<PAGE>
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ANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England
Star Advisers Fund
[graphic omitted]
WHERE
THE BEST
MINDS
MEET(R)
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JUNE 30, 1999
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<PAGE>
AUGUST 1999
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[Photo of Bruce R. Speca]
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"Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing."
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Dear Shareholder,
Performance results for the New England Family of Funds were driven mainly by
two important changes that took place in our financial markets during the first
half of 1999. First, the long, upward climb of large-capitalization stocks
slowed dramatically as attention turned to stocks with more reasonable
valuations. Then, bond investors grew fearful that our persistently strong
economy would lead the Federal Reserve Board to impose higher interest rates.
Your manager's commentary on the following pages details how these trends
affected your fund's strategy and performance.
As I watch investments come in and out of favor, I'm reminded of the importance
of asset allocation - the practice of dividing your portfolio among different
kinds of stocks and bonds. The idea is to own more or less of each investment
type according to your feelings about risk and your investment time horizon.
Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing. In addition to broadening diversification,
it seeks to avoid exposure to narrow market segments and can help reduce
volatility.
While a diversified portfolio may have given solid returns during the past year,
many investors were disappointed when they compared those returns to the
performance of large-company growth stocks or to the soaring returns of Internet
stocks. Suddenly, investors were asking: Is asset allocation dead?
Certainly not! Like so much in life, market cycles are inevitable. Different
categories of investments will be popular at different times, and a sensible
asset allocation program can help you as market trends change.
I know it can be tempting to jump on a bandwagon and go after "easy money." But
I encourage you, instead, to maintain a rational, long-term perspective and to
consult your financial representative regularly to review and fine-tune
your investments, including a well-diversified asset allocation program.
Thank you for your continued interest. We look forward to helping you achieve
your long-term financial objectives.
Sincerely,
/s/ Bruce R. Speca
Bruce R. Speca
President and CEO
<PAGE>
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NEW ENGLAND STAR ADVISERS FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1999
- --------------------------------------------------------------------------------
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. The
Standard & Poor's 400 Midcap Index4 is the primary benchmark and the S&P 500
Stock Index5 is the secondary benchmark for New England Star Advisers Fund.
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 Star Advisers Fund's
inception on 7/7/94 compared to Standard & Poor's 400(4) and Standard & Poor's
500(5). The data points from the graph are as follows:]
JUNE 1994 THROUGH JUNE 1999
NAV(1) MSC(2) S&P 400(4) S&P 500(5)
- -----------------------------------------------------------
7/94 $10,000 $ 9,425 $10,000 $10,000
12/94 $10,512 $ 9,908 $10,076 $10,167
6/95 $12,107 $11,411 $11,846 $12,215
12/95 $14,124 $13,312 $13,185 $13,974
6/96 $15,907 $14,993 $14,398 $15,382
12/96 $16,805 $15,838 $15,710 $17,174
6/97 $18,552 $17,486 $17,750 $20,710
12/97 $20,194 $19,033 $20,771 $22,895
6/98 $23,017 $21,694 $22,562 $26,941
12/98 $24,083 $22,698 $24,732 $29,425
6/99 $28,205 $26,583 $26,429 $33,062
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 reinvestment of
distributions.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
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NEW ENGLAND STAR ADVISERS FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/99
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CLASS A (Inception 7/7/94) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.7% 21.1% 23.2%
With Maximum Sales Charge(2) 9.1 14.2 21.7
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CLASS B (Inception 7/7/94) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.3% 20.2% 22.2%
With CDSC(3) 10.3 15.2 22.1
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CLASS C (Inception 7/7/94) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.3% 20.2% 22.3%
With CDSC(3) 14.3 19.2 22.3
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CLASS Y (Inception 11/15/94) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.9% 21.4% 23.3%
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SINCE FUND'S SINCE
INCEPTION FUND'S
(CLASS A, CLASS Y
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR B AND C) INCEPTION
S&P 400 Midcap Index(4) 6.9% 17.1% 21.8% 23.8%
S&P 500 Stock Index(5) 12.4 22.7 28.0 30.0
Lipper Growth Average(6) 11.7 18.9 22.5 23.2
Morningstar Mid Cap
Growth Avg.(7) 14.5 19.4 21.8 22.3
- --------------------------------------------------------------------------------
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available to certain institutional investors
only.
(1) Net Asset Value (NAV) performance represents the percent change in net asset
value per share with all distributions reinvested. Returns would have been
lower had sales charges been reflected.
(2) With Maximum Sales Charge performance represents the percent change in net
asset value per share with all distributions reinvested 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 for Class B shares
represents the percent change in net asset value per share with all
distributions reinvested and assumes that a maximum 5.00% sales charge is
applied to redemptions. The sales charge will decrease over time, declining
to zero six years after the purchase of shares. With CDSC performance for
Class C shares assumes a maximum 1.00% sales charge on redemptions within
the first year of purchase.
(4) The Standard & Poor's Midcap 400 Index (S&P 400(R)) is an unmanaged index
representing the performance of the mid-sized company segment of the U.S.
market. The performance of the index has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments. It is not possible to invest directly in an
index.
(5) The Standard & Poor's Composite Index of 500 Stocks (S&P 500(R)) is a market
value-weighted unmanaged index of common stock prices. It is a common
measure of stock total return performance. The performance of the S&P 500
has not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments. It is not
possible to invest directly in an index.
(6) Lipper Growth Average is an average (calculated on the basis of net asset
value) of funds with similar investment objectives as calculated by Lipper
Inc., an independent mutual fund ranking service. Class Y since inception
return is calculated from 11/30/94.
(7) Morningstar Mid Cap Growth Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service. Class A, B
and C since inception returns are calculated from 7/31/94. Class Y since
inception return is calculated from 11/30/94.
<PAGE>
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NEW ENGLAND STAR ADVISERS FUND
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OVERVIEW: HOW THE FUND PERFORMED
- --------------------------------------------------------------------------------
New England Star Advisers Fund delivered strong performance for the first six
months of 1999, as the stock market continued on a healthy upward course. During
the six-month period that ended June 30, 1999, New England Star Advisers Fund's
Class A shares at net asset value produced a return of 15.73%. During the same
period, the Fund's benchmark S&P 400 Midcap Index returned 6.9%, while its
secondary benchmark, the S&P 500 Stock Index, returned 12.4%.
New England Star Advisers Fund is composed of four separate segments, each
managed by a different investment management firm. This multiple-adviser
approach is the foundation of the Star concept. It provides a means to diversify
among not just individual securities but also among the investment styles and
strategies of several established management firms.
Two distinct investment environments marked the first six months of 1999. During
the first quarter, market conditions mimicked those of 1998. Even though
interest rates started to edge up, economic growth was strong and inflation
remained low. Large-cap stocks continued to outperform mid-cap and small-cap
stocks, and growth stocks were favored over value stocks.
In the second quarter, however, investor psychology changed slightly and three
themes began to emerge in the financial markets -- rising concerns over higher
inflation and interest rates, some dampening of enthusiasm for growth stocks in
favor of value stocks and a change in market leadership from large-cap stocks to
mid-cap stocks. Shifts in market sentiment are often sparked by one or more
events that investors believe could change the direction of stock prices. In
this case, the catalysts were strong consumer spending, higher commodity prices
and moderate labor shortages and wage hikes. All of these perceptions fueled
fears of inflation, which tends to drive interest rates higher.
Historically, even a perceived potential for accelerating inflation and higher
interest rates has often been negative for growth stocks. Because growth stocks
tend to generate most of their earnings over the long term, rising inflation
over several years can effectively erode the value of those earnings. Thus, when
the potential prospects for higher inflation began to influence investors,
large-cap growth stocks, which had been market leaders for more than a year,
began to lose some of their appeal.
