<PAGE>
- -------------------------------------------------------------------------------
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
[graphic omitted](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Municipal Income Fund
[graphic omitted]
- ---------------
June 30, 1997
- ---------------
<PAGE>
AUGUST 1997
- --------------------------------------------------------------------------------
[Photo of Henry L.P. Schmelzer]
Dear New England Funds Shareholder,
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives.
Our sights, like yours, are focused on the long term. At the same time, we work
to enhance service every day. We also keep a disciplined eye on the performance
that each fund manager achieves. Through these persistent efforts we're
convinced we'll merit your continued commitment and loyalty. Thank you for your
confidence in New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
[Logo] DALBAR, an independent evaluator of mutual fund
QUALITY service, has awarded New England Funds its Quality
TESTED SERVICE Tested Service Seal for "providing the highest
1996 tier of service excellence in the mutual fund
- --------------------- industry." New England Funds is one of just three
DALBAR mutual fund companies to earn this distinction in
HONORS COMMITMENT TO: each of the last two years -- another reason why
INVESTORS we are becoming known as the mutual fund company
- --------------------- Where The Best Minds Meet.
INVESTMENT RESULTS THROUGH JUNE 30, 1997
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
See next page
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here illustrating the growth of a
$10,000 investment in the Municipal Income Fund's Class A shares since 6/30/87,
compared to the Lehman Municipal Index and the Cost of Living. The plot points
for this chart are as follows:]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
- --------------------------------------------------------------------------------
JUNE 1987 THROUGH JUNE 1997
COMPARED TO LEHMAN MUNICIPAL INDEX(4) AND COST OF LIVING INDEX(5)
With Lehman
Net Maximum Municipal Cost of
Asset Value(1) Sales Charge(2) Index(4) Living(5)
----------- --------------- --------- ---------
6/30/87 $10,000 $ 9,550 $10,000 $10,000
6/88 $10,731 $10,248 $10,742 $10,396
6/89 $12,044 $11,502 $11,966 $10,933
6/90 $12,655 $12,086 $12,780 $11,444
6/91 $13,580 $12,969 $13,932 $11,982
6/92 $15,327 $14,637 $15,572 $12,352
6/93 $17,157 $16,385 $17,434 $12,722
6/94 $16,925 $16,163 $17,469 $13,039
6/95 $18,245 $17,424 $19,004 $13,435
6/96 $19,373 $18,501 $20,266 $13,804
6/97 $20,899 $19,959 $22,090 $14,104
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B share performance
will be greater or less than that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97
- --------------------------------------------------------------------------------
CLASS A (Inception 5/9/77) YTD 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 3.03% 7.88% 6.40% 7.65%
With Max. Sales Charge(2) -1.55 3.00 5.42 7.16
Lehman Municipal Index(4) 3.62 9.00 7.08 8.17
Lipper General Muni Average(6) 2.95 7.81 6.51 7.76
- --------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) YTD 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 2.65% 7.08% 6.47% 3.59%
With CDSC(3) -2.35 2.08 5.58 2.91
Lehman Municipal Index(4) 3.62 9.00 7.72 5.41
Lipper General Muni Average(6) 2.95 7.81 7.10 4.46
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
YIELDS AS OF 6/30/97
- --------------------------------------------------------------------------------
CLASS A CLASS B
SEC Yield(7) 5.17% 4.67%
Taxable Equivalent Yield(8) 8.56 7.73
NOTES TO CHARTS
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.50% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares.
(4) Lehman Municipal Index is an unmanaged index of bonds issued by states,
municipalities and other governmental entities having maturities of more
than one year. The Index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, calculated
by the U.S. Bureau of Labor Statistics.
(6) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
(7) SEC Yield is based on the Fund's net investment income over a 30-day period
and is calculated in accordance with Securities and Exchange Commission
guidelines.
(8) Taxable equivalent yield is based on the maximum federal income tax bracket
of 39.6%. The alternative minimum tax may apply. Some federal and state
taxes may apply.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of Nathan Wentworth, Back Bay Advisors, L.P.]
Q. How did New England Municipal Income Fund perform over the last six months?
For the six-month period ended June 30, 1997, your Fund continued to provide a
competitive total return and a relatively high level of federally tax-exempt
income. During the period, your Fund produced a total return of 3.03% for Class
A shares at net asset value, reflecting the reinvestment of $0.204 per share in
dividend income and an increase in share price to $7.55 on June 30, from $7.53
six months ago. As of June 30, l997, the Fund's 30-day SEC yield was 5.17% for
Class A shares, which translates into an equivalent yield of 8.56% for taxable
investments for investors in the maximum federal tax bracket of 39.6%.
