<PAGE>
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SEMIANNUAL REPORT
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[logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
New England Value Fund
[graphic omitted]
------------
June 30, 1998
- -------------
<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
- -------------------------------------------------------------------------------
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 VALUE FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1998
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 Class A Shares since 6/30/88, compared to the S&P 500
Index. The data points from the graph are as follows:]
JUNE 1988 -- JUNE 1998
Value Value
NAV MSC S&P 500
- ----------------------------------------------------------
6/30/88 $10,000 $ 9,425 $10,000
6/89 $10,832 $10,209 $12,044
6/90 $12,139 $11,441 $14,018
6/91 $12,374 $11,662 $15,054
6/92 $14,136 $13,323 $17,065
6/93 $16,434 $15,489 $19,381
6/94 $17,548 $16,539 $19,658
6/95 $21,202 $19,983 $24,767
6/96 $25,512 $24,045 $31,189
6/97 $33,630 $31,697 $41,990
6/98 $38,688 $36,464 $54,625
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, Class C and Class Y
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>
- -------------------------------------------------------------------------------
NEW ENGLAND VALUE FUND
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
- -------------------------------------------------------------------------------
CLASS A (Inception 6/5/70) 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 7.40% 15.04% 18.67% 14.49%
With Max. Sales Charge(2) 1.21 8.44 17.28 13.81
Standard & Poor's 500(4) 17.67 30.09 23.03 18.51
Lipper Growth & Income Avg.(5) 12.11 22.86 18.93 15.61
- -------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 6.96% 14.13% 21.29% 17.86%
With CDSC3 1.96 9.15 20.61 17.64
Standard & Poor's 500(4) 17.67 30.09 30.17 23.44
Lipper Growth & Income Avg.(5) 12.11 22.86 24.74 19.21
(calculated from 9/30/93)
- -------------------------------------------------------------------------------
SINCE
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 7.06% 14.33% 21.37% 23.89%
With CDSC(3) 6.06 13.33 21.37 23.89
Standard & Poor's 500(4) 17.67 30.09 30.17 32.38
Lipper Growth & Income Avg.(5) 12.11 22.86 24.74 26.44
(calculated from 12/30/94)
- -------------------------------------------------------------------------------
SINCE
CLASS Y (Inception 3/31/94) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 7.52% 15.37% 22.52% 20.92%
Standard & Poor's 500(4) 17.67 30.09 30.17 27.31
Lipper Growth & Income Avg.(5) 12.11 22.86 24.74 21.95
- -------------------------------------------------------------------------------
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. Class Y shares are available only to certain institutional
investors. Share price and return may vary.
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) Standard & Poor's Composite Index of 500 stocks(r) (S&P 500) is an unmanaged
index representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(5) Lipper Growth & Income Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
<PAGE>
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NEW ENGLAND VALUE FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
NOTE TO SHAREHOLDERS: THE FOLLOWING IS A DISCUSSION WITH PORTFOLIO MANAGERS
CAROL MCMURTRIE AND TRICIA MILLS. WHILE WE WERE PRODUCING THIS REPORT, LOOMIS,
SAYLES & COMPANY, L.P., NEW ENGLAND VALUE FUND'S SUBADVISER, ANNOUNCED A CHANGE
IN MANAGEMENT FOR 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 talk about New England Value Fund's performance during the first half
of 1998.
For the six months ending June 30, 1998, New England Value Fund's Class A shares
had a total return of 7.40%, reflecting a $0.75 gain in net asset value to
$10.89 per share.
Q. What was the investment environment?
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, most notably
technology issues, abruptly erasing investors' first quarter enthusiasm for the
group. 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 strategy during the period?
We emphasized sectors that we think can do well even when our economy slows and
those where earnings disappointments seem unlikely. With unemployment low and
more disposable income in their hands, workers 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 relatively heavy
compared to that of the S&P 500. We favored niche producers and other special
situations where fundamentals were strong and earnings prospects appeared solid,
even in a slower economy.
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.
