<PAGE>
- -------------------------------------------------------------------------------
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
[graphic omitted](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
New England
Star Small Cap Fund
[graphic omitted]
- ---------------
June 30, 1997
- ---------------
<PAGE>
August 1997
- --------------------------------------------------------------------------------
Dear New England Funds Shareholder,
[Photo of Henry L.P. Schmelzer]
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives. Our sights, like yours, are focused on the long
term. At the same time, we work to enhance service every day. We also keep a
disciplined eye on the performance that each fund manager achieves. Through
these persistent efforts we're convinced we'll merit your continued commitment
and loyalty. Thank you for your confidence in New England Funds. Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
<PAGE>
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NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
DALBAR, DALBAR, an independent evaluator of mutual fund
QUALITY service, has awarded New England Funds its Quality
TESTED SERVICE Tested Service Seal for "providing the highest
1996 tier of service excellence in the mutual fund
- --------------------- industry." New England Funds is one of just three
DALBAR mutual fund companies to earn this distinction in
HONORS COMMITMENT TO: each of the last two years -- another reason why
INVESTORS we are becoming known as the mutual fund company
- --------------------- Where The Best Minds Meet.
INVESTMENT RESULTS THROUGH JUNE 30, 1997
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
See next page [symbol - hand pointing right]
<PAGE>
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NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDED 6/30/97
- --------------------------------------------------------------------------------
CLASS A (Inception 12/31/96) SINCE INCEPTION
Net Asset Value(1) 10.40%
With Max. Sales Charge(2) 4.07
- --------------------------------------------------------------------------------
CLASS B (Inception 12/31/96) SINCE INCEPTION
Net Asset Value(1) 10.00%
With CDSC(3) 5.00
- --------------------------------------------------------------------------------
CLASS C (Inception 12/31/96) SINCE INCEPTION
Net Asset Value(1) 10.00%
- --------------------------------------------------------------------------------
COMPARATIVE PERFORMANCE SINCE 12/31/96
Russell 2000(4) 10.20%
Lipper Small Cap Fund Avg.(5) 8.99
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
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares.
(4) Russell 2000 Small Stock Index is a popular measure of the stock price
performance of small companies. 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 SMALL CAP FUND
- --------------------------------------------------------------------------------
A $10,000 Investment Compared to Russell 2000(4)
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class A shares compared to
Russell 2000. The data points to this chart are as follows:]
Class A Shares Inception 12/31/96
Net Asset With Maximum
Value(1) Sales Charge(2) Russell 2000(4)
12/31/96 $10,000 $ 9,425 $10,000
1/97 $10,192 $ 9,606 $10,200
2/97 $ 9,920 $ 9,349 $ 9,953
3/97 $ 9,351 $ 8,814 $ 9,483
4/97 $ 9,264 $ 8,731 $ 9,510
5/97 $10,447 $ 9,847 $10,567
6/97 $11,040 $10,005 $11,021
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class B shares compared to
Russell 2000. The data points to this chart are as follows:]
Class B Shares Inception 12/31/96
Net Asset
Value(1) CDSC(3) Russell 2000(4)
12/31/96 $10,000 $10,000 $10,000
1/97 $10,184 $10,184 $10,200
2/97 $ 9,912 $ 9,912 $ 9,953
3/97 $ 9,336 $ 9,336 $ 9,483
4/97 $ 9,248 $ 9,248 $ 9,510
5/97 $10,425 $10,425 $10,567
6/97 $11,009 $10,509 $11,021
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class C shares compared to
Russell 2000. The data points to this chart are as follows:]
Class C Shares Inception 12/31/96
Net Asset
Value(1) Russell 2000(4)
12/31/96 $10,000 $10,000
1/97 $10,192 $10,200
2/97 $ 9,912 $ 9,953
3/97 $ 9,336 $ 9,483
4/97 $ 9,248 $ 9,510
5/97 $10,424 $10,567
6/97 $11,008 $11,021
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 SMALL CAP FUND
- --------------------------------------------------------------------------------
HOW YOUR FUND PERFORMED
- --------------------------------------------------------------------------------
Although just six months young, New England Star Small Cap Fund has already made
a name for itself. As investors recognize the convenience and wisdom of
investing in a single fund that pursues growth through separate strategies and
styles, assets have grown to over $70 million, as of June 30, 1997. The Fund's
sales success is testimony to the broad appeal of its approach.
We are pleased with the Fund's performance -- and think you will be too. More
importantly, we are most optimistic about its future.
Economic Overview
During the continued upward climb of the broad investment market, two factors in
the past sixth months caused a temporary stall: concern over higher interest
rates and the possibility of weaker corporate earnings. Concerns fueled
performance of large company stocks as investors seeking liquidity drove up
prices. Nonetheless, the stall was temporary: news of favorable investment
conditions -- moderate economic growth, low inflation and a reasonable interest
rate environment -- helped the overall market to recover and return to a more
normal pace.
At the start of the year, small company stocks continued to lag their larger
counterparts. But, by the second quarter, their relative underperformance turned
into a buying opportunity, prompting a small cap rally as investors found more
attractive valuations (a measure that indicates how much one pays for a
company's earning power) in this market.
For the semiannual period ending June 30, 1997, New England Star Small Cap Fund
returned 10.40%, 10.00% and 10.00% at net asset value for Class A, B and C
shares, respectively. This compared favorably to its benchmark, the Russell 2000
Index, which posted 10.20% for the same period.
Your Fund is the latest of three New England Star funds, each with a
multiple-adviser approach. New England Star Small Cap Fund has four different
segments, each managed by a separate subadvisory firm with its own management
approach. On the following pages, commentary from the Fund's portfolio managers
will give you insight into each investment style and market perspective.
<PAGE>
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NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
ROBERTSON STEPHENS INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
[Photo of John Wallace]
John Wallace,
Robertson Stephens
Investment Management
Small cap stocks have underperformed dramatically since May of 1996, while the
earnings momentum for large cap stocks has been surprisingly strong. But, I am
convinced that the large cap out-performance will eventually end. Some smaller
companies can and will grow their sales and earnings at a 25-30% rate, while
many of the large cap companies simply cannot.
We remain committed to our small- to mid-cap bias, and continue to apply our
bottom-up, research-intensive approach to selecting securities. We target small-
to mid-cap companies with good growth potential as a result of improved
management, new products, and/or market expansion. Currently, the areas we are
looking at include: oil service, technology, telecom equipment, capital goods,
and industrial companies.
