<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
Growth Opportunities Fund
[graphic omitted]
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JUNE 30, 1998
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<PAGE>
August 1998
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Dear Shareholder:
Investors had reason for comfort during the first half of 1998.
After stunning gains in each of the last three years, the stock market behaved
more like its customary self: Major market indicators moved up for a time, slid
back and were once again in recovery mode at the end of the period. This pattern
largely reflected investors' responses to fast-changing events in Asia.
Unpredictable markets call to mind the long-term experience of millions of
mutual fund investors; those of us who held firm to our plans as markets entered
difficult periods were often rewarded as markets recovered. The longer you stay
invested the less interim ups and downs -- here or overseas -- should concern
you.
News from the Far East drove bond market sentiment as well. In the United
States, faltering Asian economies meant lower prices on many imported goods,
putting pressure on prices and corporate earnings. With slower growth now a real
possibility and with little immediate evidence of inflation, the Federal Reserve
Board left short-term interest rates unchanged, while long-term rates fell to
record lows in mid-June.
In the pages that follow, you can read about how your Fund's management dealt
with the disruptions in the Pacific region and their impact on our domestic
economy. But beyond Asia's present problems, and notwithstanding the inevitable
ebb and flow of our own business cycle, there are reasons to be optimistic about
investment prospects over the next several years. For example, vast,
under-served populations in China and elsewhere represent huge potential demand
for consumer goods. Here in the United States, there is the prospect of a
demography-driven spending wave, as millions of baby-boomers enter their peak
consumption years. Events may turn out differently -- volatility will always be
part of investing -- but as much as the markets may waver, the watchwords for
many long-term investors are constant: diversify and persist.
While you are thinking about your investments, take a few minutes to review your
portfolio. It's possible that three years of strong market gains have tilted
your holdings disproportionately toward aggressive stock funds. If so, you and
your financial representative can adjust the balance easily using some of New
England Funds' more conservative equity or bond funds to reallocate your assets
in line with your long-term goals and comfort level. Once you are satisfied with
your portfolio's balance, be sure to stay in touch with your financial
professional, invest regularly and don't try to guess what the market will do
next.
Thank you for your continued support of New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
PREPARING FOR THE YEAR 2000
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New England Funds continues to work to provide high quality service as we move
into the new century. Since last year we have devoted significant resources to
identifying, analyzing and resolving computer issues related to Year 2000. As a
further measure, we have focused on year-end 1998 as a target for preparedness
by vendor and service agency systems that we rely on for support. We expect
major systems to be ready before the end of the year, with a year of quality
assurance to follow.
<PAGE>
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NEW ENGLAND GROWTH OPPORTUNITIES FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1998
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Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown 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.
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
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CLASS A (Inception 5/6/31) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 18.57% 32.46% 21.31% 17.08%
With Max. Sales Charge(2) 11.72 24.82 19.88 16.39
Standard & Poor's 500 Index(4) 17.67 30.09 23.03 18.51
Lipper Growth & Income Avg.(5) 12.11 22.86 18.93 15.61
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CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 3 YEARS SINCE INCEPTION
Net Asset Value(1) 18.13% 31.51% 27.44% 20.76%
With CDSC(3) 13.13 26.51 26.82 20.56
Standard & Poor's 500 Index(4) 17.67 30.09 30.17 23.44
Lipper Growth & Income Avg.(5) 12.11 22.86 24.74 19.21
(calculated from 9/30/93)
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CLASS C (Inception 5/1/95) 6 MONTHS 1 YEAR 3 YEARS SINCE INCEPTION
Net Asset Value(1) 18.13% 31.51% 27.45% 28.09%
With CDSC(3) 17.13 30.51 27.45 28.03
Standard & Poor's 500 Index(4) 17.67 30.09 30.17 30.97
Lipper Growth & Income Avg.(5) 12.11 22.86 24.74 18.90
(calculated from 4/30/95)
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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.CDSC for Class C shares assumes a maximum 1% sales
charge on redemptions within the first year of purchase.
