<PAGE>
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SEMIANNUAL REPORT
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[logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England
Star Worldwide Fund
[Graphic Omitted]
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JUNE 30, 1997
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<PAGE>
AUGUST 1997
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DEAR NEW ENGLAND FUNDS SHAREHOLDER,
[Photo of Henry L.P. Schmelzer]
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives
Our sights, like yours, are focused on the long term. At the same time, we work
to enhance service every day. We also keep a disciplined eye on the performance
that each fund manager achieves. Through these persistent efforts we're
convinced we'll merit your continued commitment and loyalty. Thank you for your
confidence in New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
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NEW ENGLAND STAR WORLDWIDE FUND
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AWARD WINNING SERVICE -- TWO YEARS RUNNING
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- --------------------- For two years running we're proud to announce that
[LOGO] DALBAR, an independent evaluator of mutual fund
QUALITY service, has awarded New England Funds its Quality
TESTED SERVICE Tested Service Seal for "providing the highest
1996 tier of service excellence in the mutual fund
- --------------------- industry." New England Funds is one of just three
DALBAR mutual fund companies to earn this distinction in
HONORS COMMITMENT TO: each of the last two years -- another reason why
INVESTORS we are becoming known as the mutual fund company
- --------------------- Where The Best Minds Meet.
INVESTMENT RESULTS THROUGH JUNE 30, 1997
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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]
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NEW ENGLAND STAR WORLDWIDE FUND
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AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/97
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CLASS A (Inception 12/29/95) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 16.80% 21.93% 22.75%
With Max. Sales Charge(2) 10.08 14.94 18.04
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CLASS B (Inception 12/29/95) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 16.36% 21.07% 21.88%
With CDSC(3) 11.36 16.07 19.48
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CLASS C (Inception 12/29/95) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 16.35% 21.06% 21.93%
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COMPARATIVE PERFORMANCE YTD 1 YEAR SINCE 12/29/95
MSCI EAFE(4) 11.36% 13.16% 11.87%
Lipper Global Average(5) 12.88 19.22 20.12
NOTES TO CHARTS
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.
(1)Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2)With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3)With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 5%
sales charge is applied to a redemption of Class B shares. The sales charge
will decrease over time, declining to zero six years after the purchase of
shares.
(4)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.
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NEW ENGLAND STAR WORLDWIDE FUND
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[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Morgan Stanley EAFE Index(4).]
A $10,000 INVESTMENT COMPARED TO MSCI EAFE(4)
WITH
MAXIMUM
NET ASSET SALES MSCI
CLASS A VALUE(1) CHARGE(2) EAFE(4)
- ------- --------- ---------- -------
12/29/95 $10,000 $ 9,425 $10,000
1Q96 $10,528 $ 9,923 $10,297
2Q96 $11,177 $10,534 $10,468
3Q96 $11,136 $10,496 $10,463
4Q96 $11,667 $10,997 $10,637
1Q97 $12,267 $11,562 $10,478
2Q97 $13,629 $12,445 $11,846
[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).]
NET ASSET MSCI
CLASS B VALUE(1) CDSC(3) EAFE(4)
- ------- --------- ---------- -------
12/29/95 $10,000 $10,000 $10,000
1Q96 $10,512 $10,512 $10,297
2Q96 $11,136 $11,136 $10,468
3Q96 $11,081 $11,081 $10,463
4Q96 $11,587 $11,087 $10,637
1Q97 $12,163 $11,638 $10,478
2Q97 $13,484 $12,902 $11,846
[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).]
NET ASSET MSCI
CLASS C VALUE(1) EAFE(4)
- ------- --------- -------
12/29/95 $10,000 $10,000
1Q96 $10,520 $10,297
2Q96 $11,144 $10,468
3Q96 $11,088 $10,463
4Q96 $11,595 $10,637
1Q97 $12,170 $10,478
2Q97 $13,490 $11,846
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>
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NEW ENGLAND STAR WORLDWIDE FUND
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HOW YOUR FUND PERFORMED
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For the six-month period ended June 30, l997, New England Star Worldwide Fund
outperformed the 11.36% return of its benchmark, the MSCI Europe Australasia Far
East (EAFE) Index(4), by posting total returns of 16.80%, 16.36% and 16.35% at
net asset value for Class A, B and C shares, respectively.
Economic trends around the world were generally positive during the first half
of 1997. Economic growth was relatively strong in most major markets as well as
in many emerging countries. Inflation was moderate and interest rates were
either flat or slightly lower. This was a positive environment for stock
investments, and many markets generated strong returns.
For the third year in a row, U.S. stocks produced record-breaking returns, with
large-company stocks leading the market. Early in the period, robust economic
growth raised concerns about the possibility of higher inflation, and the
Federal Reserve Board boosted short-term interest rates by one-quarter of a
percentage point. This increase led to a sharp sell-off in stocks, pushing
prices lower. As economic growth moderated, however, stocks resumed an upward
course.
Most European markets posted double-digit returns in the 12% to 15% range based
on local currencies. Because of the strong U.S. dollar, however, returns were
lower when converted to U.S. dollars.
After years of sluggish economic growth and lackluster returns, Japan appeared
to make some headway toward solving its economic problems. For the first half of
l997, the Japanese stock market (as measured by MSCI Japan Index) rose 9.07%,
with some of the strongest performances coming from small- and medium-sized
company stocks. These types of Japanese stocks appealed to investors because
they were attractively priced and the underlying companies had greater potential
for growth than some of the larger Japanese businesses.
Among the emerging markets, Latin America was the most attractive region. More
stable governments, the trend toward privatization and freer and open markets
have paid off in this area of the world. In addition, Mexico, which is a strong
influence in the area, has recovered from its currency crisis of two years ago.
As the Mexican economy improved, other economies in Latin America also gained
strength. Some of the best-performing markets were Brazil, which rose 55.2%;
Argentina, up 22.9%; Chile, with a 31.8% return; and Venezuela, up 39.2%, as
measured by the IFC Global Index.
Asian markets, other than Japan, that are sensitive to U.S. interest rates,
fared poorly. This is because many investors expected U.S. interest rates to
rise. Higher interest rates usually have a negative effect on stock prices.
Slower economic growth in several Asian countries also dampened stock
performance. As economic growth slowed, corporate earnings forecasts weakened
and, in turn, stock prices declined.
In the next several pages, Star Worldwide Fund's portfolio managers present
their views on the investment environment ahead.
<PAGE>
FOUNDERS ASSET MANAGEMENT
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[Photo of Michael Gerding]
Michael Gerding,
Founders Asset
Management
We don't expect any dramatic changes going forward. We believe the trend toward
stronger economies, relatively low interest rates and moderate inflation should
persist. We believe that as economies continue to improve in Europe, that region
will be an area of emphasis for us. The Japanese economy, while sluggish, seems
to be improving. Even though we think it's going to be a slow recovery, we'll
continue to pursue select investments there. In the emerging markets we intend
to continue our focus on Latin America, which is a very attractive region. We
think the lackluster performance of some Asian markets is a temporary situation.
While we will probably have fewer assets in Asia in the short term, we have a
favorable opinion about the region in the long term. We will continue to select
stocks for the portfolio on a company-by-company basis and expect to find
attractive investment opportunities across a broad range of countries and
industries.
LARGEST HOLDINGS IN FOUNDERS SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Volkswagen, Preferred 0.50%
Telebras (ADR) 0.49%
Marschollek Lauten, Preferred 0.45%
Sony Corp. 0.43%
Ladbroke Group PLC 0.43%
MONTGOMERY ASSET MANAGEMENT
- --------------------------------------------------------------------------------
[Photo of Josephine Jimenez & Bryan Sudweeks]
Josephine Jimenez &
Bryan Sudweeks,
Montgomery Asset
Management
We analyze each market individually but, in general, our outlook for the
emerging markets is very positive. We favor select Latin American countries,
such as Brazil, that have made significant progress toward developing market
economies. In Asia, we favor Korea and Taiwan, countries that we believe should
profit from a stronger Japanese economy and from a rising yen. We are also
optimistic about the long-term outlook for the emerging European countries and
believe they should benefit if further progress is made towards a European Union
and single currency. Some Russian stocks also appeal to us, mainly because
Russia is in the process of reforming its legal structure, particularly the way
companies write business contracts. A solid legal foundation should make it
easier for companies throughout the world to do business with Russian companies
and, in the long run, improve the country's business opportunities.