LARGEST HOLDINGS IN ROBERTSON STEPHENS SEGMENT
AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Vans, Inc. 0.51%
Southern Electronics Corp. 0.46%
Key Energy Group, Inc. 0.44%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
MONTGOMERY ASSET MANAGEMENT
- --------------------------------------------------------------------------------
[Photo of Andrew Pratt]
Andrew Pratt,
Montgomery Asset
Management
With valuations more normal, a number of attractive small cap stocks have became
available. In addition to evaluating new prospects, we also routinely re-expose
all our portfolio holdings to our time-tested, three-step stock selection
process: quantitative screening, independent fundamental research and careful
valuation.
As of June 30, our portfolio contains a broad mix of high-quality and
interesting companies, with good diversification among sectors. For new stock
selection, we are currently focusing on two primary areas: service and
technology. Outbound/inbound teleservicing and customer retention services seem
to be emerging with momentum and a well-defined future. Likewise, in the area of
technology, a growing number of agile and responsive, solutions-driven companies
are reaping the benefits of The Year 2000 challenge. As larger companies
outsource functions like teleservicing and technology problem-solving, some of
these smaller, ambitious companies are getting good visibility. We see this as
an accelerating factor that can work favorably for the small cap investor.
LARGEST HOLDINGS IN MONTGOMERY SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Cooper Companies, Inc. 0.72%
Whole Foods Market, Inc. 0.54%
Octel Communications Corp. 0.53%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
LOOMIS, SAYLES & CO., L.P.
- --------------------------------------------------------------------------------
[Photo of David Smith, Philip Fine & Christopher Ely]
David Smith,
Philip Fine &
Christopher Ely,
Loomis, Sayles & Co., L.P.
During the first six months of 1997, small cap stock performance was eclipsed by
the continued extraordinary performance of large caps. Excessive valuations and
a flight to liquidity caused small cap growth stocks to underperform through the
end of April. Then two things happened. The momentum of large cap stock growth
slowed, and the small cap valuation correction attracted more investors. This
was enhanced by a favorable economy, good growth, and low inflation. Another
factor was the prospect of a capital gains tax cut, which prompted many
investors to increase their exposure to growth-oriented investments. These
developments and the strong fundamentals of the small companies we invest in
worked to the advantage of our portfolio in the second quarter.
At the end of the period, our largest exposure was in technology, specifically,
software and electronics. We're also looking at biotechnology, which seems to be
undergoing a renaissance. In fact, we will look at any sector for emerging,
high-growth companies that dominate their industry niche or are exceptionally
well-positioned to benefit from change -- a change in technology, an improved
regulatory climate, or encouraging demographic trends.
LARGEST HOLDINGS IN LOOMIS SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Advanced Technology Materials, Inc. 0.73%
Sipex Corp. 0.66%
FirstFed Financial 0.63%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
OAKMARK/HARRIS ASSOCIATES L.P.
- --------------------------------------------------------------------------------
[Photo of Steven Reid]
Steven Reid,
Oakmark/Harris Associates
During the semiannual period it seemed like a lot happened, but very little
changed. While no one knows exactly why, it appears that Wall Street became
obsessed with several short-term events: the Fed's decision to raise interest
rates, anticipation of second quarter earnings, and the fear of companies not
meeting expectations. And finally, many investors became concerned about the
possibility of an overall market correction. We were not exempt from the overall
market decline, and several of our holdings did not or were not expected to
produce the near-term results on which other investors seem to focus so closely.
But, as long-term investors, we see these situations as opportunities, and we
try to take advantage of them.
Our strategy for Star Small Cap Fund continues to follow our value-oriented
philosophy. We buy and hold stocks of companies that may trade at a significant
discount to their business value. We pursue returns by identifying
attractively-priced stocks and sticking with those companies until we feel they
have realized their full market potential. The basic attributes of the small cap
universe are still quite attractive, and right now, it's a good, investable
environment.
LARGEST HOLDINGS IN OAKMARK/HARRIS SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
SPX Corp. 1.38%
Catellus Development Corp. 1.28%
U.S. Industries, Inc. 1.11%
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND STAR SMALL CAP FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOP PORTFOLIO SECTORS 6/30/97*
- --------------------------------------------------------------------------------
Percentage of
Net Assets
----------------------------------------------
1. Services 5.6
----------------------------------------------
2. Software 5.4
----------------------------------------------
3. Industrial Goods & Services 4.2
----------------------------------------------
4. Technology 4.2
----------------------------------------------
5. Retail 4.0
----------------------------------------------
6. Electronics 3.7
----------------------------------------------
7. Insurance 3.7
----------------------------------------------
8. Broadcasting 3.6
----------------------------------------------
9. Drugs & Health Care 3.4
----------------------------------------------
10. Petroleum Services 3.2
----------------------------------------------
11. Real Estate 2.8
----------------------------------------------
12. Machinery 2.7
----------------------------------------------
13. Banks 2.7
----------------------------------------------
14. Food & Beverages 2.7
----------------------------------------------
15. Consumer Cyclicals 2.7
*Portfolio holdings and asset allocations will vary.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
COMMON STOCK -- 95.3% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE(A)
- --------------------------------------------------------------------------------
AEROSPACE--0.7%
10,000 Logicon, Inc. ....................................... $ 530,000
------------
AIR TRAVEL--0.2%
6,000 Southwest Airlines .................................. 155,250
------------
APPAREL & TEXTILES--0.3%
7,000 Nautica Enterprises, Inc. ........................... 185,063
------------
BANKS--2.7%
12,500 Bank Plus Corp. ..................................... 135,938
5,000 Fidelity Bankshares, Inc. (c) ....................... 98,750
20,000 Northwest Savings Bank .............................. 310,000
30,000 Peoples Bank of Bridgeport, Connecticut ............. 776,250
