<PAGE>
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SEMIANNUAL REPORT
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[LOGO]
New England Funds(R)
Where The Best Minds Meet(R)
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New England
Government Securities Fund
[graphic omitted]
WHERE
THE BEST
MINDS
MEET(R)
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June 30, 1999
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<PAGE>
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August 1999
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[Photo of Bruce R. Speca]
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"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 GOVERNMENT SECURITIES FUND
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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 has no 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
JUNE 1989 THROUGH JUNE 1999
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Government Securities Fund's Class A Shares since
6/30/89 compared to the Lehman Government Bond Index over the same period. The
data points from the graph are as follows:
NET MAXIMUM LEHMAN
ASSET SALES GOVERNMENT
VALUE(1) CHARGE(2) BOND INDEX(4)
- --------------------------------------------------------------------------------
6/30/89 $10,000 $ 9,550 $10,000
6/30/90 10,404 9,936 10,693
6/30/91 10,959 10,465 11,778
6/30/92 12,950 12,367 13,399
6/30/93 14,383 13,736 15,127
6/30/94 13,988 13,358 14,924
6/30/95 15,620 14,917 16,723
6/30/96 16,148 15,421 17,476
6/30/97 17,243 16,467 18,769
6/30/98 19,338 18,468 20,881
6/30/99 19,299 18,431 21,518
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 and Y 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.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
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NEW ENGLAND GOVERNMENT SECURITIES FUND
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AVERAGE ANNUAL TOTAL RETURNS -- 6/30/99
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CLASS A (Inception 9/16/85) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) -4.7% -0.2% 6.7% 6.8%
With Maximum Sales Charge(20 -9.0 -4.7 5.7 6.3
- --------------------------------------------------------------------------------
CLASS B (Inception 9/23/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) -5.1% -0.9% 5.9% 3.8%
With CDSC(3) -9.7 -5.6 5.5 3.7
- --------------------------------------------------------------------------------
CLASS Y (Inception 3/31/94) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) -4.6% 5.0% 6.9% 6.2%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINCE SINCE
FUND'S FUND'S
CLASS B CLASS Y
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION INCEPTION
<S> <C> <C> <C> <C> <C> <C>
Lehman Government Bond Index(4) -2.3% 3.1% 7.6% 8.0% 5.7% 7.0%
Lipper General Government Average(5) -2.7 1.5 6.6 7.1 4.8 6.0
Morningstar Long Government Average(6) -5.4 -0.1 8.2 7.9 5.2 7.3
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTES TO CHARTS
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. Class Y shares are available to certain institutional investors
only.
(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 4.50% 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 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares.
(4) The Lehman Government Bond Index is an unmanaged index of bonds issued by
the U.S. government and its agencies that have maturities between one and
ten years. 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 Government 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 Long Government 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.
<PAGE>
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NEW ENGLAND GOVERNMENT SECURITIES FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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[photo of Scott Millimet]
Scott Millimet
Back Bay Advisors, L.P.
Q. How did New England Government Securities Fund perform over the past six
months?
The Fund struggled in a very difficult environment for government securities,
especially U.S. Treasuries. For the six months ending June 30, 1999, the Fund's
Class A shares (calculated at NAV) generated a return of -4.7%, reflecting a
$0.90 decrease in net asset value to $11.00 and the reinvestment of $0.35 per
share in dividend distributions. By comparison, your Fund's peer group of
general government funds, as measured by Lipper Inc., had an average return of
- -2.7% for the same period.
It's important to remember that the Fund's duration -- a measure of its
sensitivity to interest rates -- is much longer than that of its peer group. At
the end of the period, the Fund's duration stood at 6.5 years. The longer the
duration, the more sensitive price is to movements in interest rates. When
interest rates rise -- and bond prices fall -- as they did during the past six
months, the Fund's concentration on longer-duration bonds will cause its
performance to lag that of its peers in Lipper's general government funds group,
while the reverse is true in a lower interest rate environment.
Q. Why was it a difficult environment for government securities?
Toward the end of 1998 and into 1999, investors shifted their assets from U.S.
Treasuries -- which had offered safety and liquidity amid financial turmoil in
the third and fourth quarters of 1998 -- reinvesting them in other sectors of
the bond market. The performance of Treasuries suffered as a result.