LARGEST HOLDINGS IN MONTGOMERY SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Banco Bradesco PN S.A. 0.75%
Tatneft (ADR) 144A 0.55%
China Development Corp. 0.51%
Telebras 0.49%
Telebras (ADR) 0.45%
OAKMARK/HARRIS ASSOCIATES
- --------------------------------------------------------------------------------
[Photo of Robert Sanborn]
Robert Sanborn
Oakmark/Harris
Associates
Looking ahead, I expect solid economic growth and relatively low inflation and
interest rates in the United States. In terms of managing this segment, which
acts as a domestic anchor to the Fund as a whole, I don't plan to make
significant changes. I'll continue to seek opportunities in all market sectors
and among small, medium and large companies. However, I expect to maintain our
emphasis on larger-company stocks. The portfolio's holdings in financial,
consumer non-durables and cable stocks have performed well during the first half
of the year, and we believe they still have room to grow. We will continue our
"value" approach to stock selection -- that is, we will seek investments that we
believe are selling at a significant discount to their potential long-term
value.
LARGEST HOLDINGS IN OAKMARK/HARRIS (DOMESTIC)
SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
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Philip Morris Companies, Inc. 1.05%
Knight-Ridder, Inc. 1.01%
Black & Decker Corp. 1.01%
Polaroid Corp. 1.00%
Federal National Mortgage Association 0.89%
OAKMARK/HARRIS ASSOCIATES
- --------------------------------------------------------------------------------
[Photo of David Herro and Michael Welch]
David Herro and
Michael Welsh
Oakmark/Harris
Associates
We expect to continue to find attractive investment opportunities throughout the
world's economies. As always, our focus will be on individual stock selection,
rather than macroeconomic trends. Our strategy will be to search for stocks that
are inexpensive and that we believe have the potential for significant growth
over three to five years. Rather than trying to predict the direction of
individual markets or economies, we will continue to analyze companies on a
case-by-case basis, using a process called fundamental analysis. That is, we
will base our investment decisions on a number of factors, including a company's
sales, potential earnings growth, management, market leadership and products and
services.
LARGEST HOLDINGS IN OAKMARK/HARRIS (INTERNATIONAL)
SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Enix Corp. 0.93%
Cordiant PLC 0.88%
Guinness PLC, 144A 0.76%
Tomkins PLC 0.75%
Sanford, Ltd. 0.73%
JANUS CAPITAL CORPORATION
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[Photo of Helen Young Hayes & Laurence Chang]
Helen Young Hayes
& Laurence Chang,
Janus Capital
Corporation
We do not anticipate making any major changes in the portfolio. On June 30,
l997, stocks of companies in the United States and continental Europe accounted
for most of the segment's investments and have made solid contributions to
performance. Even though stock prices in these markets have experienced strong
appreciation in the past six months, we believe there are still attractive
investment opportunities in these areas. While we expect investments in U.S. and
european stocks to continue to make up the major portion of the segment's
assets, we also plan to invest a smaller percentage of the portfolio in markets
on the Pacific Rim and in the developing economies of Asia and Latin America. We
will continue to seek investments in small, medium and large companies and to
diversify the portfolio's assets among a wide range of industries and
businesses.
LARGEST HOLDINGS IN JANUS SEGMENT AS A PERCENTAGE OF FUND NET ASSETS
- --------------------------------------------------------------------------------
Volkswagen AG 0.58%
Rentokil Initial PLC 0.51%
Philips Electronics NV 0.50%
Philips Electronics NV (ADR) 0.42%
Novartis AG 0.37%
<PAGE>
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NEW ENGLAND STAR WORLDWIDE FUND
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TOP 15 COUNTRIES 6/30/97
PERCENTAGE OF
COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
1. United States 20.45%
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2. United Kingdom 9.08%
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3. Brazil 6.10%
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4. Japan 5.49%
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5. Netherlands 5.05%
- --------------------------------------------------------------------------------
6. Germany 4.14%
- --------------------------------------------------------------------------------
7. France 3.90%
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8. Switzerland 3.31%
- --------------------------------------------------------------------------------
9. Hong Kong 3.11%
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10. Sweden 2.87%
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11. Argentina 2.61%
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12. Mexico 2.39%
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13. Italy 2.00%
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14. Malaysia 1.87%
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15. Taiwan 1.84%
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YOUR FUND'S FIVE LARGEST SECTORS 6/30/97
PERCENTAGE OF
SECTOR NET ASSETS
- --------------------------------------------------------------------------------
1. Banks 10.3%
- --------------------------------------------------------------------------------
2. Food & Beverages 6.9%
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3. Telecommunication 5.8%
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4. Drugs & Health Care 3.8%
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5. Apparel & Textiles 3.5%
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Portfolio holdings and asset allocations will vary.
<PAGE>
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
COMMON STOCK -- 91.9% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES(A) DESCRIPTION VALUE(B)
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ARGENTINA--2.6%
<C> <S> <C>
9,616 Banco Frances del Rio la Plata S.A. (ADR) (d) .......... $ 312,520
61,500 Cresud (c) ............................................. 137,166
1,100 Irsa (GDR) (g) ......................................... 48,125
16,200 Irsa - B ............................................... 70,805
17,725 Nortel Inversora S.A. (ADR) (c) (d) .................... 480,791
54,900 Siderar S.A. (c) ....................................... 225,674
7,900 Supermercados Unimarc S.A. (ADR) (c) (d) ............... 148,125
2,225 Telecom de Argentina (ADR) (d) ......................... 116,812
40,050 Telefonica de Argentina (ADR) (d) ...................... 1,386,731
112,525 YPF Sociedad Anonima (ADR) (d) ......................... 3,460,144
----------------
6,386,893
----------------
AUSTRALIA--1.4%
400,000 Colonial, Ltd. ......................................... 1,021,774
68,969 National Australia Bank, Ltd. .......................... 988,779
28,600 Village Roadshow (c) ................................... 104,182
253,038 Wattyl ................................................. 1,233,456
----------------
3,348,191
----------------
BELGIUM--0.1%
1,661 Credit Communal Holdings/Dexia, 144A (c) (f) ........... 178,426
2,403 Telinfo S.A. ........................................... 146,598
----------------
325,024
----------------
BRAZIL--6.1%
181,550,000 Banco Bradesco PN S.A. ................................. 1,829,750
13,000 Brahma ................................................. 9,902
580 CELESC (GDR) 144A (f) (g) .............................. 81,200
8,130,000 Cemig PN ............................................... 419,131
8,500 Cemig S.A. (ADR) (d) ................................... 427,940
11,000 Centrais Electric - PN B ............................... 16,349
500,000 Centrais Eletricas Brasileira S.A. - Electrobras (c) ... 279,597
4,260,000 Cesp CIA Energia ....................................... 284,910
473,000 Companhia de Saneamento Basico do Estado de Sao Paulo .. 144,112
300,000 Copene-Petroquimica Nordeste ........................... 111,189
1,025,000 Electrobras PN ......................................... 611,258
305,000 Itausa Investimentos Itau S.A. ......................... 280,479
16,000,000 Lojas Americanas PN, 144A (f) .......................... 216,989
12,026,000 Odebrecht S.A. ......................................... 100,538
20,783,000 Paranaense de Energia-Copel, Preferred B ............... 386,104
1,789,000 Petroleo Brasileiro, 144A (f) .......................... 496,892
34,526 Souza Cruz S.A. ........................................ 364,005
8,820,000 Telebras ............................................... 1,196,154
18,350 Telebras (ADR) (d) ..................................... 2,784,612
727,037 Telecom de Rio Janeiro S.A., Preferred (c) ............. 112,106
1,800,000 Telecomunicaoes do Rio de Janeiro S.A.-Telerj .......... 265,849
299,603 Telecomunicaoes do Rio de Janeiro S.A.-Telerj,
Preferred ............................................ 46,198
