<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[graphic omitted]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England Star Advisers Fund
[graphic omitted]
June 30, 1997
<PAGE>
August 1997
- --------------------------------------------------------------------------------
[Photo of Henry Schmelzer]
Dear New England Funds Shareholder,
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives.
Our sights, like yours, are focused on the long term. At the same time, we work
to enhance service every day. We also keep a disciplined eye on the performance
that each fund manager achieves. Through these persistent efforts we're
convinced we'll merit your continued commitment and loyalty. Thank you for your
confidence in New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
[Logo] DALBAR, an independent evaluator of mutual fund
QUALITY service, has awarded New England Funds its Quality
TESTED SERVICE Tested Service Seal for "providing the highest
1996 tier of service excellence in the mutual fund
- --------------------- industry." New England Funds is one of just three
DALBAR mutual fund companies to earn this distinction in
HONORS COMMITMENT TO: each of the last two years -- another reason why
INVESTORS we are becoming known as the mutual fund company
- --------------------- Where The Best Minds Meet.
INVESTMENT RESULTS THROUGH JUNE 30, 1997
- --------------------------------------------------------------------------------
Putting Performance into Perspective
The charts comparing your Fund's performance to a
benchmark index provide you with a general sense of how
your Fund performed. To put this information in context,
it may be helpful to understand the special differences
between the two. Your Fund's total return for the period
shown appears with and without sales charges and
includes Fund expenses and management fees. A securities
index measures the performance of a theoretical
portfolio. Unlike a fund, the index is unmanaged; there
are no expenses that affect the results. In addition,
few investors could purchase all of the securities
necessary to match the index. And, if they could, they
would incur transaction costs and other expenses.
See next page
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDED 6/30/97
CLASS A (Inception 7/7/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value1 10.40% 16.62% 23.54%
With Max. Sales Charge2 4.04 9.93 21.11
- --------------------------------------------------------------------------------
CLASS B (Inception 7/7/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value1 10.02% 15.75% 22.65%
With CDSC3 5.02 10.75 21.98
- --------------------------------------------------------------------------------
CLASS C (Inception 7/7/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value1 10.02% 15.74% 22.66%
- --------------------------------------------------------------------------------
CLASS Y (Inception 11/15/94)* YTD 1 YEAR SINCE INCEPTION
Net Asset Value1 10.58% 17.29% 23.56%
- -------------------------------------------------------------------------------
SINCE SINCE
COMPARATIVE PERFORMANCE YTD. 1 YEAR 7/7/94 11/15/94
Lipper Growth Fund Average5 14.28% 23.96% 22.65% 25.34%
S&P 500 Index4 20.59 34.63 28.61 30.80
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 and are
not subject to a sales charge.
NOTES TO CHARTS
1 Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
2 With Maximum Sales Charge (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 5%
sales charge is applied to a redemption of Class B shares. The sales charge
will decrease over time, declining to zero six years after the purchase of
shares.
4 Standard & Poor's 500 Stock Index(R) (S&P 500) is an unmanaged index
representing the performance of 500 major companies, most of which are listed
on the New York Stock Exchange. The S&P 500 performance has not been adjusted
for ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. Investors cannot purchase an index
directly.
5 Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
<PAGE>
NEW ENGLAND STAR ADVISERS FUND
GROWTH OF $10,000 INVESTMENT COMPARED TO STANDARD & POOR'S 500(4)
[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:]
NET WITH
ASSET MAXIMUM S&P
VALUE(1) SALES CHARGE(2) 500(4)
7-Jul-94 $10,000 $ 9,425 $10,000
3Q94 $10,656 $10,043 $10,393
4Q94 $10,638 $10,026 $10,391
1Q95 $11,240 $10,594 $11,400
2Q95 $12,252 $11,547 $12,484
3Q95 $13,833 $13,038 $13,473
4Q95 $14,293 $13,471 $14,281
1Q96 $15,272 $14,393 $15,047
2Q96 $16,098 $15,172 $15,721
3Q96 $16,454 $15,507 $16,203
4Q96 $17,005 $16,027 $17,551
1Q97 $16,452 $15,506 $18,025
2Q97 $18,772 $17,692 $21,165
[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:]
NET
ASSET S&P
VALUE(1) CDSC(3) 500(4)
7-Jul-94 $10,000 $10,000 $10,000
3Q94 $10,640 $10,640 $10,393
4Q94 $10,600 $10,600 $10,391
1Q95 $11,176 $11,176 $11,400
2Q95 $12,170 $12,170 $12,484
3Q95 $13,717 $13,217 $13,473
4Q95 $14,142 $13,626 $14,281
1Q96 $15,085 $14,535 $15,047
2Q96 $15,875 $15,297 $15,721
3Q96 $16,188 $15,598 $16,203
4Q96 $16,703 $16,094 $17,551
1Q97 $16,132 $15,544 $18,025
2Q97 $18,376 $17,706 $21,165
[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:]
NET
ASSET S&P
VALUE(1) 500(4)
7-Jul-94 $10,000 $10,000
3Q94 $10,640 $10,393
4Q94 $10,604 $10,391
1Q95 $11,181 $11,400
2Q95 $12,166 $12,484
3Q95 $13,719 $13,473
4Q95 $14,145 $14,281
1Q96 $15,079 $15,047
2Q96 $15,870 $15,721
3Q96 $16,182 $16,203
4Q96 $16,697 $17,551
1Q97 $16,128 $18,025
2Q97 $18,369 $21,165
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.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
HOW YOUR FUND PERFORMED
- --------------------------------------------------------------------------------
New England Star Advisers Fund's total return for the six-month period ending
June 30, 1997 was 10.40%, 10.02% and 10.02% at net asset value for Class A, B
and C shares, respectively. The Lipper Growth Average(5) posted a return of
14.28% for the same period, reflecting an emphasis on larger capitalization
stocks, which continued to overshadow performance of the broader market.
On July 7, shortly after the semiannual period, your Fund marked its third
anniversary with an impressive average annual total return since inception of
24.34% and a cumulative return of 92.23% (Class A shares at NAV). Three years
ago, it was hailed as the fund that "broke the mold" in the mutual fund
industry. On July 30, the Fund passed the $1 billion mark in assets and its
popular concept has already been introduced to two more New England Star funds:
Star Worldwide Fund and Star Small Cap Fund.
Each Star fund's multiple-adviser approach offers access to prominent investment
management firms within a single fund. Your Fund has four subadvisory firms that
use their own investment styles and strategies. On the following pages,
commentary from the Fund's portfolio managers will give you insight into each
investment approach and current outlook.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
LOOMIS, SAYLES & COMPANY, L.P.
- --------------------------------------------------------------------------------
- ------------------------------
[Photo of Jeffrey Petherick]
- ------------------------------
- ------------------------------
[Photo of Mary Champagne]
- ------------------------------
Jeffrey Petherick,
Mary Champagne
Loomis, Sayles & Company, L.P.
The smaller, value-oriented stocks our segment favors outpaced the returns of
growth-oriented small-company stocks for the first half of the year. Relative to
large-cap stocks, however, small caps still lagged. But we find that after
underperforming large-company stocks for about three years, small-company issues
are relatively undervalued compared with their growth potential.
The health care industry is one example of an area offering very attractive
valuations, partly due to difficulties caused by the proposed changes to
Medicare and Medicaid. Recently, we purchased Sierra Health Services, Inc., a
well-managed health maintenance organization whose stock price was suffering
when the health care sector was out of favor. Another promising health care
issue is Hologic Inc., a maker of equipment for assessing the risk of developing
osteoporosis. There's high growth potential in this market as the American
population ages.
Technology stocks are also selling at more reasonable valuation levels -- with
good earnings prospects -- after a year-long correction that began in May 1996.
On the flip side, financial services stocks are reaching their peak valuation
level after some terrific growth over the past seven years.
Overall, we see the portfolio's small-company stocks benefiting from a number of
factors, including the year-long rise in the U.S. dollar. A rising dollar has
reduced some of the competitive edge larger companies had worldwide for their
products (because their products are more expensive for foreigners to import),
and will likely cut into these firms' relative earnings gains. Smaller firms
generally do not depend on overseas customers a great deal; therefore, their
stocks aren't as susceptible to the dollar's fluctuations.
