-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, a3SQufOrFrKJEfSpKTUWFwB9q9/QCgA8ym9/GHIfHbsI5JiW1maXgHj8kqdkl3rK 3iztiStUpxbgNe9psI2g9g== 0000915707-95-000018.txt : 19950508 0000915707-95-000018.hdr.sgml : 19950508 ACCESSION NUMBER: 0000915707-95-000018 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950505 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND FUNDS TRUST I CENTRAL INDEX KEY: 0000770540 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-98326 FILM NUMBER: 95534747 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND GOVERNMENT SECURITIES FUND DATE OF NAME CHANGE: 19861111 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND LIFE GOVERNMENT SECURITIES TRUST DATE OF NAME CHANGE: 19860930 497 1 Via Edgar May 3, 1995 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: New England Funds Trust I File Nos. 2-98326 and 811-4323 Dear Sir or Madam: Pursuant to Rule 497(e) of the Securities Act of 1933, as amended, transmitted for filing on behalf of New England Funds Trust I is a form of the prospectus dated May 1, 1995 for New England Strategic Income Fund (the OFundO). In addition a supplement dated May 1, 1995 to that propsectus is also transmitted for filing. This form of the prospectus dated May 1, 1995 varies from the form of the Fund's prospectus filed pursuant to Rule 485(a) on February 15, 1995 which became effective on May 1, 1995. Acknowledgment of this filing will be confirmed through the Compuserve System. If you have any questions regarding this filing, please do not hesitate to call me at (617) 578-1669. Very truly yours, [SIGNATURE] Sheila M. Barry SMB/eac Enclosures CC: R. Connolly NEW ENGLAND FUNDS TRUST I NEW ENGLAND STRATEGIC INCOME FUND Supplement dated May 1, 1995 to New England Strategic Income Fund Prospectus dated May 1, 1995 and New England Bond Funds Prospectus dated May 1, 1995 On the first $25 million in commissionable sales of New England Strategic Income Fund (the OFundO), the Distributor will pay additional concessions to participating investment dealers. Specifically, the Distributor will pay participating investment dealers 5.00% on commissionable sales of Class A shares of up to $100,000, which includes a 1.00% additional concession. On commissionable sales of Class A shares in excess of $100,000, the Distributor will pay 1.00% in addition to the amount of the dealer's concession set forth in the Fund's prospectus. During the same period, the Distributor will pay a total of 5.00% and 2.00%, respectively, on commissionable sales of Class B and Class C shares, which includes a 1.00% additional concession. [LOGO] NEW ENDLGNAD FUNDS NEW ENGLAND STRATEGIC INCOME FUND Prospectus and Application May 1, 1995 New England Strategic Income Fund (the OFundO), a newly-organized, diversified mutual fund, is a series of New England Funds Trust I (the OTrustO), a registered open-end management investment company. Other series of the Trust are described in separate prospectuses. The Fund seeks high current income with a secondary objective of capital growth. There can be no assurance the Fund will achieve its objectives, which may be changed without shareholder approval. The Fund offers three classes of shares to the general public (Classes A, B and C). The offering price is based on the net asset value per share next determined after an order is received. Class A share purchases generally involve a sales charge at the time of purchase. No initial sales charge applies to Class B share purchases. A contingent deferred sales charge (OCDSCO), however, is imposed upon certain redemptions of Class B shares. Class B shares automatically convert to Class A shares eight years after purchase. No initial sales charge or CDSC applies to purchases or redemptions of Class C shares which do not have a conversion feature. Class B and Class C shares bear higher 12b-1 fees than Class A shares. See OBuying Fund Shares -- Sales Charges.O Through a separate prospectus, the Fund also offers Class Y shares to certain institutional investors. This prospectus sets forth information you should know before investing in the Fund. Please read it carefully and keep it for future reference. A statement of additional information in two parts (the OStatementO) about the Fund dated May 1, 1995 has been filed with the Securities and Exchange Commission (the OSECO) and is available free of charge. Write to New England Funds, L.P. (the ODistributorO), SAI Fulfillment Desk, 399 Boylston Street, Boston, MA 02116 or call toll free at 1-800-225-5478. The Statement contains more detailed information about the Fund and is incorporated into this prospectus by reference. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. For general information on the Fund or any of its services and for assistance in opening an account, contact your investment dealer or call the Distributor toll free: 1-800-225-5478. TABLE OF CONTENTS Page 03 NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDOS ADVISER AND SUBADVISER 03 SCHEDULE OF FEES Sales charges, yearly operating expenses. INVESTMENT STRATEGY 05 How the Fund Pursues Its Objectives 07 INVESTMENT RISKS It is important to understand the risks inherent in the Fund before you invest. 11 FUND MANAGEMENT BUYING FUND SHARES 12 Minimum Investment Everything you need to know to open and add to a New England Strategic Income Fund account. 12 6 Ways to Buy Fund Shares - Through your investment dealer - By mail - By wire transfer of Federal Funds - By Investment Builder - By electronic purchase through ACH - By exchange from another New England Fund 13 Sales Charges 15 Reduced Sales Charges (Class A Shares Only) OWNING FUND SHARES 17 Exchanging Among New England Funds New England Funds offers three convenient ways to exchange Fund shares. 17 Fund Dividend Payments SELLING FUND SHARES 19 4 Ways to Sell Fund Shares How to withdraw money or close your account. - Through your investment dealer - By telephone - By mail - By Systematic Withdrawal Plan 20 Repurchase Option (Class A Shares Only) An opportunity to reinvest your redemption proceeds within 120 days for no sales charge. FUND DETAILS 21 How Fund Share Price is Determined Additional information you may find important. 21 Income Tax Considerations 22 The FundOs Expenses 23 Performance Criteria 23 Additional Facts About the Fund 25 Appendix A 26 Glossary of Terms Ratings of Securities NEW ENGLAND INVESTMENT COMPANIES AND THE FUNDOS ADVISER AND SUBADVISER The investment adviser and subadviser of the Fund are independently- operated subsidiaries of New England Investment Companies, L.P. (ONEICO), the fifth-largest publicly traded investment management firm in the United States. NEIC is listed on the New York Stock Exchange and through its subsidiaries or an affiliate manages over $60 billion in assets for individuals and institutions. The adviser and subadviser operate independently and are staffed by experienced investment professionals. The adviser and subadviser apply specialized knowledge and careful analysis to the pursuit of the FundOs objectives. NEW ENGLAND FUNDS MANAGEMENT, L.P. (ONEFMO), investment adviser of the Fund, is a newly organized investment adviser. LOOMIS, SAYLES & COMPANY, L.P. (OLOOMIS SAYLESO), subadviser to the Fund, has over $35 billion of assets under management. Loomis Sayles manages portfolios for institutional investors, individuals and mutual funds. SCHEDULE OF FEES Expenses are one of several factors to consider when you invest in the Fund. The following table summarizes your maximum transaction costs from investing in the Fund and estimated annual expenses for each class of the FundOs shares. The Example on the following page shows the cumulative expenses attributable to a hypothetical $1,000 investment in each class of shares of the Fund for the periods specified. SHAREHOLDER TRANSACTION EXPENSES -- PAID DIRECTLY BY SHAREHOLDERS
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 (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
ANNUAL OPERATING EXPENSES -- PAID DIRECTLY BY THE FUND, AND INDIRECTLY BY ITS SHAREHOLDERS (as a percentage of net assets)
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%* * 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.
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.
CLASS A CLASS B CLASS C (1) (2) 1 year $57 $60 $20 $20 3 years $83 $93 $63 $63 (1) Assumes redemption at end of period. (2) Assumes no redemption.