(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 Growth & Income 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>
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NEW ENGLAND GROWTH OPPORTUNITIES FUND
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GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since 6/30/88, compared to the S&P 500
Index. The data points from the graph are as follows:]
JUNE 1988 THROUGH JUNE 1998
WITH
NET MAXIMUM S&P
ASSET SALES 500
VALUE(1) CHARGE(2) INDEX(4)
- ---------------------------------------------------------------
6/30/88 $10,000 $ 9,425 $10,000
6/89 $11,627 $10,958 $12,044
6/90 $13,298 $12,533 $14,018
6/91 $14,294 $13,472 $15,054
6/92 $16,371 $15,429 $17,065
6/93 $18,422 $17,363 $19,381
6/94 $18,527 $17,462 $19,658
6/95 $22,896 $21,579 $24,767
6/96 $27,115 $25,556 $31,189
6/97 $36,541 $34,439 $41,990
6/98 $48,402 $45,618 $54,625
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 differ from that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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- --------------------------
[Photo of Gerald Scriver]
- --------------------------
GERALD SCRIVER
WESTPEAK INVESTMENT
ADVISORS, L.P.
Q. Please tell us about New England Growth Opportunities Fund's performance in
the first half of 1998.
For the six months ending June 30, 1998, New England Growth Opportunities Fund's
Class A shares generated a strong total return of 18.57%, compared to the 17.67%
return for the Standard & Poor's 500 Index and an average return of 12.11% for
the Lipper Growth and Income category. The Fund's return reflected a $2.85 per
share gain in net asset value to $18.20.
Q. What was the investment environment like?
Investors continued to assess the possible damage to the U.S. economy from
continued financial turmoil in Asia. For the first time in decades,
long-standing concerns over inflation began yielding to unaccustomed worries
about the prospect of deflation, or falling prices.
Faltering economies cut currency values sharply in several Asian nations. As a
nation's currency declines, fewer dollars are needed to import its goods. Faced
with falling prices for competitive products from abroad, American companies
were limited in their ability to raise prices, putting pressure on profits and
raising concerns over an economic slowdown here.
TOP 10 PORTFOLIO HOLDINGS -- 6/30/98
% OF
COMPANY NET ASSETS
-----------------------------------------
1. WAL-MART STORES, INC. 3.52
-----------------------------------------
2. CISCO SYSTEMS 2.83
-----------------------------------------
3. SCHERING-PLOUGH CORP. 2.67
-----------------------------------------
4. AT&T CORP. 2.58
-----------------------------------------
5. FORD MOTOR CO. 2.32
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6. NATIONSBANK CORP. 2.28
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7. MICROSOFT CORP. 2.25
-----------------------------------------
8. ALLSTATE CORP. 2.23
-----------------------------------------
9. DANA CORP. 2.04
-----------------------------------------
10. DTE ENERGY CO. 2.03
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PORTFOLIO HOLDINGS AND ASSET ALLOCATION WILL VARY.
For a time, there were signs of recovery in some Asian economies, and it
appeared that any impact on U.S. businesses would be mild and transitory.
Consequently, investors grew more optimistic about the U.S. economy and interest
rates began to rise, rekindling fears of possible inflation. But by late winter
it was clear that significant economic revitalization in Asia -- especially in
Japan -- would be a long time coming.
Q. Given this environment, what was your investment strategy during the period?
Toward the end of 1997, we began to moderate our emphasis on value stocks in the
Fund's portfolio, so that by the end of 1998's second quarter the growth and
value portions of the portfolio were roughly equal. In choosing growth stocks,
we looked for companies whose earnings were increasing and whose stocks were
selling at low price/earnings ratios relative to the Fund's benchmark, the
Standard & Poor's 500 Stock Index. A price/earnings ratio is a rule-of-thumb
that investors use to help gauge whether a stock's price is high or low in terms
of the company's earning power -- the higher the ratio, the more expensive the
stock. This ratio also serves as an objective standard by which investors can
evaluate stocks relative to one another.
Toward the end of the period under review, Growth Opportunities Fund's portfolio
had an average price/earnings ratio of 20 -- the average price was approximately
20 times the average earnings -- which was well below the S&P 500 Index's ratio
of 25; the Fund's holdings also have been growing their earnings faster than the
companies in the Index, with a five-year growth rate of 22.5% a year, compared
to 17% per year for the benchmark.
Q. What were the principal factors affecting performance, either positively or
negatively?