LARGEST HOLDINGS IN LOOMIS SAYLES SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Protective Life Corp. 0.38%
Everest Reinsurance Holdings, Inc. 0.38%
Viad Corp. 0.35%
Pride Petroleum Services, Inc. 0.34%
Capstone Capital Corp. 0.34%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
FOUNDERS ASSET MANAGEMENT
- --------------------------------------------------------------------------------
- -------------------------
[Photo of Edward Keely]
- -------------------------
Edward Keely
Founders Asset Management
In the first half of the year, the structure and performance of our portion of
the Fund portfolio have been somewhere between the small-company NASDAQ
Composite and the larger-stock S&P 500. While an increase in cash helped protect
against losses when stock prices fell, it hindered participation in the
subsequent recovery.
Over all, our portfolio performance has been helped by some solid firms with
increasing earnings estimates from analysts. We have substantial investments in
wireless and telecommunications companies -- including Motorola and Lucent --
that have performed well this year. These companies are benefiting from the
worldwide growth of cellular networks.
Another solid performer for us has been technology stocks -- especially
semiconductor companies -- that make up about 22% of the portfolio. Though we've
held as much as 35% in technology issues, we've become more selective as we
watch this group's year-long correction wind down. The exception to technology's
good performance has been the networking group, where performance lagged in the
second quarter. We've sold some of these positions, though we still own a
portion of our original Cisco Systems and 3Com holdings.
With the modest economic growth we anticipate over the next six months, earnings
growth will be more difficult to find. That is why we are being extremely
selective in choosing stocks, seeking out companies with reasonable valuations
compared to their fundamental outlook, negligible risk of earnings
disappointments, and potential growth in earnings estimates through the years.
LARGEST HOLDINGS IN FOUNDERS SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Xilinx, Inc. 0.95%
Bristol-Myers Squibb Co. 0.65%
Warner-Lambert Co. 0.64%
Motorola, Inc. 0.61%
General Electric Co. 0.59%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
JANUS CAPITAL CORPORATION
- --------------------------------------------------------------------------------
- -------------------------
[Photo of Warren Lammert]
- -------------------------
Warren Lammert
Janus Capital Corporation
We seek stocks with growth potential at reasonable prices, so it is no surprise
that the higher valuations of large-company stocks has us seeking better values
in mid-sized and smaller companies for now. Meanwhile, our strategy remains
organized around several core investment themes or ideas.
Within our ongoing technology theme, we continue to focus on certain
high-quality franchises we find undervalued. We have significantly increased our
position in Parametric Technology Corp., which is now our largest holding. This
leading software company has very attractive growth prospects, and is priced at
a significant discount to its projected growth rate over the next three to five
years. Another ongoing theme in the portfolio is the financial services sector,
where we continue to find a number of banks and insurance companies are very
attractive values.
Over the period, we reduced holdings in two areas: the networking sector of
technology and credit card processing companies. Demand for networking services
weakened unexpectedly and, as a result, we've sold some holdings that had
disappointing results, including Xylan and US Robotics. The credit card
processing area faces increased competition and mounting consumer credit rates.
Though some of these concerns were overstated, we thought it wise to lessen our
exposure to this group. Consequently, we sold holdings that included National
Processing and some of the smaller industry players.
New themes in the portfolio include some European companies, such as Volkswagen,
where corporate restructurings are taking place much as they have in the U.S.
over the last decade. The managers of these companies are focusing on improving
shareholder returns by cutting costs. We believe there is room for more profits
here, so we're watching their moves with great interest.
LARGEST HOLDINGS IN JANUS SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Parametric Technology Corp. 1.06%
Warner-Lambert Co. 0.92%
Volkswagen AG 0.65%
Monsanto Co. 0.64%
Cincinnati Bell, Inc. 0.60%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
BERGER ASSOCIATES
- --------------------------------------------------------------------------------
- ---------------------------
[Photo of Patrick S. Adams]
- ---------------------------
Patrick S. Adams
Berger Associates
Since assuming management of the portfolio on February 3, 1997, I have sought
out companies with more predictable growth expectations and greater liquidity,
while keeping long-term performance potential intact. Our search for quality
firms means careful research into a company's fundamental financial soundness
and evaluation of how investors perceive the firm.
We focus on companies that are leaders in their industries or niches. With
large-cap stocks so highly valued, we directed our attention to mid- and
small-caps where stock prices were more reasonable. We found a number of
companies in the consumer sector that fit these criteria, and therefore
increased this area from 6% to about 25% of the segment. We're also invested in
some economically sensitive groups -- including hotels such as Hilton and
Marriott -- but their performance isn't dependent on any one factor or economic
quarter.
Technology is one of the most promising sectors of the portfolio right now.
After enduring depressed prices for the past year, this sector's earnings are
beginning to recover. Technological products are getting more complex in design,
driving up fundamental values in this group.
Rising valuations were behind the decision to reduce the portfolio's oil
services sector from 20% to about 5%. Health care has also fallen out of favor
with us, as we find some of the market fundamentals are not there to support
growth.
We believe our adjustments to the segment have
created a high-quality portfolio that's very reasonably valued against the
general market and has an attractive growth rate.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE: On July 25, 1997, Portfolio Manager Robert Sanborn of Oakmark/Harris
Associates L.P. assumed management of this portion of your Fund's portfolio.
Many investors are already familiar with Mr. Sanborn's investment expertise,
which was highlighted in the July 21 issue of Barron's -- naming him the
overall winner of their mutual fund manager ratings for his management of The
Oakmark Fund*. This move, approved by your Fund's Trustees, is subject to
shareholder approval. A proxy statement with more details will be mailed to you
shortly.
- --------------------------------------------------------------------------------
* The Oakmark Fund and New England Star Advisers Fund, including the
Oakmark/Harris segment, differ as to objectives, expenses, portfolio
composition and performance.
