<PAGE>
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SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Municipal Income Fund
[graphic omitted]
Where
The Best
Minds
Meet(R)
- -------------
JUNE 30, 1999
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<PAGE>
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August 1999
- --------------------------------------------------------------------------------
[Photo of Bruce R. Speca]
- --------------------------------------------------------------------------------
"Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing."
- --------------------------------------------------------------------------------
Dear Shareholder,
Performance results for the New England Family of Funds were driven mainly by
two important changes that took place in our financial markets during the first
half of 1999. First, the long, upward climb of large-capitalization stocks
slowed dramatically as attention turned to stocks with more reasonable
valuations. Then, bond investors grew fearful that our persistently strong
economy would lead the Federal Reserve Board to impose higher interest rates.
Your manager's commentary on the following pages details how these trends
affected your fund's strategy and performance.
As I watch investments come in and out of favor, I'm reminded of the importance
of asset allocation - the practice of dividing your portfolio among different
kinds of stocks and bonds. The idea is to own more or less of each investment
type according to your feelings about risk and your investment time horizon.
Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing. In addition to broadening diversification,
it seeks to avoid exposure to narrow market segments and can help reduce
volatility.
While a diversified portfolio may have given solid returns during the past year,
many investors were disappointed when they compared those returns to the
performance of large-company growth stocks or to the soaring returns of Internet
stocks. Suddenly, investors were asking: Is asset allocation dead?
Certainly not! Like so much in life, market cycles are inevitable. Different
categories of investments will be popular at different times, and a sensible
asset allocation program can help you as market trends change.
I know it can be tempting to jump on a bandwagon and go after "easy money." But
I encourage you, instead, to maintain a rational, long-term perspective and to
consult your financial representative regularly to review and fine-tune
your investments, including a well-diversified asset allocation program.
Thank you for your continued interest. We look forward to helping you achieve
your long-term financial objectives.
Sincerely,
/s/ Bruce R. Speca
Bruce R. Speca
President and CEO
<PAGE>
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NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT RESULTS THROUGH JUNE 30, 1999
- --------------------------------------------------------------------------------
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 below 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 and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Municipal Income Fund's Class A shares since 6/30/89,
compared to the Lehman Municipal Index. The plot points to this chart are as
follows:]
JUNE 1989 THROUGH JUNE 1999
LEHMAN
NET MAXIMUM MUNICIPAL
ASSET SALES BOND
VLAUE(1) CHARGE(2) INDEX(4)
-------- ---------- ---------
6/89 $10,000 $ 9,550 $10,000
6/90 $10,507 $10,034 $10,681
6/91 $11,275 $10,768 $11,643
6/92 $12,725 $12,152 $13,014
6/93 $14,244 $13,603 $14,570
6/94 $14,052 $13,420 $14,599
6/95 $15,148 $14,467 $15,883
6/96 $16,084 $15,361 $16,937
6/97 $17,352 $16,571 $18,462
6/98 $18,795 $17,950 $20,060
6/99 $19,194 $18,330 $20,614
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 differ from that shown based on differences in inception dates, fees and
sales charges. All index and Fund performance assumes reinvestment of
distributions.
<PAGE>
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NEW ENGLAND MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS - 6/30/99
- --------------------------------------------------------------------------------
CLASS A (Inception 5/9/77) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) -0.3% 2.1% 6.4% 6.7%
With Maximum Sales Charge(2) -4.9 -2.5 5.5 6.3
- --------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 5 YEARS INCEPTION
Net Asset Value(1) -0.7% 1.5% 5.6% 3.9%
With CDSC(3) -5.5 -3.4 5.3 3.7
- --------------------------------------------------------------------------------
SINCE
FUND'S
CLASS B
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION
Lehman Municipal Bond
Index(4) -0.9% 2.8% 7.0% 7.4% 5.5%
Lipper General Municipal
Debt Average(5) -1.8 1.1 6.2 6.9 4.6
Morningstar Muni National
Long Avg.(6) -1.8 1.1 6.2 6.8 4.6
- --------------------------------------------------------------------------------
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 6/30/99
- --------------------------------------------------------------------------------
CLASS A CLASS B
SEC 30-day Yield7 4.8% 4.2%
Taxable Equivalent Yield8 7.9 7.0
- --------------------------------------------------------------------------------
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.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.5% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1% sales
charge on redemptions within the first year of purchase.
