities (such as the S&P
500 or in some other investment (such as U.S. Treasury securities).
The value of options purchased by the Fund, futures contracts held by the
Fund and the Fund's positions in swap contracts may fluctuate up or down
based on a variety of market and economic factors. In some cases, the
fluctuations may offset (or be offset by) changes in the value of securities
held in the Fund's portfolio. All transactions in options, futures or swaps
involve the possible risk of loss to the Fund of all or a significant part
of the value of its investment. In some cases, the risk of loss may exceed
the amount of the Fund's investment. The Fund will be required, however, to
set aside with its custodian bank certain assets in amounts sufficient at
all times to satisfy its obligations under options, futures and swap
contracts.
The successful use of options, futures and swaps will usually depend upon
the subadviser's ability to forecast stock market, currency or other
financial market movements correctly. The Fund's ability to hedge against
adverse changes in the value of securities held in its portfolio through
options, futures and swap transactions also depends upon the degree of
correlation between the changes in the value of futures, options or swap
positions and changes in the values of the portfolio securities. The
successful use of futures and exchange-traded options also depends upon the
availability of a liquid secondary market to enable the Fund to close its
positions on a timely basis. There can be no assurance that such a market
will exist at any particular time. In the case of swap contracts and of
options that are not traded on an exchange ("over-the-counter" options), the
Fund is at risk that the other party to the transaction will default on its
obligations, or will not permit the Fund to terminate the transaction before
its scheduled maturity. As a result of these characteristics, the Fund will
treat most swap contracts and over-the-counter options (and the assets it
segregates to cover its obligations thereunder) as illiquid. Certain
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
and certain regulatory requirements may limit a Fund's ability to engage in
futures, options and swap transactions.
The options and futures markets of foreign countries are small compared to
those of the United States and consequently are characterized in most cases
by less liquidity than are the U.S. markets. In addition, foreign markets
may be subject to less detailed reporting requirements and regulatory
controls than U.S. markets. Furthermore, investments by the Fund in options
and futures in foreign markets are subject to many of the same risks as are
the Fund's other foreign investments. See "Foreign Securities" above. For
further information, see "Miscellaneous Investment Practices -- Futures,
Options and Swap Contracts" in Part II of the Statement.
[ ] SECURITIES LENDING
The Fund may lend its portfolio securities to broker-dealers or other
parties under contracts calling for the deposit by the borrower with the
Fund's custodian of cash collateral equal to at least the market value of
the securities lent, marked to market on a daily basis. The Fund will
continue to benefit from interest or dividends on the securities lent and
will also receive interest through investment of the cash collateral in
short- term liquid investments. No loans will be made if, as a result, the
aggregate amount of such loans outstanding at any time would exceed 33 1/3%
of the Fund's total assets (taken at current value). Any voting rights or
rights to consent relating to the lent securities 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 custodial or placement fees.
[ ] 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 may
include securities whose disposition is restricted by federal securities
laws.
<PAGE>
- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
NEFM, located at 399 Boylston Street, Boston, Massachusetts, 02116, serves as
the adviser to the Fund. NEFM oversees, evaluates and monitors the subadvisory
services provided to the Fund and furnishes general business management and
administration to the Fund. NEFM does not determine what investments the Fund
will purchase.
The subadviser of the Fund is Westpeak, which is located at 1011 Walnut
Street, Boulder, Colorado 80302. The portfolio manager of the Fund is Gerald
H. Scriver, President and Chief Executive Officer of Westpeak, who has been
with the company since its inception in 1991. Mr. Scriver has been portfolio
manager of the Fund since May 1995.
The Fund pays NEFM a management fee at the annual rate set forth in the
following table, reduced in each case by the amount of any subadvisory fee
payable by the Fund to Westpeak (as described below):
MANAGEMENT FEE PAYABLE BY THE FUND TO NEFM
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS OF THE FUND)
- --------------------------------------------------------------------------------
0.70% of the first $200 million
0.65% of the next $300 million
0.60% of amounts in excess of $500 million
Subject to the supervision of NEFM, Westpeak manages the Fund's portfolio in
accordance with the Fund's investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities for the
Fund, and employs professional advisers and securities analysts who provide
research services to the Fund.
