<PAGE>
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ANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England
Municipal Income Fund
[graphic omitted]
Where
The Best
Minds
Meet(R)
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DECEMBER 31, 1998
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<PAGE>
FEBRUARY 1999
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[Photo of Bruce R. Speca]
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"Research indicates that saving for retirement is the number one goal for
investors. Yet, surprisingly often, investors behave like short-term traders
looking for a quick score."
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In September 1998, I became President of New England Funds. As an 18-year
veteran of the mutual fund industry, I was pleased and honored to accept this
important post. In my first message to you, I hope to present what I believe
you, our valued shareholders, really want to know and to offer it in a
straightforward manner.
How did my fund perform?
There's no question that long-term performance is the bottom line of your
investment program. With that in mind, please review the other sections of this
report. You'll see your fund's performance and commentary from your fund manager
that summarizes the fund's successes and shortcomings and the outlook for the
year ahead.
Our assessment of New England Funds' overall performance in 1998 is that we had
a solid, but not spectacular, year. While extremely pleased with both absolute
and relative returns in many of our stock and bond portfolios, we were
disappointed by the results of those equity funds that pursue a `value' rather
than a `growth' strategy. Value stocks were largely ignored in 1998, as
investors focused on very large, high visibility growth stocks (indeed, 45% of
the gain in the Standard & Poor's Composite Index of 500 Stocks (the "S&P 500")
- - a market value-weighted, unmanaged index of common stock prices for 500
selected stocks - came from just 10 stocks!) and select technology companies.
Much of the underperformance in value-oriented funds can be attributed to market
cycles, but we continue to pursue strategies to increase returns in these funds.
Can the stock market keep going up?
Like any winning streak, sooner or later the market will experience setbacks.
Does that mean 1999 will see the last burst of energy from the bull market? It's
easy to argue both sides of this question. Employment is high, inflation is low
and economic growth is continuing. But corporate profits may start to lag and
commodity prices, notably oil, are depressed around the world. The conclusion?
Economists, like weathermen and other forecasters, can only hope to be right
more often than they are wrong.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
My Own Two Cents
All too often investors lament, "What I could have made if only . . ." instead
of "What I actually made." But experience has taught me that the more important
question is, "Did I stick with my investment program and make progress toward my
financial goals?"
Research indicates that saving for retirement is the number one goal for
investors. Yet, surprisingly often, investors behave like short-term traders
looking for a quick score.
The mutual fund industry has become extremely complex, with more funds, new
strategies and approaches to analyzing performance. What hasn't changed is your
financial representative's primary objective: to help you sort it all out and
increase your returns in line with your goals.
Your financial adviser can help you avoid being distracted by the daily noise
and avoid what I view as the most important risk that investors face. It's the
risk of not staying invested and possibly falling short of your long-term goals.
Your adviser will help you stick with your investment program during periods of
uncertainty.
One last thought: All of us at New England Funds appreciate the trust that you
and your representative have placed in us. We look forward to serving you in the
years ahead.
Sincerely,
/s/ Bruce R. Speca
Bruce R. Speca
President and CEO
PROGRESS ON THE Y2K FRONT
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New England Funds has been and continues to engage in initiatives aimed at
having our computer systems tested and ready to function capably for the Year
2000. We are insisting on the same standard from vendors whose systems must
interact reliably with ours as well as from the subadvisers to our funds. We are
monitoring their progress and pursuing assurances of their readiness. Our
systems are being tested on a four-digit format (2000, not 00) and updated as
needed to perform competently. Additionally, we are developing contingency plans
to diminish the possibility of inconvenience related to Year 2000. Stay informed
on our Year 2000 readiness by visiting our Web site at www.mutualfunds.com.
This material represents Year 2000 Readiness disclosure pursuant to the Year
2000 Information and Readiness Act.
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NEW ENGLAND MUNICIPAL INCOME FUND
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INVESTMENT RESULTS THROUGH DECEMBER 31, 1998
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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 12/31/88,
compared to the Lehman Municipal Index. The plot points to this chart are as
follows:]
DECEMBER 1988 THROUGH DECEMBER 1998
LEHMAN
MUNICIPAL
NAV(1) MSC(2) INDEX(4)
------ ----- ---------
12/31/88 $10,000 $ 9,550 $10,000
/89 $10,975 $10,481 $11,079
/90 $11,580 $11,059 $11,887
/91 $12,922 $12,340 $13,330
/92 $14,077 $13,444 $14,504
/93 $15,858 $15,144 $16,285
/94 $14,578 $13,922 $15,443
/95 $17,090 $16,321 $18,140
/96 $17,881 $17,076 $18,945
/97 $19,414 $18,540 $20,686
/98 $20,442 $19,523 $22,026
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 date, fees and
sales charges. All Index and Fund performance assumes reinvestment of
distributions.