The purpose of this fee schedule is to assist you in understanding the various costs and expenses that you will bear directly or indirectly if you invest in the Fund. For information about the expenses of the FundOs Class Y shares, which differ from the expenses of the Class A, Class B and Class C shares, see OAdditional Facts About the Fund.O To obtain more information about Class Y shares, please call the Distributor toll-free at 1-800-225-5478. For additional information about the FundOs management fees, 12b-1 fees and other expenses, please see OFund ManagementO and OThe FundOs Expenses.O A wire fee (currently $5.00) will be deducted from your proceeds if you elect to transfer redemption proceeds by wire. Please keep in mind that the Example shown above is hypothetical. The information above should not be considered a representation of past or future return or expenses; actual return or expenses may be more or less than those shown. INVESTMENT STRAGEGY The Fund seeks high current income with a secondary objective of capital growth. How the Fund Pursues Its Objectives Investments in the Fund will be pooled with money from other investors in the Fund to invest in a managed portfolio consisting of securities appropriate to the FundOs investment objectives and policies. There can be no assurance that the Fund will achieve its objectives. The Fund seeks to achieve its investment objectives by investing at least 65% of its total assets in debt instruments. The Fund may invest in debt instruments issued by corporations based in the United States or abroad and debt instruments that are convertible into equity securities. The Fund may also invest in U.S. Government Securities, which term as used in this prospectus includes all securities issued or guaranteed by the U.S. Government or its agencies, authorities or instrumentalities; and in securities issued or guaranteed by foreign governments (including their political subdivisions, agencies, authorities and/or instrumentalities) (OForeign Government SecuritiesO) and securities issued by supranational agencies. The Fund may invest in debt instruments in any rating category including debt instruments rated in the lowest rating categories (C by MoodyOs Investors Service, Inc., [OMoodyOsO] and D by Standard and PoorOs Corporation [OS&PO]) and in instruments that are unrated. Securities rated below investment grade quality are considered high yield, high risk securities and are commonly known as Ojunk bonds.O For more information about the risks of investing in high yield, high risk securities and securities of foreign issuers, see OInvestment Risks -- Lower Rated Fixed- Income SecuritiesO and OForeign Securities.O Under normal market conditions, the Fund will invest in debt instruments of both domestic and foreign issuers and in corporate as well as government issues. At any time, however, the Fund may invest up to 100% of its assets in debt instruments of U.S. issuers, in debt instruments of foreign issuers, in corporate debt instruments or in government securities. The Fund may invest up to a total of 35% of its total assets in preferred stocks, dividend-paying common stocks and shares of closed-end investment companies (which shares will not exceed 10% of the FundOs total assets). The proportion of Fund assets invested in corporate bonds, government bonds, preferred or common stock will vary over time based on changing market conditions. When Loomis Sayles believes that a particular market presents more opportunity than other markets, it may increase the proportion of the FundOs assets invested in that market. The Fund may invest in Rule 144A securities. For hedging purposes, the Fund may also purchase and sell options and futures and engage in foreign currency transactions. The Fund may also invest in mortgage-backed securities, zero coupon bonds, stripped securities and pay-in-kind securities. * U.S. AND FOREIGN GOVERNMENT SECURITIES Different types of U.S. and Foreign Government Securities have different kinds of government support. U.S. Government Securities include securities backed by the full faith and credit of the U.S. Government, as well as many other securities that are not full faith and credit obligations. For example, obligations of the Federal Home Loan Banks are supported by the right of the issuer to borrow from the U.S. Treasury, and obligations of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association (the OFNMAO) are supported only by the credit of those corporations. Similarly, obligations of foreign governmental entities include obligations issued or guaranteed by governments with taxing power or by their agencies. Some Foreign Government Securities are supported by the full faith and credit of a foreign national government or political subdivision (such as a province of Canada) and some are not. For example, Foreign Government Securities include securities issued by corporations which have been charged with a public purpose and a majority of whose outstanding equity securities are owned by a foreign government or government agency. Such securities may be supported only by the credit of the issuing corporation and not by that of the government or agency. In addition to investing directly in U.S. and Foreign Government Securities, the Fund may purchase OstrippedO securities evidencing undivided ownership interests in interest payments or principal payments, or both, on U.S. and Foreign Government Securities. These investments may be more volatile than other types of U.S. or Foreign Government Securities. * FOREIGN CURRENCY EXCHANGE TRANSACTIONS As the Fund may invest in securities denominated in foreign currencies or traded in foreign markets, it may engage in related foreign currency exchange transactions to protect the value of specific portfolio positions or in anticipation of changes in relative values of currencies in which current or future portfolio holdings are denominated or quoted. Foreign currency transactions involve costs and may result in losses. See Part II of the Statement for more information. * ADDITIONAL INFORMATION The Fund may purchase securities for its portfolio on a Owhen-issuedO basis. This means that the Fund will enter into the commitment to buy the security before the security has been issued. The FundOs payment obligation and the interest rate on the security are determined when the Fund enters into the commitment. The security is typically delivered to the Fund 15 to 120 days later. No interest accrues on the security between the time the Fund enters into the commitment and the time the security is delivered. The Fund, consistent with its investment objectives, attempts to maximize yield by engaging in portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic market conditions and trends. The Fund also invests to take advantage of what are believed to be temporary disparities in the yields of the different segments of the market for U.S. Government Securities. These policies may result in a higher turnover rate in the FundOs portfolio which may produce higher transaction costs and a higher level of taxable capital gains. Portfolio turnover considerations will not limit the FundOs subadviserOs investment discretion in managing the FundOs assets. Although it is not possible to predict the portfolio turnover rate with certainty, Loomis Sayles expects the FundOs portfolio turnover rate will usually not exceed an annual rate of 150%. A turnover rate in excess of 100% may be considered high. The Fund may enter into repurchase agreements, under which the Fund buys securities from a seller, usually a bank or brokerage firm, with the understanding that the seller will repurchase the securities at a higher price at a later date. Such transactions afford an opportunity for the Fund to earn a return on available cash at minimal credit risk, although the Fund may be subject to various delays and risks of loss if the seller is unable to meet its obligation to repurchase. The staff of the SEC is currently of the view that repurchase agreements maturing in more than seven days are illiquid securities. INVESTMENT RISKS It is important to understand the following risks inherent in the Fund before you invest. * FIXED-INCOME SECURITIES The Fund invests principally in fixed-income securities. Because interest rates vary, it is impossible to predict the income of the Fund for any particular period. The net asset value of your shares will vary as a result of changes in the value of the bonds and other securities in the FundOs portfolio. Fixed-income securities are subject to market and credit risk. Market risk relates to changes in a securityOs value as a result of changes in interest rates generally. Generally, rising interest rates correlate with falling security values. Credit risk relates to the ability of the issuer to make payments of principal and interest. U.S. Government Securities do not involve the credit risks associated with other types of fixed-income securities; as a result, the yields available from U.S. Government Securities are generally lower than the yields available from corporate fixed-income securities. * LOWER RATED FIXED-INCOME SECURITIES Lower rated fixed-income securities and corporate fixed-income securities generally provide higher yields than U.S. Government and many Foreign Government Securities, but are subject to greater credit and market risk than higher quality fixed-income securities. Lower rated fixed-income securities are considered predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. Achievement of the investment objective of a fund investing in lower rated fixed-income securities may be more dependent on the investment adviserOs or subadviserOs own credit analysis than is the case for higher quality bonds. The market for lower rated fixed-income securities may be more severely affected than some other financial markets by economic recession or substantial interest rate increases, by changing public perceptions of this market or by legislation that limits the ability of certain categories of financial institutions to invest in these securities. In addition, the secondary market may be less liquid for lower rated fixed-income securities. This lack of liquidity at certain times may affect the valuation of these securities and may make the valuation and sale of these securities more difficult. * FOREIGN SECURITIES Foreign Government Securities and foreign corporate securities present risks not associated with investments in U.S. Government or corporate securities. Since most foreign securities are denominated in foreign currencies or traded primarily in securities markets in which settlements are made in foreign currencies, the value of these investments and the net investment income available for distribution to shareholders of the Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations. Because the Fund may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the FundOs assets and the FundOs income available for distribution. In addition, although the FundOs income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, if the value of a currency relative to the U.S. dollar declines after the FundOs income has been earned in that currency, translated into U.S. dollars and declared as a dividend, but before payment of such dividend, the Fund could be required to liquidate portfolio securities to pay such dividend. Similarly, if