- - - - - - - - - - - - - - -
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 27 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ]
ACT OF 1940
Amendment No. 28 [ X ]
(Check appropriate box or boxes)
- - - - - - - - - - - - - - -
NEW ENGLAND FUNDS TRUST I
(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
(617) 578-1388
(Registrant's Telephone Number, including Area Code)
- - - - - - - - - - - - - - -
SHEILA M. BARRY, Esquire
New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
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Copy to:
EDWARD A. BENJAMIN, Esquire
Ropes & Gray
One International Place
Boston, Massachusetts 02110
- - - - - - - - - - - - - - -
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on October 12, 1995 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective ammendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of securities under the
Securities Act of 1933 in accordance with Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant filed on
February 27, 1995, the Rule 24f-2 Notice for the Registrant's fiscal
year ended December 31, 1994.
<PAGE>
NEW ENGLAND FUNDS TRUST I
(Prospectus and Statement of Additional Information)
CROSS REFERENCE SHEET
Items required by Form N-1A
Item No.
of Form N-1A Caption in Prospectus
1 . . . . . . . . . Cover page
2 . . . . . . . . . Schedule of Fees
3 . . . . . . . . . Financial Highlights
4 . . . . . . . . . Cover page; Additional Facts
about the Funds; Investment
Objectives; How the Funds
Pursue Their Objectives; Fund
Investments; Investment Risks
5 . . . . . . . . . NEIC and the Funds' Advisers;
Fund Management; Back Cover
Page
6 . . . . . . . . . Cover page; Additional Facts
about the Funds; Buying Fund
Shares; Owning Fund Shares;
Dividends; Income Tax
Considerations
7 . . . . . . . . . Cover page; Schedule of Fees;
Buying Fund Shares; How Fund
Share Price is Determined;
Back Cover Page
8 . . . . . . . . . Selling Fund Shares;
Exchanging Among New England
Funds
9 . . . . . . . . . None
Item No. Caption in Statement of
of Form N-1A Additional Information
10 . . . . . . . . . Cover page
11 . . . . . . . . . Table of Contents
12 . . . . . . . . . Description of the Trusts and
Ownership of Shares
13 . . . . . . . . . Miscellaneous Investment
Practices; Investment
Restrictions
14 . . . . . . . . . Management of the Trusts
15 . . . . . . . . . Management of the Trusts
16 . . . . . . . . . Fund Charges and Expenses;
Management of the Trusts
17 . . . . . . . . . Portfolio Transactions and
Brokerage; Fund Charges and
Expenses
18 . . . . . . . . . Description of the Trusts and
Ownership of Shares
19 . . . . . . . . . How to Buy Shares; Net Asset
Value and Public Offering
Price; Reduced Sales Charges;
Shareholder Services;
Redemptions
20 . . . . . . . . . Performance Information (in
prospectus); Standard
Performance Measures; Income
Dividends, Capital Gain
Distributions and Tax Status
21 . . . . . . . . . Advisory Agreements;
Distribution Agreements and
Distribution Plans
22 . . . . . . . . . Performance Information (in
Prospectus); Standard
Performance Measures
23 . . . . . . . . . None
<PAGE>
NEW ENGLAND FUNDS TRUST I
New England Strategic Income Fund
SUPPLEMENT DATED OCTOBER , 1995 TO NEW ENGLAND BOND FUNDS AND NEW
ENGLAND STRATEGIC INCOME FUND PROSPECTUSES DATED MAY 1, 1995
The Financial Highlights presented below are for a Class A, B and C
share of New England Strategic Income Fund outstanding throughout the
indicated period. 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 of Additional
Information.
Class A Class B Class C
Shares Shares Shares
May 1, May 1, May 1,
1995(a) 1995(a) 1995(a)
through through through
September September September
30, 30, 30,
1995 1995 1995
Net asset value, beginning $12.50 $12.50 $12.50
of period
Income from investment
operations
Net investment income 0.46 0.42 0.41
Net gains or losses on
investments 0.04 0.04 0.04
(both realized and
unrealized)
Total income from 0.50 0.46 0.45
investment operations
Less distributions
Distributions (from net (0.48) (0.44) (0.43)
investment income)
Total distributions (0.48) (0.44) (0.43)
Net asset value, end of $12.52 $12.52 $12.52
period
Total return (%) 4.08(c) 3.76(c) 3.69(c)
Ratios/Supplemental data
Net assets, end of period $29,417 $28,428 $10,575
(000)
Ratio of operating expenses 1.04(b) 1.79(b) 1.79(b)
to average net assets (%)
(d)
Ratio of net investment 7.87(b) 7.12(b) 7.12(b)
income to average net
assets (%)
Portfolio turnover rate (%) 16(b) 16(b) 16(b)
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets (computed on
an annualized basis) without giving effect to the voluntary expense
limitations in effect from May 1, 1995 through September 30, 1995 would
have been 1.69%, 2.44% and 2.44% for Class A, B and C shares,
respectively.
<PAGE>
NEW ENGLAND FUNDS
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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>
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.
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INVESTMENT STRATEGY
11 How the Funds Pursue Their Objectives
11 Fund Investments
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17 INVESTMENT RISKS It is important to understand the risks inherent in a Fund
before you invest.
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21 FUND MANAGEMENT
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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)
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OWNING FUND SHARES
29 Exchanging Among New England Funds New England Funds offers three convenient ways to
29 Fund Dividend Payments exchange Fund shares.
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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.
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>
SHAREHOLDER TRANSACTION EXPENSES -- PAID DIRECTLY BY SHAREHOLDERS
NEW ENGLAND GOVERNMENT SECURITES FUND
NEW ENGLAND BOND INCOME FUND
NEW ENGLAND HIGH INCOME FUND ADJUSTABLE
NEW ENGLAND TAX EXEMPT INCOME FUND NEW ENGLAND LIMITED TERM U.S. GOVERNMENT
NEW ENGLAND STRATEGIC INCOME FUND U.S. GOVERNMENT FUND FUND
-------------------------------- ------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS C<F4> CLASS A CLASS B CLASS C CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
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>
<TABLE>
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
---------------- ------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B CLASS B
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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>
</TABLE>
<TABLE>
NEW ENGLAND HIGH NEW ENGLAND TAX
NEW ENGLAND BOND INCOME FUND INCOME FUND EXEMPT INCOME FUND
-------------------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- -----
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>
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>
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
---------------- ------------------------- ---------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
- ---------------------------------------------------------------------------------------------------------------------------
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>
</TABLE>
<TABLE>
NEW ENGLAND NEW ENGLAND NEW ENGLAND TAX
BOND INCOME FUND HIGH INCOME FUND EXEMPT INCOME FUND
-------------------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- -------
<F1> <F2> <F1> <F2> <F1>
<F2>
- --------------------------------------------------------------------------------------------------------------------------------
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.
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.
<TABLE>
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,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1986 1986<F5> 1987 1988 1989 1990 1991 1992 1993 1994
- --------------------------------------------------------------------------------------------------------------------------------
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>
CLASS B
---------------------------------------
SEPT. 23(A)
THROUGH YEAR ENDED
DEC. 31, DEC. 31,
1993 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.
<TABLE>
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
Class A Class B
------------------------------------------------------------------------ ---------------------------
Jan. 3,<F1> Sept. 27,<F1> Year
through Year Ended December 31, through Ended
Dec. 31, ---------------------------------------------------------- Dec. 31, Dec. 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------------
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>
<TABLE>
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
Class A Class B
--------------------------------------------------------- ------------------------------
Oct.
18,<F1> Sept. 13,<F1> Year
through Year Ended December 31, through Ended
Dec. 31, --------------------------------------- Dec. 31, Dec. 31,
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------------
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>
<TABLE>
NEW ENGLAND BOND INCOME FUND
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,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1986 1986<F4> 1987 1988 1989 1990 1991 1992 1993 1994 1993 1994
- ----------------------------------------------------------------------------
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>
<TABLE>
NEW ENGLAND HIGH INCOME FUND
Class A Class B
------------------------------------------------------------------------------------ -------------------
Four
Months Sept.20, Year
<F1>
Year Ended August 31, Ended Year Ended December 31, through Ended
---------------------------- Dec. 31, ---------------------------------------------- Dec. 31, Dec.31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1986 1987 1988 1988<F4> 1989 1990 1991 1992 1993 1994 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------------
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>
<TABLE>
NEW ENGLAND TAX EXEMPT INCOME FUND
Class A Class B
------------------------------------------------------------------------------------------------------------
Year July 1, Sept. 13, Year
<F1>
Ended to Year Ended December 31, through Ended
June 30, Dec. 31, ----------------------------------------------------------------------------- Dec.31, Dec.31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1985<F4> 1986 1987 1988 1989 1990 1991 1992 1993 1994 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------------
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>
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 $40,000
filing a joint return would have to earn a taxable yield of 8.33% to
equal a tax-free yield of 6.0%.
This example and the following table do not take into account the effect
of state or local income taxes, if any, or federal income taxes on social
security benefits which may arise as a result of receiving tax exempt
income, or the federal alternative minimum tax that may be payable to
the extent that Fund dividends are derived from interest on "private
activity" bonds (see below). Also, a portion of the Fund's distributions
may consist of ordinary income or short-term or long-term capital gains and
will be taxable to you as such.
<TABLE>
TAX FREE INVESTING
Taxable and Tax-Free Yields
TAXABLE INCOME IF TAX EXEMPT YIELD IS
FEDERAL ------------------------------------------
SINGLE JOINT MARGINAL 4.0% 4.5% 5.0% 5.5% 6.0%
RETURN ($) RETURN ($) TAX RATE THEN THE EQUIVALENT TAXABLE YIELD WOULD BE:
- ----------------------------------------------------------------------------------------------
<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.
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
assetbacked 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.
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 1-800225-5478.
[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:
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-
2255478 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 12month 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.
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.
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.
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).
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.
[LOGO]
NEW ENGLAND FUNDS
NEW ENGLAND STRATEGIC INCOME FUND
Prospectus and Application
May 1, 1995
New England Strategic Income Fund (the "Fund"), a newly-organized,
diversified mutual fund, is a series of New England Funds Trust I (the
"Trust"), a registered open-end management investment company. Other
series of the Trust are described in separate prospectuses.
The Fund seeks high current income with a secondary objective of
capital growth. There can be no assurance the Fund will achieve its
objectives, which may be changed without shareholder approval.
The Fund offers three classes of shares to the general public (Classes
A, B and C). The offering price is based on the net asset value per
share next determined after an order is received. Class A share
purchases generally involve a sales charge at the time of purchase. No
initial sales charge applies to Class B share purchases. A contingent
deferred sales charge ("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, the Fund also offers Class Y
shares to certain institutional investors.
This prospectus sets forth information you should know before
investing in the Fund. Please read it carefully and keep it for future
reference. A statement of additional information in two parts (the
"Statement") about the Fund 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 Fund and is incorporated into this prospectus by
reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
For general information on the Fund or any of its services and for
assistance in opening an account, contact your investment dealer or
call the Distributor toll free: 1-800-225-5478.
<PAGE>
TABLE OF CONTENTS
Page
03 NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDOS ADVISER AND
SUBADVISER
03 SCHEDULE OF FEES
Sales charges, yearly operating expenses.
INVESTMENT STRATEGY
05 How the Fund Pursues Its Objectives
07 INVESTMENT RISKS
It is important to understand the risks inherent in the Fund
before you invest.
11 FUND MANAGEMENT
BUYING FUND SHARES
12 Minimum Investment
Everything you need to know to open and add to a New England
Strategic Income Fund account.
12 6 Ways to Buy Fund Shares
- Through your investment dealer
- By mail
- By wire transfer of Federal Funds
- By Investment Builder
- By electronic purchase through ACH
- By exchange from another New England Fund
13 Sales Charges
15 Reduced Sales Charges
(Class A Shares Only)
OWNING FUND SHARES
17 Exchanging Among New England Funds
New England Funds offers three convenient ways to exchange Fund
shares.
17 Fund Dividend Payments
SELLING FUND SHARES
19 4 Ways to Sell Fund Shares
How to withdraw money or close your account.
- Through your investment dealer
- By telephone
- By mail
- By Systematic Withdrawal Plan
20 Repurchase Option
(Class A Shares Only)
An opportunity to reinvest your redemption proceeds within 120
days for no sales charge.
FUND DETAILS
21 How Fund Share Price is Determined
Additional information you may find important.
21 Income Tax Considerations
22 The FundOs Expenses
23 Performance Criteria
23 Additional Facts About the Fund
25 Appendix A
26 Glossary of Terms
Ratings of Securities
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDOS ADVISER AND SUBADVISER
The investment adviser and subadviser of the Fund are independently-
operated subsidiaries of New England Investment Companies, L.P.
("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. The adviser and subadviser
operate independently and are staffed by experienced investment
professionals. The adviser and subadviser apply specialized knowledge
and careful analysis to the pursuit of the Fund's objectives.
NEW ENGLAND FUNDS MANAGEMENT, L.P. ("NEFM"), investment adviser of the
Fund, is a newly organized investment adviser.
LOOMIS, SAYLES & COMPANY, L.P. ("LOOMIS SAYLES"), subadviser to the
Fund, has over $35 billion of assets under management. Loomis Sayles
manages portfolios for institutional investors, individuals and mutual
funds.
SCHEDULE OF FEES
Expenses are one of several factors to consider when you invest in the
Fund. The following table summarizes your maximum transaction costs
from investing in the Fund and estimated annual expenses for each
class of the FundOs shares. The Example on the following page shows
the cumulative expenses attributable to a hypothetical $1,000
investment in each class of shares of the Fund for the periods
specified.
SHAREHOLDER TRANSACTION EXPENSES -- PAID DIRECTLY BY SHAREHOLDERS
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
Maximum Initial Sales Charge
Imposed on a Purchase (as a
percentage of offering price)(1)(2) 4.50% None None
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption proceeds,
as applicable)(2) (3) 4.00% None
Deferred Sales Charge None None None
Redemption Fee None None None
Exchange Fee None None None
<FN>
(1) A reduced sales charge on Class A shares applies in some cases.
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to
any portion of certain purchases of Class A shares greater than
$1,000,000 redeemed within approximately 1 year after purchase.
See OSales Charges.O
</TABLE>
ANNUAL OPERATING EXPENSES -- PAID DIRECTLY BY THE FUND, AND INDIRECTLY
BY ITS SHAREHOLDERS (as a percentage of net assets)
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
Management Fees 0.00%* 0.00%* 0.00%*
12b-1 Fees 0.25% 1.00%** 1.00%**
Administrative Services Fees None None None
Other Expenses 1.00% 1.00% 1.00%
Total Expenses 1.25%* 2.00%* 2.00%*
<FN>
* After fee waiver and expense reduction by the FundOs adviser and
subadviser. Without the voluntary limitations, Management Fees
would be 0.65%; and estimated Total Expenses would be 1.90% for
Class A shares, 2.65% for Class B shares and 2.65% for Class C
shares.
** Because of the higher 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales
charge permitted by rules of the National Association of
Securities Dealers, Inc.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return and (2) unless otherwise noted, redemption at
period end. The 5% return and expenses in the Example should not be
considered indicative of actual or expected Fund performance or
expenses, both of which will vary.
<TABLE><CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C>
(1) (2)
1 year $57 $60 $20 $20
3 years $83 $93 $63 $63
<FN>
(1) Assumes redemption at end of period.
(2) Assumes no redemption.
</TABLE>
The purpose of this fee schedule is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly
if you invest in the Fund.
For information about the expenses of the Fund's Class Y shares, which
differ from the expenses of the Class A, Class B and Class C shares,
see "Additional Facts About the Fund." To obtain more information
about Class Y shares, please call the Distributor toll-free at 1-800-
225-5478. For additional information about the Fund's management fees,
12b-1 fees and other expenses, please see "Fund Management" and "The
FundOs 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.
INVESTMENT STRAGEGY
The Fund seeks high current income with a secondary objective of
capital growth.
How the Fund Pursues Its Objectives
Investments in the Fund will be pooled with money from other investors
in the Fund to invest in a managed portfolio consisting of securities
appropriate to the Fund's investment objectives and policies. There
can be no assurance that the Fund will achieve its objectives.
The Fund seeks to achieve its investment objectives by investing at
least 65% of its total assets in debt instruments. The Fund may invest
in debt instruments issued by corporations based in the United States
or abroad and debt instruments that are convertible into equity
securities. The Fund may also invest in U.S. Government Securities,
which term as used in this prospectus includes all securities issued
or guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities; and in securities issued or guaranteed by foreign
governments (including their political subdivisions, agencies,
authorities and/or instrumentalities) ("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
Investors Service, Inc., ["Moody's"] and D by Standard and Poor's
Corporation ["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 FundOs total assets).
The proportion of Fund assets invested in corporate bonds, government
bonds, preferred or common stock will vary over time based on changing
market conditions. When Loomis Sayles believes that a particular
market presents more opportunity than other markets, it may increase
the proportion of the 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.
* U.S. AND FOREIGN GOVERNMENT SECURITIES
Different types of U.S. and Foreign Government Securities have
different kinds of government support. U.S. Government Securities
include securities backed by the full faith and credit of the U.S.
Government, as well as many other securities that are not full faith
and credit obligations. For example, obligations of the Federal Home
Loan Banks are supported by the right of the issuer to borrow from the
U.S. Treasury, and obligations of the Federal Home Loan Mortgage
Corporation and the Federal National Mortgage Association (the "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 Fund 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
As the Fund may invest in securities denominated in foreign currencies
or traded in foreign markets, it may engage in related foreign
currency exchange transactions to protect the value of specific
portfolio positions or in anticipation of changes in relative values
of currencies in which current or future portfolio holdings are
denominated or quoted.
Foreign currency transactions involve costs and may result in losses.
See Part II of the Statement for more information.
* ADDITIONAL INFORMATION
The Fund may purchase securities for its portfolio on a "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 Fund, consistent with its investment objectives, attempts to
maximize yield by engaging in portfolio trading and by buying and
selling portfolio investments in anticipation of or in response to
changing economic market conditions and trends. The Fund also invests
to take advantage of what are believed to be temporary disparities in
the yields of the different segments of the market for U.S. Government
Securities. These policies may result in a higher turnover rate in the
Fund's portfolio which may produce higher transaction costs and a
higher level of taxable capital gains. Portfolio turnover
considerations will not limit the Fund's 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 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.
The Fund may enter into repurchase agreements, under which the Fund
buys securities from a seller, usually a bank or brokerage firm, with
the understanding that the seller will repurchase the securities at a
higher price at a later date. Such transactions afford an opportunity
for the Fund to earn a return on available cash at minimal credit
risk, although the Fund may be subject to various delays and risks of
loss if the seller is unable to meet its obligation to repurchase. The
staff of the SEC is currently of the view that repurchase agreements
maturing in more than seven days are illiquid securities.
INVESTMENT RISKS
It is important to understand the following risks inherent in the Fund
before you invest.
* FIXED-INCOME SECURITIES
The Fund invests principally in fixed-income securities. Because
interest rates vary, it is impossible to predict the income of the
Fund for any particular period. The net asset value of your shares
will vary as a result of changes in the value of the bonds and other
securities in the 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. U.S.
Government Securities do not involve the credit risks associated with
other types of fixed-income securities; as a result, the yields
available from U.S. Government Securities are generally lower than the
yields available from corporate fixed-income securities.
* LOWER RATED FIXED-INCOME SECURITIES
Lower rated fixed-income securities and corporate fixed-income
securities generally provide higher yields than U.S. Government and
many Foreign Government Securities, but are subject to greater credit
and market risk than higher quality fixed-income securities. Lower
rated fixed-income securities are considered predominantly speculative
with respect to the ability of the issuer to meet principal and
interest payments. Achievement of the investment objective of a fund
investing in lower rated fixed-income securities may be more dependent
on the investment 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.
* FOREIGN SECURITIES
Foreign Government Securities and foreign corporate securities present
risks not associated with investments in U.S. Government or corporate
securities.
Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made
in foreign currencies, the value of these investments and the net
investment income available for distribution to shareholders of the
Fund may be affected favorably or unfavorably by changes in currency
exchange rates or exchange control regulations. Because the Fund may
purchase securities denominated in foreign currencies, a change in the
value of any such currency against the U.S. dollar will result in a
change in the U.S. dollar value of the Fund's assets and the Fund's
income available for distribution.
In addition, although the Fund's income may be received or realized in
foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a
currency relative to the U.S. dollar declines after the 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 the Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay
such expenses in U.S. dollars will be greater than the equivalent
amount in such currency of such expenses at the time they were
incurred.
There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign
corporate issuers are not generally subject to accounting, auditing
and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign issuers are less
liquid and at times more volatile than securities of comparable U.S.
issuers. Foreign brokerage commissions and other fees in some
circumstances may be higher than in the United States. With respect to
certain foreign countries, there is a possibility of expropriation of
assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in
those countries. The receipt of interest on foreign government
securities may depend on the availability of tax or other revenues to
satisfy the issuer's obligations. The Fund may have limited legal
recourse should a foreign government be unwilling or unable to repay
the principal or interest owed.
The Fund will invest all or any portion of its assets in the
securities of emerging markets. Investments in emerging markets
include investments in countries whose economies or securities markets
are not yet highly developed. Special considerations associated with
these investments (in addition to the considerations regarding foreign
investments as discussed above) may include, among others, greater
political uncertainties, an economyOs dependence on revenues from
particular commodities or on international aid or development
assistance, currency transfer restrictions, highly limited numbers of
potential buyers for such securities and delays and disruptions in
securities settlement procedures.
In addition, the Fund may invest in securities issued by supranational
agencies. Supranational agencies are agencies whose member nations
make capital contributions to support the agencies' activities, and
include such entities as the International Bank for Reconstruction and
Development (the World Bank), the Asian Development Bank, the European
Coal and Steel Community and the Inter-American Development Bank.
In determining whether to invest in securities of foreign issuers,
Loomis Sayles will consider the likely effects of foreign taxes on the
net yield available to the Fund and its shareholders. Compliance with
foreign tax law may reduce the FundOs net income available for
distribution to shareholders.
* MORTGAGE-RELATED SECURITIES
Mortgage-related securities, such as mortgage participation
certificates guaranteed by the Government National Mortgage
Association or FNMA certificates, differ from traditional debt
securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that
principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if the Fund
purchases these securities at a premium, a faster-than-expected
prepayment rate will reduce yield to maturity, and a slower-than-
expected prepayment rate will have the opposite effect of increasing
yield to maturity. If the Fund purchases mortgage-related securities
at a discount, faster-than-expected prepayments will increase, and
slower-than-expected prepayments will reduce, yield to maturity.
Prepayments, and resulting amounts available for reinvestment by the
Fund, are likely to be greater during a period of declining interest
rates and, as a result, are likely to be reinvested at lower interest
rates. Accelerated prepayments on securities purchased at a premium
may result in a loss of principal if the premium has not been fully
amortized at the time of prepayment. Although these securities will
decrease in value as a result of increases in interest rates
generally, they are likely to appreciate less than other fixed-income
securities when interest rates decline because of the risk of
prepayments.
Adjustable rate mortgage securities ("ARMs"), like traditional
mortgage securities, are interests in a pool of mortgage loans that
provide investors with payments consisting of both principal and
interest as mortgage loans in the underlying mortgage pool are paid
off by the borrowers. ARMs have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index
or market interest rate. Although the rate adjustment feature may act
as a buffer to reduce sharp changes in the value of adjustable rate
securities, these securities are still subject to changes in value
based on changes in market interest rates or changes in the 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.
* COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized mortgage obligations ("CMOs") are securities backed by
a portfolio of mortgages or mortgage securities held under an
indenture. The underlying mortgages or mortgage securities are issued
or guaranteed by the U.S. Government or an agency or instrumentality
thereof. The issuerOs obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or
mortgage securities. CMOs are issued with a number of classes or
series which have different maturities and which may represent
interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different
classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient
early prepayments on such mortgages, the class or series of CMO first
to mature generally will be retired prior to its maturity. Thus, the
early retirement of a particular class or series of CMO held by the
Fund would have the same effect as the prepayment of mortgages
underlying a mortgage pass-through security. CMOs may be considered
derivative securities.
* "STRIPPED" SECURITIES
Stripped securities are usually structured with two or more classes
that receive different proportions of the interest and principal
distribution on a pool of U.S. or Foreign Government Securities or
mortgage assets. In some cases, one class will receive all of the
interest (the interest-only or "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, the Fund may fail to recoup fully
its investments in IOs. The staff of the SEC has indicated that it
views stripped mortgage securities as illiquid unless the securities
are issued by the U.S. Government or its agencies and are backed by
fixed-rate mortgages. The Fund intends to abide by the staff's
position. Stripped securities may be considered derivative securities.
* ZERO COUPON AND PAY-IN-KIND SECURITIES
Zero coupon securities are issued at a significant discount from face
value and pay interest only at maturity, rather than at intervals
during the life of the security. Pay-in-kind securities pay dividends
or interest in the form of additional securities of the issuer, rather
than in cash. The prices of pay-in-kind or zero coupon securities may
react more strongly to changes in interest rates than the prices of
many other securities. The Fund is required to accrue and distribute
income from pay-in-kind and zero coupon securities on a current basis,
even though the Fund will not receive the income currently in cash.
Thus the Fund may have to sell other investments to obtain cash needed
to make income distributions.
* WHEN-ISSUED SECURITIES
If the value of a "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. The Fund will maintain liquid high grade assets in a
segregated account in an amount sufficient to satisfy its outstanding
obligations to buy securities on a "when-issued" basis.
* OPTIONS AND FUTURES
The Fund may engage in a variety of transactions involving the use of
options and futures with respect to U.S. or Foreign Government
Securities or corporate fixed-income securities for purposes of
hedging against changes in interest rates. There is no assurance that
these hedging strategies will be effective. Futures are subject to
potentially unlimited loss. Expenses and losses resulting from hedging
strategies will reduce the Fund's current returns.
The Fund will not engage in options and futures transactions for
leverage. The Fund will not purchase or sell futures contracts or
related options if as a result the sum of the initial margin deposits
on the 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 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
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 Trust's trustees, that
the particular issue of Rule 144A securities is liquid. Investment in
illiquid securities involves the risk that the Fund may be unable to
sell such a security at the desired time.
FUND MANAGEMENT
NEFM, 399 Boylston Street, Boston, Massachusetts 02116, a newly
organized investment adviser, is the investment adviser of the Fund
and has entered into subadvisory arrangements for the Fund with Loomis
Sayles. Founded in 1926, Loomis Sayles, One Financial Center, Boston,
Massachusetts 02111, is one of the country's oldest and largest
investment counsel firms. Daniel Fuss, Managing Partner, Executive
Vice President and Director of Loomis Sayles and Vice President of the
Trust, has served as the FundOs portfolio manager since the 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 Fund pays NEFM a management fee at the annual rate of 0.65% of the
first $200 million of the FundOs average daily net assets and 0.60% of
such assets in excess of $200 million. NEFM pays Loomis Sayles for
providing subadvisory services to the Fund 0.35% of the first $200
million of the average daily net assets of the Fund and 0.30% of such
assets in excess of $200 million.
Under an expense deferral arrangement which NEFM and Loomis Sayles may
terminate at any time, NEFM and Loomis Sayles have agreed to waive
advisory and subadvisory fees until further notice, subject to the
obligation of the Fund to pay NEFM such fees to the extent that the
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.
If the voluntary fee reductions described above are terminated, the
Fund will supplement its prospectus.
The general partners of each of Loomis Sayles, NEFM and the
Distributor are special purpose organizations that are indirect,
wholly-owned subsidiaries of NEIC. NEICOs sole general partner, New
England Investment Companies, Inc., is a wholly-owned subsidiary of
New England Mutual Life Insurance Company ("The New England").
In placing portfolio transactions for the Fund, Loomis Sayles seeks
the most favorable price and execution available.
The Trust's Board of Trustees supervises the affairs of the Trust.
Under an agreement between NEFM and the Distributor, NEFM pays the
Distributor to provide certain administrative services to the Fund. In
addition, pursuant to rules of the SEC, the Fund may pay brokerage
commissions to New England Securities Corporation, an affiliate of the
Distributor, on purchases and sales of securities for the Fund's
portfolio.
BUYING FUND SHARES
MINIMUM INVESTMENT
$2,500 is the minimum for an initial investment in the Fund and $50 is
the minimum for each subsequent investment. There are special initial
investment minimums for the following plans:
* $25 (for initial and subsequent investments) for payroll
deduction investment programs for 401(k), SARSEP, 403(b) retirement
plans and certain other retirement plans.
* $50 for automatic investing through the Investment Builder
program.
* $250 for retirement plans with tax benefits such as corporate
pension and profit sharing plans, IRAs and Keogh plans.
* $1,000 for accounts registered under the Uniform Gifts to Minors
Act or the Uniform Transfers to Minors Act.
* $1,000 for Portfolio 1,2,3, investment programs and New England
Funds All Weather Portfolio. Subsequent investment minimums are $50.
See Part II of the Statement.
[SIDEBAR]
Using Tele#Facts 1-800-346-5984
Tele#Facts is New England FundsO automated service system that gives
you 24-hour access to your account. Through your touch-tone telephone,
you can receive your current account balance, your last five
transactions, Fund prices and recent performance information. You can
also purchase, sell or exchange Class A shares of any New England
Fund. For a free brochure about Tele#Facts including a convenient
wallet card, call us at 1-800-225-5478.
6 WAYS TO BUY FUND SHARES
You may purchase Class A, Class B and Class C shares of the Fund in
the following ways:
[GRAPHIC] THROUGH YOUR INVESTMENT DEALER:
Many investment dealers have a sales agreement with the Distributor
and would be pleased to accept your order.
[GRAPHIC] BY MAIL:
For an initial investment, simply complete an application and return
it, with a check payable to New England Funds, to P.O. Box 8551,
Boston, MA 02266-8551. Proceeds of redemptions of Fund shares
purchased by check may not be available for up to ten days after the
purchase date.
For subsequent investments, please mail your check to New England
Funds, P.O. Box 8551, Boston, MA 02266-8551 along with a letter of
instruction or an additional deposit slip from your statements. To
make investing even easier, you can also order personalized investment
slips by calling 1-800-225-5478.
[GRAPHIC] BY WIRE TRANSFER OF FEDERAL FUNDS:
FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m.
and 6:00 p.m. (Eastern time) to obtain an account number and wire
transfer instructions.
FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to
State Street Bank and Trust Company, ABA #011000028, DDA #99011538,
Credit New England Strategic Income Fund, Class of shares, Shareholder
Name, Shareholder Account Number. Funds may be transferred between
9:00 a.m. and 4:00 p.m. (Eastern time). Your bank may charge a fee for
this service.
[GRAPHIC] BY INVESTMENT BUILDER:
Investment Builder is New England FundsO automatic investment plan.
You may authorize automatic monthly transfers of $50 or more from your
bank checking or savings account to purchase shares of one or more New
England Funds.
FOR AN INITIAL INVESTMENT, please indicate that you would like to
begin an automatic investment plan through Investment Builder.
Indicate the amount of the monthly investment on the enclosed
application and enclose a void check or deposit slip from your bank
account.
TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at 1-
800-225-5478 for a Service Options form.
[GRAPHIC] BY ELECTRONIC PURCHASE THROUGH ACH:
You may purchase additional shares electronically through the
Automated Clearing House ("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.
[GRAPHIC] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND
You may also purchase shares of the Fund by exchanging shares from
another New England Fund. Please see "Exchanging Among New England
Funds" for complete details.
GENERAL
All purchase orders are subject to acceptance by the Fund and will be
effected at the net asset value next determined after the order is
received in proper form by State Street Bank and Trust Company ("State
Street Bank") (except orders re-
ceived 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
Fund does not anticipate doing so, it reserves the right to suspend or
change the terms of sales of shares.
Class B shares and certain shareholder features may not be available
to persons whose shares are held in street name accounts.
You will not receive any certificates for your Class A shares unless
you request them in writing from New England Funds, L.P. The Fund's
"open account" system for recording your investment eliminates the
problems and expense of handling and safekeeping certificates.
Certificates will not be issued for Class B or Class C shares.
If you wish transactions in your account to be effected by another
person under a power of attorney from you, special rules apply. Please
contact your investment dealer or the Distributor for details.
SALES CHARGES
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge
which varies depending on the size of your purchase. They are also
subject to a 0.25% annual service fee. The current sales charges are:
<TABLE><CAPTION>
<S> <C> <C> <C>
DEALERS
SALES CHARGE AS A % OF CONCESSION
NET AS % OF
OFFERING AMOUNT OFFERING
VALUE OF TOTAL INVESTMENT PRICE INVESTED PRICE
Up to $100,000 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.15%
$500,000 - $999,999 2.00% 2.04% 1.70%
$1,000,000 or more None None *
<FN>
* The Distributor may, at its discretion, pay investment dealers
who initiate and are responsible for such purchases of the Fund a
commission of up to the following amounts: 1% on the first $2
million invested; .80% on the next $1 million; .20% on the next
$2 million; and .08% on the excess over $5 million. These
commissions are not payable if the purchase represents the
reinvestment of a redemption from any New England Fund during the
previous 12 calendar months.
</TABLE>
[SIDE BAR]
To make investing even easier, you can also order personalized
investment slips by calling 1-800-225-5478.
CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases
of $1,000,000 or more of Class A shares in the Fund, a CDSC at the
rate of 1% of the lesser of the purchase price or the net asset value
at the time of redemption applies to redemptions of Class A shares
purchased within one year before the redemption. If an exchange is
made to Class A shares of any of the New England Cash Management Trust
Money Market Series or U.S. Government Series or the New England Tax
Exempt Money Market Trust (the "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 New England Funds Trust I or New England
Funds Trust II ("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.
[SIDEBAR]
A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE?
Your choice of share class depends on the size of your investment and
how long you intend to hold your shares. In general, there are only
minor differences in performance results for the different classes if
held for the long term. Consult your financial representative for help
in deciding which class is appropriate for you.
The CDSC will be assessed on an amount equal to the lesser of the cost
of the shares being redeemed or their net asset value at the time of
redemption. Accordingly, no CDSC will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge
will be assessed on shares of the same fund purchased with reinvested
dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares
until the time of redemption of such shares. The CDSC equals the
following percentages of the dollar amounts subject to the charge:
<TABLE><CAPTION>
<S> <C>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
YEAR SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
1st 4%
2nd 3%
3rd 3%
4th 2%
5th 1%
thereafter 0%
</TABLE>
Year one ends one year after the day on which the purchase was
accepted and so on.
The CDSC is deducted from the proceeds of the redemption, not the
amount remaining in the account, unless otherwise requested, and is
paid to the Distributor. The CDSC may be eliminated for certain
persons and organizations. See "Sales Charges -- General" below. At
the time of sale, the Distributor pays investment dealers a commission
of 3.75% and advances the first yearOs service fee (up to 0.25%) on
purchases of the FundOs Class B shares.
CLASS C SHARES
Class C shares are offered at net asset value, without an initial
sales charge or CDSC; are subject to a 0.25% annual service fee and a
0.75% annual distribution fee; and do not convert into another class.
CLASS Y SHARES
The Fund offers an additional class of shares (which are not available
to the general public) to qualified investors. See "Additional Facts
About the Fund" below.
DECIDING WHICH CLASS TO PURCHASE
The decision as to whether Class A, Class B or Class C shares are more
appropriate for an investor depends on the amount and intended length
of the investment. Investors making large investments, qualifying for
a reduced initial sales charge, might consider Class A shares because
Class A shares have lower 12b-1 fees and pay correspondingly higher
dividends per share. For these reasons, the Distributor will treat any
order of $1 million or more for Class B shares as a Class A order. Any
order of $1 million or more for Class C shares will be treated as an
order for Class A shares, unless you indicate on the relevant section
of your application that you have been informed of the relative
advantages and disadvantages of Class A and Class C shares. Investors
making smaller investments might consider Class B or Class C shares
because 100% of the purchase is invested immediately. Investors making
smaller investments who anticipate redeeming their shares within five
years may find Class C shares more favorable than Class B shares,
because Class B shares are subject to a CDSC on redemptions made
within five years after purchase. Class B shares are more favorable
than Class C shares for investors who anticipate holding their
investment for more than eight years since Class B shares convert to
Class A shares (and thus bear lower ongoing fees) after eight years.
Consult your investment dealer for advice applicable to your
particular circumstances.
GENERAL
NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1)
redemptions by retirement plans qualified under Code Sections 401(a)
or 403(b)(7) when such redemptions are necessary to make distributions
to plan participants; (2) distributions from an IRA due to death,
disability or a tax-free return of an excess contribution; (3)
distributions by other employee benefit plans to pay benefits; and (4)
distributions by a Section 401(a) plan due to death. For 403(b)(7) and
IRA accounts established before January 3, 1995, the CDSC is waived
for redemptions made after attainment of age 591U2. The CDSC is waived
for redemptions made to make required minimum distributions after
attainment of age 701U2 for 403(b)(7) and IRA accounts established on
or after January 3, 1995. There is also no CDSC on redemptions
following the death or disability (as defined in Section 72(m)(7) of
the Internal Revenue Code) of a shareholder if the redemption is made
within one year after the shareholder's death or disability. Also,
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 Fund at net asset value to eligible
governmental authorities .025% of the average daily net assets of an
account at the end of each calendar quarter for up to one year. These
commissions are not payable if the purchase represents the
reinvestment of redemption proceeds from any series of the Trusts or
if the account is not registered in the name of the beneficial owner.
