Via Edgar
May 3, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: New England Funds Trust I
File Nos. 2-98326 and 811-4323
Dear Sir or Madam:
Pursuant to Rule 497(e) of the Securities Act of 1933, as amended,
transmitted for filing on behalf of New England Funds Trust I is a form of
the prospectus dated May 1, 1995 for New England Strategic Income Fund (the
OFundO). In addition a supplement dated May 1, 1995 to that propsectus is
also transmitted for filing. This form of the prospectus dated May 1, 1995
varies from the form of the Fund's prospectus filed pursuant to Rule 485(a)
on February 15, 1995 which became effective on May 1, 1995.
Acknowledgment of this filing will be confirmed through the Compuserve
System. If you have any questions regarding this filing, please do not
hesitate to call me at (617) 578-1669.
Very truly yours,
[SIGNATURE]
Sheila M. Barry
SMB/eac
Enclosures
CC: R. Connolly
NEW ENGLAND FUNDS TRUST I
NEW ENGLAND STRATEGIC INCOME FUND
Supplement dated May 1, 1995
to New England Strategic Income Fund Prospectus dated May 1, 1995
and New England Bond Funds Prospectus dated May 1, 1995
On the first $25 million in commissionable sales of New England Strategic
Income Fund (the OFundO), the Distributor will pay additional concessions
to participating investment dealers. Specifically, the Distributor will
pay participating investment dealers 5.00% on commissionable sales of Class
A shares of up to $100,000, which includes a 1.00% additional concession.
On commissionable sales of Class A shares in excess of $100,000, the
Distributor will pay 1.00% in addition to the amount of the dealer's
concession set forth in the Fund's prospectus. During the same period, the
Distributor will pay a total of 5.00% and 2.00%, respectively, on
commissionable sales of Class B and Class C shares, which includes a 1.00%
additional concession.
[LOGO]
NEW ENDLGNAD FUNDS
NEW ENGLAND STRATEGIC INCOME FUND
Prospectus and Application
May 1, 1995
New England Strategic Income Fund (the OFundO), a newly-organized,
diversified mutual fund, is a series of New England Funds Trust I (the
OTrustO), a registered open-end management investment company. Other series
of the Trust are described in separate prospectuses.
The Fund seeks high current income with a secondary objective of capital
growth. There can be no assurance the Fund will achieve its objectives,
which may be changed without shareholder approval.
The Fund offers three classes of shares to the general public (Classes A, B
and C). The offering price is based on the net asset value per share next
determined after an order is received. Class A share purchases generally
involve a sales charge at the time of purchase. No initial sales charge
applies to Class B share purchases. A contingent deferred sales charge
(OCDSCO), however, is imposed upon certain redemptions of Class B shares.
Class B shares automatically convert to Class A shares eight years after
purchase. No initial sales charge or CDSC applies to purchases or
redemptions of Class C shares which do not have a conversion feature. Class
B and Class C shares bear higher 12b-1 fees than Class A shares. See
OBuying Fund Shares -- Sales Charges.O Through a separate prospectus, the
Fund also offers Class Y shares to certain institutional investors.
This prospectus sets forth information you should know before investing in
the Fund. Please read it carefully and keep it for future reference. A
statement of additional information in two parts (the OStatementO) about
the Fund dated May 1, 1995 has been filed with the Securities and Exchange
Commission (the OSECO) and is available free of charge. Write to New
England Funds, L.P. (the ODistributorO), SAI Fulfillment Desk, 399 Boylston
Street, Boston, MA 02116 or call toll free at 1-800-225-5478. The Statement
contains more detailed information about the Fund and is incorporated into
this prospectus by reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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: 1-800-225-5478.
TABLE OF CONTENTS
Page
03 NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDOS ADVISER AND SUBADVISER
03 SCHEDULE OF FEES
Sales charges, yearly operating expenses.
INVESTMENT STRATEGY
05 How the Fund Pursues Its Objectives
07 INVESTMENT RISKS
It is important to understand the risks inherent in the Fund before
you invest.
11 FUND MANAGEMENT
BUYING FUND SHARES
12 Minimum Investment
Everything you need to know to open and add to a New England Strategic
Income Fund account.
12 6 Ways to Buy Fund Shares
- Through your investment dealer
- By mail
- By wire transfer of Federal Funds
- By Investment Builder
- By electronic purchase through ACH
- By exchange from another New England Fund
13 Sales Charges
15 Reduced Sales Charges
(Class A Shares Only)
OWNING FUND SHARES
17 Exchanging Among New England Funds
New England Funds offers three convenient ways to exchange Fund
shares.
17 Fund Dividend Payments
SELLING FUND SHARES
19 4 Ways to Sell Fund Shares
How to withdraw money or close your account.
- Through your investment dealer
- By telephone
- By mail
- By Systematic Withdrawal Plan
20 Repurchase Option
(Class A Shares Only)
An opportunity to reinvest your redemption proceeds within 120 days
for no sales charge.
FUND DETAILS
21 How Fund Share Price is Determined
Additional information you may find important.
21 Income Tax Considerations
22 The FundOs Expenses
23 Performance Criteria
23 Additional Facts About the Fund
25 Appendix A
26 Glossary of Terms
Ratings of Securities
NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDOS ADVISER AND SUBADVISER
The investment adviser and subadviser of the Fund are independently-
operated subsidiaries of New England Investment Companies, L.P. (ONEICO),
the fifth-largest publicly traded investment management firm in the United
States. NEIC is listed on the New York Stock Exchange and through its
subsidiaries or an affiliate manages over $60 billion in assets for
individuals and institutions. The adviser and subadviser operate
independently and are staffed by experienced investment professionals. The
adviser and subadviser apply specialized knowledge and careful analysis to
the pursuit of the FundOs objectives.
NEW ENGLAND FUNDS MANAGEMENT, L.P. (ONEFMO), investment adviser of the
Fund, is a newly organized investment adviser.
LOOMIS, SAYLES & COMPANY, L.P. (OLOOMIS SAYLESO), subadviser to the Fund,
has over $35 billion of assets under management. Loomis Sayles manages
portfolios for institutional investors, individuals and mutual funds.
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the
Fund. The following table summarizes your maximum transaction costs from
investing in the Fund and estimated annual expenses for each class of the
FundOs shares. The Example on the following page shows the cumulative
expenses attributable to a hypothetical $1,000 investment in each class of
shares of the Fund for the periods specified.
SHAREHOLDER TRANSACTION EXPENSES -- PAID DIRECTLY BY SHAREHOLDERS
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
Maximum Initial Sales Charge
Imposed on a Purchase (as a
percentage of offering price)(1)(2) 4.50% None None
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption proceeds,
as applicable)(2) (3) 4.00% None
Deferred Sales Charge None None None
Redemption Fee None None None
Exchange Fee None None None
<FN>
(1) A reduced sales charge on Class A shares applies in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within approximately 1 year after purchase. See OSales
Charges.O
</TABLE>
ANNUAL OPERATING EXPENSES -- PAID DIRECTLY BY THE FUND, AND INDIRECTLY BY
ITS SHAREHOLDERS (as a percentage of net assets)
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
Management Fees 0.00%* 0.00%* 0.00%*
12b-1 Fees 0.25% 1.00%** 1.00%**
Administrative Services Fees None None None
Other Expenses 1.00% 1.00% 1.00%
Total Expenses 1.25%* 2.00%* 2.00%*
<FN>
* After fee waiver and expense reduction by the FundOs adviser and
subadviser. Without the voluntary limitations, Management Fees would
be 0.65%; and estimated Total Expenses would be 1.90% for Class A
shares, 2.65% for Class B shares and 2.65% for Class C shares.
** 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.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a
5% annual return and (2) unless otherwise noted, redemption at period end.
The 5% return and expenses in the Example should not be considered
indicative of actual or expected Fund performance or expenses, both of
which will vary.
<TABLE><CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C>
(1) (2)
1 year $57 $60 $20 $20
3 years $83 $93 $63 $63
<FN>
(1) Assumes redemption at end of period.
(2) Assumes no redemption.
</TABLE>
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly if you
invest in the Fund.
For information about the expenses of the FundOs Class Y shares, which
differ from the expenses of the Class A, Class B and Class C shares, see
OAdditional Facts About the Fund.O To obtain more information about Class Y
shares, please call the Distributor toll-free at 1-800-225-5478. For
additional information about the FundOs management fees, 12b-1 fees and
other expenses, please see OFund ManagementO and OThe FundOs Expenses.O
A wire fee (currently $5.00) will be deducted from your proceeds if you
elect to transfer redemption proceeds by wire.
