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ANNUAL REPORT AND PERFORMANCE UPDATE
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(Logo)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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New England
Star Worldwide Fund
[graphic omitted]
December 31, 1996
<PAGE>
FEBRUARY 1997
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Dear New England Funds Shareholder,
[Photo of Henry L.P. Schmelzer]
Taken together, 1995 and 1996 constituted the sixth strongest back-to-back years
for the U.S. stock market since 1915, as measured by percentage gain in the Dow
Jones Industrial Average (according to Bloomberg Business News).
Most New England Funds portfolio managers believe that the forces behind this
rally -- low inflation, relatively stable interest rates and strong corporate
profits -- will persist, at least for a time. Nevertheless, bull markets can
suddenly turn quiet; they can decline modestly; or they can reverse course
sharply. No one can predict what is ahead, nor can anyone guarantee whether the
market's strength will extend even further in 1997 and beyond.
Maintain a Long-Term Perspective
Whatever the market's direction, you should be prepared to consider any
short-term trends in the broader context of your long-term personal goals,
including the accumulation of financial assets. One way to manage this important
process is by diversifying your investments. While U.S. stocks have historically
been the strongest performers, you may, depending on your financial goals and
needs, also benefit from investing in various types of bond funds, and by
participating in growing overseas markets.
Remember that each investment has its own unique risks. What's more, no strategy
can assure a profit or protect against a loss. However, one time-tested approach
is to invest regularly and stay invested -- in good times and bad -- to avoid
the pitfall of guessing what the market might do in the short run.
Our Multiple-Adviser Approach Sets Us Apart
Many financial representatives recommend New England Funds to their clients
because of our distinctive multiple-adviser approach. For each fund, we
hand-pick a specific subadviser or subadvisers with significant experience and
demonstrated skill in selecting investments that are in tune with that fund's
stated objective. We call it matching the talent to the task.
Our three Star funds exemplify this exceptional approach: A number of
independent specialists manage separate fund segments. This multiplies the
research and analytical resources available to the fund, with the goal of
greater return potential accompanied by a propensity for reduced price
fluctuation.
Finally, it may interest you to learn that you are part of a major national
trend. In 1996, nearly 37 million U.S. households owned mutual funds, according
to the Investment Company Institute, an industry trade organization. Mutual
funds are now a cornerstone of retirement, college and other investment plans
for millions of Americans.
New England Funds has grown with the industry and is now over $6 billion in
size. We thank you for helping us reach this important milestone, and look
forward to serving your investment needs well into the future.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
For more information, including a prospectus for any New England Fund, please
contact your financial representative or call the Investor Services and
Marketing Group at 800-225-5478. Please read the prospectus carefully, including
the information on charges and expenses, before you invest.
<PAGE>
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NEW ENGLAND STAR WORLDWIDE FUND
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AWARD WINNING SERVICE -- TWO YEARS RUNNING
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[Dalbar logo] For two years running we're proud to announce that DALBAR, an
independent evaluator of mutual fund service, has awarded New
England Funds its Quality Tested Service Seal for "providing the
highest tier of service excellence in the mutual fund industry."
New England Funds is one of just three mutual fund companies to
earn this distinction in each of the last two years -- another
reason why we are becoming known as the mutual fund company Where
The Best Minds Meet(TM).
INVESTMENT RESULTS THROUGH DECEMBER 31, 1996
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Putting Performance into Perspective The graph comparing your Fund's performance
to a benchmark index provides you with a general sense of how your Fund
performed. To put this information in context, it may be helpful to understand
the special differences between the two. Your Fund's total return for the period
shown appears with and without sales charges and includes Fund expenses and
management fees. A securities index measures the performance of a theoretical
portfolio. Unlike a fund, the index is unmanaged; there are no expenses that
affect the results. In addition, few investors could purchase all of the
securities necessary to match the index. And, if they could, they would incur
transaction costs and other expenses.
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NEW ENGLAND STAR WORLDWIDE FUND
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TOTAL RETURNS FOR YEAR ENDED 12/31/96
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CLASS A (Inception 12/29/95) SINCE INCEPTION
Net Asset Value(1) 16.67%
With Max. Sales Charge(2) 9.98
Lipper Global Average5 16.52
CLASS B (Inception 12/29/95) SINCE INCEPTION
Net Asset Value(1) 15.87%
With CDSC(3) 11.87
Lipper Global Average(5) 16.52
CLASS C (Inception 12/29/95) SINCE INCEPTION
Net Asset Value(1) 15.94%
Lipper Global Average(5) 16.52
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.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge (MSC) performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(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 STAR WORLDWIDE FUND
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A $10,000 INVESTMENT COMPARED TO MSCI EAFE4
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[] NET ASSET VALUE(1) [] WITH MAXIMUM SALES CHARGE(2) [] CDSC(3) [] MSCI EAFE(4)
CLASS A SHARES, INCEPTION 12/29/95
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Morgan Stanley EAFE Index(4).
NAV(1) MSC(2) EAFE(4)
12/29/95 $10,000 $ 9,425 $10,000
Jan-96 $10,088 $ 9,508 $10,043
Feb-96 $10,264 $ 9,673 $10,079
Mar-96 $10,527 $ 9,922 $10,296
Apr-96 $10,872 $10,246 $10,598
May-96 $11,136 $10,495 $10,405
Jun-96 $11,191 $10,548 $10,466
Jul-96 $10,663 $10,050 $10,163
Aug-96 $10,951 $10,321 $10,187
Sep-96 $11,135 $10,495 $10,460
Oct-96 $11,047 $10,412 $10,355
Nov-96 $11,496 $10,835 $10,770
Dec-96 $11,666 $10,998 $10,634
CLASS B SHARES, INCEPTION 12/29/95
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class B Shares compared to Morgan Stanley EAFE Index(4).
NAV(1) CDSC(3) EAFE(4)
12/29/95 $10,000 $10,000 $10,000
Jan-96 $10,088 $10,088 $10,043
Feb-96 $10,256 $10,256 $10,079
Mar-96 $10,513 $10,513 $10,296
Apr-96 $10,841 $10,841 $10,598
May-96 $11,113 $11,113 $10,405
Jun-96 $11,153 $10,753 $10,466
Jul-96 $10,625 $10,244 $10,163
Aug-96 $10,906 $10,515 $10,187
Sep-96 $11,082 $10,684 $10,460
Oct-96 $10,994 $10,600 $10,355
Nov-96 $11,426 $11,016 $10,770
Dec-96 $11,587 $11,187 $10,634
CLASS C SHARES, INCEPTION 12/29/95
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class C Shares compared to Morgan Stanley EAFE Index(4).
NAV(1) EAFE(4)
12/29/95 $10,000 $10,000
Jan-96 $10,096 $10,043
Feb-96 $10,264 $10,079
Mar-96 $10,519 $10,296
Apr-96 $10,847 $10,598
May-96 $11,120 $10,405
Jun-96 $11,160 $10,466
Jul-96 $10,632 $10,163
Aug-96 $10,911 $10,187
Sep-96 $11,087 $10,460
Oct-96 $11,000 $10,355
Nov-96 $11,432 $10,770
Dec-96 $11,594 $10,634
These illustrations represent past performance and cannot predict future
results. Investment return and principal value may vary, resulting in a gain or
loss on the sale of shares. All Index and Fund performance assumes reinvested
distributions.
<PAGE>
NEW ENGLAND STAR WORLDWIDE FUND
HOW YOUR FUND PERFORMED
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New England Star Worldwide Fund recently celebrated an anniversary -- December
29 marked the Fund's first full year of operation. And what a year it was. Over
the past 12 months, Fund assets grew to over $150 million -- and they're still
climbing. In fact, according to Strategic Insight (an organization which tracks
mutual fund industry sales and trends), New England Star Worldwide Fund was the
top-selling global equity fund launched in 1996. Obviously, word has spread
about our "star-studded" approach to global equity investing.
We think that you will be pleased with your investment choice -- and with the
Fund's performance. Read on to learn more about the Fund's successful first year
and about its prospects for the future.
How Your Fund Performed
For the 12 months ended December 31, 1996, New England Star Worldwide Fund
outperformed its benchmark, the MSCI Europe Australasia Far East (EAFE) Index4,
with total returns of 16.67%, 15.87% and 15.94% at net asset value for Class A,
B and C shares, respectively.
The following pages review the investment activity of each of the Fund's
subadvisers over the past year. You'll find a wealth of information in this
report and we encourage you to review it carefully. As you do, we think you'll
come to appreciate even more how the Fund's multiple-manager approach adds a
layer of diversification that can help you pursue your long-term financial
goals.
NEW ENGLAND STAR WORLDWIDE FUND
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
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Q. How did you manage your segment of the Fund in 1996?
[Photo of Helen Young Hayes
Janus Capital Corporation]
We uncovered a number of stocks that performed very well in 1996, despite
relatively sluggish economic growth internationally. In fact, last year's
disappointments were few, with only minor impact on performance. We found a
number of attractive opportunities in the United States and abroad, particularly
in the United Kingdom, Germany and Sweden.