The CDSC is not applicable to these sales.
The Distributor may, at its expense, provide additional promotional
incentives or payments to dealers who sell shares of the Fund. In some
instances these incentives are provided to certain dealers who achieve
sales goals or who have sold or may sell significant amounts of
shares. New England Funds, L.P., from time to time, may provide
financial assistance programs to dealers in connection with
conferences, sales or training programs, seminars, advertising and
sales campaigns and/or shareholder services arrangements. Certain
dealers who have sold or may sell significant amounts of shares also
may receive compensation in the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by invited
registered representatives to locations, within or outside of the U.
S., for educational seminars or meetings of a business nature.
The Distributor may provide non-cash incentives for achievement of
specified sales levels by representatives of participating broker-
dealers and financial institutions. Such incentives include, but are
not limited to, merchandise from gift catalogues or other sources,
gift certificates or vouchers through membership in the New England
Funds Flagship Club. The participation of representatives in such
incentive programs is at the discretion of the broker-dealer or
financial institution with which the representative is associated.
REDUCED SALES CHARGES
(CLASS A SHARES ONLY)
* LETTER OF INTENT -- if aggregate purchases of all series and
classes of the Trusts over a 13-month period will reach a
breakpoint (a dollar amount at which a lower sales charge
applies), smaller individual amounts can be invested at the sales
charge applicable to that breakpoint.
* COMBINING ACCOUNTS -- Purchases by all qualifying accounts of all
series and classes of the Trusts (which do not include the Money
Market Funds unless the shares were purchased through an exchange
from a series of the Trusts) may be combined with purchases of
qualifying accounts of a spouse, parents, children, siblings,
grandparents or grandchildren, individual fiduciary accounts,
sole proprietorships and/or single trust estates. The values of
all accounts are combined to determine the sales charge.
* UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust
distributions of less than $1 million may be invested in shares
of the Fund at a reduced sales charge of 1.50% of the public
offering price (or 1.52% of the net amount invested).
* ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC
applies to investments by any state, county or city or any
instrumentality, department, authority or agency thereof, that
has determined that the Fund is a legally permissible investment
and that is prohibited by applicable investment laws from paying
a sales charge or commission in connection with the purchase of
shares of any registered investment company.
* CLIENTS OF AN ADVISER OR SUBADVISER (AFFILIATED WITH NEIC) -- no
sales charge or CDSC applies to investments of $100,000 or more
in the Fund by (1) clients of an adviser or subadviser
(affiliated with NEIC) to any series of the Trusts; any director,
officer or partner of a client of an adviser or subadviser
(affiliated with NEIC) to any series of the Trusts; and the
parents, spouses and children of the foregoing; (2) any
individual who is a participant in a Keogh or IRA Plan under a
prototype Plan document of an adviser or subadviser (affiliated
with NEIC) to any series of the Trusts if at least one
participant in the plan qualifies under category (1) above; and
(3) an individual who invests through an IRA and is a participant
in an employee benefit plan that is a client of an adviser or
subadviser (affiliated with NEIC) to any series of the Trusts.
Any investor eligible for these arrangements should so indicate
in writing at the time of the purchase.
* Shares of the Fund may be purchased at net asset value with no
sales charge or CDSC by advisory accounts through investment
advisers that are registered under the Investment Advisers Act of
1940 and affiliated with broker-dealers.
* There is no sales charge or CDSC on investments by 401(a),
401(k), 457 or 403(b) plans that have total investment assets
equal to or in excess of $5 million.
* There is no sales charge, CDSC or initial investment minimum on
investments by certain current and retired employees of the
TrustsO investment advisers and subadvisers (affiliated with
NEIC), the Distributor, The New England or any other company
affiliated with The New England; current and former directors and
trustees of the Trusts, The New England or their predecessor
companies; agents and general agents of The New England and its
insurance company subsidiaries; current and retired employees of
such agents and general agents; registered representatives of
broker-dealers who have selling arrangements with the
Distributor; the spouse, parents, children, siblings,
grandparents or grandchildren of any of the persons listed above;
any trust, pension, profit sharing or other benefit plan for any
of the foregoing persons and any separate account of The New
England or of any insurance company affiliated with The New
England.
* Shareholders of Reich & Tang Government Securities Trust may
exchange their shares of that fund for Class A shares of any
series of the Trusts at net asset value and without the
imposition of a sales charge.
The reduction or elimination of the sales charge in connection with
sales described above reflects the absence or reduction of sales
expenses associated with such sales.
OWNING FUND SHARES
EXCHANGING AMONG NEW ENGLAND FUNDS
CLASS A SHARES. Except as indicated in the next two sentences, you may
exchange Class A shares of any series of the Trusts (and Class A
shares of the Money Market Funds acquired through exchanges from any
of the series of the Trusts) for the Class A shares of any other
series of the Trusts (except New England Growth Fund, which is subject
to special eligibility restrictions) without paying a sales charge.
Class A shares of New England Intermediate Term Tax Free Fund of
California and New England Intermediate Term Tax Free Fund of New York
(and shares of the Money Market Funds acquired through exchanges of
such shares) may be exchanged for shares of the Fund at net asset
value only if you have held them for at least six months; otherwise,
sales charges apply to the exchange. If you exchange your Class A
shares of New England Adjustable Rate U.S. Government Fund (the
OAdjustable Rate FundO) for shares of another fund that has a higher
sales charge, you will pay the difference between any sales charge you
have already paid on your Adjustable Rate Fund shares and the higher
sales charge of the fund into which you are exchanging. In addition,
you may redeem Class A shares of any Money Market Fund that were not
acquired through exchanges from any series of the Trusts and have the
proceeds directly applied to the purchase of Fund shares at the
applicable sales charge.
[SIDEBAR]
Automatic Exchange Plan
The Fund has an automatic exchange plan under which shares of a class
of the Fund are automatically exchanged each month for shares of the
same class of other series in the Trusts (other than New England
Growth Fund, which is available only to certain eligible investors).
The minimum monthly exchange amount under the plan is $50. There is no
fee for exchanges made pursuant to this program, but there may be a
sales charge as described on this page.
CLASS B SHARES. You may exchange Class B shares of the Fund or any
series of the Trusts (and Class B shares of the Money Market Funds or
Class A shares of the Money Market Funds which have not been subject
to a previous sales charge) for Class B shares of any other series of
the Trusts (except New England Growth Fund). Such exchanges will be
made at the next determined net asset value of the shares. Class B
shares will automatically convert on a tax-free basis to Class A
shares eight years after they are purchased (excluding the time the
shares are held in a Money Market Fund). See "Sales Charges -- Class B
Shares" above.
CLASS C SHARES. You may exchange Class C shares of the Fund for Class
C shares of any other series of the Trusts which offers Class C shares
or for Class A shares of the Money Market Funds.
TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8 a.m. and 6
p.m. (Eastern time), write to New England Funds or call Tele#Facts at
1-800-346-5984 twenty-four hours a day. The exchange must be for a
minimum of $500 (or the total net asset value of your account,
whichever is less), except that under the Automatic Exchange Plan, the
minimum is $50. All exchanges are subject to the minimum investment
and eligibility requirements of the series into which you are
exchanging. In connection with any exchange, you must receive a
current prospectus of the series into which you are exchanging. The
exchange privilege may be exercised only in those states where shares
of such other series may be legally sold.
You have the automatic privilege to exchange your Fund shares by
telephone. New England Funds, L.P. will employ reasonable procedures
to confirm that your telephone instructions are genuine, and, if it
does not, it may be liable for any losses due to unauthorized or
fraudulent instructions. New England Funds, L.P. will require a form
of personal identification prior to acting upon your telephone
instructions, will provide you with written confirmations of such
transactions and will record your instructions.
Except as otherwise permitted by SEC rule, shareholders will receive
at least 60 days' advance notice of any material change to the
exchange privilege.
FUND DIVIDEND PAYMENTS
The Fund declares dividends daily and pays them monthly. The Fund pays
as dividends substantially all net investment income (other than long-
term capital gains) each year and distributes annually all net
realized long-term capital gains (after applying any available capital
loss carryovers). The Fund pays short-term capital gains annually. The
trustees of the Trust may adopt a different schedule as long as
payments are made at least annually. If you intend to purchase shares
of the Fund shortly before it declares a dividend you should be aware
that a portion of the purchase price may be returned to you as a
taxable dividend.
You have the option to reinvest all distributions in additional shares
of the same class of the Fund or in shares of the same class of other
series of the Trusts, to receive distributions from ordinary income in
cash while reinvesting distributions from capital gains in additional
shares of the same class of the Fund or the same class of other series
of the Trusts or to receive all distributions in cash. Income
distributions and capital gains distributions will be reinvested in
shares of the same class of the Fund at net asset value (without a
sales charge or CDSC) unless you select another option. You may change
your distribution option by notifying New England Funds in writing or
by calling 1-800-225-5478. If you elect to receive your dividends in
cash and the dividend checks sent to you are returned "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 fundOs
shares on the dividend record date. A dividend diversification account
must be in the same registration (shareholder name) as the
distributing fund account and, if a new account in the purchased fund
is being established, the purchased 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
4 WAYS TO SELL FUND SHARES
[GRAPHIC] THROUGH YOUR INVESTMENT DEALER:
Call your authorized investment dealer for information.
[GRAPHIC] BY TELEPHONE:
You or your investment dealer may redeem (sell) shares by telephone
using any of the three methods described below:
Wired to Your Bank Account -- If you have previously selected the
telephone redemption privilege on your account, Class A, Class B and
Class C shares may be redeemed by calling 1-800-225-5478 between 8
a.m. and 6 p.m. (Eastern time). Class A shares only may also be
redeemed by calling Tele#Facts at 1-800-346-5984 twenty-four hours a
day. Redemption requests accepted after the Exchange has closed (4:00
p.m. Eastern time) will be processed at the next-determined net asset
value. The proceeds (LESS ANY APPLICABLE CDSC) generally will be wired
on the next business day to the bank account previously chosen by you
on your application. A wire fee (currently $5.00) will be deducted
from the proceeds.
Your bank must be a member of the Federal Reserve System or have a
correspondent bank that is a member. If your account is with a savings
bank, it must have only one correspondent bank that is a member of the
System.
Mailed to Your Address of Record -- Shares may be redeemed by calling
1-800-225-5478 and requesting that a check for the proceeds (LESS ANY
APPLICABLE CDSC) be mailed to the address on your account, provided
that the address has not changed over the previous month and that the
proceeds are for $100,000 or less. Generally, the check will be mailed
to you on the business day after your redemption request is received.
Through ACH -- Shares may be redeemed electronically through the ACH
system, provided that you have an approved ACH application on file
with the Fund. To redeem through ACH, call 1-800-225-5478 prior to
3:00 p.m. (Eastern time) on a day when the Fund is open for business
or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. If your
telephone call is made to Tele#Facts before 4:00 p.m., the redemption
will be processed the day the call is made, unless it is a day when
the Exchange closes before 4:00 p.m. and your call is made after the
Exchange closes. The proceeds (LESS ANY APPLICABLE CDSC) generally
will arrive at your bank within three business days; their
availability will depend on your bankOs particular rule. If you have
recently purchased your shares through the ACH system, the Fund may
withhold redemption proceeds until the funds have cleared, which may
take up to ten days.
[GRAPHIC] BY MAIL:
You may redeem your shares at their net asset value (LESS ANY
APPLICABLE CDSC) next determined after receipt of your request in good
order by sending a written request (including any necessary special
documentation) to New England Funds, P.O. Box 8551, Boston, MA 02266-
8551.
The request must include the name of the Fund, your account number,
the exact name(s) in which your shares are registered, the number of
shares or the dollar amount to be redeemed and whether you wish the
proceeds mailed to your address of record, wired to your bank account
or transmitted through ACH. All owners of the shares must sign the
request in the exact names in which the shares are registered (this
appears on your confirmation statement) and indicate any special
capacity in which you are signing (such as trustee, custodian or under
power of attorney or on behalf of a partnership, corporation or other
entity).
If you are redeeming shares worth less than $100,000 and the proceeds
check is made payable to the registered owner(s) and mailed to the
record address, no signature guarantee is required. Otherwise, you
generally must have your signature guaranteed by an eligible guarantor
institution in accordance with procedures established by New England
Funds, L.P. Signature guarantees by notaries public are not
acceptable.
Additional written information may be required for redemptions by
certain benefit plans and IRAs. Contact the Distributor or your
investment dealer for details.
If you hold certificates for your Class A shares, you must enclose
them with your redemption request or your request will not be honored.
The Fund recommends that certificates be sent by registered mail.
[GRAPHIC] BY SYSTEMATIC WITHDRAWAL PLAN:
You may establish a Systematic Withdrawal Plan that allows you to
redeem shares and receive payments on a regular schedule. In the case
of shares subject to a CDSC, the amount or percentage you specify may
not exceed, on an annualized basis, 10% of the value of your Fund
account. Redemption of shares pursuant to the Plan will not be subject
to a CDSC. For information, contact the Distributor or your investment
dealer. Since withdrawal payments may have tax consequences, you
should consult your tax adviser before establishing such a plan.
GENERAL. Redemption requests will be effected at the net asset value
next determined after the redemption request is received in proper
form by State Street Bank or your investment dealer (except that
orders received by your investment dealer before the close of regular
trading on the Exchange and transmitted to the Distributor by 5:00
p.m. Eastern time on the same day will receive that dayOs net asset
value). Redemption proceeds (LESS ANY APPLICABLE CDSC) will normally
be mailed to you within seven days after State Street Bank or the
Distributor receives your request in good order.
During periods of substantial economic or market change, telephone
redemptions may be difficult to implement. If you are unable to
contact the Distributor by telephone, shares may be redeemed by
delivering the redemption request in person to the Distributor or by
mail as described above. Requests are processed at the net asset value
next determined after the request is received.
Special rules apply to redemptions under powers of attorney. Please
call the Distributor or your investment dealer for more information.
Telephone redemptions are not available for tax qualified retirement
plans or for Fund shares in certificate form. If certificates have
been issued for your investment, you must send them to New England
Funds along with your request before a redemption request can be
honored. See the instructions for redemption by mail above.
The Fund may suspend the right of redemption and may postpone payment
for more than seven days when the Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the SEC when
trading on the Exchange is restricted or during an emergency that
makes it impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by the SEC for the protection of investors.
REPURCHASE OPTION
(CLASS A SHARES ONLY)
You may apply your redemption proceeds (without a sales charge) to the
repurchase of Class A shares of any series of the Trusts. To qualify,
you must reinvest some or all of the proceeds within 120 days after
your redemption and notify New England Funds or your investment dealer
at the time of reinvestment that you are taking advantage of this
privilege. You may reinvest the proceeds either by returning the
redemption check or by sending your check for some or all of the
redemption amount. Please note: for federal income tax purposes, a
redemption is a sale that involves tax consequences (even if the
proceeds are later reinvested). Please consult your tax adviser.
FUND DETAILS
HOW FUND SHARE PRICE IS DETERMINED
Loomis Sayles, under the supervision of the Trust's Board of Trustees,
determines the value of the total net assets of the Fund as of the
close of regular trading (ordinarily 4:00 p.m. Eastern time) each day
the Exchange is open. The Board of Trustees has authorized Loomis
Sayles to delegate certain price determination functions to pricing
services or facilities selected by Loomis Sayles. Securities for which
market quotations are readily available are generally valued at market
value on the basis of market quotations. Options, interest rate
futures and options thereon which are traded on exchanges are valued
at their last sale price as of the close of the Exchange. All money
market instruments with a maturity of more than 60 days are valued at
current market value. The value of debt securities with remaining
maturities of 60 days or less shall be their amortized cost value,
unless conditions indicate otherwise. In all other cases, the value of
the Fund's assets is determined in good faith by Loomis Sayles, or a
pricing service selected by Loomis Sayles, under the supervision of
the Board of Trustees.
The net asset value per share of each class is determined by dividing
the value of each classOs net assets (the current U.S. dollar value,
in the case of securities principally traded outside the United
States) plus any cash and other assets (including dividends and
interest receivable but not collected) less all liabilities (including
accrued expenses), by the number of shares of such class outstanding.
The public offering price of the FundOs Class A shares is determined
by adding the applicable sales charge to the net asset value. See
"Buying Fund Shares -- Sales Charges" above. The public offering price
of Class B and Class C shares is the net asset value per share.
The exact price you pay for a share will be determined by the next set
of calculations made after your order is accepted by New England
Funds, L.P. In other words, if, on a Tuesday morning, your properly
completed application is received, your wire is received or your
dealer places your trade for you, the price you pay will be determined
by the calculations made as of the close of regular trading on the
Exchange on Tuesday. If you buy shares through your investment dealer,
the dealer must receive your order by the close of regular trading on
the Exchange and transmit it to the Distributor by 5:00 p.m. (Eastern
time) to receive that dayOs public offering price.
INCOME TAX CONSIDERATIONS
The Fund intends to meet all requirements of the Internal Revenue Code
of 1986, as amended, to ensure that it qualifies as a regulated
investment company and thus does not expect to pay any federal income
tax on investment income and capital gains distributed to shareholders
in cash or additional shares. Unless you are a tax exempt entity, your
distributions derived from the Fund's short-term capital gains and
ordinary income are taxable to you as ordinary income. Distributions
derived from the Fund's long-term capital gains ("capital gains
distributions"), if designated as such by the Fund, are taxable to you
as long-term capital gains, regardless of how long you have owned
shares in the Fund. Both dividends and capital gains distributions are
taxable whether distributed to you in cash or additional shares.
The 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 the 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.
CALCULATING THE PRICE OF SHARES
Total Market Value of Portfolio Securities
plus
Other Assets
minus
Any Liabilities
divided by
Total Number of Outstanding Shares in a Class
equals
Net Asset Value (NAV)
THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE
APPLICABLE SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B AND
CLASS C IS THE NAV.
DIVIDENDS DERIVED FROM INTEREST ON U.S. GOVERNMENT SECURITIES MAY BE
EXEMPT FROM STATE AND LOCAL TAXES. The Trust intends to advise
shareholders of the proportion of the Fund's dividends that are
derived from such interest. Before investing in the Fund, you should
check the consequences of your local and state tax laws, which may be
different from the federal tax consequences, and the consequences for
any retirement plan offering tax benefits.
To avoid an excise tax, the Fund intends to distribute prior to
calendar year end virtually all the 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.
[SIDEBAR]
AVERAGE COST STATEMENT
If you have exchanged or redeemed shares during the year, you will
receive a statement that shows the cost basis of those shares which
should help you determine your gain or loss for tax purposes.
The Fund is required to withhold 31% of all income dividends and
capital gains distributions it pays to you if you do not provide a
correct, certified taxpayer identification number, if the Fund is
notified that you have underreported income in the past or if you fail
to certify to the Fund that you are not subject to such withholding.
In addition, the Fund will be required to withhold 31% of the gross
proceeds of Fund shares you redeem if you have not provided a correct,
certified taxpayer identification number. If you are a tax-exempt
institution, however, these back-up withholding rules will not apply
so long as you furnish the Fund with an appropriate certification.
Annually, if you earn more than $10 in taxable income from the Fund,
you will receive a Form 1099 to assist you in reporting the prior
calendar yearOs distributions on your federal income tax return. You
should consult your tax adviser about any state or local taxes that
may apply to such distributions. Be sure to keep the Form 1099 as a
permanent record. A fee may be charged for any duplicate information
requested.
The foregoing is a summary of certain federal income tax consequences
of an investment in the Fund. You should consult a competent tax
adviser as to the effect of an investment in the Fund on your
particular federal, state and local tax situations.
THE FUND'S EXPENSES
In addition to the management fee paid to NEFM and the fees paid to
the Distributor, the Fund pays all expenses not borne by the 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 NEFM, Loomis Sayles or their affiliates,
other than affiliated registered investment companies. Certain
expenses are allocated differently between the Fund's Class A, Class B
and Class C shares, on one hand, and its Class Y shares, on the other
hand. (See "Additional Facts About the Fund," below.)
Under a Service Plan in the case of Class A shares, and Service and
Distribution Plans in the case of Class B and Class C shares, adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund pays the Distributor a monthly service fee at an annual rate not
to exceed 0.25% of the FundOs average daily net assets attributable to
the Class A, Class B and Class C shares. The Distributor may pay up to
the entire amount of this fee to securities dealers who are dealers of
record with respect to the FundOs shares, for providing personal
services to investors in shares of the Fund and/or maintenance of
shareholder accounts. In the case of Class B shares, the Distributor
pays investment dealers at the time of sale the first year's service
fee in the amount of up to 0.25% of the amount invested.
The FundOs Class B shares and Class C shares pay the Distributor a
monthly distribution fee at an annual rate not to exceed 0.75% of the
average net assets of the FundOs Class B shares and Class C shares.
The Distributor may pay up to the entire amount of the distribution
fee to securities dealers who are dealers of record with respect to
the Fund's shares, as distribution fees in connection with the sale of
the Fund's shares. The Distributor retains the balance of the fee as
compensation for its services as distributor of the relevant class of
shares.
The Fund's Class A service fee is payable only to reimburse the
Distributor for amounts it pays or expends in connection with the
provision of personal services to investors and/or the maintenance of
shareholder accounts. To the extent that the Distributor's
reimbursable expenses in any year exceed the maximum amount payable
under the relevant Plan for that year, such expenses may be carried
forward for reimbursement in future years in which the Plan remains in
effect. The Class B and Class C service fees are payable regardless of
the amount of the Distributor's related expenses.
PERFORMANCE CRITERIA
The Fund may include total return information in advertisements or
other written sales material. The Fund will show the average annual
total return for each class of shares for the one-, five- and ten-year
periods (or, if shorter, the period since the commencement of the
classOs operations) through the end of the most recent calendar
quarter. Total return is measured by comparing the value of a
hypothetical $1,000 investment in a class at the beginning of the
relevant period to the value of the investment at the end of the
period (assuming deduction of the current maximum sales charge on
Class A shares, automatic reinvestment of all dividends and capital
gains distributions and, in the case of the Class B shares, imposition
of the CDSC for the period of time quoted). Total return may be quoted
with or without giving effect to any voluntary expense limitations in
effect for the class in question during the relevant period. The
classes may also show total return over other periods, on an aggregate
basis for the period presented, or without deduction of a sales
charge. If a sales charge is not deducted in calculating total return,
the class's total return is higher.
The Fund may also include the yield, accompanied by the total return,
for each class of shares, in advertising and other written material.
Yield will be computed in accordance with the SECOs standardized
formula by dividing the adjusted net investment income per share
earned during a recent 30-day period by the maximum offering price of
a share of the relevant class (reduced by any earned income expected
to be declared shortly as a dividend) on the last day of the period.
Yield calculations will reflect any voluntary expense limitations in
effect for the Fund during the relevant period.
The Fund may also present one or more distribution rates for each
class in its sales literature. These rates will be determined by
annualizing the classOs distributions from net investment income and
net short-term capital gains over a recent 12-month, three-month or 30-
day period and dividing that amount by the maximum offering price or
the net asset value on the last day of such period. If the net asset
value rather than the maximum offering price is used to calculate the
distribution rate, the rate will be higher.
Total return will generally be higher for Class A shares than for
Class B and Class C shares because of the higher levels of expenses
borne by the Class B and Class C shares. However, this difference may
be offset in whole or in part by the benefit gained by 100% immediate
investment of the purchase price of Class B shares or Class C shares.
As a result of lower operating expenses, Class Y shares can be
expected to achieve a higher investment return than the Fund's Class
A, Class B or Class C shares.
All performance information is based on past results and is not an
indication of likely future performance.
ADDITIONAL FACTS ABOUT THE FUND
* New England Funds Trust I was organized in 1985 as a
Massachusetts business trust and is authorized to issue an
unlimited number of full and fractional shares in multiple
series. The Strategic Income Fund commenced investment operations
in 1995.
* When you invest in the Fund, you acquire freely transferable
shares of beneficial interest that entitle you to receive
dividends as determined by the TrustOs trustees and to cast a
vote for each share you own at shareholder meetings. Shares of
the Fund vote separately from shares of other series of the
Trust, except as otherwise required by law. Shares of all classes
of the Fund vote together, except as to matters relating to a
classOs Rule 12b-1 plan, for which only shares of that class are
entitled to vote.
* Except for matters that are explicitly identified as
OfundamentalO in this prospectus or Parts I and II of the
Statement, the investment policies of the Fund may be changed
without shareholder approval or prior notice. The investment
objectives of the Fund are not fundamental. If there is a change
in the investment objectives of the Fund, you should consider
whether the Fund remains an appropriate investment in light of
your then current financial position and needs.
* The Trust does not generally hold regular shareholder meetings
and will do so only when required by law. Shareholders of the
Trust may remove the trustees of the Trust from office by votes
cast at a shareholder meeting or by written consent.
* The transfer and dividend paying agent for the Fund is New
England Funds, L.P., 399 Boylston Street, Boston, MA 02116. New
England Funds, L.P. has subcontracted certain of its obligations
as such to State Street Bank, 225 Franklin Street, Boston, MA
02110.
* Class Y shares of the Fund may be purchased by endowments and
foundations. The minimum initial investment is $1 million for
these entities and the minimum for each subsequent investment is
$100,000. Class Y shares may also be purchased by plan sponsors
of 401(a), 401(k), 457 or 403(b) plans ("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 the Fund is less than a
minimum dollar amount set by the trustees of the Trust from time
to time (currently $500), the Fund may close your account and
send the proceeds to you. Shareholders who are affected by this
policy will be notified of the 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 Class A, Class B, Class C and Class Y structure could be
terminated should certain IRS rulings be rescinded. See Part II
of the Statement for more details.
* The Fund's annual report will contain additional performance
information and will be made available upon request and without
charge.
APPENDIX A: RATINGS OF SECURITIES
DESCRIPTION OF MOODYOS INVESTORS SERVICE, INC. BOND RATINGS:
Aaa, Aa, A -- Bonds which are rated Aaa or Aa are judged to be of high
quality by all standards and are generally known as high grade bonds.
Bonds rated Aa are rated lower than Aaa securities because margins of
protection may not be as large as in the latter or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger
than in Aaa securities. Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well secured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
DESCRIPTION OF STANDARD & POOROS CORPORATION BOND RATINGS:
AAA, AA, A -- Bonds rated AAA have the highest rating assigned by S&P
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues
only in small degree. Bonds rated A have a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds in high rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to repay principal and pay interest for bonds in this category than
for bonds in higher rated categories.
BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to the 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.
GLOSSARY OF TERMS
Capital gain distributions -- Payments to shareholders of profits
earned from selling securities in a 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).
[LOGO]
NEW ENGLAND FUNDS
STOCK FUNDS
International Equity Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Value Fund
Growth Opportunities Fund
Balanced Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Government Securities Fund
Bond Income Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Tax Exempt Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
- --Money Market Series
- --U.S. Government Series
Tax Exempt Money Market Trust
TO LEARN MORE, AND FOR A FREE PROSPECTUS, CONTACT YOUR FINANCIAL
REPRESENTATIVE.
New England Funds, L.P.
399 Boylston Street, Boston, MA 02116
Toll Free 800-225-5478
THIS MATERIAL IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS
WHEN IT IS PRECEDED OR ACCOMPANIED BY THE FUNDS CURRENT PROSPECTUS,
WHICH CONTAINS INFORMATION ABOUT DISTRIBUTION CHARGES, MANAGEMENT, AND
OTHER ITEMS OF INTEREST. INVESTORS ARE ADVISED TO READ THE PROSPECTUS
CAREFULLY BEFORE INVESTING.
<PAGE>
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
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995
This Statement of Additional Information (the "Statement")
contains information which may be useful to investors but which is not
included in the prospectus of the funds in the New England Funds that
are listed above. This Statement is not a prospectus and is only
authorized for distribution when accompanied or preceded by the
prospectus of those funds dated May 1, 1995 for Class A, Class B,
Class C or Class Y shares (the "prospectus" or "prospectuses"). The
Statement should be read together with the Prospectuses. Investors
may obtain a free copy of the prospectuses from New England Funds,
L.P., Prospectus Fulfillment Desk, 399 Boylston Street, Boston, MA
02116.
Part I of this Statement contains specific information about
Class A and B shares of all of the Funds listed above, Class C shares
of the New England Limited Term U.S. Government Fund, New England Bond
Income Fund and New England Strategic Income Fund and Class Y shares
of 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 (the "Funds" and each a "Fund"). Part II includes information
about the Class A, B, C and Y shares of the Funds and other New
England Funds.
New England Government Securities Fund, New England Strategic
Income Fund, New England Bond Income Fund and New England Tax Exempt
Income Fund are series of New England Funds Trust I, a registered
management investment company that offers a total of ten series, and
New England Limited Term U.S. Government Fund, New England Adjustable
Rate U.S. Government Fund and New England High Income Fund are series
of New England Funds Trust II, a registered investment company that
offers a total of seven series.
T a b l e o f C o n t e n t s
Page
Part I
Investment Restrictions ii
Fund Charges and Expenses x
Investment Performance of the Funds xvi
Part II
Miscellaneous Investment Practices 1
Management of the Trusts 12
Portfolio Transactions and Brokerage 24
Description of the Trusts and Ownership of 27
Shares
How to Buy Shares 30
Net Asset Value and Public Offering Price 30
Reduced Sales Charges 31
Shareholder Services 33
Redemptions 37
Standard Performance Measures 39
Income Dividends, Capital Gain Distributions 43
and Tax Status
Appendix A - Description of Bond Ratings 47
Appendix B - Publications That May Contain 50
Fund Information
Appendix C - Advertising and Promotional 53
Literature
INVESTMENT RESTRICTIONS
The following is a description of restrictions on the investments
to be made by the Funds, which restrictions (except as otherwise
specifically indicated below and, in the case of the Strategic Income
Fund, only restrictions marked with an asterisk) may not be changed
without the approval of a majority of the outstanding voting
securities of the relevant Fund. The percentages set forth below and
the percentage limitations set forth in the prospectus will apply at
the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
Government Securities Fund
New England Government Securities Fund (the "Government Securities
Fund") will not:
(1) Invest in any securities other than U.S. Government Securities,
put and call options thereon, futures contracts, options on
futures contracts and repurchase agreements;
(2) Purchase or sell commodities or commodity contracts, except that
the Fund may purchase and sell interest rate futures contracts and
related options;
(3) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with interest rate futures contracts or related
options transactions is not considered the purchase of a security
on margin.);
(4) Make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such
sales at any one time. (It is the present intention of management
to make such sales only for the purpose of deferring realization
of gain or loss for federal income tax purposes; such sales would
not be made with respect to securities subject to outstanding
options.);
(5) Make loans to other persons (except as provided in restriction (6)
below); provided that for purposes of this restriction the
investment in repurchase agreements shall not be deemed to be the
making of a loan;
(6) Lend its portfolio securities in excess of 15% of its total assets
taken at market value;
(7) Issue senior securities, borrow money or pledge its assets;
provided, however, that the Fund may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to
meet redemptions, in amounts not exceeding 10% (taken at the
market value) of its total assets and pledge its assets to secure
such borrowings; and, provided, further, that the Fund will not
purchase any additional portfolio securities at any time that its
borrowings exceed 5% of its total net assets. (For the purpose of
this restriction, collateral arrangements with respect to the
writing of options, interest rate futures contracts, options on
interest rate futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a
pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance
of a senior security.);
(8) Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities;
(9) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with respect to U.S. Government Securities
and with respect to interest rate futures contracts;
(10) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions, or in connection with a merger,
consolidation or similar transaction. Under the Investment
Company Act of 1940 (the "1940 Act"), the Fund may not (a) invest
more than 10% of its total assets (taken at current value) in such
securities, (b) own securities of any one investment company
having a value in excess of 5% of the Fund's total assets [taken
at current value], or (c) own more than 3% of the outstanding
voting stock of any one investment company.
Although the Government Securities Fund may from time to time
loan its portfolio securities and issue senior securities, borrow
money or pledge its assets to the extent permitted by investment
restrictions (5), (6) and (7) above, the Fund has no current intention
of engaging in such investment techniques.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities; (2) invest more than 15% of the
Fund's total net assets in illiquid investments; (3) invest in any
oil, gas and other mineral leases; (4) purchase or sell real property
including limited partnership interests but excluding readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest in real estate, or (5)
invest more than 5% of its net assets in warrants, no more than 2% of
which will be invested in warrants that are not listed on the New York
Stock Exchange or American Stock Exchange, provided however, that for
purposes of this limitation, warrants acquired by the Fund in units or
attached to other securities may be deemed to be without value.
Limited Term U.S. Government Fund
New England Limited Term U.S. Government Fund (the "Limited Term U.S.
Government Fund") will not:
(1) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or options transactions is
not considered the purchase of a security on margin.);
(2) Make short sales of securities unless at all times when a short
position is open it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short, and unless not
more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time;
(3) Issue senior securities, borrow money or pledge its assets;
provided, however, that the Fund may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to
meet redemptions, in amounts not exceeding 10% (taken at the
current value) of its total assets and pledge its assets to secure
such borrowings; and, provided, further, that the Fund will not
purchase any additional portfolio securities at any time that its
borrowings exceed 5% of its total net assets. (For the purpose of
this restriction, collateral arrangements with respect to the
writing of options, futures contracts and options on futures
contracts, and collateral arrangements with respect to initial and
variation margin, are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or
options are deemed to be the issuance of a senior security.);
(4) Invest more than 25% of its total assets (taken at current value)
in securities of businesses in the same industry (for this
purpose, telephone, electric, water and gas utilities are
considered separate industries);
(5) Make loans, except by the purchase of bonds, debentures,
commercial paper, corporate notes and similar evidences of
indebtedness that are a part of an issue to the public or to
financial institutions, or by lending portfolio securities to the
extent set forth in Part II of this Statement of Additional
Information under "Miscellaneous Investment Practices -- Loans of
Portfolio Securities" provided that for purposes of this
restriction, investment in repurchase agreements shall not be
deemed to be the making of a loan;
(6) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts,
except that the Fund may purchase and sell financial futures
contracts, currency futures contracts and options related to such
futures contracts. (This restriction does not prevent the Fund
from purchasing securities of companies investing or dealing in
the foregoing.);
(7) Act as underwriter, except to the extent that, in connection with
the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws;
(8) Make investments for the purpose of exercising control or
management;
(9) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with respect to financial instruments or
indices thereof and currencies and with respect to futures
contracts on financial instruments or indices thereof.
Although the Limited Term U.S. Government Fund may from time to time
make short sales, issue senior securities, borrow money or pledge its
assets to the extent permitted by the above investment restrictions,
the Limited Term U.S. Government Fund has no current intention of
engaging in such investment techniques.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities or (2) invest more than 15% of
the Fund's total net assets in illiquid securities.
The Fund may invest in the securities of other investment
companies to the extent permitted by the 1940 Act. The Fund has given
undertakings to certain state regulatory authorities that the Fund
will not (i) invest in real estate limited partnership interests or
(ii) invest more than 5% of its net assets in warrants, no more than
2% of which will be invested in warrants that are not listed on the
New York Stock Exchange or American Stock Exchange; provided, however,
that for purposes of this limitation, warrants acquired by the Fund in
units or attached to other securities may be deemed to be without
value.
Such undertakings can be changes without shareholder approval,
but the Trust's Statement will be revised to reflect any such changes.
Adjustable Rate Fund
New England Adjustable Rate U.S. Government Fund (the "Adjustable Rate
Fund") will not:
(1) Purchase any security (other than U.S. Government Securities) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
issuer or 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as
being in separate industries);
(2) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. (For this purpose,
the deposit or payment by the Fund of initial or variation margin
in connection with interest rate futures contracts or related
options transactions is not considered the purchase of a security
on margin.);
(3) Make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's
net assets (taken at market value) is held as collateral for such
sales at any one time. (It is the current intention of the Fund,
which may change without shareholder approval, to make such sales
only for the purpose of deferring realization of gain or loss for
federal income tax purposes; such sales would not be made with
respect to securities covering outstanding options.);
(4) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
(5) Issue senior securities, borrow money or pledge its assets;
provided, however, that the Fund may borrow from a bank as a
temporary measure for extraordinary or emergency purposes or to
meet redemptions, in amounts not exceeding 10% (taken at the
market value) of its total assets and pledge its assets to secure
such borrowings; and, provided, further, that the Fund will not
purchase any additional portfolio securities at any time that its
borrowings exceed 5% of its total net assets. (For the purpose of
this restriction, collateral arrangements with respect to the
writing of options, interest rate future contracts, and options on
interest rate futures contracts, collateral arrangements with
respect to interest rate caps, floors or swap arrangements, and
collateral arrangements with respect to initial and variation
margin are not deemed to be a pledge of assets and neither (i)
such arrangements, (ii) the purchase or sale of futures or related
options, (iii) interest rate caps and floors nor (iv) interest
rate swap agreements, where assets are segregated to cover the
Fund's obligations thereunder, are deemed to be the issuance of a
senior security.);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of the Trust or officers and directors of the investment
adviser of the Fund who individually own more than 1/2 of 1% of
the shares or securities of that issuer, together own more than
5%;
(8) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness, that
are a part of an issue to the public or to financial institutions,
or by lending portfolio securities to the extent set forth under
"Miscellaneous Investment Practices - Loans of Portfolio
Securities" in Part II of this Statement of Additional
Information. (This restriction 8 does not limit the Fund's
ability to engage in repurchase agreement transactions.);
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, real estate or commodities or commodity contracts,
except that the Fund may purchase and sell financial futures
contracts, currency futures contracts and options related to such
futures contracts, and may purchase interest rate caps and floors
and enter into interest rate swap agreements. (This restriction
does not prevent the Fund from purchasing securities of companies
investing or dealing in the foregoing.);
(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) Participate on a joint or joint and several basis in any
trading account in securities;
(13) Write, purchase or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with respect to fixed income securities and
currencies and with respect to futures contracts on fixed income
securities or currencies;
(14) Purchase any illiquid security, including securities that are
not readily marketable, if, as a result, more than 10% of the
Fund's total net assets (based on current value) would then be
invested in such securities. The staff of the SEC is presently of
the view that repurchase agreements maturing in more than seven
days are subject to this restriction. Until that position is
revised, modified or rescinded, the Fund will conduct its
operations in a manner consistent with this view.