6,850 TV Filme, Inc. ......................................... 71,069
19,900 Uniao de Bancos Brasileiros S.A. (GDR) (c) (g) ......... 738,787
42,900,000 Unibanco PN ............................................ 1,573,658
163,800 Usiminas ............................................... 1,824,311
12,900 Vale Rio Doce Cia PN ................................... 285,309
----------------
14,958,398
----------------
CANADA--0.2%
3,825 Canwest Global Communications .......................... 56,658
7,275 Potash Corp., Saskatchewan ............................. 546,079
----------------
602,737
----------------
CHILE--0.3%
10,250 Banco de A Edward (ADR) (d) ............................ 213,969
1,260 Compania de Telecom de Chile S.A. (ADR) (d) ............ 41,580
11,200 Empresa Nacional de Electricidad S.A. (ADR) (d) ........ 252,700
3,000 Sociedad Quimica Minera de Chile (ADR) (d) ............. 198,375
----------------
706,624
----------------
CHINA--0.2%
610,000 Beijing Yanhua Petrochemical Company, Ltd. (c) ......... 132,278
45,000 Shanghai Industrial Holdings, Ltd. (c) ................. 279,968
154,000 Shenzhen Expressway, 144A (c) (f) ...................... 42,241
----------------
454,487
----------------
CZECH REPUBLIC--0.3%
3,500 AGB Otevreny Podilovy Fund (c) ......................... 76,648
7,000 Alpha Efekt ............................................ 152,648
20,000 Czech Value Fund ....................................... 127,600
7,700 Komercni Banka A.S. (GDR) 144A (c) (f) (g) ............. 159,775
10,000 Komercni Banka I.F. (c) ................................ 148,669
28,000 Vynosovy I.F. .......................................... 141,636
----------------
806,976
----------------
DENMARK--0.4%
1,615 Amtssparekassn Fyn A/S ................................. 104,101
2,100 Copenhagen Airport (c) ................................. 222,781
308 FIH A/S ................................................ 7,839
1,115 Jyske Bank A/S ......................................... 96,053
1,392 SAS Danmark A/S ........................................ 16,247
2,667 Sophus Berendsen, Class B .............................. 385,596
102 Spar Nord Holdings A/S ................................. 4,762
2,580 Sydbank A/S ............................................ 117,734
348 Unidanmark A/S ......................................... 19,549
----------------
974,662
----------------
FINLAND--0.7%
8,534 Amer Group OY .......................................... 153,662
10,878 Metra OY, Series B ..................................... 327,843
1,012 Nokia AB OY ............................................ 75,597
4,025 Nokia Corp. (ADR) (d) .................................. 296,844
5,904 Pohjola Insurance Co., Series B ........................ 175,093
2,444 Raison Tehtaat ......................................... 168,024
2,027 Sampo Insurance Co. .................................... 197,128
3,924 Tietotehdas OY, B Shares ............................... 340,051
----------------
1,734,242
----------------
FRANCE--3.9%
1,697 Alcatel Alsthom ........................................ 212,533
3,333 Axime (Ex Segin) ....................................... 394,173
8,204 Banque National de Paris ............................... 338,116
6,443 Capital Gemini S.A. .................................... 339,873
139 Carrefour .............................................. 100,950
25,045 Chargeurs International S.A. ........................... 1,443,027
3,600 Christian Dior (c) ..................................... 594,211
17,600 Compagnie Financiere de Paribas ........................ 1,215,920
1,398 CLF Dexia France ....................................... 136,072
954 Compagnie Bancaire ..................................... 121,752
200 Dassault Systems S.A. (ADR) (d) ........................ 14,250
6,832 Elf Aquitaine .......................................... 737,061
4,750 Groupe Legris Industries ............................... 223,893
2,125 Guilbert ............................................... 300,849
334 Le Carbone-Lorraine, 144A (f) .......................... 81,274
5,305 Michelin Compagne General B ............................ 318,569
1,800 Pathe (c) .............................................. 357,139
14,000 Pernod-Ricard .......................................... 721,834
16,836 Rhone Poulenc .......................................... 687,570
8,875 SGS Thomson Microelectronics (ADR) (c) (d) ............. 710,000
1,453 Societe Generale ....................................... 162,194
7,075 Total Petroleum (ADR) (d) .............................. 358,172
----------------
9,569,432
----------------
GERMANY--4.1%
2,838 Adidas AG .............................................. 314,050
240 Altana AG .............................................. 255,949
13,492 BASF AG ................................................ 498,572
262 Bayer Motoren Werk ..................................... 216,769
10,361 Depfa Bank ............................................. 595,842
12,975 Deutsche Bank AG ....................................... 758,071
1,133 Fresenius AG, Preferred ................................ 257,249
17,150 Fresenius Medical Care (ADR) (d) ....................... 499,494
639 Fresenius Medical, Preferred ........................... 45,871
214 Gehe AG ................................................ 14,601
10,391 Lufthansa AG, 144A (f) ................................. 199,288
1,475 Mannesmann AG (c) ...................................... 657,115
4,625 Marschollek Lauten, Preferred .......................... 1,100,496
500 Pfeiffer Vacuum Technology AG ADR) (d) ................. 14,562
38 Porsche AG, Preferred .................................. 50,548
17,850 Rofin-Sinar Technologies, Inc. ........................ 341,381
3,500 SAP-Vorzug AG Preferred ................................ 726,449
7,525 Schwarz Pharma AG ...................................... 567,363
342 SGL Carbon AG, 144A (f) ................................ 46,826
3,386 Tarkett AG ............................................. 87,363
4,478 Veba ................................................... 251,616
1,844 Volkswagen AG .......................................... 1,413,582
2,200 Volkswagen, Preferred .................................. 1,236,168
----------------
10,149,225
----------------
GREECE--0.0%
3,140 Hellenic Telecommunication Organization S.A. (GDR)
144A (f) (g) ......................................... 73,737
----------------
HONG KONG--3.1%
24,000 Asia Satellite Telecom Holdings Corp. (ADR) (d) ........ 723,000
574,400 Beijing Datang Power Generation Co., Ltd., 144A (f) .... 265,058
18,000 Cheung Kong Holdings ................................... 177,739
58,000 China Light & Power .................................... 328,656
34,000 China Resources ........................................ 166,768
28,000 Citic Pacific, Ltd. .................................... 174,925
1,960,000 Giordano Holdings, Ltd. ................................ 1,340,854
303,600 Hong Kong Aircraft Engineering Co., Ltd. ............... 1,105,097
34,400 HSBC Holdings, Ltd. .................................... 1,034,580
50,000 Hutchison Whampoa, Ltd. ................................ 432,409
664,000 Jiangsu Expressway, 144A (f) ........................... 235,695
43,000 New World Development Co., Ltd., 144A (f) .............. 256,425
796,000 Pacific Port Co., 144A (f) ............................. 159,256
12,000 Sun Hung Kai Properties, Ltd., 144A (f) ................ 144,437
60,000 Union Bank of Hong Kong ................................ 173,480
432,000 Yue Yuen Industrial Holdings ........................... 894,970
----------------
7,613,349
----------------
HUNGARY--0.0%
9,400 Zalakeramia Reszvenytarsasag (GDR) 144A (c) (f) (g) .... 68,150
----------------
INDIA--1.1%
15,800 Bajaj Auto (GDR) (g) ................................... 542,730
8,500 Bajaj Auto (GDR) 144A (f) (g) .......................... 291,975
7,000 Indian Hotel (GDR) (g) ................................. 162,750
32,500 Indian Hotels Co., Ltd. (GDR) 144A (f) (g) ............. 771,875
2,192 Mahindra & Mahindra (GDR) 144A (f) (g) ................. 32,332
7,700 State Bank of India (GDR) (g) .......................... 204,050
8,850 Tata Engineering & Locomotive, Ltd. (GDR) (g) .......... 135,848
11,464 Tata Engineering & Locomotive, Ltd. (GDR) 144A (f) (g) 175,972
12,000 Videsh Sanchar Nigam, Ltd. (GDR) 144A (c) (f) (g) ...... 249,000
----------------
2,566,532
----------------
INDONESIA--1.4%
51,500 Asia Pulp & Paper Co., Ltd. (ADR) (c) (d) .............. 778,937
107,000 Bimantara Citra PT (c) ................................. 186,986
157,000 Lippo Bank ............................................. 161,390
187,000 Lippo Securities ....................................... 132,638
37,000 Perusahaan Perkebu London Sumatra ...................... 91,283
50,500 PT Hanjaya Mandala Sampoerna ........................... 192,593
120,000 PT Matahari Putra Prima ................................ 241,776
230,000 PT Mulia Industrindo ................................... 120,580
1,550,000 PT Polysindo Eka Perkasa ............................... 860,403
2,600 PT Telekom (ADR) (d) ................................... 84,500
