NEW ENGLAND FUNDS
Class Y Shares of:
New England Balanced Fund
New England International Equity Fund
May 1, 1995
New England Balanced Fund and New England International Equity Fund, series of
New England Funds Trust I, are separate, diversified mutual funds (the "Funds"
and each a "Fund"). New England Funds Trust I is referred to in this
prospectus as the "Trust."
The Funds offer four classes of shares: Class Y (for qualified institutional
investors) and Classes A, B and C (for other investors). This prospectus sets
forth information investors should know before investing in Class Y shares.
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 1-800-225-7670. The Statement contains more detailed
information about the Funds and is incorporated into this prospectus by
reference. Class A, Class B and Class C shares are described in a separate
prospectus.
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 1
TABLE OF CONTENTS
SCHEDULE OF FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
HOW THE FUNDS PURSUE THEIR OBJECTIVES . . . . . . . . . . . . . . . . . . . . 8
FUND INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FUND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
MINIMUM INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
WAYS TO BUY FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXCHANGING AMONG NEW ENGLAND FUNDS . . . . . . . . . . . . . . . . . . . . 18
WAYS TO SELL FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 18
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . 20
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PERFORMANCE CRITERIA . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL FACTS ABOUT THE FUNDS . . . . . . . . . . . . . . . . . . . . . 22
PAGE 2
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 the Funds' Class Y shares. The
Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in Class Y shares of the Funds for the periods specified.
Shareholder transaction expenses
New England Balanced Fund
and New England International
Equity Fund
Maximum Initial Sales Charge Imposed on a Purchase None
(as a % of offering price)
Maximum Contingent Deferred Sales Charge None
(as a percentage of original purchase price or redemption
proceeds, as applicable)
Deferred Sales Charge None
Redemption Fees None
Exchange Fees None
Annual operating expenses +
(as a percentage of net assets)
New England Balanced New England International
Fund Equity Fund
Management Fees 0.75% 0.75%*
12b-1 Fees None None
Administrative Services Fees None 0.05%*
Other Expenses 0.40% 0.20%*
Total Expenses 1.15% 1.00%
+ The percentages shown for Management Fees, Administrative Service
Fees (in the case of New England International Equity Fund) and
Other Expenses are annualized amounts based on the Distributor's
estimates of the average combined net assets of the Class A, B and
Y shares of each Fund for the Class Y shares' first fiscal year.
* After fee waiver and expense reduction by Fund's adviser and/or
distributor. Without the expense limitations, New England
International Equity Fund's Management Fees and Total Fund
Expenses would be 0.80% and 1.05%, respectively.
PAGE 3
Example
A $1,000 investment would incur the following dollar amount of transaction
costs and operating expenses assuming a 5% annual return and, 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.
New England Balanced New England International
Fund Equity Fund
1 year $ 12 $ 10
3 years $ 37 $ 32
5 years $ 63 $ 55
10 years $140 $122
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 Funds' Class A, Class B and Class C
shares, which differ from the expenses of the Class Y shares, see "Additional
Facts About the Funds." To obtain more information about Class A, Class B and
Class C shares, please call the Distributor toll-free at 1-800-225-5478.
For additional information about the Funds' fees and other expenses, see "Fund
Management," "Additional Facts about the Funds" and "The Funds' Expenses."
A wire fee (currently $5.00) will be deducted from your proceeds if you elect
to receive 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 4
FINANCIAL HIGHLIGHTS
(For a Class Y share of each Fund outstanding throughout the indicated period.)
The Financial Highlights presented on pages 6 and 7 have been included in
financial statements for the Funds. The financial statements for the Funds for
periods through December 31, 1994 have been examined by Price Waterhouse 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 5
NEW ENGLAND BALANCED FUND
Class Y Shares
March 8, <fa>
through
December 31,1994
Net asset value, beginning of period $12.20
Income from investment operations
Net investment income 0.38
Net gains or losses on investments
(both realized and unrealized) (0.72)
Total income from investment operations 0.38
Less distributions
Distributions
(from net investment income) (0.38)
Distributions
(from net realized capital gains) (0.21)
Total distributions (0.59)
Net asset value, end of period $11.99
Total return (%) <fc> (2.8)<fc>
Ratios/Supplemental data
Net assets, end of period (000) $39,183
Ratio of operating expenses to
average net assets (%) 0.99<fb>
Ratio of net investment income to
average net assets (%) 3.69<fb>
Portfolio turnover rate (%) 36
<F>
<fa> Commencement of offering of Class Y shares.
<fb> Computed on an annualized basis.
<fc> Not computed on an annualized basis.
PAGE 6
NEW ENGLAND INTERNATIONAL EQUITY FUND
Class Y shares
Sept. 9, <fa> Year
through Ended
December 31, 1993 December 31, 1994
Net asset value, beginning of period $15.19 $14.86
Income from investment operations
Net investment income 0.13 0.00
Net gains or losses on investments
(both realized and unrealized) (0.01) 1.32
Total income from investment operations 0.13 1.32
Less distributions
Distributions (0.13) 0.00
(from net investment income)
Distributions (0.32) (0.53)
(from net realized capital gains)
Distributions (from paid in capital) 0.00 (0.01)
Total distributions (0.32) 0.00
Net asset value, end of period $15.00 $16.18
Total return (%) 0.7<fc> 8.9
Ratios/Supplemental data
Net assets, end of period (000) $7,006 $56,561
Ratio of operating expenses to
average net assets (%)<fd> 1.00<fb> 1.00
Ratio of net investment income to
average net assets (%) 0.33<fb> 0.76
Portfolio turnover rate (%) 101<fc> 123
<F>
<fa> Commencement of offering of Class Y shares.
