<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 Balanced Fund
[Graphic Omitted]
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JUNE 30, 1998
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<PAGE>
August 1998
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- ------------------------------
[Photo of Henry L.P. Schmelzer
- ------------------------------
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 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 LAST YEAR WE HAVE DEVOTED SIGNIFICANT RESOURCES TO
IDENTIFYING, ANALYZING AND RESOLVING COMPUTER ISSUES RELATED TO YEAR 2000. AS A
FURTHER MEASURE, WE HAVE FOCUSED ON YEAR-END 1998 AS A TARGET FOR PREPAREDNESS
BY VENDOR AND SERVICE AGENCY SYSTEMS THAT WE RELY ON FOR SUPPORT. WE EXPECT
MAJOR SYSTEMS TO BE READY BEFORE THE END OF THE YEAR, WITH A YEAR OF QUALITY
ASSURANCE TO FOLLOW.
<PAGE>
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NEW ENGLAND BALANCED 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.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here illustrating the growth of a
$10,000 investment in New England Balanced Fund Class A Shares since 6/30/88,
compared to a blend of the S&P 500 and Lehman Intermediate Government/Corporate
Indices. The data points to this chart are as follows:]
JUNE 1988 THROUGH JUNE 1998
WITH S&P/
NET MAXIMUM LEHMAN
ASSET SALES INTERM.
VALUE(1) CHARGE(2) GOV'T/CORP.(4)
- -------------------------------------------------------------------------------
6/30/88 $10,000 $ 9,425 $10,000
6/89 $11,056 $10,420 $11,692
6/90 $11,052 $10,416 $13,258
6/91 $11,673 $11,001 $14,383
6/92 $13,487 $12,711 $16,305
6/93 $15,623 $14,725 $18,341
6/94 $16,193 $15,262 $18,535
6/95 $18,985 $17,893 $22,339
6/96 ` $21,500 $20,264 $26,495
6/97 $26,411 $24,921 $33,129
6/98 $30,135 $28,402 $40,599
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 and Class C share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
<PAGE>
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NEW ENGLAND BALANCED FUND
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<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
- -----------------------------------------------------------------------------------------------
CLASS A (Inception 11/27/68) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Net Asset Value(1) 6.10% 13.97% 14.04% 11.66%
With Max. Sales Charge(2) 0.00 7.42 12.69 11.01
S&P/Lehman Intermediate G/C Blend(4) 12.70 22.55 17.11 14.92
Lipper Balanced Average(5) 8.95 17.58 13.91 12.80
- -----------------------------------------------------------------------------------------------
<CAPTION>
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 3 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1) 5.62% 13.02% 15.77% 12.92%
With CDSC(3) 0.62 8.07 15.01 12.66
S&P/Lehman Intermediate G/C Blend(4) 12.70 22.55 22.03 17.32
(Lehman calculated from 9/30/93)
Lipper Balanced Average(5) 8.95 17.58 17.77 13.92
(calculated from 9/30/93)
- -----------------------------------------------------------------------------------------------
<CAPTION>
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR 3 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1) 5.64% 13.06% 15.71% 18.15%
With CDSC(3) 4.64 12.07 15.71 18.15
S&P/Lehman Intermediate G/C Blend(4) 12.70 22.55 22.03 24.10
Lipper Balanced Average(5) 8.95 17.58 17.77 19.57
- -----------------------------------------------------------------------------------------------
<CAPTION>
CLASS Y (Inception 3/8/94) 6 MONTHS 1 YEAR 3 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1) 6.23% 14.34% 17.15% 14.90%
S&P/Lehman Intermediate G/C Blend(4) 12.70 22.55 22.03 19.27
(Lehman calculated from 3/31/94)
Lipper Balanced Average(5) 8.95 17.58 17.77 16.13
(calculated from 3/31/94)
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTES TO CHARTS
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares. CDSC for Class C shares assumes a maximum 1% sales
charge on redemptions within the first year of purchase.
(4) Represented by a 65% weighting in the S&P 500 and a 35% weighting in the
Lehman Intermediate Government/Corporate Bond Index. Indices are rebalanced
to 65%/35% at the end of each year. Lehman Intermediate
Government/Corporate Bond Index is an unmanaged index of investment grade
bonds, issued by the U.S. government and U.S. corporations, having
maturities between one and ten years. The indices' performance have not
been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
(5) Lipper Balanced 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.
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. The Fund was changed from an equity income fund to a balanced
fund on March 1, 1990. Results for periods prior to that date reflect former
investment policies and are not necessarily representative of results that would
have been achieved had the Fund's current investment policies then been in
effect.
<PAGE>
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NEW ENGLAND BALANCED FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
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[Photos of Meri Anne Beck, John Hyll, Barr Segal]
Meri Anne Beck,
John Hyll, Barr Segal
Loomis, Sayles & Company, L.P.