Our bias toward companies with reasonable valuations proved beneficial to the
Fund, as investors gravitated toward companies with below-average price/earnings
ratios. The Fund also benefited from our decision to avoid companies that are
heavily dependent on overseas income, given the weak economies in Asia, Russia
and elsewhere.
We added some companies whose actual earnings exceeded the forecasts of Wall
Street analysts. According to our research, positive earnings surprises, as
these events are called, tend to be repeated and are often a powerful factor in
leading stock prices higher.
Other positives included a large position (relative to the S&P 500) in the
automotive area and consumer-related companies. Both sectors are prospering
thanks to the nation's strong economy and low unemployment rate. Wal-Mart, for
instance, performed very well and is the Fund's largest holding. We reduced
holdings in electric utilities; U.S. growth rates are slower but moderate
price/earnings ratios helped manage volatility. Meanwhile, our decision to
de-emphasize the beverages sector hurt performance as companies such as
Coca-Cola enjoyed strong growth. Finally, our relatively lighter exposure to
technology and energy companies was beneficial, as these sectors underperformed.
Q. What is your outlook?
We believe that conditions in the Far East will continue to restrain business
activity here, keeping inflation in check and dispelling fears of higher
interest rates. In fact, we think any near-term change in interest rates will be
downward, as the Federal Reserve Board appears determined to prevent the Asian
crisis from hurting our economy excessively. Nevertheless, U.S. businesses will
continue to feel persistent pricing pressures from overseas and economic growth
should begin to slow.
Our style is to keep the Fund's portfolio fully invested; we never try to guess
the market's highs or lows nor do we allow economic trends to influence our
stock selection. We will continue to manage Growth Opportunities Fund by seeking
to assemble a portfolio of stocks that, seen in total, present a profile of
attractive growth prospects and a low potential for share price volatility -- a
combination that we believe will benefit investors in the months ahead.
PORTFOLIO 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 CHARGES.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1998
(unaudited)
COMMON STOCK--97.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
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AIRLINES--0.9%
29,000 AMR Corp. (c) ................................ $ 2,414,250
14,900 UAL Corp. (c) ................................ 1,162,200
------------
3,576,450
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APPAREL & TEXTILES--1.9%
147,600 VF Corp. ..................................... 7,601,400
------------
AUTOMOTIVE--4.3%
154,000 Dana Corp. ................................... 8,239,000
158,600 Ford Motor Co. ............................... 9,357,400
------------
17,596,400
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BANKS--8.3%
139,500 Banc One Corp. ............................... 7,785,844
26,500 BankAmerica Corp. ............................ 2,290,594
15,400 Bankers Trust New York ....................... 1,787,363
108,750 Comerica, Inc. ............................... 7,204,687
120,331 NationsBank Corp. ............................ 9,205,321
40,600 Republic New York Corp. ...................... 2,555,262
34,400 SunTrust Banks, Inc. ......................... 2,797,150
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33,626,221
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BUSINESS SERVICES--0.7%
5,600 Interpublic Group Cos. ....................... 339,850
41,700 Robert Half International, Inc. (c) .......... 2,329,988
------------
2,669,838
------------
CHEMICALS--3.4%
55,500 Dow Chemical Co. ............................. 5,366,156
52,400 Ecolab, Inc. ................................. 1,624,400
109,700 Lyondell Petrochemical Co. ................... 3,338,994
48,000 PPG Industries, Inc. ......................... 3,339,000
------------
13,668,550
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COMPUTER SOFTWARE & SERVICES--3.2%
54,000 Compuware Corp. (c) .......................... 2,760,750
83,900 Microsoft Corp. (c) .......................... 9,092,662
37,000 Symantec Corp. (c) ........................... 966,625
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12,820,037
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COMPUTERS & BUSINESS EQUIPMENT--6.1%
124,100 Cisco Systems (c) ............................ 11,424,956
21,200 EMC Corp. (c) ................................ 950,025
99,300 Lexmark International Group (c) .............. 6,057,300
41,100 Pitney Bowes, Inc. ........................... 1,977,938
96,800 Sun Microsystems, Inc. (c) ................... 4,204,750
------------
24,614,969
------------
CONSTRUCTION--1.3%
118,800 Centex Corp. ................................. 4,484,700
10,100 Masco Corp. .................................. 611,050
------------
5,095,750
------------
CONSUMER GOODS & SERVICES--0.7%
49,500 Black & Decker Corp. ......................... 3,019,500
------------
DEFENSE & AEROSPACE--1.8%
54,000 B.F. Goodrich Co. ............................ 2,679,750
98,200 Gulfstream Aerospace Corp. (c) ............... 4,566,300
------------
7,246,050
------------
DRUGS--8.9%
