<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Growth and Income Fund
[graphic omitted]
Where
The Best
Minds
Meet(R)
- -------------
JUNE 30, 1999
- -------------
<PAGE>
- --------------------------------------------------------------------------------
AUGUST 1999
- --------------------------------------------------------------------------------
[Photo of Bruce R. Speca]
- --------------------------------------------------------------------------------
"Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing."
- --------------------------------------------------------------------------------
Dear Shareholder,
Performance results for the New England Family of Funds were driven mainly by
two important changes that took place in our financial markets during the first
half of 1999. First, the long, upward climb of large-capitalization stocks
slowed dramatically as attention turned to stocks with more reasonable
valuations. Then, bond investors grew fearful that our persistently strong
economy would lead the Federal Reserve Board to impose higher interest rates.
Your manager's commentary on the following pages details how these trends
affected your fund's strategy and performance.
As I watch investments come in and out of favor, I'm reminded of the importance
of asset allocation - the practice of dividing your portfolio among different
kinds of stocks and bonds. The idea is to own more or less of each investment
type according to your feelings about risk and your investment time horizon.
Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing. In addition to broadening diversification,
it seeks to avoid exposure to narrow market segments and can help reduce
volatility.
While a diversified portfolio may have given solid returns during the past year,
many investors were disappointed when they compared those returns to the
performance of large-company growth stocks or to the soaring returns of Internet
stocks. Suddenly, investors were asking: Is asset allocation dead?
Certainly not! Like so much in life, market cycles are inevitable. Different
categories of investments will be popular at different times, and a sensible
asset allocation program can help you as market trends change.
I know it can be tempting to jump on a bandwagon and go after "easy money." But
I encourage you, instead, to maintain a rational, long-term perspective and to
consult your financial representative regularly to review and fine-tune
your investments, including a well-diversified asset allocation program.
Thank you for your continued interest. We look forward to helping you achieve
your long-term financial objectives.
Sincerely,
/s/ Bruce R. Speca
Bruce R. Speca
President and CEO
<PAGE>
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NEW ENGLAND GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT RESULTS THROUGH JUNE 30, 1999
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown below appears with and
without sales charges and includes Fund expenses and management fees. A
securities index measures the performance of a theoretical portfolio. Unlike a
fund, the index is unmanaged and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since 6/30/89, compared to the S&P 500
Index. The data points from the graph are as follows:]
JUNE 1989 THROUGH JUNE 1999
WITH
NET MAXIMUM S&P
ASSET SALES 500
VALUE(1) CHARGE(2) INDEX(3)
---------------------------------------------------------------
6/89 $10,000 $ 9,425 $10,000
6/90 $11,437 $10,779 $11,639
6/91 $12,294 $11,587 $12,499
6/92 $14,080 $13,270 $14,169
6/93 $15,844 $14,933 $16,092
6/94 $15,934 $15,018 $16,322
6/95 $19,692 $18,559 $20,564
6/96 $23,321 $21,980 $25,896
6/97 $31,427 $29,620 $34,864
6/98 $41,629 $39,235 $45,355
6/99 $48,173 $45,403 $55,659
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, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
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NEW ENGLAND GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/99
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (Inception 5/6/31) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 10.7% 15.7% 24.8% 17.0%
With Maximum Sales Charge(2) 4.4 9.1 23.3 16.3
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 5 YEARS INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1) 10.2% 14.9% 24.0% 19.7%
With CDSC(3) 5.3 9.9 23.8 19.7
- --------------------------------------------------------------------------------------------------------
<CAPTION>
SINCE
CLASS C (Inception 5/1/95) 6 MONTHS 1 YEAR INCEPTION
<S> <C> <C> <C>
Net Asset Value(1) 10.2% 14.8% 24.7%
With CDSC(3) 9.3 13.8 24.7
- --------------------------------------------------------------------------------------------------------
<CAPTION>
SINCE
CLASS Y (Inception 11/18/98) 6 MONTHS INCEPTION
<S> <C> <C>
Net Asset Value(1) 10.8% 19.7%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
SINCE SINCE SINCE
FUND'S FUND'S FUND'S
CLASS B CLASS C CLASS Y
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPT. INCEPT. INCEPT.
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500(4) 12.4% 22.7% 27.8% 18.7% 23.5% 28.5% 35.1%
Lipper Growth & Income Average(5) 10.9 14.5 21.7 15.1 18.3 22.4 16.8
Morningstar Large Value Average(6) 10.7 12.7 20.9 15.1 17.8 21.7 14.4
- -----------------------------------------------------------------------------------------------------------
NOTES TO CHARTS
These returns represent past performance. Investment return and principal value will fluctuate so that
shares, upon redemption, may be worth more or less than original cost. Class Y shares are available to
certain institutional investors only.
