<PAGE>
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SEMIANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
NEW ENGLAND
INTERNATIONAL EQUITY FUND
[graphic omitted]
WHERE
THE BEST
MINDS
MEET(R)
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JUNE 30, 1999
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<PAGE>
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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 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 INTERNATIONAL EQUITY 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 below 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 and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since New England International Equity
Fund's inception on 5/21/92, compared to the EAFE Index over the same period.
The data points from the graph are as follows:]
MAY 1992 (INCEPTION) THROUGH JUNE 1999
NET MAXIMUM MORGAN
ASSET SALES STANLEY
VALUE(1) CHARGE(2) EAFE(5)
---------------------------------------------------------------
5/92 $10,000 $ 9,425 $10,000
6/92 $ 9,685 $ 9,128 $ 9,529
6/93 $11,025 $10,391 $11,501
6/94 $13,137 $12,381 $13,491
6/95 $13,145 $12,389 $13,754
6/96 $14,673 $13,830 $15,627
6/97 $14,688 $13,843 $17,684
6/98 $14,331 $13,507 $18,812
6/99 $14,635 $13,793 $20,302
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 dates,
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 INTERNATIONAL EQUITY FUND
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<TABLE>
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/99
- --------------------------------------------------------------------------------------------
<CAPTION>
CLASS A (Inception 5/21/92) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1), (4) 2.2% 0.5% 1.9% 5.5%
With Maximum Sales Charge(2), (4) -3.6 -5.3 0.7 4.6
- --------------------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1), (4) 1.9% -0.3% 1.2% 2.4%
With CDSC(3), (4) -3.1 -5.1 0.8 2.3
- --------------------------------------------------------------------------------------------
<CAPTION>
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR SINCE INCEPTION
<S> <C> <C> <C>
Net Asset Value(1), (4) 1.9% -0.2% 1.5%
With CDSC(3), (4) 0.9 -1.2 1.5
- --------------------------------------------------------------------------------------------
<CAPTION>
CLASS Y (Inception 9/9/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
Net Asset Value(1), (4) 2.6% 1.2% 2.6% 3.9%
- --------------------------------------------------------------------------------------------
<CAPTION>
SINCE SINCE SINCE SINCE
FUND'S FUND'S FUND'S FUND'S
CLASS A CLASS B CLASS C CLASS Y
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS INCEPT. INCEPT. INCEPT. INCEPT.
<S> <C> <C> <C> <C> <C> <C> <C>
MSCI EAFE(5) 4.1% 7.9% 8.5% 10.5% 9.2% 9.7% 9.2%
Lipper International Average(6) 7.4 4.8 8.9 10.2 9.6 10.2 9.4
Morningstar Foreign Stock Average(7) 8.6 5.6 8.9 9.9 9.9 10.7 9.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Notes to Charts
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at 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 the
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) The Fund waived certain fees and expenses during the period indicated and
the Fund's return would have been lower had these fees not been waived.
(5) The Morgan Stanley Capital International (MSCI) Europe Australasia Far East
Index (EAFE) is an unmanaged, market weighted value index of the performance
of 1,032 companies (as of 12/31/98) representing stock markets in Europe,
Australia, New Zealand and the Far East. 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.
(6) Lipper International 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 A since
inception return is calculated from 5/28/92. Class B and Class Y since
inception returns are calculated from 9/30/93.
(7) Morningstar Foreign Stock 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
since inception return is calculated from 5/31/92. Class B and Y since
inception returns are calculated from 9/30/93.
<PAGE>
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NEW ENGLAND INTERNATIONAL EQUITY FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of Paul H. Drexler]
Paul H. Drexler
Loomis, Sayles & Company, L.P.
Q. How did New England International Equity Fund perform over the past six
months?
For the six-month period ending June 30, 1999, the Fund's Class A shares
produced a return of 2.2% based on net asset value. This return includes a $0.32
per share increase. For the same period, the Fund's benchmark, the MSCI EAFE
Index, returned 4.1% and the Lipper International Average generated a 7.4%
return.
Q. How would you describe the international investment environment during the
period?
There has been a gradual return of confidence from the emerging market crisis of
last summer and fall. Foreign markets bounced back sharply in the fourth quarter
of 1998, and they've moved ahead at a moderate pace in the first half of this
year. What's particularly encouraging is that a "bottom" seems to have been
reached in Japan and the emerging markets in Asia.
YOUR FUND'S COUNTRY MIX -- 6/30/99
- -----------------------------------------
% OF
COUNTRY ASSETS
- -----------------------------------------
1. JAPAN 22.0
2. UNITED KINGDOM 13.3
3. FRANCE 11.7
4. GERMANY 7.1
5. CANADA 5.5
6. SPAIN 5.2
7. SWEDEN 3.2
8. AUSTRALIA 3.0
9. THAILAND 2.9
10. HUNGARY 2.4
Portfolio holdings and asset allocations will vary.