(4) Lehman Municipal Bond Index is an unmanaged index of bonds issued by states,
municipalities and other government entities having maturities of more than
one year. The performance of the index has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an
index. Class B since inception return is calculated from 9/30/93.
(5) Lipper General Municipal Debt Average is an average (calculated on the basis
of net asset value) of funds with similar investment objectives as
calculated by Lipper Inc., an independent mutual fund ranking service. Class
B since inception return is calculated from 9/30/93.
(6) Morningstar Muni National Long Average is an average (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Morningstar, Inc., an independent mutual fund ranking service.
Class B since inception return is calculated from 9/30/93.
(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%. A portion of income may be subject to federal, state and/or
alternative minimum tax. Capital gains distributions, if any, are subject to
the capital gains tax rate.
<PAGE>
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NEW ENGLAND MUNICIPAL INCOME FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of James Welch]
James Welch
Back Bay Advisors, L.P.
Q. How did New England Municipal Income Fund perform over the past six months?
New England Municipal Income Fund delivered a total return of -0.3% for Class A
shares at net asset value for the six months ended June 30, 1999, including a
$0.22 per share price decline to $7.54 and the reinvestment of $0.20 per share
in dividend distributions. Your Fund's performance, although disappointing, was
comparable with that of its peer group of 264 General Municipal Debt Funds,
which posted a return of -1.8% for the period, as tracked by Lipper Inc.
In addition, your Fund provided a high level of tax-free income. At the end of
the period, the Fund's 30-day SEC yield for Class A shares was 4.8%. This
translates into a taxable equivalent yield of 7.9%, based on the maximum federal
income tax rate of 39.6%.
Q. What was the investment environment for municipal bonds during the period?
The investment climate for fixed-income markets in general was challenging. With
strong economic growth, improving global economies and the widely anticipated
action of the Federal Reserve Board to raise short-term interest rates in June,
most types of bonds tended to lose value as interest rates rose.
Even though solid economic growth and low inflation improved the fiscal health
and creditworthiness of many municipalities, generating higher tax revenues,
rising interest rates had an overall negative effect on the value of all bonds,
including municipal bonds.
In addition, as we entered 1999, municipal bond yields were at historically high
levels compared to U.S. Treasury yields. On both an absolute and relative basis,
municipal bond yields at times were higher than those of their U.S. government
counterparts - providing individual investors more income than U.S. Treasuries,
both before and after taxes.
CREDIT QUALITY COMPOSITION - 6/30/99
AAA 26.4%
AA 5.7%
A 22.7%
BBB 38.7%
BB/Not Rated 6.6%
Average Credit Quality = A
Average Portfolio Maturity = 17.6 Years
Quality is based on ratings provided by Standard & Poor's.
Portfolio holdings and asset allocation will vary.
Q. Did supply and demand impact the tax-exempt market?
Interest rates aside, the supply and demand dynamic is the biggest influence on
the municipal market. Throughout the period, the supply of high quality,
tax-exempt issues did not keep up with demand, supporting prices.
This imbalance of supply and demand prevented greater loss in the Fund's net
asset value in a generally rising interest rate environment. Remember, as
interest rates rise, bond prices fall. In fact, municipal securities provided
investors with a smart alternative to taxable investments, which were impacted
to a greater degree by rising rates over the past six months.
Q. What strategies did you use in managing the Fund?
Throughout the period, we kept a watchful eye on interest rates. As inflation
fears heated up, and it became clear that the Federal Reserve Board would
maintain a tighter rein on rates, we adopted a defensive policy, gradually
shortening the Fund's average maturity and lowering duration.
As of June 30, 1999, the Fund's average maturity was 17.6 years with a duration
of 6.3 years.
In a steady interest rate environment - such as we witnessed in 1998 - we seek
longer maturities, which tend to offer higher yields in exchange for slightly
higher risk. In contrast, when we expect rates to rise, we typically shorten the
portfolio's average maturity, so that issues coming due can be reinvested at
higher rates. During the first half of 1999, when interest rates gradually rose,
the portfolio's shorter duration and average maturity helped the Fund's
performance.
As we added new positions during the period, we also emphasized higher-quality
bonds. Amid an uncertain interest rate climate, we believe that higher quality
bonds offer better relative value due to their greater creditworthiness and
stable yield characteristics. On June 30, 1999, the average credit quality was
"A" as rated by Standard & Poor's.