Please keep in mind that the Example shown above is hypothetical. The
information above should not be considered a representation of past or
future return or expenses; actual return or expenses may be more or less
than those shown.
INVESTMENT STRAGEGY
The Fund seeks high current income with a secondary objective of capital
growth.
How the Fund Pursues Its Objectives
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 FundOs investment objectives and policies. There can be
no assurance that the Fund will achieve its objectives.
The Fund seeks to achieve its investment objectives by investing at least
65% of its total assets in debt instruments. The Fund may invest in debt
instruments issued by corporations based in the United States or abroad and
debt instruments that are convertible into equity securities. The Fund may
also invest in U.S. Government Securities, which term as used in this
prospectus includes all securities issued or guaranteed by the U.S.
Government or its agencies, authorities or instrumentalities; and in
securities issued or guaranteed by foreign governments (including their
political subdivisions, agencies, authorities and/or instrumentalities)
(OForeign Government SecuritiesO) and securities issued by supranational
agencies. The Fund may invest in debt instruments in any rating category
including debt instruments rated in the lowest rating categories (C by
MoodyOs Investors Service, Inc., [OMoodyOsO] and D by Standard and PoorOs
Corporation [OS&PO]) and in instruments that are unrated. Securities rated
below investment grade quality are considered high yield, high risk
securities and are commonly known as Ojunk bonds.O For more information
about the risks of investing in high yield, high risk securities and
securities of foreign issuers, see OInvestment Risks -- Lower Rated Fixed-
Income SecuritiesO and OForeign Securities.O
Under normal market conditions, the Fund will invest in debt instruments of
both domestic and foreign issuers and in corporate as well as government
issues. At any time, however, the Fund may invest up to 100% of its assets
in debt instruments of U.S. issuers, in debt instruments of foreign
issuers, in corporate debt instruments or in government securities. The
Fund may invest up to a total of 35% of its total assets in preferred
stocks, dividend-paying common stocks and shares of closed-end investment
companies (which shares will not exceed 10% of the FundOs total assets).
The proportion of Fund assets invested in corporate bonds, government
bonds, preferred or common stock will vary over time based on changing
market conditions. When Loomis Sayles believes that a particular market
presents more opportunity than other markets, it may increase the
proportion of the FundOs assets invested in that market.
The Fund may invest in Rule 144A securities. For hedging purposes, the Fund
may also purchase and sell options and futures and engage in foreign
currency transactions. The Fund may also invest in mortgage-backed
securities, zero coupon bonds, stripped securities and pay-in-kind
securities.
* U.S. AND FOREIGN GOVERNMENT SECURITIES
Different types of U.S. and Foreign Government Securities have different
kinds of government support. U.S. Government Securities include securities
backed by the full faith and credit of the U.S. Government, as well as many
other securities that are not full faith and credit obligations. For
example, obligations of the Federal Home Loan Banks are supported by the
right of the issuer to borrow from the U.S. Treasury, and obligations of
the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association (the OFNMAO) are supported only by the credit of those
corporations. Similarly, obligations of foreign governmental entities
include obligations issued or guaranteed by governments with taxing power
or by their agencies. Some Foreign Government Securities are supported by
the full faith and credit of a foreign national government or political
subdivision (such as a province of Canada) and some are not. For example,
Foreign Government Securities include securities issued by corporations
which have been charged with a public purpose and a majority of whose
outstanding equity securities are owned by a foreign government or
government agency. Such securities may be supported only by the credit of
the issuing corporation and not by that of the government or agency.
In addition to investing directly in U.S. and Foreign Government
Securities, the Fund may purchase OstrippedO securities evidencing
undivided ownership interests in interest payments or principal payments,
or both, on U.S. and Foreign Government Securities. These investments may
be more volatile than other types of U.S. or Foreign Government Securities.
* FOREIGN CURRENCY EXCHANGE TRANSACTIONS
As the Fund may invest in securities denominated in foreign currencies or
traded in foreign markets, it may engage in related foreign currency
exchange transactions to protect the value of specific portfolio positions
or in anticipation of changes in relative values of currencies in which
current or future portfolio holdings are denominated or quoted.
Foreign currency transactions involve costs and may result in losses. See
Part II of the Statement for more information.
* ADDITIONAL INFORMATION
The Fund may purchase securities for its portfolio on a Owhen-issuedO
basis. This means that the Fund will enter into the commitment to buy the
security before the security has been issued. The FundOs payment obligation
and the interest rate on the security are determined when the Fund enters
into the commitment. The security is typically delivered to the Fund 15 to
120 days later. No interest accrues on the security between the time the
Fund enters into the commitment and the time the security is delivered.
The Fund, consistent with its investment objectives, attempts to maximize
yield by engaging in portfolio trading and by buying and selling portfolio
investments in anticipation of or in response to changing economic market
conditions and trends. The Fund also invests to take advantage of what are
believed to be temporary disparities in the yields of the different
segments of the market for U.S. Government Securities. These policies may
result in a higher turnover rate in the FundOs portfolio which may produce
higher transaction costs and a higher level of taxable capital gains.
Portfolio turnover considerations will not limit the FundOs subadviserOs
investment discretion in managing the FundOs assets.
Although it is not possible to predict the portfolio turnover rate with
certainty, Loomis Sayles expects the FundOs portfolio turnover rate will
usually not exceed an annual rate of 150%. A turnover rate in excess of
100% may be considered high.
The Fund may enter into repurchase agreements, under which the Fund buys
securities from a seller, usually a bank or brokerage firm, with the
understanding that the seller will repurchase the securities at a higher
price at a later date. Such transactions afford an opportunity for the Fund
to earn a return on available cash at minimal credit risk, although the
Fund may be subject to various delays and risks of loss if the seller is
unable to meet its obligation to repurchase. The staff of the SEC is
currently of the view that repurchase agreements maturing in more than
seven days are illiquid securities.
INVESTMENT RISKS
It is important to understand the following risks inherent in the Fund
before you invest.
* FIXED-INCOME SECURITIES
The Fund invests principally in fixed-income securities. Because interest
rates vary, it is impossible to predict the income of the Fund for any
particular period. The net asset value of your shares will vary as a result
of changes in the value of the bonds and other securities in the FundOs
portfolio.
Fixed-income securities are subject to market and credit risk. Market risk
relates to changes in a securityOs value as a result of changes in interest
rates generally. Generally, rising interest rates correlate with falling
security values. Credit risk relates to the ability of the issuer to make
payments of principal and interest. U.S. Government Securities do not
involve the credit risks associated with other types of fixed-income
securities; as a result, the yields available from U.S. Government
Securities are generally lower than the yields available from corporate
fixed-income securities.
* LOWER RATED FIXED-INCOME SECURITIES
Lower rated fixed-income securities and corporate fixed-income securities
generally provide higher yields than U.S. Government and many Foreign
Government Securities, but are subject to greater credit and market risk
than higher quality fixed-income securities. Lower rated fixed-income
securities are considered predominantly speculative with respect to the
ability of the issuer to meet principal and interest payments. Achievement
of the investment objective of a fund investing in lower rated fixed-income
securities may be more dependent on the investment adviserOs or
subadviserOs own credit analysis than is the case for higher quality bonds.
The market for lower rated 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.
* FOREIGN SECURITIES
Foreign Government Securities and foreign corporate securities present
risks not associated with investments in U.S. Government or corporate
securities.
Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in
foreign currencies, the value of these investments and the net investment
income available for distribution to shareholders of the Fund may be
affected favorably or unfavorably by changes in currency exchange rates or
exchange control regulations. Because the Fund may purchase securities
denominated in foreign currencies, a change in the value of any such
currency against the U.S. dollar will result in a change in the U.S. dollar
value of the FundOs assets and the FundOs income available for
distribution.
In addition, although the FundOs income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to
the U.S. dollar declines after the FundOs income has been earned in that
currency, translated into U.S. dollars and declared as a dividend, but
before payment of such dividend, the Fund could be required to liquidate
portfolio securities to pay such dividend. Similarly, if the value of a
currency relative to the U.S. dollar declines between the time the Fund
incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order
to pay such expenses in U.S. dollars will be greater than the equivalent
amount in such currency of such expenses at the time they were incurred.