During the same period, mid-cap value stocks became more popular. Value stocks
usually deliver earnings improvements in the near term, and, therefore, are less
influenced by the prospects of higher inflation and interest rates. Further, the
intrinsic value of such stocks is often overlooked by investors. As a result,
they usually have low prices, which do not reflect the full earnings potential
of the underlying company's assets.
Investors also began to look at stocks in various economic sectors. In 1998,
market breadth -- the number of stocks that participated in the market's strong
gains -- was relatively narrow, as most of the market's returns came from a
handful of stocks. In 1999, however, investors sought attractive opportunities
throughout the market. As a result, many sectors -- most notably, basic
materials, capital goods and energy -- performed well. However, healthcare,
consumer staples, such as beverages and restaurants, and consumer cyclicals,
such as autos and home building, produced negative returns.
Because your Fund emphasizes different investment styles and strategies of its
various managers and management firms, it participated in the performance of
the market's new emphasis. The Oakmark/Harris segment began to produce strong
returns, due to its investments in value stocks. Similarly, the Fund was well
positioned to reap the rewards of the market before the shift from growth stocks
to value stocks. The Janus segment has done particularly well so far this year,
benefiting from investments in Internet-related companies and cellular and
wireless communications companies. The Founders segment benefited in the first
quarter from its focus on large-cap growth stocks but gave up some of its
returns in the second quarter. The return of the Loomis Sayles segment, which
emphasizes value stocks, was affected by its small-cap concentration. While
small-cap stocks advanced slightly during the period, they have yet to gain
favor with a large number of investors.
As we look ahead, we believe we may be at the beginning of a trend in which
investors will place more emphasis on value stocks and mid-cap stocks than on
growth and large-cap stocks. We also believe that small-cap stocks, which have
been largely ignored by investors for some time, are poised for improvement. The
shift in market leadership that took place during the first half of 1999 was
driven by recognition that the extraordinary gains in growth stocks in the past
few years have made these stocks fully priced. We are optimistic about general
market conditions, and while we expect interest rates to rise slightly, we do
not believe they will affect the upside potential of the market in a major way.
YOUR FUND'S 10 LARGEST SECTORS -- 6/30/99
% of
Sector Net Assets
-------------------------------------------------------
1. Broadcasting 6.1
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2. Drugs & Health Care 5.0
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3. Banks & Thrifts 4.8
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4. Publishing 4.7
-------------------------------------------------------
5. Telecommunication Equipment 4.7
-------------------------------------------------------
6. Computer Software & Services 3.7
-------------------------------------------------------
7. Food & Beverages 3.6
-------------------------------------------------------
8. Retail 3.5
-------------------------------------------------------
9. Financial Services 3.4
-------------------------------------------------------
10. Technology 3.1
-------------------------------------------------------
Portfolio holdings and asset allocations will vary.
YOUR FUND'S 10 LARGEST HOLDINGS -- 6/30/99
% of
Sector Net Assets
-------------------------------------------------------
1. Nokia Corp. (ADR) 2.8
-------------------------------------------------------
2. Cisco Systems (c) 2.7
-------------------------------------------------------
3. Time Warner, Inc. 2.3
-------------------------------------------------------
4. Amazon.com, Inc. (c) 2.3
-------------------------------------------------------
5. TYCO International, Ltd. 2.3
-------------------------------------------------------
6. AT&T Corp. - Liberty Media Group 2.1
-------------------------------------------------------
7. Comcast 1.8
-------------------------------------------------------
8. Microsoft Corp. (c) 1.6
-------------------------------------------------------
9. Medtronic, Inc. 1.6
-------------------------------------------------------
10. Enron Corp. 1.5
-------------------------------------------------------
Portfolio holdings and asset allocations will vary.
This 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.
The Fund may invest in foreign and emerging market securities. Investing in
foreign and emerging market securities may involve special risks. The Fund may
invest in higher yielding securities. Investments in lower-rated,
higher-yielding bonds may involve greater risk. Investing in small-cap companies
involves greater risk than is customarily associated with more established
companies. The Fund may invest in REITS which are subject to changes in
underlying real estate values, rising interest rates, limited diversification of
holdings, higher costs and prepayment risk associated with related mortgages.
This Fund may invest in derivative securities for hedging purposes. The risks
may increase share price volatility. See the Fund's prospectus for details.
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1999
(unaudited)
COMMON STOCK -- 95.0% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
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AEROSPACE & DEFENSE -- 2.5%
57,500 AAR Corp. ................................... $ 1,304,531
18,800 Alliant Techsystems ......................... 1,626,200
39,200 GenCorp ..................................... 989,800
260,000 Lockheed Martin Corp. ....................... 9,685,000
50,000 Newport News Shipbuilding, Inc. ............. 1,475,000
34,500 Nichols Research Corp. ...................... 754,688
58,200 Orbital Sciences Corp. (c) .................. 1,374,975
299,000 The Boeing Co. .............................. 13,212,062
--------------
30,422,256
--------------
APPAREL & TEXTILES -- 1.5%
135,900 Burlington Industries (c) ................... 1,231,594
48,600 Liz Claiborne, Inc. ......................... 1,773,900
230,000 NIKE, Inc., Class B ......................... 14,561,875
25,800 Springs Industries, Inc. .................... 1,125,525
--------------
18,692,894
--------------
AUTO PARTS -- 0.5%
40,191 Danaher Corp. ............................... 2,336,102
69,345 Federal-Mogul ............................... 3,605,940
--------------
5,942,042
--------------
AUTOMOTIVE -- 0.4%
93,800 Intermet Corp. .............................. 1,418,725
46,200 Meritor Automotive, Inc. .................... 1,178,100
79,300 Tower Automotive, Inc. ...................... 2,017,194
--------------
4,614,019
--------------
BANKS & THRIFTS -- 4.8%
208,000 Bank One Corp. .............................. 12,389,000
36,800 Bank United ................................. 1,478,900
24,000 Chittenden Corp. ............................ 750,000
50,465 Citigroup, Inc. ............................. 2,397,087
17,900 City National ............................... 670,131
60,300 Colonial BancGroup, Inc. .................... 840,431
78,737 Commercial Federal .......................... 1,825,714
91,900 Community First Bankshares, Inc. ............ 2,194,113
81,400 Cullen/Frost Bankers, Inc. .................. 2,243,587
83,747 Fifth Third Bancorp ......................... 5,574,410
291,081 Firstar Corp. ............................... 8,150,268
38,800 Hudson United Bancorp ....................... 1,188,250
63,600 Local Financial Corp. ....................... 636,000
8,200 Pacific Bank National Association ........... 156,313
19,719 State Street Corp. .......................... 1,683,510
50,300 Staten Islands Bancorp, Inc. ................ 905,400
39,330 TeleBanc Financial Corp. .................... 1,524,038
19,520 U.S. Bancorp ................................ 663,680