Note to shareholders: The following is a discussion with the entire New England
Balanced Fund portfolio management team, including equity-side managers Carol
McMurtrie and Tricia Mills. While we were producing this report Loomis, Sayles &
Company, L.P., the Fund's subadviser, announced a change in management for the
equity segment of this Fund, which became effective in August 1998. The new
portfolio managers and their backgrounds are detailed in a supplement to the
Fund's prospectus dated August 17, 1998. We have included a copy of this
supplement in this report.
Q. Please tell us about New England Balanced Fund's performance during the first
half of 1998.
For the six months ending June 30, 1998, New England Balanced Fund's Class A
shares had a total return of 6.10%. Both the stock and bond portions of the
portfolio contributed to the Fund's return, which included a $0.71 per share
gain in net asset value to $14.96 per share and the reinvestment of $0.16 per
share in dividend distributions.
Q. What was the environment, and how did you respond?
As if in defiance of forecasts to the contrary, euphoric U.S. stock markets
achieved sizable gains in the first quarter of 1998, with the Standard & Poor's
500 Stock Index adding 13% to its stunning increases of the last three years. In
part, this strength grew out of the view that the deep economic crises that had
roiled Asian markets in the last months of 1997 would soon end. But early in the
second quarter, many companies whose fortunes are tied to Asia began to warn
investors of profit shortfalls. For some, the reason was weak sales in depressed
Asian markets; for others it was a matter of falling prices on competing
imported goods. Most stocks fell after these announcements (notably technology
issues), abruptly erasing investors' enthusiasm earlier in 1998. This
combination of weak export conditions and pricing pressures on U.S. companies
began to raise questions about sustained domestic growth.
Q. Given this environment, what was your equity strategy during the period?
We emphasized sectors that we think can do well even if the economy slows and
those where earnings disappointments seem unlikely. With unemployment low and
more disposable income in their hands, consumers are likely to spend more,
heightening the appeal of consumer-related stocks. This sector is currently one
of the economy's strongest, and the stocks appear to offer good value; we also
think this area will be fairly resilient in the event of an economic downturn.
Areas of particular focus included specialty retail and auto-related companies.
We reduced exposure to capital goods stocks, which would be among the first
groups to feel the impact of slowing global growth. However, the Fund's position
in basic materials, predominantly specialty chemicals, is overweighted relative
to the S&P 500(R). We favored niche producers and other special situations where
fundamentals are strong and earnings prospects appear solid, even in a slower
economy.
YOUR FUND'S ASSET MIX -- 6/30/98
COMMON STOCKS 59%
BONDS 39%
CASH & CASH EQUIVALENTS 2%
Portfolio holdings and asset allocation will vary.
Holdings in two financial sectors were cut back: money center banks with
exposure to Southeast Asia and property/casualty insurance companies, where
intense rate competition is limiting revenue growth.
The portion of the Fund devoted to stocks was 59.5% at the end of the period,
matching the year-end level and slightly lower than the 62.3% reading at the end
of the first quarter.
Q. What were the principal factors affecting equity performance?
The Fund benefited from a heavy position in consumer cyclical stocks and in its
HMO holdings. We also added value by avoiding energy and electric utility
stocks, two underperforming sectors.
Among individual securities, prospects for Warnaco's newly acquired Calvin Klein
products boosted its stock, while the stocks of Sensormatic and Wallace Computer
Services were hurt by earnings disappointments.
YOUR FUND'S FIVE LARGEST INDUSTRIES -- 6/30/98
% OF
NET ASSETS
---------------------------------------------------
1. U.S. GOVERNMENT AND AGENCIES 13.9
---------------------------------------------------
2. CHEMICALS 6.6
---------------------------------------------------
3. OIL AND GAS 6.2
---------------------------------------------------
4. INDUSTRIALS 6.1
---------------------------------------------------
5. TELEPHONE 5.6
Portfolio holdings and asset allocations will vary.
Q. What was the fixed-income environment and how did you respond?
Since last summer, dark economic clouds over the Far East and Russia managed to
brighten bond markets in the United States. Worried investors withdrew from
these unstable economies and fled to the quality they saw in the United States
- -- especially U.S. Treasury obligations. Early in the year, the belief that
conditions in Asia were improving suggested that stronger U.S. export activity
and inflationary pressure might lead the Federal Reserve Board to raise interest
rates. Domestic interest rates did move higher for a time and bond prices fell.
Later, as it became clear that Asia's problems were far from over, bond prices
rallied and yields fell, driving the yield on the 30-year Treasury bond to a
historic low of 5.57% on June 15
We kept the duration of the Fund's bond portfolio -- a measure of price
sensitivity to interest rate changes -- somewhat longer than that of the Lehman
Brothers Intermediate Government/Corporate Index. This mildly optimistic stance,
which reflects our expectation of a slow recovery in Asia, aided performance as
did our overweighting in corporate bonds and underweighting in mortgage-backed
securities.