38,600 Bristol-Myers Squibb ......................... 4,436,588
32,600 Cardinal Health, Inc. ........................ 3,056,250
107,600 Genentech, Inc. .............................. 7,303,350
9,400 Merck & Co. .................................. 1,257,250
35,800 Omnicare, Inc. ............................... 1,364,875
71,000 Pfizer, Inc. ................................. 7,716,812
117,600 Schering-Plough Corp. ........................ 10,775,100
------------
35,910,225
------------
ELECTRIC UTILITIES--3.2%
202,600 DTE Energy Co. ............................... 8,179,975
105,500 Pinnacle West Capital Corp. .................. 4,747,500
------------
12,927,475
------------
ELECTRONICS--2.2%
70,600 Lucent Technologies, Inc. .................... 5,873,037
33,800 SCI Systems, Inc. (c) ........................ 1,271,725
22,800 Tellabs, Inc. (c) ............................ 1,633,050
------------
8,777,812
------------
ENERGY RESERVES--2.7%
42,800 Chevron Corp. ................................ 3,555,075
101,400 Exxon Corp. .................................. 7,231,087
------------
10,786,162
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FINANCIAL SERVICES--5.1%
30,300 American Express Co. ......................... 3,454,200
41,566 Associates First Capital ..................... 3,195,386
223,800 Dun & Bradstreet ............................. 8,084,775
98,600 Federal National Mortgage Association ........ 5,989,950
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20,724,311
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FOOD & BEVERAGES--2.2%
47,600 Interstate Bakeries .......................... 1,579,725
23,800 Kellogg Co. .................................. 893,988
66,800 Quaker Oats Co. .............................. 3,669,825
32,800 Unilever NV .................................. 2,589,150
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8,732,688
------------
HEALTH CARE -- PRODUCTS--1.8%
19,300 Johnson & Johnson ............................ 1,423,375
96,200 TYCO International, Ltd. ..................... 6,060,600
------------
7,483,975
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HEALTH CARE -- SERVICES--2.0%
86,700 Health Care & Retirement (c) ................. 3,419,231
35,800 HEALTHSOUTH Corp. (c) ........................ 955,413
121,100 Tenet Healthcare Corp. (c) ................... 3,784,375
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8,159,019
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HOUSEHOLD PRODUCTS--2.6%
75,100 Estee Lauder Companies, Inc. ................. 5,233,531
32,200 Procter & Gamble ............................. 2,932,213
67,100 Rubbermaid, Inc. ............................. 2,226,881
------------
10,392,625
------------
INDUSTRIAL PARTS & MACHINERY--4.7%
113,000 Caterpillar, Inc. ............................ 5,974,875
114,450 Ingersoll-Rand Co. ........................... 5,042,953
86,900 United Technologies Corp. .................... 8,038,250
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19,056,078
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INSURANCE--5.1%
98,400 Allstate Corp. ............................... 9,009,750
8,500 American International Group ................. 1,241,000
12,900 CNA Financial Corp. .......................... 600,656
52,000 Everest Reinsurance Holdings ................. 1,998,750
129,200 St. Paul Cos. ................................ 5,434,475
38,400 Travelers Group, Inc. ........................ 2,328,000
------------
20,612,631
------------
MEDIA & ENTERTAINMENT--1.7%
79,700 Time Warner, Inc. ............................ 6,809,369
------------
METALS & MINING--0.4%
49,100 USX-U.S. Steel Group ......................... 1,620,300
------------
OIL -- REFINING & DISTRIBUTION--0.6%
34,900 Coastal Corp. ................................ 2,436,456
------------
PUBLISHING--1.8%
135,300 Knight-Ridder, Inc. .......................... 7,449,956
------------
RETAIL -- DEPARTMENT STORE--6.0%
53,100 Costco Companies (c) ......................... 3,348,619
50,600 Dayton Hudson Corp. .......................... 2,454,100
96,200 Fred Meyer, Inc. (c) ......................... 4,088,500
234,100 Wal-Mart Stores, Inc. ........................ 14,221,575
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24,112,794
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RETAIL -- FOOD & DRUG--1.0%
54,600 Albertson's, Inc. ............................ 2,828,962
30,200 Safeway, Inc. (c) ............................ 1,228,763
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4,057,725
------------
RETAIL -- SPECIALTY--1.1%
61,200 General Nutrition (c) ........................ 1,904,850
28,900 Home Depot, Inc. ............................. 2,400,506
------------
4,305,356
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SECURITIES & ASSET MANAGEMENT--3.1%
5,036 Bear Stearns Cos. ............................ 286,423
18,800 Donaldson, Lufkin & Jenrette, Inc. ........... 955,275
37,800 Lehman Brothers Holdings ..................... 2,931,862
7,200 Merrill Lynch & Company, Inc. ................ 664,200
84,600 Morgan Stanley Dean Witter ................... 7,730,325
------------
12,568,085
------------
SEMI-CONDUCTORS--0.3%
18,500 Intel Corp. .................................. 1,371,313
------------
TELECOMMUNICATION--7.4%
24,700 AirTouch Communications, Inc. (c) ............ 1,443,406
110,100 Ameritech Corp. .............................. 4,940,738
182,400 AT&T Corp. ................................... 10,419,600