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 other fees in some circumstances may be higher than in the
United States. With respect to certain foreign countries, there is a
possibility of 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 issuerOs obligations. The Fund may have limited
legal recourse should a foreign government be unwilling or unable to repay
the principal or interest owed.
The Fund will invest all or any portion of its assets in the securities of
emerging markets. Investments in emerging markets include investments in
countries whose economies or securities markets are not yet highly
developed. Special considerations associated with these investments (in
addition to the considerations regarding foreign investments as discussed
above) may include, among others, greater political uncertainties, an
economyOs dependence on revenues from particular commodities or on
international aid or development assistance, currency transfer
restrictions, highly limited numbers of potential buyers for such
securities and delays and disruptions in securities settlement procedures.
In addition, the Fund may invest in securities issued by supranational
agencies. Supranational agencies are agencies whose member nations make
capital contributions to support the agenciesO activities, and include such
entities as the International Bank for 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, Loomis
Sayles will consider the likely effects of foreign taxes on the net yield
available to the Fund and its shareholders. Compliance with foreign tax law
may reduce the FundOs net income available for distribution to
shareholders.
* MORTGAGE-RELATED SECURITIES
Mortgage-related securities, such as mortgage participation certificates
guaranteed by the Government National Mortgage Association or FNMA
certificates, differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time.
As a result, if the Fund purchases these securities at a premium, a faster-
than-expected prepayment rate will reduce yield to maturity, and a slower-
than-expected prepayment rate will have the opposite effect of increasing
yield to maturity. If the Fund purchases mortgage-related securities at a
discount, faster-than-expected prepayments will increase, and slower-than-
expected prepayments will reduce, yield to maturity. Prepayments, and
resulting amounts available for reinvestment by the Fund, are likely to be
greater during a period of declining interest rates and, as a result, are
likely to be reinvested at lower interest rates. Accelerated prepayments on
securities purchased at a premium may result in a loss of principal if the
premium has not been fully amortized at the time of prepayment. Although
these securities will decrease in value as a result of increases in
interest rates generally, they are likely to appreciate less than other
fixed-income securities when interest rates decline because of the risk of
prepayments.
Adjustable rate mortgage securities (OARMsO), like traditional mortgage
securities, are interests in a pool of mortgage loans that provide
investors with payments consisting of both principal and interest as
mortgage loans in the underlying mortgage pool are paid off by the
borrowers. ARMs have interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate.
Although the rate adjustment feature may act as a buffer to reduce sharp
changes in the value of adjustable rate securities, these securities are
still subject to changes in value based on changes in market interest rates
or changes in the issuerOs creditworthiness. Because the interest rates are
reset only periodically, changes in the interest rate on ARMs may lag
changes in prevailing market interest rates. Also, some ARMs (or the
underlying mortgages) are subject to caps or floors that limit the maximum
change in interest rate during a specified period or over the life of the
security. As a result, changes in the interest rate on an ARM may not fully
reflect changes in prevailing market interest rates during certain periods.
Because of the resetting of interest rates, ARMs are less likely than non-
adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall.
* COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations (OCMOsO) are securities backed by a
portfolio of mortgages or mortgage securities held under an indenture. The
underlying mortgages or mortgage securities are issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof. The issuerOs
obligation to make interest and principal payments is secured by the
underlying portfolio of mortgages or mortgage securities. CMOs are issued
with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal
on the underlying collateral or a combination thereof. CMOs of different
classes are generally retired in sequence as the underlying mortgage loans
in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its maturity. Thus, the early retirement
of a particular class or series of CMO held by the Fund would have the same
effect as the prepayment of mortgages underlying a mortgage pass-through
security. CMOs may be considered derivative securities.
* OSTRIPPEDO SECURITIES
Stripped securities are usually structured with two or more classes that
receive different proportions of the interest and principal distribution on
a pool of U.S. or Foreign Government Securities or mortgage assets. In some
cases, one class will receive all of the interest (the interest-only or
OIOO class), while the other class will receive all of the principal (the
principal-only or OPOO class). Stripped securities commonly have greater
market volatility than other types of fixed-income securities. In the case
of stripped mortgage securities, if the underlying mortgage assets
experience greater than anticipated payments of principal, the Fund may
fail to recoup fully its investments in IOs. The staff of the SEC has
indicated that it views stripped mortgage securities as illiquid unless the
securities are issued by the U.S. Government or its agencies and are backed
by fixed-rate mortgages. The Fund intends to abide by the staffOs position.
Stripped securities may be considered derivative securities.
* ZERO COUPON AND PAY-IN-KIND SECURITIES
Zero coupon securities are issued at a significant discount from face value
and pay interest only at maturity, rather than at intervals during the life
of the security. Pay-in-kind securities pay dividends or interest in the
form of additional securities of the issuer, rather than in cash. The
prices of pay-in-kind or zero coupon securities may react more strongly to
changes in interest rates than the prices of many other securities. The
Fund is required to accrue and distribute income from pay-in-kind and zero
coupon securities on a current basis, even though the Fund will not receive
the income currently in cash. Thus the Fund may have to sell other
investments to obtain cash needed to make income distributions.
* WHEN-ISSUED SECURITIES
If the value of a Owhen-issuedO security being purchased falls between the
time a Fund commits to buy it and the payment date, the Fund may sustain a
loss. The risk of this loss is in addition to the FundOs risk of loss on
the securities actually in its portfolio at the time. In addition, when the
Fund buys a security on a when-issued basis, it is subject to the risk that
market rates of interest will increase before the time the security is
delivered, with the result that the yield on the security delivered to the
Fund may be lower than the yield available on other, comparable securities
at the time of delivery. The Fund will maintain liquid high grade assets in
a segregated account in an amount sufficient to satisfy its outstanding
obligations to buy securities on a Owhen-issuedO basis.
* OPTIONS AND FUTURES
The Fund may engage in a variety of transactions involving the use of
options and futures with respect to U.S. or Foreign Government Securities
or corporate fixed-income securities for purposes of hedging against
changes in interest rates. There is no assurance that these hedging
strategies will be effective. Futures are subject to potentially unlimited
loss. Expenses and losses resulting from hedging strategies will reduce the
FundOs current returns.
The Fund will not engage in options and futures transactions for leverage.
The Fund will not purchase or sell futures contracts or related options if
as a result the sum of the initial margin deposits on the FundOs existing
futures and related options positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the FundOs assets.
As described in Part II of the Statement, over-the-counter options involve
certain special risks (including liquidity and credit risks) not
necessarily present with exchange-listed options. The staff of the SEC
takes the position that over-the-counter options and assets used to cover
such options written by a fund are OilliquidO except in certain limited
circumstances.
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 FundOs other foreign investments. See OForeign SecuritiesO above.
For further information, see OOptions and FuturesO in Part II of the
Statement.
* RULE 144A SECURITIES
Rule 144A securities are privately offered securities that can be resold
only to certain qualified institutional buyers. Rule 144A securities are
treated as illiquid, unless the subadviser has determined, under guidelines
established by the TrustOs trustees, that the particular issue of Rule 144A
securities is liquid. Investment in illiquid securities involves the risk
that the Fund may be unable to sell such a security at the desired time.
FUND MANAGEMENT
NEFM, 399 Boylston Street, Boston, Massachusetts 02116, a newly organized
investment adviser, is the investment adviser of the Fund and has entered
into subadvisory arrangements for the Fund with Loomis Sayles. Founded in
1926, Loomis Sayles, One Financial Center, Boston, Massachusetts 02111, is
one of the countryOs oldest and largest investment counsel firms. Daniel
Fuss, Managing Partner, Executive Vice President and Director of Loomis
Sayles and Vice President of the Trust, has served as the FundOs portfolio
manager since the FundOs inception in May 1995. Mr. Fuss joined Loomis
Sayles in 1976. NEFM oversees, evaluates and monitors the subadvisory
services provided to the Fund and furnishes general business management and
administration to the Fund. NEFM has not previously served as investment
adviser to a mutual fund.
The Fund pays NEFM a management fee at the annual rate of 0.65% of the
first $200 million of the FundOs average daily net assets and 0.60% of such
assets in excess of $200 million. NEFM pays Loomis Sayles for providing
subadvisory services to the Fund 0.35% of the first $200 million of the
average daily net assets of the Fund and 0.30% of such assets in excess of
$200 million.
