<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England Capital Growth Fund
[graphic omitted]
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JUNE 30, 1998
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<PAGE>
August 1998
- --------------------------------------------------------------------------------
[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>
NEW ENGLAND CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
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.
In the past, the S&P 500 Index(4) served as the benchmark for New England
Capital Growth Fund. GOING FORWARD, THE FUND'S PERFORMANCE WILL BE COMPARED
AGAINST A NEW BENCHMARK -- THE RUSSELL 1000 GROWTH INDEX.(6) While no benchmark
is a perfect match for a managed fund, the Russell 1000 Growth Index better
reflects the broader range of capitalizations and other stock characteristics
that may be represented in the Fund.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here illustrating a $10,000
investment in the Fund since inception 8/3/92, compared to the S&P Index over
the same period. The data for this chart are as follows:]
AUGUST 1992 (INCEPTION) THROUGH JUNE 1998
Net Asset With Maximum R1000
Value(1) Sales Charge(2) S&P 500 Growth
8/3/92 $10,000 $ 9,425 $10,000 $10,000
6/93 $11,838 $11,157 $10,904 $ 9,565
6/94 $11,221 $10,576 $11,060 $ 9,539
6/95 $14,696 $13,851 $13,934 $12,450
6/96 $17,609 $16,597 $17,548 $15,912
6/97 $20,700 $19,509 $23,624 $20,899
6/98 $25,709 $24,231 $30,733 $27,459
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 differs from that shown based on differences in inception date, fees
and sales charges. All Index and Fund performance assumes reinvested
distributions.
<PAGE>
NEW ENGLAND CAPITAL GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
- --------------------------------------------------------------------------------
SINCE
CLASS A (Inception 8/3/92) 6 MONTHS 1 YEAR 5 YEARS INCEPTION
Net Asset Value(1) 17.49% 24.20% 16.78% 17.32%
With Max. Sales Charge(2) 10.72 17.08 15.41 16.16
Standard & Poor's 500(4) 17.67 30.09 23.03 20.92
Russell 1000 Growth(6) 20.38 31.39 23.48 20.38
Lipper Growth Fund Average(5) 15.10 25.38 18.91 18.14
================================================================================
SINCE
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 17.28% 23.10% 19.53% 16.42%
With CDSC(3) 12.28 18.10 18.82 16.18
Standard & Poor's 500(4) 17.67 30.09 30.17 23.44
Russell 1000 Growth(6) 20.38 31.39 30.17 24.48
Lipper Growth Fund Average(5) 15.10 25.38 23.85 18.77
(calculated from 9/30/93)
================================================================================
SINCE
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 17.27% 23.16% 19.52% 22.77%
With CDSC(3) 16.27 22.16 19.52 22.77
Standard & Poor's 500(4) 17.67 30.09 30.17 32.38
Russell 1000 Growth(6) 20.38 31.39 30.17 32.15
Lipper Growth Fund Average(5) 15.10 25.38 23.85 25.96
================================================================================
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
NOTES TO CHARTS
(1)Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2)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)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 500(R) Index (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 Fund 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.
(6)Russell 1000(R) Growth Index is an unmanaged subset of stocks from the larger
Russell 1000 Index, selected for their greater growth orientation.
<PAGE>
NEW ENGLAND CAPITAL GROWTH FUND
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Gerry Scriver became New England Capital Growth Fund's portfolio manager on
April 17, 1998, when shareholders voted to approve Westpeak Investment Advisors,
L.P. as the Fund's new subadviser.
Q. Please tell us about New England Capital Growth Fund's performance in the
first half of 1998.
For the six months ending June 30, 1998, New England Capital Growth Fund's Class
A shares had a total return of 17.49%, compared to the average return of 15.10%
for the Lipper Growth category -- your Fund's peer group. The Fund's return
included a $3.49 per share gain in net asset value to $23.44.
[Photo of Gerald Scriver]
Gerald Scriver
Westpeak Investment
Advisors, L.P.
Q. What was the investment environment like?
As was the case through the latter part of 1997, investors were preoccupied by
possible fallout on the U.S. business landscape from continued weakness in Asia.