When selecting stocks for the Fund, we focus on individual companies and their
fundamentals. By this we mean not only the business itself -- that is, the
product and service offered as well as the level of competitiveness and
efficiency -- but also the talent and ability of management. And, we're
reluctant to pay high prices for securities; we believe that good value goes
hand-in-hand with strong fundamentals.
That said, many of the period's top-performers fell into a few categories or
centered around certain themes. For example, many holdings provide support
services to businesses, such as security firms or organizations that provide
facilities management. They are benefiting from the current global trend towards
outsourcing so-called non-core activities, concentrating instead on basics of
the business.
Another area that did extremely well last year was information technology,
specifically systems integration. This includes a broad group of companies that
provide a wide range of business functions -- everything from the design,
installation and maintenance of information systems to the provision of software
services. A third group represents what we call restructuring. These
organizations are either in the midst of consolidating or refocusing their
business, or aggressively trying to cut expenses and maximize profitability.
Finally, we also owned a number of pharmaceutical stocks -- classic growth
stocks -- which contributed positively to performance.
Examples of our investments: Hoechst, a German chemical and pharmaceutical firm;
Hays PLC, a U.K.-based company that provides overnight deliveries and other
business support services; and two Swedish firms -- Securitas, a security
company, and Assa-Abloy, which sells sophisticated locking devices.
Q. What is your investment outlook for the next six months? For the long term?
Overall, we're optimistic about the prospects for international equities. We
expect a continuation of slow economic growth and relatively stable interest
rates -- an environment that has already supplied us with a number of attractive
investment opportunities. Valuations remain compelling; we continue to focus
efforts on uncovering reasonably priced small, medium and large companies with a
dominant or growing market share within their industry.
LARGEST JANUS HOLDINGS, % OF FUND'S NET ASSETS
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Rentokil Group PLC 0.88%
Hays PLC 0.54%
Novartis AG 0.48%
Q. How did you manage your segment of the Fund in 1996?
[Photo of Michael Gerding
Founders Asset
Management]
Our goal is to acquire growth companies at a reasonable price. As always, our
emphasis was on individual stock selection by focusing on company fundamentals.
We do not try to predict the market or the direction of the economy when
choosing stocks for the Fund. Instead, we look for companies that we believe
will show substantial earnings growth over the next several years and are
selling at attractive valuations -- price relative to earnings.
During the period, we found a broad range of opportunities in publishing and
broadcasting -- spanning from book and technical magazine publishers to cable
and satellite television firms. Our segment was also highly concentrated in
consumer stocks, including those of European manufacturers of high-end products
and luxury goods.
Some of our favorites over the past year include Marschollek Lauten Preferred,
an innovative, fast-growing German insurance company; Guilbert, a French company
and Europe's largest retailer of office products; and Telebras, a fast-growing
Brazilian telephone company, very attractively valued. All top performers, they
reflect our investment approach: they have grown sales and earnings faster than
the average within their industry and home market and offer some of the best
prospects for sustained profitability.
As a general rule, we neither emphasize nor avoid specific countries when
seeking issues for the Fund. The sizes of our positions are simply the result of
stock selection. The United States, although underweighted compared to the MSCI
Europe Australasia Far East (EAFE) Index, remained the largest country
allocation, at approximately 12% of the segment. The United Kingdom was a close
second, followed by Japan, at approximately 10% of our segment of the portfolio.
Although the U.S. stock market was surprisingly strong and offered attractive
opportunities, I kept finding better values and growth rates overseas.
Nevertheless, the U.S. market thrived throughout 1996, driven by a "Goldilocks"
economy -- not too hot, not too cold, but just right. As a result, U.S. stock
prices continued to climb and generally outperformed their overseas
counterparts.
Q. What is your investment outlook for the next six months? For the long term?
In the near term, we're wary that a correction in the U.S. could dampen investor
enthusiasm and disturb markets around the world. Certainly, the fundamentals
overseas are much better than they are in the U.S., but markets tend to act in
concert during downturns.
Longer term, we're bullish on international equities. World economic growth is
improving and inflation remains low. In addition, many regions outside of the
U.S. are just beginning to enjoy an economic recovery, providing the potential
for years of strong growth. What's more, foreign stocks, while not cheap,
represent excellent value relative to their expected growth, and even better
value when compared to U.S. equities.
LARGEST FOUNDERS HOLDINGS, % OF FUND'S NET ASSETS
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Ladbroke Group PLC 0.42%
National Westminster Bank PLC (ADR) 0.37%
Total Petroleum (ADR) 0.36%
Q. How did you manage your segment of the Fund in 1996?
[Photos of Josephine Jimenez &
Bryan Sudweeks
Montgomery Asset
Management]
We concentrated on the emerging markets, which performed relatively well in 1996
after a couple of difficult years. The average return was around 8%, with some
weakness in the Middle East and Africa. Latin America and the emerging markets
of Europe, meanwhile, posted returns of close to 25%. Despite the recovery,
however, the investment climate remained somewhat volatile due to uncertainty
surrounding global interest rates, inflation and the impact on many emerging
markets of the 30% rise in oil prices.
Our goal was to outperform local markets, not just by being in the right stocks,
but also by being in the right industries and countries. We do this by combining
a top-down country and industry allocation strategy with a bottom-up stock
selection process.
With representation in 23 countries, the portfolio remained well-diversified.
Brazil was our largest country allocation for most of 1996, and a significant
contributor to performance -- the market was up over 45%. We were also heavily
invested in Mexico but cut back our holdings in the wake of adverse political
developments. We shifted assets to China and Hong Kong, a move that worked to
the Fund's advantage.
Thailand, at one point our third largest allocation, proved to be our greatest
disappointment in 1996. We have trimmed back our position, but maintain a
presence there as we believe the market offers tremendous growth potential.
Investment in Venezuela is a classic example of a portfolio change that we made
in response to unfolding events. As oil prices rose, we gradually shifted assets
into that country, a region rich in oil reserves. This move paid off handsomely
for shareholders; our Venezuelan investments were up approximately 18% for the
year. What's more, the outlook for the country's stocks remains bright -- with
lower interest rates and a more robust economy on the horizon.
Individual stocks we favored included Telebras, a Brazilian telecommunications
company; IJM, a construction company in Malaysia; and Electrobras, an electric
utility company in Brazil.
Q. What is your investment outlook for the next six months? For the long term?
Overall, our outlook for the emerging markets is quite positive. Economies have
grown at a healthy rate, inflation is under control, interest rates remain low,
annual profit growth for many companies is in the 20% to 25% range and markets
are attractively valued.
That said, we will be focusing on two areas, in particular, over the coming
year. Currently, we're setting our sights on Brazil, where we anticipate a
significant drop in real interest rates and a strengthening currency -- the
result of major industrial reforms. In the latter half of the year, we will
likely turn our attention to Hong Kong and China. Just months away from
reunification -- a transition we expect to be smooth -- the China/Hong Kong
market may offer significant opportunity for stock investors.
LARGEST MONTGOMERY HOLDINGS, % OF FUND'S NET ASSETS
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Turk Sise Ve Cam Fabrikalani 0.73%
Banco Bradesco PN S.A., 144A 0.46%
Lonrho PLC, 144A 0.45%
Oakmark/Harris Associates manages two segments of the Star Worldwide Fund.
Robert Sanborn manages the domestic segment, while David Herro and Michael Welsh
manage the overseas portion.
The investment climate in 1996 was characterized by sluggish growth in the U.S.
and the rest of the developed world, slow growth in Europe and virtually no
growth in Japan. But macroeconomic factors don't drive our investment decisions.
Instead, we evaluate each stock on its own merits, using a bottom-up,
value-oriented approach.
First, we seek out those issues selling at large discounts to their underlying
value -- defined as what a rational, informed business person would pay to own
the enterprise.
Second, we look for owner-oriented management. It is our experience that
investment potential is maximized if the interests of management and outside
shareholders are aligned.
Q. How did you manage your segment of the Fund in 1996?
[Photo of Robert Sanborn
Oakmark/Harris
Associates]
Despite the stock market's gyrations, we remained committed to our stock
selection discipline; we focus on well-managed companies that are reasonably
priced. We increasingly found many such stocks in the financial services and
consumer sectors. In fact, together, these sectors comprised more than
three-quarters of the portfolio, with consumer nondurables alone accounting for
more than 50% of this segment of the Fund. This is fairly typical of our
investment style -- when we find industries and issues we like, we concentrate
assets for the greatest potential return.
Holdings of financial stocks reflect our conviction that the sector's revival,
underway now for several years, still has a long way to run. In fact, the
portfolio's top three performers were all financial stocks: AMBAC, a bond
insurer, was up 44% for the year, while First USA, a credit card issuer, and
Mellon Bank both delivered double-digit returns.