YOUR FUND'S 10 LARGEST HOLDINGS -- 6/30/98
% OF
COMPANY NET ASSETS
- ----------------------------------------------
1. Hasbro, Inc. 2.88
- ----------------------------------------------
2. Kroger Co. 2.74
- ----------------------------------------------
3. American Greetings Corp. 2.69
- ----------------------------------------------
4. Ameritech Corp. 2.67
- ----------------------------------------------
5. BellSouth Corp. 2.63
- ----------------------------------------------
6. SBC Communications, Inc. 2.60
- ----------------------------------------------
7. Warnaco Group 2.53
- ----------------------------------------------
8. Humana, Inc. 2.46
- ----------------------------------------------
9. Office Depot, Inc. 2.45
- ----------------------------------------------
10. ACE, Ltd. 2.35
- ----------------------------------------------
Portfolio holdings and asset allocation will vary.
Q. What were the principal factors affecting performance?
The Fund benefited from a heavy position in consumer cyclical stocks and in HMO
companies. 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 the stock's price, while the stocks of Sensormatic and Wallace
Computer Services were hurt by earnings disappointments.
Q. What is your outlook?
Continued economic 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 favorable for interest rates. 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. Indeed, the next change could 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 our 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--97.2% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- ------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.4%
82,200 Northrop Grumman Corp. ..................... $ 8,476,875
134,800 Sundstrand Corp. ........................... 7,717,300
------------
16,194,175
------------
APPAREL & TEXTILES--2.5%
285,400 Warnaco Group .............................. 12,111,663
------------
AUTO & RELATED--0.9%
63,500 Magna International, Inc. .................. 4,357,688
------------
BANKS--7.7%
101,400 BankAmerica Corp. .......................... 8,764,763
325,000 Charter One Financial, Inc. ................ 10,948,437
97,900 Fleet Financial Group, Inc. ................ 8,174,650
242,700 Norwest Corp. .............................. 9,070,912
------------
36,958,762
------------
BUILDING & RELATED--6.3%
93,800 Armstrong World Industries, Inc. ........... 6,319,775
341,800 Leggett & Platt, Inc. ...................... 8,545,000
180,200 Masco Corp. ................................ 10,902,100
53,600 Philips Electronics NV (ADR) ............... 4,556,000
------------
30,322,875
------------
CHEMICALS--10.7%
391,800 Crompton & Knowles Corp. ................... 9,868,462
94,700 El duPont deNemours ........................ 7,066,988
214,500 IMC Global, Inc., Rights (c) ............... 6,461,813
122,900 PPG Industries, Inc. ....................... 8,549,231
341,100 Solutia, Inc. (c) .......................... 9,785,306
558,700 W.R. Grace & Co. (c) ....................... 9,532,819
------------
51,264,619
------------
COMPUTERS & BUSINESS EQUIPMENT--4.8%
159,300 Gateway 2000, Inc. (c) ..................... 8,064,563
97,400 International Business Machines ............ 11,182,737
87,100 Sun Microsystems, Inc. (c) ................. 3,783,406
------------
23,030,706
------------
CONSUMER-JEWELRY/NOVELTY/GIFTS--2.7%
252,500 American Greetings Corp. ................... 12,861,719
------------
ELECTRIC COMPANIES--2.4%
206,200 CMS Energy Corp. ........................... 9,072,800
62,600 Energy East Corp. .......................... 2,605,725
------------
11,678,525
------------
ELECTRONICS--2.3%
184,100 Raytheon Co., Class B ...................... 10,884,912
4,200 W.W. Grainger, Inc. ........................ 209,213