30,000 PT Telekom Indoneisa (c) ............................... 49,034
191,000 Semen Gresik PT (c) .................................... 428,022
----------------
3,328,142
----------------
IRELAND--0.9%
470,000 Anglo Irish Bank Corp., 144A (f) ....................... 597,727
5,625 Elan PLC (ADR) (c) (d) ................................. 254,531
610,000 Fyffes ................................................. 877,363
16,300 Ryanair Holdings PLC (ADR) (c) (d) ..................... 442,138
----------------
2,171,759
----------------
ISRAEL--0.4%
27,200 Koor Industries, Ltd. (ADR) (d) ........................ 479,400
8,100 Teva Pharmaceutical Industries, Ltd. (ADR) (d) ......... 524,475
----------------
1,003,875
----------------
ITALY--2.0%
398,283 Credito Italiano ....................................... 728,808
338,500 Danieli & Company, 144A (f) ............................ 1,185,050
24,700 Fila Holdings SPA (ADR) (d) ............................ 825,906
21,163 Gewiss SPA ............................................. 364,220
8,100 Industrie Natuzzi SPA (ADR) (d) ........................ 207,562
144,558 Parmalat Finanziaria SPA ............................... 204,559
30,163 Pirelli SPA ............................................ 74,717
174,473 Stet Societa Finanziaria SPA ........................... 1,016,306
33,025 Telecom Italia Mobil ................................... 106,872
55,606 Telecom Italia SPA, 144A (f) ........................... 178,475
----------------
4,892,475
----------------
JAPAN--5.5%
29,800 Amway Japan, Ltd. ...................................... 1,008,759
8,000 Canon, Inc. ............................................ 217,763
40 DDI Corp. (c) .......................................... 295,237
3,000 Doutor Coffee (c) ...................................... 121,707
10,250 Eisai Co. .............................................. 194,054
88,900 Enix Corp. ............................................. 2,280,283
19,000 Fujitsu ................................................ 263,567
3,000 Heiwa Corp. ............................................ 58,890
45,000 Hitachi ................................................ 502,530
18,000 Hoya Corp. (c) ......................................... 800,907
3,000 Isetan ................................................. 37,166
20,500 Konami Co., Ltd. ....................................... 765,486
11,000 Laox Co. ............................................... 154,511
34,000 Mitsubishi Estate Co., Ltd., 144A (f) .................. 492,410
7,000 Mitsubishi Trust & Banking ............................. 110,539
18,000 Mitsui Fudosan Co., 144A (f) ........................... 248,124
21,000 Mitsui Trust & Banking Co., Ltd. ....................... 158,480
88 Nippon Telegraph & Telephone ........................... 844,530
11,000 Nomura Securities ...................................... 151,632
36 NTT Data Communications Systems Corp. .................. 1,391,380
25,900 Sankyo Co .............................................. 777,316
16,000 Shiseido Co., Ltd. ..................................... 263,828
18,000 Sony Corp. ............................................. 1,568,836
25 Sony Corp. (ADR) (d) ................................... 2,200
3,000 Square Co., Ltd. (c) ................................... 147,880
17,000 Sumitomo Trust & Banking ............................... 182,429
14,000 Takeda Chemical ........................................ 393,300
1,000 Yamaha Motor Co., Ltd. ................................. 9,946
----------------
13,443,690
----------------
KOREA--1.4%
20,000 Dongwon Securities ..................................... 263,514
30,000 Hyundai Enginering & Construction ...................... 770,270
15,000 Hyundai Merchant Marine (c) ............................ 282,095
16,700 Kepco (ADR) (c) (d) .................................... 312,081
625 Kook Min Bank (c) ...................................... 8,939
5,000 LG Semiconductor Co. (c) ............................... 194,820
13,100 Pohang Iron & Steel (ADR) (d) .......................... 419,200
3,640 Samsung Electronics .................................... 288,986
3,640 Samsung Electronics (Rights) ........................... 98,378
80,000 Seoul Bank ............................................. 330,631
29,964 SK Telecom Co., Ltd. (ADR) (d) ......................... 301,513
6,000 Yukong ................................................. 145,270
----------------
3,415,697
----------------
LUXEMBOURG--0.6%
100 Millicom International Cellular ........................ 4,775
125,500 Quilmes Industrial (ADR) (d) ........................... 1,458,937
----------------
1,463,712
----------------
MALAYSIA--1.9%
95,000 Arab Malaysian Corp. 353,803
81,000 Guinness Anchor ........................................ 179,715
46,000 Hong Leong Bank ........................................ 115,729
5,750 Hong Leong Bank (Rights) ............................... 797
142,000 IJM Corp. BHD, 144A (f) ................................ 298,177
438,000 IOI Corp. BHD, 144A (f) ................................ 499,778
28,000 Leader Univ Holdings ................................... 50,365
27,000 Magnum Corp. (c) ....................................... 40,650
23,000 Malakoff BHD ........................................... 100,238
43,000 New Straits Times, 144A (f) ............................ 252,139
24,000 Oriental Holdings BHD .................................. 180,666
169,000 Public BK BHD .......................................... 263,811
85,000 Renong BHD ............................................. 111,133
269,000 Tan Chong Motor Holdings ............................... 507,306
35,000 Tanjong ................................................ 120,642
615,000 Technology Resources Industries BHD, 144A (f) .......... 1,057,488
19,500 Telekom Malaysia BHD, 144A (f) ......................... 91,165
51,000 United Engineers BHD ................................... 367,750
----------------
4,591,352
----------------
MEXICO--2.4%
320,000 Accel S.A. de C.V. B (c) ............................... 86,166
22,000 Acer Computec Latino America S.A. (c) .................. 76,955
113,000 Alfa S.A. de C.V. ...................................... 770,632
90,000 Cifra S.A. de C.V. (ADR) (d) ........................... 161,100
22,300 Fomento Economico Mexicano B (c) ....................... 132,720
485 Grupo Carso S.A. ....................................... 3,387
7,150 Grupo Casa Autrey S.A. (ADR) (d) ....................... 145,234
8,217 Grupo Financiero Inbursa B ............................. 34,946
2,007,000 Grupo Herdez, S.A. de C.V. ............................. 1,035,382
11,600 Grupo Radio Centro S.A. ................................ 136,300
11,900 Grupo Televisa S.A. (ADR) (d) .......................... 361,463
53,000 Hylsamex S.A. de C.V. B (c) ............................ 272,752
61,000 Industrias Penoles S.A. ................................ 290,897
11,300 Moderna ................................................ 60,072
16,000 Sanluis Corp. de S.A. C.V. ............................. 118,377
41,300 Telefonos de Mexico, S.A. de C.V. (ADR) 144A (d) (f) ... 1,972,075
17,500 Vitro Sociedad Anonima (ADR) (d) ...................... 196,875
----------------
5,855,333
----------------
MOROCCO--0.1%
7,800 Banque Marocaine de Commerce (GDR) 144A (f) (g) ........ 150,150
----------------
NETHERLANDS--5.0%
2,625 Akzo Nobel, 144A (f) ................................... 359,736
15,625 ASM Lithography Holding (ADR) (c) (d) .................. 914,062
10,400 Baan Co. NV (c) ........................................ 716,300
1,872 Bedrijven Nutricia NV .................................. 295,644
60,150 EVC International NV ................................... 1,522,979
10,375 Gucci Group NV (ADR) (d) ............................... 667,891
13,164 ING Groep NV ........................................... 606,930
2,473 Koninklijke Nedlloyd NV ................................ 71,435
6,516 Oce Van der Grinten NV (c) ............................. 840,517
17,178 Philips Electronics NV ................................. 1,230,438
14,351 Philips Electronics NV (ADR) (d) ....................... 1,031,478
577 Randstad Holdings ...................................... 60,848
302 Simac Techniek NV ...................................... 25,847
10,000 Unilever NV (ADR) (d) .................................. 2,180,000
21,954 Vedior NV, 144A (c) (f) ................................ 580,474
28,225 VNU .................................................... 624,059
5,221 Wolters Kluwer ......................................... 635,702
----------------
12,364,340
----------------
NEW ZEALAND--1.3%
544,300 Lion Nathan, Ltd. ...................................... 1,379,040
5,575 Mas Technology, Ltd (ADR) (c) (d) ...................... 82,928
1,022,950 Sanford, Ltd. .......................................... 1,785,736
----------------
3,247,704
----------------
NORWAY--0.2%
6,225 Kverneland ............................................. 169,019
2,393 Merkantildata .......................................... 47,343
4,482 Tandberg (c) ........................................... 47,699
11,414 Tandberg Television ASA (c) ............................ 84,874