Among consumer nondurables, Anheuser-Busch and Philip Morris each posted gains
of 24% for the year. Many major consumer companies remain undervalued despite
the huge stock market runs they've enjoyed over the past decade, and should
continue to generate sharply higher sales and earnings -- the result of
globalization and the strong demand for U.S. brands.
A pair of cable stocks, Tele-Communications Inc. and U.S. West Media Group, were
hurt by increased competition and the need for stepped-up capital. At their
current prices, we find these holdings very attractive. Finally, we shied away
from technology stocks altogether last year. Although they were strong
performers overall, we remain concerned about speculative excesses in that
sector.
Q. What is your investment outlook for the next six months? For the long term?
We do not focus on the near term. However, the end of the momentum market of the
last two years is inevitable. Longer-term, we feel good about the stocks we own.
The market has not yet rewarded these above-average businesses with the
above-average valuations we feel they deserve. Regardless of what the market may
do in the short term, we feel comfortable with the long-term prospects for these
companies.
We also believe that the market is overdue for a style change. It's been a
growth and momentum market for over two years. We don't try to anticipate or
predict a change, but we do believe that the pendulum eventually will swing back
in favor of value stocks.
LARGEST OAKMARK/HARRIS (DOMESTIC) HOLDINGS, % OF FUND'S NET ASSETS
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Mellon Bank Corp. 0.98%
Polaroid Corp. 0.83%
Philip MOrris Companies, Inc. 0.82%
Q. How did you manage your segment of the Fund in 1996?
[Photos of David Herro and Michael Welsh
Oakmark/Harris Associates]
As always, stock selection was the key to performance. Because we employ a
bottom-up strategy for stock selection, we found greater opportunities in
certain markets than others. The United Kingdom, at 12% of assets, represented
our segment's largest country allocation, followed by the Netherlands and
Australia, each with 7% of assets. Although many investors avoided Australia for
macroeconomic reasons, we saw great value there. In fact, two of our
top-performing holdings during the year were Australian companies: HIH
Winterthur, an insurance company, and National Australia Bank.
Other stocks we own include Yue Yuen Industrial Holding, a Hong Kong footwear
manufacturer, and P.T. Polysindo Eka Perkasa, an Indonesian integrated textile
manufacturer. Out of favor for reasons we thought were temporary, P.T.
Polysindo Eka Perkasa was a significant contributor to performance.
Because we found few securities in Japan that met our demanding criteria, we
substantially underweighted that country throughout most of 1996. Japanese
equities accounted for a mere 3% of Fund assets -- a factor that worked to the
Fund's advantage.
With the wisdom of hindsight, we see that we purchased a couple of stocks a
little too early -- but that is sometimes the way our style works. We invest in
out-of-favor issues with three- to five-year upside potential, meaning we
sometimes invest before a stock has bottomed out. Two examples are Koninklijke
Sphinx Gustavsberg, a Dutch manufacturer, and Tech Resources, a Malaysian
cellular phone operator.
Q. What is your investment outlook for the next six months? For the long term?
We are very optimistic about the future of most foreign markets over the long
term. Interest rates are low throughout much of Europe, and economies there,
while sluggish, are poised for a rebound. What's more, stock valuations are
extremely compelling. For example, in the battered markets of emerging Asia --
particularly, Korea and Thailand -- stocks continue to look good from a
valuation standpoint.
From a qualitative perspective, there have been several positive changes in the
developed markets, especially Europe and Japan. Many companies are now in the
midst of serious restructuring, cutting costs aggressively and actively trying
to increase profits. Management is also becoming increasingly shareholder-
conscious, further contributing to the improved financial health of many firms.
LARGEST OAKMARK/HARRIS (INTERNATIONAL) HOLDINGS, % OF FUND'S NET ASSETS
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Cordiant PLC 1.02%
Danieli & Company 0.93%
Guinness PLC 0.83%
<PAGE>
NEW ENGLAND STAR WORLDWIDE FUND
Top Portfolio Sectors by Geography 12/31/96*
Percentage of
Country Net Assets
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1. United States 20.25%
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2. United Kingdom 9.24%
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3. Netherlands 4.67%
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4. Sweden 4.52%
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5. Brazil 4.19%
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6. Argentina 3.54%
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7. France 3.44%
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8. Hong Kong 3.42%
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9. Malaysia 3.41%
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10. Japan 3.22%
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11. Germany 2.38%
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12. Indonesia 2.22%
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13. Switzerland 2.00%
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14. Mexico 1.86%
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15. Portugal 1.76%
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16. Italy 1.75%
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17. Australia 1.73%
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18. New Zealand 1.44%
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19. Finland 1.28%
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20. South Africa 1.24%
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*Portfolio holdings and asset allocations will vary.
<PAGE>
PORTFOLIO COMPOSITION
Investments as of December 31, 1996
COMMON STOCK--89.3% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES(a) DESCRIPTION VALUE(b)
- -------------------------------------------------------------------------------------------
ARGENTINA--3.5%
<C> <S> <C>
1,035,000 Alparagatas Sociedad Anonima Industrial Y Comercial .... $ 890,278
150,300 Astra Cia Argentina..................................... 287,130
17,341 Banco Frances Del Rio La Plata S.A. (ADR) 144A (d) (f) . 476,878
91,270 CIADEA S.A. (c) ....................................... 433,619
61,500 Cresud (c) ............................................ 108,877
1,200 Disco S.A. (ADR) (d).................................... 33,900
1,100 Irsa (GDR) (g) ......................................... 34,925
16,200 Irsa Inversiones Y .................................... 52,012
54,900 Siderar S.A. (c) ...................................... 158,144
25 Telecom de Argentina (ADR) 144A (d) (f) ................ 1,009
31,200 Telefonica de Argentina (ADR) (d) ..................... 807,300
83,150 YPF Sociedad Anonima (ADR) (d) ........................ 2,099,538
------------
5,383,610
------------
AUSTRALIA--1.7%
78,944 Aristocrat Leisure, Ltd. ............................... 205,188
157,982 Crown, Ltd. ........................................... 330,254
79,969 National Australia Bank, Ltd. ......................... 940,737
12,500 News Corp., Ltd., Preferred (ADR) (d) ................. 220,312
28,600 Village Roadshow ...................................... 112,072
193,038 Wattyl ................................................ 813,212
------------
2,621,775
------------
AUSTRIA--0.1%
1,874 Wolford AG ............................................ 226,711
------------
BELGIUM--0.2%
858 Barco NV .............................................. 148,195
1,051 Credit Communal Holdings/Dexia (c) 95,899
2,403 Telinfo S.A. .......................................... 98,006
------------
342,100
------------
BRAZIL--4.2%
96,550,000 Banco Bradesco PN S.A., 144A (f) ...................... 699,665
580 CELESC (GDR) 144A (f) (g) .............................. 54,085
7,600 Cemig (ADR) (d) ........................................ 258,917
4,980,000 Cemig PN .............................................. 169,658
4,260,000 Cesp Cia Energ Sp ..................................... 166,079
13,000 Companhia Cervejaria Brahma ........................... 7,106
1,025,000 Electrobras PN ........................................ 380,762
16,000,000 Lojas Americanas PN, 144A (f) ......................... 210,952
3,600 Multicanal Participacoes S.A. (ADR) (c) (d) ............ 46,125
1,400,000 Petroleo Brasileiro, 144A (f) ......................... 222,981
12,000 Souza Cruz S.A. ....................................... 78,760
8,820,000 Telebras Telec Brazil ................................. 632,365
727,037 Telecom de Rio Janeiro S.A., Preferred (c) ............ 92,001
16,275 Telecomunicacoes Brasileiras S.A. (ADR) (d) ........... 1,245,037
6,850 TV Filme, Inc. ........................................ 87,338
19,130,000 Unibanco PN, 144A (f) ................................. 624,105
1,368,000,000 Usiminas .............................................. 1,395,515
------------
6,371,451
------------
CANADA--0.2%
3,825 Canwest Global Communications ......................... 39,206
4,000 Potash Corp., Saskatchewan ............................ 340,000
------------
379,206
------------
CHILE--0.6%
10,250 Banco de A Edward (ADR) (d) ........................... 184,500
5,520 Compania de Telefonos de Chile S.A. (ADR) (d) ......... 558,210
3,625 Santa Isabel S.A. (ADR) (d) ........................... 82,016
2,100 Sociedad Quimica Minera de Chile (ADR) (d) ............ 113,662
------------
938,388
------------
CHINA--0.1%
20,000 Shanghai Industrial Holdings Ltd. (c)................... 72,920
58,000 Shangri-La Asia ....................................... 85,862
------------
158,782
------------
CZECH REPUBLIC--0.8%
36,469 PIFCO Holdings PLC ..................................... 463,958
5,620 SPT Telecommunications PT (c) .......................... 699,685
------------
1,163,643
------------
DENMARK--0.3%
2,100 Copenhagen Airport .................................... 213,893
