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SEMIANNUAL REPORT
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[LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet(R)
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New England
Star Small Cap Fund
[graphic omitted]
WHERE
THE BEST
MINDS
MEET(R)
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June 30, 1999
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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."
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 narro w 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
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NEW ENGLAND STAR SMALL CAP FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1999
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Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the Star Small Cap Fund's Class A shares compared to
Russell 2000. The data points to this chart are as follows:]
December 1996 (Inception) through June 1999
NET ASSET MAXIMUM
VALUE(1) SALES CHARGE(2) RUSSELL 2000
---------------------------------------------------------------------
12/96 10,000 9,425 10,000
3/97 9,352 8,814 9,483
6/97 11,040 10,405 11,020
9/97 13,160 12,403 12,660
12/97 12,697 11,966 12,236
3/98 14,126 13,314 13,467
6/98 13,341 12,574 12,839
9/98 10,292 9,701 10,252
12/98 12,956 12,211 11,924
3/99 12,956 12,211 11,278
6/99 14,968 14,107 13,032
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B and C share
performance will differ from that shown based on differences in 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 SMALL CAP FUND
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AVERAGE ANNUAL TOTAL RETURNS - 6/30/99
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CLASS A (Inception 12/31/96) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.5% 12.2% 17.5%
With Maximum Sales Charge(2) 8.8 5.7 14.8
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CLASS B (Inception 12/31/96) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.0% 11.3% 16.7%
With CDSC(3) 10.0 6.3 15.7
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CLASS C (Inception 12/31/96) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 15.0% 11.3% 16.7%
With CDSC(3) 14.0 10.3 16.7
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SINCE FUND'S
CLASS A, B, C
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR INCEPTION
Russell 2000 Small Stock Index(4) 9.3% 1.5% 11.2%
Lipper Small Cap Average(5) 8.6 1.9 11.2
Morningstar Small Growth Average(6) 12.2 9.9 13.4
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NOTES TO CHARTS
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.
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, 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) Russell 2000 Small Stock Index is an unmanaged index measuring the stock
price performance of small companies. 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) Lipper Small Cap 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.
(6) Morningstar Small 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.
<PAGE>
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NEW ENGLAND STAR SMALL CAP FUND
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OVERVIEW: HOW THE FUND PERFORMED
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While returns on small-cap stocks improved slightly during the first six months
of 1999, they continued to lag the returns of their large-cap and mid-cap
counterparts. Nevertheless, New England Star Small Cap Fund produced relatively
strong performance during the period. For the six-month period that ended June
30, 1999, Class A shares at net asset value generated a 15.5% return, reflecting
a $2.43 per share increase in net asset value to $18.09. For the same period,
the Fund's benchmark, the Russell 2000, an index of small-cap stocks, generated
a return of 9.3%.
New England Star Small Cap Fund is composed of four separate portfolio segments,
each managed by a different investment management firm. This multiple-adviser
approach is the essence of the Star concept. It provides a means to diversify
among not just individual securities but investment styles and strategies of
several established management firms.
During the first six months of 1999, the investment environment changed. For the
first quarter, the market conditions that had prevailed during 1998 continued.
While interest rates started to edge up, economic growth remained strong and
inflation was contained. As had been the case for more than a year, large-cap
stocks continued to outperform small-cap and mid-cap stocks, and growth stocks
outpaced value stocks.
As we moved into the second quarter, however, robust consumer spending, higher
commodity prices, moderate labor shortages and wage hikes raised concerns about
the prospects for higher inflation and interest rates. As a result, three themes
began to emerge in the market.
First, the market became more concerned about the potential for higher inflation
and rising interest rates. An environment with inflation fears is often negative
for growth stocks because rising inflation over several years can effectively
erode the value of future earnings that drive the price of such stocks. When the
potential prospects for higher inflation began to dominate investor psychology,
growth stocks began to lose some of their relative appeal.
Second, some value stocks began to outpace growth stocks, which were leaders
during the previous year. As the popularity of growth stocks subsided, the
attractiveness of value stocks rose. Value stocks usually emphasize asset value
rather than earnings growth, and they are less influenced by the prospects of
higher inflation. Value stocks are often overlooked by investors. As a result,
they typically have low prices when compared to growth stocks, using yardsticks
such as price/earnings ratios.
Third, mid-cap stocks tended to become more popular as large-cap stocks began to
lose some of their appeal. This shift in market leadership is largely
attributable to the extraordinary gains in large-cap stocks in the past few
years. Going into the second quarter of 1999, many investors believed that
mid-cap stocks were more attractively valued.
While the performance of small-cap stocks improved slightly during the six
months, small-cap stock returns lagged the performance of mid-cap and large-cap
companies. Small-cap stocks are often technology-oriented, and they frequently
have rapidly accelerating earnings growth. These are certainly favorable
attributes. Over the past two years, however, investors were able to purchase
securities of larger technology companies with fast earnings growth, without
taking on the added risk that is inherent in small caps.
Your Fund, which provides diversification among four small-cap segments with
different investment styles, produced excellent returns for the six-month
period. The RS Investment Management segment, which emphasizes growth stocks in
a variety of economic sectors, produced the largest gains in the Fund. The
Loomis Sayles segment, which also follows a growth style, had 20% to 30% of its
assets in technology stocks. It, too, generated healthy returns. The
Oakmark/Harris segment and the Montgomery segment focus more on value-oriented
stocks, and these portfolios significantly underperformed the other segments.
YOUR FUND'S 10 LARGEST SECTORS -- 6/30/99
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% OF
SECTOR NET ASSETS
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1. TELECOMMUNICATIONS 8.8
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2. SOFTWARE 7.2
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3. RETAIL 6.2
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4. COMPUTER SOFTWARE & SERVICES 4.4
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5. ELECTRONIC COMPONENTS 4.4
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6. BUSINESS SERVICES 4.3
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7. TELECOMMUNICATIONS EQUIPMENT 3.5
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8. BROADCASTING 3.4
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9. DRUGS & HEALTH CARE 3.0
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10. SEMICONDUCTORS 2.9
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PORTFOLIO HOLDINGS AND ASSET ALLOCATIONS WILL VARY.
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Looking ahead, we are optimistic about the long-term prospects for small-cap
stocks and for your Fund. We believe this is an excellent time to accumulate
shares of small-caps stocks because their prices are low and their potential for
appreciation is outstanding in our opinion. Small-cap stocks tend to have
relatively long periods of modest returns and shorter periods of rapidly
accelerating returns. This is sometimes called the "small-cap sprint."