(1) Net Asset Value (NAV) performance assumes reinvestment of distributions and does not reflect the payment
of a sales charge at the time of purchase. Returns would have been lower had sales charges been
reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all distributions and reflects the maximum
sales charge of 5.75% at the time of purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes reinvestment of all distributions and,
for Class B shares, assumes that a maximum 5.00% sales charge is applied to redemptions. The sales
charge will decrease over time, declining to zero six years after the purchase of shares. With CDSC
performance for Class C shares assumes a maximum 1.00% sales charge on redemptions within the first year
of purchase.
(4) The Standard & Poor's Composite Index of 500 Stocks (S&P 500(R)) is a market value-weighted unmanaged
index of common stock prices. It is a common measure of stock total return performance. The performance
of the S&P 500 has not been adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments. It is not possible to invest directly in an index.
(5) Lipper Growth & Income Average is an average (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Lipper Inc., an independent mutual fund ranking service.
Class B since inception return is calculated from 9/30/93. Class C since inception return is calculated
from 4/30/95. Class Y since inception return is calculated from 11/30/98.
(6) Morningstar Large Value Average is an average (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class B since inception return is calculated from 9/30/93. Class C since inception return is
calculated from 4/30/95. Class Y since inception return is calculated from 11/30/98.
</TABLE>
<PAGE>
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NEW ENGLAND GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of Gerald Scriver]
Gerald Scriver
Westpeak Investment Advisors, L.P.
NOTE: Formerly New England Growth Opportunities Fund. The Fund was renamed New
England Growth and Income Fund effective May 3, 1999 to better reflect the
Fund's investment objectives. The Fund's management and investment strategies
remain the same.
Q. Please tell us about New England Growth and Income Fund's performance during
the first half of 1999.
For the six months ending June 30, 1999, New England Growth and Income Fund's
Class A shares at net asset value had a return of 10.7%. This return includes a
$1.72 per share gain and reinvested distributions of $0.06.
Q. Describe the market environment in the first six months of 1999.
Starting late last year and continuing into 1999, investors appeared to be
zooming back from a narrow, telescopic view of just a few large-capitalization
stocks, in favor of a wide-angle lens that brings into focus a broader portion
of the investment spectrum. Within that expanded perspective, value-oriented
stocks have received greater recognition by investors than they have for some
time. This change in focus is a significant development, one that we think may
influence market activity.
Before this shift to value, a willingness to assume risk was the most rewarding
of investor characteristics. For a time, extreme price volatility paid off in
some sectors, notably the stocks of some Internet companies whose prospects for
profitability were distant and dubious. Investors drew from this background a
false sense of security concerning the risks of over-priced equities and the
efficacy of short-term trading. Meanwhile, more traditional and tested
approaches, including those favoring companies with modest valuations, were
penalized in 1998.
Q. Given this environment, what was your investment strategy during the period?
Your Fund's portfolio is designed to lean toward growth or value investments, as
the market changes direction. This built-in flexibility allowed us to take
advantage of the migration toward value-based leadership. We tilted the Fund's
portfolio away from larger growth stocks, toward mid-sized value stocks --
companies within the investment universe, the S&P 500 -- whose book values
appeared attractive relative to their prices in the marketplace. Another step in
this strategy was to emphasize stocks with price/earnings (P/E) ratios below the
market average. These are companies whose prices stand at reasonable multiples
of their profits, expressed in earnings per share. Both strategies are aimed at
reducing portfolio volatility.
TOP 10 PORTFOLIO HOLDINGS -- 6/30/99
% OF
COMPANY NET ASSETS
-------------------------------------------------------
1. International Business Machines 2.6
-------------------------------------------------------
2. Ford Motor Co. 2.5
-------------------------------------------------------
3. AT&T Corp. 2.5
-------------------------------------------------------
4. TYCO International, Ltd. 2.4
-------------------------------------------------------
5. Fleet Financial Group, Inc. 2.2
-------------------------------------------------------
6. Intel Corp. 2.2
-------------------------------------------------------
7. Raytheon Co., Class B 2.2
-------------------------------------------------------
8. BellSouth Corp. 2.1
-------------------------------------------------------
9. Exxon Corp. 2.1
-------------------------------------------------------
10. Bear Stearns Cos. 2.1
-------------------------------------------------------
Portfolio holdings and asset allocation will vary.
-------------------------------------------------------
As we increased emphasis on what we believed to be more reasonably valued
securities, we reduced the Fund's weightings in high-priced sectors. Two of
these sectors were banks, because of their sensitivity to interest rates, and
consumer staples such as drugs and beverages. In addition we reduced the Fund's
exposure to technology stocks from a modest over-weighting down to market
levels. Meanwhile, based on what we viewed as attractive valuations, we brought
the portfolio's weighting in energy and other basic industries in line with the
Index. Finally, we took advantage of increased prices to eliminate a large
portion of our telecommunications holdings.