Q. What was the investment environment like during the period?
Early in the period, strong economic growth raised concerns about accelerating
inflation. In what it called a pre-emptive strike against inflation, the Federal
Reserve Board raised interest rates one-quarter percentage point in March.
Because bond prices and interest rates move in opposite directions, higher rates
led to lower bond prices, erasing some of the gains the Fund had produced during
the first quarter of 1997. As we moved into the second quarter, economic growth
slowed and the Fed took no further action on rates. Interest rates declined on
their own and bond prices rallied.
Q. How did you manage the Fund in this environment?
We maintained our emphasis on securities that we believed to be less sensitive
to interest-rate changes, namely higher-yielding securities. Two major positions
worked to the Fund's advantage -- airport bonds and New York State-appropriated
bonds. Both types of securities benefited from stronger economic growth. Airport
bonds accounted for 15.3% of the portfolio; and New York State-appropriated
bonds made up 16.2% of the portfolio.
Because uncertainty usually leads to poor performance in fixed-income markets,
we eliminated or reduced allocations in sectors that were undergoing significant
change. These sectors included hospitals and electric utilities. Both areas
continued to be affected by trends toward consolidation and, in the case of
utilities, by a move toward deregulation. At the end of the period, the
portfolio had no hospital bonds, and only 5% of its assets were invested in
electric utility bonds.
We also minimized investments in insured bonds. These issues generally carry
lower yields than other types of bonds. When interest rates rise and bond prices
decline, insured securities tend to be sold quickly by investors, reducing their
value.
Q. What is your outlook for the months ahead?
We believe the economy will continue to grow at a robust pace, a trend that may
prompt the Federal Reserve Board to raise interest rates. In anticipation, we
are maintaining the Fund's current average duration of four years. Duration
measures (in years) a portfolio's sensitivity to changes in interest rates; a
lower duration results in smaller price declines when interest rates rise.
Typically, municipal bond supply increases in the summer. While we expect some
short-term increase in supply over the next several months, the favorable
dynamic of weak supply and relatively steady demand is likely to continue. While
this supply/demand relationship makes security selection more difficult, it
enhances the value of the bonds already in the portfolio.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT QUALITY COMPOSITION -- 6/30/97
- --------------------------------------------------------------------------------
AAA ................ 16.1%
AA ................. 4.8%
A .................. 9.1%
BBB ................ 56.5%
Other .............. 13.5%
Quality is based on ratings supplied by Standard & Poor's Corporation.
Average Portfolio Quality = A Average Effective Maturity = 10 Years
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
TAX EXEMPT OBLIGATIONS--98.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
RATINGS (c)
(UNAUDITED)
-------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (a)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
ALABAMA--0.9%
$1,500,000 Mobile Solid Waste Disposal,
6.950%, 1/01/20 ........................ Baa3 BBB- $ 1,602,000
------------
ALASKA--0.7%
1,340,000 Alaska State Housing Finance Corp.,
6.500%, 6/01/34 ....................... Aaa AAA 1,381,580
------------
ARIZONA--2.6%
2,500,000 Navajo County Pollution Control,
5.875%, 8/15/28 ....................... Baa1 BBB+ 2,505,400
2,300,000 University of Arizona Revenue Bond,
6.350%, 6/01/14 ....................... A1 AA 2,424,522
------------
4,929,922
------------
CALIFORNIA--8.6%
1,500,000 California Housing Finance Agency Revenue
Bond, 8.100%, 8/01/07 ................. Aa AA- 1,532,160
450,000 California Housing Finance Agency Revenue
Bond, 8.125%, 8/01/19 ................. Aa AA- 465,408
4,300,000 Foothill/Eastern Transportation Corridor,
6.500%, 1/01/32 ....................... Baa BBB- 4,514,140
2,000,000 Los Angeles Convention & Exhibition,
9.000%, 12/01/20 ...................... Aaa AAA 2,598,160
2,000,000 Los Angeles Regional Airport Lease,
6.350%, 11/01/25 ...................... Baa3 BB+ 2,046,940
2,000,000 Sacramento California, 6.500%, 7/01/21 .. -- BBB- 2,088,080
3,000,000 Sacramento Power Authority,