6,754 Tomra Systems ASA ...................................... 138,228
----------------
487,163
----------------
PANAMA--0.1%
4,725 Bladex (c) ............................................. 203,766
----------------
PERU--0.2%
5,682 Credicorp, Ltd., 144A (f) .............................. 125,004
2,900 Ferryros S.A. (ADR) 144A (c) (d) (f) ................... 69,962
13,050 Telefonica de Peru S.A. (ADR) (d) ...................... 341,747
----------------
536,713
----------------
PHILIPPINES--0.6%
300 Aboitiz Equity Ventures, Inc. (c) ...................... 23
864,000 Belle Corp. ............................................ 252,229
734,000 DMCI Holdings (c) ...................................... 242,107
11,140 Equitable Banking Corp. (c) ............................ 40,335
165,000 International Container ................................ 84,452
50,000 La Tondena Distillers, Inc. ............................ 120,375
77,000 Metro Pacific Corp., Class B ........................... 16,640
200,000 Music Semiconductors, Inc. (c) ......................... 104,261
189,000 PCI Leasing & Finance (c) .............................. 35,828
1,106,800 Petron Corp. ........................................... 281,148
1,800 Philippine Long Distance Telephone (ADR) (d) ........... 115,650
312,500 Republic Glass Holdings ................................ 28,435
469,000 Uniwide Holdings, Inc. (c) ............................. 92,463
----------------
1,413,946
----------------
POLAND--0.3%
63,354 Bank Handlowy W Warszawie, 144A (c) (f) ................ 785,590
----------------
PORTUGAL--1.3%
48,000 Banco Espirito Santo ................................... 1,087,847
1,250 Capital Portugal Fund, 144A (c) (f) .................... 189,478
8,500 Cimpor Cimentos de Portugal ............................ 198,097
9,131 Electricdade de Portugal ............................... 167,565
2,200 Portugal Telecom S.A. (ADR) (d) ........................ 88,275
18,700 Sonae Investimentos - Sociedade Gestora de Participacoes
Sociais S.A. ......................................... 781,849
7,400 Telecel-Comunicacaoes Pessoais S.A., 144A (f) .......... 613,829
----------------
3,126,940
----------------
RUSSIA--1.6%
8,100 Irkutskenergo (ADR) (d) ................................ 137,619
11 Irkutskenergo (Russian Depositary Trust) 144A (c) (f) .. 748,000
7,300 Lukoil Holdings (ADR) (d) .............................. 197,100
7,525 Lukoil Oil Company (ADR) (d) ........................... 586,950
950 Mosenergo (ADR) 144A (d) (f) ........................... 39,425
9,600 Surgutneftegaz (ADR) (d) ............................... 511,200
1,200 Tatneft (ADR) (d) ...................................... 126,000
14,325 Tatneft (ADR) 144A (d) (f) ............................. 1,532,775
----------------
3,879,069
----------------
SINGAPORE--0.4%
219,000 Datacraft Asia ......................................... 696,420
24,000 Far East Levingston Shipbuilding, Ltd. 144A (f) ........ 81,248
100,000 Thakral Corp., Ltd. .................................... 102,000
----------------
879,668
----------------
SOUTH AFRICA--0.7%
8,000 Anglovaal, Ltd. ........................................ 213,357
23,500 Barlow, Ltd. ........................................... 255,615
22,000 JCI, Ltd. .............................................. 169,231
159,147 Lonrho PLC, 144A (f) ................................... 340,954
54,423 Sasol, Ltd. ............................................ 713,724
1,750 South African Breweries, Ltd. .......................... 53,711
1,608 South African Breweries, Ltd., 144A (f) ................ 48,843
----------------
1,795,435
----------------
SPAIN--0.7%
5,534 Adolfo Dominguez S.A. (c) .............................. 217,829
202 Azkoyen S.A. ........................................... 25,087
50 Azkoyen S.A., New ...................................... 6,210
4,044 Corp Financiera Reunida S.A. (c) ....................... 17,016
390 Cortefiel S.A. ......................................... 17,019
878 Grupo Acciona S.A. ..................................... 98,913
45,900 Grupo Uralita .......................................... 512,423
9,085 Prosegur Seguridad (c) ................................. 110,981
4,000 Repsol S.A. (ADR) (d) .................................. 169,750
3,122 Sol Melia S.A. (c) ..................................... 128,185
7,651 Tele Pizza S.A. (c) .................................... 446,546
----------------
1,749,959
----------------
SWEDEN--2.9%
52,700 AB Volvo, Series B ..................................... 1,410,239
56,250 ABB AB ................................................. 788,976
25,494 Assa-Abloy AB, Series B ................................ 520,723
6,366 Astra AB ............................................... 118,506
2,508 Autoliv AB ............................................. 96,455
7,904 Autoliv, Inc. (c) ...................................... 309,244
71,800 Avesta Sheffield ....................................... 830,728
5,566 Bure Investment AB, 144A (f) ........................... 70,155
10,777 Electrolux AB, Series B ................................ 777,399
3,680 Enator AB (c) .......................................... 65,651
2,368 Ericsson LM Telephone AB, Series B ..................... 93,214
7,075 Ericsson LM Telephone Co. (ADR) (c) (d) ................ 278,578
1,110 Incentive AB, Series B ................................. 101,450
14,880 Medical Invest, Series B ............................... 607,857
2,767 Nordbanken AB .......................................... 93,360
8,770 Pricer AB, Series B .................................... 301,573
15,474 Securitas AB, Series B ................................. 436,085
819 Skandinaviska Enskilda Bank ............................ 8,841
3,211 Sparbanken Sverige AB, 144A (f) ........................ 71,397
3,310 WM Data AB, Series B ................................... 58,194
----------------
7,038,625
----------------
SWITZERLAND--3.3%
67 Aero Serono Group ...................................... 97,058
93 Baloise Holdings ....................................... 221,671
299 Clariant ............................................... 193,531
8,695 Credit Suisse .......................................... 1,116,652
482 Hero AG, 144A (f) ...................................... 269,062
58 Kuoni Reisen Holdings, Series B ........................ 198,630
830 Nestle S.A., 144A (f) .................................. 1,094,918
1,092 Novartis AG ............................................ 1,745,704
195 Roche Holdings AG (c) .................................. 1,763,682
405 Schw Bankgesellsch ..................................... 463,253
74 Swissair ............................................... 82,921
161 Tag Heuer .............................................. 24,150
22,400 Tag Heuer International S.A. (ADR) (c) (d) ............. 337,400
1,280 Zurich Versicherun ..................................... 509,370
----------------
8,118,002
----------------
TAIWAN--1.6%
5,400 Advanced Semiconductor Engineering (GDR) (g) ........... 97,200
4,968 Advanced Semiconductor Engineering (GDR) 144A (f) (g) .. 98,739
30,000 Bharat Petroleum Shareholder Equity Certificate (h) .... 377,095
240,000 China Development Corp. Shareholder Equity
Certificate (h) ...................................... 1,238,849
5,740 China Steel Corp. (GDR) (c) (g) ........................ 122,549
1,333 China Steel Corp. (GDR) 144A (c) (f) (g) ............... 28,449
100,000 Compal Electronics Shareholder Equity Certificate (h) .. 395,684
75,000 Delta Electronic Industrial Shareholder Equity Cer-
tificate (c) (h) ..................................... 464,029
140,000 Formosa Chemical and Fibre Shareholder Equity
Certificate (h) ...................................... 203,453
68,000 Hung Sheng Shareholder Equity Certificate (h) .......... 116,187
85,000 Primax Electronics Shareholder Equity Certificate (h) .. 252,248
75,000 United World Shareholder Equity Certificate (h) ........ 179,406
10,000 Yageo Corp. (GDR) (c) (g) .............................. 175,000
12,000 Yageo Corp. (GDR) 144A (c) (f) (g) ..................... 210,000
----------------
3,958,888
----------------
THAILAND--0.4%
41,000 Central Pattana, Ltd. .................................. 56,977
111,400 Electricity Generating Public Company, Ltd. ............ 273,071
46,000 Industrial Finance Corp. of Thailand (c) ............... 58,599
14,600 Pizza Public Co, Ltd. .................................. 56,923
20,000 PTT Exploration and Production ......................... 290,291
7,000 Siam Cement Co. ........................................ 121,058
6,700 Siam Cement Shareholder Equity Certificate (e) ........ 115,870
----------------
972,789
----------------
TURKEY--0.4%
1,314,000 Akansa Cimento Sanayi & Ticaret ........................ 181,363
332,167 Koc Holdings ........................................... 78,275
132,125 Migros Turk Tas ........................................ 93,406
109,101 Trakya Cam ............................................. 4,775
6,046,000 Turk Sise Ve Cam Fabrikalani (c) ....................... 382,645
7,817,740 Yapi Ve Kredi Bankasi AS ............................... 178,962