<fb> Computed on an annualized basis.
<fc> Not computed on an annualized basis.
<fd> The ratio of operating expenses to average net assets without giving
effect to the voluntary expense limitations would have been 1.35(b)
and 1.04%, respectively.
PAGE 7
INVESTMENT OBJECTIVES
New England Balanced Fund (the "Balanced Fund") seeks a reasonable long-term
investment return from a combination of long-term capital appreciation and
moderate current income.
New England International Equity Fund (the "International Equity Fund") seeks
total return, from long-term growth of capital and dividend income, primarily
through investment in international equity securities.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
Investments in each Fund will be pooled with money from other investors in that
Fund to invest in a managed and diversified portfolio consisting of securities
appropriate to each Fund's investment objective and policies, as described
below. There can be no assurance that either Fund will achieve its objective.
Except for matters that are explicitly identified as "fundamental" in this
prospectus or the Statement, the investment policies of each Fund may be
changed without shareholder approval or prior notice. The investment
objectives of the International Equity Fund are not fundamental and may be
changed without shareholder approval. The investment objectives of the
Balanced Fund are fundamental and may be changed only with shareholder
approval.
If there is a change in the investment objective of the International Equity
Fund, you should consider whether the Fund remains an appropriate investment in
light of your then current financial position and needs.
FUND INVESTMENTS
Balanced Fund
The Balanced Fund is "flexibly managed" in that sometimes it invests more
heavily in equity securities and at other times it invests more heavily in
fixed-income securities, depending on management's view of the economic and
investment outlook. Most of the Fund's equity investments are normally in
dividend-paying common stocks of recognized investment quality that are
expected to achieve growth in earnings and dividends over the long term. In
selecting equity investments for the Fund, an emphasis is ordinarily placed on
undervalued securities. Fixed-income securities include notes, bonds, non-
convertible preferred stock and money market instruments. The Fund invests at
least 25% of its assets in fixed-income, senior securities and, under normal
market conditions, more than 50% of its assets in equity securities. The Fund
also may invest in foreign securities.
PAGE 8
International Equity Fund
The International Equity Fund seeks to achieve its objective by investing
primarily in common stocks, although the Fund may invest in any type of equity
securities. Normally the Fund will invest at least 65% of its total assets in
equity securities of issuers headquartered outside the United States. Under
normal conditions the Fund's portfolio will contain equity securities of
issuers from at least three countries outside the United States. The Fund may
also engage in certain options and futures transactions.
The Fund's adviser will make investment decisions on behalf of the Fund by,
first, selecting countries where it anticipates sustainable growth that will
exceed current market expectations. Within the selected countries, the adviser
will identify economic sectors that appear to present the most potential for
risk-adjusted growth and, finally, within the chosen economic sectors, the
adviser will select securities that are expected to offer the best value.
Additional Information
Equity securities are securities that represent an ownership interest (or the
right to acquire such an interest) in a company, and include common and
preferred stocks and securities exercisable for or convertible into common or
preferred stocks (such as warrants, convertible debt securities and convertible
preferred stock). The International Equity Fund seeks to attain its objectives
by normally investing substantially all of its assets in equity securities.
Corporate obligations in the lowest investment grade category (rated BBB by
Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Services,
Inc. ("Moodys")) have some speculative characteristics and may be more
adversely affected by changing economic conditions than are higher grade
obligations. The International Equity Fund may, for temporary purposes, hold
all or any portion of its assets in cash, repurchase agreements, short-term
debt obligations of U.S. or foreign corporate issuers or U.S. or foreign
government obligations of any maturity 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 these rating categories. No estimate can
be made as to when or for how long the Fund will employ these defensive
strategies. Under some market conditions, the Balanced Fund may, for temporary
purposes, invest less than 50% of its assets in equity securities and the
balance in cash and fixed-income investments.
INVESTMENT RISKS
Equity Securities
While offering greater potential for long-term growth, equity securities are
more volatile and more risky than some other forms of investment. Therefore
the value of your investment in a Fund may sometimes decrease instead of
increase. Each Fund may invest in equity securities of companies with
PAGE 9
relatively small market capitalization. Securities of such companies may be
more volatile than the securities of larger, more established companies and the
broad equity market indices. Each Fund's investments may include securities
traded "over-the-counter" as well as those traded on a securities exchange.
Some over-the-counter securities may be more difficult to sell under some
market conditions.
Each Fund may invest in convertible securities, including corporate bonds,
notes or preferred stocks that can be converted into common stocks or other
equity securities. Convertible securities also include other securities, such
as warrants, that provide an opportunity for equity participation. Because
convertible securities can be converted into equity securities, their values
will normally vary in some proportion with those of the underlying equity
securities. The value of convertible securities that pay dividends or
interest, like the value of all fixed-income securities, generally fluctuates
inversely with changes in interest rates. Warrants have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. They do not represent ownership of the securities for which they
are exercisable, but only the right to buy such securities at a particular
price. The credit risk associated with convertible securities is generally
reflected by their being rated, if at all, below investment grade by
organizations such as Moody's and S&P. All convertible securities purchased by
either Fund will, at the time of purchase, either be rated investment grade by
at least one major rating agency or be unrated but determined to be of
investment grade quality by the Fund's adviser.
