<PAGE>
SEMIANNUAL REPORT
[Logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Bond Income Fund
[graphic omitted]
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June 30, 1998
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<PAGE>
AUGUST 1998
- --------------------------------------------------------------------------------
Dear Shareholder:
Investors had reason for comfort during the first half of 1998.
After stunning gains in each of the last three years, the stock market behaved
more like its customary self: Major market indicators moved up for a time, slid
back and were once again in recovery mode at the end of the period. This pattern
largely reflected investors' responses to fast-changing events in Asia.
Unpredictable markets call to mind the long-term experience of millions of
mutual fund investors; those of us who held firm to our plans as markets entered
difficult periods were often rewarded as markets recovered. The longer you stay
invested the less that interim ups and downs - here or overseas - should concern
you.
News from the Far East drove bond market sentiment as well. In the United
States, faltering Asian economies meant lower prices on many imported goods,
putting pressure on prices and corporate earnings. With slower growth now a real
possibility and with little immediate evidence of inflation, the Federal Reserve
Board left short-term interest rates unchanged, while long-term rates fell to
record lows in mid-June.
In the pages that follow, you can read about how your Fund's management dealt
with the disruptions in the Pacific region and their impact on our domestic
economy. But beyond Asia's present problems, and notwithstanding the inevitable
ebb and flow of our own business cycle, there are reasons to be optimistic about
investment prospects over the next several years. For example, vast,
under-served populations in China and elsewhere represent huge potential demand
for consumer goods. Here in the United States, there is the prospect of a
demography-driven spending wave, as millions of baby-boomers enter their peak
consumption years. Events may turn out differently - volatility will always be
part of investing - but as much as the markets may waver, the watchwords for
many long-term investors are constant: diversify and persist.
While you are thinking about your investments, take a few minutes to review your
portfolio. It's possible that three years of strong market gains have tilted
your holdings disproportionately toward aggressive stock funds. If so, you and
your financial representative can adjust the balance easily using some of New
England Funds' more conservative equity or bond funds to reallocate your assets
in line with your long-term goals and comfort level. Once you are satisfied with
your portfolio's balance, be sure to stay in touch with your financial
professional, invest regularly and don't try to guess what the market will do
next.
Thank you for your continued support of New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
PREPARING FOR THE YEAR 2000
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New England Funds continues to work to provide high quality service as we move
into the new century. Since early last year we have devoted significant
resources to identifying, analyzing and resolving the computer-related issues
that will arise on January 1, 2000. As a further measure, we are testing all our
vendors and service agency systems to ensure that they be prepared by the end of
1998 to support our customers' needs into the foreseeable future without
interruption. We expect our major systems to be ready before the end of this
year, with a full year of quality assurance to follow.
<PAGE>
NEW ENGLAND BOND INCOME FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1998
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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.
[A chart in the form of a line graph appears here illustrating the growth of a
$10,000 investment in the New England Bond Income Fund from 06/30/88 compared
to the Lehman Government/Corporate Bond Index(4) and the Cost of Living(5). The
data points from the graph are as follows:]
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
- -------------------------------------------------------------------------------
JUNE 1988 THROUGH JUNE 1998
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Net With Maximum Lehman Cost
Asset Sales Intermediate of
Value(1) Charge(2) Gov't/Corp.(4) Living(5)
- -------------------------------------------------------------------------------
06/30/1988 $10,000 $ 9,550 $10,000 $10,000
1989 $11,008 $10,513 $11,022 $10,517
1990 $11,697 $11,171 $11,884 $11,008
1990 $12,869 $12,290 $13,135 $11,525
1992 $14,863 $14,194 $14,864 $11,881
1993 $16,918 $16,157 $16,416 $12,237
1994 $16,541 $15,796 $16,374 $12,542
1995 $18,909 $18,059 $18,072 $12,923
1996 $19,881 $18,987 $18,975 $13,279
1997 $21,997 $21,007 $20,347 $13,584
1998 $24,491 $23,389 $22,085 $13,796
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will be greater or less than that shown based on differences in
inception date, fees and sales charges. All Index and Fund performance assumes
reinvested distributions.
