<PAGE>
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 "Fund"), 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.
SP25-0595
<PAGE>
[LOGO]
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
NEW ENGLAND GOVERNMENT SECURITIES FUND
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
NEW ENGLAND STRATEGIC INCOME FUND
NEW ENGLAND BOND INCOME FUND
NEW ENGLAND HIGH INCOME FUND
NEW ENGLAND TAX EXEMPT INCOME FUND
PROSPECTUS AND APPLICATION -- MAY 1, 1995
New England Government Securities Fund, New England Strategic Income Fund, New
England Bond Income Fund and New England Tax Exempt Income Fund, series of New
England Funds Trust I, and New England Limited Term U.S. Government Fund, New
England Adjustable Rate U.S. Government Fund and New England High Income Fund,
series of New England Funds Trust II, are separate mutual funds (the "Funds" and
each a "Fund"). New England Funds Trust I and New England Funds Trust II are
referred to in this prospectus as the "Trusts."
Each Fund offers two classes of shares to the general public (Classes A and B)
except New England Limited Term U.S. Government, New England Strategic Income
Fund and New England Bond Income Fund which offer three classes of shares
(Classes A, B and C) to the general public. The offering price is based on the
net asset value per share next determined after an order is received. Class A
share purchases generally involve a sales charge at the time of purchase. No
initial sales charge applies to Class B share purchases. A contingent deferred
sales charge ("CDSC"), however, is imposed upon certain redemptions of Class B
shares. Class B shares automatically convert to Class A shares eight years after
purchase. No initial sales charge or CDSC applies to purchases or redemptions of
Class C shares which do not have a conversion feature. Class B and Class C
shares bear higher 12b-1 fees than Class A shares. See "Buying Fund Shares --
Sales Charges." Through a separate prospectus, New England Government Securities
Fund, New England Limited Term U.S. Government Fund, New England Adjustable Rate
U.S. Government Fund, New England Strategic Income Fund and New England Bond
Income Fund also offer Class Y shares to certain institutional investors.
FOR GENERAL INFORMATION ON THE FUNDS OR ANY OF THEIR SERVICES AND FOR ASSISTANCE
IN OPENING AN ACCOUNT, CONTACT YOUR INVESTMENT DEALER OR CALL THE DISTRIBUTOR
TOLL FREE: 1-800-225-5478.
This prospectus sets forth information you should know before investing in the
Funds. Please read it carefully and keep it for future reference. A statement of
additional information in two parts (the "Statement") about the Funds dated May
1, 1995 has been filed with the Securities and Exchange Commission (the "SEC")
and is available free of charge. Write to New England Funds, L.P. (the
"Distributor"), 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 Funds and is incorporated into this prospectus by
reference.
SHARES OF THE FUNDS 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.
<PAGE>
<TABLE>
<CAPTION>
T A B L E O F C O N T E N T S
<S> <C> <C>
Page NEW ENGLAND FUNDS
1 Investment Objectives The investment goal for each Fund.
1 New England Investment Companies and the Funds' The Funds' advisers and subadvisers are affiliates of NEIC.
Advisers and Subadvisers
---------------------------------------------------------------------------------------------------------------------------------
FUND EXPENSES AND FINANCIAL INFORMATION
2 Schedule of Fees Sales charges, yearly operating expenses.
4 Financial Highlights Historical information on the Funds' performance.
---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT STRATEGY
11 How the Funds Pursue Their Objectives
11 Fund Investments
---------------------------------------------------------------------------------------------------------------------------------
17 INVESTMENT RISKS It is important to understand the risks inherent in a Fund
before you invest.
---------------------------------------------------------------------------------------------------------------------------------
21 FUND MANAGEMENT
---------------------------------------------------------------------------------------------------------------------------------
23 Minimum Investment Everything you need to know to open and add to a New England
23 6 Ways to Buy Fund Shares Funds account.
[] Through your investment dealer
[] By mail
[] By wire transfer
[] By Investment Builder
[] By electronic purchase through ACH
[] By exchange from another New England Fund
24 Sales Charges
27 Reduced Sales Charges
(Class A Shares Only)
---------------------------------------------------------------------------------------------------------------------------------
OWNING FUND SHARES
29 Exchanging Among New England Funds New England Funds offers three convenient ways to
29 Fund Dividend Payments exchange Fund shares.
---------------------------------------------------------------------------------------------------------------------------------
SELLING FUND SHARES
31 5 Ways to Sell Fund Shares How to withdraw money or close your account.
[] Through your investment dealer
[] By telephone
[] By mail
[] By check
[] By Systematic Withdrawal Plan
32 Repurchase Option An opportunity to reinvest your redemption
(Class A Shares Only) proceeds within 120 days for no sales charge.
---------------------------------------------------------------------------------------------------------------------------------
FUND DETAILS
34 How Fund Share Price is Determined Additional information you may find important.
34 Income Tax Considerations
35 The Funds' Expenses
37 Performance Criteria
37 Additional Facts About the Funds
40 Appendix A Ratings of Securities.
41 Appendix B Portfolio Composition of the High Income Fund.
42 Glossary of Terms
</TABLE>
<PAGE>
New England Funds
INVESTMENT OBJECTIVES NEW ENGLAND GOVERNMENT SECURITIES FUND
(the "Government Securities Fund")
The Fund seeks a high level of current income consistent with safety of
principal by investing in U.S. Government securities.
Adviser: Back Bay Advisors, L.P.
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
(the "Limited Term U.S. Government Fund")
The Fund seeks a high current return consistent with preservation of capital.
Adviser: Back Bay Advisors, L.P.
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
(the "Adjustable Rate Fund")
The Fund seeks a high level of current income consistent with low volatility of
principal. The Fund intends to pursue its objective by investing only in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Adviser: Back Bay Advisors, L.P.
NEW ENGLAND STRATEGIC INCOME FUND
(the "Strategic Income Fund")
The Fund seeks high current income with a secondary objective of capital growth.
Adviser: New England Funds Management, L.P.
Subadviser: Loomis, Sayles & Company, L.P.
NEW ENGLAND BOND INCOME FUND
(the "Bond Income Fund")
The Fund seeks a high level of current income consistent with what the Fund
considers reasonable risk. The Bond Income Fund invests primarily in corporate
and U.S. Government bonds.
Adviser: Back Bay Advisors, L.P.
NEW ENGLAND HIGH INCOME FUND
(the "High Income Fund")
The Fund seeks high current income plus the opportunity for capital appreciation
to produce a high total return.
Adviser: Back Bay Advisors, L.P.
NEW ENGLAND TAX EXEMPT INCOME FUND
(the "Tax Exempt Income Fund")
The Fund seeks as high a level of current income exempt from federal income
taxes as is consistent with reasonable risk and protection of shareholders'
capital. The Tax Exempt Income Fund invests primarily in debt securities, the
interest of which is, in the opinion of the debt issuer's counsel, exempt from
federal income tax ("tax exempt bonds"), and may engage in transactions in
financial futures contracts and options on futures.
Adviser: Back Bay Advisors, L.P.
Subadviser: Loomis, Sayles & Company, L.P.
NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDS' ADVISERS AND SUBADVISERS
The investment advisers and subadvisers of each of the Funds are
independently-operated subsidiaries of New England Investment Companies, L.P.
("NEIC"), the fifth-largest publicly traded investment management firm in the
United States. NEIC is listed on the New York Stock Exchange and through its
subsidiaries or an affiliate manages over $60 billion in assets for individuals
and institutions. Each adviser and subadviser operates independently and is
staffed by experienced investment professionals. All the advisers and
subadvisers apply specialized knowledge and careful analysis to the pursuit of
each Fund's objectives.
BACK BAY ADVISORS, L.P. ("Back Bay Advisors"), investment adviser of all the
Funds except the Strategic Income Fund, manages over $6 billion in assets,
primarily mutual fund and institutional fixed-income portfolios.
NEW ENGLAND FUNDS MANAGEMENT, L.P. ("NEFM"), investment adviser of the Strategic
Income Fund, is a newly organized investment adviser.
LOOMIS, SAYLES & COMPANY, L.P. ("Loomis Sayles"), subadviser to the Strategic
Income Fund and the Tax Exempt Income Fund, has over $35 billion of assets under
management. Loomis Sayles manages portfolios for institutional investors,
individuals and mutual funds.
<PAGE>
FUND EXPENSES AND FINANCIAL INFORMATION
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the Funds.
The following table summarizes your maximum transaction costs from investing in
the Funds and estimated annual expenses for each class of the Funds' 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 Funds for the
periods specified.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES -- PAID DIRECTLY BY SHAREHOLDERS
NEW ENGLAND GOVERNMENT SECURITES FUND
NEW ENGLAND BOND INCOME FUND
NEW ENGLAND HIGH INCOME FUND NEW ENGLAND
NEW ENGLAND TAX EXEMPT INCOME FUND NEW ENGLAND LIMITED TERM ADJUSTABLE RATE
NEW ENGLAND STRATEGIC INCOME FUND U.S. GOVERNMENT FUND U.S. GOVERNMENT FUND
-------------------------------- ------------------------- ---------------------
CLASS A CLASS B CLASS C<F4> CLASS A CLASS B CLASS C CLASS A CLASS B
------- ------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Initial Sales Charge
Imposed on a Purchase
(as a percentage of offering
price)<F1><F2>................ 4.50% None None 3.00% None None 1.00% None
Maximum Contingent Deferred
Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable)<F2>.. <F3> 4.00% None <F3> 4.00% None <F3> 4.00%
Deferred Sales Charge .......... None None None None None None None None
Redemption Fee ................. None None None None None None None None
Exchange Fee ................... None None None None None None None None
<FN>
<F1>A reduced sales charge on Class A shares applies in some cases.
<F2>Does not apply to reinvested distributions.
<F3>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 "Sales Charges."
<F4>Applies only to the Strategic Income Fund and the Bond Income Fund.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES -- PAID DIRECTLY BY THE FUND, AND INDIRECTLY BY ITS SHAREHOLDERS
(as a percentage of net assets)
NEW ENGLAND
NEW ENGLAND ADJUSTABLE RATE
GOVERNMENT NEW ENGLAND LIMITED TERM U.S. NEW ENGLAND
SECURITIES FUND U.S. GOVERNMENT FUND GOVERNMENT FUND STRATEGIC INCOME FUND
---------------- ------------------------- ---------------- -------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees ................... 0.65% 0.65% 0.63% 0.63% 0.63% 0.25%<F2> 0.25%<F2> 0.00%<F3> 0.00%<F3> 0.00%<F3>
12b-1 Fees ........................ 0.25 1.00<F1> 0.35 1.00<F1> 1.00<F1>0.25 1.00<F1> 0.25 1.00<F1> 1.00<F1>
Administrative Services Fees ...... None None None None None 0.09<F2> 0.09<F2> None None None
Other Expenses .................... 0.39 0.39 0.20 0.20 0.20 0.11 0.11 1.00 1.00 1.00
Total Expenses .................... 1.29 2.04 1.18 1.83 1.83 0.70<F2> 1.45<F2> 1.25<F3> 2.00<F3> 2.00<F3>
NEW ENGLAND HIGH NEW ENGLAND TAX
NEW ENGLAND BOND INCOME FUND INCOME FUND EXEMPT INCOME FUND
---------------------------------- ---------------------------- ----------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees ........... 0.45% 0.45% 0.45% 0.52%<F4> 0.52%<F4> 0.43% 0.43%
12b-1 Fees ................ 0.25 1.00<F1> 1.00<F1> 0.35 1.00<F1> 0.25 1.00<F1>
Administrative Services
Fees .................... None None None None None None None
Other Expenses ............ 0.38 0.38 0.38 0.73 0.73 0.24 0.24
Total Expenses ............ 1.08 1.83 1.83 1.60<F4> 2.25<F4> 0.92 1.67
<F1>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.