Generally, investors who reap the rewards of the higher, short-term returns, are
those who have the patience and persistence to stay with their investments for a
long period of time. Although past performance does not guarantee future
results, historically, small-cap stocks have exhibited excellent long-term
growth, and tend to outperform large company stocks and bonds over the
long term.
The portfolio managers' 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 which involve
special risks. The Fund may invest in higher yielding securities. Investments in
lower-rated, higher yielding bonds may involve greater risk. Small
capitalization companies may be subject to more abrupt price movements, limited
market and less liquidity than larger, 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. These risks may increase share price
volatility. See the Fund's prospectus for details.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1999
(unaudited)
COMMON STOCK - 95.9% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
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AEROSPACE & DEFENSE - 0.4%
15,400 Moog, Inc. ........................................ $ 529,375
AIRLINES - 0.4%
22,500 SkyWest, Inc. ..................................... 561,094
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APPAREL & TEXTILES - 1.3%
5,850 Cutter & Buck, Inc. ............................... 98,719
33,300 Pacific Sunwear of California (c) ................. 811,687
45,000 Reebok International, Ltd. (c) .................... 838,125
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1,748,531
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AUTOMOTIVE - 1.0%
25,000 Standard Motor Products, Inc. ..................... 612,500
30,100 Tower Automotive, Inc. (c) ........................ 765,669
----------
1,378,169
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BANKS & THRIFTS - 2.7%
13,400 Bank United ....................................... 538,512
31,250 BankAtlantic Bancorp, Inc. ........................ 226,563
23,150 Commercial Federal ................................ 536,791
25,000 Golden State Bancorp (c) .......................... 550,000
30,000 Northwest Bancorp, Inc. ........................... 300,000
30,000 People's Bank ..................................... 913,125
5,200 Republic New York Corp. ........................... 354,575
18,400 Staten Islands Bancorp, Inc. ...................... 331,200
----------
3,750,766
----------
BIOTECHNOLOGY - 0.2%
16,700 Visible Genetics, Inc. (c) ........................ 269,288
----------
BROADCASTING - 3.4%
27,500 AT&T Corp. - Liberty Media Group .................. 1,010,625
13,900 Citadel Communications Corp. (c) .................. 503,006
18,300 Cumulus Media, Inc. (c) ........................... 400,313
12,000 Entercom Communications Corp. (c) ................. 513,000
28,800 Film Roman, Inc. .................................. 84,600
34,000 LodgeNet Entertainment Corp. ...................... 473,875
13,000 Metro Networks (c) ................................ 693,875
60,000 New Frontier Media, Inc. .......................... 435,000
90,300 The Kushner-Locke Co. ............................. 586,950
----------
4,701,244
----------
BUILDING & RELATED - 2.3%
15,200 Champion Enterprises (c) .......................... 283,100
24,800 Elcor Corp. ....................................... 1,083,450
14,500 Granite Construction, Inc. ........................ 425,031
11,500 Kaufman & Broad Home .............................. 286,063
27,000 Manitowoc Co. ..................................... 1,123,875
----------
3,201,519
----------
BUSINESS SERVICES - 4.3%
6,800 Abacus Direct Corp. (c) ........................... 622,200
18,700 Acxiom Corp. (c) .................................. 466,331
2,800 Catalina Marketing (c) ............................ 257,600
100,000 Condor Technology Solutions ....................... 468,750
43,650 HA-LO Industries (c) .............................. 431,044
22,800 Labor Ready, Inc. (c) ............................. 741,000
8,700 MAXIMUS, Inc. ..................................... 250,125
17,800 Metris Cos ........................................ 725,350
9,000 Network Solutions, Inc. ........................... 712,125
25,100 On Assignment, Inc. ............................... 655,737
10,800 Snyder Communications, Inc. ....................... 353,700
15,250 Tetra Tech, Inc. (c) .............................. 251,625
1,700 TMP Worldwide, Inc. (c) ........................... 107,950
----------
6,043,537
----------
CHEMICALS - 0.8%
27,500 Airgas, Inc. ...................................... 336,875
30,000 Ferro Corp. ....................................... 825,000
----------
1,161,875
----------
COAL - 0.4%
30,000 Westmoreland Coal Co., Preferred .................. 547,500
----------
COMMUNICATION SERVICES - 1.6%
17,400 Metromedia Fiber Network (c) ...................... 625,312
15,000 Powerwave Technologies, Inc. (c) .................. 483,750
9,850 Proxim, Inc. (c) .................................. 571,300
20,000 Western Wireless .................................. 540,000
----------
2,220,362
----------
COMPUTER SOFTWARE & SERVICES - 4.4%
25,000 BEA Systems, Inc. ................................. 714,062
7,800 Clarify, Inc. (c) ................................. 321,750
21,200 Concentric Network Corp. (c) ...................... 842,700
30,000 Elbit, Ltd. ....................................... 294,375
47,000 IntraNet Solutions, Inc. .......................... 396,563
5,700 QRS Corp. (c) ..................................... 444,600
37,400 SoftNet Systems, Inc. (c) ......................... 1,042,525
50,000 Symantec Corp. (c) ................................ 1,275,000
15,000 Verity, Inc. (c) .................................. 812,812
----------
6,144,387
----------
COMPUTERS & BUSINESS EQUIPMENT - 0.3%
166,657 United Shipping and Technology, Inc. .............. 479,139
----------
COMPUTER HARDWARE - 1.4%
5,800 Emulex Corp. (c) .................................. 644,887
45,000 Micron Electronics (c) ............................ 452,813
50,000 Sequent Computer Systems, Inc. .................... 887,500
----------
1,985,200
----------
CONSUMER GOODS & SERVICES - 2.4%
13,600 Education Management (c) .......................... 282,200
15,000 Libbey, Inc. ...................................... 435,000
32,400 Playtex Products (c) .............................. 504,225
50,000 R.G. Barry Corp. (c) .............................. 412,500
17,800 Regis Corp. ....................................... 341,537
20,000 Scotsman Industries, Inc. ......................... 431,250
50,000 U-Ship, Inc., Preferred ........................... 143,750
25,000 U-Ship, Inc., Warrants ............................ 41,750
35,000 ValueVision International, Inc. ................... 695,625
----------
3,287,837
----------
DIVERSIFIED CONGLOMERATES - 0.6%
50,000 U.S. Industries, Inc. (c) ......................... 850,000
----------
DRUGS & HEALTH CARE - 3.0%
32,500 Catalytica, Inc. .................................. 455,000
33,000 Duane Reade, Inc. ................................. 1,010,625
