<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
International Equity Fund
[graphic omitted]
- --------------------------
JUNE 30, 1997
- --------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
August 1997
- --------------------------------------------------------------------------------
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 INTERNATIONAL EQUITY FUND
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AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
DALBAR, 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 INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since New England International Equity
Fund's inception on 5/21/92 compared to the EAFE Index over the same period.
The data points for this chart are as follows:]
A $10,000 INVESTMENT IN CLASS A SHARES
- --------------------------------------------------------------------------------
Net Asset With Maximum MSCI EAFE(R)
Value(1) Sales Charge(2) Index(4)
5/21/92 $10,000 $ 9,425 $10,000
6/92 $ 9,840 $ 9,274 $ 9,529
6/93 $11,202 $10,558 $11,501
6/94 $13,347 $12,580 $13,491
6/95 $13,355 $12,587 $13,754
6/96 $14,908 $14,051 $15,627
6/97 $14,923 $14,065 $17,684
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.
- --------------------------------------------------------------------------------
NEW ENGLAND INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 6/30/97
- --------------------------------------------------------------------------------
CLASS A (Inception 5/21/92) YTD 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 2.82% 0.10% 8.69% 8.15%
With Max. Sales Charge(2) -3.12 -5.64 7.41 6.91
MSCI EAFE(4) 11.36 13.16 13.17 11.80
Lipper International Avg.(5) 12.53 16.54 12.33 11.85
- --------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) YTD 1 YEAR 3 YEARS SINCE INCEPTION
Net Asset Value(1) 2.56% -0.51% 3.06% 4.65%
With CDSC(3) -2.44 -5.39 2.11 3.95
MSCI EAFE(4) 11.36 13.16 9.44 9.44
Lipper International Avg.(5) 12.53 16.54 10.86 11.60
- --------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 2.62% -0.51% 4.13%
MSCI EAFE(4) 11.36 13.16 11.79
Lipper International Avg.(5) 12.53 16.54 13.56
- --------------------------------------------------------------------------------
CLASS Y (Inception 9/9/93) YTD 1 YEAR 3 YEARS SINCE INCEPTION
Net Asset Value(1) 3.28% 0.84% 4.56% 6.15%
MSCI EAFE(4) 11.36 13.16 9.44 9.42
Lipper International Avg.(5) 12.53 16.54 10.86 11.60
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available only to certain institutional
investors. Share price and return may vary.
NOTES TO CHARTS
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. Class C shares are available only to eligible institutional investors
and are not subject to a sales charge.
4 Morgan Stanley Capital International (MSCI) Europe Australasia Far East Index
(EAFE) is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing stock markets in
Europe, Australia, New Zealand and the Far East. The Index performance has not
been adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
5 Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
<PAGE>
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NEW ENGLAND INTERNATIONAL EQUITY FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Shareholder Note: On February 14, 1997, shareholder votes approved a change in
investment subadviser from Draycott Partners Ltd. to Loomis, Sayles & Company,
L.P. Portfolio manager Paul Drexler devoted the months of March and April to
restructuring the Fund's portfolio. As of May 1, he completed the portfolio
restructuring.
Q. How did New England International Equity Fund perform in the first half of
1997?
Your Fund produced a total return of 2.82% (Class A shares at net asset value)
in the six months ended June 30, 1997.
During this period, your Fund's portfolio underwent a significant restructuring.
Under the previous management, heavy concentrations in Japan and the United
Kingdom hampered Fund performance earlier in the year. For U.S. investors, the
appreciation of the U.S. dollar against foreign currencies also reduced strong
foreign market gains when translated back into U.S. dollars. As the Fund's new
manager, I repositioned the portfolio to not only reduce the effects of
volatility in these areas, but to pursue returns in stronger investments
elsewhere in the world.
Q. Can you tell us about some of the strategic changes you have implemented?
We took advantage of higher prices and reduced the Fund's investments in Japan
and the United Kingdom. Japanese equities now make up only about 16% of the
portfolio, compared with more than 37% at the start of the period. At the same
time, we trimmed your Fund's holdings in the United Kingdom from almost 27% to
under 10%.
Japan still offers a number of investment opportunities. As of June 30, 1997 our
holdings there included leading blue-chip exporters such as Canon and Sony. We
have also added some attractive smaller-company investments, such as Nichii
Gakken, a company which helps hospitals outsource their medical record-keeping.
This company is benefiting as Japanese hospitals work to cut costs.
Q. What other changes have taken place in the Fund?
Through your Fund, you have access to overseas opportunities that much of our
competition simply do not offer. That's because New England International Equity
Fund now has the flexibility to invest up to 20% of its assets in fixed-income
securities, such as convertible, corporate, or sovereign (foreign government)
bonds. Often, international bonds present a greater total return opportunity
than do equities from the same market. Dollar-based convertible bonds, for
example, can offer exposure to local stocks without paying a foreign premium or
taking on local currency risk.