<F2>After fee waiver and expense reduction by the Fund's adviser and/or the Distributor. Without the voluntary limitations,
Management Fees and Administrative Services Fees would be 0.38% and 0.14%, respectively; and Total Expenses would be 0.88% for
Class A shares and 1.63% for Class B shares.
<F3>After fee waiver and expense reduction by the Fund's 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.
<F4>After fee waiver by the Fund's adviser. Without the voluntary limitation, Management Fees would be 0.75%; and Total Expenses
would be 1.83% for Class A shares and 2.48% for Class B shares.
</TABLE>
<PAGE>
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>
NEW ENGLAND
NEW ENGLAND ADJUSTABLE RATE
GOVERNMENT NEW ENGLAND LIMITED TERM U.S. NEW ENGLAND
SECURITIES FUND U.S. GOVERNMENT FUND GOVERNMENT FUND STRATEGIC INCOME FUND
---------------- ------------------------- ---------------- -------------------------
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<F1> <F2> <F1> <F2> <F1> <F2> <F1> <F2>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ............................ $ 58 $ 61 $ 21 $ 42 $ 59 $ 19 $ 19 $ 37 $ 55 $ 15 $57 $60 $20 $20
- ----------------------------------------------------------------------------------------------------------------------------------
3 years ........................... $ 84 $ 94 $ 64 $ 66 $ 88 $ 58 $ 58 $ 52 $ 76 $ 46 $83 $93 $63 $63
- ----------------------------------------------------------------------------------------------------------------------------------
5 years ........................... $113 $120 $110 $ 93 $109 $ 99 $ 99 $ 68 $ 89 $ 79 <F4> <F4> <F4> <F4>
- ----------------------------------------------------------------------------------------------------------------------------------
10 years<F3>........................ $194 $218 $218 $169 $198 $198 $215 $114 $153 $153 <F4> <F4> <F4> <F4>
<CAPTION>
NEW ENGLAND NEW ENGLAND NEW ENGLAND TAX
BOND INCOME FUND HIGH INCOME FUND EXEMPT INCOME FUND
--------------------------------------- -------------------------- --------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<F1> <F2> <F1> <F2> <F1> <F2>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ....................... $ 56 $ 59 $ 19 $ 19 $ 61 $ 63 $ 23 $ 54 $ 57 $ 17
- ---------------------------------------------------------------------------------------------------------------------------------
3 years ...................... $ 78 $ 88 $ 58 $ 58 $ 93 $100 $ 70 $ 73 $ 83 $ 53
- ---------------------------------------------------------------------------------------------------------------------------------
5 years ...................... $102 $109 $ 99 $ 99 $128 $130 $120 $ 94 $101 $ 91
- ---------------------------------------------------------------------------------------------------------------------------------
10 years<F1>.................. $171 $195 $195 $215 $226 $242 $242 $154 $178 $178
<FN>
<F1>Assumes redemption at end of period.
<F2>Assumes no redemption.
<F3>Class B shares automatically convert to Class A shares after 8 years; therefore, Class B amounts are calculated using Class A
expenses in years 9 and 10.
<F4>New England Strategic Income Fund is a recently organized fund. Federal regulation requires that examples for this Fund
include information for 1 and 3 years only.
</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 Funds.
For information about the expenses of the Government Securities, Limited Term
U.S. Government, Adjustable Rate, Strategic Income and Bond Income Funds' Class
Y shares, which differ from the expenses of the Class A, Class B and, in the
case of the Limited Term U.S. Government, Strategic Income and Bond Income
Funds, Class C shares, see "Additional Facts About the Funds." To obtain more
information about Class Y shares, please call the Distributor toll-free at
1-800-225-5478. For additional information about the Funds' management fees,
12b-1 fees and other expenses, please see "Fund Management" and "The Funds"
Expenses."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect to
transfer redemption proceeds by wire.
Please keep in mind that the Example shown above is hypothetical. The
information above should not be considered a representation of past or future
return or expenses; actual return or expenses may be more or less than those
shown.
<PAGE>
FINANCIAL HIGHLIGHTS
(For Class A and B shares of each Fund outstanding throughout the indicated
periods.)
The Financial Highlights presented on pages 4 through 10 have been included in
financial statements for the Funds' Class A and B shares. The financial
statements for the New England Government Securities Fund, New England Bond
Income Fund and New England Tax Exempt Income Fund have been examined by Price
Waterhouse LLP, independent accountants, and the financial statements for New
England Limited Term U.S. Government Fund, New England Adjustable Rate U.S.
Government Fund and New England High Income Fund have been examined by Coopers &
Lybrand LLP, independent accountants. The Financial Highlights should be read in
conjunction with the financial statements and the notes thereto incorporated by
reference in Part II of the Statement.
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND GOVERNMENT SECURITIES FUND
CLASS A
-----------------------------------------------------------------------------------------------------------
SEPT. 16<F1> YEAR NOV. 30,
THROUGH ENDED THROUGH YEAR ENDED DECEMBER 31,
NOV. 30, NOV. 30,. DEC. 31,------------------------------------------------------------------------------
1985 1986 1986<F5> 1987 1988 1989 1990 1991 1992 1993 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.50 $12.72 $13.51 $13.48 $12.10 $11.85 $11.99 $11.38 $11.92 $11.73 $11.75
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.24 1.07 0.08 0.89 0.93 0.90 0.86 0.82 0.70 0.72 0.69
- ------------------------------------------------------------------------------------------------------------------------------------
Net gains or losses on
investments (both
realized and unrealized) 0.22 0.82 (0.04) (0.93) (0.18) 0.52 (0.27) 0.75 0.07 0.32 (1.32)
- ----------------------------------------------------------------------------------------------------------------------------------
Total income from
investment operations 0.46 1.89 0.04 (0.04) 0.75 1.42 0.59 1.57 0.77 1.04 (0.63)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (from net
investment income) (0.24) (1.07) (0.07) (0.89) (0.85) (0.95) (0.89) (0.82) (0.68 (0.72) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (from
net realized
capital gains) 0.00 (0.03) 0.00 (0.45) (0.15) 0.00 0.00 (0.21) (0.28) (0.30) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (from
paid-in capital) 0.00 0.00 0.00 0.00 0.00 (0.33) (0.31) 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions - (0.24) (1.10) (0.07) (1.34) (1.00) (1.28) (1.20) (1.03) (0.96) (1.02) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.72 $13.51 $13.48 $12.10 $11.85 $11.99 $11.38 $11.92 $11.73 $11.75 $10.43
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%)<F3> 3.2 15.5 0.3 (0.1) 6.8 12.6 5.7 14.9 6.8 9.0 (5.5)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental
data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end
of period (000) $48,326 $186,040 $190,416 $192,250 $179,130 $183,669 $181,343 $180,198 $178,030 $182,436 $147,986
Ratio of operating
expenses to average
net assets (%)<F4> 0.03<F2> 0.94 1.21<F2> 1.30 1.24 1.21 1.21 1.21 1.23 1.22 1.29
Ratio of net investments
income to average net 9.78<F2> 7.82 6.85<F2> 7.20 7.69 7.50 7.63 7.28 5.92 5.70 6.66
assets (%)
Portfolio turnover rate(%) 0<F2> 66 0<F2> 178 150 389 737 305 730 276 809
<FN>
<F1>The Fund commenced operations on September 16, 1985.
<F2>Computed on an annualized basis.
<F3>A sales charge is not reflected in total return calculations. Periods of less than one year are not annualized.
<F4>The ratio of expenses to average net assets without giving effect to voluntary expense limitations would have been 1.94%
(annualized) and 1.21% for the periods ended November 30, 1985 and 1986, respectively.
<F5>Fiscal year end changed from November 30 to December 31 in 1986.
</TABLE>
<PAGE>
CLASS B
----------------------------------------
SEPT. 23(A) THROUGH YEAR ENDED
DEC. 31, 1993 DEC. 31, 1994
- ----------------------------------------------------------------------------
Net asset value, beginning of period $12.26 $11.75
- ----------------------------------------------------------------------------
Income from investment operations
- ----------------------------------------------------------------------------
Net investment income 0.16 0.60
Net gains or losses on securities
(both realized and unrealized) (0.30) (1.32)
- ----------------------------------------------------------------------------
Total income from investment operations (0.14) (0.72)
- ----------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------
Distributions (from net investment income) (0.16) (0.60)
Distributions (from net realized
capital gains) (0.21) 0.00
Distributions (from paid-in capital) 0.00 0.00
- ----------------------------------------------------------------------------
Total distributions (0.37) (0.60)
- ----------------------------------------------------------------------------
Net asset value, end of period $11.75 $10.43
============================================================================
Total return (%)(c) (1.2) (6.2)
- ----------------------------------------------------------------------------
Ratios/Supplemental data
- ----------------------------------------------------------------------------
Net assets, end of period (000) $1,255 $2,760
Ratio of operating expenses to
average net assets (%) 1.97(b) 2.04
Ratio of net income to average
net assets (%) 5.03(b) 5.91
Portfolio turnover rate(%) 276(d) 809
(a) Class B shares were first offered on September 23, 1993.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return
calculations. Periods of less than one year are not annualized.
(d) Represents portfolio turnover rate for the Fund as a whole for the
entire fiscal year.
<PAGE>
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------------------------------ ----------------------------
Jan. 3,<F1> Sept. 27,<F1> Year
through Year Ended December 31, through Ended
Dec. 31, ---------------------------------------------------------- Dec. 31, Dec. 31,
1989 1990 1991 1992 1993 1994 1993 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $12.50 $12.53 $12.44 $12.86 $12.54 $12.49 $12.76 $12.49
----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.97 0.94 0.93 0.80 0.71 0.82 0.17 0.71
Net gains or losses on
investments (both
realized and unrealized) 0.27 0.29 0.69 (0.11) 0.08 (1.10) (0.24) (1.08)
----------------------------------------------------------------------------------------------------------------------------------
Total income from
investment operations 1.24 1.23 1.62 0.69 0.79 (0.28) (0.07) (0.37)
----------------------------------------------------------------------------------------------------------------------------------
Less distributions
----------------------------------------------------------------------------------------------------------------------------------
Distributions (from net
investment income) (0.96) (0.94) (0.94) (0.80) (0.71) (0.72) (0.16) (0.64)
Distributions (in excess
of net investment income) 0.00 0.00 0.00 0.00 (0.01) 0.00 (0.01) 0.00
Distributions (from net
realized capital gains) (0.25) (0.38) (0.26) (0.21) (0.12) 0.00 (0.03) 0.00
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.21) (1.32) (1.20) (1.01) (0.84) (0.72) (0.20) (0.64)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $12.53 $12.44 $12.86 $12.54 $12.49 $11.49 $12.49 $11.48
==================================================================================================================================
Total return (%)<F4> 10.4 10.5 13.8 5.7 6.4 (2.3) (0.6) (2.9)
----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental data
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000) $8,430 $50,062 $271,966 $477,396 $562,184 $412,399 $6,221 $11,891
Ratio of operating
expenses to average net
assets(%)<F2> 1.31 1.25 1.25 1.16 1.14 1.18 1.96<F3> 1.83
Ratio of net investment
income to average net
assets(%) 7.92 7.95 7.24 6.24 5.64 6.80 4.30<F3> 6.15
Portfolio turnover rate(%) 731 55 277 323 124 244 124<F5> 244
<FN>
-------------
<F1> The Fund commenced operations on January 3, 1989. Class B shares were first offered beginning September 27, 1993.
