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ANNUAL REPORT AND PERFORMANCE UPDATE
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[logo]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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New England Star Advisers Fund
[graphic omitted]
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DECEMBER 31, 1996
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FEBRUARY 1997
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[Photo of Henry L.P. Schmelzer]
Dear New England Funds Shareholder,
Taken together, 1995 and 1996 constituted the sixth strongest back-to-back years
for the U.S. stock market since 1915, as measured by percentage gain in the Dow
Jones Industrial Average (according to Bloomberg Business News).
Most New England Funds portfolio managers believe that the forces behind this
rally -- low inflation, relatively stable interest rates and strong corporate
profits -- will persist, at least for a time. Nevertheless, bull markets can
suddenly turn quiet; they can decline modestly; or they can reverse course
sharply. No one can predict what is ahead, nor can anyone guarantee whether the
market's strength will extend even further in 1997 and beyond.
Maintain a Long-Term Perspective
Whatever the market's direction, you should be prepared to consider any
short-term trends in the broader context of your long-term personal goals,
including the accumulation of financial assets. One way to manage this important
process is by diversifying your investments. While U.S. stocks have historically
been the strongest performers, you may, depending on your financial goals and
needs, also benefit from investing in various types of bond funds, and by
participating in growing overseas markets.
Remember that each investment has its own unique risks. What's more, no strategy
can assure a profit or protect against a loss. However, one time-tested approach
is to invest regularly and stay invested -- in good times and bad -- to avoid
the pitfall of guessing what the market might do in the short run.
Our Multiple-Adviser Approach Sets Us Apart
Many financial representatives recommend New England Funds to their clients
because of our distinctive multiple-adviser approach. For each fund, we
hand-pick a specific subadviser or subadvisers with significant experience and
demonstrated skill in selecting investments that are in tune with that fund's
stated objective. We call it matching the talent to the task.
Our three Star funds exemplify this exceptional approach: A number of
independent specialists manage separate fund segments. This multiplies the
research and analytical resources available to the fund, with the goal of
greater return potential accompanied by a propensity for reduced price
fluctuation.
Finally, it may interest you to learn that you are part of a major national
trend. In 1996, nearly 37 million U.S. households owned mutual funds, according
to the Investment Company Institute, an industry trade organization. Mutual
funds are now a cornerstone of retirement, college and other investment plans
for millions of Americans.
New England Funds has grown with the industry and is now over $6 billion in
size. We thank you for helping us reach this important milestone, and look
forward to serving your investment needs well into the future.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
For more information, including a prospectus for any New England Fund, please
contact your financial representative or call the Investor Services and
Marketing Group at 800-225-5478. Please read the prospectus carefully, including
the information on charges and expenses, before you invest.
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NEW ENGLAND STAR ADVISERS FUND
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AWARD WINNING SERVICE -- TWO YEARS RUNNING
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[Dalbar logo] For two years running we're proud to announce that DALBAR, an
independent evaluator of mutual fund service, has awarded New
England Funds its Quality Tested Service Seal for "providing the
highest tier of service excellence in the mutual fund industry."
New England Funds is one of just three mutual fund companies to
earn this distinction in each of the last two years -- another
reason why we are becoming known as the mutual fund company Where
The Best Minds Meet(TM).
INVESTMENT RESULTS THROUGH DECEMBER 31, 1996
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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.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDED 12/31/96
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CLASS A (Inception 7/7/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 18.98% 23.77%
With Max. Sales Charge(2) 12.16 20.87
Lipper Growth Average(5) 19.22 21.20
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CLASS B (Inception 7/7/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 18.11% 22.88%
With CDSC(3) 14.11 21.99
Lipper Growth Average(5) 19.22 21.20
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CLASS C (Inception 7/7/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 18.03% 22.88%
Lipper Growth Average(5) 19.22 21.20
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CLASS Y (Inception 11/15/94)* 1 YEAR SINCE INCEPTION
Net Asset Value(1) 19.55% 23.86%
Lipper Growth Average(5) 19.22 n/a
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.
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 (MSC) 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 Y shares are not subject to a sales charge.
(4) Standard & Poor's 500 Index (S&P 500) is an unmanaged index representing the
performance of 500 major companies, most of which are listed on the New York
Stock Exchange. The S&P 500 performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments.
(5) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
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NEW ENGLAND STAR ADVISERS FUND
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A $10,000 INVESTMENT COMPARED TO STANDARD & POOR'S 500(4)
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[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 Star Advisers Fund's
inception on 7/7/94 compared to Standard & Poor's 500(4). The data points from
the graph are as follows:]
CLASS A SHARES, INCEPTION 7/7/94
NET ASSET WITH MAXIMUM S&P
VALUE(1) SALES CHARGE(2) 500(4)
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7/July/94 $10,000 $ 9,425 $10,000
3rd Quarter 94 $10,656 $10,043 $10,489
4th Quarter 94 $10,638 $10,026 $10,487
1st Quarter 95 $11,240 $10,594 $11,505
2nd Quarter 95 $12,252 $11,547 $12,599
3rd Quarter 95 $13,833 $13,038 $13,597
4th Quarter 95 $14,293 $13,471 $14,413
1st Quarter 96 $15,272 $14,393 $15,186
2nd Quarter 96 $16,098 $15,172 $15,886
3rd Quarter 96 $16,454 $15,507 $16,353
4th Quarter 96 $17,005 $16,027 $17,714
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class B Shares, since New England Star Advisers Fund's
inception on 7/7/94 compared to Standard & Poor's 500(4). The data points from
the graph are as follows:]
CLASS B SHARES, INCEPTION 7/7/94
NET ASSET WITH S&P
VALUE(1) CDSC 500(4)
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7/July/94 $10,000 $10,000 $10,000
3rd Quarter 94 $10,640 $10,640 $10,489
4th Quarter 94 $10,600 $10,600 $10,487
1st Quarter 95 $11,176 $11,176 $11,505
2nd Quarter 95 $12,170 $12,170 $12,599
3rd Quarter 95 $13,717 $13,717 $13,597
4th Quarter 95 $14,142 $13,742 $14,413
1st Quarter 96 $15,085 $14,658 $15,186
2nd Quarter 96 $15,875 $15,026 $15,866
3rd Quarter 96 $16,188 $14,992 $16,353
4th Quarter 96 $16,703 $16,403 $17,714
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class C Shares, since New England Star Advisers Fund's
inception on 7/7/94 compared to Standard & Poor's 500(4). The data points from
the graph are as follows:]
CLASS C SHARES, INCEPTION 7/7/94
NET ASSET S&P
VALUE(1) 500(4)
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7/July/94 $10,000 $10,000
3rd Quarter 94 $10,640 $10,489
4th Quarter 94 $10,604 $10,487
1st Quarter 95 $11,181 $11,505
2nd Quarter 95 $12,166 $12,599
3rd Quarter 95 $13,719 $13,597
4th Quarter 95 $14,145 $14,413
1st Quarter 96 $15,079 $15,186
2nd Quarter 96 $15,870 $15,866
3rd Quarter 96 $16,182 $16,353
4th Quarter 96 $16,697 $17,714
These illustrations represent past performance and cannot predict future
results. Investment return and principal value may vary, resulting in a gain or
loss on the sale of shares. All Index and Fund performance assumes reinvested
distributions. Class Y share performance will be greater than that shown based
on differences in inception date, fees and sales charges.
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NEW ENGLAND STAR ADVISERS FUND
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HOW YOUR FUND PERFORMED
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The past year underscored the importance of the New England Star Adviser Fund's
multiple-manager approach. Volatile financial markets at home and abroad
demanded the advanced level of investment experience, talent and diversification
that the Fund has offered since its inception. Total returns at net asset value
through December 31, 1996 were 18.98%, 18.11% and 18.03% for Class A, B and C
shares, respectively. Continued strong corporate earnings and a calm interest
rate environment bolstered Fund performance, while market highs made purchases
more expensive, muting potential for even greater returns as the year
progressed.
Investor interest in the Fund continued to soar, with new investments through
the end of December bringing total net assets to $814 million. As of December
31, shareholders numbered more than 65,000.
