- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[LOGO]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Growth Opportunities Fund
- ------------------
June 30, 1997
- ------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUGUST 1997
- --------------------------------------------------------------------------------
DEAR NEW ENGLAND FUNDS SHAREHOLDER,
[Photo of Henry L.P. Schmelzer]
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives.
Our sights, like yours, are focused on the long term. At the same time, we work
to enhance service every day. We also keep a disciplined eye on the performance
that each fund manager achieves. Through these persistent efforts we're
convinced we'll merit your continued commitment and loyalty. Thank you for your
confidence in New England Funds.
Sincerely,
Henry L.P. Schmelzer, President
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
AWARD-WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
[DALBAR graphic omitted]
For two years running we're proud to announce that DALBAR, an independent
evaluator of mutual fund service, has awarded New England Funds its Quality
Tested Service Seal for "providing the highest tier of service excellence in the
mutual fund industry." New England Funds is one of just three mutual fund
companies to earn this distinction in each of the last two years -- another
reason why we are becoming known as the mutual fund company Where The Best Minds
Meet.
INVESTMENT RESULTS THROUGH JUNE 30, 1997
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your fund's performance to a benchmark index provide
you with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
See next page [symbol - hand pointing right]
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares, since 6/30/87, compared to the S&P 500
Index. The data points from the graph are as follows:]
- --------------------------------------------------------------------------------
A $10,000 INVESTMENT IN CLASS A SHARES
- --------------------------------------------------------------------------------
COMPARED TO STANDARD & POOR'S 500(R) INDEX(4)
Net Asset With Maximum S&P 500
Value(1) Sales Charge(2) Index(4)
6/30/87 $10,000 $ 9,425 $10,000
6/88 $ 9,141 $ 8,615 $ 9,310
6/89 $10,628 $10,017 $11,220
6/90 $12,156 $11,457 $13,061
6/91 $13,066 $12,315 $14,026
6/92 $14,964 $14,104 $15,915
6/93 $16,839 $15,871 $18,076
6/94 $16,935 $15,962 $18,396
6/95 $20,929 $19,725 $23,178
6/96 $24,786 $23,361 $29,188
6/97 $33,402 $31,481 $39,295
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 Class C share
performance will be greater or less than that shown based on differences in
inception date, fees and sales charges. All Index and Fund performance assumes
reinvested distributions.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 6/30/97
- --------------------------------------------------------------------------------
CLASS A (Inception 5/6/31) YTD 1 YEAR 5 YEARS 10 YEARS
Net Asset Value1 19.44% 34.76% 17.42% 12.82%
With Max. Sales Charge2 12.54 26.99 16.03 12.15
Standard & Poor's 500 Index4 20.59 34.63 19.73 14.60
Lipper Growth & Income Avg.5 15.52 28.09 17.26 12.67
- --------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) YTD 1 YEAR 3 YEARS INCEPTION
Net Asset Value1 18.96% 33.78% 24.64% 18.08%
With CDSC3 13.96 28.78 24.00 17.58
Standard & Poor's 500 Index4 20.59 34.63 28.79 21.75
Lipper Growth & Income Avg.5 15.52 28.09 23.54 18.09
- --------------------------------------------------------------------------------
CLASS C (Inception 5/1/95) YTD 1 YEAR SINCE INCEPTION
Net Asset Value1 19.13% 33.88% 26.46%
Standard & Poor's 500 Index4 20.59 34.63 31.37
Lipper Growth & Income Avg.5 15.52 28.09 25.46
- --------------------------------------------------------------------------------
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
their original cost.
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 5.75% 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 Standard & Poor's Composite Index of 500 stocks(R) (S&P 500) is an unmanaged
index representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not been
adjusted for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
5 Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
REWARDING SHAREHOLDERS FOR MORE THAN 65 YEARS
- --------------------------------------------------------------------------------
Through good times and bad, investors have come to depend on New England Growth
Opportunities Fund. This Fund is designed to pursue long-term growth from
investments in common stocks similar to those in the S&P 500 Index4. Its focus
on large, well-established companies has produced a long history of solid
performance. Please see pages 2 and 3 for the Fund's most recent results.
- --------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND -- CLASS A SHARES
- --------------------------------------------------------------------------------
A $10,000 INITIAL INVESTMENT COMPARED
TO THE STANDARD & POOR'S 500 INDEX4
MAY 6, 1931 - JUNE 30, 1997 CUMULATIVE RETURN
Your Fund $39,644,358
S&P 500 Index4 $10,777,817
This information represents past performance only and cannot predict future
returns. Investment return and principal value will vary and may result in a
gain or loss on sale. Results are depicted at NAV with reinvestment of all
dividends and capital gains distributions for the period through 6/30/97.
