<PAGE>
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SEMIANNUAL REPORT
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[LOGO](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England
Balanced Fund
[Graphic omitted]
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June 30, 1997
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<PAGE>
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NEW ENGLAND BALANCED FUND
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August 1997
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DEAR NEW ENGLAND FUNDS SHAREHOLDER,
[Photo of Henry L.P. Schmelzer]
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>
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NEW ENGLAND BALANCED FUND
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AWARD-WINNING SERVICE -- TWO YEARS RUNNING
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- --------------------- 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 in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
See next page [symbol - hand pointing right]
<PAGE>
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NEW ENGLAND BALANCED FUND
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[A chart in the form of a line graph appears here illustrating the growth of a
$10,000 investment in New England Balanced Fund Class A Shares since 6/30/87,
compared to the S&P 500 and a blend of the S&P 500 and Lehman Intermediate
Government/Corporate Indices. The data points to this chart are as follows:]
- -------------------------------------------------------------------------------
A $10,000 INVESTMENT IN CLASS A SHARES
- -------------------------------------------------------------------------------
COMPARED TO STANDARD & POOR'S 500 INDEX(R)(4) AND
A BLEND OF STANDARD & POOR'S 500
AND LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDICES(5)
JUNE 1987 -- JUNE 1997
NET ASSET WITH MAXIMUM S&P/LEHMAN INTERM.
VALUE(1) SALES CHARGE(2) S&P 500(4) GOV'T/CORP.(5)
-------- -------------- --------- ------------------
6/30/87 $10,000 $ 9,425 $10,000 $10,000
6/88 $ 9,408 $ 8,867 $ 9,310 $ 9,823
6/89 $10,401 $ 9,803 $11,220 $11,485
6/90 $10,397 $ 9,799 $13,061 $13,024
6/91 $10,982 $10,350 $14,026 $14,129
6/92 $12,688 $11,959 $15,915 $16,017
6/93 $14,698 $13,853 $18,076 $18,017
6/94 $15,234 $14,359 $18,396 $18,207
6/95 $17,861 $16,834 $23,178 $21,944
6/96 $20,227 $19,064 $29,188 $26,027
6/97 $24,876 $23,445 $39,295 $32,544
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, Class C and Class Y
share performance will be greater or less than that shown based on differences
in inception date, fees and sales charges. All Index and Fund performance
assumes reinvested distributions.
<PAGE>
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NEW ENGLAND BALANCED FUND
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS* AS OF 6/30/97
- -------------------------------------------------------------------------------
CLASS A (Inception 11/27/68) YTD 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 9.42% 22.98% 14.41% 9.54%
With Max. Sales Charge(2) 3.13 15.93 13.06 8.89
S&P/Lehman Intermediate
G/C Blend(5) 14.37 25.04 15.10 12.35
Lipper Balanced Average(6) 10.21 19.41 12.94 11.03
- -------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) YTD 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 9.04% 22.12% 16.89% 12.90%
With CDSC(3) 4.04 17.12 16.15 12.33
S&P/Lehman Intermediate
G/C Blend(5) 14.37 25.04 21.34 15.98
Lipper Balanced Average(6) 10.21 19.41 17.14 12.50
- -------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 8.99% 22.01% 20.25%
S&P/Lehman Intermediate
G/C Blend(5) 14.37 25.04 24.72
Lipper Balanced Average(6) 10.21 19.41 19.91
- -------------------------------------------------------------------------------
SINCE
CLASS Y (Inception 3/8/94) YTD 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 9.73% 23.59% 18.32% 15.02%
S&P/Lehman Intermediate
G/C Blend(5) 14.37 25.04 21.34 18.24
Lipper Balanced Average(6) 10.21 19.41 17.14 15.26
- -------------------------------------------------------------------------------
*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. The Fund was changed from an equity income fund to a balanced
fund on March 1, 1990. Results for periods prior to that date reflect former
investment policies and are not necessarily representative of results that
would have been achieved had the Fund's current investment policies then been
in effect.
NOTES TO CHARTS
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares.
(4) Standard & Poor's Composite Index of 500 Stocks(R) (S&P 500) is an unmanaged
index representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(5) Represented by a 65% weighting in the S&P 500 and a 35% weighting in the
Lehman Intermediate Government/Corporate Bond Index. Indices are rebalanced
to 65%/35% at the end of each year. Lehman Intermediate Government/Corporate
Bond Index is an unmanaged index of investment grade bonds, issued by the
U.S. government and U.S. corporations, having maturities between one and ten
years. The indices' performance have not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments.
(6) 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>
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NEW ENGLAND BALANCED FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
[Photo of Carol McMurtrie, Tricia Mills, Meri Anne Beck, Loomis, Sayles & Co.,
L.P.]
Q. How did New England Balanced Fund perform in the first half of 1997?
For the six-month period ending June 30, 1997, your Fund generated a total
return of 9.42% (Class A shares at net asset value).
We're pleased to announce that Lipper ranked your Fund's Class A shares in the
top 16% (#48 out of 303) of its balanced funds peer group for the one-year
period ended June 30, 1997. Longer term, your Fund ranked #17 out of 87 for five
years and 36 out of 39 for 10 years.