There were two main reasons for this market shift. First, economies in emerging
markets, particularly Latin America, showed signs of recovery. Second, the U.S.
economy continued to show dramatic strength. At the close of the second quarter
of 1999, the Federal Reserve Board raised a key short-term interest rate, in an
attempt to slow the economy and head off inflation.
Mortgage-backed securities performed well in the first quarter of 1999, as
investors gravitated back to that market, perceiving it to be undervalued.
However during the latter part of the second quarter of 1999, mortgages
underperformed Treasury securities with comparable maturities, offering the Fund
some buying opportunities in that sector.
Q. What was the Fund's strategy?
Since the Fund pursues a relatively fixed duration strategy, there were very few
moves made during the period. Toward the end of the period we sold some of the
Fund's Treasury securities in order to balance and maintain the Fund's
relatively constant duration. We did this because the duration of the Fund's
mortgage-backed securities inched upward as interest rates steadily increased.
Beyond that, the Fund has more recently increased its investments in agency
securities and mortgage-backed securities. We find both sectors to be
attractively valued.
The Fund maintained its duration by following a barbell strategy, investing in
long-term agency securities on the one hand and short-term Treasuries on the
other. The Fund's intermediate-term investments were concentrated on mortgage
pass-through securities. This strategy was undertaken to insulate the Fund from
interest-rate increases in the intermediate-term segment of the maturity
spectrum, which tended to be more pronounced than shorter- or longer-term
alternatives. The Fund's average maturity at the end of the period stood at 8.4
years.
PORTFOLIO MIX - 6/30/99
GOV'T. AGENCY SECURITIES 21%
U.S. TREASURY SECURITIES 53%
MORTGAGE-BACKED SECURITIES 30%
OTHER ASSETS AND LIABILITIES = .4%
Portfolio holdings and asset allocation will vary.
Q. What's your outlook?
Given the substantial increases in interest rates we witnessed during the first
half of 1999, we expect that rates will stabilize and maybe even decline during
the second half of the year. Even though the Fed has undertaken one increase in
short-term interest rates, we believe there are some factors that will keep it
from pursuing an aggressive program of interest-rate hikes. First, Latin
American economies remain somewhat fragile, as do those in Europe. In addition,
with possible Year 2000 computer problems on the horizon, we believe the Fed
will want to be very cautious about slowing the economy too much at the turn of
the millennium.
Perhaps most important, even though there are signs that price pressures might
be building, we don't think inflation will rise significantly. We believe the
economy will slow somewhat and that inflation will remain subdued. We anticipate
that it will take a significant change in one of these two variables -- economic
growth or price inflation -- for us to undertake any significant strategic moves
with the Fund's duration.
NOTE TO SHAREHOLDERS: As of May 3, 1999, Scott Millimet is the portfolio manager
for the Fund. Prior to that time, Scott Millimet co-managed the Fund with Joel
Damiani.
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.
The Fund invests in mortgage or asset-backed securities which are subject to
prepayment risk. 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. These risks may increase share price volatility. See the
Fund's prospectus for details.
<PAGE>
<TABLE>
<CAPTION>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1999
(unaudited)
BONDS AND NOTES -- 103.7% OF TOTAL NET ASSETS
RATINGS (C)
---------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
- ------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCIES -- 21.2%
<C> <S> <C> <C> <C>
$ 20,000,000 Federal National Mortgage Association, Zero Coupon, 10/09/2019 ......... Aaa AAA $ 5,325,000
5,000,000 Federal National Mortgage Association, 6.375%, 6/15/2009 ............... Aaa AAA 4,900,650
4,000,000 Federal National Mortgage Association, 6.400%, 5/14/2009 ............... Aaa AAA 3,875,640
3,000,000 Federal National Mortgage Association, 6.420%, 12/1/2007 ............... Aaa AAA 2,951,089
2,000,000 Federal National Mortgage Association, 6.800%, 8/27/2012 ............... Aaa AAA 1,978,740
3,000,000 Federal National Mortgage Association, 6.990%, 7/9/2007 ................ Aaa AAA 3,000,930
--------------
22,032,049
--------------
MORTGAGE BACKED -- 29.5%
3,000,000 Federal Home Loan Mortgage Corp., 6.500%, 1/15/2022 .................... Aaa AAA 2,889,360
2,437,180 Federal Home Loan Mortgage Corp., 7.500%, 4/01/2012 .................... Aaa AAA 2,480,586
2,284,000 Federal National Mortgage Association, 5.000%, 8/25/2022 ............... Aaa AAA 1,992,790
10,006,021 Federal National Mortgage Association, 6.500%, 9/01/2028 ............... Aaa AAA 9,652,608
1,896,294 Government National Mortgage Association, 6.500%, 2/15/2028 ............ Aaa AAA 1,823,401