5,425 Inwear Group AS, 144A (c) (f) .......................... 236,678
------------
450,571
------------
FINLAND--1.3%
3,789 Amer Group ............................................ 78,251
8,364 Huhtamaki OY .......................................... 389,108
6,759 Kesko ................................................. 95,361
4,724 Metra AB, Series B...................................... 264,955
1,012 Nokia AB OY ........................................... 58,696
4,025 Nokia Corp. (ADR) (d) .................................. 231,941
10,699 OY Tamro AB ........................................... 71,404
2,327 Raison Tehtaat ........................................ 146,702
3,924 Tietotehdas OY, B Shares .............................. 331,748
16,000 Valmet OY ............................................. 281,739
------------
1,949,905
------------
FRANCE--3.4%
1,800 Accor ................................................. 227,927
1,968 Axime Ex Segin ........................................ 227,580
12,425 Bouygues Offshore S.A. (ADR) (d) ...................... 159,972
3,669 Capital Gemini ........................................ 177,422
25,045 Chargeurs International S.A. .......................... 1,240,544
3,000 Christian Dior ........................................ 483,955
64 Club Mediterranee, 144A (f) ........................... 4,154
275 Dassault Systems S.A. (ADR) (d) ....................... 12,719
1,183 Grand Optical Photo Services .......................... 191,751
4,750 Groupe Legris Industries .............................. 200,034
1,100 Guilbert .............................................. 215,187
10,524 Lagardere Groupe ...................................... 288,834
144 Moulinex .............................................. 3,317
1,445 Pathe (c) ............................................. 348,126
6,000 Pernod Ricard ......................................... 331,888
6,000 SGS Thomson Microelectronics (ADR) (c) (d) ............ 420,000
1,196 Sligos ................................................ 156,747
13,500 Total Petroleum (ADR) (d) ............................. 543,375
------------
5,233,532
------------
GERMANY--2.4%
3,543 Adidas AG ............................................. 306,225
13,118 BASF AG ............................................... 505,352
712 Depfa Bank ............................................ 32,144
5,682 Deutsche Bank AG ...................................... 265,490
1,965 Eurobike AG ........................................... 60,017
1,050 Fresenius AG, Preferred ............................... 216,987
18,100 Fresenius Medical Care AG (ADR) (d)..................... 509,062
639 Fresenius Medical Preferred ........................... 51,471
214 Gehe AG ............................................... 13,698
9,549 Hoechst AG ............................................ 451,139
1,200 Marschollek Lauten Preferred .......................... 166,883
500 Pfeiffer Vacuum Techhnology AG (ADR) (d) ............... 9,000
38 Porsche AG, Preferred ................................. 33,585
5,025 Schwarz Pharma AG ...................................... 372,271
799 SGL Carbon AG, 144A (f) ............................... 100,732
2,500 Veba .................................................. 144,593
1,200 Volkswagen, Preferred ................................. 385,625
------------
3,624,274
------------
GREECE--0.1%
23,200 Aegek S.A. ............................................ 85,574
------------
HONG KONG--3.4%
25,000 Cheung Kong Holdings ................................... 222,219
30,000 China Light & Power .................................... 133,428
34,000 China Resources ....................................... 76,488
57,000 Citic Pacific, Ltd. .................................... 330,894
111,000 Concord Land Development (c) ........................... 48,077
35,000 Guoco Group, Ltd., 144A (f) ............................ 195,940
23,800 HBSC Holdings, Ltd. .................................... 509,264
7,000 Henderson Land Development, 144A (f) .................. 70,593
303,600 Hong Kong Aircraft Engineering Co., Ltd. .............. 934,214
43,000 Hutchison Whampoa, Ltd. ............................... 337,740
110,000 Hysan Development ..................................... 438,037
27,800 Mandarin Oriental International, Ltd.................... 39,198
54,000 New World Development Co., Ltd., 144A (f) ............. 364,794
200 New World Infrastructure, Ltd. ........................ 584
18,000 Sun Hung Kai Properties, Ltd., 144A (f) ................ 220,506
13,000 Swire Pacific, Ltd., 144A (f) ......................... 123,958
55,000 Wheelock & Company, Ltd. .............................. 156,797
2,610,000 Yue Yuen Industrial Holdings PLC, Ltd. ................. 995,475
------------
5,198,206
------------
HUNGARY--0.1%
3,400 Borsodchem Rt, (GDR) 144A (f) (g) ...................... 85,510
------------
INDIA--0.7%
5,800 Bajaj Auto (GDR) (g).................................... 197,200
2,000 Bajaj Auto (GDR) 144A (f) (g) .......................... 68,000
16,000 Gujarat Ambuja Cements Ltd. (GDR) 144A (f) (g) ......... 135,680
12,500 Indian Hotels Co., Ltd. (GDR) 144A (f) (g) ............. 318,750
5,800 Indian Petrochemical (GDR) 144A (f) (g) ................ 58,000
2,192 Mahindra & Mahindra (GDR) (g) ......................... 25,756
8,850 Tata Engineering & Locomotive, Ltd. (GDR) (g) ......... 94,031
11,464 Tata Engineering & Locomotive, Ltd. (GDR) 144A (f) (g) . 121,805
------------
1,019,222
------------
INDONESIA--2.2%
99,800 Asia Pulp & Paper Co., Ltd. (ADR) (c) (d) .............. 1,135,225
81,000 Bimantara Citra PT (c) ................................ 108,023
81,000 Ciputra Development (c) ............................... 84,018
24,000 Hanjaya Mandala Sampoerna PT .......................... 128,027
115,000 Mulia Industrindo PT ................................... 119,285
1,550,000 PT Polysindo Eka Perkasa .............................. 885,902
12,900 PT Tambang Timah (GDR) (g) ............................ 233,167
2,600 PT Telekom (ADR) (d) ................................... 89,700
30,000 PT Telekom Indoneisa ................................... 51,757
169,000 Semen Gresik PT ....................................... 543,776
------------
3,378,880
------------
IRELAND--1.1%
470,000 Anglo Irish Bank Corp., 144A (f) ...................... 561,515
5,625 Elan PLC (ADR) (c) (d) ................................. 187,031
470,000 Fyffes ................................................ 876,123
------------
1,624,669
------------
ISRAEL--0.3%
10,000 Koor Industries, Ltd. (ADR) (d) ....................... 170,000
4,700 Teva Pharmaceutical Industries, Ltd. (ADR) (d) ........ 236,175
------------
406,175
------------
ITALY--1.8%
14,704 Banca Popolare di Milano .............................. 74,635
338,500 Danieli & Company, 144A (f) ........................... 1,416,925
3,000 Fila Holdings SPA (ADR) (d) ........................... 174,375
8,250 Industrie Natuzzi SPA (ADR) (d) ....................... 189,750
15,611 Pagnossin SPA ......................................... 57,834
385,644 Parmalat Finanziaria SPA .............................. 589,778
32,506 Telecom Italia Mobil.................................... 82,176
29,294 Telecom Italia SPA, 144A (f) .......................... 76,083
------------
2,661,556
------------
JAPAN--3.2%
400 Amway Japan, Ltd., 144A (f) ........................... 12,849
75 Canon Inc. (ADR) (d).................................... 8,250
4,500 Credit Saison Co., Ltd., 144A (f) ..................... 100,639
60 DDI Corp. ............................................. 396,857
3,000 Doutor Coffee ......................................... 125,637
10,250 Eisai Co. ............................................. 201,796
40,900 Enix Corp. ............................................ 925,291
1,000 Hankyu Department Stores .............................. 9,930
150 Honda Motor (ADR) (d) ................................. 8,494
4,000 Honda Motor Co. ....................................... 114,325
5,000 Hoya Corp. ............................................ 196,442
3,000 Isetan ................................................ 38,857
6,000 Isuzu Motors .......................................... 26,682
25 Ito-Yokado Co., Ltd. (ADR) (d) ........................ 4,331
16,000 Kawasaki Heavy Industries ............................. 66,177
14,000 Konami Co., Ltd. ...................................... 477,506
11,000 Laox Co. .............................................. 167,170
7,000 Mitsubishi Estate Co., Ltd., 144A (f) .................. 71,928
4,000 Mitsui Fudosan Co., 144A (f) .......................... 40,066
38 Nippon Telegraph & Telephone .......................... 288,093
18 NTT Data Communications Systems Corp. ................. 526,898
5,000 Sony Corp. ............................................ 327,692
25 Sony Corp. (ADR) (d) ................................... 1,641
4,000 Square Co., Ltd. ...................................... 202,055
7,000 Sumitomo Metal ........................................ 47,207
2,000 Takeda Chemical ....................................... 41,965
8,000 Toyota Motors (ADR) (d) ................................ 460,000
1,000 Yamaha Motor Co., Ltd. ................................ 8,980
------------
4,897,758
------------
KOREA--0.8%
16,700 Kepco (ADR) (c) (d)..................................... 342,350
193 Kookmin Bank (GDR) 144A (f) (g) ....................... 3,604
41,895 Korea Mobile Telecom (ADR) (c) (d) .................... 539,402
13,100 Pohang Iron & Steel (ADR) (d) ......................... 265,275
1,550 The Korea Fund ........................................ 23,250
------------
1,173,881
------------
LUXEMBOURG--0.1%
100 Millicom International Cellular ....................... 3,212
14,925 Quilmes Industrial (ADR) (d) .......................... 136,191
------------
139,403
------------
MALAYSIA--3.4%
50,000 Arab Malaysian Corp. ................................... 249,456
24,000 Development & Commerical Bank .......................... 82,202
18,000 Edaran Otomobile Nasional BHD ......................... 179,964
34,000 Genting Berhad ........................................ 234,251
81,000 Guinness Anchor ....................................... 198,852