Over the past six months, while we pulled back on duration and average maturity,
we maintained our focus on sectors we previously found attractive. For example,
the airline industry continued to comprise a significant portion of the
portfolio. The transportation sector in general has reaped the rewards of a
healthy economy and provides compelling investment opportunities. We also placed
renewed emphasis on housing bonds, which have recently come back into favor as
interest rates have risen and the demand for mortgage refinancings has dropped.
Q. What is your outlook for municipal bonds over the next few months?
We believe that municipal bonds may benefit from several factors over the coming
months. Yields of municipal securities remain high when compared to taxable
securities, and we see continued potential for this outperformance. In addition,
we expect the economy to remain on its slow, steady, non-inflationary growth
path, helping municipalities to further improve from a credit standpoint.
Finally, we anticipate that new supply of municipal issues will continue to
trend downward and that demand will remain strong - keeping the door open for
further price appreciation potential.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes.
A portion of income may be subject to federal, state and/or alternative minimum
tax. Capital gains, if any, are subject to capital gains tax. U.S. Treasury
bills and U.S. government bonds fluctuate in value, but they are guaranteed as
to the timely payment of interest and, if held to maturity, provide a guaranteed
return of principal. Government guarantees apply to individual securities only
and not to prices and yields of shares in a managed portfolio. The Fund invests
in higher-yielding securities. Investing in lower-rated, higher-yielding bonds
may involve greater risk. These risks may increase share price volatility. See
the Fund's prospectus for details.
<PAGE>
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1999
(unaudited)
<TABLE>
TAX EXEMPT OBLIGATIONS - 100.1% OF TOTAL NET ASSETS
<CAPTION>
RATINGS (C)
--------------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA - 0.4%
$ 690,000 Alaska State Housing Finance Corp., 6.500%, 6/01/2034 ............... Aaa AAA $ 710,369
-------------
ARIZONA - 2.8%
2,500,000 Navajo County Pollution Control, 5.875%, 8/15/2028 .................. Baa1 A- 2,531,125
2,300,000 University of Arizona Revenue Bond, 6.350%, 6/01/2014 ............... A1 AA 2,516,867
-------------
5,047,992
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CALIFORNIA - 9.6%
3,000,000 Duarte Certificates of Participation, 5.250%, 4/01/2019 ............. Baa2 BBB+ 2,817,330
4,300,000 Foothill/Eastern Transportation Corridor, 6.500%, 1/01/2032 ......... Baa3 BBB- 4,732,709
2,000,000 Los Angeles Convention & Exhibition, 9.000%, 12/01/2020 ............. Aaa AAA 2,502,040
2,000,000 Los Angeles Regional Airport Lease, 6.350%, 11/01/2025, (d) ......... Baa3 BBB- 2,118,780
3,000,000 Sacramento Power Authority, 6.000%, 7/01/2022 ....................... -- BBB- 3,079,530
2,000,000 Sacramento, California Pre-refunded, 6.500%, 7/01/2021 .............. -- -- 2,238,500
-------------
17,488,889
-------------
COLORADO - 5.8%
1,500,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/2006 ....... Baa1 AAA 1,676,010
1,500,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/2012 ....... Baa1 AAA 1,676,010
1,655,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/2023 ....... Baa1 BBB+ 1,854,361
3,960,000 Denver City & County Airport Revenue Bond, 7.750%, 11/15/2021 ....... Baa1 BBB+ 4,267,732
1,040,000 Denver City & County Airport Revenue Pre-refunded Bond,
7.750%, 11/15/2021 ................................................ Aaa BBB+ 1,139,622
-------------
10,613,735
-------------
FLORIDA - 2.7%
3,000,000 Escambia County Pollution Control, 6.900%, 8/01/2022 ................ Baa1 BBB 3,223,500
10,500,000 Housing Finance Corp., Zero Coupon, 7/01/2030 ....................... Aaa AAA 1,769,565
-------------
4,993,065
-------------
GEORGIA - 1.4%