135,200 Bell Atlantic Corp. .......................... 6,168,500
76,000 BellSouth Corp. .............................. 5,101,500
34,900 United States West, Inc. ..................... 1,640,300
------------
29,714,044
------------
THRIFT--0.2%
9,200 Golden West Financial ........................ 978,075
------------
TOBACCO--1.0%
113,000 Universal Corp. .............................. 4,223,376
------------
Total Common Stock (Identified Cost
$319,929,780) .............................. 394,745,015
------------
SHORT TERM INVESTMENT--2.1%
FACE
AMOUNT DESCRIPTION VALUE (a)
- -----------------------------------------------------------------------------
$8,255,000 Repurchase Agreement with State Street
Corp. dated 6/30/ 98 at 5.00% to be
repurchased at $8,256,147 on 7/01/98
collateralized by $6,415,000 U.S. Treasury
Bond 8.125% due 8/15/19 with a value of
$8,426,629 ................................. $ 8,255,000
------------
Total Short Term Investment (Identified
Cost $8,255,000) ........................... 8,255,000
------------
Total Investments--99.8% (Identified
Cost $328,184,780)(b) ...................... 403,000,015
Other assets less liabilities ................ 890,677
------------
Total Net Assets--100% ....................... $403,890,692
============
(a) See Note 1a of Notes to Financial Statements
(b) Federal Tax Information: At June 30, 1998 the net
unrealized appreciation on investments based on cost of
$328,184,780 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. ............................................. $ 80,603,579
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................ (5,788,344)
------------
Net unrealized appreciation.............................. $ 74,815,235
============
(c) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $328,184,780) ........ $403,000,015
Cash ....................................................... 435
Receivable for:
Fund shares sold ......................................... 1,049,399
Dividends and interest ................................... 452,422
Tax reclaims ............................................. 2,450
Prepaid registration expense ............................... 14,000
------------
404,518,721
LIABILITIES
Payable for:
Fund shares redeemed ..................................... $326,253
Miscellaneous ............................................ 747
Accrued expenses:
Management fees .......................................... 216,574
Deferred trustees' fees .................................. 15,946
Accounting and administrative ............................ 6,543
Other .................................................... 61,966
--------
628,029
------------
NET ASSETS ................................................... $403,890,692
============
Net Assets consist of:
Capital paid in .......................................... $279,019,791
Undistributed net investment income ...................... 59,884
Accumulated net realized gains ........................... 49,995,782
Unrealized appreciation on investments ................... 74,815,235
------------
NET ASSETS ................................................... $403,890,692
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($274,624,401 divided by 15,087,335 shares of beneficial
interest) .................................................. $18.20
======
Offering price per share (100/94.25 of $18.20) ............... $19.31*
======
Net asset value and offering price of Class B shares
($118,542,769 divided by 6,566,192 shares of beneficial
interest) .................................................. $18.05**
======
Net asset value and offering price of Class C shares
($10,723,522 divided by 593,992 shares of beneficial
interest) .................................................. $18.05**
======
* Based upon single purchases of less than $50,000. Reduced sales charges apply for purchases in excess
of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................ $ 2,468,673(a)
Interest ................................................. 156,224
------------
2,624,897
Expenses
Management fees ........................................ $1,204,235
Service fees - Class A ................................. 309,391
Service and distribution fees - Class B ................ 494,881
Service and distribution fees - Class C ................ 43,938
Trustees' fees and expenses ............................ 10,720
Accounting and administrative .......................... 32,317
Custodian .............................................. 57,599
Transfer agent ......................................... 314,033
Audit and tax services ................................. 13,755
Legal .................................................. 6,068
Printing ............................................... 30,835
Registration ........................................... 32,574
Miscellaneous .......................................... 9,554
----------
Total expenses ........................................... 2,559,900
------------
Net investment income .................................... 64,997
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ....................... 37,126,570
Unrealized appreciation on Investments - net ............. 22,044,685
------------
Net gain on investment transactions ...................... 59,171,255
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 59,236,252
============
(a) Net of foreign taxes of: $2,710.
