<PAGE>
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SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Capital Growth Fund
[Graphic Omitted]
Where
The Best
Minds
Meet(R)
- -------------
June 30, 1999
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<PAGE>
August 1999
[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 CAPITAL GROWTH 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 a $10,000
investment in the Fund since inception 8/3/92, compared to the Russell 1000
Growth Index over the same period. The data for this chart are as follows:]
AUGUST 1992 (INCEPTION) THROUGH JUNE 1999
Net Maximum Russell
Asset Sales 1000
Value(1) Charge(2) Growth(4)
-------- --------- ---------
8/92 $10,000 $ 9,425 $10,000
6/93 $11,952 $11,265 $10,684
6/94 $11,329 $10,678 $10,655
6/95 $14,838 $13,985 $13,906
6/96 $17,779 $16,757 $17,773
6/97 $20,899 $19,697 $23,343
6/98 $25,957 $24,464 $30,671
6/99 $30,138 $28,405 $39,032
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 inception date,
fees and sales charges. All index and Fund performance assumes reinvestment of
distributions.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/99
- --------------------------------------------------------------------------------
CLASS A (Inception 8/3/92) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 6.8% 17.2% 21.8% 17.3%
With Maximum Sales Charge(2) 0.6 10.5 20.6 16.3
- -------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 6.4% 16.2% 20.9% 16.4%
With CDSC(3) 1.4 11.6 20.7 16.2
- -------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 6.4% 16.2% 21.2%
With CDSC(3) 5.4 15.2 21.2
- -------------------------------------------------------------------------------
SINCE SINCE SINCE
FUND'S FUND'S FUND'S
CLASS A CLASS B CLASS C
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS INCEPTION INCEPTION INCEPTION
Russell 1000 Growth(4) 10.5% 27.3% 29.7% 21.4% 25.0% 31.1%
Lipper Growth Avg.(5) 11.7 18.9 22.6 18.1 18.9 24.5
Morningstar Large
Growth Average(6) 12.4 26.4 25.2 19.8 21.0 27.6
- -------------------------------------------------------------------------------
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 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 1000 Growth Index is an unmanaged index measuring the performance of
those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values. 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. Class A since inception return is calculated from
7/31/92. Class B since inception return is calculated from 9/30/93.
(5) Lipper Growth Average is an average (calculated on the basis of net asset
value) of funds with similar investment objectives as calculated by Lipper
Inc., an independent mutual fund ranking service. Class A since inception
return is calculated from 8/6/92. Class B since inception return is
calculated from 9/30/93.
(6) Morningstar Large Growth Average is an average (calculated on the basis of
net asset value) of funds with similar investment objectives as calculated
by Morningstar, Inc., an independent mutual fund ranking service. Class A
since inception return is calculated from 7/31/92. Class B since inception
return is calculated from 9/30/93.
<PAGE>
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NEW ENGLAND CAPITAL GROWTH FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of Gerald Scriver]
Gerald Scriver
Westpeak Investment
Advisors, L.P.
Q. Please tell us about New England Capital Growth Fund's performance during the
first half of 1999.
For the six months ending June 30, 1999, New England Capital Growth Fund's Class
A shares at net asset value had a return of 6.8%. This return includes a $1.40
per share gain in net asset value. The Fund's results lagged the 10.45% return
of its benchmark, the Russell 1000 Growth Index(R), during the period, as we
avoided heavy weightings in the market's most volatile sectors.
Q. Describe the market environment in the first six months of 1999.
Since the latter part of 1998 and continuing this year, investors seem to be
broadening the range of stocks they are willing to own and backing off from
their narrow, telescopic view of just a few large-capitalization stocks. Seen
through a wider-angle lens, a broader portion of the investment spectrum is now
coming into focus and value characteristics are receiving greater attention than
they have had. This is a significant development, one that we think may
influence market activity for the rest of this year and into 2000.
Before this shift to value, a willingness to assume risk was the most rewarding
of investor characteristics. For a time, extreme price volatility paid off in
some sectors, notably the stocks of some Internet companies whose prospects for
profitability were distant and dubious. Investors drew from this background a
false sense of security concerning the risks of over-priced equities and the
efficacy of short-term trading. Meanwhile, more traditional and tested
approaches, including those favoring companies whose prices bore some
relationship to their values, were penalized in 1998.
Q. Given this environment, what was your investment strategy during the period?
In order to take advantage of the migration toward value-based leadership, we
focused Capital Growth Fund's portfolio on some of the companies in the Russell
1000 Growth Index(R) whose book values appeared attractive relative to their
stock prices. Another step in this strategy was to emphasize mid- to
large-capitalization stocks with price/earnings (P/E) ratios below the market
average. These are companies whose prices stand at reasonable multiples of their
profits, expressed in earnings per share. Both moves were aimed at reducing
portfolio volatility.
As we increased emphasis on more reasonably valued growth stocks we reduced
weightings in high-priced sectors, among them banks, because of their
sensitivity to interest rates, and consumer staples such as drugs and beverages.
In addition, we reduced the Fund's technology exposure down to just over market
levels. Meanwhile, based on attractive valuations, we brought the portfolio's
weighting in energy and other basic industries in line with the Russell 1000
Growth Index(R). Finally, increased prices afforded a timely opportunity to
eliminate a large portion of our telecommunications holdings.