<F2> Commencing May 18, 1989 through March 31, 1992, expenses were voluntarily limited to 1.25% of average daily net assets. The
ratio of expenses to average net assets without giving effect to this expense limitation would have been 3.47% for the period
ended December 31, 1989 and 1.62% for the year ended December 31, 1990.
<F3> Computed on an annualized basis.
<F4> A sales charge of 3% maximum in the case of Class A shares and a contingent deferred sales charge in the case of Class B
shares are not reflected in total return calculations. Periods of less than one year are not annualized.
<F5> Represents portfolio turnover rate for the Fund as a whole for the entire fiscal year.
</TABLE>
<PAGE>
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------------- -------------------------------
Oct. 18,<F1> Sept. 13,<F1> Year
through Year Ended December 31, through Ended
Dec. 31, --------------------------------------- Dec. 31, Dec. 31,
1991 1992 1993 1994 1993 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.50 $7.50 $7.46 $7.45 $7.52 $7.45
----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.09 0.42 0.33 0.37 0.08 0.29
Net gains or losses on investments (both
realized and unrealized) 0.00 (0.06) (0.03) (0.31) (0.08) (0.29)
----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.09 0.36 0.30 0.06 0.00 0.00
----------------------------------------------------------------------------------------------------------------------------------
Less distributions
----------------------------------------------------------------------------------------------------------------------------------
Distributions (from net investment income) (0.09) (0.40) (0.31) (0.31) (0.07) (0.25)
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.09) (0.40) (0.31) (0.31) (0.07) (0.25)
----------------------------------------------------------------------------
Net asset value, end of period $7.50 $7.46 $7.45 $7.20 $7.45 $7.20
==================================================================================================================================
Total return (%)<F4> 1.2 4.9 4.0 0.8 0.0 0.10
----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental data
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) $60,684 $294,687 $734,251 $489,637 $855 $2,056
Ratio of operating expenses to average
net assets(%)<F2> 0.50<F3> 0.57 0.60 0.60 1.35<F3> 1.35
Ratio of net
investment income to average
net assets (%) 6.43<F3> 5.39 4.39 4.85 3.50<F3> 4.1
Portfolio turnover rate(%) 52<F3> 49 54 17 54<F5> 17
<FN>
--------------
<F1> The Fund commenced operations on October 18, 1991. Class B shares were first offered on September 13, 1993.
<F2> From October 19, 1991 through March 20, 1992 expenses were voluntarily limited to 0.50% of average daily net assets.
Commencing April 1, 1992 expenses were voluntarily limited to 0.60% of Class A average daily net assets, and, effective
September 13, 1993, 1.35% of Class B average daily net assets. The ratio of operating expenses to average net assets without
giving effect to these expense limitations would have been 1.26% (annualized) and 0.96%, 0.86% and 0.88% for Class A shares
for the period ended December 31,1991 and the years ended December 31, 1992, 1993 and 1994, respectively, and 1.61%
(annualized) and 1.63% for Class B shares for the period September 13, 1993 through December 31, 1993 and the year ended
December 31, 1994, respectively.
<F3> Computed on an annualized basis.
<F4> A sales charge of 1.00% (maximum) in the case of Class A shares and a contingent deferred sales charge in the case of Class B
shares are not reflected in total return calculations. Periods of less than one year are not annualized.
<F5> Represents portfolio turnover rate for the Fund as a whole for the entire fiscal year.
</TABLE>
<PAGE>
NEW ENGLAND BOND INCOME FUND
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------------------------------------------------- ------------------
July 1, Sept. 13,<F1> Year
June 30, through Year Ended December 31, through Ended
---------------- Dec. 31, ----------------------------------------------------------------- Dec. 31, Dec. 31,
1985 1986 1986<F4> 1987 1988 1989 1990 1991 1992 1993 1994 1993 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 9.78 $10.93 $11.45 $11.73 $10.98 $10.89 $11.23 $11.12 $12.14 $12.12 $12.18 $13.06 $12.18
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment
income 1.09 0.98 0.49 0.90 0.85 0.91 0.89 0.88 0.85 0.77 0.72 0.20 0.63
Net gains or losses
on investments
(both realized and
unrealized) 1.14 0.71 0.26 (0.75) (0.06) 0.34 (0.10) 1.04 0.01 0.66 (1.23) (0.30) (1.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from
investment
operations 2.23 1.69 0.75 0.15 0.79 1.25 0.79 1.92 0.86 1.43 (0.51) (0.10) (0.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (from
net investment
income) (1.08) (1.17) (0.47) (0.90) (0.88) (0.91) (0.90) (0.90) (0.86) (0.78) (0.72) (0.19) (0.63)
Distributions (from
net realized
capital gains) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.02) (0.59) 0.00 (0.59) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.08) (1.17) (0.47) (0.90) (0.88) (0.91) (0.90) (0.90) (0.88) (1.37) (0.72) (0.78) (0.63)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.93 $11.45 $11.73 $10.98 $10.89 $11.23 $11.12 $12.14 $12.12 $12.18 $10.95 $12.18 $10.95
====================================================================================================================================
Total return (%)<F3> 24.2 16.6 6.7 1.4 7.4 11.9 7.5 18.1 7.5 12.1 (4.2) (0.8) (4.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental
data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (000) $37,379 $46,175 $54,210 $60,071 $67,548 $76,662 $85,372 $113,759 $145,184 $179,264 $155,362 $2,661 $9,435
Ratio of operating
expenses to
average net
assets (%) 0.85 0.92 1.02<F2> 1.31 1.20 1.18 1.18 1.15 1.08 1.04 1.08 1.81<F2> 1.83
Ratio of net
investment income
to average net
assets(%) 10.63 8.80 8.29<F2> 8.03 7.68 8.27 8.05 7.69 7.08 6.10 6.46 4.79<F2> 5.71
Portfolio turnover
rate(%) 217 242 352<F2> 307 88 77 126 218 89 202 77 202<F5> 77
<FN>
- ------------
<F1> Commencement of offering of Class B shares.
<F2> Computed on an annualized basis.
<F3> A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of Class B shares are not
reflected in total return calculations. Periods of less than one year are not annualized.
<F4> Fiscal year end changed in 1986 from June 30 to December 31.
<F5> Represents portfolio turnover rate for the Fund as a whole for the entire fiscal year.
</TABLE>
<PAGE>
NEW ENGLAND HIGH INCOME FUND
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------------------------------------------ --------------------
Four
Months Sept. 20,<F1> Year
Year Ended August 31, Ended Year Ended December 31, through Ended
---------------------------- Dec. 31, ---------------------------------------------- Dec. 31, Dec. 31,
1985 1986 1987 1988 1988<F4> 1989 1990 1991 1992 1993 1994 1993 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.43 $14.56 $14.52 $13.77 $11.69 $11.08 $10.07 $7.56 $9.07 $ 9.46 $10.06 $ 9.87 $10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.56 1.54 1.50 1.53 0.43 1.31 1.30 1.02 0.94 0.90 0.88 0.23 0.79
Net gains or losses
on investments
(both realized and
unrealized) 1.30 0.18 (0.26) (1.92) (0.56) (0.93) (2.49) 1.58 0.44 0.61 (1.19) 0.20 (1.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from
investment operations 2.86 1.72 1.24 (0.39) (0.13) 0.38 (1.19) 2.60 1.38 1.51 (0.31) 0.43 (0.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (from
net investment
income)<F5> (1.64) (1.56) (1.56) (1.53) (0.43) (1.31) (1.30) (1.02) (0.94) (0.90) (0.86) (0.23) (0.78)
Distributions (in
excess of net
investment income) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) 0.00 (0.01) (0.01)
Distributions (from
net realized
capital gains) (0.09) (0.20) (0.43) (0.13) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions (from
paid-in capital) 0.00 0.00 0.00 (0.03) (0.05) (0.08) (0.02) (0.07) (0.05) 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.73) (1.76) (1.99) (1.69) (0.48) (1.39) (1.32) (1.09) (0.99) (0.91) (0.86) (0.24) (0.79)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $14.56 $14.52 $13.77 11.69 $11.08 $10.07 $ 7.56 $9.07 $9.46 $10.06 $ 8.89 $10.06 $ 8.88
====================================================================================================================================
Total return (%)<F7> 22.6 12.4 9.0 (2.6) (1.2) 3.3 (13.1) 36.3 15.8 16.5 (3.3) 4.4 (4.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (000) $19,903 $22,080 $20,439 $14,517 $11,870 $9,070 $6,814 $12,280 $20,992 $31,176 $33,673 $1,232 $5,233
Ratio of operating
expenses to average
net assets(%)<F2> 1.48 1.50 1.50<F6>1.57 1.50<F3> 1.50 1.50 1.50 1.50 1.54 1.60 2.25<F3> 2.25
Ratio of net
investment income
to average net
assets(%) 11.25 10.53 10.60 12.45 11.58<F3>12.28 14.00 11.56 9.74 9.17 9.18 7.66<F3> 8.53
Portfolio turnover
rate(%) 43 86 39 29 1<F3> 30 7 30 19 43 33 43<F8> 33
- --------------
<FN>
<F1> Commencement of offering of Class B shares.
<F2> Commencing October 1, 1993 expenses were voluntarily limited to the annual rate of 1.60% of Class A average net assets and
2.25% of Class B average net assets. From May 18, 1989 through September 30, 1993, expenses (including non-recurring items)
were voluntarily limited to 1.50% of average daily net assets of Class A shares. From July 27, 1988 through May 17, 1989, and
during all periods prior to May 18, 1988, expenses (excluding certain non-recurring items) were limited to 1.50% of average net
assets of Class A shares. Non-recurring expenses excluded for purposes of calculating this expense limitation were $3,267 for
the year ended August 31, 1988, $51,751 for the four months ended December 31, 1988 and $42,482 for the period from January 1
through May 17, 1989. The ratios of expenses to average net assets for Class A shares, including all non-recurring expenses and
assuming the foregoing expense limitations had not been in effect, would have been 2.34% and 2.34%, respectively, for the years
ended August 31, 1987 and 1988, 2.63% (on an annualized basis) for the four months ended December 31, 1988, 3.08%, 3.02%,
2.63%, 2.00%, 1.82% and 1.83% for the years ended December 31, 1989, 1990, 1991, 1992, 1993 and 1994. Excluding all
non-recurring expenses, these ratios would have been 2.07%, 2.32%, 2.23% (on an annualized basis), 2.68%, 2.97%, 2.63%, 2.00%,
1.82% and 1.83% for Class A shares for the years ended August 31, 1987 and 1988, the period ended December 31, 1988 and the
years ended December 31, 1989, 1990, 1991, 1992, 1993 and 1994, respectively. The ratio of expenses to average net assets for
Class B shares assuming the foregoing expense limitation had not been in effect, would have been 2.53% (on an annualized basis)
and 2.48% for the period September 20, 1993 through December 31, 1993 and the year ended December 31, 1994.
<F3> Computed on an annualized basis.
<F4> Fiscal year end changed in 1988 from August 31 to December 31. The current investment adviser assumed that function on July 27,
1988.
<F5> Amounts distributed include tax basis distributions from paid in capital of approximately $0.06 and $0.02 per share for the
year ended August 31, 1988 and the four months ended December 31, 1988, respectively.
<F6> One-time litigation settlement costs of $56,920 (0.27% of average net assets) were incurred in fiscal 1987. The ratio of
operating expenses to average net assets, if calculated including these non-recurring costs, would have been 1.77%, after
giving effect to the expense limitation in effect during such period and described above.
<F7> A sales charge in the case of the Class A shares and a contingent deferred sales charge in the case of the Class B shares are
not reflected in total return calculations. Periods of less than one year are not annualized.
<F8> Represents portfolio turnover rate for the Fund as a whole for the entire fiscal year.