272,500 Washington Mutual, Inc. ..................... 9,639,687
90,683 Wells Fargo & Co. ........................... 3,876,698
--------------
58,787,217
--------------
BIOTECHNOLOGY -- 0.2%
25,934 Amgen, Inc. (c) ............................. 1,578,732
40,300 Medicis Pharmaceutical Corp. ................ 1,022,613
--------------
2,601,345
--------------
BROADCASTING -- 6.1%
8,010 Adelphia Communications Corp. ............... 509,636
702,580 AT&T Corp. - Liberty Media Group ............ 25,819,814
82,285 Cablevision Systems (c) ..................... 5,759,950
29,171 Chancellor Media Corp. (c) .................. 1,608,051
22,875 Clear Channel Communications (c) ............ 1,576,945
569,138 Comcast ..................................... 21,876,242
122,550 Cox Communications (c) ...................... 4,511,372
3,325 EchoStar Communications Corp. ............... 510,180
50,000 Hearst-Argyle Television, Inc. .............. 1,200,000
32,476 MediaOne Group, Inc. (c) .................... 2,415,402
17,531 TCA Cable TV, Inc. .......................... 972,971
27,880 TCI Music, Inc. ............................. 986,255
114,585 United International Holdings, Inc. ......... 7,748,811
--------------
75,495,629
--------------
BUILDING & RELATED -- 0.4%
70,600 Champion Enterprises (c) .................... 1,314,925
27,300 Furniture Brands International .............. 760,988
60,100 Giant Cement Holding, Inc. .................. 1,374,787
26,400 Shaw Industries, Inc. ....................... 435,600
14,300 Southdown, Inc. ............................. 918,775
--------------
4,805,075
--------------
BUSINESS SERVICES -- 1.1%
56,700 ADVO, Inc. .................................. 1,176,525
30,165 Cintas Corp. ................................ 2,026,711
34,161 Computer Sciences (c) ....................... 2,363,514
44,041 Fiserv, Inc. (c) ............................ 1,379,034
50,600 Metzler Group, Inc. ......................... 1,397,825
58,689 Robert Half International, Inc. (c) ......... 1,525,914
59,250 Tetra Tech, Inc. (c) ........................ 977,625
29,135 The Interpublic Group of Companies, Inc. .... 2,523,819
--------------
13,370,967
--------------
CHEMICALS -- 0.6%
47,500 CUNO, Inc. .................................. 908,437
32,800 Cytec Industries, Inc. ...................... 1,045,500
4,700 Ferro Corp. ................................. 129,250
19,000 Great Lakes Chemical Corp. .................. 875,188
41,400 OM Group, Inc. .............................. 1,428,300
34,200 Scotts Co. .................................. 1,628,775
51,700 Solutia, Inc. ............................... 1,101,856
--------------
7,117,306
--------------
COMPUTER SOFTWARE & SERVICES -- 3.7%
32,314 Automatic Data Processing, Inc. ............. 1,421,816
44,925 CIBER, Inc. (c) ............................. 859,191
310,000 First Data Corp. ............................ 15,170,625
13,461 Intuit, Inc. (c) ............................ 1,213,173
212,980 Microsoft Corp. (c) ......................... 19,208,134
21,900 National Data Corp. ......................... 936,225
85,570 Sapient Corp. ............................... 4,845,401
44,000 USWeb Corp. ................................. 976,250
38,600 Visio Corp. ................................. 1,469,212
--------------
46,100,027
--------------
COMPUTERS & BUSINESS EQUIPMENT -- 2.0%
90,770 Apple Computer (c) .......................... 4,203,786
151,912 EMC Corp. (c) ............................... 8,355,160
50,824 International Business Machines ............. 6,569,002
73,865 Sun Microsystems, Inc. (c) .................. 5,087,452
--------------
24,215,400
--------------
COMPUTER HARDWARE -- 0.3%
72,800 Hutchinson Technology, Inc. ................. 2,020,200
68,000 SMART Modular Technologies, Inc. ............ 1,181,500
--------------
3,201,700
--------------
CONSUMER GOODS & SERVICES -- 2.4%
19,760 Avon Products, Inc. ......................... 1,096,680
6,370 Clorox Co. .................................. 680,396
23,536 Colgate-Palmolive ........................... 2,324,180
57,641 Dial Corp. .................................. 2,143,525
57,078 Gillette Co. ................................ 2,340,198
250,000 H & R Block, Inc. ........................... 12,500,000
52,125 Hasbro, Inc. ................................ 1,456,242
210,000 Polaroid Corp. .............................. 5,801,250
18,233 Procter & Gamble ............................ 1,627,295
--------------
29,969,766
--------------
CONSUMER- JEWELRY/NOVELTY-/GIFTS -- 0.1%
63,800 Jostens, Inc. ............................... 1,343,788
--------------
DIVERSIFIED CONGLOMERATES -- 2.8%
3,428 Berkshire Hathaway, Inc. (c) ................ 7,678,720
280,375 TYCO International, Ltd. .................... 26,565,531
--------------
34,244,251
--------------
DRUGS & HEALTH CARE -- 5.0%
28,700 American Home Products Corp. ................ 1,650,250
18,600 Biovail Corporation International (c) ....... 949,762
92,905 Bristol-Myers Squibb ........................ 6,543,996
90,795 Centocor, Inc. (c) .......................... 4,233,317
29,500 ChiRex, Inc. ................................ 947,688
380,000 Columbia/HCA Healthcare ..................... 8,668,750
65,800 Dura Pharmaceuticals, Inc. (c) .............. 785,488
100,453 Eli Lilly ................................... 7,194,946
33,398 Johnson & Johnson ........................... 3,273,004
40,000 Jones Pharma, Inc. .......................... 1,575,000
88,637 Merck & Co. ................................. 6,559,138
57,822 Pfizer, Inc. ................................ 6,345,964
137,603 Schering-Plough Corp. ....................... 7,292,959
75,798 Warner-Lambert Co. .......................... 5,258,486
--------------
61,278,748
--------------
ELECTRIC UTILITIES-- 0.3%
28,500 BEC Energy .................................. 1,175,625
43,600 Rochester Gas & Electric Corp. .............. 1,158,125
35,100 WPS Resources Corp. ......................... 1,053,000
--------------
3,386,750
--------------
ELECTRICAL EQUIPMENT -- 1.4%
19,550 Alpha Industries ............................ 931,069
230,000 Cooper Industries, Inc. ..................... 11,960,000
55,200 Maxwell Technologies, Inc. .................. 1,328,250
38,300 SCI Systems, Inc. (c) ....................... 1,819,250
71,088 Vishay Intertechnology ...................... 1,492,837
--------------
17,531,406
--------------
ELECTRONIC COMPONENTS -- 1.4%
144,011 Intel Corp. ................................. 8,568,654
44,440 Maxim Integrated Products (c) ............... 2,955,260
85,135 Vitesse Semiconductor Corp. (c) ............. 5,741,292
--------------
17,265,206
--------------
ELECTRONICS -- 2.2%
47,900 Atmel Corp. (c) ............................. 1,254,381
36,100 AVX Corp. ................................... 879,938
22,800 Credence Systems Corp. ...................... 846,450
114,500 Cypress Semiconductor Corp. ................. 1,889,250
15,900 Dallas Semiconductor Corp. .................. 802,950
104,775 General Electric Co. ........................ 11,839,575
11,000 Jabil Circuit, Inc. ......................... 496,375
27,500 Litton Industries, Inc. (c) ................. 1,973,125
7,700 Novellus Systems, Inc. ...................... 525,525
15,658 PE Corp. - PE Biosystems Group .............. 1,796,755
33,500 Photronics, Inc. ............................ 820,750
53,200 Remec, Inc. ................................. 857,850
14,843 Solectron Corp. (c) ......................... 989,843
57,600 Tektronix, Inc. ............................. 1,738,800
21,000 Veeco Instruments, Inc. ..................... 714,000
--------------
27,425,567
--------------
ENTERTAINMENT -- 0.5%
52,600 CEC Entertainment, Inc. ..................... 2,222,350
96,355 Viacom, Inc., Class B (c) ................... 4,239,620
--------------
6,461,970
--------------
FINANCIAL SERVICES-- 3.4%
78,335 American Express Co. ........................ 10,193,342
112,400 AMRESCO, Inc. ............................... 723,575
131,200 Anthracite Capital .......................... 861,000
74,429 Associates First Capital .................... 3,298,135
90,900 Brandywine Realty Trust (c) ................. 1,800,956