<PAGE>
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NEW ENGLAND MUNICIPAL INCOME FUND
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<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -- 12/31/98
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<S> <C> <C> <C>
CLASS A (Inception 5/9/77) 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 5.3% 5.2% 7.4%
With Max. Sales Charge(2) 0.5 4.3 6.9
- ----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
CLASS B (Inception 9/13/93) 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 4.5% 4.4% 4.4%
With CDSC(3) -0.5 4.1 4.2
- ----------------------------------------------------------------------------------------------------
<CAPTION>
SINCE FUND'S
CLASS B
COMPARATIVE PERFORMANCE 1 YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C>
Lehman Municipal Bond Index(4) 6.5% 6.2% 8.2% 6.2%
Lipper General Muni Debt Average(6) 5.3 5.4 7.7 5.4
Morningstar Muni National Long Avg.(5) 5.3 5.5 7.7 5.4
- ----------------------------------------------------------------------------------------------------
</TABLE>
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. All Index and Fund performance assumes reinvestment of
distributions.
<TABLE>
<CAPTION>
YIELDS AS OF 12/31/98
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CLASS A CLASS B
<S> <C> <C>
SEC Yield(7) 4.6% 4.1%
Taxable Equivalent Yield(8) 7.6 6.8
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</TABLE>
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 4.5% 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 Bond 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. Class B since inception return is
calculated from 9/30/93.
(5) Morningstar Muni National Long 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 Morningstar Inc., an
independent mutual fund ranking service. Class B since inception return is
calculated from 9/30/93.
(6) Lipper General Municipal Debt 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, 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%. The alternative minimum tax may apply. Some federal and state
taxes may apply.
<PAGE>
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NEW ENGLAND MUNICIPAL INCOME FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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[Photo of Nathan Wentworth]
Nathan Wentworth
Back Bay Advisors, L.P.
Q. How did New England Municipal Income Fund perform over the past 12 months?
New England Municipal Income Fund delivered a total return of 5.3% for Class A
shares at net asset value for the 12 months ended December 31, 1998. This
included a $0.01 per share gain to $7.76 and the reinvestment of $0.39 per share
in dividend distributions. In addition to its strong total return, your Fund
continued to provide a high level of tax-free income during the year. On
December 31, 1998, the Fund's 30-day SEC yield for Class A shares was 4.6%. This
translates into a taxable equivalent yield of 7.6%, 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 environment for municipal bonds was quite positive. The nation's
favorable economic and interest rate environment supported municipal bond
prices. Moderate-to-strong economic growth and continued minimal inflation in
the United States paved the way for low interest rates. The Federal Reserve
Board cut short-term interest rates three times in the fall of 1998 -- for a
total of 0.75% -- to stimulate the economy, and as a result, the domestic stock
markets. The combination of a sound economy and low interest rates improved the
fiscal health and creditworthiness of many municipalities. Economic strength
helped generate higher tax revenues, increasing the cash flow of many state and
local governments. Further, low interest rates often allowed municipalities to
refinance existing debt at more attractive levels, thus lowering their borrowing
costs.
Municipal bonds generally suffered from greater supply than demand, however.
Investors mainly directed cash to U.S. Treasury bonds and the stock market. In
the summer of 1998, investor concerns about the stability of global economies
and financial markets fueled a "flight-to-quality" characterized by
extraordinary demand for those securities considered to have the highest degree
of safety and liquidity. Typically, demand (both domestic and international) is
greatest for the most recently issued U.S. Treasury securities. As a result, the
prices of Treasury securities rose, driving down yields. Increased demand also
drove municipal bond prices up -- pushing yields lower -- but less dramatically
than U.S. Treasuries. While they are tax advantaged, the generally
lower-yielding nature of municipal bonds appeals to a smaller investor audience,
which means less widespread demand and, therefore, less price pressure.
CREDIT QUALITY COMPOSITION -- 12/31/98
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AAA 34.7%
AA 3.9%
A 18.7%
BBB 37.8%
Other 4.9%
Quality is based on ratings supplied by Standard & Poor's.