------------
11,094,125
------------
FINANCIAL SERVICES--5.2%
198,000 Corrections Corporation America ............ 4,653,000
219,800 Federal Home Loan Mortgage Corp. ........... 10,344,337
161,300 Federal National Mortgage Association ...... 9,798,975
------------
24,796,312
------------
FREIGHT TRANSPORTATION--3.3%
271,300 Canadian Pacific, Ltd. ..................... 7,698,137
124,700 Federal Express Corp. (c) .................. 7,824,925
------------
15,523,062
------------
HEALTH CARE -- SERVICES--6.1%
338,500 Columbia/HCA Healthcare .................... 9,858,812
377,600 Humana, Inc. (c) ........................... 11,776,400
104,600 Wellpoint Health Networks, Inc. (c) ........ 7,740,400
------------
29,375,612
------------
INSURANCE--5.5%
288,900 ACE, Ltd. .................................. 11,267,100
87,800 Allstate Corp. ............................. 8,039,187
120,200 Everest Reinsurance Holdings ............... 4,620,188
102,900 TIG Holdings, Inc. ......................... 2,366,700
------------
26,293,175
------------
LEISURE--2.9%
350,500 Hasbro, Inc. ............................... 13,779,031
------------
MACHINERY--3.2%
98,600 Case Corp. ................................. 4,757,450
112,400 Deere & Co. ................................ 5,943,150
130,200 Dover Corp. ................................ 4,459,350
------------
15,159,950
------------
MANUFACTURING -- DIVERSIFIED--1.9%
200,200 Allied Signal, Inc. ........................ 8,883,875
------------
OIL & GAS--1.7%
273,500 Tosco Corp. ................................ 8,034,063
------------
OIL & GAS/EXPLORATION & PRODUCTION--0.7%
158,470 Ocean Energy Inc. .......................... 3,100,069
------------
OIL & GAS/MAJOR INTEGRATED--2.8%
56,300 British Petroleum PLC (ADR) ................ 4,968,475
149,400 Royal Dutch Petroleum Co. .................. 8,188,988
------------
13,157,463
------------
RETAIL -- FOOD & DRUG--2.7%
306,200 Kroger Co. (c) ............................. 13,128,325
------------
RETAIL -- SPECIALTY--3.9%
211,800 Autozone, Inc. (c) ......................... 6,764,363
371,400 Office Depot, Inc. ......................... 11,722,312
------------
18,486,675
------------
TELEPHONE--9.8%
285,000 Ameritech Corp. ............................ 12,789,375
202,600 Bell Atlantic Corp. ........................ 9,243,625
187,800 BellSouth Corp. ............................ 12,606,075
310,646 SBC Communications, Inc. ................... 12,425,840
------------
47,064,915
------------
TOBACCO--1.7%
300,600 UST, Inc. .................................. 8,116,200
------------
WASTE MANAGEMENT--2.1%
205,600 USA Waste Services, Inc. ................... 10,151,500
------------
Total Common Stock
(Identified Cost $346,387,003) ........... 464,925,084
------------
SHORT TERM INVESTMENT--4.2%
FACE
AMOUNT
- ------------------------------------------------------------------------------
$ 20,302,000 Associates Corp of North America,
5.950%, 7/01/98 .......................... 20,302,000
------------
Total Short Term Investment
(Identified Cost $20,302,000)............. 20,302,000
------------
Total Investments--101.4%
(Identified Cost $366,689,003)(b)......... 485,227,084
Other assets less liabilities .............. (6,719,470)
------------
Total Net Assets--100% ..................... $478,507,614
============
(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 $366,689,003 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 ........................................ $129,597,075
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ........................................... (11,058,994)
------------
Net unrealized appreciation .................... $118,538,081
============
(c) Non-income producing security.