Under an expense deferral arrangement which NEFM and Loomis Sayles may
terminate at any time, NEFM and Loomis Sayles have agreed to waive advisory
and subadvisory fees until further notice, subject to the obligation of the
Fund to pay NEFM such fees to the extent that the FundOs expenses fall
below the annual rate of 1.40% for Class A shares, 2.15% for Class B shares
and 2.15% for Class C shares; provided however in any period, that the Fund
is not obligated to pay any fees waived by NEFM and Loomis Sayles more than
two years after the end of the fiscal year in which such fee was waived.
Any expenses deferred while the voluntary waiver was in place can never be
charged to the Fund unless the FundOs expenses fall below the limit of
1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C
shares.
If the voluntary fee reductions described above are terminated, the Fund
will supplement its prospectus.
The general partners of each of Loomis Sayles, NEFM and the Distributor are
special purpose organizations that are indirect, wholly-owned subsidiaries
of NEIC. NEICOs sole general partner, New England Investment Companies,
Inc., is a wholly-owned subsidiary of New England Mutual Life Insurance
Company (OThe New EnglandO).
In placing portfolio transactions for the Fund, Loomis Sayles seeks the
most favorable price and execution available.
The TrustOs Board of Trustees supervises the affairs of the Trust.
Under an agreement between NEFM and the Distributor, NEFM pays the
Distributor to provide certain administrative services to the Fund. In
addition, pursuant to rules of the SEC, the Fund may pay brokerage
commissions to New England Securities Corporation, an affiliate of the
Distributor, on purchases and sales of securities for the FundOs portfolio.
BUYING FUND SHARES
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in the Fund and $50 is the
minimum for each subsequent investment. There are special initial
investment minimums for the following plans:
* $25 (for initial and subsequent investments) for payroll deduction
investment programs for 401(k), SARSEP, 403(b) retirement plans and certain
other retirement plans.
* $50 for automatic investing through the Investment Builder program.
* $250 for retirement plans with tax benefits such as corporate pension
and profit sharing plans, IRAs and Keogh plans.
* $1,000 for accounts registered under the Uniform Gifts to Minors Act
or the Uniform Transfers to Minors Act.
* $1,000 for Portfolio 1,2,3, investment programs and New England Funds
All Weather Portfolio. Subsequent investment minimums are $50. See Part II
of the Statement.
[SIDEBAR]
Using Tele#Facts 1-800-346-5984
Tele#Facts is New England FundsO automated service system that gives you 24-
hour access to your account. Through your touch-tone telephone, you can
receive your current account balance, your last five transactions, Fund
prices and recent performance information. You can also purchase, sell or
exchange Class A shares of any New England Fund. For a free brochure about
Tele#Facts including a convenient wallet card, call us at 1-800-225-5478.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Fund in the
following ways:
[GRAPHIC] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor and
would be pleased to accept your order.
[GRAPHIC] BY MAIL:
For an initial investment, simply complete an application and return it,
with a check payable to New England Funds, to P.O. Box 8551, Boston, MA
02266-8551. Proceeds of redemptions of Fund shares purchased by check may
not be available for up to ten days after the purchase date.
For subsequent investments, please mail your check to New England Funds,
P.O. Box 8551, Boston, MA 02266-8551 along with a letter of instruction or
an additional deposit slip from your statements. To make investing even
easier, you can also order personalized investment slips by calling 1-800-
225-5478.
[GRAPHIC] BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and
6:00 p.m. (Eastern time) to obtain an account number and wire transfer
instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State
Street Bank and Trust Company, ABA #011000028, DDA #99011538, Credit New
England Strategic Income Fund, Class of shares, Shareholder Name,
Shareholder Account Number. Funds may be transferred between 9:00 a.m. and
4:00 p.m. (Eastern time). Your bank may charge a fee for this service.
[GRAPHIC] BY INVESTMENT BUILDER:
Investment Builder is New England FundsO automatic investment plan. You may
authorize automatic monthly transfers of $50 or more from your bank
checking or savings account to purchase shares of one or more New England
Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder. Indicate the amount
of the monthly investment on the enclosed application and enclose a void
check or deposit slip from your bank account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at 1-800-
225-5478 for a Service Options form.
[GRAPHIC] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated
Clearing House (OACHO) system as long as your bank or credit union is a
member of the ACH system and you have a completed, approved ACH application
on file with the Fund.
To purchase through ACH, call us at 1-800-225-5478 between 8 a.m. and 6
p.m. (Eastern time) for instructions or call Tele#Facts at 1-800-346-5984
twenty-four hours a day. If you purchase your shares through ACH, you will
receive the net asset value next determined after your order is received.
Proceeds of redemptions of Fund shares purchased through ACH may not be
available for up to ten days after the purchase date.
[GRAPHIC] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND
You may also purchase shares of the Fund by exchanging shares from another
New England Fund. Please see OExchanging Among New England FundsO for
complete details.
GENERAL
All purchase orders are subject to acceptance by the Fund and will be
effected at the net asset value next determined after the order is received
in proper form by State Street Bank and Trust Company (OState Street BankO)
(except orders re-
ceived by your investment dealer before the close of trading on the New
York Stock Exchange (the OExchangeO) and transmitted to the Distributor by
5:00 p.m. Eastern time on the same day, which will be effected at the net
asset value determined on that day). Although the Fund does not anticipate
doing so, it reserves the right to suspend or change the terms of sales of
shares.
Class B shares and certain shareholder features may not be available to
persons whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless you
request them in writing from New England Funds, L.P. The FundOs Oopen
accountO system for recording your investment eliminates the problems and
expense of handling and safekeeping certificates. Certificates will not be
issued for Class B or Class C shares.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules apply. Please contact
your investment dealer or the Distributor for details.
SALES CHARGES
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge which
varies depending on the size of your purchase. They are also subject to a
0.25% annual service fee. The current sales charges are:
<TABLE><CAPTION>
<S> <C> <C> <C>
DEALERS
SALES CHARGE AS A % OF CONCESSION
NET AS % OF
OFFERING AMOUNT OFFERING
VALUE OF TOTAL INVESTMENT PRICE INVESTED PRICE
Up to $100,000 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 *
<FN>
* The Distributor may, at its discretion, pay investment dealers who
initiate and are responsible for such purchases of the Fund a
commission of up to the following amounts: 1% on the first $2 million
invested; .80% on the next $1 million; .20% on the next $2 million;
and .08% on the excess over $5 million. These commissions are not
payable if the purchase represents the reinvestment of a redemption
from any New England Fund during the previous 12 calendar months.
</TABLE>
[SIDE BAR]
To make investing even easier, you can also order personalized investment
slips by calling 1-800-225-5478.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more of Class A shares in the Fund, a CDSC at the rate of 1%
of the lesser of the purchase price or the net asset value at the time of
redemption applies to redemptions of Class A shares purchased within one
year before the redemption. If an exchange is made to Class A shares of any
of the New England Cash Management Trust Money Market Series or U.S.
Government Series or the New England Tax Exempt Money Market Trust (the
OMoney Market FundsO), then the one-year holding period for purposes of
determining the expiration of the CDSC will stop and will resume only when
an exchange is made back into Class A shares of a series of New England
Funds Trust I or New England Funds Trust II (Othe TrustsO). For purposes of
the CDSC, it is assumed that the Class A shares held the longest are the
first to be redeemed. No CDSC applies to a redemption of Class A shares
followed by a reinvestment effected within 30 days after the date of
redemption.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge, subject to a 0.25% annual service fee, a 0.75% annual distribution
fee for eight years (at which time they automatically convert to Class A
shares) and to a CDSC if they are redeemed within five years of purchase.
The holding period for purposes of timing the conversion to Class A shares
and determining the CDSC will continue to run after an exchange to Class B
shares of any series of the Trusts. If the exchange is made to Class B
shares of a Money Market Fund, then the holding period stops and will
resume only when an exchange is made back into Class B shares of a series
of the Trusts. If the Money Market Fund shares are redeemed rather than
exchanged back into the Trusts, then a CDSC applies on the redemptions, at
the same rate as if the Class B shares of the Fund had been redeemed at the
time they were exchanged for Money Market Fund shares.
[SIDEBAR]
A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE?
Your choice of share class depends on the size of your investment and how
long you intend to hold your shares. In general, there are only minor
differences in performance results for the different classes if held for
the long term. Consult your financial representative for help in deciding
which class is appropriate for you.
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 charge will be
assessed on shares of the same fund purchased with reinvested dividends or
capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. The CDSC equals the following percentages of
the dollar amounts subject to the charge:
<TABLE><CAPTION>
<S> <C>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
1st 4%
2nd 3%
3rd 3%
4th 2%
5th 1%
thereafter 0%
</TABLE>
Year one ends one year after the day on which the purchase was accepted and
so on.