Q. What factors influenced your management of the portfolio's equity portion?
An overweighting in strong financial stocks, such as NationsBank (up 32% through
6/30/97), contributed to Fund performance. Several other companies, including
Philips NV, Everest Reinsurance, EI duPont and Federal Express, also enjoyed
returns of 30% or more.
However, developments in specific holdings such as York International, Green
Tree Financial and United Meridian, combined to offset the gains contributed by
those high-return stocks. In the case of York International, a commercial air
conditioner and heating manufacturer and servicer, earnings were impacted by
weaker than anticipated business conditions in Europe and by unexpectedly cool
weather in the northeastern United States. Investors' intolerance of these
temporary difficulties caused the stock price to decline during this period, but
we believe the investment case for this stock is still strong.
In general, stock price movements did not reflect
fundamental company developments so much as the improvement in the overall
financial outlook: stronger than expected economic growth with stable inflation
and stable interest rates. Also impacting price movements were liquidity
demands, particularly from large index funds, which favor larger cap stocks.
We continued to focus on stock selection, adding such companies as Warnaco, a
clothing manufacturer, Dayton Hudson, a department store/discount store retailer
and two new issues in the technology sector -- Symantec, a software company and
3Com, a data networking company. What all these companies have in common are
good to excellent growth prospects selling at a substantial price/earnings
discount to the market.
Q. And on the fixed-income side of the Fund's portfolio?
Corporate bond spreads (the difference between the yields on corporate bonds and
comparable maturity treasury bonds) widened in the first quarter after the
Federal Reserve Board raised interest rates in March. We added investments in
brokerage-related companies like Smith Barney Holdings, and positive credit
trends led us to new purchases in Archer Daniels Midland and Northwest Airlines.
In the second quarter, as improving credit outlooks spurred opportunities for
price appreciation in a number of issues, we bought Sears Roebuck acceptance
notes, Norfolk Southern Corporation bonds, Loewen Group and Sprint Spectrum
senior notes. We sold Federated Department Stores after spreads narrowed, and we
continue to avoid the utility sector as heavy merger and acquisition activity
has increased event risk (the risk associated with a major transaction or
similar event) in that area.
From a credit quality viewpoint we increased our holdings in BBB- and BB- rated
bonds that outperformed higher-rated corporate bonds. The overall credit quality
of the Fund's fixed-income holdings, however, remains very high at AA.*
*Quality ratings provided by Standard & Poor's Corporation.
<PAGE>
Q. What is your outlook for the rest of the year?
While inflation remains well behaved and we expect growth to remain slow and
steady, the Federal Reserve may raise interest rates later this year to keep
inflationary pressures at bay. In this environment we expect higher short-term
rates and stable to slightly higher long-term rates. Economic activity should
continue to slow, while the stock market volatility of the past few months could
continue through the rest of the year.
Issue selection will remain key to performance going forward. We'll continue to
keep our focus away from the larger growth stocks and on low price-to-earnings,
mid-capitalization companies, as is consistent with the Fund's value investment
strategy. On the fixed-income side, we plan to retain our corporate bond
emphasis and may add well-structured mortgage-backed securities as well.
- -------------------------------------------------------------------------------
IMPORTANT NOTE: Effective in August 1997, your Fund's equity management team
consists of Carol C. McMurtrie, Tricia H. Mills and Roderic Dillon. The
fixed-income team includes Meri Anne Beck, John Hyll and Barr Segal.
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<PAGE>
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NEW ENGLAND BALANCED FUND
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YOUR FUND'S ASSET DIVERSIFICATION 6/30/97*
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STOCKS BONDS CASH AND CASH EQUIVALENTS
66.8% 31.9% 1.3%
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YOUR FUND'S FIVE LARGEST INDUSTRIES 6/30/97*
- -------------------------------------------------------------------------------
PERCENTAGE OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
1. Banks 6.9%
-----------------------------------------------------------
2. Health Care-Services 6.1%
-----------------------------------------------------------
3. Insurance 5.8%
-----------------------------------------------------------
4. Telecommunication 5.1%
-----------------------------------------------------------
5. Chemicals 5.0%
-----------------------------------------------------------
*Portfolio holdings and asset allocations will vary.