LARGEST HOLDINGS IN BERGER SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Cadence Design Sytems, Inc. 0.74%
Conseco, Inc. 0.50%
Cisco Systems, Inc. 0.45%
Chase Manhattan Corp. 0.42%
Cardinal Health, Inc. 0.38%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
---------------------------------------------
YOUR FUND'S TEN LARGEST SECTORS 6/30/97*
---------------------------------------------
SECTOR PERCENTAGE
----------------------------------------------
1. DRUGS & HEALTH CARE 9.8%
----------------------------------------------
2. ELECTRONICS 6.5%
----------------------------------------------
3. INSURANCE 5.3%
----------------------------------------------
4. TECHNOLOGY 4.5%
----------------------------------------------
5. BANKS 4.3%
----------------------------------------------
6. BUSINESS SERVICES 4.1%
----------------------------------------------
7. RETAIL 3.2%
----------------------------------------------
8. SOFTWARE 2.7%
----------------------------------------------
9. CHEMICALS 2.4%
----------------------------------------------
10. FINANCIAL SERVICES 2.2%
----------------------------------------------
*Portfolio holdings and asset allocations will vary.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
COMMON STOCK -- 87.5% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE(A)
- --------------------------------------------------------------------------------
AEROSPACE--0.9%
68,500 Boeing Co. (c) ................................... $ 3,634,781
53,200 Gencorp, Inc. .................................... 1,230,250
110,000 Gulfstream Aerospace Corp. (c) ................... 3,245,000
------------
8,110,031
------------
AGRICULTURAL MACHINERY--0.3%
89,100 Agco Corp. ....................................... 3,202,031
------------
AGRICULTURE--0.1%
15,079 Potash Corp., Saskatchewan ....................... 1,131,867
------------
AIR TRAVEL--0.0%
3,000 AMR Corp. (c) .................................... 277,500
------------
APPAREL & TEXTILES--0.1%
22,000 Just For Feet, Inc. .............................. 383,625
11,800 Timberland Co. ................................... 761,100
------------
1,144,725
------------
AUTOMOTIVE & RELATED--1.6%
22,900 Amcast Industrial Corp. ........................... 572,500
29,200 Borg Warner Automotive, Inc. ..................... 1,578,625
70,000 Echlin, Inc. ..................................... 2,520,000
30,000 Lear Corp. (c) ................................... 1,331,250
12,095 Volkswagen AG .................................... 9,271,839
------------
15,274,214
------------
BANKS--4.3%
8,375 Ambanc Holding Company, Inc. ..................... 136,094
50,000 Banc One Corp. ................................... 2,421,875
33,500 Bank of New York, Inc. ............................ 1,457,250
109,850 BankAmerica Corp. ................................ 7,092,191
7,000 Bankers Trust New York Corp. ..................... 609,000
40,000 Chase Manhattan Corp. ............................ 3,882,500
54,450 Citicorp ......................................... 6,564,628
72,100 City National Corp. .............................. 1,734,906
11,725 Dime Bancorp, Inc. ............................... 205,188
50,450 First Union Corp. (c) ............................. 4,666,625
6,525 Fleet Financial Group, Inc. ...................... 412,706
11,650 Klamath First Bancorp ............................. 222,806
32,750 Mellon Bank Corp. (c) ............................. 1,477,844
176,300 Nationwide Financial Services .................... 4,682,969
12,725 PFF Bancorp, Inc. ................................ 238,594
7,975 Provident Financial Holdings, Inc. ............... 132,584
4,850 Queens County Bancorp, Inc. ...................... 220,675
33,500 Roslyn Bancorp ................................... 766,312
25,300 State Street Corp. ............................... 1,170,125
6,355 Wells Fargo & Co. ................................ 1,712,672
------------
39,807,544
------------
BROADCASTING--0.4%
11,417 Central European Media Center .................... 296,842
23,400 Telebras (ADR) (d) ................................ 3,550,950
------------
3,847,792
------------
BUILDING CONSTRUCTION--0.0%
20,000 Apogee Enterprises, Inc. .......................... 430,000
------------
BUSINESS SERVICES--4.1%
49,400 Alternative Resources (c) ........................ 1,006,525
11,400 CDI Corp. ........................................ 475,238
38,900 Cognizant Corp. .................................. 1,575,450
77,700 Cort Business Services Corp. ..................... 2,292,150
64,825 Equifax, Inc. .................................... 2,410,680
125,960 First Data Corp. ................................. 5,534,367
47,750 Fiserv, Inc. (c) ................................. 2,130,844
24,100 Global DirectMail Corp. ........................... 628,106
41,025 Indus Group, Inc. ................................ 830,756
6,775 Intelligroup, Inc. ............................... 65,209
37,050 Intelliquest Information Group ................... 833,625
41,525 Lamar Advertising Co. ............................. 1,058,887
60,000 Loewen Group, Inc., 144A (f) ..................... 2,085,000
78,786 Metra OY, Series B ............................... 2,374,466
129,600 Nokia Corp. (ADR) (d) ............................. 9,558,000
19,900 Team America Corp. ................................ 166,663
58,275 TeleTech Holdings, Inc. ........................... 1,529,719
171,000 Viad Corp. ........................................ 3,291,750
------------
37,847,435
------------
CHEMICALS--2.4%
6,954 Akzo Nobel, 144A (f) .............................. 952,991
102,700 Cuno Inc. ......................................... 1,720,225
98,700 Dexter Corp. ...................................... 3,158,400
60,600 Hexcel Corp. ...................................... 1,045,350
2,000 IMC Global, Inc., Rights (c) ...................... 70,000
30,250 Imperial Chemical Industies PLC (ADR) (d) ......... 1,720,469
157,500 Lawter International, Inc. ........................ 1,988,437
31,600 Learonal, Inc. .................................... 900,600
137,200 Monsanto Co. ...................................... 5,908,175
60,200 Om Group, Inc. .................................... 1,994,125
61,683 Rhone Poulenc ..................................... 2,519,087
------------
21,977,859
------------
COMMUNICATION--1.6%
162,800 Ascend Communications, Inc. (c) ................... 6,410,250
175,750 Cincinnati Bell, Inc. ............................. 5,536,125
19,550 Millicom International Cellular ................... 933,513
69,970 WorldCom, Inc. (c) ................................ 2,239,040
------------
15,118,928
------------
COMMUNICATION SERVICES--0.8%
89,200 Lucent Technologies, Inc. (c) ..................... 6,427,975
150,000 Paging Network, Inc. (c) .......................... 1,317,188
------------
7,745,163
------------
COMPUTER SOFTWARE & SERVICES--1.9%
45,600 American Management Systems, Inc. ................. 1,219,800
6,372 Axime (Ex Segin) .................................. 753,576
9,550 CIBER, Inc. ....................................... 326,491
62,300 National Computer Systems, Inc. ................... 1,658,737
52,000 Network General Corp. ............................. 773,500
59,000 Nichols Research Corp. ............................ 1,239,000
80,975 Peoplesoft, Inc. (c) .............................. 4,271,431
79,700 PLATINUM Technology, Inc. ......................... 1,056,025
16,731 Securitas AB, Series B ............................ 471,509
63,700 Semitool, Inc ..................................... 740,513
70,800 Sterling Software, Inc. ........................... 2,212,500
65,000 Symantec Corp. .................................... 1,267,500
11,075 Technology Solutions (c) .......................... 437,463
81,500 Wonderware Corp. .................................. 1,151,187
------------
17,579,232
------------
COMPUTERS & BUSINESS EQUIPMENT--2.2%
26,500 3Com Corp. (c) .................................... 1,192,500
33,575 Compaq Computer Corp. (c) ......................... 3,332,319
40,175 EMC Corp. (c) ..................................... 1,566,825
83,500 Hewlett-Packard Co. ............................... 4,676,000
19,000 Oce Van der Grinten NV (c) ........................ 2,450,863
41,400 Storage Technology Corp. (c) ...................... 1,842,300
54,200 Telxon Corp. ...................................... 975,600
52,000 Xerox Corp. ....................................... 4,101,500
------------
20,137,907
------------
CONSUMER GOODS & SERVICES--0.8%
47,950 Gucci Group NV (ADR) (d) .......................... 3,086,781