Q. Tell us more about your investment strategy.
Our goal is to invest in the best value opportunities we can find in foreign
markets. With our dual emphasis on maximizing performance while managing risk,
we begin our investment selection process by identifying 12 attractive foreign
markets. We often visit the companies with the most promising performance
potential before investing in individual stocks. Under normal conditions, the
Fund will invest in the securities of companies from at least three countries
outside the United States. This diversification across countries helps your Fund
guard against the risk that fluctuations in any one market or currency may
reduce returns.
Q. Where do you see opportunities in the months ahead?
We remain substantially invested in continental Europe, where firms are
undergoing very significant corporate restructurings. These situations often
involve changes in management or operations that result in increased
profitability. Thus, they offer shareholders attractive investment opportunities
similar to those we have experienced in U.S. firms over the last 10 years.
Specifically, your Fund is focusing on companies in larger European markets such
as Germany, but also in smaller markets like Finland and Portugal.
<PAGE>
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NEW ENGLAND INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
YOUR FUND'S TOP TEN HOLDINGS 6/30/97*
- --------------------------------------------------------------------------------
PERCENTAGE
COMPANY OF ASSETS
================================================================================
1. BANCO ESPIRITO SANTO 2.06%
- --------------------------------------------------------------------------------
2. PORTUGAL TELECOM 2.05%
- --------------------------------------------------------------------------------
3. ENI SPA 2.05%
- --------------------------------------------------------------------------------
4. ITO-YOKADO CO., LTD. 2.02%
- --------------------------------------------------------------------------------
5. GLAXO WELLCOME PLC 1.93%
- --------------------------------------------------------------------------------
6. FOM CONST Y CONTRA 1.67%
- --------------------------------------------------------------------------------
7. PORTUCEL INDUSTRIA 1.64%
- --------------------------------------------------------------------------------
8. TELECOM CORP. OF NZ. 1.61%
- --------------------------------------------------------------------------------
9. SONY CORP. 1.58%
- --------------------------------------------------------------------------------
10. BANCO BILBAO VIZCAYA 1.53%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR FUND'S TOP TEN INDUSTRIES 6/30/97*
- --------------------------------------------------------------------------------
PERCENTAGE
INDUSTRY OF ASSETS
- --------------------------------------------------------------------------------
1. TELEPHONE COMMUNICATION 7.7%
- --------------------------------------------------------------------------------
2. BANKING 7.5%
- --------------------------------------------------------------------------------
3. CONSTRUCTION 6.7%
- --------------------------------------------------------------------------------
4. OIL & GAS EXTRACTION 6.6%
- --------------------------------------------------------------------------------
5. MISCELLANEOUS RETAIL 5.0%
- --------------------------------------------------------------------------------
6. HOTELS 4.5%
- --------------------------------------------------------------------------------
7. MACHINERY 4.3%
- --------------------------------------------------------------------------------
8. TRANSPORTATION EQUIPMENT 3.9%
- --------------------------------------------------------------------------------
9. INSURANCE 3.4%
- --------------------------------------------------------------------------------
10. WHOLESALE TRADE-NONDURABLE 2.9%
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* Portfolio holdings and asset allocations will vary.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
COMMON STOCKS--94.0% OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
SHARES (a) DESCRIPTION VALUE (b)
- --------------------------------------------------------------------------------------------------
AUSTRALIA--8.5%
<C> <S> <C>
75,000 Brambles Industries, Ltd. .............................. $ 1,484,538
1,200,000 ERG, Ltd. .............................................. 1,360,350
257,619 Foodland Associates .................................... 1,752,260
280,000 Leighton Holdings ...................................... 1,365,096
260,000 QBE Insurance Group .................................... 1,571,960
150,006 Smith Howard ........................................... 1,428,424
263,664 West Australia News Holdings ........................... 1,181,636
180,000 Woodside Petroleum ..................................... 1,550,799
------------
11,695,063
------------
BRAZIL--6.8%
172,000,000 Banco Bradesco PN S.A. ................................. 1,733,500
1,500,000 Brahma ................................................. 1,142,539
21,500,000 Cemig PN ............................................... 1,108,402
43,000,000 Pao de Acucar Cia ...................................... 978,589
6,100,000 Petroleo Brasileiro, 144A (e) ........................... 1,694,265
11,745,000 Telebras ............................................... 1,781,579
5,470,000 Telemig Tele Minas, Preferred .......................... 967,939
67,846 Telemig Tele Minas, Preferred .......................... 12,292
------------
9,419,105
------------
FINLAND--7.3%
41,510 Huhtamaki OY ........................................... 1,786,623