Star Advisers Fund is a ground-breaking departure from traditional mutual funds.
It harnesses the expertise of prominent equity investors from four investment
firms - all in a single portfolio. Each manager pursues long-term growth through
a distinctly different set of disciplines. This blending of complementary
investment styles within a single portfolio is designed to reduce overall
volatility and enhance potential for return. The following pages provide many
important insights into each subadviser's investment activity over the past
year.
Q. How did you manage your portion of the Fund in 1996?
[Photos of Jeffrey Petherick, Mary Champagne
Loomis, Sayles & Company, L.P.]
As always, we concentrated on locating undervalued, growing companies that
dominate, or are becoming dominant, in a specific market subsegment. Earlier
in 1996, we increased our weighting in consumer cyclicals -- retail stores,
restaurants and other services -- with great success. Healthy consumer
spending throughout the year boosted many stocks, including Ann Taylor, an
upscale women's clothier, and Cole National, a specialty eyewear and
giftware retailer.
We adopted a more defensive portfolio strategy in the second half of the
year, moving away from economically sensitive companies and toward companies
with strong value characteristics. That explains our increased exposure to
Real Estate Investment Trusts (REITs) and a more aggressive move into food
stocks.
Q. Would you give us more examples?
Virtually every sector showed positive returns. The capital goods sector was
the exception; mixed stock selection held back portfolio performance in that
sector. Strong individual performers were Lance, Inc., a snack food
manufacturer; Public Service Company of North Carolina; Patriot American, a
REIT that owns valuable hotel property; and Aliant Communications, a
Nebraska-based telephone company.
Q. What is your investment outlook for 1997?
We expect that the economy will continue to slow in 1997 and that corporate
earnings will suffer as a result. In light of that assumption, we will move
away from sectors that are more economically sensitive, like capital goods
and raw materials. We'll look to sectors with favorable valuations, like
health care, where fundamentals are sound and earnings prospects are
excellent.
LARGEST LOOMIS SAYLES HOLDINGS, % OF FUND'S NET ASSETS
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Allied Group, Inc. 0.39%
U.S. Freightways Corp. 0.38%
Pride Petroleum Services, Inc. 0.38%
Patriot American Hospitality, Inc. 0.36%
Capstone Capital Corp. 0.36%
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NEW ENGLAND STAR ADVISERS FUND
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Q. How did you manage your portion of the Fund in 1996?
[Photo of Warren Lammert, Janus Capital Corporation]
Our segment remained organized around several dominant ideas; one of the
most prominent was business services. More companies are outsourcing
non-core operations such as data processing and information management.
Leaders that have capitalized on this trend include: Keane International,
Ciber and IBM, which provide companies with systems integration and
servicing; First Data, First USA Payment Technology and National Processing,
which handle credit card and payroll transactions; and Cincinnati Bell and
Teletech, which process customer calls.
We also maintained significant holdings in technology, pharmaceuticals and
banking. We did, however, sell a number of individual positions within these
sectors and initiate some new positions. Strength in capital spending
earlier in the year provided an especially positive economic backdrop for
the portfolio's technology holdings. Our investments in the inter-networking
industry, including cisco and US Robotics, posted solid gains.
Q. Would you give us more examples?
Solid stock selections included WorldCom, a telecommunications company that
recently purchased MFS Communications, the world's largest Internet
provider. Eli Lilly has also performed admirably, due primarily to Xyprexa,
its drug that treats schizophrenia. Underperformers include Hospitality
Franchise Services, Inc. (HFS), a hotel and real estate franchiser that rose
18 points only to give those gains back in ensuing months. We also reduced
our exposure to Xylan, a networking company experiencing a slow-down in
business momentum.
Q. What is your investment outlook for 1997?
We are very encouraged by the decline in interest rates and the continued
absence of higher inflation. As long as economic growth remains at modest,
sustainable levels and the business climate is robust, stocks hold strong
opportunity for good returns.
LARGEST JANUS HOLDINGS, % OF FUND'S NET ASSETS
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Wells Fargo & Co. 1.63%
MFS Communications, Inc. 1.03%
Analog Devices, Inc. 0.90%
cisco Systems, Inc. 0.87%
HBO & Co. 0.80%
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NEW ENGLAND STAR ADVISERS FUND
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Q. How did you manage your segment in 1996?
[Photo of Rodney Linafelter, Berger Associates]
My strategy remains fairly consistent. We look primarily for consistent
growth companies that we can purchase at price/earnings discounts. During
the first half of 1996, we were somewhat defensive in the technology sector;
we turned more aggressive in the second half when prices were much more
attractive. We also increased our focus in the financial sector, although at
14% that sector is still underweighted. Meanwhile, we maintained our
weighting in the energy services sector, investing in companies that provide
crews and machinery for the drilling and completion of oil and gas wells.
Q. Would you give us more examples?
The oil services stocks performed exceptionally well, led by B.J. Services,
where a turnaround in oil field activity has led to a resurgence in earnings
growth. Other noteworthy performers include Intel and Microsoft, with the
former continuing its dominance of the chip market, and the latter
solidifying its impressive core business performance as its NT Operating
System gained market share. In the financial sector, Conseco, an investment
and annuity manager, finished strongly due to sustained earnings growth over
the second half of the year.
Q. What is your investment outlook for 1997?
The investment outlook for stocks during the next year is favorable. We
believe that stock indices reflect this sentiment. But after broad gains in
1996, the opportunities for enhanced performance will hinge on individual
stock selection. It should be a stock picker's year in which secondary
issues should fare better than the indices for the first time in recent
years.
Economically, interest rates should remain stable, with some downward
pressure possible. We expect inflation to remain moderate and current
economic growth patterns to persist.
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IMPORTANT NOTE: ON FEBRUARY 3, 1997, PATRICK S. ADAMS SUCCEEDED RODNEY
LINAFELTER AS PORTFOLIO MANAGER OF THE BERGER SEGMENT OF STAR ADVISERS FUND.
FOR MORE INFORMATION ON MR. ADAMS' EXPERIENCE, PLEASE REFER TO THE PROSPECTUS
SUPPLEMENT FOLLOWING THE FINANCIAL SECTION OF THIS REPORT.
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LARGEST BERGER HOLDINGS, % OF FUND'S NET ASSETS
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Nokia Corp. 0.78%
Falcon Drilling 0.68%
Conseco, Inc. 0.59%
Intel Corp. 0.56%
Boeing Co. 0.52%
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NEW ENGLAND STAR ADVISERS FUND
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Q. How did you manage your segment in 1996?
[Photo of Edward Keely, Founders Asset Management]
Our segment's strategy continues to position the portfolio in favor of
strong earnings growth, moderate inflation and stable interest rates.
Performance for the year landed solidly within our expectations, based on
sustained economic growth and moderate inflation. As anticipated, we
recorded more of the segment's earnings in the first half of 1996. While our
modest increase in the segment's mid-cap weighting slowed its growth,
particularly in the third quarter, the earnings prospects for these stocks
remain excellent.
Q. Would you give us more examples?
Healthy consumer spending fueled retail stocks, particularly in the first
half of the year. Posting solid gains for our segment were The Gap stores
(up 52% through June 30) and Gucci Group (up 67% through June 30). Strong
performance by ITT, Mirage Resorts and Sun International in the gaming and
leisure sectors also contributed to favorable performance during the first
half.
Stock selection results were mixed for the second half of 1996. Medaphis, a
health care information company, and Sunglass Hut, an eyewear retailer, were
down about 60%; while a portfolio cornerstone, Intel (up 72% since we
purchased it mid-year) continued its strong two-year run.
Q. What is your investment outlook for 1997?
While stock prices are expensive now, we still see good potential over the
next 12 months. We also think the watchwords for 1997 will be quality and
liquidity, with stock selections narrowing. We'll look for consistent growth
companies with good earnings in financial services, high technology and
other areas where businesses generate a large percentage of revenues from
recurring sources.