Generally, this was a period of rising stock prices. Five subadvisers have
managed the Fund, with changes occurring in 1968, 1983, 1988 and 1995.
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Q. Please comment on the performance of New England Growth Opportunities Fund in
the context of the market environment.
[Photo of Gerald Scriver]
Gerald Scriver
Westpeak Investment
Advisors, L.P.
New England Growth Opportunities Fund generated a total return of 19.44% (Class
A shares at net asset value) in the six months ended June 30, 1997. The Fund's
performance falls just below that of its benchmark, the Standard & Poor's
Composite Index of 500 Stocks (S&P 500(R)), which posted a 20.59% return.
We're pleased to report that Lipper Analytical Services, an independent mutual
fund tracking service, ranked New England Growth Opportunities Fund (Class A
shares at net asset value) #45 of 544 peers for the year ending June 30, 1997,
placing it in the top 9% of its peer group. Longer term, the Fund ranked 112th
out of 215 for five-year performance and 58th of 126 for 10-year performance
through June 30, 1997. Past performance is no guarantee of future return.
One of our goals is to adjust the portfolio in favor of growth stocks when it
seems appropriate to do so, and to favor value stocks when the market seems
poised to shift toward them. The Fund's strong first-half return came in large
part from our decision to tilt the portfolio away from so-called high momentum
stocks and toward companies with attractive value credentials. This positioning
of the Fund's portfolio -- more exposure to value investments and less to growth
- -- began to take shape a year ago, and some modification remains underway.
Q. What were the key strategic and portfolio changes during this period?
At the start of the period we felt that the economy would stay strong, based on
upward trends in consumer confidence and several other key indicators. In fact,
first quarter growth widely exceeded expectations as consumers, buoyed by
vigorous employment prospects, continued to spend.
Interestingly, most stocks have not participated in this year's dramatic gains.
According to our analysis, sharp price rises in a small number of very large
company stocks -- no more than 20 -- account for the bulk of the increases in
the widely publicized market averages. During the early part of the year, the
Fund was slightly underweighted in these stocks compared to the S&P 500,
favoring larger company stocks with value characteristics.
Among our more successful holdings during the last six months were "baby Bells"
Ameritech and Bell Atlantic, computer manufacturers IBM and Compaq, and various
other companies, such as BankAmerica, Royal Dutch and Unilever.*
The Fund's underweighting in growth stocks helped the portfolio in the first
quarter. By the second quarter, we began to view them more favorably, and
increased participation in that sector. To help manage price risk, we focused on
variables such as return-on-equity, future earnings prospects, short and
long-term profit history and trends in Wall Street's earnings estimates for each
company.
Q. What is your market outlook and what does it imply for the Fund?
During the second quarter, the pace of economic growth slowed, but remained
above the levels of recent years, a trend we believe will continue. We have
begun to detect signs of wage inflation, an economic component that the Federal
Reserve watches closely. If that trend continues, a second hike in short-term
interest rates could follow.
We believe the market will slow during the second half of the year. If the Fed
aggressively raises interest rates, stock prices would be likely to fall. If the
economy slows in the near term, the likelihood of rate increases will diminish.
We plan to pursue growth opportunities where they are available at reasonable
prices. Any decline in stock prices will create more attractive buying
opportunities; in this case, we will become more aggressive in our pursuit of
long-term growth for 1998 and beyond.