However, in Europe, the new euro currency is down about 11.5% compared to the
dollar since its inception on January 1, 1999, reflecting weak economic growth
in that area. When we invest in a European stock, our dollars are converted into
euros for the duration of our investment. If the euro depreciates compared to
the dollar during that time, then our investment returns are weakened
accordingly.
Q. How did you manage the Fund in this environment?
The Fund emphasizes value investing -- purchasing stocks that we believe are
inexpensive relative to the market and to the underlying company's potential
earnings growth. The value style of investing was out of favor until the second
quarter of 1999, and that penalized performance relative to our benchmark. The
euro's weakness naturally had a negative effect on performance as well. However,
our policy is not to hedge currency -- we believe that we can offer more value
by picking stocks than by forecasting currencies, which have been cyclical.
We raised our exposure in Japan from 7% on December 31, 1998 to 22% on June 30,
1999, roughly the same as the Fund's benchmark, the MSCI EAFE Index. This
decision made a positive contribution to performance. For example, Fujitsu
Support & Services, a Japanese computer service company, was a big contributor
to the positive performance of the Fund.
Q. Where have you found opportunity in Europe?
Within the Continent, France is the home of many attractive international
companies, and currently represents 11.7% of the portfolio. For example, our
investment in Pechiney, an aluminum producer and packager, performed well as
investor preference shifted to value from growth. In the United Kingdom, shares
of British Airways became inexpensive due to increased competition along the
North Atlantic route. We believe the company can increase profit margins as it
shifts its emphasis from tourists to business class passengers. In the United
Kingdom, we also own BP Amoco, which was the first of the big oil mergers in
recent years. The company has achieved significant cost-savings from the
combination. The United Kingdom represents 13.3% of the portfolio as of June 30,
1999, compared to 12.9% as of December 31, 1998.
Q. Where else have you found attractive investments?
About 5.5% of the portfolio is invested in Canada, a market that many
interna-tional investors overlook because of its proximity to the United States
Our investment in Bombardier, a Canadian manufacturer of jet aircraft, has
performed very well as the Asian economic crisis has receded. Additionally,
about 4.6% of the portfolio is invested in dollar-denominated fixed-income
securities issued primarily by emerging market companies. We believe that this
method of investing in these markets helps manage risk.
Q. What is your outlook for the next few months?
We are extremely optimistic, especially with the rebounding economies in Japan
and the rest of Asia. In addition, we believe that the business climate in
Europe is getting better. Because the international sector has underperformed
U.S. stocks, valuations are very attractive, especially considering their
excellent growth prospects and improving profit-ability.
YOUR FUND'S 10 LARGEST INVESTMENTS -- 6/30/99
- ------------------------------------------------------------
% OF
COMPANY ASSETS
- ------------------------------------------------------------
1. NTT MOBILE COMMUNICATIONS NETWORK, INC. 2.4
2. SONY CORPORATION 2.3
3. SIEMENS AG 2.1
4. AIR LIQUIDE 2.0
5. NIPPON TELEGRAPH & TELEPHONE 1.9
6. BRITISH PETROLEUM 1.9
7. NEC CORPORATION 1.9
8. CANON, INCORPORATED 1.7
9. KAO CORPORATION 1.7
10. PECHINEY 1.7
Portfolio holdings and asset allocations will vary.
The portfolio manager's 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.