8,000 Resource Bancshares Mortgage Group .................. 158,000
1,200 TCF Financial Corp. ................................. 59,250
4,000 Union Planters Corp. ................................ 207,500
2,500 United States Bancorp ............................... 160,312
------------
1,906,000
------------
BASIC MATERIALS--0.6%
5,500 Carpenter Technology Corp. .......................... 251,625
5,000 Libbey, Inc. ........................................ 175,000
------------
426,625
------------
BROADCASTING--3.6%
12,000 Cablevision Systems Corp. (c) ....................... 648,000
8,000 Comcast Corp. ....................................... 171,000
32,000 Granite Broadcasting Corp. (c) ...................... 328,000
5,200 Heftel Broadcasting Corp. (c) ....................... 287,300
14,800 Metro Networks, Inc. (c) ............................ 358,900
50,000 TCI Satellite Entertainment, Inc. (c) ............... 393,750
11,400 Westwood One, Inc. (c) .............................. 367,650
------------
2,554,600
------------
BUILDING MATERIAL & CONSTRUCTION--0.5%
22,000 NVR, Inc. (c) ....................................... 335,500
------------
BUSINESS SERVICES--2.2%
9,500 Abacus Direct Corp. (c) ............................. 308,750
9,000 Childrens Comprehensive Services .................... 127,125
13,500 Equity Corp. International (c) ...................... 326,531
1,500 G & K Services ...................................... 55,875
9,500 Outdoor Systems, Inc. (c) ........................... 363,375
6,000 Universal Outdoor Holdings, Inc. (c) ................ 209,250
9,200 Waste Industries, Inc. (c) .......................... 162,150
------------
1,553,056
------------
CAPITAL GOODS--2.3%
6,100 Boston Technology, Inc. (c) ......................... 180,331
5,100 Comverse Technology, Inc. (c) ....................... 265,200
9,500 MRV Communications, Inc. (c) ........................ 280,250
15,900 Octel Communications Corp. (c) ...................... 372,656
6,900 P-COMM, Inc. (c) .................................... 227,700
8,800 Woodhead Industries ................................. 166,100
8,400 X-Rite, Inc. ........................................ 159,600
------------
1,651,837
------------
CHEMICALS--1.0%
17,500 Advanced Technology Materials, Inc. (c) ............. 514,063
8,500 Giant Cement Holding, Inc. .......................... 159,375
------------
673,438
------------
COMMUNICATION--1.1%
5,000 General Cable Corp. (c) (d) ......................... 128,125
21,000 IWL Communications Inc. ............................. 112,875
4,000 PairGain Technologies, Inc. (c) ..................... 62,000
3,000 QUALCOMM, Inc. (c) .................................. 152,625
12,000 Westell Technologies ................................ 300,000
------------
755,625
------------
COMPUTERS--1.6%
5,000 3Com Corp. (c) ...................................... 225,000
8,500 ADAC Labs ........................................... 200,812
4,000 Citrix Systems, Inc. ................................ 175,500
6,000 Data General Corp. .................................. 156,000
10,000 Iomega Corp. ........................................ 198,750
700 NeoMagic Corp. (c) .................................. 15,663
20,000 UniComp, Inc. ....................................... 140,000
------------
1,111,725
------------
COMPUTERS & BUSINESS EQUIPMENT--1.1%
8,100 ENCAD, Inc. (c) ..................................... 336,150
11,400 Natural Microsystems Corp. (c) ...................... 410,400
------------
746,550
------------
CONSTRUCTION MATERIALS--0.3%
7,000 Simpson Manufacturing Co. ........................... 185,500
------------
CONSUMER CYCLICALS--2.7%
9,900 Borders Group, Inc. (c) ............................. 238,838
12,400 Corporate Express, Inc. (c) ......................... 179,025
3,000 Ethan Allen Interiors, Inc. ......................... 171,000
4,600 Kimball International, Inc., Class B ................ 185,150
7,400 Mac Frugals Corp. (c) ............................... 201,650
12,500 Miller Industries, Inc. (c) ......................... 200,000
5,900 Proffitts (c) ....................................... 258,862
5,600 Samsonite Corp. (c) ................................. 247,100
8,200 World Color Press, Inc. (c) ......................... 194,750
------------
1,876,375
------------
CONSUMER GOODS & SERVICES--1.8%
15,000 First Brands Corp. .................................. 344,062
10,500 GC Companies, Inc. (c) .............................. 480,375
11,000 Scotsman Industries, Inc. ........................... 313,500
86,957 U-Ship, Inc. ........................................ 117,392
------------
1,255,329
------------
CONSUMER PRODUCTS--2.4%
11,500 Action Performance Companies, Inc. (c) .............. 278,875
8,500 General Cigar Holdings, Inc. (c) .................... 250,219
6,500 Jones Apparel Group, Inc. (c) ....................... 310,375
8,200 Maxicare Health Plans (c) ........................... 183,475
10,600 Sola International, Inc. (c) ........................ 355,100
11,200 The Men's Wearhouse, Inc. (c) ....................... 352,800
------------
1,730,844
------------
DIVERSIFIED CONGLOMERATES--1.1%
22,000 U.S. Industries, Inc. (c) ........................... 783,750
------------
DRUGS & HEALTH CARE--3.4%
1,800 Agouron Pharmaceuticals, Inc. (c) ................... 145,575
12,500 American Oncology Resources, Inc. ................... 210,937
12,500 Columbia Laboratories. .............................. 204,687
5,200 Gilead Sciences, Inc. (c) ........................... 143,650
5,900 Guilford Pharmaceuticals, Inc. (c) .................. 143,075
3,000 HealthCare Compare Corp. ............................ 157,125
4,800 Immunex Corp. (c) ................................... 174,000
6,300 Intercardia, Inc. ................................... 144,900
2,500 Living Centers of America, Inc. ..................... 98,750
14,000 Matritech Inc. ...................................... 97,125
10,000 Medical Resources, Inc. ............................. 165,000
25,000 Meridian Diognostic ................................. 209,375
6,200 Sepracor, Inc. (c) .................................. 160,038
6,800 Tenet Healthcare Corp. (c) .......................... 201,025
900 Theragenics Corp. (c) ............................... 20,700
3,300 Vertex Pharmaceuticals, Inc. (c) .................... 126,225
------------
2,402,187
------------
ELECTRIC--0.2%
12,000 Antec Corp. ......................................... 141,000
------------
ELECTRONIC COMPONENTS--1.3%
11,100 3Dfx Interactive, Inc. (c) .......................... 148,463
12,800 Sipex Corp. (c) ..................................... 464,000
9,500 Vitesse Semiconductor Corp. (c) ..................... 310,531
------------
922,994
------------
ELECTRONICS--3.7%
5,200 CFM Technologies, Inc. (c) .......................... 170,300
6,900 Cymer, Inc. (c) ..................................... 336,375
9,000 Cypress Semiconductor Corp. ......................... 130,500
8,500 Input/Output, Inc. (c) .............................. 154,063
9,100 Kulicke & Soffa Industries, Inc. (c) ................ 295,466