LARGEST FOUNDERS HOLDINGS, % OF FUND'S NET ASSETS
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Intel Corp. 1.00%
Warner Lambert Co. 0.76%
Xilinx, Inc. 0.60%
Parametric Technology Corp. 0.56%
cisco Systems, Inc. 0.52%
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NEW ENGLAND STAR ADVISERS FUND
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INDUSTRY CONCENTRATIONS REFLECT DIFFERENT MARKET EXPECTATIONS
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Diverse strategies and analytical styles focused on the same objective can
lead to very different portfolio compositions. Far from canceling each other
out, these individual strategies complement one another and lead to greater
diversification for better performance potential over time.
[A bar chart appears here, illustrating the allocation of each investment
adviser's segment of New England Star Advisers Fund's investment portfolio by
top industry groups on December 31, 1996. The percentage of New England Star
Advisers Fund's total net assets in each top industry group as of December 31,
1996 is also depicted. The bar chart data is as follows:]
TOP INDUSTRY GROUPS BY INVESTMENT ADVISER*
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December 31, 1996
BERGER FOUNDERS JANUS LOOMIS %STAR ADVISERS
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DRUGS & HEALTH CARE 2.8% 3.8% 2.8% 1.0% 10.4%
TECHNOLOGY 1.2% 2.5% 3.9% 0.0% 7.6%
ELECTRONICS 2.3% 2.4% 0.8% 1.2% 6.7%
BUSINESS SERVICES 1.2% 0.6% 2.6% 1.0% 5.4%
SOFTWARE 2.1% 1.9% 1.0% 0.2% 5.2%
INSURANCE 0.6% 0.8% 0.4% 1.9% 3.7%
BANKS 0.9% 0.5% 2.1% 0.0% 3.5%
REAL ESTATE 0.8% 0.0% -0.0% 2.0% 2.7%
COMMUNICATION 2.00% 0.40% 0.00% 0.00% 2.4%
PETROLEUM SERVICES 0.0% 0.7% 1.7% 0.0% 2.4%
* Portfolio composition is subject to change.
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NEW ENGLAND STAR ADVISERS FUND
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GLOSSARY FOR MUTUAL FUND INVESTORS
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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.
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1996
COMMON STOCK--92.0% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
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AEROSPACE--1.5%
70,500 Boeing Co. ........................................ $ 7,499,437
110,000 Gulfstream Aerospace Corp. (c) .................... 2,667,500
20,000 Lockheed Martin Corp. ............................. 1,830,000
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11,996,937
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AGRICULTURAL MACHINERY--0.4%
100,000 Agco Corp. ........................................ 2,862,500
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AGRICULTURE--0.2%
22,997 Potash Corp., Saskatchewan ........................ 1,954,745
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AIR TRAVEL--0.3%
45,000 Atlas Air, Inc. (c) ............................... 2,148,750
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APPAREL & TEXTILES--0.2%
13,500 Fila Holdings SPA (ADR) (d) ....................... 784,688
36,500 Kenneth Cole Productions, Inc. .................... 565,750
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1,350,438
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AUTO PARTS--0.6%
27,100 Borg Warner Automotive, Inc. ...................... 1,043,350
62,000 Echlin, Inc. ...................................... 1,960,750
60,000 Lear Corp. (c) .................................... 2,047,500
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5,051,600
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BANKS--3.5%
17,950 Bank of New York, Inc. ............................ 605,812
19,800 BankAmerica Corp. ................................. 1,975,050
63,046 Barclays .......................................... 1,080,650
12,559 BCA Pop Bergam CV .................................. 206,971
46,935 Chase Manhattan Corp. .............................. 4,188,949
35,000 Citicorp .......................................... 3,605,000
63,100 Wells Fargo & Co. ................................. 17,021,225
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28,683,657
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BROADCASTING--0.4%
22,342 Central European Media Entertainment, Ltd. ........ 709,359
37,675 Telecomunicacoes Brasileiras S.A. (ADR) (d) ....... 2,882,137
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3,591,496
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BUSINESS SERVICES--5.3%
82,700 Cadmus Communications Corp., (c) .................. 1,281,850
29,700 CDI Corp. ......................................... 842,738
102,100 Cort Business Services Corp. ...................... 2,105,812
25,750 Danka Business Systems (ADR) (d) .................. 910,906
139,485 First Data Corp. .................................. 5,091,202
56,500 Fiserv, Inc. (c) .................................. 2,076,375
46,500 Gartner Group, Inc. (c)............................. 1,810,594
24,100 Global DirectMail Corp. ........................... 1,051,363
47,750 Indus Group, Inc. ................................. 1,229,562
6,775 Intelligroup, Inc. ................................ 74,525
44,800 Intelliquest Information Group .................... 1,019,200
42,150 Keane, Inc. ....................................... 1,338,262
36,200 Lamar Advertising Co. .............................. 877,850
12,375 Meta Group, Inc. .................................. 334,125
33,176 Metra AB, Series B ................................ 1,860,741
43,550 National Processing, Inc. ......................... 696,800
140,825 Nokia Corp. (ADR) (d) .............................. 8,115,041
36,587 Outdoor Systems, Inc. .............................. 1,029,009
56,000 Prime Service, Inc. ............................... 1,540,000
600 Quintiles Transnational Corp. ..................... 39,750
254,723 Rentokil Initial PLC .............................. 1,920,132
71,000 Steris Corp. ...................................... 3,088,500
81,650 Teletech Holdings, Inc. ............................ 2,122,900
6,225 Universal Outdoor Holdings, Inc. .................. 146,288
19,725 Verifone, Inc. .................................... 581,888
139,000 Viad Corp. ........................................ 2,293,500
4,300 West Teleservices Corp. ........................... 97,825
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43,576,738
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CHEMICALS--2.1%
45,000 BF Goodrich Co. ................................... 1,822,500
21,300 Cambrex Corp. ..................................... 697,575
85,400 Dexter Corp. ...................................... 2,722,125
120,200 Hexcel Corp., New ................................. 1,953,250
78,800 Intertape Polymer Group, Inc. ...................... 1,812,400
149,100 Lawter International, Inc. ........................ 1,882,387
31,600 Learonal, Inc. .................................... 726,800
59,400 Monsanto Co. ...................................... 2,309,175
60,000 Praxair, Inc. ..................................... 2,767,500
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16,693,712
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COMMUNICATION--2.4%
86,375 Ascend Communications, Inc. (c) ................... 5,366,047
87,875 Cincinnati Bell, Inc. ............................. 5,415,297
41,531 Netcom Systems, AB, Series B ...................... 672,909
298,467 Worldcom, Inc. (c) ................................ 7,778,796
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19,233,049
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COMMUNICATION SERVICES--2.1%
9,300 CommNet Cellular, Inc. ............................ 259,237
70,813 Korea Mobile Telecom (ADR) (c) (d) ................ 911,711
58,600 Lucent Technologies, Inc. ......................... 2,710,250
153,411 MFS Communications, Inc. .......................... 8,360,899
19,550 Millicom International Cellular ................... 628,044
61,475 Paging Network, Inc. (c) .......................... 937,494
41,650 Palmer Wireless, Inc. .............................. 437,325
1,700 Premiere Technologies, Inc. ....................... 42,500
43,000 Premisys Communications, Inc. (c) ................. 1,451,250
382,687 Telecom Italia Mobil .............................. 967,439
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16,706,149
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COMPUTER SOFTWARE & SERVICES--2.0%