Fixed-Income Securities
Because interest rates vary, it is impossible to predict the income of a Fund
that invests in fixed-income securities for any particular period. The net
asset value of Fund shares will vary as a result of changes in the value of the
securities in a Fund's portfolio, including fixed-income securities.
Fixed-income securities are subject to market and credit risk. Market risk
relates to changes in a security's value as a result of changes in interest
rates generally. Credit risk relates to the ability of the issuer to make
payments of principal and interest. All fixed-income securities (including
convertible bonds or notes) purchased by the International Equity Fund, will,
at the time of purchase, either be rated investment grade by at least one major
rating agency or be unrated but determined to be of investment grade quality by
the Fund's adviser.
Repurchase Agreements
In repurchase agreements, 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 a Fund to earn a return on available cash at minimal market
risk, although the Fund may be subject to various delays and risks of loss if
the seller is unable to meet its obligation to repurchase.
PAGE 10
Short-Term Trading
Although each Fund seeks long-term growth or return, each Fund may, consistent
with its investment objective, engage in portfolio trading in anticipation of
or in response to changing economic or market conditions and trends. These
policies may result in higher turnover rates in the Fund's portfolio which may
produce higher transaction costs and a higher level of taxable capital gains.
Portfolio turnover considerations will not limit either Fund's adviser's
investment discretion in managing the Fund's assets.
Recent portfolio turnover rates of each Fund are set forth above under
"Financial Highlights."
Small Companies
Investments in companies with relatively small capitalization involve greater
risk than is customarily associated with more established companies. These
companies often have sales and earnings growth rates which exceed those of
companies with larger capitalization. Such growth rates may in turn be
reflected in more rapid share price appreciation. However, companies with
smaller capitalization often have limited product lines, markets or financial
resources and they may be dependent upon a relatively small management group.
The securities may have limited marketability and may be subject to more abrupt
or erratic movements in price than securities of companies with larger
capitalization or the market averages in general. As a result, the net asset
value of funds that invest in companies with smaller capitalization therefore
may fluctuate more widely than market averages.
Lower Rated Fixed-Income Securities (Balanced Fund)
Lower rated fixed-income securities generally provide higher yields, 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 own credit analysis than for a fund investing in 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, the Balanced Fund had on average less than
5% of its assets invested in fixed-income securities rated BB or Ba, the rating
categories just below investment grade, and B. The Fund has no assets invested
in securities rated below those rating categories. Securities of below
investment grade are commonly known as "junk bonds."
PAGE 11
Foreign Securities
Investments in foreign securities present risks not typically associated with
investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate or
government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
The International Equity Fund's investments in foreign securities may 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 generally) 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.
Most foreign securities in the Funds' portfolios will be denominated in foreign
currencies or traded in securities markets in which settlements are made in
foreign currencies. Similarly, any income on such securities is generally paid
to the Fund in foreign currencies. The value of these foreign currencies
relative to the U.S. dollar varies continually, causing changes in the dollar
value of the Funds' portfolio investments (even if the price of the investments
is unchanged) and changes in the dollar value of the Funds' income available
for distribution to its shareholders. The effect of changes in the dollar
value of a foreign currency on the dollar value of the Funds' assets and on the
net investment income available for distribution may be favorable or
unfavorable.
The Funds may incur costs in connection with conversions between various
currencies. In addition, either Fund may be required to liquidate portfolio
assets, or may incur increased currency conversion costs, to compensate for a
decline in the dollar value of a foreign currency occurring between the time
when the Fund declares and pays a dividend, or between the time when the Fund
accrues and pays an operating expense in U.S. dollars.
PAGE 12
Options (International Equity Fund)
The Fund may seek to increase its current return by writing covered call
options and covered put options, with respect to securities it holds or intends
to buy, through the facilities of options exchanges and directly with market
makers in the over-the-counter market. The Fund receives a premium from
writing a call or put option, which increases the Fund's current return if the
option expires unexercised or is closed out at a net profit.
At times when the Fund has written call options on a substantial portion of its
portfolio, the Fund's ability to profit and its risk of loss from changes in
market prices of portfolio securities will be limited. Appreciation in
securities covering the options would likely be partially or wholly offset by
losses on the options. The termination of options positions under such
conditions would generally result in the realization of short-term capital
losses, which would reduce the Fund's current return. Accordingly, the Fund
may seek to realize capital gains to offset realized losses by selling
securities.
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 Fund will treat as illiquid any
over-the-counter options and assets maintained as "cover" for over-the-counter
options that the Fund has written.
The options 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. See "Foreign Securities" above.
Hedging Transactions (International Equity Fund)
The Fund may, at the discretion of its adviser, engage in foreign currency
exchange transactions, in connection with the purchase and sale of portfolio
securities, to protect the value of specific portfolio positions or in
anticipation of changes in relative values of currencies in which current or
future Fund portfolio holdings are denominated or quoted.