The Fund benefited from the purchase of Digital Equipment bonds as a result of
the Compaq merger and of Avalon Securities, a real estate investment trust,
which we sold at a profit. A notable disappointment was SKF, a ball bearings
manufacturer whose sales suffered in Asia.
Q. What is your outlook for the rest of 1998?
Continued turmoil in Asia means cheaper imported goods here, a deflationary
factor that we think will keep U.S. prices in check and earnings under pressure.
OPEC's decision to cut production and raise oil prices poses only a small risk
of igniting inflation, in our view.
The near-term outlook is positive for the bond markets. The federal government,
its budget now in surplus, is issuing fewer securities, reducing the supply of
these sought-after issues. In addition, the Federal Reserve Board seems
determined to prevent Asia's crisis from becoming ours, and is thus unlikely to
raise interest rates to avoid stalling economic growth. Indeed, the next change
could well be a cut in rates.
While we think demand for equities may flatten, the strength of our economy and
currency should continue to attract investors. As always, we will rely on Loomis
Sayles' extensive research capabilities to help us find securities that meet our
standards for attractive value and growth potential, and allow industry
weightings to emerge from these selections.
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 CHARGES.
<PAGE>
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PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of June 30, 1998
(unaudited)
COMMON STOCK--58.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
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AEROSPACE & DEFENSE--2.0%
41,800 Northrop Grumman Corp. ....................... $ 4,310,625
70,100 Sundstrand Corp. ............................. 4,013,225
------------
8,323,850
------------
APPAREL & TEXTILES--1.6%
150,100 Warnaco Group ................................ 6,369,869
------------
AUTO & RELATED--0.6%
33,500 Magna International, Inc. .................... 2,298,938
------------
BANKS--4.4%
53,000 BankAmerica Corp. ............................ 4,581,188
169,800 Charter One Financial, Inc. .................. 5,720,137
33,800 Fleet Financial Group, Inc. .................. 2,822,300
126,400 Norwest Corp. ................................ 4,724,200
------------
17,847,825
------------
BUILDING & RELATED--3.8%
46,500 Armstrong World Industries, Inc. ............. 3,132,937
180,000 Leggett & Platt, Inc. ........................ 4,500,000
93,800 Masco Corp. .................................. 5,674,900
27,400 Philips Electronics NV (ADR) ................. 2,329,000
------------
15,636,837
------------
CHEMICALS--6.6%
207,600 Crompton & Knowles Corp. ..................... 5,228,925
48,200 El duPont deNemours .......................... 3,596,925
112,700 IMC Global, Inc., Rights (c) ................. 3,395,088
67,200 PPG Industries, Inc. ......................... 4,674,600
182,800 Solutia, Inc. (c) ............................ 5,244,075
289,400 W.R. Grace & Co. (c) ......................... 4,937,887
------------
27,077,500
------------
COMPUTERS & BUSINESS EQUIPMENT--2.9%
83,500 Gateway 2000, Inc. (c) ....................... 4,227,187
51,100 International Business Machines .............. 5,866,919
45,800 Sun Microsystems, Inc. (c) ................... 1,989,438
------------
12,083,544
------------
CONSUMER-JEWELRY/NOVELTY/GIFTS--1.6%
130,900 American Greetings Corp. ..................... 6,667,719
------------
ELECTRIC COMPANIES--1.5%
107,100 CMS Energy Corp. ............................. 4,712,400
33,400 Energy East Corp. ............................ 1,390,275
------------
6,102,675
------------
ELECTRONICS--1.3%
88,700 Raytheon Co., Class B ........................ $ 5,244,388
2,800 W.W. Grainger, Inc. .......................... 139,475
------------
5,383,863
------------
FINANCIAL SERVICES--3.1%
97,600 Corrections Corporation America .............. 2,293,600
114,400 Federal Home Loan Mortgage Corp. ............. 5,383,950
84,000 Federal National Mortgage Association ........ 5,103,000
------------
12,780,550
------------
FREIGHT TRANSPORTATION--2.2%
171,700 Canadian Pacific, Ltd. ....................... 4,871,987
65,100 Federal Express Corp. (c) .................... 4,085,025
------------
8,957,012
------------
HEALTH CARE -- SERVICES--3.8%
176,900 Columbia/HCA Healthcare ...................... 5,152,212
197,200 Humana, Inc. (c) ............................. 6,150,175
54,800 Wellpoint Health Networks, Inc. (c) .......... 4,055,200
------------
15,357,587
------------
INSURANCE--3.6%
160,200 ACE, Ltd. .................................... 6,247,800
51,600 Allstate Corp. ............................... 4,724,625
63,100 Everest Reinsurance Holdings ................. 2,425,406
57,500 TIG Holdings, Inc. ........................... 1,322,500
------------
14,720,331
------------
LEISURE--1.6%
166,800 Hasbro, Inc. ................................. 6,557,325
------------
MACHINERY--1.9%
51,000 Case Corp. ................................... 2,460,750
