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[LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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SEMIANNUAL REPORT AND PERFORMANCE UPDATE
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NEW ENGLAND
INTERNATIONAL
EQUITY FUND
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JUNE 30, 1996
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<PAGE>
July 25, 1996
DEAR SHAREHOLDER,
New England Funds welcomes the opportunity to present you with the 1996
Semiannual Report for New England International Equity Fund, containing your
portfolio manager commentary and complete financial information.
ECONOMIC GROWTH IN THE FIRST HALF OF 1996
Moderate growth with low inflation was the economic story during the first
half of 1996. U.S. Gross Domestic Product (GDP), a bellwether of economic
growth, remained strong at 2.3% through June, just shy of what most economists
consider optimal growth. As a result, the Federal Reserve Board opted not to
tinker with interest rates through the first half of the year, save for a
quarter-point ease in short-term rates in late January. The relatively calm
economic waters had a stimulating effect on the domestic equity market, boosting
stocks 537 points to 5,654 at the end of June, as measured by the Dow Jones
Industrial Average. Bond yields did not fare as well, rising to 7.00% at the end
of June from 6.65% earlier in the year. Money market yields remained stable,
falling back only slightly during the past six months.
THE BENEFITS OF MAINTAINING A LONG-TERM FOCUS
But the market volatility of the first three weeks in July claimed 5.5% of
the Dow Jones Industrial Average's first-half gains. Again, we are reminded that
no bull market lasts forever. Long-term financial goals are key in times like
these and it's important to anticipate this type of market volatility and remain
committed to your financial plan.
It's also a good idea to ask your financial representative for help. A
financial representative can guide you through volatile markets and help you
meet your long-term financial goals. A recent study by Dalbar, Inc., a mutual
fund monitoring and analytical service, shows that, on average, mutual fund
investors who bought and held shares, with the assistance of a financial
representative, enjoyed the benefits of a long-term commitment. Consequently,
they benefitted from higher returns than direct investors and others who bought
and sold, although this does not occur in every case.
CELEBRATING THE BIRTHDAYS OF THREE NEW ENGLAND FUNDS
During the past two months, we've celebrated the birthdays of three of our
most popular funds: New England Growth Opportunities Fund; New England Strategic
Income Fund and New England Star Advisers Fund. Demonstrating the remarkable
scope and breadth of our funds, the Growth Opportunities Fund celebrated its
65th birthday in May while the fast-growing Strategic Income and Star Advisers
Funds marked their first and second birthdays, respectively. We're proud of all
of our funds, but take special pride in recognizing that, whether six months or
65-years-old, all New England Funds are designed to help investors achieve their
goals.
NEW ENGLAND FUNDS: THE PLACE "WHERE THE BEST MINDS MEET"(TM)
The longevity of our more seasoned funds and the potential for growth of our
newer ones illustrates the ongoing progress of New England Funds. Our unique
multiple-adviser approach brings together some of the best minds in the
investment business. The ability to attract top-notch investment advisers and
our multiple-adviser approach to fund management are the cornerstones of New
England Funds' investment philosophy and the essence of our corporate logo,
Where The Best Minds Meet(TM).
OUTLOOK FOR THE REST OF 1996
Going forward, we anticipate that the economy will continue to grow
moderately and that inflationary pressures will not be excessive. While we
estimate the GDP may rise somewhat from its current level of 2.3%, the Federal
Reserve should be reluctant to tighten the money supply by raising short-term
interest rates. We also believe that the equity markets will continue to be
volatile through the rest of the year.
We believe that you will find your portfolio manager commentary informative.
If you have any questions or comments, please contact your financial
representative or New England Funds directly at 800-225-5478.
Sincerely,
/s/Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
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NEW ENGLAND INTERNATIONAL EQUITY FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1996
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides 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.
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since New England International Equity
Fund's inception 5/21/92 compared to the EAFE Index over the same period. The
data points for this chart are as follows:]
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A $10,000 INVESTMENT IN CLASS A SHARES
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COMPARED TO MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE AUSTRALASIA FAR EAST INDEX (MSCI EAFE(R) INDEX)(4)
NE INTERNATIONAL EQ International Equity
Class A/Index NAV POP EAFE
- ------------------- ------- ------- -------
5/21/92 $10,000 $9,425 $10,000
1992 $9,840 $9,274 $9,529
1993 $11,202 $10,558 $11,501
1994 $13,347 $12,580 $13,491
1995 $13,355 $12,587 $13,754
1996 $14,908 $14,051 $15,627
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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, Class C and Class Y
share performance will be greater or less than that shown based on differences
in inception date, fees and sales charges. All Index and Fund performance
assumes reinvested distributions.