9,120,084 Government National Mortgage Association, 7.000%, with various
maturities to 2027 (d) ................................................ Aaa AAA 8,997,510
1,807,550 Government National Mortgage Association, 7.500%, 4/15/2027 ............ Aaa AAA 1,824,487
217,075 Government National Mortgage Association, 8.500%, 2/15/2006 ............ Aaa AAA 226,108
400,822 Government National Mortgage Association, 9.000%, with various
maturities to 2016 (d) ................................................ Aaa AAA 425,675
146,703 Government National Mortgage Association, 9.500%, with various
maturities to 2009 (d) ................................................ Aaa AAA 156,692
185,129 Government National Mortgage Association, 10.000%, with various
maturities to 2016 (d) ................................................ Aaa AAA 195,677
27,737 Government National Mortgage Association, 12.500%, with various
maturities to 2014 (d) ................................................ Aaa AAA 31,689
--------------
30,696,583
--------------
U.S. GOVERNMENT -- 53.0%
19,000,000 United States Treasury Bonds, Zero Coupon, 2/15/2016 ................... -- AAA 6,645,440
10,500,000 United States Treasury Bonds, 11.625%, 11/15/2002 ...................... Aaa AAA 12,365,430
5,500,000 United States Treasury Bonds, 12.375%, 5/15/2004 ....................... Aaa AAA 6,997,045
11,800,000 United States Treasury Bonds, 13.250%, 5/15/2014 ....................... Aaa AAA 17,919,362
24,000,000 United States Treasury Stripped Bonds, Zero Coupon, 11/15/2011 ......... -- AAA 11,140,800
--------------
55,068,077
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Total Bonds and Notes (Identified Cost $110,475,318) 107,796,709
--------------
SHORT TERM INVESTMENT -- 11.4%
$ 11,784,000 Repurchase Agreement with State Street Bank and Trust Co.
dated 6/30/1999 at 4.000% to be repurchased at
$11,785,309 on 7/1/1999, collateralized by $10,685,000
U.S. Treasury Bond, 7.500%, due 11/15/2016
valued at $12,020,625 ................................................ 11,784,000
--------------
Total Short Term Investment (Identified Cost $11,784,000) .............. 11,784,000
--------------
Total Investments-- 115.1% (Identified Cost $122,259,318) (b) .......... 119,580,709
Other assets less liabilities .......................................... (15,653,481)
--------------
Total Net Assets-- 100% ................................................ $ 103,927,228
==============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1999 the net unrealized depreciation on investments based
on cost of $122,259,318 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. .................................................. $ 156,008
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over value. ............................................... (2,834,617)
--------------
Net unrealized depreciation. .................................................... $ (2,678,609)
==============
At December 31, 1998 the Fund had a capital loss carryover of
approximately $7,570,110 of which $3,530,050 expires on December 31, 2004
and $4,040,060 expires on December 31, 2002. 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 ratings 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) The Fund's investment in mortgage backed securities of the Government National Mortgage Association are interests in
separate pools of mortgages. All separate investments in securities of this issuer which have the same coupon rate have
been aggregated for the purpose of presentation in the schedule of investments.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
ASSETS
Investments at value
(Identified Cost $122,259,318) ............. $ 119,580,709
Cash ........................................ 964
Receivable for:
Fund shares sold .......................... 159,710
Accrued interest .......................... 807,522
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120,548,905
LIABILITIES
Payable for:
Securities purchased ...................... $ 14,544,027
Fund shares redeemed ...................... 1,821,906
Dividends declared ........................ 78,460
Accrued expenses:
Management fees ........................... 55,623
Deferred trustees' fees ................... 47,766
Accounting and administrative ............. 6,912
Other expenses ............................ 66,983
-------------
16,621,677
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NET ASSETS .................................... $ 103,927,228
=============
Net Assets consist of:
Capital paid in ............................ $ 116,519,057
Undistributed net investment income ........ 104,654
Accumulated net realized gains (losses) .... (10,017,874)
Unrealized appreciation (depreciation)
on investments - net .................... (2,678,609)
-------------
NET ASSETS .................................... $ 103,927,228
=============
Computation of net asset value and
offering price:
Net asset value and redemption price
of Class A shares ($91,027,284 / 8,278,287