Concerns over inflation, for years a given in economic discussions, came (at
least temporarily) off the table, to be replaced by unfamiliar worries over
possible deflation, or falling prices. Faltering economies in several Asian
nations have weakened their currencies, reducing the value of their exports to
other countries. Since it takes fewer dollars to buy an item when the exporting
nation's currency drops, the cost of imported goods falls in the United States.
Faced with a surge of low-cost imports, American companies may be forced to cut
prices, putting pressure on their earning power and raising fears of a slowdown
in our economy. Early this year, it seemed that the Asian crisis might resolve
itself relatively quickly and with only minor impact on U.S. businesses. A more
optimistic tone returned to the markets; interest rates began to rise and, with
them, anxiety over possible inflation. But by late winter it was clear that the
revitalization of slumping Asian economies -- especially Japan's -- would be a
long time coming.
Q. Given this environment, what was your investment strategy during the period?
Portfolio management for Capital Growth Fund changed hands midway through the
period, as Westpeak Investment Advisors took the Fund's helm in April. Since
then, we at Westpeak have been in the process of adapting and restructuring the
Fund. Our goal is to create a portfolio that, seen as a single entity, presents
a profile of strong long-term growth potential priced reasonably, reflecting our
overall expectations. We do not try to time market highs and lows, nor manage
the Fund around economic developments.
Your Fund's 10 Largest Investments -- 6/30/98
% of
Company Net Assets
- --------------------------------------------
1. Microsoft Corp. 3.71
- --------------------------------------------
2. Wal-Mart Stores, Inc. 3.45
- --------------------------------------------
3. Schering-Plough Corp. 3.41
- --------------------------------------------
4. General Electric 3.08
- --------------------------------------------
5. Lucent Technologies, Inc. 2.95
- --------------------------------------------
6. American International Group 2.51
- --------------------------------------------
7. Coca-Cola Co. 2.51
- --------------------------------------------
8. Morgan Stanley Dean Witter 2.34
- --------------------------------------------
9. Cardinal Health, Inc. 2.30
- --------------------------------------------
10. Tellabs, Inc. 2.21
- --------------------------------------------
In view of the high valuations prevailing in April, we elected to pursue
opportunities for growth where they could be found at reasonable price/earnings
ratios. A price/earnings ratio, or P/E, is a rule-of-thumb that investors use to
help gauge whether a stock's price is high or low in relation to the company's
earning power -- the higher the ratio the more expensive the stock. This ratio
also serves as an objective standard by which investors can evaluate stocks
relative to one another.
During this period of transition we have been reducing the portion of the
portfolio devoted to smaller companies, in favor of larger firms we feel have
strong growth prospects. We also have been building a mix of companies that have
historically demonstrated an ability to make their earnings grow and in which we
see the likelihood for continued earnings increases. In the process, we have
reduced the Fund's overall price/earnings ratios to below that of the Fund's new
benchmark, the Russell 1000 Growth Index.
Toward the end of the period, Capital Growth Fund's portfolio had an average
price/earnings ratio of 28 -- meaning the average price was approximately 28
times the average earnings -- which was well below the Russell 1000 Growth's
ratio of 33.5. The Fund's holdings also have been growing their earnings faster
than the companies in the Index.
Q. What were the principal factors affecting performance, either positively or
negatively?
Our move toward owning companies that we believe have reasonable valuations
proved sound. Many investors shied away from stocks whose high prices appeared
disproportionate to their growth prospects. Market sentiment tilted toward
companies with below-average price/earnings ratios like those we have been
emphasizing. The Fund also benefited from our decision to avoid companies that
are heavily dependent on overseas income, given the weak economies in Asia,
Russia and elsewhere.
Performance was boosted thanks to heavy positions (relative to the benchmark
index) in interest rate-sensitive companies, including financial services and
select utilities. By late June, the Fund's largest sectors were telephone
companies, retail stores, airlines, banks and insurance companies. We were also
correct in de-emphasizing technology stocks, which we think are particularly
vulnerable to weak Asian economies, where many of their goods are sold. One
larger position that held back performance was electric utilities: These stocks,
nonetheless, were helpful in the sense that they served to dampen overall
portfolio volatility.