<PAGE>
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AVERAGE ANNUAL TOTAL RETURNS 6/30/96
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CLASS A (Inception 5/21/92) 1 YEAR 3 YEAR SINCE INCEPTION
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Net Asset Value(1) 11.63% 10.00% 10.20%
With Max. Sales Charge(2) 5.22 7.84 8.63
Lipper International Avg.(5) 15.46 12.34 10.33
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CLASS B (Inception 9/13/93) 1 YEAR SINCE INCEPTION
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Net Asset Value(1) 10.74% 6.56%
With CDSC(3) 6.74 5.59
MSCI EAFE(4) 13.62 8.14
Lipper International Avg.(5) 15.46 n/a
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CLASS C (Inception 12/30/94) 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
Net Asset Value(1) 10.86% 7.35%
MSCI EAFE(4) 13.62 10.08
Lipper International Avg.(5) 15.46 n/a
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CLASS Y (Inception 9/13/93) 1 YEAR SINCE INCEPTION
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Net Asset Value(1) 12.44% 8.10%
MSCI EAFE(4) 13.62 8.14
Lipper International Avg.(5) 15.46 n/a
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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
original cost. Class Y shares are available only to certain institutional
investors. Share price and return may vary.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(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
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares. Class C shares are available only to eligible
institutional investors and are not subject to a sales charge.
(4) Morgan Stanley Capital International (MSCI) Europe Australasia Far East
Index (EAFE) is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing stock markets
in Europe, Australia, New Zealand and the Far East. The Index performance
has not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments.
(5) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
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[Photo of
NICHOLAS CARN]
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- -----------------
[Photo of
TIM GRIFFEN]
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NEW ENGLAND INTERNATIONAL FUND
Portfolio Managers: Nicholas Carn, Tim Griffen (shown)
Gregory Eckersley, Nigel Hankin
Draycott Partners, Ltd.
The first six months of 1996 marked a turning point of sorts, in world
economies. The Japanese stock market continued to rise after showing signs of
stabilization in the later part of 1995, though its returns were slightly
reduced by the weakness of the yen when translated into dollars. German bond
yields were up in anticipation of a stronger economy. On the currency front, the
yen and, to a slightly lesser extent, the European currencies were weak against
the dollar.
How Your Fund Performed
Currently, your Fund's portfolio is very similar in structure to its performance
benchmark, the Morgan Stanley EAFE (Europe Australasia Far East) Index, an
unmanaged index that includes stocks traded on 16 exchanges in Europe,
Australia, New Zealand and the Far East.(4) The overall performance of the Fund
surpassed that of the EAFE. Through June 30, 1996, Class A shares of New England
International Fund delivered a net asset value return of 6.08%. In contrast, the
EAFE Index returned 3.50% during the same time frame. In terms of international
equity trends, strong stock market gains in Japan, France and Germany were
partially offset by the rising dollar, which made those foreign stocks less
valuable in dollar terms.
How We Managed Your Fund
Due to our close correlation to the EAFE, our selection of stocks was very broad
based. Stock selection in Japan and Europe added the most value to the portfolio
in the first six months. We believe Japan is emerging from a period of slow
economic growth over the last few years, and we may see a continuation of very
low interest rates and fast monetary growth. These conditions may resemble the
economic environment in the United States in 1990 -- setting the stage for Japan
to take its turn at prosperity.
Within Europe, countries that most benefitted the portfolio in the first half of
the year were Italy and Spain. Both economies experienced falling long-term
interest rates; this is in contrast to Germany, which experienced rising
long-term rates. In response to these conditions, we kept the Fund's portfolio
overweighted in securities of issues in Italy and Spain -- a strategy we intend
to maintain through the rest of the year.
An overweighting to the British pound, which was a drag on the UK economically,
did not help the Fund. However, an overweighting in European cyclical stocks
proved to be positive for the Fund. In general, cyclical stocks performed well,
while interest rate sensitive stocks did poorly.
The Long-Term Outlook
We believe that Japan's stock market cycle will continue to turn upwards over
the next six months. We also think the "dollar area" -- which includes the U.S.,
Canada and Latin America -- will turn downwards.
International stock markets continue to offer tremendous opportunities for
investors who recognize the wisdom of international diversification and are
aware of its risks. Our emphasis on fundamental research and discovery of
undervalued stocks and market situations remains key to successful investment
through the rest of 1996.
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YOUR FUND'S TOP TEN HOLDINGS 6/30/96*
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PERCENTAGE
COMPANY OF ASSETS
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1. SONY CORP. 1.96%
Color TV sets, tape recording, radio
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2. BANK OF TOKYO MITSUBISHI 1.87%
International commercial banking services
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3. FUJI BANK 1.80%
Worldwide commercial and institutional banking services
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4. MATSUSHITA ELC. IND. 1.55%
Household appliances and furnishing
- ---------------------------------------------------------------
5. HONDA MOTOR CO. 1.46%
Autos, trucks, motorcycles
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* Portfolio holdings and asset allocations will vary.
<PAGE>
YOUR FUND'S GEOGRAPHICAL PORTFOLIO ALLOCATION OF 6/30/96*
PERCENTAGE
COUNTRY OF ASSETS
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1. JAPAN 42.80%
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2. UNITED KINGDOM 18.20%
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3. UNITED STATES 8.50%
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4. GERMANY 5.40%
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5. SWITZERLAND 5.10%
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6. AUSTRALIA 3.80%
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7. SPAIN 3.30%
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8. NETHERLANDS 3.00%
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9. ITALY 2.90%
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10. FINLAND 1.60%
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* Portfolio composition is subject to change.