Portfolio holdings are subject to change.
AVERAGE CREDIT QUALITY = A AVERAGE PORTFOLIO MATURITY = 20 YEARS
This past year, however, municipal bond yields were high compared to U.S.
Treasury yields -- and offered extremely attractive relative value, based on
historical standards. The relatively higher yields of municipal bonds were even
more impressive on an after-tax basis, as municipal bonds provided individual
investors in virtually all tax brackets substantially more income than U.S.
Treasuries. Top "AAA"-rated insured municipal bond yields rose to between 95%
and 100% of the yield of U.S. Treasuries with comparable maturities by the end
of the year. Historically, "AAA"-rated municipal bonds have yielded an average
of 85% of their U.S. government counterparts.
Q. What strategies did you use in managing the Fund?
As always, we emphasized income. We focused on revenue bonds with relatively
longer maturities. Revenue bonds are securities whose interest payments are
derived from specific streams of revenues, such as airport landing fees or
highway tolls. They differ from general obligation bonds whose interest payments
come from the general revenues, such as taxes, of a governmental agency. We also
emphasized longer-maturity bonds, which tend to pay more income than
shorter-maturity bonds.
Duration and average maturity are two measures of a bond's price sensitivity to
interest rate changes. In general, the longer a bond's duration or average
maturity, the greater potential for price appreciation when interest rates fall
and conversely, the greater the risk of price loss when interest rates rise.
During 1998 when interest rates generally fell, the portfolio's longer duration
and average maturity enhanced the Fund's total return.
Credit quality also played a major role in our strategy and in the Fund's
performance. In the first half of the year, the Fund's "BBB" (below
investment-grade) and lower-rated bonds contributed significantly to total
return, as lower-rated bonds outperformed bonds with higher-ratings due to their
higher coupon (stated interest) rates.
Midway through the year, more than 50% of the Fund's assets were invested in
bonds rated "BBB" and lower. Demand was exceptionally strong for lower-rated
bonds, as investors sought higher yields in the low interest rate environment.
Consequently, prices rose and yields fell -- considerably faster than those of
higher-rated bonds -- so that the yield advantage provided by lower-rated bonds
diminished considerably. As we added new positions during the second half of the
year, we emphasized higher-quality bonds. We believed that higher-quality bonds
offered better relative value due to their greater creditworthiness and more
stable yield characteristics. As of December 31, 1998, the Fund's average credit
quality was "A," average maturity was 20 years and duration stood at 6.5 years.
Q. What is your outlook for municipal bonds over the next few months?
We expect municipal bond prices to be relatively stable in the coming months,
reflecting a continuation of many of the trends that have been in place over the
past year. We anticipate measured U.S economic growth and low inflation. With
unemployment at historically low levels, we think the economy still has room to
grow. In our opinion, however, the performance of the stock market could
determine much of the future course of municipal bond prices. As long as stock
prices keep rising, many investors will be tempted to put their money in stocks,
which will reduce demand for, and therefore the prices of, bonds. However, if
equities begin to experience a downturn, we think many investors could redirect
their assets into bonds. This should give tax-exempt bond prices a boost. On an
after-tax basis, the high yields of municipal bonds relative to U.S. Treasuries
could also support an increase in demand and bond prices.
Over the next six months, we plan to follow many of the strategies already in
place -- maintaining a focus on yield and limiting our risk exposure. We will
likely concentrate on finding value in higher-quality securities. Higher-quality
bonds offer greater price stability. In addition, we don't find that lower-rated
bonds currently offer a compelling yield advantage relative to their
creditworthiness. Overall, our goal is to strengthen the portfolio's credit
quality while sacrificing only minimal yield advantage.
A portion of income may be subject to state, federal 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. The opinions expressed are those of the former portfolio
manager and are subject to change. The occurrence of forecasted events and
predictions is not certain and cannot be assured. See the Fund's prospectus for
more complete information.
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Effective January 1999, James S. Welch assumed management responsibility for
your Fund, replacing Nathan R. Wentworth, who has left Back Bay Advisors. Please
see the Fund's prospectus supplement at the end of this report for more
information.