600,000 Merita, Ltd. ........................................... 1,998,941
8,100 Metra AB ............................................... 249,579
44,100 Metra OY, Series B ..................................... 1,329,093
60,000 Neste OY ............................................... 1,594,531
64,000 Rauma OY ............................................... 1,466,660
17,000 Sampo Insurance Co. .................................... 1,653,266
------------
10,078,693
------------
GERMANY--9.1%
20,000 Daimler Benz AG ........................................ 1,622,613
28,000 Deutsche Bank AG ....................................... 1,635,915
60,000 Deutsche Telekom ....................................... 1,444,871
40,000 Douglas Holding AG ..................................... 1,593,945
42,000 Duerr AG ............................................... 1,733,846
30,660 Henkel Kgaa ............................................ 1,740,348
6,000 Jungheinrich, Preferred ................................ 987,329
1,300 Porsche AG, Preferred .................................. 1,729,259
------------
12,488,126
------------
ITALY--3.1%
170,000 ARN Mondadori Edit ..................................... 982,248
93,600 Cartiere Burgo ......................................... 519,336
498,000 Eni Spa ................................................ 2,820,272
------------
4,321,856
------------
JAPAN--15.6%
68,000 Canon, Inc. ............................................ 1,850,986
125,000 Daiwa House Industries ................................. 1,526,784
38,000 Familymart Co. ......................................... 1,863,200
45,000 Honda Motor Co. ........................................ 1,354,476
48,000 Ito-Yokado Company, Ltd. ............................... 2,784,854
85,000 Omron Corp. ............................................ 1,802,042
52,000 Sankyo Co. ............................................. 1,746,641
21,000 SMC Corp ............................................... 1,773,513
25,000 Sony Corp. ............................................. 2,178,939
150,000 Tanabe Seiyaku Co. ..................................... 1,347,932
21,000 TDK Corp ............................................... 1,540,831
70,000 Yamada Denki Co. ....................................... 1,661,141
------------
21,431,339
------------
NEW ZEALAND--5.1%
1,865,000 Corporate Investments (f) ............................... 1,038,777
319,200 Nuplex Industries ...................................... 867,266
175,000 PDL Holdings ........................................... 921,233
558,000 St. Lukes Group Security ............................... 682,239
435,000 Telecom Corp. .......................................... 2,216,053
230,000 Tranz Rail Holdings (f) ................................. 1,312,311
------------
7,037,879
------------
NORWAY--5.9%
82,000 Elkem AS ............................................... 1,605,496
52,000 Norske Skogs Industries ................................ 1,791,464
76,000 Schibsted ASA .......................................... 1,503,575
64,000 Smedvig ................................................ 1,571,795
120,000 Unitor AS .............................................. 1,719,151
------------
8,191,481
------------
PORTUGAL--8.4%
125,000 Banco Espirito Santo ................................... 2,832,935
75,000 Cimpor Cimentos de Portugal ............................ 1,747,912
2,300 Electricdade de Portugal ............................... 42,208
305,000 Portucel Industria ..................................... 2,261,377
70,000 Portugal Telecom ....................................... 2,823,703
45,000 Sonae Investimentos - Sociedade Gestora de Participacoes
Sociais S.A. ......................................... 1,881,456
------------
11,589,591
------------
SINGAPORE--5.5%
210,000 City Developments ...................................... 2,056,375
280,000 Keppel Corp. ........................................... 1,243,618
70,000 Keppel Corp. ........................................... 303,560
470,000 Parkway Holdings ....................................... 2,103,938
648,000 Wing Tai Holdings ...................................... 1,867,357
------------
7,574,848
------------
SPAIN--10.7%
11,000 Acerinox S.A. .......................................... 2,061,147
41,000 Aguas de Barcelona ..................................... 1,677,842
82,000 Asturiana de Zinc ...................................... 1,736,274
26,000 Banco Bilbao Vizcaya ................................... 2,112,114
28,000 Catalana Occidente ..................................... 1,394,774
84,000 Ebro Agricolas ......................................... 1,638,955
18,000 Fom Const y Contra ..................................... 2,295,351
145,000 Prosegur Seguridad (c) ................................. 1,771,293
------------
14,687,750
------------
THAILAND--0.6%
14,000 Banpu Coal Company Ltd. ................................ 204,285
237,000 Electricity Generating Public Company, Ltd. ............ 580,950
------------
785,235
------------
UNITED KINGDOM--7.4%
126,500 British Petroleum, 144A (e) ............................. 1,573,635
50,210 EMI Group Thorn ........................................ 903,040
159,750 General Electric ....................................... 955,054
128,550 Glaxo Wellcome PLC ..................................... 2,659,875
160,650 J. Sainsbury ........................................... 973,812
227,670 Shell Transport & Trading .............................. 1,554,470
82,200 SmithKline Beecham PLC ................................. 1,513,294
------------
10,133,180
------------
Total Common Stocks (Identified Cost $113,770,494) ...... 129,434,146
------------