133,500 Capital Automotive .......................... 1,768,875
16,815 Charles Schwab Corp. ........................ 1,847,548
111,364 Federal National Mortgage Association ....... 7,614,513
41,991 Franklin Resources, Inc. .................... 1,705,884
93,850 Healthcare Realty Trust ..................... 1,970,850
148,400 Imperial Credit Industries (c) .............. 1,052,713
23,500 Jones Lang LaSalle, Inc. .................... 700,594
97,200 Liberty Property Trust ...................... 2,417,850
16,363 Northern Trust Corp. ........................ 1,587,211
57,500 Pacific Gulf Properties, Inc. ............... 1,300,938
70,200 Sun Communities, Inc. ....................... 2,492,100
191,100 Unicapital Corp. ............................ 1,206,319
--------------
42,542,403
--------------
FOOD & BEVERAGES -- 3.6%
121,647 Coca-Cola Co. ............................... 7,602,938
32,100 Corn Products International, Inc. ........... 977,044
98,800 International Multifoods .................... 2,229,175
94,800 Michael Foods, Inc. ......................... 2,227,800
220,000 Nabisco Holdings Corp. ...................... 9,515,000
42,500 PepsiCo, Inc. ............................... 1,607,031
397,000 Philip Morris Cos ........................... 15,954,437
48,000 The Earthgrains Co. ......................... 1,239,000
19,759 Tootsie Roll Industries ..................... 763,191
68,300 Whitman Corp. ............................... 1,229,400
7,902 William Wrigley Jr. Co. ..................... 711,180
--------------
44,056,196
--------------
HEALTH CARE - MEDICAL TECHNOLOGY -- 3.1%
54,370 Boston Scientific Corp. (c) ................. 2,388,882
79,650 Conmed Corp. (c) ............................ 2,439,281
36,600 DENTSPLY International ...................... 1,024,800
41,700 DVI, Inc. (c) ............................... 714,113
125,300 EndoSonics Corp. ............................ 877,100
54,430 Guidant Corp. ............................... 2,799,743
59,300 Invacare Corp. .............................. 1,586,275
244,481 Medtronic, Inc. ............................. 19,038,958
77,465 MiniMed, Inc. ............................... 5,959,963
63,200 Respironics, Inc. ........................... 955,900
--------------
37,785,015
--------------
HEALTH CARE - SERVICES -- 0.7%
32,000 Alterra Healthcare Corp. .................... 440,000
103,300 Beverly Enterprises, Inc. (c) ............... 832,856
76,200 Capital Senior Living Corp. ................. 762,000
35,100 First Health Group Corp. .................... 756,844
60,400 Foundation Health Systems, Inc. (c) ......... 906,000
123,487 IMS Health, Inc. ............................ 3,858,969
162,100 Medaphis Corp. (c) .......................... 932,075
--------------
8,488,744
--------------
HOTELS & RESTAURANTS -- 0.5%
17,400 Foodmaker, Inc. ............................. 493,725
38,530 McDonald's Corp. ............................ 1,591,770
68,701 MeriStar Hospitality Corp. .................. 1,541,479
44,600 Ruby Tuesday, Inc. .......................... 847,400
44,700 Wendy's International, Inc. ................. 1,265,569
--------------
5,739,943
--------------
HOUSEHOLD PRODUCTS -- 1.0%
200,000 Black & Decker Corp. ........................ 12,625,000
--------------
INFORMATION SERVICES -- 1.3%
72,000 ACNielson Corp. ............................. 2,178,000
350,000 Dun & Bradstreet Corp. ...................... 12,403,125
42,600 Nielsen Media Research, Inc. ................ 1,246,050
--------------
15,827,175
--------------
INSURANCE -- 2.5%
43,352 American International Group ................ 5,074,893
41,200 AmerUs Life Holdings, Inc. .................. 1,112,400
28,000 Annuity & Life Re Holdings .................. 628,250
33,400 Arthur J. Gallagher & Co. ................... 1,653,300
29,100 Capital Re Corp. ............................ 467,419
92,700 CNA Surety Corp. ............................ 1,419,469
74,100 HCC Insurance Holdings, Inc. ................ 1,681,144
31,600 Liberty Financial Cos ....................... 920,350
62,278 Marsh & McLennan ............................ 4,701,989
28,950 Medical Assurance, Inc. ..................... 817,838
30,330 Progressive Corp. ........................... 4,397,850
38,000 Protective Life Corp. ....................... 1,254,000
24,100 Radian Group, Inc. .......................... 1,176,381
39,600 Reinsurance Group America, Inc. ............. 1,395,900
69,400 StanCorp Financial Group, Inc. .............. 2,082,000
70,100 Trigon Healthcare, Inc. ..................... 2,549,887
--------------
31,333,070
--------------
INTERNET CONTENT -- 2.1%
62,918 At Home Corp. ............................... 3,393,644
70,485 DoubleClick, Inc. ........................... 6,466,999
55,690 E*TRADE Group, Inc. ......................... 2,224,119
35,940 Inktomi Corp. ............................... 4,726,110
53,647 Yahoo, Inc. ................................. 9,240,696
--------------
26,051,568
--------------
INVESTMENT COMPANIES -- 0.4%
112,500 Federated Investors, Inc., Class B .......... 2,017,969
105,855 TD Waterhouse Group, Inc. ................... 2,652,991
--------------
4,670,960
--------------
LEISURE -- 1.4%
30,198 Carnival Corp. .............................. 1,464,603
16,752 Harley-Davidson, Inc. ....................... 910,890
42,400 Harman International Industries, Inc. ....... 1,865,600
435,655 Mattel, Inc. ................................ 11,517,629
48,000 Walt Disney Co. ............................. 1,479,000
--------------
17,237,722
--------------
MACHINERY -- 1.0%
85,750 Applied Materials, Inc. (c) ................. 6,334,781
28,909 Mannesmann AG ............................... 4,312,183
73,100 Milacron, Inc. .............................. 1,352,350
--------------
11,999,314
--------------
MANUFACTURING -- 2.6%
46,200 A.O. Smith .................................. 1,293,600
29,500 Carlisle Cos ................................ 1,419,687
36,900 Cordant Technologies, Inc. .................. 1,667,419
28,100 Crane Co. ................................... 883,394
150,000 Eaton Corp. ................................. 13,800,000
71,100 Federal Signal .............................. 1,506,431
84,000 Hussmann International ...................... 1,391,250
10,729 Illinois Tool Works, Inc. ................... 879,778
31,000 National Service Industries, Inc. ........... 1,116,000
45,000 Pentair, Inc. ............................... 2,058,750
73,900 Premark International ....................... 2,771,250
41,600 Regal Beloit Corp. .......................... 982,800
23,400 SPX Corp. (c) ............................... 1,953,900
--------------
31,724,259
--------------
METALS & MINING -- 0.3%
83,700 Bethlehem Steel Corp. (c) ................... 643,444
25,400 Carpenter Technology ........................ 725,487
14,900 Harsco Corp. ................................ 476,800
87,300 Worthington Industries, Inc. ................ 1,434,994
--------------
3,280,725
--------------
NATURAL GAS -- 0.4%
117,000 MCN Corp. ................................... 2,427,750
17,900 New Jersey Resources Corp. .................. 670,131
44,600 Public Service North Carolina, Inc. ......... 1,304,550
33,800 Washington Gas Light Co. .................... 878,800
--------------
5,281,231
--------------
OFFICE EQUIPMENT & SUPPLIES -- 0.3%
12,400 Bell & Howell (c) ........................... 468,875
37,200 HON Industries .............................. 1,085,775
40,500 National Computer Systems ................... 1,366,875
50,300 United Stationers, Inc. ..................... 1,106,600
--------------
4,028,125
--------------
OIL & GAS/EXPLORATION & PRODUCTION -- 1.7%
229,890 Enron Corp. ................................. 18,793,507
55,800 Newfield Exploration Co. .................... 1,586,813
67,600 Plains Resources (c) ........................ 1,284,400
--------------
21,664,720
--------------
PAPER & FOREST PRODUCTS -- 0.2%
33,600 Chesapeake Corp. (Rights) ................... 1,257,900
34,900 Consolidated Papers, Inc. ................... 933,575
--------------
2,191,475
--------------
PETROLEUM SERVICES -- 1.0%
81,039 Baker Hughes, Inc. .......................... 2,714,806