6.000%, 7/01/22 ........................ -- BBB- 3,014,340
------------
16,259,228
------------
COLORADO--6.0%
1,500,000 Denver City & County Airport Revenue Bond,
7.500%, 11/15/06 ...................... Baa AAA 1,731,270
1,500,000 Denver City & County Airport Revenue Bond,
7.500%, 11/15/12 ...................... Baa AAA 1,731,270
2,000,000 Denver City & County Airport Revenue Bond,
7.500%, 11/15/23 ...................... Baa BBB 2,268,840
5,000,000 Denver City & County Airport Revenue Bond,
7.750%, 11/15/21 ...................... Baa BBB 5,586,350
------------
11,317,730
------------
FLORIDA--5.6%
3,000,000 Escambia County Pollution Control,
6.900%, 8/01/22 ....................... Baa1 BBB 3,263,880
1,430,000 Florida State, 6.400%, 7/01/22 .......... Aa2 AA+ 1,557,756
1,000,000 Martin County Industrial Development
Authority, 7.875%, 12/15/25 ........... Baa3 BBB- 1,133,840
2,500,000 Palm Beach County, 6.950%, 1/01/22 (d) ... -- -- 1,700,000
2,000,000 Palm Beach County Solid Waste,
6.850%, 1/01/14 (d) ................... -- -- 1,360,000
1,500,000 Palm Beach County Solid Waste Revenue
Bond, 8.750%, 7/01/10, ................ A A 1,545,000
------------
10,560,476
------------
GEORGIA--1.4%
2,500,000 Atlanta Special Purpose Facilities Revenue
Bond, 7.900%, 12/01/18 ................ Ba2 BB+ 2,687,425
------------
GUAM--1.5%
3,000,000 Guam Government, 5.400%, 11/15/18 ....... -- BBB 2,791,410
------------
ILLINOIS--6.3%
6,000,000 Illinois Development Finance Authority
Pollution, 7.250%, 6/01/11 ............ Baa2 BBB 6,474,840
2,500,000 Illinois Development Finance Authority
Pollution, 7.375%, 7/01/21 ............ Baa1 BBB 2,814,100
2,250,000 O'Hare International Airport,
8.200%, 12/01/24 ...................... Baa2 BBB- 2,642,603
------------
11,931,543
------------
INDIANA--4.0%
3,500,000 Indiana Development Finance Authority
Pollution, 6.850%, 12/01/12 ........... Ba3 BB- 3,603,635
3,500,000 Indianapolis International Airport
Authority Revenue Bond,
7.100%, 1/15/17 ....................... Baa2 BBB 3,840,550
------------
7,444,185
------------
KANSAS--1.1%
2,000,000 Kansas City Utility Systems Revenue Bond,
6.375%, 9/01/23 ....................... Aaa AAA 2,155,300
------------
KENTUCKY--3.5%
1,500,000 Kenton County Airport Board Revenue Bond,
6.125%, 2/01/22 ....................... Baa3 BB+ 1,493,295
2,000,000 Kenton County Airport Board Revenue Bond,
7.500%, 2/01/12 ....................... Baa3 BB+ 2,165,640
3,000,000 Warren County Justice Center,
5.350%, 9/01/29 ....................... Aaa AAA 2,914,590
------------
6,573,525
------------
MASSACHUSETTS--4.3%
3,000,000 Massachusetts Bay Transportation
Authority, 6.100%, 3/01/23 ............ A1 A+ 3,085,500
2,500,000 Massachusetts State Housing Finance
Agency, 6.300%, 10/01/13 .............. A1 A+ 2,621,275
2,315,000 Massachusetts State Housing Finance
Agency, 6.375%, 4/01/21 ............... A1 A+ 2,408,549
------------
8,115,324
------------
NEW YORK--21.7%
4,860,000 New York City, 7.000%, 10/01/13 ......... Baa1 BBB+ 5,180,711
2,450,000 New York City, 7.500%, 2/01/05 .......... Baa1 BBB+ 2,712,175
265,000 New York, New York, 7.100%, 2/01/10 ..... Baa1 BBB+ 295,165
735,000 New York, New York, 7.100%, 2/01/10 ..... Baa1 BBB+ 799,915
2,040,000 New York State Dormitory Authority Revenue
Bond, 5.375%, 5/15/16 ................. Baa1 BBB+ 1,945,670
4,000,000 New York State Dormitory Authority Revenue
Bond, 5.500%, 5/15/13 .................. Baa1 BBB+ 3,970,440
5,000,000 New York State Dormitory Authority Revenue
Bond, 5.500%, 5/15/23 .................. Baa1 BBB+ 4,767,750
1,350,000 New York State Dormitory Authority Revenue
Bond, 5.625%, 5/15/13 .................. Baa1 BBB+ 1,333,867
2,740,000 New York State Dormitory Authority Revenue
Bond, 5.750%, 7/01/13 .................. Baa1 BBB 2,794,663
1,880,000 New York State Dormitory Authority Revenue
Bond, 7.500%, 5/15/13 .................. Baa1 BBB+ 2,258,764
4,150,000 New York State Medical Care Facilities
Finance, 5.250%, 8/15/14 ............... Baa1 BBB+ 3,929,925
2,500,000 New York State Medical Care Facilities
Finance, 5.375%, 2/15/14 ............... Baa1 BBB+ 2,402,925
1,955,000 New York State Medical Care Facilities
Finance, 6.500%, 8/15/12 ............... Aaa AAA 2,080,550
370,000 New York State Medical Care Facilities
Finance, 7.300%, 8/15/11 ............... Aaa AAA 416,010
205,000 New York State Medical Care Facilities
Finance, 7.300%, 8/15/11 ............... Baa1 BBB+ 226,566
1,500,000 New York State Thruway Authority Service
Contract, 5.750%, 4/01/16 .............. Baa1 BBB 1,494,735
3,430,000 New York State Urban Development Corp.