2,500,000 Atlanta Special Purpose Facilities Revenue Bond, 7.900%, 12/01/2018 . Ba2 BBB- 2,578,175
-------------
ILLINOIS - 3.0%
2,500,000 Illinois Development Finance Authority Pollution Control,
7.375%, 7/01/2021 ................................................. Baa1 BBB 2,806,175
2,250,000 O'Hare International Airport, 8.200%, 12/01/2024 .................... Baa2 BBB- 2,608,740
-------------
5,414,915
-------------
INDIANA - 4.0%
3,500,000 Indiana Development Finance Authority Pollution Control,
6.850%, 12/01/2012 ................................................ B1 BB 3,516,625
-------------
3,500,000 Indianapolis International Airport Authority Revenue Bond,
7.100%, 1/15/2017 ................................................. Baa2 BBB 3,856,230
-------------
7,372,855
-------------
KANSAS - 1.2%
650,000 Kansas City Utility Systems Pre-refunded, 6.375%, 9/01/2023 ......... Aaa AAA 715,787
1,350,000 Kansas City Utility Systems Revenue Bond, 6.375%, 9/01/2023 ......... Aaa AAA 1,484,662
-------------
2,200,449
-------------
KENTUCKY - 2.0%
1,500,000 Kenton County Airport Board Revenue Bond, 6.125%, 2/01/2022 ......... Baa3 BBB- 1,529,295
2,000,000 Kenton County Airport Board Revenue Bond, 7.500%, 2/01/2012 ......... Baa3 BBB- 2,150,780
-------------
3,680,075
-------------
MASSACHUSETTS - 8.6%
5,000,000 Massachusetts Bay Transportation Authority, 5.000%, 3/01/2024 ....... Aa3 AA- 4,645,300
3,000,000 Massachusetts Bay Transportation Authority, 6.100%, 3/01/2023 ....... Aa3 A 3,189,750
3,000,000 Massachusetts State Health & Educational Healthcare Systems,
5.125%, 7/01/2019 ................................................. A1 AA- 2,826,450
2,500,000 Massachusetts State Housing Finance Agency, 6.300%, 10/01/2013 ...... A1 A+ 2,632,450
2,315,000 Massachusetts State Housing Finance Agency, 6.375%, 4/01/2021 ....... A1 A+ 2,442,904
-------------
15,736,854
-------------
NEBRASKA - 1.6%
2,990,000 Nebraska Investment Finance Authority, 5.850%, 9/01/2028 ............ -- AAA 3,012,485
-------------
NEW YORK - 24.9%
1,900,000 New York City, 7.500%, 2/01/2005 .................................... A3 A- 2,060,265
4,585,000 New York City, Pre-refunded, 7.000%, 10/01/2013 ..................... A3 A- 5,019,154
4,000,000 New York City, Series K, 5.375%, 8/01/2019 .......................... A3 A- 3,939,520
2,040,000 New York State Dormitory Authority Revenue Bond, 5.375%, 5/15/2016 .. A3 BBB+ 2,055,647
4,000,000 New York State Dormitory Authority Revenue Bond, 5.500%, 5/15/2013 .. A3 A- 4,105,240
5,000,000 New York State Dormitory Authority Revenue Bond, 5.500%, 5/15/2023 .. A3 BBB+ 4,966,800
1,350,000 New York State Dormitory Authority Revenue Bond, 5.625%, 5/15/2013 .. A3 BBB+ 1,374,462
2,740,000 New York State Dormitory Authority Revenue Bond, 5.750%, 7/01/2013 .. Baa1 BBB+ 2,866,204
1,880,000 New York State Dormitory Authority Revenue Bond, 7.500%, 5/15/2013 .. A3 A- 2,296,815
2,500,000 New York State Medical Care Facilities Finance, 5.375%, 2/15/2014 ... A3 BBB+ 2,508,800
1,655,000 New York State Medical Care Facilities Finance, 6.500%, 8/15/2012 ... Aaa AAA 1,792,828
4,150,000 New York State Medical Care Facilities Finance Pre-refunded,
5.250%, 8/15/2014 ................................................. A3 A- 4,124,104
1,500,000 New York State Thruway Authority Service Contract, 5.750%, 4/01/2016 Baa1 BBB+ 1,524,555
3,430,000 New York State Urban Development Corp. Revenue Bond, 5.500%, 1/01/2018 Baa1 BBB+ 3,426,021
1,000,000 Onondaga County Industrial Development Agency, 9.000%, 10/01/2007 ... -- A 1,274,990
2,000,000 Port Authority New York & New Jersey, 7.000%, 10/01/2007 ............ -- -- 2,221,640
-------------
45,557,045
-------------
OHIO - 1.9%
3,000,000 Cleveland Public Power Systems Revenue Bond,
7.000%, 11/15/2024 ................................................ Aaa AAA 3,400,620
-------------
OREGON - 2.4%
4,000,000 Western Generation Agency, 7.400%, 1/01/2016 ........................ -- -- 4,296,000
-------------
PENNSYLVANIA - 10.5%
3,000,000 Delaware County Pollution Control, 7.375%, 4/01/2021 ................ Baa1 A 3,173,370
