<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
International Equity Fund
[graphic omitted]
- --------------
JUNE 30, 1998
- --------------
<PAGE>
August 1998
- --------------------------------------------------------------------------------
Dear Shareholder:
[Photo of Henry L.P. Schmelzer]
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,
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 INTERNATIONAL EQUITY 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.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since New England International Equity
Fund's inception on 5/21/92, compared to the EAFE Index over the same period.
The data points for this chart are as follows:]
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
With MSCI
Net Asset Maximum EAFE(R)
Class A/Index Value(1) Sales Charge(2) Index(4)
- ------------- -------- --------------- --------
5/21/92 $10,000 $ 9,425 $10,000
6/92 $ 9,840 $ 9,274 $ 9,529
6/93 $11,202 $10,558 $11,501
6/94 $13,347 $12,580 $13,491
6/95 $13,355 $12,587 $13,754
6/96 $14,908 $14,051 $15,627
6/97 $14,923 $14,065 $17,684
6/98 $14,560 $13,723 $18,812
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
- --------------------------------------------------------------------------------
SINCE
CLASS A (Inception 5/21/92) 6 MONTHS 1 YEAR 5 YEARS INCEPTION
Net Asset Value(1) 8.54% -2.43% 5.39% 6.34%
With Max. Sales Charge(2) 2.28 -8.02 4.14 5.32
MSCI EAFE(4) 16.08 6.38 10.34 10.90
Lipper International Avg.(5) 15.49 8.18 12.22 11.21
- --------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR INCEPTION
Net Asset Value(1) 8.10% -3.00% 3.01%
With CDSC(3) 3.10 -7.52 2.64
MSCI EAFE(4) 16.08 6.38 8.80
Lipper International Avg.(5) 15.49 8.18 10.72
(calculated from 9/30/93)
- --------------------------------------------------------------------------------
SINCE
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR INCEPTION
Net Asset Value(1) 8.08% -3.06% 2.03%
With CDSC(3) 7.08 -3.96 2.03
MSCI EAFE(4) 16.08 6.38 10.22
Lipper International Avg.(5) 15.49 8.18 11.68
- --------------------------------------------------------------------------------
SINCE
CLASS Y (Inception 9/9/93) 6 MONTHS 1 YEAR INCEPTION
Net Asset Value(1) 8.78% -1.77% 4.45%
MSCI EAFE(4) 16.08 6.38 8.78
Lipper International Avg.(5) 15.49 8.18 10.72
(calculated from 9/30/93) Class Y shares are available only to
eligible institutional investors and
are not subject to a sales charge.
- --------------------------------------------------------------------------------
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
their original cost. Class Y shares are available only to certain institutional
investors.
Share price and return may vary.
NOTES TO CHARTS
(1)Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2)With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3)With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 5%
sales charge is applied to a redemption of Class B shares. The sales charge
will decrease over time, declining to zero six years after the purchase of
shares. CDSC for Class C shares assumes a maximum 1% sales charge on
redemptions within the first year of purchase.
(4)Morgan Stanley Capital International (MSCI) Europe Australasia Far East Index
(EAFE) is an arithmetical average (weighted by market value) of the
performance (in U.S. dollars) of 1,036 companies representing stock markets
in Europe, Australia, New Zealand and the Far East. The Index performance has
not been adjusted for ongoing management, distribution and operating expenses
and sales charges applicable to mutual fund investments.
(5)Lipper International Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar investment
objectives as calculated by Lipper Analytical Services, an independent mutual
fund ranking service.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of Paul H. Drexler]
Loomis, Sayles & Company, L.P.
Q. HOW DID NEW ENGLAND INTERNATIONAL EQUITY FUND PERFORM IN THE FIRST HALF OF
1998?
The Fund delivered a total return of 8.54% (for Class A shares) for the six
months ending June 30, 1998; this figure reflects a $1.20 per share gain in net
asset value to $15.26 per share on June 30. The Fund's performance lagged the
16.08% return of the Morgan Stanley Capital International EAFE Index.
Q. WHAT FACTORS HELPED OR HURT FUND PERFORMANCE DURING THE YEAR?
Performance was driven primarily by country selection. The Fund's broadly
diversified portfolio penalized us during the period, specifically the exposure
to the Pacific Basin, including Australia and New Zealand, as well as to Canada
- -- all of which trailed European markets.
Your Fund's focus on the major markets of Europe, including Italy, France,
Portugal, Germany and Spain, contributed positively to performance, as did the
Fund's underweighting in Japan, which was among the period's worst performing
markets.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT AND HOW DID IT INFLUENCE YOUR INVESTMENT
STRATEGY?
The year 1998 started on a positive note -- global markets overall enjoyed a
strong first quarter. The second quarter, however, painted a different picture.
Markets in Europe and Asia weakened, particularly towards the tail end of the
period. In June, the setback in European markets ended a 12-month run of strong
performance.
- ---------------------------------------------------
YOUR FUND'S COUNTRY MIX -- 6/30/98
% OF
TOP 10 COUNTRIES NET ASSETS
- ---------------------------------------------------
1. FRANCE 10.57
2. UNITED KINGDOM 10.24
3. GERMANY 9.13
4. JAPAN 8.91
5. SPAIN 8.34
6. CANADA 7.99
7. ITALY 7.91
8. UNITED STATES 7.35
9. NETHERLANDS 6.89
10. DENMARK 5.07
- ---------------------------------------------------
Portfolio holdings and asset allocations will vary.
- ---------------------------------------------------
Throughout the period, I continued to favor the major European markets.