Revenue Bond, 5.500%, 1/01/18 .......... Baa1 BBB 3,295,613
1,000,000 Port Authority New York & New Jersey,
7.000%, 10/01/07 ....................... -- -- 1,102,970
------------
41,008,414
------------
OHIO--1.9%
3,000,000 Cleveland Public Power Systems Revenue
Bond, 7.000%, 11/15/24 ................. Aaa AAA 3,475,980
------------
OREGON--2.2%
4,000,000 Western Generation Agency, 7.400%, 1/01/16. -- -- 4,222,760
------------
PENNSYLVANIA--11.0%
3,000,000 Delaware County Pollution Control,
7.375%, 4/01/21 ........................ Baa1 BBB+ 3,249,360
2,725,000 Pennsylvania Convention Center Revenue
Bond, 6.700%, 9/01/14 .................. Baa BBB 2,939,621
2,000,000 Pennsylvania Convention Center Revenue
Bond, 6.750%, 9/01/19 .................. Baa BBB 2,157,200
3,000,000 Pennsylvania Economic Development
Financing, 6.600%, 1/01/19 ............. -- -- 3,011,550
4,000,000 Pennsylvania Economic Development
Financing, 7.150%, 12/01/18 ............ -- BBB- 4,303,000
1,500,000 Pennsylvania Economic Development
Financing, 7.600%, 12/01/20 ............ Baa2 BBB- 1,692,930
3,000,000 Pennsylvania Economic Development
Financing, 7.600%, 12/01/24 ............ Baa3 BBB 3,362,520
------------
20,716,181
------------
PUERTO RICO--3.7%
2,845,000 Puerto Rico Commonwealth Highway
Transportation, 6.625%, 7/01/18 ........ Aaa AAA 3,159,031
3,750,000 Puerto Rico Electric Power Authority,
6.000%, 7/01/14 ........................ Baa1 BBB+ 3,873,563
------------
7,032,594
------------
SOUTH DAKOTA--0.6%
1,000,000 South Dakota Student Loan Revenue Bond,
7.700%, 8/01/07 ........................ -- A+ 1,063,250
------------
TENNESSEE--1.4%
2,500,000 Maury County Industrial Development Board,
6.500%, 9/01/24 ........................ A3 A- 2,668,525
------------
TEXAS--2.7%
2,000,000 Alliance Airport Authority Special
Facilities, 6.375%, 4/01/21 ............ Baa2 BBB 2,053,740
2,825,000 Fort Worth International Airport,
7.250%, 11/01/30 ....................... Baa2 BBB- 3,045,039
------------
5,098,779
------------
U.S. VIRGIN ISLANDS--2.6%
4,500,000 U.S. Virgin Islands Public Finance
Authority, 7.250%, 10/01/18 ............ -- -- 4,902,345
------------
UTAH--1.1%
2,000,000 Intermountain Power Agency,
8.625%, 7/01/21 ......................... A1 A+ 2,040,000
------------
WASHINGTON--3.0%
1,000,000 Washington State Public Power Supply,
6.800%, 7/01/07 ........................ Aa AA 1,079,350
1,270,000 Washington State Public Power Supply,
7.000%, 7/01/11 ........................ Aaa AAA 1,383,614
3,000,000 Washington State Public Power Supply,
7.000%, 7/01/12 ........................ Aaa AA- 3,268,380
------------
5,731,344
------------
Total Tax Exempt Obligations
(Identified Cost $172,551,694) ......... 185,709,820
------------
Total Investments--98.4% (Identified Cost
$172,551,694) (b) ...................... 185,709,820
Other assets less liabilities ............ 2,952,521
------------
Total Net Assets--100% ................... $188,662,341
============
(a)See Note 1a.