39,475 Linens 'N Things, Inc. ............................ 1,169,447
20,862 Outdoor Systems, Inc. (c) ......................... 797,972
65,000 Tommy Hilfiger Corp. (c) .......................... 2,612,187
------------
7,666,387
------------
CONSUMER PRODUCTS--0.2%
15,300 Clorox Co. ........................................ 2,019,600
------------
CONTAINERS & GLASS--0.2%
50,000 Owens Illinois, Inc. .............................. 1,550,000
------------
DRUGS & HEALTH CARE--9.8%
39,900 American Home Products Corp. ...................... 3,052,350
40,000 Astra AB .......................................... 744,619
98,600 Bindley Western Industries, Inc. .................. 2,261,638
74,000 Bristol-Myers Squibb Co. (c) ...................... 5,994,000
61,000 Cardinal Health, Inc. ............................. 3,492,250
52,000 Centocor, Inc. .................................... 1,615,250
156,200 Columbia/HCA Healthcare Corp. (c) ................. 6,140,612
9,200 CompDent Corp. .................................... 193,775
46,900 Eli Lilly & Co., (c) .............................. 5,126,756
36,625 ESC Medical Systems, Ltd. (c) ..................... 933,938
27,850 Fresenius Medical Care (ADR) (d) .................. 811,131
43,750 Idexx Laboratories, Inc. (c) ...................... 544,141
37,000 Johnson & Johnson ................................. 2,381,875
13,000 Medtronic, Inc. (c) ............................... 1,053,000
38,500 Merck & Co., Inc. ................................. 3,984,750
187,025 Omnicare, Inc. .................................... 5,867,909
23,000 Oxford Health Plans, Inc. (c) ..................... 1,650,250
8,600 Pacificare Health Systems, Class B (c) ............ 549,325
58,500 Phycor, Inc. (c) .................................. 2,014,594
13,150 Protein Design Labs, Inc. ......................... 374,775
40,200 Rhone Poulenc Rorer, Inc. ......................... 3,653,175
34,411 SmithKline Beecham PLC ............................ 633,503
55,000 SmithKline Beecham PLC (ADR) (d) .................. 5,039,375
41,400 Sola International, Inc. (c) ...................... 1,386,900
81,575 Stryker Corp. (c) ................................. 2,844,928
100,000 Tenet Healthcare Corp. (c) ........................ 2,956,250
73,900 Teva Pharmaceutical Industries, Ltd. (ADR) (d) .... 4,785,025
69,600 United Healthcare Corp. ........................... 3,619,200
26,300 Vencor Inc. ....................................... 1,111,175
132,525 Warner Lambert Co., Rights (c) .................... 16,466,231
------------
91,282,700
------------
ELECTRIC--1.2%
27,600 Atmel Corp. (c) ................................... 772,800
84,000 General Electric Co. (c) .......................... 5,491,500
84,000 Ucar International, Inc. .......................... 3,843,000
62,175 Westinghouse Electric Corp. ....................... 1,437,797
------------
11,545,097
------------
ELECTRIC UTILITIES--0.3%
129,900 Calpine Corp. ..................................... 2,468,100
------------
ELECTRICAL EQUIPMENT--0.1%
55,600 Woodhead Industries ............................... 1,049,450
------------
ELECTRONIC COMPONENTS--1.0%
31,200 Dynatech Corp., Rights (c) ........................ 1,115,400
75,200 International Rectifier Corp. ..................... 1,400,600
75,200 Merix Corp. ....................................... 1,250,200
49,300 Perceptron, Inc. .................................. 1,337,262
96,500 Trident Microsystems, Inc. ........................ 1,085,625
75,400 VLSI Technology, Inc. ............................. 1,781,325
141,500 Xicor, Inc. ....................................... 831,313
------------
8,801,725
------------
ELECTRONICS--6.5%
128,800 Altera Corp. (c) .................................. 6,504,400
12,925 ASM Lithography Holding (ADR) (c) (d) ............. 756,113
49,000 Ericsson LM Telephone Co. (ADR) (c) (d) ........... 1,929,375
32,450 KLA Instruments Corp. ............................. 1,581,937
151,200 Lam Research Corp. (c) ............................ 5,603,850
53,000 Linear Technology Corp. ........................... 2,742,750
78,575 Maxim Integrated Products, Inc. (c) ............... 4,468,953
104,400 Motorola, Inc. .................................... 7,934,400
182,975 National Semiconductor Corp. (c) .................. 5,603,609
7,755 Philips Electronics NV ............................ 555,481
75,061 Philips Electronics NV (ADR) (d) .................. 5,395,009
105,675 Tellabs, Inc. (c) ................................. 5,904,591
230,500 Xilinx, Inc. (c) .................................. 11,308,906
------------
60,289,374
------------
ENERGY--0.1%
26,525 Triton Energy, Ltd. ............................... 1,215,177
------------
ENVIRONMENTAL--0.4%
95,500 Tetra Tech, Inc. .................................. 2,303,937
78,450 World Fuel Services Corp. ......................... 1,716,094
------------
4,020,031
------------
FINANCE--0.8%
6,375 Catskill Financial Corp. .......................... 98,813
63,000 Green Tree Financial Corp. ........................ 2,244,375
25,100 Hartford Financial Services Group ................. 2,077,025
38,800 Money Store, Inc. ................................ 1,113,075
6,350 Peekskill Financial Corp. ......................... 95,250
85,000 Peregrine Investment .............................. 174,997
8,500 Peregrine Investment, Warrants .................... 3,730
7,725 TF Financial Corp. ................................ 151,603
17,075 Travelers, Inc. ................................... 1,076,792
7,125 Western National Corp. ............................ 191,039
------------
7,226,699
------------
FINANCE & BANKING--0.0%
2,100 Household International, Inc. ..................... 246,619
------------
FINANCIAL SERVICES--2.2%
11,825 AMRESCO, Inc. ..................................... 254,238
122,650 Associates 1st Capital Corp. (c) .................. 6,807,075
34,025 Charles Schwab Corp. .............................. 1,384,392
108,400 DVI, Inc. ......................................... 1,571,800
73,200 Financial Federal Corp. ........................... 1,610,400
28,600 First USA Paymentech .............................. 827,612
30,500 Firstplus Financial Group, Inc. ................... 1,037,000
43,100 Redwood Trust, Inc. ............................... 2,014,925
28,925 Student Loan Marketing Association ................ 3,673,475
81,400 WFS Financial, Inc. ............................... 1,363,450
------------
20,544,367
------------
FOOD & BEVERAGES--1.9%
56,300 Coca-Cola Co. ..................................... 3,800,250
136,650 Coca-Cola Enterprises, Inc. ....................... 3,142,950
50,600 International Multifoods Corp. .................... 1,271,325
115,200 Lance, Inc. ....................................... 2,203,200
135,800 Michael Foods, Inc. ............................... 2,512,300
127,500 PepsiCo, Inc. (c) ................................. 4,789,219
------------
17,719,244
------------
FREIGHT TRANSPORTATION--0.5%
106,900 Circle International Group, Inc. .................. 2,819,488
70,600 Pittston Burlington Co. ........................... 1,985,625
------------
4,805,113
------------
GAS & PIPELINE UTILITIES--0.1%
50,500 Public Service North Carolina, Inc. ............... 968,969
------------
GOVERNMENT AGENCIES--0.7%
50,000 Federal Home Loan Mortgage Corp. .................. 1,718,750
102,500 Federal National Mortgage Association ............. 4,471,563
------------
6,190,313
------------
HEALTH CARE - MEDICAL TECHNOLOGY--1.6%
114,150 C R Bard, Inc. .................................... 4,145,072
115,950 Conmed Corp. ...................................... 1,971,150
72,500 Hologic Inc. ...................................... 1,930,313
107,200 Invacare Corp. .................................... 2,505,800
70,000 Marquette Medical Systems, Inc. ................... 1,540,000
52,750 Sofamor/Danek Group, Inc. ......................... 2,413,312
------------
14,505,647
------------
HEALTH CARE - SERVICES--1.7%
140,112 GranCare, Inc. .................................... 1,514,961
98,200 Gulf South Medical Supply, Inc. ................... 1,914,900
114,200 Healthplan Services Corp. ......................... 2,155,525
59,300 Integrated Health Services, Inc. .................. 2,283,050
56,100 Phymatrix Corp. ................................... 862,537
82,400 Physicians Resource Group, Inc. ................... 741,600
95,900 RoTech Medical .................................... 1,923,994
68,900 Sierra Health Services, Inc. ...................... 2,153,125
99,673 Vitalink Pharmacy Services, Inc. .................. 1,906,246
------------