7,700 Lam Research Corp. (c) .............................. 285,381
6,500 PRI Automation, Inc. (c) ............................ 246,594
7,600 Sanmina Corp. (c) ................................... 482,600
12,500 Scientific Atlanta, Inc. (c) ........................ 273,437
4,400 Uniphase Corp. (c) .................................. 256,300
------------
2,631,016
------------
ENERGY--0.9%
10,000 Hvide Marine, Inc. (c) .............................. 221,250
11,800 Marine Drilling Companies, Inc. (c) ................. 231,575
8,000 Pride Petroleum Services, Inc. (c) .................. 192,000
------------
644,825
------------
FINANCE--1.2%
15,200 BA Merchant Services, Inc. (c) ...................... 289,750
3,200 Commercial Federal Corp. ............................ 118,800
1,500 Great Plains Software, Inc. (c) ..................... 40,500
9,700 Imperial Credit Industries (c) ...................... 199,456
3,500 W. R. Berkley Corp. ................................. 206,063
------------
854,569
------------
FINANCIAL SERVICES--0.5%
12,000 Duff & Phelps Credit Rating Co. ..................... 364,500
------------
FOOD - AGRIBUSINESS--0.5%
10,733 Delta & Pine Land Co. ............................... 382,363
------------
FOOD & BEVERAGES--2.7%
9,500 Fine Host Corp. (c) ................................. 299,250
20,500 International Multifoods Corp. ...................... 515,062
29,500 Ralcorp Holdings, Inc. (c) .......................... 435,125
7,500 Tasty Baking Corp. .................................. 131,250
25,000 Triarc Companies, Inc. (c) .......................... 509,375
------------
1,890,062
------------
HEALTH CARE - MEDICAL TECHNOLOGY--2.2%
13,700 Arterial Vascular Engineering, Inc. (c) ............. 440,969
11,800 Cytyc Corp. (c) ..................................... 320,075
7,400 Fisher Scientific ................................... 351,500
18,400 Novoste Corp. (c) ................................... 301,300
6,100 Perclose, Inc. (c) .................................. 152,500
------------
1,566,344
------------
HEALTH CARE - SERVICES--0.8%
8,000 ARV Assisted Living ................................. 88,000
12,000 CardioThoracic Systems, Inc. ........................ 168,000
6,200 Pediatrix Medical Group (c) ......................... 284,038
------------
540,038
------------
HOUSEHOLD APPLIANCES & HOME FURNISHINGS--0.5%
25,000 Southern Electronics Corp. .......................... 321,875
------------
HOME BUILDERS--0.2%
8,000 Walter Industries, Inc. ............................. 134,000
------------
HOTELS & RESTAURANTS--0.3%
7,800 Logans Roadhouse, Inc. (c) .......................... 185,250
------------
INDUSTRIAL GOODS & SERVICES--4.2%
15,000 Binks Manufacturing Co. ............................. 693,750
20,000 Essex International, Inc. (c) ....................... 557,500
22,000 MagneTek, Inc. (c) .................................. 365,750
15,000 SPX Corp. ........................................... 972,187
13,500 Zurn Industries, Inc. ............................... 388,125
------------
2,977,312
------------
INDUSTRIAL MACHINERY--0.4%
3,500 Applied Power, Inc. ................................. 180,688
4,000 Graco, Inc. ......................................... 120,500
------------
301,188
------------
INSURANCE--3.7%
16,500 Chartwell Re Corp. .................................. 495,000
3,500 Equitable of Iowa Companies ......................... 196,000
5,000 Hartford Life, Inc. (c) ............................. 187,500
25,000 Highlands Insurance Group, Inc. (c) ................. 503,125
3,500 Provident Companies, Inc. ........................... 187,250
15,000 PXRE Corp. .......................................... 461,250
15,000 RenaissanceRe Holdings .............................. 571,875
------------
2,602,000
------------
INVESTMENT COMPANIES--0.3%
11,200 Ocwen Asset Investment Corp. ........................ 226,800
------------
LEISURE TIME--0.6%
3,000 Ascent Entertainment Group, Inc. .................... 27,375
4,500 King World Productions, Inc. ........................ 157,500
18,000 Penn National Gaming, Inc. (c) ...................... 267,750
------------
452,625
------------
MACHINERY--2.7%
20,000 Gardner Denver Machinery, Inc. (c) .................. 595,000
11,500 Mathews International Corp. ......................... 419,750
18,000 Northwest Pipe Co. (c) .............................. 330,750
25,000 The Carbide/Graphite Group, Inc. (c) ................ 581,250
------------
1,926,750
------------
MANUFACTURING--0.3%
12,000 MotivePower Industries .............................. 192,000
------------
MISCELLANEOUS--2.4%
21,900 Cooper Companies, Inc. (c) .......................... 509,175
7,400 ESC Medical Systems, Ltd. (c) ....................... 188,700
7,800 Intelligroup, Inc. .................................. 75,075
40,000 M & F Worldwide Corp. ............................... 350,000
7,100 Santa Fe International Corp. (c) .................... 241,400
10,100 Waters Corp. (c) .................................... 362,337
------------
1,726,687
------------
OFFICE EQUIPMENT & SUPPLIES--0.4%
7,600 Network Appliance, Inc. (c) ......................... 288,800
------------
OIL & GAS--0.8%
45,000 Titan Exploration, Inc. (c) ......................... 545,625
------------
OIL - INDEPENDANT PRODUCERS--1.2%
9,900 St. Mary Land & Exploration Co. ..................... 347,737
8,000 Stone Energy Corp. (c) .............................. 219,000
10,900 Swift Energy Co. (c) ................................ 260,238
------------
826,975
------------
OIL SERVICES--0.3%
5,000 EVI, Inc. ........................................... 210,000
------------
PAPER--0.2%
20,000 Gaylord Container Corp. ............................. 153,750
------------
PETROLEUM SERVICES--3.2%
3,800 Atwood Oceanics, Inc. (c) ........................... 254,600
5,500 Camco International, Inc. ........................... 301,125
9,000 Drilex International, Inc. .......................... 141,750
17,500 Key Energy Group, Inc. (c) .......................... 311,719
8,000 Nabors Industries, Inc. ............................. 200,000
10,100 Patterson Energy, Inc. (c) .......................... 458,287
7,500 Reading & Bates (c) ................................. 200,625
5,000 Rowan Companies, (c) ................................ 140,938
4,000 Smith International, Inc. (c) ....................... 243,000
------------
2,252,044
------------
PRODUCER OF GOODS--0.2%
5,000 Chicago Miniature Lamp (c) .......................... 124,375
------------
PUBLISHING--0.8%
4,000 Central Newspapers, Inc. ............................ 286,500
10,000 Lee Enterprises, Inc. ............................... 263,750
------------
550,250
------------
REAL ESTATE--2.8%
25,000 Castle & Cooke, Inc. (c) ............................ 414,062
50,000 Catellus Development Corp. (c) ...................... 906,250
10,000 CRIIMI MAE, Inc. .................................... 160,000
5,500 JP Reality, Inc. .................................... 149,188
12,000 Prime Retail, Inc. .................................. 161,250