<PAGE>
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PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
COMMON STOCKS--66.8% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------
AEROSPACE--3.3%
30,100 Lockheed Martin Corp. ........................... $ 3,117,231
57,400 Northrop Grumman Corp. .......................... 5,040,438
91,800 Raytheon Co. .................................... 4,681,800
------------
12,839,469
------------
APPAREL & TEXTILES--2.6%
113,600 Reebok International, Ltd. ...................... 5,310,800
154,100 Warnaco Group ................................... 4,911,938
------------
10,222,738
------------
BANKS--5.6%
91,800 BankAmerica Corp. ............................... 5,926,837
50,000 Chase Manhattan Corp. ........................... 4,853,125
90,500 NationsBank Corp. ............................... 5,837,250
94,800 Norwest Corp. ................................... 5,332,500
------------
21,949,712
------------
BEVERAGES--1.2%
181,700 Whitman Corp. ................................... 4,599,281
------------
CHEMICALS--5.0%
234,400 Crompton & Knowles Corp. ........................ 5,215,400
103,800 EI duPont de Nemours & Co. ...................... 6,526,425
44,400 PPG Industries, Inc. ............................ 2,580,750
94,600 W. R. Grace & Co. ............................... 5,214,825
------------
19,537,400
------------
COMPUTERS & BUSINESS EQUIPMENT--2.2%
95,200 3Com Corp. (c) .................................. 4,284,000
105,400 EMC Corp. (c) ................................... 4,110,600
------------
8,394,600
------------
CONGLOMERATES--4.4%
64,600 Allied Signal, Inc. ............................. 5,426,400
91,200 Dover Corp. ..................................... 5,608,800
86,400 Philips Electronics NV (ADR) (d) ................ 6,210,000
------------
17,245,200
------------
ELECTRICAL EQUIPMENT--1.3%
112,100 York International Corp. ........................ 5,156,600
------------
ELECTRONIC COMPONENTS--0.6%
16,300 Intel Corp. ..................................... 2,311,544
------------
FINANCIAL SERVICES--3.3%
161,500 Federal Home Loan Mortgage Corp. ................ 5,551,562
110,900 Federal National Mortgage Association ........... 4,838,013
64,000 Green Tree Financial Corp. ...................... 2,280,000
------------
12,669,575
------------
FREIGHT TRANSPORTATION--4.0%
58,400 Burlington Northern Santa Fe .................... 5,248,700
178,600 Canadian Pacific, Ltd. .......................... 5,078,938
89,400 Federal Express Corp. (c) ....................... 5,162,850
------------
15,490,488
------------
HEALTH CARE--SERVICES--5.2%
60,400 Aetna, Inc. ..................................... 6,183,450
222,500 Beverly Enterprises, Inc. (c) ................... 3,615,625
136,400 Columbia/HCA Healthcare Corp. (c) ............... 5,362,225
164,330 Foundation Health Systems, Inc. (c) ............. 4,981,253
------------
20,142,553
------------
HOUSEHOLD PRODUCTS--1.3%
100,500 Kimberly-Clark Corp. ............................ 4,999,875
------------
HOUSING & BUILDING MATERIALS--4.3%
69,600 Armstrong World Industries, Inc. ................ 5,106,900
148,400 Leggett & Platt, Inc. ........................... 6,381,200
126,500 Masco Corp. ..................................... 5,281,375
------------
16,769,475
------------
INSURANCE--5.2%
78,400 ACE, Ltd. ....................................... 5,791,800
53,700 Allstate Corp. .................................. 3,920,100
152,700 Everest Reinsurance Holdings, Inc. (c) .......... 6,050,737
142,800 TIG Holdings, Inc. .............................. 4,462,500
------------
20,225,137
------------
LEISURE TIME--2.9%
146,500 American Greetings Corp. ........................ 5,438,813
143,000 Carnival Corp. .................................. 5,898,750
------------
11,337,563
------------
OIL & GAS--1.8%
164,000 Tosco Corp. ..................................... 4,909,750
72,800 United Meridian Corp.(c) ........................ 2,184,000
------------
7,093,750
------------
PACKAGING--1.3%
96,700 Crown Cork & Seal Company, Inc. ................. 5,167,406
------------
RETAIL--2.2%
105,200 Dayton Hudson Corp. ............................. 5,595,325
146,000 Office Depot, Inc. .............................. 2,837,875
------------
8,433,200
------------
RETAIL--FOOD & DRUG--1.0%
130,900 The Kroger Co. (c) .............................. 3,796,100
------------
SOFTWARE--0.4%
77,100 Symantec Corp. .................................. 1,503,450
------------
TELECOMMUNICATION--3.9%
76,600 Ameritech Corp. ................................. 5,204,013
103,800 GTE Corp. ....................................... 4,554,225
87,700 SBC Communications, Inc. ........................ 5,426,437
------------
15,184,675
------------
TOBACCO--2.5%
50,800 Loews Corp. ..................................... 5,086,350
163,900 UST, Inc. ....................................... 4,548,225
------------
9,634,575
------------
TRUCKING & FREIGHT FORWARDING--1.3%
159,600 Ryder Systems, Inc. .............................. 5,266,800
------------
Total Common Stocks
(Identified Cost $188,831,719) ................. 259,971,166
------------
BONDS AND NOTES--31.9%
FACE
AMOUNT
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AIRLINES--0.8%
$3,000,000 Northwest Airlines Corp., 8.375%, 3/15/04 ....... 3,025,800
------------
BANKS--1.3%
1,140,000 Chase Manhattan Corp., 10.000%, 6/15/99 ......... 1,214,203
600,000 First National Tennessee Corp., 10.375%, 6/01/99 641,724
3,430,000 Mellon Bank, 7.000%, 3/15/06 .................... 3,395,185