6,372 Axime Ex Segin .................................... 736,860
51,300 Boole and Babbage, Inc. ........................... 1,282,500
2,775 Cambridge Technology Partners ..................... 93,136
17,625 Ciber, Inc. ....................................... 528,750
37,200 Computer Sciences Corp., Rights (c) ............... 3,055,050
83,500 National Computer Systems, Inc. ................... 2,129,250
43,100 Nichols Research Corp. ............................ 1,099,050
141,925 Peoplesoft, Inc. (c) .............................. 6,803,530
16,731 Securitas AB, Series B ............................ 486,972
8,025 Technology Solutions Co. .......................... 333,038
------------
16,548,136
------------
COMPUTERS & BUSINESS EQUIPMENT--2.1%
65,250 3Com Corp., (c) ................................... 4,787,719
34,500 Compaq Computer Corp. (c) ......................... 2,561,625
100,000 EMC Corp. (c) ..................................... 3,312,500
58,000 Fore Systems (c) .................................. 1,906,750
37,300 Netscape Communications Corp. ..................... 2,121,437
19,000 Oce Van der Grinten NV ............................ 2,064,524
------------
16,754,555
------------
CONGLOMERATES--0.1%
36,006 Kinnevik Investment, Series B ..................... 992,555
------------
CONSTRUCTION--0.1%
42,100 Kaman Corp. ....................................... 547,300
------------
CONSTRUCTION MATERIALS--0.0%
6,125 Fastenal Co. ...................................... 280,219
------------
CONSUMER GOODS & SERVICES--1.2%
22,900 Concord EFS, Inc. ................................. 646,925
100,750 Galoob Lewis Toys, Inc. ........................... 1,410,500
53,125 Gucci Group (ADR) (d) .............................. 3,393,359
20,075 Linens 'N Things, Inc. ............................. 393,972
46,275 NIKE, Inc., Class B ............................... 2,764,931
109,000 Stride Rite Corp., (c) ............................. 1,090,000
7,125 Tommy Hilfiger Corp. (c) .......................... 342,000
------------
10,041,687
------------
CONSUMER PRODUCTS--0.6%
23,000 Clorox Co. ........................................ 2,308,625
31,500 Duracell International, Inc. ...................... 2,201,062
------------
4,509,687
------------
DOMESTIC OIL--0.2%
38,500 Phillips Petroleum Co. ............................. 1,703,625
------------
DRUGS & HEALTH CARE--10.4%
50,000 Amerisource Health Corp. (c) ...................... 2,412,500
15,000 Astra AB .......................................... 741,213
45,000 Astra AB, Series B ................................ 2,170,853
122,800 Bindley Western Industries, Inc. .................. 2,379,250
75,000 Biogen, Inc. (c) ................................... 2,906,250
39,975 Bristol Myers Squibb Co. .......................... 4,347,281
92,537 Cardinal Health, Inc. ............................. 5,390,251
139,225 Centocor, Inc. .................................... 4,977,294
76,500 Columbia/HCA Healthcare Corp. ..................... 3,117,375
41,425 CompDent Corp. .................................... 1,460,231
114,200 Eli Lilly & Co., (c) .............................. 8,336,600
58,050 Fresenius Medical Care AG (ADR) (d) ................ 1,632,656
14,602 Glaxo Wellcome PLC ................................. 237,655
15,075 Glaxo Wellcome PLC (ADR) (d) ....................... 478,631
86,900 Integrated Health Services, Inc. .................. 2,118,188
37,000 Johnson & Johnson ................................. 1,840,750
80,975 Omnicare, Inc. .................................... 2,601,322
97,700 Oxford Health Plans, Inc. (c) ..................... 5,721,556
37,000 Pacificare Health Systems, Inc., Class B (c) ...... 3,154,250
83,000 Phycor, Inc. (c) .................................. 2,355,125
53,900 Protocol Systems, Inc. ............................. 700,700
34,411 SmithKline Beecham PLC ............................ 476,342
62,300 SmithKline Beecham PLC (ADR) (d) .................. 4,236,400
87,300 Sofamor/Danek Group, Inc. ......................... 2,662,650
22,000 Stryker Corp. ..................................... 657,250
48,525 Target Therapeutics, Inc. ......................... 2,038,050
60,000 United Healthcare Corp. ........................... 2,700,000
51,000 United States Surgical Corp. ...................... 2,008,125
144,800 Warner Lambert Co., (c) ........................... 10,860,000
------------
84,718,748
------------
ELECTRIC--1.5%
75,000 Atmel Corp. ....................................... 2,484,375
45,700 Belden, Inc. ...................................... 1,690,900
50,000 Boston Scientific Corp. (c) ....................... 3,000,000
42,000 General Electric Co. .............................. 4,152,750
62,700 Woodhead Industries, (c) .......................... 862,125
------------
12,190,150
------------
ELECTRIC UTILITIES--0.3%
128,900 Calpine Corp. ..................................... 2,578,000
------------
ELECTRONIC COMPONENTS--0.5%
50,900 Burr Brown, (c) ................................... 1,323,400
63,300 Merix Corp. ....................................... 965,325
50,900 Unitrode Corp. .................................... 1,495,188
------------
3,783,913
------------
ELECTRONICS--6.7%
75,000 Adaptec, Inc. (c) ................................. 3,000,000
102,675 ADC Telecommunications, Inc. (c) .................. 3,195,759
87,450 Altera Corp. (c) .................................. 6,356,522
90,500 Amphenol Corp. .................................... 2,013,625
21,850 Andrew Corp. (c) .................................. 1,159,416
100,000 Boston Technology, Inc., New ...................... 2,875,000
217,875 Cisco Systems,Inc. (c) ............................. 13,862,297
130,000 ECI Telecom, Ltd. ................................. 2,762,500
54,800 ESS Technology, Inc. ............................... 1,541,250
150,000 Input/Output, Inc. (c) ............................. 2,775,000
44,000 Maxim Integrated Products, Inc. (c) ............... 1,903,000
84,800 Scientific Games Holdings Corp. ................... 2,268,400
51,200 Tellabs, Inc. (c) ................................. 1,926,400
18,125 U. S. Robotics Corp. (c) .......................... 1,305,000
100,000 VLSI Technology, Inc. .............................. 2,387,500
132,000 Xilinx, Inc., (c) ................................. 4,859,250
------------
54,190,919
------------
ENERGY--0.3%
50,325 Triton Energy, Ltd. ............................... 2,440,763
------------
ENVIRONMENTAL--0.2%
78,450 World Fuel Services Corp. ......................... 1,745,513
------------
FINANCE COMPANIES--0.6%
116,575 Associates 1st Capital Corp. ...................... 5,143,872
85,000 Peregrine Investment .............................. 145,614
8,500 Peregrine Investment, Warrants .................... 2,720
------------
5,292,206
------------
FINANCIAL SERVICES--1.4%
64,975 BA Merchants Services, Inc. ....................... 1,161,428
6,100 Charles Schwab Corp. ............................... 195,200
108,400 DVI, Inc. ......................................... 1,409,200
95,400 Financial Federal Corp. ........................... 1,597,950
60,000 First USA Paymentech, Inc. ........................ 2,032,500
55,090 Imperial Credit Industries, Inc. .................. 1,156,890
30,900 Redwood Trust, Inc. ............................... 1,151,025
25,500 SunAmerica, Inc. (c) .............................. 1,131,563
61,300 WFS Financial, Inc. ............................... 1,218,337
------------
11,054,093
------------
FOOD & BEVERAGES--1.0%
61,600 Coca Cola Enterprises, Inc. ....................... 2,987,600
39,750 Coca-Cola Co. ..................................... 2,091,844
68,100 Flowers Industries, Inc., (c) ..................... 1,464,150
98,900 Lance, Inc. ....................................... 1,780,200
------------
8,323,794
------------
FREIGHT TRANSPORTATION--0.9%
99,100 Harper Group, Inc. ................................ 2,353,625
109,200 Pittston Burlington Co. ............................ 2,184,000
113,600 US Freightways Corp. ............................... 3,116,900
------------
7,654,525
------------
GAS & PIPELINE UTILITIES--0.9%
140,000 Falcon Drilling (c) ............................... 5,495,000
37,200 Public Service Co., North Carolina, Inc............. 678,900
27,000 Williams Companies, Inc. .......................... 1,012,500
------------
7,186,400
------------
GOVERNMENT AGENCIES--1.1%
40,000 Federal Home Loan Mortgage Corp. .................. 4,405,000
111,500 Federal National Mortgage Association ............. 4,153,375