7,500 Walden Residential Properties, Inc. ................. 192,187
------------
1,982,937
------------
RETAIL--4.0%
20,000 Candies, Inc. ....................................... 88,750
10,500 Carson Pirie Scott & Co. (c) ........................ 333,375
13,300 Central Garden & Pet Co. (c) ........................ 332,500
12,500 Cole National Corp. (c) ............................. 550,000
7,800 Gadzooks, Inc. (c) .................................. 152,100
9,000 Genesco, Inc. ....................................... 127,687
8,000 Global DirectMail Corp. ............................. 208,500
6,800 Linens 'N Things, Inc. .............................. 201,450
8,000 Pier 1 Imports, Inc. ................................ 212,000
24,000 Vans, Inc. .......................................... 363,000
8,700 Wet Seal, Inc. (c) .................................. 274,594
------------
2,843,956
------------
RETAIL - GROCERY--1.0%
22,100 Whole Foods Market, Inc. (c) ........................ 732,063
------------
RETAIL - SPECIALTY--0.4%
7,500 Black Box Corp. (c) ................................. 301,875
------------
SAVINGS & LOAN--2.1%
8,900 Astoria Financial Corp. ............................. 422,750
14,200 FirstFed Financial (c)............................... 441,087
5,000 Glendale Federal Savings Bank, Warrants ............. 77,500
11,500 Reliance Bancorp, Inc. .............................. 338,531
9,900 Roslyn Bancorp ...................................... 226,463
------------
1,506,331
------------
SERVICES--5.6%
9,600 Alternative Resources (c) ........................... 195,600
5,400 Applied Graphics Technologies, Inc. (c) ............. 214,650
8,800 Budget Group, Inc. (c) .............................. 303,600
7,400 Caribiner International, Inc. (c) ................... 241,425
4,600 Catalina Marketing Corp. (c) ........................ 221,375
7,300 Computer Task Group, Inc. ........................... 271,925
5,800 Fair Issac & Company, Inc. .......................... 258,463
11,000 FPA Medical Management, Inc. (c) .................... 260,562
10,300 HA-LO Industries, Inc. (c) .......................... 243,338
9,100 Interstate Hotels Co. (c) ........................... 267,881
14,500 Orthodontic Centers of America, Inc. (c) ............ 263,719
16,900 PMT Services, Inc. (c) .............................. 257,725
11,600 Precision Response Corp. (c) ........................ 191,400
11,900 Prime Hospitality Corp. (c) ......................... 235,025
10,700 Renal Treatment Centers, Inc. (c) ................... 287,562
5,400 Technology Solutions (c) ............................ 213,300
------------
3,927,550
------------
SOFTWARE--5.4%
3,000 Adobe Systems, Inc. ................................. 105,188
10,000 Avid Technology, Inc. (c) ........................... 263,750
17,700 Aware, Inc. ......................................... 261,075
13,300 Cambridge Technology Partners (c) ................... 425,600
4,000 CIBER, Inc. ......................................... 136,750
8,000 Data Dimensions, Inc. ............................... 176,000
15,000 Discreet Logic, Inc. ................................ 247,500
10,900 Geotel Communications Corp. (c) ..................... 145,788
8,500 JDA Software Group, Inc. ............................ 290,062
12,500 Pure Atria Corp. .................................... 176,562
4,800 Registry, Inc. (c) .................................. 220,800
16,900 Synopsys, Inc. (c) .................................. 621,075
7,500 Veritas Software Co. (c) ............................ 376,875
8,800 Wind River Systems (c) .............................. 336,600
------------
3,783,625
------------
STEEL--0.9%
20,000 Atchison Casting Corp. .............................. 332,500
7,000 Lone Star Technologies, Inc. (c) .................... 200,375
16,200 WHX Corp. ........................................... 123,525
------------
656,400
------------
TECHNOLOGY--4.2%
19,500 Actel Corp. (c) ..................................... 332,719
15,800 Acxiom Corp. (c) .................................... 323,900
5,200 Analysts International .............................. 174,200
11,000 Boole and Babbage, Inc. (c) ......................... 233,750
11,400 Genrad, Inc. (c) .................................... 257,925
8,250 Henry Jack & Associates, Inc. ....................... 200,062
1,900 Keane, Inc. (c) ..................................... 98,800
9,600 Kronos, Inc. (c) .................................... 264,000
25,000 Network Computing Devices, Inc. ..................... 290,625
12,400 SBS Technologies, Inc. (c) .......................... 286,750
8,900 Structural Dynamics (c) ............................. 233,625
8,700 United States Office Products Co. (c) ............... 265,894
------------
2,962,250
------------
TELECOMMUNICATION--0.9%
9,500 ICG Communications, Inc. ............................ 182,875
20,000 Metromedia International Group, Inc. ................ 253,750
6,000 WorldCom, Inc. (c) .................................. 192,000
------------
628,625
------------
TIRES & RUBBER--0.2%
6,000 Cooper Tire & Rubber Co. ............................ 132,000
------------
TRANSPORTATION--1.2%
7,100 Atlas Air, Inc. (c) ................................. 244,950
4,900 Expeditors International ............................ 139,037
7,200 Halter Marine Group, Inc. (c) ....................... 172,800
10,000 USFreightways Corp. ................................. 258,750
------------
815,537
------------
TRUCKING & FREIGHT FORWARDING--0.3%
12,500 Consolidated Freightways Corp. ...................... 204,688
------------
Total Common Stocks (Identified Cost $57,448,096) ... 67,233,108
------------
BONDS AND NOTES--0.3%
FACE
AMOUNT
- -------------------------------------------------------------------------------
U.S. GOVERNMENT--0.3%
$ 750,000 United States Treasury Security, Strip,
Zero coupon, 11/15/17 183,735
------------
Total Bonds and Notes (Identified Cost $172,622) 183,735
------------
3,037,000 Repurchase Agreement with State Street Bank
& Trust Co. dated 6/30/97 at 5.00% to be
repurchased at $3,037,422 on 7/01/97
collateralized by $2,940,000 U.S. Treasury
Bonds 7.25% due 5/15/16 valued at $3,103,996 .. 3,037,000
458,000 Repurchase Agreement with State Street Bank &
Trust dated 6/30/97 at 5.85% to be repurchased
at $458,074 on 7/01/97 collateralized by
$445,000 U.S. Treasury Bond 7.25%, due 5/15/16
valued at $469,823 ............................ 458,000
------------
Total Short Term Investments
(Identified Cost $3,495,000) .................. 3,495,000
------------
Total Investments--100.5%
(Identified Cost $61,115,718) (b) ............. 70,911,843
Other assets less liabilities ................... (382,310)
------------
Total Net Assets--100% .......................... $ 70,529,533
============
SECURITIES SOLD SHORT AGAINST THE BOX
MARKET
SHARES ISSUER VALUE
- --------------------------------------------------------------------------------
4,000 CIBER, Inc. $136,750
--------
Total Securities Sold Short (Total Proceeds $159,255) $136,750
========
(a)See Note 1a.