(b)Federal Tax Information:
At June 30, 1997 the net unrealized appreciation on investments based on
cost of $172,551,694 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost ............................. $ 14,595,497
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................. (1,437,371)
------------
Net unrealized appreciation ............................................. $ 13,158,126
============
At December 31, 1996 the Fund had a capital loss carryover of approximately
$5,300,042 which expires December 31, 2002. This may be available to
offset future capital gains, if any, to the extent provided by
regulations.
(c)The ratings shown are believed to be the most recent ratings available at
June 30, 1997. Securities are generally rated at the time of issuance. The
rating agencies may revise their rating from time to time. As a result, there
can be no assurance that the same ratings would be assigned if the securities
were rated at June 30, 1997. The Fund's Sub-advisor independently evaluates
the Fund's portfolio securities and in making investment decisions does not
rely soley on the ratings of agencies.
(d)Issuer filed petition under Chapter 11 of the Federal Bankruptcy Code.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
ASSETS
Investments at value ................................... $185,709,820
Receivable for:
Fund shares sold ..................................... 616,122
Accrued interest ..................................... 3,490,097
Prepaid registration expense ........................... 4,000
------------
189,820,039
LIABILITIES
Payable for:
Due to custodian bank .................. $585,107
Fund shares redeemed ................... 155,822
Dividends declared ..................... 257,218
Accrued expenses:
Management fees ........................ 68,122
Deferred trustees' fees ................ 50,335
Accounting and administrative .......... 3,212
Other expenses ......................... 37,882
--------
1,157,698
------------
NET ASSETS ............................................... $188,662,341
============
Net Assets consist of:
Capital paid in ...................................... $182,736,996
Undistributed net investment income .................. 316,714
Accumulated net realized losses ...................... (7,549,495)
Unrealized appreciation on investments ............... 13,158,126
------------
NET ASSETS ............................................... $188,662,341
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($175,468,189 divided by 23,234,152 shares of
beneficial interest) ................................... $7.55
=====
Offering price per share ( 100/95.50 of $7.55) ........... $7.91*
=====
Net asset value and offering price of Class B shares
($13,194,152 divided by 1,747,253 shares of beneficial
interest) .............................................. $7.55**
=====
Identified cost of investments ........................... $172,551,694
============
*Based upon single purchases of less than $100,000.
Reduced sales charges apply for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1997
(unaudited)
INVESTMENT INCOME
Interest ..................................................... $5,990,704
EXPENSES
Management fees ....................................$410,528
Service fees - Class A ............................. 216,773
Service and distribution fees - Class B ............ 62,360
Trustees' fees and expenses ........................ 10,843
Accounting and administrative ...................... 20,809
Custodian .......................................... 45,207
Transfer agent ..................................... 87,947
Audit and tax services ............................. 21,000
Legal .............................................. 9,956
Printing ........................................... 14,663
Registration ....................................... 13,809
Miscellaneous ...................................... 5,122
--------
Total expenses ............................................... 919,017
----------
Net investment income ........................................ 5,071,687
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ................... 64,771
Unrealized appreciation on Investments - net ......... 241,827
--------
Net gain on investment transactions .......................... 306,598
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ..................... $5,378,285
==========
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
FROM OPERATIONS
Net investment income ........................ $ 10,654,671 $ 5,071,687
Net realized gain on investment transactions . 742,968 64,771
Unrealized appreciation (depreciation) on
investments ................................ (2,780,325) 241,827
------------- ------------
Increase in net assets from operations ....... 8,617,314 5,378,285
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .................................... (10,078,993) (4,678,596)
Class B .................................... (581,566) (290,474)
------------- ------------
(10,660,559) (4,969,070)
------------- ------------
Decrease in net assets derived from
capital share transactions ................. (11,775,820) (5,297,655)
------------- ------------
Total decrease in net assets ................. (13,819,065) (4,888,440)
NET ASSETS
Beginning of the period ...................... 207,369,846 193,550,781
------------- ------------
End of the period ............................ $ 193,550,781 $188,662,341
============= ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period ...................... $ 214,756 $ 214,097
============= ============
End of the period ............................ $ 214,097 $ 316,714
============= ============
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------------ JUNE 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ...................... $ 7.53 $ 7.54 $ 7.87 $ 6.85 $ 7.60 $ 7.53
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income ......... 0.44 0.40 0.39 0.42 0.41 0.21
Net Realized and Unrealized
Gain (Loss) on Investments .. 0.21 0.53 (1.01) 0.74 (0.07) 0.01
------ ------ ------ ------ ------ ------
Total From Investment
Operations .................. 0.65 0.93 (0.62) 1.16 0.34 0.22
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ...................... (0.46) (0.42) (0.40) (0.41) (0.41) (0.20)
Distributions From Net
Realized Capital Gains ...... (0.18) (0.18) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions ........... (0.64) (0.60) (0.40) (0.41) (0.41) (0.20)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $ 7.54 $ 7.87 $ 6.85 $ 7.60 $ 7.53 $ 7.55
====== ====== ====== ====== ====== ======
Total Return (%) (a) .......... 8.9 12.7 (8.0) 17.2 4.6 3.0
Ratio of Operating Expenses
to Average Net Assets (%) ... 0.95 0.91 0.92 0.93 0.92 0.94(b)
Ratio of Net Investment
Income to Average Net
Assets (%) .................. 5.80 5.27 5.44 5.52 5.46 5.52(b)
Portfolio Turnover Rate (%) ... 85 86 88 93 24 10(b)
Net Assets, End of Period
(000) ........................ $183,276 $226,881 $184,202 $195,301 $180,983 $175,468
(a) A sales charge is not reflected in total return calculations. Periods less
than one year are not annualized.