Q. What were the principal factors affecting performance?
Our disciplined, objective process is designed to ignore fads. Therefore,
performance results in the first half of the year were penalized by the Fund's
lack of representation in the most volatile sectors, especially Internet stocks.
Stock selection was generally favorable, however, with the most positive results
coming from Hewlett Packard, The Limited, IBM, Alcoa and Honeywell. Companies
that hurt performance included Viacom, Intel and two banking companies, Chase
Manhattan and Comerica.
Q. What is your current outlook for the market and the Fund?
We think that the U.S. economy will slow modestly, partially on its own and
partially due to higher interest rates. The Federal Reserve Board remains a
diligent inflation watchdog and, in June, raised short-term interest rates in an
attempt to ease inflationary pressures. Higher rates can put pressure on
corporate earnings, making careful analysis of fundamental valuations even more
important in the second half of 1999 and beyond.
Despite higher interest rates, we do not anticipate a widespread market
slowdown. Instead, we think a "rolling" market correction more likely, one in
which sectors decline as investors ratchet down unrealistic growth expectations.
Most vulnerable, we believe, will be stocks that are highly volatile and
extremely overvalued -- a working definition of Internet stocks.
Growth and Income Fund's portfolio was conservatively positioned at mid-year,
with an average P/E ratio well below that of the benchmark S&P 500. The Fund's
strategy is to buy stocks with below average P/E ratios and the potential for
above average growth.
We will continue to rely on our proprietary stock selection techniques that we
have developed and refined over the years as we seek strong performance for the
Fund in the months ahead.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period, which are subject to change. A shift in opinion may
result in strategic and other portfolio changes. The Fund invests in foreign
securities. Investing in foreign securities involves special risks. This risk
may increase share price volatility. See the Fund's prospectus for details.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1999
(unaudited)
COMMON STOCK -- 95.8% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
- --------------------------------------------------------------------------------
AIRLINES -- 2.5%
154,100 Delta Air Lines ................................. $ 8,880,013
97,200 UAL Corp. (c) ................................... 6,318,000
------------
15,198,013
------------
AUTOMOTIVE -- 3.5%
279,100 Ford Motor Co. .................................. 15,751,706
93,300 General Motors Corp. ............................ 6,157,800
------------
21,909,506
------------
BANKS -- 9.4%
148,800 BB&T Corp. ...................................... 5,459,100
120,700 Chase Manhattan ................................. 10,455,637
114,000 Citigroup, Inc. ................................. 5,415,000
108,750 Comerica, Inc. .................................. 6,463,828
312,600 Fleet Financial Group, Inc. ..................... 13,871,625
9,500 Popular, Inc. ................................... 287,969
34,400 SunTrust Banks, Inc. ............................ 2,388,650
198,200 UnionBanCal Corp. ............................... 7,159,975
75,500 Wachovia Corp. .................................. 6,459,969
------------
57,961,753
------------
BANKS & THRIFTS -- 1.7%
109,200 Golden West Financial ........................... 10,701,600
------------
BROADCASTING -- 1.1%
158,200 CBS Corp. (c) ................................... 6,871,813
------------
BUSINESS SERVICES -- 2.9%
83,800 Computer Sciences (c) ........................... 5,797,912
67,400 Galileo International, Inc. ..................... 3,601,688
52,100 Omnicom Group ................................... 4,168,000
139,900 Viad Corp. ...................................... 4,328,156
------------
17,895,756
------------
CHEMICALS -- 1.3%
61,800 Dow Chemical Co. ................................ 7,840,875
------------
COMPUTER SOFTWARE & SERVICES -- 1.4%
98,400 Microsoft Corp. ................................. 8,874,450
------------
COMPUTERS & BUSINESS EQUIPMENT -- 5.5%
56,700 Apple Computer (c) .............................. 2,625,919
28,300 Hewlett-Packard Co. ............................. 2,844,150
124,600 International Business Machines ................. 16,104,550
155,000 Lexmark International Group (c) ................. 10,239,687
67,800 Symbol Technologies, Inc. ....................... 2,500,125
------------
34,314,431
------------
CONSTRUCTION -- 0.8%
134,700 Lafarge Corp. ................................... 4,773,431
------------
DEFENSE & AEROSPACE -- 8.0%
31,200 B.F. Goodrich Co. ............................... 1,326,000
175,500 General Dynamics Corp. .......................... 12,021,750
170,800 Litton Industries, Inc. (c) ..................... 12,254,900
154,600 Northrop Grumman Corp. .......................... 10,251,912
189,600 Raytheon Co., Class B ........................... 13,343,100
------------
49,197,662
------------
DRUGS -- 4.4%
105,900 Abbott Laboratories ............................. 4,818,450
169,500 Amgen, Inc. (c) ................................. 10,318,312
169,200 Bristol-Myers Squibb ............................ 11,918,025
------------
27,054,787
------------
ELECTRIC UTILITIES -- 2.9%