(15) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions, or in connection with a merger,
consolidation or similar transaction. Under the 1940 Act, the Fund
may not (a) invest more than 10% of its total assets (taken at
current value) in such securities, (b) own securities of any one
investment company having a value in excess of 5% of the Fund's
total assets (taken at current value), or (c) own more than 3% of
the outstanding voting stock of any one investment company.
Although the Fund may loan its portfolio securities and issue
senior securities, borrow money, pledge its assets, and invest in the
securities of other investment companies to the extent permitted by
investment restrictions (5), (8) and (14) above, the Fund has no
current intention of engaging in such investment activities. Also,
the Fund will not invest in any stripped securities or other
derivative investments.
In addition, as a matter of current operating policy that may be
changed without shareholder approval, the Adjustable Rate Fund (1)
intends to limit certain of its investments in accordance with the
provisions of the Federal Credit Union Act and Regulation 703
thereunder, (2) will not purchase or sell real property, including
limited partnership interests but excluding readily marketable
interests in real estate investment trusts or readily marketable
securities of companies which invest in real estate, and (3) will not
purchase any security restricted as to disposition under federal
securities laws if as a result of such purchase more than 10% of the
Fund's total net assets would be invested in such securities.
Strategic Income Fund
New England Strategic Income Fund (the "Strategic Income Fund") will
not:
*(1) Purchase any security (other than U.S. Government Securities)
if , as a result, more than 25% of the Fund's total assets (taken
at current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies
will be considered as being in separate industries, and each
foreign country's government (together with subdivisions thereof)
will be considered to be a separate industry);
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities), or make short sales except where, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales. (For this purpose, the deposit or
payment by the Fund of initial or variation margin in connection
with futures contracts or related options transactions is not
considered the purchase of a security on margin);
(3) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and all debt issues of an issuer as a single class) or acquire
more than 10% of the outstanding voting securities of an issuer;
*(4) Borrow money in excess of 25% of its total assets, and then
only as a temporary measure for extraordinary or emergency
purposes;
(5) Pledge more than 25% of its total assets (taken at cost). (For
the purpose of this restriction, collateral arrangements with
respect to options, futures contracts and options on futures
contracts and with respect to initial and variation margin are not
deemed to be a pledge of assets);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any issuer if officers and
trustees of New England Funds Trust I or of any investment adviser
of the Fund who individually own more than 1/2 of 1% of the shares
or securities of that issuer, together own more than 5%;
*(8) Make loans, except by entering into repurchase agreements or
by purchase of bonds, debentures, commercial paper, corporate
notes and similar evidences of indebtedness, which are a part of
an issue to the public or to financial institutions, or through
the lending of the Fund's portfolio securities;
*(9) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, real estate or commodities or commodity
contracts, except that the Fund may buy and sell futures contracts
and related options. (This restriction does not prevent the Fund
from purchasing securities of companies investing in the
foregoing);
*(10) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(11) Make investments for the purpose of exercising control or
management;
(12) Participate on a joint or joint and several basis in any
trading account in securities. (The "bunching" of orders for the
purchase or sale of portfolio securities with any investment
adviser of the Fund or accounts under any such investment
adviser's management to reduce brokerage commissions, to average
prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.);
(13) Write, purchase or sell options or warrants, except that the
Fund may (a) acquire warrants or rights to subscribe to securities
of companies issuing such warrants or rights, or of parents or
subsidiaries of such companies, (b) write, purchase and sell put
and call options on securities, securities indexes or futures
contracts and (c) enter into currency forward contracts;
(14) Purchase any illiquid security if, as a result, more than 15%
of its net assets (taken at current value) would be invested in
such securities;
(15) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions. Under the 1940 Act, the Fund may not (a)
invest more than 10% of its total assets (taken at current value)
in such securities, (b) own securities of any one investment
company having a value in excess of 5% of the total assets of the
Fund (taken at current value), or (c) own more than 3% of the
outstanding voting stock of any one investment company; or
*(16) Issue senior securities. (For the purpose of this
restriction none of the following is deemed to be a senior
security: any pledge or other encumbrance of assets permitted by
restrictions (2) or (5) above; any borrowing permitted by
restriction (4) above; any collateral arrangements with respect to
forward contracts, options, futures contracts, swap contracts or
other similar contracts and options on futures contracts, swap
contracts or other similar contracts and with respect to initial
and variation margin; the purchase or sale of options, forward
contracts, futures contracts, swap contracts or other similar
contracts or options on futures contracts, swap contracts or other
similar contracts; and the issuance of shares of beneficial
interest permitted from time to time by the provisions of the
Trust's Declaration of Trust and by the Investment Company Act of
1940, the rules thereunder, or any exemption therefrom.)
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) at the time of purchase,
invest more than 5% of its assets the securities of any issuer,
excluding government securities; and (2) purchase puts, calls,
straddles, spreads and any combination thereof if by reason thereof
the value of its aggregate investments in such will exceed 5% of its
total assets.
Bond Income Fund
New England Bond Income Fund (the "Bond Income Fund") will not:
(1) Purchase any security (other than U.S. Government obligations) if,
as a result, more than 5% of the Fund's total assets (taken at
current value) would then be invested in securities of a single
issuer or 25% of the Fund's total assets (taken at current value)
would be invested in any one industry (in the utilities category,
gas, electric, water and telephone companies will be considered as
being in separate industries);
(2) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities); or make short sales except where, by virtue
of ownership of other securities, it has the right to obtain,
without payment of further consideration, securities equivalent in
kind and amount to those sold, and the Fund will not deposit or
pledge more than 10% of its total assets (taken at current value)
as collateral for such sales;
(3) Acquire more than 10% of any class of securities of an issuer
(taking all preferred stock issues of an issuer as a single class
and debt issues of an issuer as a single class) or acquire more
than 10% of the outstanding voting securities of an issuer;
(4) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, up to an amount not in excess of 10% of its
total assets (taken at cost) or 5% of its total assets (taken at
current value), whichever is lower;
(5) Pledge more than 15% of its total assets (taken at cost);
(6) Invest more than 5% of its total assets (taken at current value)
in securities of businesses (including predecessors) less than
three years old;
(7) Purchase or retain securities of any company if officers and
trustees of New England Funds Trust I or of any investment adviser
of the Bond Income Fund who individually own more than 1/2 of 1%
of the shares or securities of that company, together own more
than 5%;
(8) Make loans, except by purchase of bonds, debentures, commercial
paper, corporate notes and similar evidences of indebtedness,
which are part of an issue to the public, or by lending portfolio
securities to the extent set forth under "Miscellaneous Investment
Practices -- Loans of Portfolio Securities" in Part II of this
Statement;
(9) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contracts or real estate
(except that the Bond Income Fund may buy and sell marketable
securities of companies, including real estate investment trusts,
which may represent indirect interests in real estate);
(10) Act as underwriter;
(11) Make investments for the purpose of exercising control or
management;
(12) Participate on a joint or joint and several basis in any
trading account in securities. (The "bunching" of orders for the
purchase or sale of portfolio securities with Back Bay Advisors,
L.P. ["Back Bay Advisors"] or accounts under its management to
reduce brokerage commissions, to average prices among them, or to
facilitate such transactions is not considered participating in a
trading account in securities.);
(13) Write or purchase puts, calls or combinations of both except
that the Bond Income Fund may purchase warrants or other rights to
subscribe to securities of companies issuing such warrants or
rights, or of parents or subsidiaries of such companies, provided
that such warrants or other rights to subscribe are attached to,
or a part of a unit offering involving, other securities;
(14) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions, or in connection with a merger,
consolidation or similar transaction. (Under the 1940 Act, the
Fund may not (a) invest more than 10% of its total assets [taken
at current value] in such securities, (b) own securities of any
one investment company having a value in excess of 5% of the
Fund's total assets [taken at current value], or (c) own more than
3% of the outstanding voting stock of any one investment company.)
In order to comply with certain state requirements applicable to
restriction (5) above, as a matter of operating policy subject to
change without shareholder approval, the Bond Income Fund will not
pledge more than 2% of its assets. As a matter of operating policy
subject to change without shareholder approval, the Fund will not (1)
purchase any security restricted as to disposition under federal
securities laws if as a result of such purchase more than 10% of the
Fund's total net assets would be invested in such securities; (2)
invest more than 15% of the Fund's total net assets in illiquid
investments; or (3) purchase or sell real property, including limited
partnership interests but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of
companies which invest in real estate.
High Income Fund
New England High Income Fund (the "High Income Fund") will not:
(1) Buy more than 10% of the voting securities or more than 10% of all
of the securities of any issuer, or invest to control or manage
any company;
(2) Purchase securities on "margin," except for short-term credits as
needed to clear securities purchases;
(3) Invest in securities issued by other investment companies, except
in connection with a merger, consolidation, acquisition, or
reorganization, or by purchase in the open market of securities of
closed-end investment companies where no underwriter or dealer
commission or profit, other than a customary brokerage commission,
is involved and only if immediately thereafter not more than 10%
of the value of its total assets would be invested in such
securities;
(4) Purchase securities, other than shares of the Fund, from or sell
portfolio securities to its directors or officers, or firms they
are affiliated with as principals, except as permitted by the
regulations of the SEC;
(5) Purchase or sell commodities and commodity contracts;
(6) Make loans, except loans of portfolio securities and except to the
extent that the purchase of notes, repurchase agreements, bonds,
or other evidences of indebtedness or deposits with banks or other
financial institutions may be considered loans;
(7) Write or purchase put, call, straddle, or spread options;
(8) Make short sales of securities or maintain a short position;
(9) Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or in
securities issued by companies which invest in real estate or
interests therein;
(10) Purchase or sell interests in oil and gas or other mineral
exploration or development programs, provided that the Fund may
invest in securities issued by companies which do invest in or
sponsor such programs;
(11) Underwrite the securities of other issuers; or
(12) Invest more than 10% of the value of its total assets, in the
aggregate, in repurchase agreements maturing in more than seven
days and restricted securities.
As a matter of operating policy subject to change without
shareholder approval, the Fund will not (1) purchase any security
restricted as to disposition under federal securities laws if as a
result of such purchase more than 10% of the Fund's total net assets
would be invested in such securities or (2) invest more than 15% of
the Fund's total net assets in illiquid investments.
The Fund has given undertakings to certain state regulatory
authorities that the Fund will not (1) invest more than 5% of its net
assets in warrants, no more than 2% of which will be invested in
warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange; provided, however, that for purposes of this
limitation, warrants acquired by the Fund in units or attached to
other securities may be deemed to be without value, (2) invest in
mineral leases or (3) invest in real estate limited partnership
interests. Such undertakings can be changed without shareholder
approval, but the Statement will be revised to reflect any such
changes.
Tax Exempt Income Fund
New England Tax Exempt Income Fund (the "Tax Exempt Income Fund") will
not:
(1) Purchase any security if, as a result, more than 5% of the Fund's
total assets (taken at current value) would then be invested in
securities of a single issuer. This limitation does not apply to
U.S. Government Securities. (The Fund will treat each state and
each separate political subdivision, agency, authority or
instrumentality of such state, each multistate agency or
authority, and each guarantor, if any, as a separate issuer);
(2) Invest more than 25% of its total assets (taken at current value)
in industrial development revenue bonds that are based, directly
or indirectly, on the credit of private entities in any one
industry or in securities of private issuers in any one industry.
(For the purpose of this restriction, "private activity bonds"
under the Code will be treated as industrial revenue bonds.) (In
the utilities category, gas, electric, water and telephone
companies will be considered as being in separate industries);
(3) Purchase any security on margin, except that the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities; or make short sales. For this
purpose, the deposit or payment by the Fund of initial or
variation margin in connection with interest rate futures
contracts or tax exempt bond index futures contracts is not
considered the purchase of a security on margin;
(4) Purchase more than 10% of the total value of the outstanding
securities of an issuer;
(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment) up to
an amount not in excess of 10% of its total assets (taken at cost)
or 5% of its total assets (taken at current value), whichever is
lower;
(6) Pledge, mortgage or hypothecate more than 15% of its total assets
(taken at cost). In order to comply with certain state
requirements, as a matter of operating policy subject to change
without shareholder approval, the Fund will not pledge, mortgage
or hypothecate more than 5% of such assets;
(7) Invest more than 5% of its total assets (taken at current value)
in securities of businesses less than three years old and
industrial development revenue bonds where the private entity on
whose credit the security is based, directly or indirectly, is
less than three years old (including predecessor businesses and
entities);
(8) Purchase or retain securities of any issuer if, to the knowledge
of the Fund, officers and trustees of New England Funds Trust I or
of any investment adviser of the Tax Exempt Income Fund who
individually own beneficially more than 1/2 of 1% of the
securities of that issuer, together own beneficially more than 5%
of such securities;
(9) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its investment policies. This
limitation does not apply to repurchase agreements;
(10) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts, commodities or real estate (except that the
Fund may buy tax exempt bonds or other permitted investment
secured by real estate or an interest therein);
(11) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to
be an underwriter under certain federal securities laws;
(12) Purchase voting securities or make investments for the
purpose of exercising control or management;
(13) Participate on a joint or joint and several basis in any
trading account in securities;
(14) Write, purchase, or sell puts, calls or combinations thereof,
except that the Fund may write, purchase and sell puts, calls or
combinations thereof with regard to futures contracts;
(15) Invest in the securities of other investment companies,
except in connection with a merger, consolidation or similar
transaction. (Under the 1940 Act, the Fund may not (a) invest
more than 10% of its total assets (taken at current value) in such
securities, (b) own securities of any one investment company
having a value in excess of 5% of the Fund's total assets (taken
at current value), or (c) own more than 3% of the outstanding
voting stock of any one investment company.)
The Fund may invest more than 25% of its assets in industrial
development revenue bonds, subject to limitation (2) above. In
addition, as a matter of such operating policy subject to change
without shareholder approval, the Fund will not invest more than 25%
of its assets in securities of issuers located in the same state, and
the Fund will not (1) purchase any security restricted as to
disposition under federal securities laws if as a result of such
purchase more than 10% of the Fund's total net assets would be
invested in such securities or (2) invest more than 15% of the Fund's
total net assets in illiquid investments.
FUND CHARGES AND EXPENSES
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES FEES
Pursuant to separate advisory agreements, dated January 9, 1987,
subject to the supervision of the board of trustees of New England
Funds Trust I, Back Bay Advisors has agreed to manage the investment
and reinvestment of the assets of the Government Securities Fund, the
Bond Income Fund and the Tax Exempt Income Fund.
Under its advisory agreement, the Government Securities Fund pays
Back Bay Advisers a fee at the annual rate of .650% of the first $200
million of its average daily net assets, 0.625% up to the next $300
million of such assets and .600% of such assets in excess of $500
million. For the fiscal years ended December 31, 1992, 1993 and 1994,
the advisory fees for the Government Securities Fund were $1,144,944,
$1,211,057 and $1,102,880.
Pursuant to advisory agreements dated January 3, 1989, subject to
the supervision of the board of trustees of New England Funds Trust
II, Back Bay Advisors manages the investment and reinvestment of the
assets of the Limited Term U.S. Government Fund and the High Income
Fund.
The Limited Term U.S. Government Fund pays a fee at the annual
rate of 0.650% of its average daily net assets up to the first $200
million, 0.625% of the next $300 million of such assets and .600% of
such assets in excess of $500 million. Back Bay Advisors was paid
$2,460,751, $3,390,740 and $3,163,619 for investment management
services it rendered to the Limited Term U.S. Government Fund during
the fiscal years ended December 31, 1992, 1993 and 1994, respectively,
after reduction pursuant to the voluntary expense limitations then in
effect.
Pursuant to an advisory agreement dated October 17, 1991, subject
to the supervision of the board of trustees of New England Funds Trust
II, Back Bay Advisors has agreed to manage the investment and
reinvestment of the assets of the Adjustable Rate Fund. Under the
advisory agreement, the Fund pays a fee at the annual rate of 0.40% of
the first $200 million of its average daily net assets, 0.375% of the
next $300 million of such assets and 0.35% of such assets in excess of
$500 million. Back Bay Advisors was paid $275,084, $955,078 and
$1,056,207 respectively, for investment management services it
rendered to the Adjustable Rate Fund during the fiscal years ended
December 31, 1992, 1993 and 1994, after reduction pursuant to the
expense limitation arrangement described below. Had the voluntary
expense limitation not been in effect Back Bay Advisors would have
been paid $751,293, 2,011,626 and $2,351,792 respectively, for
investment management services it rendered to the Adjustable Rate Fund
during the fiscal years ended December 31, 1992, 1993 and 1994.
New England Funds, L.P. (the "Distributor"), an affiliate of Back
Bay Advisors, 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. Under this Agreement, the Adjustable Rate 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.
Until further notice to the Adjustable Rate Fund, Back Bay
Advisors and the Distributor have voluntarily agreed to reduce their
management fee and administrative services fee, respectively, and, if
necessary, to bear certain expenses related to operating the Fund in
order to limit the Fund's expenses to an annual rate of 0.70%,1.45%
and 0.45% of the average daily net assets of the Fund's Class A, Class
B and Class Y shares, respectively.
Under their advisory agreements, the Bond Income Fund and the Tax
Exempt Income Fund each pay Back Bay Advisers a fee at the annual rate
of .500% of the first $100 million of its average daily net assets and
.375% of such assets in excess of $100 million. For the fiscal years
ended December 31, 1992, 1993 and 1994, the advisory fees for the Bond
Income Fund were $613,851, $751,948 and $774,457; and for the Tax
Exempt Income Fund the fees were $772,944, $911,990 and $925,947.
The advisory agreement for the Tax Exempt Income Fund includes a
provision under which Loomis Sayles & Company, L.P. ("Loomis Sayles")
will serve as a sub-adviser and will furnish regularly to Back Bay
Advisors, without additional cost to the Fund, statistical and
research information and advice relating to the Fund's investments.
For its services, Loomis Sayles will receive 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 net assets of the Fund, 30% of the compensation paid on
the next $10,000,000 of Fund net assets and 20% of the compensation
paid on net assets in excess of $20,000,000. For the fiscal years
ended December 31, 1992, 1993 and 1994, the compensation from Back Bay
Advisors to Loomis Sayles under this agreement was $169,589, $197,398
and $200,190, respectively.
Under its advisory agreement, the High Income Fund pays a fee at
the annual rate of 0.75% of its average daily net assets. The
advisory agreement relating to the Fund provided for a fee rate of
0.55% for the period to July 26, 1990.
In addition to the expense limitations discussed in Part II of
this Statement under "Management of the Trusts," Back Bay Advisors'
compensation under the High Income Fund's advisory agreement is
subject to reduction to the extent that, for any calendar month, the
Fund's expenses, including the management fee, but exclusive of
brokerage, taxes, interest, distribution fees and extraordinary items,
exceed an annual rate of 1.50% of the Fund's average daily net assets.
Until further notice to the Fund, Back Bay Advisors has
voluntarily agreed to reduce its management fee and, if necessary, to
bear certain expenses related to operating the High Income Fund to an
annual rate of 1.50% of the Fund's average daily net assets.
Back Bay Advisors was paid $41,884, $131,833 and $190,955 for
management services it rendered to the High Income Fund during the
fiscal years ended December 31, 1992, 1993 and 1994, respectively,
after reduction pursuant to the foregoing voluntary expense
limitations. Had the voluntary expense limitation not been in effect,
Back Bay Advisors would have been paid $125,542, $207,486 and
$273,994, respectively, for investment management services it rendered
to the High Income Fund during the fiscal years ended December 31,
1992, 1993 and 1994.
Pursuant to an advisory agreement dated May 1, 1995, New England
Funds Management, L.P. ("NEFM") has agreed, subject to the supervision
of the board of trustees of New England Funds Trust I, to manage the
investment and reinvestment of the assets of the Strategic Income Fund
and to provide a range of administrative services to the Fund. For
the services described in the advisory agreement, the Fund pays NEFM a
management fee at the annual rate of 0.65% of the first $200 million
of the Fund's average net assets and 0.60% of such assets in excess of
$200 million.
The advisory agreement provides that NEFM may delegate its
responsibilities thereunder to another party. As explained in the
prospectus, NEFM has delegated responsibility for the investment and
reinvestment of the Fund's assets to Loomis Sayles. NEFM pays Loomis
Sayles as the subadviser to the Fund 0.35% of the first $200 million
of the average net assets of the Fund and 0.30% of such assets in
excess of $200 million.
BROKERAGE COMMISSIONS
In 1992, 1993 and 1994, $13,300, $-0- and $-0-, respectively,
were paid in commissions on brokerage transactions for the Government
Securities Fund.
For more information about Fund portfolio transactions, see
"Portfolio Transactions and Brokerage" in Part II of this Statement.
SALES CHARGES AND 12B-1 FEES
As explained in Part II of this Statement, the Class A, B and, in
the case of the Limited Term U.S. Government the Bond Income and the
Strategic Income Funds, C shares of each Fund pay a fee pursuant to a
plan adopted pursuant to Rule 12b-1 under the 1940 Act. The following
table shows the amounts of Rule 12b-1 fees paid by the Class A and B
shares of each Fund during the fiscal year ended Decembers 31, 1992,
1993 and 1994:
Fund 1992 1993 1994
Government Securities $440,364 $465,401 $409,90 (Class A)
Fund $1,582 $23,270 (Class B)**
Limited Term U.S. $1,350,024 $1,873,424 $1,705,012 (Class A)
Government Fund $7,721 $98,717 (Class B)*
Adjustable Rate Fund $474,055 $1,322,743 $1,551,366 (Class A)
$1,444 $14,092 (Class B)*
Bond Income Fund $325,900 $416,977 $416,918 (Class A)
$3,957 $30,717 (Class B)*
High Income Fund $58,527 $96,279 $117,107 (Class A)
$1,574 $30,717 (Class B)*
Tax Exempt Income Fund $431,964 $523,343 $512,288 (Class A)
$5,363 $66,711 (Class B)*
* Class B shares were first offered on September 13, 1993.
** Government Securities Fund Class B shares were first offered
September 23, 1993.
Class C shares were first offered on January 3, 1995.
During the fiscal year ended December 31, 1994 for the Class A
and B shares, the Distributor's expenses relating to each Fund's 12b-1
plan were as follows:
Government Securities Fund
(Class A shares)
Compensation to Investment Dealers $409,069
Compensation to Distributor's Sales Personnel $840
TOTAL $409,909
(Class B shares)
Compensation to Investment Dealers $85,549
TOTAL $85,549
Limited Term U.S. Government Fund
(Class A shares)
Compensation to Investment Dealers $1,214,139
Compensation to Distributor's Sales Personnel $490,873
TOTAL $1,705,012
(Class B shares)
Compensation to Investment Dealers $238,791
TOTAL $238,791
Adjustable Rate Fund
(Class A shares)
Compensation to Investment Dealers $1,545,457
Compensation to Distributor's Sales Personnel $5,909
TOTAL $1,551,366
(Class B shares)
Compensation to Investment Dealers $38,904
TOTAL $38,904
Bond Income Fund
(Class A shares)
Compensation to Investment Dealers $416,304
Compensation to Distributor's Sales Personnel $614
TOTAL $416,918
(Class B shares)
Compensation to Investment Dealers $306,332
TOTAL $306,332
High Income Fund
(Class A shares)
Compensation to Investment Dealers $83,573
Compensation to Distributor's Sales Personnel $33,534
TOTAL $117,107
(Class B shares)
Compensation to Investment Dealers $160,546
TOTAL $160,546
Tax Exempt Income Fund
(Class A shares)
Compensation to Investment Dealers $516,362
Compensation to Distributor's Sales Personnel $926
TOTAL $517,288
(Class B shares)
Compensation to Investment Dealers $244,391
TOTAL $244,391
Of the amounts listed above as compensation to investment
dealers, the following amounts were paid by the Distributor to New
England Securities, a broker dealer affiliate of the Distributor:
$362,757 relating to the Class A shares and $69,405 relating to the
Class B shares of the Government Securities Fund; $315,154 relating to
the Class A shares and $31,368 relating to the Class B shares of the
Adjustable Rate Fund; $361,710 relating to the Class A shares and
$282,362 relating to the Class B shares of the Bond Income Fund;
$50,320 relating to the Class A shares and $96,262 relating to the
Class B shares of the High Income Fund; $439,718 relating to the Class
A shares and $183,622 relating to the Class B shares of the Tax Exempt
Income Fund; and $809,044 relating to the Class A shares and $198,426
relating to Class B shares of the Limited Term U.S. Government Fund.
New England Securities paid substantially all of the fees it received
from the Distributor in commissions to its sales personnel and to
defray overhead costs relating to sales of Fund shares and/or
servicing shareholder accounts.
At April 1, 1995, to the Trusts' knowledge, the following persons
owned of record or beneficially 5% or more of the indicated Fund:
Adjustable Rate U.S. Government Fund
Class A Shares San Bernardino County 21.25%
Treasurer
172 W. 3rd Street,
1st Floor
San Bernardino, CA 9245-1001
San Diego County Treasurer 10.52%
Tax Collector
1600 Pacific Highway,
Room 112
San Diego, CA 92101-2422
Class B Shares Smith Barney Inc. 7.3%
388 Greenwich Street
New York, NY 10013-2375
Lynn C. Knarr 6.83%
14 Canal Road
Westport, CT 06880-6904
Government Securities
Class B Shares Edith H. Crowson 7.33%
22410 Provincial
Katy, TX 77450-1624
Class Y Shares New England Mutual Life 100%
Ins. Co.
Separate Investment
Accounting
Attention: Victor Soohoo
501 Boylston Street, 6th
Floor
Boston, MA 02116-3706
Limited Term U.S.
Government Fund
Class C Shares Advest Inc. 48.59%
280 Trumbull Street
Hartford, CT 06103-3599
Class Y Shares NEIC Retirement Trust 61.83%
c/o Defined Contribution
Svs - TNE
Post Office Box 755
Boston, Ma 02117
New England Mutual Life 38.17%
Ins. Co.
Separate Investment
Accounting
Attention: Victor Soohoo
501 Boylston Street, 6th
Floor
Boston, MA 02116-3706
Bond Income Fund
Class C Shares Hays Properties LLC 48.75%
Post Office Box 1312
Bloomington, IN 47402-
1312
William Walker 29.20%
11 Saddle Club
Lexington, MA 02173-2102
Richard F. Lanes 8.65%
11844 Providence Bay Ct
Lakeside, CA 92404-2360
Great Lakes Elevator Inc. 6.37%
401(k) Plan
401 Hall Street SW Box 9
Grand Rapids, MI 49503-
5098
INVESTMENT PERFORMANCE OF THE FUNDS
PERFORMANCE RESULTS - PERCENT CHANGE
For the Periods Ended 12/31/94
Government Securities
Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
9/16/85* 9/16/85*
* - * -
As a % of 1 5 12/31/94 1 5 12/31/94
Year Years Year Years
Net Asset Value -5.50 33.48 91.69 -5.50 5.95 7.26
Maximum Offering Price -9.73 27.48 83.06 -9.73 4.98 6.73
(Class B shares) Aggregate Total Average Annual Total
Return* Return
9/23/93** 9/23/93** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value -6.22 -7.33 -6.22 5.81
Redemption at End of -9.77 -10.01 -9.77 -7.86
Period
(Class Y shares)
Aggregate Total Annualiz
As a % of Return* ed Total
3/31/94**- Return
12/31/94
Net Asset Value -1.97 -7.99
Limited Term U.S. Government
Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
1/03/89** 1/03/89** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value -2.28 -52.62 -2.28 6.69
Maximum Offering Price -5.24 48.05 -5.24 6.04
(Class B shares) Aggregate Total Average Annual Total
Return* Return
9/27/93** 9/27/93** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value -2.98 -3.32 -2.98 -2.62
Redemption at End of -6.66 -6.09 -6.66 -4.78
Period
(Class Y shares)
Aggregate Total Annualiz
As a % of Return* ed Total
3/31/94**- Return
12/31/94
Net Asset Value -0.19 -0.77
Adjustable Rate Fund***
(Class A shares) Aggregate Total Return* Average Annual Total
Return
10/19/91** 10/19/91**
- -
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value 0.77 10.00 0.77 3.41
Maximum Offering Price -2.25 8.90 -2.25 2.44
(Class B shares) Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value 0.03 0.01 0.03 0.01
Redemption at End of -3.84 -2.88 -3.84 -2.21
Period
Bond Income Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 5 10 Years 1 5 10 Years
Year Years Year Years
Net Asset Value -4.24 46.36 144.05 -4.24 7.92 9.33
Maximum Offering Price -8.52 39.77 133.06 -8.52 6.93 8.83
(Class B shares) Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value -4.95 -5.71 -4.95 4.42
Redemption at End of -8.55 -8.32 -8.55 -6.39
Period
High Income Fund****
(Class A shares) Aggregate Total Return* Average Annual Total
Return
2/22/84* 2/22/84*
* - * -
As a % of 1 5 12/31/94 1 5 12/31/94
Year Years Year Years
Net Asset Value -3.31 54.45 117.48 -3.31 9.08 8.08
Maximum Offering Price -7.63 47.50 107.69 -7.63 8.09 7.58
(Class B shares) Aggregate Total Average Annual Total
Return* Return
9/20/93** 9/20/93** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value -4.03 0.16 -4.03 0.12
Redemption at End of -7.56 -2.55 -7.56 -1.99
Period
Tax Exempt Income Fund
(Class A shares) Aggregate Total Return* Average Annual Total
Return
As a % of 1 5 10 Years 1 5 10 Years
Year Years Year Years
Net Asset Value -8.06 32.84 133.19 -8.06 5.84 8.83
Maximum Offering Price - 26.87 122.70 - 4.88 8.34
12.20 12.20
(Class B shares) Aggregate Total Average Annual Total
Return* Return
9/13/93** 9/13/93** -
-
As a % of 1 Year 12/31/94 1 Year 12/31/94
Net Asset Value -8.67 -7.77 -8.67 -6.03
Redemption at End of -12.15 -10.46 -12.15 -8.04
Period
* Federal regulations require this example to be calculated using a
$1,000 investment. The normal minimum initial investment in shares of
the Funds is $2,500, however.
** Commencement of Fund operations.
*** Assuming deduction of current maximum sales load, the Adjustable
Rate Fund's Class A shares' average one year and since inception
average annual total returns would have been -2.53% and 3.22% and
aggregate one year and since inception total returns would have been -
2.53% and 7.21%, respectively, had a voluntary expense limitation not
been in effect. Based on its net asset values, the Adjustable Rate
Fund's Class A shares' one year and since inception average annual
total return would have been 0.49% and 3.70% and aggregate total
return would have been 0.49% and 8.31%, respectively. Assuming a
redemption at the end of the period, the Fund's Class B shares average
one year and since inception average annual total returns would have
been -4.10% and -1.80%, respectively, had a voluntary expense
limitation not been in effect. Aggregate total returns for the one
year and since inception period would have been -4.10% and -2.34%,
respectively. Based on its net asset values, the Class B shares
average annual total return for the one year and since inception
period would have been -0.25% and -0.05%, respectively. Aggregate
total returns for the one year and since inception period would have
been -0.25% and -0.53%, respectively.
**** Assuming deduction of current maximum sales load, the High Income
Fund's Class A shares' one year, five year and since inception average
annual total returns for the periods ended December 31, 1994 would
have been 7.86%, 7.35% and 6.57%, respectively, had a voluntary
expense limitation, for certain periods not been in effect. Aggregate
total returns would have been -7.86%, 42.58% and 100.03%,
respectively. Based on its net asset values, the High Income Fund's
Class A shares' one year, five year and since inception average annual
total returns for the period ended December 31, 1994 would have been -
3.54%, 8.38% and 7.07%, respectively. Aggregate total returns would
have been -3.54%, 49.53% and 109.82%, respectively. Assuming a
redemption at the end of the period, the Fund's Class B shares average
annual total returns for the one year and since inception period would
have been -7.79% and -2.36%, respectively, had a voluntary expense
limitation not been in effect. Aggregate total returns for the one
year and since inception period would have been -7.79% and -3.06%,
respectively. Based on its net asset values, the Class B shares
average annual total returns for the one year and since inception
period would have been -4.26% and -0.19%, respectively. Aggregate
total returns for the one year and since inception period would have
been -4.26% and -0.25%, respectively.
YIELD FOR THE 30-DAY PERIOD
Ended 12/31/94
Fund Class A Class B*
Government Securities 6.30% 5.87%
Limited Term U.S. Government 6.42% 5.98%
Adjustable Rate U.S. Government 5.11% 4.36%
Bond Income 7.50% 7.10%
High Income 9.99% 9.76%
Tax Exempt Income 5.77% 5.23%
* Yields for the Class A shares of the Funds are based on the public
offering price of a share of the Funds and yields for the Class B
shares are based on the net asset value of a share of the Funds.
Distribution Rate. The Government Securities, Limited Term U.S.
Government, Adjustable Rate, Bond Income and High Income Funds may
include in their written sales material distribution rates based on
the Funds' distributions from net investment income and short-term
capital gains for a recent 30 day, three month or one year period.
Distributions of less than one year are annualized by multiplying
by the factor necessary to produce twelve distributions. The
distribution rates are determined by dividing the amount of the
particular Fund's distributions per share over the relevant period by
either the maximum offering price or the net asset value of a share of
the Fund on the last day of the period.
______________________________________________________________________
DISTRIBUTION RATES
For Periods Ending 12/31/94
______________________________________________________________________
As a % of 30 day 3 months 12 months
Government Securities Fund
(Class A shares)
Net Asset Value 6.79% 6.79% 4.32%
Maximum Offering Price 6.48% 6.48% 4.13%
(Class B shares)
Net Asset Value 5.98% 5.98% 4.09%
(Class Y shares)
Net Asset Value 6.79% 6.78% 5.20%
Limited Term U.S. Government
Fund
(Class A shares)
Net Asset Value 6.37% 6.30% 4.09%
Maximum Offering Price 6.23% 6.25% 6.22%
(Class B shares)
Net Asset Value 5.70% 5.64% 5.57%
(Class Y shares)
Net Asset Value 5.63% 6.67% 1.61%
Adjustable Rate Fund
(Class A shares)
Net Asset Value 5.01% 4.64% 4.23%
Maximum Offering Price 4.96% 4.59% 4.18%
(Class B shares)
Net Asset Value 4.26% 3.91% 3.50%
Bond Income Fund
(Class A shares)
Net Asset Value 6.58% 6.58% 1.19%
Maximum Offering Price 6.28% 6.28% 1.13%
(Class B shares)
Net Asset Value 5.81% 5.81% 0.40%
High Income Fund
(Class A shares)
Net Asset Value 10.12% 10.12% 9.62%
Maximum Offering Price 9.67% 9.67% 9.18%
(Class B shares)
Net Asset Value 9.46% 9.46% 8.94%
Redemption at the End of the
Period
The foregoing data represent past performance. The investment
return and principal value of an investment in any Fund will fluctuate
so that the investor's shares, when redeemed, may be with more or less
than the original cost.
<PAGE>
New England Funds
New England Funds Trust I
New England Funds Trust II
STATEMENT OF ADDITIONAL INFORMATION
PART II
The following information applies generally to the funds that
make up New England Funds Trust I and New England Funds Trust II
(collectively the "Funds" and each a "Fund"). In certain cases, the
discussion applies to some but not all of the Funds. Certain data
applicable to particular Funds is found in Part I of this Statement
of Additional Information (the "Statement").
MISCELLANEOUS INVESTMENT PRACTICES
The following information relates to certain investment
practices in which certain Funds may engage. The table below
indicates which Funds may engage in each of these practices.