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<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1998
<TABLE>
<CAPTION>
TAX EXEMPT OBLIGATIONS--98.6% OF TOTAL NET ASSETS
RATINGS (c)
(UNAUDITED)
-------------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (a)
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ALASKA--0.5%
<C> <S> <C> <C> <C>
$ 870,000 Alaska State Housing Finance Corp., 6.500%,
6/01/2034 .............................. Aaa AAA $ 915,658
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ARIZONA--2.7%
2,500,000 Navajo County Pollution Control, 5.875%,
8/15/2028 .............................. Baa1 A- 2,561,700
2,300,000 University of Arizona Revenue Bond, 6.350%,
6/01/2014 .............................. A1 AA 2,619,309
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5,181,009
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CALIFORNIA--8.0%
4,300,000 Foothill/Eastern Transportation Corridor,
6.500%,1/01/2032 ....................... Baa3 BBB- 4,814,882
2,000,000 Los Angeles Convention & Exhibition,
9.000%,12/01/2020 ...................... Aaa AAA 2,616,880
2,000,000 Los Angeles Regional Airport Lease, 6.350%,
11/01/2025 ............................. Baa3 BBB- 2,178,320
3,000,000 Sacramento Power Authority, 6.000%,
7/01/ 2022 .............................. -- BBB- 3,209,460
2,000,000 Sacramento, California, 6.500%, 7/01/2021 . -- BBB- 2,320,260
------------
15,139,802
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COLORADO--6.0%
1,500,000 Denver City & County Airport Revenue Bond,
7.500%,11/15/2006 ...................... Baa1 AAA 1,728,930
1,500,000 Denver City & County Airport Revenue Bond,
7.500%,11/15/2012 ...................... Baa1 AAA 1,728,930
1,655,000 Denver City & County Airport Revenue Bond,
7.500%,11/15/2023 ...................... Baa1 BBB+ 1,904,856
3,960,000 Denver City & County Airport Revenue Bond,
7.750%,11/15/2021 ...................... Baa1 BBB+ 4,353,901
345,000 Denver City & County Airport Revenue Pre-
refunded Bond, 7.500%, 11/15/2023 ...... Aaa BBB+ 414,455
1,040,000 Denver City & County Airport Revenue Pre-
refunded Bond, 7.750%, 11/15/2021 ...... Aaa BBB+ 1,174,722
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11,305,794
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FLORIDA--2.4%
3,000,000 Escambia County Pollution Control, 6.900%,
8/01/2022 .............................. Baa1 BBB 3,285,450
1,000,000 Martin County Industrial Development
Authority, 7.875%, 12/15/2025 .......... Baa3 BBB- 1,149,920
------------
4,435,370
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GEORGIA--1.4%
2,500,000 Atlanta Special Purpose Facilities Revenue
Bond, 7.900%, 12/01/2018 ............... Ba2 BBB- 2,623,350
------------
ILLINOIS--4.2%
2,500,000 Chicago Midway Airport Revenue, 5.125%,
1/01/2035 .............................. Aaa AAA 2,416,375
2,500,000 Illinois Development Finance Authority
Pollution Control, 7.375%, 7/01/2021 ... Baa1 BBB 2,869,850
2,250,000 O'Hare International Airport, 8.200%,
12/01/2024 ............................. Baa2 BBB- 2,664,855
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7,951,080
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INDIANA--4.0%
3,500,000 Indiana Development Finance Authority
Pollution Control, 6.850%, 12/01/2012 .. B1 BB 3,594,150
3,500,000 Indianapolis International Airport
Authority Revenue Bond, 7.100%, 1/15/2017 Baa2 BBB 3,921,190
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7,515,340
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KANSAS--1.2%
2,000,000 Kansas City Utility Systems Revenue Bond,
6.375%, 9/01/2023 ...................... Aaa AAA 2,256,600
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KENTUCKY--2.0%
1,500,000 Kenton County Airport Board Revenue Bond,
6.125%, 2/01/2022 ...................... Baa3 BBB- 1,521,510
2,000,000 Kenton County Airport Board Revenue Bond,
7.500%, 2/01/2012 ...................... Baa3 BBB- 2,195,360
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3,716,870
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MASSACHUSETTS--12.0%
3,000,000 Massachusetts Bay Transportation Authority,
6.100%, 3/01/2023 ...................... Aa3 A 3,263,880
5,000,000 Massachusetts State Health & Education
Facility Authority, 4.750%, 6/01/2031 .. Aa3 AA- 4,682,400
2,500,000 Massachusetts State Housing Finance Agency,
6.300%, 10/01/2013 ..................... A1 A+ 2,683,275
2,315,000 Massachusetts State Housing Finance Agency,
6.375%, 4/01/2021 ...................... A1 A+ 2,482,050
6,000,000 Massachusetts State Turnpike Authority,
5.000%, 1/01/2037 ...................... Aaa AAA 5,845,680
4,000,000 Massachusetts State Water Resources
Authority, 4.750%, 8/01/2037 ........... Aaa AAA 3,723,360