186,500 DTE Energy Co. .................................. 7,460,000
55,200 Energy East Corp. ............................... 1,435,200
284,500 Pacific Gas & Electric Corp. .................... 9,246,250
------------
18,141,450
------------
ENERGY RESERVES -- 3.0%
169,700 Exxon Corp. ..................................... 13,088,112
88,000 Texaco, Inc. .................................... 5,500,000
------------
18,588,112
------------
FINANCIAL SERVICES -- 1.7%
91,100 Countrywide Credit Industries, Inc. ............. 3,894,525
94,000 Federal National Mortgage Association ........... 6,427,250
------------
10,321,775
------------
FOOD & BEVERAGES -- 1.7%
382,400 Nabisco Group Holding Corp. ..................... 7,480,700
43,917 Unilever NV ..................................... 3,063,211
------------
10,543,911
------------
FOREST PRODUCTS -- 0.2%
22,100 Kimberly-Clark Corp. ............................ 1,259,700
------------
GAS & PIPELINE UTILITIES -- 0.4%
70,300 El Paso Energy Corp. ............................ 2,473,681
------------
HEALTH CARE - PRODUCTS -- 3.0%
43,500 Johnson & Johnson ............................... 4,263,000
153,700 TYCO International, Ltd. ........................ 14,563,075
------------
18,826,075
------------
HEALTH CARE - SERVICES -- 1.5%
131,800 PacifiCare Health Systems ....................... 9,489,600
------------
HOTELS & RESTAURANTS -- 0.2%
67,300 Darden Restaurants, Inc. ........................ 1,467,981
------------
INDUSTRIAL PARTS -- 1.2%
166,100 Parker-Hannifin ................................. $ 7,599,075
------------
INDUSTRIAL PARTS & MACHINERY -- 2.1%
25,500 Caterpillar, Inc. ............................... 1,530,000
180,750 Ingersoll-Rand Co. .............................. 11,680,969
------------
13,210,969
------------
INSURANCE -- 1.9%
207,000 Ambac Financial Group, Inc. ..................... 11,824,875
------------
LIFE INSURANCE -- 2.4%
52,000 Aetna, Inc. ..................................... 4,650,750
66,800 Jefferson Pilot ................................. 4,421,325
62,000 Unitrin, Inc. ................................... 2,542,000
------------
11,614,075
------------
LIQUOR -- 0.2%
18,500 Anheuser-Busch Cos .............................. 1,312,344
------------
METALS & MINING -- 0.9%
71,200 Alcoa, Inc. ..................................... 4,405,500
49,100 USX-U.S. Steel Group ............................ 1,325,700
------------
5,731,200
------------
OIL - REFINING & DISTRIBUTION -- 0.5%
69,800 Coastal Corp. ................................... 2,792,000
------------
PAPER & FOREST PRODUCTS -- 0.4%
50,800 Georgia Pacific Corp. ........................... 2,406,650
------------
PROPERTY & CASUALTY INSURANCE -- 2.2%
151,500 Allmerica Financial Corp. ....................... 9,213,094
213,100 Allstate Corp. .................................. 7,644,963
------------
16,858,057
------------
PUBLISHING -- 2.6%
92,600 Deluxe Corp. .................................... 3,605,613
223,600 Knight-Ridder, Inc. ............................. 12,284,025
------------
15,889,638
------------
RAILROADS & EQUIPMENT -- 2.1%
174,400 Burlington Northern Santa Fe .................... 5,406,400
127,900 Union Pacific Corp. ............................. 7,458,169
------------
12,864,569
------------
RETAIL - CLOTHING -- 1.2%
158,269 Limited, Inc. ................................... 7,181,456
------------
RETAIL - DEPARTMENT STORE -- 4.1%
292,400 Dillard's, Inc. ................................. 10,270,550
340,100 K mart (c) ...................................... 5,590,394
198,700 Wal-Mart Stores, Inc. ........................... 9,587,275
------------
25,448,219
------------
RETAIL - FOOD & DRUG -- 1.3%
307,700 Supervalu, Inc. ................................. 7,904,044
------------
SECURITIES & ASSET MANAGEMENT -- 4.7%
222,200 A G Edwards, Inc. ............................... 7,165,950
273,510 Bear Stearns Cos ................................ 12,786,592
116,400 Lehman Brothers Holdings, Inc. .................. 7,245,900
38,500 Paine Webber Group, Inc. ........................ 1,799,875
------------
28,998,317
------------
SEMI-CONDUCTORS -- 2.2%
227,200 Intel Corp. ..................................... 13,518,400
------------
TELECOMMUNICATION -- 8.0%
273,600 AT&T Corp. ...................................... 15,270,300
135,200 Bell Atlantic Corp. ............................. 8,838,700
280,800 BellSouth Corp. ................................. 13,162,500
159,800 SBC Communications, Inc. ........................ 9,268,400
60,400 U.S. Cellular Corp. (c) ......................... 3,231,400
------------
49,771,300
------------
TOBACCO -- 0.7%
127,467 R.J. Reynolds Tobacco Holdings, Inc. (c) ........ 4,015,196
------------
Total Common Stock (Identified Cost $523,787,536) 592,646,746
------------
SHORT TERM INVESTMENT -- 4.1%
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
$25,399,000 Repurchase Agreement with State Street Bank and
Trust Co. dated 6/30/99 at 4.000% to be
repurchased at $25,401,822 on 7/01/99,
collateralized by $21,150,000 U.S. Treasury Bond,
at 8.125%, due 8/15/19 valued at $25,908,496 .... 25,399,000
------------
Total Short Term Investment (Identified Cost
$25,399,000) .................................... 25,399,000
------------
Total Investments -- 99.9% (Identified Cost
$549,186,536) (b) ............................... 618,045,746
Other assets less liabilities ................... 858,474