shares of beneficial interest) .............. $ 11.00
=============
Offering price per share
(100 / 95.50 of $11.00) ..................... $ 11.52*
=============
Net asset value and offering price
of Class B shares ($10,282,850 / 934,985
shares of beneficial interest) ............... $ 11.00**
=============
Net asset value, offering and redemption
price of Class Y shares
($2,617,094 / 238,424 shares
of beneficial interest) ..................... $ 10.98
=============
* 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.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1999
(unaudited)
INVESTMENT INCOME
Interest .................................... $ 4,036,256
Expenses
Management fees ........................... $ 357,656
Service fees - Class A .................... 121,251
Service and distribution fees - Class B ... 50,133
Trustees' fees and expenses ............... 5,354
Accounting and administrative ............. 21,271
Custodian ................................. 40,883
Transfer agent ............................ 124,313
Audit and tax services .................... 18,950
Legal ..................................... 2,990
Printing .................................. 9,442
Registration .............................. 26,081
Miscellaneous ............................. 2,524
-----------
Total expenses .............................. 780,848
-----------
Net investment income ....................... 3,255,408
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments -- net ........................ (2,351,991)
Options -- net ............................ 119,531
Futures contracts -- net .................. (57,843)
-----------
Total realized gain (loss) on investments,
options and futures contracts ............. (2,290,303)
-----------
Unrealized appreciation (depreciation) on:
Investments -- net ........................ (6,510,321)
Futures contracts -- net .................. 67,405
-----------
Total unrealized appreciation
(depreciation) on investments
and futures contracts .................... (6,442,916)
-----------
Net gain (loss) on investment transactions ..... (8,733,219)
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS ................................... $(5,477,811)
===========
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................................. $ 6,468,371 $ 3,255,408
Net realized gain (loss) on investment transactions ................. 2,352,038 (2,290,303)
Net unrealized appreciation (depreciation) on investment transactions 657,435 (6,442,916)
------------- -------------
Increase (decrease) in net assets from operations ..................... 9,477,844 (5,477,811)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................................ (5,800,979) (2,864,193)
Class B ............................................................ (359,173) (260,241)
Class Y ............................................................ (248,237) (92,595)
------------- -------------
(6,408,389) (3,217,029)
------------- -------------
Increase (decrease) in net assets derived from capital
share transactions .................................................... (2,871,290) (3,470,752)
------------- -------------
Total increase (decrease) in net assets ................................ 198,165 (12,165,592)
NET ASSETS
Beginning of the period .............................................. 115,894,655 116,092,820
------------- -------------
End of the period .................................................... $ 116,092,820 $ 103,927,228
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period .................................................... $ 66,275 $ 104,654
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
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 $ 11.75 $ 10.43 $ 11.73 $ 11.08 $ 11.56 $ 11.90
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .................. 0.69 0.74 0.71 0.62 0.68 0.35
Net Realized and Unrealized Gain
(Loss) on Investments ................. (1.32) 1.29 (0.64) 0.48 0.33 (0.90)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ....... (0.63) 2.03 0.07 1.10 1.01 (0.55)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ... (0.69) (0.73) (0.72) (0.62) (0.67) (0.35)
--------- --------- --------- --------- --------- ---------
Total Distributions .................... (0.69) (0.73) (0.72) (0.62) (0.67) (0.35)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ..... $ 10.43 $ 11.73 $ 11.08 $ 11.56 $ 11.90 $ 11.00
========= ========= ========= ========= ========= =========
Total Return (%) (a) ................... (5.5) 20.0 0.8 10.3 9.0 (4.7)
Ratio of Operating Expenses to Average
Net Assets (%) ........................ 1.29 1.35 1.32 1.36 1.38 1.36(b)
Ratio of Net Investment Income to
Average Net Assets (%) ................ 6.66 6.69 6.45 5.63 5.80 5.98(b)
Portfolio Turnover Rate (%) ............ 809 559 462 391 106 235
Net Assets, End of the Period (000) .... $ 147,986 $ 147,503 $ 120,607 $ 103,583 $ 103,032 $ 91,027
(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>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