*Portfolio holdings are subject to change.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
TOP FIVE PORTFOLIO HOLDINGS 6/30/97
- --------------------------------------------------------------------------------
PERCENTAGE
COMPANY OF NET ASSETS
- --------------------------------------------------------------------------------
1. JOHNSON & JOHNSON 3.0%
Health care products manufacturer
2. ROYAL DUTCH PETROLEUM CO. 2.5%
Fuel manufacturer
3. UNILEVER NV, 144A 2.5%
International producer of food and
cleanliness products
4. BANKAMERICA CORP. 2.5%
Large financial services company
5. AMERITECH CORP. 2.4%
Regional telephone company
- --------------------------------------------------------------------------------
Portfolio holdings are subject to change.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investmentas as of June 30, 1997
(unaudited)
COMMON STOCKS--98.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- ------------------------------------------------------------------------------
AEROSPACE--2.5%
27,000 Boeing Co. (c) .................................. $ 1,432,688
62,400 United Technologies Corp. ....................... 5,179,200
-----------
6,611,888
-----------
AIRLINES--2.9%
55,100 AMR Corp. (c) ................................... 5,096,750
35,700 UAL Corp. (c) ................................... 2,554,781
-----------
7,651,531
-----------
AUTOMOTIVE & RELATED--1.7%
71,900 Chrysler Corp. .................................. 2,359,219
40,300 General Motors Corp. ............................ 2,244,206
-----------
4,603,425
-----------
BANKS--6.9%
102,400 BankAmerica Corp. ............................... 6,611,200
45,100 NationsBank Corp. ............................... 2,908,950
120,700 Popular, Inc. ................................... 4,873,262
37,800 Republic New York Corp. ......................... 4,063,500
-----------
18,456,912
-----------
BUSINESS SERVICES--5.4%
203,850 Comdisco, Inc. .................................. 5,300,100
68,700 Manpower, Inc. .................................. 3,057,150
68,000 Omnicom Group ................................... 4,190,500
62,100 Pittston Brinks Group ........................... 1,863,000
-----------
14,410,750
-----------
CHEMICALS--3.2%
61,400 Dow Chemical Co. ................................ 5,349,475
79,000 Lubrizol Corp. .................................. 3,313,062
-----------
8,662,537
-----------
COMPUTER SOFTWARE & SERVICES--0.8%
15,000 Adobe Systems, Inc. ............................. 525,938
27,000 Compuware Corp. (c) ............................. 1,289,250
5,800 Keane, Inc. (c) ................................. 301,600
-----------
2,116,788
-----------
COMPUTERS & BUSINESS EQUIPMENT--2.8%
15,700 Compaq Computer Corp. (c) ....................... 1,558,225
38,000 International Business Machines ................. 3,427,125
42,300 Lexmark International Group, Inc. (c) ........... 1,284,862
22,800 Quantum Corp. (c) ............................... 463,125
22,800 Seagate Technology (c) .......................... 802,275
-----------
7,535,612
-----------
CONSTRUCTION--0.1%
10,100 Centex Corp. .................................... 410,313
-----------
CONSUMER DURABLES--0.1%
9,200 HON Industries, Inc. ............................ 407,100
-----------
DRUGS--8.5%
46,400 Abbott Laboratories ............................. 3,097,200
19,300 Amgen, Inc. ..................................... 1,121,813
99,750 Bergen Brunswig Corp. ........................... 2,780,531
39,000 Bristol-Myers Squibb Co. (c) .................... 3,159,000
10,000 McKesson Corp. .................................. 775,000
22,900 Merck & Co. ..................................... 2,370,150
20,600 Pfizer, Inc. .................................... 2,461,700
41,100 Rhone Poulenc Rorer, Inc. ....................... 3,734,962
63,800 Schering-Plough Corp. ........................... 3,054,425
1,600 Warner-Lambert Co. .............................. 198,800
-----------
22,753,581
-----------
ELECTRIC UTILITIES--1.4%
25,100 Entergy Corp. ................................... 687,113
106,600 Pinnacle West Capital Corp. ..................... 3,204,662
-----------
3,891,775
-----------
ELECTRONICS--4.3%
10,800 Cooper Industries, Inc. ......................... 537,300
12,700 Honeywell, Inc. ................................. 963,613
16,100 Intel Corp. ..................................... 2,283,181
135,925 Molex, Inc. ..................................... 4,961,262
13,100 Motorola, Inc. .................................. 995,600
16,900 SCI Systems, Inc. (c) ........................... 1,077,375
11,900 Tektronix, Inc. ................................. 714,000
-----------
11,532,331
-----------
FINANCE--2.7%
67,436 Bear Stearns Companies, Inc. .................... 2,305,468
9,400 Donaldson, Lufkin & Jenrette, Inc. .............. 561,650
58,500 Lehman Brothers Holdings, Inc. .................. 2,369,250
11,600 Merrill Lynch & Company, Inc. ................... 691,650
22,900 Salomon, Inc. ................................... 1,273,813
-----------
7,201,831
-----------
FOOD & BEVERAGES--6.4%