Approximately two-thirds of Fund assets were invested in Europe, with the
remainder spread across Canada and the Pacific Basin. France, at nearly 11% of
the portfolio, represented the Fund's largest country weighting. I also held
major positions in Germany and Italy, which were among the Fund's top
performers.
Q. WHY DID YOU EMPHASIZE EUROPE DURING THE PERIOD?
European stocks were attractive for several reasons. Many European companies are
accelerating their corporate restructuring efforts -- cutting costs,
reengineering operations and putting greater emphasis on generating returns for
shareholders. This focus on corporate efficiency is creating widespread
investment opportunity. The imminent arrival of a common currency is also
prompting companies to focus on becoming cost leaders on a pan-European basis,
adding further impetus to productivity gains.
In addition, during my visits with European company managements, I noticed a
dramatic change in attitude over the past several years. Companies are setting
explicit profitability targets, trimming costs, using pay incentives and share
buy back programs. In many ways, they are simply doing what U.S. firms have been
doing for years -- European companies, however, are still early in the process.
Investing in these companies at this early stage can lay the groundwork for
rewarding investment results.
Q. HOW DO YOU DESCRIBE YOUR INVESTMENT STYLE?
When choosing stocks for the Fund, I look for opportunities outside the United
States that appear to represent the best values. First, I take the macroeconomic
approach of selecting 12 to 14 countries to focus on. By spreading assets among
a dozen or more countries, I am better able to manage the Fund's volatility and
boost performance potential. Within those markets, I then focus on individual
stocks I believe to be underpriced.
Examples of the types of stocks I favor include the bank Credito Italiano, which
has trimmed costs; the French insurance company AXA, which is enjoying strong
profit growth; and Cimpor, a Portugal Telecom, which is benefiting from one of
the strongest growth rates in Europe.
The Fund also has the flexibility to invest up to 20% of assets in fixed-income
securities, such as convertible bonds, as well as corporate and sovereign
(foreign government) bonds. Throughout the period, foreign bonds comprised
approximately 10% of the portfolio.
- ---------------------------------------------------
YOUR FUND'S 10 LARGEST INVESTMENTS -- 6/30/98
% OF
COMPANY NET ASSETS
- ---------------------------------------------------
1. PETROLEOS MEXICANOS 2.27
2. PORTUGAL TELECOM 2.13
3. TELECOM ITALIA 2.04
4. BANGKOK BANK PUBLIC, LTD. 1.78
5. FAMILYMART CO. 1.77
6. VEBA 1.76
7. EDISON INTERNATIONAL 1.76
8. ENI S.P.A 1.72
9. L'AIR LIQUIDE 1.70
10. DONOHUE, INC. 1.67
- ---------------------------------------------------
Portfolio holdings and asset allocations will vary.
- ---------------------------------------------------
At times, international bonds can present an opportunity for greater total
return than can equities from the same market. U.S. dollar-denominated
convertible bonds, for example, can offer exposure to international stocks
without paying a foreign premium or taking on local currency risk. During the
six months, these bonds served as a way to participate in emerging market
opportunities without the volatility and exchange rate risk of local stocks. The
subsequent sale of an Argentina bond that I purchased during January's emerging
market panic resulted in a significant profit for the Fund.
Q. WHAT IS YOUR OUTLOOK FOR THE REST OF THE YEAR?
I am optimistic about the prospects for international stocks. On the Asian
front, I'm taking a slow and cautious approach, watching closely for value
opportunities.
In Europe, which continues to be the Fund's main emphasis, the move toward a
common currency remains on track, and growth prospects remain bright despite the
market decline in June. I believe the likelihood of a continued economic
recovery and corporate restructuring translates into significant opportunities
for investors. The recent downdraft in Europe, meanwhile, has provided a chance
to add to the Fund's European exposure at attractive prices. As always, the
focus of my efforts will be on financially sound companies with a record of
solid performance and whose worth may not be recognized by the marketplace.