</TABLE>
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,
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 711,725 $ 64,997
Net realized gain on investments ......................... 52,507,998 37,126,570
Unrealized appreciation on investments ................... 20,723,726 22,044,685
------------ ------------
Increase in net assets from operations ................... 73,943,449 59,236,252
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (742,082) 0
Class B ................................................ (21,007) 0
Class C ................................................ (7,712) 0
Net realized gain on investments
Class A ................................................ (35,442,350) 0
Class B ................................................ (12,117,349) 0
Class C ................................................ (1,087,638) 0
------------ ------------
(49,418,138) 0
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS ........................................... 66,455,566 35,941,671
------------ ------------
Total increase in net assets ............................. 90,980,877 95,177,923
NET ASSETS
Beginning of the period .................................. 217,731,892 308,712,769
------------ ------------
End of the period ........................................ $308,712,769 $403,890,692
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period ........................................ $ (5,113) $ 59,884
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------ SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period ............... $12.20 $12.67 $12.41 $14.39 $13.87 $15.35
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income .. 0.21 0.22 0.18 0.13 0.07(c) 0.02
Net Realized and
Unrealized Gain (Loss)
on Investments ....... 0.75 (0.10) 4.01 2.07 4.40 2.83
------ ------ ------ ------ ------ ------
Total From Investment
Operations ........... 0.96 0.12 4.19 2.20 4.47 2.85
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income .... (0.21) (0.21) (0.18) (0.13) (0.06) 0.00
Distributions in excess
of Net
Investment Income .... (0.01) 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains (0.27) (0.17) (2.03) (2.59) (2.93) 0.00
------ ------ ------ ------ ------ ------
Total Distributions .... (0.49) (0.38) (2.21) (2.72) (2.99) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End of
the Period ........... $12.67 $12.41 $14.39 $13.87 $15.35 $18.20
====== ====== ====== ====== ====== ======
Total Return (%)(a) .... 8.0 1.0 35.1 17.2 33.4 18.6
Ratio of Operating
Expenses to Average
Net Assets (%) ....... 1.21 1.28 1.38 1.30 1.25 1.21(b)
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 1.70 1.75 1.31 0.92 0.46 0.26(b)
Portfolio Turnover Rate(%) 4 6 69 127 103 114(b)
Net Assets, End of the
Period (000) ........... $109,168 $104,081 $150,693 $166,963 $220,912 $274,624
(a) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(b) Computed on an annualized basis.
