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SEMIANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England Star Small Cap Fund
[graphic omitted]
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JUNE 30, 1998
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<PAGE>
August 1998
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[Photo of Henry L.P. Schmelzer]
Dear Shareholder:
Investors had reason for comfort during the first half of 1998.
After stunning gains in each of the last three years, the stock market behaved
more like its customary self: Major market indicators moved up for a time, slid
back and were once again in recovery mode at the end of the period. This pattern
largely reflected investors' responses to fast-changing events in Asia.
Unpredictable markets call to mind the long-term experience of millions of
mutual fund investors; those of us who held firm to our plans as markets entered
difficult periods were often rewarded as markets recovered. The longer you stay
invested the less interim ups and downs -- here or overseas -- should concern
you.
News from the Far East drove bond market sentiment as well. In the United
States, faltering Asian economies meant lower prices on many imported goods,
putting pressure on prices and corporate earnings. With slower growth now a real
possibility and with little immediate evidence of inflation, the Federal Reserve
Board left short-term interest rates unchanged, while long-term rates fell to
record lows in mid-June.
In the pages that follow, you can read about how your Fund's management dealt
with the disruptions in the Pacific region and their impact on our domestic
economy. But beyond Asia's present problems, and notwithstanding the inevitable
ebb and flow of our own business cycle, there are reasons to be optimistic about
investment prospects over the next several years. For example, vast,
under-served populations in China and elsewhere represent huge potential demand
for consumer goods. Here in the United States, there is the prospect of a
demography-driven spending wave, as millions of baby-boomers enter their peak
consumption years. Events may turn out differently -- volatility will always be
part of investing -- but as much as the markets may waver, the watchwords for
many long-term investors are constant: diversify and persist.
While you are thinking about your investments, take a few minutes to review your
portfolio. It's possible that three years of strong market gains have tilted
your holdings disproportionately toward aggressive stock funds. If so, you and
your financial representative can adjust the balance easily using some of New
England Funds' more conservative equity or bond funds to reallocate your assets
in line with your long-term goals and comfort level. Once you are satisfied with
your portfolio's balance, be sure to stay in touch with your financial
professional, invest regularly and don't try to guess what the market will do
next.
Thank you for your continued support of New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
PREPARING FOR THE YEAR 2000
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New England Funds continues to work to provide high quality service as we move
into the new century. Since last year we have devoted significant resources to
identifying, analyzing and resolving computer issues related to Year 2000. As a
further measure, we have focused on year-end 1998 as a target for preparedness
by vendor and service agency systems that we rely on for support. We expect
major systems to be ready before the end of the year, with a year of quality
assurance to follow.
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1998
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Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
GROWTH OF A $10,000 INVESTMENT
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December 1996 (inception) through June 1998
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class A shares compared to
Russell 2000. The data points to this chart are as follows:]
NET ASSET WITH MAXIMUM RUSSELL
VALUE(1) SALES CHARGE(2) 2000(4)
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12/31/96 $10,000 $ 9,425 $10,000
3/97 $ 9,352 $ 8,814 $ 9,483
6/97 $11,040 $10,405 $11,020
9/97 $13,160 $12,403 $12,660
12/97 $12,697 $11,966 $12,236
3/98 $14,126 $13,314 $13,467
6/98 $13,341 $12,174 $12,839
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class B shares compared to
Russell 2000. The data points to this chart are as follows:]
NET ASSET RUSSELL
VALUE(1) CDSC(3) 2000(4)
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12/31/96 $10,000 $10,000 $10,000
3/97 $ 9,336 $ 9.336 $ 9,483
6/97 $11,000 $11,000 $11,020
9/97 $13,095 $13,095 $12,660
12/97 $12,608 $12,608 $12,236
3/98 $13,996 $13,996 $13,467
6/98 $13,194 $12,794 $12,839
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class C shares compared to
Russell 2000. The data points to this chart are as follows:]
NET ASSET RUSSELL
VALUE(1) 2000(4)
- -----------------------------------------------------------
12/31/96 $10,000 $10,000
3/97 $ 9,336 $ 9,483
6/97 $11,000 $11,020
9/97 $13,095 $12,660
12/97 $12,608 $12,236
3/98 $13,996 $13,467
6/98 $13,194 $12,839
These illustrations represent past performance and cannot predict future
results. Investment return and principal value may vary, resulting in a gain or
loss on the sale of shares. All Index and Fund performance assumes reinvested
distributions.
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NEW ENGLAND STAR SMALL CAP FUND
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AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
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CLASS A (Inception 12/31/96) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 5.08% 20.84% 21.19%
With Max. Sales Charge(2) -0.98 13.91 16.51
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CLASS B (Inception 12/31/96) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 4.65% 19.96% 20.30%
With CDSC(3) -0.35 14.96 17.86
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CLASS C (Inception 12/31/96) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 4.65% 19.96% 20.30%
With CDSC(3) 3.65 18.96 20.30
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COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR SINCE INCEPTION
Russell 2000(4) 4.93% 16.51% 18.13%
Lipper Small Cap Fund Avg.(5) 6.46 17.65 18.15
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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 (PAGES 1 & 2)
(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) Russell 2000 Small Stock Index is a popular measure of the stock price
performance of small companies. The Index performance has not been adjusted
for ongoing management, distribution and operating expenses and sales
charges applicable to mutual fund investments.
(5) Lipper Small Cap 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.
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NEW ENGLAND STAR SMALL CAP FUND
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OVERVIEW
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New England Star Small Cap Fund is composed of four separate portfolio segments,
each managed by a different leading investment management firm. This
multiple-adviser approach is the essence of the Star concept. It provides a
means to diversify among not just individual securities, but investment styles
and strategies as well.
Small-cap stocks and your Fund generated positive returns during the six-month
period that ended June 30, 1998. During the six months, Class A shares produced
a total return of 5.08%, reflecting a $0.78 per share gain in net asset value to
$16.15 per share.
The first six months of 1998, a period of marked contrasts for investors, were
discouraging to many investors in small-company stocks despite the attractive
earnings and price characteristics of this sector. While all stocks were
volatile, the January-to-June time period was especially frustrating for U.S.
small-cap investors. After producing double-digit returns in the first quarter
of 1998, the stock market experienced a setback, as investors reacted to
uncertainties in the global economic environment. Even though by traditional
measures small-company stocks provided attractive value and growth potential,
investors sought the perceived safety and liquidity of large-company stocks. The
popularity of these stocks persisted even though many large companies depend on
exports and stand to be most affected by problems overseas.
While small-cap stocks lagged their large-cap counterparts during the first six
months of 1998, we believe the long-term outlook for small companies is very
positive. Most small-company stocks are attractively priced, have the potential
for earnings growth that is faster than the broader market or the economy as a
whole, and have little or no direct exposure to Asia. We believe that small
companies should be much less vulnerable to a sustained downturn in Asia than
many large U.S. companies.
During the first half of 1998, the global investment environment was a mix of
extreme weakness in some areas and sound economic growth in others. The emerging
Asian countries suffered from weak currencies, rapid decline in economic
activity and social unrest. In Japan, the economic woes that have plagued the
country for several years culminated in recession.