------------
Total Net Assets -- 100% ........................ $618,904,220
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1999 the net
unrealized appreciation on investments based on cost of
$549,186,536 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 ...................................................... $ 79,084,530
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (10,225,320)
------------
Net unrealized appreciation ............................... $ 68,859,210
============
(c) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified cost $549,186,536) $618,045,746
Cash ............................................. 655
Receivable for:
Fund shares sold ............................... 1,397,911
Dividends and interest ......................... 770,713
------------
620,215,025
------------
LIABILITIES
Payable for:
Fund shares redeemed .......................... $793,627
Withholding Taxes ............................. 643
Accrued expenses:
Management fees ............................... 324,778
Deferred trustees' fees ....................... 25,005
Accounting and administrative ................. 24,926
Other ......................................... 141,826
--------
1,310,805
------------
NET ASSETS .......................................... $618,904,220
============
Net Assets consist of:
Capital paid in ................................ $468,208,573
Undistributed net investment income ............ 59,970
Accumulated net realized gains (losses) ........ 81,776,467
Unrealized appreciation (depreciation) on
investments .................................. 68,859,210
------------
NET ASSETS .......................................... $618,904,220
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($368,675,386 / 20,161,686 shares of
beneficial interest) ................................ $ 18.29
=========
Offering price per share (100/94.25 of $18.29) ...... $ 19.41*
=========
Net asset value and offering price of Class B
shares ($209,699,674 / 11,622,495 shares of
beneficial interest) ................................ $ 18.04**
=========
Net asset value and offering price of Class C
shares ($26,468,123 / 1,468,620 shares of
beneficial interest) ................................ $ 18.02
=========
Net asset value, offering and redemption price of
Class Y shares ($14,061,037 / 768,994 shares of
beneficial interest) ................................ $ 18.28
=========
* 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, 1999
(unaudited)
INVESTMENT INCOME
Dividends (net of foreign taxes of $158,710) ...... $ 4,925,409
Interest .......................................... 284,343
------------
5,209,752
Expenses
Management fees ................................ $1,794,843
Service fees - Class A ......................... 413,075
Service and distribution fees - Class B ........ 893,773
Service and distribution fees - Class C ........ 109,362
Trustees' fees and expenses .................... 13,951
Accounting and administrative .................. 74,272
Custodian ...................................... 65,491
Transfer agent ................................. 570,331
Audit and tax services ......................... 13,755
Legal .......................................... 12,966
Printing ....................................... 47,434
Registration ................................... 49,796
Miscellaneous .................................. 22,321
----------
Total expenses ................................... 4,081,370
------------
Net investment income ............................ 1,128,382
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments -- net ....... 70,042,291
Unrealized appreciation (depreciation) on
Investments -- net ............................. (15,559,598)
------------
Net gain (loss) on investment transactions ....... 54,482,693
------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 55,611,075
============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
FROM OPERATIONS
Net investment income ..................................... $ 333,505 $ 1,128,382
Net realized gain (loss) on investments ................... 48,697,181 70,042,291
Net unrealized appreciation (depreciation) on investments . 31,648,258 (15,559,598)
------------ ------------
Increase (decrease) in net assets from operations ......... 80,678,944 55,611,075
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................. (227,108) (1,111,375)
Class B ................................................. 0 0
Class C ................................................. 0 0
Class Y ................................................. (1) (58,320)
Net realized gain on investments
Class A ................................................. (32,875,714) 0
Class B ................................................. (15,243,587) 0
Class C ................................................. (1,691,556) 0
Class Y ................................................. (3) 0
------------ ------------
(50,037,969) (1,169,695)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................... 136,443,607 88,665,489
------------ ------------
Total increase (decrease) in net assets ...................... 167,084,582 143,106,869
NET ASSETS
Beginning of the period ................................... 308,712,769 475,797,351
------------ ------------
End of the period ......................................... $475,797,351 $618,904,220