Q. What is your outlook?
Economic instability in the Far East will continue to restrain business activity
here, in our opinion. As a result, the threat of hikes in U.S. interest rates is
likely to recede as slowing economic activity keeps inflation in check. In fact,
we think the next move in interest rates will be downward because the Federal
Reserve Board is unwilling to allow the Asian crisis to take a heavy toll on our
economy. Nevertheless, U.S. businesses will continue to feel competitive
pressures from overseas, and the economy should begin to slow.
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
- --------------------------------------------------------------------------------
COMMON STOCK--98.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- --------------------------------------------------------------------------------
AEROSPACE--0.8%
31,400 Boeing Co. ......................................... $ 1,399,263
8,700 Gulfstream Aerospace Corp. (c) ..................... 404,550
------------
1,803,813
------------
AIRLINES--2.7%
69,400 Northwest Airlines Corp. (c) ....................... 2,676,238
109,700 Southwest Airlines ................................. 3,249,862
------------
5,926,100
------------
AUTOMOTIVE--1.2%
38,300 Carlisle Cos. ...................................... 1,649,294
2,900 Federal-Mogul ...................................... 195,750
5,000 Lear Corp. (c) ..................................... 256,562
18,900 Wabash National Corp. .............................. 486,675
------------
2,588,281
------------
BANKS--2.5%
12,100 First Source Corp. ................................. 432,575
90,300 Imperial Bancorp ................................... 2,709,000
10,000 Star Banc Corp. .................................... 638,750
32,100 The Trust Company of New Jersey .................... 866,700
12,200 Zions Bancorp ...................................... 648,125
------------
5,295,150
------------
CHEMICALS--5.1%
7,800 El duPont deNemours ................................ 582,075
82,300 Georgia Gulf Corp. ................................. 1,877,469
124,200 Lyondell Petrochemical Co. ......................... 3,780,337
36,000 Nl Industries, Inc. ................................ 720,000
57,100 PPG Industries, Inc. ............................... 3,972,019
------------
10,931,900
------------
COMPUTER SOFTWARE & SERVICES--5.7%
7,200 Checkfree Holdings (c) ............................. 211,950
26,550 Computer Associates International, Inc. ............ 1,475,184
49,100 Compuware Corp. (c) ................................ 2,510,238
74,000 Microsoft Corp. (c) ................................ 8,019,750
------------
12,217,122
------------
COMPUTERS & BUSINESS EQUIPMENT--5.6%
48,150 Cisco Systems (c) .................................. $ 4,432,809
48,100 Compaq Computer Corp. .............................. 1,364,838
4,800 Dell Computer Corp. (c) ............................ 445,500
54,000 EMC Corp. (c) ...................................... 2,419,875
12,900 Ingram Micro, Inc. ................................. 570,825
61,900 Pitney Bowes, Inc. ................................. 2,978,937
------------
12,212,784
------------
CONSTRUCTION MATERIALS--1.6%
65,700 USG Corp. .......................................... 3,556,012
------------
CONSUMER DURABLES--0.4%
35,200 Herman Miller ...................................... 855,800
------------
ELECTRIC UTILITIES--0.1%
7,100 Texas Utilities Co. ................................ 295,538
------------
ELECTRICAL EQUIPMENT--3.1%
76,800 Lucent Technologies, Inc. .......................... 6,388,800
7,800 Thermo Electron Corp. (c) .......................... 266,662
------------
6,655,462
------------
FINANCIAL SERVICES--5.3%
32,800 Federal Home Loan Mortgage Corp. ................... 1,543,650
53,000 Federal National Mortgage Association .............. 3,219,750
73,200 General Electric Co. ............................... 6,661,200
------------
11,424,600
------------
FOOD & BEVERAGES--6.2%
63,400 Coca-Cola Co. ...................................... 5,420,700
15,000 Hershey Foods ...................................... 1,035,000
30,314 Tootsie Roll Industries, Inc. ...................... 2,326,599