The Fund pays Westpeak a subadvisory fee at the annual rate set forth in the
following table:
SUBADVISORY FEE PAYABLE BY THE FUND TO WESTPEAK
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS OF THE FUND)
- --------------------------------------------------------------------------------
0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
The transfer and dividend paying agent for the Fund is New England Funds
Service Corporation ("NEFSCO"), which is located at 399 Boylston Street,
Boston, Massachusetts 02116. NEFSCO has subcontracted certain of its
obligations as such to State Street Bank and Trust Company ("State Street
Bank"), which is located at 225 Franklin Street, Boston, Massachusetts 02110.
The general partners of each of NEFM, Westpeak and the Distributor, and the
sole shareholder of NEFSCO, are special purpose corporations that are
indirect, wholly-owned subsidiaries of Nvest Companies. Nvest Companies'
managing general partner, Nvest Corporation, is an indirect wholly-owned
subsidiary of Metropolitan Life Insurance Company ("MetLife"), a mutual life
insurance company. MetLife owns in the aggregate, directly and indirectly,
approximately 47% of the outstanding limited partnership interests in Nvest
Companies. Nvest Companies' advising general partner, Nvest, L.P., is a
publicly-traded company listed on the New York Stock Exchange. Nvest
Corporation is the sole general partner of Nvest, L.P.
Subject to applicable regulatory restrictions and such policies as the Trust's
trustees may adopt, Westpeak may consider sales of shares of the Fund and
other mutual funds it manages as a factor in the selection of broker-dealers
to effect portfolio transactions for the Fund. Subject to procedures adopted
by the trustees of the Trust, Fund brokerage transactions may be executed by
brokers that are affiliated with Nvest Companies, NEFM or Westpeak. See
"Portfolio Transactions and Brokerage" in Part II of the Statement.
NEFM provides executive and other personnel for the management of the Trust.
The Trust's Board of Trustees supervises the affairs of the Trust as conducted
by NEFM and Westpeak.
The Fund has received an exemptive order from the SEC to permit NEFM, subject
to certain conditions, to enter into subadvisory agreements with subadvisers,
including subadvisers other than the existing subadviser of the Fund, when
approved by the Trust's Board of Trustees, without obtaining shareholder
approval. The exemptive order also permits, without shareholder approval, the
terms of an existing subadvisory agreement to be changed or the employment of
an existing subadviser to be continued after events that would otherwise cause
an automatic termination of a subadvisory agreement, when such changes or
continuation are approved by the Trust's Board of Trustees. Shareholders will
be notified of any subadviser changes.
<PAGE>
- --------------------------------------------------------------------------------
BUYING FUND SHARES
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in the Fund and $100 is the
minimum for each subsequent investment. There are special initial investment
minimums for the following plans:
CALL NEW ENGLAND FUNDS PERSONAL ACCESS LINE(TM) AT
1-800-346-5984.
WITH OUR 24 HOUR AUTOMATED CUSTOMER SERVICE SYSTEM
YOU HAVE ACCESS TO YOUR ACCOUNT. WITH A TOUCH-TONE
TELEPHONE, OBTAIN YOUR CURRENT ACCOUNT BALANCE,
RECENT TRANSACTIONS, FUND PRICES AND RECENT
PERFORMANCE INFORMATION. YOU CAN ALSO PURCHASE OR
EXCHANGE SHARES OF ANY NEW ENGLAND FUND. FOR MORE
INFORMATION CALL US AT 1-800-225-5478.
[ ] $25 (for initial and subsequent investments) for payroll deduction
investment programs for 401(k), SARSEP, SEP, SIMPLE Plans, 403(b)(7)
retirement plans and certain other retirement plans.
[ ] $100 on initial and subsequent investments for automatic investing through
the Investment Builder program.
[ ] $250 on initial and $100 on subsequent investments for retirement plans with
tax benefits such as corporate pension and profit sharing plans and Keogh
plans.
[ ] $500 on initial and $100 on subsequent investments for IRAs.
[ ] $2,000 on initial and $100 on subsequent investments 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 Omitted]
THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor and would
be pleased to accept your order.
[Graphic Omitted]
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.
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).