(b)Federal Tax Information: At June 30, 1997 the net unrealized
appreciation on investments based on cost of $61,115,718 for
federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost. $10,551,943
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value. (755,818)
-----------
Net unrealized appreciation $ 9,796,125
===========
(c)Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
ASSETS
Investments at value ............................ $70,911,843
Cash ............................................ 2,068
Cash - Segregated ............................... 268,316
Receivable for:
Fund shares sold .............................. 659,920
Securities sold ............................... 453,168
Dividends and interest ........................ 15,787
Prepaid registration expense .................... 12,500
Unamortized organization expense ................ 35,006
-----------
72,358,608
LIABILITIES
Payable for:
Securities purchased .......................... $1,513,679
Open short sales - net ........................ 136,750
Fund shares redeemed .......................... 85,488
Accrued expenses:
Management fees ............................... 57,630
Deferred trustees' fees ....................... 571
Accounting and administrative ................. 1,843
Other expenses ................................ 33,114
----------
1,829,075
-----------
NET ASSETS ........................................ $70,529,533
===========
Net Assets consist of:
Capital paid in ............................... $64,050,279
Undistributed net investment loss ............. (432,016)
Accumulated net realized loss ................. (2,907,360)
Unrealized appreciation on investments and
short sale transactions ..................... 9,818,630
-----------
NET ASSETS ........................................ $70,529,533
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class
A shares ($31,692,428 divided by 2,296,893
shares of beneficial interest) ................. $13.80
------
Offering price per share (100/94.25 of $13.80) .... $14.64*
======
Net asset value and offering price of Class B
shares ($30,334,338 divided by 2,205,979
shares of beneficial interest) ................. $13.75**
======
Net asset value and offering price of Class
C shares ($8,502,767 divided by 618,27
shares of beneficial interest) ................. $13.75
======
Identified cost of investments .................... $61,115,718
===========
* Based upon single purchases of less than $50,000. Reduced sales charges apply
for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ............................................... $ 103,642 (a)
Interest ................................................ 105,904
----------
209,546
Expenses
Management fees ....................................... $ 235,077
Service fees - Class A ................................ 25,703
Service and distribution fees - Class B ............... 91,449
Service and distribution fees - Class C ............... 29,624
Trustees' fees and expenses ........................... 5,773
Accounting and administrative ......................... 10,500
Custodian ............................................. 104,709
Transfer agent ........................................ 81,235
Audit and tax services ................................ 10,000
Legal ................................................. 7,612
Printing .............................................. 3,951
Registration .......................................... 29,261
Amortization of organization expenses ................. 2,668
Miscellaneous ......................................... 4,000
----------
Total expenses .......................................... 641,562
----------
Net investment loss ..................................... (432,016)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND SHORT SALE TRANSACTIONS
Realized loss on:
Investments - net ..................................... (2,856,130)
Short Sale Transactions - net ......................... (51,230)
----------
Total realized loss on investments and short sale
transactions ........................................ (2,907,360)
----------
Unrealized appreciation on:
Investments -- net .................................... 9,796,125
Short Sale Transactions -- net ........................ 22,505
----------
Net unrealized appreciation on investments and short
sale transactions ................................... 9,818,630
----------
Net gain on investment transactions ..................... 6,911,270
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $6,479,254
==========
(a) Net of foreign taxes of: $295.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1997
-----------
<S> <C>
FROM OPERATIONS
Net investment loss ................................................... $ (432,016)
Net realized loss on investments and short sale transactions .......... (2,907,360)
Net unrealized appreciation on investments and short sale transactions 9,818,630
-----------
Increase in net assets from operations ................................ 6,479,254
-----------
Increase in net assets derived from capital share transactions ........ 64,050,279
-----------
Total increase in net assets .......................................... 70,529,533
NET ASSETS
Beginning of the period ............................................... 0
-----------
End of the period ..................................................... $70,529,533
===========
UNDISTRIBUTED NET INVESTMENT LOSS
Beginning of the period ............................................... $ 0
===========
End of the period ..................................................... $ (432,016)
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------- ---------- ----------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1997 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .... $12.50 $12.50 $12.50
------ ------ ------
Income (Loss) From Investment Operations
Net Investment Loss (a) ................. (0.08) (0.12) (0.12)
Net Realized and Unrealized Gain on
Investments ........................... 1.38 1.37 1.37
------ ------ ------
Total From Investment Operations ........ 1.30 1.25 1.25
------ ------ ------
Net Asset Value, End of Period .......... $13.80 $13.75 $13.75
====== ====== ======
Total Return (%) (b) .................... 10.4 10.0 10.0
Ratio of Operating Expenses to Average
Net Assets (%) ........................ 2.46 (c) 3.21 (c) 3.21 (c)
Ratio of Net Investment Loss to Average
Net Assets (%) ........................ (1.48)(c) (2.23)(c) (2.23)(c)
Portfolio Turnover Rate (%) ............. 132 (c) 132 (c) 132 (c)
Average Commission Rate ................. $0.0538 $0.0538 $0.0538
Net Assets, End of Period (000) ......... $31,692 $30,334 $8,503
(a) Per share net investment loss has been calculated using the average shares outstanding
during the year.
(b) A sales charge in the case of Class A Shares and a contingent
deferred sales charge in the case of Class B Shares is not reflected
in total return calculations. Periods less than one year are not
annualized.