58,800 Deere & Co. .................................. 3,109,050
66,000 Dover Corp. .................................. 2,260,500
------------
7,830,300
------------
MANUFACTURING -- DIVERSIFIED--1.1%
105,500 Allied Signal, Inc. .......................... 4,681,563
------------
OIL & GAS--1.1%
155,300 Tosco Corp. .................................. 4,561,938
------------
OIL & GAS/EXPLORATION & PRODUCTION--0.4%
94,640 Ocean Energy, Inc. ........................... 1,851,395
------------
OIL & GAS/MAJOR INTEGRATED--1.7%
31,000 British Petroleum PLC (ADR) .................. $ 2,735,750
75,800 Royal Dutch Petroleum Co. .................... 4,154,787
------------
6,890,537
------------
RETAIL -- FOOD & DRUG--1.5%
139,800 Kroger Co. (c) ............................... 5,993,925
------------
RETAIL -- SPECIALTY--2.4%
109,200 Autozone, Inc. (c) ........................... 3,487,575
194,800 Office Depot, Inc. ........................... 6,148,375
------------
9,635,950
------------
TELEPHONE--5.6%
123,200 Ameritech Corp. .............................. 5,528,600
108,800 Bell Atlantic Corp. .......................... 4,964,000
92,400 BellSouth Corp. .............................. 6,202,350
154,100 SBC Communications, Inc. ..................... 6,164,000
------------
22,858,950
------------
TOBACCO--1.1%
163,400 UST, Inc. .................................... 4,411,800
------------
WASTE MANAGEMENT--1.3%
108,000 USA Waste Services, Inc. ..................... 5,332,500
------------
Total Common Stock
(Identified Cost $178,121,528) .............. 240,214,283
------------
BONDS AND NOTES--38.9%
FACE
AMOUNT
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AIRLINES--0.9%
$ 600,000 Delta Air Lines, Inc., 9.200%,
9/23/14 ..................................... 720,570
3,000,000 Northwest Airlines Corp., 8.375%, 3/15/04 ..... 3,093,480
------------
3,814,050
------------
BANKS--0.9%
3,430,000 Mellon Bank, 7.000%, 3/15/06 ................. 3,577,490
------------
ENERGY--0.8%
2,960,000 Tosco Corp., 7.625%, 5/15/06 ................. 3,168,769
------------
FINANCE--0.7%
2,425,000 Secured Finance, 9.050%, 12/15/04 ............ 2,787,343
------------
HEALTH CARE--0.5%
1,775,000 National Health Investors, Inc., 7.300%,
7/16/07 .................................... 1,874,489
------------
INDUSTRIALS--6.5%
2,505,000 Amerco, 7.850%, 5/15/03 ...................... 2,603,472
4,790,000 Coca Cola Enterprises Inc., 6.750%, 1/15/38 .. 4,831,002
3,300,000 Federal Express Equipment Test, 7.020%,
1/15/22 .................................... 3,300,000
3,390,000 Loewen Group International, Inc., 7.750%,
10/15/01 ................................... 3,531,905
1,790,000 Philips Electronics NV, 7.250%, 8/15/13 ...... 1,900,676
1,780,000 Raytheon Co., 6.300%, 3/15/05 ................ 1,787,921
4,765,000 SKF, 7.125%, 7/01/07 ......................... 5,058,715
2,500,000 Textron, Inc., 6.625%, 11/15/07 .............. 2,571,325
1,200,000 Williams Holdings Co., 6.250%, 2/01/06 ....... 1,208,244
------------
26,793,260
------------
LEISURE & LODGING--3.2%
2,125,000 Carnival Corp., 7.050%, 5/15/05 .............. 2,218,712
3,000,000 La Quinta Inns, Inc., 7.400%, 9/15/05 ........ 3,078,750
3,295,000 MGM Grand Inc., 6.875%, 2/06/08 .............. 3,144,847
2,000,000 Royal Caribbean Cruises Line, 8.125%, 7/28/04 2,137,240
2,570,000 Royal Caribbean Cruises Line, 7.000%, 10/15/07 2,631,834
------------
13,211,383
------------
MORTGAGE--4.1%
6,050,797 Federal Home Loan Mortgage Corp., 6.000%,
12/01/27 ................................... 5,899,527
101,192 Federal National Mortgage Association, 7.500%,
6/01/15 .................................... 104,629
3,000,000 Federal National Mortgage Association, 6.000%,
2/25/24 .................................... 2,899,470
8,306,164 Federal National Mortgage Association, 6.000%,
4/01/28 .................................... 8,085,469
------------
16,989,095
------------
MORTGAGE BACKED--0.9%
3,868,058 Federal Home Loan Mortgage Association,
6.000%, 8/15/22 ............................ 3,702,427
------------
OIL & GAS--2.2%
4,190,000 Kerr-Mcgee Corp., 6.625%, 10/15/07 ........... 4,316,706
4,445,000 KN Energy, Inc., 6.650%, 3/01/05 ............. 4,527,988
------------
8,844,694
------------
PAPER--0.1%
500,000 Westvaco Corp., 9.650%, 3/01/02 .............. 557,350
------------
RAILROADS & EQUIPMENT--0.6%
2,350,000 Norfolk Southern Corp., 7.050%, 5/01/37 ...... 2,518,189
------------
SECURITIES--2.2%
3,050,000 Bear Stearns Cos., Inc., 6.750%, 12/15/07 .... 3,125,427
1,500,000 Donaldson Lufkin & Jenrette, Inc., 6.875%
11/01/05 ................................... 1,538,730
4,025,000 Salomon, Inc., 7.000%, 3/15/04 ............... 4,179,922
------------
8,844,079
------------
TELECOMMUNICATION--1.4%
4,600,000 Sprint Spectrum, L.P., Zero Coupon, 8/15/06 .. 3,933,000
1,660,000 U.S. West Capital Funding Inc., 6.250%,
7/15/05 ..................................... 1,656,381
------------
5,589,381
------------
U.S. GOVERNMENT AND AGENCIES--13.9%
2,575,000 Federal Home Loan Bank, 5.301%, 11/23/98 (d) . 2,566,580