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 generally not be accepted except under
certain circumstances approved by the Distributor. When purchases are made by
check or periodic account investment, redemptions may not be allowed until the
investment being redeemed has been in the account for a minimum of ten
calendar days.
[Graphic Omitted]
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) on a day when the Funds are open for business 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 Fund (Fund name
and Class of shares), Shareholder Name, Shareholder Account Number. Funds may
be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time) on a day when
the Funds are open for business. Your bank may charge a fee for this service.
[Graphic Omitted]
BY INVESTMENT BUILDER:
Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $100 or more from your bank checking
or savings account to purchase shares of one or more New England Funds.
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 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.
[Graphic Omitted]
BY ELECTRONIC PURCHASE THROUGH THE AUTOMATED CLEARING HOUSE SYSTEM ("ACH"):
You may purchase additional shares electronically through the 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 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. You may also
purchase shares through ACH by calling New England Funds Personal Access Line
(TM) 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 New England Funds Personal Access Line
(TM) will be complete only upon the 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 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.
[Graphic Omitted]
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 "Owning Fund Shares -- Exchanging Among New England
Funds" for 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, 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 (or, under limited circumstances, such other time no
later than 8:00 p.m. as may be agreed upon between the dealer and the
Distributor) 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 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
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.
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).
SALES CHARGES
In this prospectus, the Fund offers two classes of shares to the general
public:
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. Class A shares are offered subject to the following sales
charges:
SALES CHARGE AS A % OF DEALER'S
--------------------------------- CONCESSION
NET 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 (except investments by plans under
Sections 401(a) or 401(k) of the 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 1% on the first $3 million invested and 0.50%
on the excess over $3 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 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. Section 401(a),
401(k), 457 and 403(b) plans that have total investment assets of at least $10
million are eligible to purchase Class Y shares of the Fund, which are
described in a separate Prospectus.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of Class A
shares of the Fund of $1,000,000 or more or purchases by Retirement Plans as
defined above, a CDSC of 1% applies to redemptions of shares within one year of
the date of purchase. If an exchange is made to Class A shares of New England
Cash Management Trust Money Market 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 the Trusts. If the
Money Market Fund shares are redeemed rather than exchanged back into the
Trusts, then a CDSC applies to the redemption. For purposes of the CDSC, it is
assumed that the shares held the longest are the first to be redeemed. The CDSC
applies to redemptions through the day one year after the day on which the
purchase was accepted. No CDSC applies to a redemption of shares followed by a
reinvestment effected within 30 days after the date of the redemption.
A OR B 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.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge, and are 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 6 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 a 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 a series
of the Trusts, then a CDSC applies to the redemption, 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 the purpose of the CDSC it is
assumed that the shares held the longest are the first to be redeemed.
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 ......................................................... 5%
2nd ......................................................... 4%
3rd ......................................................... 3%
4th ......................................................... 3%
5th ......................................................... 2%
6th ......................................................... 1%
thereafter .................................................. 0%
Year one ends one year after the day on which the purchase was accepted, and
so on.
At the time of sale, the Distributor pays investment dealers a commission of
3.75% of the sales price and advances the first year's service fee (up to
0.25%) on sales of Class B shares by such dealers.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A or Class B shares are more appropriate for
an investor depends upon the amount and intended length of the investment.
Investors making large investments, qualifying for a reduced initial sales
charge, might consider Class A shares over Class B 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 smaller
investments might consider Class B shares over Class A shares because 100% of
the purchase is invested immediately. Consult your investment dealer for
advice applicable to your particular circumstances.
GENERAL
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.
The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested, and is paid to the
Distributor. The CDSC may be eliminated for certain persons and organizations,
as described in the following paragraph and under "Reduced Sales Charges
(Class A shares Only)."