47,600 William Wrigley Jr. Co. ............................ 4,664,800
------------
13,447,099
------------
FREIGHT TRANSPORTATION--0.5%
24,700 Expeditors International ........................... 1,086,800
------------
HEALTH CARE -- DRUGS--10.0%
53,000 Cardinal Health, Inc. .............................. 4,968,750
13,100 Eli Lilly .......................................... 865,419
21,700 Merck & Co. ........................................ 2,902,375
25,500 Pfizer, Inc. ....................................... 2,771,531
80,400 Schering-Plough Corp. .............................. 7,366,650
39,300 Warner-Lambert Co. ................................. 2,726,437
------------
21,601,162
------------
HEALTH CARE -- MEDICAL TECHNOLOGY--0.3%
18,100 Arterial Vascular Engineering, Inc. (c) ............ $ 647,075
------------
HEALTH CARE -- SERVICES--2.0%
119,200 HEALTHSOUTH Corp. (c) .............................. 3,181,150
28,000 Omnicare, Inc. ..................................... 1,067,500
------------
4,248,650
------------
HOUSEHOLD PRODUCTS--1.6%
1,700 Estee Lauder Companies, Inc. ....................... 118,469
50,520 Gillette Co. ....................................... 2,863,852
7,500 Newell Co. ......................................... 373,594
------------
3,355,915
------------
INDUSTRIAL PARTS & MACHINERY--4.1%
7,300 Crane Co. .......................................... 354,506
13,200 Danaher Corp. ...................................... 484,275
54,900 Illinois Tool Works, Inc. .......................... 3,661,144
48,200 United Technologies Corp. .......................... 4,458,500
------------
8,958,425
------------
INSURANCE--3.8%
37,250 American International Group ....................... 5,438,500
34,500 MGIC Investment Corp. .............................. 1,968,656
14,800 Travelers, Inc. .................................... 897,250
------------
8,304,406
------------
INFORMATION SERVICES--3.8%
77,700 Ceridian Corp. (c) ................................. 4,564,875
6,800 Cognizant Corp. .................................... 428,400
89,200 HBO & Co. .......................................... 3,144,300
------------
8,137,575
------------
INVESTMENT COMPANIES--3.3%
25,800 Lehman Brothers Holdings ........................... 2,001,113
55,500 Morgan Stanley Dean Witter ......................... 5,071,312
------------
7,072,425
------------
LEISURE--0.3%
14,000 Mattel, Inc. ....................................... 592,375
------------
MEDIA & ENTERTAINMENT--1.1%
22,700 Walt Disney Co. .................................... 2,384,919
------------
MEDICAL SERVICES--0.5%
40,000 Stewart Enterprises, Inc. .......................... 1,065,000
------------
MEDICAL TECHNOLOGY--2.1%
63,200 Abbott Laboratories ................................ $ 2,583,300
26,000 Johnson & Johnson .................................. 1,917,500
------------
4,500,800
------------
METALS & MINING--0.3%
30,200 Intermet Corp. ..................................... 547,375
------------
NEWSPAPERS--1.9%
73,100 Knight-Ridder, Inc. ................................ 4,025,069
------------
OIL RESERVES--1.1%
48,300 Pennzoil Co. ....................................... 2,445,188
------------
OIL SERVICES--0.3%
10,800 Schlumberger, Ltd. ................................. 737,775
------------
RETAIL--5.4%
50,400 Dayton Hudson Corp. ................................ 2,444,400
14,800 Federated Department Stores, Inc. (c) .............. 796,425
20,000 Kohls Corp. ........................................ 1,037,500
122,900 Wal-Mart Stores, Inc. .............................. 7,466,175
------------
11,744,500
------------
RETAIL -- GROCERY--2.4%
79,700 Albertson's, Inc. .................................. 4,129,456
25,000 Kroger Co. (c) ..................................... 1,071,875
------------
5,201,331
------------
RETAIL -- SPECIALTY--4.4%
43,000 Fastenal Co. ....................................... 1,996,812
53,500 Home Depot, Inc. ................................... 4,443,844
75,300 Walgreen Co. ....................................... 3,110,831
------------
9,551,487
------------
SEMI-CONDUCTORS--0.6%
17,100 Intel Corp. ........................................ 1,267,538
------------
TELECOMMUNICATION--5.4%
46,900 Ameritech Corp. .................................... 2,104,638