AVERAGE ANNUAL TOTAL RETURNS - 6/30/98
- -------------------------------------------------------------------------------
CLASS A (Inception 11/7/73) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 4.26% 11.34% 7.68% 9.37%
With Max. Sales Charge(2) -0.40 6.32 6.69 8.87
Lehman Intermediate Govt./Corp.(4) 3.47 8.54 6.11 8.25
Lipper Int. Invest. Grade Debt Avg.(6) 3.61 9.42 6.12 8.30
- -------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 3.88% 10.51% 8.20% 6.35%
With CDSC(3) -1.12 5.51 7.34 6.03
Lehman Intermediate Govt./Corp.(4) 3.47 8.54 6.91 5.95
(calculated from 9/30/93)
Lipper Int. Invest. Grade Debt Avg.(6) 3.61 9.42 7.09 5.82
(calculated from 9/30/93)
- -------------------------------------------------------------------------------
SINCE
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 3.87% 10.50% 8.19% 10.20%
With CDSC(3) 2.87 9.50 8.19 10.20
Lehman Intermediate Govt./Corp.(4) 3.47 8.54 6.91 8.71
Lipper Int. Invest. Grade Debt Avg.(6) 3.61 9.42 7.09 9.16
- -------------------------------------------------------------------------------
SINCE
CLASS Y (Inception 12/30/94) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 4.38% 11.59% 9.27% 11.67%
Lehman Intermediate Govt./Corp.(4) 3.47 8.54 6.91 7.14
Lipper Int. Invest. Grade Debt Avg.(6) 3.61 9.42 7.09 9.16
- --------------------------------------------------------------------------------
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
NOTES TO CHARTS
(1) Net Asset Value (NAV) - 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 - assumes reinvestment of all distributions and
reflects the maximum sales charge of 4.5% at the time of purchase of Class A
shares.
(3) With Contingent Deferred Sales Charge (CDSC) - 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. CDSC for Class C shares assumes a maximum 1% sales charge on
redemptions within the first year of purchase.
(4) Lehman Intermediate Government/Corporate Bond Index is an unmanaged index of
investment-grade bonds with one- to ten-year maturities issued by the U.S.
government and U.S. corporations. The Index performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, calculated
by the U.S. Bureau of Labor Statistics.
(6) Lipper Intermediate Investment Grade Debt Average is an average of the total
return performance (calculated on the basis of net asset value) of funds
with similar investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
<PAGE>
NEW ENGLAND BOND INCOME FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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[Photo of Cathy Bunting]
CATHY BUNTING
BACK BAY ADVISORS, L.P.
Q. How did New England Bond Income Fund perform for the first half of 1998?
The Fund continued its long record of rewarding investors with strong
performance. For the six months ending June 30, 1998, Class A shares produced a
total return of 4.26%, reflecting a $0.12 per share gain in net asset value to
$12.51 per share and the reinvestment of distributions totaling $0.402 per
share. Once again, your Fund turned in results that were markedly better than
the average 3.61% return of its peer group of 233 Intermediate
Investment-Grade Debt funds, as measured by Lipper Analytical Services, Inc.
Q. What was the investment environment like for bonds during the reporting
period?
The environment for U.S. bonds was positive as prices generally rose and yields
declined. Economic growth in the United States was solid while inflation
remained low. Meanwhile, international demand for U.S. bonds strengthened as
investors turned to the bond markets both as a safe haven from Asia's economic
troubles and as a source of relatively high returns. The expectation that Asia's
problems would slow U.S. growth and limit inflationary pressures fostered
extraordinarily low domestic interest rates. Later in the period, the supply of
corporate bonds rose, translating into higher yields, but lower bond prices. In
addition, news that the Asian crisis was worsening renewed concerns about its
negative effect on corporate profits and, consequently, corporate bond prices.
Q. What strategies did you use in managing the Fund?
Given the uncertainties in Asia, we eliminated altogether holdings of bonds from
Asian countries. At the same time, we reduced investments in emerging bond
markets elsewhere in the world to protect the Fund against the ripple effects
emanating from Asia's difficulties.
We took advantage of favorable investment conditions in the U.S. bond markets to
boost both the Fund's yield and its price performance. Because domestic economic
activity was solid, we could afford to relax our emphasis on quality by reducing
holdings in U.S. government securities - the most creditworthy securities
available. We turned up our focus on bonds at the lower cusp of what (in the
bond world) is considered investment-grade terrain, as well as on select
higher-yielding, lower-grade bonds. Even so, the average credit quality of the
portfolio remained relatively high - A, as of June 30, 1998.
CREDIT QUALITY COMPOSITON -- 6/30/98
AAA - 19%
AA - 10.6%
A - 13.4%
BBB - 38%
BB - 17%
B - 2%
AVERAGE PORTFOLIO QUALITY: A
Quality is based on ratings provided by Standard & Poor's.
Portfolio holdings and asset allocation will vary.
Meanwhile, our investments in corporate bonds focused on capturing more generous
yields as well as price gains. In general, the prevailing backdrop of
stable-to-lower interest rates combined with healthy economic activity works to
the advantage of corporate bonds. In fact, the credit quality ratings of two
Fund holdings, Time Warner, Inc. and Telecommunications, Inc., were upgraded by
bond rating agencies, paving the way for appreciation in their prices.