15,455,938
------------
HOUSEHOLD APPLIANCES & HOME FURNISHINGS--0.6%
27,425 Industrie Natuzzi SPA (ADR) (d) ................... 702,766
46,000 Maytag Corp. ...................................... 1,201,750
100,500 Sunbeam Corp. (c) ................................. 3,793,875
------------
5,698,391
------------
HOTELS & RESTAURANTS--1.3%
149,500 Boston Chicken, Inc. (c) .......................... 2,093,000
67,400 Buffets, Inc. ..................................... 568,688
47,800 Cooker Restaurant Corp., New ...................... 510,863
7,100 Cooper Cameron Corp. (c) .......................... 331,925
50,000 HFS, Inc. (c) ..................................... 2,900,000
80,000 Hilton Hotels Corp. ............................... 2,125,000
60,000 La Quinta Inns, Inc. .............................. 1,312,500
50,000 Lone Star Steakhouse & Saloon (c) ................. 1,300,000
16,500 Marriot International, Inc. ....................... 1,012,687
------------
12,154,663
------------
HOUSEHOLD PRODUCTS--1.5%
17,100 Aptargroup, Inc. .................................. 773,775
34,400 Bush Boake Allen, Inc. ............................ 1,070,700
8,935 Cultor OY ......................................... 473,184
133,775 Dial Corp., New (c) ............................... 2,090,234
27,476 Gillette Co. ...................................... 2,603,351
94,400 Premark International, Inc. ....................... 2,525,200
18,650 Procter & Gamble Co. .............................. 2,634,312
144,150 United States Can Corp. ........................... 2,054,138
------------
14,224,894
------------
HOUSING & BUILDING MATERIALS--1.0%
41,300 Crossmann Communities, Inc. ....................... 877,625
73,300 Dayton Superior Corp. ............................. 934,575
105,900 Giant Cement Holding, Inc. ........................ 1,985,625
27,121 Hunter Douglas NV ................................. 2,307,406
74,500 Toro Co. (c) ...................................... 2,821,687
------------
8,926,918
------------
INDUSTRIAL MACHINERY--0.9%
16,000 Applied Materials, Inc. ........................... 1,133,000
26,325 Chicago Bridge & Iron Co. ......................... 582,440
33,750 Crane Co. ......................................... 1,411,172
105,500 United States Filter Corp. ........................ 2,874,875
52,700 York International Corp. .......................... 2,424,200
------------
8,425,687
------------
INDUSTRIALS--0.3%
144,400 Griffon Corp. ..................................... 1,976,475
31,600 Insilco Corp. ..................................... 1,185,000
------------
3,161,475
------------
INSURANCE--5.3%
77,250 Allied Group, Inc. ................................ 2,935,500
37,150 Allstate Corp. .................................... 2,711,950
50,800 Capital Re Corp. .................................. 2,717,800
47,800 Capmac Holdings, Inc. ............................. 1,607,275
13,400 CIGNA Corp. ....................................... 2,378,500
125,500 Conseco, Inc. ..................................... 4,643,500
143,700 Everest Reinsurance Holdings, Inc. (c) ............ 5,694,112
35,000 First Commonwealth, Inc. (c) ...................... 647,500
85,400 Hartford Life, Inc. (c) ........................... 3,202,500
21,700 Marsh & McLennan Companies, Inc. (c) .............. 1,548,838
59,000 MedPartners, Inc. ................................. 1,275,875
42,000 MGIC Investment Corp. ............................. 2,013,375
29,550 Progressive Corp. Ohio ............................ 2,570,850
70,700 Protective Life Corp. (c) ......................... 3,552,675
43,000 Reinsurance Group America, Inc. ................... 2,472,500
17,250 Reliance Group Holdings, Inc. ..................... 204,844
72,300 TIG Holdings, Inc. ................................ 2,259,375
29,150 Triad Guaranty, Inc. .............................. 1,322,681
124,470 UNUM Corp. (c) .................................... 5,227,740
------------
48,987,390
------------
INTERNATIONAL OIL--0.3%
21,300 Exxon Corp. (c) ................................... 1,309,950
9,075 Texaco, Inc. ...................................... 986,906
------------
2,296,856
------------
LEISURE TIME--0.6%
53,695 Harman International Industries, Inc. ............. 2,261,902
98,700 Scientific Games Holdings Corp. ................... 2,035,687
12,000 Walt Disney Co. ................................... 963,000
------------
5,260,589
------------
MACHINERY--0.5%
72,500 Brown & Sharpe Manufacturing Co., Rights (c) ...... 1,096,563
75,800 BW/IP, Inc. ....................................... 1,539,687
64,600 Greenfield Industries, Inc. ....................... 1,744,200
19,600 Hardinge Brothers, Inc. ........................... 573,300
------------
4,953,750
------------
MEDIA & ENTERTAINMENT--0.6%
84,325 Banta Corp. ....................................... 2,287,316
82,700 Cadmus Communications Corp., Rights (c) ........... 1,281,850
31,700 Houghton Mifflin Co. .............................. 2,115,975
------------
5,685,141
------------
METAL--1.1%
118,100 Agnico Eagle Mines, Ltd. .......................... 1,136,713
116,550 Citation Corp. .................................... 1,995,919
57,100 Lone Star Technologies, Inc. (c) .................. 1,634,487
91,400 LTV Corp. ......................................... 1,302,450
131,800 Oregon Steel Mills, Inc. .......................... 2,627,762
180,800 UNR Industries, Inc. .............................. 1,243,000
------------
9,940,331
------------
MISCELLANEOUS--1.3%
1,950 Novartis AG ....................................... 3,117,329
619,782 Rentokil Initial PLC .............................. 2,173,652
169,725 Santa Fe International Corp. (c) .................. 5,770,650
16,684 Skandia Foersaekrings AB .......................... 614,691
17,000 Weider Nutrition International, Inc. .............. 269,875
------------
11,946,197
------------
NEWSPAPERS--0.2%
22,500 Gannett, Inc. ..................................... 2,221,875
------------
OIL & GAS--0.2%
20,000 Transocean Offshore, Inc. ......................... 1,452,500
------------
OIL - INDEPENDENT PRODUCERS--0.4%
104,800 Lomak Petroleum, Inc., New ........................ 1,866,750
52,600 Vintage Petroleum, Inc. 1,617,450
------------
3,484,200
------------
OIL SERVICES--1.4%
29,200 Falcon Drilling (c) ............................... 1,682,650
64,000 Key Energy Group, Inc. (c) ........................ 1,140,000
133,400 Pride Petroleum Services, Inc. (c) ................ 3,201,600
51,400 Seitel, Inc., New ................................. 1,953,200
93,400 Tuboscope Vetco International Corp. ............... 1,856,325
75,500 Weatherford Enterra, Inc. ......................... 2,906,750
------------
12,740,525
------------
PAPER--0.6%
51,300 James River Corp. ................................. 1,898,100
25,000 Kimberly-Clark Corp. .............................. 1,243,750
19,325 Minnesota Mining & Manufacturing Co. .............. 1,971,150
10,500 Wausau Paper Mills Co. ............................ 198,188
------------
5,311,188
------------
PETROLEUM SERVICES--0.9%
45,000 Baker Hughes, Inc. ................................ 1,740,937
20,000 Diamond Offshore Drilling, Inc. ................... 1,562,500
99,225 Noble Drilling (c) ................................ 2,238,764
21,200 Schlumberger, Ltd. ................................ 2,650,000
19,750 Tosco Corp. ....................................... 591,266
------------
8,783,467
------------
POLLUTION CONTROL--0.3%
75,000 USA Waste Services, Inc. .......................... 2,896,875
------------
PUBLISHING--0.5%
50,000 Citic Pacific, Ltd. ............................... 312,367
88,650 Time Warner, Inc. ................................. 4,277,362
------------
4,589,729
------------
RAILROADS & EQUIPMENT--0.1%
26,875 Wisconsin Central Transportation Corp. ............ 1,001,094
------------
REITS--2.2%
110,500 American General Hospitality Corp. ................ 2,734,875
99,900 Brandywine Realty Trust, New ...................... 2,022,975
81,800 Cali Reality Corp. ................................ 2,781,200
130,400 Capstone Capital Corp. ............................ 3,194,800
79,200 Health Care Property Investments, Inc. ............ 2,791,800
122,900 Koger Equity, Inc. ................................ 2,242,925
89,500 Liberty Property .................................. 2,226,313
72,800 Sun Communities, Inc. ............................. 2,443,350
------------
20,438,238
------------
RETAIL--3.2%
89,825 Abercrombie & Fitch Co. ........................... 1,661,762
59,700 Autozone, Inc. (c) ................................ 1,406,681