</TABLE>
<PAGE>
NEW ENGLAND TAX EXEMPT INCOME FUND
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------------------------------------------------------------------
Year July 1, Sept. 13,<F1> Year
Ended to Year Ended December 31, through Ended
June 30, Dec. 31, ----------------------------------------------------------------------------- Dec. 31, Dec. 31,
1985 1985<F4> 1986 1987 1988 1989 1990 1991 1992 1993 1994 1993 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $6.23 $7.23 $7.53 $7.74 $6.79 $7.10 $7.29 $7.21 $7.53 $7.54 $7.87 $8.03 $7.86
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment
income 0.59 0.29 0.53 0.46 0.46 0.47 0.46 0.45 0.44 0.40 0.39 0.07 0.34
Net gains or
losses on
investments
(both realized
and unrealized) 0.93 0.28 0.96 (0.67) 0.29 0.20 (0.08) 0.35 0.21 0.53 (1.01) 0.01 (1.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from
investment
operations 1.52 0.57 1.49 (0.21) 0.75 0.67 0.38 0.80 0.65 0.93 (0.62) 0.08 (0.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions (from
net investment
income) (0.52) (0.27) (0.68) (0.42) (0.44) (0.48) (0.46) (0.43) (0.46) (0.42) (0.40) (0.07) (0.34)
Distributions
(from net
realized capital
gains) 0.00 0.00 (0.60) (0.32) 0.00 0.00 0.00 (0.01) (0.18) (0.18) 0.00 (0.18) 0.00
Distributions (from
paid-in
capital) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.04) 0.00 0.00 0.00 0.00 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total
distributions (0.52) (0.27) (1.28) (0.74) (0.44) (0.48) (0.46) (0.48) (0.64) (0.60) (0.40) (0.25) (0.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.23 $7.53 $7.74 $6.79 $7.10 $7.29 $7.21 $7.53 $7.54 $7.87 $6.85 $7.86 $6.85
====================================================================================================================================
Total return
(%)<F3> 25.3 8.1 21.2 (2.9) 11.5 9.8 5.5 11.6 8.9 12.7 (8.0) 1.0 (8.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end
of period
(000) $77,524 $83,298 $116,503 $125,661 $131,776 $142,976 $146,232 $162,991 $183,276 $226,881 $184,202 $3,395 $7,997
Ratio of operating
expenses to
average net
assets (%) 0.82 0.84<F2> 0.85 1.04 0.98 0.96 0.97 0.95 0.95 0.91 0.92 1.65<F2> 1.67
Ratio of net
investment income
to average net
assets(%) 8.74 8.00<F2> 6.81 6.56 6.67 6.58 6.46 6.18 5.80 5.27 5.44 3.91<F2> 4.69
Portfolio turnover
rate(%) 301 294<F2> 156 196 97 89 85 126 85 86 88 86<F5> 88
- ------------
<FN>
<F1> Commencement of offering of Class B shares.
<F2> Computed on an annualized basis.
<F3> A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B shares are not
reflected in total return calculations. Periods of less than one year are not annualized.
<F4> Fiscal year end changed in 1985 from June 30 to December 31.
<F5> Represents portfolio turnover rate for the Fund as a whole for the entire year.
</TABLE>
<PAGE>
Investment Strategy
HOW THE FUNDS PURSUE THEIR OBJECTIVES
Each Fund is a "diversified" mutual fund.
Investments in each Fund will be pooled with money from other investors in that
Fund to invest in a managed portfolio consisting of securities appropriate to
the Fund's investment objective and policies. There can be no assurance that any
Fund will achieve its objective.
FUND INVESTMENTS
* GOVERNMENT SECURITIES FUND
The Government Securities Fund expects that under normal market conditions it
will invest 100% of its net assets in securities issued or guaranteed by the
U.S. Government or its agencies, authorities or instrumentalities that are
backed by the full faith and credit of the U.S. Government. These securities
include, for example, U.S. Treasury bills, bonds and notes, mortgage
participation certificates guaranteed by the Government National Mortgage
Association ("GNMA") and Federal Housing Administration debentures.
The Fund may invest in securities of any maturity and in zero coupon
securities. In addition to investing directly in U.S. Government securities,
the Fund may purchase "stripped" securities.
For hedging purposes, the Government Securities Fund may also purchase and
sell interest rate futures contracts on U.S. Government securities and may
write and purchase options on such futures and options on U.S. Government
securities. Transactions involving futures and options on futures may help to
reduce the volatility of the Fund's net asset value, but this result cannot
be assured. Options and futures are not backed by the U.S. Government.
It is a fundamental policy of the Fund that under normal market conditions it
will invest at least 65% of its total assets in U.S. Government Securities.
* LIMITED TERM U.S. GOVERNMENT FUND
The Fund will seek to achieve its objective by investing 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. Under normal market conditions, 65% or more of the Fund's
total assets will be invested in U.S. Government Securities (including zero
coupon bonds) and collateralized mortgage obligations ("CMOs") issued by
instrumentalities of the U.S. Government. The Fund may also invest in
asset-backed securities rated Aaa by Moody's Investors Service, Inc.
("Moody's") or AAA by Standard & Poor's Corporation ("S&P") or unrated but
determined by the Fund's adviser to be of comparable quality to securities in
those rating categories. The Fund may purchase and sell financial futures
contracts and options for hedging purposes. The Fund limits its investment in
CMOs to those issued by instrumentalities of the U.S. Government.
The Fund's investment adviser, Back Bay Advisors, provides a continuous
investment program designed to maximize current return while minimizing
fluctuations in the value of the Fund's portfolio, thus stabilizing the net
asset value of the Fund's shares. Because the market value of fixed-income
securities fluctuates in response to changes in interest rates, there is a
risk of a decline in the value of the Fund's portfolio (and a corresponding
decrease in the value of the Fund's shares) if interest rates increase. To
reduce this risk, the Fund will ordinarily seek to maintain an average
dollar-weighted maturity of three to seven years. The Fund may hold
individual securities with maturities of more than seven years as long as its
average maturity remains within this limit.
"Duration" is a commonly used measure of the price responsiveness of a
fixed-income security or a portfolio of fixed-income securities to an
interest rate change (i.e., the change in price one can expect from a given
change in yield). Many investors and investment analysts consider duration to
be a more useful measure of price sensitivity than "maturity." A debt
instrument's duration is derived by discounting principal and interest
payments to their present value using the instrument's current yield to
maturity and calculating the dollar-weighted average time until these
payments will be received. The Fund will seek to maintain an average
portfolio duration of four years or less. The Fund's portfolio may include
fixed-income securities with durations of more than four years, so long as
the Fund seeks to maintain an average portfolio duration of four years or
less.
The values of securities having shorter durations generally fluctuate less
than securities with longer durations. A portfolio with an average duration
of four years or less should provide investors with a reduced risk of loss
due to rising interest rates. For example, based on yields of 6.9% for a
five-year U.S. Treasury security and 7.3% for a 30-year U.S. Treasury
security, a 1% increase in interest rates would be expected to result in
approximately a 4.3% reduction in the value of the five-year security
(duration 4.3) as compared to approximately a 12.4% reduction in the value of
the 30-year security (duration 12.4). Conversely, a 1% decrease in interest
rates would be expected to result in similar increases in value. These
expectations represent Back Bay Advisors' estimate of portfolio volatility
based upon historic data collected under a wide variety of market conditions,
but there is no assurance that actual volatility will be consistent with such
expectations.
The Fund may lend portfolio securities amounting to not more than 25% of its
assets to securities dealers and may enter into repurchase agreements on up
to 25% of its assets. These transactions must be fully collateralized at all
times, but involve some credit risk to the Fund if the other party should
default on its obligations and the Fund is delayed in or prevented from
recovering the collateral. Part II of the Statement provides more detail on
these transactions.
* ADJUSTABLE RATE FUND
The Fund seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in adjustable rate mortgage
securities ("ARMs") or other securities collateralized by or representing
interests in mortgages (collectively, "mortgage securities"), which have
interest rates that are reset at periodic intervals and which are issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The
Fund also may invest in CMOs issued by instrumentalities of the U.S.
Government, but will not invest in privately issued CMOs. Other securities
purchased by the Fund will be limited to securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities but will not include
any stripped securities (such as interest only or principal only obligations)
or zero coupon obligations. As described in Part II of the Statement, the
Fund also intends to limit its investments to those that would be permissible
investments for federal credit unions and national banks. When maintaining a
temporary defensive position, the Fund may invest its assets, without limit,
in U.S. Government securities of any type.
* STRATEGIC INCOME FUND
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 and in securities issued or
guaranteed by foreign governments (including their political subdivisions,
agencies, authorities and/or instrumentalities) ("Foreign Government
Securities") 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 Moody's and D by S&P) and in
instruments that are unrated. Securities rated below investment grade quality
are considered high yield, high risk securities and are commonly known as
"junk bonds." For more information about the risks of investing in high
yield, high risk securities and securities of foreign issuers, see
"Investment Risks -- Lower Rated Fixed-Income Securities" and "Foreign
Securities."
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 Fund's 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
Fund's 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.
* BOND INCOME FUND
The Bond Income Fund invests primarily in corporate and U.S. Government
bonds. At least 80% of its total assets will be invested in bonds carrying
investment grade ratings from one of the recognized rating services. The Fund
may also purchase non-rated or lower-rated bonds. Bonds rated BBB by S&P or
Baa by Moody's (the lowest ratings that are considered investment grade) have
speculative characteristics and unfavorable changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity of issuers
of these bonds to make principal and interest payments than is the case with
higher grade bonds. If an investment rated BBB or Baa is down-graded by a
major rating agency, the adviser will consider whether the investment remains
appropriate for the Fund. The Fund may invest in securities of any maturity
and in zero coupon securities. The Fund may also invest in CMOs. The Fund
will normally maintain an average dollar-weighted maturity of its portfolio
of less than ten years.
The Fund may invest in foreign securities but will do so only when the Fund's
adviser believes the associated risks are minimal.
* HIGH INCOME FUND
The High Income Fund invests primarily in long-term corporate fixed-income
securities, the majority of which are rated BBB or lower by S&P or Baa or
lower by Moody's or are unrated. Securities of below investment grade quality
are considered high-yield, high-risk securities and are commonly known as
"junk bonds". See "Investment Risks -- Lower Rated Fixed-Income Securities"
below. A diversified portfolio of these securities normally provides a
current yield or yield to maturity that is significantly higher than yields
of higher rated fixed-income securities. In addition to high current income,
the Fund seeks capital appreciation through (1) market price appreciation in
periods of declining interest rates and (2) the improvement of the credit
standing of issuers.
The Fund's investment adviser, Back Bay Advisors, provides the Fund with a
management program that seeks to reduce risks to the Fund by diversification
and analysis of the underlying creditworthiness of issuers and the underlying
value of securities. Back Bay Advisors performs its own credit analyses and
does not rely primarily on the ratings assigned by rating services. Back Bay
Advisors' analyses, in ascertaining both creditworthiness and potential for
capital appreciation, focus on technical factors as well as fundamental
factors such as the relationship of current market price to anticipated cash
flow and its coverage of interest or dividend requirements, debt as a
percentage of assets, earnings prospects, the experience and perceived
strength of the issuer's management, price responsiveness of the issuer's
securities to changes in interest rates and business conditions, debt
maturity schedules and borrowing requirements and the issuer's liquidation
value.
The Fund will not invest in defaulted issues as a standard practice, but may
from time to time invest in certain defaulted issues that, in the view of
Back Bay Advisors, present an attractive opportunity for capital
appreciation. Because defaulted issues are ordinarily not income producing,
investment in such issues would likely reduce the Fund's current yield.