5,878,000 Yapi Ve Kredi Bankasi, New ............................. 134,558
----------------
1,053,984
----------------
UNITED KINGDOM--9.0%
20,857 Barclays ............................................... 414,020
2,742 Biocompatibles International PLC (c) ................... 59,727
3,625 British Airways (ADR) (d) .............................. 416,648
34,190 BTG .................................................... 359,270
109,146 Capita Group PLC ....................................... 428,047
83,625 Carlton Communications PLC (c) ......................... 706,749
22,467 CMG PLC ................................................ 499,038
22,530 Compass Group PLC, 144A (f) ............................ 252,880
1,046,000 Cordiant PLC (c) ....................................... 2,151,253
1,975 Danka Business Systems (ADR) (d) ....................... 80,728
71,575 Dixons Group ........................................... 556,636
38,516 Electrocomponents ...................................... 287,671
332,789 Freepages .............................................. 202,281
30,200 Gallaher Group PLC (ADR) (c) (d) ....................... 556,812
9,118 Glaxo Wellcome PLC ..................................... 188,284
189,000 Guinness PLC, 144A (f) ................................. 1,850,682
14,874 Harvey Nichols PLC, 144A (f) ........................... 69,851
80,980 Hays PLC ............................................... 770,028
7,800 Imperial Chemical Industies PLC (ADR) (d) .............. 443,625
17,653 J.D. Wetherspoon PLC ................................... 400,542
14,796 JBA Holdings PLC ....................................... 215,598
2,237 Johnson Matthey ........................................ 21,569
267,075 Ladbroke Group PLC ..................................... 1,045,187
52,809 Lloyds TSB Group PLC ................................... 541,728
34,954 Logica PLC ............................................. 398,731
25,714 London International Group PLC, 144A (f) ............... 74,081
58,550 Next PLC ............................................... 661,560
60,600 Norwich Union, 144A (f) ................................ 322,431
3,530 Pearson, 144A (f) ...................................... 40,885
37,381 Powerscreen International PLC (c) ...................... 407,430
354,887 Rentokil Initial PLC ................................... 1,246,997
250,000 Sedgwick Group ......................................... 512,080
2,587 Sema Group PLC ......................................... 53,098
42,814 Siebe .................................................. 725,816
6,246 SmithKline Beecham PLC ................................. 114,988
700 SmithKline Beecham PLC (ADR) (d) ....................... 64,138
127,000 Tate & Lyle PLC ........................................ 944,317
26,136 TI Group ............................................... 227,850
424,000 Tomkins PLC ............................................ 1,835,828
725,000 Vardon PLC ............................................. 1,291,857
17,849 Victrex ................................................ 50,828
121,000 WPP Group PLC .......................................... 496,701
----------------
21,988,470
----------------
UNITED STATES--20.3%
100,366 AC Nielson Corp. ....................................... 1,969,683
20,500 AMBAC, Inc. ............................................ 1,565,687
20,400 Anheuser-Busch Companies, Inc. ......................... 855,525
16,325 Apache Corp. ........................................... 530,562
825 Associates 1st Capital Corp. (c) ....................... 45,788
37,775 Banc One Corp. ......................................... 1,829,734
1,500 BankAmerica Corp. ...................................... 96,844
66,300 Black & Decker Corp. ................................... 2,465,531
1,100 Boeing Co. (c) ......................................... 58,369
750 Boston Scientific Corp. (c) ........................... 46,078
62,000 Brunswick Corp. ........................................ 1,937,500
1,300 Budget Group, Inc. (c) ................................. 44,850
5,000 Cellular Communications International (c) .............. 167,500
1,800 Citicorp ............................................... 217,013
15,500 Columbia/HCA Healthcare Corp. (c) ...................... 609,344
1,800 Commercial Federal Corp. ............................... 66,825
500 Computer Sciences Corp. (c) ............................ 36,063
59,100 Dun & Bradstreet Corp. ................................. 1,551,375
3,125 Eletronics For Imaging, Inc. ........................... 147,656
8,050 Emerson Electric Co. ................................... 443,253
50,000 Federal National Mortgage Association .................. 2,181,250
3,000 First Pacific Co. ...................................... 3,834
30,200 Fortune Brands, Inc. ................................... 1,126,837
46,540 Foundation Health Systems, Inc. (c) .................... 1,410,744
2,600 Globalstar Telecommunication, Ltd. (c) ................. 79,625
27,300 H. J. Heinz Co. ........................................ 1,259,212
2,900 International Business Machines ........................ 261,544
5,400 Iridium World Communications ........................... 97,875
50,400 Knight-Ridder, Inc. .................................... 2,472,750
4,450 Lucent Technologies, Inc. (c) .......................... 320,678
19,100 Manpower, Inc. ......................................... 849,950
48,000 Mellon Bank Corp. (c) .................................. 2,166,000
11,825 Monsanto Co. ........................................... 509,214
8,225 Morton International, Inc. ............................. 248,292
1,625 Motorola, Inc. ......................................... 123,500
49,600 Nabisco Holdings Corp. ................................. 1,977,800
125 Nu Skin Asia Pacific, Inc. (c) ......................... 3,313
1,975 Nynex Corp. ............................................ 113,809
69,750 Old Republic International ............................. 2,114,297
13,975 Parametric Technology Corp. (c) ........................ 594,811
2,950 PepsiCo, Inc. (c) ...................................... 110,809
5,350 Perkin Elmer Corp. ..................................... 425,659
58,000 Philip Morris Companies, Inc. .......................... 2,573,750
11,000 Phycor, Inc. (c) ....................................... 378,813
44,000 Polaroid Corp. ......................................... 2,442,000
4,500 Polygram NV ............................................ 242,156
15,450 Quorum Health Group (c) ................................ 552,337
5,250 RadiSys Corp. (c) ...................................... 208,688
4,550 Rhone Poulenc Rorer, Inc. .............................. 413,481
1,575 Robert Half International, Inc. (c) .................... 74,123
12,825 Rural/Metro Corp. (c) .................................. 372,326
17,600 Sports Authority (c) ................................... 342,100
1,225 Student Loan Marketing Association ..................... 155,575
5,170 TCI Satellite Entertainment, Inc. (c) .................. 40,714
126,700 Tele-Communications, Inc. (c) .......................... 1,884,662
77,500 Tele-Communications, Inc., New ......................... 1,840,625
34,400 The Kroger Co. (c) ..................................... 997,600
83,000 U.S. West Media Group (c) .............................. 1,680,750
2,250 Ucar International, Inc. ............................... 102,938
10,650 Warnaco Group .......................................... 339,469
1,408 Wells Fargo & Co. ...................................... 379,456
10,250 Williams Companies, Inc. ............................... 448,438
21,718 Wolverine Worldwide .................................... 659,684
17,550 WorldCom, Inc. (c) ..................................... 561,600
----------------
49,828,268
----------------
VENEZUELA--0.5%
21,425 CANTV (ADR) (c) (d) .................................... 923,953
165,080 Electricidad de Caracas ................................ 264,488
----------------
1,188,441
----------------
Total Common Stocks (Identified Cost
$190,336,944) ........................................ 225,272,604
----------------
BONDS AND NOTES--0.4%
FACE
AMOUNT
- ---------------------------------------------------------------------------------------
TAIWAN--0.2%
$ 150,000 United Microelectronics Corp., 144A, 1.250%, 6/08/04 (f) 551,250
----------------
UNITED KINGDOM--0.1%
215,000 Barlow International Investments, Ltd. Convertible Bond,
144A, 7.000%, 9/20/04 (f) ............................ 266,600
----------------
UNITED STATES--0.1%
200,000 Alfa S.A., Convertible Note, 144A, 8.000%, 9/15/00 (f) 285,500
----------------
Total Bonds And Notes (Identified Cost $674,340) ....... 1,103,350
----------------
SHORT TERM INVESTMENTS--7.3%
- ---------------------------------------------------------------------------------------
2,000,000 American Express Credit Corp., 6.000%, 7/01/97 ........ 2,000,000
2,000,000 Ford Motor Credit Co., 6.110%, 7/01/97 ................ 2,000,000
3,000,000 General Electric Capital Corp., 6.250%, 7/01/97 ....... 3,000,000
10,782,000 Repurchase Agreement with State Street Bank & Trust Co.