Practices Funds
Loans of Portfolio Securities Government Securities Fund
Bond Income Fund
Limited Term U.S. Government Fund
High Income Fund
Adjustable Rate Fund
International Equity Fund
Star Advisers Fund
Strategic Income Fund
U.S. Government Securities All Funds
When-Issued Securities Star Advisers Fund
Government Securities Fund
Bond Income Fund
Tax Exempt Income Fund
High Income Fund
Limited Term U.S. Government Fund
California Fund
Massachusetts Fund
New York Fund
Adjustable Rate Fund
Strategic Income Fund
Repurchase Agreements All Funds
Zero Coupon Securities All Funds
Convertible Securities Value Fund
Balanced Fund
Growth Opportunities Fund
High Income Fund
International Equity Fund
Capital Growth Fund
Star Advisers Fund
Strategic Income Fund
Tax Exempt Bonds Tax Exempt Income Fund
California Fund
Massachusetts Fund
New York Fund
State Tax Exempt Securities California Fund
Massachusetts Fund
New York Fund
Futures and Options Government Securities Fund
Tax Exempt Income Fund
Limited Term U.S. Government Fund
International Equity Fund
Star Advisers Fund
California Fund
New York Fund
Strategic Income Fund
Foreign Currency Transactions International Equity Fund
Balanced Fund
Capital Growth Fund
Value Fund
Star Advisers Fund
Strategic Income Fund
Loans of Portfolio Securities. The Fund may lend its portfolio
securities to broker-dealers under contracts calling for cash
collateral equal to at least the market value of the securities
loaned, marked to the market on a daily basis. (The Fund at the
present time has no intention to engage in the lending of portfolio
securities.) The Fund will continue to benefit from interest or
dividends on the securities loaned and will also receive interest
through investment of the cash collateral in short-term liquid
investments, which may include shares of money market funds subject
to any investment restriction listed in Part I below. No loans will
be made if, as a result, the aggregate amount of such loans
outstanding at any one time would exceed 15% of the Fund's total
assets (taken at current value). Any voting rights, or rights to
consent, relating to securities loaned pass to the borrower.
However, if a material event affecting the investment occurs, such
loans will be called so that the securities may be voted by the Fund.
The Fund pays various fees in connection with such loans, including
shipping fees and reasonable custodian and placement fees approved by
the boards of trustees of New England Funds Trust I or New England
Funds Trust II (the "Trusts" and each a "Trust") or persons acting
pursuant to the direction of the boards.
These transactions must by fully collateralized at all times,
but involve some credit risk to the Fund if the other party should
default on its obligation and the Fund is delayed in or prevented
from recovering the collateral.
U.S. Government Securities. The Fund may invest in some or all of
the following U.S. Government Securities:
. U.S. Treasury Bills - Direct obligations of the United States
Treasury which are issued in maturities of one year or less. No
interest is paid on Treasury bills; instead, they are issued at a
discount and repaid at full face value when they mature. They are
backed by the full faith and credit of the United States Government.
. U.S. Treasury Notes and Bonds - Direct obligations of the United
States Treasury issued in maturities that vary between one and 40
years, with interest normally payable every six months. These
obligations are backed by the full faith and credit of the United
States Government.
. "Ginnie Maes" - Debt securities issued by a mortgage banker or
other mortgagee which represent an interest in a pool of mortgages
insured by the Federal Housing Administration or the Farmer's Home
Administration or guaranteed by the Veterans Administration. The
Government National Mortgage Association ("GNMA") guarantees the
timely payment of principal and interest when such payments are due,
whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. An assistant attorney
general of the United States has rendered an opinion that the
guarantee by GNMA is a general obligation of the United States backed
by its full faith and credit. Mortgages included in single family or
multi-family residential mortgage pools backing an issue of Ginnie
Maes have a maximum maturity of up to 30 years. Scheduled payments
of principal and interest are made to the registered holders of
Ginnie Maes (such as the Fund) each month. Unscheduled prepayments
may be made by homeowners, or as a result of a default. Prepayments
are passed through to the registered holder (such as the Fund, which
reinvests any prepayments) of Ginnie Maes along with regular monthly
payments of principal and interest.
. "Fannie Maes" - The Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely by
private stockholders that purchases residential mortgages from a list
of approved seller/servicers. Fannie Maes are pass-through
securities issued by FNMA that are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
. "Freddie Macs" - The Federal Home Loan Mortgage Corporation
("FHLMC") is a corporate instrumentality of the United States
Government. Freddie Macs are participation certificates issued by
FHLMC that represent an interest in residential mortgages from
FHLMC's National Portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but Freddie Macs are
not backed by the full faith and credit of the United States
Government.
As described in the prospectus, U.S. Government Securities do
not involve the credit risks associated with investments in other
types of fixed-income securities, although, as a result, the yields
available from U.S. Government Securities are generally lower than
the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government
Securities change as interest rates fluctuate. Fluctuations in the
value of portfolio securities will not affect interest income on
existing portfolio securities but will be reflected in the Fund's net
asset value. Since the magnitude of these fluctuations will
generally be greater at times when the Fund's average maturity is
longer, under certain market conditions the Fund may, for temporary
defensive purposes, accept lower current income from short-term
investments rather than investing in higher yielding long-term
securities.
When-Issued Securities. The Fund may enter into agreements with
banks or broker-dealers for the purchase or sale of securities at an
agreed-upon price on a specified future date. Such agreements might
be entered into, for example, when the Fund anticipates a decline in
interest rates and is able to obtain a more advantageous yield by
committing currently to purchase securities to be issued later. When
the Fund purchases securities in this manner (i.e. on a when-issued
or delayed-delivery basis), it is required to create a segregated
account with the Trust's custodian and to maintain in that account
cash or U.S. Government Securities in an amount equal to or greater
than, on a daily basis, the amount of the Fund's when-issued or
delayed-delivery commitments. The Fund will make commitments to
purchase on a when-issued or delayed-delivery basis only securities
meeting the Fund's investment criteria. The Fund may take delivery
of these securities or, if it is deemed advisable as a matter of
investment strategy, the Fund may sell these securities before the
settlement date. When the time comes to pay for when-issued or
delayed-delivery securities, the Fund will meet its obligations from
the then available cash flow or the sale of securities, or from the
sale of the when-issued or delayed- delivery securities themselves
(which may have a value greater or less than the Fund's payment
obligation).
Repurchase Agreements. The Fund may enter into repurchase agreements
by which the Fund purchases a security and obtains a simultaneous
commitment from the seller to repurchase the security at an agreed-
upon price and date. The resale price is in excess of the purchase
price and reflects an agreed-upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford the Fund
the opportunity to earn a return on temporarily available cash at
minimal market risk. While the underlying security may be a bill,
certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States Government, the
obligation of the seller is not guaranteed by the United States
Government and there is a risk that the seller may fail to repurchase
the underlying security. In such event, the Fund would attempt to
exercise rights with respect to the underlying security, including
possible disposition in the market. However, the Fund may be subject
to various delays and risks of loss, including (a) possible declines
in the value of the underlying security during the period while the
Fund seeks to enforce its rights thereto, (b) possible reduced levels
of income and lack of access to income during this period and (c)
inability to enforce rights and the expenses involved in the
attempted enforcement.
Zero Coupon Securities. Zero coupon securities are debt obligations
that do not entitle the holder to any periodic payments of interest
either for the entire life of the obligation or for an initial period
after the issuance of the obligations. Such securities are issued
and traded at a discount from their face amounts. The amount of the
discount varies depending on such factors as the time remaining until
maturity of the securities, prevailing interest rates, the liquidity
of the security and the perceived credit quality of the issuer. The
market prices of zero coupon securities generally are more volatile
than the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a greater
degree than do non-zero coupon securities having similar maturities
and credit quality. In order to satisfy a requirement for
qualification as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"), the Fund must
distribute each year at least 90% of its net investment income,
including the original issue discount accrued on zero coupon
securities. Because the Fund will not on a current basis receive
cash payments from the issuer of a zero coupon security in respect of
accrued original issue discount, in some years the Fund may have to
distribute cash obtained from other sources in order to satisfy the
90% distribution requirement under the Code. Such cash might be
obtained from selling other portfolio holdings of the Fund. In some
circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might
otherwise make it undesirable for the Trust to sell such securities
at such time.
Convertible Securities. The Fund may invest in convertible
securities including corporate bonds, notes or preferred stocks of
U.S. or foreign issuers that can be converted into (that is,
exchanged for) 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. Convertible securities usually provide a higher yield
than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of
the underlying equity security.
Tax Exempt Bonds. The Fund may invest in tax exempt bonds. Tax
exempt bonds include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range
of public facilities such as bridges, highways, hospitals, housing,
mass transportation, schools, streets, and water and sewer works.
Other public purposes for which tax exempt bonds may be issued
include the refunding of outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other
public institutions and facilities. In addition, prior to the Tax
Reform Act of 1986, certain debt obligations known as industrial
development bonds could be issued by or on behalf of public
authorities to obtain funds to provide privately operated housing
facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. Such
obligations are included within the term "tax exempt bonds" if the
interest paid thereon is, in the opinion of bond counsel, exempt from
federal income tax. Interest on certain industrial development bonds
used to fund the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities may also be
exempt from federal income tax. The Tax Reform Act of 1986
eliminated some types of tax exempt industrial revenues bonds but
retains others under the general category of "private activity
bonds." The interest on so-called "private activity bonds" is exempt
from ordinary federal income taxation but is treated as a tax
preference item in computing a shareholder's alternative minimum tax
liability, as noted in the prospectus.
The Fund may not be a desirable investment for "substantial
users" of facilities financed by industrial development bonds or for
"related persons" of substantial users.
The two principal classifications of tax exempt bonds are
general obligation bonds and limited obligation (or revenue) bonds.
General obligation bonds are obligations involving the credit of an
issuer possessing taxing power and are payable from the issuer's
general unrestricted revenues and not from any particular fund or
source. The characteristics and method of enforcement of general
obligation bonds vary according to the law applicable to the
particular issuer, and payment may be dependent upon an appropriation
by the issuer's legislative body. Limited obligation bonds are
payable only from the revenues derived from a particular facility or
class of facilities, or in some cases from the proceeds of a special
excise or other specific revenue source such as the user of the
facility. Tax exempt industrial development bonds and private
activity bonds are in most cases revenue bonds and generally are not
payable from the unrestricted revenues of the issuer. The credit and
quality of such bonds is usually directly related to the credit
standing of the corporate user of the facilities. Principal and
interest on such bonds is the responsibility of the corporate user
(and any guarantor).
Prices and yields on tax exempt bonds are dependent on a variety
of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the tax exempt bond
market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. A number of these factors,
including the ratings of particular issues, are subject to change
from time to time. Information about the financial condition of an
issuer of tax exempt bonds may not be as extensive as that made
available by corporations whose securities are publicly traded.
The ratings of Moody's Investors Service, Inc. "(Moody's") and
Standard and Poor's Corporation "(Standard & Poor's" or "S&P")
represent their opinions and are not absolute standards of quality.
Tax exempt bonds with the same maturity, interest rate and rating may
have different yields while tax exempt bonds of the same maturity and
interest rate with different ratings may have the same yield.
Obligations of issuers of tax exempt bonds are subject to the
provisions of bankruptcy, insolvency and other laws, such as the
Federal Bankruptcy Reform Act of 1978, affecting the rights and
remedies of creditors. Congress or state legislatures may seek to
extend the time for payment of principal or interest, or both, or to
impose other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other
conditions, the power or ability of issuers to meet their obligations
for the payment of interest and principal on their tax exempt bonds
may be materially affected, or their obligations may be found to be
invalid or unenforceable. Such litigation or conditions may from
time to time have the effect of introducing uncertainties in the
market for tax exempt bonds or certain segments thereof, or
materially affecting the credit risk with respect to particular
bonds. Adverse economic, business, legal or political developments
might affect all or a substantial portion of the Fund's tax exempt
bonds in the same manner.
From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal
income tax exemption for interest on debt obligations issued by
states and their political subdivisions and similar proposals may
well be introduced in the future. If such a proposal were enacted,
the availability of tax exempt securities for investment by the Fund
and the value of the Fund's portfolio could be materially affected,
in which event the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or
dissolution.
All debt securities, including tax exempt bonds, are subject to
credit and market risk. Generally, for any given change in the level
of interest rates, prices for longer maturity issues tend to
fluctuate more than prices for shorter maturity issues. The ability
of the Fund to invest in securities other than tax exempt bonds is
limited by a requirement of the Code that at least 50% of the Fund's
total assets be invested in tax exempt bonds at the end of each
calendar quarter.
State Tax Exempt Securities. The Fund may invest in "State Tax
Exempt Securities" which term refers to debt securities the interest
from which is, in the opinion of bond counsel, exempt from federal
income tax and State personal income taxes (other than the possible
incidence of any alternative minimum taxes). State Tax Exempt
Securities consist primarily of bonds of the Fund's named state,
their political subdivisions (for example, counties, cities, towns,
villages and school districts) and authorities issued to obtain funds
for various public purposes, including the construction of a wide
range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which certain State Tax
Exempt Securities may be issued include the refunding of outstanding
obligations, obtaining funds for general operating expenses, or
obtaining funds to lend to public or private institutions for the
construction of facilities such as educational, hospital and housing
facilities. In addition, certain types of industrial development
bonds and private activity bonds have been or may be issued by public
authorities or on behalf of state or local governmental units to
finance privately operated housing facilities, sports facilities,
convention or trade facilities, air or water pollution control
facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Other types of
industrial development and private activity bonds are used to finance
the construction, equipment, repair or improvement of privately
operated industrial or commercial facilities. Industrial development
bonds and private activity bonds are included within the term "State
Tax Exempt Securities" if the interest paid thereon is, in the
opinion of bond counsel, exempt from federal income tax and State
personal income taxes (other than the possible incidence of any
alternative minimum taxes). The Fund may invest more than 25% of the
value of its total assets in such bonds, but not more than 25% in
bonds backed by non-governmental users in any one industry (see
"Investment Restrictions" in Part I of this Statement). However, as
described in the Fund's prospectus, the income from certain private
activity bonds is an item of tax preference for purposes of the
federal alternative minimum tax, and it is a fundamental policy of
the Fund that distributions from interest income on such private
activity bonds, together with distributions of interest income on
investments other than State Tax Exempt Securities, will normally not
exceed 10% of the total amount of the Fund's income distributions.
In addition, the term "State Tax Exempt Securities" includes
debt obligations issued by other governmental entities (for example,
U. S. territories) if such debt obligations generate interest income
which is exempt from federal income tax and State personal income
taxes (other than any alternative minimum taxes).
There are, of course, variations in the quality of State Tax
Exempt Securities, both within a particular classification and
between classifications, depending on numerous factors (see Appendix
A).
The yields on State Tax Exempt Securities are dependent on a
variety of factors, including general money market conditions, the
financial condition of the issuer, general conditions of the State
Tax Exempt Securities market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings
of Moody's and Standard and Poor's represent their opinions as to the
quality of the State Tax Exempt Securities which they undertake to
rate. It should be emphasized, however, that ratings are general and
are not absolute standards of quality. Consequently, State Tax
Exempt Securities with the same maturity, interest rate and rating
may have different yields while State Tax Exempt Securities of the
same maturity and interest rates with different ratings may have the
same yield. Subsequent to its purchase by the Fund, an issue of
State Tax Exempt Securities or other investments may cease to be
rated or the rating may be reduced below the minimum rating required
for purchase by the Fund. Neither event will require the elimination
of an investment from the Fund's portfolio, but the Manager will
consider such an event as part of its normal, ongoing review of all
the Fund's portfolio securities.
The Fund does not currently intend to invest in so-called "moral
obligation" bonds, where repayment is backed by a moral commitment of
an entity other than the issuer, unless the credit of the issuer
itself, without regard to the "moral obligation," meets the
investment criteria established for investments by the Fund.
Securities in which the Fund may invest, including State Tax
Exempt Securities, are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or the State legislature extending
the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations. There is
also the possibility that as a result of litigation or other
conditions the power or ability of issuers to meet their obligations
for the payment of interest and principal on their State Tax Exempt
Securities may be materially affected or that their obligations may
be found to be invalid and unenforceable.
The Fund's named state and certain of its cities and towns and
public bodies have from time to time encountered financial
difficulties which have adversely affected their respective credit
standings and borrowing abilities. Such difficulties could, of
course, affect outstanding obligations of such entities, including
obligations held by the Fund.
Options and Futures
Futures Contracts. A futures contract is an agreement between two
parties to buy and sell a particular commodity (e.g., an interest-
bearing security) for a specified price on a specified future date.
In the case of futures on an index, the seller and buyer agree to
settle in cash, at a future date, based on the difference in value of
the contract between the date it is opened and the settlement date.
The value of each contract is equal to the value of the index from
time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to
$1000 multiplied by the Bond Buyer Municipal Bond Index.
When a trader, such as the Fund, enters into a futures contract,
it is required to deposit with (or for the benefit of) its broker as
"initial margin" an amount of cash or short-term high-quality
securities (such as U.S. Treasury Bills or high-quality tax exempt
bonds acceptable to the broker) equal to approximately 2% to 5% of
the delivery or settlement price of the contract (depending on
applicable exchange rules). Initial margin is held to secure the
performance of the holder of the futures contract. As the value of
the contract changes, the value of futures contract positions
increases or declines. At the end of each trading day, the amount of
such increase and decline is received and paid respectively by and to
the holders of these positions. The amount received or paid is known
as "variation margin." A Fund with a long position in a futures
contract will establish a segregated account with the Fund's
custodian containing cash or certain illiquid assets equal to the
purchase price of the contract (less any margin on deposit). For
short positions in futures contracts, a Fund will establish a
segregated account with the custodian with cash or high grade liquid
debt assets that, when added to the amounts deposited as margin,
equal the market value of the instruments or currency underlying the
futures contracts.
Although futures contracts by their terms require actual
delivery and acceptance of securities (or cash in the case of index
futures), in most cases the contracts are closed out before
settlement. A futures sale is closed by purchasing a futures
contract for the same aggregate amount of the specific type of
financial instrument or commodity and with the same delivery date.
Similarly, the closing out of a futures purchase is closed by the
purchaser selling an offsetting futures contract.
Gain or loss on a futures position is equal to the net variation
margin received or paid over the time the position is held, plus or
minus the amount received or paid when the position is closed, minus
brokerage commissions.
Options. An option on a futures contract obligates the writer, in
return for the premium received, to assume a position in a futures
contract (a short position if the option is a call and a long
position if the option is a put), at a specified exercise price at
any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the
option to the holder of the option generally will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option.
The premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the market
price and volatility of the underlying contract, the remaining term
of the option, supply and demand and interest rates. Options on
futures contracts traded in the United States may only be traded on a
United States board of trade licensed by the Commodity Futures
Trading Commission.
An option on a security entitles the holder to receive (in the
case of a call option) or to sell (in the case of a put option) a
particular security at a specified exercise price. An "American
style" option allows exercise of the option at any time during the
term of the option. A "European style" option allows an option to be
exercised only at the end of its term. Options on securities may be
traded on or off a national securities exchange.
A call option on a futures contract written by a Fund is
considered by the Fund to be covered if the Fund owns the security
subject to the underlying futures contract or other securities whose
values are expected to move in tandem with the values of the
securities subject to such futures contract, based on historical
price movement volatility relationships. A call option on a security
written by the Fund is considered to be covered if the Fund owns a
security deliverable under the option. A written call option is also
covered if the Fund holds a call on the same futures contract or
security as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, Treasury bills
or other high grade liquid obligations in a segregated account with
its custodian.
A put option on a futures contract written by a Fund, or a put
option on a security written by a Fund, is covered if the Fund
maintains cash, U.S. Treasury bills or other high-grade liquid debt
obligations with a value equal to the exercise price in a segregated
account with the Fund's custodian, or else holds a put on the same
futures contract (or security, as the case may be) as the put written
where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
If the writer of an option wishes to terminate its position, it
may effect a closing purchase transaction by buying an option
identical to the option previously written. The effect of the
purchase is that the writer's position will be canceled. Likewise,
the holder of an option may liquidate its position by selling an
option identical to the option previously purchased.
Closing a written call option will permit the Fund to write
another call option on the portfolio securities used to cover the
closed call option. Closing a written put option will permit the
Fund to write another put option secured by the segregated cash, U.S.
Treasury bills or other high-grade liquid obligations used to secure
the closed put option. Also, effecting a closing transaction will
permit the cash or proceeds from the concurrent sale of any futures
contract or securities subject to the option to be used for other
Fund investments. If the Fund desires to sell particular securities
covering a written call option position, it will close out its
position or will designate from its portfolio comparable securities
to cover the option prior to or concurrent with the sale of the
covering securities.
The Fund will realize a profit from closing out an option if the
price of the offsetting position is less than the premium received
from writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from closing out an option
transaction if the price of the offsetting option position is more
than the premium received from writing the option or is less than the
premium paid to purchase the option. Because increases in the market
price of a call option will generally reflect increases in the market
price of the covering securities, any loss resulting from the closing
of a written call option position is expected to be offset in whole
or in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the
value of the underlying securities or futures contracts usually have
a time value component (i.e. a value that diminishes as the time
within which the option can be exercised grows shorter) an option
writer may profit from the lapse of time even though the value of the
futures contract (or security in some cases) underlying the option
(and of the security deliverable under the futures contract) has not
changed. Consequently, profit from option writing may or may not be
offset by a decline in the value of securities covering the option.
If the profit is not entirely offset, the Fund will have a net gain
from the options transaction, and the Fund's total return will be
enhanced. Likewise, the profit or loss from writing put options may
or may not be offset in whole or in part by changes in the market
value of securities acquired by the Fund when the put options are
closed.
Risks. The use of futures contracts and options involves risks. One
risk arises because of the imperfect correlation between movements in
the price of futures contracts and movements in the price of the
securities that are the subject of the hedge. The Fund's hedging
strategies will not be fully effective unless the Fund can compensate
for such imperfect correlation. There is no assurance that the Fund
will be able to effect such compensation.
The correlation between the price movement of the futures
contract and the hedged security may be distorted due to differences
in the nature of the markets. For example, to the extent that the
Tax Exempt Income Fund enters into futures contracts on securities
other than tax exempt bonds, the value of such futures may not vary
in direct proportion to the value of tax exempt bonds that the Fund
owns or intends to acquire, because of an imperfect correlation
between the movement of taxable securities and tax exempt bonds. If
the price of the futures contract moves more than the price of the
hedged security, the relevant Fund would experience either a loss or
a gain on the future that is not completely offset by movements in
the price of the hedged securities. In an attempt to compensate for
imperfect price movement correlations, each Fund may purchase or sell
futures contracts in a greater dollar amount than the hedged
securities if the price movement volatility of the hedged securities
is historically greater than the volatility of the futures contract.
Conversely, the Fund may purchase or sell fewer contracts if the
volatility of the price of hedged securities is historically less
than that of the futures contracts.
The price of index futures may not correlate perfectly with
movement in the relevant index due to certain market distortions.
First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal
relationship between the index and futures markets. Secondly, the
deposit requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities
market. In addition, trading hours for foreign stock index futures
may not correspond perfectly to hours of trading on the foreign
exchange to which a particular foreign stock index future relates.
This may result in a disparity between the price of index futures and
the value of the relevant index due to the lack of continuous
arbitrage between the index futures price and the value of the
underlying index. Finally, hedging transactions using stock indices
involve the risk that movements in the price of the index may not
correlate with price movements of the particular portfolio securities
being hedged.
Price movement correlation also may be distorted by the
illiquidity of the futures and options markets and the participation
of speculators in such markets. If an insufficient number of
contracts are traded, commercial users may not deal in futures
contracts or options because they do not want to assume the risk that
they may not be able to close out their positions within a reasonable
amount of time. In such instances, futures and options market prices
may be driven by different forces than those driving the market in
the underlying securities, and price spreads between these markets
may widen. The participation of speculators in the market enhances
its liquidity. Nonetheless, speculators trading spreads between
futures markets may create temporary price distortions unrelated to
the market in the underlying securities.
Positions in futures contracts and options on futures contracts
may be established or closed out only on an exchange or board of
trade. There is no assurance that a liquid market on an exchange or
board of trade will exist for any particular contract or at any
particular time. The liquidity of markets in futures contracts and
options on futures contracts may be adversely affected by "daily
price fluctuation limits" established by commodity exchanges which
limit the amount of fluctuation in a futures or options price during
a single trading day. Once the daily limit has been reached in a
contract, no trades may be entered into at a price beyond the limit,
which may prevent the liquidation of open futures or options
positions. Prices have in the past exceeded the daily limit on a
number of consecutive trading days. If there is not a liquid market
at a particular time, it may not be possible to close a futures or
options position at such time, and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash
payments of variation margin. However, if futures or options are
used to hedge portfolio securities, an increase in the price of the
securities, if any, may partially or completely offset losses on the
futures contract.
An exchange-traded option may be closed out only on a national
securities or commodities exchange which generally provides a liquid
secondary market for an option of the same series. If a liquid
secondary market for an exchange-traded option does not exist, it
might not be possible to effect a closing transaction with respect to
a particular option with the result that the Fund would have to
exercise the option in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary
market, it will be not be able to sell the underlying security until
the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed
by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or
underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an
exchange or the Options Clearing Corporation or other clearing
organization may not at all times be adequate to handle current
trading volume or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although
outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
Because the specific procedures for trading foreign stock index
futures on futures exchanges are still under development, additional
or different margin requirements as well as settlement procedures may
be applicable to foreign stock index futures at the time the
International Equity Fund purchases foreign stock index futures.
The successful use of transactions in futures and options
depends in part on the ability of a Fund's adviser to forecast
correctly the direction and extent of interest rate movements within
a given time frame. To the extent interest rates move in a direction
opposite to that anticipated, the Fund may realize a loss on the
hedging transaction that is not fully or partially offset by an
increase in the value of portfolio securities. In addition, whether
or not interest rates move during the period that the Fund holds
futures or options positions, the Fund will pay the cost of taking
those positions (i.e., brokerage costs). As a result of these
factors, the Fund's total return for such period may be less than if
it had not engaged in the hedging transaction.
Options trading involves price movement correlation risks
similar to those inherent in futures trading. Additionally, price
movements in options on futures may not correlate with price
movements in the futures underlying the options. Like futures,
options positions may become less liquid because of adverse economic
circumstances. The securities covering written option positions are
expected to offset adverse price movements if those options positions
cannot be closed out in a timely manner, but there is no assurance
that such offset will occur. Also, an option writer may not effect a
closing purchase transaction after it has been notified of the
exercise of an option.
Over-the-Counter Options. An over-the-counter option (an option not
traded on a national securities exchange) may be closed out only with
the other party to the original option transaction. While a Fund
will seek to enter into over-the-counter options only with dealers
who agree to or are expected to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund
will be able to liquidate an over-the-counter option at a favorable
price at any time prior to its expiration. Accordingly, the Fund
might have to exercise an over-the-counter option it holds in order
to realize any profit thereon and thereby would incur transactions
costs on the purchase or sale of the underlying assets. If the Fund
cannot close out a covered call option written by it, it will not be
able to sell the underlying security until the option expires or is
exercised. Furthermore, over-the-counter options are not subject to
the protections afforded purchasers of listed options by the Options
Clearing Corporation or other clearing organization.
The staff of the Securities and Exchange Commission (the "SEC")
has taken the position that over-the-counter options on U.S.
Government Securities and the assets used as cover for written over-
the-counter options on U.S. Government Securities should generally be
treated as illiquid securities for purposes of the investment
restrictions prohibiting the Government Securities Fund from
investing more than 10% of its net assets in illiquid securities.
However, if a dealer recognized by the Federal Reserve Bank of New
York as a "primary dealer" in U.S. Government Securities is the other
party to an option contract written by the Fund, and the Fund has the
absolute right to repurchase the option from the dealer at a formula
price established in a contract with the dealer, the SEC staff has
agreed that the Fund only needs to treat as illiquid that amount of
the "cover" assets equal to the amount at which (i) the formula price
exceeds (ii) any amount by which the market value of the securities
subject to the options exceeds the exercise price of the option (the
amount by which the option is "in-the-money"). Although the
Government Securities Fund's adviser does not believe that over-the-
counter options on U.S. Government Securities are generally illiquid,
the Fund has agreed that pending resolution of this issue it will
conducts its operations in conformity with the views of the SEC staff
on such matters.
Back Bay Advisors has established standards for the
creditworthiness of the primary dealers with which the Government
Securities Fund may enter into over-the-counter option contracts
having the formula-price feature referred to above. Those standards,
as modified from time to time, are implemented and monitored by the
adviser. Such contracts will provide that the Fund has the absolute
right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value, as determined in good
faith through negotiation between the parties, but which in no event
will exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of the formula may vary
between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by the Fund
for writing the option, plus the amount, if any, by which the option
is "in-the-money." The formula will also include a factor to account
for the difference between the price of the securities and the
exercise price of the option if the option is written out-of-the-
money. Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall
not exceed the maximum determined pursuant to the formula), the
formula price will not necessarily reflect the market value of the
option written, and therefore the Fund might pay more to repurchase
the option contract than the Fund would pay to close out a similar
exchange-traded option.
Economic Effects and Limitations. Income earned by the Fund from its
hedging activities will be treated as capital gain and, if not offset
by net recognized capital losses incurred by the Fund, will be
distributed to shareholders in taxable distributions. Although gain
from futures and options transactions may hedge against a decline in
the value of the Fund's portfolio securities, that gain, to the
extent not offset by losses, will be distributed in light of certain
tax considerations and will constitute a distribution of that portion
of the value preserved against decline. If the Tax Exempt Income
Fund is required to use taxable fixed-income securities as margin,
the portion of the Fund's dividends that is taxable to shareholders
will be larger than if that Fund is permitted to use tax exempt bonds
for that purpose.
The Fund will not "over hedge," that is, maintain open short
positions in futures or options contracts if, in the aggregate, the
market value of its open positions exceeds the current market value
of its securities portfolio plus or minus the unrealized gain or loss
on such open positions, adjusted for the historical price volatility
relationship between the portfolio and futures and options contracts.
Also, subject to change without shareholder approval, neither the
Government Securities Fund, the Tax Exempt Income Fund, nor the
International Equity Fund will sell futures contracts if, as a
result, the sum of the amount of its initial margin deposits on its
existing futures positions would exceed 5% of the Fund's total assets
(taken at current value).
Future Developments. The above discussion relates to the Fund's
proposed use of futures contracts, options and options on futures
contracts currently available. The relevant markets and related
regulations are still in the developing stage. In the event of
future regulatory or market developments, the Fund may also use
additional types of futures contracts or options and other investment
techniques for the purposes set forth above.
Foreign Currency Hedging Transactions. To protect against a change
in the foreign currency exchange rate between the date on which the
Fund contracts to purchase or sell a security and the settlement date
for the purchase or sale, or to "lock in" the equivalent of a
dividend or interest payment in another currency, the Fund might
purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate. If conditions warrant, the Fund may also enter
into contracts with banks or broker-dealers to purchase or sell
foreign currencies at a future date ("forward contracts"). The Fund
will maintain cash or high-quality debt obligations in a segregated
account with the custodian in an amount at least equal to (i) the
difference between the current value of the Fund's liquid holdings
that settle in the relevant currency and the Fund's outstanding
obligations under currency forward contracts, or (ii) the current
amount, if any, that would be required to be paid to enter into an
offsetting forward currency contract which would have the effect of
closing out the original forward contract. The Fund's use of
currency hedging transactions may be limited by tax considerations.
The Fund may also purchase or sell foreign currency futures contracts
traded on futures exchanges. Foreign currency futures contract
transactions involve risks similar to those of other futures
transactions. See "Options and Futures" above.
______________________________________________________________________
MANAGEMENT OF THE TRUSTS
______________________________________________________________________
New England Funds Trust I and New England Funds Trust II
Trustees of New England Funds Trust I and New England Funds Trust II
and their principal occupations during the past five years are as
follows:
GRAHAM T. ALLISON, JR.--Trustee; 79 John F. Kennedy Street, Cambridge,
MA 02138; Douglas Dillon Professor and Director for the Center of
Science and International Affairs, John F. Kennedy School
Government; Special Advisor to the United States Secretary of
Defense; formerly, Assistant Secretary of Defense; formerly
Dean, John F. Kennedy School Government.
KENNETH J. COWAN -- Trustee; One Beach Drive, S.E. #2103, St.
Petersburg, Florida 33701; Retired; formerly, Senior Vice
President-Finance and Chief Financial Officer, Blue Cross of
Massachusetts, Inc. and Blue Shield of Massachusetts, Inc.;
Director, Neworld Bank for Savings and Neworld Bancorp.
SANDRA O. MOOSE -- Trustee; 135 E. 57th Street New York, NY 10022;
Senior Vice President and Director, The Boston Consulting Group,
Inc. (management consulting); Director, GTE Corporation and Rohm
and Haas Company (specialty chemicals).
HENRY L. P. SCHMELZER* -- Trustee and President; President, Chief
Executive Officer and Managing Director, New England Funds, L.P.;
President and Chief Executive Officer, New England Funds
Management, L.P. ("NEFM"); Director, New England Securities
Corporation ("New England Securities"); Director, Back Bay
Advisors, L.P. ("Back Bay Advisors").
JAMES H. SCOTT -- Trustee; 2001 Bryan Street, Suite 1850, Dallas,
Texas 75201; Vice President, TU Services (electric utility);
formerly, Treasurer, The Trustees of Amherst College.
JOHN A. SHANE -- Trustee; 300 Unicorn Park Drive, Woburn,
Massachusetts 01801; President, Palmer Service Corporation
(venture capital organization); General Partner, The Palmer
Organization and Palmer Partners L.P.; Director, Abt Associates
(consulting firm), Aviv Corporation (manufacturer of
controllers), Banyan Systems, Inc. (manufacturer of network
software), Cerjac Inc. (manufacturer of telephone testing
equipment), Dowden Publishing Company (publishers of medical
magazines), Summa Four, Inc. (manufacturer of telephone switching
equipment), United Asset Management Corporation (holding company
for institutional money management), Eastern Bank and Arch
Communications Group, Inc. (paging service).
PETER S. VOSS* -- Chairman of the Board, Chief Executive Officer and
Trustee; President and Chief Executive Officer of New England
Investment Companies, L.P. ("NEIC"); Chairman of the Board,
Director, President and Chief Executive Officer of New England
Investment Companies, Inc.; Chairman of the Board and Director,
New England Funds, L.P.; Chairman of the Board and Director, Back
Bay Advisors; Director, New England Mutual Life Insurance Company
("The New England"); formerly Group Head of International
Banking, Trading and Securities at Security Pacific and Chief
Executive Officer of the Security Pacific Investment Group.
* Trustee deemed an "interested person" of the Trusts, as defined in
the Investment Company Act of 1940 (the "1940 Act").
PENDLETON P. WHITE -- Trustee; 6 Breckenridge Lane, Savannah, Georgia
31411; Retired; formerly, President and Chairman of the Executive
Committee, Studwell Associates (executive search consultants);
Trustee, The Faulkner Corporation.
New England Funds Trust I
Officers of New England Funds Trust I and their principal
occupations during the past five years are as follows:
G. KENNETH HEEBNER -- Senior Vice President; Associate, Capital Growth
Management Limited Partnership ("CGM"); formerly, Vice President
and Director, Loomis, Sayles & Company, L.P. ("Loomis Sayles").
ROBERT L. KEMP -- Senior Vice President; Associate, CGM; formerly,
President and Director, Loomis Sayles.
ROBERT J. BLANDING -- Senior Vice President; Chief Executive Officer,
Loomis Sayles.
CHARLES T. WALLIS -- Senior Vice President; President, Chief Executive
Officer and Director, Back Bay Advisors; Director, New England
Funds, L.P.
MERIANNE BECK -- Vice President; Vice President, Senior Partner and
Fixed-Income Portfolio Manager, Loomis Sayles; formerly, Senior
Portfolio Manager and Investment Strategist, TSA Capital
Management.
HAROLD B. BJORNSON -- Vice President; Vice President, Back Bay
Advisors; formerly, Assistant Vice President, New England
Securities.
CATHERINE L. BUNTING -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, trader, Harvard Management Company.
CHRISTINE A. CREELMAN -- Vice President; Vice President, Back Bay
Advisors.
DAVID M. DAVIS -- Vice President; Vice President and Senior Partner,
Loomis Sayles.
CHARLES J. FINLAYSON -- Vice President; Vice President, Director,
General Counsel, Secretary and Clerk, Loomis Sayles.
BARBARA C. FRIEDMAN -- Vice President; Vice President, Loomis Sayles;
formerly partner and portfolio manager, Harvard Management Company.
DANIEL FUSS -- Vice President; Managing Partner, Executive Vice
President and Director, Loomis Sayles.
KIMBERLY FORSYTH -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Vice President and Director of Tax-Exempt
Credit Research Department, Legg Mason, Incorporated (investment
advisory firm); formerly Vice President and Senior Credit Analyst,
Putnam Investment Management, Incorporated (investment management
company); formerly, Director of Municipal Research, Alex. Brown &
Sons Incorporated (brokerage/advisory firm).
CHARLES G. GLUECK -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Investment Officer, The New England.