------------
22,680,645
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MICHIGAN--1.1%
2,250,000 Wayne Charter County Michigan Airport
Revenue, 4.875%, 12/01/2023 ............ Aaa AAA 2,163,600
------------
NEBRASKA--1.7%
3,000,000 Nebraska Investment Finance Authority,
5.850%, 9/01/2028 ...................... -- AAA 3,135,360
------------
NEW HAMPSHIRE--1.4%
2,500,000 New Hampshire Higher Educational Health,
5.550%, 8/01/2023 ...................... Aaa -- 2,582,125
------------
NEW YORK--22.1%
1,900,000 New York City, 7.500%, 2/01/2005 ......... A3 A- 2,118,348
1,000,000 New York City Industrial Development
Agency, 5.750%, 10/01/2036 ............. Baa3 BBB- 1,028,310
4,585,000 New York City, Pre-refunded, 7.000%,
10/01/2013 .............................. A3 A- 5,167,249
2,040,000 New York State Dormitory Authority Revenue
Bond, 5.375%, 5/15/2016 ................. A3 BBB+ 2,077,842
4,000,000 New York State Dormitory Authority Revenue
Bond, 5.500%, 5/15/2013 ................ A3 A- 4,358,120
5,000,000 New York State Dormitory Authority Revenue
Bond, 5.500%, 5/15/2023 ................ A3 BBB+ 5,100,500
1,350,000 New York State Dormitory Authority Revenue
Bond, 5.625%, 5/15/2013 ................ A3 BBB+ 1,408,522
2,740,000 New York State Dormitory Authority Revenue
Bond, 5.750%, 7/01/2013 ................ Baa1 BBB+ 3,052,278
1,880,000 New York State Dormitory Authority Revenue
Bond, 7.500%, 5/15/2013 ................ A3 A- 2,415,067
2,500,000 New York State Medical Care Facilities
Finance, 5.375%, 2/15/2014 ............. A3 BBB+ 2,568,700
1,655,000 New York State Medical Care Facilities
Finance, 6.500%, 8/15/2012 ............. Aaa AAA 1,839,946
4,150,000 New York State Medical Care Facilities
Finance Pre-refunded, 5.250%, 8/15/2014 A3 A- 4,240,968
1,500,000 New York State Thruway Authority Service
Contract, 5.750%, 4/01/2016 ............. Baa1 BBB+ 1,580,670
3,430,000 New York State Urban Development Corp.
Revenue Bond, 5.500%, 1/01/2018 ........ Baa1 BBB+ 3,508,170
1,000,000 Port Authority New York & New Jersey,
7.000%, 10/01/2007 ..................... -- -- 1,118,430
------------
41,583,120
------------
OHIO--1.9%
3,000,000 Cleveland Public Power Systems Revenue
Bond, 7.000%, 11/15/2024 ............... Aaa AAA 3,538,140
------------
OREGON--2.3%
4,000,000 Western Generation Agency, 7.400%,
1/01/2016 ............................... -- -- 4,374,960
------------
PENNSYLVANIA--13.0%
3,000,000 Delaware County Pollution Control, 7.375%,
4/01/2021 .............................. Baa1 BBB+ 3,213,840
2,725,000 Pennsylvania Convention Center Revenue
Bond, 6.700%, 9/01/2014 ................ Baa BBB 3,040,092
2,000,000 Pennsylvania Convention Center Revenue
Bond, 6.750%, 9/01/2019 ................ Baa BBB 2,240,440
3,000,000 Pennsylvania Economic Development
Financing, 6.600%, 1/01/2019 ........... -- BBB- 3,196,440
4,000,000 Pennsylvania Economic Development
Financing, 7.150%, 12/01/2018 .......... -- BBB- 4,443,040
3,000,000 Pennsylvania Economic Development
Financing, 7.600%, 12/01/2024 ........... Baa3 BBB 3,428,250
5,000,000 Philadelphia Airport Systems Authority,
5.125%, 7/01/2028 ...................... Aaa AAA 4,917,800
------------
24,479,902
------------
PUERTO RICO--1.7%
2,845,000 Puerto Rico Commonwealth Highway
Transporation, 6.625%, 7/01/2018 ....... Aaa AAA 3,165,802
------------
TENNESSEE--1.4%
2,500,000 Maury County Industrial Development Board,
6.500%, 9/01/2024 ...................... A3 A 2,720,000
------------
TEXAS--4.3%
2,000,000 Alliance Airport Authority Special
Facilities, 6.375%, 4/01/2021 .......... Baa2 BBB 2,152,380
2,825,000 Fort Worth International Airport, 7.250%,
11/01/2030 ............................. Baa2 BBB- 3,109,477
3,000,000 North Texas Thruway Authority, 4.750%,
1/01/2029 .............................. Aaa AAA 2,837,370
------------
8,099,227
------------
US VIRGIN ISLANDS--2.7%
4,500,000 U.S. Virgin Islands Public Finance
Authority, 7.250%, 10/01/2018 .......... -- -- 5,136,930
------------
WASHINGTON--0.6%
1,000,000 Washington State Public Power Supply,
6.800%, 7/01/2007 ....................... Aa AA 1,093,260
------------
Total Tax Exempt Obligations
(Identified Cost $167,665,425) ......... 185,793,944
------------
Total Investments -- 98.6% (Identified Cost
$167,665,425) (b) ....................... 185,793,944
Other assets less liabilities ............ 2,726,946
------------
Total Net Assets--100% ................... $188,520,890
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on investments based on
cost of $167,771,661 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 .......................................... $18,258,092
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value ................................................ (235,809)