dated 6/30/97 at 5.000% to be repurchased at,
$10,783,498 on 7/01/97, collateralized by $10,420,000
U.S. Treasury Bond, 7.25% due 5/15/16 with a value
of $11,000,786 ...................................... 10,782,000
----------------
Total Short Term Investments
(Identified Cost $17,782,000) ....................... 17,782,000
----------------
Total Investments--99.6%
(Identified Cost $208,793,284) (i) .................. 244,157,954
Other assets less liabilities (e) ..................... 918,781
----------------
Total Net Assets--100% ................................ $ 245,076,735
================
</TABLE>
FORWARD CURRENCY CONTRACTS OUTSTANDING
at June 30, 1997
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE (DEPRECIATION)
------------ -------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Deutsch Mark (sold) ........... 7/17/97 275,000 175,170 157,877 $ 17,293
Deutsch Mark (sold) ........... 7/18/97 300,000 191,339 172,243 19,096
Deutsch Mark (sold) ........... 7/24/97 450,000 277,521 258,481 19,040
Deutsch Mark (sold) ........... 8/11/97 350,000 213,337 201,298 12,039
Dutch Guilder (bought) ........ 7/21/97 1,600,000 847,916 816,375 (31,541)
Dutch Guilder (sold) .......... 7/21/97 1,600,000 892,857 816,374 76,483
Dutch Guilder (sold) .......... 7/24/97 1,700,000 932,913 867,589 65,324
Dutch Guilder (sold) .......... 8/11/97 125,000 67,092 63,872 3,220
Finnish Marka (sold) .......... 7/18/97 675,000 144,788 130,175 14,613
French Franc (sold) ........... 7/18/97 400,000 75,547 68,150 7,397
French Franc (sold) ........... 8/4/97 2,800,000 511,294 477,595 33,699
French Franc (sold) ........... 8/11/97 2,000,000 358,025 341,286 16,739
French Franc (sold) ........... 11/28/97 1,000,000 176,204 171,880 4,324
British Pounds (bought) ....... 7/24/97 700,000 1,140,790 1,164,896 24,106
British Pounds (sold) ......... 7/24/97 1,000,000 1,638,400 1,664,137 (25,737)
British Pounds (sold) ......... 7/28/97 750,000 1,212,944 1,247,958 (35,014)
Japanese Yen (sold) ........... 7/18/97 63,000,000 555,727 551,150 4,577
Japanese Yen (sold) ........... 8/12/97 35,000,000 287,805 307,297 (19,492)
Japanese Yen (sold) ........... 11/4/97 17,000,000 137,340 151,077 (13,737)
Japanese Yen (sold) ........... 11/4/97 20,000,000 179,485 177,738 1,747
Japanese Yen (bought) ......... 11/4/97 20,000,000 177,124 177,738 614
Japanese Yen (bought) ......... 12/18/97 18,000,000 162,896 161,031 (1,865)
Swedish Krona (sold) .......... 7/18/97 2,300,000 334,205 297,544 36,661
Swedish Krona (sold) .......... 7/23/97 750,000 106,686 97,045 9,641
Swiss Franc (sold) ............ 7/18/97 220,000 163,051 151,024 12,027
Swiss Franc (sold) ............ 7/21/97 100,000 72,945 68,673 4,272
Swiss Franc (sold) ............ 7/23/97 230,000 165,563 157,988 7,575
Swiss Franc (sold) ............ 7/24/97 400,000 284,799 274,795 10,004
Swiss Franc (sold) ............ 8/4/97 300,000 214,684 206,368 8,316
Swiss Franc (bought) .......... 8/11/97 400,000 277,681 275,370 (2,311)
Swiss Franc (sold) ............ 8/11/97 650,000 458,683 447,477 11,206
Swiss Franc (sold) ............ 9/12/97 250,000 172,963 172,732 231
South African Rand (sold) ..... 11/3/97 338,000 64,726 72,127 (7,401)
South African Rand (bought) ... 11/3/97 40,000 8,555 8,536 (19)
--------
$283,127
========
</TABLE>
<PAGE>
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1997 (unaudited)
Finance 23.10% Basic Industries 6.10%
Consumer Basics 13.40% Technology 5.60%
General Business 11.70% Energy 4.60%
Consumer Non-Durables 8.50% Consumer Durable Goods 4.40%
Utilities 8.00% Consumer Services 4.20%
(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 $613,591
and a cost of $614,388.
(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 June 30, 1997 the net unrealized appreciation on
investments based on cost of $208,793,284 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. ............................................ $40,032,510
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value. .......................................... (4,667,840)
-----------
Net unrealized appreciation ............................... $35,364,670
===========
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ..................................... $244,157,954
Cash ..................................................... 1,966,996
Foreign cash at value (Cost $614,388) .................... 613,591
Receivable for:
Fund shares sold ....................................... 1,335,813
Securities sold ........................................ 4,543,213
Open forward currency contracts--net ................... 283,127
Dividends and interest ................................. 505,857
Foreign withholding taxes .............................. 113,107
Prepaid registration expense ............................. 12,500
Unamortized organization expense ......................... 46,078
------------
253,578,236
LIABILITIES
Payable for:
Securities purchased ................................... $4,365,345
Fund shares redeemed ................................... 3,712,068
Foreign withholding taxes .............................. 23,668
Accrued expenses:
Management fees ........................................ 203,987
Deferred trustees fees ................................. 4,235
Accounting and administrative .......................... 3,585
Other expenses ......................................... 188,613
----------
8,501,501
------------
NET ASSETS ................................................. $245,076,735
============
Net Assets consist of:
Capital paid in ........................................ $204,908,005
Undistributed net investment loss ...................... (1,749)
Accumulated net realized gains ......................... 4,527,111
Unrealized appreciation on investments, forward currency
contracts and foreign currency transactions .......... 35,643,368
------------
NET ASSETS ................................................. $245,076,735
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($110,463,077 divided by 6,565,987 shares of beneficial
interest) ................................................ $16.82
======
Offering price per share (100/94.25 of $16.82) ............. $17.85*
======
Net asset value and offering price of Class B shares
($109,954,412 divided by 6,606,466 shares of beneficial
interest) ................................................ $16.64**
======
Net asset value and offering price of Class C shares
($24,659,246 divided by 1,480,844 shares of beneficial
interest) ................................................ $16.65
======
Identified cost of investments ............................. $208,793,284
============
</TABLE>
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividends .............................................. $ 2,101,504(a)
Interest ............................................... 463,926
-----------
2,565,430
Expenses
Management fees ...................................... $ 1,027,240
Service fees--Class A ................................ 111,472
Service and distribution fees--Class B ............... 424,697
Service and distribution fees--Class C ............... 107,733
Trustees' fees and expenses .......................... 11,299
Accounting and administrative ........................ 21,183
Custodian ............................................ 368,678
Transfer agent ....................................... 291,261
Audit and tax services ............................... 25,000
Legal ................................................ 9,956
Printing ............................................. 35,576
Registration ......................................... 56,960
Amortization of organization expenses ................ 6,460
Miscellaneous ........................................ 4,281
-----------
Total expenses ......................................... 2,501,796
-----------
NET INVESTMENT INCOME .................................... 63,634
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments--net ..................................... 5,017,031
Futures contracts--net ............................... (28,139)
Foreign currency transactions--net ................... 185,476
-----------
Total realized gain on investments, futures contracts
and foreign currency transactions .................. 5,174,368
-----------
Unrealized appreciation on:
Investments--net ..................................... 25,644,076
Foreign currency transactions--net ................... 204,412
-----------
Net unrealized appreciation on investments, forward
currency contracts, and foreign currency
transactions ....................................... 25,848,488
-----------
Net gain on investment transactions .................... 31,022,856
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $31,086,490
===========
</TABLE>
(a) Net of foreign taxes of: $183,023
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
FOR THE YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
---------------- ----------------
FROM OPERATIONS
<S> <C> <C>
Net investment income (loss) ........................... $ (459,980) $ 63,634
Net realized gain on investments, futures contracts, and
foreign currency transactions ........................ 1,546,235 5,174,368
Unrealized appreciation on investments, and foreign
currency transactions ................................ 9,794,880 25,848,488
------------ ------------
Increase in net assets from operations ................. 10,881,135 31,086,490
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ................................................ (827,582) 0
Class B ................................................ (790,419) 0
Class C ................................................ (219,963) 0
------------ ------------
(1,837,964) 0
------------ ------------
Increase in net assets derived from capital share
transactions ......................................... 142,813,680 62,133,394
------------ ------------
Total increase in net assets ........................... 151,856,851 93,219,884
NET ASSETS
Beginning of the period ................................ 0 151,856,851
------------ ------------