(b) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------
SEPTEMBER 13(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ----------------------------------- JUNE 30,
1993 1994 1995 1996 1997
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 8.03 $ 7.86 $ 6.85 $ 7.60 $ 7.53
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .............. 0.07 0.34 0.36 0.35 0.18
Net Realized and Unrealized Gain
(Loss) on Investments ............ 0.01 (1.01) 0.74 (0.07) 0.02
------ ------ ------ ------ ------
Total From Investment Operations ... 0.08 (0.67) 1.10 0.28 0.20
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income (0.07) (0.34) (0.35) (0.35) (0.18)
Distributions From Net Realized
Capital Gains .................... (0.18) 0.00 0.00 0.00 0.00
------ ----- ----- ----- -----
Total Distributions ................ (0.25) (0.34) (0.35) (0.35) (0.18)
------ ------ ------ ------ ------
Net Asset Value, End of Period ..... $ 7.86 $ 6.85 $ 7.60 $ 7.53 $ 7.55
====== ====== ====== ====== ======
Total Return (%) (c) ............... 1.0 (8.6) 16.3 3.9 2.7
Ratio of Operating Expenses to
Average Net Assets (%) ........... 1.65(b) 1.67 1.68 1.67 1.69(b)
Ratio of Net Investment Income to
Average Net Assets (%) ........... 3.91(b) 4.69 4.77 4.71 4.77(b)
Portfolio Turnover Rate (%) ........ 86 88 93 24 10(b)
Net Assets, End of Period (000) .... $3,395 $7,997 $12,069 $12,568 $13,194
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
1. The Fund is a series of The New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each such series of shares a
"Fund").
The Fund offers both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on September 13, 1993. Class A shares are sold with
a maximum front end sales charge of 4.50%. Class B shares do not pay a front
end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before
May 1, 1997). Expenses of the Fund are borne pro-rata by the holders of both
classes of shares, except that each class bears expenses unique to that class
(including the Rule 12b-1 service and distribution fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 Plan.
Shares of each class would receive their pro-rata share of the net assets of
the Fund, if the Fund were liquidated. In addition, the Trustees approve
separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. The Fund's investment subadviser, Back Bay Advisors,
L.P. ("Back Bay Advisors"), under the supervision of the Fund's trustees,
determines the value of the Fund's portfolio of securities, using valuations
provided by a pricing service selected by Back Bay Advisors and other
information with respect to transactions in securities, including quotations
from securities dealers. Valuations of securities and other assets owned by
the Fund for which market quotations are readily available are based on those
quotations. Short-term obligations that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value as determined in good
faith by Back Bay Advisors under the supervision of the Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Interest income is recorded on the accrual basis. Interest income for the Fund
is increased by the accretion of original issue discount. Interest income is
reduced by the amortization of premium. In determining net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
C. WHEN-ISSUED SECURITIES. Delivery and payment for securities purchased on a
when-issued or delayed delivery basis can take place one month or more after
the date of the transaction. The securities so purchased are subject to market
fluctuation during this period. At June 30, 1997 the Fund held no such
securities.