102,400 Archer-Daniels-Midland Co. ...................... 2,406,400
17,600 H. J. Heinz Co. ................................. 811,800
94,000 IBP, Inc. ....................................... 2,185,500
66,800 Quaker Oats Co. ................................. 2,997,650
21,800 Sara Lee Corp. .................................. 907,425
60,650 Tyson Foods, Inc. ............................... 1,159,931
30,400 Unilever NV, 144A (d) ........................... 6,627,200
-----------
17,095,906
-----------
GAS & PIPELINE UTILITIES--0.5%
4,500 IPL Energy, Inc ................................. 149,062
28,500 National Fuel Gas Co. ........................... 1,195,219
-----------
1,344,281
-----------
HEALTH CARE--7.9%
282,300 Beverly Enterprises, Inc. (c) ................... 4,587,375
8,300 Columbia/HCA Healthcare Corp. (c) ............... 326,294
125,300 Johnson & Johnson ............................... 8,066,187
177,755 Tenet Healthcare Corp. (c) ...................... 5,254,882
66,400 Wellpoint Health Networks, Inc. (c) ............. 3,046,100
-----------
21,280,838
-----------
INSURANCE--5.6%
31,100 Allstate Corp. .................................. 2,270,300
6,800 AMBAC, Inc. ..................................... 519,350
31,600 CIGNA Corp. ..................................... 5,609,000
52,000 Everest Reinsurance Holdings, Inc. (c) .......... 2,060,500
46,500 Loews Corp. ..................................... 4,655,812
-----------
15,114,962
-----------
INTERNATIONAL OIL--2.3%
4,700 Chevron Corp. ................................... 347,506
96,100 Exxon Corp. (c) ................................. 5,910,150
-----------
6,257,656
-----------
LIFE INSURANCE--0.5%
13,900 American National Insurance Co. ................. 1,240,575
-----------
LIQUOR--0.6%
40,400 Fortune Brands, Inc. ............................ 1,507,425
-----------
MEDIA & ENTERTAINMENT--1.5%
28,100 Clear Channel Communications (c) ................ 1,728,150
66,800 King World Productions, Inc. (c) ................ 2,338,000
-----------
4,066,150
-----------
METAL--1.2%
35,300 ASARCO, Inc. .................................... 1,081,062
26,100 Phelps Dodge Corp. .............................. 2,223,394
-----------
3,304,456
-----------
MORTGAGE--0.5%
28,900 Federal National Mortgage Association ........... 1,260,763
-----------
OIL--2.5%
122,000 Royal Dutch Petroleum Co. ....................... 6,633,750
-----------
OIL SERVICES--0.7%
10,600 Noble Drilling (c) .............................. 239,163
4,700 Smith International, Inc. (c) ................... 285,525
68,700 Union Texas Petroleum Holdings, Inc. ............ 1,438,406
-----------
1,963,094
-----------
PAPER & FOREST PRODUCTS--0.3%
19,000 Rayonier, Inc. .................................. 799,188
-----------
PRODUCER OF GOODS--8.7%
58,500 Caterpillar, Inc. ............................... 6,281,437
81,300 Cummins Engine, Inc. ............................ 5,736,731
5,100 Harnischfeger Industries, Inc. .................. 211,650
12,600 Harsco Corp. .................................... 510,300
44,200 Illinois Tool Works, Inc. ....................... 2,207,238
95,300 Ingersoll-Rand Co. .............................. 5,884,775
8,700 Lucent Technologies, Inc. (c) ................... 626,944
50,000 Timken Co. ...................................... 1,778,125
-----------
23,237,200
-----------
PUBLISHING--0.9%
17,600 Central Newspapers, Inc. ........................ 1,260,600
59,000 Moore Corporation, Ltd. ........................ 1,161,563
-----------
2,422,163
-----------
RAILROADS & EQUIPMENT--0.4%
16,000 Kansas City Southern Industries, Inc. ........... 1,032,000
-----------
RETAIL--2.4%
37,700 Dayton Hudson Corp. ............................. 2,005,169
82,200 Sears, Roebuck and Co. .......................... 4,418,250
-----------
6,423,419
-----------
RETAIL - FOOD & DRUG--1.2%
64,500 American Stores Co. ............................. 3,184,688
-----------
SOAPS--0.7%
36,700 Ecolab, Inc. .................................... 1,752,425
-----------
STEEL--1.7%
128,400 USX-U.S. Steel Group ............................ 4,502,025
-----------
TELECOMMUNICATION--8.0%
93,000 Ameritech Corp. ................................. 6,318,187
123,800 AT&T Corp. ...................................... 4,340,737
83,100 Bell Atlantic Corp. ............................. 6,305,212
16,700 BellSouth Corp. ................................. 774,463
42,100 MCI Communications Corp. ........................ 1,611,641
14,200 Sprint Corp. .................................... 747,275
34,900 U.S. West Media Group (c) ....................... 1,315,294
-----------
21,412,809
-----------
TOBACCO--0.9%
4,500 Philip Morris Companies, Inc. ................... 199,688
69,200 RJR Nabisco Holdings Corp. (c) .................. 2,283,600
-----------
2,483,288
-----------
Total Common Stocks (Identified Cost $212,142,629) 264,565,435
-----------
SHORT TERM INVESTMENTS--1.1%
<TABLE>
<CAPTION>
FACE
AMOUNT
- ---------------------------------------------------------------------------------------
<C> <S> <C>
$2,919,000 Repurchase agreement with State Street Bank & Trust Co.