23,000 Cooper Cameron Corp. ........................ 852,437
111,200 Global Industries, Inc. ..................... 1,424,750
55,300 Maverick Tube Corp. ......................... 770,744
102,600 Patterson Energy, Inc. (c) .................. 1,013,175
56,200 Santa Fe International Corp. ................ 1,292,600
42,209 Schlumberger, Ltd. .......................... 2,688,186
41,600 Tidewater, Inc. ............................. 1,268,800
--------------
12,025,498
--------------
PUBLISHING -- 4.7%
51,363 Gannett Co. ................................. 3,666,034
200,000 Knight-Ridder, Inc. ......................... 10,987,500
81,760 Lamar Advertising (c) ....................... 3,347,050
13,319 McGraw-Hill Companies, Inc. ................. 718,394
122,429 Outdoor Systems (c) ......................... 4,468,659
77,692 Penton Media, Inc. .......................... 1,884,031
204,900 R. H. Donnelley Corp. ....................... 4,008,356
377,430 Time Warner, Inc. ........................... 27,741,105
2,775 Washington Post Co., Class B ................ 1,492,256
--------------
58,313,385
--------------
RETAIL -- 3.5%
36,576 Abercrombie & Fitch Co. ..................... 1,755,648
22,807 Bed Bath & Beyond, Inc. (c) ................. 878,069
24,800 Best Buy Company, Inc. (c) .................. 1,674,000
25,600 BJ's Wholesale Club (c) ..................... 769,600
114,700 Burlington Coat Factory ..................... 2,215,144
96,115 Costco Cos. (c) ............................. 7,695,207
61,491 Gap, Inc. ................................... 3,097,609
87,239 Home Depot, Inc. ............................ 5,621,463
17,089 Intimate Brands, Inc. ....................... 809,580
28,569 Kohls Corp. (c) ............................. 2,205,170
26,100 Michaels Stores, Inc. ....................... 799,312
28,400 Saks, Inc. .................................. 802,300
150,026 Staples, Inc. (c) ........................... 4,641,429
13,000 Talbots, Inc. ............................... 495,625
29,600 The Buckle, Inc. ............................ 851,000
142,161 Wal-Mart Stores, Inc. ....................... 6,859,268
72,359 Walgreen Co. ................................ 2,125,546
16,100 Wet Seal, Inc. (c) .......................... 460,863
--------------
43,756,833
--------------
RETAIL - GROCERY -- 0.4%
31,800 Great Atlantic & Pacific Tea Co. ............ 1,075,238
43,900 Hannaford Brothers .......................... 2,348,650
36,666 Safeway, Inc. (c) ........................... 1,814,967
--------------
5,238,855
--------------
RETAIL - SPECIALTY -- 3.0%
221,545 Amazon.com, Inc. (c) ........................ 27,720,818
65,225 eBay, Inc. .................................. 9,873,435
--------------
37,594,253
--------------
SEMI-CONDUCTORS -- 1.8%
72,100 Actel Corp. (c) ............................. 1,063,475
15,625 Broadcom Corp. .............................. 2,258,789
109,895 Conexant Systems, Inc. ...................... 6,380,778
82,675 Texas Instruments, Inc. ..................... 11,987,875
--------------
21,690,917
--------------
SERVICES -- 1.6%
61,900 Borg-Warner Security Corp. .................. 1,257,344
106,100 Daisytek International Corp. ................ 1,730,756
80,918 DeVry, Inc (c) .............................. 1,810,540
109,100 Information Resources (Rights) .............. 954,625
132,534 Pittway Corp. ............................... 4,531,006
69,650 Verisign, Inc. .............................. 6,007,313
106,000 Viad Corp. .................................. 3,279,375
--------------
19,570,959
--------------
SOFTWARE -- 1.5%
39,437 America Online .............................. 4,357,788
52,455 Exodus Communications, Inc. ................. 6,291,322
84,275 PSINet, Inc. ................................ 3,687,031
67,380 Verio, Inc. ................................. 4,682,910
--------------
19,019,051
--------------
SPECIALTY PRINTING-- 0.3%
55,600 Deluxe Corp. ................................ 2,164,925
52,600 Harte-Hanks, Inc. ........................... 1,426,775
--------------
3,591,700
--------------
TECHNOLOGY -- 3.1%
98,470 ASM Lithography Holding (c) ................. 5,846,656
506,728 Cisco Systems (c) ........................... 32,652,286
48,485 Tecnost S.p.A ............................... 119,454
--------------
38,618,396
--------------
TELECOMMUNICATION -- 2.4%
35,900 Boston Communications Group (c) ............. 482,406
166,045 Level 3 Communications, Inc. ................ 9,973,078
74,633 MCI Worldcom, Inc. (c) ...................... 6,423,103
52,585 NEXTLINK Communications, Inc. ............... 3,911,009
88,270 Sprint PCS .................................. 5,042,424
53,800 Transaction Network Services, Inc. .......... 1,573,650
12,404 Vodafone Group plc (ADR) (d) ................ 2,443,489
--------------
29,849,159
--------------
TELECOMMUNICATION EQUIPMENT -- 4.7%
70,100 Inter Tel, Inc. ............................. 1,279,325
149,581 Lucent Technologies, Inc. ................... 10,087,369
20,424 Motorola, Inc. .............................. 1,935,174
376,162 Nokia Corp. (ADR) ........................... 34,442,333
87,700 PairGain Technologies, Inc. (c) ............. 1,008,550
66,850 Qwest Communications International, Inc. (c) 2,210,228
92,200 Tellabs, Inc. (c) ........................... 6,229,262
5,300 Uniphase Corp. (c) .......................... 879,800
--------------
58,072,041
--------------
TRUCKING & FREIGHT FORWARDING -- 0.2%
33,700 CNF Transportation, Inc. .................... 1,293,238
48,800 Wisconsin Central Transportation Corp. ...... 921,100
--------------
2,214,338
--------------
UTILITIES -- 0.1%
35,000 American States Water Co. ................... 993,126
--------------
Total Common Stock
(Identified Cost $968,024,317) $1,171,349,485
--------------
BONDS AND NOTES -- 0.1%
PRINCIPAL
AMOUNT
- -------------------------------------------------------------------------------
RETAIL - SPECIALTY -- 0.0%
$ 158,000 Amazon.com, Inc., Zero Coupon, 5/01/2008 .... 103,095
--------------
TECHNOLOGY -- 0.1%
609,000 Tecnost International, 4.487%, 6/23/2004 .... 638,774
--------------
Total Bonds and Notes (Identified Cost $644,561) .. 741,869
--------------
SHORT TERM INVESTMENTS -- 5.6%
$15,165,000 Repurchase Agreement with State
Street Corp. dated 6/30/1999
at 4.00% to be repurchased
at $15,166,685 on 7/01/1999,
collateralized by $12,160,000
U.S. Treasury Bond 8.500%
due 2/15/2020 with a value of
$15,471,460 ............................... $ 15,165,000
27,305,000 Repurchase Agreement with State
Street Corp. dated 6/30/1999
at 4.75% to be repurchased
at $27,308,603 on 7/01/1999,
collateralized by $21,890,000
U.S. Treasury Bond 8.500%
due 2/15/2020 with a value of
$27,851,172 ............................... 27,305,000
8,000,000 Household Finance Corp., 5.450%, 7/01/1999 .. 8,000,000
11,593,960 Associates First Capital, 5.250%, 7/01/1999 . 11,593,960
6,600,000 Chevron Corp., 5.500%, 7/01/1999 ............ 6,600,000
--------------
Total Short Term Investments
(Identified Cost $68,663,960) ............. 68,663,960
--------------
Total Investments -- 100.7%
(Identified Cost $1,037,332,838) (b) ...... 1,240,755,314
Other assets less liabilities ............... (7,932,787)
--------------
Total Net Assets-- 100% ..................... $1,232,822,527
--------------
<PAGE>
FORWARD CURRENCY CONTRACTS OUTSTANDING
at June 30, 1999
LOCAL AGGREGATE UNREALIZED
DELIVERY CURRENCY FACE TOTAL APPRECIATION/
DATE AMOUNT VALUE VALUE DEPRECIATION
-------- -------- --------- ----- ------------
Euro (sold) 7/22/99 18,100,000 $14,006,670 $12,286,661 $ 1,720,009
Euro (sold) 8/12/99 19,000,000 8,664,641 8,065,942 598,699
----------- ---------- -----------
$22,671,311 $20,352,603 $ 2,318,708
=========== =========== ===========
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: at June 30, 1999 the net Unrealized appreciation on
investments based on cost of $1,037,332,838 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. ....... $241,625,953
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (38,203,477)
------------
Net unrealized appreciation .............................. $203,422,476
============
(c) Non-income producing security.