(c) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
1. The Fund is a series of New England Funds Trust I, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, and Class C shares. The Fund commenced its
public offering of Class A, Class B and Class C shares on December 31, 1996.
Class A shares are sold with a maximum front end sales charge of 5.75%. Class B
shares do not pay a front end sales charge, but pay a higher ongoing
distribution fee than Class A shares for eight years (at which point they
automatically convert to Class A shares), and are subject to a contingent
deferred sales charge if those shares are redeemed within six years of purchase
(or five years if purchased before May 1, 1997). Class C shares do not pay front
end or contingent deferred sales charges and do not convert to any other class
of shares, but they do pay a higher ongoing distribution fee than Class A
shares. 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 and the appropriate subadviser, 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.
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 sub-adviser 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. SHORT SALES. A short sale is a transaction in which the Fund sells securities
it does not own (but has borrowed) in anticipation of a decline in the market
price of the securities. When the Fund makes a short sale, the proceeds it
receives from the sale will be held on behalf of the broker effecting the sale
until the Fund replaces the borrowed securities. To deliver the securities to
the buyer, the Fund arranges through the broker to borrow the securities and, in
doing so, the Fund becomes obligated to replace the securities borrowed at their
market value at the time of replacement, whatever that price may be. The Fund
may have to pay a premium to borrow the securities and must pay any dividends or
interest payable on the borrowed securities until the securities are replaced.
H. SHORT SALES AGAINST THE BOX. In a short sale against the box, the Fund
sells a borrowed security, while at the same time owning an identical security
in the portfolio. While the short sale is outstanding, the Fund will not
dispose of the security hedged by the short sale.
When the Fund sells short against the box, it will establish a margin account
with the broker lending the security sold short. While the short sale is
outstanding, the broker retains the proceeds of the short sale, and the Fund
pledges securities or cash as additional collateral. The Fund earns interest
from the broker on the proceeds of the short sale and accrues such interest on a
daily basis.
I. ORGANIZATION EXPENSE. Costs incurred in connection with the Fund's
organization and initial registration, amounting to approximately $37,674 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 ended June 30, 1997 were $90,006,424 and $29,641,308
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 sub-advisers, Harris Associates, L.P.,
Loomis, Sayles & Company, L.P., Montgomery Asset Management, L.P. and Robertson,
Stephens & Company Investment Management, L.P. a sub-advisory fee as follows:
Harris Associates, L.P., at the annual rate of 0.70% of the average daily net
assets of their segment of the Fund, Loomis, Sayles & Company, L.P. and
Robertson, Stephens & Company Investment Management, L.P. at the annual rate of
0.55% of the first $50 million of the average daily net assets of the segment of
the Fund which that sub-adviser manages, and 0.50% of such assets in excess of
$50 million, and Montgomery Asset Management, L.P. 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 sub-adviser manages, and 0.50% of such assets in excess of $50
million.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM, Harris Associates, L.P. and Loomis Sayles & Company, L.P. are wholly
owned subsidiaries of New England Investment Companies, L.P. which is a
subsidiary of Metropolitan Life Insurance Company. Fees earned by NEFM and the
sub-advisers under the management agreement in effect during the period ended
June 30, 1997, are as follows:
FEES EARNED
- -----------
$ 97,521 New England Funds Management, L.P.
41,699 Harris Associates, L.P.
28,933 Loomis, Sayles & Company, L.P.
35,653 Montgomery Asset Management, L.P.
31,271 Robertson, Stephens & Company Investment Management, L.P.
- --------
$235,077
========
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 June 30, 1997, these expenses
amounted to $10,500 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 period ended June 30, 1997, the Fund
paid New England Funds $62,671 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the period
ended June 30, 1997, the Fund paid New England Funds $25,703 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 June 30,
1997 the Fund paid New England Funds $22,862 and $7,406 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 June 30, 1997, the Fund paid New England Funds $68,587 and
$22,218 in distribution fees under the Class B and Class C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors in shares of the Fund during the six months ended
June 30, 1997 amounted to $805,058.
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 June 30, 1997 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>
SIX MONTHS ENDED
JUNE 30, 1997
----------------------------
CLASS A SHARES AMOUNT
- ------- --------- -------------
<S> <C> <C>
Shares sold ................................................ 3,881,952 $ 48,519,675
Shares repurchased ......................................... (1,585,059) (19,893,453)
--------- -------------
Net increase ............................................... 2,296,893 $ 28,626,222
--------- -------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
----------------------------
CLASS B SHARES AMOUNT
- ------- --------- -------------
Shares sold ................................................ 2,353,018 $ 29,464,157
Shares repurchased ......................................... (147,039) (1,788,377)
--------- -------------
Net increase .............................................. 2,205,979 $ 27,675,780
--------- -------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
----------------------------
CLASS C SHARES AMOUNT
- ------- --------- -------------
Shares sold ................................................ 821,795 $ 10,301,965
Shares repurchased ......................................... (203,520) (2,553,688)
--------- -------------
Net increase ............................................... 618,275 $ 7,748,277
--------- -------------
Increase derived from capital shares transactions .......... 5,121,147 $ 64,050,279
========= =============
</TABLE>
<PAGE>
NEW ENGLAND STAR FUNDS
SUPPLEMENT DATED JULY 28, 1997 TO NEW ENGLAND STAR FUNDS PROSPECTUS
DATED MAY 1, 1997 (AS SUPPLEMENTED JUNE 30, 1997),
NEW ENGLAND STOCK FUNDS CLASS Y PROSPECTUS DATED MAY 1, 1997
AND NEW ENGLAND STAR SMALL CAP FUND PROSPECTUS
DATED DECEMBER 31, 1996 (AS SUPPLEMENTED MAY 1, 1997 AND JUNE 30, 1997)
NEW ENGLAND STAR ADVISERS FUND
On July 25, 1997, the Board of Trustees of New England Funds Trust I (the
"Trust") approved a Sub-Advisory Agreement (the "Agreement") relating to one
segment of the portfolio of New England Star Advisers Fund (the "Fund") between
New England Funds Management, L.P. ("NEFM"), the Fund's adviser, and Harris
Associates L.P. ("Harris Associates"). The Agreement is effective July 25, 1997
and continues in effect for a period of 120 days or until shareholders of the
Fund approve a new Sub-Advisory Agreement between NEFM and Harris Associates,
whichever occurs first. A special shareholder meeting will be held in
mid-October for shareholder approval of a second new Sub-Advisory Agreement
between NEFM and Harris Associates, and a notice of such meeting and proxy
statement will be sent to shareholders in late August. Accordingly, Harris
Associates succeeds Berger Associates, Inc. ("Berger") as subadviser to this
segment of the Fund, and is responsible for day-to-day management of the
segment's investment operations under the oversight of NEFM.