<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>
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[LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
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NEW ENGLAND
INTERNATIONAL
EQUITY FUND
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JUNE 30, 1996
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<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1996
(unaudited)
COMMON STOCK -- 89.9% OF TOTAL NET ASSETS
SHARES (a) DESCRIPTION VALUE (b)
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AUSTRALIA--3.8%
92,200 Amcor, Ltd. ................................ $ 626,743
187,650 Australia and New Zealand Bank Group ....... 887,743
54,100 Broken Hill Proprietary Co. ................ 746,984
101,000 Capral Aluminum ............................ 292,086
40,000 Coles Myer, Ltd. ........................... 145,226
34,020 CRA, Ltd. .................................. 522,932
266,500 CSR, Ltd. .................................. 940,342
242,000 Fairfax John ............................... 503,969
47,600 Lend Lease Corp. ........................... 729,430
191,500 News Corp. ................................. 1,085,041
215,400 Normandy Mining (Warrants) ................. 98,178
538,500 Normandy Mining, Ltd. ...................... 850,597
280,500 North, Ltd. ................................ 804,578
259,246 QNI, Ltd. .................................. 578,592
124,000 Southcorp Holdings, Ltd. ................... 306,955
211,500 Westpac Bank Corp. ......................... 935,753
139,750 WMC, Ltd. .................................. 999,391
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11,054,540
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BELGIUM--1.0%
24,800 Delhaize Le Lion ........................... 1,247,864
8,680 Glaverbel .................................. 942,830
4,950 Powerfin ................................... 678,418
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2,869,112
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DENMARK--1.0%
31,000 Carli Gry International A/S ................ 1,015,960
6,600 Crisplant Industries ....................... 428,096
59,700 ISS International Service Systems .......... 1,334,932
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2,778,988
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FINLAND--1.6%
20,000 Cultor OY, Series 1 ........................ 980,223
18,110 Huhtamaki OY ............................... 606,065
51,800 Kesko ...................................... 769,462
5,330 Kone Corp. ................................. 594,958
15,600 Raison Tehtaat ............................. 932,982
39,200 UPM-Kymmene OY ............................. 813,352
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4,697,042
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GERMANY--5.4%
25,150 Adidas AG (e) .............................. 2,115,544
1,265 Boss Hugo AG ............................... 1,455,936
3,100 Henkel Kgaa ................................ 1,339,494
75,500 Hoechst AG ................................. 2,562,184
8,500 Mannesmann AG .............................. 2,940,480
11,000 SGL Carbon AG (e) .......................... 1,287,734
43,400 Tarkett AG ................................. 916,238
57,100 Veba ....................................... 3,036,946
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15,654,556
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ITALY--2.9%
475,450 BCA Fideuram SPA ........................... 1,030,853
1,305,000 Credito Italiano ........................... 1,530,632
203,000 Edison ..................................... 1,226,286
74,000 Mediolanum SPA ............................. 736,979
349,750 Saipem ..................................... 1,473,233
620,000 STET ....................................... 1,629,714
226,800 Unicem Union Cement ........................ 739,090
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8,366,787
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JAPAN--42.8%
221,000 Asahi Glass Co. ............................ 2,647,191
233,100 Bank of Tokyo Mitsubishi ................... 5,413,743
163,000 Canon, Inc. ................................ 3,398,162
200,000 Dai Nippon Printing ........................ 3,876,926
95,000 Daiwa Securities ........................... 1,224,798
614 East Japan Railway ......................... 3,228,181
240,000 Fuji Bank .................................. 5,178,988
1,387,000 Hokkaido Takushoku ......................... 4,210,524
163,000 Honda Motor Co. ............................ 4,232,798
625,000 Ishikawajima Har ........................... 3,057,422
163,000 Kirin Brewery Co. .......................... 1,997,165
240,000 Matsushita Electric Industry ............... 4,476,752
374,000 Mitsubishi Chemical ........................ 1,730,389
192,000 Mitsubishi Corp. ........................... 2,528,048
290,000 Mitsubishi Heavy Industry, Ltd. ............ 2,527,042
196,000 Mitsubishi Warehouse ....................... 3,512,641
221,000 Mitsui & Co. ............................... 2,006,611
192,000 Mitsui Fudosan Co. ......................... 2,598,272
394,000 Mitsukoshi ................................. 4,215,060
646,000 Nippon Credit Bank ......................... 2,404,078
864,000 Nippon Steel Corp. ......................... 2,970,457
144,000 Nippondenso Co. ............................ 3,133,727
174,000 Nomura Securities .......................... 3,404,746
405,820 Odakyu Electric Railway .................... 2,738,492
168,000 Onward Kashiyama ........................... 2,749,691
906,000 Osaka Gas Co. .............................. 3,321,959
213,000 Ricoh Co. .................................. 2,259,224
192,000 Sakura Bank ................................ 2,141,819
192,000 Sanwa Bank ................................. 3,563,846
338,000 Sato Kogyo Co. ............................. 2,076,862
86,000 Sony Corp. ................................. 5,669,638
107,000 Sumitomo Bank .............................. 2,074,155
8,000 Sumitomo Marine & Fire Insurance Co. ....... 69,858
269,000 Sumitomo Rubber ............................ 2,334,211