For hedging purposes, the Fund may also buy put or call options on securities
that it holds or intends to buy. In addition to engaging in options
transactions on established exchanges, the Fund may also purchase over-the-
counter options from brokerage firms and other financial institutions.
The Fund may invest in options and futures contracts on various stock indices
to hedge against changes in the value of securities it holds or expects to
acquire. The Fund may also invest in options on stock index futures. The Fund
will not invest more than 5% of its net assets in stock index futures or
options on stock index futures that are traded on a U.S. commodities exchange.
PAGE 13
Certain asset segregation requirements apply when the Fund becomes obligated
under a hedging instrument. There is no assurance that the Fund's hedging
strategies will be effective. These strategies involve costs and the risk of
loss to the Fund. See Part II of the Statement for more information.
Miscellaneous
The International Equity Fund may invest up to 10% of its assets in securities
of investment companies. As a shareholder of an investment company, the Fund
may indirectly bear investment management fees of that investment company,
which are in addition to the management fees the Fund pays its own adviser.
Neither Fund will invest more than 15% of its assets in "illiquid securities,"
that is, securities which are not readily marketable, which include securities
whose disposition is restricted by federal securities laws.
The Funds may purchase Rule 144A securities. These are privately offered
securities that can be resold only to certain qualified institutional buyers.
Rule 144A securities are treated as illiquid, unless an adviser has determined,
under guidelines established by New England Funds Trust I's trustees, that the
particular issue of Rule 144A securities is liquid. Investment in restricted
or other illiquid securities involves the risk that a Fund may be unable to
sell such a security at the desired time. Also, a Fund may incur expenses,
losses or delays in the process of registering restricted securities prior to
resale.
The International Equity Fund may purchase securities for its portfolio on a
"when-issued" or "delayed-delivery" basis. This means that the Fund will enter
into a commitment to buy the security before the security has been issued, or,
in the case of a security that has already been issued, to accept delivery of
the security on a date beyond the usual settlement period.
FUND MANAGEMENT
The adviser of the Balanced Fund is Loomis, Sayles & Company, L.P., One
Financial Center, Boston, Massachusetts 02111 ("Loomis Sayles"). Founded in
1926, Loomis Sayles is one of the country's oldest and largest investment
counsel firms.
In 1994, the Balanced Fund paid 0.75% of its net assets in advisory fees to
Loomis Sayles. Douglas D. Ramos and Meri Anne Beck have served as portfolio
managers of the Balanced Fund since 1990. Mr. Ramos and Ms. Beck have been
employed by Loomis Sayles for at least five years and are Vice Presidents of
Loomis Sales and the Trust.
The International Equity Fund is advised by Draycott Partners, Ltd.
("Draycott"), 8 City Road, London EC2Y 1HE. Draycott was organized in 1991 to
provide investment advice and management services to institutional investors'
accounts and to mutual funds distributed to both institutional and retail
customers. Draycott is a member of the Investment Management Regulatory
PAGE 14
Organization Limited (IMRO), the U.K. regulator of investment advisers. In
addition to the Fund, Draycott currently manages three separate investment
accounts of The New England Mutual Life Insurance Company ("the New England")
that invest substantially all of their assets in international equity
securities. The International Equity Fund pays 0.80% of its average daily net
assets annually to Draycott. Nicholas D.P. Carn, Chief Investment Officer,
President and Chief Executive Officer of Draycott, Timothy S. Griffen, Senior
Portfolio Manager and Pacific Rim Specialist of Draycott, Gregory D. Eckersley,
Portfolio Manager and United Kingdom Specialist of Draycott, and Nigel Hankin,
Portfolio Manager and European Specialist of Draycott, have served as the
portfolio managers of the International Equity Fund since the Fund's inception
in 1992. Until 1991, Mr. Carn was Managing Director, International Equities
Group, Mr. Griffen was a Vice President and Portfolio Manager, Mr. Eckersley
was Investment Manager and Mr. Hankin was European Fund Manager, all at CIGNA
International Investment Advisors, Ltd.
The advisory fee rates payable by the Funds are higher than those paid by most
other mutual funds but are comparable to fee rates paid by many funds that have
investment objectives similar to those of the Funds.
Short-term U.S. cash management services for the International Equity Fund are
provided by Back Bay Advisors, L.P. ("Back Bay Advisors") as subadviser to
Draycott. For these services, Draycott has agreed to compensate Back Bay
Advisors at the annual rate of .08% of the value of the Fund's average daily
net assets.
The general partners of each of Loomis Sayles, Back Bay Advisors and the
Distributor are special purpose organizations. These corporations are wholly-
owned subsidiaries of NEIC, whose sole general partner, New England Investment
Companies, Inc., is a wholly-owned subsidiary of The New England.
In placing portfolio transactions for the Funds each adviser seeks the most
favorable price and execution available. Subject to this policy, the advisers
may consider sales of shares of the Trust as a factor in the selection of
broker dealers.
In addition to selecting and reviewing the investments of the respective Funds,
Draycott and Loomis Sayles provide executive and other personnel for the
management of the Trust. The Trust's Board of Trustees supervises the affairs
of the Trust as conducted by the Trust's advisers.