------------
5,251,112
------------
CABLE & MEDIA--0.8%
3,270,000 TCI Communications, Inc., 7.250%, 6/15/99 ....... 3,294,983
------------
FINANCE--3.8%
2,000,000 American General Corp., 9.625%, 7/15/00 ......... 2,158,600
1,000,000 Avalon Properties, Inc., 7.375%, 9/15/02 ........ 1,015,520
1,790,000 Dean Witter Discover & Co., 6.750%, 1/01/16 ..... 1,648,465
1,000,000 General Motors Acceptance Corp., 5.500%, 12/15/01 947,660
1,700,000 Household International, 5.250%, 10/15/98 ....... 1,679,158
940,000 International Lease Finance Corp.,
6.350%, 11/07/01 .............................. 924,217
1,700,000 Sears, Roebuck Acceptance Corp.,
6.950%, 5/15/02 ............................... 1,708,823
2,425,000 Secured Finance, 9.050%, 12/15/04 ............... 2,693,181
2,098,464 World Omni Automobile Lease Finance Corp.,
6.550%, 6/25/02 ............................... 2,113,405
------------
14,889,029
------------
FOOD & BEVERAGES--1.0%
3,700,000 Archer Daniels Midland Co., 7.500%, 3/15/27 ..... 3,748,618
------------
GOVERNMENT AGENCIES--0.6%
2,575,000 Federal Home Loan Bank, 4.188%, 11/23/98 (e) .... 2,473,622
------------
HEALTH CARE--SERVICES--0.9%
1,775,000 Columbia/HCA Healthcare Co., 8.020%, 8/05/02 .... 1,866,146
1,775,000 National Health Investors, Inc., 7.300%, 7/16/07 1,766,125
------------
3,632,271
------------
INDUSTRIALS--2.6%
3,390,000 Loewen Group International, Inc.,
7.750%, 10/15/01 .............................. 3,440,850
1,790,000 Philips Electronics NV, 7.250%, 8/15/13 ......... 1,727,278
1,700,000 SKF, 7.125%, 7/01/07 ............................ 1,688,627
2,000,000 Tektronix, Inc., 7.625%, 8/15/02 ................ 2,033,040
1,200,000 Williams Holdings Co., 6.250%, 2/01/06 .......... 1,130,340
------------
10,020,135
------------
INSURANCE--0.6%
1,095,000 Progressive Corp., 10.000%, 12/15/00 ............ 1,202,660
1,000,000 USF&G Corp., 8.375%, 6/15/01 .................... 1,049,130
------------
2,251,790
------------
LEISURE & LODGING--1.7%
1,750,000 Carnival Corp., 7.050%, 5/15/05 ................. 1,749,370
3,000,000 La Quinta Inns, Inc., 7.400%, 9/15/05 ........... 2,895,000
2,000,000 Royal Caribbean Cruises Line, 8.125%, 7/28/04 ... 2,079,800
------------
6,724,170
------------
MEDIA & ENTERTAINMENT--0.5%
1,710,000 Time Warner Entertainment Co., 8.875%, 10/01/12 . 1,886,711
------------
MORTGAGE--3.0%
2,269,097 Federal National Mortgage Association,
7.000%, 12/01/11 .............................. 2,264,127
1,716,630 Federal National Mortgage Association,
7.000%, 12/01/11 .............................. 1,712,871
263,900 Federal National Mortgage Association,
7.500%, 6/01/15 ............................... 266,774
3,000,000 Federal National Mortgage Association,
6.000%, 2/25/24 ............................... 2,636,790
4,912,933 Federal National Mortgage Association,
7.500%, 2/01/27 ............................... 4,913,915
------------
11,794,477
------------
MORTGAGE BACKED--3.1%
3,868,058 Federal Home Loan Mortgage Association,
6.000%, 8/15/22 ............................... 3,371,244
1,000,000 Federal Home Loan Mortgage Association,
6.500%, 3/15/23 ............................... 955,620
357,137 Federal Home Loan Mortgage Corp.,
7.750%, 10/15/98 .............................. 359,144
500,000 Federal Home Loan Mortgage Corp.,
8.000%, 7/15/21 ............................... 511,090
General Electric Capital Mortgage Services, Inc.,
10.000%, 2,065,000 3/25/24 (e) ............... 2,113,383
575,000 Westam Mortgage Financial Corp.,
8.950%, 8/01/18 ............................... 602,129
4,000,000 Westam Mortgage Financial Corp.,
9.400%, 12/01/18 .............................. 4,161,240
------------
12,073,850
------------
PAPER--0.3%
500,000 Westvaco Corp., 9.650%, 3/01/02 ................. 555,940
500,000 Westvaco Corp., 10.300%, 1/15/19 ................ 531,540
------------
1,087,480
------------
RAILROADS & EQUIPMENT--0.9%
1,000,000 CSX, Inc., 6.800%, 6/01/09 ...................... 979,310
2,350,000 Norfolk Southern Corp., 7.050%, 5/01/37 ......... 2,383,911
------------
3,363,221
------------
RETAIL--0.1%
500,000 Sears, Roebuck & Co., 9.300%, 4/15/98 ........... 512,000
------------
SECURITIES--1.8%
1,500,000 Donaldson Lufkin & Jenrette, Inc.,
6.875%, 11/01/05 .............................. 1,468,155
1,500,000 Lehman Brothers Holdings, Inc.,
8.875%, 11/01/98 .............................. 1,547,685
4,025,000 Smith Barney Holdings, Inc., 7.000%, 3/15/04 .... 4,028,301
------------
7,044,141
------------
TECHNOLOGY--0.9%
3,410,000 Digital Equipment Corp., 8.625%, 11/01/12 ....... 3,466,367
------------
TELECOMMUNICATION--1.2%
1,300,000 Southern Bell Telephone & Telegraph Co.,
7.625%, 3/15/13 ............................... 1,291,979
4,600,000 Sprint Spectrum L.P., Zero Coupon, 8/15/06 ...... 3,358,000
------------
4,649,979
------------
TRANSPORTATION--1.3%
2,000,000 American Airlines, 10.180%, 1/02/13 ............. 2,396,080
1,000,000 Delta Air Lines, Inc., 7.790%, 12/01/98 ......... 1,019,570
500,000 Delta Air Lines, Inc., 9.530%, 11/17/99 ......... 526,735
600,000 Delta Air Lines, Inc., 9.200%, 9/23/14 .......... 678,000
350,000 U.S. Air, Inc., 10.700%, 1/15/07 ................ 373,478
------------
4,993,863
------------
U.S. GOVERNMENT--4.6%
3,400,000 United States Treasury Bonds, 6.500%, 11/15/26 .. 3,260,804
7,220,000 United States Treasury Bonds, 6.625%, 2/15/27 ... 7,064,337
2,000,000 United States Treasury Notes, 6.750%, 6/30/99 ... 2,024,380