351,000 Taisei Corp. ............................... 2,496,941
154,000 Takashimaya Co. ............................ 2,393,819
317,000 Tokai Bank ................................. 4,115,942
217,000 Toto ....................................... 3,273,899
57,000 Toyota Motor Corp. ......................... 1,428,062
240,000 Yakult Honsha Co. .......................... 3,401,454
603,000 Yasuda Trust & Banking ..................... 3,820,957
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123,904,550
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KOREA--0.6%
10,500 Daewoo Electronics ......................... 92,030
10,000 Daewoo Heavy Industry ...................... 84,813
18,700 Korea Electric Power ....................... 645,463
27,185 Korea First Bank ........................... 224,531
7,000 L.G. Chemicals ............................. 110,454
14,000 L.G. Electronics, Inc. ..................... 307,199
9,000 Ssangyong Cement ........................... 215,237
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1,679,727
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LUXEMBOURG--0.1%
6,090 Kia Motors Corp. (GDR) 144A (f) ............ 109,620
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NETHERLANDS--3.0%
107,750 Fortis Amev NV ............................. 3,089,402
18,500 KLM ........................................ 592,260
38,400 Kon PTT Nederland .......................... 1,454,494
73,000 Vendex International ....................... 2,546,761
9,600 Wolters Kluwer ............................. 1,091,434
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8,774,351
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NORWAY--1.1%
22,500 Norske Skogsindust ......................... 627,591
12,800 Orkla A/S .................................. 674,608
139,800 Schibsted ASA .............................. 1,809,681
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3,111,880
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SPAIN--3.3%
54,700 Bco Santander SA ........................... 2,555,416
14,400 Gas Natural SDG SA ......................... 3,026,132
348,600 Sevillana De Electric ...................... 3,213,531
4,800 Sol Melia SA ............................... 101,246
48,000 Viscofan Envoltura ......................... 759,345
------------
9,655,670
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SWITZERLAND--5.1%
6,200 Adia SA. ................................... 1,557,191
2,850 Alusuisse Lonza Holding .................... 2,354,863
575 Baloise Holdings ........................... 1,251,000
1,670 Nestle SA .................................. 1,908,838
385 Roche Holdings AG .......................... 2,939,390
1,500 Sandoz AG .................................. 1,716,925
1,270 Schindler Holding AG ....................... 1,351,064
1,600 Swissair ................................... 1,549,832
------------
14,629,103
------------
UNITED KINGDOM--18.2%
279,500 BAA ........................................ 2,024,953
262,400 Barclays ................................... 3,148,067
164,450 Bass ....................................... 2,064,883
196,100 British Aerospace .......................... 2,973,935
132,250 British Petroleum .......................... 1,160,448
219,200 British Sky Broadcast ...................... 1,496,170
360,900 British Telecom ............................ 1,939,298
404,700 BTR ........................................ 1,590,140
228,900 Cadbury Schweppes .......................... 1,809,444
169,475 Carlton Comunications PLC .................. 1,363,380
459,150 Cookson Group .............................. 2,018,007
229,250 General Electric ........................... 1,233,656
199,850 Glaxo Wellcome PLC ......................... 2,690,945
201,875 Greenalls Group ............................ 1,802,735
453,250 Hanson ..................................... 1,267,045
825,300 Ladbroke Group PLC ......................... 2,287,872
524,800 National Grid Group ........................ 1,389,632
150,050 National Westminster ....................... 1,430,823
297,050 Orange ..................................... 1,040,298
108,450 Pearson .................................... 1,118,354
507,250 Pillar Property Investor ................... 1,260,444
171,300 Rank Organisation .......................... 1,323,525
186,810 Reed International ......................... 3,123,171
124,100 Smithkline Beecham PLC ..................... 1,326,958
237,790 Storehouse ................................. 1,178,748
464,450 TeleWest Communications .................... 1,161,305
57,710 Thorn EMI .................................. 1,607,885
298,950 TI Group ................................... 2,497,827
457,300 Tomkins .................................... 1,718,692
324,800 Williams Holdings .......................... 1,707,483
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52,756,123
------------
Total Common Stock (Identified Cost
$232,899,635) ............................. 260,042,049
------------
<PAGE>
SHORT TERM INVESTMENT -- 8.5%
FACE
AMOUNT DESCRIPTION VALUE (b)
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$24,701,000 Repurchase Agreement with State Street Bank &
Trust dated 6/28/96 at 4.750% to be
repurchased at $24,710,777 on 7/1/96
collateralized by $25,850,000 U.S. Treasury
Bills due 12/19/96, with a value of
$25,199,045 ................................ $ 24,701,000
------------
Total Short Term Investment (Identified Cost
$24,701,000) ............................... 24,701,000
------------
Total Investments--98.4% (Identified Cost
$257,600,635) (c) .......................... 284,743,049
Other assets less liabilities (d) ............ 4,569,904
------------
Total Net Assets--100% ....................... $289,312,953
============
<TABLE>
Forward Foreign Currency Contract Outstanding at June 30, 1996
<CAPTION>
LOCAL UNREALIZED
DELIVERY CURRENCY AGGREGATE TOTAL APPRECIATION/
DATE AMOUNT FACE VALUE VALUE (DEPRECIATION)
-------- -------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C>
Spanish Peseta (bought) ............ 7/01/96 34,560,000 $269,789 $269,989 $200
</TABLE>
(a) Ordinary shares unless noted otherwise.