Under agreements between Loomis Sayles and the Distributor or New England
Securities Corporation ("New England Securities"), an affiliate of the
Distributor, either the Distributor or New England Securities provides certain
administrative services to the Balanced Fund, at no extra cost to the Fund.
Under an Administrative Services Agreement between the International Equity
Fund and the Distributor, the Distributor provides the Fund with office space,
PAGE 15
facilities and equipment, services of executive and other personnel and certain
administrative services. Under this agreement, the Fund pays the Distributor a
fee at the annual rate of 0.05% of the average daily net assets of the Fund's
Class Y shares.
In addition to the management fee paid to its adviser and, in the case of the
International Equity Fund, the administrative services fee paid to the
Distributor, each Fund pays all expenses not borne by its 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
preparing, printing and mailing prospectuses and reports to shareholders and
the compensation of trustees who are not directors, officers or employees of
The New England or its affiliates, which are not affiliated registered
investment companies.
All expenses of the Funds are borne by the Class A, Class B and Class Y shares
on a pro rata basis, except for the administrative services fee (which applies
to the International Equity Fund only and is charged at a separate rate to each
Class), 12b-1 fees (which are borne only by Class A and Class B and are charged
separately to those classes), transfer agency fees and expenses of printing and
mailing prospectuses to shareholders which are separately allocated to each
class.
Until further notice, Draycott and the Distributor have agreed to reduce their
fees and to bear certain operating expenses charged to the International Equity
Fund to the extent that the total of such fees and expenses would exceed 1.00%
annually of the average daily net asset value of the Class Y shares. Draycott
and the Distributor may terminate this expense limitation at any time.
MINIMUM INVESTMENT
Class Y shares of the Funds may be purchased by endowments and foundations.
The minimum initial investment is $1 million for these entities and $100,000
for each subsequent investment. 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, any other insurance company affiliated with The New
England ("Separate Accounts"), and, in the case of the International Equity
Fund, by bank common trust, bank collective trust funds and dedicated corporate
or trusteed funds, such as nuclear decommissioning trusts and hospital
depreciation funds (the "Special Accounts"). There is no minimum initial or
subsequent investment amount for the Retirement Plans, Separate Accounts or
Special Accounts. Investments in the Funds may also be made by certain
individual retirement accounts if the amounts invested represent rollover
distributions from investments by any of the foregoing plans of amounts
invested in the Funds. The Distributor serves as the principal underwriter of
PAGE 16
the Fund's shares. Shares may be purchased on any day when the New York Stock
Exchange (the "Exchange") is open for business (a "business day"). Investors
should contact New England Funds, L.P. before attempting to place an order for
Fund shares. The Funds and the Distributor reserve the right at any time to
reject a purchase order.
WAYS TO BUY FUND SHARES
A shareholder may purchase Class Y shares for cash on any business day by the
two methods described below:
By Wire Transfer:
Prior to an initial investment, obtain an account number and wire transfer
instructions by calling 1-800-225-5478. All funds should be transmitted to
State Street Bank and Trust Company, ABA #011000028, DDA #99011538, Credit
[Fund Name] Class Y shares, Shareholder Name, and Shareholder Account Number.
By Mail:
For an initial investment, complete the attached application and return it with
a check payable to New England Funds, L.P. and mailed to New England Funds,
L.P., 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.
Class Y shares may also be purchased by exchanging securities on deposit with a
custodian acceptable to the adviser of the Fund or by a combination of such
securities and cash. Purchase of shares of the Funds in exchange for
securities is subject in each case to the determination by the Fund's adviser
that the securities to be exchanged are acceptable for purchase by the Fund.
Securities accepted by the Fund's adviser in exchange for Fund shares will be
valued in the same manner as the Fund's assets (generally the last quoted sales
price), as described below under "Determination of Net Asset Value," as of the
time of the Fund's next determination of net asset value after such acceptance.
All dividends and subscription or other rights which are reflected in the
market price of accepted securities at the time of valuation become the
property of the Funds and must be delivered to the Funds upon receipt by the
investor from the issuer. A gain or loss for federal income tax purposes would
be realized upon the exchange by an investor that is subject to federal income
taxation, depending upon the investor's basis in the securities tendered. A
shareholder who wishes to purchase shares by exchanging securities on deposit
with a custodian and acceptable to the Fund's adviser should obtain
instructions by calling 1-800-225-5478.
An adviser will not approve the acceptance of securities in exchange for shares
of a Fund it advises unless (1) the adviser, in its sole discretion, believes
the securities are appropriate investments for the Fund; (2) the investor
represents and agrees that all securities offered to the Fund are not subject
to any restrictions upon their sale by the Fund under the Securities Act of
1933, or otherwise; (3) the securities are eligible to be acquired under the
PAGE 17
Fund's investment policies and restrictions; and (4) the securities have a
value which is readily ascertainable (not established by evaluation procedures
alone) as evidenced by a listing on the New York Stock Exchange, the American
Stock Exchange, NASDAQ or the principal securities exchange of countries in
which the Fund may invest. No investor owning 5% or more of the Fund's shares
may purchase additional Fund shares by exchange of securities (other than
shares of other New England Funds).