We also focused on industries, such as utilities and telecommunications, whose
performance tends to move independently of the ebbs and flows in economic
growth. While the U.S. economy was strong, troubling economic developments in
Asia raised concerns that cyclical businesses in the United States might
experience setbacks. These worries were enough to cause the steadier,
non-cyclical industries to outperform bonds issued by companies whose business
activities are more closely tied to the ups and downs of the U.S. economy.
In anticipation of lower interest rates, investments in bonds at the longer end
of the maturity spectrum were a focal point. The reason: The longer a bond's
maturity, the greater its price appreciation potential when interest rates fall.
Emphasizing longer-term bonds helped the Fund to make the most of declining
interest rates. In particular, an emphasis on bonds with maturities of at least
10 years and a shift away from shorter-term issues contributed to the Fund's
solid results. Longer-term bonds outperformed their shorter-term counterparts as
interest rates fell toward the end of the period. On June 30, the Fund's average
weighted maturity was 9.8 years.
Q. What is your outlook for bonds over the next six months?
Favorable, in view of our expectations that economic growth in the United States
will remain healthy while inflation stays low and international demand for U.S.
bonds continues to be strong. While we anticipate long-term interest rates to
remain fairly steady, we would not be surprised to see ongoing difficulties in
Asia prompt weakness in the equity markets and a flight-to-quality mentality
favoring higher bond prices and lower long-term interest rates.
Portfolio commentary reflects the conditions and actions taken during the
reporting period, which are subject to change. A shift in opinion may result in
strategic and other portfolio changes.
<PAGE>
<TABLE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1998
(unaudited)
BONDS AND NOTES--96.7% OF TOTAL NET ASSETS
<CAPTION>
FACE
AMOUNT DESCRIPTION VALUE (a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE--0.5%
$ 1,200,000 Lockheed Martin Corp., 7.250%, 5/15/06 ................... $ 1,276,608
------------
BUSINESS SERVICES--0.4%
1,000,000 Equifax Inc., 6.900%, 7/01/28 ............................ 989,980
------------
CONTAINERS & GLASS--2.2%
4,500,000 Owens-Illinois, Inc., 7.150%, 5/15/05 .................... 4,550,355
1,200,000 Owens-Illinois, Inc., 8.100%, 5/15/07 .................... 1,273,752
------------
5,824,107
------------
ELECTRIC UTILITIES--15.1%
9,800,000 Arizona Public Service Corp., 8.000%, 12/30/15 ........... 10,956,498
5,000,000 BVPS II Funding Corp., 8.890%, 6/01/17 ................... 5,817,800
6,000,000 CalEnergy, Inc., 9.500%, 9/15/06 ......................... 6,502,500
1,700,000 CalEnergy, Inc., 7.630%, 10/15/07 ........................ 1,721,063
3,881,000 New Mexico Public Service Corp., 10.250%, 10/01/12 ....... 4,559,593
2,900,000 New York Electric & Gas Corp., 8.875%, 11/01/21 .......... 3,208,531
2,000,000 Ohio Edison Corp., 8.680%, 6/01/17 ....................... 2,258,440
4,000,000 Texas Utilities Electric Co., 7.875%, 3/01/23 ............ 4,296,280
------------
39,320,705
------------
FEDERAL AGENCIES--8.9%
152,927 Federal Home Loan Mortgage Corp., 9.000%, 5/1/01 ......... 154,248
615,553 Federal National Mortgage Association, 7.500%, 12/1/24 ... 631,514
9,146,450 Government National Mortgage Association, 7.000%, with
various maturities to 2025 (c) ......................... 9,296,788
9,216,875 Government National Mortgage Association, 7.500%, with
various maturities to 2025 (c) ......................... 9,479,879
2,914,251 Government National Mortgage Association, 8.500%, with
various maturities to 2023 (c) ......................... 3,085,924
194,315 Government National Mortgage Association, 9.000%, with
various maturities to 2016 (c) ......................... 208,886
260,686 Government National Mortgage Association, 11.500%, with
various maturities to 2018 (c) ......................... 294,600
------------
23,151,839
------------
FINANCE & BANKING--8.8%
4,075,000 American General Finance Corp., 8.450%, 10/15/09 ......... 4,748,801
5,750,000 Associates Corp. of North America, 8.550%, 7/15/09 ....... 6,746,935
2,300,000 Associates Corp. of North America, 7.950%, 2/15/10 ....... 2,588,673
2,000,000 BB&T Corp., 6.375%, 6/30/05 .............................. 1,997,440
3,300,000 NCNB Corp., 9.375%, 9/15/09 .............................. 4,105,629
2,400,000 Pitney Bowes Credit Corp., 8.550%, 9/15/09 ............... 2,862,888
------------
23,050,366
------------
FOREIGN ISSUES--7.1%