dated 6/30/97 at 5.00% to be repurchased at $2,919,405
on 7/1/97 collateralized by $2,825,000 U.S. Treasury
Bond 7.25% due 5/15/16 with a value of $2,982,581. ... 2,919,000
-------------
Total Short Term Investments
(Identified Cost $2,919,000) .......................... 2,919,000
-------------
Total Investments--99.8% (Identified
Cost $215,061,629) (b) ................................ 267,484,435
Other assets less liabilities .......................... 514,195
-------------
Total Net Assets--100% .................................. $ 267,998,630
=============
(a)See Note 1a.
(b)Federal Tax Information:
At June 30, 1997 the net unrealized appreciation on
investments based on cost of $215,061,629 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 ............................................. $ 53,930,488
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ........................................... (1,507,682)
-----------
Net unrealized appreciation ................................. $52,422,806
===========
</TABLE>
(c)Non-income producing security.
(d)Securities exempt from registration under rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ....................................... $267,484,435
Cash ....................................................... 40
Receivable for:
Fund shares sold ......................................... 571,689
Securities sold .......................................... 19,949
Dividends and interest ................................... 384,694
Prepaid registration expense ............................... 14,000
------------
268,474,807
LIABILITIES
Payable for:
Fund shares redeemed ..................................... $213,589
Withholding taxes ........................................ 2,107
Dividends declared ....................................... 22,364
Accrued expenses:
Management fees .......................................... 128,485
Deferred trustees' fees .................................. 7,124
Accounting and administrative ............................ 3,376
Other expenses ........................................... 99,132
--------
476,177
------------
NET ASSETS ................................................... $267,998,630
============
Net Assets consist of:
Capital paid in .......................................... $185,052,552
Undistributed net investment income ...................... 116,267
Accumulated net realized gains ........................... 30,407,005
Unrealized appreciation on investments ................... 52,422,806
------------
NET ASSETS ................................................... $267,998,630
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($199,491,612 divided by 12,089,922 shares of beneficial
interest) .................................................. $16.50
======
Offering price per share (100/94.25 of $16.50) ............... $17.51*
======
Net asset value and offering price of Class B shares
($62,971,752 divided by 3,818,125 shares of beneficial
interest) .................................................. $16.49**
======
Net asset value and offering price of Class C shares
($5,535,266 divided by 335,575 shares of beneficial
interest) .................................................. $16.49
======
Identified cost of investments ............................... $215,061,629
============
</TABLE>
* 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>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1997
(unaudited)
INVESTMENT INCOME
Dividends ...................................... $ 2,527,827(a)
Interest ....................................... 105,795
-----------
2,633,622
Expenses
Management fees .............................. $812,677
Service fees - Class A ....................... 222,449
Service and distribution fees - Class B ...... 262,806
Service and distribution fees - Class C ...... 21,384
Trustees' fees and expenses .................. 10,844
Accounting and administrative ................ 24,254
Custodian .................................... 48,255
Transfer agent ............................... 244,801
Audit and tax services ....................... 12,750
Legal ........................................ 9,956
Printing ..................................... 26,473
Registration ................................. 35,609
Miscellaneous ................................ 5,440
--------
Total expenses ................................. 1,737,698
-----------
Net investment income .......................... 895,924
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ............. 21,368,332
Unrealized appreciation on Investments - net ... 20,375,982
-----------
Net gain on investment transactions ............ 41,744,314
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....... $42,640,238
===========
(a) Net of foreign taxes of: $27,245
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
---------------- ----------------
FROM OPERATIONS
<S> <C> <C>
Net investment income .................................. $ 1,534,989 $ 895,924
Net realized gain on investments ....................... 42,996,716 21,368,332
Unrealized appreciation (depreciation) on investments .. (12,326,308) 20,375,982
------------ ------------