1,730,000 United States Treasury Notes, 6.500%, 8/15/05 ... 1,725,139
------------
14,074,660
------------
UTILITIES--0.6%
2,160,000 Entergy Louisiana, Inc., 8.090%, 1/02/17 ........ 2,166,264
------------
YANKEE/SUPRANATIONAL--0.5%
1,100,000 Export-Import Bank, Japan, 9.500%, 6/29/00 ...... 1,189,375
600,000 Hydro Quebec, 6.520%, 2/23/06 ................... 576,654
------------
1,766,029
------------
Total Bonds and Notes
(Identified Cost $123,896,810) ................ 124,190,572
------------
SHORT TERM INVESTMENTS--1.1%
- -------------------------------------------------------------------------------
4,461,000 Associates Corp. North America, 6.080%, 7/01/97 . 4,461,000
------------
Total Short Term Investments
(Identified Cost $4,461,000) .................. 4,461,000
------------
Total Investments--99.8%
(Identified Cost $317,189,529) (b) ............ 388,622,738
Other assets less liabilities ................... 593,937
------------
Total Net Assets--100% .......................... $389,216,675
============
(a) See Note 1a.
(b) Federal Tax Information:
At June 30, 1997 the net unrealized appreciation on
investments based on cost of $317,189,529 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 .................................... $ 75,616,327
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .................................. (4,183,118)
------------
Net unrealized appreciation ........................ $ 71,433,209
============
(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) Floating rate notes are instruments whose interest rates vary with changes
in a designated base rate on a specific date. These notes reset quarterly
based upon a specific index.
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
June 30, 1997
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value ..................................... $388,622,738
Cash ..................................................... 104,641
Receivable for:
Fund shares sold ....................................... 807,538
Securities sold ........................................ 5,141,883
Dividends and interest ................................. 1,946,095
Prepaid registration expense ............................. 9,000
------------
396,631,895
LIABILITIES
Payable for:
Securities purchased ................................... $6,624,056
Fund shares redeemed ................................... 370,592
Withholding taxes ...................................... 2,305
Dividends declared ..................................... 35,275
Accrued expenses:
Management fees ........................................ 230,419
Deferred trustees' fees ................................ 68,485
Accounting and administrative .......................... 5,719
Other expenses ......................................... 78,369
----------
7,415,220
------------
NET ASSETS ................................................. $389,216,675
============
Net Assets consist of:
Capital paid in ........................................ $298,264,994
Undistributed net investment income .................... 23,925
Accumulated net realized gains ......................... 19,494,416
Unrealized appreciation on investments and foreign
currency transactions ................................ 71,433,340
------------
NET ASSETS ................................................. $389,216,675
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($226,883,551 divided by 15,031,077 shares of beneficial
interest) .............................................. $15.09
======
Offering price per share (100/94.25 of $15.09) ............. $16.01*
======
Net asset value and offering price of Class B shares
($69,133,485 divided by 4,609,157 shares of beneficial
interest) .............................................. $15.00**
======
Net asset value and offering price of Class C shares
($3,648,209 divided by 243,957 shares of beneficial
interest) .............................................. $14.95
======
Net asset value and offering price of Class Y shares
($89,551,430 divided by 5,927,744 shares of beneficial
interest) .............................................. $15.11
======
Identified cost of investments ............................. $317,189,529
============
*Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ............................................... $ 1,804,758(a)
Interest ................................................ 4,666,203
------------
6,470,961
Expenses
Management fees ....................................... $1,327,542
Service fees - Class A ................................ 272,728
Service and distribution fees - Class B ............... 309,252
Service and distribution fees - Class C ............... 15,047
Trustees' fees and expenses ........................... 10,809
Accounting and administrative ......................... 34,015
Custodian ............................................. 57,493
Transfer agent ........................................ 359,177
Audit and tax services ................................ 18,000
Legal ................................................. 9,956
Printing .............................................. 30,575
Registration .......................................... 34,668
Miscellaneous ......................................... 10,152
----------
Total expenses .......................................... 2,489,414
------------
Net investment income ................................... 3,981,547
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ...................... 13,008,967
Unrealized appreciation on Investments - net ............ 16,772,324