D. OPTIONS AND FUTURES. CALLS AND PUTS. The Fund may write (sell) call and
put options on securities to manage its exposure to interest rates and the
bond market. Buying futures, writing puts, and buying calls tend to increase
the fund's exposure to the underlying instrument. Selling futures, buying
puts, and writing calls tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments. When a Fund writes a call or put
option, an amount equal to the premium received by the Fund is included in the
Fund's statement of assets and liabilities as an asset and as an equivalent
liability. The amount of the liability is subsequently marked-to-market to
reflect the current market value of the option written. The current value of a
written option is the closing price on the principal exchange on which such
option is traded. If an option which the Fund has written either expires on
its stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or loss
from the sale of the underlying security and the proceeds from such sale are
increased by the premium originally received. If a put option which the Fund
has written is exercised, the amount of the premium originally received will
reduce the cost of the security which the Fund purchases upon exercise of the
option.
The premium paid by the Fund for the purchase of a call or a put option is
included in the asset section of the Fund's statement of assets and
liabilities as an investment and subsequently adjusted to the current market
value of the option. The current value of a purchased option is the closing
price on the principal exchange on which such option is traded. If an option
which the Fund has purchased expires on the stipulated expiration date, the
Fund will realize a loss in the amount of the cost of the option. If the Fund
enters into a closing sale transaction, the Fund will realize a gain or loss,
depending on whether the sales proceeds from the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a purchased
put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. If the Fund exercises a purchased call option, the cost of
the security which the Fund purchases upon exercise will be increased by the
premium originally paid.
The risk in writing a call option is that the Fund relinquishes the
opportunity to profit if the market price of the underlying security increases
and the option is exercised. In writing a put option, the Fund assumes the
risk of incurring a loss if the market price decreases and the option is
exercised. In addition, there is the risk the Fund may not be able to enter
into a closing transaction because of an illiquid secondary market.
E. INTEREST RATE FUTURES CONTRACTS. The Fund may enter into interest rate
futures contracts to hedge against changes in the values of securities the
Fund owns or expects to purchase. An interest rate futures contract is an
agreement between two parties to buy and sell a security for a set price (or
to deliver an amount of cash) on a future date. Upon entering into such a
contract, the purchasing Fund is required to pledge to the broker an amount of
cash, U.S. Government securities or other high quality debt securities equal
to the minimum "initial margin" requirements of the exchange, currently up to
$3,000 per contract. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the Fund as unrealized gains or losses. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Risks of entering into futures contracts include the
possibility that there may be an illiquid market and that changes in the value
of the contract may not correlate with changes in the value of the underlying
securities.
F. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily
to shareholders of record at the time and are paid monthly. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations, which may differ from
generally accepted accounting principles. Permanent book and tax basis
differences will result in reclassification to the capital accounts.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for
the Fund for the six months ended June 30, 1997 were $8,863,057 and
$13,538,274 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 0.50% of the first $100 million of the Fund's
average daily net assets and 0.375% of such assets in excess of $100 million.
NEFM pays the Fund's investment subadviser, Back Bay Advisors, at the rate of
0.25% of the first $100 million of the Fund's average daily net assets and
0.1875% of such assets in excess of $100 million. Certain officers and
directors of NEFM are also officers or trustees of the Fund. NEFM and Back Bay
Advisors, are wholly owned subsidiaries of New England Investment Companies,
L.P., ("NEIC") which is a subsidiary of Metropolitan Life Insurance Company
("Met Life"). Fees earned by NEFM and Back Bay Advisors under the management
agreement in effect during the six months ended June 30, 1997 are as follows:
FEES EARNED
-----------
$205,264 New England Funds Management, L.P.
$205,264 Back Bay Advisors, L.P.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds L.P. ("New
England Funds"), the Fund's distributor, is a subsidiary of NEIC and performs
certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Funds' expenses of
providing these services which include the following: (i) expenses for
personnel performing bookkeeping, accounting, internal auditing and financial
reporting functions and related clerical functions relating to the Fund, (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and notices,
proxy solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC compliance, and
(iii) registration, filing and other fees in connection with requirements of
regulatory authorities. For the six months ended June 30, 1997 these expenses
amounted to $20,809 and are shown separately in the financial statements as
accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent to the Fund. For the six months ended June 30, 1997, the Fund
paid New England Funds $61,032 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted a Service Plan relating to the Fund's Class A shares
(the "Class A Plan") and a Service and Distribution Plan relating to the
Fund's Class B shares (the "Class B Plan").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of up to 0.25% of the average daily net assets attributable
to the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers who may be affiliated with New England Funds)
incurred by New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1997, the Fund paid New England Funds $216,773 in fees
under the Class A Plan. If the expenses of New England Funds that are
otherwise reimbursable under the Class A Plan incurred in any year exceed the
amounts payable by the Fund under the Class A Plan, the unreimbursed amount
(together with unreimbursed amounts from prior years) may be carried forward
for reimbursement in future years in which the Class A Plan remains in effect.