ERIC N. GUTTERSON -- Vice President; Vice President, Back Bay Advisors.
RICHARD W. HURCKES -- Vice President; Vice President, Loomis Sayles.
CAROL C. McMURTRIE -- Vice President; Director, Managing Partner and
Vice President, Loomis Sayles; formerly, Vice President, Addison
Capital Management.
TRICIA H. MILLS -- Vice President; Vice President, Loomis Sayles.
SCOTT A. MILLIMET -- Vice President; Vice President, Back Bay Advisors;
formerly, Senior Vice President and Manager of Carroll, McEntee &
McGinley, Chicago Board of Trade.
J. STEVEN NEAMTZ -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.; formerly, Vice President
- Private Capital Group, Kidder, Peabody and Company and Vice
President - Asset Finance, Prudential Securities Incorporated.
J. SCOTT NICHOLSON -- Vice President; Senior Vice President, Back Bay
Advisors.
SCOTT S. PAPE -- Vice President; Vice President, Loomis Sayles;
formerly, Equity Portfolio Manager, Illinois State Board of
Investment.
JEFFREY C. PETHERICK -- Vice President; Vice President, Loomis Sayles;
formerly, Analyst, Masco Corporation.
DOUGLAS D. RAMOS -- Vice President; Vice President and Senior Partner,
Loomis Sayles.
EDGAR M. REED - Vice President; Executive Vice President and Chief
Investment Officer, Back Bay Advisors; formerly, Head of the
Fixed Income Management Group, Aetna Capital Management.
BRUCE R. SPECA -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.
NATHAN R. WENTWORTH -- Vice President; Vice President, Back Bay
Advisors; formerly, Investment Officer, The New England.
FRANK NESVET -- Treasurer; Senior Vice President, Chief Financial
Officer and Managing Director, New England Funds, L.P.; Senior
Vice President, Chief Financial Officer and Treasurer, NEFM;
formerly, Executive Vice President, SuperShare Services
Corporation.
ROBERT P. CONNOLLY -- Secretary and Clerk; Senior Vice President,
General Counsel and Managing Director, New England Funds, L.P.;
formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company); formerly,
Managing Director and General Counsel, Equitable Capital
Management Corporation (investment management company).
Previous positions during the past five years with The New
England, Back Bay Advisors, Loomis Sayles or New England Funds, L.P.
are omitted, if not materially different. Each of the Trust's
trustees is also a director or trustee of certain other investment
companies for which New England Funds, L.P. acts as principal
underwriter and Back Bay Advisors acts as investment adviser.
Except as indicated above, the address of each trustee and
officer of New England Funds Trust I affiliated with NEIC, New England
Funds, L.P. or Back Bay Advisors is 399 Boylston Street, Boston,
Massachusetts. The address of each officer associated with CGM is One
International Place, Boston, Massachusetts. The address of each
officer associated with Loomis Sayles is One Financial Place, Boston,
Massachusetts, except for Mr. Davis and Ms. Beck whose address is 155
Lake Avenue, Suite 1030, Pasadena, California and Mr. Shepherd whose
address is 595 Fifth Street West, Sonoma, California, Messrs. Hurckes
and Pape, whose address is Three First National Plaza, Chicago,
Illinois and Mr. Petherick whose address is 1533 North Woodward
Street, #300, Detroit, Michigan.
New England Funds Trust II
Officers of New England Funds Trust II and their principal
occupations during the past five years are as follows:
CHARLES T. WALLIS -- Senior Vice President; President, Chief Executive
Officer and Director, Back Bay Advisors; Director, New England
Securities; formerly, Vice President, The New England.
GERALD H. SCRIVER -- Senior Vice President; President and Chief
Executive Officer of Westpeak Investment Advisors, L.P.
("Westpeak"); formerly, Director of Quantitative Strategies of
INVESCO.
HAROLD B. BJORNSON -- Vice President; Vice President, Back Bay
Advisors; formerly, Assistant Vice President, New England
Securities.
PHILIP J. COOPER -- Vice President; Vice President, Westpeak; formerly,
Portfolio Manager, United Asset Management Services.
CHRISTINE A. CREELMAN -- Vice President; Vice President, Back Bay
Advisors.
KIMBERLY J. FORSYTH -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Vice President and Director of Tax-Exempt
Credit Research Department, Legg Mason, Incorporated (investment
advisory firm); formerly Vice President and Senior Credit Analyst,
Putnam Investment Management, Incorporated (investment management
company); formerly, Director of Municipal Research, Alex. Brown &
Sons Incorporated (brokerage/advisory firm).
CHARLES G. GLUECK -- Vice President; Senior Vice President, Back Bay
Advisors; formerly, Senior Investment Officer, The New England.
ERIC N. GUTTERSON -- Vice President; Vice President, Back Bay Advisors.
SCOTT A. MILLIMET -- Vice President; Vice President, Back Bay Advisors;
formerly, Senior Vice President and Manager of Carroll, McEntee &
McGinley, Chicago Board of Trade.
J. STEVEN NEAMTZ -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.; formerly, Vice President
- Private Capital Group, Kidder, Peabody and Company and Vice
President - Asset Finance, Prudential Securities Incorporated.
J. SCOTT NICHOLSON - Vice President; Senior Vice President, Back Bay
Advisors.
EDGAR M. REED -- Vice President; Executive Vice President and Chief
Investment Officer, Back Bay Advisors; formerly, Head of the
Fixed Income Management Group, Aetna Capital Management.
BRUCE R. SPECA -- Vice President; Executive Vice President and
Managing Director, New England Funds, L.P.
JAMES S. WELCH -- Vice President; Vice President, Back Bay Advisors;
formerly, Vice President, Putnam Management Company.
FRANK NESVET -- Treasurer; Senior Vice President, Chief Financial
Officer and Managing Director, New England Funds, L.P.; Senior
Vice President, Chief Financial Officer and Treasurer, New
England Funds Management, L.P.; formerly, Executive Vice
President, SuperShare Services Corporation.
ROBERT P. CONNOLLY -- Secretary and Clerk; Senior Vice President,
General Counsel and Managing Director, New England Funds, L.P.;
formerly, Managing Director and General Counsel, Kroll
Associates, Inc. (business consulting company); formerly Managing
Director and General Counsel, Equitable Capital Management
Corporation (investment management company).
Except as indicated above, the address of each officer affiliated
with Back Bay Advisors or New England Funds, L.P. is 399 Boylston
Street, Boston, Massachusetts 02116. The address of each officer
associated with Westpeak is 1050 Walnut Street, Boulder Colorado
80302.
Trustees Fees
New England Funds Trust I and New England Funds Trust II each pay no
compensation to their officers or to their trustees who are interested
persons thereof.
Until May 1, 1995, each Trustee who is not an interested person
of the Trusts received, in the aggregate for serving on the boards of
the Trusts and nineteen other mutual fund portfolios, a retainer fee
at the annual rate of $40,000 and meeting attendance fees of $2,500
for each meeting of the boards he or she attended and $1,500 for each
meeting he or she attended of a committee of the board of which he or
she was a member. Each committee chairman received an additional
retainer fee at the annual rate of $2,500. These fees were allocated
among the Funds and nineteen other mutual fund portfolios based on a
formula that took into account, among other factors, the net assets of
each Fund
Effective May 1, 1995, each Trustee who is not an interested
person will receive the foregoing rates of compensation for serving as
Trustee of the Trusts and three other mutual fund portfolios. The
compensation will be allocated among the Funds and the three
portfolios based on a formula similar to that in effect before May 1,
1995.
During the fiscal year ended December 31, 1994, the persons who
were then Trustees of the Trusts received the amounts set forth on the
following page for serving as a Trustee of the Trusts and for also
serving on the governing boards of nineteen other mutual fund
portfolios (the "Other Funds"). As of December 31, 1994, there were a
total of thirty-six Funds in the Trusts and the Other Funds combined.
Aggregate Aggregate Total
Compensation Compensatio Compensation
from Trust I n from from the Trusts
Name of Trustee in 1994 Trust II in and the Other
1994 Funds in 1994
Kenneth J. Cowan $18,244 $18,244 $59,375
Joseph M. Hinchey 17,507 17,507 56,875
Richard S. 17,507 17,507 56,875
Humphrey, Jr.
Robert B. 17,951 17,951 89,279(a)
Kittredge
Laurens MacLure 18,688 18,688 91,779(a)
Sandra O. Moose 16,326 16,326 52,875
James H. Scott 17,507 17,507 56,875
John A. Shane 17,211 17,211 55,875
Joseph F. Turley 17,951 17,951 58,375
Pendleton P. White 17,951 17,951 58,375
(a) Also includes compensation paid by the 5 CGM Funds, a group of
mutual funds for which Capital Growth Management Limited Partnership,
the investment adviser of New England Funds Trust I's Growth Fund,
serves as investment adviser.
The Trusts provide no pension or retirement benefits to Trustees,
but have adopted a deferred payment arrangement under which each
Trustee may elect not to receive fees from the Trust on a current
basis but to receive in a subsequent period an amount equal to the
value that such fees would have if they had been invested in each Fund
on the normal payment date for such fees. As a result of this method
of calculating the deferred payments, each Fund, upon making the
deferred payments, will be in the same financial position as if the
fees had been paid on the normal payment dates.
At May 1, 1995, the officers and trustees of each Trust as a
group owned less than 1% of the outstanding shares of each Trust.
Advisory Agreements
Except in the case of the Adjustable Rate, International Equity,
California and New York Funds, each advisory agreement provides that
the adviser will furnish or pay the expenses of the applicable Fund
for office space, facilities and equipment, services of executive and
other personnel of the trust and certain administrative services. In
the case of the Adjustable Rate, International Equity, California and
New York Funds, pursuant to Administrative Services Agreements, the
Distributor furnishes or pays the expenses for such items between the
Distributor and each such Fund.
Each Fund pays all expenses not borne by its adviser, subadviser
(or, in the case of the Adjustable Rate, International Equity,
California and New York Funds, by 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 reports to
shareholders and the compensation of Trustees who are not directors,
officers or employees of the Fund's adviser, subadviser or their
affiliates, other than affiliated registered investment companies.
Each Fund also pays the Distributor for certain legal and accounting
services provided to the Fund by the Distributor.
Under each advisory agreement, if the total ordinary business
expenses of a Fund or the applicable Trust as a whole for any fiscal
year exceed the lowest applicable limitation (based on percentage of
average net assets or income) prescribed by any state in which the
shares of the Fund or Trust are qualified for sale, the Fund's
adviser shall pay such excess. At present, the most restrictive
state annual expense limitation is 2 1/2% of the average annual net
assets up to $30,000,000, 2% of the next $70,000,000 and 1 1/2% of
such assets in excess of $100,000,000. The adviser will not be
required to reduce its fee or pay such expenses to an extent or under
circumstances which might result in the Fund's inability to qualify
as a regulated investment company under the Code. The term
"expenses" is defined in the relevant advisory agreement and excludes
brokerage commissions, taxes, interest, distribution-related expenses
and extraordinary expenses. This means that the distribution fees
payable to New England Funds, L.P. under each Fund's Distribution
Agreement and the Distribution Plan would be excluded from
"expenses."
Each advisory agreement (and, in the case of the Star Advisers
Fund, each sub-advisory agreement between NEIC and the subadviser
that manages a segment of the Fund's portfolio and, in the case of
the Strategic Income and the Growth Opportunities Funds, the
respective subadvisory agreements between NEFM and the respective
subadvisers that manage the Funds) provides that it will continue in
effect for two years from its date of execution and thereafter from
year to year if its continuance is approved at least annually (i) by
the board of trustees of the relevant Trust by vote of a majority of
the outstanding voting securities of the relevant Fund and (ii) by
vote of a majority of the trustees who are not "interested persons"
of the relevant Trust, as that term is defined in the 1940 Act, cast
in person at a meeting called for the purpose of voting on such
approval. Any amendment to an advisory agreement must be approved by
vote of a majority of the outstanding voting securities of the
relevant Fund and by vote of a majority of the trustees of the
relevant Trust who are not such interested persons, cast in person at
a meeting called for the purpose of voting on such approval. Each
agreement may be terminated without penalty by vote of the relevant
board of trustees or by vote of a majority of the outstanding voting
securities of the relevant Fund, upon 60 days' written notice, or by
the Fund's adviser upon 90 days' written notice, and each terminates
automatically in the event of its assignment. Each subadvisory
agreement also may be terminated by the subadviser upon 90 days'
notice and automatically terminated upon termination of the related
advisory agreement. In addition, each advisory agreement will
automatically terminate if the Trust or a Fund shall at any time be
required by the Distributor to eliminate all reference to the words
"New England" or the letters "TNE" in the name of the relevant Trust
or the relevant Fund, unless the continuance of the agreement after
such change of name is approved by a majority of the outstanding
voting securities of the relevant Fund and by a majority of the
Trustees who are not interested persons of the relevant Trust or the
Fund's adviser.
Each advisory agreement (and, in the case of the Star Advisers
Fund, the Strategic Income Fund and the Growth Opportunities Fund,
each sub-advisory agreement) provides that the adviser and subadviser
shall not be subject to any liability in connection with the
performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties.
Back Bay Advisors, formed in 1986, is a subsidiary of NEIC,
whose sole general partner, New England Investment Companies, Inc.,
is a subsidiary of The New England. NEIC and its seven subsidiary or
affiliated asset management firms, collectively, have more than $60
billion of assets under management or administration. Back Bay
Advisors provides investment management services to institutional
clients, including other registered investment companies and accounts
of The New England and its affiliates. Back Bay Advisors specializes
in fixed-income management and currently manages over $6 billion in
total assets.
Loomis Sayles was organized in 1926 and is one of the oldest and
largest investment counsel firms in the country. An important
feature of the Loomis Sayles investment approach is its emphasis on
investment research. Recommendations and reports of the Loomis
Sayles research department are circulated throughout the Loomis
Sayles organization and are available to the individuals in the
Loomis Sayles organization who have been assigned the responsibility
for making investment decisions for the Funds' portfolios. Loomis
Sayles provides investment advice to numerous other institutional and
individual clients. These clients include some accounts of The New
England and its affiliates ("New England Accounts"). Loomis Sayles
is a subsidiary of NEIC.
CGM is a limited partnership whose general partner is a
corporation owned in equal shares by Robert L. Kemp and G. Kenneth
Heebner. Prior to March 1, 1990, the Growth Fund was managed by
Loomis Sayles' Capital Growth Management Division. On March 1, 1990,
Loomis Sayles reorganized its Capital Growth Management Division into
CGM. In addition to advising the Growth Fund, CGM acts as investment
adviser of CGM Capital Development Fund, CGM trust, New England
Variable Annuity Fund I and the Capital Growth Series of New England
Zenith fund. CGM also provides investment advice to other
institutional and individual clients.
Draycott, formed in 1991, is a subsidiary of NEIC that provides
investment management services to institutional clients, including
separate accounts of The New England.
NEFM, a newly-organized investment adviser, is an independently
operated subsidiary of NEIC.
Berger serves as investment adviser to the mutual funds in the
Berger fund group and to pension and profit-sharing plans and other
institutional and private investors. Kansas City Southern
Industries, Inc. a publicly-traded company, owns approximately 80% of
the outstanding shares of Berger.
Founders was organized in 1938. It serves as investment adviser
to the Founders mutual funds as well as to private accounts. Bjorn
K. Borgen owns all of the stock of Founders.
Organized in 1991, Westpeak provides investment management
services to institutional clients, including accounts of The New
England and its affiliates. Westpeak is a subsidiary of NEIC.
Janus Capital serves as investment adviser to the Janus mutual
funds and for individual, charitable, corporate and retirement
accounts. Kansas City Southern Industries, Inc., a publicly-traded
company, owns 83% of Janus Capital. Thomas H. Bailey, chairman and
president of Janus Capital, owns approximately 12%.
Certain officers and employees of Back Bay Advisors who are also
officers of the Trust have responsibility for portfolio management of
other advisory accounts and clients (including other registered
investment companies and accounts of affiliates of Back Bay Advisors)
that may invest in securities in which the Funds may invest. Where
Back Bay Advisors determines that an investment purchase or sale
opportunity is appropriate and desirable for more than one advisory
account, purchase and sale orders may be executed separately or may
be combined and, to the extent practicable, allocated by Back Bay
Advisors to the participating accounts. Where advisory accounts have
competing interests in a limited investment opportunity, Back Bay
Advisors will allocate an investment purchase opportunity based on
the relative time the competing accounts have had funds available for
investment, and the relative amounts of available funds, and will
allocate an investment sale opportunity based on relative cash
requirements and the time the competing accounts have had investments
available for sale. It is Back Bay Advisors' policy to allocate, to
the extent practicable, investment opportunities to each client over
a period of time on a fair and equitable basis relative to its other
clients.
It is believed that the ability of the Funds advised by Back Bay
Advisors to participate in larger volume transactions in this manner
will in some cases produce better executions for the Funds. However,
in some cases, this procedure could have a detrimental effect on the
price and amount of a security available to a Fund or the price at
which a security may be sold. The trustees are of the view that the
benefits of retaining Back Bay Advisors as investment manager
outweigh the disadvantages, if any, that might result from
participating in such transactions.
Certain officers of Loomis Sayles who are also officers of the
Trust have responsibility for the management of other client
portfolios. The Pasadena office of Loomis Sayles buys and sells
portfolio securities for the Value and Balanced Funds, the Chicago
office buys and sells portfolio securities for the Capital Growth
Fund, the Boston and Detroit offices buy and sell portfolio
securities for the segment of the Star Advisers Fund's portfolio that
is advised by Loomis Sayles and the Boston office buys and sells
portfolio securities for the Strategic Income Fund. These offices
buy and sell securities independently of one another. The other
investment companies and clients served by Loomis Sayles sometimes
invest in securities in which the Capital Growth, Value, Balanced and
Star Advisers Funds also invest. If one of these Funds and such
other clients advised by the same office of Loomis Sayles desire to
buy or sell the same portfolio securities at about the same time,
purchases and sales will be allocated, to the extent practicable, on
a pro rata basis in proportion to the amounts desired to be purchased
or sold for each. It is recognized that in some cases the practices
described in this paragraph could have a detrimental effect on the
price or amount of the securities which each of the Funds purchases
or sells. In other cases, however, it is believed that these
practices may benefit the relevant Fund. It is the opinion of the
trustees that the desirability of retaining Loomis Sayles as adviser
or subadviser for the Strategic Income, Capital Growth, Value,
Balanced and Star Advisers Funds outweighs the disadvantages, if any,
which might result from these practices.
Certain officers and employees of Draycott have responsibility
for portfolio management for other clients (including affiliates of
Draycott), some of which may invest in securities in which the
International Equity Fund also may invest. When the Fund and other
clients desire to purchase or sell the same security at or about the
same time, purchase and sale orders are ordinarily placed and
confirmed separately but may be combined to the extent practicable
and allocated as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold for each.
It is believed that the ability of those clients to participate in
larger volume transactions will in some cases produce better
executions for the International Equity Fund. However, in some cases
this procedure could have a detrimental effect on the price and
amount of a security available to the International Equity Fund or
the price at which a security may be sold. It is the opinion of the
trustees that the desirability of retaining Draycott as investment
adviser to the Fund outweighs the disadvantages, if any, which might
result from such procedure.
In addition to advising a segment of the Star Advisers Fund's
portfolio, Berger serves as investment adviser to other mutual funds,
pension and profit-sharing plans, and other institutional and private
investors. At times, Berger may effect purchases and sales of the
same investment securities for the Star Advisers Fund, and for one or
more other investment accounts. In such cases, it will be the
practice of Berger to allocate the purchase and sale transactions
among the Star Advisers Fund and the accounts in such manner as it
deems equitable. In making such allocation, the main factors to be
considered are the respective investment objectives of the Star
Advisers Fund and the accounts, the relative size of portfolio
holdings of the same or comparable securities, the current
availability of cash for investment by the Star Advisers Fund and
each account, the size of investment commitments generally held by
the Star Advisers Fund and each account, and the opinions of the
persons at Berger responsible for selecting investments for the Star
Advisers Fund and the accounts. It is the opinion of the trustees
that the desirability of retaining Berger as an investment adviser to
the Star Advisers Fund outweighs the disadvantages, if any, which
might result from these procedures.
The segment of the Star Advisers Fund advised by Founders and
one or more of the other mutual funds or clients to which Founders
serves as investment adviser may own the same securities from time to
time. If purchases or sales of securities for the segment of the
Star Advisers Fund advised by Founders and other funds or clients
advised by Founders arise for consideration at or about the same
time, transactions in such securities will be made, insofar as
feasible, for the Fund and other clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one
client during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be
an adverse effect on the price and amount of the security being
purchased or sold for the Star Advisers Fund. However, the ability
of the Star Advisers Fund to participate in volume transactions may
possibly produce better executions for the Star Advisers Fund in some
cases. It is the opinion of the trustees that the desirability of
retaining Founders as an adviser to the Star Advisers Fund outweighs
the disadvantages, if any, which might result from these procedures.
Janus Capital performs investment advisory services for other
mutual funds, individual, charitable, corporate and retirement
accounts (the "private accounts"), as well as for a segment of the
portfolio of the Star Advisers Fund. Although the overall investment
objective of the Star Advisers Fund may differ from the objectives of
the private accounts and other funds served by Janus Capital, there
may be securities that are suitable for the portfolio of the Star
Advisers Fund as well as for one or more of the other funds or the
private accounts. Therefore, purchases and sales of the same
investment securities may be recommended for the Star Advisers Fund
and for one or more of the other funds or private accounts. To the
extent that the Star Advisers Fund and one or more of the other funds
or private accounts seek to acquire or sell the same security at the
same time, either the price obtained by the Star Advisers Fund or the
amount of securities that may be purchased or sold by the Star
Advisers Fund at one time may be adversely affected. In such cases,
the purchase and sale transactions are allocated among the Star
Advisers Fund, the other funds and the private accounts in a manner
believed by the management of Janus Capital to be equitable to each.
It is the opinion of the trustees that the desirability of retaining
Janus Capital as an adviser to the Star Advisers Fund outweighs the
disadvantages, if any, which might result from these procedures.
Certain officers of Westpeak have responsibility for portfolio
management for other clients (including affiliates of Westpeak), some
of which may invest in securities in which the Growth Opportunities
Fund also may invest. When the Fund and other clients desire to
purchase or sell the same security at or about the same time, the
purchase and sale orders are ordinarily placed and confirmed
separately but may be combined to the extent practicable and allocated
as nearly as practicable on a pro rata basis in proportion to the
amounts desired to be purchased or sold for each. It is believed that
the ability of those clients to participate in larger volume
transactions will in some cases produce better executions for the
Fund. However, in some cases this procedure could have a detrimental
effect on the price and amount of a security available to the Fund or
the price at which a security may be sold. It is the opinion of the
trustees of the Fund that the desirability of retaining Westpeak as
adviser for the Growth Opportunities Fund outweighs the disadvantages,
if any, which might result from these practices.
Distribution Agreements and Rule 12b-1 Plans. Under a separate
agreement with each Fund, New England Funds, L.P. serves as the
general distributor of each class of shares of the Funds. Under
these agreements, New England Funds, L.P. is not obligated to sell a
specific number of shares. New England Funds, L.P. bears the cost of
making information about the Funds available through advertising and
other means and the cost of printing and mailing prospectuses to
persons other than shareholders. Each Fund pays the cost of
registering and qualifying its shares under state and federal
securities laws and the distribution of prospectuses to existing
shareholders.
New England Funds, L.P. is compensated under each agreement
through receipt of the sales charges on Class A shares described
below under "Net Asset Value and Public Offering Price" and is paid
by the Funds the service and distribution fees described in the
prospectus.
As described in the prospectuses, each Fund has adopted Rule 12b-
1 plans (the "Plans") for its Class A, Class B and Class C shares
which, among other things, permit it to pay the Fund's distributor
(currently New England Funds, L.P.) monthly fees out of its net
assets. Pursuant to Rule 12b-1 under the 1940 Act, each Plan was
approved by the shareholders of each Fund, and (together with the
related Distribution Agreement) by the board of trustees, including a
majority of the trustees who are not interested persons of the
relevant Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or the
Distribution Agreement (the "Independent Trustees").
Each Plan may be terminated by vote of a majority of the
relevant Independent Trustees, or by vote of a majority of the
outstanding voting securities of the relevant class of shares of the
relevant Fund. Each Plan may be amended by vote of the relevant
trustees, including a majority of the relevant Independent Trustees,
cast in person at a meeting called for that purpose. Any change in
any Plan that would materially increase the fees payable thereunder
by the relevant class of shares of the relevant Fund requires
approval of the holders of such shares. The Trusts' trustees review
quarterly a written reports of such costs and the purposes for which
such costs have been incurred. For so long as a Plan is in effect,
selection and nomination of those trustees who are not interested
persons of the relevant Trust shall be committed to the discretion of
such disinterested persons.
The Distributor has entered into selling agreements with
investment dealers, including New England Securities, an affiliate of
the Distributor, for the sale of the Funds' shares. New England
Securities is registered as a broker-dealer under the Securities
Exchange Act of 1934. 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. Class Y shares of the Funds
may be offered by registered representatives of New England
Securities who are also employees of New England Investment
Associates, Inc. ("NEIA"), an indirect, wholly-owned subsidiary of
NEIC. NEIA may receive compensation from each Fund's adviser with
respect to sales of Class Y shares.
The Distribution Agreement for any Fund may be terminated at any
time on 60 days' written notice without payment of any penalty by New
England Funds, L.P. or by vote of a majority of the outstanding
voting securities of the relevant Fund or by vote of a majority of
the relevant Independent Trustees.
The Distribution Agreements and the Plans will continue in
effect for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of
the relevant Independent Trustees and (ii) by the vote of a majority
of the entire board of trustees cast in person at a meeting called
for that purpose or by a vote of a majority of the outstanding
securities of a Fund (or the relevant class, in the case of the
Plans).
With the exception of New England Funds, L.P., New England
Securities and their direct and indirect corporate parents (NEIC and
The New England), no interested person of the Trusts nor any trustee
of the Trusts had any direct or indirect financial interest in the
operation of the Plans or any related agreement.
Benefits to the Trusts and their shareholders resulting from the
Plans are believed to include (1) enhanced shareholder service, (2)
asset retention, (3) enhanced bargaining position with third party
service providers and economies of scale arising from having higher
asset levels and (4) portfolio management opportunities arising from
having an enhanced positive cash flow.
New England Funds, L.P. controls the words "New England" in the
name of New England Funds Trust I and New England Funds Trust II and
the Funds and if it should cease to be the distributor, New England
Funds Trust I, New England Funds Trust II or the affected Fund may be
required to change their names and delete these words or letters.
New England Funds, L.P. also acts as general distributor for New
England Cash Management Trust and New England Tax Exempt Money Market
Trust.
During the years ended December 31, 1992 and 1993, New England
Funds, L.P. received commissions on the sale of the Class A shares of
New England Funds Trust I aggregating $19,853,746 and $12,478,105 and
respectively, of which $1,985,975 and $1,428,524 was retained by New
England Funds, L.P. During the year ended December 31, 1994, New
England Funds, L.P. received commissions on the sale of shares of New
England Funds Trusts I aggregating $9,569,312, of which $8,290,120
was allowed to other securities dealers and the balanced retained by
New England Funds, L.P. See "Other Arrangements" for information
about amounts received by New England Funds, L.P. from New England
Funds Trust I's investment advisers or the Funds directly for
providing certain administrative services relating to New England
Funds Trust I.
During the years ended December 31, 1992, 1993 and 1994, New
England Funds, L.P. received commissions on the sale of the Class A
shares of New England Funds Trust II aggregating $7,195,240,
$5,970,295 and $2,071,744, respectively, of which $6,475,716,
$573,825 and $1,780,651, respectively, were reallowed to other
securities dealers and the balance retained by New England Funds,
L.P. See "Other Arrangements" for information about amounts received
by New England Funds, L.P. from Back Bay Advisors or the Funds
directly for providing certain administrative services relating to
New England Funds Trust II.
Custodial Arrangements. State Street Bank and Trust Company
("State Street Bank"), Boston, Massachusetts 02102, is the Trusts'
custodian. As such, State Street Bank holds in safekeeping
certificated securities and cash belonging to each Fund and, in such
capacity, is the registered owner of securities in book-entry form
belonging to each Fund. Upon instruction, State Street Bank receives
and delivers cash and securities of each Fund in connection with Fund
transactions and collects all dividends and other distributions made
with respect to Fund portfolio securities. State Street Bank also
maintains certain accounts and records of the Trusts and calculates
the total net asset value, total net income and net asset value per
share of each Fund on a daily basis.
Independent Accountants. New England Funds Trust I's
independent accountants are Price Waterhouse LLP, 160 Federal Street,
Boston, Massachusetts 02110. New England Funds Trust II's
independent accountants are Coopers & Lybrand LLP, 1 Post Office
Square, Boston, MA 02109. The independent accountants of each Trust
conduct an annual audit of that Trust's financial statements, assist
in the preparation of federal and state income tax returns and
consult with the Trusts as to matters of accounting and federal and
state income taxation. The information concerning financial
highlights in the prospectuses, and financial statements contained in
the Trusts' annual reports for the year ended December 31, 1994 and
incorporated by reference into this statement, have been so included
in reliance on the reports of each Trusts' independent accountants,
given on the authority of such firms as experts in auditing and
accounting.
Other Arrangements
Office space, facilities, equipment and certain other
administrative services for New England Funds Trust I (except the
International Equity, Capital Growth and Star Advisers Funds) are
furnished by New England Securities, an affiliate of New England
Funds, L.P., under service agreements with CGM, Loomis Sayles or Back
Bay Advisors. For the year ended December 31, 1994, New England
Securities received $2,261,375 from the advisers under these
agreements. In the case of the Capital Growth Fund, New England
Funds, L.P. provides similar services under a service agreement with
Loomis Sayles. For the year ended December 31, 1994, New England
Funds, L.P. received $278,333 from Loomis Sayles under this
agreement. In the case of Star Advisers Fund, New England Funds,
L.P. provides similar services under a service agreement with NEIC.
For the year ended December 31, 1994, New England Funds, L.P.
received $269,302 from NEIC under this agreement. In the case of the
International Equity Fund, New England Funds, L.P. provides similar
services under an Administrative Services Agreement with the Fund
under which the International Equity Fund pays a fee at the annual
rate of 0.10% of the average daily net assets attributable to the
Fund's Class A, Class B and Class C shares and 0.05% of the Fund's
Class Y shares. For the fiscal year ended December 31, 1994, New
England Funds, L.P. received $167,715 from the International Equity
Fund for these services. Class C shares did not commence operations
until January 3, 1995.
During the year ended December 31, 1994, New England Funds, L.P.
provided similar services for the Growth Opportunities, Limited Term
U.S. Government, Massachusetts Tax Free Income and High Income Funds
under an agreement with Back Bay Advisors. For the year ended
December 31, 1994, New England Funds, L.P. received $676,787 from
Back Bay Advisors under this agreement. In the case of the
Adjustable Rate Fund, New England Funds, L.P. provides similar
services under an Administrative Services Agreement with the Fund,
under which the Fund pays a fee at the annual rate of 0.15% of the
first $200 million of the Fund's average daily nets assets, 0.135% of
the next $300 million of such assets and 0.12% of such assets in
excess of $500 million. For the year ended December 31, 1994, New
England Funds, L.P. received $382,335 from the Adjustable Rate Fund
for these services. In the case of the California and New York
Funds, New England Funds, L.P. provides similar services under
Administrative Agreements with the Funds under which the Funds pay a
fee at the rate of 0.125% of each Fund's average daily net assets.
For the year ended December 31, 1994, New England Funds, L.P. waived
its fees of $49,097 and $25,557 for these services for the California
and New York Funds, respectively.
Pursuant to a contract between the Funds and New England Funds,
L.P., New England Funds, L.P. acts as shareholder servicing and
transfer agent for the Funds and is responsible for services in
connection with the establishment, maintenance and recording of
shareholder accounts, including all related tax and other reporting
requirements and the implementation of investment and redemption
arrangements offered in connection with the sale of the Funds'
shares. The Funds pay per account fees to New England Funds, L.P.
for these services in the amount of $17.25 for the Balanced Fund,
Growth Fund, Capital Growth Fund, Value Fund, International Equity
Fund, Star Advisers Fund, Growth Opportunities Fund and Strategic
Income Fund; and $15.45 for the High Income Fund, Massachusetts Tax
Free Income Fund, Limited Term U.S. Government Fund, Adjustable Rate
Fund, Intermediate Term Tax Free Fund of California, Intermediate
Term Tax Free Fund of New York, Bond Income Fund, Tax Exempt Income
Fund and Government Securities Fund. New England Funds, L.P. has
subcontracted with State Street Bank for it to provide, through its
subsidiary, Boston Financial Data Services, Inc. ("BFDS") transaction
processing, mail and other services. For these services, New England
Funds, L.P. pays BFDS a per account fee of $8.40 for the Intermediate
Term Tax Free Fund of California, Intermediate Term Tax Free Fund of
New York, Bond Income Fund, Tax Exempt Income Fund, Adjustable Rate
Fund, Government Securities Fund and Strategic Income Fund; $7.40 for
Massachusetts Tax Free Income Fund, High Income Fund and Limited Term
U.S. Government Fund; $6.40 for International Equity Fund, Capital
Growth Fund, Balanced Fund, Value Fund, Growth Fund and Star Advisers
Fund; and $5.40 for the Growth Opportunities Fund.
In addition, during the fiscal year ended 1994, New England
Funds, L.P. received legal and accounting services fees paid by the
Growth Fund, Balanced Fund, Value Fund, Bond Income Fund, Tax Exempt
Income Fund, Government Securities Fund, International Equity Fund,
Capital Growth Fund and Star Advisers Funds in the amounts of
$39,561, $42,407, $40,824, $43,175, $40,497, $42,255, $28,037,
$38,624 and $59,452, respectively.
_____________________________________________________________________
PORTFOLIO TRANSACTIONS AND BROKERAGE
_____________________________________________________________________
All Funds (except segments of the Star Advisers Fund advised by
Berger and Janus Capital). In placing orders for the purchase and
sale of portfolio securities for each Fund, Back Bay Advisors, CGM,
Draycott, Founders, Westpeak and Loomis Sayles always seek the best
price and execution. Some of each Fund's portfolio transactions are
placed with brokers and dealers who provide Back Bay Advisors, CGM,
Draycott, Founders, Westpeak or Loomis Sayles with supplementary
investment and statistical information or furnish market quotations
to that Fund, the other Funds or other investment companies advised
by Back Bay Advisors, CGM, Draycott, Founders, Westpeak or Loomis
Sayles. The business would not be so placed if the Funds would not
thereby obtain the best price and execution. Although it is not
possible to assign an exact dollar value to these services, they may,
to the extent used, tend to reduce the expenses of Back Bay Advisors,
CGM, Draycott, Founders, Westpeak or Loomis Sayles. The services may
also be used by Back Bay Advisors, CGM, Draycott, Founders, Westpeak
or Loomis Sayles in connection with their other advisory accounts and
in some cases may not be used with respect to the Funds.
In placing orders for the purchase and sale of equity
securities, each Fund's adviser selects only brokers which it
believes are financially responsible, will provide efficient and
effective services in executing, clearing and settling an order and
will charge commission rates that, when combined with the quality of
the foregoing services, will produce best price and execution for the
transaction. This does not necessarily mean that the lowest
available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing
rates. Each Fund's adviser will use its best efforts to obtain
information as to the general level of commission rates being charged
by the brokerage community from time to time and will evaluate the
overall reasonableness of brokerage commissions paid on transactions
by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount
of the capital commitment by the broker in connection with the order,
are taken into account. No Fund will pay a broker a commission at a
higher rate than otherwise available for the same transaction in
recognition of the value of research services provided by the broker
or in recognition of the value of any other services provided by the
broker which do not contribute to the best price and execution of the
transaction.
Star Advisers Fund (segment advised by Berger). Berger places
portfolio transactions for its segment of the Star Advisers Fund only
with brokers and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at reasonable
commission rates. However, Berger may place such transactions with a
broker with whom it has negotiated a commission that is in excess of
the commission then being charged by another broker where such
commission is the result of Berger having reasonably taken into
account the quality and reliability of the brokerage services,
including, without limitation, the availability and value of research
services or execution services. Berger places portfolio brokerage
business of its segment of the Star Advisers Fund with brokers who
provide useful research services to Berger. Such research services
typically consist of studies made by investment analysts or
economists relating either to the past record of and future outlook
for companies and the industries in which they operate, or to
national and worldwide economic conditions, monetary conditions and
trends in investors' sentiment, and the relationship of these factors
to the securities market. In addition, such analysts may be
available for regular consultation so that Berger may be apprised of
current developments in the above-mentioned factors. The research
services received from brokers are often helpful to Berger in
performing its investment advisory responsibilities to its segment of
the Star Advisers Fund, but they are not essential, and the
availability of such services from brokers does not reduce the
responsibility of Berger advisory personnel to analyze and evaluate
the securities in which its segment of the Star Advisers Fund
invests. The research services obtained as a result of the Fund's
brokerage business also will be useful to Berger in making investment
decisions for its other advisory accounts, and, conversely,
information obtained by reason of placement of brokerage business of
such other accounts may be used by Berger in rendering investment
advice to its segment of the Star Advisers Fund. Although such
research services may be deemed to be of value to Berger, they are
not expected to decrease the expenses that Berger would otherwise
incur in performing investment advisory services for its segment of
the Star Advisers Fund nor will the advisory fees that are received
by Berger from NEIC for providing services to the Fund be reduced as
result of the availability of such research services from brokers.