This Fund invests in foreign and emerging market securities, which may be
affected by currency fluctuations, higher volatility and limited liability than
U.S. securities. Political, economic and information risks are also associated
with foreign securities. Investing in small-cap companies involves greater risk
than is customarily associated with more established companies. The Fund invests
in high yielding securities. Investing in lower rated, higher yielding bonds may
involve greater risk. These investments may also be affected by the conversion
of the currency of several European economies to the "euro" currency. 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 -- 84.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
- ---------------------------------------------------------------------------
AUSTRALIA -- 3.0%
75,000 Foodland Associates ............................ $ 478,435
140,000 Leighton Holdings .............................. 546,027
235,000 Southcorp Holdings, Ltd. ....................... 947,771
------------
1,972,233
------------
BELGIUM -- 1.0%
7,000 CBR Cimenteries ................................ 643,663
------------
BRAZIL -- 0.3%
2,400,000 SABESP ......................................... 191,132
------------
CANADA -- 5.5%
50,000 Bombardier, Inc. ............................... 764,007
12,250 Canadian National Railway Co. .................. 822,767
26,000 Imperial Oil, Ltd. ............................. 494,397
11,400 Nortel Networks Corp. .......................... 975,484
43,000 Petro Canada ................................... 586,961
------------
3,643,616
------------
FRANCE -- 11.7%
8,437 Air Liquide .................................... 1,326,336
12,000 Banque Nationale de Paris ...................... 999,512
6,700 Cie de St. Gobain .............................. 1,067,085
28,500 CSF Thomson .................................... 990,080
1,200 Hachette Filipacchi Medias ..................... 278,948
26,100 Pechiney ....................................... 1,121,408
14,000 Pernod Ricard .................................. 938,074
15,000 Renault S.A .................................... 652,528
2,000 Zodiac S.A ..................................... 436,256
------------
7,810,227
------------
GERMANY -- 7.1%
6,400 DaimlerChrysler AG ............................. 554,185
14,000 Douglas Holding AG ............................. 627,788
30,000 Man AG ......................................... 1,023,634
2,500 Mannesmann AG EUR .............................. 373,683
18,000 Siemens AG ..................................... 1,387,937
13,100 Veba AG ........................................ 769,736
------------
4,736,963
------------
HUNGARY -- 2.4%
150,000 Matav .......................................... 810,308
19,000 OTP Bank ....................................... 791,765
------------
1,602,073
------------
ITALY -- 1.3%
145,000 ENI ............................................ 865,450
------------
JAPAN -- 22 0%
40,000 Canon, Inc. .................................... 1,150,698
100,000 Daiwa House .................................... 1,052,327
65,000 Fuji Bank, Ltd. ................................ 453,501
51,000 Fujitsu ........................................ 1,026,577
6,000 Fujitsu Support & Service, Inc. ................ 908,655
55,000 Hitachi, Ltd. .................................. 516,037
12,000 Ito-Yokado Company, Ltd. ....................... 803,505
40,000 Kao Corp. ...................................... 1,124,246
135,000 Komatsu, Ltd. .................................. 862,652
100,000 NEC Corp. ...................................... 1,244,110
110 Nippon Telegraph & Telephone ................... 1,282,136
24 NTT Mobile Communications Network, Inc. ........ 325,370
96 NTT Mobile Communications Network, Inc., New ... 1,285,608
14,000 Sony Corp. ..................................... 1,510,292
50,000 Sumitomo Bank .................................. 620,402
11,000 Takeda Chemical Industries ..................... 510,126
------------
14,676,242
------------
NETHERLANDS -- 1.3%
20,000 Randstad Hldgs NV .............................. 880,346
------------
NEW ZEALAND -- 0.0%
22,963 Nuplex Industries .............................. 33,799
------------
NORWAY -- 1 1%
210,000 Christiania Bank ............................... 754,140
------------
PHILIPPINES -- 0.7%
50,000 Metro Bank & Trust Co. ......................... 499,343
------------
PORTUGAL-- 1.3%
18,000 BPI ............................................ 377,600
8,094 BPI Sgps S.A ................................... 169,794
53,219 Engil Sgps ..................................... 286,374
------------
833,768
------------
SOUTH KOREA -- 0.9%
3,600 Korea Telecom (ADR) ............................ 144,000
9,000 Samsung Display Devices, Co. ................... 489,849
------------
633,849
------------
SPAIN -- 5.2%
34,000 Acerinox S.A ................................... 993,637
32,555 Azucarera Ebro Agriculture ..................... 498,021
12,500 Mapfre Vida Seguro ............................. 356,932
45,975 Repsol S.A ..................................... 938,388
15,500 Sol Melia S.A .................................. 654,306
------------
3,441,284
------------
SWEDEN -- 3.2%
22,000 Atlas Copco AB ................................. 599,953
15,000 Ericsson Telefoniaktiebolag Series B ........... 481,506
47,000 Sandvik AB ..................................... 1,040,876
------------
2,122,335
------------
SWITZERLAND -- 1.5%
1,000 Adecco S.A ..................................... 535,657
1,500 Sika Finanz AG ................................. 447,560