The amount of unreimbursed expenses carried forward into 1997 is $1,700,600.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of up to 0.25% of the average daily net assets attributable
to the Fund's Class B shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class B shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 1997, the Fund paid
New England Funds $15,590 in service fees under the Class B Plan.
Also under the Class B Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.75% of the average daily net
assets attributable to the Fund's Class B shares, as compensation for services
provided and expenses (including certain payments to securities dealers, who
may be affiliated with New England Funds) incurred by New England Funds in
connection with the marketing or sale of Class B shares. For the six months
ended June 30, 1997, the Fund paid New England Funds $46,770 in distribution
fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid
to New England Funds by investors of shares of the Fund during the six months
ended June 30, 1997 amounted to $133,843.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of NEFM, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $2,120
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $81/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CONCENTRATION OF CREDIT. The Fund had the following industry
concentrations in excess of 10% at June 30, 1997 as a percentage of the Fund's
total net assets: Airports 15% and Pollution Control 16%. The Fund also had
more than 10% of its total net assets invested in: New York 22% and
Pennsylvania 11% at June 30, 1997. Certain risks arise from concentrating
investments in any state. Certain revenue or tax related events in a state may
impair the ability of issuers of municipal securities to pay principal and
interest on their obligations.
<PAGE>
5. CAPITAL SHARES. At June 30, 1997 there was an unlimited number of shares
of beneficial interest authorized, divided into two classes, Class A and Class
B capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
---------- ------------- --------- -----------
Shares sold ........................ 1,410,921 $ 10,592,663 1,002,191 $ 7,508,426
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 950,863 7,098,871 445,102 3,332,912
---------- ------------ --------- -----------
2,361,784 17,691,534 1,447,293 10,841,338
Shares repurchased ................. (4,031,484) (30,057,711) (2,234,087) (16,732,149)
---------- ------------ --------- -----------
Net decrease ....................... (1,669,700) $(12,366,177) (786,794) $(5,890,811)
---------- ------------ --------- -----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- ---------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
Shares sold ........................ 406,256 $ 3,019,066 240,290 $ 1,800,296
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 49,361 368,387 22,335 167,244
---------- ------------ --------- -----------
455,617 3,387,453 262,625 1,967,540
Shares repurchased ................. (375,103) (2,797,096) (183,495) (1,374,384)
---------- ------------- --------- -----------
Net increase (decrease) ............ 80,514 $ 590,357 79,130 $ 593,156
---------- ------------- --------- -----------
Decrease derived from capital shares
transactions ..................... (1,589,186) $(11,775,820) (707,664) $(5,297,655)
========== ============ ========= ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW ENGLAND HIGH INCOME FUND
SUPPLEMENT DATED JULY 28, 1997
TO NEW ENGLAND BOND FUNDS CLASSES A, B AND C PROSPECTUS
DATED MAY 1, 1997 (AS SUPPLEMENTED MAY 28, 1997)
ON PAGE 17 UNDER THE SECTION ENTITLED "HIGH INCOME FUND", THE FIRST SENTENCE
OF THE FIRST PARAGRAPH IS REVISED TO READ AS FOLLOWS:
The High Income Fund under normal market conditions will invest at least 65%
of its total assets in fixed-income securities which are rated BBB or lower by
S&P or Baa or lower by Moody's or unrated but are of comparable quality to
securities that are so rated.
IN THIS SAME SECTION, THE FOURTH PARAGRAPH IS REVISED TO READ AS FOLLOWS:
High Income Fund expects that under normal market conditions at least 80% of
the value of its total assets will be invested in fixed-income securities of
U.S. corporations, including preferred stock and convertible securities, and
U.S. dollar-denominated fixed-income securities issued by foreign governments
or by companies organized in foreign countries. To achieve its basic
investment objective, the Fund from time to time also may invest up to 20% of
the value of its total assets in common stocks and up to 20% of the value of
its total assets in non-U.S. dollar-denominated fixed-income securities issued
by foreign governments or by companies organized in foreign countries.
However, investments in both of these types of securities on a combined basis
generally will not exceed 20% of the value of the Fund's assets. See
"Investment Risks -- Foreign Securities" below.
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- -------------------------------------------------------------------------------
STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal 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.
Visit our World Wide Web site at www.mutualfunds.com
New England Funds, L.P., Distributor
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 Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
<PAGE>
--------------
(Logo) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
- --------------------- ---------------------
[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
- --------------------- ---------------------
DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
- --------------------- ---------------------
MU58-0697
[recycle symbol] Printed On Recycled Paper