15,000 Enzon, Inc. ....................................... 301,172
45,000 Guilford Pharmaceuticals, Inc. (c) ................ 573,750
14,400 ICOS Corp. (c) .................................... 587,700
5,200 IDEC Pharmaceuticals Corp. (c) .................... 400,725
7,800 Medimmune, Inc. (c) ............................... 528,450
12,500 Pharmacyclics, Inc. (c) ........................... 350,000
----------
4,207,422
----------
ELECTRIC UTILITIES - 0.5%
10,500 Montana Power Co. ................................. 740,250
----------
ELECTRICAL EQUIPMENT - 0.4%
27,500 American Power Conversion Corp. ................... 553,438
----------
ELECTRONIC COMPONENTS - 4.4%
20,000 ANADIGICS, Inc. ................................... 740,000
10,050 Applied Micro Circuits Corp. (c) .................. 826,612
15,000 Cymer, Inc. (c) ................................... 375,000
35,000 ESS Technology, Inc. .............................. 470,313
11,100 Optical Coating Laboratory, Inc. .................. 928,237
16,300 Plexus Corp. ...................................... 491,038
9,400 PMC-Sierra, Inc. (c) .............................. 554,012
10,800 Power Integrations (c) ............................ 789,750
11,600 Sanmina Corp. (c) ................................. 880,150
----------
6,055,112
----------
ELECTRONICS - 2.3%
37,500 Cypress Semiconductor Corp. ....................... 618,750
6,800 Flextronics International (c) ..................... 377,400
18,600 PRI Automation, Inc. (c) .......................... 674,250
9,500 Raychem Corp. ..................................... 351,500
13,100 SDL, Inc. (c) ..................................... 668,919
12,500 SpeedFam-IPEC, Inc. ............................... 200,781
10,000 UCAR International, Inc. .......................... 252,500
----------
3,144,100
----------
ENTERTAINMENT - 0.3%
5,700 Carmike Cinemas, Inc. ............................. 90,844
8,000 CEC Entertainment, Inc. ........................... 338,000
----------
428,844
----------
FINANCE - 1.7%
50,000 ARM Financial Group ............................... 425,000
15,000 Duff & Phelps Credit Rating ....................... 1,003,125
38,300 First Sierra Financial, Inc. ...................... 957,500
----------
2,385,625
----------
FINANCIAL SERVICES - 0.7%
20,800 Profit Recovery Group International, Inc. (c) ..... 984,100
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FOOD & BEVERAGES - 2.2%
12,000 Celestial Seasonings, Inc. ........................ 258,000
50,000 Del Monte Foods Co. ............................... 837,500
23,800 Fleming Companies, Inc. ........................... 276,675
20,000 International Multifoods .......................... 451,250
40,000 M&F Worldwide ..................................... 317,500
40,000 Ralcorp Holdings, Inc. (c) ........................ 642,500
17,600 Seminis, Inc. ..................................... 265,100
----------
3,048,525
----------
HEALTH CARE - MEDICAL TECHNOLOGY - 2.4%
12,500 CardioThoracic Systems, Inc. ...................... 175,000
9,100 Cerus Corp. ....................................... 200,200
50,000 Endocardial Solutions, Inc. ....................... 471,875
9,300 MiniMed, Inc. (c) ................................. 715,519
12,450 Osteotech, Inc. (c) ............................... 357,937
30,000 Sabratek Corp. .................................... 656,250
15,700 Xomed Surgical Products, Inc. (c) ................. 764,394
----------
3,341,175
----------
HEALTH CARE - SERVICES - 2.8%
20,000 First Health Group Corp. .......................... 431,250
12,500 Laser Vision Centers, Inc. (c) .................... 787,500
60,800 Medaphis Corp. (c) ................................ 349,600
21,900 Medquist, Inc. (c) ................................ 958,125
17,000 Oxford Health Plans, Inc. (c) ..................... 264,562
22,800 TLC The Laser Center, Inc (c) ..................... 1,094,400
----------
3,885,437
----------
HOTELS & RESTAURANTS - 0.6%
14,000 Consolidated Products, Inc. ....................... 252,000
62,500 Taco Cabana, Inc. ................................. 636,719
----------
888,719
----------
INDUSTRIAL GOODS & SERVICES - 2.2%
25,000 Columbus McKinnon ................................. 600,000
15,000 HB Fuller Co. ..................................... 1,025,625
60,000 MagneTek, Inc. (c) ................................ 633,750
25,000 Photon Dynamics, Inc. ............................. 300,000
27,500 Teekay Shipping Corp. ............................. 484,687
----------
3,044,062
----------
INSURANCE - 1.6%
10,000 American Heritage Life Investment ................. 245,000
5,700 MGIC Investment Corp. ............................. 281,081
5,000 PMI Group, Inc. ................................... 314,063
7,892 Radian Group, Inc. ................................ 385,228
12,400 StanCorp Financial Group, Inc. .................... 372,000
20,000 The MONY Group, Inc. .............................. 652,500
----------
2,249,872
----------
INTERNET CONTENT - 1.5%
6,900 About.com, Inc. ................................... 357,937
500 Ask Jeeves, Inc. .................................. 32,469
1,000 BackWeb Technologies, Ltd. ........................ 27,375
20,400 Homeseekers.com ................................... 96,900
4,400 Inktomi Corp. (c) ................................. 578,600
14,700 Security First Technologies Corp. (c) ............. 663,337
400 StarMedia Network, Inc. ........................... 25,650
15,000 Telescan, Inc. .................................... 345,938
----------
2,128,206
----------
INVESTMENT COMPANIES - 0.2%
10,900 Waddell & Reed Financial, Inc. .................... 299,069
----------
MACHINERY - 1.8%
17,000 Applied Power, Inc. ............................... 464,312
10,000 Graco, Inc. ....................................... 293,750
25,000 Northwest Pipe Co. (c) ............................ 415,625
47,300 Sames Corp. ....................................... 940,087
42,500 TurboChef, Inc. ................................... 409,063
----------
2,522,837
----------
MANUFACTURING - 0.8%
12,500 SPX Corp. (c) ..................................... 1,043,750
----------
OFFICE EQUIPMENT & SUPPLIES - 0.2%
7,900 Bell & Howell (c) ................................. 298,719
----------
OIL & GAS/EXPLORATION & PRODUCTION - 1.3%
15,000 Apache Corp. ...................................... 585,000
20,000 Belco Oil & Gas Corp. ............................. 138,750
12,500 Devon Energy Corp. ................................ 446,875
48,600 Marine Drilling (c) ............................... 665,213
----------
1,835,838
----------
PACKAGING - 0.2%
9,000 AptarGroup, Inc. .................................. 270,000
----------
PAPER & FOREST PRODUCTS - 0.6%
10,600 Mead Corp. ........................................ 442,550
9,600 Willamette Industries, Inc. ....................... 442,200
----------
884,750
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PETROLEUM SERVICES - 2.4%
19,300 Atwood Oceanics (c) ............................... 603,125
16,500 BJ Services (c) ................................... 485,719