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 $ 11.75 $ 10.43 $ 11.74 $ 11.08 $ 11.56 $ 11.90
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .................. 0.60 0.65 0.63 0.54 0.58 0.31
Net Realized and Unrealized Gain
(Loss) on Investments ................ (1.32) 1.30 (0.65) 0.48 0.34 (0.91)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ....... (0.72) 1.95 (0.02) 1.02 0.92 (0.60)
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ... (0.60) (0.64) (0.64) (0.54) (0.58) (0.30)
--------- --------- --------- --------- --------- ---------
Total Distributions .................... (0.60) (0.64) (0.64) (0.54) (0.58) (0.30)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ..... $ 10.43 $ 11.74 $ 11.08 $ 11.56 $ 11.90 $ 11.00
========= ========= ========= ========= ========= =========
Total Return (%) (a) ................... (6.2) 19.2 (0.1) 9.5 8.2 (5.1)
Ratio of Operating Expenses to Average
Net Assets (%) ........................ 2.04 2.10 2.07 2.11 2.13 2.11(b)
Ratio of Net Investment Income to
Average Net Assets (%) ................ 5.91 5.94 5.70 4.88 5.05
5.23(b)
Portfolio Turnover Rate (%) ............ 809 559 462 391 106 235
Net Assets, End of the Period (000) .... $ 2,760 $ 4,858 $ 5,385 $ 5,654 $ 9,657 $ 10,283
(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>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
CLASS Y
--------------------------------------------------------------------------
MARCH 31(a), SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31,------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 11.20 $ 10.44 $ 11.71 $ 11.07 $ 11.54 $ 11.88
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income .................. 0.54 0.80 0.74 0.65 0.72 0.36
Net Realized and Unrealized Gain
(Loss) on Investments ................. (0.77) 1.26 (0.63) 0.47 0.32 (0.90)
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ....... (0.23) 2.06 0.11 1.12 1.04 (0.54)
--------- --------- --------- --------- --------- ---------
Less Distributions
Distributions from Net Investment Income (0.53) (0.79) (0.75) (0.65) (0.70) (0.36)
--------- --------- --------- --------- --------- ---------
Total Distributions .................... (0.53) (0.79) (0.75) (0.65) (0.70) (0.36)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ..... $ 10.44 $ 11.71 $ 11.07 $ 11.54 $ 11.88 $ 10.98
========= ========= ========= ========= ========= =========
Total Return (%) ....................... (2.0) 20.3 1.1 10.5 9.3 (4.6)
Ratio of Operating Expenses to
Average Net Assets (%) ................ 0.93(b) 1.10 1.07 1.11 1.13 1.11(b)
Ratio of Net Investment Income to
Average Net Assets (%) ................ 7.25(b) 6.94 6.70 5.88 6.05 6.23(b)
Portfolio Turnover Rate (%) ............ 809 559 462 391 106 235
Net Assets, End of the Period .......... $ 4,104 $ 7,364 $ 6,384 $ 6,658 $ 3,404 $ 2,617
(a) Commencement of operations.
(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 The New England
Funds Trust I, a Massachusetts business trust (the "Trust"), and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company. The Fund seeks a high level of current
income consistent with safety of principal by investing in U.S. Government
securities. 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 Class A, Class B and Class Y 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). Class Y shares do not pay a front end sales charge, a contingent
deferred sales charge or service and distribution fees. They are intended for
institutional investors with a minimum of $1,000,000 to invest. Expenses of the
Fund are borne pro-rata by the holders of all 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 the 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
and/or market discount. Interest income is decreased by the amortization of
acquisition premium on discount securities. In determining net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
C. OPTIONS. The Fund may use options to hedge against changes in the values of
securities the Fund owns or expects to purchase. Writing puts and buying calls
tends to increase the Fund's exposure to the underlying instrument and writing
calls or buying puts tends to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of options contracts may not correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty is unable to perform.
The maximum loss for purchased options is limited to premium initially paid for
the option. For options written by the Fund, the maximum loss is not limited to
the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
D. INTEREST RATE FUTURES CONTRACTS. The Fund may purchase or sell interest rate
futures contracts to hedge against changes in the values of securities the Fund
owns or expects to purchase. An interest rate futures contract is an agreement
between two parties to buy and sell a security for a set price (or to deliver an
amount of cash) on a future date. Upon entering into such a contract, the
purchasing Fund is required to pledge to the broker an amount of cash, U.S.