46,700 BellSouth Corp. .................................... 3,134,737
96,600 Century Telephone Enterprises, Inc. (c) ............ 4,431,525
40,800 WorldCom, Inc. (c) ................................. 1,976,250
------------
11,647,150
------------
TELECOMMUNICATION EQUIPMENT--2.2%
66,800 Tellabs, Inc. (c) .................................. 4,784,550
------------
TOBACCO--1.0%
57,500 Philip Morris Cos. ................................. $ 2,264,063
------------
Total Common Stock (Identified Cost $167,208,881) .. 213,381,214
------------
SHORT TERM INVESTMENT--1.1%
FACE
AMOUNT
- ------------------------------------------------------------------------------
$2,386,000 Repurchase Agreement with State Street Corp. dated
6/30/98 at 5.000% to be repurchased at $2,386,331
on 7/01/98 collateralized by $2,095,000 U.S. Treasury
Bond 6.750% due 8/15/26 with a value
of $2,434,817 ............................... 2,386,000
------------
Total Short Term Investment
(Identified Cost $2,386,000) .................. 2,386,000
------------
Total Investments--99.8% (Identified
Cost $169,594,881)(b) ......................... 215,767,214
Other assets less liabilities ................. 509,989
------------
Total Net Assets--100% ........................ $216,277,203
============
(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 $169,594,881 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. ............................... $ 49,810,496
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .............................. (3,638,163)
------------
Net unrealized appreciation .......................... $ 46,172,333
============
(c) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value (Identified cost $169,594,881) ...... $215,767,214
Cash ..................................................... 767
Receivable for:
Fund shares sold ....................................... 128,900
Securities sold ........................................ 2,188,370
Dividends and interest ................................. 101,597
Miscellaneous .......................................... 2,861
Prepaid registration expense ............................. 8,000
------------
218,197,709
LIABILITIES
Payable for Fund shares redeemed ......................... $1,713,730
Accrued expenses:
Management fees ........................................ 128,894
Deferred trustees' fees ................................ 16,206
Accounting and administrative .......................... 4,174
Other .................................................. 57,502
----------
1,920,506
------------
NET ASSETS ................................................. $216,277,203
============
Net Assets consist of:
Capital paid in ........................................ $135,807,989
Undistributed net investment loss ...................... (965,063)
Accumulated net realized gains ......................... 35,261,944
Unrealized appreciation on investments ................. 46,172,333
------------
NET ASSETS ................................................. $216,277,203
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($163,069,541 divided by 6,956,071 shares of beneficial
interest) .............................................. $23.44
======
Offering price per share (100/94.25 of $23.44) .......... $24.87*
======
Net asset value and offering price of Class B shares
($52,186,767 divided by 2,329,510 shares of beneficial
interest) .............................................. $22.40**
======
Net asset value and offering price of Class C shares
($1,020,895 divided by 45,557 shares of beneficial
interest) .............................................. $22.41**
======
* 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>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends ................................................ $ 645,391
Interest ................................................. 101,764
------------
747,155
Expenses
Management fees ........................................ $ 766,135
Service fees - Class A ................................. 194,089
Service and distribution fees - Class B ................ 241,642
Service and distribution fees - Class C ................ 4,845
Trustees' fees and expenses ............................ 7,561