360,000 Bonus Resource Services Corp. ..................... 547,200
25,000 ENSCO International, Inc. ......................... 498,438
15,000 Ensign Resource Service Group, Inc. (CAD) ......... 302,037
12,000 Noble Drilling (c) ................................ 226,500
28,200 R&B Falcon Corp. .................................. 264,375
20,000 Rowan Companies, Inc. (c) ......................... 368,750
----------
3,296,144
----------
REAL ESTATE - 1.4%
60,000 Catellus Development (c) .......................... 930,000
50,000 Prime Hospitality (c) ............................. 600,000
25,000 Trammell Crow Co. ................................. 410,937
----------
1,940,937
----------
RETAIL - 6.2%
16,950 99 Cents Only Stores (c) .......................... 846,441
6,300 Ames Department Stores, Inc. ...................... 287,438
21,000 AnnTaylor Stores (c) .............................. 945,000
20,000 BJ's Wholesale Club (c) ........................... 601,250
70,000 CompUSA, Inc. (c) ................................. 520,625
20,050 Cost Plus, Inc. (c) ............................... 912,275
40,000 Department 56, Inc. ............................... 1,075,000
190,000 Krause's Furniture (c) ............................ 558,125
25,850 Linens'n Things (c) ............................... 1,130,937
20,000 Michaels Stores, Inc. ............................. 612,500
8,900 Talbots, Inc. ..................................... 339,312
9,500 The Men's Wearhouse, Inc. (c) ..................... 242,250
75,000 Ugly Duckling Corp. (c) ........................... 543,750
----------
8,614,903
----------
RETAIL - GROCERY - 0.2%
10,000 Great Atlantic & Pacific Tea Co. .................. 338,125
----------
RETAIL - SPECIALTY - 0.5%
4,900 GoTo.com, Inc. .................................... 137,200
29,200 J. Jill Group, Inc. ............................... 427,050
7,800 Shop At Home, Inc. ................................ 69,469
4,000 Stamps.com, Inc. .................................. 70,000
----------
703,719
----------
SEMI-CONDUCTORS - 2.9%
23,500 Advanced Energy Industries, Inc. (c) .............. 953,219
12,000 Altera Corp. (c) .................................. 441,750
10,600 Cree Research, Inc. (c) ........................... 815,537
9,100 hi/fn, Inc. (c) ................................... 692,738
23,400 TranSwitch Corp. (c) .............................. 1,108,575
----------
4,011,819
----------
SERVICES - 0.5%
8,000 Verisign, Inc. (c) ................................ 690,000
----------
SOFTWARE - 7.2%
8,050 Advent Software, Inc. (c) ......................... 539,350
120,000 Artisoft, Inc. .................................... 607,500
200 Clarent Corp. ..................................... 5,100
7,300 Concord Communications, Inc. (c) .................. 328,500
60,000 DSET Corp. ........................................ 836,250
13,500 F5 Networks, Inc. ................................. 553,500
43,300 Genesys Telecommunications Laboratory (c) ......... 1,082,500
68,200 Information Advantage, Inc. ....................... 279,194
31,000 Macromedia, Inc. (c) .............................. 1,092,750
22,900 Mercury Interactive Corp. (c) ..................... 810,087
22,000 MICROS Systems, Inc. .............................. 748,000
100,000 NetMoves Corp. .................................... 550,000
30,000 Netopia, Inc. ..................................... 682,500
20,000 nFront, Inc. ...................................... 303,750
1,150 Persistence Software, Inc. ........................ 15,669
8,000 Pinnacle Systems, Inc. ............................ 266,000
27,500 Research in Motion, Ltd. .......................... 556,875
5,000 Synopsys, Inc. (c) ................................ 275,937
1,900 Viant Corp. ....................................... 66,500
8,000 WebTrends Corp. ................................... 369,000
----------
9,968,962
----------
STEEL - 0.2%
30,000 NS Group, Inc. .................................... 277,500
----------
TECHNOLOGY - 0.7%
7,000 Gemstar International Group, Ltd .................. 456,750
11,600 Kronos, Inc. (c) .................................. 527,800
----------
984,550
----------
TELECOMMUNICATION - 8.8%
15,000 Aerial Communications, Inc. ....................... 202,500
30,500 CapRock Communications Corp. ...................... 1,235,250
5,200 Copper Mountain Networks, Inc. (c) ................ 401,700
20,000 Cyberfast Systems, Inc. ........................... 211,880
45,000 Digital Microwave Corp. (c) ....................... 573,750
19,100 Dycom Industries, Inc. (c) ........................ 1,069,600
8,600 Esat Telecom Group plc (ADR) ...................... 377,325
25,000 Excel Switching Corp. ............................. 748,438
20,000 ICG Communications, Inc. .......................... 427,500
2,500 ICO Global Communications (Holdings), Ltd. ........ 15,078
6,900 ITC DeltaCom (c) .................................. 193,200
22,500 IXC Communications, Inc. .......................... 884,531
12,500 MGC Communications, Inc. .......................... 325,000
27,500 Omnipoint Corp. ................................... 795,781
55,000 Primus Telecomm Group, Inc. ....................... 1,234,063
38,880 PT Telekomunikasi Indoneisa (ADR) (c) ............. 483,570
16,000 Quanta Services, Inc. ............................. 704,000
118,600 Startec Global Communications ..................... 1,438,025
16,000 Viatel, Inc. (c) .................................. 898,000
----------
12,219,191
----------
TELECOMMUNICATION EQUIPMENT - 3.5%
5,000 ADTRAN, Inc. ...................................... 181,875
22,000 Advanced Radio Telecom Corp. ...................... 316,250
7,700 Carrier Access Corp. .............................. 337,356
9,700 Comverse Technology (c) ........................... 732,350
19,000 DSP Communications, Inc. (c) ...................... 548,625
15,000 PictureTel Corp., New (c) ......................... 120,000
35,000 Sawtek, Inc. (c) .................................. 1,605,625
6,100 Uniphase Corp. (c) ................................ 1,012,600
7,500 Vari-L Company, Inc. .............................. 64,219
----------
4,918,900
----------
TRUCKING & FREIGHT FORWARDING - 0.6%
76,800 Simon Transportation Services, Inc. ............... 379,200
20,800 Swift Transportation Co., Inc. .................... 457,600
----------
836,800
----------
WASTE MANAGEMENT - 1.2%
43,000 Capital Environmental Resource, Inc. .............. 623,500
12,000 Casella Waste Systems, Inc. ....................... 312,000
30,600 Republic Services, Inc. (c) ....................... 757,350
----------
1,692,850
----------
Total Common Stock
(Identified Cost $110,426,111) .................. 133,594,073
-----------
OPTIONS CONTRACTS - 0.1%
- --------------------------------------------------------------------------------
35,000 Bank Tokyo Mitsubishi, Ltd., 15 Call, 7/17/1999 ... 13,125
20,000 Liberty Media Corp., 35 Call, 7/17/1999 ........... 40,000
15,000 Montana Power Co., 75 Call, 7/17/1999 ............. 28,125
15,000 Montana Power Co., 80 Call, 7/17/1999 ............. 12,188
----------
93,438
----------
Total Options (Identified Cost $173,800) .......... 93,438