Increase in net assets from operations ................. 32,205,397 42,640,238
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (1,516,167) (746,890)
Class B ................................................ (104,841) (32,568)
Class C ................................................ (7,388) (2,683)
Net realized gain on investments
Class A ................................................ (27,979,217) 0
Class B ................................................ (7,295,607) 0
Class C ................................................ (769,349) 0
------------ ------------
(37,672,569) (782,141)
------------ ------------
Increase in net assets derived from capital share
transactions ......................................... 38,773,337 8,408,641
------------ ------------
Total increase in net assets ........................... 33,306,165 50,266,738
------------ ------------
NET ASSETS
Beginning of the period ................................ 184,425,727 217,731,892
------------ ------------
End of the period ...................................... $217,731,892 $267,998,630
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period ................................ $ 95,891 $ 2,484
------------ ------------
End of the period ...................................... $ 2,484 $ 116,267
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year ........................ $ 11.79 $ 12.20 $ 12.67 $ 12.41 $ 14.39 $ 13.87
------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............ 0.23 0.21 0.22 0.18 0.13 0.07
Net Realized and Unrealized
Gain (Loss) on Investments ..... 0.86 0.75 (0.10) 4.01 2.07 2.62
------- -------- -------- -------- -------- --------
Total From Investment
Operations ..................... 1.09 0.96 0.12 4.19 2.20 2.69
------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net investment
Income ......................... (0.23) (0.21) (0.21) (0.18) (0.13) (0.06)
Distributions in Excess of
Net Investment Income .......... 0.00 (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains ......... (0.45) (0.27) (0.17) (2.03) (2.59) 0.00
------- -------- -------- -------- -------- --------
Total Distributions .............. (0.68) (0.49) (0.38) (2.21) (2.72) (0.06)
------- -------- -------- -------- -------- --------
Net Asset Value, End of Year ..... $ 12.20 $ 12.67 $ 12.41 $ 14.39 $ 13.87 $ 16.50
======= ======== ======== ======== ======== ========
Total Return (%)(a) .............. 9.3 8.0 1.0 35.1 17.2 19.4
Ratio of Operating Expenses
to Average Net Assets (%) ...... 1.94 1.21 1.28 1.38 1.30 1.30(c)
Ratio of Net Investment
Income to Average Net
Assets (%) ..................... 1.18 1.70 1.75 1.31 0.92 0.94(c)
Portfolio Turnover Rate (%) ...... 10 4 6 69 127 91(c)
Average Commission Rate (b) ...... -- -- -- -- $ 0.0348 $ 0.0319
Net Assets, End of Year (000) .... $90,945 $109,168 $104,081 $150,693 $166,963 $199,492
</TABLE>
(a) A sales charge is not reflected in total return calculations. Periods less
than one year are not annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades upon
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(c) Computed on an annualized basis.
As of January 1, 1993 the Fund discontinued the use of equalization
accounting.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- ---------------------------------------------------------------------------------------------------------------------
CLASS B
-----------------------------------------------------------------------------
SEPTEMBER 20(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------- JUNE 30,
1993 1994 1995 1996 1997
------------- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $12.95 $12.66 $12.42 $14.40 $13.87
------ ----- ----- ----- -----
Income From Investment Operations
Net Investment Income .................. 0.06 0.16 0.10 0.03 0.02
Net Realized and Unrealized Gain
(Loss) on Investments ................ 0.01 (0.09) 4.01 2.07 2.61
----- ----- ----- ----- -----
Total From Investment Operations ....... 0.07 0.07 4.11 2.10 2.63
----- ----- ----- ----- -----
Less Distributions
Dividends From Net Investment Income ... (0.03) (0.14) (0.10) (0.04) (0.01)
Distributions in Excess of Net
Investment Income .................... (0.06) (0.00) (0.00) (0.00) 0.00
Distributions From Net Realized
Capital Gains ........................ (0.27) (0.17) (2.03) (2.59) 0.00
----- ----- ----- ----- -----
Total Distributions .................... (0.36) (0.31) (2.13) (2.63) (0.01)
----- ----- ----- ----- -----
Net Asset Value, End of Period ......... $12.66 $12.42 $14.40 $13.87 $16.49
====== ====== ====== ====== ======
Total Return (%)(c) .................... 0.6 0.6 34.3 16.3 19.0
Ratio of Net Investment Income to
Average Net Assets (%) ............... 0.71(d) 1.10 0.56 0.17 0.19(b)
Portfolio Turnover Rate (%) ............ 4 6 69 127 91(b)
Average Commission Rate (d) ............ -- -- -- $0.0348 $0.0519
Net Assets, End of Period (000) ........ $1,498 $5,185 $29,026 $46,856 $62,972
(a)Commencement of operations.
(b)Computed on an annualized basis.
(c)A contingent deferred sales charge in the case of Class B shares is not reflected in total
return calculations. Periods less than one year are not annualized.