- ------------------------------------------------------------------------------------------------------
BONDS AND NOTES--3.4%
FACE
AMOUNT
- ------------------------------------------------------------------------------------------------------
ARGENTINA--1.5%
$ 3,000,000 Republic of Argentina, 5.500%, 3/31/23 .................. 2,077,500
------------
THAILAND--0.5%
640,000 Total Access Communications, 2.000%, 5/31/06 ............ 668,000
------------
UNITED STATES--1.4%
2,000,000 Bangkok Bank Public Ltd., 8.375%, 1/15/27 ............... 1,912,360
------------
Total Bonds and Notes (Identified Cost $4,418,979) ...... 4,657,860
------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
SHORT TERM INVESTMENT--4.5%
<TABLE>
<CAPTION>
FACE
AMOUNT DESCRIPTION VALUE (b)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 6,219,000 Repurchase Agreement with State Street Bank & Trust dated
6/30/97 at 5.000% to be repurchased at $6,219,864 on
7/01/97, collateralized by $6,010,000 U.S. Treasury Bond
7.250% due 5/15/16 valued at $6,345,244 .............. $ 6,219,000
------------
Total Short Term Investment (Identified Cost $6,219,000) 6,219,000
------------
Total Investments-101.9% (Identified Cost
$124,408,473)(c) ...................................... 140,311,006
Other assets less liabilities (d) ...................... (2,579,744)
------------
Total Net Assets-100% ................................... $137,731,262
============
(a) Ordinary shares unless noted otherwise.
(b) See notes 1a.
(c) Federal Tax Information:
At June 30, 1997 the net unrealized appreciation on investments
based on cost of $124,408,473 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 ........................................... $ 17,669,509
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (1,766,976)
------------
Net unrealized appreciation ................................. $ 15,902,533
============
(d) Including deposits in foreign denominated currencies with a value
of $180,910 and a cost of $181,036.
(e) 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.
(f) Non income producing security.
</TABLE>
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1997
Telephone Communication 7.7%
Banking 7.5
Construction 6.7
Oil & Gas Extraction 6.6
Misc. Retail 5.0
Hotels 4.5
Machinery 4.3
Transportation Equipment 3.9
Insurance 3.4
Wholesale Trade-non durable 2.9
<PAGE>
- --------------------------------------------------------------------------------
STATEMEMT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ..................................... $140,311,006
Cash ..................................................... 284
Foreign cash at value .................................... 180,910
Receivable for:
Fund shares sold ....................................... 97,610
Dividends and interest ................................. 216,071
Foreign taxes .......................................... 95,652
Prepaid registration expense ............................. 11,590
------------
140,913,123
LIABILITIES
Payable for:
Fund shares redeemed ................................... $2,913,954
Withholding taxes ...................................... 13,978
Accrued expenses:
Management fees ........................................ 132,104
Deferred trustees' fees ................................ 9,462
Accounting and administrative .......................... 2,994
Other expenses ......................................... 109,369
----------
3,181,861
------------
NET ASSETS ................................................. $137,731,262
============
Net Assets consist of:
Capital paid in ........................................ $119,569,193
Undistributed net investment income .................... 465,351
Accumulated net realized gains ......................... 1,802,435
Unrealized appreciation on investments and foreign
currency transactions 15,894,283
------------
NET ASSETS ................................................. $137,731,262
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($80,168,039 divided by 4,781,540 shares of beneficial
interest) ................................................ $16.77
======
Offering price per share (100/94.25 of $16.77) ............. $17.79*
======
Net asset value and offering price of Class B shares
($36,201,295 divided by 2,205,727 shares of beneficial
interest) ................................................ $16.41**
======
Net asset value and offering price of Class C shares
($942,586 divided by 57,316 shares of beneficial
interest) ................................................. $16.45
======
Net asset value and offering price of Class Y shares
($20,419,342 divided by 1,199,636 shares of beneficial
interest) ................................................. $17.02
======
Identified cost of investments ............................. $124,408,473
============
</TABLE>
*Based upon single purchases of less than $50,000. Reduced sales charges apply
for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months ended June 20, 1997
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends ................................................ $1,735,763(a)
Interest ................................................. 300,191
----------
2,035,954
Expenses
Management fees .......................................... $ 692,921
Service fees - Class A ................................. 108,827
Service and distribution fees - Class B ................ 190,238
Service and distribution fees - Class C ................ 3,990
Trustees' fees and expenses ............................ 10,660
Accounting and administrative .......................... 18,969
Custodian .............................................. 189,186
Transfer agent ......................................... 347,068