----------
PRINCIPAL
AMOUNT DESCRIPTION VALUE (A)
- --------------------------------------------------------------------------------
$ 5,227,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/99
at 4.00% to be repurchased at $5,227,581
on 7/01/99, collateralized by $4,745,000
U.S. Treasury Bond 7.50% due 11/15/16
with a value of $5,338,125.................... $ 5,227,000
1,428,000 Repurchase Agreement with State Street
Bank and Trust Co. dated 6/30/99 at
4.75% to be repurchased at $1,428,188
on 7/01/99, collateralized by $1,295,000
U.S. Treasury Bond 7.50% due 11/15/16
with a value of $1,456,875. .................. 1,428,000
------------
Total Short Term Investments
(Identified Cost $6,655,000) ................. 6,655,000
------------
Total Investments - 100.8%
(Identified Cost $117,254,911) (b) ............ 140,342,511
Other assets less liabilities .................. (1,063,077)
------------
Total Net Assets - 100% ........................ $139,279,434
=============
(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 $117,254,911 for federal income tax
purposeswas as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost .......................................... $ 29,229,372
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................. (6,141,772)
------------
Net unrealized appreciation ............................ $ 23,087,600
============
(c) Non-income producing security.
ADR An American Depository Receipt is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading
on exchanges not located in the United States or Canada.
CAD Canadian Dollars.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified cost
$117,254,911) ................................... $ 140,342,511
Cash .............................................. 125,522
Cash - Restricted ................................. 737,295
Collateral for securities loaned, at value ........ 9,281,505
Receivable for:
Fund shares sold ................................ 189,183
Securities sold ................................. 2,693,076
Dividends and interest .......................... 24,533
Unamortized organization expense ................ 21,596
------------
153,415,221
LIABILITIES
Payable for:
Collateral for securities loaned, at value ...... $9,281,505
Securities purchased ............................ 4,427,884
Fund shares redeemed ............................ 184,277
Accrued expenses:
Management fees ................................. 111,716
Deferred trustees' fees ......................... 5,512
Accounting and administrative ................... 7,608
Other expenses .................................. 117,285
----------
14,135,787
-------------
NET ASSETS ........................................... $ 139,279,434
=============
Net Assets consist of:
Capital paid in ................................. $102,113,928
Undistributed net investment income (loss) ...... (1,314,101)
Accumulated net realized gains (losses) ......... 15,392,007
Unrealized appreciation (depreciation)
on investments ................................ 23,087,600
------------
NET ASSETS ........................................... $139,279,434
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($58,660,809 / 3,243,340 shares of
beneficial interest) .............................. $ 18.09
============
Offering price per share (100 / 94.25 of $18.09) .. $ 19.19*
============
Net asset value and offering price of Class B
shares ($65,300,972 / 3,678,444 shares of
beneficial interest) .............................. $ 17.75**
============
Net asset value and offering price of Class C
shares ($15,317,653 / 862,753 shares of
beneficial interest) .............................. $ 17.75
==========
*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 $173) ...... $ 154,496
Interest ...................................... 141,309
Securities lending income ..................... 11,578
------------
307,383
Expenses
Management fees ............................. $ 664,394
Service fees - Class A ...................... 66,544
Service and distribution fees - Class B ..... 296,089
Service and distribution fees - Class C ..... 70,490
Trustees' fees and expenses ................. 6,352
Accounting and administrative ............... 23,453
Custodian ................................... 120,614
Transfer agent .............................. 288,940
Audit and tax services ...................... 22,150
Legal ....................................... 6,126
Printing .................................... 20,118
Registration ................................ 21,909
Amortization of organization expense ........ 4,416
Insurance ................................... 600
Miscellaneous ............................... 5,737
----------
Total expenses ................................ 1,617,932
------------
Net investment income (loss) .................. (1,310,549)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SECURITIES SOLD SHORT AND WRITTEN OPTIONS
Realized gain (loss) on:
Investments - net ......................... 14,572,919
Securities sold short - net ............... 40,799
Written options - net ..................... 522,523
----------
Total realized gain (loss) on investments ... 15,136,241
----------
Unrealized appreciation (depreciation) on:
Investments - net ......................... 4,808,912
----------
Net unrealized appreciation (depreciation)
on investment transactions .................. 19,945,153
------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ..................................... $ 18,634,604
============
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
---------- -----------
FROM OPERATIONS
Net investment income (loss) ................... $ (2,417,784) $ (1,310,549)
Net realized gain (loss) on investments,
securities sold short and written options .... 1,618,726 15,136,241
Net unrealized appreciation (depreciation)
on investments ............................... 2,707,927 4,808,912
------------ ------------
Increase (decrease) in net assets from operations 1,908,869 18,634,604
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ...................................... (72,914) 0
Class B ...................................... (81,808) 0
Class C ...................................... (19,163) 0
------------ ------------
(173,885) 0
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ........ 12,594,454 (12,337,228)
------------ ------------
Total increase (decrease) in net assets ........... 14,329,438 6,297,376
NET ASSETS
Beginning of the period ........................ 118,652,620 132,982,058
------------ ------------
End of the period .............................. $132,982,058 $139,279,434
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period .............................. $ (3,552) $ (1,314,101)
============ ============
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
CLASS A CLASS B
------------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, SIX MONTHS DECEMBER 31, SIX MONTHS
------------------ ENDED ----------------- ENDED
1997 1998 JUNE 30, 1999 1997 1998 JUNE 30, 1999