Portfolio commentary reflects the conditions and actions taken during the
reporting period, which are subject to change. A shift in opinion may result in
strategic and other portfolio changes.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- ---------------------------------------------------------------------------------------
Investments as of June 30, 1998
(unaudited)
- ---------------------------------------------------------------------------------------
COMMON STOCK--84.7% OF TOTAL INVESTMENTS
SHARES (a) DESCRIPTION VALUE (b)
- ---------------------------------------------------------------------------------------
AUSTRALIA--2.8%
<S> <C>
55,000 Brambles Industies, Ltd. ............................... $ 1,081,936
156,000 Leighton Holdings ...................................... 547,613
235,000 Southcorp Holdings, Ltd. ............................... 684,159
------------
2,313,708
------------
BRAZIL--0.6%
3,797,000 Companhia de Saneamento Basico do Estado de Sao Paulo .. 456,343
47,846 Telemig Tele Minas (d) ................................. 3,330
------------
459,673
------------
CANADA--8.0%
35,000 Bombardier, Inc. ....................................... 951,378
18,250 Canadian National Railway Co. .......................... 969,827
60,500 Donohue, Inc. .......................................... 1,367,012
18,400 Northern Telecom, Ltd .................................. 1,042,819
80,000 Petro Canada ........................................... 1,293,874
15,500 Royal Bank Canada ...................................... 932,180
------------
6,557,090
------------
DENMARK--5.1%
9,000 Carlsberg .............................................. 655,069
2,895 Codan Forsikring ....................................... 400,357
20,000 Sophus Berendsen ....................................... 829,755
47,125 Tryg Baltica Forsikring ................................ 1,282,826
11,000 Unidanmark A/S ......................................... 989,592
------------
4,157,599
------------
FRANCE--10.6%
10,000 AXA .................................................... 1,124,766
15,000 Banque National de Paris ............................... 1,225,664
5,500 Cie de St. Gobain ...................................... 1,019,816
1,320 Comptoirs Modernes ..................................... 687,762
8,700 Elf Aquitaine .......................................... 1,223,183
8,437 L'Air Liquide .......................................... 1,395,537
16,000 Michelin Compagne General B ............................ 923,632
10,500 Valeo .................................................. 1,073,325
------------
8,673,685
------------
GERMANY--9.1%
2,400 Allianz AG ............................................. 800,466
9,800 Daimler Benz AG ........................................ 964,540
50,000 Deutsche Lufthansa AG .................................. 1,260,085
9,000 Henkel Kgaa ............................................ 890,793
3,600 Man AG ................................................. 972,137
21,500 Veba ................................................... 1,446,685
1,200 Volkswagen AG .......................................... 1,159,777
------------
7,494,483
------------
ITALY--7.9%
244,000 Credito Italiano ....................................... 1,277,850
180,000 Edison International ................................... 1,445,167
215,000 Eni S.p.A. ............................................. 1,409,737
11,500 Ericsson ............................................... 681,553
346,000 Telecom Italia ......................................... 1,675,717
------------
6,490,024
------------
JAPAN--8.9%
40,000 Canon, Inc. ............................................ 911,260
38,000 Familymart Co. ......................................... 1,451,074
35,000 Fuji Photo Film Co ..................................... 1,222,608
8,000 Nintendo Co. ........................................... 743,473
110 Nippon Telegraph & Telephone ........................... 914,877
100,000 Nomura Securities ...................................... 1,168,005
55,000 Uny Co ................................................. 894,988
------------
7,306,285
------------
NETHERLANDS--6.9%
35,000 Abn Amro Holding NV .................................... 819,579
17,000 Fortis Amev NV ......................................... 996,040
25,500 Grolsch NV ............................................. 677,407
42,000 Hollandsche Beton ...................................... 876,055
17,000 Kon Kpn NV ............................................. 654,827
8,400 Philips Electronics NV ................................. 706,629
15,000 Royal Pakhoed NV ....................................... 487,025
17,000 Tnt Post Groep NV ...................................... 434,879
------------
5,652,441
------------
NEW ZEALAND--1.7%
471,000 Air New Zealand ........................................ 507,326
1,275,300 Corporate Investments .................................. 517,610
319,200 Nuplex Industries ...................................... 382,020
------------
1,406,956
------------
PORTUGAL--3.8%
35,000 Electricdade de Portugal ............................... 814,139
48,000 Engil SGPS ............................................. 545,785
33,000 Portugal Telecom ....................................... 1,750,108
------------
3,110,032
------------
SPAIN--8.4%
7,200 Acerinox S.A. .......................................... 957,809
32,555 Azucarera Ebro Agricolas, S.A. ......................... 968,052
20,000 Banco Bilbao Vizcaya, S.A. ............................. 1,026,410
48,134 Bco Santander S.A. ..................................... 1,231,992
19,000 Fom Const y Contra ..................................... 980,046
55,000 Iberdrola S.A. ......................................... 893,055
14,325 Repsol S.A. ............................................ 787,478
------------
6,844,842
------------
THAILAND--0.7%
237,000 Electricity Generating Public Company, Ltd.(e) ......... 367,856
64,500 Industrial Finance Corporation of Thailand (d) ......... 13,297
500,000 Phatra Thanakit Public Company, Ltd. ................... 45,024
200,000 Thai Farmers Bank ...................................... 176,540
------------
602,717
------------
UNITED KINGDOM--10.2%
95,000 Anglian Water .......................................... 1,334,007
80,000 Boots Company .......................................... 1,326,410
146,000 British Aerospace ...................................... 1,118,933
35,000 Commercial Union ....................................... 653,938
358,333 FKI PLC ................................................ 1,044,048
65,000 Lloyds TSB Group PLC ................................... 913,284
180,000 Rolls-Royce PLC ........................................ 742,348
90,000 Scot & Newcastle ....................................... 1,268,304
------------
8,401,272
------------
Total Common Stock (Identified Cost $67,399,692) ....... 69,470,807
------------
- ---------------------------------------------------------------------------------------
BONDS AND NOTES--11.3%
FACE
AMOUNT
- ---------------------------------------------------------------------------------------
ARGENTINA--1.4%
300,000 Multicanal S.A., 10.500%, 4/15/18 ...................... 279,000
915,000 Perez Companc S.A., 144A, 8.125%, 7/15/07 .............. 834,938
-------------
1,113,938
-------------
BRAZIL--1.3%
1,508,278 Federal Republic of Brazil, 8.000%, 4/15/14 ............ 1,112,355
-------------
MEXICO--2.3%
1,980,000 Petroleos Mexicanos, 9.500%, 9/15/27 ................... 1,864,170
-------------
SOUTH KOREA--3.1%
400,000 Pohang Iron & Steel Ltd., 6.625%, 7/01/03 .............. 323,804
500,000 Pohang Iron & Steel Ltd, 7.125%, 11/01/06 .............. 385,945
1,000,000 Republic of Korea, 8.875%, 4/15/08 ..................... 904,450
1,175,000 Samsung Electronics Company Ltd., 0.010%, 12/31/07 ..... 916,500
-------------
2,530,699
-------------
THAILAND--2.6%
2,000,000 Bangkok Bank Public, Ltd., 144A, 8.375%, 1/15/27 ....... 1,462,780
175,000 Pindo Deli Finance Mauritus Ltd., 11.750%, 10/01/17 .... 117,031
175,000 Pindo Deli Finance Mauritius Ltd., 10.875%, 10/01/27 ... 103,250
640,000 Total Access Communications, 2.000%, 5/31/06 ........... 486,400
-------------
2,169,461
-------------
VENEZUELA--0.6%
650,000 Republic of Venezuela, 9.250%, 9/15/27 ................. 502,125
-------------
Total Bonds and Notes (Identified Cost $10,319,019) .... 9,292,748
-------------
- ---------------------------------------------------------------------------------------
SHORT TERM INVESTMENT--7.4%
- ---------------------------------------------------------------------------------------
6,034,000 Repurchase Agreement with State Street Corp. dated
6/30/98 at 5.000% to be repurchased at $6,034,838
on 7/01/98 collateralized by $4,690,000 U.S Treasury
Bond 8.125% due 8/15/19 with a value of $6,160,700 ... 6,034,000
-------------
Total Short Term Investment (Identified Cost
$6,034,000) .......................................... 6,034,000
-------------
Total Investments--103.4% (Identified Cost
$83,752,711)(c) ...................................... 84,797,555
Other assets less liabilities ......................... (2,751,965)
-------------
Total Net Assets--100% ................................. $ 82,045,590
=============
<CAPTION>
<S> <C>
(a)Ordinary shares unless noted otherwise.