Star Advisers Fund (segment advised by Janus Capital).
Decisions as to the assignment of portfolio business for the segment
of the Star Advisers Fund's portfolio advised by Janus Capital and
negotiation of its commission rates are made by Janus Capital, whose
policy is to obtain the "best execution" (prompt and reliable
execution at the most favorable securities price) of all portfolio
transactions. In placing portfolio transactions for its segment of
the Star Advisers Fund's portfolio, Janus Capital may agree to pay
brokerage commissions for effecting a securities transaction, in an
amount higher than another broker or dealer would have charged for
effecting that transaction as authorized, under certain
circumstances, by the Securities Exchange Act of 1934.
In selecting brokers and dealers and in negotiating commissions,
Janus Capital considers a number of factors, including but not
limited to: Janus Capital's knowledge of currently available
negotiated commission rates or prices of securities currently
available and other current transaction costs; the nature of the
securities being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased
or sold; the desired timing of the trade; the activity existing and
expected in the market for the particular security; confidentiality;
the quality of the execution, clearance and settlement services;
financial stability of the broker or dealer; the existence of actual
or apparent operational problems of any broker or dealer; and
research products or services provided. In recognition of the value
of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated a
commission that is in excess of the commission another broker or
dealer would have charged for effecting that transaction if Janus
Capital determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of Janus
Capital. Research may include furnishing advice, either directly or
through publications or writing, as to the value of securities, the
advisability of purchasing or selling specific securities and the
availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods,
legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research
analysts, corporate management personnel, industry experts,
economists and government officials; comparative performance
evaluation and technical measurement services and quotation services,
and products and other services (such as third party publications,
reports and analyses, and computer and electronic access, equipment,
software, information and accessories that deliver, process or
otherwise utilize information, including the research described
above) that assist Janus Capital in carrying out its
responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts.
Janus Capital may use research products and services in
servicing other accounts in addition to the Star Advisers Fund. If
Janus Capital determines that any research product or service has a
mixed use, such that it also serves functions that do not assist in
the investment decision-making process, Janus Capital may allocate
the costs of such service or product accordingly. Only that portion
of the product or service that Janus Capital determines will assist
it in the investment decision-making process may be paid for in
brokerage commission dollars. Such allocation may create a conflict
of interest for Janus Capital.
Janus Capital may also consider sales of shares of mutual funds
advised by Janus Capital by a broker-dealer or the recommendation of
a broker-dealer to its customers that they purchase shares of such
funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Star Advisers Fund. In placing
portfolio business with such broker-dealers, Janus Capital will seek
the best execution of each transaction.
Subject to procedures adopted by the Board of Trustees of New
England Funds Trust I, the Star Advisers Fund's brokerage
transactions may be executed by brokers that are affiliated with the
Distributor or the Advisers. Any such transactions will comply with
Rule 17e-1 under the Investment Company Act of 1940.
General
Portfolio turnover is not a limiting factor with respect to
investment decisions. The Funds anticipate that their portfolio
turnover rates will vary significantly from time to time depending on
the volatility of economic and market conditions.
Subject to procedures adopted by the Board of Trustees of New
England Funds Trust I, the Star Advisers Funds' brokerage
transactions may be executed by brokers that are affiliated with the
Distributor or the Advisers. Any such transactions will comply with
Rule 17e-1 under the Investment Company Act of 1940.
The Bond Income, Government Securities and Tax Exempt Income
Funds and all the Funds of New England Funds Trust II may pay, but
during their three most recent fiscal years have not paid, brokerage
commissions to New England Securities for acting as the respective
Fund's agent on purchases and sales of securities. SEC rules require
that the commissions paid to New England Securities by a Fund for
portfolio transactions not exceed "usual and customary" brokerage
commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange
during a comparable period of time." The trustees of each Trust,
including those who are not "interested persons" of the Trust, have
adopted procedures for evaluating the reasonableness of commissions
paid to New England Securities and will review these procedures
periodically.
Under the 1940 Act, persons affiliated with each Trust are
prohibited from dealing with each Trust's Funds as a principal in the
purchase and sale of securities. Since transactions in the over-the-
counter market usually involve transactions with dealers acting as
principals for their own accounts, affiliated persons of the Trusts,
such as New England Securities, may not serve as the Trusts' dealer
in connection with such transactions.
It is expected that the portfolio transactions in fixed-income
securities will generally be with issuers or dealers on a net basis
without a stated commission. Securities firms may receive brokerage
commissions on transactions involving options, futures and options on
futures and the purchase and sale of underlying securities upon
exercise of options. The brokerage commissions associated with
buying and selling options may be proportionately higher than those
associated with general securities transactions.
The Limited Term U.S. Government and the Government Securities
Funds had significantly higher portfolio turnover rate for the fiscal
year ended December 31, 1994 than for the prior fiscal year. Each
Fund's higher portfolio turnover rate was due principally to a
portfolio management strategy implemented to take advantage of a more
volatile market environment.
_____________________________________________________________________
DESCRIPTION OF THE TRUSTS AND OWNERSHIP OF SHARES
_____________________________________________________________________
New England Funds Trust I is organized as a Massachusetts
business trust under the laws of Massachusetts by an Agreement and
Declaration of Trust (a "Declaration of Trust") dated June 7, 1985
and is a "series" company as described in Rule 18f-1 under the 1940
Act. The Trust has eleven separate portfolios (the "Funds"). The
Growth Fund has one class of shares and the Tax Exempt Income Fund
has two classes of shares, the Government Securities Fund has three
classes of shares and the Balanced Fund, the Value Fund, the
International Equity Fund, the Star Advisers Fund, the Strategic
Income Fund, the Capital Growth Fund and the Bond Income Fund each
has four classes of shares. The initial portfolio of the Trust (the
Fund now called New England Government Securities Fund) commenced
operations on September 16, 1985. The International Equity Fund
commenced operations on May 22, 1992. The Capital Growth Fund was
organized in 1992 and commenced operations on August 3, 1992. The
Star Advisers Fund was organized in 1994 and commenced operations on
July 7, 1994. The Strategic Income Fund was organized in 1995 and
commenced operations on May 1, 1995. The remaining Funds are
successors to the following corporations which commenced operations
in the years indicated:
Corporation Date of Commencement
NEL Growth Fund, Inc. 1968
NEL Retirement Equity 1969
Fund, Inc.*
NEL Equity Fund, Inc.** 1968
Corporation Date of Commencement
NEL Income Fund, Inc. 1973
NEL Tax Exempt Bond Fund, 1976
Inc.
* Predecessor of the Value Fund
** Predecessor of the Balanced Fund
New England Funds Trust II was organized in 1931 as a
Massachusetts business trust and consisted of a single investment
portfolio (now the Growth Opportunities Fund) until January, 1989.
The High Income Fund, the Massachusetts Tax Free Income Fund, the
Intermediate Term Tax Free Fund of California and New England
Intermediate Term Tax Free Fund of New York each has two classes of
shares. The Adjustable Rate U.S. Government Fund has three classes
of shares and the Growth Opportunities Fund and the Limited Term U.S.
Government Fund each has four classes of shares. Until December,
1988, the name of the Trust was "Investment Trust of Boston"; from
December 1988 until April 1992, its name was "Investment Trust of
Boston Funds." The High Income Fund and the Massachusetts Fund are
successors to separate investment companies that were organized in
1983 and 1984, respectively, and reorganized as series of New England
Funds Trust II in January, 1989. The Limited Term U.S. Government
Fund was organized in 1988 and commenced operations in January, 1989.
The Adjustable Rate Fund was organized in 1991 and commenced
operations on October 18 of that year. The California and New York
Funds were organized in 1993 and commenced operations on April 23 of
that year. Effective May 1, 1991, New England Funds Trust I and the
New England Funds Trust II began to be marketed under the "umbrella"
name New England Funds.
The Declarations of Trust of New England Funds Trust I and New
England Funds Trust II currently permit each Trust's trustees to
issue an unlimited number of full and fractional shares of each
series. Each Fund is represented by a particular series of shares.
The Declarations of Trust further permit each Trust's trustees to
divide the shares of each series, with the exception of the Growth
Fund, into any number of separate classes, each having such rights
and preferences relative to other classes of the same series as the
trustees may determine. The shares of each Fund do not have any
preemptive rights. Upon termination of any Fund, whether pursuant to
liquidation of the Trust or otherwise, shareholders of each class of
the Fund are entitled to share pro rata in the net assets
attributable to that class of shares of the Fund available for
distribution to shareholders. The Declarations of Trust also permit
the trustees to charge shareholders directly for custodial, transfer
agency and servicing expenses.
The shares of all the Funds (except as noted in the first two
paragraphs of this section) are divided into four classes, Class A,
Class B, Class C and Class Y. The Growth Opportunities Fund, Capital
Growth Fund, Value Fund, Balanced Fund, International Equity Fund,
Star Advisers Fund, Bond Income Fund, Strategic Income Fund and the
Limited Term U.S. Government Fund each offer four classes of shares,
Class A, Class B, Class C and Class Y. The Balanced Fund, the Value
Fund, the International Equity Fund, the Star Advisers Fund, the
Capital Growth Fund, the Strategic Income Fund, the Bond Income Fund,
the Government Securities Fund, the Growth Opportunities Fund, the
Limited Term U.S. Government Fund and the Adjustable Rate U.S.
Government Fund offer Class Y shares, which are available for
purchase only by certain eligible institutional investors and have
higher minimum purchase requirements than Class A, B and C. All
expenses of each Fund are borne by its Class A, Class B and, if
applicable, Class C and Class Y shares on a pro rata basis, except
for the administrative services fee (which may be charged at a
separate rate to each class), 12b-1 fees (which are borne only by
Class A, B and C) and the following expenses that are separately
allocated to each class: transfer agency fees and expenses of
printing and mailing prospectuses to shareholders.
The assets received by each class of a Fund for the issue or
sale of its shares and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of the creditors, are
allocated to, and constitute the underlying assets of, that class of
a Fund. The underlying assets of each class of a Fund are segregated
and are charged with the expenses with respect to that class of a
Fund and with a share of the general expenses of the relevant trust.
Any general expenses of the Trust that are not readily identifiable
as belonging to a particular class of a Fund are allocated by or
under the direction of the trustees in such manner as the trustees
determine to be fair and equitable. While the expenses of each Trust
are allocated to the separate books of account of each Fund, certain
expenses may be legally chargeable against the assets of all classes
of the Funds in a Trust.
The Declarations of Trust also permit each Trust's trustees,
without shareholder approval, to subdivide any series or class of
shares or Fund into various sub-series or sub-classes with such
dividend preferences and other rights as the trustees may designate.
While the trustees have no current intention to exercise this power,
it is intended to allow them to provide for an equitable allocation
of the impact of any future regulatory requirements which might
affect various classes of shareholders differently. The trustees may
also, without shareholder approval, establish one or more additional
series or classes or merge two or more existing series or classes.
The Declarations of Trust provide for the perpetual existence of
the Trusts. Either Trust or any Fund, however, may be terminated at
any time by vote of at least two-thirds of the outstanding shares of
each Fund affected. Similarly, any class within a Fund may be
terminated by vote of at least two-thirds of the outstanding shares
of such class. While each Declarations of Trust further provide that
its board of trustees may also terminate the relevant trust upon
written notice to its shareholders, the 1940 Act requires that the
Trust receive the authorization of a majority of its outstanding
shares in order to change the nature of its business so as to cease
to be an investment company.
Voting Rights
As summarized in the prospectuses, shareholders are entitled to
one vote for each full share held (with fractional votes for each
fractional share held) and may vote (to the extent provided therein)
in the election of trustees and the termination of the Trust and on
other matters submitted to the vote of shareholders.
The Declarations of Trust provide that on any matter submitted
to a vote of all shareholders of a Trust, all Trust shares entitled
to vote shall be voted together irrespective of series or class
unless the rights of a particular series or class would be adversely
affected by the vote, in which case a separate vote of that series or
class shall also be required to decide the question. Also, a separate
vote shall be held whenever required by the 1940 Act or any rule
thereunder. Rule 18f-2 under 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it
is clear that the interests of each series or class in the matter are
substantially identical or that the matter does not affect any
interest of such series or class. On matters affecting an individual
series or class, only shareholders of that series or class are
entitled to vote. Consistent with the current position of the SEC,
shareholders of all series and classes vote together, irrespective of
series or class, on the election of trustees and the selection of the
Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as
certain changes in investment policies of that series or the approval
of the investment advisory agreement relating to that series, and
shareholders of each class within a series vote separately as to the
Rule 12b-1 plan (if any) relating to that class.
There will normally be no meetings of shareholders for the
purpose of electing trustees except that, in accordance with the 1940
Act, (i) a Trust will hold a shareholders' meeting for the election
of trustees at such time as less than a majority of the trustees
holding office have been elected by shareholders, and (ii) if, as a
result of a vacancy on the board of trustees, less than two-thirds of
the trustees holding office have been elected by the shareholders,
that vacancy may only be filled by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent
signed by the holders of two-thirds of the outstanding shares and
filed with a Trust's custodian or by a vote of the holders of two-
thirds of the outstanding shares at a meeting duly called for that
purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset
value of at least $25,000 or at least 1% of the outstanding shares
stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a trustee, the Trusts have
undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the trustees shall continue to hold
office and may appoint successor trustees. Voting rights are not
cumulative.
No amendment may be made to the Declarations of Trust without
the affirmative vote of a majority of the outstanding shares of the
relevant Trust except (i) to change a Trust's or a Fund's name or to
cure technical problems in a Declaration of Trust, (ii) to establish
and designate new series or classes of Trust shares and (iii) to
establish, designate or modify new and existing series or classes of
Trust shares or other provisions relating to Trust shares in response
to applicable laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of a
Trust. However, the Declarations of Trust disclaim shareholder
liability for acts or obligations of a Trust and require that notice
of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by a Trust or the trustees. The
Declarations of Trust provide for indemnification out of each Fund's
property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund by reason of owning shares of
such Fund. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is considered remote since it is
limited to circumstances in which the disclaimer is inoperative and a
Fund itself would be unable to meet its obligations.
The Declarations of Trust further provide that the relevant
board of trustees will not be liable for errors of judgment or
mistakes of fact or law. However, nothing in the Declarations of
Trust protects a trustee against any liability to which the trustee
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his or her office. The By-Laws of each Trust
provide for indemnification by New England Funds Trust I or New
England Funds Trust II of trustees and officers of the relevant
Trust, except with respect to any matter as to which any such person
did not act in good faith in the reasonable belief that his or her
action was in or not opposed to the best interests of the Trust.
Such persons may not be indemnified against any liability to the
Trust or the Trust's shareholders to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office.
_____________________________________________________________________
HOW TO BUY SHARES
_____________________________________________________________________
The procedures for purchasing shares of the Funds are summarized
in the prospectus. Banks may charge a fee for transmitting funds by
wire. With respect to shares purchased by federal funds,
shareholders should bear in mind that wire transfers may take two or
more hours to complete.
For purchase of Fund shares by mail, the settlement date is the
first business day after receipt of the check by the transfer agent
so long as it is received by the close of regular trading of the New
York Stock Exchange on a day when the Exchange is open; otherwise the
settlement date is the following business day. For telephone orders,
the settlement date is the fifth business day after the order is
made.
Shares may also be purchased either in writing, by phone or, in
the case of Class A, B and C shares, by electronic funds transfer
using Automated Clearing House ("ACH"), or by exchange as described
in the prospectuses through firms that are members of the National
Association of Securities Dealers, Inc. and that have selling
agreements with New England Funds, L.P.
New England Funds, L.P. may at its discretion accept a telephone
order for the purchase of $5,000 or more of a Fund's Class A, B and C
shares. Payment must be received by New England Funds, L.P. within
five business days following the transaction date or the order will
be subject to cancellation. Telephone orders must be placed through
New England Funds, L.P. or your investment dealer.
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NET ASSET VALUE AND PUBLIC OFFERING PRICE
_____________________________________________________________________
The method for determining the public offering price and net
asset value per share is summarized in the prospectus.
The total net asset value of each class of shares of a Fund (the
excess of the assets of such Fund attributable to such class over the
liabilities attributable to such class) is determined as of the close
of regular trading (normally 4:00 p.m. Eastern time) on each day
that the New York Stock Exchange is open for trading. The weekdays
that the New York Stock Exchange is expected to be closed are New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Securities
listed on a national securities exchange or on the NASDAQ national
market system are valued at their last sale price, or, if there is no
reported sale during the day, the last reported bid price estimated
by a broker. Unlisted securities traded in the over-the-counter
market are valued at the last reported bid price in the over-the-
counter market or on the basis of yield equivalents as obtained from
one or more dealers that make a market in the securities. U.S.
Government Securities are traded in the over-the-counter market.
Options, interest rate futures and options thereon that are traded on
exchanges are valued at their last sale price as of the close of such
exchanges. Securities for which current market quotations are not
readily available and all other assets are taken at fair value as
determined in good faith by the board of trustees, although the
actual calculations may be made by persons acting pursuant to the
direction of the board.
Generally, trading in Foreign Government Securities and other
fixed-income securities, as well as trading in equity securities in
markets outside the United States, is substantially completed each
day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in determining the net
asset value of the International Equity Fund's shares are computed as
of 3:00 p.m. Eastern time, in the case of U.S. and Canadian
Government Securities, and 5:00 p.m. London time, in the case of
Foreign Government Securities and equity securities of non-U.S.
issuers which are not traded on a U.S. national exchange, except
that, in unusual instances in which London trading in certain Foreign
Government Securities continues past 5:00 p.m. London time, the
values of such Foreign Government Securities will be computed as of
the close of the New York Stock Exchange that day (or such earlier
time as significant trading activity in such Foreign Government
Securities ceases for the day). The value of equity securities of
non-U.S. issuers not traded on a U.S. exchange will be valued at
their last sale price, if any, on the exchange on which they
principally trade. Occasionally, events affecting the value of fixed-
income securities and of equity securities of non-U.S. issuers not
traded on a U.S. exchange may occur between the completion of
substantial trading of such securities for the day and the close of
the New York Stock Exchange, which events will not be reflected in
the computation of the Fund's net asset value. If events materially
affecting the value of either Funds' securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith by or in accordance with procedures approved
by the trustees.
The per share net asset value of a class of a Fund's shares is
computed by dividing the number of shares outstanding into the total
net asset value attributable to such class. The public offering
price of a Class A share of a Fund is the net asset value per share
next determined after a properly completed purchase order is accepted
by New England Funds, L.P. or State Street Bank, plus a sales charge
as set forth in the Fund's prospectus. The public offering price of
a Class B, C or Y share of a Fund is the next determined net asset
value.
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REDUCED SALES CHARGES
Class A Shares Only
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Special purchase plans are enumerated in the text of the
prospectus.
Cumulative Purchase Discount. A Fund shareholder making an
additional purchase of Class A shares may be entitled to a discount
on the sales charge payable on that purchase. This discount will be
available if the shareholder's "total investment" in the Fund reaches
the breakpoint for a reduced sales charge in the table under "Net
Asset Value and Public Offering Price," above. The total investment
is determined by adding the amount of the additional purchase,
including sales charge, to the current public offering price of all
series and classes of shares of both Trusts held by the shareholder
in one or more accounts. If the total investment exceeds the
breakpoint, the lower sales charge applies to the entire additional
investment even though some portion of that additional investment is
below the breakpoint to which a reduced sales charge applies. For
example, if a shareholder who already owns shares of one or more
Funds with a value at the current public offering price of $30,000
makes an additional purchase of $20,000 of Class A shares of a Stock
Fund (other than New England Growth Fund), the reduced sales charge
of 4.5% of the public offering price will apply to the entire amount
of the additional investment.
Letter of Intent. A Letter of Intent (a "Letter"), which can be
effected at any time, is a privilege available to investors which
reduces the sales charge on investments in Class A shares.
Ordinarily, reduced sales charges are available for single purchases
of Class A shares only when they reach certain breakpoints (e.g.,
$50,000, $100,000, etc.). By signing a Letter, a shareholder
indicates an intention to invest enough money in Class A shares
within 13 months to reach a breakpoint. If the shareholder's
intended aggregate purchases of all series and classes of the Trusts
over a defined 13-month period will be large enough to qualify for a
reduced sales charge, the shareholder may invest the smaller
individual amounts at the public offering price calculated using the
sales load applicable to the 13-month aggregate investment.
A Letter is a non-binding commitment, the amount of which may be
increased, decreased or canceled at any time. The effective date of
a Letter is the date it is received in good order at New England
Funds, L.P., or, if communicated by a telephone exchange or order, at
the date of telephoning provided a signed Letter, in good order,
reaches New England Funds, L.P. within five business days.
A reduced sales charge is available for aggregate purchases of
all series and classes of shares of the Trusts pursuant to a written
Letter effected within 90 days after any purchase. In the event the
account was established prior to 90 days before the Letter effective
date, the account will be credited with Rights of Accumulation
("ROA") towards the breakpoint level that will be reached upon the
completion of the 13 months' purchases. The ROA credit is the value
of all shares held as of the effective date of the Letter based on
the "public offering price computed on such date."
The cumulative purchase discount, described above, permits the
aggregate value at the current public offering price of Class A
shares of any accounts with the Trusts held by a shareholder to be
added to the dollar amount of the intended investment under a Letter,
provided the shareholder lists them on the account application.
State Street Bank will hold in escrow shares with a value at the
current public offering price of 5% of the aggregate amount of the
intended investment. The amount in escrow will be released when the
Letter is completed. If the shareholder does not purchase shares in
the amount indicated in the Letter, the shareholder agrees to remit
to State Street Bank the difference between the sales charge actually
paid and that which would have been paid had the Letter not been in
effect, and authorizes State Street Bank to redeem escrowed shares in
the amount necessary to make up the difference in sales charges.
Reinvested dividends and distributions are not included in
determining whether the Letter has been completed.
Combining Purchases. Purchases of all series and classes of the
Trusts by or for an investor, the investor's spouse, parents,
children, siblings, grandparents or grandchildren and any other
account of the investor, including sole proprietorships, in either
Trust may be treated as purchases by a single individual for purposes
of determining the availability of a reduced sales charge. Purchases
for a single trust estate or a single fiduciary account may also be
treated as purchases by a single individual for this purpose, as may
purchases on behalf of a participant in a tax-qualified retirement
plan and other employee benefit plans, provided that the investor is
the sole participant in the plan.
Combining with Other Series and Classes of the Trusts. A
shareholder's total investment for purposes of the cumulative
purchase discount and purchases under a Letter of Intent includes the
value at the current public offering price of any shares of series
and classes of the Trusts that the shareholder owns (which do not
include shares of the New England Money Market Funds unless such
shares were purchased by exchanging shares of either Trust). Shares
owned by persons described in the preceding paragraph may also be
included.
Sponsored Arrangements. Class A shares may be purchased at a
reduced sales charge pursuant to "sponsored arrangements," which
include programs under which an association makes recommendations to,
or permits group solicitation of, its members in connection with the
purchase of Fund shares on an individual basis. The amount of the
sales charge reduction will reflect the anticipated reduction in
sales expenses associated with sponsored arrangements. The reduction
in sales expenses, and therefore the reduction in sales charge, will
vary depending on factors such as the size and stability of the
association's membership, the term of the association's existence and
certain characteristics of its members.
Unit Holders of Unit Investment Trusts. Unit investment trust
distributions may be invested in Class A shares of any Fund at a
reduced sales charge of 1.50% of the public offering price (or 1.52%
of the net amount invested); for large purchases on which a sales
charge of less than 1.50% would ordinarily apply, such lower charge
also applies to investments of unit investment trust distributions.
Clients of Advisers or Subadvisers (Affiliated with NEIC). No
sales charge or contingent deferred sales charge applies to
investments of $100,000 or more in Class A shares of the Funds by (1)
clients of an adviser or subadviser (affiliated with NEIC) to the
Funds; any director, officer or partner of a client of an adviser or
subadviser (affiliated with NEIC) to the Funds; and the spouse,
parents, children, siblings, grandparents or grandchildren of the
foregoing; (2) any individual who is a participant in a Keogh or IRA
Plan under a prototype of an adviser or subadviser (affiliated with
NEIC) to the Funds 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 the
Funds. Any investor eligible for this arrangement should so indicate
in writing at the time of the purchase.
Offering to Employees of The New England and Associated
Entities. There is no sales charge, CDSC or initial investment
minimum related to investments in Class A shares of any Fund by any
of the Trusts' investment advisers or subadvisers (affiliated with
NEIC), New England Funds, L.P. or any other company affiliated with
The New England; current and former directors and trustees of the
Trusts; 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 that have selling arrangements with New England Funds, L.P.;
the spouse, parents, children, siblings, grandparents or
grandchildren of the persons listed above and any trust, pension,
profit sharing or other benefit plans for any of the foregoing
persons and any separate account of The New England or any other
company affiliated with The New England.
Eligible Governmental Authorities. There is no sales charge or
contingent deferred sales charge related to investments in Class A
shares of any Fund (except the Star Advisers Fund) by any of the
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.
Investment Advisory Accounts. There is no sales charge or
contingent deferred sales charge to investments in Class A shares of
any Fund by any of the advisory accounts through investment advisers
registered under the Investment Advisers Act of 1940 and affiliated
with broker-dealers.
Shareholders of Reich and Tang Government Securities Trust.
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 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.
_____________________________________________________________________
SHAREHOLDER SERVICES
_____________________________________________________________________
Open Accounts
A shareholder's investment is automatically credited to an open
account maintained for the shareholder by State Street Bank.
Following each transaction in the account, a shareholder will receive
a confirmation statement disclosing the current balance of shares
owned and the details of recent transactions in the account. After
the close of each calendar year, State Street Bank will send each
shareholder a statement providing federal tax information on
dividends and distributions paid to the shareholder during the year.
This statement should be retained as a permanent record. New England
Funds, L.P. may charge a fee for providing duplicate information.
The open account system provides for full and fractional shares
expressed to three decimal places and, by making the issuance and
delivery of stock certificates unnecessary, eliminates problems of
handling and safekeeping, and the cost and inconvenience of replacing
lost, stolen, mutilated or destroyed certificates.
The costs of maintaining the open account system are paid by the
Trusts and no direct charges are made to shareholders. Although the
Trusts have no present intention of making such direct charges to
shareholders, they each reserve the right to do so. Shareholders
will receive prior notice before any such charges are made.
Automatic Investment Plans (Class A, B and C Shares)
Subject to each Fund's investor eligibility requirements,
investors may automatically invest in additional shares of a Fund on
a monthly basis by authorizing New England Funds, L.P. to draw checks
on an investor's bank account. The checks are drawn under the
Investment Builder Program, a program designed to facilitate such
periodic payments, and are forwarded to New England Funds, L.P. for
investment in the Fund. A plan may be opened with an initial
investment of $50 or more and thereafter regular monthly checks of
$50 or more will be drawn on the investor's account. The reduced
minimum initial investment pursuant to an automatic investment plan
is referred to in the prospectus. An Investment Builder application
must be completed to open an automatic investment plan. An
application may be found in the prospectus or may be obtained by
calling New England Funds, L.P. at (800) 225-5478 or your investment
dealer.
This program is voluntary and may be terminated at any time by
the investor or by New England Funds, L.P. upon notice to existing
plan participants.
The Investment Builder Program plan may be discontinued by
written notice to New England Funds, L.P., which must be received at
least five business days prior to any payment date. The plan may be
discontinued by State Street Bank at any time without prior notice if
any check is not paid upon presentation; or by written notice to you
at least thirty days prior to any payment date. State Street Bank is
under no obligation to notify shareholders as to the nonpayment of
any check.
Retirement Plans Offering Tax Benefits (Class A, B and C Shares)
The federal tax laws provide for a variety of retirement plans
offering tax benefits. These plans may be funded with shares of the
Funds or with certain other investments. The plans include H.R. 10
(Keogh) plans for self-employed individuals and partnerships,
individual retirement accounts (IRAs), corporate pension trust and
profit sharing plans, including 401(k) plans, and retirement plans
for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement
plans offering tax benefits is referred to in the prospectus. For
these plans, initial and subsequent investments in a Fund must be at
least $25 for each participant in a plan, and income dividends and
capital gain distributions must be reinvested (unless the investor is
over age 59 1/2 or disabled). Plan documents and further information
can be obtained from New England Funds, L.P.
An investor should consult a competent tax or other adviser as
to the suitability of a Fund's shares as a vehicle for funding a
plan, in whole or in part, under the Employee Retirement Income
Security Act of 1974 and as to the eligibility requirements for a
specific plan and its state as well as federal tax aspects.
Certain retirement plans may also be eligible to purchase Class
Y shares. See the prospectus relating to Class Y shares.
Systematic Withdrawal Plans (Class A, B and C Shares)
An investor owning a Fund's shares having a value of $5,000 or
more at the current public offering price may establish a Systematic
Withdrawal Plan providing for periodic payments of a fixed or
variable amount. An investor may terminate the plan at any time. A
form for use in establishing such a plan is available from the
servicing agent or your investment dealer. Withdrawals may be paid
to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or New England
Funds, L.P.
A shareholder under a Systematic Withdrawal Plan may elect to
receive payments monthly, quarterly, semiannually or annually for a
fixed amount of not less than $50 or a variable amount based on (1)
the market value of a stated number of shares, (2) a specified
percentage of the account's market value or (3) a specified number of
years for liquidating the account (e.g., a 20-year program of 240
monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment
option may be $50 or more.
In the case of shares subject to a CDSC, the amount or
percentage you specify may not, on an annualized basis, exceed 10% of
the value, as of the time you make the election, of your account with
the Fund with respect to which you are electing the Plan.
Withdrawals of Class B shares of a Fund under the Plan will be
treated as redemptions of shares purchased through the reinvestment
of Fund distributions, or, to the extent such shares in your account
are insufficient to cover Plan payments, as redemptions from the
earliest purchased shares of such Fund in your account. No CDSC
applies to a redemption pursuant to the Plan.
All shares under the Plan must be held in an open
(uncertificated) account. Income dividends and capital gain
distributions will be reinvested (without a sales charge in the case
of Class A shares) at net asset value determined on the record date.
Since withdrawal payments represent proceeds from the
liquidation of shares, withdrawals may reduce and possibly exhaust
the value of the account, particularly in the event of a decline in
net asset value. Accordingly, the shareholder should consider
whether a Systematic Withdrawal Plan and the specified amounts to be
withdrawn are appropriate in the circumstances. The Funds and New
England Funds, L.P. make no recommendations or representations in
this regard. It may be appropriate for the shareholder to consult a
tax adviser before establishing such a plan.
It may be disadvantageous for a shareholder to purchase on a
regular basis additional Fund shares with a sales charge while
redeeming shares under a Systematic Withdrawal Plan. Accordingly,
the Funds and New England Funds, L.P. do not recommend additional
investments in Class A shares by a shareholder who has a withdrawal
plan in effect and who would be subject to a sales load on such
additional investments.
Because of statutory restrictions this plan is not available to
pension or profit-sharing plans, IRAs or 403(b) plans that have State
Street Bank as trustee.
Exchange Privilege
A shareholder may exchange the shares of any Fund (except Class
A shares of the Adjustable Rate and California and New York Funds)
for shares of the same class of any other Fund of the Trusts (subject
to the investor eligibility requirements of the Fund into which the
exchange is being made) on the basis of relative net asset values at
the time of the exchange without any sales charge. Class A shares of
the Adjustable Rate, California and New York Funds may be exchanged
for shares of the Stock Funds, Bond Funds or New England
Massachusetts Tax Free Income Fund (subject to the investor
eligibility requirements of the Fund into which the exchange is being
made)only if they have been held for at least six months. When an
exchange is made from the Class B shares of one Fund to the Class B
shares of another Fund, the shares received in exchange will have the
same age characteristics as the shares exchanged. The age of the
shares determines the expiration of the CDSC and the conversion date.
If you own Class A and Class B shares, you may also elect to exchange
your shares of any Fund of the Trusts for shares of the same class of
either New England Cash Management Trust or New England Tax Exempt
Money Market Trust (the "Money Market Funds"). Class C shares may
also be exchanged for Class A shares of the Money Market Funds. On
all exchanges of Class A shares subject to a CDSC and Class B shares
into the Money Market Funds, the exchange stops the aging period
relating to the contingent deferred sales charge and, for Class B
shares only, conversion to Class A shares. The aging resumes only
when an exchange is made back into a Fund's Class B shares. If you
own Class Y shares, you may exchange those shares for Class Y shares
of other Funds or for the Class A shares of the Money Market Funds.
These options are summarized in the prospectus. An exchange may be
effected, provided that neither the registered name nor address of
the accounts are different and provided that a certificate
representing the shares being exchanged has not been issued to the
shareholder, by (1) a telephone request to New England Funds, L.P. at
(800) 223-7124 or (2) a written exchange request to New England
Funds, P.O. Box 8551, Boston, MA 02266-8551. You must acknowledge
receipt of a current prospectus for a Fund before an exchange for
that Fund can be effected.
The investment objectives of the funds in New England Funds Trust I
are as follows:
Stock Funds:
New England Capital Growth Fund seeks long-term growth of
capital.
New England Value Fund seeks a reasonable long-term investment
return from a combination of market appreciation and dividend income
from equity securities.
New England Balanced Fund seeks a reasonable long-term
investment return from a combination of long-tern capital
appreciation and moderate current income.
New England Growth Opportunities Fund seeks opportunities for
long-term growth of capital and income.
New England International Equity Fund seeks total return from
long-term growth of capital and dividend income primarily through
investment in a diversified portfolio of marketable international
equity securities.
New England Star Advisers Fund seeks long-term of capital.
Bond Funds:
New England Government Securities Fund seeks a high level of
current income consistent with safety of principal by investing in
U.S. Government securities and engaging in transactions involving
related options, futures an options on futures.
New England Limited Term U.S. Government Fund seeks a high
current return consistent with preservation of capital.
New England Adjustable Rate U.S. Government Fund seeks a high
level of current income consistent with low volatility of principal.
New England Strategic Income Fund seeks high current income with
a secondary objective of capital growth..
New England Bond Income 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.
New England High Income Fund seeks high current income plus the
opportunity for capital appreciation to produce a high total return.
New England Tax Exempt Income Fund seeks as high a level of
current income exempt from federal income taxes as is consistent with
reasonable risk and protection of shareholder's' 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.
New England Massachusetts Tax Free Income Fund seeks as high a
level of current income exempt from federal income tax and
Massachusetts personal income taxes as Back Bay Advisors, the Fund's
investment adviser, believes is consistent with preservation of
capital.
New England Intermediate Term Tax Free Fund of California seeks
as high a level of current income exempt from federal income tax and
its state personal income tax as is consistent with preservation of
capital.
New England Intermediate Term Tax Free Funds of New York seeks
as high a level of current income exempt from federal income tax and
its state personal income tax and New York City personal income tax
as is consistent with preservation of capital.
Money Market Funds:
NEW ENGLAND CASH MANAGEMENT TRUST -
Money Market Series -- maximum current income consistent with
preservation of capital and liquidity.
U.S. Government Series -- highest current income consistent
with preservation of capital and liquidity.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST -- current income exempt
from federal income taxes consistent with preservation of capital and
liquidity.
As of May 1, 1995, the net assets of the funds in New England
Funds Trust I totaled over $4.5 billion.
An exchange constitutes a sale of shares for federal income tax
purposes in which the investor may realize a long- or short-term
capital gain or loss.
Automatic Exchange Plan (Class A, B and C Shares)
As described in the prospectus following the caption "Owning
Fund Shares", a shareholder may establish an Automatic Exchange Plan
under which shares of a Fund are automatically exchanged each month
for shares of the same class of one or more of the other funds in New
England Funds Trust I. Registration on all accounts must be
identical. The exchanges are made on the 15th of each month or the
first business day thereafter if the 15th is not a business day until
the account is exhausted or until New England Funds, L.P. is notified
in writing to terminate the plan. Exchanges may be made in amounts
of $500 or over ($1000 for spousal IRAs). The Service Options Form
is available from New England Funds, L.P. or your financial
representative to establish an Automatic Exchange Plan.
Portfolio 1,2,3 (Class A, B and C Shares)
"Portfolio 1,2,3" is an asset diversification program that
allows shareholders, in a single investment, to allocate their
investments equally among certain Funds. Call your investment dealer
for information.