46,000 Hong Leong Bank ....................................... 160,285
242,000 IJM Corp. BHD, 144A (f) ................................ 570,144
59,000 Innovest BHD .......................................... 210,255
338,000 IOI Corp. BHD, 144A (f) ................................ 519,279
28,000 Leader Univ Holdings ................................... 58,761
25,000 Lingkaran Trans Kota Holdings BHD ..................... 51,475
90,000 Magnum Corp. .......................................... 174,619
52,000 New Straits Times, 144A (f) ........................... 300,614
24,000 Oriental Holdings BHD .................................. 163,453
169,000 Public BK BHD ......................................... 358,008
37,000 Resorts World BHD, 144A (f) ........................... 168,481
35,000 Tanjong ............................................... 139,972
415,000 Tech Resources Industries BHD, 144A (f) ............... 818,333
28,000 Telekom Malaysia BHD, 144A (f) ........................ 249,456
33,000 United Engineers BHD ................................... 297,921
------------
5,185,781
------------
MEXICO--1.9%
104,000 Cemex CPO ............................................. 374,543
485 Grupo Carso S.A. ...................................... 2,526
7,150 Grupo Casa Autrey S.A. (ADR) (d) ...................... 139,425
13,117 Grupo Financiero Inbursa B ............................ 44,823
2,007,000 Grupo Herdez, S.A. de C.V. ............................ 550,701
11,600 Grupo Radio Centro S.A. ............................... 79,750
6,350 Grupo Televisa S.A. (ADR) (d) ......................... 162,719
61,000 Industrias Penoles S.A. ............................... 216,197
11,300 Moderna ............................................... 55,983
36,250 Telefonos de Mexico, S.A. de C.V. (ADR) 144A (d) (f) .. 1,196,250
------------
2,822,917
------------
MOROCCO--0.0%
3,800 Banque Marocaine de Commerce (GDR) 144A (f) (g) ........ 59,375
------------
NETHERLANDS--4.7%
10,200 ASM Lithography Holding NV (c) ........................ 508,087
6,500 Baan Co. NV (c) ....................................... 225,875
2,092 Endemol Entertainment ................................. 69,673
28,650 European Vinyls Corp. International NV ................ 909,366
10,692 Getronics NV .......................................... 290,446
6,375 Gucci Group (ADR) (d) .................................. 407,203
3,376 Hunter Douglas NV ...................................... 227,804
35,701 Koninklijke Sphinx Gustavsberg NV ..................... 411,497
7,850 New Holland NV (c) ..................................... 163,869
2,004 Nutricia Bedrijven NV .................................. 304,692
5,299 Oce Van der Grinten NV ................................ 575,785
7,338 Philips Electronics NV ................................. 297,515
11,476 Philips Electronics NV (ADR) (d) ...................... 459,040
577 Randstad Holdings ..................................... 41,708
25,928 Royal Pakhoed NV ...................................... 810,954
24,750 VNU ................................................... 517,506
6,496 Wolters Kluwer ........................................ 863,500
------------
7,084,520
------------
NEW ZEALAND--1.4%
444,300 Lion Nathan, Ltd., 144A (f) ........................... 1,064,812
477,950 Sanford, Ltd. ......................................... 1,115,048
200 Tranz Rail Holdings, Ltd. (ADR) (d) ................... 3,538
------------
2,183,398
------------
NORWAY--0.4%
6,225 Kverneland ............................................ 170,042
8,144 Merkantildata ......................................... 147,887
4,482 Tandberg (c) .......................................... 138,430
6,149 Tomra Systems ASA ...................................... 94,958
------------
551,317
------------
PANAMA--0.2%
4,725 Bladex ................................................ 239,794
------------
PERU--0.2%
4,735 Credicorp, Ltd., 144A (f) .............................. 87,598
3,100 Minas Buenaventura (ADR) (c) (d) ...................... 53,088
5,700 Minas Buenaventura (c) ................................ 41,470
8,550 Telefonica de Peru S.A. (ADR) (d) ..................... 161,381
------------
343,537
------------
PHILIPPINES--0.5%
352,300 Aboitiz Equity Venentures, Inc. (c) ................... 35,498
183,000 DMCI Holdings (c) ..................................... 120,029
196,500 HI Cement Corp. ....................................... 65,002
7,500 Manila Electric Co. ................................... 61,312
172,000 Metro Pacific Corp. .................................... 42,509
100,000 Music Semiconductors, Inc. (c) ........................ 49,430
189,000 PCI Leasing & Finance (c) ............................. 50,444
3,600 Philippine Long Distance Telephone (ADR) (d) .......... 183,600
250,000 Republic Glass Holdings ................................ 48,479
273,000 Uniwide Holdings, Inc. (c) ............................ 53,977
------------
710,280
------------
PORTUGAL--1.8%
48,000 Banco Espirito Santo E Comercial de Lisboa, S.A. ...... 844,527
6,900 BCO Totta E Acores ..................................... 130,123
4,650 Capital Portugal Fund 144A (c) (f) ..................... 536,827
4,532 Cimpor Cimentos de Portugal ........................... 97,567
2,200 Portugal Telecom S.A. (ADR) 144A (d) (f) ............... 62,150
16,900 Sonae Investimentos - Sociedade Gestora de Participacoes
Sociais S.A. ........................................ 535,176
7,400 Telecel-Comunicacao-es Pessoais S.A. (c) ............... 472,493
------------
2,678,863
------------
RUSSIA--0.7%
4,475 Gazprom (ADR) (c) (d) .................................. 79,431
11 Irkutskenergo (Russian Depositary Trust) 144A (c) (f) .. 290,400
3,850 Mosenergo (ADR) 144A (d) (f) .......................... 116,655
4,925 Oil Company Lukoil (ADR) (d) .......................... 226,550
1,200 Tatneft (ADR) 144A (d) (f) ............................. 55,200
5,975 Tatneft (ADR) (d) ...................................... 286,800
------------
1,055,036
------------
SINGAPORE--0.6%
138,000 Aztech ................................................ 42,407
363,000 CDL Hotels International .............................. 207,677
219,000 Datacraft Asia ........................................ 365,730
34,000 Far East Levingston Shipbuilding, Ltd., 144A (f) ...... 177,374
16,000 Keppel Corp ........................................... 124,634
------------
917,822
------------
SOUTH AFRICA--1.2%
3,950 Anglo America Gold Investment 144A (f) ................. 300,778
23,500 Barlow, Ltd. .......................................... 208,454
1,917 DeBeers ............................................... 54,906
324,857 Lonrho PLC, 144A (f) ................................... 690,195
14,222 Sappi, Ltd. ........................................... 127,674
36,423 Sasol, Ltd. ........................................... 432,078
1,750 South African Breweries, Ltd. ......................... 44,325
1,608 South African Breweries, Ltd. (ADR) 144A (d) (f) ...... 40,200
------------
1,898,610
------------
SPAIN--0.9%
10,600 Argentaria (c) ........................................ 474,377
68,200 Grupo Uralita ......................................... 533,202
9,085 Prosegur Seguridad (c) ................................. 83,975
2,000 Repsol S.A. (ADR) (d) .................................. 76,250
10,950 Telefonica ............................................ 254,298
------------
1,422,102
------------
SWEDEN--4.5%
52,700 AB Volvo, Series B .................................... 1,162,972
3,500 ABB AB ................................................ 395,167
2,080 Althin Medical AB, Series B ........................... 45,139
25,494 Assa-Abloy AB, Series B ............................... 463,534
8,950 Astra AB, Series B .................................... 431,759
167 Atlas Copco AB ........................................ 4,040
10,900 Autoliv AB ............................................ 477,881
61,800 Avesta Sheffield ...................................... 666,036
81 Diligentia ............................................ 1,277
613 Enator AB (c) ......................................... 15,460
3,067 Enator AB (c) ......................................... 78,475
2,368 Ericsson LM Telephone AB, Series B ..................... 73,263
7,075 Ericsson LM Telephone Co. (ADR) (c) (d) ................ 213,577
5,058 Frontec AB, Series B ................................... 87,515
855 Incentive AB, Series B ................................. 62,057
30,296 Intentia International AB, Series B, 144A (c) (f) ...... 453,114
5,566 Investment AB Bure 144A (f) ........................... 66,107
1,506 Kinnevik Investment, Series B ......................... 41,515
23,870 Medical Invest, Series B .............................. 640,509
6,493 Nobel Biocare AB ...................................... 114,248
2,767 Nordbanken AB ......................................... 83,782
2,428 Pricer AB, Series B .................................... 59,811
1,659 Sandvik AB ............................................ 44,760
15,474 Securitas AB, Series B ................................. 450,386
819 Skandinaviska Enskilda Bank ........................... 8,406
3,211 Sparbanken Sverige AB 144A (f) ........................ 55,087
11,700 Spira Invest AB ....................................... 276,206
17,483 Swedish Match AB ....................................... 61,525
18,359 Tornet Fastighet ...................................... 279,965
737 WM Data AB, Series B ................................... 63,759
------------
6,877,332
------------
SWITZERLAND--2.0%
47 Clariant .............................................. 20,120
6,994 Credit Suisse ......................................... 718,472
633 Novartis AG ........................................... 724,983
82 Roche Holdings AG ...................................... 638,050
1,075 Saurer, Ltd. .......................................... 465,820
62 Schweizerische Ruckversicherungs 144A (f) .............. 66,192
48 SGS Holding ........................................... 117,983
193 Sulzer AG, 144A (f) .................................... 111,460
47 Swissair .............................................. 38,028
8,475 Tag Heuer International S.A. (ADR) (c) (d) ............. 136,659