the value of a currency relative to the U.S. dollar declines between the time the Fund incurs expenses in U.S. dollars and the time such expenses are paid, the amount of such currency required to be converted into U.S. dollars in order to pay such expenses in U.S. dollars will be greater than the equivalent amount in such currency of such expenses at the time they were incurred. There may be less information publicly available about a foreign corporate or government issuer than about a U.S. issuer, and foreign corporate issuers are not generally subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. The securities of some foreign issuers are less liquid and at times more volatile than securities of comparable U.S. issuers. Foreign brokerage commissions and other fees in some circumstances may be higher than in the United States. With respect to certain foreign countries, there is a possibility of expropriation of assets, confiscatory taxation, political or financial instability and diplomatic developments that could affect the value of investments in those countries. The receipt of interest on foreign government securities may depend on the availability of tax or other revenues to satisfy the issuerOs obligations. The Fund may have limited legal recourse should a foreign government be unwilling or unable to repay the principal or interest owed. The Fund will invest all or any portion of its assets in the securities of emerging markets. Investments in emerging markets include investments in countries whose economies or securities markets are not yet highly developed. Special considerations associated with these investments (in addition to the considerations regarding foreign investments as discussed above) may include, among others, greater political uncertainties, an economyOs dependence on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, highly limited numbers of potential buyers for such securities and delays and disruptions in securities settlement procedures. In addition, the Fund may invest in securities issued by supranational agencies. Supranational agencies are agencies whose member nations make capital contributions to support the agenciesO activities, and include such entities as the International Bank for Reconstruction and Development (the World Bank), the Asian Development Bank, the European Coal and Steel Community and the Inter-American Development Bank. In determining whether to invest in securities of foreign issuers, Loomis Sayles will consider the likely effects of foreign taxes on the net yield available to the Fund and its shareholders. Compliance with foreign tax law may reduce the FundOs net income available for distribution to shareholders. * MORTGAGE-RELATED SECURITIES Mortgage-related securities, such as mortgage participation certificates guaranteed by the Government National Mortgage Association or FNMA certificates, differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans generally may be prepaid at any time. As a result, if the Fund purchases these securities at a premium, a faster- than-expected prepayment rate will reduce yield to maturity, and a slower- than-expected prepayment rate will have the opposite effect of increasing yield to maturity. If the Fund purchases mortgage-related securities at a discount, faster-than-expected prepayments will increase, and slower-than- expected prepayments will reduce, yield to maturity. Prepayments, and resulting amounts available for reinvestment by the Fund, are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates. Accelerated prepayments on securities purchased at a premium may result in a loss of principal if the premium has not been fully amortized at the time of prepayment. Although these securities will decrease in value as a result of increases in interest rates generally, they are likely to appreciate less than other fixed-income securities when interest rates decline because of the risk of prepayments. Adjustable rate mortgage securities (OARMsO), like traditional mortgage securities, are interests in a pool of mortgage loans that provide investors with payments consisting of both principal and interest as mortgage loans in the underlying mortgage pool are paid off by the borrowers. ARMs have interest rates that are reset at periodic intervals, usually by reference to some interest rate index or market interest rate. Although the rate adjustment feature may act as a buffer to reduce sharp changes in the value of adjustable rate securities, these securities are still subject to changes in value based on changes in market interest rates or changes in the issuerOs creditworthiness. Because the interest rates are reset only periodically, changes in the interest rate on ARMs may lag changes in prevailing market interest rates. Also, some ARMs (or the underlying mortgages) are subject to caps or floors that limit the maximum change in interest rate during a specified period or over the life of the security. As a result, changes in the interest rate on an ARM may not fully reflect changes in prevailing market interest rates during certain periods. Because of the resetting of interest rates, ARMs are less likely than non- adjustable rate securities of comparable quality and maturity to increase significantly in value when market interest rates fall. * COLLATERALIZED MORTGAGE OBLIGATIONS Collateralized mortgage obligations (OCMOsO) are securities backed by a portfolio of mortgages or mortgage securities held under an indenture. The underlying mortgages or mortgage securities are issued or guaranteed by the U.S. Government or an agency or instrumentality thereof. The issuerOs obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage securities. CMOs are issued with a number of classes or series which have different maturities and which may represent interests in some or all of the interest or principal on the underlying collateral or a combination thereof. CMOs of different classes are generally retired in sequence as the underlying mortgage loans in the mortgage pool are repaid. In the event of sufficient early prepayments on such mortgages, the class or series of CMO first to mature generally will be retired prior to its maturity. Thus, the early retirement of a particular class or series of CMO held by the Fund would have the same effect as the prepayment of mortgages underlying a mortgage pass-through security. CMOs may be considered derivative securities. * OSTRIPPEDO SECURITIES Stripped securities are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. or Foreign Government Securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or OIOO class), while the other class will receive all of the principal (the principal-only or OPOO class). Stripped securities commonly have greater market volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated payments of principal, the Fund may fail to recoup fully its investments in IOs. The staff of the SEC has indicated that it views stripped mortgage securities as illiquid unless the securities are issued by the U.S. Government or its agencies and are backed by fixed-rate mortgages. The Fund intends to abide by the staffOs position. Stripped securities may be considered derivative securities. * ZERO COUPON AND PAY-IN-KIND SECURITIES Zero coupon securities are issued at a significant discount from face value and pay interest only at maturity, rather than at intervals during the life of the security. Pay-in-kind securities pay dividends or interest in the form of additional securities of the issuer, rather than in cash. The prices of pay-in-kind or zero coupon securities may react more strongly to changes in interest rates than the prices of many other securities. The Fund is required to accrue and distribute income from pay-in-kind and zero coupon securities on a current basis, even though the Fund will not receive the income currently in cash. Thus the Fund may have to sell other investments to obtain cash needed to make income distributions. * WHEN-ISSUED SECURITIES If the value of a Owhen-issuedO security being purchased falls between the time a Fund commits to buy it and the payment date, the Fund may sustain a loss. The risk of this loss is in addition to the FundOs risk of loss on the securities actually in its portfolio at the time. In addition, when the Fund buys a security on a when-issued basis, it is subject to the risk that market rates of interest will increase before the time the security is delivered, with the result that the yield on the security delivered to the Fund may be lower than the yield available on other, comparable securities at the time of delivery. The Fund will maintain liquid high grade assets in a segregated account in an amount sufficient to satisfy its outstanding obligations to buy securities on a Owhen-issuedO basis. * OPTIONS AND FUTURES The Fund may engage in a variety of transactions involving the use of options and futures with respect to U.S. or Foreign Government Securities or corporate fixed-income securities for purposes of hedging against changes in interest rates. There is no assurance that these hedging strategies will be effective. Futures are subject to potentially unlimited loss. Expenses and losses resulting from hedging strategies will reduce the FundOs current returns. The Fund will not engage in options and futures transactions for leverage. The Fund will not purchase or sell futures contracts or related options if as a result the sum of the initial margin deposits on the FundOs existing futures and related options positions and premiums paid for outstanding options on futures contracts would exceed 5% of the FundOs assets. As described in Part II of the Statement, over-the-counter options involve certain special risks (including liquidity and credit risks) not necessarily present with exchange-listed options. The staff of the SEC takes the position that over-the-counter options and assets used to cover such options written by a fund are OilliquidO except in certain limited circumstances. The options and futures markets of foreign countries are small compared to those of the United States and consequently are characterized in most cases by less liquidity than are the U.S. markets. In addition, foreign markets may be subject to less detailed reporting requirements and regulatory controls than U.S. markets. Furthermore, investments by the Fund in options and futures in foreign markets are subject to many of the same risks as are the FundOs other foreign investments. See OForeign SecuritiesO above. For further information, see OOptions and FuturesO in Part II of the Statement. * RULE 144A SECURITIES Rule 144A securities are privately offered securities that can be resold only to certain qualified institutional buyers. Rule 144A securities are treated as illiquid, unless the subadviser has determined, under guidelines established by the TrustOs trustees, that the particular issue of Rule 144A securities is liquid. Investment in illiquid securities involves the risk that the Fund may be unable to sell such a security at the desired time. FUND MANAGEMENT NEFM, 399 Boylston Street, Boston, Massachusetts 02116, a newly organized investment adviser, is the investment adviser of the Fund and has entered into subadvisory arrangements for the Fund with Loomis Sayles. Founded in 1926, Loomis Sayles, One Financial Center, Boston, Massachusetts 02111, is one of