(b) See notes 1a and 1b.
(c) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on
investments based on cost of $257,600,635 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 ............................................. $ 31,004,439
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................... (3,862,025)
------------
Net unrealized appreciation .............................. $ 27,142,414
============
(d) Including deposits in foreign denominated currencies
with a value of $2,742,527 and a cost of $2,743,110.
(e) Non-income producing security.
(f) Securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be
resold in transactions exempt from registration,
normally to qualified institutional buyers.
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1996
Banking 15.69%
Retail Trade 5.74
Food & Beverages 5.35
Electric Utilities 4.64
Industrial Machinery 4.50
Household Appliances 4.13
Business Services 3.18
Conglomerates 3.52
Broadcasting 3.26
Drugs & Health Care 3.05
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1996
(unaudited)
ASSETS
Investments at value ............................ $284,743,049
Cash ............................................ 362
Foreign cash at value ........................... 2,742,527
Receivable for:
Fund shares sold .............................. 381,300
Securities sold ............................... 3,203,443
Open forward currency contracts--net .......... 200
Dividends and interest ........................ 404,523
Foreign taxes ................................. 388,782
Prepaid registration expense .................... 12,000
Unamortized organization expenses ............... 59,687
------------
291,935,873
LIABILITIES
Payable for:
Securities purchased .......................... $1,526,256
Fund shares redeemed .......................... 345,170
Withholding Taxes ............................. 42,758
Accrued expenses:
Management fees ............................... 687,145
Deferred trustees' fees ....................... 4,356
Accounting and administrative ................. 3,617
Other expenses ................................ 13,618
----------
2,622,920
------------
NET ASSETS ........................................ $289,312,953
============
Net Assets consist of:
Capital paid in ............................... $258,445,749
Undistributed net investment income ........... 895,615
Accumulated net realized gains ................ 2,821,783
Unrealized appreciation on investments,
forward foreign currency contracts and
foreign currency ............................ 27,149,806
------------
NET ASSETS ........................................ $289,312,953
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($131,021,628 divided by 7,656,735 shares
of beneficial interest) ......................... $17.11
======
Offering price per share (100/94.25 of $17.11) .... $18.15*
======
Net asset value and offering price of Class B
shares ($53,249,485 divided by 3,163,248 shares
of beneficial interest) ......................... $16.83**
======
Net asset value and offering price of Class C
shares ($1,102,957 divided by 65,384 shares of
beneficial interest) ............................ $16.87
======
Net asset value and offering price of Class Y
shares ($103,938,883 divided by 6,008,215 shares
of beneficial interest) ......................... $17.30
======
Identified cost of investments .................... $257,600,635
============
*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, 1996
(unaudited)
INVESTMENT INCOME
Dividends ................................. $ 2,843,992(a)
Interest .................................. 327,968
-----------
3,171,960
Expenses
Management fees ......................... $ 1,235,951
Service fees--Class A ................... 165,791
Service and distribution fees--Class B .. 264,948
Service and distribution fees--Class C .. 5,276
Trustees' fees and expenses ............. 12,046
Accounting and administrative ........... 26,273
Custodian ............................... 231,947
Transfer agent .......................... 335,089
Audit and tax services .................. 26,000
Legal ................................... 9,394
Printing ................................ 32,477
Registration ............................ 38,812
Amortization of organization expenses ... 26,221
Miscellaneous ........................... 5,066
-----------
Total expenses ............................ 2,415,291
Less expenses waived by the investment
adviser and distributor ................. (117,023) 2,298,268
----------- -----------
Net investment income ..................... 873,692
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain (loss) on:
Investments--net ........................ 12,784,984
Foreign currency transactions--net ...... (3,059,403)
-----------
Total realized gain on investments and
foreign currency transactions ......... 9,725,581
-----------
Unrealized appreciation (depreciation) on:
Investments--net ........................ 6,080,533
Foreign currency transactions - net ..... (6,722)
-----------
Total unrealized appreciation on
investments and foreign
currency transactions ................. 6,073,811
-----------
Net gain on investment transactions ....... 15,799,392
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .. $16,673,084
===========
(a) Net of foreign taxes of: $453,285.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1996