14,600,000 Government of Canada, 8.000%, 6/01/23 (CAD) .............. 13,225,375
7,000,000 Province of British Columbia, 7.750%, 6/16/03 (CAD) ...... 5,217,498
------------
18,442,873
------------
MEDIA & ENTERTAINMENT--15.5%
10,300,000 Continental Cablevision, Inc., 9.500%, 8/01/13 ........... 12,100,646
2,500,000 CSC Holdings, Inc., 7.875%, 12/15/07 ..................... 2,631,050
7,800,000 News America Holdings, Inc., 8.250%, 8/10/18 ............. 8,824,296
3,000,000 News America Holdings, Inc., 7.750%, 2/01/24 ............. 3,235,710
1,000,000 Tele-Communications, Inc., 9.800%, 2/01/12 ............... 1,283,970
6,109,000 Tele-Communications, Inc., 9.250%, 1/15/23 ............... 7,092,916
4,000,000 Time Warner, Inc., 9.150%, 2/01/23 ....................... 5,080,400
------------
40,248,988
------------
PAPER--3.5%
5,000,000 Abitibi-Consolidated, Inc., 6.950%, 4/01/08 .............. 5,020,250
1,992,922 Fort Howard Trust, 11.000%, 1/02/02 ...................... 2,038,579
2,000,000 Pope & Talbot, Inc., 8.375%, 6/01/13 ..................... 2,033,700
------------
9,092,529
------------
PUBLISHING--1.2%
4,000,000 Golden Books Publishing, Inc., 7.650%, 9/15/02 ........... 3,130,000
------------
TELECOMMUNICATION--16.0%
4,000,000 AirTouch Communications, Inc., 6.650%, 5/01/08 ........... 4,062,880
1,400,000 AT&T Corp., 8.350%, 1/15/25 .............................. 1,558,802
5,700,000 AT&T Corp., 8.625%, 12/01/31 ............................. 6,351,510
3,000,000 Comcast Cable Communications, 8.875%, 5/01/17 ............ 3,636,810
2,500,000 GTE Corp., 7.510%, 4/01/09 ............................... 2,718,950
5,700,000 GTE Corp., 7.900%, 2/01/27 ............................... 6,143,688
2,000,000 GTE South, Inc., 6.125%, 6/15/07 ......................... 1,974,900
2,000,000 LCI International, Inc., 7.250%, 6/15/07 ................. 2,033,460
1,200,000 MCI Communications Corp., 7.750%, 3/15/24 ................ 1,273,644
2,000,000 McLeodUSA, Inc., 8.375%, 3/15/08 ......................... 2,010,000
2,800,000 Qwest Communications International Inc., 10.875%, 4/01/07 3,248,000
6,061,000 Worldcom, Inc., 8.875%, 1/15/06 .......................... 6,561,032
------------
41,573,676
------------
U.S. GOVERNMENT--3.0%
3,000,000 United States Treasury Notes, 8.500%, 11/15/00 ........... 3,196,590
4,500,000 United States Treasury Notes, 5.750%, 4/30/03 ............ 4,542,930
------------
7,739,520
------------
YANKEE--14.5%
3,500,000 Bridas Co., 12.500%, 6/10/03 ............................. 3,920,000
2,450,000 Freeport Term Malta PLC, 144A, 7.250%, 5/15/28 ........... 2,510,393
5,000,000 Hydro Quebec, 8.050%, 7/07/24 ............................ 5,966,300
2,000,000 Merita Bank, Ltd., 7.150%, 12/31/99 ...................... 2,048,860
4,500,000 Merita Bank, Ltd., 7.150%, 12/29/49 ...................... 4,609,935
2,500,000 Multicanal S.A., 9.250%, 2/01/02 ......................... 2,490,075
1,000,000 Pemex Petroleos Mexicanos, 8.625%, 12/01/23 .............. 899,350
4,300,000 Petroleos Mexicanos, 144A, 8.625%, 12/01/23 .............. 3,867,205
3,000,000 Republic of Colombia, 7.625%, 2/15/07 .................... 2,707,920
3,000,000 Republic of Colombia, 7.250%, 2/23/04 .................... 2,794,350
2,000,000 Republic of Colombia, 144A, 8.660%, 10/07/16 ............. 1,993,840
2,500,000 Smurfit Capital, 6.750%, 11/20/05 ........................ 2,560,850
1,500,000 YPF Sociedad Anonima, 7.250%, 3/15/03 .................... 1,464,120
------------
37,833,198
------------
Total Bonds and Notes (Identified Cost $244,980,377) ..... 251,674,389
------------
SHORT TERM INVESTMENT--2.0%
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5,161,000 Household Finance Corp. 6.000%, 7/01/98 .................. 5,161,000
------------
Total Short Term Investment (Identified Cost $5,161,000) . 5,161,000
------------
Total Investments--98.7% (Identified Cost $250,141,377)(b) 256,835,389
Other assets less liabilities ............................ 3,409,873
------------
Total Net Assets--100% ................................... $260,245,262
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments based on
cost of $250,141,377 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 .......................................... $ 8,568,651
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value .......................................... (1,874,639)
------------
Net unrealized appreciation .................................................... $ 6,694,012
============
(c) The Fund's investments in Government National Mortgage Association
securities, which have the same coupon rate, have been aggregated for the
purpose of presentation in the schedule of investments.