The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested, and is paid to the
Distributor. The CDSC may be eliminated for certain persons and
organizations. See OSales Charges -- GeneralO below. At the time of sale,
the Distributor pays investment dealers a commission of 3.75% and advances
the first yearOs service fee (up to 0.25%) on purchases of the FundOs Class
B shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial sales
charge or CDSC; are subject to a 0.25% annual service fee and a 0.75%
annual distribution fee; and do not convert into another class.
CLASS Y SHARES
The Fund offers an additional class of shares (which are not available to
the general public) to qualified investors. See OAdditional Facts About the
FundO below.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or Class C shares are more
appropriate for an investor depends on the amount and intended length of
the investment. Investors making large investments, qualifying for a
reduced initial sales charge, might consider Class A shares because Class A
shares have lower 12b-1 fees and pay correspondingly higher dividends per
share. For these reasons, the Distributor will treat any order of $1
million or more for Class B shares as a Class A order. Any order of $1
million or more for Class C shares will be treated as an order for Class A
shares, unless you indicate on the relevant section of your application
that you have been informed of the relative advantages and disadvantages of
Class A and Class C shares. Investors making smaller investments might
consider Class B or Class C shares because 100% of the purchase is invested
immediately. Investors making smaller investments who anticipate redeeming
their shares within five years may find Class C shares more favorable than
Class B shares, because Class B shares are subject to a CDSC on redemptions
made within five years after purchase. Class B shares are more favorable
than Class C shares for investors who anticipate holding their investment
for more than eight years since Class B shares convert to Class A shares
(and thus bear lower ongoing fees) after eight years. Consult your
investment dealer for advice applicable to your particular circumstances.
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions
by retirement plans qualified under Code Sections 401(a) or 403(b)(7) when
such redemptions are necessary to make distributions to plan participants;
(2) distributions from an IRA due to death, disability or a tax-free return
of an excess contribution; (3) distributions by other employee benefit
plans to pay benefits; and (4) distributions by a Section 401(a) plan due
to death. For 403(b)(7) and IRA accounts established before January 3,
1995, the CDSC is waived for redemptions made after attainment of age
591U2. The CDSC is waived for redemptions made to make required minimum
distributions after attainment of age 701U2 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 Internal Revenue Code) of a shareholder if the redemption
is made within one year after the shareholderOs death or disability. Also,
there is no CDSC on certain withdrawals pursuant to a Systematic Withdrawal
Plan. See OSystematic Withdrawal PlanO 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 your investment dealer and the Distributor. The Distributor
receives the CDSC. For purposes of the CDSC, an exchange from one series of
a Trust to another series of a Trust is not considered a redemption or a
purchase. For federal tax purposes, however, such an exchange is considered
a redemption and a purchase and, therefore, would be considered a taxable
event on which you may recognize a gain or a loss.
The Distributor may, at its discretion, reallow the entire sales charge
imposed on the sale of Class A shares to investment dealers from time to
time. The staff of the SEC is of the view that dealers receiving all or
substantially all of the sales charge may be deemed underwriters of a
fundOs shares.
The Distributor may, at its expense, pay investment dealers who sell new
amounts of shares of the Fund at net asset value to eligible governmental
authorities .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 not registered in the
name of the beneficial owner. The CDSC is not applicable to these sales.
The Distributor may, at its expense, provide additional promotional
incentives or payments to dealers who sell shares of the Fund. In some
instances these incentives are provided to certain dealers who achieve
sales goals or who have sold or may sell significant amounts of shares. New
England Funds, L.P., from time to time, may provide financial assistance
programs to dealers in connection with conferences, sales or training
programs, seminars, advertising and sales campaigns and/or shareholder
services arrangements. Certain dealers who have sold or may sell
significant amounts of shares also may receive compensation in the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives to locations, within or
outside of the U. S., for educational seminars or meetings of a business
nature.
The Distributor may provide non-cash incentives for achievement of
specified sales levels by representatives of participating broker-dealers
and financial institutions. Such incentives include, but are not limited
to, merchandise from gift catalogues or other sources, gift certificates or
vouchers through membership in the New England Funds Flagship Club. The
participation of representatives in such incentive programs is at the
discretion of the broker-dealer or financial institution with which the
representative is associated.
REDUCED SALES CHARGES
(CLASS A SHARES ONLY)
* LETTER OF INTENT -- if aggregate purchases of all series and classes
of the Trusts over a 13-month period will reach a breakpoint (a dollar
amount at which a lower sales charge applies), smaller individual
amounts can be invested at the sales charge applicable to that
breakpoint.
* COMBINING ACCOUNTS -- Purchases by 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 shares of the
Fund at a reduced sales charge of 1.50% of the public offering price
(or 1.52% of the net amount invested).
* ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC applies
to investments by any state, county or city or any instrumentality,
department, authority or agency thereof, that has determined that the
Fund is a legally permissible investment and that is prohibited by
applicable investment laws from paying a sales charge or commission in
connection with the purchase of shares of any registered investment
company.
* CLIENTS OF AN ADVISER OR SUBADVISER (AFFILIATED WITH NEIC) -- no sales
charge or CDSC applies to investments of $100,000 or more in the Fund
by (1) clients of an adviser or subadviser (affiliated with NEIC) to
any series of the Trusts; any director, officer or partner of a client
of an adviser or subadviser (affiliated with NEIC) to any series of
the Trusts; and the parents, spouses and children of the foregoing;
(2) any individual who is a participant in a Keogh or IRA Plan under a
prototype Plan document of an adviser or subadviser (affiliated with
NEIC) 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 (affiliated with
NEIC) 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 with no sales
charge or CDSC by advisory accounts through investment advisers that
are registered under the Investment Advisers Act of 1940 and
affiliated with broker-dealers.
* There is no sales charge or CDSC on investments by 401(a), 401(k), 457
or 403(b) plans that have total investment assets equal to or in
excess of $5 million.
* There is no sales charge, CDSC or initial investment minimum on
investments by certain current and retired employees of the TrustsO
investment advisers and subadvisers (affiliated with NEIC), the
Distributor, The New England or any other company affiliated with The
New England; current and former directors and trustees of the Trusts,
The New England or their predecessor companies; agents and general
agents of The New England and its insurance company subsidiaries;
current and retired employees of such agents and general agents;
registered representatives of broker-dealers who have selling
arrangements with the Distributor; the spouse, parents, children,
siblings, grandparents or grandchildren of any of the persons listed
above; any trust, pension, profit sharing or other benefit plan for
any of the foregoing persons and any separate account of The New
England or of any insurance company affiliated with The New England.
* Shareholders of Reich & Tang Government Securities Trust may exchange
their shares of that fund for Class A shares of any series of the
Trusts at net asset value and without the imposition of a sales
charge.
The reduction or elimination of the sales charge in connection with sales
described above reflects the absence or reduction of sales expenses
associated with such sales.
OWNING FUND SHARES
EXCHANGING AMONG NEW ENGLAND FUNDS
CLASS A SHARES. Except as indicated in the next two sentences, you may
exchange Class A shares of any series of the Trusts (and Class A shares of
the Money Market Funds acquired through exchanges from any of the series of
the Trusts) for the Class A shares of any other series of the Trusts
(except New England Growth Fund, which is subject to special eligibility
restrictions) without paying a sales charge. Class A shares of New England
Intermediate Term Tax Free Fund of California and New England Intermediate
Term Tax Free Fund of New York (and shares of the Money Market Funds
acquired through exchanges of such shares) may be exchanged for shares of
the Fund at net asset value only if you have held them for at least six
months; otherwise, sales charges apply to the exchange. If you exchange
your Class A shares of New England Adjustable Rate U.S. Government Fund
(the OAdjustable Rate FundO) for shares of another fund that has a higher
sales charge, you will pay the difference between any sales charge you have
already paid on your Adjustable Rate Fund shares and the higher sales
charge of the fund 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 Fund shares at the applicable sales
charge.
[SIDEBAR]
Automatic Exchange Plan
The Fund has an automatic exchange plan under which shares of a class of
the Fund are automatically exchanged each month for shares of the same
class of other series in the Trusts (other than New England Growth Fund,
which is available only to certain eligible investors). The minimum monthly
exchange amount under the plan is $50. There is no fee for exchanges made
pursuant to this program, but there may be a sales charge as described on
this page.