------------
983,217
------------
THAILAND -- 1.9%
35,000 Advanced Infomation Services ................... 474,576
112,000 Siam Commercial Bank ........................... 159,458
112,000 Siam Commercial Bank, Warrants ................. 72,136
180,000 Thai Farmers Bank .............................. 556,474
------------
1,262,644
------------
UNITED KINGDOM -- 13.3%
42,000 Allied Irish Banks plc ......................... 556,101
48,000 BAA plc ........................................ 462,510
22,500 Barclays plc ................................... 654,341
151,000 British Aerospace .............................. 982,997
115,745 British Airways plc ............................ 799,101
70,000 British Petroleum .............................. 1,253,434
60,000 Commercial Union ............................... 863,943
43,000 Diageo plc ..................................... 451,745
250,000 Lasmo .......................................... 563,509
54,500 SmithKline Beecham plc ......................... 708,722
34,000 Smiths Industries .............................. 451,249
57,000 Vodafone Group plc ............................. 1,121,281
------------
8,868,933
------------
Total Common Stock (Identified Cost $53,844,967) 56,455,257
------------
BONDS AND NOTES -- 4.6%
PRINCIPAL
AMOUNT
- ---------------------------------------------------------------------------
ARGENTINA -- 1.5%
$ 300,000 Multicanal S.A., 10.500%, 4/15/2018 ............ 228,000
915,000 Perez Companc S.A., 144A, 8.125%, 7/15/2007 .... 777,750
------------
1,005,750
------------
BRAZIL -- 1 2%
1,195,280 Federal Republic of Brazil, 8.000%, 4/15/2014 .. 770,955
------------
INDONESIA -- 0.3%
175,000 Pindo Deli Finance Mauritius, Ltd.,
11.750%, 10/01/2017 ......................... 115,937
175,000 Pindo Deli Finance Mauritius, Ltd.,
10.875%, 10/01/2027 ......................... 106,313
------------
222,250
------------
THAILAND -- 1.0%
640,000 Total Access Communications, 2.000%, 5/31/2006 . 633,600
------------
VENEZUELA -- 0.6%
650,000 Republic of Venezuela, 9.250%, 9/15/2027 ....... 423,345
------------
Total Bonds and Notes
(Identified Cost $3,535,283)................... 3,055,900
------------
SHORT TERM INVESTMENT -- 10.4%
- ---------------------------------------------------------------------------
6,891,000 Repurchase Agreement with State Street Corp.
dated 6/30/99 at 4.000% to be repurchased
at $6,891,766 on 7/01/99, collateralized by
$6,250,000 U.S. Treasury Bond, 7.500%,
due 11/15/16 valued at $7,031,250 ............. 6,891,000
------------
Total Short Term Investment
(Identified Cost $6,891,000) .................. 6,891,000
------------
Total Investments-- 99.7%
(Identified Cost $64,271,250) (b) ............. 66,402,157
Other assets less liabilities .............. 225,372
------------
Total Net Assets-- 100% $ 66,627,529
============
(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 $64,271,250 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 ....................................... $ 5,866,229
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .......................................... (3,746,451)
------------
Net unrealized appreciation. $ 2,119,778
============
EUR Euro
ADR An American Depository Receipt (ADR) is a certificate issued by a U.S. Bank
respresenting 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.
144A Securities exempt from registration under Rule 144A of the Securities act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $777,750 or 1.2% of net
assets.
Ten Largest Industry Holdings at June 30, 1999
Banks 9.7% Petroleum Refining 4.2%
Electrical and Electronic 8.7 Transportation Equipment 3.4
Construction 7.3 Transportation Services 3.3
Telephone Communication 7.0 Hotels 3.0
Machinery 6.0 Oil and Gas Extraction 2.9
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
ASSETS
Investments at value
(Identified cost $64,271,250) ........... $ 66,402,157
Cash ..................................... 945
Foreign currency at value
(Identified cost $147,192) .............. 146,396
Collateral for securities loaned, at value 6,433,070
Receivable for:
Fund shares sold ........................ 159,784
Securities sold ......................... 1,769
Dividends and interest .................. 179,853
Tax reclaims ............................ 63,243
--------------
73,387,217
LIABILITIES
Payable for:
Collateral for securities loaned,
at value ............................... $6,433,070
Securities purchased .................... 108
Fund shares redeemed .................... 135,829
Withholding Taxes ....................... 11,495
Accrued expenses:
Management fees ......................... 77,880
Deferred trustees' fees ................. 12,461
Accounting and administrative ........... 5,128
Other expenses .......................... 83,717
---------
6,759,688
--------------
NET ASSETS ................................ $ 66,627,529
==============
Net Assets consist of:
Capital paid in ......................... $ 63,547,558
Undistributed (overdistributed) net
investment income ...................... (255,524)
Accumulated net realized gains (losses) . 1,215,717
Unrealized appreciation (depreciation)
on investments and foreign currency
transactions - net ..................... 2,119,778
--------------
NET ASSETS ................................ $ 66,627,529
==============
Computation of net asset value and
offering price:
Net asset value and redemption price of
Class A shares ($43,348,907 / 2,973,139
shares of beneficial interest) .......... $ 14.58
==============
Offering price per share
(100 / 94.25 of $14.58) ................. $ 15.47*