144A. 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. At the period end,
the value of these securities amounted to $8,371,438 or 3.2% of net assets.
CAD Canadian Dollars.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
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STATEMENT OF ASSETS & LIABILITIES
- ---------------------------------------------------------------------------------------------------
June 30, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Investments at value (Identified cost $250,141,377) ...... $256,835,389
Cash ..................................................... 72,905
Receivable for:
Fund shares sold ....................................... 863,638
Interest ............................................... 4,356,357
Prepaid registration expense ............................. 11,000
------------
262,139,289
LIABILITIES
Payable for:
Securities purchased ................................... $990,000
Fund shares redeemed ................................... 472,595
Dividends declared ..................................... 206,915
Accrued expenses:
Management fees ........................................ 89,618
Deferred trustees' fees ................................ 75,568
Accounting and administrative .......................... 4,771
Other expenses ......................................... 54,560
--------
1,894,027
------------
NET ASSETS ................................................. $260,245,262
============
Net Assets consist of:
Capital paid in ........................................ $249,608,375
Undistributed net investment income .................... 49,370
Accumulated net realized gains ......................... 3,893,793
Unrealized appreciation on investments and foreign
currency transactions ................................ 6,693,724
------------
NET ASSETS ................................................. $260,245,262
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($201,033,413 divided by 16,067,381 shares of beneficial
interest) ................................................ $12.51
======
Offering price per share (100/95.50 of $12.51) ......... $13.10*
======
Net asset value and offering price of Class B shares
($45,808,037 divided by 3,662,471 shares of beneficial
interest) ................................................ $12.51**
======
Net asset value and offering price of Class C shares
($6,879,829 divided by 549,495 shares of beneficial
interest) ................................................ $12.52**
======
Net asset value, offering and redemption price of Class Y shares
($6,523,983 divided by 520,657 shares of beneficial
interest) ................................................ $12.53
======
* Based upon single purchases of less than $100,000.
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.
</TABLE>
<PAGE>
<TABLE>
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STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
<S> <C> <C>
INVESTMENT INCOME
Interest .................................................. $ 9,428,863
Expenses
Management fees ......................................... $ 527,748
Service fees - Class A .................................. 245,405
Service and distribution fees - Class B ................. 204,444
Service and distribution fees - Class C ................. 30,597
Trustees' fees and expenses ............................. 8,509
Accounting and administrative ........................... 24,727
Custodian ............................................... 74,293
Transfer agent .......................................... 236,895
Audit and tax services .................................. 19,500
Legal ................................................... 2,549
Printing ................................................ 25,178
Registration ............................................ 25,371
Miscellaneous ........................................... 6,933
----------
Total expenses ............................................ 1,432,149
-----------
Net investment income ..................................... 7,996,714
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ....................................... 4,067,438
Foreign currency transactions - net ..................... (460,667)
Total realized gain on investments and foreign currency
transactions ............................................ 3,606,771
Unrealized depreciation on:
Investments - net ....................................... (1,550,360)
Foreign currency transactions - net ..................... (300)
Total unrealized depreciation on investments and foreign
currency transactions ................................... (1,550,660)
Net gain on investment transactions ....................... 2,056,111
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $10,052,825
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
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STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 14,931,259 $ 7,996,714
Net realized gain on investments and foreign currency
transactions ........................................... 1,857,847 3,606,771
Unrealized appreciation (depreciation) on investments and
foreign currency transactions .......................... 6,845,630 (1,550,660)
------------ ------------
Increase in net assets from operations ................... 23,634,736 10,052,825
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (12,587,595) (6,232,956)
Class B ................................................ (1,970,398) (1,148,611)
Class C ................................................ (182,040) (171,495)
Class Y ................................................ (179,318) (167,918)
In excess of net investment income
Class A ................................................ (81,688) 0
Class B ................................................ (12,787) 0