------------ -------------
FROM OPERATIONS
Net investment income ...................... $ 2,457,266 $ 873,692
Net realized gain (loss) on investments and
foreign currency transactions ............ (4,130,366) 9,725,581
Unrealized appreciation on investments and
foreign currency transactions ............ 17,055,690 6,073,811
------------ ------------
Increase in net assets from operations ..... 15,382,590 16,673,084
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .................................. (2,225,716) 0
Class B .................................. (615,923) 0
Class C .................................. (12,203) 0
Class Y .................................. (2,045,868) 0
------------ ------------
(4,899,710) 0
------------ ------------
Increase (decrease) in net assets derived
from capital share transactions .......... 22,364,784 (1,286,923)
------------ ------------
Total increase in net assets ............... 32,847,664 15,386,161
NET ASSETS
Beginning of the period .................... 241,079,128 273,926,792
------------ ------------
End of the period .......................... $273,926,792 $289,312,953
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period .................... $ 0 $ 20,518
============ ============
End of the period .......................... $ 20,518 $ 895,615
============ ============
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
MAY 21(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ---------------------------------------- JUNE 30,
1992 1993 1994 1995 1996
------------- ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............... $12.50 $11.80 $14.85 $15.50 $16.13
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .............................. 0.01 0.11 0.00 0.27 0.05
Net Realized and Unrealized Gain (Loss) on
Investments ...................................... (0.63) 3.37 1.19 0.63 0.93
------ ------ ------ ------ ------
Total From Investment Operations ................... (0.62) 3.48 1.19 0.90 0.98
------ ------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment Income ............... (0.01) (0.11) 0.00 (0.27) 0.00
Distributions From Net Realized Capital
Gains ............................................ 0.00 (0.32) (0.53) 0.00 0.00
Distributions From Paid-in Capital ................. (0.07) 0.00 (0.01) 0.00 0.00
------ ------ ------ ------ ------
Total Distributions ................................ (0.08) (0.43) (0.54) (0.27) 0.00
------ ------ ------ ------ ------
Net Asset Value, End of Period ..................... $11.80 $14.85 $15.50 $16.13 $17.11
====== ====== ====== ====== ======
Total Return (%) (c) ............................... (5.0) 29.4 8.1 5.8 6.1
Ratio of Operating Expenses to Average
Net Assets (%)(e) ................................ 1.50 (b) 1.60 1.75 1.75 1.75(b)
Ratio of Net Investment Income to Average
Net Assets (%) ................................... 0.10 (b) 0.24 0.01 1.24 0.51(b)
Portfolio Turnover Rate (%) ........................ 62 101 123 119 75(b)
Average Commission Rate (f) ........................ -- -- -- -- $0.0161
Net Assets, End of Period (000) .................... $21,731 $80,937 $142,917 $136,848 $131,022
<FN>
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) See Note 1e.
(e) The ratio of operating expenses to average net
assets without giving effect to the voluntary
expense limitations described in Note 4 to the
Financial Statements would have been (%) ....... 2.89(b) 2.16 1.79 1.83 1.78(b)
(f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------------- -----------------------------
SEPTEMBER 13(a) YEAR YEAR YEAR
THROUGH ENDED ENDED SIX MONTHS ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED DECEMBER 31, ENDED
1993 1994 1995 JUNE 30, 1996 1995 JUNE 30, 1996
------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $15.19 $14.81 $15.35 $15.93 $15.35 $15.96
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............ 0.12 0.00 0.19 (0.02) 0.19 (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments .......... (0.06) 1.08 0.58 0.92 0.61 0.93
------ ------ ------ ------ ------ ------
Total From Investment Operations 0.06 1.08 0.77 0.90 0.80 0.91
------ ------ ------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment
Income ......................... (0.12) 0.00 (0.19) 0.00 (0.19) 0.00
Distributions From Net Realized
Capital Gains .................. (0.32) (0.53) 0.00 0.00 0.00 0.00
Distributions From Paid-in Capital 0.00 (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions .............. (0.44) (0.54) (0.19) 0.00 (0.19) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $14.81 $15.35 $15.93 $16.83 $15.96 $16.87
====== ====== ====== ====== ====== ======
Total Return (%) (c) ............. 0.3 7.3 5.0 5.7 5.2 5.7
Ratio of Operating Expenses to
Average Net Assets (%) (e) ..... 2.50 (b) 2.50 2.50 2.50 (b) 2.50 2.50 (b)
Ratio of Net Investment Income to
Average Net Assets (%) ......... (1.69)(b) (0.74) 0.49 (0.24)(b) 0.49 (0.24)(b)
Portfolio Turnover Rate (%) ...... 101 (c) 123 119 75 (b) 119 75 (b)
Average Commission Rate (f)....... -- -- -- $0.0161 -- $0.0161
Net Assets, End of Period (000) .. $9,176 $41,601 $52,895 $53,249 $1,066 $1,103
<FN>
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not reflected in total return calculations. Periods less
than one year are not annualized.
(d) See Note 1e.