------------
3,037,767
------------
TAIWAN--0.6%
7,360 Advanced Semiconductor Engineering (GDR) (g) .......... 69,920
3,600 Advanced Semiconductor Engineering (GDR) 144A (f) (g) .. 35,010
5,740 China Steel Corp. (GDR) (c) (g) ....................... 115,159
1,300 China Steel Corp. (GDR) 144A (c) (f) (g) .............. 26,081
11,600 Taiwan Fund 144A (c) (f) .............................. 258,100
25,200 The R O C Taiwan Fund (c) ............................. 258,300
12,000 Yageo Corp. (GDR) 144A (c) (f) (g) .................... 121,500
------------
884,070
------------
THAILAND--1.1%
4,300 Bangkok Bank 144A (f) .................................. 41,582
91,000 Bangkok Bank Shareholder Equity Right 2 (h) ............ 677,727
41,000 Central Pattana Ltd. ................................... 185,448
35,000 Electricity Generating Public Company, Ltd. ........... 95,531
51,000 Industrial Finance Corp. of Thailand (c) ............... 138,209
20,000 PTT Exploration and Production ........................ 288,544
3,200 Siam Cement Co. ....................................... 100,320
2,700 Siam Cement Shareholder Equity Right 2 (h) ............. 85,066
------------
1,612,427
------------
TURKEY--0.9%
332,167 Koc Holdings .......................................... 58,194
89,000 Migros Turk Tas ....................................... 108,737
109,101 Trakya Cam ............................................ 5,533
10,398,000 Turk Sise Ve Cam Fabrikalani (c) ...................... 1,102,600
1,178,000 Yapi Ve Kredi Bankasi, New ............................ 29,328
------------
1,304,392
------------
UNITED KINGDOM--9.2%
133,228 Asda Group ............................................ 280,744
11,984 Barclays .............................................. 205,414
3,625 British Airways (ADR) (d) .............................. 372,469
34,190 BTG ................................................... 265,636
36,382 Capita Group PLC ...................................... 303,235
50,000 Carlton Communications PLC ............................ 440,723
22,467 CMG PLC ............................................... 325,326
4,774 Compass Group ......................................... 50,504
876,000 Cordiant PLC (c) ...................................... 1,545,794
7,150 Danka Business Systems (ADR) (d) ...................... 252,931
50,000 Dixons Group .......................................... 464,708
8,157 Dorling Kindersley .................................... 57,506
38,516 Electrocomponents ..................................... 304,855
128,002 Freepages ............................................. 95,393
6,294 Glaxo Wellcome PLC ..................................... 102,222
160,000 Guinness PLC, 144A (f) ................................. 1,254,069
19,100 Harvey Nichols PLC ..................................... 113,219
84,736 Hays PLC .............................................. 813,680
17,653 J.D. Wetherspoon PLC ................................... 353,846
14,796 JBA Holdings PLC ...................................... 134,348
160,000 Ladbroke Group PLC ..................................... 633,202
22,369 Lloyds TSB Group PLC ................................... 164,980
44,029 London Clubs International ............................ 230,064
25,714 London International Group PLC, 144A (f) .............. 73,349
65,548 LucasVarity PLC ....................................... 249,862
250 LucasVarity PLC (ADR) (d) .............................. 9,500
7,312 Michael Page Group PLC ................................ 51,674
8,000 National Westminster Bank PLC (ADR) (d) ................ 556,000
35,550 Next PLC .............................................. 345,633
3,530 Pearson 144A (f) ....................................... 45,327
37,029 Powerscreen International PLC (c) ..................... 358,427
178,308 Rentokil Group PLC ..................................... 1,341,052
27,125 Select Appointments Holdings PLC (ADR) (c) (d) ........ 311,938
2,587 Sema Group PLC ........................................ 48,088
6,246 SmithKline Beecham PLC ................................ 86,622
700 SmithKline Beecham PLC (ADR) (d) ...................... 47,600
21,393 Stagecoach Holdings PLC ............................... 256,188
725,000 Vardon PLC ............................................ 1,167,552
13,932 Victrex ............................................... 64,087
60,000 WPP Group PLC ......................................... 261,093
------------
14,038,860
------------
UNITED STATES--20.2%
70,366 ACNielsen Corp. ....................................... 1,064,286
850 Airtouch Communications, Inc. ......................... 21,463
6,425 Alco Standard Corp. .................................... 331,691
10,500 AMBAC, Inc. ........................................... 696,937
18,200 American Brands, Inc. .................................. 903,175
20,400 Anheuser-Busch Companies, Inc. ........................ 816,000
12,000 Apache Corp. .......................................... 424,500
825 Associates 1st Capital Corp. .......................... 36,403
29,300 Black & Decker Corp. ................................... 882,662
550 Boeing Co. ............................................ 58,506
42,000 Brunswick Corp. ....................................... 1,008,000
14,750 Cellular Communications International (c) ............. 427,750
1,850 Cisco Systems, Inc. (c) ................................ 117,706
550 Citicorp .............................................. 56,650
16,100 Cognizant Corp. ....................................... 531,300
7,500 Columbia/HCA Healthcare Corp. .......................... 305,625
3,000 Computer Sciences Corp., Rights (c) ................... 246,375
2,950 Corporate Express, Inc. (c) ........................... 86,841
24,100 Dun and Bradstreet Corp. .............................. 572,375
100 First Data Corp. ...................................... 3,650
3,000 First Pacific Co. ..................................... 3,898
32,400 First USA, Inc. ....................................... 1,121,850
35,800 Foundation Health Corp. (c) ........................... 1,136,650
27,300 H. J. Heinz Co. ....................................... 975,975
6,000 Idexx Laboratories (c) ................................. 216,000
2,150 International Business Machines Corp. .................. 324,650
30,400 Knight-Ridder, Inc. .................................... 1,162,800
17,200 Kroger Co. (c) ........................................ 799,800
2,700 Lockheed Martin Corp. ................................. 247,050
5,925 Lucent Technologies, Inc. ............................. 274,031
8,500 Manpower Inc. ......................................... 276,250
13,025 MCI Communications ..................................... 425,755
21,000 Mellon Bank Corp. ..................................... 1,491,000
3,275 MFS Communications, Inc. .............................. 178,488
24,600 Nabisco Holdings Corp. ................................. 956,325
1,125 NIKE, Inc., Class B ................................... 67,219
29,750 Old Republic International ............................ 795,812
25 Paging Network, Inc. (c) .............................. 381
5,475 Parametric Technology Corp. (c) ....................... 281,278
4,700 PepsiCo, Inc. ......................................... 137,475
50 Pfizer, Inc. .......................................... 4,144
11,000 Philip Morris Companies, Inc. ......................... 1,238,875
8,050 Physio Control International Corp. .................... 181,125
29,000 Polaroid Corp. ......................................... 1,261,500
10,075 Quorum Health Group (c) ............................... 299,731
12,000 Ralston Purina Co. .................................... 880,500
1,700 Raychem Corp. ......................................... 136,213
36,125 Rofin-Sinar Technologies, Inc. ........................ 424,469
6,500 Rural/Metro Corp. (c) .................................. 234,000
5,170 TCI Satellite Entertainment, Inc. (c) .................. 51,054
51,700 Tele-Communications, Inc. (c) ......................... 675,331
25,000 Tele-Communications, Inc., New ........................ 714,062
18,600 Torchmark, Inc. ....................................... 939,300
58,000 U.S. West Media Group (c) ............................. 1,073,000
1,600 Ucar International, Inc. .............................. 60,200
7,000 Unilever NV, 144A (f) . ............................... 1,226,750
850 United Technologies Corp. ............................. 56,100
4,200 Vivra, Inc. ........................................... 116,025
13,775 Warnaco Group ......................................... 408,084
2,091 Wells Fargo & Co. ..................................... 564,047
7,500 Williams Companies, Inc. .............................. 281,250
6,012 Wolverine Worldwide ................................... 174,348
11,000 Worldcom, Inc. (c) .................................... 286,688
------------
30,751,378
------------
VENEZUELA--0.3%
15,300 CANTV (ADR) (d) ........................................ 430,313
------------
Total Common Stock (Identified Cost $125,875,336) ..... 135,604,673
------------
BONDS AND NOTES -- 0.6%
FACE
AMOUNT DESCRIPTION VALUE(b)
- --------------------------------------------------------------------------------------------
PHILIPPINES--0.1%
$ 175,000 Metro Pacific Corp. Convertible Bond, 2.500%, 4/11/03 . $ 186,375
------------
TAIWAN--0.1%
190,000 Nan Ya Plastic Corp. Convertible Bond, 1.750%, 7/19/01 . 216,600
------------
UNITED STATES--0.4%
200,000 Alfa S.A., Convertible Note 144A, 8.000%, 9/15/00 (f) 220,750
85,000 Barlow International Investments, Ltd. Convertible Bond,
7.000%, 9/20/04 ...................................... 89,250
150,000 United Microelectronics Corp, 1.250%, 6/08/04 .......... 210,563
------------
520,563
------------
Total Bonds and Notes (Identified Cost $933,128) ...... 923,538
------------
1,500,000 American Express Credit Corp., 6.300%, 1/02/97 ........... 1,500,000
1,300,000 American Express Credit Corp., 6.550%, 1/02/97 ........... 1,299,763
2,250,000 Ford Motor Credit Co., 5.800%, 1/03/97 ................... 2,250,000
2,250,000 General Electric Capital Corp., 5.650%, 1/02/97 .......... 2,250,000
5,786,000 Repurchase Agreement with State Street Bank & Trust Co.