------------
8,558,375
------------
HEALTH CARE -- 0.2%
88,850 Conmed Corp. ...................................... 1,821,425
------------
HEALTH CARE-SERVICES--1.3%
140,112 Grancare, Inc. .................................... 2,504,502
113,100 Health Images, Inc. ............................... 1,880,288
88,200 Healthplan Services Corp. ......................... 1,863,225
32,825 Pharmaceutical Product Development, Inc. .......... 828,831
99,000 Regency Health Services ........................... 952,875
127,100 Rotech Med Corp. .................................. 2,669,100
------------
10,698,821
------------
HOUSEHOLD APPLIANCES & HOME FURNISHINGS--0.6%
199,600 Griffon Corp. ..................................... 2,445,100
100,500 Sunbeam Corp., Delaware, New ...................... 2,587,875
------------
5,032,975
------------
HOTELS & RESTAURANTS--1.7%
47,800 Cooker Restaurant Corp., New ...................... 555,675
11,475 Extended Stay America, Inc. ....................... 230,934
89,750 HFS, Inc. (c) ..................................... 5,362,563
80,000 Host Marriott Corp. ............................... 1,280,000
40,000 Marriott International, Inc. ...................... 2,210,000
6,075 Papa John's International, Inc. ................... 205,031
88,525 Planet Hollywood International, Inc. .............. 1,748,369
25,500 Sun International Hotels, Ltd. .................... 930,750
60,500 WMS Industries, Inc. ............................... 1,210,000
------------
13,733,322
------------
HOUSEHOLD PRODUCTS--0.7%
22,800 Aptargroup, Inc. .................................. 803,700
38,800 Bush Boake Allen, Inc. ............................. 1,033,050
8,935 Cultor OY ......................................... 485,598
38,100 Department 56, Inc. ............................... 942,975
134,950 United States Can Corp. ........................... 2,277,281
------------
5,542,604
------------
HOUSING & BUILDING MATERIALS--1.2%
76,400 Congoleum Corp. ................................... 1,060,050
41,300 Crossmann Communities, Inc. ....................... 702,100
73,300 Dayton Superior Corp. .............................. 962,063
156,500 Giant Cement Holding, Inc. ........................ 2,523,562
27,121 Hunter Douglas NV ................................. 1,830,059
74,500 Toro Co., (c) ..................................... 2,719,250
------------
9,797,084
------------
INDUSTRIAL MACHINERY--0.2%
76,900 Brown & Sharpe Manufacturing Co., (c) .............. 1,076,600
45,800 BW/IP, Inc. ....................................... 755,700
------------
1,832,300
------------
INSURANCE--3.7%
97,950 Allied Group, Inc. ................................ 3,195,619
50,800 Capital RE Corp. .................................. 2,368,550
38,600 Capmac Holdings, Inc. .............................. 1,278,625
9,000 Cigna Corp. ....................................... 1,229,625
75,000 Conseco, Inc. ..................................... 4,781,250
71,200 Dignity Partners, Inc. ............................. 186,900
131,500 Everest Reinsurance Holdings, Inc. ................ 3,780,625
35,000 First Commonwealth, Inc. (c) ...................... 691,250
56,400 Meadowbrook Insurance Group, Inc. ................. 1,184,400
28,200 Progressive Corp. Ohio ............................. 1,899,975
63,900 Protective Life Corp., (c) ........................ 2,548,012
53,700 Reinsurance Group America, Inc. ................... 2,530,612
47,150 Triad Guaranty, Inc. .............................. 1,355,563
37,475 UNUM Corp., (c) ................................... 2,707,569
------------
29,738,575
------------
INTERNATIONAL OIL--0.4%
7,500 British Petroleum PLC (ADR) (d) .................... 1,060,312
9,000 Exxon Corp. ....................................... 882,000
5,000 Royal Dutch Petroleum Co. ......................... 853,750
5,900 Texaco, Inc. ...................................... 578,938
------------
3,375,000
------------
LEISURE TIME--0.9%
85,025 Circus Circus Enterprises, Inc. (c) ............... 2,922,734
36,850 Doubletree Corp. .................................. 1,658,250
25,395 Harman International Industries, Inc. ............. 1,412,597
93,500 International Game Technology ..................... 1,706,375
------------
7,699,956
------------
MACHINERY--0.5%
58,700 Greenfield Industries, Inc. ....................... 1,797,687
19,600 Hardinge Brothers, Inc. ........................... 521,850
75,100 Keystone International, Inc. ...................... 1,511,388
------------
3,830,925
------------
MEDIA & ENTERTAINMENT--0.2%
84,325 Banta Corp. ....................................... 1,928,934
------------
METAL--0.9%
116,550 Citation Corp. .................................... 1,194,637
46,800 Cleveland Cliffs, Inc., (c) ....................... 2,123,550
87,200 Lone Star Technologies, Inc. ...................... 1,482,400
124,500 Oregon Steel Mills, Inc. .......................... 2,085,375
26,300 RMI Titanium Co., New ............................. 739,688
------------
7,625,650
------------
MISCELLANEOUS--0.8%
106,400 American Exploration Co. .......................... 1,702,400
200,000 Innkeepers USA Trust ............................... 2,775,000
19,900 Team America Corp. ................................. 226,362
70,000 Viking Office Products, Inc. (c) .................. 1,868,125
------------
6,571,887
------------
OIL--0.5%
51,125 Belden and Blake Corp. ............................ 1,303,688
104,800 Lomak Petroleum, Inc., New ........................ 1,794,700
32,900 Vintage Petroleum, Inc. ........................... 1,135,050
------------
4,233,438
------------
OIL & GAS--0.3%
45,000 Transocean Offshore, Inc. ......................... 2,818,125
------------
OIL SERVICES--1.6%
70,000 BJ Services Co. (c) ............................... 3,570,000
93,600 Global Industries, Inc.............................. 1,743,300
133,400 Pride Petroleum Services, Inc. .................... 3,101,550
38,500 Seitel, Inc., New ................................. 1,540,000
80,600 Tuboscope Vetco International Corp. ................ 1,249,300
52,000 Weatherford Enterra, Inc. ......................... 1,560,000
------------
12,764,150
------------
PAPER--0.4%
44,500 Alco Standard Corp. ............................... 2,297,313
31,100 Caraustar Industries, Inc. ........................ 1,034,075
------------
3,331,388
------------
PETROLEUM SERVICES--2.4%
80,000 Baker Hughes, Inc. ................................ 2,760,000
25,000 Diamond Offshore Drilling, Inc. ................... 1,425,000
100,000 Dresser Industries, Inc., (c) ..................... 3,100,000
42,000 Global Marine, Inc., New (c) ...................... 866,250
85,000 Petroleum Geo Services (ADR) (c) (d) .............. 3,315,000
52,500 Rowan Companies, (c) ............................... 1,187,813
50,500 Schlumberger, Ltd. ................................ 5,043,687
30,000 Western Atlas, Inc. (c) ............................ 2,126,250
------------
19,824,000
------------
PLASTICS--0.3%
94,400 Premark International, Inc. ....................... 2,100,400
------------
PUBLISHING--0.5%
50,000 Citic Pacific, Ltd. ............................... 290,258
50,900 Houghton Mifflin Co. ............................... 2,882,212
31,600 Insilco Corp. ..................................... 1,216,600
------------
4,389,070
------------
RAILROADS & EQUIPMENT--0.2%
31,500 Wisconsin Central Transportation Corp. ............ 1,248,188
------------
REAL ESTATE--2.7%
63,700 Brandywine Realty Trust, New ...................... 1,242,150
53,400 Cali Reality Corp. ................................ 1,648,725
130,400 Capstone Capital Corp. ............................ 2,917,700
114,700 Koger Equity, Inc. ................................ 2,150,625
104,900 Liberty Property .................................. 2,701,175
137,800 Patriot American Hospitality, Inc. ................ 5,942,625
55,000 Starwood Lodging Trust ............................ 3,031,875
72,800 Sun Communities, Inc. .............................. 2,511,600
------------
22,146,475
------------
RETAIL--2.7%
67,700 99 Cents Only Stores 1,108,588
228,050 Abercrombie and Fitch Co. ......................... 3,762,825
70,200 Carson Pirie Scott & Co. .......................... 1,772,550
117,500 Cato Corp. ........................................ 587,500
85,900 Cole National Corp. ............................... 2,254,875
57,656 Consolidated Stores Corp. (c) ..................... 1,852,207
110,800 Family Dollar Stores, Inc. ........................ 2,257,550