(e) The ratio of operating
expenses to average net assets
without giving effect to the
voluntary expense limitations
described in Note 4 to the
Financial Statements would
have been (%) ................ 3.36 (b) 2.54 2.58 2.53 (b) 2.58 2.53 (b)
(f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLASS Y
-------------------------------------------------------------------------------
SEPTEMBER 9(a) YEAR YEAR
THROUGH ENDED ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED
1993 1994 1995 JUNE 30, 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $15.19 $14.86 $15.64 $16.25
------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............................ 0.13 0.00 0.42 0.10
Net Realized and Unrealized Gain (Loss) on
Investments .................................... (0.01) 1.32 0.60 0.95
------ ------ ------ ------
Total From Investment Operations ................. 0.12 1.32 1.02 1.05
------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment Income ............. (0.13) 0.00 (0.41) 0.00
Distributions From Net Realized Capital Gains .... (0.32) (0.53) 0.00 0.00
Distributions From Paid-in Capital ............... 0.00 (0.01) 0.00 0.00
------ ------ ------ ------
Total Distributions .............................. (0.45) (0.54) (0.41) 0.00
------ ------ ------ ------
Net Asset Value, End of Period ................... $14.86 $15.64 $16.25 $17.30
====== ====== ====== ======
Total Return (%) (c) ............................. 0.7 8.9 6.6 6.5
Ratio of Operating Expenses to Average Net
Assets (%) (e) ................................. 1.00 (b) 1.00 1.00 1.00 (b)
Ratio of Net Investment Income to Average Net
Assets (%) ..................................... 0.33 (b) 0.76 1.99 1.26 (b)
Portfolio Turnover Rate (%) ...................... 101 (c) 123 119 75 (b)
Average Commission Rate (f) ...................... -- -- -- $0.0161
Net Assets, End of Period (000) .................. $7,006 $56,561 $83,119 $103,939
<FN>
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) See Note 1e.
(e) The ratio of operating expenses to average net
assets without giving effect to the voluntary
expense limitations described in Note 4 to the
Financial Statements would have been (%) ..... 1.35 (b) 1.04 1.21 1.19(b)
(f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1996
(unaudited)
1. The Fund is a series of New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company
Act of 1940, as amended, (the "1940 Act") as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each such series of shares a
"Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund
commenced its public offering of Class B shares on September 13, 1993, of
Class C shares on December 30, 1994 and of its Class Y shares on September 9,
1993. 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 five years of
purchase. Class C shares do not pay front end or contingent deferred sales
charges and do not convert to any class of shares, but they do pay a higher
ongoing distribution fee than Class A shares. 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 value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT 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 or when the Fund learns of
the dividend, and interest income is recorded on the accrual basis. In
determining net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency contracts
to facilitate transactions in foreign securities and to manage the fund's
currency exposure. Contracts to buy generally are used to acquire exposure to
foreign currencies, while contracts to sell are used to hedge the fund's
investments against currency fluctuation. Also, a contract to buy or sell can
offset a previous contract. These contracts involve market risk in excess of the
unrealized gain or loss reflected in the fund's Statement of Assets and
Liabilities. The U.S. dollar value of the currencies the fund has committed to
buy or sell (if any) is shown in the schedule of investments under the caption
"Forward Foreign Currency Contracts." This amount represents the aggregate
exposure to each currency each fund has acquired or hedged through currency
contracts at period end. Losses may arise from changes in the value of the
foreign currency or if the counterparts do not perform under the contracts'
terms. The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for the
foreign currency component on the sale of securities for book and tax purposes.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to
100% of the repurchase price. The 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 portfolio's ability to dispose of the underlying
securities.
G. ORGANIZATION EXPENSE. Costs incurred in fiscal 1992 in connection with the
Fund's organization and registration, amounting to approximately $178,500 in
the aggregate, were paid by the Fund and are being amortized by the Fund based
on projected annual average net assets over 60 months.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1996 were $94,885,657 and $121,761,070,
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 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Draycott Partners, Ltd. at the rate of 0.54% of the first $200 million of the
Fund's averge daily net assets, 0.49% of the next $300 million and 0.44% of
such assets in excess of $500 million. Certain officers and directors of NEFM
and Draycott Partners, Ltd. are also officers or trustees of the Fund. NEFM is
a wholly owned subsidiary of New England Investment Companies, L.P. ("NEIC")
which is a subsidiary of New England Mutual Life Insurance Company. Fees
earned by NEFM and Draycott Partners, Ltd. under the management agreement in
effect during the six months ended June 30, 1996 are as follows:
FEES EARNED
-----------
$502,401(a) New England Funds Management, L.P.
$733,550(a) Draycott Partners, Ltd.
(a) Before reduction due to voluntary expense limitation. See Note 4.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to the Fund,
(ii) expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and notices,
proxy solicitation material furnished to shareholders of the Fund or
regulatory authorities and reports and questionnaires for SEC compliance, and
(iii) registration, filing and other fees in connection with requirements of
regulatory authorities. For the six months ended June 30, 1996, these expenses
amounted to $26,273 and are shown separately in the financial statements as
accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the six months ended June 30, 1996 the Fund
paid New England Funds $258,417 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted a Service Plan relating to the Fund's Class A shares
(the "Class A Plan") and Service and Distribution Plans relating to the Fund's
Class B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of up to 0.25% of the average daily net assets attributable
to the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1996, the Fund paid New England Funds $165,791 in fees
under the Class A Plan. If the expenses of New England Funds that are
otherwise reimbursable under the Class A Plan incurred in any year exceed the
amounts payable by the Fund under the Class A Plan, the unreimbursed amount
(together with unreimbursed amounts from prior years) may be carried forward
for reimbursement in future years in which the Class A Plan remains in effect.