As many Asian countries struggled, the economies of most of the industrialized
countries were strong. In the United States, economic growth continued at a
steady pace and interest rates declined. Even though consumer spending was high
and there was some pick-up in wages, there was virtually no acceleration in
inflation. Despite these very positive factors, concern over what is often
referred to as the "Asian contagion" dominated investor sentiment. As Asian
economies continued to weaken, demand for U.S. goods in that region of the world
declined. The consequences of this supply/demand dynamic were lower profits in
some U.S. economic sectors, including technology and commodities -- steel, oil,
chemicals, paper. If there was a silver lining in all of this, it was that
weaker profits may have deterred the Federal Reserve Board from boosting
interest rates -- good news for stock prices.
Though the four portfolio segments of New England Star Small Cap Fund are
managed autonomously, the chart below gives you a general sector profile of the
Fund as a whole. On the following pages, commentary from each of the portfolio
managers will give you insight into their investment styles and market
perspectives.
YOUR FUND'S 10 LARGEST SECTORS -- 6/30/98
% OF
SECTOR NET ASSETS
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1. BUSINESS SERVICES 9.4
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2. SOFTWARE 8.9
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3. RETAIL 7.2
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4. INDUSTRIAL GOODS & SERVICES 5.0
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5. DRUGS & HEALTH CARE 4.3
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6. BROADCASTING AND PUBLISHING 4.2
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7. BANKS 3.8
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8. INSURANCE 3.4
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9. FINANCIAL SERVICES 3.1
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10. HEALTH CARE - MEDICAL TECHNOLOGY 2.9
Portfolio holdings and asset allocation will vary.
<PAGE>
NEW ENGLAND STAR SMALL CAP FUND
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OAKMARK/HARRIS ASSOCIATES L.P. -- STEVEN REID
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The semiannual period that ended June 30, 1998 was a challenging time for
small-cap value investors. Small companies had everything going for them -- an
excellent economic backdrop of steady growth, relatively low inflation and
interest rates, superior business profiles and insulation from Asia's financial
woes. Still, investors paid relatively little attention to small-cap value
stocks. They tended to prefer the growth that is characteristic of technology or
health care companies -- investments that don't lend themselves to our
investment philosophy.
In managing the segment over the period, we maintained our "value" approach.
That is, we continued to seek stocks that sold below their economic or intrinsic
value and that we believed, over the long term, should perform well. Our
investment approach precludes us from investing in companies that have to
re-invent themselves or find new ways to achieve growth. For example, we find
that the product life cycle of most technology companies is very short and lags
our investment horizon, so we generally do not invest in technology companies.
We prefer to own companies that have either a market niche, large market share
or much needed products that won't quickly become obsolete.
We made no significant changes during the period. Financial stocks continued to
account for a significant portion of the segment. People's Bank continued to be
our largest holding. Industrial companies were also a large portion of the
segment. One bright spot among our industrial holdings was Zurn, a plumbing
products business that was acquired by U.S. Industries, a miniconglomerate. We
held both Zurn and U.S. Industries in the portfolio, and the increase in share
price of Zurn was a strong contributor to performance.
LARGEST HOLDINGS IN OAKMARK/HARRIS SEGMENT
% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. People's Bank 7.35 1.86
2. U.S. Industries, Inc. 6.87 1.73
3. Binks Manufacturing Co. 5.85 1.48
4. Cablevision Systems 5.67 1.43
5. Catellus Development 5.01 1.26
Looking ahead, we are positive about the prospects for small-cap value stocks.
We believe investing is a marathon, not a sprint. There will be periods when our
performance is weak relative to the performance of other types of strategies
that may be in favor among investors. This is not a reason to change our
investment strategy. The operating results of the companies we hold are
excellent, and we believe over the long term they have the potential to reward
patient investors who stick with their investments.
LOOMIS, SAYLES & COMPANY, L.P. --
CHRISTOPHER ELY, PHILIP FINE & DAVID SMITH
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The first six months of 1998 were a period of marked contrast for investors. The
overall stock market experienced strong, double-digit gains in the first
quarter. This was followed by a sharp setback during the second quarter. In
addition, the well publicized problems of the Asian economies finally began to
affect the results of companies here in the United States.
Frankly, the market was due for a correction (or decline) after the
unprecedented gains in 1997 and the first quarter of 1998. It is important to
remember that corrections are a normal and healthy part of the bull market. They
serve to reduce the excesses that tend to build up and set the stage for the
next leg of the market's advance. Although a correction can have a short-term,
negative impact on the value of your investments, it provides an opportunity to
invest in superior companies at lower, much more attractive prices.
LARGEST HOLDINGS IN LOOMIS, SAYLES SEGMENT
% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. Labor Ready, Inc. 2.74 0.70
2. Pacific Sunwear of California 2.52 0.64
3. Medquist, Inc. 2.45 0.62
4. Network Appliance 2.44 0.62
5. D.R. Horton 2.39 0.61
The segment's greatest emphasis during the period was on technology stocks,
which were very volatile. Software and computer service companies, which were
the largest group in the portfolio, were the strongest performers. The picture
was not as bright for electronics companies. Because of excessive inventories of
semiconductor chips and weakening product demand in Asia, electronics companies
performed poorly. At the end of the period, the extent of the segment's
investments in electronics stocks was limited as we reduced our overall
exposure.
We have not altered our investment strategy because of short-term fluctuations
in the market. We continue to employ a bottom-up stock selection approach,
evaluating each company on its own merits rather than trying to predict the next
shift in market sentiment. Thus, industry or economic sector exposure becomes a
residual of the stock selection process.
One area where we identified new opportunity was in specialty retail. We have
been successful with our investment in Pacific Sunwear, a mall-based retailer of
teen clothing. Recently, we added to our specialty retail holdings with the
purchase of 99 Cents Only, a store that sells all its items at 99 cents, and
with an investment in Just for Feet, a large retailer for footwear.
We believe that the market for small-cap growth stocks holds great promise for
investors. These companies are much less affected by issues, such as weak
overseas demand or a strong U.S. dollar, that influence than the large,
multinational companies composing much of the Standard & Poor's 500 Index (S&P
500). As a result, there is growing evidence that the earnings growth of small
companies is accelerating even as the earnings growth of the S&P 500 is slowing.
Finally, small-cap stocks are selling at very attractive prices when compared to
the S&P 500. Looking ahead, we believe this combination of strong fundamentals
and attractive valuations provides a powerful argument for improving small-cap
stock performance.
MONTGOMERY ASSET MANAGEMENT, LLC -- ANDREW PRATT
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We manage the segment using a bottom-up stock picking process that identifies
companies with improving business fundamentals not yet reflected in the stock's
price. We then use fundamental analysis to determine the nature and
sustainability of the company's positive change. The final step is to determine
the appropriate target valuation for the company. Our objective is to identify
companies that have the potential to rise at least 20% per year. When we
consider selling a stock, we apply the same criteria. A stock may be sold if
there is a decline in its fundamentals and/or if its price has become too high.