==============
Net asset value and offering price of
Class B shares ($16,740,580 / 1,175,391
shares of beneficial interest) .......... $ 14.24**
==============
Net asset value and offering price of
Class C shares ($638,738 / 44,716 shares
of beneficial interest) ................. $ 14.28**
==============
Net asset value, offering and redemption
price of Class Y shares
($5,899,304 / 398,052 shares of
beneficial interest) .................... $ 14.82
==============
* 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 $109,734) ........................... $ 641,052
Interest ................................. 346,553
Securities lending fees .................. 14,226
--------------
1,001,831
Expenses
Management fees ......................... $ 300,455
Service fees - Class A .................. 53,264
Service and distribution fees - Class B . 88,910
Service and distribution fees - Class C . 3,692
Trustees' fees and expenses ............. 4,377
Accounting and administrative ........... 15,796
Custodian ............................... 100,671
Transfer agent .......................... 219,761
Audit and tax services .................. 23,300
Legal ................................... 3,745
Printing ................................ 14,832
Registration ............................ 14,944
Miscellaneous ........................... 5,203
---------
Total expenses ............................ 848,950
---------
Less expenses waived by the investment
adviser and sub-adviser ................. (128,728) 720,222
--------- --------------
Net investment income 281,609
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments -- net ....................... 2,795,909
Foreign currency transactions -- net ..... (14,392)
---------
Total realized gain (loss) on investments
and foreign currency transactions ..... 2,781,517
---------
Unrealized appreciation (depreciation) on:
Investments-- net ........................(1,329,317)
Foreign currency transactions-- net ...... (15,699)
---------
Total unrealized appreciation
(depreciation) on investments
and foreign currency transactions .......(1,345,016)
---------
Net gain (loss) on investment transactions 1,436,501
--------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS ............................. $ 1,718,110
==============
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 .................... $ 704,144 $ 281,609
Net realized gain (loss) on investments
and foreign currency transactions ....... 953,025 2,781,517
Net unrealized appreciation (depreciation)
on investments and foreign currency
transactions ........................... 4,841,006 (1,345,016)
-------------- --------------
Increase (decrease) in net assets
from operations ........................ 6,498,175 1,718,110
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................. (1,443,354) 0
Class B ................................. (329,056) 0
Class C ................................. (14,123) 0
Class Y ................................. (226,291) 0
Net realized gain on investments
Class A ................................. (915,212) 0
Class B ................................. (390,840) 0
Class C ................................. (16,782) 0
Class Y ................................. (102,559) 0
-------------- --------------
(3,438,217) 0
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS . (18,064,404) (8,743,588)
-------------- --------------
Total increase (decrease) in net assets ... (15,004,446) (7,025,478)
NET ASSETS
Beginning of the period .................. 88,657,453 73,653,007
-------------- --------------
End of the period ........................ $ 73,653,007 $ 66,627,529
============== ==============
UNDISTRIBUTED (OVERDISTRIBUTED) NET
INVESTMENT INCOME
End of the period ........................ $ (537,133) $ (255,524)
============== ==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .. $ 14.85 $ 15.50 $ 16.13 $ 16.31 $ 14.06 $ 14.26
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) .............. 0.00 0.27 0.02(b) 0.09(b) 0.15(b) 0.07(b)
Net Realized and Unrealized Gain
(Loss) on Investments .................... 1.19 0.63 0.51 (1.25) 0.77 0.25
--------- --------- --------- --------- --------- ---------
Total From Investment Operations .......... 1.19 0.90 0.53 (1.16) 0.92 0.32
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ...... 0.00 (0.27) (0.02) 0.00 (0.23) 0.00
Dividends in Excess of Net
Investment Income ........................ 0.00 0.00 0.00 0.00 (0.21) 0.00
Distributions From Net Realized
Capital Gains ............................ (0.53) 0.00 (0.33) (1.05) (0.19) 0.00
Distributions in Excess of Net Realized
Gains ................................... 0.00 0.00 0.00 (0.04) (0.09) 0.00
Distributions From Paid-in Capital ........ (0.01) 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ....................... (0.54) (0.27) (0.35) (1.09) (0.72) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ........ $ 15.50 $ 16.13 $ 16.31 $ 14.06 $ 14.26 $ 14.58
========= ========= ========= ========= ========= =========
Total Return (%) (a) ...................... 8.1 5.8 3.3 (7.6) 6.7 2.2
Ratio of Operating Expenses to
Average Net Assets (%) (c) ............... 1.75 1.75 1.75 1.75 1.91 2.00(d)
Ratio of Net Investment Income to
Average Net Assets (%) ................... 0.01 1.24 0.14 0.62 1.04 1.00(d)
Portfolio Turnover Rate (%) ............... 123 119 59 154 105 156
Net Assets, End of the Period (000) ....... $ 142,917 $ 136,848 $ 109,773 $ 57,845 $ 47,444 $ 43,349
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis, Sayles &
Company, L.P. became the subadviser to the Fund.