Class C ................................................ (1,181) 0
Class Y ................................................ (1,164) 0
Net realized gain on investments
Class A ................................................ (1,792,523) 0
Class B ................................................ (332,330) 0
Class C ................................................ (32,685) 0
Class Y ................................................ (30,605) 0
------------ ------------
(17,204,314) (7,720,980)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS ........................................... 8,958,293 17,413,018
------------ ------------
Total increase in net assets ............................. 15,388,715 19,744,863
NET ASSETS
Beginning of the period .................................. 225,111,684 240,500,399
------------ ------------
End of the period ........................................ $240,500,399 $260,245,262
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period ........................................ $ (226,364) $ 49,370
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ............. $12.12 $12.18 $10.95 $12.36 $12.05 $12.39
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income ....... 0.77 0.72 0.81 0.84 0.83 0.42
Net Realized and
Unrealized Gain (Loss)
on Investments ............ 0.66 (1.23) 1.40 (0.31) 0.45 0.10
------ ------ ------ ------ ------ ------
Total From Investment
Operations ................ 1.43 (0.51) 2.21 0.53 1.28 0.52
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ......... (0.78) (0.72) (0.80) (0.84) (0.81) (0.40)
Distributions in excess of
Net Investment Income ..... 0.00 0.00 0.00 0.00 (0.01) 0.00
Distributions From Net
Realized Capital Gains .... (0.59) 0.00 0.00 0.00 (0.12) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ......... (1.37) (0.72) (0.80) (0.84) (0.94) (0.40)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
the Period ................ $12.18 $10.95 $12.36 $12.05 $12.39 $12.51
====== ====== ====== ====== ====== ======
Total Return (%)(a) ......... 12.1 (4.2) 20.8 4.6 11.0 4.3
Ratio of Operating
Expenses to Average Net
Assets (%) ................ 1.04 1.08 1.14 1.05 1.05 1.02(b)
Ratio of Net Investment
Income to Average Net
Assets (%) ................ 6.10 6.46 6.81 7.00 6.73 6.60(b)
Portfolio Turnover Rate(%) .. 202 77 81 104 54 79(b)
Net Assets, End of the
Period (000) ........... $179,264 $155,362 $200,285 $189,685 $193,513 $201,033
(a) A sales charge is not reflected in total return calculations. Periods less
than one year are not annualized.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS B
-----------------------------------------------------------------------------------------
SEPTEMBER 13(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, --------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
--------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period ................ $13.06 $12.18 $10.95 $12.36 $12.04 $12.39
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income ....... 0.20 0.63 0.72 0.75 0.74 0.35
Net Realized and Unrealized
Gain (Loss) on
Investments ............... (0.30) (1.23) 1.40 (0.32) 0.46 0.13
------ ------ ------ ------ ------ ------
Total From Investment
Operations ................ (0.10) (0.60) 2.12 0.43 1.20 0.48
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income .................... (0.19) (0.63) (0.71) (0.75) (0.72) (0.36)
Distributions in excess of
Net Investment Income ..... 0.00 0.00 0.00 0.00 (0.01) 0.00
Distributions From Net
Realized Capital Gains .... (0.59) 0.00 0.00 0.00 (0.12) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ......... (0.78) (0.63) (0.71) (0.75) (0.85) (0.36)
------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period .................... $12.18 $10.95 $12.36 $12.04 $12.39 $12.51
====== ====== ====== ====== ====== ======
Total Return (%)(c) ......... (0.8) (4.9) 19.9 3.7 10.3 3.9
Ratio of Operating Expenses
to Average Net Assets(%) .. 1.81(b) 1.83 1.89 1.80 1.80 1.77(b)
Ratio of Net Investment
Income to Average Net
Assets(%) ................. 4.79(b) 5.71 6.06 6.25 5.98 5.85(b)
Portfolio Turnover Rate (%) . 202 77 81 104 54 79(b)
Net Assets, End of the
Period (000) .............. $2,661 $9,435 $23,398 $31,191 $37,559 $45,808
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------
(unaudited0
<CAPTION>
CLASS C
------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ JUNE 30,
1995 1996 1997 1998
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ........... $10.95 $12.36 $12.06 $12.40
------ ------ ------ ------
Income From Investment Operations
Net Investment Income .............................. 0.56 0.75 0.74 0.36
Net Realized and Unrealized Gain (Loss) on
Investments ...................................... 1.40 (0.30) 0.45 0.12
------ ------ ------ ------
Total From Investment Operations ................... 1.96 0.45 1.19 0.48
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income ............... (0.55) (0.75) (0.72) (0.36)
Distributions in excess of Net Investment Income ... 0.00 0.00 (0.01) 0.00
Distributions from Net Realized Capital Gains ...... 0.00 0.00 (0.12) 0.00
------ ------ ------ ------
Total Distributions ................................ (0.55) (0.75) (0.85) (0.36)
------ ------ ------ ------
Net Asset Value, End of the Period ................. $12.36 $12.06 $12.40 $12.52
====== ====== ====== ======
Total Return (%) (b) ............................... 18.1 3.9 10.2 3.9
Ratio of Operating Expenses to Average Net Assets(%) 1.89 1.80 1.80 1.77(a)
Ratio of Net Investment Income to Average Net
Assets (%) ....................................... 6.06 6.25 5.98 5.85(a)
Portfolio Turnover Rate (%) ........................ 81 104 54 79(a)
Net Assets, End of the Period (000) .............. $1,009 $2,391 $5,276 $6,880
(a) Computed on an annualized basis.