2,725,000 Pennsylvania Convention Center Revenue Bond, 6.700%, 9/01/2014 ...... Baa2 BBB 2,958,314
2,000,000 Pennsylvania Convention Center Revenue Bond, 6.750%, 9/01/2019 ...... Baa2 BBB 2,170,980
3,000,000 Pennsylvania Economic Development Financing, 6.600%, 1/01/2019 ...... -- BBB- 3,147,990
4,000,000 Pennsylvania Economic Development Financing, 7.150%, 12/01/2018 ..... -- BBB- 4,407,720
3,000,000 Pennsylvania Economic Development Financing, 7.600%, 12/01/2024 ..... Baa3 BBB 3,354,990
-------------
19,213,364
-------------
PUERTO RICO - 3.1%
2,845,000 Commonwealth Highway & Transporation Pre-refunded, 6.625%, 7/01/2018 Aaa AAA 3,076,896
2,500,000 Commonwealth Highway & Transportation, Series Y, 5.500%, 7/01/2026 .. Baa1 A 2,522,900
-------------
5,599,796
-------------
TENNESSEE - 1.5%
2,500,000 Maury County Industrial Development Board, 6.500%, 9/01/2024 ........ A2 A 2,707,200
-------------
TEXAS - 4.7%
2,000,000 Alliance Airport Authority Special Facilities, 6.375%, 4/01/2021 .... Baa2 BBB 2,091,660
2,825,000 Fort Worth International Airport, 7.250%, 11/01/2030 ................ Baa2 BBB- 3,051,339
2,000,000 Houston Airport Systems Revenue, 6.125%, 7/15/2027 .................. Ba1 BB 2,029,680
1,500,000 Houston Higher Education Finance Corp., 5.375%, 11/15/2029 .......... Aaa AAA 1,478,895
-------------
8,651,574
-------------
US VIRGIN ISLANDS - 2.7%
4,500,000 US Virgin Islands Public Finance Authority Pre-refunded,
7.250%, 10/01/2018 (d) ............................................ -- AAA 4,993,875
-------------
VIRGINIA - 1.6%
3,075,000 Virginia State Public School Authority, 5.125%, 8/01/2019 ........... Aa1 AA+ 2,979,337
-------------
WASHINGTON - 3.2%
5,000,000 Seattle Water Systems Revenue, 5.250%, 3/01/2024 .................... Aaa AAA 4,805,950
1,000,000 Washington State Public Power Supply, 6.800%, 7/01/2007 ............. Aaa AA 1,068,450
-------------
5,874,400
-------------
WISCONSIN - 0.5%
1,000,000 Green Bay Redevelopment Authority, 5.600%, 5/01/2019 ................ Baa2 -- 977,680
-------------
Total Tax Exempt Obligations
(Identified Cost $169,414,208) ...................................... 183,100,749
-------------
OPTIONS - 0.0%
CONTRACTS
- ----------------------------------------------------------------------------------------------------------------------------
150 U.S. Treasury Bond Futures, 110 Put, July 1999 ...................... 7,031
-------------
Total Options (Identified Cost $26,531) ............................. 7,031
-------------
SHORT TERM INVESTMENT - 0.6%
PRINCIPAL
AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
1,024,000 Household Finance Corp., 5.500%, 7/01/1999 .......................... 1,024,000
-------------
Total Short Term Investment (Identified Cost $1,024,000) ............ 1,024,000
-------------
Total Investments - 100.7% (Identified Cost $170,464,739)(b) ........ 184,131,780
Other assets less liabilities ....................................... (1,248,501)
-------------
Total Net Assets - 100% ............................................. $ 182,883,279
=============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized appreciation on investments based on
cost of $170,464,739 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. ...................................................... $ 14,234,556
Aggregate gross unrealized depreciation for all investments in which there is an excess
of tax cost over value. ...................................................... (567,515)
-------------
Net unrealized appreciation. ................................................... $ 13,667,041
=============
At December 31, 1998 the Fund had a capital loss carryover of approximately $4,865,416 of which $4,839,685 expires on
December 31, 2002 and $25,731 expires on December 31, 2005. This may be available to offset future realized
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, 1999. 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, 1999. The Fund's subadviser
independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the
ratings of agencies.