3,265,000 United States Treasury Bonds, 6.500%, 11/15/26 3,625,685
3,520,000 United States Treasury Bonds, 6.625%, 2/15/27 3,974,854
5,020,000 United States Treasury Notes, 6.500%, 5/15/05 5,298,459
9,235,000 United States Treasury Notes, 6.500%, 8/15/05 9,745,788
17,150,000 United States Treasury Notes, 7.000%, 7/15/06 18,728,315
12,430,000 United States Treasury Notes, 6.125%, 8/15/07 12,935,155
------------
56,874,836
------------
Total Bonds and Notes
(Identified Cost $153,968,612) ............. 159,146,835
------------
SHORT TERM INVESTMENTS--2.0%
- -------------------------------------------------------------------------------
$ 8,012,000 Associates Corp of North America, 5.950%,
7/01/98 ................................... 8,012,000
------------
Total Short Term Investments
(Identified Cost $8,012,000)................ 8,012,000
------------
Total Investments--99.6%
(Identified Cost $340,102,140)(b) .......... 407,373,118
Other assets less liabilities ................ 1,660,760
------------
Total Net Assets--100% ....................... $409,033,878
============
(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
$340,102,140 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......... $ 73,587,660
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value......... (6,316,682)
------------
Net unrealized appreciation................................ $ 67,270,978
============
(c) Non-income producing security.
(d) Floating rate notes are instruments whose interest rates vary with
changes in a designated base rate on a specific date. These notes
reset quarterly based upon a specific index.
ADR/GDR -- An American Depository Receipt or Global Depository Receipt is a
certificate issued by a Custodian Bank representing the right to receive
securities of the foreign issuer described. The values of ADRs and GDRs are
significantly influenced by trading on exchanges not located in the United
States.
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $340,102,140) ...... $407,373,118
Cash ..................................................... 152
Receivable for:
Fund shares sold ....................................... 1,636,390
Securities sold ........................................ 6,032,095
Dividends and interest ................................. 2,910,073
Prepaid registration expense ............................. 9,000
------------
417,960,828
LIABILITIES
Payable for:
Securities purchased ................................... $7,528,424
Fund shares redeemed ................................... 1,000,843
Withholding taxes ...................................... 6,904
Accrued expenses:
Management fees ........................................ 243,012
Deferred trustees' fees ................................ 66,164
Accounting and administrative .......................... 7,038
Other expenses ......................................... 74,565
----------
8,926,950
------------
NET ASSETS ................................................. $409,033,878
============
Net Assets consist of:
Capital paid in ........................................ $320,387,978
Undistributed net investment income .................... 113,385
Accumulated net realized gains ......................... 21,261,561
Unrealized appreciation on investments ................. 67,270,954
------------
NET ASSETS ................................................. $409,033,878
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($237,195,642 divided by 15,858,980 shares of beneficial
interest) .............................................. $14.96
======
Offering price per share (100/94.25 of $14.96) ............. $15.87*
======
Net asset value and offering price of Class B shares
($83,712,113 divided by 5,639,164 shares of beneficial
interest) .............................................. $14.84**
======
Net asset value and offering price of Class C shares
($5,439,092 divided by 367,693 shares of beneficial
interest) .............................................. $14.79**
======
Net asset value, offering and redemption price of Class Y
shares ($82,687,031 divided by 5,521,865 shares of
beneficial interest) ..................................... $14.97
======
* 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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................ $ 1,709,688(a)
Interest ................................................. 5,469,195
-----------
7,178,883
Expenses
Management fees ........................................ $1,481,154
Service fees - Class A ................................. 296,676
Service and distribution fees - Class B ................ 404,633
Service and distribution fees - Class C ................ 27,878
Trustees' fees and expenses ............................ 12,402
Accounting and administrative .......................... 35,892
Custodian .............................................. 61,664
Transfer agent ......................................... 344,089
Audit and tax services ................................. 17,745
Legal .................................................. 7,566