(b)See note 1a of Notes to Financial Statements.
(c)Federal Tax Information:
At June 30, 1998 the net unrealized appreciation on investments
based on cost of $83,752,711 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 ................ $ 7,616,668
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ................ $ (6,571,824)
-------------
Net unrealized appreciation ...................................... $ 1,044,844
=============
(d)With rights attached
(e)Non-income producing security.
144A Securities exempt from registration under Rule 144A of the Securities act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,297,718 or 2.8% of net
assets.
</TABLE>
<PAGE>
FORWARD CURRENCY CONTRACTS OUTSTANDING
AT JUNE 30, 1998
<TABLE>
<CAPTION>
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE (DEPRECIATION)
-------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Canadian Dollar (bought)...... 7/02/98 695,804 $ 473,259 $ 472,838 $(421)
Deutsche Mark (bought)........ 7/01/98 1,813,583 1,002,035 1,005,619 3,584
Italian Lira (bought)......... 7/03/98 419,151,473 235,024 235,909 885
Italian Lira (bought)......... 7/06/98 292,694,865 164,191 164,736 545
Italian Lira (bought)......... 7/07/98 409,822,391 230,127 230,658 531
Japanese Yen (bought)......... 7/01/98 106,796,564 748,609 772,377 23,768
Portuguese Escudo (bought).... 7/02/98 150,500,000 812,547 815,276 2,729
Australian Dollar (sold)...... 7/06/98 1,679,085 1,010,809 1,042,292 (31,483)
Canadian Dollar (sold)........ 7/07/98 667,340 454,267 453,495 772
French Franc (sold)........... 7/03/98 3,261,386 540,421 539,457 964
Singapore Dollar (sold)....... 7/03/98 1,756,216 1,053,077 1,042,265 10,812
Thailand Baht (sold).......... 7/07/98 285,120 6,740 6,756 (16)
-------
$12,670
=======
</TABLE>
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1998
Banking 11.6%
Insurance 7.4
Telephone Communication 7.4
Beverages 5.1
Machinery 3.8
Miscellaneous Retail 3.4
Construction 3.3
Oil & Gas Extraction 3.2
Electric Services 3.2
Electrical & Electronics 2.9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- ----------------------------------------------------------------------------------------------------
June 30, 1998
(unaudited)
ASSETS
<S> <C> <C>
Investments at value (Identified cost $83,752,711) ........ $84,797,555
Cash ...................................................... 278
Foreign cash at value (Identified cost $820,007) ......... 819,266
Receivable for:
Fund shares sold ........................................ 48,259
Securities sold ......................................... 2,544,808
Open forward currency contracts - net ................... 12,670
Dividends and interest .................................. 447,061
Tax reclaims ............................................ 105,780
Prepaid registration expense .............................. 12,000
------------
88,787,677
LIABILITIES
Payable for:
Securities purchased .................................... $3,697,413
Fund shares redeemed .................................... 2,828,734
Withholding taxes ....................................... 36,544
Accrued expenses:
Management fees ......................................... 90,930
Deferred trustees' fees ................................. 11,266
Accounting and administrative ........................... 2,495
Other expenses .......................................... 74,705
----------
6,742,087
------------
NET ASSETS .................................................. $ 82,045,590
============
Net Assets consist of:
Capital paid in ......................................... $ 76,014,574
Undistributed net investment income ..................... 545,487
Accumulated net realized gains .......................... 4,442,217
Unrealized appreciation on investments and foreign
currency transactions ................................. 1,043,312
------------
NET ASSETS .................................................. $ 82,045,590
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($52,152,926 divided by 3,418,003 shares of beneficial
interest) ............................................... $15.26
======
Offering price per share (100/94.25 of $15.26) .............. $16.19*
======
Net asset value and offering price of Class B shares
($23,126,346 divided by 1,560,966 shares of beneficial
interest) ................................................. $14.82**
======
Net asset value and offering price of Class C shares
($1,218,763 divided by 82,058 shares of beneficial
interest) ............................................... $14.85**
======
Net asset value, offering and redemption price of Class Y
shares ($5,547,555 divided by 355,328 shares of beneficial
interest) ............................................... $15.61
======
</TABLE>
*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.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
INVESTMENT INCOME
<S> <C>
Dividends ................................................. $ 1,104,852(a)
Interest .................................................. 536,267
------------
1,641,119
Expenses
Management fees ......................................... $ 400,493
Service fees - Class A .................................. 72,301
Service and distribution fees - Class B ................. 123,531
Service and distribution fees - Class C ................. 5,558
Trustees' fees and expenses ............................. 4,602