The changes we made during the six-month period were consistent with our
investment process. We continued to uncover opportunities in the consumer
discretionary and services sectors. Because this sector of the market had so
many attractive companies, it represents our biggest portfolio weighting.
We sold several names that suffered from material negative changes in business
fundamentals. For example, we sold two energy services companies -- Hvide Marine
and Pride International -- as the decline in world energy prices caused a
deterioration in their outlook. From a sector standpoint, the reduction in
energy exposure was the most pronounced change in the segment.
LARGEST HOLDINGS IN MONTGOMERY SEGMENT
% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. Acxiom Corp. 2.68 0.63
2. Cooper Companies 2.58 0.61
3. ESC Medical Systems 2.54 0.60
4. Waters Corp. 2.27 0.54
5. The Men's Wearhouse, Inc. 2.26 0.53
We also sold St. John Knits (SJK), a leading designer, manufacturer and marketer
of women's high-end clothing and accessories. Among other findings, we learned
from a subsequent discussion with management in April that the SJK's new
clothing line was taking longer than expected to gain acceptance. We sold the
stock believing that the line would not make up for the slowing growth in the
core knitwear segment.
Our investment outlook is positive. Our stock-picking process is designed to
uncover high quality growth companies trading at reasonable prices. We feel that
small-cap companies in the United States are attractive on this basis,
especially the ones we hold in the portfolio. Although investors currently favor
larger, more liquid stocks, we believe that the attractive values and strong
growth potential of small companies will ultimately be rewarded by the market.
ROBERTSON, STEPHENS & COMPANY INVESTMENT MANAGEMENT, L.P. --
JOHN WALLACE
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After a relatively strong first quarter, the small-cap market became more
volatile during the second quarter of 1998. Despite the turbulence, our
investment strategy remained the same. We continued to seek long-term capital
appreciation by investing in a diversified mix of dynamic smaller companies. Our
flexible, bottom-up approach is driven by trend analysis and the search for
companies with growth catalysts. We look for well managed companies with
improving business fundamentals that we believe are positioned for considerable
growth in the future. We do not pursue themes or sector trends, but thoroughly
investigate each potential holding on an individual basis.
LARGEST HOLDINGS IN ROBERTSON, STEPHENS SEGMENT
% OF % OF
SEGMENT ASSETS FUND ASSETS
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1. Sabratek Corp. 2.59 0.67
2. Zapata Corp. 2.33 0.60
3. MediaOne Group, Inc. 2.13 0.55
4. FORE Systems 2.13 0.55
5. MicroStrategy, Inc. 1.96 0.50
A number of our holdings contributed to the segment's six-month gains.
Cable-television stocks were an area of emphasis for us. Our investments in this
industry included TCI Ventures and MediaOne Group. In the Fund's December 31,
1997 report to you, we mentioned that many cable systems operators have made
significant investments in technology and equipment. These investment programs
are now winding down, freeing up cash flow as companies expand service offerings
and raise rates. Retail companies also contributed to performance. Retailers
have benefited from a very high level of consumer spending in the United States
and from cheaper Asian imports. The Fund's energy services stocks were weak
performers, but we believe the outlook for these companies should improve in the
future.
Going forward, we will continue to apply our bottom-up strategy to small-cap
investing and seek companies with attractive prices and strong long-term growth
potential.
Portfolio commentaries reflect the conditions and actions taken during the
reporting period, which are subject to change. A shift in opinion may result in
strategic and other portfolio changes.
<PAGE>
PORTFOLIO COMPOSITION
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Investments as of June 30, 1998
(unaudited)
AEROSPACE--0.8%
6,000 Alliant Techsystems ................................ $ 379,500
26,000 Kellstrom Industries, Inc. 753,188
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1,132,688
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AIRLINES--0.4%
12,500 ASA Holdings ....................................... 620,313
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APPAREL & TEXTILES--1.5%
11,000 Jones Apparel Group (c) ............................ 402,188
25,600 Pacific Sunwear of California (c) .................. 896,000
22,500 The Men's Wearhouse, Inc. (c) ...................... 742,500
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2,040,688
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AUTOMOTIVE--0.4%
30,000 Stoneridge, Inc. (c) ............................... 547,500
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BANKS--3.8%
20,000 Brookline Bancorp, Inc. (c) ........................ 297,500
13,150 Commercial Federal ................................. 415,869
8,000 Compass Bancshares, Inc. (d) ....................... 361,000
12,000 Golden State Bancorp (c) ........................... 357,000
42,500 Golden State Bancorp (Warrants) (c) ................ 225,781
20,000 Independence Community Bank Corp. .................. 340,000
20,000 Niagara Bancorp, Inc. (c) .......................... 295,000
30,000 Northwest Bancorp, Inc. ............................ 474,375
75,000 People's Bank ...................................... 2,596,875
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5,363,400
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BIOTECHNOLOGY--1.1%
26,200 AgriBioTech, Inc. .................................. 725,412
5,000 Intercardia, Inc. .................................. 50,000
37,500 Millennium Pharmaceuticals (c) (d) ................. 529,688
36,200 Molecular Biosystems (c) ........................... 260,188
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1,565,288
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BROADCASTING & PUBLISHING--4.2%
40,000 Ascent Entertainment Group (c) ..................... 445,000
15,900 Big Flower Holdings (c) ............................ 477,000
24,000 Cablevision Systems (c) ............................ 2,004,000
12,700 Catalina Marketing (c) ............................. 659,606
12,500 Emmis Broadcasting (c) ............................. 597,656
20,000 Granite Broadcasting (c) ........................... 237,500
10,000 Lee Enterprises, Inc. .............................. 306,250
19,000 Metro Networks (c) ................................. 819,375
11,200 World Color Press, Inc. (c) ........................ 392,000
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5,938,387
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BUILDING MATERIAL &
CONSTRUCTION--0.7%
23,000 Kaufman & Broad Home ............................... 730,250
6,500 Nortek, Inc. ....................................... 199,875
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930,125
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BUSINESS SERVICES--9.4%
13,800 Abacus Direct Corp. (c) ............................ 716,738
13,900 Applied Graphics Technologies (c) .................. 635,925
27,200 Caribiner International (c) ........................ 476,000
40,000 CellNet Data Systems (c) (d) ....................... 387,500
15,000 Cendant Corp. (c) .................................. 313,125
24,600 Checkfree Holdings (c) ............................. 724,162
19,000 Computer Task Group ................................ 636,500
37,500 Condor Technology Solutions (d) .................... 553,125
26,550 Diamond Technology Partner, Inc. ................... 803,137
8,300 Fair Issac & Co. ................................... 315,400
10,000 Gartner Group, Inc. (c) ............................ 350,000
40,500 HA-LO Industries (c) ............................... 1,260,562
12,500 Inspire Insurance Solutions, Inc. (d) .............. 415,625
18,900 Interim Services (c) ............................... 607,163
32,300 Labor Ready, Inc. .................................. 975,056
20,100 Lamar Advertising (c) .............................. 721,088
13,000 Lason Inc. (c) ..................................... 708,500