Printing ............................................... 34,380
Registration ........................................... 34,349
Miscellaneous .......................................... 13,089
----------
Total expenses ........................................... 2,771,517
-----------
Net investment income .................................... 4,407,366
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ....................... 16,336,802
Unrealized appreciation on Investments - net ............. 3,166,183
-----------
Net gain on investment transactions ...................... 19,502,985
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............. $23,910,351
===========
(a) Net of foreign taxes of: $19,663.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ................................... $ 8,610,744 $ 4,407,366
Net realized gain on investments ........................ 44,522,520 16,336,802
Unrealized appreciation on investments .................. 9,443,755 3,166,183
------------ ------------
Increase in net assets from operations .................. 62,577,019 23,910,351
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (5,058,699) (2,555,602)
Class B ............................................... (1,076,687) (589,205)
Class C ............................................... (59,400) (42,229)
Class Y ............................................... (2,402,391) (1,068,563)
Net realized gain on investments
Class A ............................................... (26,172,311) 0
Class B ............................................... (8,351,315) 0
Class C ............................................... (483,496) 0
Class Y ............................................... (11,201,373) 0
------------ ------------
(54,805,672) (4,255,599)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS 34,227,005 (10,815,084)
------------ ------------
Total increase in net assets .......................... 41,998,352 8,839,668
NET ASSETS
Beginning of the period ................................. 358,195,858 400,194,210
------------ ------------
End of the period ....................................... $400,194,210 $409,033,878
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
End of the period ....................................... $ (38,382) $ 113,385
=========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
------------------------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period .......... $11.16 $12.13 $11.27 $13.14 $13.94 $14.25
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income .... 0.31 0.33 0.42 0.38 0.33 0.17
Net Realized and
Unrealized Gain (Loss)
on Investments ......... 1.26 (0.65) 2.49 1.76 2.05 0.70
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............. 1.57 (0.32) 2.91 2.14 2.38 0.87
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ........ (0.31) (0.33) (0.40) (0.39) (0.33) (0.16)
Distributions From Net
Realized Capital Gains . (0.29) (0.21) (0.64) (0.95) (1.74) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ...... (0.60) (0.54) (1.04) (1.34) (2.07) (0.16)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
the Period ............. $12.13 $11.27 $13.14 $13.94 $14.25 $14.96
====== ====== ====== ====== ====== ======
Total Return (%) (a) ..... 14.2 (2.7) 26.3 17.1 17.5 6.1
Ratio of Operating
Expenses to Average Net
Assets (%) ............. 1.40 1.40 1.36 1.33 1.29 1.28(b)
Ratio of Net Investment
Income to Average Net
Assets (%) ............. 2.66 2.91 3.37 2.79 2.25 2.22(b)
Portfolio Turnover Rate(%) 50 36 54 70 69 77(b)
Net Assets, End of the
Period (000) ........... $158,308 $158,332 $196,514 $219,626 $233,421 $237,196
(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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<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 .......... $12.16 $12.11 $11.24 $13.08 $13.86 $14.15
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .... 0.16 0.26 0.34 0.29 0.23 0.11
Net Realized and
Unrealized Gain (Loss)
on Investments ......... 0.24 (0.66) 2.46 1.74 2.03 0.69
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............. 0.40 (0.40) 2.80 2.03 2.26 0.80
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ...... (0.16) (0.26) (0.32) (0.30) (0.23) (0.11)
Distributions From Net
Realized Capital Gains.. (0.29) (0.21) (0.64) (0.95) (1.74) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ...... (0.45) (0.47) (0.96) (1.25) (1.97) (0.11)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
the Period ............. $12.11 $11.24 $13.08 $13.86 $14.15 $14.84
====== ====== ====== ====== ====== ======
Total Return (%) (c) ..... 3.3 (3.4) 25.3 16.3 16.7 5.6
Ratio of Operating
Expenses to Average Net
Assets (%) ............. 2.36 (b) 2.15 2.11 2.08 2.04 2.03(b)
Ratio of Net Investment
Income to Average Net
Assets (%) ............. 1.92 (b) 2.16 2.62 2.04 1.50 1.47(b)
Portfolio Turnover Rate
(%) .................... 50 36 54 70 69 77(b)
Net Assets, End of the
Period (000) ........... $4,691 $21,607 $40,361 $58,367 $76,558 $83,712
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not reflected in total return calculations.