dated 12/31/96 at 4.750% to be repurchased at $5,787,527
on 01/02/97, collateralized by $4,610,000 U.S. Treasury
Bond due 8/17/17 with a value of $5,908,005 ............. 5,786,000
1,531,000 Repurchase Agreement with State Street Bank & Trust Co.
dated 12/31/96 at 5.750% to be repurchased at $1,531,489
on 01/02/97, collateralized by $1,225,000 U.S. Treasury
Bond due 8/17/17 with a value of $1,569,915 ............. 1,531,000
------------
Total Short Term Investments (Identified Cost
$14,616,763) ............................................ 14,616,763
------------
Total Investments--99.5% (Identified Cost $141,425,227)(i) 151,144,974
Other assets less liabilities (e) ........................ 711,877
------------
Total Net Assets--100% ................................... $ 151,856,851
=============
</TABLE>
<TABLE>
<CAPTION>
FORWARD CURRENCY CONTRACTS OUTSTANDING
at December 31, 1996
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE (DEPRECIATION)
------------ --------------- -------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Deutsch Mark (sold) .......... 1/16/97 300,000 $198,400 $195,161 $ 3,239
Deutsch Mark (sold) .......... 1/17/97 275,000 183,541 178,909 4,632
Deutsch Mark (sold) .......... 3/4/97 375,000 241,892 244,702 (2,810)
Deutsch Mark (sold) .......... 3/4/97 600,000 384,995 391,525 (6,530)
Finnish Marka (sold) ......... 1/16/97 675,000 148,692 146,900 1,792
French Franc (sold) .......... 1/16/97 400,000 78,125 77,167 958
British Pounds (bought) ...... 1/16/97 55,000 90,316 94,243 3,927
British Pounds (sold) ........ 1/16/97 55,000 85,800 94,243 (8,443)
British Pounds (bought) ...... 1/17/97 62,000 101,818 106,231 4,413
British Pounds (sold) ........ 1/17/96 62,000 95,995 106,231 (10,236)
Japanese Yen (sold) .......... 1/16/97 63,000,000 577,947 545,228 32,719
Japanese Yen (sold) .......... 6/17/97 18,000,000 162,264 159,185 3,079
Swedish Krona (sold) ......... 1/16/97 2,300,000 346,122 337,477 8,645
Swedish Krona (sold) ......... 1/27/97 750,000 114,350 110,098 4,252
Swiss Franc (sold) ........... 1/16/97 220,000 177,664 164,633 13,031
Swiss Franc (sold) ........... 1/27/97 230,000 192,292 172,311 19,981
Swiss Franc (sold) ........... 3/4/97 900,000 680,663 676,766 3,897
South African Rand (sold) .... 11/3/97 338,000 64,726 65,665 (939)
------
$75,607
=======
</TABLE>
TEN LARGEST INDUSTRY HOLDINGS AT DECEMBER 31, 1996 (UNAUDITED)
Finance 22.70% Capital Goods 6.00%
Consumer Basics 16.10% Utilities 5.80%
General Business 13.40% Consumer Non-Durables 5.60%
Basic Industry 7.30% Technology 5.60%
Consumer Services 6.30% Energy 4.10%
(a) Ordinary Shares unless otherwise noted.
(b) See Note 1a.
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
(e) Including deposits in foreign denominated currencies with a value of $17,831
and a cost of $17,781.
(f) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These Securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(g) Global Depository Receipt.
(h) These securities are certificates which entitle the holder to one local
share of the common stock of the company indicated. The value of these
securities is directly linked to the value of the underlying common stock.
(i) Federal Tax Information: At December 31, 1996 the net unrealized
appreciation on investments based on cost of $142,351,689 for federal income
tax purposes was as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of value over tax cost. ................................................. $12,738,246
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over value. ................................................. (3,944,961)
-----------
Net unrealized appreciation ............................................. $ 8,793,285
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ..................................... $151,144,974
Cash ..................................................... 8,601
Foreign cash at value (Cost $17,781) ..................... 17,831
Receivable for:
Fund shares sold ......................................... 887,202
Securities sold .......................................... 576,511
Open forward currency contracts - net .................... 75,607
Dividends and interest ................................... 178,327
Foreign withholding taxes ................................ 16,302
Unamortized organization expense ........................... 52,538
------------
152,957,893
LIABILITIES
Payable for:
Securities purchased ..................................... $669,250
Fund shares redeemed ..................................... 54,211
Foreign withholding taxes ................................ 9,986
Accrued expenses:
Management fees .......................................... 127,128
Deferred trustees' fees .................................. 1,435
Accounting and administrative ............................ 2,644
Other expenses ........................................... 236,388
------------
1,101,042
------------
NET ASSETS ................................................... $151,856,851
============
Net Assets consist of:
Capital paid in .......................................... $142,774,612
Undistributed net investment loss ........................ (65,383)
Accumulated net realized losses .......................... (647,258)
Unrealized appreciation on investments, forward currency
contracts and foreign currency transactions ............ 9,794,880
------------
NET ASSETS ................................................... $151,856,851
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($68,509,399 divided by 4,757,430 shares of beneficial
interest) ................................................ $14.40
======
Offering price per share (100/94.25 of $14.40) ............. $15.28*
======
Net asset value and offering price of Class B shares
($65,367,401 divided by 4,570,816 shares of beneficial
interest) ................................................ $14.30**
======
Net asset value and offering price of Class C shares
($17,980,051 divided by 1,256,603 shares of beneficial
interest) ................................................ $14.31
======
Identified cost of investments ............................. $141,425,227
============
</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
- --------------------------------------------------------------------------------
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends .............................................. $ 1,171,084(a)
Interest ............................................... 589,217
-----------
1,760,301
Expenses
Management fees ...................................... $ 780,469
Service fees - Class A ............................... 85,683
Service and distribution fees - Class B .............. 305,294
Service and distribution fees - Class C .............. 95,265
Trustees' fees and expenses .......................... 11,567
Accounting and administrative ........................ 24,445
Custodian ............................................ 499,876
Transfer agent ....................................... 230,443
Audit and tax services ............................... 50,000
Legal ................................................ 19,091
Printing ............................................. 23,275
Registration ......................................... 75,833
Amortization of organization expenses ................ 12,362
Miscellaneous ........................................ 6,678
------------
Total expenses ......................................... 2,220,281
-----------
Net investment loss .................................... (459,980)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net .................................... 1,590,524
Foreign currency transactions - net .................. (44,289)
------------
Net realized gain on investments and foreign currency
transactions 1,546,235
------------
Unrealized appreciation on:
Investments - net .................................... 9,729,337
Foreign currency transactions - net .................. 65,543
------------
Net unrealized appreciation on investments, forward
currency contracts
and foreign currency transactions .................. 9,794,880
------------
Net gain on investment transactions .................... 11,341,115
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $10,881,135
===========
(a) Net of foreign taxes of : $90,439
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1996
-------------
FROM OPERATIONS
<S> <C>
Net investment loss ................................................... $ (459,980)
Net realized gain on investments and foreign currency transactions .... 1,546,235
Unrealized appreciation on investments, and foreign currency
transactions ........................................................ 9,794,880
------------
Increase in net assets from operations .................................. 10,881,135
------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
NET REALIZED GAIN ON INVESTMENTS
Class A ............................................................. (827,582)
Class B ............................................................. (790,419)
Class C ............................................................. (219,963)
------------
(1,837,964)
------------
Increase in net assets derived from capital share transactions ........ 142,813,680
------------
Total increase in net assets .......................................... 151,856,851
NET ASSETS
Beginning of the period ............................................... 0
------------
End of the period ..................................................... $151,856,851
============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
Beginning of the period ............................................... 0
------------
End of the period ..................................................... $ (65,383)
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------- ---------------- ----------------
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year .............. $12.50 $12.50 $12.50
----- ----- -----
Income (Loss) From Investment Operations
Net Investment Loss ............................. (0.03)(c) (0.12)(c) (0.12)(c)
Net Realized and Unrealized Gain (Loss) on
Investments ..................................... 2.11 2.10 2.11
----- ----- -----
Total From Investment Operations ................ 2.08 1.98 1.99
----- ----- -----
Less Distributions
Distributions From Net Realized Capital Gains ... (0.18) (0.18) (0.18)
----- ----- -----
Total Distributions ............................. (0.18) (0.18) (0.18)
----- ----- -----
Net Asset Value, End of Year .................... $14.40 $14.30 $14.31
====== ====== ======
Total Return (%) (a) ............................ 16.7 15.9 15.9
Ratio of Operating Expenses to Average Net
Assets (%) .................................... 2.58 3.33 3.33
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) ........................ (0.21) (0.96) (0.96)
Portfolio Turnover Rate (%) ..................... 57 57 57
Average Commission Rate ......................... $0.0004(b) $0.0004(b) $0.0004(b)
Net Assets, End of Year (000) ................... $68,509 $65,367 $17,980
</TABLE>
(a) A sales charge in the case of Class A Shares and a contingent deferred
sales charge in the case of Class B Shares are not reflected in total
return calculations.