13,600 Pegasus Systems, Inc. .............................. 348,500
28,400 PMT Services (c) ................................... 722,425
7,800 Saville Systems PLC (ADR) (c) ...................... 390,975
11,900 Staff Leasing, Inc. ................................ 351,050
16,000 Tetra Tech, Inc. ................................... 388,000
6,300 TMP Worldwide, Inc. ................................ 219,713
96,657 U-Ship, Inc. ....................................... 96,657
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13,116,926
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COAL--0.1%
18,900 Westmoreland Coal Co. .............................. 92,138
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COMMUNICATION SERVICES--2.2%
9,000 Ascend Communications (c) (d) ...................... 446,062
29,000 FORE Systems (c) (d) ............................... 768,500
10,300 Metromedia Fiber Network (c) ....................... 480,237
5,000 NEXTEL Communications, Inc. (c) .................... 124,375
35,000 Novell, Inc. (c) ................................... 446,250
45,000 PageMart Wireless (c) .............................. 407,813
10,100 Winstar Communications, Inc. (c) ................... 433,669
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3,106,906
-------------
COMPUTER SOFTWARE & SERVICES--2.1%
10,600 Advantage Learning Systems, Inc. ................... 290,175
25,000 Business Objects (ADR) (c) ......................... 421,875
41,100 Concord Communications, Inc. (c) ................... 1,050,619
15,000 FileNet Corp. (c) .................................. 433,125
27,100 MasTech, Inc. ...................................... 762,187
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2,957,981
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COMPUTERS & BUSINESS EQUIPMENT--1.6%
19,000 Natural Microsystems Corp. (c) ..................... 304,000
22,300 Network Appliance (c) .............................. 868,306
13,000 Telxon Corp. ....................................... 420,875
22,500 Xylan Corp. ........................................ 670,781
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2,263,962
-------------
CONSTRUCTION--0.3%
50,000 Lumen Technologies, Inc. ........................... 443,750
-------------
CONSTRUCTION MATERIALS--0.2%
11,000 TJ International, Inc. ............................. 331,375
-------------
CONSUMER GOODS & SERVICES--2.7%
15,800 Budget Group (c) ................................... 504,612
14,500 Education Management (c) ........................... 476,687
15,000 First Brands Corp. ................................. 384,375
20,000 Libbey, Inc. ....................................... 766,250
25,000 P. H. Glatfelter ................................... 395,313
45,000 R.G. Barry Corp. (c) ............................... 742,500
20,000 Scotsman Industries, Inc. .......................... 555,000
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3,824,737
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DIVERSIFIED CONGLOMERATES--1.7%
98,000 U.S. Industries, Inc. (c) .......................... 2,425,500
-------------
DRUGS & HEALTH CARE--4.3%
8,900 Gilead Sciences (c) ................................ 285,356
11,200 Jones Pharma, Inc. ................................. 371,000
6,700 Medimmune, Inc. (c) ................................ 417,913
33,900 NBTY, Inc. (c) ..................................... 622,912
30,000 Orthodontic Centers of America (c) ................. 628,125
12,500 Pharmacyclics, Inc. (c) ............................ 296,875
26,000 PharMerica, Inc. (c) ............................... 313,625
27,000 Roberts Pharmaceutical Corp. ....................... 621,000
41,000 Sabratek Corp. (d) ................................. 932,750
8,900 Sepracor, Inc. (c) ................................. 369,350
17,100 Sierra Health Services, Inc. (c) ................... 430,706
16,700 Theragenics Corp. (c) .............................. 435,244
4,500 United Healthcare Corp. ............................ 285,750
-------------
6,010,606
-------------
ELECTRICAL EQUIPMENT--0.2%
13,600 MRV Communications (c) ............................. 282,200
-------------
ELECTRONIC COMPONENTS--0.4%
28,800 Sipex Corp. (c) .................................... 619,200
-------------
ELECTRONICS--1.7%
7,800 Aspen Technology ................................... 393,900
5,900 Lernout & Hauspie Speech Products (c) .............. 352,156
22,400 SBS Technologies, Inc. (c) ......................... 674,800
33,900 Splash Technology Holdings, Inc. ................... 582,656
5,100 Uniphase Corp. (c) ................................. 320,185
-------------
2,323,697
-------------
ENERGY--0.4%
12,500 Input/Output, Inc. (c) ............................. 222,656
70,000 Superior Energy Services, Inc. ..................... 354,375
-------------
577,031
-------------
FINANCIAL SERVICES--3.1%
30,000 ARM Financial Group ................................ 663,750
27,600 BA Merchant Services (c) ........................... 557,175
8,000 Bear Stearns Cos. .................................. 455,000
15,000 Duff & Phelps Credit Rating ........................ 836,250
10,200 Hambrecht & Quist Group (c) ........................ 370,387
15,300 Imperial Credit Industries (c) ..................... 359,550
22,500 Richmond County Financial Corp. .................... 420,469
40,000 Southern Pacific Funding Corp. ..................... 627,500
-------------
4,290,081
-------------
FOOD -- AGRIBUSINESS--0.4%
10,977 Delta and Pine Land ................................ 488,477
-------------
FOOD & BEVERAGES--2.5%
28,850 Hain Food Group, Inc. . . 746,494
20,000 International Multifoods ........................... 550,000
40,000 M&F Worldwide. ..................................... 397,500
50,000 Ralcorp Holdings, Inc. (c) ......................... 943,750
40,000 Triarc Companies, Inc. (c) ......................... 877,500
-------------
3,515,244
-------------
FOOD -- RETAILERS/WHOLESALERS--0.9%
27,000 Omega Protein Corp. ................................ 415,125
85,000 Zapata Corp. ....................................... 839,375
-------------
1,254,500
-------------
GOLD--0.2%
25,000 Euro-Nevada Mining (CAD) (d) ....................... 340,627
-------------
HEALTH CARE - MEDICAL TECHNOLOGY--2.9%
23,300 Cooper Companies ................................... 848,994
37,500 Endocardial Solutions, Inc. (d) .................... 393,750
24,800 ESC Medical Systems (c) ............................ 837,000
11,300 Novoste Corp. (c) .................................. 249,306
19,000 Ocular Sciences (c) ................................ 617,500
8,900 Sola International, Inc. (c) ....................... 290,919
12,700 Waters Corp. (c) ................................... 748,506
-------------
3,985,975
-------------
HEALTH CARE - SERVICES--1.9%
13,600 Healthcare Financial Partners, Inc. ................ 833,850
30,200 Medquist, Inc. (c) ................................. 872,025
27,600 Sunrise Assisted Living, Inc. (c) .................. 948,750
-------------
2,654,625
-------------
HOME BUILDERS--2.0%
18,000 American Homestar (d) 430,875
40,000 Cavalier Homes (d) ................................. 517,500
40,700 D.R.Horton ......................................... 849,612
20,100 Lennar Corp. ....................................... 592,950
15,000 Oakwood Homes ...................................... 450,000
-------------
2,840,937
-------------
HOTELS & RESTAURANTS--0.5%
16,800 Papa John's International (c) ...................... 662,550
-------------
HOUSING & BUILDING MATERIALS--0.3%
20,000 Interface, Inc. .................................... 403,750
-------------
INDUSTRIAL GOODS & SERVICES--5.0%
47,300 Binks Manufacturing Co. ............................ 2,066,419
25,000 Columbus McKinnon .................................. 650,000
47,500 Ferro Corp. ........................................ 1,202,344
5,000 HB Fuller Co. ...................................... 277,187
60,000 MagneTek, Inc. (c) ................................. 945,000
15,000 SPX Corp. .......................................... 965,625
25,000 Standard Motor Products, Inc. ...................... 556,250
15,000 Teekay Shipping Corp. .............................. 375,937
-------------
7,038,762
-------------
INSURANCE--3.4%
6,000 American General (d) ............................... 427,125
21,900 Annuity & Life Re Holdings ......................... 484,537