General. The purchase price of shares of each Fund is the net asset value next
determined after a purchase order is received in good order by New England
Funds, L.P. For purposes of calculating the purchase price of Fund shares, a
purchase order is considered received by the Fund on the day that it is "in
good order" unless it is rejected by the Fund. For a purchase order to be in
"good order" on a particular day, the investor's securities must be placed on
deposit at a depository acceptable to the Fund's adviser or, in the case of
cash investments, Federal funds must be wired to the Fund between 9:00 a.m. and
4:00 p.m. (Eastern time) or a check for the purchase price of the shares,
accompanied by a completed application, must have been received by New England
Funds, L.P. before 4:00 p.m. (Eastern time) on that day. In the case of an
order being paid for by exchange of other securities, the deadline for
transferring securities to a depository acceptable to the Fund's adviser is
4:00 p.m. (Eastern time). Orders received after 4:00 p.m. (Eastern time) will
receive the next day's price.
Purchases will be made in full and fractional Class Y shares calculated to
three decimal places. The shareholder will receive a statement of Fund shares
owned following each transaction. Investors will not receive certificates
representing Class Y shares. The Trust and the Distributor reserve the right
at any time to reject a purchase order.
EXCHANGING AMONG NEW ENGLAND FUNDS
A shareholder may exchange investments from the Class Y shares of one series of
the Trust or New England Funds Trust II (collectively, the "Trusts") to the
Class Y shares of another series of the Trusts or to the Class A shares of New
England Cash Management Trust or New England Tax Exempt Money Market Trust (the
"Money Market Funds").
WAYS TO SELL FUND SHARES
By Telephone:
A shareholder may redeem shares of the Funds on any business day in cash by
using either of the two methods described below:
Mailed to your address of record - Shares may be redeemed by calling us at 1-
800-225-5478 and requesting that a check for the proceeds be mailed to the
address on your account.
Wired to your bank account - If you have previously selected the telephone
redemption privilege, shares may be redeemed by calling us at 1-800-225-5478
between 8 a.m. and 6 p.m. (Eastern Time). The proceeds generally will be wired
PAGE 18
on the next business day to the bank account previously designated on a
shareholder's account application. The bank must be a member of the Federal
Reserve System or have a correspondent bank that is a member. Savings bank
accounts must have only one correspondent bank that is a member of the System.
A wire fee (currently $5.00) will be deducted from the proceeds. Redemption
requests received while the New York Stock Exchange is closed for regular
trading will be processed on the next business day.
New England Funds, L.P. will employ reasonable procedures to confirm that a
shareholder's 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 identification prior to acting upon
telephone instructions, will provide shareholders with written confirmations of
such transactions and will record a shareholders' instructions.
By Mail:
A shareholder may also redeem shares at their net asset value next determined
after receipt of the 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, the account number, the exact
name in which the shares are registered and the number of shares or the dollar
amount to be redeemed and must be signed exactly in accordance with the form of
registration. Persons acting in a fiduciary capacity, or on behalf of a
corporation, partnership or trust, must specify the capacity in which they are
acting. The signature must be guaranteed by an eligible institution in
accordance with procedures established by New England Funds. Signature
guarantees by notaries public are not acceptable.
General. If the Fund's adviser determines, in its sole discretion, that it
would be detrimental to the best interests of the remaining shareholders of the
Fund to make payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by a distribution in kind of readily marketable
securities held by the Fund in lieu of cash. Securities used to redeem Fund
shares in kind will be valued in accordance with the Funds' procedures for
valuation described under "Determination of Net Asset Value." Securities
distributed by a Fund in kind will be selected by the Fund's adviser in light
of the Fund objective and will not generally represent a pro rata distribution
of each security held in the Fund's portfolio. Investors may incur brokerage
charges on the sale of any such securities so received in payment of
redemptions. The Funds' right to pay redemptions in kind is limited by an
election made by the Funds under Rule 18f-1 under the Investment Company Act of
1940. See Part II of the Statement.
Payment on redemption will be made as promptly as possible and in any event
within seven days after a written request for redemption is received by the
Fund in good order. The Trusts 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 during
periods when trading on the Exchange is restricted or during an emergency which
PAGE 19
makes it impracticable for the Fund to dispose of its securities or to
determine fairly the value of the net assets of the Fund, or during any other
period permitted by the SEC for the protection of investors.
DETERMINATION OF NET ASSET VALUE
The price of each Fund's shares varies, depending on the value of that Fund's
assets and liabilities.
Each Fund's holdings of equity securities are valued at the most recent sales
prices on an applicable exchange or NASDAQ, or, in the case of unlisted
securities or listed securities which were not traded during the day, at the
last quoted bid prices. Price information on listed securities is generally
taken from the closing price on the exchange where the security is primarily
traded. Short-term notes are stated at cost, or, where applicable, amortized
cost, which method is intended to approximate market value. Loomis Sayles,
under the supervision of the Trust's Board of Trustees, determines the value
of the fixed-income securities held by the Balanced Fund, and is authorized to
delegate certain price determination functions to pricing services or
facilities selected by Loomis Sayles. All other securities and assets of each
Fund are valued at their fair market value as determined in good faith by the
Fund's adviser (or a pricing service selected by the adviser) under the
supervision of the Trust's Board of Trustees. The net asset value of each
Fund's shares is determined as of the close of regular trading (normally 4:00
p.m. Eastern time) on the Exchange each day it is open.