Accounting and administrative .......................... 21,708
Custodian .............................................. 45,722
Transfer agent ......................................... 276,726
Audit and tax services ................................. 15,745
Legal .................................................. 15,698
Printing ............................................... 72,072
Registration ........................................... 31,908
Miscellaneous .......................................... 6,853
----------
Total expenses ........................................... 1,700,704
------------
Net investment loss ...................................... (953,549)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments - net ....................... 30,088,083
Unrealized appreciation on investments - net ............. 4,119,517
-----------
Net gain on investment transactions ...................... 34,207,600
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $33,254,051
===========
</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 loss ..................................... $ (1,989,202) $ (953,549)
Net realized gain on investments ........................ 25,264,485 30,088,083
Unrealized appreciation on investments .................. 6,522,743 4,119,517
------------ ------------
Increase in net assets from operations .................. 29,798,026 33,254,051
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ............................................... (17,900,884) 0
Class B ............................................... (5,549,923) 0
Class C ............................................... (113,371) 0
------------ ------------
(23,564,178) 0
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS .................................... 10,756,577 (13,236,125)
------------ ------------
Total increase in net assets ............................ 16,990,425 20,017,926
NET ASSETS
Beginning of the period ................................. 179,268,852 196,259,277
------------ ------------
End of the period ....................................... $196,259,277 $216,277,203
============ ============
UNDISTRIBUTED NET INVESTMENT LOSS
End of the period ....................................... $ (11,514) $ (965,063)
============ ============
</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 ............ $14.23 $15.27 $15.02 $18.41 $19.27 $19.95
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income
(Loss) ................... 0.00 (0.08) (0.11) (0.14)(d) (0.18)(d) (0.08)
Net Realized and
Unrealized Gain
(Loss) on Investments .... 1.12 (0.17) 4.74 3.22 3.43 3.57
------ ------ ------ ------ ------ -------
Total From Investment
Operations ................ 1.12 (0.25) 4.63 3.08 3.25 3.49
------ ------ ------ ------ ------ -------
Less Distributions
Distributions From Net
Realized Capital Gains ... (0.08) 0.00 (1.24) (2.22) (2.57) 0.00
------ ------ ------ ------ ------ -------
Total Distributions ........ (0.08) 0.00 (1.24) (2.22) (2.57) 0.00
------ ------ ------ ------ ------ -------
Net Asset Value, End of
the Period ............... $15.27 $15.02 $18.41 $19.27 $19.95 $23.44
====== ====== ====== ====== ====== ======
Total Return (%) (c) ....... 7.9 (1.6) 30.7 17.1 17.2 17.5
Ratio of Operating
Expenses to Average
Net Assets (%)(a) ........ 1.23 1.63 1.61 1.50 1.45 1.48(e)
Ratio of Net Investment
Income (loss) to Average
Net Assets(%) ............. (0.03) (0.45) (0.67) (0.71) (0.87) (0.76)(e)
Portfolio Turnover Rate(%) . 77 82 69 74 48 145(e)
Net Assets, End of the
Period (000) ............. $98,735 $95,803 $123,504 $141,326 $149,734 $163,070
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) The ratio of operating
expenses to average net
assets without giving
effect to voluntary
expense limitations
would have been (%) .... 1.58 -- -- -- -- --
(b) Per share net investment income (loss) does not reflect the period's reclassification
of permanent differences between book and tax basis net investment income (loss). See
Note 1d.
(c) A sales charge is not reflected in total return calculations. Periods less than one
year are not annualized.
(d) Per share net investment income (loss) has been calculated using the average shares
outstanding during the year.