The amount of unreimbursed expenses carried forward at June 30, 1996 is
$514,256.
Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C
shares and/or the maintenance of shareholder accounts. For the six months
ended June 30, 1996, the Fund paid New England Funds $66,237 and $1,319 in
service fees under the Class B and Class C plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of up to 0.75% of the average
daily net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and
Class C shares. For the six months ended June 30, 1996, the Fund paid New
England Funds $198,711 and $3,957 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 of shares of the Fund during the six months
ended June 30, 1996 amounted to $282,025.
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 New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee was compensated by the Fund as
follows:
Annual Retainer $2,254
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $129/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have had, had it been invested in the
Fund on the normal payment date.
4. EXPENSE LIMITATIONS. Commencing May 21, 1992, Draycott and New England
Funds had voluntarily agreed to reduce their fees and, if necessary, to assume
expenses of the Fund in order to limit the Fund's expenses to an annual rate
of 1.50% of the Fund's average daily net assets. On October 1, 1993, this
limitation was changed to 1.75% of the Fund's Class A average net assets,
2.50% of Classes B and C average net assets and 1. 00% of Class Y average net
assets, until further notice to the Fund. As a result of the Fund's expenses
exceeding the voluntary expense limitation during the six months ended June
30, 1996, NEFM waived $47,569 of its $502,401 management fees and Draycott
waived $69,454 of its $733,550 sub-advisory fees.
5. CONCENTRATION OF CREDIT. The Fund had the following geographic
concentration in excess of 10% of its total net assets at June 30, 1996: Japan
43% and Great Britain, 18%. The Fund pursues its objectives by investing in
foreign securities. There are certain risks involved in investing in foreign
securities which are in addition to the usual risks inherent in domestic
investments. These risks include those resulting from future adverse political
or economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions.
6. CAPITAL SHARES. At June 30, 1996 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 stock. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996
--------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 2,215,430 $34,501,158 782,809 $12,834,383
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 132,647 2,128,983 0 0
---------- ----------- ---------- -----------
2,348,077 36,630,141 782,809 12,834,383
Shares repurchased ................................. (3,084,715) (48,156,416) (1,610,010) (26,410,061)
---------- ----------- ---------- -----------
Net decrease ....................................... (736,638) (11,526,275) (827,201) (13,575,678)
---------- ----------- ---------- -----------
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996
--------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS B ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 1,152,458 17,743,605 295,969 4,779,399
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 35,549 563,445 0 0
---------- ----------- ---------- -----------
1,188,007 18,307,050 295,969 4,779,399
Shares repurchased ................................. (577,306) (8,944,580) (452,959) (7,363,047)
---------- ----------- ---------- -----------
Net increase (decrease) ............................ 610,701 9,362,470 (156,990) (2,583,648)
---------- ----------- ---------- -----------
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996
--------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS C ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 74,361 1,142,301 13,956 226,161
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 730 11,593 0 0
---------- ----------- ---------- -----------
75,091 1,153,894 13,956 226,161
Shares repurchased ................................. (8,331) (130,582) (15,332) (246,425)
---------- ----------- ---------- -----------
Net increase (decrease) ............................ 66,760 1,023,312 (1,376) (20,264)
---------- ----------- ---------- -----------
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996
--------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS Y ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 2,118,793 33,408,749 1,244,602 20,719,421
Shares issued in connection with the reinvestment of:
Dividends from net investment income ............. 126,522 2,045,868 0 0
---------- ----------- ---------- -----------
2,245,315 35,454,617 1,244,602 20,719,421
Shares repurchased ................................. (748,198) (11,949,340) (350,324) (5,826,754)
---------- ----------- ---------- -----------
Net increase ....................................... 1,497,117 23,505,277 894,278 14,892,667
---------- ----------- ---------- -----------
Increase (decrease) derived from capital share
transactions ..................................... 1,437,940 $22,364,784 (91,289) $(1,286,923)
========== =========== ========== ===========
</TABLE>
<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
retirememt 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 $50 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 $50
Years Growth of Monthly Investments
0 $0
5 $3,661
10 $9,040
15 $16,943
20 $28,555
25 $45,618
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Fund
account, or with any of our other funds. To open an Investment Builder account
today, call your financial representative or New England Funds at
1-800-225-5478.
<PAGE>
- -----------------------------------------------------------------------------
NEW ENGLAND FUNDS
- -----------------------------------------------------------------------------
STOCK FUNDS
Growth Fund
Star Advisers Fund
Capital Growth Fund
Value Fund
Growth Opportunities Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
Growth Fund of Israel
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Government Securities Fund
Bond Income Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT HTTP://WWW.MUTUALFUNDS.COM
New England Funds, L.P.
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.
<PAGE>
[LOGO] --------------
NEW ENGLAND FUNDS BULK RATE
Where The Best Minds Meet(TM) U.S. POSTAGE
PAID
BROCKTON, MA
PERMIT NO. 770
--------------
- ---------------------
399 Boylston Street
Boston, Massachusetts
02116
- ---------------------
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