36,100 Carson Pirie Scott & Co. (c) ...................... 1,146,175
102,600 Cato Corp. ........................................ 557,888
115,000 Consolidated Stores Corp. (c) ..................... 3,996,250
69,050 Costco Companies, Inc. ............................ 2,270,019
45,000 CVS Corp. ......................................... 2,306,250
54,500 Family Dollar Stores, Inc. ........................ 1,485,125
50,000 Federated Department Stores, Inc. (c) ............. 1,737,500
113,200 Heilig Meyers Co. ................................. 2,221,550
17,000 Home Depot, Inc. .................................. 1,171,938
60,000 Lowes Cos., Inc. .................................. 2,227,500
18,125 Nordstrom, Inc. ................................... 889,258
18,525 Scholastic Corp. .................................. 648,375
101,900 Tandycrafts, Inc. ................................. 484,025
64,200 United Auto Group, Inc. ........................... 1,271,962
30,000 Wal-Mart Stores, Inc. ............................. 1,014,375
47,200 Wet Seal, Inc. (c) ................................ 1,489,750
106,100 Zale Corp. ........................................ 2,102,106
------------
30,088,489
------------
RETAIL - GROCERY--1.0%
62,600 Albertsons, Inc. (c) .............................. 2,284,900
45,000 American Stores Co. ............................... 2,221,875
70,000 Safeway, Inc., New (c) ............................ 3,228,750
43,400 The Kroger Co. (c) ................................ 1,258,600
------------
8,994,125
------------
SAVINGS & LOAN--1.2%
4,875 Astoria Financial Corp. ........................... 231,562
46,100 Bank United Corp. ................................. 1,751,800
51,425 Commercial Federal Corp. .......................... 1,909,153
56,200 Downey Financial Corp. ............................ 1,327,725
9,450 First Defiance Financial Corp. .................... 137,025
57,037 First Financial Corp. ............................. 1,675,462
2,175 First Savings Bancorp, Inc. ....................... 48,394
1,375 FSF Financial Corp. ............................... 23,891
71,150 Great Western Financial Corp. ..................... 3,824,312
6,350 North Central Bancshares, Inc. .................... 98,425
------------
11,027,749
------------
SOFTWARE--2.7%
63,750 BMC Software, Inc. (c) 3,530,156
205,000 Cadence Design Systems, Inc. (c) .................. 6,867,500
84,125 HBO & Co., Rights (c) ............................. 5,794,109
6,950 JDA Software Group, Inc. .......................... 237,169
51,575 Microsoft Corp. (c) ............................... 6,517,791
13,125 Rational Software Corp. ........................... 220,664
55,962 Wind River Systems (c) ............................ 2,140,547
------------
25,307,936
------------
TECHNOLOGY--4.5%
97,990 Analog Devices, Inc. .............................. 2,602,859
77,300 Aspen Technology .................................. 2,908,413
128,675 Cisco Systems, Inc. (c) ........................... 8,637,309
59,350 Intel Corp. ....................................... 8,416,572
281,400 Parametric Technology Corp. (c) ................... 11,977,087
68,587 Pittway Corp. ..................................... 3,412,203
21,100 Sapient Corp. ..................................... 1,044,450
70,000 Sun Microsystems, Inc. ............................ 2,605,313
------------
41,604,206
------------
TELECOMMUNICATION--0.6%
110,400 Aliant Communications, Inc. ....................... 2,152,800
100 DDI Corp. (c) ..................................... 738,091
94,100 Inter Tel, Inc. ................................... 1,999,625
16,750 U.S. West Media Group (c) ......................... 631,266
------------
5,521,782
------------
TOBACCO--1.0%
142,000 Philip Morris Companies, Inc. ..................... 6,301,250
86,650 RJR Nabisco Holdings Corp. (c) .................... 2,859,450
------------
9,160,700
------------
TOYS & AMUSEMENTS--0.2%
57,000 Hasbro, Inc. ...................................... 1,617,375
------------
TRUCKING & FREIGHT FORWARDING--0.2%
59,800 Caliber Systems, Inc. ............................. 2,227,550
------------
Total Common Stocks (Identified Cost
$687,008,988) ................................... 813,334,663
------------
SHORT-TERM INVESTMENTS - 12.2%
FACE
AMOUNT DESCRIPTION VALUE(A)
- --------------------------------------------------------------------------------
$11,678,178 Associates Corp. North America, 6.080%, 7/01/97 ... 11,678,178
10,400,000 Chevron Oil Finance Co., 5.500%, 7/01/97 .......... 10,400,000
10,000,000 Federal Home Loan Bank, 5.370%, 7/03/97 ........... 9,997,017
5,000,000 Federal Home Loan Bank, 5.400%, 7/15/97 ........... 4,989,500
10,000,000 Federal Home Loan Mortgage, 5.400%, 7/10/97 ....... 9,986,500
2,000,000 Federal Home Loan Mortgage, 5.440%, 7/23/97 ....... 1,993,351
5,000,000 Federal Home Loan Mortgage, 5.530%, 7/31/97 ....... 4,976,958
5,000,000 Federal National Mortgage Association,
5.500%, 7/02/97 ................................. 4,999,236
5,100,000 Prudential Funding Corp., 6.000%, 7/01/97 ......... 5,100,000
5,000,000 United States Treasury Bill, 4.580%, 7/03/97 ...... 4,998,736
5,000,000 United States Treasury Bill, 4.790%, 7/03/97 ...... 4,998,670
10,000,000 United States Treasury Bill, 4.880%, 7/24/97 ...... 9,969,014
10,000,000 United States Treasury Bill, 5.000%, 8/21/97 ...... 9,929,166
19,460,000 Repurchase Agreement with State Street Bank
& Trust Co. dated 6/30/97 at 5.000% to be
repurchased at $19,462,703 on 7/01/97,
collateralized by $18,805,000 U.S. Treasury
Bonds, 7.250% due 5/15/97, valued at $19,853,962 19,460,000
------------
Total Short-Term Investments (Identified Cost
$113,476,326) .................................. 113,476,326
------------
Total Investments--99.7% (Identified Cost
$800,485,316) (b) .............................. 926,810,989
Other assets less liabilities (e) ................ 2,432,935
------------
Total Net Assets--100% ........................... $929,243,924
============
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION -- continued
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
FORWARD CURRENCY CONTRACTS OUTSTANDING
at June 30, 1997
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE (DEPRECIATION)
------------- --------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Deutsch Mark (bought) .......... 08/11/97 1,100,000 $ 657,316 $ 632,650 $(24,666)
Deutsch Mark (sold) ............ 08/11/97 2,100,000 1,271,397 1,207,787 63,609
Deutsch Mark (sold) ............ 08/13/97 1,600,000 959,476 920,344 39,132
Deutsch Mark (sold) ............ 10/23/97 250,000 149,270 144,543 4,727
Finnish Markka (sold) .......... 07/15/97 1,700,000 367,290 327,769 39,521
Finnish Markka (sold) .......... 07/28/97 660,000 139,825 127,383 12,442
Finnish Markka (sold) .......... 08/12/97 1,749,000 360,767 337,933 22,835
Finnish Markka (sold) .......... 09/11/97 906,000 179,034 175,430 3,604
Finnish Markka (sold) .......... 10/22/97 400,000 78,694 77,684 1,009
Finnish Markka (sold) .......... 11/28/97 5,000,000 993,404 973,683 19,721
British Pounds (bought) ........ 07/15/97 300,000 490,995 499,372 8,377
British Pounds (sold) .......... 07/15/97 300,000 505,359 499,372 5,987
British Pounds (bought) ........ 07/18/97 500,000 817,415 832,214 14,799
British Pounds (sold) .......... 07/18/97 800,000 1,333,684 1,331,542 2,142
British Pounds (sold) .......... 09/25/97 100,000 159,690 166,101 (6,411)
British Pounds (sold) .......... 11/28/97 500,000 810,050 828,900 (18,850)
British Pounds (sold) .......... 12/04/97 369,000 602,298 611,618 (9,320)
Italian Lyra (bought) .......... 07/15/97 200,000,000 127,397 117,616 (9,781)
Italian Lyra (sold) ............ 07/15/97 200,000,000 129,207 117,616 11,591
Netherland Guilder (bought) .... 09/25/97 200,000 106,067 102,512 (3,556)
Netherland Guilder (sold) ...... 09/25/97 2,800,000 1,492,299 1,435,161 57,137
Swedish Krona (bought) ......... 07/28/97 600,000 79,174 77,651 (1,523)
Swedish Krona (sold) ........... 07/28/97 3,000,000 427,095 388,255 38,840
Swedish Krona (sold) ........... 09/25/97 150,000 19,800 19,459 341
--------
$271,707
========
(a) See Note 1a.
(b) Federal Tax Information: At June 30, 1997 the net unrealized appreciation on investments
based on cost of $800,485,316 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. $139,721,835
Aggregate gross unrealized depreciation for all investments in which there is an (13,396,162)
excess of tax cost over value. ------------
Net unrealized appreciation $126,325,673
============
(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 $260,651 and a cost of
$264,516.