Net unrealized appreciation .................................................... $ 18,022,283
============
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 December 31, 1998. 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
December 31, 1998. 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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value (Identified cost $167,665,425) ........ $185,793,944
Cash ....................................................... 55,473
Receivable for:
Fund shares sold ......................................... 29,517
Accrued interest ......................................... 3,123,217
-------------
189,002,151
LIABILITIES
Payable for:
Fund shares redeemed ..................................... $135,466
Dividends declared ....................................... 142,220
Accrued expenses:
Management fees .......................................... 70,755
Deferred trustees' fees .................................. 48,281
Accounting and administrative ............................ 4,630
Other .................................................... 79,909
--------
481,261
-------------
NET ASSETS ................................................... $188,520,890
============
Net Assets consist of:
Capital paid in .......................................... $177,444,129
Undistributed (overdistributed) net investment income .... (80,004)
Accumulated net realized gains (losses) .................. (6,971,754)
Unrealized appreciation (depreciation) on investments .... 18,128,519
------------
NET ASSETS ................................................... $188,520,890
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($172,643,146 divided by 22,247,082 shares of beneficial
interest) .................................................. $7.76
=====
Offering price per share (100/95.50 of $7.76) ................ $8.13*
=====
Net asset value and offering price of Class B shares
($15,877,744 divided by 2,045,836 shares of beneficial
interest) .................................................. $7.76**
=====
* 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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Interest .................................................... $11,299,107
Expenses
Management fees ........................................... $ 834,043
Service fees - Class A .................................... 436,748
Service and distribution fees - Class B ................... 143,798
Trustees' fees and expenses ............................... 13,965
Accounting and administrative ............................. 47,566
Custodian ................................................. 95,444
Transfer agent ............................................ 167,422
Audit and tax services .................................... 38,700
Legal ..................................................... 10,642
Printing .................................................. 30,791
Registration .............................................. 32,590
Miscellaneous ............................................. 19,265
----------
Total expenses ................................................ 1,870,974
-----------
Net investment income ......................................... 9,428,133
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on Investments - net ............... 733,217
Unrealized appreciation (depreciation) on Investments -
net ..................................................... (448,293)
----------
Net gain (loss) on investment transactions .................. 284,924
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......... $ 9,713,057
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998
---- ----
FROM OPERATIONS
<S> <C> <C>
Net investment income ................................... $ 9,706,446 $ 9,428,133
Net realized gain (loss) on investments ................. (25,730) 733,217
Unrealized appreciation (depreciation) on investment
transactions .......................................... 5,660,513 (448,293)
------------ ------------
Increase (decrease) in net assets from operations ....... 15,341,229 9,713,057
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (9,422,946) (8,832,742)
Class B ............................................... (596,073) (620,875)
In excess of net investment income
Class A ............................................... 0 (19,639)
Class B ............................................... 0 (1,380)
------------ ------------
(10,019,019) (9,474,636)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions ........................................ (8,418,397) (2,172,125)
------------ ------------
Total increase (decrease) in net assets ................... (3,096,187) (1,933,704)
NET ASSETS