ADR An American Depository Receipt (ADR) is a certificate issued by 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.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified cost
$1,037,332,838) ........................... $1,240,755,314
Cash ........................................ 83,028
Foreign Currency at value (Identified cost
$1,499,630) ............................... 1,498,032
Collateral for securities loaned, at value .. 31,578,331
Receivable for:
Fund shares sold .......................... 4,376,578
Securities sold ........................... 12,775,606
Open forward currency contracts - net ..... 2,318,708
Accrued dividends and interest ............ 1,083,309
Tax reclaims .............................. 5,144
Unamortized organization expense ............ 1,005
--------------
1,294,475,055
LIABILITIES
Payable for:
Collateral for securities loaned, at value $31,578,331
Securities purchased ...................... 27,526,461
Fund shares redeemed ...................... 1,175,793
Accrued expenses:
Management fees ........................... 1,002,320
Distribution fees ......................... 32,798
Deferred trustees' fees ................... 49,364
Accounting and administrative ............. 81,018
Other expenses ............................ 206,443
-----------
61,652,528
--------------
NET ASSETS ......................................... $1,232,822,527
==============
Net Assets consist of:
Capital paid in ............................. $ 853,797,077
Undistributed net investment loss ........... (5,284,052)
Accumulated net realized gains (losses) ..... 178,570,140
Unrealized appreciation (depreciation) on
investments, forward currency contracts
and foreign currency transactions ......... 205,739,362
--------------
NET ASSETS ..................................... $1,232,822,527
==============
Computation of net asset value and offering
price:
Net asset value and redemption price of
Class A shares (497,842,210 / 21,489,870
shares of beneficial interest) ............ $ 23.17
=======
Offering price per share ( 100/94.25 of $23.17) $ 24.58*
=======
Net asset value and offering price of Class B
shares ($570,925,553 / 25,751,183 shares of
beneficial interest) ...................... $ 22.17**
=======
Net asset value and offering price of Class C
shares ($110,225,295 / 4,967,679 shares of
beneficial interest) ...................... $ 22.19**
=======
Net asset value, offering price and redemption
fee of Class Y shares ($53,829,469 / 2,281,158
shares of beneficial interest) ............ $ 23.60
=======
* 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>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1999
(unaudited)
INVESTMENT INCOME
Dividends (net of foreign taxes of $34,338) . $ 4,794,654
Interest .................................... 1,281,015
Securities Lending Income ................... 155,197
--------------
6,230,866
Expenses
Management fees ........................... $5,917,435
Service fees - Class A .................... 571,541
Service and distribution fees - Class B ... 2,638,532
Service and distribution fees - Class C ... 505,225
Trustees' fees and expenses ............... 31,445
Accounting and administrative ............. 150,524
Custodian and securities lending .......... 236,222
Transfer agent ............................ 1,409,906
Audit and tax services .................... 23,000
Legal ..................................... 31,851
Printing .................................. 71,472
Registration .............................. 53,883
Amortization of organization expense ...... 16,450
Insurance ................................. 9,800
Miscellaneous ............................. 11,350
---------
Total expenses .............................. 11,678,636
--------------
Net investment loss ......................... (5,447,770)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY
TRANSACTIONS
Realized gain (loss) on:
Investments-- net ......................... 126,777,447
Foreign currency transactions-- net ....... 69,319
--------------
Total realized gain (loss) on investments and
foreign currency transactions ............. 126,846,766
--------------
Unrealized appreciation (depreciation) on:
Investments-- net ......................... 41,020,558
Foreign currency transactions -- net ..... 2,258,230
--------------
Total unrealized gain (loss) on investments and
foreign currency transactions ........... 43,278,788
--------------
Net gain (loss) on investment transactions .. 170,125,554
--------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 164,677,784
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ...................................................... $ (6,725,548) $ (5,447,770)
Net realized gain (loss) on investments and foreign currency transactions 120,343,445 126,846,766
Unrealized appreciation (depreciation) on investments
and foreign currency transactions ...................................... 65,237,461 43,278,788
-------------- --------------
Increase (decrease) in net assets from operations ........................ 178,855,358 164,677,784
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain in investments
Class A ................................................................ (29,743,099) 0
Class B ................................................................ (34,777,382) 0
Class C ................................................................ (6,853,215) 0
Class Y ................................................................ (2,746,734) 0
-------------- --------------
(74,120,430) 0
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS .................................. (22,655,877) (24,323,796)
-------------- --------------
Total increase (decrease) in net assets ..................................... 82,079,051 140,353,988
NET ASSETS
Beginning of the period .................................................. 1,010,389,488 1,092,468,539
-------------- --------------
End of the period ........................................................ $1,092,468,539 $1,232,822,527
============== ==============
UNDISTRIBUTED NET INVESTMENT LOSS
End of the period ........................................................ $ 163,718 $ (5,284,052)
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(unaudited)
Class A
---------------------------------------------------------------------------------
July 7, 1994(a) Six Months
Through Year Ended December 31, Ended
December 31, -------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 12.50 $ 13.25 $ 16.78 $ 18.18 $ 18.17 $ 20.02
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.05 0.00 (0.06)(e) (0.02)(e) (0.05)(e) (0.06)
Net Realized and Unrealized Gain
(Loss) on Investments ..................... 0.75 4.52 3.17 3.62 3.28 3.21
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 0.80 4.52 3.11 3.60 3.23 3.15
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.05) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains 0.00 (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.05) (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.25 $ 16.78 $ 18.18 $ 18.17 $ 20.02 $ 23.17
========= ========= ========= ========= ========= =========
Total Return (%)(c) ......................... 6.4 34.4 19.0 20.2 19.3 15.7
Ratio of Operating Expenses to
Average Net Assets (%)(d) ................. 1.94(b) 1.82 1.68 1.66 1.62 1.65(b)
Ratio of Net Investment Income to
Average Net Assets (%) ..................... 1.06(b) (0.33) (0.36) (0.14) (0.24) (0.52)(b)
Portfolio Turnover Rate (%) ................. 100 142 127 168 101 105(b)
Net Assets, End of the Period (000) ......... $ 91,218 $ 223,596 $ 348,573 $ 416,938 $ 443,165 $ 497,842
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 1.98% for period ended December 31, 1994.