the countryOs oldest and largest investment counsel firms. Daniel Fuss, Managing Partner, Executive Vice President and Director of Loomis Sayles and Vice President of the Trust, has served as the FundOs portfolio manager since the FundOs inception in May 1995. Mr. Fuss joined Loomis Sayles in 1976. NEFM oversees, evaluates and monitors the subadvisory services provided to the Fund and furnishes general business management and administration to the Fund. NEFM has not previously served as investment adviser to a mutual fund. The Fund pays NEFM a management fee at the annual rate of 0.65% of the first $200 million of the FundOs average daily net assets and 0.60% of such assets in excess of $200 million. NEFM pays Loomis Sayles for providing subadvisory services to the Fund 0.35% of the first $200 million of the average daily net assets of the Fund and 0.30% of such assets in excess of $200 million. Under an expense deferral arrangement which NEFM and Loomis Sayles may terminate at any time, NEFM and Loomis Sayles have agreed to waive advisory and subadvisory fees until further notice, subject to the obligation of the Fund to pay NEFM such fees to the extent that the FundOs expenses fall below the annual rate of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C shares; provided however in any period, that the Fund is not obligated to pay any fees waived by NEFM and Loomis Sayles more than two years after the end of the fiscal year in which such fee was waived. Any expenses deferred while the voluntary waiver was in place can never be charged to the Fund unless the FundOs expenses fall below the limit of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C shares. If the voluntary fee reductions described above are terminated, the Fund will supplement its prospectus. The general partners of each of Loomis Sayles, NEFM and the Distributor are special purpose organizations that are indirect, wholly-owned subsidiaries of NEIC. NEICOs sole general partner, New England Investment Companies, Inc., is a wholly-owned subsidiary of New England Mutual Life Insurance Company (OThe New EnglandO). In placing portfolio transactions for the Fund, Loomis Sayles seeks the most favorable price and execution available. The TrustOs Board of Trustees supervises the affairs of the Trust. Under an agreement between NEFM and the Distributor, NEFM pays the Distributor to provide certain administrative services to the Fund. In addition, pursuant to rules of the SEC, the Fund may pay brokerage commissions to New England Securities Corporation, an affiliate of the Distributor, on purchases and sales of securities for the FundOs portfolio. BUYING FUND SHARES MINIMUM INVESTMENT $2,500 is the minimum for an initial investment in the Fund and $50 is the minimum for each subsequent investment. There are special initial investment minimums for the following plans: * $25 (for initial and subsequent investments) for payroll deduction investment programs for 401(k), SARSEP, 403(b) retirement plans and certain other retirement plans. * $50 for automatic investing through the Investment Builder program. * $250 for retirement plans with tax benefits such as corporate pension and profit sharing plans, IRAs and Keogh plans. * $1,000 for accounts registered under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act. * $1,000 for Portfolio 1,2,3, investment programs and New England Funds All Weather Portfolio. Subsequent investment minimums are $50. See Part II of the Statement. [SIDEBAR] Using Tele#Facts 1-800-346-5984 Tele#Facts is New England FundsO automated service system that gives you 24- hour access to your account. Through your touch-tone telephone, you can receive your current account balance, your last five transactions, Fund prices and recent performance information. You can also purchase, sell or exchange Class A shares of any New England Fund. For a free brochure about Tele#Facts including a convenient wallet card, call us at 1-800-225-5478. 6 WAYS TO BUY FUND SHARES You may purchase Class A, Class B and Class C shares of the Fund in the following ways: [GRAPHIC] THROUGH YOUR INVESTMENT DEALER: Many investment dealers have a sales agreement with the Distributor and would be pleased to accept your order. [GRAPHIC] BY MAIL: For an initial investment, simply complete an application and return it, with a check payable to New England Funds, to P.O. Box 8551, Boston, MA 02266-8551. Proceeds of redemptions of Fund shares purchased by check may not be available for up to ten days after the purchase date. For subsequent investments, please mail your check to New England Funds, P.O. Box 8551, Boston, MA 02266-8551 along with a letter of instruction or an additional deposit slip from your statements. To make investing even easier, you can also order personalized investment slips by calling 1-800- 225-5478. [GRAPHIC] BY WIRE TRANSFER OF FEDERAL FUNDS: FOR AN INITIAL INVESTMENT, call us at 1-800-225-5478 between 8:00 a.m. and 6:00 p.m. (Eastern time) to obtain an account number and wire transfer instructions. FOR SUBSEQUENT INVESTMENTS, direct your bank to transfer funds to State Street Bank and Trust Company, ABA #011000028, DDA #99011538, Credit New England Strategic Income Fund, Class of shares, Shareholder Name, Shareholder Account Number. Funds may be transferred between 9:00 a.m. and 4:00 p.m. (Eastern time). Your bank may charge a fee for this service. [GRAPHIC] BY INVESTMENT BUILDER: Investment Builder is New England FundsO automatic investment plan. You may authorize automatic monthly transfers of $50 or more from your bank checking or savings account to purchase shares of one or more New England Funds. FOR AN INITIAL INVESTMENT, please indicate that you would like to begin an automatic investment plan through Investment Builder. Indicate the amount of the monthly investment on the enclosed application and enclose a void check or deposit slip from your bank account. TO ADD INVESTMENT BUILDER TO AN EXISTING ACCOUNT, please call us at 1-800- 225-5478 for a Service Options form. [GRAPHIC] BY ELECTRONIC PURCHASE THROUGH ACH: You may purchase additional shares electronically through the Automated Clearing House (OACHO) system as long as your bank or credit union is a member of the ACH system and you have a completed, approved ACH application on file with the Fund. To purchase through ACH, call us at 1-800-225-5478 between 8 a.m. and 6 p.m. (Eastern time) for instructions or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. If you purchase your shares through ACH, you will receive the net asset value next determined after your order is received. Proceeds of redemptions of Fund shares purchased through ACH may not be available for up to ten days after the purchase date. [GRAPHIC] BY EXCHANGE FROM ANOTHER NEW ENGLAND FUND You may also purchase shares of the Fund by exchanging shares from another New England Fund. Please see OExchanging Among New England FundsO for complete details. GENERAL All purchase orders are subject to acceptance by the Fund and will be effected at the net asset value next determined after the order is received in proper form by State Street Bank and Trust Company (OState Street BankO) (except orders re- ceived by your investment dealer before the close of trading on the New York Stock Exchange (the OExchangeO) and transmitted to the Distributor by 5:00 p.m. Eastern time on the same day, which will be effected at the net asset value determined on that day). Although the Fund does not anticipate doing so, it reserves the right to suspend or change the terms of sales of shares. Class B shares and certain shareholder features may not be available to persons whose shares are held in street name accounts. You will not receive any certificates for your Class A shares unless you request them in writing from New England Funds, L.P. The FundOs Oopen accountO system for recording your investment eliminates the problems and expense of handling and safekeeping certificates. Certificates will not be issued for Class B or Class C shares. If you wish transactions in your account to be effected by another person under a power of attorney from you, special rules apply. Please contact your investment dealer or the Distributor for details. SALES CHARGES CLASS A SHARES Class A shares are offered at net asset value plus a sales charge which varies depending on the size of your purchase. They are also subject to a 0.25% annual service fee. The current sales charges are:
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 * * 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.
[SIDE BAR] To make investing even easier, you can also order personalized investment slips by calling 1-800-225-5478. CONTINGENT DEFERRED SALES CHARGE (CLASS A SHARES ONLY). For purchases of $1,000,000 or more of Class A shares in the Fund, a CDSC at the rate of 1% of the lesser of the purchase price or the net asset value at the time of redemption applies to redemptions of Class A shares purchased within one year before the redemption. If an exchange is made to Class A shares of any of the New England Cash Management Trust Money Market Series or U.S. Government Series or the New England Tax Exempt Money Market Trust (the OMoney Market FundsO), then the one-year holding period for purposes of determining the expiration of the CDSC will stop and will resume only when an exchange is made back into Class A shares of a series of New England Funds Trust I or New England Funds Trust II (Othe TrustsO). For purposes of the CDSC, it is assumed that the Class A shares held the longest are the first to be redeemed. No CDSC applies to a redemption of Class A shares followed by a reinvestment effected within 30 days after the date of redemption. CLASS B SHARES Class B shares are offered at net asset value, without an initial sales charge, subject to a 0.25% annual service fee, a 0.75% annual distribution fee for eight years (at which time they automatically convert to Class A shares) and to a CDSC if they are redeemed within five years of purchase. The holding period for purposes of timing the conversion to Class A shares and determining the CDSC will continue to run after an exchange to Class B shares of any series of the Trusts. If the exchange is made to Class B shares of a Money Market Fund, then the holding period stops and will resume only when an exchange is made back into Class B shares of a series of the Trusts. If the Money Market Fund shares are redeemed rather than exchanged back into the Trusts, then a CDSC applies on the redemptions, at the same rate as if the Class B shares of the Fund had been redeemed at the time they were exchanged for Money Market Fund shares. [SIDEBAR] A, B OR C SHARES -- WHICH SHOULD YOU CHOOSE? Your choice of share class depends on the size of your investment and how long you intend to hold your shares. In general, there are only minor differences in performance results for the different classes if held for the long term. Consult your financial representative for help in deciding which class is appropriate for you. The CDSC will be assessed on an amount equal to the lesser of the cost of the shares being redeemed or their net asset value at the time of redemption. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no charge will be assessed on shares of the same fund purchased with reinvested dividends or capital gains distributions. The amount of the CDSC, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. The CDSC equals the following percentages of the dollar amounts subject to the charge:
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 OSales Charges -- GeneralO below. At the time of sale, the Distributor pays investment dealers a commission of 3.75% and advances the first yearOs service fee (up to 0.25%) on purchases of the FundOs Class B shares. CLASS C SHARES Class C shares are offered at net asset value, without an initial sales charge or CDSC; are subject to a 0.25% annual service fee and a 0.75% annual distribution fee; and do not convert into another class. CLASS Y SHARES The Fund offers an additional class of shares (which are not available to the general public) to qualified investors. See OAdditional Facts About the FundO below. DECIDING WHICH CLASS TO PURCHASE The decision as to whether Class A, Class B or Class C shares are more appropriate for an investor depends on the amount and intended length of the investment. Investors making large investments, qualifying for a reduced initial sales charge, might consider Class A shares because Class A shares have lower 12b-1 fees and pay correspondingly higher dividends per share. For these reasons, the Distributor will treat any order of $1 million or more for Class B shares as a Class A order. Any order of $1 million or more for Class C shares will be treated as an order for Class A shares, unless you indicate on the relevant section of your application that you have been informed of the relative advantages and disadvantages of Class A and Class C shares. Investors making smaller investments might consider Class B or Class C shares because 100% of the purchase is invested immediately. Investors making smaller investments who anticipate redeeming their shares within five years may find Class C shares more favorable than Class B shares, because Class B shares are subject to a CDSC on redemptions made within five years after purchase. Class B shares are more favorable than Class C shares for investors who anticipate holding their investment for more than eight years since Class B shares convert to Class A shares (and thus bear lower ongoing fees) after eight years. Consult your investment dealer for advice applicable to your particular circumstances. GENERAL NO CDSC ON ANY CLASS OF SHARES APPLIES in connection with (1) redemptions by retirement plans qualified under Code Sections 401(a) or 403(b)(7) when such redemptions are necessary to make distributions to plan participants; (2) distributions from an IRA due to death, disability or a tax-free return of an excess contribution; (3) distributions by other employee benefit plans to pay benefits; and (4) distributions by a Section 401(a) plan due to death. For 403(b)(7) and IRA accounts established before January 3, 1995, the CDSC is waived for redemptions made after attainment of age 591U2. The CDSC is waived for redemptions made to make required minimum distributions after attainment of age 701U2 for 403(b)(7) and IRA accounts established on or after January 3, 1995. There is also no CDSC on redemptions following the death or disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a shareholder if the redemption is made within one year after the shareholderOs death or disability. Also, there is no CDSC on certain withdrawals pursuant to a Systematic Withdrawal Plan. See OSystematic Withdrawal PlanO below. The Fund receives the net asset value next determined after an order is received on sales of each class of shares. The sales charge is allocated between your investment dealer and the Distributor. The Distributor receives the CDSC. For purposes of the CDSC, an exchange from one series of a Trust to another series of a Trust is not considered a redemption or a purchase. For federal tax purposes, however, such an exchange is considered a redemption and a purchase and, therefore, would be considered a taxable event on which you may recognize a gain or a loss. The Distributor may, at its discretion, reallow the entire sales charge imposed on the sale of Class A shares to investment dealers from time to time. The staff of the SEC is of the view that dealers receiving all or substantially all of the sales charge may be deemed underwriters of a fundOs shares. The Distributor may, at its expense, pay investment dealers who sell new amounts of shares of the Fund at net asset value to eligible governmental authorities .025% of the average daily net assets of an account at the end of each calendar quarter for up to one year. These commissions are not payable if the purchase represents the reinvestment of redemption proceeds from any series of the Trusts or if the account is not registered in the name of the beneficial owner. The CDSC is not applicable to these sales. The Distributor may, at its expense, provide additional promotional incentives or payments to dealers who sell shares of the Fund. In some instances these incentives are provided to certain dealers who achieve sales goals or who have sold or may sell significant amounts of shares. New England Funds, L.P., from time to time, may provide financial assistance programs to dealers in connection with conferences, sales or training programs, seminars, advertising and sales campaigns and/or shareholder services arrangements. Certain dealers who have sold or may sell significant amounts of shares also may receive compensation in the form of payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives to locations, within or outside of the U. S., for educational seminars or meetings of a business nature. The Distributor may provide non-cash incentives for achievement of specified sales levels by representatives of participating broker-dealers and financial institutions. Such incentives include, but are not limited to, merchandise from gift catalogues or other sources, gift certificates or vouchers through membership in the New England Funds Flagship Club. The participation of representatives in such incentive programs is at the discretion of the broker-dealer or financial institution with which the representative is associated. REDUCED SALES CHARGES (CLASS A SHARES ONLY) * LETTER OF INTENT -- if aggregate purchases of all series and classes of the Trusts over a 13-month period will reach a breakpoint (a dollar amount at which a lower sales charge applies), smaller individual amounts can be invested at the sales charge applicable to that breakpoint. * COMBINING ACCOUNTS -- Purchases by all qualifying accounts of all series and classes of the Trusts (which do not include the Money Market Funds unless the shares were purchased through an exchange from a series of the Trusts) may be combined with purchases of qualifying accounts of a spouse, parents, children, siblings, grandparents or grandchildren, individual fiduciary accounts, sole proprietorships and/or single trust estates. The values of all accounts are combined to determine the sales charge. * UNIT HOLDERS OF UNIT INVESTMENT TRUSTS -- unit investment trust distributions of less than $1 million may be invested in shares of the Fund at a reduced sales charge of 1.50% of the public offering price (or 1.52% of the net amount invested). * ELIGIBLE GOVERNMENTAL AUTHORITIES -- no sales charge or CDSC applies to investments by any state, county or city or any instrumentality, department, authority or agency thereof, that has determined that the Fund is a legally permissible investment and that is prohibited by applicable investment laws from paying a sales charge or commission in connection with the purchase of shares of any registered investment company. * CLIENTS OF AN ADVISER OR SUBADVISER (AFFILIATED WITH NEIC) -- no sales charge or CDSC applies to investments of $100,000 or more in the Fund by (1) clients of an adviser or subadviser (affiliated with NEIC) to any series of the Trusts; any director, officer or partner of a client of an adviser or subadviser (affiliated with NEIC) to any series of the Trusts; and the parents, spouses and children of the foregoing; (2) any individual who is a participant in a Keogh or IRA Plan under a prototype Plan document of an adviser or subadviser (affiliated with NEIC) to any series of the Trusts if at least one participant in the plan qualifies under category (1) above; and (3) an individual who invests through an IRA and is a participant in an employee benefit plan that is a client of an adviser or subadviser (affiliated with NEIC) to any series of the Trusts. Any investor eligible for these arrangements should so indicate in writing at the time of the purchase. * Shares of the Fund may be purchased at net asset value with no sales charge or CDSC by advisory accounts through investment advisers that are registered under the Investment Advisers Act of 1940 and affiliated with broker-dealers. * There is no sales charge or CDSC on investments by 401(a), 401(k), 457 or 403(b) plans that have total investment assets equal to or in excess of $5 million. * There is no sales charge, CDSC or initial investment minimum on investments by certain current and retired employees of the TrustsO investment advisers and subadvisers (affiliated with NEIC), the Distributor, The New England or any other company affiliated with The New England; current and former directors and trustees of the Trusts, The New England or their predecessor companies; agents and general agents of The New England and its insurance company subsidiaries; current and retired employees of such agents and general agents; registered representatives of broker-dealers who have selling arrangements with the Distributor; the spouse, parents, children, siblings, grandparents or grandchildren of any of the persons listed above; any trust, pension, profit sharing or other benefit plan for any of the foregoing persons and any separate account of The New England or of any insurance company affiliated with The New England. * Shareholders of Reich & Tang Government Securities Trust may exchange their shares of that fund for Class A shares of any series of the Trusts at net asset value and without the imposition of a sales charge. The reduction or elimination of the sales charge in connection with sales described above reflects the absence or reduction of sales expenses associated with such sales. OWNING FUND SHARES EXCHANGING AMONG NEW ENGLAND FUNDS CLASS A SHARES. Except as indicated in the next two sentences, you may exchange Class A shares of any series of the Trusts (and Class A shares of the Money Market Funds acquired through exchanges from any of the series of the Trusts) for the Class A shares of any other series of the Trusts (except New England Growth Fund, which is subject to special eligibility restrictions) without paying a sales charge. Class A shares of New England Intermediate Term Tax Free Fund of California and New England Intermediate Term Tax Free Fund of New York (and shares of the Money Market Funds acquired through exchanges of such shares) may be exchanged for shares of the Fund at net asset value only if you have held them for at least six months; otherwise, sales charges apply to the exchange. If you exchange your Class A shares of New England Adjustable Rate U.S. Government Fund (the OAdjustable Rate FundO) for shares of another fund that has a higher sales charge, you will pay the difference between any sales charge you have already paid on your Adjustable Rate Fund shares and the higher sales