(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 on
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
(c) Per Share Net investment income (loss) has been calculated using the
average shares outstanding during the year.
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, and Class C shares. The Fund commenced its
public offering of Class A, Class B and Class C shares on December 29, 1995.
Class A shares are sold with a maximum front end sales charge of 5.75%. Class
B shares do not pay a front end sales charge, but pay a higher ongoing
distribution fee than Class A shares for eight years (at which point they
automatically convert to Class A shares), and are subject to a contingent
deferred sales charge if those shares are redeemed within five years of
purchase. Class C shares do not pay front end or contingent deferred sales
charges and do not convert to any other class of shares, but they do pay a
higher ongoing distribution fee than Class A shares. 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 market value. All other securities and assets are
valued at their fair value as determined in good faith by New England Funds
Management, L.P., the Fund's adviser, under the supervision of the Fund's
trustees.
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.
Since the values of investment securities are presented at the foreign
exchange rates prevailing at the end of the period, it is not practical to
isolate that portion of the results of operations arising from changes in
exchange rates from fluctuations arising from changes in market prices of the
investment securities. Such fluctuations are included with the net realized
and unrealized gain or loss on 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 portfolio composition under
the caption "Forward Currency Contracts Outstanding." These amounts represent
the aggregate exposure to each currency the Fund has acquired or hedged
through currency contracts outstanding at period end. Losses may arise from
changes in the value of the foreign currency or if the counterparties do not
perform under the contracts' terms.
All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date. The timing and characterization of
certain income and capital gains distributions are determined in accordance
with federal tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for organization costs and foreign currency transactions for book
and tax purposes. Permanent book and tax basis differences will result in
reclassification to capital accounts.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to
100% of the repurchase price. Each subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the portfolio's ability to dispose of the underlying
securities.
G. ORGANIZATION EXPENSE. Costs incurred in connection with the Fund's
organization and initial registration, amounting to approximately $64,900 in
the aggregate, were paid by the Fund and are being amortized by the Fund over
60 months.
2. PURCHASES AND SALES OF SECURITIES. (excluding short-term investments) for
the Fund for the period December 31, 1996 were $164,648,101 and $39,430,171,
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 1.05% of the Fund's average daily net assets.
NEFM pays the Fund's four investment subadvisers, Harris Associates, L.P.,
Founders Asset Management, Inc., Janus Capital Corporation and Montgomery
Asset Management, L.P. a subadvisory fee as follows: Harris Associates, L.P.,
Founders Asset Management, Inc. and Janus Capital Corporation at the annual
rate of 0.65% of the first $50 million of the average daily net assets of the
segment of the Fund which that subadviser manages, 0.60% of the next $50
million of such assets and 0.55% of such assets in excess of $100 million.
NEFM pays Montgomery Asset Management, L.P. at the annual rate of 0.90% of the
first $25 million of the average daily net assets of the segment of the Fund
that Montgomery Asset Management, L.P. manages, 0.70% of the next $25 million
of such assets and 0.55% of such assets in excess of $50 million. Montgomery
Asset Management, L.P. agreed to waive 0.15% of the fee payable to it by NEFM
through June 30, 1996, but this waiver will not reduce the fees payable by the
Fund to NEFM.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM and Harris Associates, L.P. are wholly owned subsidiaries of New
England Investment Companies, L.P. which is a subsidiary of Metropolitan Life
Insurance Company. Fees earned by NEFM and the subadvisers under the
management agreement in effect during the year ended December 31, 1996, are as
follows:
FEES EARNED
- -----------
$267,457 New England Funds Management, L.P.
192,641 Harris Associates, L.P.
95,549 Founders Asset Management, Inc.
102,157 Janus Capital Corporation
122,665 Montgomery Asset Management, L.P.
- -------
$780,469
========
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of New
England Investment Companies, L.P. and performs certain accounting and
administrative services for the Fund. The Fund reimburses New England Funds
for all or part of New England Funds' expenses of providing these services
which include the following: (i) expenses for personnel performing
bookkeeping, accounting, internal auditing and financial reporting functions
and clerical functions relating to the Fund, (ii) expenses for services
required in connection with the preparation of registration statements and
prospectuses, shareholder reports and notices, proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities and reports
and questionnaires for SEC compliance, and (iii) registration, filing and
other fees in connection with requirements of regulatory authorities. For the
period ended December 31, 1996, these expenses amounted to $24,445 and are
shown separately in the financial statements as Accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the year ended December 31, 1996, the Fund
paid New England Funds $169,601 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
period ended December 31, 1996, the Fund paid New England Funds $85,683 in
fees under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C
shares and/or the maintenance of shareholder accounts. For the period ended
December 31, 1996 the Fund paid New England Funds $76,324 and $23,816 in
service fees under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds
monthly distribution fees at the annual rate of up to 0.75% of the average
daily net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and
Class C shares. For the period ended December 31, 1996, the Fund paid New
England Funds $228,970 and $71,449 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 period
ended December 31, 1996 amounted to $1,559,365.
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, New England Investment Companies, L.P. or their
affiliates, other than registered investment companies. Each other trustee is
compensated by the Fund as follows:
Annual Retainer $714
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CAPITAL SHARE TRANSACTIONS. At December 31, 1996 there was an unlimited
number of shares of beneficial interest authorized, divided into three
classes, Class A, Class B and Class C capital stock. Transactions in capital
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------------------
CLASS A SHARES AMOUNT
- ------- --------- -----------
<S> <C> <C>
Shares sold ................................................ 5,263,135 $71,193,860
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 55,816 789,245
--------- -----------
5,318,951 71,983,105
Shares repurchased ......................................... (561,521) (7,815,507)
--------- -----------
Net increase ............................................... 4,757,430 64,167,598
--------- -----------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------------------
CLASS B SHARES AMOUNT
- ---- --------- -----------
<S> <C> <C>
Shares sold ................................................ 4,646,365 $62,819,212
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 52,648 739,708
--------- -----------
4,699,013 63,558,920
Shares repurchased ......................................... (128,197) (1,770,220)
--------- -----------
Net increase ............................................... 4,570,816 61,788,700
--------- -----------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------------------
CLASS C SHARES AMOUNT
- ---- --------- ------------
<S> <C> <C>
Shares sold ................................................ 1,307,969 $ 17,561,696
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 14,581 205,003
---------- ------------
1,322,550 17,766,699
Shares repurchased ......................................... (65,947) (909,317)
---------- ------------
Net increase ............................................... 1,256,603 $ 16,857,382
---------- ------------
Increase derived from capital shares transactions .......... 10,584,849 $142,813,680
========== ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND STAR WORLDWIDE FUND
In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England Star Worldwide Fund
("the Fund") at December 31, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities owned at
December 31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1997
<PAGE>
--------------
(Logo) BULK RATE
NEW ENGLAND FUNDS U.S. POSTAGE
Where The Best Minds Meet(TM) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
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[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
- --------------------- ---------------------
DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
- --------------------- ---------------------
SW6-1296
[recycle symbol] Printed On Recycled Paper