(e) Per share net investment loss has been calculated using the average shares outstanding during the year.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
(unaudited)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(unaudited)
Class B
---------------------------------------------------------------------------------
July 7, 1994(a) Six Months
Through Year Ended December 31, Ended
December 31, -------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 12.50 $ 13.23 $ 16.63 $ 17.86 $ 17.63 $ 19.23
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.02 0.00 (0.20)(e) (0.17)(e) (0.18)(e) (0.14)
Net Realized and Unrealized Gain
(Loss) on Investments ...................... 0.73 4.39 3.14 3.55 3.16 3.08
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 0.75 4.39 2.94 3.38 2.98 2.94
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.02) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains 0.00 (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.02) (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.23 $ 16.63 $ 17.86 $ 17.63 $ 19.23 $ 22.17
========= ========= ========= ========= ========= =========
Total Return (%)(c) ......................... 6.0 33.4 18.1 19.3 18.4 15.3
Ratio of Operating Expenses to
Average Net Assets (%)(d) .................. 2.69(b) 2.57 2.43 2.41 2.37 2.40(b)
Ratio of Net Investment Income to
Average Net Assets (%)(b) .................. 0.31(b) (1.08) (1.11) (0.89) (0.99) (1.27)(b)
Portfolio Turnover Rate (%) ................. 100 142 127 168 101 105
Net Assets, End of the Period (000) ......... $ 72,889 $ 220,017 $ 366,314 $ 462,034 $ 508,937 $ 570,926
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not
annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 2.75% for period ended December 31, 1994.
(e) Per share net investment loss has been calculated using the average shares outstanding during the year.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(unaudited)
Class C
---------------------------------------------------------------------------------
July 7, 1994(a) Six Months
Through Year Ended December 31, Ended
December 31, -------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 12.50 $ 13.24 $ 16.65 $ 17.87 $ 17.64 $ 19.25
--------- --------- --------- --------- --------- ---------
ncome From Investment Operations
Net Investment Income (Loss) ................ 0.02 0.00 (0.20)(e) (0.17)(e) (0.18)(e) (0.14)
Net Realized and Unrealized Gain
(Loss) on Investments ...................... 0.74 4.40 3.13 3.55 3.17 3.08
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 0.76 4.40 2.93 3.38 2.99 2.94
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.02) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains 0.00 (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.02) (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.24 $ 16.65 $ 17.87 $ 17.64 $ 19.25 $ 22.19
========= ========= ========= ========= ========= =========
Total Return (%)(c) ......................... 6.0 33.4 18.0 19.3 18.5 15.3
Ratio of Operating Expenses to
Average Net Assets (%)(d) .................. 2.69(b) 2.57 2.43 2.41 2.37 2.40(b)
Ratio of Net Investment Income to
Average Net Assets (%) ..................... 0.31(b) (1.08) (1.11) (0.89) (0.99) (1.27)(b)
Portfolio Turnover Rate (%) ................. 100 142 127 168 101 105
Net Assets, End of the Period (000) ......... $ 20,096 $ 45,672 $ 80,312 $ 94,412 $ 97,849 $ 110,225
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not
annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 2.75% for period ended December 31, 1994.
(e) Per share net investment loss has been calculated using the average shares outstanding during the year. (unaudited)
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(unaudited)
Class Y
---------------------------------------------------------------------------------
November 15(a) Six Months
Through Year Ended December 31, Ended
December 31, -------------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 13.59 $ 13.24 $ 16.83 $ 18.33 $ 18.41 $ 20.37
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.06 0.00 (0.02)(e) (0.03)(e) (0.00)(e) (0.03)
Net Realized and Unrealized Gain
(Loss) on Investments ...................... (0.35) 4.58 3.23 3.66 3.34 3.26
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ (0.29) 4.58 3.21 3.69 3.34 3.23
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.06) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains 0.00 (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.06) (0.99) (1.71) (3.61) (1.38) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 13.24 $ 16.83 $ 18.33 $ 18.41 $ 20.37 $ 23.60
========= ========= ========= ========= ========= =========
Total Return (%)(c) ......................... (2.1) 34.8 19.6 20.5 19.6 15.9
Ratio of Operating Expenses to
Average Net Assets (%) ..................... 1.79(b) 1.57 1.43 1.41 1.37 1.40(b)
Ratio of Net Investment Income to
Average Net Assets (%)(b) .................. 2.26(b) (0.08) (0.11) 0.11 0.01 (0.27)(b)
Portfolio Turnover Rate (%) ................. 100 142 127 168 101 105(b)
Net Assets, End of the Period (000) ......... $ 196 $ 5,569 $ 18,649 $ 37,006 $ 42,517 $ 53,829
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not
annualized.
(d) The ratio of operating expenses to average net assets, without giving effect to the voluntary fee waiver in effect through
December 31, 1994 would have been 1.90% for period ended December 31, 1994.
(e) Per share net investment loss has been calculated using the average shares outstanding during the year.
See accompanying notes to financial statements.
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the Period Ended June 30, 1999
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of New England Funds
Trust I, a Massachusetts business trust (the "Trust"), and is registered under
the Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end
management investment company. The Fund seeks long term growth of capital. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay front end sales charges and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and may be subject to a contingent deferred sales charge if
those shares are redeemed within one year. Class Y shares do not pay a front end
sales charge, a contingent deferred sales charge or service and distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro rata by the holders of each class
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service as authorized by the Board of
Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and 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. 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. Interest income for the Fund is increased by the
accretion of discount. In determining net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
C. 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 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 at fiscal year end, resulting from changes in the
exchange rate.
D. 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 portfolio composition under the caption
"Forward Currency Contracts Outstanding." This amount represents the aggregate
exposure to each currency the Fund has acquired or hedged through currency
contracts outstanding 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.
All contracts are "marked-to-market" daily at the applicable translation rates
and any gains or losses are recorded for financial statement purposes as
unrealized until settlement date. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
E. 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.
F. 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, distributions from real estate investment trusts and foreign currency
transactions for book and tax purposes. Permanent book and tax basis differences
will result in reclassification to capital accounts.
G. 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 Fund's ability to dispose of the underlying securities.
H. ORGANIZATION EXPENSE. Costs incurred in fiscal 1994 in connection with the
Fund's organization and registration, amounting to approximately $165,000 in the
aggregate, were paid and are being amortized by the Fund over 60 months.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1999
purchases and sales of securities (excluding short-term investments) were
$567,835,317 and $578,572,645, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its adviser, New England Funds Management, L.P. ("NEFM"), at
the annual rate of 1.05% on the first $1 billion of the Fund's average daily net
assets and 1.00% of such assets in excess of $1 billion reduced by the amount of
any subadvisers fees paid by the Fund to its subadvisers as follows:. Founders
Asset Management, Inc., Harris Associates, Janus Capital Corporation and Loomis,
Sayles & Company, L.P. (the "Subadvisers") as follows: Founders Asset
Management, Inc., Janus Capital Corporation and Loomis, Sayles & Company, 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 that the subadviser manages, 0.50% of the next
$200 million and 0.475% of such assets in excess of $250 million. NEFM pays
Harris Associates at the annual rate of 0.65% of the first $50 million of the
average daily net assets of the segment of the Fund that the subadviser manages,
0.60% of the next $50 million and 0.55% of such assets in excess of $100
million. Certain officers and directors of the Adviser are also officers or
trustees of the Fund. NEFM, Harris Associates and Loomis, Sayles & Company, L.P.
are wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest") formerly New
England Investment Companies, L.P., which is a subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Fees retained by NEFM and paid to each Subadviser under the management agreement
and subadvisory agreements in effect during the six months ended June 30, 1999
are as follows:
Fees Earned
-----------
NEFM $2,963,609
Harris Associates 623,499
Founders Asset Management, Inc. 795,714
Janus Capital Corporation 971,258
Loomis, Sayles & Company, L.P. 563,355
----------
$5,917,435
==========
The effective annualized management fee for the six months ended June 30, 1999
was 1.04%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund reimburses NSC for all or part of
NSC's 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, 1999, these
expenses amounted to $150,524 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as a sub-transfer agent for
the Fund. For the six months ended June 30, 1999, the Fund paid NSC $1,015,092
as compensation for its services in that capacity.