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. In addition, 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 the Trusts
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 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 of the Fund 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
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 0.025% of the average daily net assets of an account at
the end of each calendar quarter for up to one year. These commissions are not
payable if the purchase represents the reinvestment of redemption proceeds
from any 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 (including in some cases,
exclusively to New England Securities Corporation, a broker-dealer affiliate
of the Distributor, and MetLife). In some instances additional compensation is
provided to certain dealers who achieve certain sales goals or who have sold
or may sell significant amounts of shares. Such compensation may include (i)
full reallowance of the sales charge on the Class A shares; (ii) additional
compensation with respect to the sale of Class A and B shares; or (iii)
financial assistance programs to dealers in connection with conferences, sales
or training programs, seminars, advertising and sales campaigns and/or
shareholder services arrangements. Certain broker-dealer firms and their
representatives who have sold or may sell significant amounts of shares, or
have achieved other objectives, may receive gifts of merchandise and/or
incentives of travel and lodging or the payment of these and other expenses
incurred in connection with trips to locations, within or outside the U.S.,
for educational seminars or meetings of a business nature. Membership in the
New England Funds President's Council is based on sales achievement and other
criteria and may result in the provision of gifts of merchandise, a
subscription to a financial publication and participation in sales assistance
programs and educational seminars. The participation of broker-dealer firms
and their representatives in compensation and incentive programs is at the
discretion of the firm. Compensation and incentives shall conform with the
applicable Rules of the National Association of Securities Dealers, Inc.
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.
[ ] 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). The dealer's concession on such sales is
1.50% of the public offering price.
[ ] 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 of $25,000 or more 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 Sections 401(a), 403(b), 401(k) and 457 of the
Code and "rabbi trusts." Investors may be charged a fee if they effect
transactions through a broker or agent.
[ ] Shares of the Fund are available at net asset value for investments by
participant-directed 401(a) and 401(k) plans that have 100 or more eligible
employees or by retirement plans whose third party administrator or dealer
has entered into a service agreement with the Distributor to perform certain
administrative services, subject to certain operational and minimum size
requirements specified from time to time by the Distributor. This
compensation may be paid indirectly by the Fund in the form of servicing
and/or distribution fees.
[ ] 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.
[ ] 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 0.25% 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.
[ ] There is no sales charge, CDSC or initial investment minimum related to
investments by current and retired employees of the Trusts' investment
advisers or subadvisers, the Distributor, NELICO or MetLife or any other
company affiliated with NELICO or MetLife; current and former directors and
trustees of the Trusts, NELICO or MetLife or their predecessor companies;
agents and general agents of NELICO or MetLife and their insurance company
subsidiaries; current and retired employees of such agents and general
agents; registered representatives of broker- dealers who have selling
arrangements with the Distributor; the spouse, parents, children, siblings,
in-laws, 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 NELICO or MetLife or of any
insurance company affiliated with NELICO or MetLife.
[ ] 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 expenses associated with
such sales.
<PAGE>
- --------------------------------------------------------------------------------
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
AUTOMATICALL Y EXCHANGED EACH MONTH FOR SHARES OF
THE SAME CLASS OF OTHER SERIES OF THE TRUSTS. THE
MINIMUM MONTHLY EXCHANGE AMOUNT UNDER THE PLAN IS
$100. THERE IS NO FEE FOR EXCHANGES MADE PURSUANT
TO THIS PROGRAM, BUT THERE MAY BE A SALES CHARGE
AS DESCRIBED ON THIS PAGE. SHARES OF THE
ADJUSTABLE RATE FUND THAT ARE SUBJECT TO A
DIFFERENTIAL SALES CHARGE AS DESCRIBED ON THIS
PAGE MAY NOT PARTICIPATE IN THIS PROGRAM.
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 series of the Trusts) for Class A shares of
any other series of the Trusts 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 (the
"California Fund") (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 only if you have held the California Fund
shares for at least six months; otherwise, you will pay the difference between
any sales charge you have already paid on your California Fund shares and the
higher sales charge of the series into which you are exchanging. If you exchange
Class A shares of New England Adjustable Rate U.S. Government Fund (the
"Adjustable Rate Fund") (and shares of the Money Market Funds acquired through
exchanges of such shares) 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 any series of the Trusts (and Class B
shares of the Money Market Funds or Class A shares of the Money Market Funds
that have not been subject to a previous sales charge) for Class B shares of
any other series of the Trusts. 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 Y SHARES
Agents, general agents, directors and senior officers of NELICO and its
insurance company subsidiaries may, at the discretion of NELICO, elect to
exchange Class A shares of any series of the Trusts acquired in connection
with deferred compensation plans offered by NELICO for Class Y shares of any
series of the Trusts which offers Class Y shares. To obtain a Prospectus and
more information about Class Y shares, please call the Distributor toll-free
at 1-800-225-5478.