31,250 BankAtlantic Bancorp, Inc. ......................... 369,141
20,000 Financial Security Assurance Holdings .............. 1,175,000
25,000 Highlands Insurance Group (c) ...................... 462,500
30,000 RenaissanceRe Holdings ............................. 1,389,375
10,250 W. R. Berkley Corp. ................................ 410,641
-------------
4,718,319
-------------
LEISURE & LODGING--0.9%
55,000 Alliance Gaming (d) ................................ 220,000
32,100 Prime Hospitality (c) .............................. 559,744
12,900 Sportsline USA, Inc. ............................... 471,656
-------------
1,251,400
-------------
MACHINERY--1.6%
20,000 D T Industries ..................................... 485,000
10,300 Manitowoc Co. ...................................... 415,219
25,000 Northwest Pipe Co. (c) ............................. 587,500
25,000 The Carbide/Graphite Group, Inc. (c) ............... 695,312
-------------
2,183,031
-------------
MANUFACTURING--0.7%
21,000 Flir Systems, Inc. ................................. 362,250
15,000 Simpson Manufacturing Co. .......................... 579,375
-------------
941,625
-------------
MEDIA & ENTERTAINMENT--2.3%
12,000 Comcast ............................................ 487,125
10,000 Cox Communications (c) ............................. 484,375
17,500 MediaOne Group, Inc. (c) ........................... 768,906
22,000 TCI Ventures Group ................................. 441,375
27,500 Tele-Communications International, Inc. ............ 552,578
12,000 Tele-Communications, Inc. (c) ...................... 461,250
-------------
3,195,609
-------------
MORTGAGE--0.2%
10,000 Franchise Mortgage Acceptance (c) .................. 260,625
-------------
NETWORK SYSTEMS--0.5%
25,000 Aware, Inc. (d) .................................... 282,813
100,000 Tidel Technologies, Inc. ........................... 343,750
-------------
626,563
-------------
OIL & GAS--1.3%
115,000 Bonus Resource Services Corp. ...................... 300,840
15,400 Cross Timbers Oil .................................. 293,563
20,000 Marine Drilling (c) ................................ 320,000
100,000 Titan Exploration, Inc. (c) ........................ 887,500
-------------
1,801,903
-------------
OIL SERVICES--0.2%
7,500 BJ Services (c) .................................... 217,969
3,500 BJ Services (Warrants) (c) ......................... 109,812
-------------
327,781
-------------
PACKAGING--0.3%
16,900 Ivex Packaging (c) ................................. 392,925
-------------
PETROLEUM SERVICES--0.8%
8,700 Cliffs Drilling .................................... 285,469
10,200 Dril-Quip, Inc. (c) ................................ 267,750
12,300 Veritas DGC, Inc. .................................. 614,231
-------------
1,167,450
-------------
PHARMACEUTICAL--0.5%
34,300 DUSA Pharmaceuticals (c) ........................... 233,669
15,000 INCYTE Pharmaceuticals (c) (d) ..................... 511,875
-------------
745,544
-------------
REAL ESTATE--1.3%
100,000 Catellus
Development (c) .................................. 1,768,750
-------------
REAL ESTATE INVESTMENT TRUSTS--0.2%
20,000 Imperial Credit Commercial Mortgage ................ 261,250
-------------
RETAIL--7.2%
17,400 99 Cents Only Stores ............................... 722,100
12,700 Borders Group (c) .................................. 469,900
17,300 CDnow, Inc. ........................................ 348,162
17,500 Chico's FAS (c) .................................... 271,250
16,000 Coldwater Creek (c) ................................ 440,000
35,000 Cole National (c) .................................. 1,400,000
38,800 Eagle Hardware & Garden (c) ........................ 897,250
15,000 Finish Line (c) .................................... 421,875
30,000 Genesis Direct, Inc. (d) ........................... 333,750
24,600 Just For Feet (c) .................................. 701,100
109,300 Krause's Furniture (c) ............................. 286,913
35,000 Navarre Corp. ...................................... 142,188
30,000 PETsMART, Inc. (c) ................................. 300,000
14,800 Proffitt's, Inc. (c) ............................... 597,550
12,200 Restoration Hardware, Inc. ......................... 306,525
22,500 Signet Group PLC ................................... 479,531
32,500 Sunglass Hut International, Inc. ................... 359,531
15,000 The Dress Barn (d) ................................. 373,125
75,000 Ugly Duckling Corp. (c) ............................ 726,562
7,600 Whole Foods Market, Inc. (c) ....................... 459,800
-------------
10,037,112
-------------
SAVINGS & LOAN--2.2%
14,500 Astoria Financial .................................. 775,750
16,100 FirstFed Financial (c) ............................. 837,200
22,800 PBOC Holdings, Inc. ................................ 314,925
31,300 Peoples Heritage Financial Group ................... 739,462
17,000 Staten Islands Bancorp, Inc. ....................... 386,750
-------------
3,054,087
-------------
SOFTWARE--8.9%
35,300 Acxiom Corp. (c) ................................... 880,294
16,500 Analysts International ............................. 468,188
29,150 Boole & Babbage, Inc. (c) .......................... 695,956
21,500 Broadvision, Inc. .................................. 513,313
20,100 CIBER, Inc. (c) .................................... 763,800
10,500 Dialogic Corp. (c) ................................. 312,375
55,000 Egghead, Inc. ...................................... 464,063
25,500 Electronics For Imaging (c) (d) .................... 538,687
20,300 Geotek Communications Corp. (c) .................... 827,225
17,900 Henry Jack & Associates, Inc. ...................... 615,312
25,000 INTERSOLV, Inc. .................................... 401,563
14,900 Kronos, Inc. (c) ................................... 540,125
10,500 Lycos, Inc. (c) .................................... 791,437
35,000 Macromedia, Inc. (c) (d) 654,062
25,000 MicroStrategy, Inc. ................................ 706,250
10,600 National Instruments (c) ........................... 378,950
14,600 Sapient Corp. ...................................... 770,150
29,500 Structural Dynamics (c) ............................ 682,187
7,000 Symantec Corp. (c) ................................. 182,875
11,800 Synopsys, Inc. (c) ................................. 539,850
60,000 System Software Associates, Inc. ................... 427,500
6,000 Visio Corp. ........................................ 286,500
-------------
12,440,662
-------------
STEEL--0.5%
12,800 Carpenter Technology ............................... 643,200
-------------
TECHNOLOGY--0.2%
27,000 Actel Corp. (c) .................................... 290,250
-------------
TELECOMMUNICATION--1.6%
22,500 Electric Lightwave (c) ............................. 248,906
42,400 IDT Corp. (c) ...................................... 1,274,650
65,000 Metrocall, Inc. .................................... 394,063
25,000 Startec Global Communications ...................... 287,500
1 United States West, Inc. ........................... 34
-------------
2,205,153
-------------
TELECOMMUNICATION EQUIPMENT--1.5%
35,000 Advanced Radio Telecom Corp. (d) ................... 345,625
12,000 Comverse Technology (c) ............................ 622,500
45,000 IWL Communications (d) ............................. 396,562
30,000 Oakley, Inc. ....................................... 401,250
75,000 ROHN Industries, Inc. .............................. 351,563
-------------
2,117,500
-------------
TOYS & AMUSEMENTS--0.4%
19,000 Action Performance Cos. (c) ........................ 611,563
-------------
TRANSPORTATION--0.5%
15,000 Coach USA (c) ...................................... 684,375
-------------
TRUCKING & FREIGHT FORWARDING--0.4%
17,500 USFreightways Corp. ................................ 574,766
-------------
Total Common Stock (Identified Cost $120,303,791) .. 136,291,369
-------------
OPTIONS--0.0%
CONTRACTS
- -------------------------------------------------------------------------------
200 Sun Microsystems, 45 Call, 7/18/98 ................. 17,500
-------------
Total Options (Identified Cost $33,234) ............ 17,500
-------------
SHORT-TERM INVESTMENTS--2.7%
FACE
AMOUNT
- -------------------------------------------------------------------------------
$2,283,000 Repurchase Agreement with State Street Corp.