charge of the fund into which you are exchanging. In addition, you may redeem Class A shares of any Money Market Fund that were not acquired through exchanges from any series of the Trusts and have the proceeds directly applied to the purchase of Fund shares at the applicable sales charge. [SIDEBAR] Automatic Exchange Plan The Fund has an automatic exchange plan under which shares of a class of the Fund are automatically exchanged each month for shares of the same class of other series in the Trusts (other than New England Growth Fund, which is available only to certain eligible investors). The minimum monthly exchange amount under the plan is $50. There is no fee for exchanges made pursuant to this program, but there may be a sales charge as described on this page. CLASS B SHARES. You may exchange Class B shares of the Fund or any series of the Trusts (and Class B shares of the Money Market Funds or Class A shares of the Money Market Funds which have not been subject to a previous sales charge) for Class B shares of any other series of the Trusts (except New England Growth Fund). Such exchanges will be made at the next determined net asset value of the shares. Class B shares will automatically convert on a tax-free basis to Class A shares eight years after they are purchased (excluding the time the shares are held in a Money Market Fund). See OSales Charges -- Class B SharesO above. CLASS C SHARES. You may exchange Class C shares of the Fund for Class C shares of any other series of the Trusts which offers Class C shares or for Class A shares of the Money Market Funds. TO MAKE AN EXCHANGE, please call 1-800-225-5478 between 8 a.m. and 6 p.m. (Eastern time), write to New England Funds or call Tele#Facts at 1-800-346- 5984 twenty-four hours a day. The exchange must be for a minimum of $500 (or the total net asset value of your account, whichever is less), except that under the Automatic Exchange Plan, the minimum is $50. All exchanges are subject to the minimum investment and eligibility requirements of the series into which you are exchanging. In connection with any exchange, you must receive a current prospectus of the series into which you are exchanging. The exchange privilege may be exercised only in those states where shares of such other series may be legally sold. You have the automatic privilege to exchange your Fund shares by telephone. New England Funds, L.P. will employ reasonable procedures to confirm that your telephone instructions are genuine, and, if it does not, it may be liable for any losses due to unauthorized or fraudulent instructions. New England Funds, L.P. will require a form of personal identification prior to acting upon your telephone instructions, will provide you with written confirmations of such transactions and will record your instructions. Except as otherwise permitted by SEC rule, shareholders will receive at least 60 daysO advance notice of any material change to the exchange privilege. FUND DIVIDEND PAYMENTS The Fund declares dividends daily and pays them monthly. The Fund pays as dividends substantially all net investment income (other than long-term capital gains) each year and distributes annually all net realized long- term capital gains (after applying any available capital loss carryovers). The Fund pays short-term capital gains annually. The trustees of the Trust may adopt a different schedule as long as payments are made at least annually. If you intend to purchase shares of the Fund shortly before it declares a dividend you should be aware that a portion of the purchase price may be returned to you as a taxable dividend. You have the option to reinvest all distributions in additional shares of the same class of the Fund or in shares of the same class of other series of the Trusts, to receive distributions from ordinary income in cash while reinvesting distributions from capital gains in additional shares of the same class of the Fund or the same class of other series of the Trusts or to receive all distributions in cash. Income distributions and capital gains distributions will be reinvested in shares of the same class of the Fund at net asset value (without a sales charge or CDSC) unless you select another option. You may change your distribution option by notifying New England Funds in writing or by calling 1-800-225-5478. If you elect to receive your dividends in cash and the dividend checks sent to you are returned OundeliverableO to the Fund or remain uncashed for six months, your cash election will automatically be changed and your future dividends will be reinvested. DIVIDEND DIVERSIFICATION PROGRAM You may also establish a dividend diversification program that allows you to have all dividends and any other distributions automatically invested in shares of the same class of another New England Fund, subject to the investor eligibility requirements of that other fund and to state securities law requirements. For Class A shareholders, investments will be made at the appropriate offering price, which may include a sales charge. For Class B shareholders, shares acquired through this program will be subject to a CDSC if they are redeemed from the account. Dividends will be invested in the selected fundOs shares on the dividend record date. A dividend diversification account must be in the same registration (shareholder name) as the distributing fund account and, if a new account in the purchased fund is being established, the purchased fundOs minimum investment requirements must be met. Before establishing a dividend diversification program into any other New England Fund, you must obtain a copy of that fundOs prospectus. SELLING FUND SHARES 4 WAYS TO SELL FUND SHARES [GRAPHIC] THROUGH YOUR INVESTMENT DEALER: Call your authorized investment dealer for information. [GRAPHIC] BY TELEPHONE: You or your investment dealer may redeem (sell) shares by telephone using any of the three methods described below: Wired to Your Bank Account -- If you have previously selected the telephone redemption privilege on your account, Class A, Class B and Class C shares may be redeemed by calling 1-800-225-5478 between 8 a.m. and 6 p.m. (Eastern time). Class A shares only may also be redeemed by calling Tele#Facts at 1-800-346-5984 twenty-four hours a day. Redemption requests accepted after the Exchange has closed (4:00 p.m. Eastern time) will be processed at the next-determined net asset value. The proceeds (LESS ANY APPLICABLE CDSC) generally will be wired on the next business day to the bank account previously chosen by you on your application. A wire fee (currently $5.00) will be deducted from the proceeds. Your bank must be a member of the Federal Reserve System or have a correspondent bank that is a member. If your account is with a savings bank, it must have only one correspondent bank that is a member of the System. Mailed to Your Address of Record -- Shares may be redeemed by calling 1-800- 225-5478 and requesting that a check for the proceeds (LESS ANY APPLICABLE CDSC) be mailed to the address on your account, provided that the address has not changed over the previous month and that the proceeds are for $100,000 or less. Generally, the check will be mailed to you on the business day after your redemption request is received. Through ACH -- Shares may be redeemed electronically through the ACH system, provided that you have an approved ACH application on file with the Fund. To redeem through ACH, call 1-800-225-5478 prior to 3:00 p.m. (Eastern time) on a day when the Fund is open for business or call Tele#Facts at 1-800-346-5984 twenty-four hours a day. If your telephone call is made to Tele#Facts before 4:00 p.m., the redemption will be processed the day the call is made, unless it is a day when the Exchange closes before 4:00 p.m. and your call is made after the Exchange closes. The proceeds (LESS ANY APPLICABLE CDSC) generally will arrive at your bank within three business days; their availability will depend on your bankOs particular rule. If you have recently purchased your shares through the ACH system, the Fund may withhold redemption proceeds until the funds have cleared, which may take up to ten days. [GRAPHIC] BY MAIL: You may redeem your shares at their net asset value (LESS ANY APPLICABLE CDSC) next determined after receipt of your request in good order by sending a written request (including any necessary special documentation) to New England Funds, P.O. Box 8551, Boston, MA 02266-8551. The request must include the name of the Fund, your account number, the exact name(s) in which your shares are registered, the number of shares or the dollar amount to be redeemed and whether you wish the proceeds mailed to your address of record, wired to your bank account or transmitted through ACH. All owners of the shares must sign the request in the exact names in which the shares are registered (this appears on your confirmation statement) and indicate any special capacity in which you are signing (such as trustee, custodian or under power of attorney or on behalf of a partnership, corporation or other entity). If you are redeeming shares worth less than $100,000 and the proceeds check is made payable to the registered owner(s) and mailed to the record address, no signature guarantee is required. Otherwise, you generally must have your signature guaranteed by an eligible guarantor institution in accordance with procedures established by New England Funds, L.P. Signature guarantees by notaries public are not acceptable. Additional written information may be required for redemptions by certain benefit plans and IRAs. Contact the Distributor or your investment dealer for details. If you hold certificates for your Class A shares, you must enclose them with your redemption request or your request will not be honored. The Fund recommends that certificates be sent by registered mail. [GRAPHIC] BY SYSTEMATIC WITHDRAWAL PLAN: You may establish a Systematic Withdrawal Plan that allows you to redeem shares and receive payments on a regular schedule. In the case of shares subject to a CDSC, the amount or percentage you specify may not exceed, on an annualized basis, 10% of the value of your Fund account. Redemption of shares pursuant to the Plan will not be subject to a CDSC. For information, contact the Distributor or your investment dealer. Since withdrawal payments may have tax consequences, you should consult your tax adviser before establishing such a plan. GENERAL. Redemption requests will be effected at the net asset value next determined after the redemption request is received in proper form by State Street Bank or your investment dealer (except that orders received by your investment dealer before the close of regular trading on the Exchange and transmitted to the Distributor by 5:00 p.m. Eastern time on the same day will receive that dayOs net asset value). Redemption proceeds (LESS ANY APPLICABLE CDSC) will normally be mailed to you within seven days after State Street Bank or the Distributor receives your request in good order. During periods of substantial economic or market change, telephone redemptions may be difficult to implement. If you are unable to contact the Distributor by telephone, shares may be redeemed by delivering the redemption request in person to the Distributor or by mail as described above. Requests are processed at the net asset value next determined after the request is received. Special