(b) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS Y
--------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------- JUNE 30,
1995 1996 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ........... $10.95 $12.40 $12.06 $12.41
------ ------ ------ ------
Income From Investment Operations
Net Investment Income .............................. 0.80 0.87 0.86 0.50
Net Realized and Unrealized Gain (Loss) on
Investments ...................................... 1.44 (0.34) 0.46 0.04
------ ------ ------ ------
Total From Investment Operations ................... 2.24 0.53 1.32 0.54
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income ............... (0.79) (0.87) (0.84) (0.42)
Distributions in excess of Net Investment Income ... 0.00 0.00 (0.01) 0.00
Distributions from Net Realized Capital Gains ...... 0.00 0.00 (0.12) 0.00
------ ------ ------ ------
Total Distributions ................................ (0.79) (0.87) (0.97) (0.42)
------ ------ ------ ------
Net Asset Value, End of the Period ................. $12.40 $12.06 $12.41 $12.53
====== ====== ====== ======
Total Return (%) (a) ............................... 21.0 4.6 11.4 4.4
Ratio of Operating Expenses to Average Net Assets(%) 0.89 0.80 0.80 0.77(b)
Ratio of Net Investment Income to Average Net
Assets (%) ....................................... 7.06 7.25 6.98 6.85(b)
Portfolio Turnover Rate (%) ........................ 81 104 54 79(b)
Net Assets, End of the Period (000) .............. $2,241 $1,844 $4,153 $6,524
(a) Periods less than one year are not annualized.
(b) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
(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 Fund seeks a high level of current income consistent with what
the Fund considers reasonable risk. The Fund invests primarily in corporate
and U.S. Government bonds. The Declaration of Trust permits the Trustees to
issue an unlimited number of shares of the Trust in multiple series (each such
series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front end sales charge of 4.50%. 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 sales
charges and do not convert to any class of shares, but they do pay a higher
ongoing distribution fee than Class A shares and are subject to a contingent
deferred sales charge if those shares are redeemed within one year. Class Y
shares do not pay a front end sales charge, a contingent deferred sales charge
or service and distribution fees. They are intended for institutional
investors with a minimum of $1,000,000 to invest. Expenses of the Fund are
borne pro-rata by the holders of all classes 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. Debt securities (other than short-term obligations
with a remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates value. All other securities and assets are valued at their fair
value as determined in good faith by the Fund's adviser and subadviser under
the supervision of the Fund's trustees.
B. 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 six months. 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 six months, 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 from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities, resulting from changes in the exchange
rate.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Interest income is recorded on the accrual basis. Interest income is increased
by the accretion of discount. Interest income is decreased by the amortization
of acquisition premium on original issue discount securities. In determining
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily
to shareholders of record at the time and are paid monthly. 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 mortgage backed securities and foreign currency
transactions for book and tax purposes. Permanent book and tax basis
differences will result in reclassifications to capital accounts.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to
100% of the repurchase price including interest. The Fund's subadviser is
responsible for determining that the value of the collateral is at all times
at least equal to the repurchase price. Repurchase agreements could involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to dispose
of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1998
purchases and sales of securities (excluding short-term investments) were as
follows:
PURCHASES SALES
---------------------------------- ---------------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
--------------- ------------ --------------- -----------
$10,612,617 $108,215,730 $9,284,375 $86,582,428
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management L.P.
("NEFM") at the annual rate of 0.50% of the first $100 million of the Fund's
average daily net assets and 0.375% of such assets in excess of $100 million.
NEFM pays the Fund's investment subadviser Back Bay Advisors, L.P. ("Back
Bay"), at the rate of 0.25% of the first $100 million of the Fund's average
daily net assets and 0.1875% of such assets in excess of $100 million. Certain
officers and directors of NEFM are also officers or trustees of the Fund. NEFM
and Back Bay are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest")
which is a subsidiary of Metropolitan Life Insurance Company ("MetLife"). Fees
earned by NEFM and Back Bay under the management agreement in effect during
the six months ended June 30, 1998 are as follows:
FEES EARNED
-----------
$263,874 NEFM
263,874 Back Bay
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of Nvest
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 and financial reporting
functions and clerical functions relating to the Fund and (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, registration of shares in various states,
shareholder reports and notices, proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the six months ended June 30, 1998,
these expenses amounted to $24,727 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Service Corporation ("NEFSCO") is
the transfer and shareholder servicing agent for the Fund. For the six months
ended June 30, 1998, the Fund paid NEFSCO $175,587 as compensation for its
services in that capacity. For the six months ended June 30, 1998, the Fund
received $2,602 in transfer agent credits. The transfer agent expense in the
Statement of Operations is net of these credits.