The Fund expects that under normal market conditions at least 80% of the
value of its total assets will be invested in long-term fixed-income
securities of U.S. corporations, including preferred stock and convertible
securities. To achieve its basic investment objective, the Fund from time to
time also may invest up to 20% of the value of its total assets in common
stocks and up to 10% of the value of its total assets in fixed-income
securities issued by foreign governments or by companies organized in foreign
countries. However, investments in both of these types of securities on a
combined basis generally will not exceed 20% of the value of the Fund's
assets. See "Investment Risks -- Foreign Securities" below.
The Fund may also invest in zero coupon and "pay-in-kind" securities.
If Back Bay Advisors expects a rising trend in interest rates, it may shift
the Fund's portfolio into shorter-term debt securities and domestic money
market instruments whose prices might not be affected as much by an increase
in interest rates. During those periods, or other periods when market
conditions temporarily warrant a more defensive strategy, or in order to meet
redemptions or pending investments, the Fund may invest an unlimited portion
of its assets in U.S. Government Securities; certificates of deposit,
bankers' acceptances and other obligations of U.S. banks with deposits of at
least $2 billion at the close of the last calendar year; commercial paper
that is rated in the two highest categories of Moody's or S&P; short-term
fixed-income securities that are rated within the three highest categories of
Moody's or S&P; and repurchase agreements with financial institutions deemed
creditworthy by Back Bay Advisors. Investment in such instruments may result
in a lower current yield and would tend to limit appreciation possibilities.
The Fund may lend portfolio securities amounting to not more than 10% of its
assets to securities dealers. These transactions must be fully collateralized
at all times, but involve some credit risk to the Fund if the other party
should default on its obligations and the Fund is delayed in or prevented
from recovering the collateral. Part II of the Statement provides more detail
on these transactions.
* TAX EXEMPT INCOME FUND
The Fund will normally invest at least 80% of its net assets in tax exempt
bonds. This is a fundamental policy. The issuers of tax exempt bonds are
generally states and local governments and their agencies, authorities and
other instrumentalities. Securities purchased by the Fund will be largely of
investment grade quality. Immediately after the purchase of any investment,
at least 85% of the Fund's assets will consist of securities rated AAA, AA, A
or BBB by S&P, Aaa, Aa, A or Baa by Moody's or unrated but determined by the
Fund's adviser to be of comparable quality to securities in those rating
categories. The other 15% of the Fund's assets may be invested in securities
rated below investment grade (below BBB or Baa) or unrated but determined by
the investment adviser to be of comparable quality. Bonds rated BBB or Baa
are considered investment grade but may have speculative characteristics.
Unfavorable changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of issuers of these bonds to make
principal and interest payments than is the case with higher grade bonds. If
an investment rated BBB or Baa is down-graded by a major rating agency, the
adviser will consider whether the investment remains appropriate for the
Fund. The Fund may invest in bonds rated in the lowest rating categories, D
by S&P or C by Moody's. These classes of bonds can be regarded as having
extremely poor prospects of ever attaining any real investment standing. The
Fund may invest in securities of any maturity.
The Fund may also purchase and sell interest rate futures contracts and tax
exempt bond index futures contracts and may write and purchase related
options. Transactions involving futures and options on futures may help to
reduce the volatility of the Fund's net asset value and the writing of
options on futures may yield additional income for the Fund, but these
results cannot be assured. Income from options and futures transactions is
not tax-exempt.
Although the yield of a tax exempt fund generally will be lower than that of
a taxable income fund, the net after-tax return to investors may be greater.
The table below illustrates what tax free investing can mean for you. It
shows what you must earn from a taxable investment to equal a tax-free yield
ranging from 4% to 6%, under current federal tax rates. You can see that as
your tax rate goes up, so do the benefits of tax-free income. For example, a
married couple with a taxable income of $40,000 filing a joint return would
have to earn a taxable yield of 8.33% to equal a tax-free yield of 6.0%. This
example and the following table do not take into account the effect of state
or local income taxes, if any, or federal income taxes on social security
benefits which may arise as a result of receiving tax exempt income, or the
federal alternative minimum tax that may be payable to the extent that Fund
dividends are derived from interest on "private activity" bonds (see below).
Also, a portion of the Fund's distributions may consist of ordinary income or
short-term or long-term capital gains and will be taxable to you as such.
<PAGE>
<TABLE>
<CAPTION>
TAX FREE INVESTING
Taxable and Tax-Free Yields
TAXABLE INCOME IF TAX EXEMPT YIELD IS
FEDERAL -------------------------------------------
SINGLE JOINT MARGINAL 4.0% 4.5% 5.0% 5.5% 6.0%
RETURN ($) RETURN ($) TAX RATE THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 23,350 0 - 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
23,351 - 56,550 39,001 - 94,250 28.00% 5.56% 6.25% 6.94% 7.64% 8.33%
56,551 - 117,950 94,251 - 143,600 31.00% 5.80% 6.52% 7.25% 7.97% 8.70%
117,951 - 256,500 143,601 - 256,500 36.00% 6.25% 7.03% 7.81% 8.59% 9.38%
256,501 and more 256,501 and more 39.60% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
Under the Internal Revenue Code (the "Code"), the interest on so-called "private
activity" bonds is an item of tax preference, which, depending on the
shareholder's particular tax situation, might subject the shareholder to an
alternative minimum tax with a maximum rate of 28%. The Fund intends to invest
in "private activity" bonds when, in the judgment of the Fund's adviser, the
yield and availability of such bonds makes them a more attractive investment for
the Fund than other types of bonds, the interest of which is not subject to the
possible incidence of the federal alternative minimum tax. Normally, the Fund's
investments in "private activity" bonds, together with investments in cash or
taxable money market securities, will not exceed 20% of its net assets, although
the Fund may invest more than 20% of its net assets in cash or taxable money
market securities for defensive purposes in order to meet redemptions or pending
investments. The interest on tax exempt bonds issued after certain dates in 1986
is retroactively taxable from the date of issuance if the issuer does not comply
with certain requirements concerning the use of bond proceeds and the
application of earnings on bond proceeds.
* 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 (the "FHLMC") and the Federal National Mortgage
Association (the "FNMA") 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 Government Securities and Strategic Income Funds may purchase "stripped"
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
The Funds that may invest in securities denominated in foreign currencies or
traded in foreign markets 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
Each Fund may purchase securities for its portfolio on a "when-issued" basis.
This means that the Fund will enter into the commitment to buy the security
before the security has been issued. The Fund's 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 Funds, consistent with their investment objectives, attempt to maximize
yields 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 Government Securities and Strategic Income Funds
also invest 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 higher turnover rates in
the Funds' portfolios which may produce higher transaction costs and a higher
level of taxable capital gains. Portfolio turnover considerations will not
limit any Fund's adviser's or, in the case of the Strategic Income Fund,
subadviser's investment discretion in managing the Fund's assets.
Although it is not possible to predict the portfolio turnover rate with
certainty, Loomis Sayles expects the Strategic Income Fund's portfolio
turnover rate will usually not exceed an annual rate of 150%. A turnover rate
in excess of 100% may be considered high.
Recent portfolio turnover rates for all other Funds are set forth above under
"Financial Highlights."
Each Fund may enter into repurchase agreements, under which a 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.
<PAGE>
Investment Risks
It is important to understand the following risks inherent in a Fund before you
invest.
* FIXED-INCOME SECURITIES (ALL FUNDS)
The Funds invest principally in fixed-income securities. Because interest
rates vary, it is impossible to predict the income of a 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 a Fund's
portfolio.
Fixed-income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. 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. In the case of tax exempt bonds, the
issuer may make these payments from money raised through a variety of
sources, including (1) the issuer's general taxing power, (2) a specific type
of tax such as a property tax, or (3) a particular facility or project such
as a highway. The ability of an issuer of tax exempt bonds to make these
payments could be affected by litigation, legislation or other political
events, or the bankruptcy of the issuer. 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 (STRATEGIC INCOME FUND, BOND INCOME FUND,
HIGH INCOME FUND AND TAX EXEMPT INCOME FUND)
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 adviser's or subadviser's 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. During the fiscal year
ended December 31, 1994, 15% of the average month-end net assets of the Bond
Income Fund was invested in fixed-income securities rated in the rating
category just below investment grade (BB/Ba). The composition of the High
Income Fund for the fiscal year ended December 31, 1994 is summarized in
Appendix B to this prospectus.
* FOREIGN SECURITIES (STRATEGIC INCOME FUND, BOND INCOME FUND AND HIGH INCOME
FUND)
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 a Fund may be affected
favorably or unfavorably by changes in currency exchange rates or exchange
control regulations. Because the Strategic Income Fund, the Bond Income Fund
and the High Income 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 Fund's assets
and the Fund's income available for distribution.
In addition, although a Fund's income may be received or realized in foreign
currencies, a 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 a Fund's 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 a 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 issuer's obligations. A Fund may have limited legal recourse should a
foreign government be unwilling or unable to repay the principal or interest
owed.
The Strategic Income 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
economy's 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 Funds may invest in securities issued by supranational
agencies. Supranational agencies are those agencies whose member nations
determine to make capital contributions to support the agencies' activities,
and include such entities as the International Bank of Reconstruction and
Development (the World Bank), the Asian Development Bank, the European Coal
and Steel Community and the Inter-American Development Bank.
In determining whether to invest in securities of foreign issuers, the
adviser of each Fund 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 Fund's net income available for distribution to
shareholders.
* MORTGAGE-RELATED SECURITIES (ALL FUNDS EXCEPT TAX EXEMPT INCOME FUND)
Mortgage-related securities, such as GNMA 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 a Fund purchases these
assets 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 a 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.
An ARM, like a traditional mortgage security, is an interest in a pool of
mortgage loans that provides 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 issuer's 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.
* ASSET-BACKED SECURITIES (LIMITED TERM U.S. GOVERNMENT FUND)
The securitization techniques used to develop mortgage securities are also
being applied to a broad range of other assets. Through the use of trusts and
special purpose corporations, assets such as automobile and credit card
receivables are being securitized in pass-through structures similar to
mortgage pass-through structures or in a pay-through structure similar to the
CMO structure. Generally the issuers of asset-backed bonds, notes or
pass-through certificates are special purpose entities and do not have any
significant assets other than the receivables securing such obligations. In
general, the collateral supporting asset-backed securities is of shorter
maturity than mortgage loans. Instruments backed by pools of receivables are
similar to mortgage-backed securities in that they are subject to unscheduled
prepayments of principal prior to maturity. When the obligations are prepaid,
the Fund will ordinarily reinvest the prepaid amounts in securities the
yields of which reflect interest rates prevailing at the time. Therefore, the
Fund's ability to maintain a portfolio which includes high-yielding asset-
backed securities will be adversely affected to the extent that prepayments
of principal must be reinvested in securities which have lower yields than
the prepaid obligations. Moreover, prepayments of securities purchased at a
premium could result in a realized loss.
* COLLATERALIZED MORTGAGE OBLIGATIONS (ALL FUNDS EXCEPT TAX EXEMPT INCOME FUND)
A CMO is a security 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 issuer's 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.
* "STRIPPED" SECURITIES (GOVERNMENT SECURITIES AND STRATEGIC INCOME FUNDS)
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 "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" 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, a 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 Funds intend to abide by the staff's position. Stripped
securities may be considered derivative securities.
* ZERO COUPON SECURITIES (ALL FUNDS EXCEPT ADJUSTABLE RATE FUND); PAY-IN-KIND
SECURITIES (HIGH INCOME AND STRATEGIC INCOME FUNDS)
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 Funds are
required to accrue and distribute income from pay-in-kind and zero coupon
securities on a current basis, even though the Funds will not receive the
income currently in cash. Thus a Fund may have to sell other investments to
obtain cash needed to make income distributions.