111,000 Federated Department Stores, Inc. (c) ............. 3,787,875
8,850 Nordstrom, Inc. ................................... 313,622
48,000 Saks Holdings, Inc. (c) ............................ 1,296,000
101,900 Tandycrafts, Inc. ................................. 611,400
104,100 Zale Corp. ........................................ 1,990,912
------------
21,595,904
------------
RETAIL--GROCERY--0.6%
34,000 Kroger Co. (c) .................................... 1,581,000
86,100 Michaels Foods .................................... 1,097,775
58,000 Safeway, Inc., New (c) 2,479,500
------------
5,158,275
------------
SAVINGS & LOAN--0.9%
68,800 Bank United Corp. ................................. 1,840,400
3,720 Charter One Financial, Inc., (c) .................. 156,240
27,150 Commercial Federal Corp. .......................... 1,303,200
77,438 First Financial Corp. ............................. 1,897,219
74,900 Magna Group, Inc. ................................. 2,209,550
------------
7,406,609
------------
SOFTWARE--5.2%
53,700 Award Software International, Inc. ................ 523,575
3,050 Baan Co. NV (c) ................................... 105,988
152,000 BMC Software, Inc. (c) ............................. 6,289,000
144,500 Cadence Design Systems, Inc., (c) ................. 5,743,875
123,500 Computer Associates International, Inc. ........... 6,144,125
150,400 HBO & Co., Rights (c) .............................. 8,930,000
150,000 Informix Corp. (c) ................................ 3,056,250
41,775 JDA Software Group, Inc. .......................... 1,190,587
86,200 Microsoft Corp. (c) ............................... 7,122,275
42,000 Shared Medical System ............................. 2,068,500
76,300 Symantec Corp. .................................... 1,106,350
------------
42,280,525
------------
STEEL--0.1%
22,900 Amcast Industrial Corp. ........................... 566,775
------------
TECHNOLOGY--7.6%
6,225 Advanced Micro Devices, Inc. ...................... 160,294
301,762 Analog Devices, Inc. .............................. 10,222,188
16,975 Aspen Technology, Inc. ............................ 1,362,244
6,125 Black Box Corp. ................................... 252,656
8,975 Dell Computer Corp. (c) ........................... 476,797
18,450 Documentum, Inc. (c) ............................... 622,688
19,250 Etec Systems, Inc. ................................ 736,312
43,825 HNC Software, Inc. (c) ............................. 1,369,531
118,000 Intel Corp. ....................................... 15,450,625
13,300 Intel Corp., Warrants .............................. 1,226,925
43,950 International Business Machines Corp. ............. 6,636,450
6,000 International Network Services .................... 181,125
288 Macronix International Co., Ltd. (ADR) (d) ......... 3,816
135,825 Oracle Systems Corp. (c) .......................... 5,670,694
152,725 Parametric Technology Corp. (c) ................... 7,846,247
58,937 Pittway Corp. ..................................... 3,153,129
190,525 Rofin-Sinar Technologies, Inc. .................... 2,238,669
5,475 Sapient Corp. ..................................... 230,634
64,275 Sun Microsystems, Inc. ............................ 1,651,064
75,000 Xylan Corp. ....................................... 2,118,750
------------
61,610,838
------------
TELECOMMUNICATION--1.0%
119,400 Aliant Communications, Inc. ....................... 2,029,800
200 DDI Corp. ......................................... 1,322,856
73,300 Inter Tel, Inc. ................................... 1,392,700
37,875 PictureTel Corp., New (c) ......................... 984,750
180,800 UNR Industries, Inc. .............................. 1,084,800
50,000 Vertex Communications Corp. ....................... 906,250
------------
7,721,156
------------
TOYS & AMUSEMENTS--0.3%
60,000 Hasbro, Inc. ...................................... $ 2,332,500
------------
TRUCKING & FREIGHT FORWARDING--0.3%
55,000 Tidewater, Inc., (c) .............................. 2,488,750
------------
Total Common Stock (Identified Cost $640,519,902)... $748,190,958
------------
See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION - continued
- -------------------------------------------------------------------------------
Investments as of December 31, 1996
SHORT-TERM INVESTMENTS -- 7.9%
FACE
AMOUNT DESCRIPTION VALUE(a)
- -------------------------------------------------------------------------------
$ 5,900,000 American Express Credit Corp. 6.5500% 1/02/97 ....... $ 5,898,926
6,500,000 Chevron Oil Finance Co. 5.3500% 1/02/97 ............. 6,500,000
5,000,000 Coca Cola Co. 5.5000% 1/24/97 ....................... 4,982,431
8,000,000 United States Treasury Bills, 4.7900% 2/06/97 ....... 7,961,680
15,000,000 United States Treasury Bills, 4.8000% 2/06/97 ....... 14,928,000
24,182,000 Repurchase agreement with State Street Bank & Trust
Company dated 12/31/96 at 4.75% to be repurchased at
$24,188,381 on 1/2/97 collateralized by $11,345,000
U.S. Treasury Bonds 8.875%, due 8/15/17 valued at
$14,539,332 and $9,245,000 U.S. Treasury Bond 7.25%
due 8/15/22 valued at $10,137,725 ................. 24,182,000
------------
TOTAL SHORT TERM INVESTMENTS (Identified Cost
$64,453,037) ...................................... 64,453,037
------------
Total Investments--99.9% (Identified Cost
$704,972,939)(b) .................................. 812,643,995
Other assets less liabilities (e) .................. 1,203,289
------------
Total Net Assets--100% ............................. $813,847,284
============
See accompanying notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION - continued
- -------------------------------------------------------------------------------
Investments as of December 31, 1996
FORWARD CURRENCY CONTRACTS OUTSTANDING
at December 31, 1996
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE (DEPRECIATION)
-------- ----------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
British Pounds (sold) .... 01/16/97 800,000 $1,248,000 $1,370,121 $(122,121)
British Pounds (sold) .... 05/27/97 500,000 839,900 853,260 (13,360)
British Pounds (sold) .... 06/04/97 69,000 115,616 117,722 (2,106)
British Pounds (sold) .... 06/04/97 300,000 502,440 511,834 (9,394)
Deutsch Mark (bought) .... 02/12/97 401,000 265,686 261,327 (4,359)
Deutsch Mark (sold) ...... 02/12/97 401,000 273,720 261,327 12,393
Deutsch Mark (bought) .... 03/11/97 1,200,000 795,862 783,412 (12,450)
Deutsch Mark (sold) ...... 03/11/97 1,200,000 810,811 783,412 27,399
Deutsch Mark (bought) .... 04/22/97 500,000 332,502 327,335 (5,167)
Deutsch Mark (sold) ...... 04/22/97 500,000 328,192 327,335 857
Deutsch Mark (sold) ...... 02/10/97 953,000 650,512 619,879 30,633
Deutsch Mark (bought) .... 02/10/97 953,000 630,750 619,879 (10,871)
Finnish Markka (sold) .... 01/27/97 660,000 146,961 143,744 3,217
Finnish Markka (sold) .... 02/12/97 1,749,000 392,769 381,328 11,441
Finnish Markka (sold) .... 03/11/97 906,000 195,833 197,877 (2,044)
Finnish Markka (sold) .... 04/22/97 400,000 87,796 87,603 193
Finnish Markka (sold) .... 05/27/97 5,000,000 1,115,698 1,097,635 18,063
Italian Lira (bought) .... 01/27/97 800,000,000 520,528 526,584 6,056
Italian Lira (sold) ...... 01/27/97 1,150,000,000 749,552 756,965 (7,413)
Italian Lira (sold) ...... 02/10/97 690,000,000 449,102 453,867 (4,765)
Italian Lira (bought) .... 05/27/97 250,000,000 162,570 163,889 1,319
Italian Lira (sold) ...... 05/27/97 600,000,000 396,799 393,333 3,466
Swedish Krona (sold) ..... 01/27/97 10,800,000 1,646,919 1,585,413 61,506
Swedish Krona (sold) ..... 03/11/97 226,000 33,099 33,242 (143)
Swedish Krona (bought) ... 03/11/97 226,000 33,262 33,242 (20)
Swedish Krona (bought) ... 04/22/97 2,000,000 292,282 294,738 2,456
Swedish Krona (bought) ... 04/22/97 500,000 73,305 73,684 379
Swedish Krona (sold) ..... 04/22/97 7,500,000 1,133,273 1,105,266 28,007
Swedish Krona (bought) ... 04/22/97 3,000,000 442,413 442,106 (307)
---------
$ 12,865
=========
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1996 the net unrealized appreciation
on investments based on cost of $706,882,537 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. ............................................ $121,584,880
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over value. ............................................ (15,823,422)
-----------
Net unrealized appreciation .................................................. $105,761,458
============
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer described.