(d) A portion of these securities ($6,000,000 par) have been segregated as collateral in connection with the Fund's
derivative investments at June 30, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value (Identified cost 170,464,739) ... $ 184,131,780
Cash ................................................. 185
Receivable for:
Fund shares sold ................................... 838,992
Accrued interest ................................... 3,045,145
-------------
188,016,102
LIABILITIES
Payable for:
Securities purchased ................................. $4,478,416
Fund shares redeemed ............................... 209,446
Dividends declared ................................. 256,334
Accrued expenses:
Management fees .................................... 66,605
Deferred trustees' fees ............................ 48,637
Accounting and administrative ...................... 9,836
Other expenses ..................................... 63,549
----------
5,132,823
-------------
NET ASSETS .............................................. $ 182,883,279
=============
Net Assets consist of:
Capital paid in .................................... $ 177,059,882
Undistributed net investment income (loss) ......... (46,353)
Accumulated net realized gains (losses) ............ (7,797,291)
Unrealized appreciation (depreciation) on investments 13,667,041
-------------
NET ASSETS .............................................. $ 182,883,279
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($166,458,167 / 22,071,491 shares of beneficial interest) $ 7.54
======
Offering price per share (100 / 95.50 of $7.54) ...... $ 7.90*
======
Net asset value and offering price of Class B shares
($16,425,112 / 2,177,710 shares of beneficial interest) $ 7.54**
======
* Based upon single purchases of less than $50,000. 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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Interest ............................................ $ 5,504,430
Expenses
Management fees ..................................... $ 406,666
Service fees - Class A .............................. 209,817
Service and distribution fees - Class B ............. 79,887
Trustees' fees and expenses ......................... 6,970
Accounting and administrative ....................... 30,315
Custodian ........................................... 46,754
Transfer agent ...................................... 73,845
Audit and tax services .............................. 19,300
Legal ............................................... 2,492
Printing ............................................ 6,753
Registration ........................................ 25,412
Miscellaneous ....................................... 6,809
----------
Total expenses ........................................ 915,020
-----------
Net investment income ................................. 4,589,410
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments - net ................................... (855,453)
Futures contracts - net ............................. 123,125
Options contracts - net ............................. (93,209)
----------
Total realized gain (loss) on investments ............. (825,537)
----------
Unrealized appreciation (depreciation) on
investments - net ................................... (4,461,478)
----------
Net gain (loss) on investment transactions ............ (5,287,015)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (697,605)
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
----------- -----------
FROM OPERATIONS
Net investment income ................... $ 9,428,133 $ 4,589,410
Net realized gain (loss) on investments . 733,217 (825,537)
Unrealized appreciation (depreciation) on
investment transactions ................. (448,293) (4,461,478)
-------------- --------------
Increase (decrease) in net assets from
operations .............................. 9,713,057 (697,605)
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................... (8,832,742) (4,213,164)
Class B ............................... (620,875) (342,595)
In excess of net investment income
Class A ............................... (19,639) 0
Class B ............................... (1,380) 0
-------------- --------------
(9,474,636) (4,555,759)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS . (2,172,125) (384,247)
-------------- --------------
Total increase (decrease) in net assets ... (1,933,704) (5,637,611)
NET ASSETS
Beginning of the period ................. 190,454,594 188,520,890
-------------- --------------
End of the period ....................... $ 188,520,890 $ 182,883,279
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period ....................... $ (80,004) $ (46,353)
============== ==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 7.87 $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .................. 0.39 0.42 0.41 0.40 0.39 0.20
Net Realized and Unrealized Gain
(Loss) on Investments ................ (1.01) 0.74 (0.07) 0.23 0.01 (0.22)
-------- -------- -------- -------- -------- --------
Total From Investment Operations ....... (0.62) 1.16 0.34 0.63 0.40 (0.02)
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ... (0.40) (0.41) (0.41) (0.41) (0.39) (0.20)
-------- -------- -------- -------- -------- --------
Total Distributions .................... (0.40) (0.41) (0.41) (0.41) (0.39) (0.20)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period ..... $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.54
======== ======== ======== ======== ======== ========
Total Return (%) (a) ................... (8.0) 17.2 4.6 8.6 5.3 (0.3)
Ratio of Operating Expenses to