rules apply to redemptions under powers of attorney. Please call the Distributor or your investment dealer for more information. Telephone redemptions are not available for tax qualified retirement plans or for Fund shares in certificate form. If certificates have been issued for your investment, you must send them to New England Funds along with your request before a redemption request can be honored. See the instructions for redemption by mail above. The Fund may suspend the right of redemption and may postpone payment for more than seven days when the Exchange is closed for other than weekends or holidays, or if permitted by the rules of the SEC when trading on the Exchange is restricted or during an emergency that makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by the SEC for the protection of investors. REPURCHASE OPTION (CLASS A SHARES ONLY) You may apply your redemption proceeds (without a sales charge) to the repurchase of Class A shares of any series of the Trusts. To qualify, you must reinvest some or all of the proceeds within 120 days after your redemption and notify New England Funds or your investment dealer at the time of reinvestment that you are taking advantage of this privilege. You may reinvest the proceeds either by returning the redemption check or by sending your check for some or all of the redemption amount. Please note: for federal income tax purposes, a redemption is a sale that involves tax consequences (even if the proceeds are later reinvested). Please consult your tax adviser. FUND DETAILS HOW FUND SHARE PRICE IS DETERMINED Loomis Sayles, under the supervision of the TrustOs Board of Trustees, determines the value of the total net assets of the Fund as of the close of regular trading (ordinarily 4:00 p.m. Eastern time) each day the Exchange is open. The Board of Trustees has authorized Loomis Sayles to delegate certain price determination functions to pricing services or facilities selected by Loomis Sayles. Securities for which market quotations are readily available are generally valued at market value on the basis of market quotations. Options, interest rate futures and options thereon which are traded on exchanges are valued at their last sale price as of the close of the Exchange. All money market instruments with a maturity of more than 60 days are valued at current market value. The value of debt securities with remaining maturities of 60 days or less shall be their amortized cost value, unless conditions indicate otherwise. In all other cases, the value of the FundOs assets is determined in good faith by Loomis Sayles, or a pricing service selected by Loomis Sayles, under the supervision of the Board of Trustees. The net asset value per share of each class is determined by dividing the value of each classOs net assets (the current U.S. dollar value, in the case of securities principally traded outside the United States) plus any cash and other assets (including dividends and interest receivable but not collected) less all liabilities (including accrued expenses), by the number of shares of such class outstanding. The public offering price of the FundOs Class A shares is determined by adding the applicable sales charge to the net asset value. See OBuying Fund Shares -- Sales ChargesO above. The public offering price of Class B and Class C shares is the net asset value per share. The exact price you pay for a share will be determined by the next set of calculations made after your order is accepted by New England Funds, L.P. In other words, if, on a Tuesday morning, your properly completed application is received, your wire is received or your dealer places your trade for you, the price you pay will be determined by the calculations made as of the close of regular trading on the Exchange on Tuesday. If you buy shares through your investment dealer, the dealer must receive your order by the close of regular trading on the Exchange and transmit it to the Distributor by 5:00 p.m. (Eastern time) to receive that dayOs public offering price. INCOME TAX CONSIDERATIONS The Fund intends to meet all requirements of the Internal Revenue Code of 1986, as amended, to ensure that it qualifies as a regulated investment company and thus does not expect to pay any federal income tax on investment income and capital gains distributed to shareholders in cash or additional shares. Unless you are a tax exempt entity, your distributions derived from the FundOs short-term capital gains and ordinary income are taxable to you as ordinary income. Distributions derived from the FundOs long-term capital gains (Ocapital gains distributionsO), if designated as such by the Fund, are taxable to you as long-term capital gains, regardless of how long you have owned shares in the Fund. Both dividends and capital gains distributions are taxable whether distributed to you in cash or additional shares. The FundOs transactions in foreign currency-denominated debt securities and its hedging activities will likely produce a difference between its book income and its taxable income. This difference may cause a part or all of the FundOs income distributions to constitute returns of capital for tax purposes or require the Fund to make distributions exceeding book income to avoid federal income tax liability. CALCULATING THE PRICE OF SHARES Total Market Value of Portfolio Securities plus Other Assets minus Any Liabilities divided by Total Number of Outstanding Shares in a Class equals Net Asset Value (NAV) THE PUBLIC OFFERING PRICE FOR CLASS A SHARES IS THE NAV PLUS THE APPLICABLE SALES CHARGE. THE PUBLIC OFFERING PRICE FOR CLASS B AND CLASS C IS THE NAV. DIVIDENDS DERIVED FROM INTEREST ON U.S. GOVERNMENT SECURITIES MAY BE EXEMPT FROM STATE AND LOCAL TAXES. The Trust intends to advise shareholders of the proportion of the FundOs dividends that are derived from such interest. Before investing in the Fund, you should check the consequences of your local and state tax laws, which may be different from the federal tax consequences, and the consequences for any retirement plan offering tax benefits. To avoid an excise tax, the Fund intends to distribute prior to calendar year end virtually all the FundOs ordinary income earned during that calendar year, and virtually all of the capital gain net income the Fund realized in the 12-month period ending December 31 but has not previously distributed. If declared in December to shareholders of record in that month, and paid the following January, these distributions will be considered for federal income tax purposes to have been received by shareholders on December 31. [SIDEBAR] AVERAGE COST STATEMENT If you have exchanged or redeemed shares during the year, you will receive a statement that shows the cost basis of those shares which should help you determine your gain or loss for tax purposes. The Fund is required to withhold 31% of all income dividends and capital gains distributions it pays to you if you do not provide a correct, certified taxpayer identification number, if the Fund is notified that you have underreported income in the past or if you fail to certify to the Fund that you are not subject to such withholding. In addition, the Fund will be required to withhold 31% of the gross proceeds of Fund shares you redeem if you have not provided a correct, certified taxpayer identification number. If you are a tax-exempt institution, however, these back-up withholding rules will not apply so long as you furnish the Fund with an appropriate certification. Annually, if you earn more than $10 in taxable income from the Fund, you will receive a Form 1099 to assist you in reporting the prior calendar yearOs distributions on your federal income tax return. You should consult your tax adviser about any state or local taxes that may apply to such distributions. Be sure to keep the Form 1099 as a permanent record. A fee may be charged for any duplicate information requested. The foregoing is a summary of certain federal income tax consequences of an investment in the Fund. You should consult a competent tax adviser as to the effect of an investment in the Fund on your particular federal, state and local tax situations. THE FUNDOS EXPENSES In addition to the management fee paid to NEFM and the fees paid to the Distributor, the Fund pays all expenses not borne by the FundOs investment adviser, subadviser or the Distributor, including, but not limited to, the charges and expenses of the FundOs custodian and transfer agent, independent auditors and legal counsel, all brokerage commissions and transfer taxes in connection with portfolio transactions, all taxes and filing fees, the fees and expenses for registration or qualification of its shares under the federal or state securities laws, all expenses of shareholdersO and trusteesO meetings and of preparing, printing and mailing prospectuses and reports to shareholders and the compensation of trustees who are not directors, officers or employees of NEFM, Loomis Sayles or their affiliates, other than affiliated registered investment companies. Certain expenses are allocated differently between the FundOs Class A, Class B and Class C shares, on one hand, and its Class Y shares, on the other hand. (See OAdditional Facts About the Fund,O below.) Under a Service Plan in the case of Class A shares, and Service and Distribution Plans in the case of Class B and Class C shares, adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor a monthly service fee at an annual rate not to exceed 0.25% of the FundOs average daily net assets attributable to the Class A, Class B and Class C shares. The Distributor may pay up to the entire amount of this fee to securities dealers who are dealers of record with respect to the FundOs shares, for providing personal services to investors in shares of the Fund and/or maintenance of shareholder accounts. In the case of Class B shares, the Distributor pays investment dealers at the time of sale the first yearOs service fee in the amount of up to 0.25% of the amount invested. The FundOs Class B shares and Class C shares pay the Distributor a monthly distribution fee at an annual rate not to exceed 0.75% of the average net assets of the FundOs Class B shares and Class C shares. The Distributor may pay up to the entire amount of the distribution fee to securities dealers who are dealers of record with respect to the FundOs shares, as distribution fees in connection with the sale of the FundOs shares. The Distributor retains the balance of the fee as compensation for its services as distributor of the relevant class of shares. The FundOs Class A service fee is payable only to reimburse the Distributor for amounts it pays or expends in connection with the provision of personal services to investors and/or the maintenance of shareholder accounts. To the extent that the DistributorOs reimbursable expenses in any year exceed the maximum amount payable under the relevant Plan for that year, such expenses may be carried forward for reimbursement in future years in which the Plan remains in effect. The Class B and Class C service fees are payable regardless of the amount of the DistributorOs related expenses. PERFORMANCE CRITERIA The Fund may include total return information in advertisements or other written sales material. The Fund will show the average annual total return for each class of shares for the one-, five- and ten-year periods (or, if