Periods less than one year are not annualized.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED
----------------------------------- JUNE 30,
1995 1996 1997 1998
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period ...... $11.24 $13.05 $13.82 $14.10
------ ------ ------ ------
Income From Investment Operations
Net Investment Income ......................... 0.35 0.29 0.23 0.11
Net Realized and Unrealized Gain on Investments 2.44 1.73 2.02 0.69
------ ------ ------ ------
Total From Investment Operations .............. 2.79 2.02 2.25 0.80
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .......... (0.34) (0.30) (0.23) (0.11)
Distributions From Net Realized Capital Gains . (0.64) (0.95) (1.74) 0.00
------ ------ ------ ------
Total Distributions ........................... (0.98) (1.25) (1.97) (0.11)
------ ------ ------ ------
Net Asset Value, End of the Period ............ $13.05 $13.82 $14.10 $14.79
====== ====== ====== ======
Total Return (%) (b) .......................... 25.2 16.2 16.6 5.6
Ratio of Operating Expenses to Average Net
Assets (%) .................................. 2.11 2.08 2.04 2.03(a)
Ratio of Net Investment Income to Average Net
Assets (%) .................................. 2.62 2.04 1.50 1.47(a)
Portfolio Turnover Rate (%) ................... 54 70 69 77(a)
Net Assets, End of the Period (000) ........... $718 $2,538 $4,596 $5,439
(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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------------------------------
MARCH 8(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, -------------------------------------- JUNE 30,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 12.20 $ 11.27 $ 13.15 $ 13.95 $ 14.27
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ................... 0.38 0.46 0.44 0.40 0.20
Net Realized and Unrealized Gain
(Loss) on Investments ................. (0.72) 2.51 1.76 2.06 0.69
---------- ---------- ---------- ---------- ----------
Total From Investment Operations ........ (0.34) 2.97 2.20 2.46 0.89
---------- ---------- ---------- ---------- ----------
Less Distributions Dividends
From Net Investment Income ............ (0.38) (0.45) (0.45) (0.40) (0.19)
Distributions From Net Realized
Capital Gains ......................... (0.21) (0.64) (0.95) (1.74) 0.00
---------- ---------- ---------- ---------- ----------
Total Distributions ..................... (0.59) (1.09) (1.40) (2.14) (0.19)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of the Period ...... $ 11.27 $ 13.15 $ 13.95 $ 14.27 $ 14.97
========== ========== ========== ========== ==========
Total Return (%)(c) ..................... (2.8) 26.8 17.6 18.1 6.2
Ratio of Operating Expenses to
Average Net Assets (%) ................ 0.99(b) 1.11 0.88 0.88 0.89(b)
Ratio of Net Investment Income
to Average Net Assets (%) ............. 3.69(b) 3.62 3.24 2.66 2.61(b)
Portfolio Turnover Rate (%) ............. 36 54 70 69 77(b)
Net Assets, End of the Period (000) ..... $ 39,183 $ 59,411 $ 77,665 $ 85,620 $ 82,687
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<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 reasonable long-term investment return from a combination of
long-term capital appreciation and moderate current income. 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 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 prior to
May 1, 1997). Class C shares do not pay a front end sales charge and do not
convert to any other class of shares, but they do pay a higher ongoing
distribution fee than Class A shares and may be 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 distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro rata by the holders of each class
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro-rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. 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 as 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. 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 and interest income is
recorded on the accrual basis. Interest income for the Fund is increased by the
accretion of discount. In determining net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
C. 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.
D. 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.
Permanent book and tax differences are primarily due to differing treatments for
mortgage backed securities, real estate limited partnership investments and
market discount transactions.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements including
interest. 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
- --------------------- ------------------ ------------------ ----------------
$52,305,244 $102,905,656 $34,751,984 $136,379,310
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 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Loomis Sayles & Company, L.P. ("Loomis Sayles") at the rate of 0.535% of the
first $200 million of the Fund's average daily net assets, 0.350% of the next
$300 million and 0.300% of such assets in excess of $500 million. Certain
officers and directors of NEFM are also officers or trustees of the Fund. NEFM
and Loomis Sayles 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 Loomis Sayles under the management
agreement in effect during the six months ended June 30, 1998 are as follows:
FEES EARNED
- -----------
$581,893 NEFM
899,261 Loomis Sayles
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 year six
months ended June 30, 1998 these expenses amounted to $35,892 and are shown
separately in the financial statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO")is the
transfer and shareholder servicing agent for the Fund. For the six months ended
June 30, 1998, the Fund paid NEFSCO $250,430 as compensation for its services in
that capacity. For the six months ended June 30, 1998, the Fund received $4,268
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
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, 1998, the Fund paid New England Funds $296,676 in fees under the Class
A Plan. If the expenses of New England Funds that are otherwise reimbursable
under the Class A Plan incurred in any year exceed the amounts payable by the
Fund under the Class A Plan, the unreimbursed amount (together with unreimbursed
amounts from prior years) may be carried forward for reimbursement in future
years in which the Class A Plan remains in effect. The amount of unreimbursed
expenses carried forward at December 31, 1997 is $2,041,399.
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 $101,158 and $6,970 in service fees
under the Class B and Class C plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of 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 $303,475
and $20,908 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 $421,312.