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period ......................................... $ 101,283 $ 59,970
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
Class A
----------------------------------------------------------------
Six
Months
Year Ended December 31, Ended
---------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------------------------------------------------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 12.67 $ 12.41 $ 14.39 $ 13.87 $ 15.35 $ 16.57
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ....................... 0.22 0.18 0.13 0.07(b) 0.04 0.05
Net Realized and Unrealized Gain
(Loss) on Investments ..................... (0.10) 4.01 2.07 4.40 3.29 1.73
-------- -------- -------- -------- -------- --------
Total From Investment Operations ............ 0.12 4.19 2.20 4.47 3.33 1.78
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ........ (0.21) (0.18) (0.13) (0.06) (0.01) (0.06)
Distributions From Net Realized Capital Gains (0.17) (2.03) (2.59) (2.93) (2.10) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions ......................... (0.38) (2.21) (2.72) (2.99) (2.11) (0.06)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period .......... $ 12.41 $ 14.39 $ 13.87 $ 15.35 $ 16.57 $ 18.29
======== ======== ======== ======== ======== ========
Total Return (%)(a) ......................... 1.0 35.1 17.2 33.4 23.9 10.7
Ratio of Operating Expenses to
Average Net Assets (%) .................... 1.28 1.38 1.30 1.25 1.23 1.23(c)
Ratio of Net Investment Income to
Average Net Assets (%) .................... 1.75 1.31 0.92 0.46 0.33 0.68(c)
Portfolio Turnover Rate (%) ................. 6 69 127 103 114 140(c)
Net Assets, End of the Period (000) ......... $104,081 $150,693 $166,963 $220,912 $304,139 $368,675
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
Class B
----------------------------------------------------------------
Six
Months
Year Ended December 31, Ended
----------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
------------------------------------------------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 12.66 $ 12.42 $ 14.40 $ 13.87 $ 15.28 $ 16.37
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.16 0.10 0.03 (0.05)(b) (0.05) 0.00
Net Realized and Unrealized Gain
(Loss) on Investments ...................... (0.09) 4.01 2.07 4.40 3.24 1.67
-------- -------- -------- -------- -------- --------
Total From Investment Operations ............ 0.07 4.11 2.10 4.35 3.19 1.67
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends From Net Investment Income ........ (0.14) (0.10 (0.04) (0.01) 0.00 0.00
Distributions From Net Realized Capital Gains (0.17) (2.03) (2.59) (2.93) (2.10) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions ......................... (0.31) (2.13) (2.63) (2.94) (2.10) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period .......... $ 12.42 $ 14.40 $ 13.87 $ 15.28 $ 16.37 $ 18.04
======== ======== ======== ======== ======== ========
Total Return (%)(a) ......................... 0.6 34.3 16.3 32.4 23.1 10.2
Ratio of Operating Expenses to
Average Net Assets (%) ..................... 1.93 2.11 2.05 2.00 1.98 1.98(c)
Ratio of Net Investment Income to
Average Net Assets (%) ..................... 1.10 0.56 0.17 (0.29) (0.42) (0.07)(c)
Portfolio Turnover Rate (%) ................. 6 69 127 103 114 140(c)
Net Assets, End of the Period (000) ......... $ 5,185 $ 29,026 $ 46,856 $ 81,066 $153,369 $209,700
(a) A contingent deferred sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
Class C Class Y
------------------------------------------------------ ------------------------
November
May 1, (a) Six Months 18,(a) Six Months
through Year Ended December 31, Ended through Ended
December 31, ----------------------------- June 30, December 31, June 30,
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ......... $ 13.84 $ 14.39 $ 13.85 $ 15.28 $ 16.35 $ 15.42 $ 16.57
------- ------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ..................... 0.06 0.04 (0.05)(d) (0.04) 0.00 0.02 0.07
Net Realized and Unrealized Gain on Investments .. 2.58 2.05 4.42 3.21 1.67 1.22 1.72
------- ------- ------- ------- ------- ------- -------
Total From Investment Operations ................. 2.64 2.09 4.37 3.17 1.67 1.24 1.79
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income ............. (0.06) (0.04) (0.01) 0.00 0.00 (0.02) (0.08)
Distributions From Net Realized Capital Gains .... (2.03) (2.59) (2.93) (2.10) 0.00 (0.07) 0.00
------- ------- ------- ------- ------- ------- -------
Total Distributions .............................. (2.09) (2.63) (2.94) (2.10) 0.00 (0.09) (0.08)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period ............... $ 14.39 $ 13.85 $ 15.28 $ 16.35 $ 18.02 $ 16.57 $ 18.28
======= ======= ======= ======= ======= ======= =======
Total Return (%)(c) .............................. 20.2 16.3 32.6 22.9 10.2 8.1 10.8
Ratio of Operating Expenses to Average
Net Assets (%) ................................. 2.11(b) 2.05 2.00 1.98 1.98 (b) 0.98(b) 0.98(b)
Ratio of Net Investment Income to Average Net
Assets (%) ...................................... 0.56(b) 0.17 (0.29) (0.42) (0.07)(b) 0.58(b) 0.93(b)
Portfolio Turnover Rate (%) ...................... 69 127 103 114 140(b) 114 140(b)
Net Assets, End of the Period (000) .............. $ 4,707 $ 3,912 $ 6,735 $18,288 $26,468 $ 1 $14,061
(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 period.