* WHEN-ISSUED SECURITIES (ALL FUNDS)
If the value of a "when-issued" 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 Fund's 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. Each 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 "when-issued" basis.
* OPTIONS AND FUTURES (GOVERNMENT SECURITIES, LIMITED TERM U.S. GOVERNMENT,
STRATEGIC INCOME AND TAX EXEMPT INCOME FUNDS)
Except as otherwise noted, the following discussion applies to the Government
Securities Fund, the Limited Term U.S. Government Fund, the Strategic Income
Fund and the Tax Exempt Income Fund. The Government Securities, Strategic
Income, Tax Exempt Income and Limited Term U.S. Government Funds may engage
in a variety of transactions involving the use of options and futures with
respect to U.S. or Foreign Government Securities, corporate fixed-income
securities (in the case of the Strategic Income Fund) or tax-exempt bonds or
indices thereof (in the case of the Tax Exempt Income Fund) 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 Funds' current returns.
No Fund will engage in options and futures transactions for leverage. No Fund
will purchase or sell futures contracts or related options if as a result the
sum of the initial margin deposits on the Fund's existing futures and related
options positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Fund's 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 "illiquid" 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 Strategic Income Fund in
options and futures in foreign markets are subject to many of the same risks
as are the Fund's other foreign investments. See "Foreign Securities" above.
For further information, see "Options and Futures" in Part II of the
Statement.
* RULE 144A SECURITIES (STRATEGIC INCOME FUND)
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 trustees of New England Funds Trust I, 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.
<PAGE>
Fund Management
NEFM, 399 Boylston Street, Boston, Massachusetts 02116, a newly organized
investment adviser, is the investment adviser of the Strategic Income Fund and
has entered into subadvisory arrangements for this Fund with Loomis Sayles.
Founded in 1926, Loomis Sayles, One Financial Center, Boston, Massachusetts
02116, is one of the country's oldest and largest investment counsel firms.
Daniel Fuss, Managing Partner, Executive Vice President and Director of Loomis
Sayles and Vice President of New England Funds Trust I, has served as the
Strategic Income Fund's portfolio manager since the Fund's 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 investment adviser of the other Funds is Back Bay Advisors, 399 Boylston
Street, Boston, Massachusetts 02116. Back Bay Advisors provides discretionary
investment management services to mutual funds and other institutional
investors. Formed in 1986, Back Bay Advisors now manages 15 mutual fund
portfolios and a total of over $6 billion of securities. Eric N. Gutterson, Vice
President of Back Bay Advisors and each of the Trusts, has served as the
portfolio manager of the Government Securities Fund and Limited Term U.S.
Government Fund since April 1994. J. Scott Nicholson, Senior Vice President of
Back Bay Advisors and Vice President of each of the Trusts, has served as the
Adjustable Rate Fund's portfolio manager since the Fund's inception in October
1991. Catherine L. Bunting, Senior Vice President of Back Bay Advisors and Vice
President of New England Funds Trust I, has served as the Bond Income Fund's
portfolio manager since 1989. Charles G. Glueck, Jr., Senior Vice President of
Back Bay Advisors and Vice President of each of the Trusts, has served as the
High Income Fund's portfolio manager since 1988. Nathan R. Wentworth, Vice
President of Back Bay Advisors and New England Funds Trust I, has served as the
Tax Exempt Income Fund's portfolio manager since 1983. Each of the foregoing
persons has been employed by Back Bay Advisors for at least five years.
The Strategic Income Fund pays NEFM a management fee at the annual rate of 0.65%
of the first $200 million of the Fund's 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 Fund's expenses fall below the annual
rate of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C
shares; provided however 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 Fund's
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.
In 1994, the Government Securities Fund, the Limited Term U.S. Government Fund,
the Bond Income Fund and the Tax Exempt Income Fund paid Back Bay Advisors for
its services as investment adviser 0.65%, 0.63%, 0.45% and 0.43% of the Funds'
respective average daily net assets.
At no additional cost to the Fund, Loomis Sayles acts as sub-adviser to the Tax
Exempt Income Fund and regularly furnishes advice and statistical and research
information to Back Bay Advisors for use in advising that Fund. For its
services, Loomis Sayles receives a fee, to be paid by Back Bay Advisors not less
often than quarterly, equal to 40% of the compensation paid by the Fund to Back
Bay Advisors on the first $10,000,000 of Fund net assets, 30% of the
compensation paid on the next $10,000,000 of Fund net assets and 20% of the
compensation paid on Fund net assets in excess of $20,000,000. For the fiscal
year ended December 31, 1994, this fee amounted to 0.09% of the Fund's average
daily net assets.
Back Bay Advisors has voluntarily agreed, until further notice to the High
Income Fund, to reduce its management fee and, if necessary, to bear certain
expenses associated with operating the Fund in order to limit the Fund's
expenses to an annual rate of 1.60% of the average daily net assets of the
Fund's Class A shares and 2.25% of the Fund's Class B shares.
Back Bay Advisors and the Distributor have voluntarily agreed, until further
notice to the Adjustable Rate Fund, to reduce the administrative services fees
and, if necessary, to bear certain expenses associated with operating the Fund,
in order to limit the Fund's expenses to the annual rate of 0.70% of the Fund's
average daily net assets for Class A shares and 1.45% for Class B shares. In the
absence of the fee waiver, the Fund's expenses would have been 0.88% of the
Fund's average daily net assets for Class A shares and 1.63% for Class B shares.
If any of the voluntary fee reductions described above are terminated, the
prospectus of the affected Fund will be supplemented.
The general partners of each of Back Bay Advisors, Loomis Sayles, NEFM and the
Distributor are special purpose organizations that are indirect, wholly-owned
subsidiaries of NEIC. NEIC's sole general partner, New England Investment
Companies, Inc., is a wholly-owned subsidiary of New England Mutual Life
Insurance Company ("The New England").
In placing portfolio transactions for the Funds, Back Bay Advisors and, in the
case of the Strategic Income Fund, Loomis Sayles, seek the most favorable price
and execution available. Subject to this policy, Back Bay Advisors may consider
sales of shares of the Funds as a factor in the selection of broker-dealers.
In addition to selecting and reviewing the investments of the respective Funds,
Back Bay Advisors or Loomis Sayles, in the case of the Strategic Income Fund,
provides executive and other personnel for the management of the Trusts. Each
Trust's Board of Trustees supervises the affairs of that Trust.
Under agreements between Back Bay Advisors or NEFM, in the case of the Strategic
Income Fund, and either the Distributor or New England Securities Corporation
("New England Securities"), an affiliate of the Distributor , Back Bay Advisors
or NEFM pays the Distributor or New England Securities to provide certain
administrative services to all of the Funds except the Adjustable Rate Fund. The
Distributor provides the Adjustable Rate Fund with office space, facilities and
equipment, services of executive and other personnel and certain administrative
services, all under an Administrative Services Agreement directly with the Fund.
Under this agreement, the Fund pays the Distributor a fee at the annual rate of
0.15% of the first $200 million of the Fund's average daily net assets, 0.135%
of the next $300 million of such assets and 0.12% of such assets in excess of
$500 million (before any voluntary fee waiver). In addition, pursuant to rules
of the SEC, the Funds may pay brokerage commissions to New England Securities on
purchases and sales of securities for the portfolio of the Funds.
Buying Fund Shares
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in any Fund and $50 is the
minimum for each subsequent investment. There are special initial investment
minimums for the following plans:
* $25 (for initial and subsequent investments) for payroll deduction investment
programs for 401(k), SARSEP, 403(b) retirement plans and certain other
retirement plans.
* $50 for automatic investing through the Investment Builder program.
* $250 for retirement plans with tax benefits such as corporate pension and
profit sharing plans, IRAs and Keogh plans.
* $1,000 for accounts registered under the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act.
* $1,000 (per Fund) for Portfolio 1,2,3, investment programs and New England
Funds All Weather Portfolio. Subsequent investment minimums are $50 per Fund.
See Part II of the Statement.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and (in the case of the Limited Term U.S.
Government, Strategic Income and Bond Income Funds) Class C shares of the Funds
in the following ways:
[LOGO] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor and would be
pleased to accept your order.
[LOGO] 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.
USING TELE#FACTS 1-800-346-5984 TELE#FACTS IS NEW ENGLAND FUNDS' AUTOMATED
SERVICE SYSTEM THAT GIVES YOU 24-HOUR ACCESS TO YOUR ACCOUNT. THROUGH YOUR
TOUCH-TONE TELEPHONE, YOU CAN RECEIVE YOUR CURRENT ACCOUNT BALANCE, YOUR LAST
FIVE TRANSACTIONS, FUND PRICES AND RECENT PERFORMANCE INFORMATION. YOU CAN ALSO
PURCHASE, SELL OR EXCHANGE 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.
[LOGO] 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 Fund (Fund name
and Class of shares), Shareholder Name, Shareholder Account Number. Funds may be
transferred between 9:00 a.m. and 4:00 p.m. (Eastern time). Your bank may charge
a fee for this service.
[LOGO] BY INVESTMENT BUILDER:
Investment Builder is New England Funds' automatic investment plan. You may
authorize automatic monthly transfers of $50 or more from your bank checking or
savings account to purchase shares of one or more New England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an
automatic investment plan through Investment Builder. 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.
[LOGO] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the Automated Clearing
House ("ACH") system as long as your bank or credit union is a member of the ACH
system and you have a completed, approved ACH application on file with the Fund.
To purchase through ACH, call us at 1-800-225-5478 between 8 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.
[LOGO] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND:
You may also purchase shares of a Fund by exchanging shares from another New
England Fund. Please see "Exchanging Among New England Funds" for complete
details.
GENERAL
All purchase orders are subject to acceptance by the Funds and will be effected
at the net asset value next determined after the order is received in proper
form by State Street Bank and Trust Company ("State Street Bank") (except orders
received by your investment dealer before the close of trading on the New York
Stock Exchange (the "Exchange") and transmitted to the Distributor by 5:00 p.m.
Eastern time on the same day, which will be effected at the net asset value
determined on that day). Although the Funds do not anticipate doing so, they
reserve 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 Funds' "open account" system
for recording your investment eliminates the problems and expense of handling
and safekeeping certificates. Certificates will not be issued for Class B or
Class C shares.
If you wish transactions in your account to be effected by another person under
a power of attorney from you, special rules apply. Please contact your
investment dealer or the Distributor for details.
TO MAKE INVESTING EVEN EASIER, YOU CAN ALSO ORDER PERSONALIZED INVESTMENT SLIPS
BY CALLING 1-800-225-5478.
SALES CHARGES
Each Fund offers two (or three in the case of the Limited Term U.S. Government
Fund, Strategic Income Fund and the Bond Income Fund) classes of shares to the
general public:
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge which varies
depending on the size of your purchase. They are also subject to a 0.25% annual
service fee. The current sales charges are:
<PAGE>
GOVERNMENT SECURITIES FUND
STRATEGIC INCOME FUND
BOND INCOME FUND
TAX EXEMPT INCOME FUND
HIGH INCOME FUND
SALES CHARGE AS A % OF DEALER'S
---------------------- CONCESSION
VALUE OF NET AS % OF
TOTAL OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
- ---------------------------------------------------------
Less than
$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 *
LIMITED TERM U.S. GOVERNMENT FUND
SALES CHARGE AS A % OF DEALER'S
---------------------- CONCESSION
VALUE OF NET AS % OF
TOTAL OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
- ---------------------------------------------------------
Less than
$100,000 3.00% 3.09% 2.70%
- ---------------------------------------------------------
$100,000 -
$249,999 2.50% 2.56% 2.15%
- ---------------------------------------------------------
$250,000 -
$499,999 2.00% 2.04% 1.70%
- ---------------------------------------------------------
$500,000 -
$999,999 1.25% 1.27% 1.00%
- ---------------------------------------------------------
$1,000,000 or more None None *
ADJUSTABLE RATE FUND
SALES CHARGE AS A % OF DEALER'S
---------------------- CONCESSION
VALUE OF NET AS % OF
TOTAL OFFERING AMOUNT OFFERING
INVESTMENT PRICE INVESTED PRICE
- ---------------------------------------------------------
Up to $999,999 1.00% 1.01% 0.85%
- ---------------------------------------------------------
$1,000,000 or more None None *
* The Distributor may, at its discretion, pay investment dealers who initiate
and are responsible for such purchases of the Funds (except the Adjustable
Rate 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. The Distributor may, at its
discretion, pay investment dealers who initiate and are responsible for such
purchases of the Adjustable Rate Fund a commission of up to the following
amounts: 0.50% on the first $3 million invested; 0.20% on the next $2 million;
and 0.08% 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.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of
$1,000,000 or more of Class A shares in the Funds, 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 "Money Market Funds"),
then the one-year holding period for purposes of determining the expiration of
the CDSC will stop and will resume only when an exchange is made back into Class
A shares of a series of the Trusts. 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.