(e) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - continued
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------
SEPTEMBER 13(c) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, --------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
-------------- ------ ------ ------ ------ ----------
Net Asset Value,
Beginning of the
<S> <C> <C> <C> <C> <C> <C>
Period ................... $14.79 $15.24 $14.89 $18.09 $18.74 $19.10
------ ------ ------ ------ ------ ------
Income From
Investment Operations
Net Investment Income
(Loss) ................... 0.00 (0.08) (0.16)(B) (0.28)(F) (0.32)(F) (0.15)
Net Realized and
Unrealized Gain (Loss) on
Investments .............. 0.53 (0.27) 4.60 3.15 3.25 3.45
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............... 0.53 (0.35) 4.44 2.87 2.93 3.30
------ ------ ------ ------ ------ ------
Less Distributions
Distributions From
Net Realized
Capital Gains ............ (0.08) 0.00 (1.24) (2.22) (2.57) 0.00
------ ------ ------ ------ ------ ------
Total Distributions ........ (0.08) 0.00 (1.24) (2.22) (2.57) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End
of the Period ........... $15.24 $14.89 $18.09 $18.74 $19.10 $22.40
====== ====== ====== ====== ====== ======
Total Return (%)(e) ........ 3.6 (2.3) 29.7 16.2 15.9 17.3
Ratio of Operating
Expenses to
Average Net Assets
(%)(a) ................... 2.29(d) 2.38 2.36 2.25 2.20 2.23(d)
Ratio of Net
Investment Income
(loss) to Average
Net Assets (%) ........... (1.15)(d) (1.20) (1.42) (1.46) (1.62) (1.51)(d)
Portfolio Turnover
Rate (%) .................. 77 82 69 74 48 145(d)
Net Assets, End of
the Period (000)........... $6,748 $15,390 $26,234 $37,439 $45,546 $52,187
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) The ratio of operating
expenses to average net
assets without giving
effect to voluntary
expense limitations
would have been (%) .... 2.29(d) -- -- -- -- --
(b) Per share net investment income (loss) does not reflect the period's reclassification
of permanent differences between book and tax basis net investment income (loss). See
Note 1d.
(c) Commencement of Operations.
(d) Computed on an annualized basis.
(e) A contingent deferred sales charge is not reflected in total return calculations.
Periods less than one year are not annualized.
(f) Per share net investment income (loss) has been calculated using the average shares
outstanding during the year.
See accompanying notes to financial statements.
</TABLE>
<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 ........ $14.89 $18.08 $18.74 $19.11
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) .................... (0.09)(a) (0.28)(c) (0.34)(c) (0.16)
Net Realized and Unrealized Gain (Loss) on
Investments ................................... 4.52 3.16 3.28 3.46
------ ------ ------ ------
Total From Investment Operations ................ 4.43 2.88 2.94 3.30
------ ------ ------ ------
Less Distributions
Distributions from Net Realized Capital Gains ... (1.24) (2.22) (2.57) 0.00
------ ------ ------ ------
Total Distributions ............................. (1.24) (2.22) (2.57) 0.00
------ ------ ------ ------
Net Asset Value, End of the Period .............. $18.08 $18.74 $19.11 $22.41
====== ====== ====== ======
Total Return (%)(d) ............................. 29.7 16.2 15.9 17.3
Ratio of Operating Expenses to Average Net Assets
(%) ........................................... 2.36 2.25 2.20 2.23(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets (%) ................................ (1.42) (1.46) (1.62) (1.51)(b)
Portfolio Turnover Rate (%) ..................... 69 74 48 145(b)
Net Assets, End of the Period (000) ............. $ 354 $ 504 $ 979 $1,021
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) Per share net investment income (loss) does not reflect the period's reclassification
of permanent differences between book and tax basis net investment income (loss). See
Note 1d.
(b) Computed on an annualized basis.
(c) Per share net investment income (loss) has been calculated using the average shares
outstanding during the year.
(d) 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>
- --------------------------------------------------------------------------------
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 long-term growth of capital. 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 and Class C 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. 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 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 relating to
shareholder distributions 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 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
$147,452,908 and $164,487,379, 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. From January 1 through February 13, 1998
Loomis Sayles & Company, L.P. ("Loomis Sayles") was the Fund's investment
subadviser. NEFM paid Loomis Sayles at the rate of 0.60% of the first $25
million of the Fund's average daily net assets, 0.55% of the next $75 million
and 0.50% of the next $100 million, 0.35% of the next $300 million and 0.30%
of such assets in excess of $500 million. Effective February 14, 1998 Westpeak
Investment Advisers, L.P. ("Westpeak") became the Fund's investment
subadviser. NEFM pays Westpeak at the rate of 0.40% of the first $200 million
of the Fund's average daily net assets, 0.35% of the next $300 million and
0.30% of such assets in excess of $500 million. Certain officers and directors
of NEFM are also officers or trustees of the Fund. NEFM, Loomis Sayles and
Westpeak are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest") which
is a subsidiary of Metropolitan Life Insurance Company ("MetLife"). Fees earned
by NEFM, Loomis Sayles and Westpeak under the management agreement in effect
during the six months ended June 30, 1998 are as follows:
FEES EARNED PERIOD
- ----------- ------
$272,743 NEFM 1/1/98 - 6/30/98
262,382 Loomis Sayles 1/1/98 - 3/31/98
231,010 Westpeak 4/1/98 - 6/30/98
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 $21,708 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 $198,483 as compensation for its
services in that capacity. For the six months ended June 30, 1998, the Fund
received $2,131 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 $194,089 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
$563,284.