Accounting and administrative ........................... 13,622
Custodian ............................................... 109,877
Transfer agent .......................................... 263,854
Audit and tax services .................................. 23,270
Legal ................................................... 1,260
Printing ................................................ 27,115
Registration ............................................ 19,200
Miscellaneous ........................................... 4,648
----------
Total expenses ............................................ 1,069,331
Less expenses waived by the investment adviser and
subadviser .............................................. (173,273) 896,058
---------- ------------
Net investment income ..................................... 745,061
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ....................................... 4,565,734
Foreign currency transactions - net ..................... (1,206)
----------
Total realized gain on investments and foreign currency
transactions .......................................... 4,564,528
----------
Unrealized appreciation on:
Investments - net ....................................... 2,419,071
Foreign currency transactions - net ..................... 448
----------
Total unrealized appreciation on investments and foreign
currency transactions ................................. 2,419,519
----------
Net gain on investment transactions ....................... 6,984,047
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $ 7,729,108
============
</TABLE>
(a) Net of foreign taxes of: $163,615.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ................................... $ 654,496 $ 745,061
Net realized gain on investments and foreign currency
transactions .......................................... 4,198,612 4,564,528
Unrealized appreciation (depreciation) on investments and
foreign currency transactions ......................... (15,166,223) 2,419,519
----------- ------------
Increase (decrease) in net assets from operations ....... (10,313,115) 7,729,108
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ............................................... (4,763,407) 0
Class B ............................................... (2,124,916) 0
Class C ............................................... (60,863) 0
Class Y ............................................... (1,298,267) 0
In excess of net realized gain on investments
Class A ............................................... (204,054) 0
Class B ............................................... (90,926) 0
Class C ............................................... (2,607) 0
Class Y ............................................... (55,616) 0
----------- ------------
(8,600,656) 0
----------- ------------
DECREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS ............................................ (101,186,621) (14,340,971)
------------ ------------
Total decrease in net assets ............................ (120,100,392) (6,611,863)
NET ASSETS
Beginning of the period ................................. 208,757,845 88,657,453
----------- ------------
End of the period ....................................... $88,657,453 $ 82,045,590
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period ....................................... $ (199,574) $ 545,487
=========== ============
</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 ................... $11.80 $14.85 $15.50 $16.13 $16.31 $14.06
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ..... 0.11 0.00 0.27 0.02(e) 0.09(e) 0.15
Net Realized and Unrealized Gain
(Loss) on Investments .......... 3.37 1.19 0.63 0.51 (1.25) 1.05
------ ------ ------ ------ ------ ------
Total From Investment Operations . 3.48 1.19 0.90 0.53 (1.16) 1.20
------ ------ ------ ------ ------ ------
Less Distributions (b)
Dividends From Net Investment
Income .......................... (0.11) 0.00 (0.27) (0.02) 0.00 0.00
Distributions From Net Realized
Capital Gains .................. (0.32) (0.53) 0.00 (0.33) (1.05) 0.00
Distributions in excess of Net
Realized Gains ................. 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions From Paid-in Capital 0.00 (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions .............. (0.43) (0.54) (0.27) (0.35) (1.09) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End of
the Period ...................... $14.85 $15.50 $16.13 $16.31 $14.06 $15.26
====== ====== ====== ====== ====== ======
Total Return (%) (a) ............. 29.4 8.1 5.8 3.3 (7.6) 8.5
Ratio of Operating Expenses to
Average Net Assets (%) (c) ..... 1.60 1.75 1.75 1.75 1.75 1.83(d)
Ratio of Net Investment Income
to Average Net Assets (%) 0.24 0.01 1.24 0.14 0.62 1.85(d)
Portfolio Turnover Rate (%) ...... 101 123 119 59 154 122(d)
Net Assets, End of the
Period (000) .................... $80,937 $142,917 $136,848 #109,773 $57,845 $52,153
<CAPTION>
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) A sales charge is not reflected in total return calculations. Periods less
than one year are not annualized.
(b) See note 1e.
<S> <C> <C> <C> <C> <C> <C>
(c) The ratio of operating
expenses to average net
assets without giving effect
to voluntary expense
limitations described in
Note 4 to the Financial
Statements would have
been (%) ..................... 2.16 1.79 1.83 1.79 2.14 2.23(d)
(d) Computed on an annualized basis.