shorter, the period since the commencement of the classOs operations) through the end of the most recent calendar quarter. Total return is measured by comparing the value of a hypothetical $1,000 investment in a class at the beginning of the relevant period to the value of the investment at the end of the period (assuming deduction of the current maximum sales charge on Class A shares, automatic reinvestment of all dividends and capital gains distributions and, in the case of the Class B shares, imposition of the CDSC for the period of time quoted). Total return may be quoted with or without giving effect to any voluntary expense limitations in effect for the class in question during the relevant period. The classes may also show total return over other periods, on an aggregate basis for the period presented, or without deduction of a sales charge. If a sales charge is not deducted in calculating total return, the classOs total return is higher. The Fund may also include the yield, accompanied by the total return, for each class of shares, in advertising and other written material. Yield will be computed in accordance with the SECOs standardized formula by dividing the adjusted net investment income per share earned during a recent 30-day period by the maximum offering price of a share of the relevant class (reduced by any earned income expected to be declared shortly as a dividend) on the last day of the period. Yield calculations will reflect any voluntary expense limitations in effect for the Fund during the relevant period. The Fund may also present one or more distribution rates for each class in its sales literature. These rates will be determined by annualizing the classOs distributions from net investment income and net short-term capital gains over a recent 12-month, three-month or 30-day period and dividing that amount by the maximum offering price or the net asset value on the last day of such period. If the net asset value rather than the maximum offering price is used to calculate the distribution rate, the rate will be higher. Total return will generally be higher for Class A shares than for Class B and Class C shares because of the higher levels of expenses borne by the Class B and Class C shares. However, this difference may be offset in whole or in part by the benefit gained by 100% immediate investment of the purchase price of Class B shares or Class C shares. As a result of lower operating expenses, Class Y shares can be expected to achieve a higher investment return than the FundOs Class A, Class B or Class C shares. All performance information is based on past results and is not an indication of likely future performance. ADDITIONAL FACTS ABOUT THE FUND * New England Funds Trust I was organized in 1985 as a Massachusetts business trust and is authorized to issue an unlimited number of full and fractional shares in multiple series. The Strategic Income Fund commenced investment operations in 1995. * When you invest in the Fund, you acquire freely transferable shares of beneficial interest that entitle you to receive dividends as determined by the TrustOs trustees and to cast a vote for each share you own at shareholder meetings. Shares of the Fund vote separately from shares of other series of the Trust, except as otherwise required by law. Shares of all classes of the Fund vote together, except as to matters relating to a classOs Rule 12b-1 plan, for which only shares of that class are entitled to vote. * Except for matters that are explicitly identified as OfundamentalO in this prospectus or Parts I and II of the Statement, the investment policies of the Fund may be changed without shareholder approval or prior notice. The investment objectives of the Fund are not fundamental. If there is a change in the investment objectives of the Fund, you should consider whether the Fund remains an appropriate investment in light of your then current financial position and needs. * The Trust does not generally hold regular shareholder meetings and will do so only when required by law. Shareholders of the Trust may remove the trustees of the Trust from office by votes cast at a shareholder meeting or by written consent. * The transfer and dividend paying agent for the Fund is New England Funds, L.P., 399 Boylston Street, Boston, MA 02116. New England Funds, L.P. has subcontracted certain of its obligations as such to State Street Bank, 225 Franklin Street, Boston, MA 02110. * Class Y shares of the Fund may be purchased by endowments and foundations. The minimum initial investment is $1 million for these entities and the minimum for each subsequent investment is $100,000. Class Y shares may also be purchased by plan sponsors of 401(a), 401(k), 457 or 403(b) plans (ORetirement PlansO) that have total investment assets in these plans of at least $10 million. Plan sponsorsO investment assets in multiple Retirement Plans can be aggregated for purposes of meeting this minimum. Class Y shares may also be purchased by any separate account of The New England or of any other insurance company affiliated with The New England (OSeparate AccountsO). There is no minimum initial or subsequent investment amount for Retirement Plans or Separate Accounts. Investments in Class Y shares may also be made by certain individual retirement accounts if the amounts invested represent rollover distributions from investments by any of the foregoing Retirement Plans of amounts invested in Class Y shares. * Class Y shares are identical to Class A, Class B and Class C shares, except that Class Y shares have no sales charge or CDSC, bear no Rule 12b-1 fees and have separate voting rights in certain circumstances. Class Y bears its own transfer agency and prospectus printing costs. * If the balance in your account with the Fund is less than a minimum dollar amount set by the trustees of the Trust from time to time (currently $500), the Fund may close your account and send the proceeds to you. Shareholders who are affected by this policy will be notified of the FundOs intention to close the account and will have 60 days immediately following the notice to bring the account up to the minimum. The minimum does not apply to tax-qualified plans (such as IRAs, Keoghs and pension and profit sharing plans) and automatic investment plans or accounts that have fallen below the minimum solely because of fluctuations in net asset value per share. * The Class A, Class B, Class C and Class Y structure could be terminated should certain IRS rulings be rescinded. See Part II of the Statement for more details. * The FundOs annual report will contain additional performance information and will be made available upon request and without charge. APPENDIX A: RATINGS OF SECURITIES DESCRIPTION OF MOODYOS INVESTORS SERVICE, INC. BOND RATINGS: Aaa, Aa, A -- Bonds which are rated Aaa or Aa are judged to be of high quality by all standards and are generally known as high grade bonds. Bonds rated Aa are rated lower than Aaa securities because margins of protection may not be as large as in the latter or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa -- Bonds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well secured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca -- Bonds which are rated Ca represent obligations which are speculative in high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds which are rated C are the lowest rated class of bonds and can be regarded as having extremely poor prospects of ever attaining any real investment standing. DESCRIPTION OF STANDARD & POOROS CORPORATION BOND RATINGS: AAA, AA, A -- Bonds rated AAA have the highest rating assigned by S&P to a debt obligation. Capacity to pay interest and repay principal is extremely strong. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in high rated categories. BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in higher rated categories. BB-B-CCC-CC-C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to the issuerOs capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CI -- The rating CI is reserved for income bonds on which no income is being paid. D -- Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears. GLOSSARY OF TERMS Capital gain distributions -- Payments to shareholders of profits earned from selling securities in a fundOs portfolio. Capital gain distributions are usually paid once a year. Contingent deferred sales charge (CDSC) -- A fee that may be charged when a shareholder sells fund shares. Distribution fee -- An annual asset-based sales charge that is used to pay for sales-related expenses. Income distributions -- Payments to shareholders resulting from interest or dividend income earned by a fundOs portfolio. Mutual fund -- The pooled assets of a group of investors, professionally managed in pursuit of a specific objective. Net asset value (NAV) -- The market value of one share of a mutual fund on any given day without sales charge or CDSC. Determined by dividing the fundOs total net assets by the number of fund shares outstanding. New England Funds, L.P. -- The distributor and transfer agent of the New England Funds. Open end investment management company -- A mutual fund that allows investors to redeem fund shares directly from the fund company on any business day. Public offering price (POP) -- The price of one share of a mutual fund, including its initial sales charge, if there is one. Record date -- The date on which mutual fund investors must own a fundOs shares to be eligible to receive specific income or capital gain distributions. Service fee -- Payments by a fund for personal service to investors and/or for maintenance of shareholder accounts by the Distributor or a financial representative. Total Return -- The change in value of an investment in a fund investment over a specific time period, assuming all earnings are reinvested in additional shares of the fund. Expressed as a percentage. Yield -- The rate at which a fund earns income, expressed as a percentage. Yield calculations are standardized among mutual funds, based on a formula developed by the Securities and Exchange Commission. 12b-1 fees -- Fees paid by a mutual fund under a plan adopted under the 1940 Act Rule 12b-1. Can include both distribution fees and service fees (see above). [LOGO] NEW ENGLAND FUNDS STOCK FUNDS International Equity Fund Growth Fund Star Advisers Fund Capital Growth Fund Value Fund Growth Opportunities Fund Balanced Fund BOND FUNDS High Income Fund Strategic Income Fund Government Securities Fund Bond Income Fund Limited Term U.S. Government Fund Adjustable Rate U.S. Government Fund TAX EXEMPT FUNDS Tax Exempt Income Fund Massachusetts Tax Free Income Fund Intermediate Term Tax Free Fund of California Intermediate Term Tax Free Fund of New York MONEY MARKET FUNDS Cash Management Trust - --Money Market Series - --U.S. Government Series Tax Exempt Money Market Trust TO LEARN MORE, AND FOR A FREE PROSPECTUS, CONTACT YOUR FINANCIAL REPRESENTATIVE. New England Funds, L.P. 399 Boylston Street, Boston, MA 02116 Toll Free 800-225-5478 THIS MATERIAL IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS WHEN IT IS PRECEDED OR ACCOMPANIED BY THE FUNDS CURRENT PROSPECTUS, WHICH CONTAINS INFORMATION ABOUT DISTRIBUTION CHARGES, MANAGEMENT, AND OTHER ITEMS OF INTEREST. INVESTORS ARE ADVISED TO READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. -----END PRIVACY-ENHANCED MESSAGE-----