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:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- ------------------- ------------------------
1st ........................... 4%
2nd ........................... 3%
3rd ........................... 3%
4th ........................... 2%
5th ........................... 1%
thereafter .................... 0%
Year one ends one year after the day on which the purchase was accepted and so
on.
The CDSC is deducted from the proceeds of the redemption, 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 "Sales Charges -- General" below. At the time of sale, the Distributor pays
investment dealers a commission of 3.75% on purchases of Class B shares of the
Government Securities, Strategic Income, Bond Income, High Income and Tax Exempt
Income Funds and 2.75% on purchases of the Class B shares of the Limited Term
U.S. Government and Adjustable Rate Funds and advances the first year's service
fee (up to 0.25%) on purchases of the Funds' 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 Government Securities Fund, the Limited Term U.S. Government Fund, the
Adjustable Rate Fund, the Strategic Income Fund and the Bond Income Fund offer
an additional class of shares (which are not available to the general public) to
qualified investors. See "Additional Facts About the Funds" below.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or (in the case of the Limited Term
U.S. Government, Strategic Income and Bond Income Funds) 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 59 1/2. The CDSC is waived
for redemptions made to make required minimum distributions after attainment of
age 70 1/2 for 403(b)(7) and IRA accounts established on or after January 3,
1995.
There is also no CDSC on redemptions following the death or disability (as
defined in Section 72(m)(7) of the Internal Revenue Code) of a shareholder if
the redemption is made within one year after the shareholder's death or
disability. In addition, there is no CDSC on certain withdrawals pursuant to a
Systematic Withdrawal Plan. See "Systematic Withdrawal Plan" below.
The Fund receives the net asset value next determined after an order is received
on sales of each class of shares. The sales charge is allocated between 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 fund's shares.
The Distributor may, at its expense, pay investment dealers who sell new amounts
of shares of the Funds 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. The same compensation schedule applies to sales of
$250,000 or more of shares of the Adjustable Rate Fund and $5 million or more of
shares of the Limited Term U.S. Government Fund to trust companies, bank trust
departments, corporations and credit unions as described below under "Reduced
Sales Charges." 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 Funds. 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).
* SHARES OF THE ADJUSTABLE RATE FUND AND LIMITED TERM U.S. GOVERNMENT FUND MAY
BE PURCHASED AT NET ASSET VALUE, without payment of sales charge or CDSC, by
trust companies and bank trust departments for funds over which they exercise
discretionary investment authority and which they hold in a fiduciary,
agency, custodial or similar capacity, by corporations that purchase shares
for their own account and by credit unions provided that the amount invested
is $250,000 or more in the case of the Adjustable Rate Fund and $5 million or
more in the case of the Limited Term U.S. Government Fund.
* 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 a 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 Funds 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 Funds 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 investments minimum on investments
by certain current and retired employees of the Trusts' 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 and 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 Funds 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 the Adjustable Rate Fund for shares of another fund that has a
higher sales charge, you will pay the difference between any sales charge you
have already paid on your 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.
CLASS B SHARES.
You may exchange Class B shares of any Fund or series of the Trusts (and Class B
shares of the Money Market Funds or Class A shares of the Money Market Funds
which have not been subject to a previous sales charge) for Class B shares of
any other series of the Trusts (except New England Growth Fund). Such exchanges
will be made at the next determined net asset value of the shares. Class B
shares will automatically convert on a tax- free basis to Class A shares eight
years after they are purchased (excluding the time the shares are held in a
Money Market Fund). See "Sales Charges -- Class B Shares" above.
CLASS C SHARES.
You may exchange Class C shares of the Limited Term U.S. Government Fund,
Strategic Income Fund or Bond Income 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.
AUTOMATIC EXCHANGE PLAN
THE FUNDS HAVE AN AUTOMATIC EXCHANGE PLAN UNDER WHICH SHARES OF A CLASS OF A
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. SHARES
OF THE ADJUSTABLE RATE FUND THAT ARE SUBJECT TO A DIFFERENTIAL SALES CHARGE AS
DESCRIBED ON THIS PAGE MAY NOT PARTICIPATE IN THIS PROGRAM.
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
days' advance notice of any material change to the exchange privilege.
FUND DIVIDEND PAYMENTS
Each Fund declares dividends daily and pays them monthly. Each Fund pays as
dividends substantially all net investment income (tax exempt and taxable income
other than long-term capital gains) each year and distributes annually all net
realized long-term capital gains (after applying any available capital loss
carryovers). Each Fund pays short-term capital gains annually. The trustees of
the Trusts may adopt a different schedule as long as payments are made at least
annually. If you intend to purchase shares of a 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 "undeliverable" to the Fund or remain
uncashed for six months, your cash election will automatically be changed and
your future dividends will be reinvested.
DIVIDEND DIVERSIFICATION PROGRAM
You may also establish a dividend diversification program that allows you to
have all dividends and any other distributions automatically invested in shares
of the same class of another New England Fund, subject to the investor
eligibility requirements of that other fund and to state securities law
requirements. 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
fund's 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 fund's minimum investment requirements must be met. Before
establishing a dividend diversification program into any other New England Fund,
you must obtain a copy of that fund's prospectus.
Selling Fund Shares
5 WAYS TO SELL FUND SHARES
[LOGO]
THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[LOGO]
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 bank's particular rule. If you have recently purchased your shares
through the ACH system, the Funds may withhold redemption proceeds until the
funds have cleared, which may take up to ten days.
[LOGO]
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 Funds recommend
that certificates be sent by registered mail.
[LOGO]
BY CHECK:
Checkwriting is available on Class A shares of the Limited Term U.S. Government
and Adjustable Rate Funds only. To elect checkwriting for your account, select
the checkwriting option on your application and complete the attached signature
card. To add checkwriting to an existing account, please call 1-800-225-5478
for our Service Options Form. The Fund will send you checks drawn on State
Street Bank. You will continue to earn dividends on shares redeemed by check
until the check clears. There is currently a $5.00 fee to establish this
service. Each check must be written for $500 or more. The checkwriting privilege
does not apply to shares for which you have requested share certificates to be
issued. Checkwriting is not available for investor accounts containing Class A
or Class B shares subject to a CDSC.
If you use withdrawal checks, you will be subject to State Street Bank's rules
governing checking accounts. The Limited Term U.S. Government Fund, the
Adjustable Rate Fund and the Distributor are in no way responsible for any
checkwriting account established with State Street Bank.
You may not close your account by withdrawal check because the exact balance of
your account will not be known until after the check is received by State Street
Bank.
[LOGO]
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 day's net asset value). Redemption proceeds (LESS ANY APPLICABLE
CDSC) will normally be mailed to you within seven days after State Street Bank
or the Distributor receives your request in good order.
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 Funds 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 Funds to
dispose of their securities or to determine fairly the value of their net
assets, or during any other period permitted by the SEC for the protection of
investors.
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
Back Bay Advisors or, in the case of the Strategic Income Fund, Loomis Sayles,
under the supervision of each Trust's Board of Trustees, determines the value of
the total net assets of each Fund as of the close of regular trading (ordinarily
4:00 p.m. Eastern time) each day the Exchange is open. The Boards of Trustees
have authorized Back Bay Advisors or, in the case of the Strategic Income Fund,
Loomis Sayles, to delegate certain price determination functions to pricing
services or facilities selected by Back Bay Advisors or Loomis Sayles, as the
case may be. 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 a Fund's assets is determined in
good faith by Back Bay Advisors or, in the case of the Strategic Income Fund,
Loomis Sayles, or a pricing service selected by Back Bay Advisors or Loomis
Sayles, under the supervision of the Boards of Trustees.
The net asset value per share of each class is determined by dividing the value
of each class's 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 each Fund's Class A shares is
determined by adding the applicable sales charge to the net asset value. See
"Buying Fund Shares -- Sales Charges" above. The public offering price of Class
B and (in the case of the Limited Term U.S. Government, Strategic Income and
Bond Income Funds) 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 day's public offering price.
INCOME TAX CONSIDERATIONS
Each 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 a Fund's short-term
capital gains and, except for the Tax Exempt Income Fund, ordinary income are
taxable to you as ordinary income. Distributions derived from a Fund's long-term
capital gains ("capital gains distributions"), if designated as such by a 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.
A Fund's 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 a Fund's 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.
DIVIDENDS DERIVED FROM INTEREST ON U.S. GOVERNMENT SECURITIES MAY BE EXEMPT FROM
STATE AND LOCAL TAXES. The Trusts intend to advise shareholders of the
proportion of each Fund's dividends that are derived from such interest. Before
investing in any of the Funds, 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, each Fund intends to distribute prior to calendar year
end virtually all the Fund's ordinary income earned during that calendar year,
and virtually all of the capital gain net income the Fund realized 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.
Each Fund (possibly excepting the Tax Exempt Income Fund as described below) 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, each 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 a Fund, you will
receive a Form 1099 to assist you in reporting the prior calendar year's
distributions on your federal income tax return. You should consult your tax
adviser about any state or local taxes that may apply to such distributions. Be
sure to keep the Form 1099 as a permanent record. A fee may be charged for any
duplicate information requested.
The foregoing is a summary of certain federal income tax consequences of an
investment in a Fund. You should consult a competent tax adviser as to the
effect of an investment in a Fund on your particular federal, state and local
tax situations.
* ADJUSTABLE RATE FUND
While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned by a Fund from direct obligations of
the U.S. Government, none of the distributions of the Adjustable Rate Fund
during the current fiscal year are expected to qualify for such tax-free
treatment. Investments in mortgage-backed securities (including GNMA, FNMA
and FHLMC securities) and repurchase agreements collateralized by U.S.
Government securities do not qualify as direct federal obligations in most
states.
* TAX EXEMPT INCOME FUND
Dividends paid to you as a shareholder of the Tax Exempt Income Fund that are
derived from interest on tax exempt bonds are "exempt- interest dividends"
and may be excluded from gross income on your federal tax return. However, if
you receive social security benefits, you may be taxed on a portion of those
benefits as a result of receiving tax exempt income. Also, if the Tax Exempt
Income Fund invests in "private activity" bonds, a portion of the Fund's
dividends may constitute a tax preference item subject to the alternative
minimum tax. See "Fund Investments" for further information.
Other dividends and short-term capital gains, if any, paid by the Tax Exempt
Income Fund are taxable to you as ordinary income, whether received in cash
or additional shares. Distributions of long-term capital gains are taxable to
you as long-term capital gains, whether distributed in cash or additional
shares, regardless of how long you have held your shares.