Government securities or other high quality debt securities equal to the minimum
"initial margin" requirements of the exchange. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract.
Such receipts or payments are known as "variation margin," and are recorded by
the Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The potential risk to the Fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in the value of the hedged instruments. In addition,
there is a risk that the Fund may not be able to close out its futures positions
due to an illiquid secondary market.
E. 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.
F. 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. These differences are primarily due to
differing treatment for mortgaged backed securities for book and tax purposes.
Permanent book and tax basis differences will result in reclassification to the
capital accounts.
G. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
H. DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a forward
commitment basis. Payment and delivery may take place a month or more after the
date of the transaction. The price of the underlying securities and the date
when the securities will be delivered and paid for are fixed at the time the
transaction is negotiated.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1999,
purchases and sales of securities (excluding short-term investments) were as
follows:
PURCHASES SALES
---------------------------- -----------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
--------------- ----- --------------- -----
$ 72,918,784 $ 58,010,609 $ 91,404,708 $ 7,325,730
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 0.65% of the first $200 million of the Fund's
average daily net assets, 0.625% of the next $300 million and 0.60% of such
assets in excess of $500 million, reduced by the payment to the Fund's
investment subadviser, Back Bay Advisors, L.P., ("Back Bay") at the rate of
0.325% of the first $200 million of the Fund's average daily net assets, 0.3125%
of the next $300 million and 0.30% of such assets in excess of $500 million.
Certain officers and directors of NEFM are also officers or Trustees of the
Fund. NEFM and Back Bay 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 under the management and
subadvisory agreements in effect during the six months ended June 30, 1999 are
as follows:
FEES EARNED
-----------
NEFM $ 178,828
Back Bay 178,828
The effective annualized management fee for the six months ended June 30, 1999
was 0.65%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned 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 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 $21,271 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 $96,989 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 $121,251
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 $1,583,658.
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 $12,533
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 $37,600 in distribution fees under the
Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors in shares of the Fund during the six months ended
June 30, 1999 amounted to $116,760.
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. CAPITAL SHARES. At June 30, 1999 there was an unlimited number of shares of
beneficial interest authorized, divided into three classes, Class A, Class B and
Class Y capital shares. 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 ................................................ 1,656,981 $ 19,549,659 963,915 $ 10,952,784
Shares issued in connection with the reinvestment of:
Dividends from net investment income ..................... 436,981 5,132,956 229,909 2,617,390
----------- ------------ ----------- ------------
2,093,962 24,682,615 1,193,824 13,570,174
Shares repurchased ......................................... (2,395,445) (28,036,795) (1,574,947) (17,908,541)
----------- ------------ ----------- ------------
Net increase (decrease) .................................... (301,483) $ (3,354,180) (381,123) $ (4,338,367)
----------- ------------ ----------- ------------
<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 ................................................ 525,057 $ 6,224,313 256,966 $ 2,952,246
Shares issued in connection with the reinvestment of:
Dividends from net investment income ..................... 20,660 243,213 16,003 181,869
----------- ------------ ----------- ------------
545,717 6,467,526 272,969 3,134,115
Shares repurchased ......................................... (223,281) (2,616,439) (149,495) (1,717,855)
----------- ------------ ----------- ------------
Net increase (decrease) .................................... 322,436 $ 3,851,087 123,474 $ 1,416,260
----------- ------------ ----------- ------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31,1998 JUNE 30, 1999
--------------------------- ---------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 122,605 $ 1,438,718 42,150 $ 477,067
Shares issued in connection with the reinvestment of:
Dividends from net investment income ..................... 20,559 240,336 8,101 92,144
----------- ------------ ----------- ------------
143,164 1,679,054 50,251 569,211
Shares repurchased ......................................... (433,374) (5,047,251) (98,471) (1,117,856)
----------- ------------ ----------- ------------
Net increase (decrease) .................................... (290,210) $ (3,368,197) (48,220) $ (548,645)
----------- ------------ ----------- ------------
Increase (decrease) derived from capital shares transactions (269,257) $ (2,871,290) (305,869) $ (3,470,752)
=========== ============ =========== ============
</TABLE>
5. SECURITY LENDING. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 1999 the Fund had no securities on loan.
<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
---------------------
GV58-0699
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