(f) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ..................................... $926,810,989
Cash ..................................................... 112,809
Foreign currencies at value (Cost $264,516) .............. 260,651
Receivable for:
Fund shares sold ....................................... 2,042,542
Securities sold ........................................ 10,078,970
Open forward currency contracts - net .................. 271,707
Accrued dividends and interest ......................... 651,694
Foreign taxes .......................................... 34,079
Prepaid registration expense ............................. 15,000
Unamortized organization expense ......................... 74,847
------------
940,353,288
LIABILITIES
Payable for:
Securities purchased ................................... $8,383,724
Fund shares redeemed ................................... 1,736,729
Withholding taxes ...................................... 9,104
Accrued expenses:
Management fees ........................................ 787,625
Deferred trustees' fees ................................ 8,739
Accounting and administrative .......................... 10,000
Other expenses ......................................... 173,443
----------
11,109,364
------------
NET ASSETS ................................................. $929,243,924
============
Net Assets consist of:
Capital paid in ........................................ $726,107,275
Undistributed net investment loss ...................... (2,425,608)
Accumulated net realized gains ......................... 78,968,701
Unrealized appreciation on investments, forward currency
contracts and foreign currency transactions .......... 126,593,556
------------
NET ASSETS ................................................. $929,243,924
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($387,313,673 divided by 19,295,542 shares of beneficial
interest) ................................................ $20.07
======
Offering price per share (100/94.25 of $20.07) ............. $21.29*
======
Net asset value and offering price of Class B shares
($424,923,480 divided by 21,627,102 shares of beneficial
interest) ................................................ $19.65**
======
Net asset value and offering price of Class C shares
($85,982,413 divided by 4,373,480 shares of beneficial
interest) ................................................ $19.66
======
Net asset value and offering price of Class Y shares
($31,024,358 divided by 1,530,440 shares of beneficial
interest) ................................................ $20.27
======
Identified cost of investments ............................. $800,485,316
============
*Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................... $ 3,592,397(a)
Interest ................................................ 2,843,040
-----------
6,435,437
Expenses
Management fees ....................................... $ 4,455,375
Service fees - Class A ................................ 446,108
Service and distribution fees - Class B ............... 1,922,364
Service and distribution fees - Class C ............... 410,191
Trustees' fees and expenses ........................... 11,579
Accounting and administrative ......................... 67,281
Custodian ............................................. 247,864
Transfer agent ........................................ 1,033,219
Audit and tax services ................................ 22,421
Legal ................................................. 9,956
Printing .............................................. 110,049
Registration .......................................... 91,104
Amortization of organization expenses ................. 16,449
Miscellaneous ......................................... 6,113
------------
Total expenses .......................................... 8,850,073
-----------
Net investment loss ..................................... (2,414,636)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FORWARD
CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments - net ..................................... 68,566,442
Foreign currency transactions - net ................... 360,950
------------
Total realized gain on investments and foreign currency
transactions ........................................ 68,927,392
------------
Unrealized appreciation on:
Investments - net ..................................... 18,651,027
Foreign currency transactions - net ................... 258,971
------------
Total unrealized appreciation on investments, forward
currency contracts, and foreign currency
transactions........................................... 18,909,998
------------
Net gain on investment transactions ................... 87,837,390
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $85,422,754
===========
(a) Net of foreign taxes of: $94,485
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
----------------- -----------------
FROM OPERATIONS
<S> <C> <C>
Net investment loss .................................. $ (4,909,272) $ (2,414,636)
Net realized gain on investments
and foreign currency transactions .................. 73,998,381 68,927,392
Unrealized appreciation on investments, and foreign
currency transactions .............................. 37,717,140 18,909,998
------------- -------------
Increase in net assets from operations ............... 106,806,249 85,422,754
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A .............................................. (28,709,305) 0
Class B .............................................. (30,201,992) 0
Class C .............................................. (6,605,753) 0
Class Y .............................................. (1,223,707) 0
------------- -------------
(66,740,757) 0
------------- -------------
Increase in net assets derived from capital share
transactions ......................................... 278,927,348 29,973,886
------------- -------------
Total increase in net assets ......................... 318,992,840 115,396,640
NET ASSETS
Beginning of the period .............................. 494,854,444 813,847,284
------------- -------------
End of the period .................................... $ 813,847,284 $ 929,243,924
============= =============
UNDISTRIBUTED NET INVESTMENT LOSS
Beginning of the period .............................. $ (134,869) $ (10,972)
============= =============
End of the period .................................... $ (10,972) $ (2,425,608)
============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
JULY 7, 1994(a) YEAR YEAR SIX MONTHS
THROUGH ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1997
------------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ........................ $12.50 $13.25 $16.78 $18.18
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (loss) .... 0.05 0.00 (0.06)(f) (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments ......... 0.75 4.52 3.17 1.91
------ ------ ------ ------
Total From Investment Operations 0.80 4.52 3.11 1.89
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ........................ (0.05) 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ................. 0.00 (0.99) (1.71) 0.00
------ ------ ------ ------
Total Distributions ............. (0.05) (0.99) (1.71) 0.00
------ ------ ------ ------
Net Asset Value, End of Period .. $13.25 $16.78 $18.18 $20.07
====== ====== ====== ======
Total Return (%)(c) ............. 6.4 34.4 19.0 10.4
Ratio of Operating Expenses to
Average Net Assets (%) (d) .... 1.94 (b) 1.82 1.68 1.68 (b)
Ratio of Net Investment Income
(loss) to Average Net
Assets (%) .................... 1.06 (b) (0.33) (0.36) (0.19)(b)
Portfolio Turnover Rate (%) ..... 100 142 127 203 (b)
Average Commission Rate (e) ..... -- -- $0.0595 $0.0448
Net Assets, End of Period (000) . $91,218 $223,596 $348,573 $387,314
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge is not reflected in total return calculations. Periods less than one year
are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the
voluntary fee waiver in effect through December 31, 1994 would have been 1.98% for the
period ended December 31, 1994.
(e) For the fiscal years beginning on or after September 1, 1995, a fund is required to
disclose it's average commission rate per share for trades on which commissions are
charged. The 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.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------
JULY 7, 1994(a) YEAR YEAR SIX MONTHS
THROUGH ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1997
------------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ........................ $12.50 $13.23 $16.63 $17.86
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (loss) .... 0.02 0.00 (0.20)(f) (0.12)
Net Realized and Unrealized Gain
(Loss) on Investments ......... 0.73 4.39 3.14 1.91
------ ------ ------ ------
Total From Investment Operations 0.75 4.39 2.94 1.79
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income .......................... (0.02) 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ................... 0.00 (0.99) (1.71) 0.00
------ ------ ------ ------
Total Distributions ............. (0.02) (0.99) (1.71) 0.00
------ ------ ------ ------
Net Asset Value, End of Period .. $13.23 $16.63 $17.86 $19.65
====== ====== ====== ======
Total Return (%)(c) ............. 6.0 33.4 18.1 10.0
Ratio of Operating Expenses to
Average Net Assets (%)(d) ..... 2.69 (b) 2.57 2.43 2.43 (b)
Ratio of Net Investment Income
(loss) to Average Net
Assets (%) .................... 0.31 (b) (1.08) (1.11) (0.94)(b)
Portfolio Turnover Rate (%) ..... 100 142 127 203 (b)
Average Commission Rate (e) ..... -- -- $0.0595 $0.0448
Net Assets, End of Period (000) . $72,889 $220,017 $366,314 $424,923
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods
less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect to the
voluntary fee waiver in effect through December 31, 1994 would have been 2.75% for the
period ended December 31, 1994.
(e) For the fiscal years beginning on or after September 1, 1995, a fund is required to
disclose it's average commission rate per share for trades on which commissions are
charged. The 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.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------
JULY 7, 1994(a) YEAR YEAR SIX MONTHS
THROUGH ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1997
------------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ........................ $12.50 $13.24 $16.65 $17.87
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (loss) .... 0.02 0.00 (0.20)(f) (0.12)
Net Realized and Unrealized Gain
(Loss) on Investments ......... 0.74 4.40 3.13 1.91
------ ------ ------ ------
Total From Investment Operations 0.76 4.40 2.93 1.79
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ........................ (0.02) 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ................. 0.00 (0.99) (1.71) 0.00
------ ------ ------ ------
Total Distributions ............. (0.02) (0.99) (1.71) 0.00
------ ------ ------ ------
Net Asset Value, End of Period .. $13.24 $16.65 $17.87 $19.66
====== ====== ====== ======
Total Return (%)(c) ............. 6.0 33.4 18.0 10.0
Ratio of Operating Expenses to
Average Net Assets (%)(d) ..... 2.69(b) 2.57 2.43 2.43 (b)
Ratio of Net Investment Income
(Loss) to Average Net
Assets (%) .................. 0.31(b) (1.08) (1.11) (0.94)(b)
Portfolio Turnover Rate (%) ..... 100 142 127 203 (b)
Average Commission Rate (e) ..... -- -- $0.0595 $0.0448
Net Assets, End of Period (000) . $20,096 $45,672 $80,312 $85,982
(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, without giving effect to the
voluntary fee waiver in effect through December 31, 1994 would have been 2.75% for the
period ended December 31, 1994.