------------
Net gain on investment transactions ..................... 29,781,291
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $ 33,762,838
============
(a) Net of foreign taxes of: $17,234.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 8,916,803 $ 3,981,547
Net realized gain on investments ........................ 23,718,238 13,008,967
Unrealized appreciation on investments .................. 19,414,861 16,772,324
------------ ------------
Increase in net assets from operations .................. 52,049,902 33,762,838
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (5,852,505) (2,381,256)
Class B ............................................... (1,086,841) (487,246)
Class C ............................................... (35,007) (24,763)
Class Y ............................................... (2,273,570) (1,132,260)
In excess of net investment income
Class A ............................................... (86,451) 0
Class B ............................................... (16,054) 0
Class C ............................................... (518) 0
Class Y ............................................... (33,584) 0
Net realized gain on investments
Class A ............................................... (14,194,062) 0
Class B ............................................... (3,640,173) 0
Class C ............................................... (144,376) 0
Class Y ............................................... (4,878,053) 0
------------ ------------
(32,241,194) (4,025,525)
------------ ------------
Increase in net assets derived from capital share
transactions .......................................... 41,383,400 1,283,504
------------ ------------
Total increase in net assets ............................ 61,192,108 31,020,817
NET ASSETS
Beginning of the period ................................. 297,003,750 358,195,858
------------ ------------
End of the period ....................................... $358,195,858 $389,216,675
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period ................................. $ 297,609 $ 67,903
============ ============
End of the period ....................................... $ 67,903 $ 23,925
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
----- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ..................... $10.15 $11.16 $12.13 $11.27 $13.14 $13.94
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income ........ 0.30 0.31 0.33 0.42 0.38 0.16
Net Realized and Unrealized
Gain (Loss) on Investments 1.10 1.26 (0.65) 2.49 1.76 1.15
------ ------ ------ ------ ------ ------
Total From Investment
Operations ................. 1.40 1.57 (0.32) 2.91 2.14 1.31
------ ------ ------ ------ ------ ------
Less Distributions Dividends
From Net Investment Income . (0.30) (0.31) (0.33) (0.40) (0.39) (0.16)
Distributions From Net
Realized Capital Gains ..... (0.09) (0.29) (0.21) (0.64) (0.95) 0.00
------ ------ ------ ------ ------ ------
Total Distributions .......... (0.39) (0.60) (0.54) (1.04) (1.34) (0.16)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period ..................... $11.16 $12.13 $11.27 $13.14 $13.94 $15.09
====== ====== ====== ====== ====== ======
Total Return (%) (a) ......... 13.9 14.2 (2.7) 26.3 17.1 9.4
Ratio of Operating Expenses
to Average Net Assets (%) .. 1.48 1.40 1.40 1.36 1.33 1.33(c)
Ratio of Net Investment
Income to Average Net
Assets (%) ................. 2.84 2.66 2.91 3.37 2.79 2.21(c)
Portfolio Turnover Rate (%) .. 38 50 36 54 70 56(c)
Average Commission rate (b) .. -- -- -- -- $0.0577 $0.0592
Net Assets, End of
Period (000) ............... $90,527 $158,308 $158,332 $196,514 $219,626 $226,884
(a) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
(c) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
SEPTEMBER 13(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, --------------------------------- JUNE 30,
1993 1994 1995 1996 1997
-------------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ......................... $12.16 $12.11 $11.24 $13.08 $13.86
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............ 0.16 0.26 0.34 0.29 0.10
Net Realized and Unrealized
Gain (Loss) on Investments ..... 0.24 (0.66) 2.46 1.74 1.15
------ ------ ------ ------ ------
Total From Investment Operations . 0.40 (0.40) 2.80 2.03 1.25
------ ------ ------ ------ ------
Less Distributions Dividends From
Net Investment Income .......... (0.16) (0.26) (0.32) (0.30) (0.11)
Distributions From Net Realized
Capital Gains .................. (0.29) (0.21) (0.64) (0.95) 0.00
------ ------ ------ ------ ------
Total Distributions .............. (0.45) (0.47) (0.96) (1.25) (0.11)
------ ------ ------ ------ ------
Net Asset Value, End of Period $12.11 $11.24 $13.08 $13.86 $15.00
====== ====== ====== ====== ======
Total Return (%) (c) ............. 3.3 (3.4) 25.3 16.3 9.0
Ratio of Operating Expenses to
Average Net Assets (%) ......... 2.36 (b) 2.15 2.11 2.08 2.08(b)
Ratio of Net Investment Income
to Average Net Assets (%) ...... 1.92 (b) 2.16 2.62 2.04 1.46(b)
Portfolio Turnover Rate (%) ...... 50 36 54 70 56(b)
Average Commission Rate (d) ...... -- -- -- $0.0577 $0.0592
Net Assets, End of Period (000) .. $4,691 $21,607 $40,361 $58,367 $69,133
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not reflected in total return calculations. Periods less
than one year are not annualized.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------- JUNE 30,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ...................... $11.24 $13.05 $13.82