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, L.P. ("New England
Funds"), the Fund's distributor (a wholly owned subsidiary of Nvest) 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, 1999, the Fund paid New England Funds $571,541
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, 1999 the Fund paid New England Funds $659,633 and $126,306 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, 1999, the Fund paid New England Funds
$1,978,899 and $378,919 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, 1999 amounted to $1,315,870.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of NEFM,
New England Funds, Nvest, NSC or their affiliates, other than registered
investment companies. Each other Trustee receives a retainer fee at the annual
rate of $40,000 and meeting attendance fees of $3,500 for each meeting of the
Board of Trustees attended. Each committee member receives an additional
retainer fee at the annual rate of $6,000 while each committee chairman receives
a retainer fee (beyond the $6,000 fee) at the annual rate of $4,000. These fees
are allocated to the various New England Funds based on a formula that takes
into account, among other factors, the relative net assets of each fund.
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. Deferred amounts remain in the Fund until distributed in
accordance with the Plan.
4. CAPITAL SHARES. At June 30, 1999 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 shares. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31,1998 JUNE 30, 1999
----------------------------- -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .............................................. 7,745,900 $ 144,536,590 11,680,100 $ 249,999,251
Shares issued in connection with the reinvestment of:
Distributions from net investment income ............... 1,738,294 29,133,801 0 0
----------- ------------- ----------- -------------
9,484,194 173,670,391 11,680,100 249,999,251
Shares repurchased ....................................... (10,305,177) (192,986,379) (12,321,976) (262,213,804)
----------- ------------- ----------- -------------
Net increase ............................................. (820,983) $ (19,315,988) (641,876) (12,214,553)
----------- ------------- ----------- -------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31,1998 JUNE 30, 1999
----------------------------- -----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .............................................. 3,638,826 $ 67,366,177 1,947,009 $ 40,290,528
Shares issued in connection with the reinvestment of:
Distributions from net investment income ............... 2,058,653 33,226,657 0 0
----------- ------------- ----------- -------------
5,697,479 100,592,834 1,947,009 40,290,528
Shares repurchased ....................................... (5,444,982) (99,728,292) (2,655,808) (54,396,776)
----------- ------------- ----------- -------------
Net increase ............................................. 252,497 $ 864,542 (708,799) (14,106,248)
----------- ------------- ----------- -------------
<PAGE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31,1998 JUNE 30, 1999
----------------------------- -----------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .............................................. 1,232,859 $ 22,880,050 705,459 $ 14,606,882
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 411,134 6,639,808 0 0
----------- ------------- ----------- -------------
1,643,993 29,519,858 705,459 14,606,882
Shares repurchased ....................................... (1,911,802) (34,992,392) (821,232) (16,820,847)
----------- ------------- ----------- -------------
Net increase ............................................. (267,809) $ (5,472,534) (115,773) (2,213,965)
----------- ------------- ----------- -------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31,1998 JUNE 30, 1999
----------------------------- -----------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .............................................. 499,785 $ 9,729,009 422,389 $ 9,197,545
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................... 161,193 2,746,731 0 0
----------- ------------- ----------- -------------
660,978 12,475,740 422,389 9,197,545
Shares repurchased ....................................... (584,070) (11,207,637) (228,656) (4,986,575)
----------- ------------- ----------- -------------
Net increase ............................................. 76,908 $ 1,268,103 193,733 4,210,970
----------- ------------- ----------- -------------
Increase (decrease) derived from capital shares transactions (759,387) $ (22,655,877) (1,272,715) $ (24,323,796)
=========== ============= =========== =============
</TABLE>
5. LINE OF CREDIT. The Fund along with the other portfolios that comprise the
New England Funds (the "Funds") participate in a $100,000,000 committed line of
credit provided by Citibank, N.A., under a credit agreement (the "Agreement")
dated March 4, 1999. Advances under the Agreement are taken primarily for
temporary or emergency purposes. Borrowings under the Agreement bear interest at
a rate tied to one of several short-term rates that may be selected from time to
time. In addition, the Funds are charged a facility fee equal to 0.08% per annum
on the unused portion of the line of credit. The annual cost of maintaining the
line of credit and the facility fee is apportioned pro rata among the
participating Funds. There were no borrowings as of or during the period ended
June 30, 1999.
6. SECURITY LENDING. The Fund has entered into an agreement with a third party
to lend its securities. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. The Fund receives fees for lending its securities. At June
30, 1999 the Fund loaned securities having a market value of $30,578,331
collateralized by United States Treasury Bonds with a market value of
$31,578,331.
<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.
MARKET CAPITALIZATION - The value of a company's issued and outstanding common
stock, as priced by the market:
NUMBER OF OUTSTANDING SHARES X CURRENT MARKET PRICE OF A SHARE = MARKET
CAPITALIZATION.
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(R) (S&P 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. It is not possible to invest directly in an index.
<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 Funds' 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. Because this program involves
continuous investment in securities regardless of fluctuating prices, the
investor should consider his or her financial ability to continue purchases
during periods of high or low prices.
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.
Past performance is no guarantee of future results. Please call New England
Funds for a prospectus, which contains more information, including charges and
other ongoing expenses. Please read prospectus carefully before you invest.
<PAGE>
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SAVING FOR RETIREMENT
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AN EARLY START CAN MAKE A BIG DIFFERENCE
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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 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 accumulated the greater retirement nest egg? For
the answer, look at the chart.
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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. Past performance is no guarantee of
future results. For illustrative purposes only and not indicative of future
performance of any New England Fund. The value of a New England fund will
fluctuate with changing market conditions.
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. We will include a prospectus,
which contains more information including charges and other ongoing expenses.
Please read the prospectus carefully before you invest.
<PAGE>
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NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
Growth and Income Fund
(formerly Growth Opportunities Fund)
Balanced Fund
Value Fund
ALL-CAP EQUITY FUNDS
Star Advisers Fund
Star Worldwide Fund
International Equity Fund
Bullseye Fund
Equity Income Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund
GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
Government Securities Fund
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
MONEY MARKET FUNDS
Cash Management Trust,
Money Market Series
Tax Exempt Money Market Trust
CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income Fund
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 800-289-9999 or by visiting their Web site at
www.NASDR.com.
Y2K Readiness Report: New England Funds has kept pace with the Y2K
challenge. Mission critical systems have been tested and non-mission
critical systems are scheduled for completion by September 30, 1999.
Y2K is a top priority at New England Funds. For more information on
our Y2K readiness, please visit our Web site at www.mutualfunds.com.
This material represents Year 2000 Readiness Disclosure pursuant to the
Year 2000 Information and Readiness Disclosure Act.
<PAGE>
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[LOGO](R) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
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399 Boylston Street
Boston, Massachusetts
02116
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SA58-0699
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