dated 6/30/98 at 5.000% to be repurchased at
$2,283,317 on 7/01/98, collateralized by
$1,780,000 U.S. Treasury Bond, 8.125% due 8/15/19
valued at $2,338,176 ............................. $ 2,283,000
1,510,000 Repurchase Agreement with State Street Corp. dated
6/30/98 at 5.650% to be repurchased at $1,510,237
on 7/01/98, collateralized by $1,175,000 U.S.
Treasury Bond, 8.125% due 8/15/19 valued at
$1,543,457 ....................................... 1,510,000
-------------
Total Short Term Investments (Identified Cost
$3,793,000)....................................... 3,793,000
-------------
Total Investments-- 100.2% (Identified Cost
$124,130,025)(b) ................................. 140,101,869
Other assets less liabilities ...................... (156,551)
-------------
Total Net Assets--100% ............................. $ 139,945,318
=============
SECURITIES SOLD SHORT
SHARES DESCRIPTION VALUE (a)
- --------------------------------------------------------------------------------
2,500 Inhale Therapeutic Systems ........................... $61,875
-------
Total Securities Sold Short (Total Proceeds $63,685) $61,875
=======
WRITTEN OPTION CONTRACTS
NET UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------------
50 NASDAQ 100 Index, 1200 Put, 7/18/98 .................. $101,096
100 NASDAQ 100 Index, 1220 Put, 7/18/98 .................. 123,757
200 NASDAQ 100 Index, 1240 Put, 7/18/98 .................. (3,103)
150 PHLX/KBW Bank Index, 825 Put, 7/18/98 ................ (26,077)
--------
$195,673
========
(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 $124,130,025 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. .......... $20,783,932
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (4,812,088)
-----------
Net unrealized appreciation ................................. $15,971,844
===========
(c) Non-income producing security.
(d) All or a portion of this security has been segregated as collateral for
Options.
ADR An American Depository Receipt is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States.
CAD Security denominated in Canadian Dollars.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (Identified cost $124,130,025) ...... $140,101,869
Cash ..................................................... 1,006,714
Cash - restricted ........................................ 179,557
Receivable for:
Fund shares sold ....................................... 332,652
Securities sold ........................................ 1,821,755
Dividends and interest ................................. 23,849
Prepaid registration expense ............................. 12,500
Unamortized organization expense ......................... 30,502
------------
143,509,398
LIABILITIES
Payable for:
Securities purchased ................................... $2,578,556
Open short sales - (proceeds received $63,685) ......... 61,875
Open written options - (proceeds received $444,423) .... 248,750
Fund shares redeemed ................................... 484,145
Accrued expenses:
Management fees ........................................ 116,212
Deferred trustees' fees ................................ 2,134
Accounting and administrative .......................... 3,182
Other .................................................. 69,226
----------
3,564,080
------------
NET ASSETS ................................................. $139,945,318
============
Net Assets consist of:
Capital paid in ........................................ $119,635,041
Undistributed net investment loss ...................... (1,233,833)
Accumulated net realized gain .......................... 5,374,783
Unrealized appreciation on investments, securities sold
short and written option transactions ................ 16,169,327
------------
NET ASSETS ................................................. $139,945,318
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($59,830,127 divided by 3,704,484 shares of beneficial
interest) ................................................ $16.15
======
Offering price per share (100/94.25 of $16.15) ........... $17.14*
======
Net asset value and offering price of Class B shares
($63,800,538 divided by 3,994,895 shares of beneficial
interest) ................................................ $15.97**
======
Net asset value and offering price of Class C shares
($16,314,653 divided by 1,021,503 shares of beneficial
interest) ................................................ $15.97**
======
*Based upon single purchases of less than $50,000. Reduced sales charges apply for purchases in excess
of this amount.
**Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends .................................................. $ 190,892
Interest ................................................... 135,608
----------
326,500
Expenses
Management fees .......................................... $ 683,761
Service fees - Class A ................................... 70,314
Service and distribution fees - Class B .................. 296,306
Service and distribution fees - Class C .................. 73,640
Trustees' fees and expenses .............................. 5,842
Accounting and administrative ............................ 16,655
Custodian ................................................ 105,722
Transfer agent ........................................... 210,044
Audit and tax services ................................... 20,145
Legal .................................................... 864
Printing ................................................. 25,890
Registration ............................................. 40,558
Amortization of organization expenses .................... 4,416
Insurance ................................................ 1,000
Miscellaneous ............................................ 3,819
----------
Total expenses ............................................. 1,558,976
----------
Net investment loss ........................................ (1,232,476)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SECURITIES SOLD SHORT AND WRITTEN OPTIONS
Realized gain (loss) on:
Investments - net ........................................ 6,879,331
Securites sold short - net ............................... 59,747
Written options - net .................................... (373,054)
----------
Net realized gain .......................................... 6,566,024
----------
Unrealized appreciation (depreciation) on:
Investments - net ........................................ 447,418
Securities sold short - net .............................. (44,904)
Written options - net .................................... 196,052
----------
Net unrealized appreciation ................................ 598,566
----------
Net gain on investment transactions ........................ 7,164,590
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $5,932,114
==========
</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 ..................................... $ (1,317,113) $ (1,232,476)
Net realized gain on investments, securities sold short
and written options ................................... 3,552,679 6,566,024
Unrealized appreciation on investments, securites sold
short and written options ............................. 15,570,761 598,566
------------- -------------
Increase in net assets from operations .................. 17,806,327 5,932,114
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ............................................... (1,512,427) 0
Class B ............................................... (1,578,060) 0
Class C ............................................... (386,249) 0
------------- -------------
(3,476,736) 0
------------- -------------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS .......................................... 104,322,991 15,360,584
------------- -------------
Total increase in net assets ............................ 118,652,582 21,292,698
NET ASSETS
Beginning of the period ................................. 38 118,652,620
------------- -------------
End of the period ....................................... $ 118,652,620 $ 139,945,318
============= =============
UNDISTRIBUTED NET INVESTMENT LOSS
End of the period ....................................... $ (1,357) $ (1,233,833)
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1997 1998 1997 1998 1997 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.50 $ 15.37 $ 12.50 $ 15.26 $ 12.50 $ 15.26
------- ------- ------- ------- ------- -------
Income from investment operations
Net investment loss (a) ............. (0.20) (0.11) (0.30) (0.16) (0.30) (0.16)
Net realized and unrealized
gain on investments ............... 3.55 0.89 3.54 0.87 3.54 0.87
------- ------- ------- ------- ------- -------
Total from investment operations .... 3.35 0.78 3.24 0.71 3.24 0.71
------- ------- ------- ------- ------- -------
Less distributions
Distributions from net
realized capital gains ............ (0.48) 0.00 (0.48) 0.00 (0.48) 0.00
------- ------- ------- ------- ------- -------
Total distributions ................. (0.48) 0.00 (0.48) 0.00 (0.48) 0.00
------- ------- ------- ------- ------- -------
Net asset value, end of period ...... $ 15.37 $ 16.15 $ 15.26 $ 15.97 $ 15.26 $ 15.97
======= ======= ======= ======= ======= =======
Total return(%) (b) ................. 27.0 5.1 26.1 4.7 26.1 4.7
Ratio of operating expenses
to average net assets (%) ......... 2.20 1.97(c) 2.95 2.72(c) 2.95 2.72(c)
Ratio of net investment income
(loss) to average net assets (%) .. (1.44) (1.47)(c) (2.19) (2.22)(c) (2.19) (2.22)(c)
Portfolio turnover rate (%) ......... 140 165(c) 140 165(c) 140 165(c)
Net assets, end of period (000) ..... $52,066 $59,830 $52,616 $63,801 $13,970 $16,315
(a) Per share net investment loss has been calculated using the average shares outstanding during the year.
(b) A sales charge in the case of Class A Shares and a contingent deferred sales charge in the case of Class B and Class C Shares
is not reflected in total return calculations. Periods less than one year are not annualized.
(c) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
June 30, 1998
(unaudited)
1. The Fund is a series of New England Funds Trust I, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company. The
Fund seeks capital appreciation. The Declaration of Trust permits the trustees
to issue an unlimited number of shares of the Trust in multiple series (each
such series of shares a "Fund").
The Fund offers Class A, Class B, and Class C shares. 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 a front end sales charge and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and may be subject to a contingent deferred sales charge if
those shares are redeemed within one year. Expenses of the Fund are borne
pro-rata by the holders of each class of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and the relevant
subadvisers under the supervision of the Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date or when the Fund learns of
the dividend, and interest income is recorded on the accrual basis. In
determining net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
C. 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.
These differences are primarily due to differing treatments for organization
costs, wash sales, post October losses and net investment loss. Permanent book
and tax basis differences will result in reclassification to 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. Each subadviser is responsible for
determining that the value of the collateral is at all times at least equal to
the repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the portfolio's ability to dispose of the underlying
securities.
F. SHORT SALES. A short sale is a transaction in which the Fund sells securities
it does not own (but has borrowed) in anticipation of a decline in the market
price of the securities. When the Fund makes a short sale, the proceeds it
receives from the sale will be held on behalf of the broker effecting the sale
until the Fund replaces the borrowed securities. To deliver the securities to
the buyer, the Fund arranges through the broker to borrow the securities and, in
doing so, the Fund becomes obligated to replace the securities borrowed at their
market value at the time of replacement, whatever that price may be. The Fund
may have to pay a premium to borrow the securities and must pay any dividends or
interest payable on the borrowed securities until the securities are replaced.
At June 30, 1998, the amount of cash segregated to cover short positions was
$127,370. Securities sold short at June 30, 1998 and their related market values
are set forth in the schedule of investments.
G. SHORT SALES AGAINST THE BOX. In a short sale against the box, the Fund sells
a borrowed security, while at the same time owning an identical security in the
portfolio. While the short sale is outstanding, the Fund will not dispose of the
security hedged by the short sale.
When the Fund sells short against the box, it will establish a margin account
with the broker lending the security sold short. While the short sale is
outstanding, the broker retains the proceeds of the short sale, and the Fund
pledges securities or cash as additional collateral. The Fund earns interest
from the broker on the proceeds of the short sale and accrues such interest on a
daily basis.
H. OPTIONS. The Fund may use options to enhance investment return, or to hedge
against changes in the values of securities the Fund owns or expects to
purchase. Writing puts and buying calls tends to increase the Fund's exposure to
the underlying instrument and writing calls or buying puts tends to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of options contracts may not correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty is unable to perform.
The maximum loss for purchased options is limited to the premium initially paid
for the option. For options written by the Fund, the maximum loss is not limited
to the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
I. ORGANIZATION EXPENSE. Costs incurred in connection with the Fund's
organization and initial registration, amounting to approximately $41,674 in the
aggregate, were paid by the Fund and are being amortized over 60 months.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1998,
purchases and sales of securities (excluding short-term investments) were
$122,346,580 and $103,099,011 respectively.
Transactions in written options for the six months ended June 30, 1998 are
summarized as follows:
WRITTEN OPTIONS
------------------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------- -----------------
Open at December 31, 1997 125 $ 30,871
Contracts opened 5,015 3,247,518
Contracts closed (4,640) (3,722,812)
------ ----------
Open at June 30, 1998 500 $ (444,423)
====== ==========
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 1.05% of the Fund's average daily net assets.
NEFM pays the Fund's four investment subadvisers, Harris Associates, L.P.,
Loomis, Sayles & Company, L.P., Montgomery Asset Management, L.P. and Robertson,
Stephens & Company Investment Management, L.P. a subadvisory fee as follows:
Harris Associates, L.P., at the annual rate of 0.70% of the average daily net
assets of its segment of the Fund, Loomis, Sayles & Company, L.P. and Robertson,
Stephens & Company Investment Management, L.P. at the annual rate of 0.55% of
the first $50 million of the average daily net assets of the segment of the Fund
which that sub-adviser manages, and 0.50% of such assets in excess of $50
million, and Montgomery Asset Management, L.P. at the annual rate of 0.65% of
the first $50 million of the average daily net assets of the segment of the Fund
which that subadviser manages, and 0.50% of such assets in excess of $50
million.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM, Harris Associates, L.P. and Loomis, Sayles & Company, L.P. are
wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest") which is a
subsidiary of Metropolitan Life Insurance Company. Fees earned by NEFM and the
sub-advisers under the management agreement in effect during the six months
ended June 30, 1998, are as follows:
FEES EARNED
-----------
$285,214 NEFM
95,469 Harris Associates, L.P.