Average Net Assets (%) ............... 0.92 0.93 0.92 0.93 0.93 0.93(b)
Ratio of Net Investment Income to
Average Net Assets (%) ............... 5.44 5.52 5.46 5.19 5.03 5.05(b)
Portfolio Turnover Rate (%) ............ 88 93 24 14 26 164
Net Assets, End of the Period (000) .... $184,202 $195,301 $180,983 $177,099 $172,643 $166,458
(a) A sales charge is not reflected in total return calculations.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS B
-------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 7.86 $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .................. 0.34 0.36 0.35 0.34 0.33 0.17
Net Realized and Unrealized Gain
(Loss) on Investments ................ (1.01) 0.74 (0.07) 0.23 0.01 (0.22)
-------- -------- -------- -------- -------- --------
Total From Investment Operations ....... (0.67) 1.10 0.28 0.57 0.34 (0.05)
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ... (0.34) (0.35) (0.35) (0.35) (0.33) (0.17)
-------- -------- -------- -------- -------- --------
Total Distributions .................... (0.34) (0.35) (0.35) (0.35) (0.33) (0.17)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period ..... $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76 $ 7.54
======== ======== ======== ======== ======== ========
Total Return (%) (a) ................... (8.6) 16.3 3.9 7.8 4.5 (0.7)
Ratio of Operating Expenses to
Average Net Assets (%) ............... 1.67 1.68 1.67 1.68 1.68 1.68(b)
Ratio of Net Investment Income to
Average Net Assets (%) ............... 4.69 4.77 4.71 4.44 4.28 4.30(b)
Portfolio Turnover Rate (%) ............ 88 93 24 14 26 164 b)
Net Assets, End of the Period (000) .... $ 7,779 $ 12,069 $ 12,568 $ 13,356 $ 15,878 $ 16,425
(a) A contingent deferred sales charge is not reflected in total return
calculations. (b) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the Period Ended June 30, 1999
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of 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 Fund seeks as high a level of current income
exempt from federal income taxes as is consistent with reasonable risk and
protection of shareholders' capital. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares of the Trust in multiple series
(each such series of shares is a "Fund").
The Fund offers both Class A and Class B shares. 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. Debt securities (other than short-term obligations with a
remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees,
which service determines valuations for normal institutional-size trading units
of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Short-term obligations with a remaining
maturity of less than sixty days 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 the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Interest income is recorded on the accrual
basis. Interest income 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, 1999 the Fund held no such
securities.
D. 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record 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. For the six months ended June 30, 1999
purchases and sales of securities (excluding short-term investments) were
$154,200,966 and $151,499,032 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
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,
reduced by the payment to the Fund's investment subadviser, Back Bay Advisors,
L.P., ("Back Bay") 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 Nvest
Companies, L.P., ("Nvest") which is a subsidiary of Metropolitan Life Insurance
Company ("MetLife"). Fees earned by NEFM and Back Bay Advisors under the
management and subadvisory agreements in effect during the six months ended June
30, 1999 are as follows:
Fees Earned
-----------
NEFM $ 203,333
Back Bay 203,333
The effective annualized management fee for the six months ended June 30, 1999
was 0.44%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a subsidiary of Nvest and performs certain accounting and administrative
services for the Fund. The Fund reimburses NSC for all or part of NSC's expenses
of providing these services which include the following: (i) expenses for
personnel performing bookkeeping, accounting and financial reporting functions
and related clerical functions relating to the Fund and (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, registration of shares in various states, shareholder reports
and notices, proxy solicitation material furnished to shareholders of the Fund
or regulatory authorities and reports and questionnaires for SEC compliance. For
the six months ended June 30, 1999 these expenses amounted to $30,315 and are
shown separately in the financial statements as accounting and administrative.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the six months ended June 30, 1999, the Fund paid NSC $108,717 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, L.P. ("New England
Funds"), the Fund's distributor, (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 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, 1999, the Fund paid New England Funds $209,817 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 at June 30, 1999 is $1,700,600.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of 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, 1999, the Fund paid New England Funds $19,972
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 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,
1999, the Fund paid New England Funds $59,915 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, 1999 amounted to $106,483.