---- ---- ------------- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year (a).. $ 12.50 $ 15.37 $ 15.66 $ 12.50 $ 15.26 $ 15.43
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations
Net investment income (loss) (b) ....... (0.20) (0.23) (0.09) (0.30) (0.33) (0.19)
Net realized and unrealized gain on
investments ........................... 3.55 0.54 2.52 3.54 0.52 2.51
-------- -------- -------- -------- -------- --------
Total from investment operations ....... 3.35 0.31 2.43 3.24 0.19 2.32
-------- -------- -------- -------- -------- --------
Less distributions
Distributions from net realized
capital gains ......................... (0.48) (0.02) 0.00 (0.48) (0.02) 0.00
-------- -------- -------- -------- -------- --------
Total distributions .................... (0.48) (0.02) 0.00 (0.48) (0.02) 0.00
-------- -------- -------- -------- -------- --------
Net asset value, end of year ........... $ 15.37 $ 15.66 $ 18.09 $ 15.26 $ 15.43 $ 17.75
======== ======== ======== ======== ======== ========
Total return (%) (c) ................... 27.0 2.1 15.5 26.1 1.3 15.0
Ratio of operating expenses to average
net assets (%) ........................ 2.20 2.07 2.12(d) 2.95 2.82 2.87(d)
Ratio of net investment income (loss)
to average net assets (%) ............. (1.44) (1.52) (1.64)(d) (2.19) (2.27) (2.39)(d)
Portfolio turnover rate (%) ............ 140 182 293 140 182 293
Net assets, end of year (000) .......... $ 52,066 $ 56,161 $ 58,661 $ 52,616 $ 61,409 $ 65,301
(a) Fund commenced operations on December 31, 1996.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c) A sales charge in the case of Class A shares and a contingent deferred sales
charge in the case of Class B shares is not reflected in total return calculations.
(d) Computed on an annualized basis
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
CLASS C
------------------------------------
YEAR ENDED
DECEMBER 31, SIX MONTHS
---------------- ENDED
1997 1998 JUNE 30, 1999
---- ---- --------------
Net asset value, beginning of year (a) . $ 12.50 $ 15.26 $ 15.43
-------- -------- --------
Income (loss) from investment operations
Net investment income (loss) (b) ....... (0.30) (0.33) (0.20)
Net realized and unrealized gain
on investments ........................ 3.54 0.52 2.52
-------- -------- --------
Total from investment operations ....... 3.24 0.19 2.32
-------- -------- --------
Less distributions
Distributions from net realized
capital gains ......................... (0.48) (0.02) 0.00
-------- -------- --------
Total distributions .................... (0.48) (0.02) 0.00
-------- -------- --------
Net asset value, end of year ........... $ 15.26 $ 15.43 $ 17.75
-------- -------- --------
Total return (%) (c) ................... 26.1 1.3 15.0
Ratio of operating expenses to
average net assets (%) ................ 2.95 2.82 2.87(d)
Ratio of net investment income (loss)
to average net assets (%) ............. (2.19) (2.27) (2.39)(d)
Portfolio turnover rate (%) ............ 140 182 293
Net assets, end of year (000) .......... $ 13,970 $ 15,412 $ 15,318
(a)Fund commenced operations on December 31, 1996.
(b)Per share net investment loss has been calculated using the average shares
outstanding during the year.
(c)A contingent deferred sales charge in the case of Class C shares is not
reflected in total return calculations.
(d)Computed on an annualized basis
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
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 capital appreciation. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase (or five years if purchased before May
1, 1997). Class C shares do not pay a front end sales charge and do not convert
to any other class of shares, but they do pay a higher ongoing distribution fee
than Class A shares and may be subject to a contingent deferred sales charge if
those shares are redeemed within one year. Expenses of the Fund are borne pro
rata by the holders of each class of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
a. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and the relevant
subadvisers under the supervision of the Fund's trustees.
b. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date or when the Fund learns of the dividend, and interest income is
recorded on the accrual basis. In determining net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
c. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
d. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for organization
costs, wash sales, post October losses and net investment loss. Permanent book
and tax basis differences will result in reclassification to capital accounts.
e. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price including interest. Each subadviser is responsible for
determining that the value of the collateral is at all times at least equal to
the repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
f. SHORT SALES. A short sale is a transaction in which the Fund sells securities
it does not own (but has borrowed) in anticipation of a decline in the market
price of the securities. When the Fund makes a short sale, the proceeds it
receives from the sale will be held on behalf of the broker effecting the sale
until the Fund replaces the borrowed securities. To deliver the securities to
the buyer, the Fund arranges through the broker to borrow the securities and, in
doing so, the Fund becomes obligated to replace the securities borrowed at their
market value at the time of replacement, whatever that price may be. The Fund
may have to pay a premium to borrow the securities and must pay any dividends or
interest payable on the borrowed securities until the securities are replaced.
At June 30, 1999, there were no short sales.
g. SHORT SALES AGAINST THE BOX. In a short sale against the box, the Fund sells
a borrowed security, while at the same time owning an identical security in the
portfolio. While the short sale is outstanding, the Fund will not dispose of the
security hedged by the short sale.
When the Fund sells short against the box, it will establish a margin account
with the broker lending the security sold short. While the short sale is
outstanding, the broker retains the proceeds of the short sale, and the Fund
pledges securities or cash as additional collateral. The Fund earns interest
from the broker on the proceeds of the short sale and accrues such interest on a
daily basis.
h. OPTIONS. The Fund may use options to enhance investment return, or to hedge
against changes in the values of securities the Fund owns or expects to
purchase. Writing puts and buying calls tends to increase the Fund's exposure to
the underlying instrument and writing calls or buying puts tends to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
For options purchased to hedge the Fund's investments, the potential risk to the
Fund is that the change in value of options contracts may not correspond to the
change in value of the hedged instruments. In addition, losses may arise from
changes in the value of the underlying instruments, if there is an illiquid
secondary market for the contracts, or if the counterparty is unable to perform.