100,150 Loomis, Sayles & Company, L.P.
86,357 Montgomery Asset Management, L.P.
116,571 Robertson, Stephens & Company Investment Management, L.P.
-------
$683,761
========
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, 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 $16,655 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 $151,670 as compensation for its services in
that capacity. For the six months ended June 30, 1998, the Fund received $1,379
in transfer agent credits. The transfer agent expense in the Statement of
Operations is net of these credits.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of 0.25% of the average daily net assets attributable to the
Fund's Class A shares, as reimbursement for expenses (including certain payments
to securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in providing personal services to investors in Class A shares
and/or the maintenance of shareholder accounts. For the six months ended June
30, 1998, the Fund paid New England Funds $70,314 in fees under the Class A
Plan.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of 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 $74,076 and $18,410 in service fees
under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds monthly
distribution fees at the annual rate of 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 $222,230
and $55,230 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 $410,131.
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 $752
Meeting Fee 159/meeting
Annual Committee Meeting Retainer 113
Annual Committee Chairman Retainer 75
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 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 ......................... 7,382,397 $102,447,455 3,846,562 $61,642,453
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .............................. 99,843 1,454,709 0 0
---------- ------------ ---------- -----------
7,482,240 103,902,164 3,846,562 61,642,453
Shares repurchased .................. (4,094,809) (58,848,512) (3,529,509) (56,783,891)
---------- ------------ ---------- -----------
Net increase ........................ 3,387,431 $ 45,053,652 317,053 $ 4,858,562
========== ============ ========== ===========
<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 ......................... 3,659,528 $ 49,771,350 862,984 $13,720,829
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .............................. 98,691 1,428,060 0 0
---------- ------------ ---------- -----------
3,758,219 51,199,410 862,984 13,720,829
Shares repurchased .................. (310,396) (4,301,792) (315,912) (4,984,131)
---------- ------------ ---------- -----------
Net increase ........................ 3,447,823 $ 46,897,618 547,072 $ 8,736,698
========== ============ ========== ===========
<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 ......................... 1,397,972 $ 19,301,406 266,840 $ 4,273,776
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .............................. 25,323 366,428 0 0
---------- ------------ ---------- -----------
1,423,295 19,667,834 266,840 4,273,776
Shares repurchased .................. (507,874) (7,296,113) (160,758) (2,508,452)
---------- ------------ ---------- -----------
Net increase ........................ 915,421 $ 12,371,721 106,082 $ 1,765,324
---------- ------------ ---------- -----------
Increase derived from capital shares
transactions ...................... 7,750,675 $104,322,991 970,207 $15,360,584
========== ============ ========== ===========
</TABLE>
<PAGE>
SUPPLEMENT DATED AUGUST 3, 1998 TO THE MAY 1, 1998 PROSPECTUSES FOR
NEW ENGLAND STAR FUNDS CLASS A, B AND C (AS SUPPLEMENTED JULY 15, 1998)
AND NEW ENGLAND STOCK FUNDS CLASS Y
FOR NEW ENGLAND STAR WORLDWIDE FUND
CHANGE IN PORTFOLIO MANAGERS
Oscar Castro and John Boich of Montgomery have assumed day-to-day responsibility
for the management of the Montgomery segment of the New England Star Worldwide
Fund. Messrs. Castro and Boich are each a Senior Portfolio Manager and Principal
of Montgomery and each has been employed by Montgomery since 1993. They have
co-managed Montgomery's Global Opportunities Fund since its inception on
September 30, 1993.
CHANGE IN INVESTMENT STRATEGY
The paragraph regarding Montgomery in the "Fund Investments - Star Worldwide
Fund" section of the Prospectus is revised to read as follows:
Montgomery Asset Management, LLC ("Montgomery") normally will invest at
least 65% of its segment of the Fund's portfolio in equity securities of
companies, which may be of any size, throughout the world. The segment of
the Fund managed by Montgomery emphasizes common stocks, but may also invest
up to 35% of its segment in debt securities, including up to 5% in debt
securities rated below investment grade. Montgomery may invest its segment
of the Fund in securities denominated in one or more foreign currencies.
Montgomery invests in companies that it believes have potential for above-
average growth in sales and earnings on a sustained basis and that are
reasonably priced. A number of factors are considered in evaluating
potential investments, including a company's per share sales and earnings
growth; return on capital; balance sheet; financial and accounting policies;
overall financial strength; industry sector; competitive advantages; and
quality of management.
Messrs. Castro and Boich have reviewed the portfolio holdings of the Montgomery
segment of the Fund and expect that it will take approximately 2 to 3 months to
reposition the Montgomery segment's portfolio holdings to match the new
investment strategy as set forth above.
REDUCTION IN SUBADVISORY FEE
The subadvisory fees payable by NEFM to Montgomery are now at the annual rate
of:
0.85% of the first $25 million of the average daily net assets of the
segment of the Fund that Montgomery manages,
0.65% of the next $25 million of such assets, and
0.55% of such assets in excess of $50 million.
This change in subadvisory fees paid by NEFM does not affect the management
fee paid by the Fund.
All of the above changes are effective August 3, 1998.
FOR NEW ENGLAND STAR ADVISERS FUND
The following supplements the disclosure found in the paragraph in the "Fund
Management" section of the Prospectus describing subadvisory fees paid by NEFM
to Janus Capital Corporation ("Janus Capital"):
For the Star Advisers Fund, NEFM pays Janus Capital a subadvisory fee at the
annual rate of 0.55% of the first $50 million of the average daily net
assets of the segment of the Fund that Janus Capital manages and 0.50% of
such assets in excess of $50 million.
<PAGE>
SUPPLEMENT DATED AUGUST 21, 1998 TO THE MAY 1, 1998 PROSPECTUSES FOR
NEW ENGLAND STAR FUNDS CLASS A, B AND C (AS SUPPLEMENTED JULY 15, 1998
AND AUGUST 3, 1998) AND NEW ENGLAND STOCK FUNDS CLASS Y
(AS SUPPLEMENTED AUGUST 3, 1998)
The following supplements the paragraph entitled "Founders" in the "Fund
Management" section of each Prospectus:
Effective August 21, 1998, the Founders large/mid-cap investment management
team, under the interim leadership of Paul LaRocco, has replaced Edward F. Keely
as portfolio manager of the Founders' segment of the Star Advisers Fund. Mr.
LaRocco, Vice President of Investments of Founders, is a Chartered Financial
Analyst and is also the interim leader of the team managing the Founders Growth
Fund. Mr. LaRocco has been serving as the lead portfolio manager for the
Founders Special Fund since March 1998 and as a portfolio manager for The
Dreyfus Corporation since April 1998. Prior to joining Founders in 1998, Mr.
LaRocco was a vice president and portfolio manager with Oppenheimer Funds.
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its earnings
per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<PAGE>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT WWW.MUTUALFUNDS.COM
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains information about
distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you
of the availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
<PAGE>
------------------
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Permit No. 770
------------------
---------------------
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