The values of ADRs are significantly influenced by trading on exchanges not
located in the United States or Canada.
(e) Including deposits in foreign denominated currencies with a value of $19 and
a cost of $19.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value .................................... $812,643,995
Cash .................................................... 71,968
Foreign cash at value (cost $19) ........................ 19
Receivable for:
Fund shares sold ...................................... 3,194,390
Securities sold ....................................... 3,263,880
Open forward currency contracts - net ................. 12,865
Accrued dividends and interest ........................ 520,356
Foreign taxes ......................................... 12,573
Prepaid registration expense ............................ 15,000
Unamortized organization expense ........................ 83,796
------------
819,818,842
LIABILITIES
Payable for:
Securities purchased .................................. $1,578,995
Fund shares redeemed .................................. 3,424,345
Withholding Taxes ..................................... 2,614
Accrued expenses:
Management fees ....................................... 712,503
Deferred trustees' fees ............................... 6,801
Accounting and administrative ......................... 9,065
Other expenses ........................................ 237,235
----------
5,971,558
------------
NET ASSETS ................................................ $813,847,284
============
Net Assets consist of:
Capital paid in ....................................... $696,133,389
Undistributed net investment loss ..................... (10,972)
Accumulated net realized gains ........................ 10,041,309
Unrealized appreciation on investments, forward
currency contracts and foreign currency transactions 107,683,558
------------
NET ASSETS ................................................ $813,847,284
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($348,572,547 divided by 19,174,096 shares of beneficial
interest) ............................................... $18.18
======
Offering price per share (100/94.25 of $18.18) ............ $19.29*
======
Net asset value and offering price of Class B shares
($366,313,881 divided by 20,510,387 shares of beneficial
interest) ............................................... $17.86**
======
Net asset value and offering price of Class C shares
($80,312,107 divided by 4,494,340 shares of beneficial
interest) ............................................... $17.87
======
Net asset value and offering price of Class Y shares
($18,648,749 divided by 1,017,433 shares of beneficial
interest) ............................................... $18.33
======
Identified cost of investments ............................ $704,972,939
============
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ............................................. $ 4,874,832(a)
Interest .............................................. 3,747,559
------------
8,622,391
Expenses
Management fees ..................................... $ 6,821,099
Service fees - Class A .............................. 711,078
Service and distribution fees - Class B ............. 2,916,149
Service and distribution fees - Class C ............. 627,802
Trustees' fees and expenses ......................... 24,458
Accounting and administrative ....................... 98,321
Custodian ........................................... 473,073
Transfer agent ...................................... 1,453,462
Audit and tax services .............................. 58,000
Legal ............................................... 24,357
Printing ............................................ 132,871
Registration ........................................ 149,011
Amortization of organization expenses ............... 33,262
Miscellaneous ....................................... 8,720
-----------
Total Expenses ........................................ 13,531,663
------------
Net investment loss ................................... (4,909,272)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain on:
Investments - net ................................... 73,919,539
Foreign currency transactions - net ................. 78,842
-----------
Net realized gain on investments and foreign currency
transactions ...................................... 73,998,381
-----------
Unrealized appreciation (depreciation) on:
Investments - net ................................... 37,450,817
Forward currency contracts - net .................... 266,767
Foreign currency transactions - net ................. (444)
-----------
Net unrealized appreciation on investments and
foreign currency transactions ..................... 37,717,140
-----------
Net gain on investment transactions ................... 111,715,521
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .............. $106,806,249
============
(a) Net of foreign taxes of: $81,261
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ...................................... $ (2,471,977) $ (4,909,272)
Net realized gain on investments and foreign currency
transactions ........................................... 37,615,004 73,998,381
Unrealized appreciation on investments and foreign
currency transactions 64,889,572 37,717,140
------------ ------------
Increase in net assets from operations ................... 100,032,599 106,806,249
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ................................................ (11,862,707) (28,709,305)
Class B ................................................ (11,362,283) (30,201,992)
Class C ................................................ (2,444,605) (6,605,753)
Class Y ................................................ (228,886) (1,223,707)
------------ ------------
(25,898,481) (66,740,757)
------------ ------------
Increase in net assets derived from capital share
transactions ........................................... 236,321,485 278,927,348
------------ ------------
Total increase in net assets ............................. 310,455,603 318,992,840
NET ASSETS
Beginning of the year .................................... 184,398,841 494,854,444
------------ ------------
End of the year .......................................... $494,854,444 $813,847,284
============ ============
UNDISTRIBUTED NET INVESTMENT LOSS
Beginning of the year .................................... $ 0 $ (134,869)
============ ============
End of the year .......................................... $ (134,869) $ (10,972)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------- ---------------------------------------------------
JULY 7, 1994(a) JULY 7, 1994(a)
THROUGH YEAR ENDED DECEMBER 31, THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------- DECEMBER 31, --------------------------
1994 1995 1996 1994 1995 1996
------------------- --------- ---------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ...... $12.50 $13.25 $16.78 $12.50 $13.23 $16.63
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income
(Loss) ................... 0.05 0.00 (0.06)(f) 0.02 0.00 (0.20)(f)
Net Realized and
Unrealized Gain (Loss)
on Investments ........... 0.75 4.52 3.17 0.73 4.39 3.14
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............... 0.80 4.52 3.11 0.75 4.39 2.94
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ........ (0.05) 0.00 0.00 (0.02) 0.00 0.00
Distributions From Net
Realized Capital Gains 0.00 (0.99) (1.71) (0.00) (0.99) (1.71)
------ ------ ------ ------ ------ ------
Total Distributions ....... (0.05) (0.99) (1.71) (0.02) (0.99) (1.71)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period ............ $13.25 $16.78 $18.18 $13.23 $16.63 $17.86
====== ====== ====== ====== ====== ======
Total Return (%) (c) ...... 6.4 34.4 19.0 6.0 33.4 18.1
Ratio of Operating
Expenses to Average
Net Assets (%)(d) ........ 1.94(b) 1.82 1.68 2.69(b) 2.57 2.43
Ratio of Net Investment
Income (Loss) to
Average Net Assets (%).... 1.06(b) (0.33) (0.36) 0.31(b) (1.08) (1.11)
Portfolio Turnover
Rate (%) ................. 100 142 127 100 142 127
Average Commission
Rate (e) ................. -- -- $0.0595 -- -- $0.0595
Net Assets, End of
Period (000) ............. $91,218 $223,596 $348,573 $72,889 $220,017 $366,314
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B shares are not
reflected in total return calculations. Periods less than one year are not annualized.
(d) The ratio of operating expenses to average net assets for Class A and B, without giving effect to the voluntary fee
waiver in effect through December 31, 1994 would have been 1.98% and 2.75%, respectively for period ended December 31, 1994.
(e) For the fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate
per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or
spreads on shares traded on a principal basis.