(e) For the fiscal years beginning on or after September 1, 1995, a fund is required to
disclose it's average commission rate per share for trades on which commissions are
charged. The 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.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS Y
---------------------------------------------------------------------
NOVEMBER 15(a) YEAR YEAR SIX MONTHS
THROUGH ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 1997
------------------ ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ........................... $13.59 $13.24 $16.83 $18.33
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (loss) ..... 0.06 0.00 (0.02) (f) 0.03
Net Realized and Unrealized Gain
(Loss) on Investments .......... (0.35) 4.58 3.23 1.91
------ ------ ------ ------
Total From Investment Operations . (0.29) 4.58 3.21 1.94
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ......................... (0.06) 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains .................. 0.00 (0.99) (1.71) 0.00
------ ------ ------ ------
Total Distributions .............. (0.06) (0.99) (1.71) 0.00
------ ------ ------ ------
Net Asset Value, End of Period ... $13.24 $16.83 $18.33 $20.27
====== ====== ====== ======
Total Return (%)(c) .............. (2.1) 34.8 19.6 10.6
Ratio of Operating Expenses to
Average Net Assets (%)(d) ...... 1.79 (b) 1.57 1.43 1.43 (b)
Ratio of Net Investment Income
(loss) to Average Net
Assets (%) ..................... 2.26 (b) (0.08) (0.11) 0.81 (b)
Portfolio Turnover Rate (%) ...... 100 142 127 203 (b)
Average Commission Rate (e) ...... -- -- $0.0595 $0.0448
Net Assets, End of Period (000) .. $196 $5,569 $18,649 $31,024
(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, without giving effect to the
voluntary fee waiver in effect through December 31, 1994 would have been 1.90% for the
period ended December 31, 1994.
(e) For the fiscal years beginning on or after September 1, 1995, a fund is required to
disclose it's average commission rate per share for trades on which commissions are
charged. The 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.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
1. The Fund is a series of New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company
Act of 1940, as amended, (the "1940 Act") as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each such series of shares a
"Fund"). The Fund offers Class A, Class B, Class C and Class Y shares. The
Fund commenced its public offering of Class 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 six years of purchase (or five years if
purchased before May 1, 1997). 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 six months ended June 30, 1997 were $637,037,109 and
$659,085,552, 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% on the first $1 billion of the Fund's
average daily net assets and 1.00% of such assets in excess of $1 billion. 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") as follows: Berger Associates, Inc.,
Founders Asset Management, Inc., and Loomis, Sayles & Company, L.P. at the
annual 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, 0.50% of the next $200
million and .475% of such assets in excess of $250 million. NEFM pays Janus
Capital Corporation at the annual rate of 0.55% of the first $50 million of
average daily net assets, 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 six months ended June 30, 1997 are as follows:
FEES EARNED
-----------
$2,284,178 New England Funds Management, L.P.
508,793 Berger Associates, Inc.
575,392 Founders Asset Management, Inc.
516,297 Janus Capital Corporation
570,715 Loomis, Sayles & Company, L.P.
----------
$4,455,375
==========
(See footnote 5.)
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
six months ended June 30, 1997, these expenses amounted to $67,281 and are
shown separately in the financial statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the six months ended June 30, 1997, the Fund
paid New England Funds $738,149 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 June 30, 1997, the Fund paid New England Funds $446,108 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 six months
ended June 30, 1997 the Fund paid New England Funds $480,591 and $102,547 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 six months ended June 30, 1997, the Fund paid New
England Funds $1,441,773 and $307,644 in distribution fees under the Class B
and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid
to New England Funds by investors in shares of the Fund during the six months
ended June 30, 1997 amounted to $1,676,638.
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 $2,045
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $342/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.
<PAGE>
4. CAPITAL SHARES. At June 30, 1997 there was an unlimited number of shares
of beneficial interest authorized, dividend 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 SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold ...................... 7,691,218 $139,876,241 6,679,491 $125,714,847
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 1,578,726 27,875,496 0 0
--------- ------------ --------- ------------
9,269,944 167,751,737 6,679,491 125,714,847
Shares repurchased ............... (3,418,502) (61,553,540) (6,558,045) (122,115,239)
--------- ------------ --------- ------------
Net increase ..................... 5,851,442 106,198,197 121,446 3,599,608
--------- ------------ --------- ------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- ----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- --------- ------------ --------- ------------
Shares sold ...................... 7,630,405 $135,846,816 2,810,415 $ 49,952,593
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 1,660,548 28,858,732 0 0
--------- ------------ --------- ------------
9,290,953 164,705,548 2,810,415 49,952,593
Shares repurchased ............... (2,008,111) (35,730,310) (1,693,700) (30,781,050)
--------- ------------ --------- ------------
Net increase ..................... 7,282,842 128,975,238 1,116,715 19,171,543
--------- ------------ --------- ------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- ----------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------ --------- ------------ --------- ------------
Shares sold ...................... 2,328,617 $ 41,733,783 980,047 $ 17,558,559
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 356,206 6,194,589 0 0
--------- ------------ --------- ------------
2,684,823 47,928,372 980,047 17,558,559
Shares repurchased ............... (934,175) (16,650,873) (1,100,907) (20,029,298)
--------- ------------ --------- ------------
Net increase (decrease) .......... 1,750,648 31,277,499 (120,860) (2,470,739)
--------- ------------ --------- ------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------------- ------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- --------- ------------ --------- -------------
Shares sold ...................... 671,715 $ 12,225,769 754,865 $ 14,132,222
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 68,787 1,223,704 0 0
--------- ------------ --------- ------------
740,502 13,449,473 754,865 14,132,222
Shares repurchased ............... (53,979) (973,059) (241,858) (4,458,748)
--------- ------------ --------- ------------
Net increase ..................... 686,523 12,476,414 513,007 9,673,474
--------- ------------ --------- ------------
Increase derived from capital
shares transactions ............ 15,571,455 $278,927,348 1,630,308 $ 29,973,886
========== ============ ========= ============
</TABLE>
5. SUBSEQUENT EVENT. On July 25, 1997, the Board of Trustees of New England
Funds Trust I (the "Trust") approved a Sub-Advisory Agreement (the
"Agreement") relating to one segment of the portfolio of New England Star
Advisers Fund (the "Fund") between New England Funds Management, L.P.
("NEFM"), the Fund's adviser, and Harris Associates L.P. ("Harris
Associates"). The Agreement is effective July 25, 1997 and continues in effect
for a period of 120 days or until shareholders of the Fund approve a new Sub-
Advisory Agreement between NEFM and Harris Associates, whichever occurs first.
A special shareholder meeting will be held in mid-October for shareholder
approval of a second new Sub-Advisory Agreement between NEFM and Harris
Asociates, and a notice of such meeting and proxy statement will be sent to
shareholders in late August. Accordingly, Harris Associates succeeds Berger
Associates, Inc. ("Berger") as subadviser to this segment of the Fund, and is
responsible for day-to-day management of the segment's investment operations
under the oversight of NEFM.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
GLOSSARY FOR MUTUAL FUND INVESTORS
- --------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more
aggressive than "value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500(R) - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
Visit our World Wide Web site at www.mutualfunds.com
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when
it is preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
<PAGE>
--------------
(Logo) BULK RATE
NEW ENGLAND FUNDS U.S. POSTAGE
Where The Best Minds Meet(TM) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
- --------------------- ---------------------
[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
- --------------------- ---------------------
DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
- --------------------- ---------------------
SA58-0697
[recycle symbol] Printed On Recycled Paper