(e) Per share net investment income has been calculated using the average shares
outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------
SEPTEMBER 13(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ................... $15.19 $14.81 $15.35 $15.93 $16.00 $13.71
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ..... 0.12 0.00 0.19 (0.10)(f) (0.03)(f) 0.07
Net Realized and Unrealized Gain
(Loss) on Investments .......... (0.06) 1.08 0.58 0.50 (1.17) 1.04
------ ------ ------ ------ ------ ------
Total From Investment Operations . 0.06 1.08 0.77 0.40 (1.20) 1.11
------ ------ ------ ------ ------ ------
Less Distributions (d)
Dividends From Net Investment
Income .......................... (0.12) 0.00 (0.19) 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains .................. (0.32) (0.53) 0.00 (0.33) (1.05) 0.00
Distributions in excess of Net
Realized Gains ................. 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions From Paid-in Capital 0.00 (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions .............. (0.44) (0.54) (0.19) (0.33) (1.09) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End of
the Period ...................... $14.81 $15.35 $15.93 $16.00 $13.71 $14.82
====== ====== ====== ====== ====== ======
Total Return (%) (c) ............. 0.3 7.3 5.0 2.5 (8.0) 8.1
Ratio of Operating Expenses to
Average Net Assets (%) (e) ..... 2.50(b) 2.50 2.50 2.50 2.50 2.58(b)
Ratio of Net Investment Income
(Loss) to Average Net Assets (%) (1.69)(b) (0.74) 0.49 (0.61) (0.13) 1.10(b)
Portfolio Turnover Rate (%) ...... 101 123 119 59 154 122(b)
Net Assets, End of the
Period (000) .................... $9,176 $41,601 $52,895 $45,974 $25,216 $23,126
<CAPTION>
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not
reflected in total return calculations. Periods less than one year are not
annualized.
(d) See note 1e.
<S> <C> <C> <C> <C> <C> <C>
(e) The ratio of operating
expenses to average net
assets without giving effect
to voluntary expense
limitations described in
Note 4 to the Financial
Statements would have
been (%) ..................... 3.36(b) 2.54 2.58 2.54 2.89 2.98(b)
(f) Per share net investment income has been calculated using the average shares
outstanding during the year.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ------------------------------------------------------------------------------------------------------------
(unuadited)
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 ............... $15.35 $15.96 $16.03 $13.74
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ........................... 0.19 (0.10)(d) (0.03)(d) 0.10
Net Realized and Unrealized Gain (Loss) on
Investments ................................... 0.61 0.50 (1.17) 1.01
------ ------ ------ ------
Total From Investment Operations ................ 0.80 0.40 (1.20) 1.11
------ ------ ------ ------
Less Distributions (a)
Dividends From Net Investment Income ............ (0.19) 0.00 0.00 0.00
Distributions from Net Realized Capital Gains ... 0.00 (0.33) (1.05) 0.00
Distributions in excess of Net Realized Gains ... 0.00 0.00 (0.04) 0.00
------ ------ ------ ------
Total Distributions ............................. (0.19) (0.33) (1.09) 0.00
------ ------ ------ ------
Net Asset Value, End of the Period .............. $15.96 $16.03 $13.74 $14.85
====== ====== ====== ======
Total Return (%) (e) ............................ 5.2 2.5 (8.0) 8.1
Ratio of Operating Expenses to Average Net Assets
(%) (b) ....................................... 2.50 2.50 2.50 2.58(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets (%) ................................ 0.49 (0.61) (0.13) 1.10(c)
Portfolio Turnover Rate (%) ..................... 119 59 154 122(c)
Net Assets, End of the Period (000) ............. $1,066 $ 850 $ 843 $1,219
<CAPTION>
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) See note 1e.
<S> <C> <C> <C> <C>
(b) The ratio of operating expenses to
average net assets without giving effect
to voluntary expense limitations described
in Note 4 to the Financial Statements would
have been (%) ............................... 2.58 2.54 2.89 2.98(c)
(c) Computed on an annualized basis.
(d) Per share net investment income has been calculated using the average shares
outstanding during the year.
(e) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS Y
-----------------------------------------------------------------------------
SEPTEMBER 9(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period ................... $15.19 $14.86 $15.64 $16.25 $16.48 $14.35
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............ 0.13 0.00 0.42 0.11(f) 0.19(f) 0.16
Net Realized and Unrealized Gain
(Loss) on Investments .......... (0.01) 1.32 0.60 0.54 (1.23) 1.10
------ ------ ------ ------ ------ ------
Total From Investment Operations . 0.12 1.32 1.02 0.65 (1.04) 1.26
------ ------ ------ ------ ------ ------
Less Distributions(d)
Dividends From Net Investment
Income .......................... (0.13) 0.00 (0.41) (0.09) 0.00 0.00
Distributions From Net
Realized Capital Gains .......... (0.32) (0.53) 0.00 (0.33) (1.05) 0.00
Distributions in excess of Net
Realized Gains ................. 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions From Paid-in
Capital ........................ 0.00 (0.01) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions .............. (0.45) (0.54) (0.41) (0.42) (1.09) 0.00
------ ------ ------ ------ ------ ------
Net Asset Value, End
of the Period .................... $14.86 $15.64 $16.25 $16.48 $14.35 $15.61
====== ====== ====== ====== ====== ======
Total Return (%) (c) ............. 0.7 8.9 6.6 4.0 (6.7) 8.8
Ratio of Operating Expenses to
Average Net Assets (%) (e) ..... 1.00(b) 1.00 1.00 1.00 1.15 1.23(b)
Ratio of Net Investment Income
to Average Net Assets (%) ...... 0.33(b) 0.76 1.99 0.89 1.22 2.45(b)
Portfolio Turnover Rate (%) ...... 101 123 119 59 154 122(b)
Net Assets, End of the
Period (000) ..................... $7,006 $56,561 $83,119 $52,161 $4,752 $5,548
<CAPTION>
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners,
Ltd. Effective February 15, 1997 Loomis, Sayles & Company, L.P. became the
subadviser to the Fund.
(a) Commencement of Operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) See note 1e.