If at least 95% of the Fund's dividends are "exempt-interest dividends,"
federal back-up withholding rules do not apply. However, if the percentage
should ever drop below 95%, the Fund will be required to withhold 31% of all
income dividends that are not "exempt-interest dividends" and 31% of all
capital gain 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.
The federal exemption for "exempt-interest dividends" does not necessarily
result in exemption from state and local taxes. Distributions of
"exempt-interest dividends" may be exempt from local and state taxation to
the extent they are derived from the state or locality in which you reside.
Before investing in the Fund, you should check the consequences of your local
and state tax laws. The Fund will report annually on a state-by-state basis
the source of income the Fund receives on tax exempt bonds that was paid out
as dividends during the preceding year.
THE FUNDS' EXPENSES
In addition to the management fee paid to Back Bay Advisors or NEFM, in the case
of the Strategic Income Fund, and the fees paid to the Distributor, each Fund
pays all expenses not borne by the Fund's investment adviser, subadviser or the
Distributor, including, but not limited to, the charges and expenses of the
Fund's custodian and transfer agent, independent auditors and legal counsel, all
brokerage commissions and transfer taxes in connection with portfolio
transactions, all taxes and filing fees, the fees and expenses for registration
or qualification of its shares under the federal or state securities laws, all
expenses of shareholders' and trustees' meetings and of preparing, printing and
mailing prospectuses and reports to shareholders and the compensation of
trustees who are not directors, officers or employees of Back Bay Advisors,
NEFM, Loomis Sayles or their affiliates, other than affiliated registered
investment companies. In the case of Funds that offer Class Y shares, certain
expenses are allocated differently between the Fund's Class A, Class B and (in
the case of the Limited Term U.S. Government, Strategic Income and Bond Income
Funds) Class C shares, on one hand, and its Class Y shares, on the other hand.
(See "Additional Facts About the Funds," below.)
Under Plans adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"), each Fund pays the Distributor a monthly service fee at
an annual rate not to exceed 0.25% of the Fund's average daily net assets
attributable to the Class A, Class B and (in the case of the Limited Term U.S.
Government, Strategic Income and Bond Income Funds) Class C shares. The
Distributor may pay up to the entire amount of this fee to securities dealers
who are dealers of record with respect to the Fund's shares, for providing
personal services to investors in shares of the Fund and/or maintenance of
shareholder accounts. In the case of the Class B shares, the Distributor pays
investment dealers at the time of sale the first year's service fee in the
amount of up to 0.25% of the amount invested.
In addition to the 0.25% service fee, the High Income Fund and the Limited Term
U.S. Government Fund pay the Distributor a monthly distribution fee at an annual
rate not to exceed 0.10% of the Fund's average daily net assets of the
respective Funds' Class A shares. Also, each Fund's Class B shares and (in the
case of the Limited Term U.S. Government, Strategic Income and Bond Income
Funds) 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 Fund's 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 Fund's shares, as distribution fees in connection with the sale
of the Fund's shares. Except in the case of the Class A shares of the Limited
Term U.S. Government Fund, the Distributor retains the balance of the fee as
compensation for its services as distributor of the relevant class of shares. In
the case of the Class A shares of the Limited Term U.S. Government Fund, the
Distributor may also use all or any portion of the distribution fee to pay its
expenses in connection with the distribution of shares, including, without
limitation, expenses of printing and distributing prospectuses to persons other
than shareholders of the Funds, expenses of preparing, printing and distributing
advertising and sales literature and reports to shareholders used in connection
with the sales of shares, expenses of personnel and communication equipment used
in connection with prospective shareholder inquiries, and overhead expenses
relating to any of the foregoing.
In the case of each Fund except the High Income Fund, the Class A service fee is
payable only to reimburse the Distributor for amounts it pays or expends in
connection with the provision of personal services to investors and/or the
maintenance of shareholder accounts and may be used to reimburse such expenses
incurred by the Funds' former distributor (an affiliate of the Distributor) in
prior years. To the extent that the Distributor's 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. Similarly, the distribution fee of the Limited Term
U.S. Government Fund is payable only to reimburse the Distributor for expenses
in connection with the distribution of the Fund's shares, but unreimbursed
expenses can be carried forward into future years. The amounts of unreimbursed
expenses carried over into 1995 from previous plan years with respect to the
Class A shares are as follows: $1,583,658 for the Government Securities Fund;
$2,272,723 for the Limited Term U.S. Government Fund; $1,929,283 for the
Adjustable Rate Fund; $1,919,349 for the Bond Income Fund; and $1,700,600 for
Tax Exempt Income Fund. The Class B service fees for all Funds, the Class C
service fees for the Limited Term U.S. Government Fund, the Strategic Income
Fund and the Bond Income Fund, and the Class A service fee of the High Income
Fund, are payable regardless of the amount of the Distributor's related
expenses.
PERFORMANCE CRITERIA
Each Fund may include total return information in advertisements or other
written sales material. Each Fund will show the average annual total return for
each class of shares for the one-, five- and ten-year periods through the end of
the most recent calendar quarter (or, if shorter, the period since the
commencement of the class's operations) or, in the case of the High Income
Fund's Class A shares, for the period since July 27, 1988, when Back Bay
Advisors became the High Income Fund's investment adviser. 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 class's total return is higher.
Each 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 SEC's 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.
In addition, the Tax Exempt Income Fund may include the tax-equivalent yield for
each class of shares in advertising and other written material. Tax-equivalent
yield is calculated by adjusting the class's tax exempt yield by a factor
designed to show the approximate yield that a taxable investment would have to
earn to produce an after-tax yield equal, for a shareholder in a specified tax
bracket, to the class's tax exempt yield.
Each Fund may also present one or more distribution rates for each class in its
sales literature. These rates will be determined by annualizing the class's
distributions from net investment income and net short-term capital gains over a
recent 12-month, 3-month or 30-day period and dividing that amount by the
maximum offering price or the net asset value on the last day of such period. If
the net asset value rather than the maximum offering price is used to calculate
the distribution rate, the rate will be higher.
Total return will generally be higher for Class A shares than for Class B and
Class C shares of the same Fund, 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 of the Government Securities, Limited Term
U.S. Government, Adjustable Rate, Strategic Income and Bond Income Funds can be
expected to achieve a higher investment return than the Funds' 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 FUNDS
* 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 Government Securities Fund represents the
original series of shares of New England Funds Trust I. The Bond Income and
Tax Exempt Income Funds were organized prior to 1985 and conducted investment
operations as separate corporations until their reorganization as series of
New England Funds Trust I in January 1987. The Strategic Income Fund
commenced investment operations in 1995.
* New England Funds Trust II was organized in 1931 as a Massachusetts business
trust and is authorized to issue an unlimited number of full and fractional
shares in multiple series. The Limited Term U.S. Government Fund commenced
investment operations in 1989. The High Income Fund was organized in 1984 and
conducted investment operations as a separate corporation until its
reorganization as a series of New England Funds Trust II in 1989. The
Adjustable Rate Fund commenced operations in 1991.
* When you invest in a Fund, you acquire freely transferable shares of
beneficial interest that entitle you to receive dividends as determined by
the respective Trust's trustees and to cast a vote for each share you own at
shareholder meetings. Shares of each Fund vote separately from shares of
other series of the same Trust, except as otherwise required by law. Shares
of all classes of a Fund vote together, except as to matters relating to a
class's Rule 12b-1 plan, for which only shares of that class are entitled to
vote.
* Except for matters that are explicitly identified as "fundamental" in this
prospectus or Parts I and II of the Statement, the investment policies of
each Fund may be changed without shareholder approval or prior notice. The
investment objectives of the Government Securities, Bond Income and Tax
Exempt Income Funds are fundamental. The investment objectives of the
Adjustable Rate Fund and Strategic Income Fund are not fundamental. The
investment objectives of the Limited Term U.S. Government and High Income
Funds are not fundamental but, as a matter of policy, the trustees would not
change those objectives without shareholder approval. If there is a change in
the investment objective of the Limited Term U.S. Government, Adjustable
Rate, Strategic Income or High Income Funds, you should consider whether the
Fund remains an appropriate investment in light of your then current
financial position and needs.
* The Trusts do not generally hold regular shareholder meetings and will do so
only when required by law. Shareholders of a Trust may remove the trustees of
that Trust from office by votes cast at a shareholder meeting or by written
consent.
* The transfer and dividend paying agent for the Funds 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 for the Government Securities, Limited Term U.S. Government,
Strategic Income, Bond Income and Adjustable Rate Funds: Class Y shares of
these Funds may be purchased by endowments and foundations. The minimum
initial investment is $1 million for these entities and the minimum for each
subsequent investment is $100,000. Class Y shares may also be purchased by
plan sponsors of 401(a), 401(k), 457 or 403(b) plans ("Retirement Plans")
that have total investment assets in these plans of at least $10 million.
Plan sponsors' investment assets in multiple Retirement Plans can be
aggregated for purposes of meeting this minimum. Class Y shares may also be
purchased by any separate account of The New England or of any other
insurance company affiliated with The New England ("Separate Accounts").
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 a Fund is less than a minimum dollar
amount set by the trustees of the Trusts from time to time (currently $500),
that Fund may close your account and send the proceeds to you. Shareholders
who are affected by this policy will be notified of the Fund's intention to
close the account and will have 60 days immediately following the notice to
bring the account up to the minimum. The minimum does not apply to
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 Trusts (together with the Money Market Funds) constitute the New England
Funds. Each Trust offers only its own Funds' shares for sale, but it is
possible that a Trust might become liable for any misstatements in this
prospectus that relate to the other Trust. The trustees of each Trust have
considered this possible liability and approved the use of this combined
prospectus for Funds of both Trusts.
* 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.
* Each Fund's annual report contains additional performance information and is
made available upon request and without charge.
<PAGE>
Appendix A: Ratings of Securities
DESCRIPTION OF MOODY'S 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 & POOR'S 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 issuer's 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.
<PAGE>
Appendix B
AVERAGE MONTHLY PORTFOLIO COMPOSITION TABLE OF THE
HIGH INCOME FUND AS OF DECEMBER 31, 1994
PERCENTAGE
OF
SECURITY NET ASSETS
- -------- ----------
Preferred Stock .................................... 0%
Short-term Obligations and Other Assets............. 7%
Debt -- Unrated..................................... 1%
Debt -- Standard and Poor's Rating..................
AAA............................................. 1%
BBB............................................. 0%
BB.............................................. 14%
B............................................... 70%
CAA............................................. 7%
CA.............................................. 0%
The chart above indicates the composition of the High Income Fund for the fiscal
year ended December 31, 1994, with the debt securities rated by Standard and
Poor's separated into the indicated categories. The percentages were calculated
on a dollar weighted average basis by determining monthly the percentage of the
High Income Fund's net assets invested in each category as of the end of each
month during the year. Back Bay Advisors does not rely primarily on ratings
designed by any rating agency in making investment decisions. The chart does not
necessarily indicate what the composition of the Fund's portfolio will be in
subsequent fiscal years.
<PAGE>
Glossary of Terms
Capital gain distributions -- Payments to shareholders of profits earned from
selling securities in the Fund's portfolio. Capital gain distributions are
usually paid once a year.
Contingent deferred sales charge (CDSC) -- A fee that may be charged when a
shareholder sells Fund shares.
Distribution fee -- An annual asset-based sales charge that is used to pay for
sales-related expenses.
Income distributions -- Payments to shareholders resulting from interest or
dividend income earned by a Fund's portfolio.
Mutual fund -- The pooled assets of a group of investors, professionally managed
in pursuit of a specific objective.
Net asset value (NAV) -- The market value of one share of a mutual fund on any
given day without sales charge or CDSC. Determined by dividing the fund's total
net assets by the number of fund shares outstanding.
New England Funds, L.P. -- The distributor 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 fund's 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).