See accompanying notes to financial
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the Period Ended June 30, 1999
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of New England Funds
Trust 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, Class C and Class Y 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 prior to
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. Class Y shares do not
pay a front end sales charge, a contingent deferred sales charge or distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro rata by the holders of 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 market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. 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, 1999
purchases and sales of securities (excluding short-term investments) were
$445,379,894 and $371,426,974, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its investment adviser New England Funds Management, L.P.
("NEFM") at the annual rate of 0.70% 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, reduced by the payment to 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 and subadvisory agreements in effect during the
six months ended June 30, 1999 are as follows:
Fees Earned
-----------
NEFM $897,422
Westpeak 897,421
The effective annualized management fee for the six months ended June 30, 1999
was 0.66%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund reimburses NSC for all or part of
NSC's expenses of providing these services which include the following: (i)
expenses for personnel performing bookkeeping, accounting and financial
reporting functions and clerical functions relating to the Fund and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the six months ended June 30, 1999, these
expenses amounted to $74,272 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as the sub-transfer agent for
the Fund. For the six months ended June 30, 1999, the Fund paid NSC $425,012 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, L.P. ("New England
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class A shares, as reimbursement for expenses
(including certain payments to securities dealers, who may be affiliated with
New England Funds) incurred by 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, 1999, the Fund paid New England
Funds $413,075 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, 1999, the Fund paid New England Funds $223,443 and $27,341 in service fees
under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, 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, 1999, the Fund paid New England Funds $670,330
and $82,021 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, 1999 amounted to $1,114,924.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of NEFM,
New England Funds, Nvest, NSC or their affiliates. Each other Trustee receives a
retainer fee at the annual rate of $40,000 and meeting attendance fees of $3,500
for each meeting of the Board of Trustees attended. Each committee member
receives an additional retainer fee at the annual rate of $6,000 while each
committee chairman receives a retainer fee (beyond the $6,000 fee) at the annual
rate of $4,000. These fees are allocated to the various New England Funds based
on a formula that takes into account, among other factors, the relative net
assets of each fund.
A deferred compensation plan is available to the Trustees on a voluntary basis.
Each participating Trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund on the
normal payment date. Deferred amounts remain in the Fund until distributed in
accordance with the Plan.
4. CAPITAL SHARES. At June 30, 1999 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital shares. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31,1998 June 30, 1999
-------------------------- -------------------------
Class A Shares Amount Shares Amount
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......................................... 9,065,395 $ 144,572,219 7,131,845 $ 122,821,629
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 11,442 187,649 53,068 962,663
Distributions from net realized gain .............. 2,031,262 29,158,832 0 0
----------- ------------- ----------- -------------
11,108,099 173,918,700 7,184,913 123,784,292
Shares repurchased .................................. (7,145,922) (112,760,204) (5,373,550) (92,453,018)
----------- ------------- ----------- -------------
Net increase (decrease) ............................. 3,962,177 $ 61,158,496 1,811,363 $ 31,331,274
<CAPTION>
Year Ended Six Months Ended
December 31,1998 June 30, 1999
-------------------------- -------------------------
Class B Shares Amount Shares Amount
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......................................... 4,248,677 $ 69,373,470 3,034,353 $ 51,685,006
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 0 0 0 0
Distributions from net realized gain .............. 1,005,847 14,281,653 0 0
----------- ------------- ----------- -------------
5,254,524 83,655,123 3,034,353 51,685,006
Shares repurchased .................................. (1,188,079) (19,142,794) (783,224) (13,365,427)
----------- ------------- ----------- -------------
Net increase (decrease) ............................. 4,066,445 $ 64,512,329 2,251,129 $ 38,319,579
<CAPTION>
Year Ended Six Months Ended
December 31,1998 June 30, 1999
-------------------------- -------------------------
Class C Shares Amount Shares Amount
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......................................... 1,217,463 $ 19,862,147 584,581 $ 9,981,553
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 0 0 0 0
Distributions from net realized gain .............. 112,955 1,604,497 0 0
----------- ------------- ----------- -------------
1,330,418 21,466,644 584,581 9,981,553
Shares repurchased .................................. (652,475) (10,694,572) (234,675) (3,974,171)
----------- ------------- ----------- -------------
Net increase (decrease) ............................. 677,943 $ 10,772,072 349,906 $ 6,007,382
----------- ------------- ----------- -------------
<CAPTION>
November 18, 1998 (a)
through Six Months Ended
December 31,1998 June 30, 1999
-------------------------- -------------------------
Class Y Shares Amount Shares Amount
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......................................... 46 $ 710 813,847 $ 13,792,787
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 0 0 3,202 58,080
Distributions from net realized gain .............. 0 0 0 0
----------- ------------- ----------- -------------
46 710 817,049 13,850,867
Shares repurchased .................................. 0 0 (48,101) (843,613)
----------- ------------- ----------- -------------
Net increase (decrease) ............................. 46 $ 710 768,948 $ 13,007,254
----------- ------------- ----------- -------------
Increase (decrease) derived from capital shares
transactions ...................................... 8,706,611 $ 136,443,607 5,181,346 $ 88,665,489
=========== ============= =========== =============
(a) Commencement of operations.