Beginning of the year ................................... 193,550,781 190,454,594
------------ ------------
End of the year ......................................... $190,454,594 $188,520,890
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the year ......................................... $ (98,476) $ (80,004)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year .......................... $ 7.87 $ 6.85 $ 7.60 $ 7.53 $ 7.75
------ ------ ------ ------ -----
Income From Investment Operations
Net Investment Income ................ 0.39 0.42 0.41 0.40 0.39
Net Realized and Unrealized Gain
(Loss) on Investments .............. (1.01) 0.74 (0.07) 0.23 0.01
------ ------ ------ ------ -----
Total From Investment Operations ..... (0.62) 1.16 0.34 0.63 0.40
------ ------ ------ ------ -----
Less Distributions
Dividends From Net Investment Income . (0.40) (0.41) (0.41) (0.41) (0.39)
------ ------ ------ ------ -----
Total Distributions .................. (0.40) (0.41) (0.41) (0.41) (0.39)
------ ------ ------ ------ -----
Net Asset Value, End of the Year ..... $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76
====== ====== ====== ====== ======
Total Return (%) (a) ................. (8.0) 17.2 4.6 8.6 5.3
Ratio of Operating Expenses to
Average Net Assets (%) ............. 0.92 0.93 0.92 0.93 0.93
Ratio of Net Investment Income to
Average Net Assets (%) ............. 5.44 5.52 5.46 5.19 5.03
Portfolio Turnover Rate (%) .......... 88 93 24 14 26
Net Assets, End of the Year (000) .... $184,202 $195,301 $180,983 $177,099 $172,643
</TABLE>
(a) A sales charge is not reflected in total return calculations.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Year ......................... $ 7.86 $ 6.85 $ 7.60 $ 7.53 $ 7.75
------ ------ ------ ------ -----
Income From Investment Operations
Net Investment Income ................ 0.34 0.36 0.35 0.34 0.33
Net Realized and Unrealized Gain
(Loss) on Investments .............. (1.01) 0.74 (0.07) 0.23 0.01
------ ------ ------ ------ -----
Total From Investment Operations ..... (0.67) 1.10 0.28 0.57 0.34
------ ------ ------ ------ -----
Less Distributions
Dividends From Net Investment Income . (0.34) (0.35) (0.35) (0.35) (0.33)
------ ------ ------ ------ -----
Total Distributions .................. (0.34) (0.35) (0.35) (0.35) (0.33)
------ ------ ------ ------ -----
Net Asset Value, End of the Year ..... $ 6.85 $ 7.60 $ 7.53 $ 7.75 $ 7.76
====== ====== ====== ====== ======
Total Return (%) (a) ................. (8.6) 16.3 3.9 7.8 4.5
Ratio of Operating Expenses to
Average Net Assets (%) ............. 1.67 1.68 1.67 1.68 1.68
Ratio of Net Investment Income to
Average Net Assets (%) ............. 4.69 4.77 4.71 4.44 4.28
Portfolio Turnover Rate (%) .......... 88 93 24 14 26
Net Assets, End of the Year (000) .... $7,997 $12,069 $12,568 $13,356 $15,878
</TABLE>
(a) A contingent deferred sales charge is not reflected in total return
calculations.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
1. 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 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 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 (the date the buy or sell is executed).
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 December 31, 1998 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 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. For the year ended December 31, 1998
purchases and sales of securities (excluding short-term investments) were
$47,533,005 and $48,909,704 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, L.P., ("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 Nvest
Companies, L.P., ("Nvest"), formerly known as New England Investment
Companies, L.P., which is a subsidiary of Metropolitan Life Insurance Company
("MetLife"). Fees earned by NEFM and Back Bay Advisors under the management
agreement in effect during the year ended December 31, 1998 are as follows:
FEES EARNED
$417,021 NEFM
417,022 Back Bay Advisors
The effective management fee for the year ended December 31, 1998 was 0.44%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds L.P. ("New
England Funds"), the Fund's distributor, is a subsidiary of Nvest 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 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 year ended December 31, 1998 these
expenses amounted to $47,566 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO") 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 year
ended December 31, 1998, the Fund paid NEFSCO $108,717 as compensation for its
services in that capacity. For the year ended December 31, 1998, the Fund
received $4,015 in transfer agent credits. The transfer agent expense in the
Statement of Operations is net of these credits.