CLASS B SHARES. You may exchange Class B shares of the Fund or any series
of the Trusts (and Class B shares of the Money Market Funds or Class A
shares of the Money Market Funds which have not been subject to a previous
sales charge) for Class B shares of any other series of the Trusts (except
New England Growth Fund). Such exchanges will be made at the next
determined net asset value of the shares. Class B shares will automatically
convert on a tax-free basis to Class A shares eight years after they are
purchased (excluding the time the shares are held in a Money Market Fund).
See OSales Charges -- Class B SharesO above.
CLASS C SHARES. You may exchange Class C shares of the Fund for Class C
shares of any other series of the Trusts which offers Class C shares or for
Class A shares of the Money Market Funds.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8 a.m. and 6 p.m.
(Eastern time), write to New England Funds or call Tele#Facts at 1-800-346-
5984 twenty-four hours a day. The exchange must be for a minimum of $500
(or the total net asset value of your account, whichever is less), except
that under the Automatic Exchange Plan, the minimum is $50. All exchanges
are subject to the minimum investment and eligibility requirements of the
series into which you are exchanging. In connection with any exchange, you
must receive a current prospectus of the series into which you are
exchanging. The exchange privilege may be exercised only in those states
where shares of such other series may be legally sold.
You have the automatic privilege to exchange your Fund shares by telephone.
New England Funds, L.P. will employ reasonable procedures to confirm that
your telephone instructions are genuine, and, if it does not, it may be
liable for any losses due to unauthorized or fraudulent instructions. New
England Funds, L.P. will require a form of personal identification prior to
acting upon your telephone instructions, will provide you with written
confirmations of such transactions and will record your instructions.
Except as otherwise permitted by SEC rule, shareholders will receive at
least 60 daysO advance notice of any material change to the exchange
privilege.
FUND DIVIDEND PAYMENTS
The Fund declares dividends daily and pays them monthly. The Fund pays as
dividends substantially all net investment income (other than long-term
capital gains) each year and distributes annually all net realized long-
term capital gains (after applying any available capital loss carryovers).
The Fund pays short-term capital gains annually. The trustees of the Trust
may adopt a different schedule as long as payments are made at least
annually. If you intend to purchase shares of the Fund shortly before it
declares a dividend you should be aware that a portion of the purchase
price may be returned to you as a taxable dividend.
You have the option to reinvest all distributions in additional shares of
the same class of the Fund or in shares of the same class of other series
of the Trusts, to receive distributions from ordinary income in cash while
reinvesting distributions from capital gains in additional shares of the
same class of the Fund or the same class of other series of the Trusts or
to receive all distributions in cash. Income distributions and capital
gains distributions will be reinvested in shares of the same class of the
Fund at net asset value (without a sales charge or CDSC) unless you select
another option. You may change your distribution option by notifying New
England Funds in writing or by calling 1-800-225-5478. If you elect to
receive your dividends in cash and the dividend checks sent to you are
returned OundeliverableO to the Fund or remain uncashed for six months,
your cash election will automatically be changed and your future dividends
will be reinvested.
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program that allows you
to have all dividends and any other distributions automatically invested in
shares of the same class of another New England Fund, subject to the
investor eligibility requirements of that other fund and to state
securities law requirements. For Class A shareholders, investments will be
made at the appropriate offering price, which may include a sales charge.
For Class B shareholders, shares acquired through this program will be
subject to a CDSC if they are redeemed from the account. Dividends will be
invested in the selected fundOs shares on the dividend record date. A
dividend diversification account must be in the same registration
(shareholder name) as the distributing fund account and, if a new account
in the purchased fund is being established, the purchased fundOs minimum
investment requirements must be met. Before establishing a dividend
diversification program into any other New England Fund, you must obtain a
copy of that fundOs prospectus.
SELLING FUND SHARES
4 WAYS TO SELL FUND SHARES
[GRAPHIC] THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[GRAPHIC] BY TELEPHONE:
You or your investment dealer may redeem (sell) shares by telephone using
any of the three methods described below:
Wired to Your Bank Account -- If you have previously selected the telephone
redemption privilege on your account, Class A, Class B and Class C shares
may be redeemed by calling 1-800-225-5478 between 8 a.m. and 6 p.m.
(Eastern time). Class A shares only may also be redeemed by calling
Tele#Facts at 1-800-346-5984 twenty-four hours a day. Redemption requests
accepted after the Exchange has closed (4:00 p.m. Eastern time) will be
processed at the next-determined net asset value. The proceeds (LESS ANY
APPLICABLE CDSC) generally will be wired on the next business day to the
bank account previously chosen by you on your application. A wire fee
(currently $5.00) will be deducted from the proceeds.
Your bank must be a member of the Federal Reserve System or have a
correspondent bank that is a member. If your account is with a savings
bank, it must have only one correspondent bank that is a member of the
System.
Mailed to Your Address of Record -- Shares may be redeemed by calling 1-800-
225-5478 and requesting that a check for the proceeds (LESS ANY APPLICABLE
CDSC) be mailed to the address on your account, provided that the address
has not changed over the previous month and that the proceeds are for
$100,000 or less. Generally, the check will be mailed to you on the
business day after your redemption request is received.
Through ACH -- Shares may be redeemed electronically through the ACH
system, provided that you have an approved ACH application on file with the
Fund. To redeem through ACH, call 1-800-225-5478 prior to 3:00 p.m.
(Eastern time) on a day when the Fund is open for business or call
Tele#Facts at 1-800-346-5984 twenty-four hours a day. If your telephone
call is made to Tele#Facts before 4:00 p.m., the redemption will be
processed the day the call is made, unless it is a day when the Exchange
closes before 4:00 p.m. and your call is made after the Exchange closes.
The proceeds (LESS ANY APPLICABLE CDSC) generally will arrive at your bank
within three business days; their availability will depend on your bankOs
particular rule. If you have recently purchased your shares through the ACH
system, the Fund may withhold redemption proceeds until the funds have
cleared, which may take up to ten days.
[GRAPHIC] BY MAIL:
You may redeem your shares at their net asset value (LESS ANY APPLICABLE
CDSC) next determined after receipt of your request in good order by
sending a written request (including any necessary special documentation)
to New England Funds, P.O. Box 8551, Boston, MA 02266-8551.
The request must include the name of the Fund, your account number, the
exact name(s) in which your shares are registered, the number of shares or
the dollar amount to be redeemed and whether you wish the proceeds mailed
to your address of record, wired to your bank account or transmitted
through ACH. All owners of the shares must sign the request in the exact
names in which the shares are registered (this appears on your confirmation
statement) and indicate any special capacity in which you are signing (such
as trustee, custodian or under power of attorney or on behalf of a
partnership, corporation or other entity).
If you are redeeming shares worth less than $100,000 and the proceeds check
is made payable to the registered owner(s) and mailed to the record
address, no signature guarantee is required. Otherwise, you generally must
have your signature guaranteed by an eligible guarantor institution in
accordance with procedures established by New England Funds, L.P. Signature
guarantees by notaries public are not acceptable.
Additional written information may be required for redemptions by certain
benefit plans and IRAs. Contact the Distributor or your investment dealer
for details.
If you hold certificates for your Class A shares, you must enclose them
with your redemption request or your request will not be honored. The Fund
recommends that certificates be sent by registered mail.
[GRAPHIC] BY SYSTEMATIC WITHDRAWAL PLAN:
You may establish a Systematic Withdrawal Plan that allows you to redeem
shares and receive payments on a regular schedule. In the case of shares
subject to a CDSC, the amount or percentage you specify may not exceed, on
an annualized basis, 10% of the value of your Fund account. Redemption of
shares pursuant to the Plan will not be subject to a CDSC. For information,
contact the Distributor or your investment dealer. Since withdrawal
payments may have tax consequences, you should consult your tax adviser
before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset value next
determined after the redemption request is received in proper form by State
Street Bank or your investment dealer (except that orders received by your
investment dealer before the close of regular trading on the Exchange and
transmitted to the Distributor by 5:00 p.m. Eastern time on the same day
will receive that dayOs net asset value). Redemption proceeds (LESS ANY
APPLICABLE CDSC) will normally be mailed to you within seven days after
State Street Bank or the Distributor receives your request in good order.
During periods of substantial economic or market change, telephone
redemptions may be difficult to implement. If you are unable to contact the
Distributor by telephone, shares may be redeemed by delivering the
redemption request in person to the Distributor or by mail as described
above. Requests are processed at the net asset value next determined after
the request is received.