TO MAKE AN EXCHANGE, please 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, call New England
Funds Personal Access Line(TM) at 1-800-346-5984 twenty-four hours a day or
write to New England Funds. Exchange requests 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 $1,000 (or
the total net asset value of your account, whichever is less), except that under
the Automatic Exchange Plan the minimum is $100. All exchanges are subject to
the eligibility requirements of the series into which you are exchanging. In
connection with any exchange, you must obtain and carefully read 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.
The Fund and NEFSCO 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. The Fund and NEFSCO
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.
For federal tax purposes, an exchange of shares of one series of the Trusts
for shares of another series is considered to be a redemption and purchase
and, therefore, is considered to be a taxable event on which you may recognize
a gain or a loss.
Except as otherwise permitted by SEC rule, shareholders will receive at least
60 days' advance notice of any material change to the exchange privilege.
MARKET TIMER RESTRICTIONS. Purchases and exchanges into the Fund should be
made for investment purposes only. The Fund and the Distributor reserve the
right to refuse or limit any purchase or exchange order by a particular
purchaser (or group of related purchasers) when such transaction is deemed
harmful to the best interest of the Fund's other shareholders or would disrupt
the management of the Fund. Without limiting the generality of the foregoing,
the Fund and the Distributor reserve the right to restrict (e.g., by limiting
to a specified maximum dollar amount) purchases and exchanges for the account
of "market timers." An account will be deemed to be the account of a market
timer if (i) more than two exchange purchases of the Fund are effected for the
account in a calendar quarter or (ii) the account effects one or more exchange
purchases of the Fund in a calendar quarter in an aggregate amount in excess
of 1% of the Fund's total net assets.
FUND DIVIDEND PAYMENTS
The Fund pays dividends semi-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- and short-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 capital gain distribution, you should be aware that a
portion of the purchase price may be returned to you as a taxable
distribution.
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, which allows you to have all dividends
and any other distributions automatically invested
in shares of the same class of another New England
Fund, subject to the investor eligibility
requirements of that other fund and to state
securities law requirements. Shares will be
purchased at the selected fund's net asset value
(without a sales charge or CDSC) on the dividend
record date. A dividend diversification account
must be in the same registration (shareholder
name) as the distributing fund account and, if a
new account in the purchased fund is being
established, the purchased fund's minimum
investment requirements must be met. Before
establishing a dividend diversification program
into any other New England Fund, you must obtain
and carefully read a copy of that fund's
prospectus.
--------------------------------------------------
- --------------------------------------------------------------------------------
SELLING FUND SHARES
- --------------------------------------------------------------------------------
4 WAYS TO SELL FUND SHARES
You may sell Class A and Class B shares of the Fund in the following ways:
[Graphic Omitted]
THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[Graphic Omitted]
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) on a day when the
Fund is open for business. Class A shares only may also be redeemed by calling
New England Funds Personal Access Line(TM) 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) on a day when
the Fund is open for business 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 your address
of record 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 between 8:00 a.m. and 7:00 p.m. (Eastern
time) on a day when the Fund is open for business or, for Class A shares only,
call New England Funds Personal Access Line(TM) 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 before 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.
[Graphic Omitted]
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 and class of shares, 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 they 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 the Fund and NEFSCO. 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.
[Graphic Omitted]
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 (based on the day you
establish your plan). 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 (or, under limited
circumstances, such other time no later than 8:00 p.m. as may be agreed upon
between the dealer and the Distributor) 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 their securities or to determine fairly the value of their net
assets, or during any other period permitted by the SEC for the protection of
investors. The Fund reserves the right to suspend account services or refuse
transaction requests when notice has been received by the Fund of a dispute
between the registered or beneficial owners of an account or there is
suspicion or evidence that a fraudulent act may result.
If the Fund's adviser or subadviser determines, in its or their sole
discretion, that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment wholly or partly in cash,
the Fund may pay the redemption price in whole or in part by a distribution in
kind of readily marketable securities held by the Fund in lieu of cash.