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 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 year
ended December 31, 1998, the Fund paid New England Funds $436,748 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 December 31, 1998 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 year ended December 31, 1998, the Fund paid New England
Funds $35,950 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 year ended
December 31, 1998, the Fund paid New England Funds $107,848 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 year ended
December 31, 1998 amounted to $246,409.
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, NEFSCO, Nvest or their affiliates, other than
registered investment companies. Each other trustee is compensated by the Fund
as follows:
Annual Retainer $1,153
Meeting Fee 152/meeting
Annual Committee Member Retainer 173
Annual Committee Chairman Retainer 115
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. At December 31, 1998, the Fund had the following
industry concentrations in excess of 10% as a percentage of the Fund's total
net assets: Airports 20.4%. The Fund also had more than 10% of its total net
assets invested in: Massachusetts 12.0%, New York 22.1% and Pennsylvania 13.0%
at December 31, 1998. 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 December 31, 1998 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 YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------------- --------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ........................ 1,683,772 $ 12,743,185 1,861,867 $ 14,499,337
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ........................... 862,708 6,544,010 383,600 2,983,011
---------- ------------- ---------- -------------
2,546,480 19,287,195 2,245,467 17,482,348
Shares repurchased ................. (3,717,665) (28,115,220) (2,848,146) (22,174,070)
---------- ------------- ---------- -------------
Net decrease ....................... (1,171,185) $ (8,828,025) (602,679) $ (4,691,722)
---------- ------------- ---------- -------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------------- --------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------------- ---------------- ------------- ----------------
Shares sold ........................ 331,564 $ 2,500,094 530,845 $ 4,138,179
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ........................... 43,761 331,929 21,211 164,921
---------- ------------- -------- ------------
375,325 2,832,023 552,056 4,303,100
Shares repurchased ................. (320,322) (2,422,395) (229,346) (1,783,503)
---------- ------------- -------- ------------
Net increase ....................... 55,003 $ 409,628 322,710 $ 2,519,597
---------- ------------- -------- ------------
Decrease derived from capital shares
transactions ..................... (1,116,182) $ (8,418,397) (279,969) $ (2,172,125)
========== ============= ======== ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of New England Funds Trust I and the Shareholders of
NEW ENGLAND MUNICIPAL INCOME FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio composition (except for bond ratings), and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the New England Municipal Income Fund (the "Fund"), a series of New England
Funds Trust I, at December 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW ENGLAND MUNICIPAL INCOME FUND
SUPPLEMENT DATED JANUARY 18, 1999
TO NEW ENGLAND BOND FUNDS CLASS A, B AND C PROSPECTUS DATED MAY 1, 1998
Effective January 1999, James S. Welch has replaced Nathan R. Wentworth as
portfolio manager of New England Municipal Income Fund. Mr. Welch is a Senior
Vice President of Back Bay Advisors and has been employed by the firm for over
five years. He also serves as the portfolio manager of New England
Intermediate Term Tax Free Fund of California, New England Massachusetts Tax
Free Income Fund and New England Tax Free Income Fund of New York and as co-
portfolio manager of New England Limited Term U.S. Government Fund.
NEW ENGLAND GOVERNMENT SECURITIES FUND
AND
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
SUPPLEMENT DATED FEBRUARY 12, 1999 TO
NEW ENGLAND BOND FUNDS CLASS A, B AND C SHARES AND CLASS Y SHARES
PROSPECTUSES DATED MAY 1, 1998
The following supplements the third paragraph in the "Fund Management" section
of each Prospectus:
Effective immediately, Joel A. Damiani acts as lead portfolio manager and
Scott A. Millimet acts as co-portfolio manager of the Government Securities
Fund, and Mr. Millimet acts as lead portfolio manager and Mr. Damiani acts as
co-portfolio manager of the Limited Term U.S. Government Fund.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
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
CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income 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
Tax Free Income Fund of New York
(formerly Intermediate Term Tax Free Fund of NY)
Massachusetts Tax Free Income Fund
MONEY MARKET FUNDS
Cash Management Trust
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.
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.
<PAGE>
------------------
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------------------
---------------------
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---------------------
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