<S> <C> <C> <C> <C> <C> <C>
(e) The ratio of
operating
expenses
to average net
assets without
giving effect to
voluntary expense
limitations
described in Note
4 to the
Financial State-
ments would have
been (%) ..................... 1.35(b) 1.04 1.21 1.19 1.41 1.54(b)
(f) Per share net investment income has been calculated using the average shares
outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
(unaudited)
1. The Fund is a series of New England Funds Trust I, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company. The
Fund seeks total return from long-term growth of capital and dividend income,
primarily through investment in international equity securities. The Declaration
of Trust permits the Trustees to issue an unlimited number of shares of the
Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years (or five years if purchased prior to May 1, 1997).
Class C shares do not pay front end sales charges and do not convert to any
class of shares, but they do pay a higher ongoing distribution fee than Class A
shares and may be subject to a contingent deferred sales charge if those shares
are redeemed within one year. Class Y shares do not pay a front end sales
charge, a contingent deferred sales charge or distribution fees. They are
intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees applicable to such class), and votes as a
class only with respect to its own Rule 12b-1 plan. Shares of each class would
receive their pro-rata share of the net assets of the Fund, if the Fund were
liquidated. In addition, the Trustees approve separate dividends on each class
of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service authorized by the Board of
Trustees, which service determines valuations for normal, institutional- size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates value. All other securities and assets are valued at their fair
value as determined in good faith by the Fund's adviser and subadviser, under
the supervision of the Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date 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. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency contracts
to facilitate transactions in foreign securities and to manage the fund's
currency exposure. Contracts to buy generally are used to acquire exposure to
foreign currencies, while contracts to sell are used to hedge the Fund's
investments against currency fluctuation. Also, a contract to buy or sell can
offset a previous contract. These contracts involve market risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The U.S. dollar value of the currencies the Fund has committed to
buy or sell (if any) is shown in the schedule of investments under the caption
"Forward Foreign Currency Contracts." This amount represents the aggregate
exposure to each currency each fund has acquired or hedged through currency
contracts at period end. Losses may arise from changes in the value of the
foreign currency or if the counterparties do not perform under the contracts
terms. The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions
are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for the
foreign currency component on the sale of securities for book and tax purposes.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the portfolio'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
$51,914,996 and $60,701,814 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 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million. NEFM pays Loomis Sayles & Company, L.P.
("Loomis Sayles") at the rate of 0.40% of the first $200 million of the Fund's
average daily net assets and 0.35% of such assets in excess of $200 million.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM and Loomis Sayles are wholly owned subsidiaries of Nvest Companies,
L.P. ("Nvest") which is a subsidiary of Metropolitan Life Insurance Company
("MetLife").
Fees earned by NEFM and Loomis Sayles under the management agreement in effect
during the six months ended June 30, 1998 are as follows:
FEES EARNED
-----------
$222,496 (a) NEFM
177,997 (a) Loomis Sayles
(a) Before reduction due to voluntary expense limitation. See Note 4.
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 $13,622 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 $205,150 as compensation for its services in
that capacity. For the six months ended June 30, 1998, the Fund received $918 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 $72,301 in fees under the Class A
Plan. If the expenses of New England Funds that are otherwise reimbursable under
the Class A Plan incurred in any year exceed the amounts payable by the Fund
under the Class A Plan, the unreimbursed amount (together with unreimbursed
amounts from prior years) may be carried forward for reimbursement in future
years in which the Class A Plan remains in effect. The amount of unreimbursed
expenses carried forward at December 31, 1997 is $514,256.
Under the Class B and Class C Plans, 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 $30,883 and $1,389 in service fees
under the Class B and Class C plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England Funds a
monthly distribution fee at the annual rate of 0.75% of the average daily net
assets attributable to the Fund's Class B and Class C shares, as compensation
for services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in connection with the marketing or sale of Class B and Class C shares.
For the six months ended June 30, 1998, the Fund paid New England Funds $92,648
and $4,169 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 of shares of the Fund during the year six months
end June 30, 1998 amounted to $111,875
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 New
England Funds, NEFM, Nvest, NEFSCO or their affiliates, other than registered
investment companies. Each other trustee was compensated by the Fund as follows:
Annual Retainer $497
Meeting Fee 159/meeting
Annual Committee Member Retainer 75
Annual Committee Chairman Retainer 50
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. EXPENSE LIMITATIONS. Effective May 1, 1998 NEFM and Loomis Sayles have
voluntarily agreed, until further notice, to waive their respective management
and subadvisory fees and, if necessary, NEFM has agreed to bear certain expenses
associated with the Fund, to limit the Fund's expenses to the annual rates of
2.00%, 2.75%, 2.75% and 1.40% of the average net assets of the Fund's Class
A,B,C, and Y shares, respectively. NEFM and/or Loomis Sayles may terminate these
voluntary limitations at any time.
From January 1 through April 30, 1998 the Fund's expenses were limited to the
annual rates of 1.75%, 2.50%, 2.50% and 1.15% of the average net assets of the
Fund's Class A,B,C, and Y shares, respectively. From February 15 through April
30, 1998 NEFM and New England Funds had voluntarily agreed to reduce their fees
and to bear certain operating expenses to limit the expenses as described above.
From January 1 through February 14, 1998 Loomis Sayles had voluntarily agreed to
waive its entire subadvisory fee and in addition NEFM and New England Funds had
voluntarily agreed to reduce their fees and to bear certain operating expenses
to limit the expenses as described above.