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, Nvest, NEFSCO or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:
Annual Retainer $2,295
Meeting Fee 159/meeting
Annual Committee Member Retainer 344
Annual Committee Chairman Retainer 229
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 ........................ 2,817,913 $ 40,996,836 2,279,836 $33,944,812
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 334,010 4,805,523 162,231 2,432,444
Distributions from net realized
gain ........................... 1,767,242 25,250,301 0 0
---------- ------------- ---------- ------------
4,919,165 71,052,660 2,442,067 36,377,256
Shares repurchased ................. (4,301,205) (62,553,540) (2,959,272) (44,047,572)
---------- ------------- ---------- ------------
Net increase (decrease) ............ 617,960 $ 8,499,120 (517,205) $(7,670,316)
---------- ------------- ---------- ------------
<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 ........................ 1,277,539 $ 18,483,400 664,193 $ 9,802,112
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 71,225 1,016,924 37,625 560,249
Distributions from net realized
gain ........................... 566,453 8,034,641 0 0
---------- ------------- ---------- ------------
1,915,217 27,534,965 701,818 10,362,361
Shares repurchased ................. (716,112) (10,405,386) (473,209) (6,965,545)
---------- ------------- ---------- ------------
Net increase ...................... 1,199,105 $ 17,129,579 228,609 $ 3,396,816
---------- ------------- ---------- ------------
<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 ........................ 155,255 $ 2,254,801 155,658 $ 2,252,487
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 3,834 54,473 2,746 40,791
Distributions from net realized
gain ........................... 32,135 454,275 0 0
---------- ------------- ---------- ------------
191,224 2,763,549 158,404 2,293,278
Shares repurchased ................. (48,951) (713,283) (116,596) (1,745,232)
---------- ------------- ---------- ------------
Net increase ...................... 142,273 $ 2,050,266 41,808 $ 548,046
---------- ------------- ---------- ------------
<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 ........................ 2,379,842 $ 35,365,862 209,063 $ 3,113,170
Shares issued in connection with the reinvestment of:
Dividends from net investment
income ......................... 166,670 2,402,299 71,195 1,068,563
Distributions from net realized
gain ........................... 782,566 11,201,375 0 0
---------- ------------- ---------- ------------
3,329,078 48,969,536 280,258 4,181,733
Shares repurchased ................. (2,895,751) (42,421,496) (759,307) (11,271,363)
---------- ------------- ---------- ------------
Net increase (decrease) ............ 433,327 $ 6,548,040 (479,049) $ (7,089,630)
---------- ------------- ---------- ------------
Increase (decrease) derived from
capital shares transactions ...... 2,392,665 $ 34,227,005 (725,837) $(10,815,084)
========== ============= ========= ============
</TABLE>
<PAGE>
SUPPLEMENT DATED AUGUST 17, 1998 TO THE NEW ENGLAND STOCK FUNDS CLASS A, B AND
C SHARES AND CLASS Y SHARES PROSPECTUSES DATED MAY 1, 1998
FOR NEW ENGLAND VALUE FUND AND NEW ENGLAND BALANCED FUND
The following supplements the "Fund Management" section of each Prospectus:
Effective August 1998, Jeffrey Wardlow and Lauriann Kloppenberg have assumed
responsibility for the day-to-day management of the Value Fund. Also effective
August 1998, Jeffrey Wardlow and Gregg Watkins have assumed responsibility for
the day-to-day management of the equity portion of the Balanced Fund and the
responsibility for allocating the assets of the Balanced Fund between equity
and fixed-income securities. The day-to-day management of the fixed-income
portion of the Balanced Fund remains the same. Mr. Wardlow, Vice President of
Loomis Sayles, has managed the Loomis Sayles Core Value Fund since its
inception in May 1991. Ms. Kloppenberg, Vice President and Director of Equity
Research of Loomis Sayles, has been employed by Loomis Sayles for more than
five years. Mr. Watkins, Vice President of Loomis Sayles, is also a portfolio
manager of the Loomis Sayles Mid-Cap Value Fund and has been employed by
Loomis Sayles for more than five years.
FOR NEW ENGLAND GROWTH FUND
Effective September 1, 1998, New England Growth Fund offers Class C shares to
the general public in addition to Class A and Class B shares. Therefore, the
following tables supplement "Annual fund operating expenses" and "Example" in
the "Schedule of Fees" section:
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
NEW ENGLAND
GROWTH FUND
-----------
CLASS C
-----------
Management Fees ................................................ 0.67%
12b-1 Fees ..................................................... 1.00%*
Other Expenses ................................................. 0.20%
Total Fund Operating Expenses .................................. 1.87%
- ------------
*Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of
actual or expected Fund performance or expenses, both of which may be more or
less than those shown.
NEW ENGLAND GROWTH FUND
-----------------------
CLASS C
-----------------------
(1) (2)
1 year ........................................... $ 29 $ 19
3 years .......................................... $ 59 $ 59
5 years .......................................... $101 $101
10 years ......................................... $219 $219
- ------------
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its earnings
per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<PAGE>
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
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
------------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
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