Audit and tax services ................................. 23,000
Legal .................................................. 11,956
Printing ............................................... 83,755
Registration ........................................... 26,209
Amortization of organization expenses .................. 25,452
Miscellaneous .......................................... 6,349
----------
Total expenses ........................................... 1,738,580
Less expenses waived by the investment adviser and sub-
adviser ................................................ (330,063) 1,408,517
---------- ----------
Net investment income .................................... 627,437
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized loss on:
Investments - net ...................................... (1,284,693)
Foreign currency transactions - net .................... (471,246)
----------
Total realized loss on investments and foreign currency
transactions ......................................... (1,755,939)
----------
Unrealized appreciation (depreciation) on:
Investments - net ...................................... 2,126,349
Foreign currency transactions - net .................... (22,083)
----------
Total unrealized appreciation on investments and foreign
currency transactions ................................ 2,104,266
----------
Net gain on investment transactions ...................... 348,327
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 975,764
==========
(a) Net of foreign taxes of: $258,496
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 income .................................. $ 537,565 $ 627,437
Net realized gain (loss) on investments and foreign
currency transactions ................................ 15,469,328 (1,755,939)
Unrealized appreciation (depreciation) on investments
and foreign currency transactions .................... (7,285,979) 2,104,266
------------ ------------
Increase in net assets from operations ................. 8,720,914 975,764
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .............................................. (144,405) 0
Class B .............................................. 0 0
Class C .............................................. 0 0
Class Y .............................................. (267,794) 0
Net realized gain on investments
Class A .............................................. (2,392,039) 0
Class B .............................................. (1,005,926) 0
Class C .............................................. (21,073) 0
Class Y .............................................. (1,938,066) 0
------------ ------------
(5,769,303) 0
------------ ------------
Decrease in net assets derived from capital share
transactions ......................................... (68,120,558) (72,002,347)
------------ ------------
Total decrease in net assets ........................... (65,168,947) (71,026,583)
NET ASSETS
Beginning of the period ................................ 273,926,792 208,757,845
------------ ------------
End of the period ...................................... $208,757,845 $137,731,262
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
Beginning of the period ................................ $ 20,518 $ (162,086)
============ ============
End of the period ...................................... $ (162,086) $ 465,351
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MAY 21(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ----------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
----------- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $12.50 $11.80 $14.85 $15.50 $16.13 $16.31
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .......................... 0.01 0.11 0.00 0.27 0.02 0.08(g)
Net Realized and Unrealized Gain
(Loss) on Investments ........................ (0.63) 3.37 1.19 0.63 0.51 0.38
------ ------ ------ ------ ------ ------
Total From Investment perations ................ (0.62) 3.48 1.19 0.90 0.53 0.46
------ ------ ------ ------ ------ ------
Less Distributions (d) Dividends From Net
Investment Income ............................ (0.01) (0.11) 0.00 (0.27) (0.02) 0.00
Distributions From Net Realized Capital Gains .. 0.00 (0.32) (0.53) 0.00 (0.33) 0.00
Distributions From Paid-in Capital ............. (0.07) 0.00 (0.01) 0.00 0.00 0.00
------ ------ ------ ------ ----- -----
Total Distributions ............................ (0.08) (0.43) (0.54) (0.27) (0.35) 0.00
------ ------ ------ ------ ----- -----
Net Asset Value, End of Period ................. $11.80 $14.85 $15.50 $16.13 $16.31 $16.77
====== ====== ====== ====== ====== ======
Total Return (%) (c) ........................... (5.0) 29.4 8.1 5.8 3.3 2.8
Ratio of Operating Expenses to Average
Net Assets (%) (e) ........................... 1.50(b) 1.60 1.75 1.75 1.75 1.75(b)
Ratio of Net Investment Income to Average
Net Assets (%) ............................... 0.10(b) 0.24 0.01 1.24 0.14 1.01(b)
Portfolio Turnover Rate (%) .................... 62 101 123 119 59 172(b)
Average Commission Rate (f) .................... -- -- -- -- $ 0.0180 $0.0029
Net Assets, End of Period (000) ................ $21,731 $80,937 $142,917 $136,848 $109,773 $80,168
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) See Note 1e.
(e) The ratio of operating expenses to average net assets without giving effect to the voluntary expense limitations described
in Note 4 to the Financial Statements
would have been (%) ........................ 2.89(b) 2.16 1.79 1.83 1.79 2.21(b)
(f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per
share for trades upon which commissions are charged. This rate generally does not reflect mark-ups, mark-downs, or spreads
on shares traded on a principal basis.