As a result of the Fund's expenses exceeding the voluntary expense limitation
during the six months ended June 30, 1998, NEFM waived $108,498 of its $222,496
management fees and Loomis Sayles waived $64,775 of its $177,997 subadvisory
fees.
5. CONCENTRATION OF RISK. The Fund had the following geographic concentration in
excess of 10% of its total net assets at June 30, 1998: France 10.6% and United
Kingdom 10.2%. The Fund pursues its objectives by investing in foreign
securities. There are certain risks involved in investing in foreign securities
which are in addition to the usual risks inherent in domestic investments. These
risks include those resulting from future adverse political or economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions.
6. CAPTIAL SHARES. At June 30, 1998 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital stock. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------- -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---- ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 11,054,765 $ 171,781,072 3,689,974 $ 56,792,722
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .......................... 314,622 4,722,476 0 0
----------- -------------- ---------- -------------
11,369,387 176,503,548 3,689,974 56,792,722
Shares repurchased .............. (13,988,640) (218,629,862) (4,385,126) (67,747,200)
----------- -------------- ---------- -------------
Net decrease .................... (2,619,253) $ (42,126,314) (695,152) $ (10,954,478)
----------- -------------- ---------- -------------
<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 ..................... 224,357 $ 3,437,336 91,710 $ 1,392,617
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .......................... 139,657 2,045,975 0 0
----------- -------------- ---------- -------------
364,014 5,483,311 91,710 1,392,617
Shares repurchased .............. (1,398,212) (21,245,551) (370,583) (5,497,217)
----------- -------------- ---------- -------------
Net decrease .................... (1,034,198) $ (15,762,240) (278,873) $ (4,104,600)
----------- -------------- ---------- -------------
<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 ..................... 76,616 $ 1,180,567 31,299 $ 465,636
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .......................... 4,089 60,026 0 0
----------- -------------- ---------- -------------
80,705 1,240,593 31,299 465,636
Shares repurchased .............. (72,366) (1,086,983) (10,629) (159,184)
----------- -------------- ---------- -------------
Net increase ................... 8,339 $ 153,610 20,670 $ 306,452
----------- -------------- ---------- -------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------- -----------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ---- ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 546,083 $ 8,727,937 57,128 $ 903,993
Shares issued in connection with the
reinvestment of:
Distributions from net realized
gain .......................... 88,605 1,353,883 0 0
----------- -------------- ---------- -------------
634,688 10,081,820 57,128 903,993
Shares repurchased .............. (3,468,182) (53,533,497) (33,008) (492,338)
----------- -------------- ---------- -------------
Net increase (decrease) ......... (2,833,494) $ (43,451,677) 24,120 $ 411,655
----------- -------------- ---------- -------------
Decrease derived from capital
shares
transactions .................. (6,478,606) $ (101,186,621) (929,235) $ (14,340,971)
=========== ============== ========== =============
</TABLE>
<PAGE>
SUPPLEMENT DATED AUGUST 17, 1998 TO THE NEW ENGLAND STOCK FUNDS CLASS A, B AND
C SHARES AND CLASS Y SHARES PROSPECTUSES DATED MAY 1, 1998
FOR NEW ENGLAND VALUE FUND AND NEW ENGLAND BALANCED FUND
The following supplements the "Fund Management" section of each Prospectus:
Effective August 1998, Jeffrey Wardlow and Lauriann Kloppenberg have assumed
responsibility for the day-to-day management of the Value Fund. Also effective
August 1998, Jeffrey Wardlow and Gregg Watkins have assumed responsibility for
the day-to-day management of the equity portion of the Balanced Fund and the
responsibility for allocating the assets of the Balanced Fund between equity
and fixed-income securities. The day-to-day management of the fixed-income
portion of the Balanced Fund remains the same. Mr. Wardlow, Vice President of
Loomis Sayles, has managed the Loomis Sayles Core Value Fund since its
inception in May 1991. Ms. Kloppenberg, Vice President and Director of Equity
Research of Loomis Sayles, has been employed by Loomis Sayles for more than
five years. Mr. Watkins, Vice President of Loomis Sayles, is also a portfolio
manager of the Loomis Sayles Mid-Cap Value Fund and has been employed by
Loomis Sayles for more than five years.
FOR NEW ENGLAND GROWTH FUND
Effective September 1, 1998, New England Growth Fund offers Class C shares to
the general public in addition to Class A and Class B shares. Therefore, the
following tables supplement "Annual fund operating expenses" and "Example" in
the "Schedule of Fees" section:
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
NEW ENGLAND
GROWTH FUND
-----------
CLASS C
-----------
Management Fees ................................................ 0.67%
12b-1 Fees ..................................................... 1.00%*
Other Expenses ................................................. 0.20%
Total Fund Operating Expenses .................................. 1.87%
- ------------
*Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of
actual or expected Fund performance or expenses, both of which may be more or
less than those shown.
NEW ENGLAND GROWTH FUND
-----------------------
CLASS C
-----------------------
(1) (2)
1 year ........................................... $ 29 $ 19
3 years .......................................... $ 59 $ 59
5 years .......................................... $101 $101
10 years ......................................... $219 $219
- ------------
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its earnings
per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<PAGE>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
Visit our World Wide Web site at www.mutualfunds.com
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains information about
distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you
of the availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
<PAGE>
------------------
[LOGO](R) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
WHERE THE BEST MINDS MEET(R) PAID
BROCKTON, MA
PERMIT NO. 770
------------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
[Dalbar Logo]
- -----------------------
1995 o 1996 o 1997
IE58-0698
[Recycle Logo] Printed on Recycled Paper