ADR/GDR - An American Depository Receipt (ADR) or Global
Depository Receipt (GDR) 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>
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STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $366,689,003) ..... $485,227,084
Cash .................................................... 25
Receivable for:
Fund shares sold ...................................... 489,531
Securities sold ....................................... 4,522,352
Dividends and interest ................................ 361,681
Tax reclaims .......................................... 2,886
Prepaid registration expense ............................ 8,000
------------
490,611,559
LIABILITIES
Payable for:
Securities purchased .................................. $10,712,240
Fund shares redeemed .................................. 941,711
Withholding taxes ..................................... 12,087
Accrued expenses:
Management fees ....................................... 282,419
Deferred trustees' fees ............................... 80,944
Accounting and administrative ......................... 8,089
Other expenses ........................................ 66,455
-----------
12,103,945
------------
NET ASSETS ................................................ $478,507,614
============
Net Assets consist of:
Capital paid in ....................................... $332,804,590
Undistributed net investment income ................... 681,378
Accumulated net realized gains ........................ 26,483,604
Unrealized appreciation on investments ................ 118,538,042
------------
NET ASSETS ................................................ $478,507,614
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($354,953,336 divided by 32,597,489 shares of beneficial
interest) ............................................. $10.89
======
Offering price per share (100/94.25 of $10.89) ............ $11.55*
======
Net asset value and offering price of Class B shares
($89,297,053 divided by 8,420,570 shares of beneficial
interest) ............................................. $10.60**
======
Net asset value and offering price of Class C shares
($7,777,408 divided by 732,460 shares of beneficial
interest) ............................................. $10.62**
======
Net asset value, offering and redemption price of Class Y shares
($26,479,817 divided by 2,438,299 shares of beneficial
interest) ............................................. $10.86
======
*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>
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STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................ $ 3,229,278(a)
Interest ................................................. 488,053
------------
3,717,331
Expenses
Management fees ........................................ $1,720,044
Service fees - Class A ................................. 448,015
Service and distribution fees - Class B ................ 430,108
Service and distribution fees - Class C ................ 35,882
Trustees' fees and expenses ............................ 13,987
Accounting and administrative .......................... 40,877
Custodian .............................................. 61,541
Transfer agent ......................................... 396,971
Audit and tax services ................................. 15,745
Legal .................................................. 9,458
Printing ............................................... 38,058
Registration ........................................... 42,412
Miscellaneous .......................................... 9,647
----------
Total expenses ........................................... 3,262,745
------------
Net investment income .................................... 454,586
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ....................... 18,969,472
Unrealized appreciation on Investments - net ............. 14,093,316
------------
Net gain on investment transactions ...................... 33,062,788
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 33,517,374
============
(a) Net of foreign taxes of: $34,908.
</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
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 676,282 $ 454,586
Net realized gain on investments ........................ 57,286,408 18,969,472
Unrealized appreciation on investments .................. 20,117,409 14,093,316
------------ ------------
Increase in net assets from operations .................. 78,080,099 33,517,374
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (496,325) 0
Class B ............................................... 0 0
Class C ............................................... 0 0
Class Y ............................................... (69,086) 0
Net realized gain on investments
Class A ............................................... (44,590,500) 0
Class B ............................................... (10,037,715) 0
Class C ............................................... (837,785) 0
Class Y ............................................... (2,990,531) 0
------------ ------------
(59,021,942) 0
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL
SHARE
TRANSACTIONS .......................................... 78,386,994 (14,696,871)
------------ ------------
Total increase in net assets ............................ 97,445,151 18,820,503
NET ASSETS
Beginning of the period ................................. 362,241,960 459,687,111
------------ ------------
End of the period ....................................... $459,687,111 $478,507,614
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period ....................................... $ 226,792 $ 681,378
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<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 ............ $ 7.28 $ 7.87 $ 7.27 $ 8.78 $ 9.60 $10.14
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ...... 0.07 0.08 0.10 0.06 0.03(c) 0.02
Net Realized and Unrealized
Gain (Loss) on Investments 1.16 (0.19) 2.21 2.12 1.96 0.73
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............... 1.23 (0.11) 2.31 2.18 1.99 0.75
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ........ (0.07) (0.08) (0.09) (0.06) (0.02) 0.00
Distributions From Net
Realized Capital Gains (0.57) (0.41) (0.71) (1.30) (1.43) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ........ (0.64) (0.49) (0.80) (1.36) (1.45) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period ................... $ 7.87 $ 7.27 $ 8.78 $ 9.60 $10.14 $10.89
====== ====== ====== ====== ====== ======
Total Return (%) (a) ....... 17.0 (1.4) 32.3 26.3 21.0 7.4
Ratio of Operating Expenses
to Average
Net Assets (%) ........... 1.34 1.37 1.37 1.31 1.25 1.23(b)
Ratio of Net Investment
Income to Average Net
Assets (%) ............... 0.83 1.00 1.22 0.78 0.28 0.32(b)
Portfolio Turnover Rate (%) 40 29 52 64 55 53(b)
Net Assets, End of the
Period (000) ............. $189,779 $190,869 $241,038 $297,581 $348,988 $354,953
(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.