Special rules apply to redemptions under powers of attorney. Please call
the Distributor or your investment dealer for more information.
Telephone redemptions are not available for tax qualified retirement plans
or for Fund shares 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 that makes it impracticable
for the Fund to dispose of its securities or to determine fairly the value
of its net assets, or during any other period permitted by the SEC for the
protection of investors.
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your redemption proceeds (without a sales charge) to the
repurchase of Class A shares of any series of the Trusts. To qualify, you
must reinvest some or all of the proceeds within 120 days after your
redemption and notify New England Funds or your investment dealer at the
time of reinvestment that you are taking advantage of this privilege. You
may reinvest the proceeds either by returning the redemption check or by
sending your check for some or all of the redemption amount. Please note:
for federal income tax purposes, a redemption is a sale that involves tax
consequences (even if the proceeds are later reinvested). Please consult
your tax adviser.
FUND DETAILS
HOW FUND SHARE PRICE IS DETERMINED
Loomis Sayles, under the supervision of the TrustOs Board of Trustees,
determines the value of the total net assets of the Fund as of the close of
regular trading (ordinarily 4:00 p.m. Eastern time) each day the Exchange
is open. The Board of Trustees has authorized Loomis Sayles to delegate
certain price determination functions to pricing services or facilities
selected by Loomis Sayles. Securities for which market quotations are
readily available are generally valued at market value on the basis of
market quotations. Options, interest rate futures and options thereon which
are traded on exchanges are valued at their last sale price as of the close
of the Exchange. All money market instruments with a maturity of more than
60 days are valued at current market value. The value of debt securities
with remaining maturities of 60 days or less shall be their amortized cost
value, unless conditions indicate otherwise. In all other cases, the value
of the FundOs assets is determined in good faith by Loomis Sayles, or a
pricing service selected by Loomis Sayles, under the supervision of the
Board of Trustees.
The net asset value per share of each class is determined by dividing the
value of each classOs net assets (the current U.S. dollar value, in the
case of securities principally traded outside the United States) plus any
cash and other assets (including dividends and interest receivable but not
collected) less all liabilities (including accrued expenses), by the number
of shares of such class outstanding. The public offering price of the
FundOs Class A shares is determined by adding the applicable sales charge
to the net asset value. See OBuying Fund Shares -- Sales ChargesO above.
The public offering price of Class B and Class C shares is the net asset
value per share.
The exact price you pay for a share will be determined by the next set of
calculations made after your order is accepted by New England Funds, L.P.
In other words, if, on a Tuesday morning, your properly completed
application is received, your wire is received or your dealer places your
trade for you, the price you pay will be determined by the calculations
made as of the close of regular trading on the Exchange on Tuesday. If you
buy shares through your investment dealer, the dealer must receive your
order by the close of regular trading on the Exchange and transmit it to
the Distributor by 5:00 p.m. (Eastern time) to receive that dayOs public
offering price.
INCOME TAX CONSIDERATIONS
The Fund intends to meet all requirements of the Internal Revenue Code of
1986, as amended, to ensure that it qualifies 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
additional shares. Unless you are a tax exempt entity, your distributions
derived from the FundOs short-term capital gains and ordinary income are
taxable to you as ordinary income. Distributions derived from the FundOs
long-term capital gains (Ocapital gains distributionsO), if designated as
such by the Fund, are taxable to you as long-term capital gains, regardless
of how long you have owned shares in the Fund. Both dividends and capital
gains distributions are taxable whether distributed to you in cash or
additional shares.
The FundOs transactions in foreign currency-denominated debt securities and
its hedging activities will likely produce a difference between its book
income and its taxable income. This difference may cause a part or all of
the FundOs income distributions to constitute returns of capital for tax
purposes or require the Fund to make distributions exceeding book income to
avoid federal income tax liability.
CALCULATING THE PRICE OF SHARES
Total Market Value of Portfolio Securities
plus
Other Assets
minus
Any Liabilities
divided by
Total Number of Outstanding Shares in a Class
equals
Net Asset Value (NAV)
THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE APPLICABLE
SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B AND CLASS C IS THE NAV.
DIVIDENDS DERIVED FROM INTEREST ON U.S. GOVERNMENT SECURITIES MAY BE EXEMPT
FROM STATE AND LOCAL TAXES. The Trust intends to advise shareholders of the
proportion of the FundOs dividends that are derived from such interest.
Before investing in the Fund, you should check the consequences of your
local and state tax laws, which may be different from the federal tax
consequences, and the consequences for any retirement plan offering tax
benefits.
To avoid an excise tax, the Fund intends to distribute prior to calendar
year end virtually all the FundOs ordinary income earned during that
calendar year, and virtually all of the capital gain net income the Fund
realized in the 12-month period ending December 31 but has not previously
distributed. If declared in December to shareholders of record in that
month, and paid the following January, these distributions will be
considered for federal income tax purposes to have been received by
shareholders on December 31.
[SIDEBAR]
AVERAGE COST STATEMENT
If you have exchanged or redeemed shares during the year, you will receive
a statement that shows the cost basis of those shares which should help you
determine your gain or loss for tax purposes.
The Fund is required to withhold 31% of all income dividends and capital
gains distributions it pays to you if you do not provide a correct,
certified taxpayer identification number, if the Fund is notified that you
have underreported income in the past or if you fail to certify to the Fund
that you are not subject to such withholding. In addition, the Fund will be
required to withhold 31% of the gross proceeds of Fund shares you redeem if
you have not provided a correct, certified taxpayer identification number.
If you are a tax-exempt institution, however, these back-up withholding
rules will not apply so long as you furnish the Fund with an appropriate
certification.
Annually, if you earn more than $10 in taxable income from the Fund, you
will receive a Form 1099 to assist you in reporting the prior calendar
yearOs distributions on your federal income tax return. You should consult
your tax adviser about any state or local taxes that may apply to such
distributions. Be sure to keep the Form 1099 as a permanent record. A fee
may be charged for any duplicate information requested.
The foregoing is a summary of certain federal income tax consequences of an
investment in the Fund. You should consult a competent tax adviser as to
the effect of an investment in the Fund on your particular federal, state
and local tax situations.
THE FUNDOS EXPENSES
In addition to the management fee paid to NEFM and the fees paid to the
Distributor, the Fund pays all expenses not borne by the FundOs investment
adviser, subadviser or the Distributor, including, but not limited to, the
charges and expenses of the FundOs custodian and transfer agent,
independent auditors and legal counsel, all brokerage commissions and
transfer taxes in connection with portfolio transactions, all taxes and
filing fees, the fees and expenses for registration or qualification of its
shares under the federal or state securities laws, all expenses of
shareholdersO and trusteesO meetings and of preparing, printing and mailing
prospectuses and reports to shareholders and the compensation of trustees
who are not directors, officers or employees of NEFM, Loomis Sayles or
their affiliates, other than affiliated registered investment companies.
Certain expenses are allocated differently between the FundOs Class A,
Class B and Class C shares, on one hand, and its Class Y shares, on the
other hand. (See OAdditional Facts About the Fund,O below.)
Under a Service Plan in the case of Class A shares, and Service and
Distribution Plans in the case of Class B and Class C shares, adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor a monthly service fee at an annual rate not to exceed
0.25% of the FundOs average daily net assets attributable to the Class A,
Class B and Class C shares. The Distributor may pay up to the entire amount
of this fee to securities dealers who are dealers of record with respect to
the FundOs shares, for providing personal services to investors in shares
of the Fund and/or maintenance of shareholder accounts. In the case of
Class B shares, the Distributor pays investment dealers at the time of sale
the first yearOs service fee in the amount of up to 0.25% of the amount
invested.
The FundOs Class B shares and Class C shares pay the Distributor a monthly
distribution fee at an annual rate not to exceed 0.75% of the average net
assets of the FundOs Class B shares and Class C shares. The Distributor may
pay up to the entire amount of the distribution fee to securities dealers
who are dealers of record with respect to the FundOs shares, as
distribution fees in connection with the sale of the FundOs shares. The
Distributor retains the balance of the fee as compensation for its services
as distributor of the relevant class of shares.
The FundOs 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 DistributorOs reimbursable expenses in any year exceed
the maximum amount payable under the relevant Plan for that year, such
expenses may be carried forward for reimbursement in future years in which
the Plan remains in effect. The Class B and Class C service fees are
payable regardless of the amount of the DistributorOs related expenses.