</TABLE>
5. LINE OF CREDIT. The Fund along with the other portfolios that comprise the
New England Funds (the "Funds") participate in a $100,000,000 committed line of
credit provided by Citibank, N.A. under a credit agreement (the "Agreement")
dated March 4, 1999. Advances under the Agreement are taken primarily for
temporary or emergency purposes. Borrowings under the Agreement bear interest at
a rate tied to one of several short-term rates that may be selected from time to
time. In addition, the Funds are charged a facility fee equal to 0.08% per annum
on the unused portion of the line of credit. The annual cost of maintaining the
line of credit and the facility fee is apportioned pro rata among the
participating Funds. There were no borrowings as of or during the period ended
June 30, 1999.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BALANCED FUND
Supplement Dated August 15, 1999 to New England Stock Funds Class A, B
and C Prospectus
and New England Stock and Star Funds Class Y Prospectus
Each dated May 3, 1999
Effective immediately, John Hyll will remain on the Fund as the sole portfolio
manager of the fixed income portion. Meri Ann Beck and Barr Segal are no longer
acting as portfolio managers of this portion. Jeff Wardlow and Gregg Watkins
will continue to manage the equity portion of the Fund.
<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.
MARKET CAPITALIZATION - The value of a company's issued and outstanding common
stock, as priced by the market:
NUMBER OF OUTSTANDING SHARES X CURRENT MARKET PRICE OF A SHARE = MARKET
CAPITALIZATION.
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(R) (S&P 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. It is not possible to invest directly in an index.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, New England Funds' automatic investment program, you
can invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high. Because this program involves
continuous investment in securities regardless of fluctuating prices, the
investor should consider his or her financial ability to continue purchases
during periods of high or low prices.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
Past performance is no guarantee of future results. Please call New England
Funds for a prospectus, which contains more information, including charges and
other ongoing expenses. Please read prospectus carefully before you invest.
<PAGE>
- --------------------------------------------------------------------------------
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 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 accumulated the greater retirement nest egg? For
the answer, look at the chart.
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AN EARLY START CAN MAKE A BIG DIFFERENCE
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[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. Past performance is no guarantee of
future results. For illustrative purposes only and not indicative of future
performance of any New England Fund. The value of a New England fund will
fluctuate with changing market conditions.
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. We will include a prospectus,
which contains more information including charges and other ongoing expenses.
Please read the prospectus carefully before you invest.
<PAGE>
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NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
Growth and Income Fund
(formerly Growth Opportunities Fund)
Balanced Fund
Value Fund
ALL-CAP EQUITY FUNDS
Star Advisers Fund
Star Worldwide Fund
International Equity Fund
Bullseye Fund
Equity Income Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund
GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
Government Securities Fund
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
MONEY MARKET FUNDS
Cash Management Trust,
Money Market Series
Tax Exempt Money Market Trust
CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income Fund
To learn more, and for a free prospectus, contact your financial representative.
Visit our World Wide Web site at www.mutualfunds.com
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains
information about distribution charges, management and other
items of interest. Investors are advised to read the
prospectus carefully before investing.
New England Funds, L.P., and other firms selling shares of New England
Funds are members of the National Association of Securities Dealers,
Inc. (NASD). As a service to investors, the NASD has asked that we
inform you of the availability of a brochure on its Public Disclosure
Program. The program provides access to information about securities
firms and their representatives. Investors may obtain a copy by
contacting the NASD at 800-289-9999 or by visiting their Web site at
www.NASDR.com.
Y2K Readiness Report: New England Funds has kept pace with the Y2K
challenge. Mission critical systems have been tested and non-mission
critical systems are scheduled for completion by September 30, 1999.
Y2K is a top priority at New England Funds. For more information on
our Y2K readiness, please visit our Web site at www.mutualfunds.com.
This material represents Year 2000 Readiness Disclosure pursuant to the
Year 2000 Information and Readiness Disclosure Act.
<PAGE>
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[LOGO](R) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
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399 Boylston Street
Boston, Massachusetts
02116
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