(g) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
(unaudited)
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 ........... $15.19 $14.81 $15.35 $15.93 $16.00
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ................... 0.12 0.00 0.19 (0.10)(g) 0.02(g)
Net Realized and Unrealized Gain (Loss)
on Investments ............................... (0.06) 1.08 0.58 0.50 0.39
------ ------ ------ ------ ------
Total From Investment Operations ............... 0.06 1.08 0.77 0.40 0.41
------ ------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment Income ........... (0.12) 0.00 (0.19) 0.00 0.00
Distributions From Net Realized Capital Gains .. (0.32) (0.53) 0.00 (0.33) 0.00
Distributions From Paid-in Capital ............. 0.00 (0.01) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions ............................ (0.44) (0.54) (0.19) (0.33) 0.00
------ ------ ------ ------ ------
Net Asset Value, End of Period ................. $14.81 $15.35 $15.93 $16.00 $16.41
====== ====== ====== ====== ======
Total Return (%) (c) ........................... 0.3 7.3 5.0 2.5 2.6
Ratio of Operating Expenses to Average Net
Assets (%) (e) ............................... 2.50(b) 2.50 2.50 2.50 2.50(b)
Ratio of Net Investment Income (loss) to
Average Net Assets (%) ....................... (1.69)(b) (0.74) 0.49 (0.61) 0.26(b)
Portfolio Turnover Rate (%) .................... 101 123 119 59 172(b)
Average Commission Rate (f) .................... -- -- -- $0.0180 $0.0029
Net Assets, End of Period (000) ................ $9,176 $41,601 $52,895 $45,974 $36,201
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not
reflected in total return calculations. Periods less than one year are not
annualized.
(d) See Note 1e.
(e) The ratio of operating expenses to average net
assets without giving effect to voluntary expense
limitations described in Note 4 to the Financial
Statements would have been (%) ............. 3.36 (b) 2.54 2.58 2.54 2.96(b)
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades upon
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
(g) Per share net investment income (loss) has been calculated using the average
shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
(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 ........... $15.35 $15.96 $16.03
------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ................... 0.19 (0.10)(f) 0.03(f)
Net Realized and Unrealized Gain (Loss)
on Investments ............................... 0.61 0.50 0.39
------ ------ ------
Total From Investment Operations ............... 0.80 0.40 0.42
------ ------ ------
Less Distributions (c)
Dividends From Net Investment Income ........... (0.19) 0.00 0.00
Distributions From Net Realized Capital Gains .. 0.00 (0.33) 0.00
Distributions From Paid-in Capital ............. 0.00 0.00 0.00
------ ------ ------
Total Distributions ............................ (0.19) (0.33) 0.00
------ ------ ------
Net Asset Value, End of Period ................. $15.96 $16.03 $16.45
====== ====== ======
Total Return (%) (b) ........................... 5.2 2.5 2.6
Ratio of Operating Expenses to Average
Net Assets (%) (d) ........................... 2.50 2.50 2.50(a)
Ratio of Net Investment Income (loss) to
Average Net Assets (%) ....................... 0.49 (0.61) 0.26(a)
Portfolio Turnover Rate (%) .................... 119 59 172(a)
Average Commission Rate (e) .................... -- $0.0180 $0.0029
Net Assets, End of Period (000) ................ $1,066 $850 $943
(a) Computed on an annualized basis.
(b) Periods less than one year are not annualized.
(c) See Note 1e.
(d) The ratio of operating expenses to average
net assets without giving effect to the
voluntary expense limitations described in
Note 4 to the Financial Statements would
have been (%) .............................. 2.58 2.54 2.96(a)
(e) 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.
(f) Per share net investment income (loss) has been calculated using the
average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
(unaudited)
CLASS Y
--------------------------------------------------------------------
SEPTEMBER 9(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 ........... $15.19 $14.86 $15.64 $16.25 $16.48
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .......................... 0.13 0.00 0.42 0.11(g) 0.08(g)
Net Realized and Unrealized Gain
(Loss) on Investments ........................ (0.01) 1.32 0.60 0.54 0.46
------ ------ ------ ------ ------
Total From Investment Operations ............... 0.12 1.32 1.02 0.65 0.54
------ ------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment Income ........... (0.13) 0.00 (0.41) (0.09) 0.00
Distributions From Net Realized
Capital Gains ................................ (0.32) (0.53) 0.00 (0.33) 0.00
Distributions From Paid-in Capital ............. 0.00 (0.01) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions ............................ (0.45) (0.54) (0.41) (0.42) 0.00
------ ------ ------ ------ ------
Net Asset Value, End of Period ................. $14.86 $15.64 $16.25 $16.48 $17.02
====== ====== ====== ====== ======
Total Return (%) (c) ........................... 0.7 8.9 6.6 4.0 3.3
Ratio of Operating Expenses to
Average Net Assets (%) (e) ................... 1.00(b) 1.00 1.00 1.00 1.15(b)
Ratio of Net Investment Income to
Average Net Assets (%) ....................... 0.33(b) 0.76 1.99 0.89 1.61(b)
Portfolio Turnover Rate (%) .................... 101 123 119 59 172(b)
Average Commission Rate (f) .................... -- -- -- $0.0180 $0.0029
Net Assets, End of Period (000) ................ $7,006 $56,561 $83,119 $52,161 $20,419
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) See Note 1e.