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 Y
shares is the net asset value per share.
DIVIDENDS
The International Equity Fund pays dividends annually and the Balanced Fund
pays dividends quarterly. Each Fund pays as dividends substantially all of its
net investment income, including dividends and interest, each year and
distributes annually all realized capital gains, if any, after applying any
available capital loss carryovers. The trustees of the Trust may adopt a
different schedule as long as payments are made at least annually. If a
shareholder intends to purchase shares of a Fund before it declares a dividend,
he or she should be aware that a portion of the purchase price may be returned
as a taxable dividend.
A shareholder has the option to reinvest all distributions in additional Class
Y shares of the Fund in which it has invested, to receive distributions in cash
PAGE 20
or to receive distributions from dividends and interest in cash while
reinvesting distributions from capital gains in additional Class Y shares of
the Fund.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company and thus does
not expect to pay any federal income tax on investment income and capital gains
distributed. Unless a shareholder is a tax-exempt entity, its distributions
derived from a Fund's short-term capital gains and ordinary income are taxable
to it as ordinary income. (A portion of these distributions may qualify for
the dividends-received deduction for corporations.) Distributions derived from
a Fund's long-term capital gains ("capital gains distributions"), if designated
as such by a Fund, are taxable to a shareholder as long-term capital gains,
regardless of how long a shareholder has owned shares in a Fund. Both
dividends and capital gains distributions are taxable whether a shareholder
elected to receive them in cash or additional shares.
To avoid an excise tax, each Fund intends to distribute prior to calendar year
end virtually all that Fund's ordinary income and net capital gains earned
during that calendar year. If declared in December to shareholders of record
in that month, and paid the following January, these distributions will be
considered for federal income tax purposes to have been received by
shareholders on December 31.
Each Fund is required to withhold 31% of all income dividends and capital gains
distributions it pays to a shareholder if the shareholder does not provide a
correct, certified taxpayer identification number, if a Fund is notified that a
shareholder has underreported income in the past, or if a shareholder fails to
certify to a Fund that it is not subject to such withholding. In addition,
each Fund will be required to withhold 31% of the gross proceeds of Fund shares
that a shareholder redeems if a shareholder has not provided a correct,
certified taxpayer identification number. If a shareholder is a tax-exempt
shareholder, however, these back-up withholding rules will not apply so long as
the shareholder furnishes the Fund with an appropriate certification.
The International Equity Fund may be liable to foreign governments for taxes
relating primarily to investment income or capital gains on foreign securities
in the Fund's portfolio. The Fund may in some circumstances be eligible to,
and in its discretion may, make an election under the Internal Revenue Code
which would allow Fund shareholders who are U.S. citizens or U.S. corporations
to claim a foreign tax credit or deduction (but not both) on their U.S. income
tax return. If the Fund makes the election, the amount of each shareholder's
distribution reported on the information returns filed by the Fund with the
Internal Revenue Service must be increased by the amount of the shareholder's
portion of the Fund's foreign tax paid.
The International Equity Fund may limit its investments in certain "passive
foreign investment companies" in order to avoid certain taxes that arise as a
result of such investments.
PAGE 21
The foregoing is a summary of certain federal income tax consequences of an
investment in a Fund for shareholders who are U.S. citizens or corporations.
Shareholders should consult a competent tax adviser as to the effect of an
investment in a Fund on their particular federal, state and local tax
situations. Shareholders of the International Equity Fund should also consult
their tax advisers about consequences of their investment under foreign laws.
PERFORMANCE CRITERIA
The Funds may include total return information in advertisements or other
written sales material. The Funds will show their average annual total return
for the one-, five- and ten-year periods (or the life of the particular Fund,
if shorter) through the end of the most recent calendar quarter. Total return
is measured by comparing the value of a hypothetical $1,000 investment in a
class at the beginning of the relevant period to the value of the investment at
the end of the period (assuming automatic reinvestment of all dividends and
capital gains distributions). The Funds may also show total return over other
periods.
The Balanced Fund may also include its yield, accompanied by its total return,
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 thirty-day period by the
maximum offering price of a Fund share (reduced by any earned income expected
to be declared shortly as a dividend) on the last day of the period. Yield
calculations will reflect any voluntary expense limitations in effect for the
Fund during the relevant period.
The Balanced Fund may also present one or more distribution rates in its sales
literature. These rates will be determined by annualizing the Fund's
distributions from net investment income and net short-term capital gain over a
recent twelve-month, three-month or thirty-day period and dividing that amount
by the maximum offering price or the net asset value on the last day of such
period. If the net asset value rather than the maximum offering price is used
to calculate the distribution rate, the rate will be higher.
All performance information is based on past results and is not an indication
of likely future performance. See the Statement for more detail. As a result
of their lower operating expenses, Class Y shares of each Fund can be expected
to achieve higher investment returns than the same Fund's Class A, Class B and
Class C shares. For Class A shares, if the sales charge is excluded in
calculating the total return, yield or distribution rate, the rate or rates
will be higher.
ADDITIONAL FACTS ABOUT THE FUNDS
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 responsibilities to State
Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110.
PAGE 22
The 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
Balanced Fund was organized prior to 1985 and conducted investment
operations as a separate corporation until its reorganization as
series of the Trust in January 1987. The International Equity Fund
was organized in 1992.