Securities used to redeem Fund shares in kind will be valued in accordance
with the Fund's procedures for valuation described under "Fund Details -- How
Fund Share Price Is Determined." Securities distributed by the Fund in kind
will be selected by the Fund's adviser or subadviser in light of the Fund's
objective and will not generally represent a pro rata distribution of each
security held in the Fund's portfolio. Investors may incur brokerage charges
on the sale of any such securities so received in payment of redemptions. The
Fund's right to pay redemption in kind is limited by an election made by the
Fund under Rule 18f-1 under the 1940 Act. See "Redemptions" in Part II of the
Statement.
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your proceeds from the redemption of Class A shares of the Fund
(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. The Fund's holdings of equity
securities are valued at the most recent sales prices on an applicable
exchange or on the Nasdaq National Market System, or, in the case of unlisted
securities (or listed securities which were not traded during the day), at the
last quoted bid prices. Price information on listed securities is generally
taken from the closing price on the exchange where the security is primarily
traded. Debt securities (other than short-term obligations with a remaining
maturity of less than sixty days) are valued on the basis of valuations
furnished by a pricing service, authorized by the Trust's Board of Trustees,
which service determines valuations for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Short-term obligations with a remaining
maturity of less than sixty days are valued at amortized cost, which
approximates market value. An option 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. A futures contract will be valued at 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 is
not used, futures contracts will be valued at their fair value as determined
by or under the direction of the Trust's Board of Trustees. All other
securities and assets of the Fund's portfolio are valued at their fair market
value as determined in good faith by the adviser or subadviser of the Fund (or
a pricing service selected by the adviser or subadviser) under the supervision
of the Trust's Board of Trustees. The value of any assets for which the market
price is expressed in terms of a foreign currency will be translated into U.S.
dollars at the prevailing market rate on the date of the 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 net asset value per share of each class is determined by dividing the
value of securities (determined as explained above) plus any cash and other
assets (including dividends and interest receivable but not collected) less
all liabilities (including accrued expenses) attributable to each class, 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 the Fund's Class B 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 State Street Bank. 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) (or, under limited circumstances, such other time no later than
8:00 p.m. as may be agreed upon between the dealer and the Distributor) to
receive that day's public offering price.
- --------------------------------------------------------------------------------
CALCULATING THE PRICE OF SHARES
Total Market Value of Other Any
Portfolio Securities + Assets - Liabilities
- -------------------------------------------------------- =Net Asset Value (NAV)
Total Number of Outstanding Shares in a Class
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.
- --------------------------------------------------------------------------------
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 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 generally taxable to you as ordinary income. (A portion of these
distributions may qualify for the dividends-received deduction for
corporations.) Distributions designated by the Fund as deriving from net gains
on securities held for more than one year but not more than 18 months (i.e.,
28% Rate Gains) and from net gains on securities held for more than 18 months
(i.e., 20% Rate Gains) are taxable to you as such, regardless of how long you
have owned shares in the Fund. Both ordinary income 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 earned during that calendar year,
and virtually all of the capital gain net income the Fund realized during the
twelve months ending October 31, plus any retained amount from the prior year.
If declared in October, November or 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 of the year in which they were declared.
The Fund is required to withhold 31% of all income dividends and capital gains
distributions it pays to you (i) if you do not provide a correct, certified
taxpayer identification number, (ii) if the Fund is notified that you have
underreported income in the past or (iii) 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 or
the Fund is notified that you have underreported income in the past. If you
are a tax-exempt shareholder, however, these backup withholding rules will not
apply so long as you furnish the Fund with an appropriate certification.
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 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 its particular federal, state and local tax
situations.
THE FUND'S EXPENSES
In addition to the management fee paid to its adviser, the Fund pays all
expenses not borne by its adviser or subadviser 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 who are not directors,
officers or employees of NELICO or MetLife or their affiliates, other than
affiliated registered investment companies.
Under Service Plans adopted pursuant to Rule 12b-1
under the 1940 Act, 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 its Class A and Class B 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. Such payments will be made on a quarterly basis, unless other
arrangements are made between the Distributor and the securities dealer. 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 for that year under the relevant Service Plan, such expenses may be
carried forward for reimbursement in future years in which the Plan remains in
effect. The Class B service fees are payable regardless of the amount of the
Distributor's related expenses.