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 $60,410 and $1,211 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
$181,232 and $3,634 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 $224,387.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of NEFM, New England Funds, NEFSCO, Nvest or their affiliates, other than
registered investment companies. Each other trustee is compensated by the Fund
as follows:
Annual Retainer $1,152
Meeting Fee 159/meeting
Annual Committee Member Retainer 173
Annual Committee Chairman Retainer 115
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 TRANSACTIONS. At June 30, 1998 there was an unlimited
number of shares of beneficial interest authorized, divided into three
classes, Class A, Class B and Class C capital stock. Transactions in capital
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------ --------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ------------ ----------- --------- ---------------
<S> <C> <C> <C> <C>
Shares sold ........................ 858,626 $17,173,248 655,608 $ 14,319,896
Shares issued in connection with the reinvestment of:
Distributions from net realized
gain ........................... 884,046 17,485,625 0 0
---------- ----------- ---------- ---------------
1,742,672 34,658,873 655,608 14,319,896
Shares repurchased ................. (1,571,461) (31,813,412) (1,203,685) (26,310,002)
---------- ----------- ---------- ---------------
Net increase (decrease) ............ 171,211 $ 2,845,461 (548,077) $ (11,990,106)
---------- ----------- ---------- ---------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------ ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------------ ----------- --------- ---------------
Shares sold ........................ 472,600 $ 9,252,929 178,746 $ 3,738,361
Shares issued in connection with the reinvestment of:
Distributions from net realized
gain ........................... 282,724 5,380,519 0 0
---------- ----------- ---------- ---------------
755,324 14,633,448 178,746 3,738,361
Shares repurchased ................. (368,337) (7,211,093) (234,454) (4,875,652)
---------- ----------- ---------- ---------------
Net increase (decrease) ............ 386,987 $ 7,422,355 (55,708) $ (1,137,291)
---------- ----------- ---------- ---------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
--------------------------------- ----------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------------ ----------- --------- ---------------
Shares sold ........................ 138,714 $ 2,806,680 36,157 $ 685,722
Shares issued in connection with the reinvestment of:
Distributions from net realized
gain ........................... 5,797 110,303 0 0
---------- ----------- ---------- ---------------
144,511 2,916,983 36,157 685,722
Shares repurchased ................. (120,139) (2,428,222) (41,842) (794,450)
---------- ----------- ---------- ---------------
Net increase (decrease) ............ 24,372 $ 488,761 (5,685) $ (108,728)
---------- ----------- ---------- ---------------
Increase (decrease) derived from
capital shares transactions ...... 582,570 $10,756,577 (609,470) $ (13,236,125)
========== =========== ======== ===============
</TABLE>
5. At a special shareholders' meeting held April 17, 1998, shareholders of
the Capital Growth Fund voted for the following proposal:
<TABLE>
<CAPTION>
VOTED VOTED ABSTAINED BROKER TOTAL
FOR AGAINST VOTES NON-VOTES VOTES
----- ------- --------- --------- -----
1. Subadvisory agreement relating to the
Fund between New England Funds
Management, L.P. and Westpeak
<S> <C> <C> <C> <C> <C>
Investment Advisers, L.P. ............ 4,733,660 194,331 206,088 0 5,134,079
========= ======= ======= === =========
</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
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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.
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[LOGO](R) Bulk Rate
NEW ENGLAND FUNDS(R) U.S. Postage
Where The Best Minds Meet(R) Paid
Brockton, MA
Permit No. 770
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399 Boylston Street
Boston, Massachusetts
02116
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1995 o 1996 o 1997
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