(e) The ratio of operating expenses to average net assets without giving
effect to the voluntary expense limitations described in Note 4 to the
Financial Statements would have been (%) ... 1.35(b) 1.04 1.21 1.19 1.61(b)
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades upon
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
(g) Per share net investment income has been calculated using the average shares
outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. The Fund is a series of New England Funds Trust I, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced
its public offering of Class B shares on September 13, 1993, of Class C shares
on December 30, 1994 and of its Class Y shares on September 9, 1993. Class A
shares are sold with a maximum front end sales charge of 5.75%. Class B shares
do not pay a front end sales charge, but pay a higher ongoing distribution fee
than Class A shares for eight years (at which point they automatically convert
to Class A shares), and are subject to a contingent deferred sales charge if
those shares are redeemed within six years (or five years if purchased prior to
May 1, 1997). Class C shares do not pay front end or contingent deferred sales
charges and do not convert to any class of shares, but they do pay a higher
ongoing distribution fee than Class A shares. Class Y shares do not pay a front
end sales charge, a contingent deferred sales charge or distribution fees. They
are intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro-rata share of the net assets of the Fund, if the Fund were
liquidated. In addition, the Trustees approve separate dividends on each class
of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date or when the Fund learns of
the dividend, and interest income is recorded on the accrual basis. In
determining net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency contracts
to facilitate transactions in foreign securities and to manage the fund's
currency exposure. Contracts to buy generally are used to acquire exposure to
foreign currencies, while contracts to sell are used to hedge the fund's
investments against currency fluctuation. Also, a contract to buy or sell can
offset a previous contract. These contracts involve market risk in excess of the
unrealized gain or loss reflected in the fund's Statement of Assets and
Liabilities. The U.S. dollar value of the currencies the fund has committed to
buy or sell (if any) is shown in the schedule of investments under the caption
"Forward Foreign Currency Contracts." This amount represents the aggregate
exposure to each currency each fund has acquired or hedged through currency
contracts at period end. Losses may arise from changes in the value of the
foreign currency or if the counterparties do not perform under the contracts
terms. The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for the
foreign currency component on the sale of securities for book and tax purposes.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The subadviser is responsible for determining that the
value of the collateral is at all times at least equal to the repurchase price.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon the
portfolio's ability to dispose of the underlying securities.
G. ORGANIZATION EXPENSE. Costs incurred in fiscal 1992 in connection with the
Fund's organization and registration, amounting to approximately $178,500 in
the aggregate, were paid by the Fund and were amortized by the Fund based on
projected annual average net assets over 60 months.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1997 were $128,555,176 and $198,942,692
respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million. During the six months ended June 30, 1997 the
Fund operated under two sub-advisory contracts. Prior to February 15, 1997
Draycott Partners, Ltd. was the Fund's subadvisor. Effective February 15, 1997
Loomis Sayles & Company, L.P. became the subadvisor to the Fund. NEFM paid
Draycott Partners, Ltd. at the rate of 0.54% of the first $200 million of the
Funds average daily net assets, 0.49% of the next $300 million and 0.44% of such
assets in excess of $500 million. NEFM pays Loomis Sayles & Company, L.P. at the
rate of 0.40% of the first $200 million of the Fund's average daily net assets
and 0.35% of such assets in excess of $200 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 New England Funds Management, L.P., Draycott Partners, Ltd. 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 PERIOD
----------- ------
$351,554(a) New England Funds Management, L.P. 1/1/97-6/30/97
128,701(a) Draycott Partners, Ltd. 1/1/97-2/14/97
212,666(a) Loomis Sayles & Company, L.P. 2/15/97-6/30/97
--------
$692,921
========
(a) Before reduction due to voluntary expense limitation. See Note 4.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC and
performs certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Funds' expenses of
providing these services which include the following: (i) expenses for personnel
performing bookkeeping, accounting, internal auditing and financial reporting
functions and clerical functions relating to the Fund, (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, shareholder reports and notices, proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance, and (iii) registration, filing and other fees
in connection with requirements of regulatory authorities. For the six months
ended June 30, 1997, these expenses amounted to $18,969 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 $242,006 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 $108,827 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 $514,256.
Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the six months ended June
30, 1997, the Fund paid New England Funds $47,560 and $998 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 $142,678 and $2,992 in distribution fees under the Class B and Class C
plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors of shares of the Fund during the six months ended
June 30, 1997 amounted to $173,963.