_____________________________________________________________________
REDEMPTIONS
_____________________________________________________________________
The procedures for redemption of shares of a Fund are summarized
in the prospectus. As described in the prospectus, a contingent
deferred sales charge ("CDSC") may be imposed on certain purchases of
Class A shares and on purchases of Class B shares. For purposes of
the CDSC, an exchange of shares from one Fund to another series of
the Trusts is not considered a redemption or a purchase. For federal
tax purposes, however, such an exchange is considered a redemption
and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or loss. In determining whether a
contingent deferred sales charge is applicable to a redemption of
Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged. Therefore, it will be
assumed that the redemption is first of any Class A shares in the
shareholder's Fund account, second of shares held for over five
years, third of shares issued in connection with dividend
reinvestment and fourth of shares held longest during the five-year
period. The charge will not be applied to dollar amounts
representing an increase in the net asset value of shares since the
time of purchase or reinvested distributions associated with such
shares. Unless you request otherwise at the time of redemption, the
CDSC is deducted from the redemption, not the amount remaining in the
account.
To illustrate, assume an investor purchased 100 shares at $10
per share (at a cost of $1,000) and in the second year after
purchase, the net asset value per share is $12 and, during such time,
the investor has acquired 10 additional shares under dividend
reinvestment. If at such time the investor makes his or her first
redemption of 50 shares (proceeds of $600), 10 shares will not be
subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in the net asset value
of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 3% (the applicable rate in the second
year after purchase).
Signatures on redemption requests must be guaranteed by an
"Eligible Guarantor Institution", as defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934. However, a signature guarantee
will not be required if the proceeds of the redemption do not exceed
$100,000 and the proceeds check is made payable to the registered
owner(s) and mailed to the record address.
If you select the telephone redemption service in the manner
described in the next paragraph, shares of a Fund may be redeemed by
calling toll free (800) 225-5478. A wire fee, currently $5.00, will
be deducted from the proceeds. Telephone redemption requests must be
received by the close of regular trading on the New York Stock
Exchange. Requests made after that time or on a day when the New
York Stock Exchange is not open for business cannot be accepted and a
new request on a later day will be necessary. The proceeds of a
telephone withdrawal will normally be sent on the first business day
following receipt of a proper redemption request.
In order to redeem shares by telephone, a shareholder must
either select this service when completing the Trust application or
must do so subsequently on the Service Options Form, available from
your investment dealer. When selecting the service, a shareholder
must designate a bank account to which the redemption proceeds should
be sent. Any change in the bank account so designated may be made by
furnishing to your investment dealer a completed Service Options Form
with a signature guarantee. Whenever the Service Options Form is
used, the shareholder's signature must be guaranteed as described
above. Telephone redemptions may only be made if the designated bank
is a member of the Federal Reserve System or has a correspondent bank
that is a member of the System. If the account is with a savings
bank, it must have only one correspondent bank that is a member of
the System.
The redemption price will be the net asset value per share (less
any applicable CDSC) next determined after the redemption request and
any necessary special documentation are received by State Street Bank
or your investment dealer in proper form. Payment normally will be
made by State Street Bank on behalf of the Fund within seven days
thereafter. However, in the event of a request to redeem shares for
which New England Funds Trust I or New England Funds Trust II have
not yet received good payment, the Funds reserve the right to
withhold payments of redemption proceeds if the purchase of shares
was made by a check which was deposited less than fifteen days prior
to the redemption request (unless the Fund is aware that the check
has cleared).
A Fund will normally redeem shares for cash; however, a Fund
reserves the right to pay the redemption price wholly or partly in
kind if the relevant board of trustees determines it to be advisable
and in the interest of the remaining shareholders of that Fund. If
portfolio securities are distributed in lieu of cash, the shareholder
will normally incur brokerage commissions upon subsequent disposition
of any such securities. However, the Funds have elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Funds
are obligated to redeem shares solely in cash for any shareholder
during any 90-day period up to the lesser of $250,000 or 1% of the
total net asset value of New England Funds Trust I or New England
Funds Trust II at the beginning of such period. The Funds do not
currently intend to impose any redemption charge (other than the CDSC
imposed by the Distributor), although they reserve the right to
charge a fee not exceeding 1% of the redemption price. A redemption
constitutes a sale of shares for federal income tax purposes on which
the investor may realize a long- or short-term capital gain or loss.
See also "Income Dividends, Capital Gain Distributions and Tax
Status," below.
Reinstatement Privilege (Class A shares only)
The prospectuses describe redeeming shareholders' reinstatement
privileges for Class A shares. Written notice and the investment
check from persons wishing to exercise this reinstatement privilege
must be received by your investment dealer within 120 days after the
date of the redemption. The reinstatement or exchange will be made
at net asset value next determined after receipt of the notice and
the investment check and will be limited to the amount of the
redemption proceeds or to the nearest full share if fractional shares
are not purchased.
Even though an account is reinstated, the redemption will
constitute a sale for federal income tax purposes. Investors who
reinstate their accounts by purchasing shares of funds in New England
Funds Trust I should consult with their tax advisers with respect to
the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
_____________________________________________________________________
STANDARD PERFORMANCE MEASURES
_____________________________________________________________________
Calculations of Yield
Each Fund (except the Growth, Value, Growth Opportunities, Star
Advisers, International Equity and Capital Growth Funds) may
advertise the yield of its Class A, Class B, Class C and Class Y
shares. Yield for each class will be computed by annualizing net
investment income per share for a recent 30-day period and dividing
that amount by the maximum offering price per share of the relevant
class (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value
premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include
recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. Each Fund's yield will vary
from time to time depending upon market conditions, the composition
of its portfolio and operating expenses of the Trust allocated to
each Fund. These factors, possible differences in the methods used
in calculating yield and the tax exempt status of distributions
should be considered when comparing a Fund's yield to yields
published for other investment companies and other investment
vehicles. Yield should also be considered relative to changes in the
value of the Fund's shares and to the relative risks associated with
the investment objectives and policies of the Fund. Yields do not
take into account any applicable sales charges or CDSC. Yield may be
stated with or without giving effect to any expense limitations in
effect for a Fund.
The Tax Exempt Income Fund, Massachusetts Tax Free Income Fund
and the California and New York Funds each may also advertise a tax
equivalent yield, calculated as described above except that, for any
given tax bracket, net investment income will be calculated using as
gross investment income an amount equal to the sum of (i) any taxable
income of the Fund plus (ii) the tax exempt income of the Fund
divided by the difference between 1 and the effective federal (or
combined federal and state) income tax rate for taxpayers in that tax
bracket.
At any time in the future, yields and total return may be higher
or lower than past yields and there can be no assurance that any
historical results will continue.
Investors in the Funds are specifically advised that share
prices, expressed as the net asset values per share, will vary just
as yield will vary. An investor's focus on the yield of a Fund to
the exclusion of the consideration of the share price of that Fund
may result in the investor's misunderstanding the total return he or
she may derive from the Fund.
Calculation of Total Return. Total return is a measure of the
change in value of an investment in a Fund over the period covered,
which assumes that any dividends or capital gains distributions are
automatically reinvested in shares of the same class of that Fund
rather than paid to the investor in cash. The formula for total
return used by the Funds is prescribed by the Securities and Exchange
Commission and includes three steps: (1) adding to the total number
of shares of the particular class that would be purchased by a
hypothetical $1,000 investment in the Fund (with or without giving
effect to the deduction of sales charge or CDSC, if applicable) all
additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the value of the
hypothetical initial investment as of the end of the period by
multiplying the total of shares owned at the end of the period by the
net asset value per share of the relevant class on the last trading
day of the period; (3) dividing this account value for the
hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total
return may be stated with or without giving effect to any expense
limitations in effect for a Fund.
Performance Comparisons
Yield and Total Return. Yields and total returns will
generally be higher for Class A shares than for Class B shares of the
same Fund, because of the higher levels of expenses borne by the
Class B shares. Because of its lower operating expenses, Class Y
shares of each Fund can be expected to achieve a higher yield and
total return than the same Fund's Class A, B and C shares. The Funds
may from time to time include their yield and total return in
advertisements or in information furnished to present or prospective
shareholders. The Funds may from time to time include in
advertisements its total return and the ranking of those performance
figures relative to such figures for groups of mutual funds
categorized by Lipper Analytical Services as having similar
investment objectives.
Total return may also be used to compare the performance of the
Fund against certain widely acknowledged standards or indices for
stock and bond market performance or against the U.S. Bureau of Labor
Statistics' Consumer Price Index.
The Standard & Poor's Composite Index of 500 Stocks (the "S&P
500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of
common stocks of companies listed on the New York Stock Exchange,
although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and
40 financial services concerns. The S&P 500 represents about 80% of
the market value of all issues traded on the New York Stock Exchange.
The Salomon Brothers World Government Bond Index includes a
broad range of institutionally-traded fixed-rate government
securities issued by the national governments of the nine countries
whose securities are most actively traded. The index generally
excludes floating- or variable-rate bonds, securities aimed
principally at non-institutional investors (such as U.S. Savings
Bonds) and private-placement type securities.
The Shearson Lehman Government Bond Index (the "SL Government
Index") is a measure of the market value of all public obligations of
the U.S. Treasury; all publicly issued debt of all agencies of the
U.S. Government and all quasi-federal corporations; and all corporate
debt guaranteed by the U.S. Government. Mortgage backed securities,
flower bonds and foreign targeted issues are not included in the SL
Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of
approximately 5,300 bonds with a face value currently in excess of
$1.3 trillion. To be included in the SL Government/Corporate Index,
an issue must have amounts outstanding in excess of $1 million, have
at least one year to maturity and be rated "Baa" or higher
("investment grade") by a nationally recognized rated agency.
The Lehman Brothers Municipal Bond Index is a composite measure
of the total return performance of the municipal bond market. This
index is computed from prices on approximate 1800 bonds.
The Dow Jones Industrial Average is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York
Stock Exchange.
The Merrill Lynch High Yield Index includes over 750 issues and
represents public debt greater than $10 million (original issuance
rated BBB/BB and below), and the First Boston High Yield Index
includes over 350 issues and represents all public debt greater than
$100 million (original issuance and rated BBB/BB and below).
The Salomon Brothers Broad Investment Grade Bond Index is a
price composite of a broad range of institutionally based U.S.
Government mortgage-backed and corporate debt securities of
investment outstanding of at least $1 million and with a remaining
period to maturity of at least one year.
The Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, is a statistical measure of changes, over time, in the
prices of goods and services in major expenditure groups.
Lipper Analytical Services, Inc. is an independent service that
monitors the performance of over 1,300 mutual funds, and calculates
total return for the funds grouped by investment objective.
The Morgan Stanley Capital International Europe, Australia and
Far East (Gross Domestic Product) Index (the "EAFE Index") is a
market-value weighted and unmanaged index of common stocks traded
outside the U.S. The stocks in the index are selected with reference
to national and industry representation and weighted in the EAFE
Index according to their relative market value (market price per
share times the number of shares outstanding).
The Morgan Stanley Capital International Europe, Australia and
Far East Index (the "EAFE [GDP] Index") is a market-value weighted
and unmanaged index of common stocks traded outside the U.S. The
stocks in the index are selected with reference to national and
industry representation and weighted in the EAFE (GDP) Index
according to their relative market values. The relative market value
of each country is further weighted with reference to the country's
relative gross domestic product.
The International Equity Fund may compare its performance to the
Salomon-Russell Broad Market Index Global X-US and to universes of
similarly managed investment pools compiled by Frank Russell Company
and Intersec Research Corporation.
From time to time, the Adjustable Rate Fund advertisements and
other materials and communications may cite statistics to reflect the
Fund's performance over time, utilizing comparisons to indexes
including those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving
average of mortgage rates. Commonly used indexes include the one-,
three-, five-, ten- and 30-year constant maturity Treasury rates, the
three-month and 180-day Treasury bill rate, rates on longer-term
Treasury certificates, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-
month, six-month or one-year London Interbank Offered Rate (LIBOR),
the prime lending rate of one or several banks, or commercial paper
rates. Some indexes, such as the one-year constant maturity Treasury
rate, closely mirror changes in market interest rate levels. Others,
such as the 11th District Federal Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be
somewhat less volatile.
The current interest rate on many FNMA ARMs is set by reference
to the 11th District Cost of Funds Index published monthly by the
Federal Reserve. Since June 1987, the current interest rate on these
ARMs, measured on a monthly basis, has been higher than the average
yield of taxable money market funds represented by Donoghue's Taxable
Money Fund Average and current rates on newly issued one year bank
certificates of deposit. The interest rates on other ARMs and the
yield on the Adjustable Rate Fund's portfolio may be higher or lower
than the interest rates on FNMA ARMs and there is also no assurance
that historical yield relationships among different types of
investments will continue.
Advertising and promotional materials may refer to the maturity
and duration of the Bond Funds. Maturity refers to the period of
time before a bond or other debt instrument becomes due. Duration is
a commonly used measure of the price responsiveness of a fixed-income
security to an interest rate change (i.e. the change in price one can
expect from a given change in yield).
Articles and releases, developed by the Funds and other parties,
about the Funds regarding performance, rankings, statistics and
analyses of the individual Funds' and the fund group's asset levels
and sales volumes, numbers of shareholders by Fund or in the
aggregate for New England Funds, statistics and analyses of industry
sales volumes and asset levels, and other characteristics may appear
in advertising, promotional literature, publications and on various
computer networks, including, but not limited to, those publications
and computer networks listed in Appendix B to this Statement. In
particular, some or all of these publications may publish their own
rankings or performance reviews of mutual funds, including the Funds.
References to or reprints of such articles may be used in the Funds'
advertising and promotional literature. Such advertising and
promotional material may refer to NEIC, its structure, goals and
objectives and the advisory subsidiaries of NEIC, including their
portfolio management responsibilities, portfolio managers and their
categories and background; their tenure, styles and strategies and
their shared commitment to fundamental investment principles and may
identify specific clients, as well as discuss the types of
institutional investors who have selected the advisers to manage
their investment portfolios and the reasons for that selection. The
references may discuss the independent, entrepreneurial nature of
each advisory organization and allude to or include excerpts from
articles appearing in the media regarding NEIC, its advisory
subsidiaries and their personnel. For additional information about
the Funds' advertising and promotional literature, see Appendix C.
The Funds may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising
and sales literature developed to publicize such arrangements will
explain the relationship of the bank to New England Funds and New
England Funds, L.P. as well as the services provided by the bank
relative to the Funds. The material may identify the bank by name
and discuss the history of the bank including, but not limited to,
the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
The Funds may use the accumulation charts below in their
advertisements to demonstrate the benefits of monthly savings at an
8% and 10% rate of return, respectively.
Investments At 8% Rate of Return
5 yrs. 10 15 20 25 30
$ 50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
Investments At 10% Rate of Return
5 yrs. 10 15 20 25 30
$ 50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
The Funds' advertising and sales literature may refer to
historical, current and prospective economic trends and may include
historical and current performance and total returns of investment
alternatives to the New England Funds. For example, the Adjustable
Rate Fund's advertising and sales literature may include the
historical and current performance and total returns of bank
certificates of deposits, bank and mutual fund money market accounts
and other income investments. Articles, releases, advertising and
literature may discuss the range of services offered by New England
Funds Trust I, New England Funds Trust II and New England Funds,
L.P., as distributor and transfer agent of the Funds, with respect to
investing in shares of the Funds and customer service. Such
materials may discuss the multiple classes of shares available
through New England Funds Trust I and New England Funds Trust II and
their features and benefits, including the details of the pricing
structure.
Advertising and sales literature may also refer to the beta
coefficient of the New England Funds. A beta coefficient is a
measure of systematic or undiversifiable risk of a stock. A beta
coefficient of more than 1 means that the company's stock has shown
more volatility than the market index (e.g. Standard & Poor's 500) to
which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If
it equals 1, its risk is the same as the market index. High
variability in stock price may indicate greater business risk,
instability in operations and low quality of earnings. The beta
coefficients of the New England Funds may be compared to the beta
coefficients of other funds.
The Funds may enter into arrangements with banks exempted from
registration under the Securities Exchange Act of 1934. Advertising
and sales literature developed to publicize such arrangements will
explain the relationship of the bank to New England Funds and New
England Funds, L.P. as well as the services provided by the bank
relative to the Funds. The material may identify the bank by name
and discuss the history of the bank including, but not limited to,
the type of bank, its asset size, the nature of its business and
services and its status and standing in the industry.
In addition, sales literature may be published concerning topics
of general investor interest for the benefit of registered
representatives and the Funds' prospective shareholders. These
materials may include, but are not limited to, discussions of college
planning, retirement planning, reasons for investing and historical
examples of the investment performance of various classes of
securities, securities markets and indices.
_____________________________________________________________________
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
_____________________________________________________________________
As described in the Funds' prospectuses, it is the policy of
each Fund to pay its shareholders, as dividends, substantially all
net investment income and to distribute annually all net realized
capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gain distributions are payable in
full and fractional shares of the relevant class of the particular
Fund based upon the net asset value determined as of the close of the
New York Stock Exchange on the record date for each dividend or
distribution. Shareholders, however, may elect to receive their
income dividends or capital gain distributions, or both, in cash.
The election may be made at any time by submitting a written request
directly to New England Funds. In order for a change to be in effect
for any dividend or distribution, it must be received by New England
Funds on or before the record date for such dividend or distribution.
As required by federal law, detailed federal tax information
will be furnished to each shareholder for each calendar year on or
before January 31 of the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify, each
Fund must, among other things (i) derive at least 90% of its gross
income from dividends, interest, payments with respect to certain
securities loans, gains from sale of securities or foreign
currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (ii)
derive less than 30% of its gross income from gains from the sale or
other disposition of securities held for less than three months;
(iii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iv) at the end of each fiscal
quarter maintain at least 50% of the value of its total assets in
cash, government securities, securities of other regulated investment
companies, other securities of issuers which represent, with respect
to each issuer, no more than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer,
and with no more than 25% of its assets invested in the securities
(other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or
related trades and businesses. To the extent it qualifies for
treatment as a regulated investment company, a Fund will not be
subject to federal income tax on income paid to its shareholders in
the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess,
if any, of each Fund's "required distribution" over its actual
distributions in any calendar year. Generally, the "required
distribution" is 98% of the Fund's ordinary income for the calendar
year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 (or December 31, if the Fund so
elects) plus undistributed amounts from prior years. Each Fund
intends to make distributions sufficient to avoid imposition of the
excise tax. Distributions declared by a Fund during October,
November or December to shareholders of record on a date in any such
month and paid by the Fund during the following January will be
treated for federal tax purposes as paid by the Fund and received by
shareholders on December 31 of the year in which declared.
Shareholders of each Fund will be subject to federal income
taxes on distributions made by the Fund (other than "exempt-interest
dividends" paid by the Tax Exempt Income, Massachusetts, New York and
California Funds, as described in the relevant prospectuses) whether
received in cash or additional shares of the Fund. Distributions by
each Fund of net income and short-term capital gains, if any, will be
taxable to shareholders as ordinary income. Distributions of long-
term capital gains, if any, will be taxable to shareholders as long-
term capital gains, without regard to how long a shareholder has held
shares of the Fund. A loss on the sale of shares held for 12 months
or less will be treated as a long-term capital loss to the extent of
any long-term capital gain dividend paid to the shareholder with
respect to such shares.
Dividends and distributions on Fund shares received shortly
after their purchase, although in effect a return of capital, are
subject to federal income taxes.
The International Equity Fund may be eligible to make and, if
eligible, may make an election under Section 853 of the Code so that
its shareholders will be able to claim a credit or deduction on their
income tax returns for, and will be required to treat as part of the
amounts distributed to them, their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In the case of tax-
exempt shareholders, this credit or deduction may be used to reduce
their tax on unrelated business income. The ability for shareholders
of the Fund to claim a foreign tax credit is subject to certain
limitations imposed by Section 904 of the Code, which in general
limit the amount of foreign tax that may be used to reduce a
shareholder's U.S. tax liability to that amount of U.S. tax which
would be imposed on the amount and type of income in respect of which
the foreign tax was paid. A shareholder who for U.S. income tax
purposes claims a foreign tax credit in respect of Fund distributions
may not claim a deduction for foreign taxes paid by the Fund,
regardless of whether the shareholder itemizes deductions. Also,
under Section 63 of the Code, no deduction for foreign taxes may be
claimed by shareholders who do not itemize deductions on their
federal income taxes paid by the Fund to foreign countries. However,
that income will generally be exempt from United States taxation by
virtue of such shareholder's tax-exempt status and such a shareholder
will not be entitled to either a tax credit or a deduction with
respect to such income. The Fund will notify shareholders each year
of the amount for dividends and distributions and the shareholder's
pro rata share of qualified taxes paid by the Fund to foreign
countries.
Each Fund's transactions, if any, in foreign currencies are
likely to result in a difference between the Fund's book income and
taxable income. This difference may cause a portion of the Fund's
income distributions to constitute a return of capital for tax
purposes or require the Fund to make distributions exceeding book
income to avoid excise tax liability and to qualify as a regulated
investment company.
Each 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.
Redemptions and exchanges of each Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on
these transactions. If shares have been held for more than one year,
gain or loss realized will be long-term capital gain or loss,
provided the shareholder holds the shares as a capital asset.
However, if a shareholder sells Fund shares at a loss within six
months after purchasing the shares, the loss will be treated as a
long-term capital loss to the extent of any long-term capital gain
distributions received by the shareholder. Furthermore, no loss will
be allowed on the sale of Fund shares to the extend the shareholder
acquired other shares of the same Fund within 30 days prior to the
sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and related regulations currently
in effect. For the complete provisions, reference should be made to
the pertinent Code sections and regulations. The Code and
regulations are subject to change by legislative or administrative
actions.
Dividends and distributions also may be subject to state and
local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. federal income
tax law. Non-U.S. investors should consult their tax advisers
concerning the tax consequences of ownership of shares of the Fund,
including the possibility that distributions may be subject to a 30%
United States withholding tax (or a reduced rate of withholding
provided by treaty).
Financial Statements
The financial statements of New England Funds Trust I and New
England Funds Trust II and the related reports of independent
accountants included in their annual reports for the year ended
December 31, 1994 are incorporated herein by reference.
APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION
AAA
This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest
and repay principal.
AA
Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay interest and repay principal is very strong, and in
the majority of instances they differ from AAA issues only in small
degree.
A
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.
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 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 interest is
being paid.
D
Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA' to "B" may be modified
by the addition of a plus or minus sigh to show relative standing
within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a
large, or by an exceptionally stable, margin, and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds that 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 that suggest a susceptibility to
impairment sometime in the future.
Baa
Bonds that are rated Baa are considered as 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, if 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 assured. 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 of 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 a 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
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed in which case the rating is
not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there
is not longer available reasonable up-to-date data to permit a
judgment to be formed; if a bond is called for redemption; or for
other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, and B1.
APPENDIX B
PUBLICATIONS THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America On Line
Anchorage Daily News
Atlanta Constitution
Atlanta Journal
Arizona Republic
Austin American Statesman
Baltimore Sun
Barron's
Bergen County Record (NJ)
Bloomberg Business News
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
LA Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
Worth Magazine
WRKO
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in New England Funds' advertising
and promotional literature to New England Investment Companies
("NEIC") and its affiliates that perform advisory functions for
New England Funds including, but not limited to: Back Bay
Advisors, L.P., Loomis, Sayles and Company, L.P., Capital Growth
Management, L.P. and Draycott Partners, Ltd.
References may be included in New England Funds' advertising
and promotional literature to NEIC affiliates that do not perform
advisory or subadvisory functions for the Funds including, but
not limited to, New England Investment Associates, L. P.,
Westpeak Investment Advisors, L.P., Copley Real Estate Advisors,
L.P., Marlborough Capital Advisors, L.P., Reich & Tang Capital
Management and Reich and Tang Mutual Funds Group.
References to subadvisers unaffiliated with NEIC that
perform subadvisory functions on behalf of New England Funds may
be contained in New England Funds' advertising and promotional
literature including, but not limited to, Berger Associates,
Inc., Janus Capital Corporation and Founders Asset Management,
Inc.
New England Funds' advertising and promotional material will
include, but is not limited to, discussions of the following
information about the above entities:
[] Specific and general investment emphasis, specialties,
competencies, operations and functions
[] Specific and general investment philosophies, strategies,
processes and techniques
[] Specific and general sources of information, economic models,
forecasts and data services utilized, consulted or considered
in the course of providing advisory or other services
[] The corporate histories, founding dates and names of founders
of the entities
[] Awards, honors and recognition given to the firms
[] The names of those with ownership interest and the percentage
of ownership
[] Current capitalization, levels of profitability and other
financial information
[] Identification of portfolio managers, researchers, economists,
principals and other staff members and employees
[] The specific credentials of the above individuals, including
but not limited to, previous employment, current and past
positions, titles and duties performed, industry experience,
educational background and degrees, awards and honors
[] Specific identification of, and general reference to, current
individual, corporate and institutional clients, including
pension and profit sharing plans
[] Current and historical statistics about:
-total dollar amount of assets managed
-New England Funds' assets managed in total and by Fund
-the growth of assets
-asset types managed
-numbers of principal parties and employees, and the length
of their tenure, including officers, portfolio managers,
researchers, economists, technicians and support staff
-the above individuals' total and average number of years of
industry experience and the total and average length of their
service to the adviser or the subadviser
[] Specific and general references to portfolio managers and funds
that they serve as portfolio manager of, other than New England
Funds, and those families of funds, other than New England
Funds, including but not limited to, Star Advisers Fund
Managers Rodney L. Linafelter of Berger Associates, Inc., and
Berger Funds, who also serves as portfolio manager of the
Berger 100 Fund; Warren B. Lammert of Janus Capital Corporation
and Janus Funds, who also serves as portfolio manager of the
Janus Mercury Fund; Edward F. Keely of Founders Asset
Management, Inc., and Founders Funds who also serves as
portfolio manager of Founders Growth Fund, and Barbara C.
Friedman and Jeffrey C. Petherick of the Loomis, Sayles &
Company, L.P. and Loomis Sayles Funds, who also serve as
portfolio managers of the Loomis Sayles Small Cap Fund.
Specific and general references may be made to the Loomis
Sayles Funds, the Loomis Sayles Bond Fund and Daniel Fuss who
serves as portfolio manager of the New England Strategic Income
Fund and the Loomis Sayles Bond Fund. Any such references will
indicate that New England Funds and the other funds of the
managers differ as to performance, objectives, investment
restrictions and limitations, portfolio composition, asset size
and other characteristics, including fees and expenses.
In addition, communications and materials developed by New
England Funds will make reference to the following information
about NEIC and its affiliates:
NEIC is the seventh largest publicly traded manager in the
U.S. listed on the New York Stock Exchange. NEIC maintains over
$60 billion in assets under management. Clients serviced by NEIC
and its affiliates, besides New England Funds, are wealthy
individuals, major corporations and large institutions.
Back Bay Advisors, L.P. employs a conservative style of
management emphasizing short and intermediate term securities to
reduce volatility, adds value through careful continuous credit
analysis and has expertise in government, corporate and tax-free
municipal bonds and equity securities. Among its clients are
Boston City Retirement System, Public Service Electric and Gas of
New Jersey, Petrolite Corp. and General Mills.
Draycott Partners, Ltd. specializes in international stocks
and tracks key world markets and economic trends from offices in
London and Boston. Its investment approach is based on
concentration on "blue chip" companies in stable, growing
economies and is guided by independent, non-consensus thinking.
It monitors country weightings with strict attention to risk
control to promote long-term returns.
Capital Growth Management, L.P. seeks to deliver exceptional
growth for its clients through the selection of stocks with the
potential to outperform the market and grow at a faster rate than
the U.S. economy. Among its approaches are pursuit of growth 50%
above the Standard & Poor's Index of 500 Common Stocks, prompt
responses to changes in the market or economy and aggressive,
highly concentrated portfolios.
Loomis, Sayles & Company, L.P. is one of the oldest and
largest investment firms in the U.S. and has provided investment
counseling to individuals and institutions since 1926.
Characteristic of Loomis Sayles is that it has one of the largest
staffs of research analysts in the industry, practices strict buy
and sell disciplines and focuses on sound value in stock and bond
selection. Among its clients are large corporations such as
Chrysler, Mobil Oil and Revlon.
Westpeak Investment Advisors, L.P. ("Westpeak") employs
proprietary research and a disciplined stock selection process
that seeks rigorously to control unnecessary risk. Its
investment process is designed to evaluate when value and growth
styles - two primary approaches to stock investing - hold
potential for reward. Over seventy fundamental attributes are
continuously analyzed by Westpeak's experienced analysts and
sophisticated computer systems. The results are assessed against
Wall Street's consensus thinking, in pursuit of returns in excess
of appropriate benchmarks. The value/growth strategy is a unique
blend of investment styles, seeking opportunities for increased
return with reduced risk. Among the keys to Westpeak's
investment process are continuous review of timely, accurate data
on over 3600 companies, analysis of dozens of factors for excess
return potential and identification of overvalued and undervalued
stocks.
References may be included in New England Funds' advertising
and promotional literature about its 401(k) and retirement plans.
The information may include, but is not limited to:
[] Specific and general references to industry statistics
regarding 401(k) and retirement plans including historical
information and industry trends and forecasts regarding the
growth of assets, numbers of plans, funding vehicles,
participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other
administrators, benefits consultants and firms including, but
not limited to, DC Xchange, William Mercer and other
organizations involved in 401(k) and retirement programs with
whom New England Funds may or may not have a relationship.
[] Specific and general reference to comparative ratings,
rankings and other forms of evaluation as well as statistics
regarding the New England Funds as a 401(k) or retirement plan
funding vehicle produced by, including, but not limited to,
Access Research, Dalbar, Investment Company Institute and
other industry authorities, research organizations and
publications.
Specific and general discussion of economic, legislative, and
other environmental factors affecting 401(k) and retirement
plans, including but not limited to, statistics, detailed
explanations or broad summaries of:
-past, present and prospective tax regulation, IRS
requirements and rules, including, but not limited to
reporting standards, minimum distribution notices, Form 5500,
Form 1099R and other relevant forms and documents, DOL rules
and standards and other regulation. This includes past,
current and future initiatives, interpretive releases and
positions of regulatory authorities about the past, current
or future eligibility, availability, operations,
administration, structure, features, provisions or benefits
of 401(k) and retirement plans
-information about the history, status and future trends of
Social Security and similar government benefit programs
including, but not limited to, eligibility and participation,
availability, operations and administration, structure and
design, features, provisions, benefits and costs
-current and prospective ERISA regulation and requirements.
[] Specific and general discussion of the benefits of 401(k)
investment and retirement plans, and, in particular, the New
England Funds 401(k) and retirement plans, to the participant
and plan sponsor, including explanations, statistics and other
data, about:
-increased employee retention
-reinforcement or creation of morale
-deductibility of contributions for participants
-deductibility of expenses for employers
-tax deferred growth, including illustrations and charts
-loan features and exchanges among accounts
-educational services materials and efforts, including, but
not limited to, videos, slides, presentation materials,
brochures, an investment calculator, payroll stuffers,
quarterly publications, releases and information on a
periodic basis and the availability of wholesalers and other
personnel.
[] Specific and general reference to the benefits of investing in
mutual funds for 401(k) and retirement plans, and, in
particular, New England Funds and investing in its 401(k) and
retirement plans, including but not limited to:
-the significant economies of scale experienced by mutual
fund companies in the 401(k) and retirement benefits arena
-broad choice of investment options and competitive fees
-plan sponsor and participant statements and notices
-the plan prototype, summary descriptions and board
resolutions
-plan design and customized proposals
-trusteeship, record keeping and administration
-the services of State Street Bank, including but not limited
to, trustee services and tax reporting
-the services of DST and BFDS, including but not limited to,
mutual fund processing support, participant 800 numbers and
participant 401(k) statements
-the services of Trust Consultants Inc. (TCI), including but
not limited to, sales support, plan record keeping, document
service support, plan sponsor support, compliance testing and
Form 5500 preparation.
[] Specific and general reference to the role of the investment
dealer and the benefits and features of working with a
financial professional including:
-access to expertise on investments
-assistance in interpreting past, present and future market
trends and economic events
-providing information to clients including participants
during enrollment and on an ongoing basis after participation
-promoting and understanding the benefits of investing,
including mutual fund diversification and professional
management.
<PAGE>
NEW ENGLAND FUNDS TRUST I
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Per share income and capital changes for all series of the
Trust are included in the prospectuses incorporated by
reference in Part A hereof. The following financial
statements are incorporated in Part B herein by reference to
the annual reports of New England Funds Trust I Stock Funds
and Bond Funds dated December 31, 1994:
(1) New England Balanced Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(2) New England Growth Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(3) New England Value Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(4) New England Star Advisers Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(5) New England International Equity Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(6) New England Capital Growth Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(7) New England Bond Income Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(8) New England Tax Exempt Income Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(9) New England Government Securities Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(10) New England Global Government Fund
(i) Portfolio Composition
(ii) Statement of Assets & Liabilities
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Per Share Data and Ratios
(b) Exhibits:
1.(a) Amended and Restated Declaration of Trust is
incorporated herein by reference to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
April 1, 1992.
(b) Amendments No. 3 and 4 to Amended and Restated
Declaration of Trust are incorporated herein by
reference to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on December 22, 1993.
(c) Amendment No. 5 to Amended and Restated
Declaration of Trust is incorporated herein by
reference to Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A (File No. 2-98326)
filed on April 18, 1994.
(d) Amendment No. 6 to Amended and Restated
Declaration of Trust is incorporated herein by
reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A (File No. 2-98326)
filed June 20, 1994.
(e) Form of Amendment No. 7 to Amended and Restated
Declaration of Trust is incorporated herein by
reference to Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A (File No. 2-98326)
filed February 15, 1995.
2.(a) Bylaws of the Trust are incorporated herein by
reference to the Registration Statement on Form N-1A
(File No. 2-98326) filed on June 11, 1985.
(b) Amendment to the Bylaws is incorporated
herein by reference to Post-Effective Amendment No. 25
to Registration Statement on Form N-1A (File No. 2-
98326) filed February 15, 1995.
3. None.
4. Form of share certificate for series of New England
Funds Trust I is incorporated by reference to Post-
Effective Amendment No. 23 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
April 21, 1994.
5.(a) The following are incorporated herein by reference to
Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
November 7, 1986: (i) Form of Advisory Agreement
between the Registrant, on behalf of its New England
Value Fund, and Loomis Sayles & Company, L.P. ("Loomis
Sayles"); (ii) Form of Advisory Agreement between the
Registrant, on behalf of its New England Balanced Fund
(formerly New England Equity Income Fund), and Loomis
Sayles; (iii) Form of Advisory Agreement between the
Registrant, on behalf of its New England Bond Income
Fund, and Back Bay Advisors, L.P. ("Back Bay
Advisors"); (iv) Form of Advisory Agreement between the
Registrant, on behalf of its New England Government
Securities Fund, and Back Bay Advisors; (v) Form of
Advisory Agreement between the Registrant, on behalf of
its New England Tax Exempt Income Fund, and Back Bay
Advisors;
(b) Form of Advisory Agreement between the
Registrant, on behalf of its New England Global
Government Fund, and Back Bay Advisors and UBS Phillips
& Drew International Investment Limited ("UBS Phillips
& Drew") is incorporated herein by reference to Post-
Effective Amendment No. 8 to the Registration Statement
on Form N-1A (File No. 2-98326) filed on April 13,
1988.
(c) The Advisory Agreement among the Registrant, on
behalf of its New England International Equity Fund,
Draycott Partners, Ltd. and Back Bay Advisors is
incorporated herein by reference to Post-Effective
Amendment No. 12 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on January 10, 1992.
(d) Form of Amendment to Advisory Agreement
between the Registrant, on behalf of its New England
Global Government Fund, and Back Bay Advisors is filed
herein by reference to Post-Effective Amendment No. 19
to the Registration Statement on Form N-1A (File No. 2-
98326) filed on June 25, 1993.
(e) Form of Advisory Agreement between the Registrant,
on behalf of its New England Growth Fund, and Capital
Growth Management Limited Partnership ("CGM") is
incorporated herein by reference to Post-Effective
Amendment No. 20 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on December 22, 1993.
(f) Form of Advisory Agreement between the Registrant,
on behalf of its New England Star Advisers Fund, and
New England Investment Companies, L.P. is incorporated
herein by reference to Post-Effective Amendment No. 24
to the Registration Statement on Form N-1A (File No. 2-
98326) filed on June 20, 1994.
(g) Form of Sub-Advisory Agreement for New England
Star Advisers Fund between New England Investment
Companies, L.P. and Loomis, Sayles & Company, L.P. is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(h) Form of Sub-Advisory Agreement for New England
Star Advisers between New England Investment Companies,
L.P. and Berger Associates, Inc. is incorporated herein
by reference to Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A (File No. 2-98326)
filed February 15, 1995.
(i) Form of Sub-Advisory Agreement for New England
Star Advisers Fund between New England Investment
Companies, L.P. and Founders Asset Management, Inc. is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(j) Form of Sub-Advisory Agreement for New England
Star Advisers Fund between New England Investment
Companies, L.P. and Janus Capital Corporation is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(k) Form of Advisory Agreement between the Registrant,
on behalf of its New England Strategic Income Fund, and
New England Funds Management, L.P. is incorporated
herein by reference to Post-Effective Amendment No. 25
to Registration Statement on Form N-1A (File No. 2-
98326) filed February 15, 1995.