(c) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------------------------------
SEPTEMBER 13(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, --------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period ............. $12.95 $12.66 $12.42 $14.40 $13.87 $15.28
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income
(Loss) ............. 0.06 0.16 0.10 0.03 (0.05)(d) (0.04)
Net Realized and
Unrealized Gain
(Loss) on Investments 0.01 (0.09) 4.01 2.07 4.40 2.81
------ ------ ------ ------ ------ ------
Total From Investment
Operations ......... 0.07 0.07 4.11 2.10 4.35 2.77
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income (0.03) (0.14) (0.10) (0.04) (0.01) 0.00
Distributions in
Excess of Net
Investment Income .. (0.06) (0.00) (0.00) (0.00) 0.00 0.00
Distributions From Net
Realized Capital
Gains .............. (0.27) (0.17) (2.03) (2.59) (2.93) 0.00
------ ------ ------ ------ ------ ------
Total Distributions .. (0.36) (0.31) (2.13) (2.63) (2.94) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End
of the Period ...... $12.66 $12.42 $14.40 $13.87 $15.28 $18.05
====== ====== ====== ====== ====== ======
Total Return (%)(c) .. 0.6 0.6 34.3 16.3 32.4 18.1
Ratio of Operating
Expenses to
Average Net Assets(%) 2.08(b) 1.93 2.11 2.05 2.00 1.96(b)
Ratio of Net
Investment Income to
Average Net Assets(%) 0.71(b) 1.10 0.56 0.17 (0.29) (0.49)(b)
Portfolio Turnover Rate(%) 4 6 69 127 103 114(b)
Net Assets, End of the
Period (000) ....... $1,498 $5,185 $29,026 $46,856 $81,066 $118,543
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
MAY 1(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ----------------------- JUNE 30,
1995 1996 1997 1998
----------- ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . $13.84 $14.39 $13.85 $15.28
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ......... 0.06 0.04 (0.05)(d) (0.04)
Net Realized and Unrealized Gain on
Investments ........................ 2.58 2.05 4.42 2.81
------ ------ ------ ------
Total From Investment Operations ..... 2.64 2.09 4.37 2.77
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income . (0.06) (0.04) (0.01) 0.00
Distributions From Net Realized
Capital Gains ........................ (2.03) (2.59) (2.93) 0.00
------ ------ ------ ------
Total Distributions .................. (2.09) (2.63) (2.94) 0.00
------ ------ ------ ------
Net Asset Value, End of Period ....... $14.39 $13.85 $15.28 $18.05
====== ====== ====== ======
Total Return (%)(c) .................. 20.2 16.3 32.6 18.1
Ratio of Operating Expenses to Average
Net Assets (%) ..................... 2.11(b) 2.05 2.00 1.96(b)
Ratio of Net Investment Income to
Average Net Assets (%) ............. 0.56(b) 0.17 (0.29) (0.49)(b)
Portfolio Turnover Rate (%) .......... 69 127 103 114(b)
Net Assets, End of Period (000) ...... $4,707 $3,912 $6,735 $10,724
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
NOTE TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
June 30, 1998
(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 Fund seeks opportunities for long-term growth of capital and income. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares is a "Fund").
The Fund offers Class A, Class B and Class C shares. 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 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 and may be subject to a contingent deferred sales charge if
those shares are redeemed within one year. 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 ask price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates value. All other securities and assets are valued at their fair
value as determined in good faith by the Fund's adviser and subadviser, under
the supervision of the Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED 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, including interest. 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. For the six months ended June 30, 1998
purchases and sales of securities (excluding short-term investments) were
$233,794,729 and $200,760,678, 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. ("Westpeak") 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 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 Westpeak under the management
agreement in effect during the six months ended June 30, 1998 are as follows:
FEES EARNED
-----------
$584,540 NEFM
619,695 Westpeak
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of Nvest and
performs certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Fund'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, 1998, these expenses amounted to $32,317 and are shown
separately in the financial statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Service Corporation ("NEFSCO") is the
transfer and shareholder servicing agent for the Fund. For the six months ended
June 30, 1998, the Fund paid NEFSCO $234,163 as compensation for its services in
that capacity. For the six months ended June 30, 1998, the Fund received $3,797
in transfer agent credits. The transfer agent expense in the Statement of
Operations is net of these credits.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and 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 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, 1998, the Fund paid New England Funds $309,391 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 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, 1998, the Fund paid New England Funds $123,720 and $10,985 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 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, 1998, the Fund paid New England Funds $371,161