End of the period ...................................... $151,856,851 $245,076,735
============ ============
UNDISTRIBUTED NET INVESTMENT LOSS
Beginning of the period ................................ $ 0 $ (65,383)
------------ ------------
End of the period ...................................... $ (65,383) $ (1,749)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------- ---------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 12.50 $ 14.40 $ 12.50 $ 14.30
----------- ----------- ----------- -----------
Income (Loss) From Investment Operations
Net Investment Income (Loss) ............ (0.03)(a) 0.03 (0.12)(a) (0.02)
Net Realized and Unrealized Gain on
Investments ............................ 2.11 2.39 2.10 2.36
----------- ----------- ----------- -----------
Total From Investment Operations ........ 2.08 2.42 1.98 2.34
----------- ----------- ----------- -----------
Less Distributions
Distributions From Net Realized
Capital Gains ......................... (0.18) 0.00 (0.18) 0.00
----------- ----------- ----------- -----------
Total Distributions ..................... (0.18) 0.00 (0.18) 0.00
----------- ----------- ----------- -----------
Net Asset Value, End of Period .......... $ 14.40 $ 16.82 $ 14.30 $ 16.64
=========== =========== =========== ===========
Total Return (%) (b) .................... 16.7 16.8 15.9 16.4
Ratio of Operating Expenses to
Average Net Assets (%) ................ 2.58 2.15(d) 3.33 2.90(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ............. (0.21) (0.38)(d) (0.96) (1.13)(d)
Portfolio Turnover Rate (%) ............. 57 65(d) 57 65(d)
Average Commission Rate (c) ............. $ 0.0004 $ 0.0025 $ 0.0004 $ 0.0025
Net Assets, End of Period (000) ......... $ 68,509 $ 110,463 $ 65,367 $ 109,954
(a) Per Share net investment income (loss) has been calculated using the average share
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 are not reflected in total return calculations. Periods less than
one year are not annualized.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose
its average commission rate per share for trades on which commissions are charged. This
rate generally does not reflect mark-ups, mark-downs, or spreads on shares traded on a
principal basis.
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
---------------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ......................... $12.50 $14.31
------ ------
Income (Loss) From Investment Operations
Net Investment Income (Loss) ................................. (0.12)(a) (0.02)
Net Realized and Unrealized Gain on Investments .............. 2.11 2.36
------ ------
Total From Investment Operations ............................. 1.99 2.34
------ ------
Less Distributions
Distributions From Net Realized Capital Gains ................ (0.18) 0.00
------ ------
Total Distributions .......................................... (0.18) 0.00
------ ------
Net Asset Value, End of Period ............................... $14.31 $16.65
====== ======
Total Return (%) (d) ......................................... 15.9 16.4
Ratio of Operating Expenses to
Average Net Assets (%) ..................................... 3.33 2.90(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets (%) .............................................. (0.96) (1.13)(c)
Portfolio Turnover Rate (%) .................................. 57 65(c)
Average Commission Rate (b) .................................. $0.0004 $0.0025
Net Assets, End of Period (000) .............................. $17,980 $24,659
(a) Per Share net investment income (loss) has been calculated using the average share
outstanding during the year.
(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) Computed on an annualized basis.
(d) Periods less than one year are not annualized.
</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 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 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, 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. 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.
E. 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.
F. 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.
G. 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.
H. 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 six months ended June 30, 1997 were $123,227,797 and
$59,024,975 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.
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 six months ended June 30, 1997, are
as follows:
FEES EARNED
-----------
$ 356,959 New England Funds Management, L.P.
256,032 Harris Associates, L.P.
132,042 Founders Asset Management, Inc.
123,070 Janus Capital Corporation
159,137 Montgomery Asset Management, L.P.
----------
$1,027,240
==========
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of New
England Investment Companies, L.P. and performs certain accounting and
administrative services for the Fund. The Fund reimburses New England Funds
for all or part of New England Funds' expenses of providing these services
which include the following: (i) expenses for personnel performing
bookkeeping, accounting, internal auditing and financial reporting functions
and clerical functions relating to the Fund, (ii) expenses for services
required in connection with the preparation of registration statements and
prospectuses, shareholder reports and notices, proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities and reports
and questionnaires for SEC compliance, and (iii) registration, filing and
other fees in connection with requirements of regulatory authorities. For the
six months ended June 30, 1997, these expenses amounted to $21,183 and are
shown separately in the financial statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the six months ended June 30, 1997, the Fund
paid New England Funds $203,918 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted a Service Plan relating to the Fund's Class A shares
(the "Class A Plan") and Service and Distribution Plans relating to the Fund's
Class B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of up to 0.25% of the average daily net assets attributable
to the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1997, the Fund paid New England Funds $111,472 in fees
under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C
shares and/or the maintenance of shareholder accounts. For the six months
ended June 30, 1997 the Fund paid New England Funds $106,174 and $26,933 in
service fees under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds
monthly distribution fees at the annual rate of up to 0.75% of the average
daily net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and
Class C shares. For the six months ended June 30, 1997, the Fund paid New
England Funds $318,523 and $80,800 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 $617,388.
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 $2,125
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $64/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CAPITAL 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>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------------------- --------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold ......................... 5,263,135 $ 71,193,860 3,435,694 $53,622,535
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gains ........................... 55,816 789,245 0 0
--------- ------------ ---------- -----------
5,318,951 71,983,105 3,435,694 53,622,535
Shares repurchased .................. (561,521) (7,815,507) (1,627,137) (26,014,278)
--------- ------------ ---------- -----------
Net increase ........................ 4,757,430 $ 64,167,598 1,808,557 $27,608,257
--------- ------------ ---------- -----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- --------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- --------- ------------- --------- -----------
Shares sold ......................... 4,646,365 $ 62,819,212 2,380,385 $36,431,494
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gains ........................... 52,648 739,708 0 0
--------- ------------- --------- -----------
4,699,013 63,558,920 2,380,385 36,431,494
Shares repurchased .................. (128,197) (1,770,220) (344,735) (5,236,722)
--------- ------------- --------- -----------
Net increase ........................ 4,570,816 $ 61,788,700 2,035,650 $31,194,772
--------- ------------- --------- -----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------- --------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- --------- ------------- --------- -----------
Shares sold ......................... 1,307,969 $ 17,561,696 548,250 $ 8,335,446
Shares issued in connection with
the reinvestment of:
Distributions from net realized
gains ........................... 14,581 205,003 0 0
--------- ------------ --------- -----------
1,322,550 17,766,699 548,250 8,335,446
Shares repurchased .................. (65,947) (909,317) (324,009) (5,005,081)
--------- ------------ --------- -----------
Net increase ........................ 1,256,603 $ 16,857,382 224,241 $ 3,330,365
--------- ------------ --------- -----------
Increase derived from capital shares
transactions ...................... 10,584,849 $142,813,680 4,068,448 $62,133,394
========== ============ ========= ===========
</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 fees
and other items of interest. Investors are advised to read the
prospectus carefully before investing.
<PAGE>
----------------
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U.S. POSTAGE
PAID
BROCKTON, MA
PERMIT NO. 770
----------------
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NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- -----------------------
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Boston, Massachusetts
02116
- -----------------------
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- --------------------- ---------------------
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- --------------------- ---------------------
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