The maximum loss for purchased options is limited to the premium initially paid
for the option. For options written by the Fund, the maximum loss is not limited
to the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
1. ORGANIZATION EXPENSE. Costs incurred in connection with the Fund's
organization and initial registration, amounting to approximately $41,674 in the
aggregate, were paid by the Fund and are being amortized over 60 months.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1999,
purchases and sales of securities (excluding short-term investments) were
$180,401,427 and $190,998,027 respectively.
Transactions in written options for the six months ended June 30, 1999 are
summarized as follows:
WRITTEN OPTIONS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------- ---------
Open at December 31, 1998 ................. (50) $ (62,972)
Contracts opened .......................... (1,835) (1,445,682)
Contracts closed .......................... 1,885 1,508,654
------ -----------
Open at June 30, 1999 ................... 0 $ 0
====== ===========
3a. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 1.05% of the Fund's average daily net assets
reduced by the amount of any subadviser fees paid by the Fund to its subadvisers
as follows: Harris Associates, L.P., at the annual rate of 0.70% of the average
daily net assets of its segment of the Fund, Loomis, Sayles & Company, L.P. and
RS Investment Management, L.P. at the annual rate of 0.55% of the first $50
million of the average daily net assets of the segment of the Fund which that
sub-adviser manages, and 0.50% of such assets in excess of $50 million, and
Montgomery Asset Management, L.P. at the annual rate of 0.65% of the first $50
million of the average daily net assets of the segment of the Fund which that
subadviser manages, and 0.50% of such assets in excess of $50 million.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM, Harris Associates, L.P. and Loomis, Sayles & Company, L.P. are
wholly owned subsidiaries of Nvest Companies, L.P. ("Nvest"), formerly known as
New England Investment Companies, L.P., which is a subsidiary of Metropolitan
Life Insurance Company (MetLife). Fees earned by NEFM and the sub-advisers under
the management and subadvisory agreements in effect during the period ended June
30, 1999, are as follows:
Fees Earned
-----------
NEFM $285,153
Harris Associates, L.P. 115,804
Loomis, Sayles & Company, L.P. 81,321
Montgomery Asset Management, L.P. 94,772
RS Investment Management, L.P. 87,344
--------
$664,394
========
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, 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 $ 23,453 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 the sub-transfer agent for
the Fund. For the six months ended June 30, 1999, the Fund paid NSC $219,726 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 $66,544
in fees under the Class A Plan.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the six months ended June
30, 1999 the Fund paid New England Funds $74,022 and $17,623 in service fees
under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds
monthly distribution fees at the annual rate of 0.75% of the average daily net
assets attributable to the Fund's Class B and Class C shares, as compensation
for services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in connection with the marketing or sale of Class B and Class C shares.
For the six months ended June 30, 1999, the Fund paid New England Funds $222,067
and $52,867 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 $286,106.
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 three classes, Class A, Class B and
Class C 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 ............................... 10,007,052 $ 145,480,024 7,639,709 $ 122,806,116
Shares issued in connection with
the reinvestment of:
Distributions from net realized gain .... 5,652 69,350 0 0
---------- ------------- ---------- -------------
10,012,704 145,549,374 7,639,709 122,806,116
Shares repurchased ........................ (9,814,676) (142,857,804) (7,981,828) (128,493,889)
---------- ------------- ---------- -------------
Net increase (decrease) ................... 198,028 $ 2,691,570 (342,119) $ (5,687,773)
---------- ------------- ---------- -------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
Shares sold ............................... 1,448,884 $ 21,668,586 333,755 $ 5,239,199
Shares issued in connection with
the reinvestment of:
Distributions from net realized gain .... 6,043 73,183 0 0
---------- ------------- ---------- -------------
1,454,927 21,741,769 333,755 5,239,199
Shares repurchased ........................ (923,148) (13,235,193) (634,913) (9,847,095)
---------- ------------- ---------- -------------
Net increase (decrease) ................... 531,779 $ 8,506,576 (301,158) $ (4,607,896)
---------- ------------- ---------- -------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
Shares sold ............................... 415,402 $ 6,261,996 150,681 $ 2,397,159
Shares issued in connection with
the reinvestment of:
Distributions from net realized gain .... 1,496 18,135 0 0
---------- ------------- ---------- -------------
416,898 6,280,131 150,681 2,397,159
Shares repurchased ........................ (333,755) (4,883,823) (286,492) (4,438,718)
---------- ------------- ---------- -------------
Net increase (decrease) ................... 83,143 $ 1,396,308 (135,811) $ (2,041,559)
---------- ------------- ---------- -------------
Increase derived from capital
shares transactions ...................... 812,950 $ 12,594,454 (779,088) $ (12,337,228)
========== ============= ======== =============
</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 $9,052,908
collateralized by United States Treasury Bonds with a market value of
$9,281,505.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW ENGLAND STAR ADVISERS FUND
NEW ENGLAND STAR WORLDWIDE FUND
Supplement Dated August 23, 1999 to New England Star Funds Class
A, B, and C Prospectus and New England Stock and Star Funds
Class Y Prospectus dated May 3, 1999
STAR ADVISERS FUND
On August 20, 1999, the Board of Trustees of New England Funds Trust I (the
"Trust") approved a new interim Subadvisory Agreement (the "Interim Agreement")
relating to New England Star Advisers Fund (the "Fund") between New England
Funds Management, L.P. ("NEFM"), the Fund's adviser, and Kobrick Funds LLC
("Kobrick"). The Interim Agreement is effective as of August 23, 1999, and will
continue in effect for a period of 120 days or until shareholders of the Fund
approve a new Subadvisory Agreement between NEFM and Kobrick, whichever occurs
first. Under the Interim Agreement, Kobrick succeeds Founders Asset Management,
LLC ("Founders") as the subadviser of the segment of the Fund previously managed
by Founders (the "Segment") and is responsible for day-to-day management of the
Segment's investment operations under the oversight of NEFM. A special
shareholder meeting will be held in October to vote on the approval of a second,
final Subadvisory Agreement for the Fund between NEFM and Kobrick, which was
also approved by the Board of Trustees of the Trust on August 20, 1999 (the
"Final Subadvisory Agreement"). The Final Subadvisory Agreement would replace
the Interim Agreement. A notice of the special shareholder meeting and a proxy
statement will be sent to shareholders in mid-September. In the event that the
Fund's shareholders do not approve the Final Subadvisory Agreement between NEFM
and Kobrick at the special shareholder meeting, shareholders will be notified
and the Board of Trustees will consider alternative arrangements for the
management of the Segment's investment portfolio.