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) The ratio of operating expenses to average net assets without giving effect to voluntary expense limitations described
in Note 4 to the Financial Statements
would have been (%) ................... 1.79 1.83 1.79 2.14 2.25 2.25(d)
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS B
-----------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .. $ 14.81 $ 15.35 $ 15.93 $ 16.00 $ 13.71 $ 13.98
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) .............. 0.00 0.19 (0.10)(b) (0.03)(b) 0.04(b) 0.02(b)
Net Realized and Unrealized Gain
(Loss) on Investments .................... 1.08 0.58 0.50 (1.17) 0.75 0.24
--------- --------- --------- --------- --------- ---------
Total From Investment Operations .......... 1.08 0.77 0.40 (1.20) 0.79 0.26
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ...... 0.00 (0.19) 0.00 0.00 (0.12) 0.00
Dividends in Excess of Net Investment
Income .................................. 0.00 0.00 0.00 0.00 (0.12) 0.00
Distributions From Net Realized
Capital Gains ........................... (0.53) 0.00 (0.33) (1.05) (0.19) 0.00
Distributions in Excess of Net
Realized Gains .......................... 0.00 0.00 0.00 (0.04) (0.09) 0.00
Distributions From Paid-in Capital ........ (0.01) 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ....................... (0.54) (0.19) (0.33) (1.09) (0.52) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ........ $ 15.35 $ 15.93 $ 16.00 $ 13.71 $ 13.98 $ 14.24
========= ========= ========= ========= ========= =========
Total Return (%) (a) ...................... 7.3 5.0 2.5 (8.0) 5.8 1.9
Ratio of Operating Expenses to
Average Net Assets (%) (c) ............... 2.50 2.50 2.50 2.50 2.66 2.75(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) ................ (0.74) 0.49 (0.61) (0.13) 0.29 0.25(d)
Portfolio Turnover Rate (%) ............... 123 119 59 154 105 156
Net Assets, End of the Period (000) ....... $ 41,601 $ 52,895 $ 45,974 $ 25,216 $ 19,797 $ 16,741
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis, Sayles &
Company, L.P. became the subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) The ratio of operating expenses to average net assets without giving effect to voluntary expense limitations described
in Note 4 to the Financial Statements
would have been (%) ................... 2.54 2.58 2.54 2.89 3.00 3.00(d)
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS C
-------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $ 15.35 $ 15.96 $ 16.03 $ 13.74 $ 14.02
--------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) ................ 0.19 (0.10)(b) (0.03)(b) 0.05(b)
0.01(b)
Net Realized and Unrealized Gain (Loss)
on Investments ............................. 0.61 0.50 (1.17) 0.75 0.25
--------- --------- --------- --------- ---------
Total From Investment Operations ............ 0.80 0.40 (1.20) 0.80 0.26
--------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.19) 0.00 0.00 (0.12)
0.00
Dividends in Excess of Net Investment Income 0.00 0.00 0.00 (0.12)
0.00
Distributions From Net Realized Capital Gains 0.00 (0.33) (1.05) (0.19)
0.00
Distributions in Excess of Net Realized Gains 0.00 0.00 (0.04) (0.09)
0.00
--------- --------- --------- --------- ---------
Total Distributions ......................... (0.19) (0.33) (1.09) (0.52) 0.00
--------- --------- --------- --------- ---------
Net Asset Value, End of the Period .......... $ 15.96 $ 16.03 $ 13.74 $ 14.02 $ 14.28
========= ========= ========= ========= =========
Total Return (%) (a) ........................ 5.2 2.5 (8.0) 5.9 1.9
Ratio of Operating Expenses
to Average Net Assets(%)(c) ................ 2.50 2.50 2.50 2.66 2.75(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) .................. 0.49 (0.61) (0.13) 0.29 0.25(d)
Portfolio Turnover Rate (%) ................. 119 59 154 105 156
Net Assets, End of the Period (000) ......... $ 1,066 $ 850 $ 843 $ 860 $ 639
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis, Sayles &
Company, L.P. became the subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average shares outstanding during the period.