(d)For fiscal years beginning on or after September 1, 1995, a fund is required to disclose
its average commission rate per share for trades upon which commissions are charged. The
rate generally does not reflect mark-ups, mark-downs, or spreads on shares traded on a
principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- ------------------------------------------------------------------------------------------------------
CLASS C
------------------------------------------------
MAY 1(a) YEAR SIX MONTHS
THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $13.84 $14.39 $13.85
------ ------ ------
Income From Investment Operations
Net Investment Income ............................ 0.06 0.04 0.03
Net Realized and Unrealized Gain (Loss) on
Investments .................................... 2.58 2.05 2.62
------ ------ ------
Total From Investment Operations ................. 2.64 2.09 2.65
------ ------ ------
Less Distributions
Dividends From Net Investment Income ............. (0.06) (0.04) (0.01)
Distributions in Excess of Net Investment Income . (0.00) 0.00 0.00
Distributions From Net Realized Capital Gains .... (2.03) (2.59) 0.00
------ ------ ------
Total Distributions .............................. (2.09) (2.63) (0.01)
------ ------ ------
Net Asset Value, End of Period ................... $14.39 $13.85 $16.49
====== ====== ======
Total Return (%)(c) .............................. 20.2 16.3 19.1
Ratio of Net Investment Income to Average Net
Assets (%) ..................................... 0.56(b) 0.17 0.19(b)
Portfolio Turnover Rate (%) ...................... 69 127 91(b)
Average Commission Rate (d) ...................... -- $0.0348 $0.0319
Net Assets, End of Period (000) .................. $4,707 $3,912 $5,535
(a)Commencement of operations.
(b)Computed on an annualized basis.
(c)Periods less than one year are not annualized.
(d)For fiscal years beginning on or after September 1, 1995, a fund is required to disclose
its average commission rate per share for trades upon which commissions are charged. The
rate generally does not reflect mark-ups, mark-downs, or spreads on shares traded on a
principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
1. The Fund is a series of New England Funds Trust II (the "Trust"), a
Massachusetts business trust, registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each such series of shares a
"Fund").
The Fund offers Class A, Class B and Class C shares. The Fund commenced its
public offering of Class B shares on September 13, 1993 and Class C Shares on
May 1, 1995. Class A shares are sold with a maximum front end sales charge of
5.75%. 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 C shares do
not pay a front end or contingent deferred sales charge and do not convert to
any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares. Expenses of the Fund are borne pro-rata by the holders of
each class 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. Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of Trustees
which service provides the last reported sale price for securities listed on
an applicable securities exchange or on the NASDAQ national market system, or,
if no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates value.
B. SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are
accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income is increased by the accretion
of discount. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
C. 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.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. 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 relating to
shareholder distributions will result in reclassification to paid in capital.
E. 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.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for
the Fund for the six months ended June 30, 1997 were $114,018,403 and
$105,693,660, 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 0.70% of the first $200 million of the Fund's
average daily net assets, 0.65% of the next $300 million and 0.60% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Westpeak Investment Advisors, L.P. at the rate of 0.50% of the first $25
million of the Fund's average daily net assets, 0.40% of the next $75 million,
0.35% of the next $100 million and 0.30% of such assets in excess of $200
million. Certain officers and directors of NEFM are also officers or trustees
of the Fund. NEFM and Westpeak Investment Advisors, L.P. are wholly owned
subsidiaries of New England Investment Companies, L.P. ("NEIC"), which is a
subsidiary of Metropolitan Life Insurance Company ("Met Life"). Fees earned by
NEFM and Westpeak Investment Advisors, L.P. under the management agreement in
effect during the six months ended June 30, 1997 are as follows:
FEES EARNED
-----------
$ 373,706 New England Funds Management, L.P.
$ 438,971 Westpeak Investment Advisors, L.P.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Fund's
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to the Fund,
(ii) expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and notices,
proxy solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC compliance, and
(iii) registration, filing and other fees in connection with requirements of
regulatory authorities. For the six months ended June 30, 1997, these expenses
amounted to $24,254 and are shown separately in the financial statements as
accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the six months ended June 30, 1997, the Fund
paid New England Funds $175,110 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 Service and Distribution Plans relating to the Fund's
Class B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of up to 0.25% of the average daily net assets attributable
to the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1997, the Fund paid New England Funds $222,449 in fees
under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C 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 and Class C
shares and/or the maintenance of shareholder accounts. For the six months
ended June 30, 1997, the Fund paid New England Funds $65,702 and $5,346 in
service fees under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of up to 0.75% of the average
daily net assets attributable to the Fund's Class B and Class C 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 and
Class C shares. For the six months ended June 30, 1997, the Fund paid New
England Funds $197,104 and $16,038 in distribution fees under the Class B and
Class C Plans, respectively.