PERFORMANCE CRITERIA
The Fund may include total return information in advertisements or other
written sales material. The Fund will show the average annual total return
for each class of shares for the one-, five- and ten-year periods (or, if
shorter, the period since the commencement of the classOs operations)
through the end of the most recent calendar quarter. Total return is
measured by comparing the value of a hypothetical $1,000 investment in a
class at the beginning of the relevant period to the value of the
investment at the end of the period (assuming deduction of the current
maximum sales charge on Class A shares, automatic reinvestment of all
dividends and capital gains distributions and, in the case of the Class B
shares, imposition of the CDSC for the period of time 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 classes 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 classOs
total return is higher.
The Fund may also include the yield, accompanied by the total return, for
each class of shares, in advertising and other written material. Yield will
be computed in accordance with the SECOs standardized formula by dividing
the adjusted net investment income per share earned during a recent 30-day
period by the maximum offering price of a share of the relevant class
(reduced by any earned income expected to be declared shortly as a
dividend) on the last day of the period. Yield calculations will reflect
any voluntary expense limitations in effect for the Fund during the
relevant period.
The Fund may also present one or more distribution rates for each class in
its sales literature. These rates will be determined by annualizing the
classOs distributions from net investment income and net short-term capital
gains over a recent 12-month, three-month or 30-day period and dividing
that amount by the maximum offering price or the net asset value on the
last day of such period. If the net asset value rather than the maximum
offering price is used to calculate the distribution rate, the rate will be
higher.
Total return will generally be higher for Class A shares than for Class B
and Class C shares because of the higher levels of expenses borne by the
Class B and Class C shares. However, this difference may be offset in whole
or in part by the benefit gained by 100% immediate investment of the
purchase price of Class B shares or Class C shares. As a result of lower
operating expenses, Class Y shares can be expected to achieve a higher
investment return than the FundOs Class A, Class B or Class C shares.
All performance information is based on past results and is not an
indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
* New England Funds Trust I was organized in 1985 as a Massachusetts
business trust and is authorized to issue an unlimited number of full
and fractional shares in multiple series. The Strategic Income Fund
commenced investment operations in 1995.
* When you invest in the Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive dividends as
determined by the TrustOs trustees and to cast a vote for each share
you own at shareholder meetings. Shares of the Fund vote separately
from shares of other series of the Trust, except as otherwise required
by law. Shares of all classes of the Fund vote together, except as to
matters relating to a classOs Rule 12b-1 plan, for which only shares
of that class are entitled to vote.
* Except for matters that are explicitly identified as OfundamentalO in
this prospectus or Parts I and II of the Statement, the investment
policies of the Fund may be changed without shareholder approval or
prior notice. The investment objectives of the Fund are not
fundamental. If there is a change in the investment objectives of the
Fund, you should consider whether the Fund remains an appropriate
investment in light of your then current financial position and needs.
* The Trust does not generally hold regular shareholder meetings and
will do so only when required by law. Shareholders of the Trust may
remove the trustees of the Trust from office by votes cast at a
shareholder meeting or by written consent.
* The transfer and dividend paying agent for the Fund is New England
Funds, L.P., 399 Boylston Street, Boston, MA 02116. New England Funds,
L.P. has subcontracted certain of its obligations as such to State
Street Bank, 225 Franklin Street, Boston, MA 02110.
* Class Y shares of the Fund may be purchased by endowments and
foundations. The minimum initial investment is $1 million for these
entities and the minimum for each subsequent investment is $100,000.
Class Y shares may also be purchased by plan sponsors of 401(a),
401(k), 457 or 403(b) plans (ORetirement PlansO) that have total
investment assets in these plans of at least $10 million. Plan
sponsorsO investment assets in multiple Retirement Plans can be
aggregated for purposes of meeting this minimum. Class Y shares may
also be purchased by any separate account of The New England or of any
other insurance company affiliated with The New England (OSeparate
AccountsO). There is no minimum initial or subsequent investment
amount for Retirement Plans or Separate Accounts. Investments in Class
Y shares may also be made by certain individual retirement accounts if
the amounts invested represent rollover distributions from investments
by any of the foregoing Retirement Plans of amounts invested in Class
Y shares.
* Class Y shares are identical to Class A, Class B and Class 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 bears its own transfer agency and prospectus printing costs.
* If the balance in your account with the Fund is less than a minimum
dollar amount set by the trustees of the Trust from time to time
(currently $500), the Fund may close your account and send the
proceeds to you. Shareholders who are affected by this policy will be
notified of the FundOs intention to close the account and will have 60
days immediately following the notice to bring the account up to the
minimum. The minimum does not apply to tax-qualified plans (such as
IRAs, Keoghs and pension and profit sharing plans) and automatic
investment plans or accounts that have fallen below the minimum solely
because of fluctuations in net asset value per share.
* The Class A, Class B, Class C and Class Y structure could be
terminated should certain IRS rulings be rescinded. See Part II of the
Statement for more details.
* The FundOs annual report will contain additional performance
information and will be made available upon request and without
charge.
APPENDIX A: RATINGS OF SECURITIES
DESCRIPTION OF MOODYOS INVESTORS SERVICE, INC. BOND RATINGS:
Aaa, Aa, A -- Bonds which are rated Aaa or Aa are judged to be of high
quality by all standards and are generally known as high grade bonds. Bonds
rated Aa are rated lower than Aaa securities because margins of protection
may not be as large as in the latter or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well secured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF STANDARD & POOROS CORPORATION BOND RATINGS:
AAA, AA, A -- Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
high rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to repay
principal and pay interest for bonds in this category than for bonds in
higher rated categories.
BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to the issuerOs capacity to pay
interest and repay principal in accordance with the terms of the
obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no income is
being paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
GLOSSARY OF TERMS
Capital gain distributions -- Payments to shareholders of profits earned
from selling securities in a fundOs portfolio. Capital gain distributions
are usually paid once a year.
Contingent deferred sales charge (CDSC) -- A fee that may be charged when a
shareholder sells fund shares.
Distribution fee -- An annual asset-based sales charge that is used to pay
for sales-related expenses.
Income distributions -- Payments to shareholders resulting from interest or
dividend income earned by a fundOs portfolio.
Mutual fund -- The pooled assets of a group of investors, professionally
managed in pursuit of a specific objective.
Net asset value (NAV) -- The market value of one share of a mutual fund on
any given day without sales charge or CDSC. Determined by dividing the
fundOs total net assets by the number of fund shares outstanding.
New England Funds, L.P. -- The distributor and transfer agent of the New
England Funds.
Open end investment management company -- A mutual fund that allows
investors to redeem fund shares directly from the fund company on any
business day.
Public offering price (POP) -- The price of one share of a mutual fund,
including its initial sales charge, if there is one.
Record date -- The date on which mutual fund investors must own a fundOs
shares to be eligible to receive specific income or capital gain
distributions.
Service fee -- Payments by a fund for personal service to investors and/or
for maintenance of shareholder accounts by the Distributor or a financial
representative.
Total Return -- The change in value of an investment in a fund investment
over a specific time period, assuming all earnings are reinvested in
additional shares of the fund. Expressed as a percentage.
Yield -- The rate at which a fund earns income, expressed as a percentage.
Yield calculations are standardized among mutual funds, based on a formula
developed by the Securities and Exchange Commission.
12b-1 fees -- Fees paid by a mutual fund under a plan adopted under the
1940 Act Rule 12b-1. Can include both distribution fees and service fees
(see above).
[LOGO]
NEW ENGLAND FUNDS
STOCK FUNDS
International Equity Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Value Fund
Growth Opportunities Fund
Balanced Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Government Securities Fund
Bond Income Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Tax Exempt Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
- --Money Market Series
- --U.S. Government Series
Tax Exempt Money Market Trust
TO LEARN MORE, AND FOR A FREE PROSPECTUS, CONTACT YOUR FINANCIAL
REPRESENTATIVE.
New England Funds, L.P.
399 Boylston Street, Boston, MA 02116
Toll Free 800-225-5478
THIS MATERIAL IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS WHEN
IT IS PRECEDED OR ACCOMPANIED BY THE FUNDS CURRENT PROSPECTUS, WHICH
CONTAINS INFORMATION ABOUT DISTRIBUTION CHARGES, MANAGEMENT, AND OTHER
ITEMS OF INTEREST. INVESTORS ARE ADVISED TO READ THE PROSPECTUS CAREFULLY
BEFORE INVESTING.