and $32,953 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, 1998 amounted to $684,577.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of NEFM,
New England Funds, NEFSCO, Nvest or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:
Annual Retainer $2,019
Meeting Fee 159/meeting
Annual Committee Member Retainer 303
Annual Committee Chairman Retainer 202
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, 1998 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, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,089,570 $32,195,156 1,774,111 $30,203,510
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 39,664 614,423 0 0
Distributions from net realized
gain ........................... 2,099,575 31,028,150 0 0
---------- ----------- ---------- ------------
4,228,809 63,837,729 1,774,111 30,203,510
Shares repurchased ................... (1,875,250) (29,197,625) (1,074,922) (18,253,897)
---------- ----------- ---------- ------------
Net increase ........................ 2,353,559 $34,640,104 699,189 $ 11,949,613
---------- ----------- ---------- ------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,627,496 $25,245,821 1,741,025 $29,503,214
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 1,973 30,758 0 0
Distributions from net realized
gain ........................... 781,695 11,519,364 0 0
---------- ----------- ---------- ------------
2,411,164 36,795,943 1,741,025 29,503,214
Shares repurchased ................... (484,221) (7,468,164) (479,754) (8,104,662)
---------- ----------- ---------- ------------
Net increase ........................ 1,926,943 $29,327,779 1,261,271 $ 21,398,552
---------- ----------- ---------- ------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .......................... 740,016 $11,332,702 535,575 $ 8,985,711
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 166 2,597 0 0
Distributions from net realized
gain ........................... 71,295 1,050,610 0 0
---------- ----------- ---------- ------------
811,477 12,385,909 535,575 8,985,711
Shares repurchased ................... (653,225) (9,898,226) (382,354) (6,392,205)
---------- ----------- ---------- ------------
Net increase ........................ 158,252 $ 2,487,683 153,221 $ 2,593,506
---------- ----------- ---------- ------------
Increase derived from capital shares
transactions ....................... 4,438,754 $66,455,566 2,113,681 $ 35,941,671
========== =========== ========== ============
</TABLE>
<PAGE>
SUPPLEMENT DATED AUGUST 17, 1998 TO THE NEW ENGLAND STOCK FUNDS CLASS A, B AND
C SHARES AND CLASS Y SHARES PROSPECTUSES DATED MAY 1, 1998
FOR NEW ENGLAND VALUE FUND AND NEW ENGLAND BALANCED FUND
The following supplements the "Fund Management" section of each Prospectus:
Effective August 1998, Jeffrey Wardlow and Lauriann Kloppenberg have assumed
responsibility for the day-to-day management of the Value Fund. Also effective
August 1998, Jeffrey Wardlow and Gregg Watkins have assumed responsibility for
the day-to-day management of the equity portion of the Balanced Fund and the
responsibility for allocating the assets of the Balanced Fund between equity
and fixed-income securities. The day-to-day management of the fixed-income
portion of the Balanced Fund remains the same. Mr. Wardlow, Vice President of
Loomis Sayles, has managed the Loomis Sayles Core Value Fund since its
inception in May 1991. Ms. Kloppenberg, Vice President and Director of Equity
Research of Loomis Sayles, has been employed by Loomis Sayles for more than
five years. Mr. Watkins, Vice President of Loomis Sayles, is also a portfolio
manager of the Loomis Sayles Mid-Cap Value Fund and has been employed by
Loomis Sayles for more than five years.
FOR NEW ENGLAND GROWTH FUND
Effective September 1, 1998, New England Growth Fund offers Class C shares to
the general public in addition to Class A and Class B shares. Therefore, the
following tables supplement "Annual fund operating expenses" and "Example" in
the "Schedule of Fees" section:
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
NEW ENGLAND
GROWTH FUND
-----------
CLASS C
-----------
Management Fees ................................................ 0.67%
12b-1 Fees ..................................................... 1.00%*
Other Expenses ................................................. 0.20%
Total Fund Operating Expenses .................................. 1.87%
- ------------
*Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of
actual or expected Fund performance or expenses, both of which may be more or
less than those shown.
NEW ENGLAND GROWTH FUND
-----------------------
CLASS C
-----------------------
(1) (2)
1 year ........................................... $ 29 $ 19
3 years .......................................... $ 59 $ 59
5 years .......................................... $101 $101
10 years ......................................... $219 $219
- ------------
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
<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>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income 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
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT WWW.MUTUALFUNDS.COM
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains information about
distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
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 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
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399 Boylston Street
Boston, Massachusetts
02116
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1995 o 1996 o 1997
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