(c) The ratio of operating expenses to average net assets without giving effect to voluntary expense limitations
described in Note 4 to the Financial
Statements would have been (%) .......... 2.58 2.54 2.89 3.00 3.00(d)
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS Y
-----------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .. $ 14.86 $ 15.64 $ 16.25 $ 16.48 $ 14.35 $ 14.45
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income (Loss) .............. 0.00 0.42 0.11(a) 0.19(a) 0.25(a)
0.12(a)
Net Realized and Unrealized Gain
(Loss) on Investments .................... 1.32 0.60 0.54 (1.23) 0.77 0.25
--------- --------- --------- --------- --------- ---------
Total From Investment Operations .......... 1.32 1.02 0.65 (1.04) 1.02 0.37
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ...... 0.00 (0.41) (0.09) 0.00 (0.33) 0.00
Dividends in Excess of Net Investment
Income .................................. 0.00 0.00 0.00 0.00 (0.31) 0.00
Distributions From Net Realized
Capital Gains ........................... (0.53) 0.00 (0.33) (1.05) (0.19) 0.00
Distributions in Excess of Net Realized
Gains ................................... 0.00 0.00 0.00 (0.04) (0.09) 0.00
Distributions From Paid-in Capital ........ (0.01) 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- ---------
Total Distributions ....................... (0.54) (0.41) (0.42) (1.09) (0.92) 0.00
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of the Period ........ $ 15.64 $ 16.25 $ 16.48 $ 14.35 $ 14.45 $ 14.82
========= ========= ========= ========= ========= =========
Total Return (%) .......................... 8.9 6.6 4.0 (6.7) 7.3 2.6
Ratio of Operating Expenses to
Average Net Assets (%) (b) ............... 1.00 1.00 1.00 1.15 1.31 1.40(c)
Ratio of Net Investment Income to
Average Net Assets (%) ................... 0.76 1.99 0.89 1.22 1.64 1.60(c)
Portfolio Turnover Rate (%) ............... 123 119 59 154 105 156
Net Assets, End of the Period (000) ....... $ 56,561 $ 83,119 $ 52,161 $ 4,752 $ 5,552 $ 5,899
The Subadviser to the Fund prior to February 15, 1997 was Draycott Partners, Ltd. Effective February 15, 1997 Loomis, Sayles
& Company, L.P. became the subadviser to the Fund.
(a) Per share net investment income has been calculated using the average shares outstanding during the period.
(b) The ratio of operating expenses to average net assets without giving effect to voluntary expense limitations described
in Note 4 to the Financial
Statements would have been (%) ........ 1.04 1.21 1.19 1.41 1.65 2.00(c)
(c) Computed on an annualized basis.
</TABLE>
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 total return from long-term growth
of capital and dividend income, primarily through investments in international
equity securities. The Declaration of Trust permits the Trustees to issue an
unlimited number of shares of the Trust in multiple series (each such series of
shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares are
sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years (or five years if purchased prior to May 1, 1997).
Class C shares do not pay front end sales charges and do not convert to any
class of shares, but they do pay a higher ongoing distribution fee than Class A
shares and may be subject to a contingent deferred sales charge if those shares
are redeemed within one year. Class Y shares do not pay a front end sales
charge, a contingent deferred sales charge or distribution fees. They are
intended for institutional investors with a minimum of $1,000,000 to invest.
Expenses of the Fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including the Rule
12b-1 service and distribution fees and transfer agent fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 plan.
Shares of each class would receive their pro rata share of the net assets of the
Fund, if the Fund were liquidated. In addition, the Trustees approve separate
dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Debt securities (other than short-term
obligations with a remaining maturity of less than sixty days) are valued on the
basis of valuations furnished by a pricing service authorized by the Board of
Trustees, which service determines valuations for normal, institutional- size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's adviser and subadviser,
under the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. 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. Investment income is recorded net of foreign
taxes withheld when recovery of such taxes is uncertain. In determining net gain
or loss on securities sold, the cost of securities has been determined on the
identified cost basis.
C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other assets
and liabilities denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon foreign exchange rates prevailing at the end of the
period. Purchases and sales of investment securities, income and expenses are
translated on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.
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 schedule of investments under the caption
"Forward Foreign 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. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for the foreign currency component on the
sale of securities for book and tax purposes.
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. The Fund's subadviser is responsible
for determining that the value of the collateral is at all times at least equal
to the repurchase price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party including possible delays
or restrictions upon the portfolio's ability to dispose of the underlying
securities.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1999
purchases and sales of securities (excluding short-term investments) were
$49,885,324 and $61,701,622 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 0.90% of the first $200 million of the Fund's
average daily net assets, 0.85% of the next $300 million and 0.80% of such
assets in excess of $500 million, reduced by the payment to Loomis Sayles &
Company, L.P. ("Loomis Sayles") at the rate of 0.40% of the first $200 million
of the Fund's average daily net assets and 0.35% of such assets in excess of
$200 million. Certain officers and directors of NEFM are also officers or
trustees of the Fund. NEFM and Loomis Sayles are wholly owned subsidiaries of
Nvest Companies, L.P. ("Nvest") which is a subsidiary of Metropolitan Life
Insurance Company ("MetLife").
Fees earned by NEFM and Loomis Sayles under the management and subadvisory
agreements in effect during the six months ended June 30, 1999 are as follows:
FEES EARNED
-----------
NEFM $ 166,920(a)
Loomis Sayles 133,535(a)
(a) Before reduction due to voluntary expense limitation. See Note 4.