------ ------ ------
Income From Investment Operations
Net Investment Income ..................................... 0.35 0.29 0.09
Net Realized and Unrealized Gain (Loss) on
Investments ............................................. 2.44 1.73 1.15
------ ------ ------
Total From Investment Operations .......................... 2.79 2.02 1.24
------ ------ ------
Less Distributions
Dividends From Net Investment Income ...................... (0.34) (0.30) (0.11)
Distributions From Net Realized Capital Gains ............. (0.64) (0.95) 0.00
------ ------ ------
Total Distributions ....................................... (0.98) (1.25) (0.11)
------ ------ ------
Net Asset Value, End of Period ............................ $13.05 $13.82 $14.95
====== ====== ======
Total Return (%) (b) ...................................... 25.2 16.2 9.0
Ratio of Operating Expenses to Average Net Assets (%) ..... 2.11 2.08 2.08(a)
Ratio of Net Investment Income to Average Net Assets (%) .. 2.62 2.04 1.46(a)
Portfolio Turnover Rate (%) ............................... 54 70 56(a)
Average Commission Rate (c) ............................... -- $0.0577 $0.0592
Net Assets, End of Period (000) ........................... $718 $2,538 $3,648
(a) Computed on an annualized basis.
(b) Periods less than one year are not annualized.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS Y
-------------------------------------------------------
MARCH 8(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------- JUNE 30,
1994 1995 1996 1997
----------- ---- ---- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ........................... $12.20 $11.27 $13.15 $13.95
------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................ 0.38 0.46 0.44 0.18
Net Realized and Unrealized
Gain (Loss) on Investments ......... (0.72) 2.51 1.76 1.17
----- ----- ----- -----
Total From Investment Operations ..... (0.34) 2.97 2.20 1.35
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income . (0.38) (0.45) (0.45) (0.19)
Distributions From Net Realized
Capital Gains ...................... (0.21) (0.64) (0.95) 0.00
----- ----- ----- -----
Total Distributions .................. (0.59) (1.09) (1.40) (0.19)
------ ------ ------ ------
Net Asset Value, End of Period ....... $11.27 $13.15 $13.95 $15.11
====== ====== ====== ======
Total Return (%) (c) ................. (2.8) 26.8 17.6 9.7
Ratio of Operating Expenses to
Average Net Assets (%) ............. 0.99(b) 1.11 0.88 0.90(b)
Ratio of Net Investment Income
to Average Net Assets (%) .......... 3.69(b) 3.62 3.24 2.64(b)
Portfolio Turnover Rate (%) .......... 36 54 70 56(b)
Average Commission Rate (d) .......... -- -- $0.0577 $0.0592
Net Assets, End of Period (000) ...... $39,183 $59,411 $77,665 $89,551
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share
for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads on shares
traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
June 30, 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 B shares on September 13, 1993, of Class C shares
on December 30, 1994 and of its Class Y shares on March 8, 1994. Class A shares
are sold with a maximum front end sales charge of 5.75%. Class B shares do not
pay front end sales charge, but pay a higher ongoing distribution fee than Class
A shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased prior to
May 1, 1997). Class C shares do not pay a front end or contingent deferred sales
charge and do not convert to any other class of shares, but they do pay a higher
ongoing distribution fee than Class A shares. 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. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service, selected by the Fund's
adviser as authorized by the Board of Trustees, which service determines
valuations for normal, institutional-size trading units of such securities using
market information, transactions for comparable securities and various
relationships between securities which are generally recognized by institutional
traders. 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 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. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax differences are primarily due to differing treatments for
mortgage backed securities, real estate limited partnership investments and
market discount transactions.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1997 were as follows:
PURCHASES SALES
------------------------------- ------------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
--------------- ----------- --------------- -----------
$14,405,472 $90,334,070 $29,308,698 $73,197,149
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management L.P.
("NEFM") at the annual rate of 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Loomis Sayles & Company, L.P. at the rate of 0.535% of the first $200 million of
the Fund's average daily net assets, 0.350% of the next $300 million and 0.300%
of such assets in excess of $500 million. Certain officers and directors of NEFM
are also officers or trustees of the Fund. NEFM and Loomis Sayles & Company,
L.P. are wholly owned subsidiaries of New England Investment Companies, L.P.,
("NEIC") which is a subsidiary of Metropolitan Life Insurance Company ("Met
Life"). Fees earned by NEFM and Loomis Sayles & Company, L.P. under the
management agreement in effect during the six months ended June 30,1997 are as
follows:
FEES EARNED
-----------
$505,087 New England Funds Management, L.P.