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, NEFM, NEIC or their affiliates, other than registered
investment companies. Each other trustee was compensated by the Fund as
follows:
Annual Retainer $2,118
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $88/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. EXPENSE LIMITATIONS. Draycott and New England Funds had voluntarily agreed to
reduce their fees and, if necessary, to assume expenses of the Fund in order to
limit the Fund's expenses to an annual rate of, 1.75% of the Fund's Class A
average net assets, 2.50% of Classes B and C average net assets, and 1.15% of
Class Y average net assets. Loomis Sayles has voluntarily agreed to waive it's
entire subadvisory fee, payable to Loomis Sayles by NEFM, through February 14,
1998. This waiver by Loomis Sayles will not reduce the management fee payable by
the Fund to NEFM. In addition, NEFM and New England Funds have voluntarily
agreed to reduce their fees and to bear certain operating expenses to limit the
expenses as described above. As a result of the Fund's expenses exceeding the
voluntary expense limitation during the six months ended June 30, 1997, NEFM
waived $65,955 of its $351,554 management fees, Draycott waived $51,442 of its
$128,701 subadvisory fees and Loomis Sayles waived $212,666 of it's $212,666
subadvisory fees.
5. CONCENTRATION OF CREDIT. The Fund had the following geographic concentration
in excess of 10% of its total net assets at June 30, 1997: Japan 15.6% and
Spain, 10.7%. The Fund pursues its objectives by investing in foreign
securities. There are certain risks involved in investing in foreign securities
which are in addition to the usual risks inherent in domestic investments. These
risks include those resulting from future adverse political or economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions.
6. CAPITAL SHARES. At June 30, 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 ...................................... 1,825,637 $29,792,464 4,827,726 $75,622,747
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........... 8,742 140,746 0 0
Distributions from net realized gain ........... 140,697 2,292,111 0 0
---------- ----------- ---------- -----------
1,975,076 32,225,321 4,827,726 75,622,747
Shares repurchased ............................... (3,726,604) (61,134,746) (6,778,594) (106,391,396)
---------- ----------- ---------- -----------
Net decrease ..................................... (1,751,528) (28,909,425) (1,950,868) (30,768,649)
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------------- ---------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 485,690 $ 7,864,591 136,538 $ 2,099,505
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........... 0 0 0 0
Distributions from net realized gain ........... 57,043 912,182 0 0
-------- ----------- -------- -----------
542,733 8,776,773 136,538 2,099,505
Shares repurchased ............................... (988,934) (16,015,194) (804,848) (12,331,787)
-------- ----------- -------- -----------
Net decrease ..................................... (446,201) (7,238,421) (668,310) (10,232,282)
-------- ----------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------------- ---------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 26,580 $431,991 65,582 $1,011,257
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........... 0 0 0 0
Distributions from net realized gain ........... 1,291 20,709 0 0
------ -------- ------ ----------
27,871 452,700 65,582 1,011,257
Shares repurchased ............................... (41,582) (671,566) (61,315) (918,514)
------ -------- ------ ----------
Net increase (decrease) .......................... (13,711) (218,866) 4,267 92,743
------ -------- ------ ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------------- ---------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 1,802,534 $ 30,088,855 346,367 $ 5,420,528
Shares issued in connection with the reinvestment of:
Dividends from net investment income ........... 16,496 268,390 0 0
Distributions from net realized gain ........... 117,430 1,938,067 0 0
--------- ------------ ------- ------------
1,936,460 32,295,312 346,367 5,420,528
Shares repurchased ............................... (3,885,695) (64,049,158) (2,311,433) (36,514,687)
--------- ------------ ------- ------------
Net decrease ..................................... (1,949,235) (31,753,846) (1,965,066) (31,094,159)
--------- ------------ ------- ------------
Decrease derived from capital shares transactions (4,160,675) $(68,120,558) (4,579,977) $(72,002,347)
========== ============ ========== ============
</TABLE>
7. At a special shareholders' meeting held April 3, 1997, shareholders of the
International Equity Fund voted for the following proposal:
<TABLE>
<CAPTION>
VOTED VOTED ABSTAINED BROKER TOTAL
FOR AGAINST VOTES NON-VOTES VOTES
----- ------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1. Subadvisory agreement
relating to the Fund
between New England
Funds Management, L.P.
and Loomis, Sayles and
Company L.P. 7,176,968.011 48,417.099 171,662.314 0 7,397,047.424
============= ========== =========== ===== =============
</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 Ann 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 - 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>
- --------------------------------------------------------------------------------
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 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(R) U.S. POSTAGE
Where The Best Minds Meet(R) 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
- --------------------- ---------------------
IE58-0697
[recycle symbol] Printed On Recycled Paper