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, Nvest, NSC or their affiliates. Each other Trustee receives a
retainer fee at the annual rate of $40,000 and meeting attendance fees of $3,500
for each meeting of the Board of Trustees attended. Each committee member
receives an additional retainer fee at the annual rate of $6,000 while each
committee chairman receives a retainer fee (beyond the $6,000 fee) at the annual
rate of $4,000. These fees are allocated to the various New England Funds based
on a formula that takes into account, among other factors, the relative net
assets of each Fund.
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. Deferred amounts remain in the Fund until distributed in
accordance with the Plan.
4. CONCENTRATION OF CREDIT. At June 30, 1999, the Fund had the following
industry concentrations in excess of 10% as a percentage of the Fund's total net
assets: Airports 17.9%. The Fund also had more than 10% of its total net assets
invested in: New York 24.9% and Pennsylvania 10.5% at June 30, 1999. 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.
5. CAPITAL SHARES. At June 30, 1999 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 ,1998 JUNE 30, 1999
------------------------------ ------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ........................................ 1,861,867 $ 14,499,337 1,237,628 $ 9,516,780
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............... 383,600 2,983,011 380,620 2,931,462
---------- ------------ ---------- ------------
2,245,467 17,482,348 1,618,248 12,448,242
Shares repurchased ................................. (2,848,146) (22,174,070) (1,793,839) (13,845,583)
---------- ------------ ---------- ------------
Net increase (decrease) ............................ (602,679) $ (4,691,722) (175,591) $ (1,397,341)
---------- ------------ ---------- ------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 ,1998 JUNE 30, 1999
------------------------------ ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ........................................ 530,845 $ 4,138,179 243,639 $ 1,875,146
Shares issued in connection with the reinvestment of:
Dividends from net investment income .21,211 ....... 164,921 24,815 191,111
---------- ------------ ---------- ------------
552,056 4,303,100 268,454 2,066,257
Shares repurchased ................................. (229,346) (1,783,503) (136,580) (1,053,163)
---------- ------------ ---------- ------------
Net increase (decrease) ............................ 322,710 $ 2,519,597 131,874 $ 1,013,094
---------- ------------ ---------- ------------
Increase (decrease) derived from capital shares transa (279,969) $ (2,172,125) (43,717) $ (384,247)
========== ============ ========= ============
</TABLE>
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- --------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME Distributions - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration is a means to directly compare the volatility of different
instruments. As a general rule, for every 1% move in interest rates, a bond is
expected to fluctuate in value as indicated by its duration. For example, if
interest rates fall by 1%, a bond with a duration of 4 years should rise in
value 4%. Conversely, the bond should decline 4% if interest rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges. A small portion of
income may be subject to federal and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
- --------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, New England Funds' automatic investment program, you
can invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, the
investor should consider his or her financial ability to continue purchases
during periods of high or low prices.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
Past performance is no guarantee of future results. Please call New England
Funds for a prospectus, which contains more information, including charges and
other ongoing expenses. Please read prospectus carefully before you invest.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
Growth and Income Fund
(formerly Growth Opportunities Fund)
Balanced Fund
Value Fund
ALL-CAP EQUITY FUNDS
Star Advisers Fund
Star Worldwide Fund
International Equity Fund
Bullseye Fund
Equity Income Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund
GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
Government Securities Fund
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
MONEY MARKET FUNDS
Cash Management Trust,
Money Market Series
Tax Exempt Money Market Trust
CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income Fund
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.
New England Funds, L.P., and other firms selling shares of New England
Funds are members of the National Association of Securities Dealers,
Inc. (NASD). As a service to investors, the NASD has asked that we
inform you of the availability of a brochure on its Public Disclosure
Program. The program provides access to information about securities
firms and their representatives. Investors may obtain a copy by
contacting the NASD at 800-289-9999 or by visiting their Web site at
www.NASDR.com.
Y2K Readiness Report: New England Funds has kept pace with the Y2K
challenge. Mission critical systems have been tested and non-mission
critical systems are scheduled for completion by September 30, 1999.
Y2K is a top priority at New England Funds. For more information on
our Y2K readiness, please visit our Web site at www.mutualfunds.com.
This material represents Year 2000 Readiness Disclosure pursuant to the
Year 2000 Information and Readiness Disclosure Act.
<PAGE>
------------------
[LOGO](R) 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
---------------------
MU58-0699
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