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, 1997 amounted to $258,652.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of NEFM, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $2,117
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $92/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CAPITAL SHARES. At June 30, 1997 there was an unlimited number of shares
of beneficial interest authorized, divided into three classes, Class A, Class
B and Class C capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Shares sold ........................... 1,731,542 $25,137,040 978,434 $14,587,931
Shares issued in connection with the
reinvestment of:
Dividends from net investment income .. 87,661 1,231,609 39,664 614,423
Distributions from net realized gain .. 1,854,127 24,119,428 0 0
---------- ----------- --------- -----------
3,673,330 50,488,077 1,018,098 15,202,354
Shares repurchased ................... (2,107,684) (30,109,879) (962,763) (14,306,761)
---------- ----------- --------- -----------
Net increase .......................... 1,565,646 $20,378,198 55,335 $ 895,593
---------- ----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,344,894 $19,592,194 647,229 $9,733,538
Shares issued in connection with the
reinvestment of:
Dividends from net investment income .. 6,654 92,398 1,973 30,758
Distributions from net realized gain .. 526,406 6,846,049 0 0
--------- ----------- -------- ----------
1,877,954 26,530,641 649,202 9,764,296
Shares repurchased .................... (516,163) (7,464,628) (209,055) (3,103,748)
--------- ----------- -------- ----------
Net increase .......................... 1,361,791 $19,066,013 440,147 $6,660,548
--------- ----------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------------------- ---------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold ........................... 406,039 $ 5,734,515 345,593 $ 5,135,207
Shares issued in connection with the
reinvestment of:
Dividends from net investment income .. 724 10,172 166 2,597
Distributions from net realized gain .. 50,246 651,884 0 0
--------- ----------- -------- -----------
457,009 6,396,571 345,759 5,137,804
Shares repurchased ................... (501,555) (7,067,445) (292,703) (4,285,304)
--------- ----------- -------- -----------
Net increase (decrease) ............... (44,546) (670,874) 53,056 852,500
--------- ----------- -------- -----------
Net increase from capital shares
transactions ........................ 2,882,891 $38,773,337 548,538 $ 8,408,641
========= =========== ======= ===========
</TABLE>
<PAGE>
NEW ENGLAND BALANCED FUND
NEW ENGLAND VALUE FUND
SUPPLEMENT DATED AUGUST 1, 1997
TO NEW ENGLAND STOCK FUNDS CLASSES A, B AND C PROSPECTUS DATED MAY 1, 1997
AND NEW ENGLAND STOCK FUNDS CLASS Y PROSPECTUS
DATED MAY 1, 1997 (AS SUPPLEMENTED JULY 28, 1997)
THE FOLLOWING INFORMATION SUPPLEMENTS THE SECOND PARAGRAPH IN THE "FUND
MANAGEMENT" SECTION:
Carol C. McMurtrie, Tricia H. Mills and (beginning in August 1997) Roderic
Dillon are the portfolio managers of the Value Fund. Ms. McMurtrie and Ms.
Mills have served in that capacity since 1993. Ms. McMurtrie, Ms. Mills and
(beginning in August 1997) Mr. Dillon are also the portfolio managers of the
equity portion of the Balanced Fund and are responsible for allocating the
assets of the Balanced Fund between equity and fixed-income securities. Ms.
McMurtrie and Ms. Mills have served in these capacities since July 1997. The
portfolio management team for the fixed-income portion of the Balanced Fund
consists of Meri Ann Beck, John Hyll and Barr Segal, who have had portfolio
management responsibility for the Fund's fixed-income investments since 1990,
1994 and 1996, respectively. Messrs. Dillon, Hyll and Segal are Vice
Presidents of Loomis Sayles. Mr. Hyll has been employed by Loomis Sayles for
more than five years. Mr. Segal was a Senior Portfolio Manager at TCW Group
before joining Loomis Sayles in 1996. Mr. Dillon rejoins Loomis Sayles in
August 1997 following several years as principal of Dillon Capital Management.
<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.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more
aggressive than "value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<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 Fund's 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.
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.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT www.mutualfunds.com
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors
when it is preceded or accompanied by the Fund's current prospectus,
which contains information about distribution charges, management fees
and other items of interest. Investors are advised to read the
prospectus carefully before investing.
<PAGE>
----------------
Bulk Rate
U.S. Postage
Paid
Brockton, MA
Permit No. 770
----------------
[logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- -----------------------
399 Boylston Street
Boston, Massachusetts
02116
- -----------------------
- --------------------- ---------------------
[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
- --------------------- ---------------------
DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
- --------------------- ---------------------
GP58-697
[recycle symbol] Printed on Recycled Paper