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 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1998, the Fund paid New England Funds $245,405 in fees
under the Class A Plan. If the expenses of New England Funds that are
otherwise reimbursable under the Class A Plan incurred in any year exceed the
amounts payable by the Fund under the Class A Plan, the unreimbursed amount
(together with unreimbursed amounts from prior years) may be carried forward
for reimbursement in future years in which the Class A Plan remains in effect.
The amount of unreimbursed expenses carried forward into 1998 is $1,919,349.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of 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, 1998, the Fund paid New England Funds $51,111 and $7,649 in
service fees under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds
monthly distribution fees at the annual rate of 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, 1998, the Fund paid New England Funds
$153,333 and $22,948 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, 1998 amounted to $326,557.
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, NEFSCO, Nvest or their affiliates, other than
registered investment companies. Each other trustee is compensated by the Fund
as follows:
Annual Retainer $1,349
Meeting Fee 159 /meeting
Annual Committee Member Retainer 202
Annual Committee Chairman Retainer 135
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CAPITAL SHARES. At June 30, 1998 there was an unlimited number of shares
of beneficial interest authorized, divided into four classes, Class A, Class
B, Class C and Class Y capital stock. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,332,657 $28,440,914 1,747,590 $21,826,582
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ........................... 900,965 10,963,713 434,574 5,426,390
Distributions from net realized
gain ............................. 131,331 1,609,440 0 0
---------- ----------- ---------- -----------
3,364,953 41,014,067 2,182,164 27,252,972
Shares repurchased ................... (3,497,094) (42,511,441) (1,728,951) (21,593,373)
---------- ----------- ---------- -----------
Net increase (decrease) .............. (132,141) $(1,497,374) 453,213 $ 5,659,599
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold ......................... 890,923 $10,851,138 848,125 $10,583,581
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ........................... 132,403 1,611,822 77,927 972,743
Distributions from net realized
gain ............................. 23,328 285,958 0 0
---------- ----------- ---------- -----------
1,046,654 12,748,918 926,052 11,556,324
Shares repurchased ................... (605,028) (7,342,999) (295,083) (3,683,591)
---------- ----------- ---------- -----------
Net increase ......................... 441,626 $ 5,405,919 630,969 $ 7,872,733
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 294,007 $ 3,619,803 179,339 $ 2,241,993
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ........................... 13,081 159,728 12,709 158,840
Distributions from net realized
gain ............................. 2,379 29,250 0 0
---------- ----------- ---------- -----------
309,467 3,808,781 192,048 2,400,833
Shares repurchased ................... (82,474) (1,004,400) (67,925) (851,301)
---------- ----------- ---------- -----------
Net increase ......................... 226,993 $ 2,804,381 124,123 $ 1,549,532
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------- ----------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 242,611 $ 2,971,096 230,414 $ 2,882,739
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income ........................... 14,616 178,564 12,224 152,930
Distributions from net realized
gain ............................. 2,490 30,601 0 0
---------- ----------- ---------- -----------
259,717 3,180,261 242,638 3,035,669
Shares repurchased ................... (78,019) (934,894) (56,541) (704,515)
---------- ----------- ---------- -----------
Net increase ......................... 181,698 $ 2,245,367 186,097 $ 2,331,154
---------- ----------- ---------- -----------
Increase derived from capital shares
transactions ....................... 718,176 $ 8,958,293 1,394,402 $17,413,018
========== =========== ========== ===========
</TABLE>
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by
the Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the potfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration is a means to directly compare the volatility of different
instruments. As a general rule, for every 1% move in interest rates, a bond is
expected to fluctuate in value as indicated by its duration. For example, if
interest rates fall by 1%, a bond with a duration of 4 years should rise in
value 4%. Conversely, the bond should decline 4% if interest rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges.
<PAGE>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
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REGULAR INVESTING PAYS
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FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
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THE POWER OF MONTHLY INVESTING
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[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
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NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income 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
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT WWW.MUTUALFUNDS.COM
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains information about
distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you
of the availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
<PAGE>
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NEW ENGLAND FUNDS(R) U.S. Postage
Where The Best Minds Meet(R) Paid
Brockton, MA
Permit No. 770
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399 Boylston Street
Boston, Massachusetts
02116
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1995 o 1996 o 1997
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