The effective management fee for the six months ended June 30, 1999 was 0.51%
after reduction due to voluntary expense limitation.
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 $15,796 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 $174,844 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 the New England Funds in providing personal
services to investors in Class A shares and/or the maintenance of shareholder
accounts. For the six months ended June 30, 1999, the Fund paid New England
Funds $53,264 in fees under the Class A Plan. If the expenses of New England
Funds that are otherwise reimbursable under the Class A Plan incurred in any
year exceed the amounts payable by the Fund under the Class A Plan, the
unreimbursed amount (together with unreimbursed amounts from prior years) may be
carried forward for reimbursement in future years in which the Class A Plan
remains in effect. The amount of unreimbursed expenses carried forward at June
30, 1999 is $514,256.
Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the six months ended June
30, 1999, the Fund paid New England Funds $22,227 and $923 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 a
monthly distribution fee at the annual rate of 0.75% of the average daily net
assets attributable to the Fund's Class B and Class C shares, as compensation
for services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in connection with the marketing or sale of Class B and Class C shares.
For the six months ended June 30, 1999, the Fund paid New England Funds $66,683
and $2,769 in distribution fees under the Class B and Class C plans,
respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors of shares of the Fund during the six months ended
June 30, 1999 amounted to $59,803.
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. 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. EXPENSE LIMITATIONS. NEFM and Loomis Sayles have voluntarily agreed, until
further notice, to waive their respective management and subadvisory fees and,
if necessary, NEFM has agreed to bear certain expenses associated with the Fund,
to limit the Fund's expenses to the annual rates of 2.00%, 2.75%, 2.75% and
1.40% of the average net assets of the Fund's Class A,B,C, and Y shares,
respectively.
As a result of the Fund's expenses exceeding the voluntary expense limitations
during the six months ended June 30, 1999, NEFM waived $71,516 of its $166,920
management fees and Loomis Sayles waived $57,212 of its $133,535 subadvisory
fees.
5. CONCENTRATION OF RISK. The Fund had the following geographic concentration in
excess of 10% of its total net assets at June 30, 1999: France 11.7%, Japan
22.0% and United Kingdom 13.3%. The Fund pursues its objectives by investing in
foreign securities. There are certain risks involved in investing in foreign
securities which are in addition to the usual risks inherent in domestic
investments. These risks include those resulting from future adverse political
or economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions.
6. 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 ......................................... 8,474,110 $ 124,114,863 5,753,581 $ 81,185,312
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 95,988 1,345,238 0 0
Distributions from net realized gain .............. 60,507 854,966 0 0
------------- ------------- ------------- -------------
8,630,605 126,315,067 5,753,581 81,185,312
Shares repurchased .................................. (9,416,378) (139,099,092) (6,107,824) (86,567,597)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. (785,773) $ (12,784,025) (354,243) $ (5,382,285)
------------- ------------- ------------- -------------
<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 ......................................... 168,917 $ 2,457,017 56,656 $ 785,118
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 22,260 308,524 0 0
Distributions from net realized gain .............. 26,508 367,396 0 0
------------- ------------- ------------- -------------
217,685 3,132,937 56,656 785,118
Shares repurchased .................................. (641,262) (9,243,198) (297,527) (4,118,514)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. (423,577) $ (6,110,261) (240,871) $ (3,333,396)
------------- ------------- ------------- -------------
<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 ......................................... 35,965 $ 530,364 23,202 $ 319,887
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 977 13,569 0 0
Distributions from net realized gain .............. 1,161 16,123 0 0
------------- ------------- ------------- -------------
38,103 560,056 23,202 319,887
Shares repurchased .................................. (38,140) (551,056) (39,837) (551,523)
------------- ------------- ------------- -------------
Net increase (decrease) ............................. (37) $ 9,000 (16,635) $ (231,636)
------------- ------------- ------------- -------------
<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 ......................................... 108,270 $ 1,641,310 58,184 $ 831,552
Shares issued in connection with the reinvestment of:
Dividends from net investment income .............. 15,944 226,291 0 0
Distributions from net realized gain .............. 7,161 102,558 0 0
------------- ------------- ------------- -------------
131,375 1,970,159 58,184 831,552
Shares repurchased .................................. (78,325) (1,149,277) (44,390) (627,823)
------------- ------------- ------------- -------------
53,050 820,882 13,794 203,729
------------- ------------- ------------- -------------
Increase (decrease) derived
from capital shares transactions .................. (1,156,337) $ (18,064,404) (597,955) $ (8,743,588)
============= ============= ============= =============
</TABLE>
7. 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.
8. 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 $6,237,017 and
collateralized by cash in the amount of $6,433,070 which was invested in a
short-term investment.
<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>
- --------------------------------------------------------------------------------
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
---------------------
IE58-0699
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