An investor in a Fund acquires freely transferable shares of
beneficial interest that entitle the investor to receive annual or
quarterly dividends as determined by the Trust's Board of Trustees
and to cast a vote for each share owned at shareholder meetings.
Shares of each series of the Trust vote separately from shares of
other series of the Trust, except as otherwise required by law.
Shares of all classes of a Fund vote together, except that only Class
A, Class B and Class C shares may vote with respect to the Rule 12b-
1 plans that apply to those classes. No Rule 12b-1 plan applies to
the Class Y shares of either Fund.
Class A, Class B and Class C shares are identical to Class Y shares,
except that Class A and Class B shares are subject to a sales load or
contingent deferred sales charge ("CDSC"), Class A, Class B and Class
C shares bear a service fee at the annual rate of .25% of average net
assets (and in the case of Class B and Class C shares, a .75%
distribution fee) and have separate voting rights in certain
circumstances. Class Y bears its own transfer agency and prospectus
printing costs. The minimum investment in Class A, Class B and Class
C shares is $2,500 (but lower minimums apply to purchases under
certain special programs).
Sales charges for Class A and B shares are as follows:
Class A Shares
The sales charge imposed on purchases of Class A shares of the Funds is 5.75%
on investments less than $50,000, 4.50% on investments of $50,000 or more but
less than $100,000, 3.50% on investments of $100,000 or more but less than
$250,000, 2.50% on investments more than $250,000 but less than $500,000 and
2.00% on investments more than $500,000 but less than $1,000,000. No sales
charge applies at the time of purchase to purchases of $1,000,000 or more, but
certain redemptions by such purchasers within one year after purchase are
subject to a CDSC of 1%.
Class B Shares
Class B shares of the Funds are offered at net asset value, without an initial
sales charge, subject to a 0.75% annual distribution fee for 8 years (at which
time they automatically convert to Class A shares) and to a CDSC if they are
PAGE 23
redeemed within 5 years of purchase. The CDSC is 4% on redemptions made within
the first year of investment, 3% in the second and third years, 2% in the
fourth year and 1% in the fifth year.
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 A shares of a Fund may be purchased without paying a sales charge by
exchanging (i) Class A shares of any other series of the Trusts or (ii) Class A
shares of New England Cash Management Trust and New England Tax Exempt Money
Market Trust (the "Money Market Funds") acquired through exchanges from any of
the series of the Trusts. Class A shares of New England Intermediate Term Tax
Free Funds of California and New York (and shares of the Money Market Funds
acquired through exchanges of such shares) may be exchanged for Class A shares
of the Funds at net asset value only if they have been held for at least six
months; otherwise, sales charges apply to the exchange. If you exchange your
Class A shares of the New England Adjustable Rate U.S. Government Fund
("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, shares redeemed from any
Money Market Fund that were not acquired through exchanges from any series of
the Trusts may be redeemed and the proceeds applied directly to the purchase of
Class A shares of the Funds at the applicable sales charge.
Class B shares of a Fund may be purchased by exchanging Class B shares of any
other series of the Trusts, Class B shares of the Money Market Funds or Class A
shares of the Money Market Funds (which have not been subject to a sales
charge). Such exchanges will be made at the next determined net asset value of
the shares. The holding period for the purposes of timing the conversion to
Class A shares and determining the CDSC will continue to run after the exchange
to the Class B shares of series of the Trusts. If the exchange is made to the
Class B shares of a Money Market Fund, then the holding period will stop and
resume only when an exchange is made back into Class B shares of a series of
the Trusts.
Class C shares of a Fund may be purchased by exchanging Class C shares of any
other series of the Trust's which offer Class C shares or Class A shares of the
Money Market Funds.
All exchanges of Class A, Class B and Class C shares must be for a minimum of
$500 or the total net asset value of the shareholder's account, whichever is
less, except that, under an Automatic Exchange Privilege, the minimum is $50.
Class A, Class B and Class C shares may be purchased by mail, by wire transfer,
by automatic investment plan, by electronic purchase through Automated Clearing
PAGE 24
House (ACH) and by exchange as described above. Class A, Class B and Class C
shares may be redeemed by mail and by telephone. Class A and Class C shares
may also be redeemed under a systematic withdrawal program.
The Trust generally does not hold shareholder meetings and will do so only when
required by law. Shareholders may remove the trustees of the Trust from office
by votes cast at a shareholder meeting or by written consent.
The Distributor has entered into a selling agreement with investment dealers,
including a broker-dealer that is an affiliate of the Distributor, for the sale
of the Funds' Class Y Shares. The Distributor may at its expense pay an amount
not to exceed 0.50% of the amount invested to dealers who have selling
agreements with the Distributor. Registered representatives of the affiliated
broker-dealer are also employees of New England Investment Associates, Inc.
("NEIA"), an indirect, wholly owned subsidiary of NEIC. NEIA may receive
compensation with respect to certain sales of each Fund's Class Y shares from
the Fund's adviser.
The Funds' annual reports contain additional performance information and will
be made available upon request and without charge.
The Class A, Class B, Class C and Class Y structure could be terminated should
certain IRS rulings be rescinded. See Part II of the Statement for more
details.
PAGE 25