$822,455 Loomis Sayles & Company, L.P.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC and
performs certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Funds' expenses of
providing these services which include the following: (i) expenses for personnel
performing bookkeeping, accounting, internal auditing and financial reporting
functions and clerical functions relating to the Fund, (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, shareholder reports and notices, proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance, and (iii) registration, filing and other fees
in connection with requirements of regulatory authorities. For the six months
ended June 30, 1997 these expenses amounted to $34,015 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 $242,580 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A Shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1997, the Fund paid New England Funds $272,728 in fees
under the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at June 30, 1997 is $2,041,399.
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 $77,313 and $3,762 in service fees
under the Class B and Class C plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of up to 0.75% of the average daily
net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and Class
C shares. For the six months ended June 30, 1997, the Fund paid New England
Funds $231,939 and $11,285 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 $348,463.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of NEFM, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $2,100
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $151/year
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund on the
normal payment date.
4. CAPITAL SHARES. At June 30, 1997 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital stock. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
--------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................ 2,042,042 $ 27,474,652 987,486 $ 14,032,224
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ......................... 422,784 5,671,048 155,040 2,269,260
Distributions from net realized
gain ........................... 1,028,876 13,651,501 0 0
---------- ------------- --------- ------------
3,493,702 46,797,201 1,142,526 16,301,484
Shares repurchased ................. (2,688,513) (36,228,573) (1,869,674) (26,602,039)
---------- ------------- ---------- -------------
Net increase (decrease) ............ 805,189 $ 10,568,628 (727,148) $(10,300,555)
---------- ------------- ---------- -------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------------- -----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
Shares sold ........................ 1,210,684 $ 16,217,164 714,794 $ 10,144,351
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ......................... 78,261 1,044,705 31,489 458,330
Distributions from net realized
gain ........................... 265,769 3,505,614 0 0
---------- ------------- ---------- ------------
1,554,714 20,767,483 746,283 10,602,681
Shares repurchased ................. (428,641) (5,756,244) (348,576) (4,939,867)
---------- ------------- ---------- ------------
Net increase ....................... 1,126,073 $ 15,011,239 397,707 $ 5,662,814
---------- ------------- ---------- ------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- -----------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ----------
Shares sold ........................ 139,602 $ 1,870,733 69,681 $ 986,319
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ......................... 2,512 33,499 1,513 21,963
Distributions from net realized
gain ........................... 10,413 137,144 0 0
--------- ------------ ---------- ----------
152,527 2,041,376 71,194 1,008,282
Shares repurchased ................. (23,905) (318,332) (10,849) (153,379)
--------- ------------ ---------- ----------
Net increase ....................... 128,622 $ 1,723,044 60,345 $ 854,903
--------- ------------ ---------- ----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- -----------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
--------- ------------- ---------- -------------
Shares sold ........................ 1,301,205 $ 17,576,774 1,086,053 $ 15,491,130
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ......................... 171,746 2,306,879 77,265 1,132,175
Distributions from net realized
gain ........................... 366,945 4,878,050 0 0
--------- ----------- ---------- ------------
1,839,896 24,761,703 1,163,318 16,623,305
Shares repurchased ................. (789,611) (10,681,214) (803,161) (11,556,963)
--------- ----------- ---------- -------------
Net increase ....................... 1,050,285 14,080,489 360,157 5,066,342
--------- ----------- ---------- ------------
Increase derived from capital shares
transactions ..................... 3,110,169 $41,383,400 91,061 $ 1,283,504
========= =========== ========== ============
</TABLE>
<PAGE>
NEW ENGLAND BALANCED FUND
NEW ENGLAND VALUE FUND
SUPPLEMENT DATED AUGUST 1, 1997
TO NEW ENGLAND STOCK FUNDS CLASSES A, B AND C PROSPECTUS DATED MAY 1, 1997
AND NEW ENGLAND STOCK FUNDS CLASS Y PROSPECTUS
DATED MAY 1, 1997 (AS SUPPLEMENTED JULY 28, 1997)
THE FOLLOWING INFORMATION SUPPLEMENTS THE SECOND PARAGRAPH IN THE "FUND
MANAGEMENT" SECTION:
Carol C. McMurtrie, Tricia H. Mills and (beginning in August 1997) Roderic
Dillon are the portfolio managers of the Value Fund. Ms. McMurtrie and Ms.
Mills have served in that capacity since 1993. Ms. McMurtrie, Ms. Mills and
(beginning in August 1997) Mr. Dillon are also the portfolio managers of the
equity portion of the Balanced Fund and are responsible for allocating the
assets of the Balanced Fund between equity and fixed-income securities. Ms.
McMurtrie and Ms. Mills have served in these capacities since July 1997. The
portfolio management team for the fixed-income portion of the Balanced Fund
consists of Meri Anne Beck, John Hyll and Barr Segal, who have had portfolio
management responsibility for the Fund's fixed-income investments since 1990,
1994 and 1996, respectively. Messrs. Dillon, Hyll and Segal are Vice
Presidents of Loomis Sayles. Mr. Hyll has been employed by Loomis Sayles for
more than five years. Mr. Segal was a Senior Portfolio Manager at TCW Group
before joining Loomis Sayles in 1996. Mr. Dillon rejoins Loomis Sayles in
August 1997 following several years as principal of Dillon Capital Management.
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more
aggressive than "value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500(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>
--------------
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NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
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[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
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DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
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BL58-0697
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