(c) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------
SEPTEMBER 13(a) YEAR ENDED DECEMBER 31, SIX MONTHS
THROUGH 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 .................... $ 7.97 $ 7.85 $ 7.23 $ 8.70 $ 9.47 $ 9.91
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) .... 0.11 0.04 0.05 0.01 (0.05)(d) (0.02)
Net Realized and Unrealized
Gain (Loss) on Investments .... 0.39 (0.20) 2.18 2.07 1.92 0.71
------ ------ ------ ------ ------ ------
Total From Investment Operations 0.50 (0.16) 2.23 2.08 1.87 0.69
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ........................ (0.05) (0.05) (0.05) (0.01) 0.00 0.00
Distributions From Net
Realized Capital Gains ........ (0.57) (0.41) (0.71) (1.30) (1.43) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ............. (0.62) (0.46) (0.76) (1.31) (1.43) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period ......................... $ 7.85 $ 7.23 $ 8.70 $ 9.47 $ 9.91 $10.60
====== ====== ====== ====== ====== ======
Total Return (%) (c) ............ 6.5 (2.0) 31.3 25.4 20.0 7.0
Ratio of Operating Expenses
to Average Net Assets (%) ..... 2.16(b) 2.12 2.12 2.06 2.00 1.98 (b)
Ratio of Net Investment Income
to Average Net Assets (%) ..... 0.05(b) 0.25 0.47 0.03 (0.47) (0.43)(b)
Portfolio Turnover Rate (%) ..... 40 29 52 64 55 53 (b)
Net Assets, End of the Period (000) $2,182 $13,830 $27,941 $48,210 $80,008 $89,297
(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.
(d) Per share net investment loss has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<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 ........ $ 7.23 $ 8.70 $ 9.46 $ 9.92
vIncome From Investment Operations
Net Investment Income (Loss) .................... 0.05 0.01 (0.05)(b) (0.02)
Net Realized and Unrealized Gain on Investments . 2.18 2.06 1.94 0.72
------ ------ ------ ------
Total From Investment Operations ................ 2.23 2.07 1.89 0.70
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income ............ (0.05) (0.01) 0.00 0.00
Distributions From Net Realized Capital Gains ... (0.71) (1.30) (1.43) 0.00
------ ------ ------ ------
Total Distributions ............................. (0.76) (1.31) (1.43) 0.00
------ ------ ------ ------
Net Asset Value, End of the Period .............. $ 8.70 $ 9.46 $ 9.92 $10.62
====== ====== ====== ======
Total Return (%) (c) ............................ 31.3 25.2 20.2 7.1
Ratio of Operating Expenses to Average Net
Assets (%) .................................... 2.12 2.06 2.00 1.98(a)
Ratio of Net Investment Income to Average Net
Assets (%) .................................... 0.47 0.03 (0.47) (0.43)(a)
Portfolio Turnover Rate (%) ..................... 52 64 55 53 (a)
Net Assets, End of the Period (000) ............. $1,224 $3,735 $6,527 $7,777
(a) Computed on an annualized basis.
(b) Per share net investment loss has been calculated using the average shares outstanding during the year.
(c) 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 31(a) YEAR ENDED DECEMBER 31, SIX MONTHS
THROUGH ENDED
DECEMBER 31, ----------------------------------------- JUNE 30,
1994 1995 1996 1997 1998
------------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period ................... $ 7.57 $ 7.24 $ 8.75 $ 9.55 $10.10
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income .......... 0.10 0.12 0.08 0.06(d) 0.03
Net Realized and Unrealized Gain
on Investments ............... 0.08 2.21 2.10 1.95 0.73
------ ------ ------ ------ ------
Total From Investment Operations 0.18 2.33 2.18 2.01 0.76
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ....................... (0.10) (0.11) (0.08) (0.03) 0.00
Distributions From Net Realized
Capital Gains ................ (0.41) (0.71) (1.30) (1.43) 0.00
------ ------ ------ ------ ------
Total Distributions ............ (0.51) (0.82) (1.38) (1.46) 0.00
------ ------ ------ ------ ------
Net Asset Value, End of the
Period ....................... $ 7.24 $ 8.75 $ 9.55 $10.10 $10.86
====== ====== ====== ====== ======
Total Return (%) (c) ........... 2.4 32.8 26.4 21.3 7.5
Ratio of Operating Expenses to
Average Net Assets (%) ....... 1.54(b) 1.12 1.06 1.00 0.98(b)
Ratio of Net Investment Income
to Average Net Assets (%) .... 1.05(b) 1.47 1.03 0.53 0.57(b)
Portfolio Turnover Rate (%) .... 29 52 64 55 53(b)
Net Assets, End of the Period (000) $4,001 $6,738 $12,716 $24,164 $26,480
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) Per share net investment income has been calculated using the average shares outstanding during the year.