(f) Per share net investment loss has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS Y
---------------------------------------------------- ----------------------------------------------------
JULY 7, 1994(a) YEAR YEAR NOVEMBER 15(a) YEAR YEAR
THROUGH ENDED ENDED THROUGH ENDED ENDED
DECEMBER 1, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1994 1995 1996
------------- ----------- ------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period . $12.50 $13.24 $16.65 $13.59 $13.24 $16.83
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income
(Loss) ................ 0.02 0.00 (0.20)(f) 0.06 0.00 (0.02)(f)
Net Realized and
Unrealized Gain
(Loss) on Investments 0.74 4.40 3.13 (0.35) 4.58 3.23
------ ------ ------ ------ ------ ------
Total From Investment
Operations........... 0.76 4.40 2.93 (0.29) 4.58 3.21
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ... (0.02) 0.00 0.00 (0.06) 0.00 0.00
Distributions From Net
Realized Capital
Gains ............... 0.00 (0.99) (1.71) 0.00 (0.99) (1.71)
------ ------ ------ ------ ------ ------
Total Distributions ... (0.02) (0.99) (1.71) (0.06) (0.99) (1.71)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period .............. $13.24 $16.65 $17.87 $13.24 $16.83 $18.33
====== ====== ====== ====== ====== ======
Total Return (%) (c) .. 6.0 33.4 18.0 (2.1) 34.8 19.6
Ratio of Operating
Expenses to Average
Net Assets (%) (d) .. 2.69(b) 2.57 2.43 1.79(b) 1.57 1.43
Ratio of Net Investment
Income (Loss) to
Average Net Assets(%) 0.31(b) (1.08) (1.11) 2.26(b) (0.08) (0.11)
Portfolio Turnover Rate(%) 100 142 127 100 142 127
Average Commission Rate(e) -- -- $0.0595 -- -- $0.0595
Net Assets, End of
Period (000) ........ $20,096 $45,672 $80,312 $196 $5,569 $18,649
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets for Class C and Y, without giving effect to the voluntary fee
waiver in effect through December 31, 1994 would have been 2.75% and 1.90%, respectively for period ended December 31, 1994.
(e) For the fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate
per share for trades on which commissions are charged. This rate generally does not reflect mark- ups, mark-downs, or
spreads on shares traded on a principal basis.
(f) Per share net investment loss has been calculated using the average shares outstanding during the year.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1996
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 A, Class B and Class C shares on July 7, 1994. Class Y
shares commenced operations November 15, 1994. 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 other 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. Interest
income for the Fund 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. 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 at fiscal year end, 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 portfolio composition under
the caption "Forward Currency Contracts Outstanding." This amount represents
the aggregate exposure to each currency the Fund has acquired or hedged
through currency contracts outstanding at period end. Losses may arise from
changes in the value of the foreign currency or if the counterparties do not
perform under the contracts' terms.
All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
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. The timing and characterization of
certain income and capital gains distributions are determined in accordance
with federal tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for organization costs and foreign currency transactions for book
and tax purposes. Permanent book and tax basis differences will result in
reclassification to capital accounts.
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. Each 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 1994 in connection with the
Fund's organization and registration, amounting to approximately $165,000 in
the aggregate, were paid by the Fund and are being amortized by the Fund over
60 months.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for
the Fund for the year ended December 31, 1996 were $931,018,033 and
$740,715,562, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its adviser, New England Funds Management, L.P. (the
"Adviser"), at the annual rate of 1.05% of the Fund's average daily net
assets. The Adviser pays the Fund's four investment Subadvisers, Berger
Associates, Inc., Founders Asset Management, Inc., Janus Capital Corporation
and Loomis, Sayles & Company, L.P. (the "Subadvisers") at the rate of 0.55% of
the first $50 million of the average daily net assets of the segment of the
Fund that the Subadviser manages and 0.50% of such assets in excess of $50
million. Certain officers and directors of the Adviser are also officers or
trustees of the Fund. The Adviser and Loomis, Sayles & Company, L.P. are
wholly owned subsidiaries of New England Investment Companies, L.P., which is
a subsidiary of Metropolitan Life Insurance Company.
Fees retained by the Adviser and paid to each Subadviser under the management
agreement in effect during the year ended December 31, 1996 are as follows:
FEES EARNED
$3,472,956 New England Funds Management, L.P.
796,201 Berger Associates, Inc.
884,453 Founders Asset Management, Inc.
835,227 Janus Capital Corporation
832,262 Loomis, Sayles & Company, L.P.
- ----------
$6,821,099
==========
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of New
England Investment Companies, L.P. 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
year ended December 31, 1996, these expenses amounted to $98,321 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 year ended December 31, 1996, the Fund
paid New England Funds $1,108,669 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 New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the year
ended December 31, 1996, the Fund paid New England Funds $711,078 in fees
under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees 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 year ended
December 31, 1996 the Fund paid New England Funds $729,037 and $156,950 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
monthly distribution fees 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 year ended December 31, 1996, the Fund paid New
England Funds $2,187,112 and $470,852 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 year ended
December 31, 1996 amounted to $3,745,074.
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, New England Investment Companies, the Adviser or their
affiliates, other than registered investment companies. Each other trustee is
compensated by the Fund as follows:
Annual Retainer $2,343
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $233/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CAPITAL SHARE TRANSACTIONS. At December 31, 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 YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- ----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ........................ 7,642,009 $114,044,926 7,691,218 $139,876,241
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 699,829 11,487,826 1,578,726 27,875,496
---------- ------------ ---------- ------------
8,341,838 125,532,752 9,269,944 167,751,737
Shares repurchased ................. (1,903,090) (29,310,909) (3,418,502) (61,553,540)
---------- ------------ ---------- ------------
Net increase ....................... 6,438,748 $ 96,221,843 5,851,442 $106,198,197
---------- ------------ ---------- ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- ----------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
Shares sold ........................ 7,922,819 $119,214,783 7,630,405 $135,846,816
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 669,488 10,909,794 1,660,548 28,858,732
---------- ------------ ---------- ------------
8,592,307 130,124,577 9,290,953 164,705,548
Shares repurchased ................. (872,820) (13,578,971) (2,008,111) (35,730,310)
---------- ------------ ---------- ------------
Net increase ....................... 7,719,487 $116,545,606 7,282,842 $128,975,238
---------- ------------ ---------- ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- ----------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
Shares sold ........................ 1,635,044 $ 24,683,156 2,328,617 $ 41,733,783
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 141,224 2,303,183 356,206 6,194,589
---------- ------------ ---------- ------------
1,776,268 26,986,339 2,684,823 47,928,372
Shares repurchased ................. (550,549) (8,352,576) (934,175) (16,650,873)
---------- ------------ ---------- ------------
Net increase ....................... 1,225,719 $ 18,633,763 1,750,648 $ 31,277,499
---------- ------------ ---------- ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------------- ---------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
Shares sold ........................ 316,907 $ 4,921,298 671,715 $ 12,225,769
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 13,920 228,884 68,787 1,223,704
---------- ------------ ---------- ------------
330,827 5,150,182 740,502 13,449,473
Shares repurchased ................. (14,699) (229,909) (53,979) (973,059)
---------- ------------ ---------- ------------
Net increase ....................... 316,128 4,920,273 686,523 12,476,414
---------- ------------ ---------- ------------
Increase derived from capital shares
transactions ..................... 15,700,082 $236,321,485 15,571,455 $278,927,348
========== ============ ========== ============
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND STAR ADVISERS FUND
In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England Star Advisers Fund
("the Fund") at December 31, 1996, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1996 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1997
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
SUPPLEMENT DATED FEBRUARY 3, 1997 TO THE PROSPECTUSES DATED:
MAY 1, 1996 (AS SUPPLEMENTED SEPTEMBER 30, 1996 AND JANUARY 2, 1997) OF
NEW ENGLAND STAR ADVISERS FUND; AND MAY 1, 1996 (AS SUPPLEMENTED
SEPTEMBER 30, 1996, AND JANUARY 2 AND JANUARY 31, 1997) OF NEW ENGLAND STOCK
FUNDS AND NEW ENGLAND STOCK FUNDS CLASS Y
Effective February 3, 1997, Patrick S. Adams, Senior Vice President of Berger
Associates, Inc. ("Berger"), has assumed day-to-day responsibility for the
management of the segment of New England Star Advisers Fund managed by Berger.
Mr. Adams previously served as Senior Vice President with Zurich Kemper
Investments, Inc. from June 1996 to January 1997, where he was Portfolio
Manager of the Kemper Growth Fund. Mr. Adams served as Portfolio Manager with
Founders Asset Management, Inc. from March 1993 to May 1996, where he managed
the Founders Blue Chip Growth Fund and the Founders Balanced Fund. For three
years prior to that, Mr. Adams served First America Investment Corp. in
various positions, including that of Senior Portfolio Manager/Senior Analyst,
and manager of the Parkstone Equity Fund.
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- -------------------------------------------------------------------------------
STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT HTTP://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.
<PAGE>
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BROCKTON, MA
PERMIT NO. 770
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Boston, Massachusetts
02116
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