(l) Form of Sub-Advisory Agreement for New England
Strategic Income Fund between New England Funds
Management, L.P. and Loomis Sayles is incorporated
herein by reference to Post-Effective Amendment No. 25
to Registration Statement on Form N-1A (File No. 2-
98326) filed February 15, 1995.
6.(a) Form of Distribution Agreement between the
Registrant, on behalf of each of its series, except New
England International Equity Fund, New England Capital
Growth Fund and New England Star Advisers Fund and New
England Funds, L.P. is incorporated by reference to
Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on May
1, 1991.
(b) The Distribution Agreement between the Registrant,
on behalf of its New England International Equity Fund,
and New England Funds, L.P. is incorporated herein by
reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on January 10, 1992.
(c) Form of Distribution Agreement between the
Registrant, on behalf of its New England Capital Growth
Fund, and New England Funds, L.P. is incorporated
herein by reference to Post-Effective Amendment No. 14
to the Registration Statement on Form N-1A (File No. 2-
98326) filed on May 5, 1992.
(d) Form of Distribution Agreement between the
Registrant, on behalf of its New England Star Advisers
Fund, and New England Funds, L.P. is incorporate herein
by reference to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on June 20, 1994.
(e) Form of Distribution Agreement between the
Registrant, on behalf of its New England Strategic
Income Fund, and New England Funds, L.P. is
incorporated herein by reference to Post-Effective
Amendment No. 25 to Registration Statement on Form N-1A
(File No. 2-98326) filed February 15, 1995.
7. None.
8.(a) Form of Custodian Contract dated April 13, 1988
between the Registrant, on behalf of its New England
Global Government Fund, and State Street Bank and Trust
Company ("State Street"), including form of
subcustodian agreement, is incorporated herein by
reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on April 13, 1988.
(b) Amendment No. 1 to Custodian Contract dated April
12, 1988 between the Registrant and State Street Bank
and Trust Company is incorporated herein by reference
to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
January 10, 1992.
(c) Form of Letter Agreement between the Registrant
and State Street relating to the applicability of the
Custodian Contract to the New England International
Equity Fund is incorporated herein by reference to Post-
Effective Amendment No. 13 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
April 1, 1992.
(d) Form of Letter Agreement between the Registrant
and State Street relating to the applicability of the
Custodian Contract to the New England Capital Growth
Fund is incorporated herein by reference to Post-
Effective Amendment No. 14 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on May
15, 1992.
(e) Form of Letter Agreement between the Registrant
and State Street relating to the applicability of the
Custodian Contract to the New England Star Advisers
Fund is incorporate herein by reference to Post-
Effective Amendment No. 24 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on June
20, 1994.
(f) Form of Letter Agreement between the Registrant
and State Street relating to the applicability of the
Custodian Contract to the New England Strategic Income
Fund is incorporated herein by reference to Post-
Effective Amendment No. 25 to Registration Statement on
Form N-1A (File No. 2-98326) filed February 15, 1995.
9.(a) Transfer Agency Agreement between the Registrant and
State Street is incorporated herein by reference to
Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
November 7, 1986.
(b) Form of Service Agreement between New England
Securities Corporation and Back Bay Advisors is
incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on November 7, 1986.
(c) Form of Service Agreement between New England
Securities Corporation and Loomis Sayles is
incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on November 7, 1986.
(d) Form of Service Agreement between New
England Securities Corporation and CGM is incorporated
herein by reference to Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A (File No. 2-
98326) filed on May 1, 1990.
(e) Form of Service Agreement among New England
Securities Corporation, Back Bay Advisors and UBS
Phillips & Drew relating to the Registrant's New
England Global Government Fund is incorporated herein
by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on February 3, 1988.
(f) Form of Administrative Agreement between New
England Securities Corporation and the Registrant is
incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on November 7, 1986.
(g) Form of Administrative Services Agreement
between the Registrant, on behalf of its New England
International Equity Fund, and New England Funds, L.P.
is incorporated herein by reference to Post-Effective
Amendment No. 25 to Registration Statement on Form N-1A
(File No. 2-98326) filed February 15, 1995.
(h) Organizational Expense Reimbursement
Agreement between the Registrant and New England Mutual
Life Insurance Company is incorporated herein by
reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on September 11, 1985.
(i) Organizational Expense Reimbursement
Agreement between the Registrant, on behalf of its New
England Global Government Series, and New England
Funds, L.P. is incorporated herein by reference to Post-
Effective Amendment No. 8 to the Registration Statement
on Form N-1A (File No. 2-98326) filed on April 13,
1988.
(j) Organizational Expense Reimbursement Agreement
between the Registrant, on behalf of its New England
International Equity Series and New England Funds,
L.P. is incorporated herein by reference to Post-
Effective Amendment No. 13 to the Registration
Statement on Form N-1A (File No. 2-98326) filed on
April 1, 1992.
(k) Organizational Expense Reimbursement Agreement
between the Registrant, on behalf of its New England
Capital Growth Series, is incorporated herein by
reference to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on August 19, 1992.
(l) Powers of attorney for Trustees of the Registrant
are filed herein.
(m) Transfer Agency Agreement between the Registrant
and New England Funds, L.P. (formerly TNE Investment
Services Corporation) is incorporated herein by
reference to Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A (File No. 2-98326)
filed February 15, 1995.
10.(a) Opinion and consent of counsel relating to the
Registrant's New England Growth Fund, New England
Equity Income Fund, New England Value Fund, New England
Bond Income Fund and New England Tax Exempt Income Fund
is incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on November 7, 1986.
(b) Opinion and consent of counsel relating to New
England Government Securities Fund is incorporated
herein by reference to Exhibit No. 10 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on September 11, 1985.
(c) Opinion and consent of counsel relating to the
Registrant's New England Global Government Fund is
incorporated herein by reference to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on April 13, 1988.
(d) Opinion and consent of counsel relating to the
Registrant's New England International Equity Fund is
incorporated herein by reference to Post-Effective
Amendment No. 17 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on October 20, 1992.
(e) Opinion and consent of counsel relating to the
Registrant's issuance of multiple classes of shares is
incorporated herein by reference to Post-Effective
Amendment No. 20 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on December 22, 1993.
(f) Opinion and consent of counsel relating to the
Registrant's New England Capital Growth Fund is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(g) Opinion and consent of counsel relating to the
Registrant's New England Star Advisers Fund is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(h) Opinion and consent of counsel relating to the
Registrant's New England Strategic Income Fund will be
filed by amendment.
11. None.
12. None.
13. Investment Letter of New England Securities Corporation
is incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on September 11, 1985.
14. The following are incorporated herein by reference to
Post-Effective Amendment No. 29 to the Registration
Statement on Form N-1A of NEL Growth Fund, Inc. (File
No. 2-28971) filed on December 22, 1983: (i) NEL
Equity Services Corporation Tax Sheltered Mutual Fund
Plan; (ii) HR-10 New England Life Defined Contribution
Prototype Retirement Plan for the Self-Employed; and
(iii) NEL Funds Prototype Individual Retirement Account
Plan.
15.(a) Rule 12b-1 Plans relating to the Class A
shares of New England Balanced Fund, New England Growth
Fund, New England Value Fund, New England International
Equity Fund, New England Capital Growth Fund, New
England Bond Income Fund, New England Tax Exempt Income
Fund, New England Government Securities Fund and New
England Global Government Fund are incorporated herein
by reference to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on June 25, 1993.
(b) Rule 12b-1 Plans relating to the Class B
shares of New England Balanced Fund, New England Value
Fund, New England International Equity Fund, New
England Capital Growth Fund, New England Bond Income
Fund, New England Government Securities Fund and New
England Global Government Fund are incorporated herein
by reference to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A (File No. 2-98326)
filed on December 22, 1993.
(c) Form of Rule 12b-1 Plan relating to the Class
A shares of New England Star Advisers Fund is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(d) Form of Rule 12b-1 Plan relating to the Class
B shares of New England Star Advisers Fund is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(e) Form of Rule 12b-1 Plan relating to the Class
C shares of New England Star Advisers Fund is
incorporate herein by reference to Post-Effective
Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-98326) filed on June 20, 1994.
(f) Rule 12b-1 Plans relating to the Class C
shares of the New England International Equity Fund,
New England Value Fund, New England Balanced Fund, New
England Capital Growth Fund and New England Bond Income
Fund are incorporated herein by reference to Post-
Effective Amendment No. 25 to Registration Statement on
Form N-1A (File No. 2-98326) filed February 15, 1995.
(g) Form of Rule 12b-1 Plan relating to the Class
A shares of New England Strategic Income Fund is
incorporated herein by reference to Post-Effective
Amendment No. 25 to Registration Statement on Form N-1A
(File No. 2-98326) filed February 15, 1995.
(h) Form of Rule 12b-1 Plan relating to the Class
B shares of New England Strategic Income Fund is
incorporated herein by reference to Post-Effective
Amendment No. 25 to Registration Statement on Form N-1A
(File No. 2-98326) filed February 15, 1995.
(i) Form of Rule 12b-1 Plan relating to the Class
C shares of New England Strategic Income Fund is
incorporated herein by reference to Post-Effective
Amendment No. 25 to Registration Statement on Form N-1A
(File No. 2-98326) filed February 15, 1995.
16. Schedule for computation of performance quotations is
incorporated herein by reference to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-
1A (File No. 2-98326) filed on May 1, 1989.
18. The semiannual report of New England Strategic Income Fund dated
June 30, 1995 (File No. 811-242) was filed pursuant to Rule 30b2-1
on September 12, 1995 and is incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with the Registrant
None.
Item 26. Number of Holders of Securities
The following table sets forth the number of record holders of
each class of securities of the Trust as of September 30, 1995.
Title of Class Number of Record Holders
Class A Class B Class C Class Y
Shares of Beneficial Interest
New England Growth Fund 82,079 --0-- --0-- --0--
No Par Value
Shares of Beneficial Interest
New England Value Fund 15,140 3,363 --0-- --0--
No Par Value
Shares of Beneficial Interest
New England Balanced Fund 13,892 4,488 69 6
No Par Value
Shares of Beneficial Interest
New England Bond Income Fund 12,346 2,121 50 6
No Par Value
Shares of Beneficial Interest
New England Government 10,075 379 --0-- 2
Securities Fund
No Par Value
Shares of Beneficial Interest
New England Tax Exempt Income 5,998 500 --0-- --0--
Fund
No Par Value
Shares of Beneficial Interest
New England Star Advisers Fund 17,193 19,150 2,533 5
No Par Value
Shares of Beneficial Interest
New England International 13,865 7,580 114 11
Equity Fund
No Par Value
Shares of Beneficial Interest
New England Capital Growth Fund 11,644 3,633 33 --0--
No Par Value
Shares of Beneficial Interest
New England Strategic Income 1,375 1,537 499 --0--
Fund
No Par Value
Item 27. Indemnification
Incorporated herein by reference to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A (File No. 2-98326)
filed on September 11, 1985.
Item 28. Business and Other Connections of Investment Adviser
(a) Draycott Partners, Ltd. ("Draycott"), the adviser of New
England International Equity Fund, provides investment
advice to three separate accounts of New England Mutual Life
Insurance Company ("The New England"), the indirect parent
corporation of Draycott. The three separate accounts are
the International Equity Separate Account, the European
Equity Separate Account and the Pacific Rim Equity Separate
Account. Interests in such separate accounts are offered to
U.S. tax-qualified pension and profit-sharing plans by means
of group annuity contracts issued by NEMLICO. Draycott's
directors and officers have been engaged during the past two
years in the following other businesses, vocations or
employments of a substantial nature (former affiliations are
marked with an asterisk):
Name and Office with Name and Address of Nature of
Draycott Other Affiliations Connection
Nicholas D.P. Carn, CIGNA International Managing Director,
Director, Chief Investment Advisors, International
Executive Officer, Ltd.* Equities Group
President, Chief 16 Finsbury Circus
Investment Officer and London EC2Y 1HE
Principal
Sherry A. Umberfield, New England Investment Executive Vice
Director Companies, L.P. President
501 Boylston Street
Boston, MA 02117
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
New England Investment Executive Vice
Companies, Inc. President
399 Boylston Street
Boston, MA 02116
Robert G. Barrett, Cassa Di Risparmio* Assistant General
Chief Financial Delle Provincie Manager
Officer, Treasurer, Lombarde (Cariplo)
Vice President, 6 Lombard Street
Principal, Compliance London EC3V 9AA
Officer and Assistant
Secretary
Timothy S. Griffen, CIGNA International* Vice President
Senior Portfolio Investment Advisors,
Manager and Principal Ltd.
Tokyo, Japan
Edward N. Wadsworth, New England Investment Executive Vice
General Counsel, Clerk Companies, L.P. President, Clerk,
and Secretary 501 Boylston Street Secretary and
Boston, MA 02117 General Counsel
Marlborough Capital Assistant Clerk
Advisors, Inc.
399 Boylston Street
Boston, MA 02116
New England Investment Secretary
Associates, Inc.
399 Boylston Street
Boston, MA 02116
Westpeak Investment Clerk, Secretary
Advisors, L.P. and Chief Legal
1050 Walnut Street, Officer
Suite 300
Boulder, CO 80302
Peter Hanson, Back Bay Advisors, L.P. Secretary and
Assistant Clerk and 399 Boylston Street Clerk
Assistant Secretary Boston, MA 02116
NEIC Counsel, Senior
399 Boylston Street Vice President,
Boston, MA 02116 Assistant Clerk
and Assistant
Secretary
(b) Loomis, Sayles & Company, L.P. ("Loomis Sayles"), the
adviser of the Registrant's New England Value Fund, New
England Balanced Fund and New England Capital Growth Fund
and subadviser to New England Strategic Income Fund and New
England Star Advisers Fund (Loomis Sayles' portion),
provides investment advice to a number of other registered
investment companies and to other organizations and
individuals.
Such adviser's directors and officers have been engaged
during the past two years in the following other businesses,
vocations or employments of a substantial nature:
Name and Office with Name and Address of Nature of
Loomis Sayles Other Affiliations Connection
Loomis Sayles, Inc. None None
General Partner
Robert J. Blanding, None None
President and Chief
Executive Officer
Daniel J. Fuss, None None
Executive Vice
President, Managing
Partner, Director
Jeffrey L. Meade, None None
Executive Vice
President and Chief
Operating Officer
Charles J. Finlayson, None None
Vice President,
General Counsel,
Secretary and Clerk
Meri Anne Beck, None None
Vice President
Mary C. Champagne, None None
Vice President
Richard W. Hurkes, None None
Vice President
Scott A. Pape, None None
Vice President
Douglas D. Ramos, None None
Vice President
Carol C. McMurtie, None None
Vice President,
Director and Managing
Partner
Tricia H. Mills, None None
Vice President
Jeffery C. Petherick, None None
Vice President
(c) Capital Growth Management Limited Partnership, the adviser
of the New England Growth Fund, provides investment advice
to a number of other registered investment companies and to
other organizations and individuals.
Name and Office with Name and Address of Nature of
CGM Other Affiliations Connection
Kenbob, Inc. None None
General Partner
(d) Back Bay Advisors, L.P. ("Back Bay Advisors"), the adviser
of the New England Bond Income Fund, New England Government
Securities Fund, New England Tax Exempt Income Fund and the
New England Global Government Fund, is indirectly owned by
The New England.
Back Bay Advisors serves as investment adviser to a number
of other registered investment companies. Back Bay Advisors
serves as a sub-adviser to New England International Equity
Fund. Back Bay Advisors' directors and officers have been
engaged during the past two years in the following
businesses, vocations or employments of a substantial nature
(former affiliations are marked with an asterisk):
Name and Office with Name and Address of Nature of
Back Bay Advisors Other Affiliations Connection
Back Bay Advisors, None None
Inc.
General Partner
Charles T. Wallis, NEF Corporation Director
President and Chief 399 Boylston Street
Executive Officer Boston, MA 02116
Back Bay Advisors, Inc. President, CEO and
399 Boylston Street Director
Boston, MA 02116
Charles G. Glueck, None None
Senior Vice President
Scott A. Millimet, Chicago Board of Trade* Senior Vice
Executive Vice 141 West Jackson President and
President Boulevard Manager of
Chicago, IL 60604 Carroll, McEntee &
McGinley
Edgar M. Reed, Aetna Capital Head of Fixed
Executive Vice Management* Income Management
President and Chief 151 Farmington Avenue Group
Investment Officer Hartford, CT 06156
J. Scott Nicholson, None None
Senior Vice President
Catherine Bunting, None None
Senior Vice President
Kimberly J. Forsyth, Legg Mason, Senior Vice
Senior Vice President Incorporated* President and
7 East Redwood Street Director of Tax-
Baltimore, MD 21202 Exempt Credit
Research
Via International Independent
City/County Consultant to
Management Association* Bulgaria
777 North Capital
Street, NE
Washington, DC 20002
Nathan R. Wentworth, None None
Vice President
Paul Zamagni, None None
Vice President and
Treasurer
Peter Palfrey, MONY Capital Management* Investment Vice
Vice President 1740 Broadway President
New York, NY 10019
Harold B. Bjornson, None None
Vice President
Peter Hanson, Draycott Partners, Ltd. Assistant
Secretary and Clerk 8 City Road Secretary and
London, England EC2Y 1HE Assistant Clerk
NEIC Counsel and Senior
399 Boylston Street Vice President,
Boston, MA 02116 Assistant
Secretary and
Assistant Clerk
(e) New England Investment Companies, L.P. ("NEIC") is a major
investment manager that, directly or through its
subsidiaries, offers a broad array of investment management
products and styles across a wide range of asset categories
to institutions (including more than 50 mutual funds) and
individuals.
Such adviser's directors and officers have been engaged
during the past two years in the following other businesses,
vocations or employments of a substantial nature (former
affiliations are marked with an asterisk). In certain
cases, officers of NEIC hold the same office with NEIC's
general partner.
Name and Office with Name and Address of Nature of
NEIC Other Affiliations Connection
New England Investment None None
Companies, Inc.,
General Partner
Peter S. Voss, Back Bay Advisors, Inc. Chairman of the
President and Chief 399 Boylston Street Board, Director
Executive Officer Boston, MA 02116
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
New England Mutual Life Director
Insurance Company
501 Boylston Street
Boston, MA 02116
New England Investment President, CEO and
Companies, Inc. Director
399 Boylston Street
Boston, MA 02116
William Berkowitz, Reich & Tang, Inc.* Executive Vice
Executive Vice 100 Park Avenue President and
President New York, NY Director
G. Neal Ryland, None None
Executive Vice
President, Treasurer
and Chief Financial
Officer
Sherry A. Umberfield, New England Investment Director
Executive Vice Associates, Inc.
President 399 Boylston Street
Boston, MA 02116
Draycott Partners, Ltd. Director
8 City Road
London, England EC2Y 1HE
NEF Corporation Director
399 Boylston Street
Boston, MA 02116
Edward N. Wadsworth, Marlborough Capital Assistant Clerk
Executive Vice Advisors, Inc.
President, General 399 Boylston Street
Counsel, Secretary and Boston, MA 02116
Clerk
New England Investment Secretary
Associates, Inc.
399 Boylston Street
Boston, MA 02116
Westpeak Investment Clerk, Secretary
Advisors, L.P. and Chief Legal
1050 Walnut Street, Officer
Suite 300
Boulder, CO 80302
Draycott Partners, Ltd. General Counsel,
8 City Road Clerk and
London, England EC2Y 1HE Secretary
Beverly M. Bearden, None None
Senior Vice President
Laurence J. Dwyer, Federal Home Loan Manager/Public
Senior Vice President Mortgage Corp.* Relations
Peter D. Hanson, Back Bay Advisors, L.P. Secretary and
Senior Vice President, 399 Boylston Street Clerk
Counsel, Assistant Boston, MA 02116
Clerk and Assistant
Secretary
Draycott Partners, Ltd. Assistant
8 City Road Secretary and
London, England EC2Y 1HE Assistant Clerk
William H. Morton, None None
Senior Vice President,
Controller and
Assistant Treasurer
Lorraine C. Hysler, Reich & Tang, Inc.* Secretary
Assistant Clerk and 100 Park Avenue
Assistant Secretary New York, NY
Richard De Sanctis, Reich & Tang, Inc.* Controller
Assistant Treasurer 100 Park Avenue
New York, NY
(f) Berger Associates, Inc. ("Berger"), serves as investment
adviser to mutual funds, pension and profit sharing plans
and other institutional and private investors. Berger's'
directors and officers have been engaged during the past two
years in the following other businesses, vocations or
employments of a substantial nature (former affiliations are
marked with an asterisk):
Name and Office with Name and Address of Nature of
Berger Other Affiliations Connection
William M. B. Berger, None None
Director
Rodney L. Linafelter, None None
Vice President and
Director
William R. Keithler, INVESCO Trust Company* Senior Vice
Vice President 7800 East Union Ave; President
Suite 800
Denver, CO 80237
Kevin R. Fay, None None
Vice President,
Secretary and
Treasurer
Brian S. Ferrie, United Services Compliance Officer
Compliance Officer Advisors, Inc.*
7900 Callaghan Road
San Antonio, TX 78229
David J. Schultz, Smith, Brock and Gwinn* Partner
Controller 650 South Cherry Street
Denver, CO 80222
Gerard M. Lavin, DST Systems Inc. Senior Officer
President and Director 1055 Broadway, 9th Floor
Kansas City, MO 64105
Investors Fiduciary President and CEO
Trust Co.*
127 West 10th Street
Kansas City, MO 64105
Landon H. Rowland, Kansas City Southern President and CEO
Director Industries, Inc.*
114 West 11th Street
Kansas City, MO 64105
(g) Founders Asset Management, Inc. ("Founders"), has been an
investment adviser since 1938 and serves as an investment
adviser to mutual funds and other accounts. Founders'
directors and officers have been engaged during the past two
years in the following other businesses, vocations or
employments of a substantial nature (former affiliations are
marked with an asterisk):
Name and Office with Name and Address of Nature of
Founders Other Affiliations Connection
Bjorn K. Borgen, None None
Director, Chief
Executive Officer and
Secretary
David L. Ray, None None
Vice President,
Assistant Secretary
and Treasurer
Michael K. Haines, None None
Senior Vice President
Michael Gerding, None None
Vice President
Charles Hooper, None None
Vice President
Linda Ripley, None None
Assistant Vice
President
Roberto Galindo, Jr., None None
Assistant Vice
President
Thomas Mauer, None None
Assistant Vice
President
Gregory Contillo, None None
Vice President
James Rankin, None None
Vice President
(h) Janus Capital Corporation ("Janus"), a sub-adviser to the
New England Star Adviser Fund, serves as investment adviser
to mutual funds and individual, corporate, charitable and
retirement accounts.
Janus' directors and officers have been engaged during the
past two years in the following businesses, vocations or
employments of a substantial nature (former affiliations are
marked with an asterisk):
Name and Office with Name and Address of Nature of
Janus Other Affiliations Connection
Thomas H. Bailey, IDEX Management, Inc. Chairman and
Chairman, Director and ("IDEX") Director
President Largo, FL
James P. Craig, None
Vice President
Thomas F. Marsico, None
Vice President
James P. Goff, None None
Vice President
Warren B. Lammert, None None
Vice President
Ronald V. Speaker, None None
Vice President
Helen Young Hayes, None None
Vice President
Sharon S. Pichler, None None
Vice President
Scott W. Schoelzel, None None
Vice President
David C. Tucker, Janus Service Vice President,
Vice President, Corporation ("Janus General Counsel
Secretary and General Service") and Director
Counsel
Janus Distributors, Inc. Vice President,
("Janus Distributors") General Counsel
and Director
Steven R. Goodbarn, Janus Service Vice President of
Treasurer and Chief Finance, Treasurer
Financial Officer and Chief
Financial Officer
Janus Distributors Vice President of
Finance, Treasurer
and Chief
Financial Officer
IDEX Director
Michael E. Herman, Ewing Marion Kauffman Chairman of
Director Foundation Finance Committee
Michael N. Stolper, Stolper & Company, Inc. President
Director 525 B Street
San Diego, CA
Thomas A. McDonnell, DST Systems, Inc. President, Chief
Director 1004 Baltimore Avenue Executive Officer
Kansas City, MO and Director
Kansas City Southern Executive Vice
Industries, Inc. President and
114 W. 11th Street Director
Kansas City, MO
(i) New England Funds Management, L.P. ("NEFM") is a wholly-
owned subsidiary of NEIC. NEFM was organized in 1995 and
has not previously served as investment adviser to a mutual
fund.
NEFM's directors and officers have been engaged during the
past two years in the following businesses, vocations or
employments of a substantial nature (former affiliations are
marked with an asterisk):
Name and Office with Name and Address of Nature of
NEFM Other Affiliations Connection
NEF Corporation None None
General Partner
Henry L.P. Schmelzer, New England Funds, President and CEO
President and Chief L.P.
Executive Officer 399 Boylston Street
Boston, MA 02116
NEF Corporation President, CEO and
399 Boylston Street Director
Boston, MA 02116
Back Bay Advisors, Director
Inc.
399 Boylston Street
Boston, MA 02116
New England Director
Securities
Corporation*
399 Boylston Street
Boston, MA 02116
Frank Nesvet, New England Funds, Senior Vice President
Senior Vice L.P. and CFO
President, Chief 399 Boylston Street
Financial Officer and Boston, MA 02116
Treasurer
NEF Corporation Senior Vice President,
399 Boylston Street CFO and Treasurer
Boston, MA 02116
Sheila M. Barry, NEF Corporation Secretary
Secretary 399 Boylston Street
Boston, MA 02116
New England Funds, Vice President, Senior
L.P. Counsel and Secretary
399 Boylston Street
Boston, MA 02116
Item 29. Principal Underwriter
(a) New England Funds, L.P. also serves as principal underwriter
for:
New England Tax Exempt Money Market Trust
New England Cash Management Trust
New England Funds Trust II
(b) The general partner and officers of the Registrant's
principal underwriter, New England Funds, L.P., and their
addresses are as follows:
Positions and Offices Positions and Offices
Name with Principal with Registrant
Underwriter
NEF Corporation General Partner None
Henry L.P. Schmelzer President and Chief President and Trustee
Executive Officer
J. Steven Neamtz Executive Vice Executive Vice
President President
Bruce R. Speca Executive Vice Executive Vice
President President
Robert P. Connolly Senior Vice President, Secretary
General Counsel,
Secretary and Clerk
Frank Nesvet Senior Vice President Treasurer
and Chief Financial
Officer
Munish C. Agrawal Vice President None
Sheila M. Barry Vice President, Assistant Secretary
Assistant Secretary and
Assistant Clerk
Elizabeth P. Burns Vice President None
James H. Davis Vice President None
Peter H. Duffy Vice President Assistant Treasurer
Martin G. Dyer Vice President None
Tracy A. Fagan Vice President None
William H. Finnegan Vice President None
Raymond K. Girouard Vice President, None
Treasurer and
Controller
Annette Golia Vice President None
Ralph M. Greggs Vice President None
Caren I. Leedom Vice President None
Marie G. McKenzie Vice President None
Bernard M. Shavelson Vice President None
Christine L. Swanson Vice President None
Kristine E. Swanson Vice President None
Beatriz A. Pina Assistant Comptroller None
The principal business address of all the above persons or
entities is 399 Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The following companies maintain possession of the documents
required by the specified rules:
(a) Registrant
Rule 31a-1(b)(4)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
(c) (i) For the Funds of the Trust advised by:
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(ii) For the Fund of the Trust advised by:
Capital Growth Management Limited Partnership,
One International Place,
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(iii) For Funds of the Trust advised by:
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(iv) For New England International Equity Fund:
Draycott Partners, Ltd.
8 City Road
London, EC2Y 1HE
England
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(v) For New England Star Advisers Fund:
New England Investment Companies, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Berger Associates, Inc.
210 University Blvd.; Suite 900
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Janus Capital Corporation
100 Fillmore Street
East Third Ave
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Founders Asset Management, Inc.
2930 East Third Ave.
Denver, CO 80206
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(vi) For New England Strategic Income Fund:
New England Funds Management, L.P.
399 Boylston Street
Boston, MA 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
Loomis, Sayles & Company, L.P.
One Financial Center
Boston, MA 02111
Rule 31a-1(b)(9), (10), (11); 31a-1(f)
Rule 31a-2(e)
(d) New England Funds, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a - 1(d)
Rule 31a - 2(c)
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) The Registrant undertakes to provide any Fund's annual
report to any person who receives a Fund prospectus and who
requests the annual report.
(b) The Registrant hereby undertakes that, if requested to do so
by holders of at least 10% of the Fund's outstanding shares,
it will call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or trustees
and will assist in communications between shareholders for
such purpose as provided in Section 16(c) of the Investment
Company Act of 1940.
<PAGE>
NEW ENGLAND FUNDS TRUST I
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 27 to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the
City of Boston, in the Commonwealth of Massachusetts on the 11th
day of October, 1995.
NEW ENGLAND FUNDS TRUST I
By: PETER S. VOSS*
Peter S. Voss
Chief Executive Officer
*By: /s/ROBERT P. CONNOLLY
Robert P. Connolly
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
PETER S. VOSS* Chairman of the Board; October 11, 1995
Peter S. Voss Chief Executive
Officer; Principal
Executive Officer;
Trustee
Chief Financial October 11, 1995
Frank Nesvet Officer
GRAHAM T. ALLISON, Trustee October 11, 1995
JR.*
Graham T. Allison, Jr.
KENNETH J. COWAN* Trustee October 11, 1995
Kenneth J. Cowan
SANDRA O. MOOSE* Trustee October 11, 1995
Sandra O. Moose
JAMES H. SCOTT* Trustee October 11, 1995
James H. Scott
HENRY L. P. SCHMELZER* Trustee October 11, 1995
Henry L. P. Schmelzer
JOHN A. SHANE* Trustee October 11, 1995
John A. Shane
PENDLETON P. WHITE* Trustee October 11, 1995
Pendleton P. White
*By:/s/ROBERT P. CONNOLLY
Robert P. Connolly
Attorney-In-Fact
October 11, 1995
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
EX-99B 9(l) Powers of Attorney
EX-27 Financial Data Schedule
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/GRAHAM T. ALLISON
Graham T. Allison, Jr. - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/KENNETH J. COWAN
Kenneth J. Cowan - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/SANDRA O. MOOSE
Sandra O. Moose - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, and Robert P. Connolly, each of them singly, my
true and lawful attorneys, with full power to them and each of
them to sign for me, and in my name in the capacity indicated
below, any and all registration statements and any and all
amendments thereto to be filed with the Securities and Exchange
Commission for the purpose of registering from time to time
investment companies of which I am now or hereafter a Director or
Trustee and for which Capital Growth Management Limited
Partnership, Back Bay Advisors, Inc., Loomis, Sayles & Company,
Incorporated, Draycott Partners Limited, Westpeak Investment
Advisors, Inc. and/or any other affiliate of New England Mutual
Life Insurance Company ("The New England") serves as adviser, sub-
adviser or co-adviser, registering the shares of such companies
and generally to do all such things in my name and in my behalf
to enable such registered investment companies to comply with the
provisions of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and all requirements
and regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my
said attorneys and any and all registration statements and
amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/HENRY L.P. SCHMELZER
Henry L. P. Schmelzer - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/JAMES H. SCOTT
James H. Scott - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/JOHN A. SHANE
John A. Shane - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin,
Frank Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each
of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name in the
capacity indicated below, any and all registration statements and
any and all amendments thereto to be filed with the Securities
and Exchange Commission for the purpose of registering from time
to time investment companies of which I am now or hereafter a
Director or Trustee and for which Capital Growth Management
Limited Partnership, Back Bay Advisors, Inc., Loomis, Sayles &
Company, Incorporated, Draycott Partners Limited, Westpeak
Investment Advisors, Inc. and/or any other affiliate of New
England Mutual Life Insurance Company ("The New England") serves
as adviser, sub-adviser or co-adviser, registering the shares of
such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to
comply with the provisions of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and
all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming my signature as it
may be signed by my said attorneys and any and all registration
statements and amendments thereto.
Witness my hand on the 28th day of April, 1995.
/s/PETER S. VOSS
Peter S. Voss - Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Edward A. Benjamin, Frank
Nesvet, Henry L.P. Schmelzer and Robert P. Connolly, each of them
singly, my true and lawful attorneys, with full power to them and each
of them to sign for me, and in my name in the capacity indicated
below, any and all registration statements and any and all amendments
thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time investment companies of
which I am now or hereafter a Director or Trustee and for which
Capital Growth Management Limited Partnership, Back Bay Advisors,
Inc., Loomis, Sayles & Company, Incorporated, Draycott Partners
Limited, Westpeak Investment Advisors, Inc. and/or any other affiliate
of New England Mutual Life Insurance Company ("The New England")
serves as adviser, sub-adviser or co-adviser, registering the shares
of such companies and generally to do all such things in my name and
in my behalf to enable such registered investment companies to comply
with the provisions of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and all requirements and
regulations of the Securities and Exchange Commission, hereby
ratifying and confirming my signature as it may be signed by my said
attorneys and any and all registration statements and amendments
thereto.
Witness my hand on the 28th day of April, 1995.
/s/PENDLETON P. WHITE
Pendleton P. White - Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUL-30-1995
<INVESTMENTS-AT-COST> 41,127,890
<INVESTMENTS-AT-VALUE> 40,793,512
<RECEIVABLES> 2,722,745
<ASSETS-OTHER> 103,036
<OTHER-ITEMS-ASSETS> 66,783
<TOTAL-ASSETS> 43,686,076
<PAYABLE-FOR-SECURITIES> 1,623,396
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 150,344
<TOTAL-LIABILITIES> 1,733,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,293,592
<SHARES-COMMON-STOCK> 1,366,907
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 245,427
<OVERDISTRIBUTION-NII> (54,115)
<ACCUMULATED-NET-GAINS> 6,660
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (333,801)
<NET-ASSETS> 16,855,056
<DIVIDEND-INCOME> 34,765
<INTEREST-INCOME> 279,230
<OTHER-INCOME> 0
<EXPENSES-NET> 68,568
<NET-INVESTMENT-INCOME> 245,427
<REALIZED-GAINS-CURRENT> 6,660
<APPREC-INCREASE-CURRENT> (333,801)
<NET-CHANGE-FROM-OPS> (81,714)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 135,378
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,088,492
<NUMBER-OF-SHARES-REDEEMED> 192,483
<SHARES-REINVESTED> 109,441
<NET-CHANGE-IN-ASSETS> 42,293,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,568
<AVERAGE-NET-ASSETS> 9,295,266
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.19
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.33
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUL-30-1995
<INVESTMENTS-AT-COST> 41,127,890
<INVESTMENTS-AT-VALUE> 40,793,512
<RECEIVABLES> 2,722,745
<ASSETS-OTHER> 103,036
<OTHER-ITEMS-ASSETS> 66,783
<TOTAL-ASSETS> 43,686,076
<PAYABLE-FOR-SECURITIES> 1,623,396
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 150,344
<TOTAL-LIABILITIES> 1,733,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,429,834
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 245,427
<OVERDISTRIBUTION-NII> (54,115)
<ACCUMULATED-NET-GAINS> 6,660
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (333,801)
<NET-ASSETS> 17,629,597
<DIVIDEND-INCOME> 34,765
<INTEREST-INCOME> 279,230
<OTHER-INCOME> 0
<EXPENSES-NET> 68,568
<NET-INVESTMENT-INCOME> 245,427
<REALIZED-GAINS-CURRENT> 6,660
<APPREC-INCREASE-CURRENT> (333,801)
<NET-CHANGE-FROM-OPS> (81,714)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 115,745
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,834,196
<NUMBER-OF-SHARES-REDEEMED> 122,397
<SHARES-REINVESTED> 72,855
<NET-CHANGE-IN-ASSETS> 42,293,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,568
<AVERAGE-NET-ASSETS> 9,295,266
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.33
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUL-30-1995
<INVESTMENTS-AT-COST> 41,127,890
<INVESTMENTS-AT-VALUE> 40,793,512
<RECEIVABLES> 2,722,745
<ASSETS-OTHER> 103,036
<OTHER-ITEMS-ASSETS> 66,783
<TOTAL-ASSETS> 43,686,076
<PAYABLE-FOR-SECURITIES> 1,623,396
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 150,344
<TOTAL-LIABILITIES> 1,733,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 602,647
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 245,427
<OVERDISTRIBUTION-NII> (54,115)
<ACCUMULATED-NET-GAINS> 6,660
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (333,801)
<NET-ASSETS> 7,427,683
<DIVIDEND-INCOME> 34,765
<INTEREST-INCOME> 279,230
<OTHER-INCOME> 0
<EXPENSES-NET> 68,568
<NET-INVESTMENT-INCOME> 245,427
<REALIZED-GAINS-CURRENT> 6,660
<APPREC-INCREASE-CURRENT> (333,801)
<NET-CHANGE-FROM-OPS> (81,714)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 48,419
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,159,341
<NUMBER-OF-SHARES-REDEEMED> 685,183
<SHARES-REINVESTED> 29,330
<NET-CHANGE-IN-ASSETS> 42,293,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,568
<AVERAGE-NET-ASSETS> 9,295,266
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.33
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