The annual subadvisory fee rates payable to Kobrick under the Interim Agreement
and the Final Subadvisory Agreement are identical to those previously paid to
Founders to manage the Segment, which are 0.55% of the first $50 million of the
Segment's average daily net assets, 0.50% of such assets between $50 million and
$250 million and 0.475% of such assets in excess of $250 million. In addition,
Kobrick has agreed to waive the entire subadvisory fee payable to Kobrick by the
Fund under the Interim Agreement through October 19, 1999 and NEFM will pay such
waived fees to Founders. This waiver will not affect the management fee payable
by the Fund to NEFM.
In conjunction with Kobrick becoming a subadviser to the Fund, the Fund's Board
of Trustees approved amendments to the Segment's investment strategies, which
will be effective at the close of business on August 20, 1999. Accordingly, the
subsection entitled "Founders" within the section entitled "Star Advisers Fund -
More on Investment Strategies" page of the Prospectuses are revised as of such
date by replacing such subsection with the text set forth below.
KOBRICK
The segment of the Star Advisers Fund managed by Kobrick will, under normal
conditions, invest substantially in equity securities of companies with small,
medium and large capitalizations, including those Kobrick believes are
undervalued special situations and emerging growth companies. Kobrick considers
emerging growth companies to be those companies which are less mature and have
the potential to grow substantially faster than the economy. This provides
Kobrick with flexibility to emphasize in the Fund companies with different
capitalizations as market conditions change. Kobrick's bottom-up approach
utilizes quantitative and qualitative analysis to select individual companies,
not sectors, with the greatest potential for growth. In selecting investments
for the Fund, Kobrick generally seeks companies in a wide variety of industries
and considers any one or more of the following factors:
o the strength of a company's o expected growth in earnings
management team o competitive position and business strategy
o relative financial condition o new or innovative products, services or
o entrepreneurial character processes
In making investment decisions, Kobrick employs the following four-part
investment approach:
o Screening: Kobrick analyzes thousands of companies in order to find a select
group that has the potential to meet its buy disciplines described below.
Many of the companies within this group are special situation companies,
which because of unique circumstances, such as an ability to fill a
particular niche, are attractive investments.
o Portfolio Construction: Kobrick applies buy disciplines which emphasize
strong management, compelling valuations and high earnings growth. At the
core of this approach is regular contact with a company's management team to
assess their ability to execute the company's strategy. Kobrick considers
potential risk in selecting securities to construct a diversified portfolio
that limits volatility.
o Portfolio Supervision: Kobrick closely monitors each holding in the Fund's
portfolio to determine whether it continues to possess the factors identified
when the original investment was made. This process includes continuous
review of absolute and relative valuations, evaluation of management's
execution of the company's strategy and assessment of the company's prospects
relative to the overall economic, political and financial environment.
o Portfolio Realignment: Kobrick will generally sell a position when, among
other things, its target price, which is continuously evaluated, is reached,
when there is a change in a company's management or strategy or when a
company fails to execute its strategy.
It is anticipated that most of the Fund's securities will be traded or listed on
a major securities exchange. However, the Fund may invest at any time up to 35%
of its total assets in other types of securities, including corporate bonds,
securities of the U.S. government and certain options. The Fund may engage in
active and frequent trading of securities, particularly as the Fund's investment
philosophy provides flexibility to emphasize different capitalizations of
companies as market conditions change. Frequent trading may produce higher
transaction costs and a higher level of capital gains which may lower your
return.
In the section entitled "Meet the Fund's Investment Adviser and Subadvisers,"
the text entitled "Founders" under the heading "Subadvisers" is replaced with
the following:
KOBRICK, located at 101 Federal Street, Boston, Massachusetts 02110, serves as
subadviser to the Star Advisers Fund. Kobrick is a subsidiary of Nvest
Companies. Kobrick, the predecessor to which was formed in 1997, focuses
primarily on managing growth-oriented equity funds including three mutual funds.
In the section entitled "Meet the Funds' Portfolio Managers," the biographical
information on Thomas M. Arrington and Scott A. Chapman under the heading "Star
Advisers Fund" is replaced with the following:
FREDERICK R. KOBRICK
Frederick R. Kobrick has managed the Kobrick segment of the Star Advisers Fund
since August 23, 1999. Mr. Kobrick also manages Kobrick Capital Fund (since its
inception on December 31, 1997) and Kobrick Emerging Growth Fund (from its
inception on December 31, 1997 until February 1, 1999 and returned as manager on
April 9, 1999). He has been in the investment business for more than 28 years.
For the 12 year period immediately prior to becoming President of the
predecessor to Kobrick Funds LLC in 1997, he was an equity portfolio manager at
State Street Research & Management Company, where he had served as Senior Vice
President since 1989 and as a member of the firm's Equity Investment Committee
since 1985. He received an M.B.A. from Harvard Business School and a B.A. from
Boston University and is also a Chartered Financial Analyst.
STAR WORLDWIDE FUND
On August 20, 1999, the Board of Trustees of New England Funds Trust I (the
"Trust") approved the termination of the Subadvisory Agreement relating to New
England Star Worldwide Fund (the "Fund") between New England Funds Management,
L.P., the Fund's adviser, and Founders Asset Management, LLC ("Founders").
Accordingly, the references to Founders and its portfolio managers are
eliminated from the Prospectuses. The Board of Trustees also approved
reallocation of the assets of the segment previously managed by Founders.
Effective August 23, 1999, the assets of the segment will be reallocated among
the four other segments of the Fund, with the result that the four segments
will, as of such date, represent the following percentages of the Fund's assets:
Harris Associates - U.S. Segment (25%); Harris Associates - International
Segment (25%); Janus Capital Corporation Segment (29%); and Montgomery Asset
Management Segment (21%). It is expected that the Fund's future cash flow will
be allocated equally among the four segments. The percentage of the Fund's
assets held in each Segment will vary from time to time, based on the relative
investment performance of each Segment.
<PAGE>
- --------------------------------------------------------------------------------
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>
------------------
[LOGO](R) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
------------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
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