The sub-advisory fees payable by NEFM to Harris Associates under the Agreement
are at the same rate as those previously payable by NEFM to Berger to manage
this segment of the Fund, as set forth in the Prospectus. Following shareholder
approval of the second new Sub-Advisory Agreement between NEFM and Harris
Associates, the subadvisory fees payable by NEFM to Harris Associates will be at
the annual rate of 0.65% of the first $50 million of the average daily net
assets of the segment of the Fund managed by Harris Associates, 0.60% of the
next $50 million of such assets and 0.55% of any such assets in excess of $100
million.
In addition, Harris Associates has agreed to waive the entire sub-advisory fee
payable to Harris Associates by NEFM under the Agreement through August 31,
1997, and NEFM will pay such waived fees to Berger. Neither the change in the
sub-advisory fee rate payable to Harris Associates nor this waiver by Harris
Associates will affect the management fee payable by the Fund to NEFM.
Robert Sanborn, CFA, Partner and Portfolio Manager of Harris Associates, is the
portfolio manager of the segment of the Fund managed by Harris Associates. Mr.
Sanborn has 14 years of investment experience, and joined Harris Associates as a
Portfolio Manager and Analyst in 1988.
In the event that the Fund's shareholders do not approve the new Sub-Advisory
Agreement between NEFM and Harris Associates at the special shareholder meeting,
then the Trust's Board of Trustees will consider alternative arrangements for
the management of this segment of the Fund's investment portfolio.
In conjunction with Harris Associates becoming subadviser to a segment of the
Fund, the paragraph under the heading entitled "Star Advisers Fund -- Berger
Associates, Inc." in the Investment Strategy section of the Prospectus is
revised to read as follows:
HARRIS ASSOCIATES L.P. ("HARRIS ASSOCIATES")
Harris Associates' investment philosophy is predicated on the belief that over
time market price and value converge and that investment in securities priced
significantly below long-term value presents the best opportunity to achieve
long term growth of capital. Its segment of the Fund's portfolio invests
primarily in common stocks and securities convertible into common stock, but may
also invest in other securities that are suited to the Fund's investment
objective, including preferred stocks and fixed-income securities (including
lower quality fixed-income securities).
The following information is added to the Prospectus:
PAST PERFORMANCE OF STAR ADVISERS FUND'S SUBADVISER
The data presented below under "Oakmark Fund" represent the total return, as
adjusted, of The Oakmark Fund, a mutual fund managed by Harris Associates. The
Oakmark Fund has investment objectives substantially similar to the segment of
the Fund managed by Harris Associates and was managed using styles and
strategies substantially similar (although not necessarily identical) to those
that are employed by Harris Associates in managing its segment of the Fund. THE
FOLLOWING INFORMATION DOES NOT REPRESENT THE FUND'S PERFORMANCE. THE FUND
COMMENCED OPERATIONS IN JULY 1994 AND HAS A PERFORMANCE RECORD OF ITS OWN. THE
FOLLOWING INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE FUND. THE FUND'S PERFORMANCE MAY BE HIGHER OR LOWER THAN THAT
SHOWN BELOW.
During the entire period that Harris Associates has managed The Oakmark Fund,
Mr. Sanborn has been the portfolio manager.
As explained more fully in the Prospectus under "Investment Risks -- Special
Considerations Regarding the Multi-Adviser Approach," capital that is available
for investment by the Fund is currently allocated equally among the Fund's four
subadvisers. Due to a variety of factors, the relative performance of the four
segments is likely to vary, which in turn will affect their relative size. Thus,
a particular subadviser's performance (expressed as a percentage) may have a
greater or lesser impact on the total return of the Fund depending on the size
of the subadviser's segment relative to the other segments.
LIPPER GROWTH
OAKMARK FUND FUND INDEX S&P 500 INDEX
------------ ---------- -------------
July 1, 1996 to June 30, 1997 ...... 29.25% 23.84% 34.72%
July 1, 1994 to June 30, 1997 ...... 24.44% 23.09% 28.85%
July 1, 1992 to June 30, 1997 ...... 25.56% 17.05% 19.78%
August 8, 1991 (inception date) to 30.25% 15.55% 18.04%
June 30, 1997 ....................
The performance information shown above for The Oakmark Fund is adjusted to give
effect to the actual expenses relating to Class A shares of the Fund for the
corresponding periods (or, for the periods prior to the Fund's inception, for
the first period of the Fund's operation). The performance information for The
Oakmark Fund has not been adjusted to reflect deduction of the sales charge
payable on the Fund's Class A shares, nor does it give effect to the higher
expense levels of the Fund's Class B and Class C shares. Performance would be
lower if it were adjusted for these charges and expenses.
NEW ENGLAND STAR SMALL CAP FUND
Robertson, Stephens & Company Investment Management, L.P. ("Robertson Stephens")
has informed the Trust that the Robertson Stephens group of companies, of which
Robertson Stephens is an affiliate, will be acquired by BankAmerica Corp.
("BankAmerica"). BankAmerica is a global financial services company with $250
billion in assets and an equity capital base of $20 billion. Completion of the
acquisition is subject to a number of conditions, including certain regulatory
approvals, and is expected to take place in the fourth quarter of this year. The
acquisition does not contemplate any changes in the management or operations of
Robertson Stephens. The acquisition will likely result in the automatic
termination of the current subadvisory agreement between NEFM and Robertson
Stephens for the segment of New England Star Small Cap Fund (the "Fund") managed
by Robertson Stephens. A new subadvisory agreement for this segment following
the acquisition, which will be substantially similar to the current subadvisory
agreement for this segment, has been approved by the Board of Trustees of the
Trust. Unless an exemptive order from the Securities and Exchange Commission (as
discussed in the Prospectus) relieves the Fund of such requirement, such
agreement would be subject to approval by the Fund's shareholders.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
Visit our World Wide Web site at www.mutualfunds.com
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors
when it is preceded or accompanied by the Fund's current prospectus,
which contains information about distribution charges,
management and other items of interest. Investors are advised to read
the prospectus carefully before investing.
<PAGE>
--------------
(Logo)(R) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
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[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
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DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
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