Under Distribution Plans adopted pursuant to Rule 12b-1 under the 1940 Act, the
Fund also pays the Distributor a monthly distribution fee at an annual rate not
to exceed 0.75% of the Fund's average daily net assets attributable to its Class
B 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. Such
payments will be made on a quarterly basis, unless other arrangements are made
between the Distributor and the securities dealer. The Distributor retains the
balance of the fee as compensation for its services as distributor of the Class
B shares.
In addition, NEFM performs certain accounting and administrative services for
the Fund. For those services, the Fund reimburses NEFM for all or part of its
expenses of providing these services to the Fund, which includes the
following: (i) expenses for personnel performing bookkeeping, accounting and
financial reporting functions and clerical functions relating to the Fund and
(ii) expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance.
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, or, in the case of the Fund's Class A shares, from July 27, 1988,
when there was a change in the Fund's investment adviser, to 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
shares of the 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.
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, an open-end management investment company, 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 the original series of shares of the Trust and has been in
operation since 1931.
[ ] When you invest in the Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive annual or quarterly
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 same Trust, except as otherwise required
by law. Shares of all classes of the Fund vote together, except as to
matters relating to a class's Rule 12b-1 plan, on which only shares of that
class are entitled to vote.
[ ] Except for matters that are explicitly identified as "fundamental" in this
Prospectus or the Statement, the investment policies of the Fund may be
changed by the Trust's trustees without shareholder approval or, in most
cases, prior notice. The investment objective of the Fund is not fundamental
but, as a matter of policy, the trustees would not change the objective
without shareholder approval. If there is a change in the objective of the
Fund, shareholders should consider whether the Fund remains an appropriate
investment in light of their current financial position and needs.
[ ] The Fund also offers Class C shares to the general public and Class Y
shares to certain qualified investors. No initial sales charge applies to
Class C share purchases. However, a CDSC is imposed upon certain redemptions
of Class C shares. Also, Class C shares bear higher annual 12b-1 fees than
Class A shares and do not have a conversion feature. Class Y shares are
identical to Class A, B and C shares, except that Class Y shares have no
sales charge or CDSC, bear no Rule 12b-1 fees and have separate voting
rights in certain circumstances. Class Y may bear its own transfer agency
and prospectus printing costs and, if so, will not bear any portion of those
costs relating to other classes of shares.
[ ] 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.
[ ] 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 $1,000 for all
accounts, except for those indicated below), 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 Trusts, together with the Money Market Funds, constitute the New
England Funds. Each Trust offers only its own funds' shares for sale, but it
is possible that the Trust might become liable for any misstatements in this
prospectus that relate to the other Trusts. The trustees of the Trust have
considered this possible liability and approved the use of this prospectus
for Funds of all three Trusts.
[ ] 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.
[ ] The Class A, Class B, Class C and Class Y structure could be terminated
should certain IRS rulings be rescinded.
[ ] The Trust's trustees have the authority without shareholder approval to
issue other classes of shares of a Fund that represent interest in the
Fund's portfolio but that have different sales load and fee arrangements.
[ ] No interest will accrue on amounts represented by uncashed dividend or
redemption checks.
[ ] Many of the services provided to the Fund depend on the smooth functioning
of computer systems. Many systems in use today cannot distinguish between
the year 1900 and the year 2000. Should any of the service systems fail to
process information properly, such failure could have an adverse impact on
the Fund's operations and services provided to shareholders. NEFM, the
Fund's subadviser, the Distributor, NEFSCO, State Street Bank and certain
other service providers to the Fund have reported that each expects to
modify its systems, as necessary, prior to January 1, 2000 to address this
so-called "year 2000 problem." However, there can be no assurance that the
problem will be corrected in all respects and that the Fund's operations and
services provided to shareholders will not be adversely affected.
<PAGE>
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GLOSSARY OF TERMS
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Capital gain distributions -- Payments to shareholders of profits earned from
selling securities in the 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 of the New England Funds.
New England Funds Management, L.P. -- The investment adviser to most of the
New England Funds.
New England Funds Service Corporation -- The transfer and dividend disbursing
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 to the fund's distributor or a financial
representative for personal services to investors and/or for maintenance of
shareholder accounts.
Total Return -- The change in value of an investment in a fund 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 SEC.
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.
[Recycle Symbol] Printed on Recycled Paper