</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 market appreciation and dividend income from equity securities.
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 is 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 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 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 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 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 ask price. 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 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 basis differences will result in
reclassification to the capital accounts.
E. 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 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
$122,821,053 and $134,256,412, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 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
-----------
$ 701,333 NEFM
1,018,711 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 six months ended June 30, 1998
these expenses amounted to $40,877 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 $302,572 as compensation for its
services in that capacity. For the six months ended June 30, 1998, the Fund
received $4,982 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 $448,015 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 June 30, 1998 is
$1,651,994.
Under the Class B and Class C 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 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 $107,527 and $8,970 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
$322,581 and $26,912 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 $417,682.
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 $2,712
Meeting Fee 159/meeting
Annual Committee Member Retainer 407
Annual Committee Chairman Retainer 271
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 ........................ 5,274,284 $ 54,397,082 1,692,309 $ 18,326,130
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 49,346 485,071 0 0
Distributions from net realized
gain ........................... 4,276,922 43,869,063 0 0
---------- ------------- ---------- ------------
9,600,552 98,751,216 1,692,309 18,326,130
Shares repurchased ................. (6,186,704) (64,085,974) (3,519,392) (37,978,562)
---------- ------------- ---------- ------------
Net increase (decrease) ............ 3,413,848 $ 34,665,242 (1,827,083) $(19,652,432)
---------- ------------- ---------- ------------
<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 ........................ 2,893,109 $ 29,345,774 1,044,390 $ 10,973,236
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 959,479 9,622,907 0 0
---------- ------------- ---------- ------------
3,852,588 38,968,681 1,044,390 10,973,236
Shares repurchased ................. (871,231) (8,895,403) (697,744) (7,314,560)
---------- ------------- ---------- ------------
Net increase ....................... 2,981,357 $ 30,073,278 346,646 $ 3,658,676
---------- ------------- ---------- ------------
<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 ........................ 552,855 $ 5,636,175 162,248 $ 1,702,802
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain ........................... 80,794 811,343 0 0
---------- ------------- ---------- ------------
633,649 6,447,518 162,248 1,702,802
Shares repurchased ................. (370,803) (3,675,157) (87,653) (909,935)
---------- ------------- ---------- ------------
Net increase ....................... 262,846 $ 2,772,361 74,595 $ 792,867
---------- ------------- ---------- ------------
<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 ........................ 1,035,682 $ 10,694,891 339,627 $ 3,655,077
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ......................... 7,056 69,086 0 0
Distributions from net realized
gain ........................... 292,560 2,990,531 0 0
---------- ------------- ---------- ------------
1,335,298 13,754,508 339,627 3,655,077
Shares repurchased ................. (273,610) (2,878,395) (294,248) (3,151,059)
---------- ------------- ---------- ------------
Net increase ....................... 1,061,688 $ 10,876,113 45,379 $ 504,018
---------- ------------- ---------- ------------
Increase (decrease) derived from
capital shares transactions ...... 7,719,739 $ 78,386,994 (1,360,463) $(14,696,871)
========== ============= ========== ============
</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>
- --------------------------------------------------------------------------------
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>
------------------
[LOGO](R) Bulk Rate
NEW ENGLAND FUNDS(R) U.S. Postage
Where The Best Minds Meet(R) Paid
Brockton, MA
Permit No. 770
------------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
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1995 o 1996 o 1997
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