YOUR FUND'S 10 LARGEST INVESTMENTS -- 6/30/99
% OF
COMPANY NET ASSETS
- -------------------------------------------------------------------------------
1. GENERAL ELECTRIC CO. 5.9
2. MICROSOFT CORP. 5.7
3. INTEL CORP. 5.3
4. WAL-MART STORES, INC. 4.1
5. LUCENT TECHNOLOGIES, INC. 4.1
6. INTERNATIONAL BUSINESS MACHINES CORP. 2.6
7. CISCO SYSTEMS 2.2
8. BRISTOL-MYERS SQUIBB 2.2
9. KIMBERLY-CLARK CORP. 2.1
10. JOHNSON & JOHNSON 2.1
PORTFOLIO HOLDINGS AND ASSET ALLOCATIONS WILL VARY.
Q. What were the principal factors affecting performance?
Our disciplined, objective process is designed to ignore fads. As a result,
performance in the first half of the year was penalized by the Fund's lack of
representation in the most volatile sectors, especially Internet stocks. Stock
selection was generally favorable, however, with the most positive results
coming from Meritor Automotive, Tellabs, a maker of communications equipment,
Lexmark International, a manufacturer of printers for computers and Gulfstream,
which was acquired by General Dynamics. Companies that hurt performance included
First American Financial, Johns Manville, and drugmakers Schering Plough and
Pfizer.
Q. What is your current outlook for the market and the Fund?
We think that the U.S. economy will slow modestly, partially on its own and
partially due to higher interest rates. The Federal Reserve Board remains a
diligent inflation watchdog and, in June, raised short-term interest rates in an
attempt to ease inflationary pressures. Higher rates can put pressure on
corporate earnings, making careful analysis of fundamental valuations even more
important in the second half of 1999 and beyond.
Despite higher interest rates, we do not anticipate a widespread market decline.
Instead, we think a "rolling" market correction more likely, one in which
individual sectors slump as investors ratchet down unrealistic expectations for
growth. Most vulnerable, we believe, will be stocks that are highly volatile and
extremely overvalued -- a working definition of Internet stocks.
The changes we have made to Capital Growth Fund's portfolio are intended to take
advantage of the opportunities we see for potential growth among reasonably
priced stocks. The Fund was positioned conservatively at mid-year, with an
average P/E ratio well below that of the benchmark Russell 1000 Growth Index(R).
We will continue to rely on our proprietary stock selection techniques that we
have developed and refined over the years as we seek stronger performance for
the Fund in the months ahead.
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.
Investing in small-cap companies involves greater risk than is customarily
associated with more established companies. This risk may increase share price
volatility. See the Fund's prospectus for details.
<PAGE>
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1999
(unaudited)
COMMON STOCK -- 98.4% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
- --------------------------------------------------------------------------------
AEROSPACE -- 1.6%
2,200 B.F. Goodrich Co. ................................ $ 93,500
71,300 Cordant Technologies, Inc. ....................... 3,221,869
2,900 Gulfstream Aerospace Corp. (c) ................... 195,931
7,400 United Technologies Corp. ........................ 530,488
-------------
4,041,788
-------------
APPAREL & TEXTILES -- 2.1%
128,000 Mohawk Industries, Inc. (c) ...................... 3,888,000
46,400 Shaw Industries, Inc. ............................ 765,600
24,100 Westpoint Stevens, Inc. .......................... 718,481
-------------
5,372,081
-------------
AUTOMOTIVE -- 0.0%
2,800 Meritor Automotive, Inc. ......................... 71,400
-------------
BANKS -- 2.0%
19,500 Citigroup, Inc. .................................. 926,250
113,200 Cullen/Frost Bankers, Inc. ....................... 3,120,075
9,900 Fifth Third Bancorp .............................. 658,969
13,800 Firstar Corp. .................................... 386,400
-------------
5,091,694
-------------
BANKS & THRIFTS -- 0.9%
65,800 Greenpoint Financial Corp. ....................... 2,159,063
-------------
BROADCASTING -- 2.1%
83,100 CBS Corp. (c) .................................... 3,609,656
21,000 Time Warner, Inc. ................................ 1,543,500
-------------
5,153,156
-------------
BUILDING CONSTRUCTION -- 2.1%
142,600 D.R. Horton, Inc. ................................ 2,370,725
45,900 Johns Manville Corp. ............................. 596,700
1,200 Lennar Corp. ..................................... 28,800
42,500 USG Corp. ........................................ 2,380,000
-------------
5,376,225
-------------
BUSINESS SERVICES -- 0.3%
6,500 Computer Sciences (c) ............................ 449,719
16,500 Reynolds & Reynolds Co. .......................... 384,656
-------------
834,375
-------------
COMPUTER SOFTWARE & SERVICES -- 9.1%
77,600 Bell & Howell (c) ................................ 2,934,250
13,200 Compuware Corp. (c) .............................. 419,925
158,900 Microsoft Corp. (c) .............................. 14,330,793
190,100 Sterling Software, Inc. .......................... 5,073,294
-------------
22,758,262
-------------
COMPUTERS & BUSINESS EQUIPMENT -- 6.7%
87,850 Cisco Systems (c) ................................ 5,660,834
22,300 EMC Corp. (c) .................................... 1,226,500
50,200 International Business Machines Corp. ............ 6,488,350
42,600 Lexmark International Group (c) .................. 2,814,263
10,500 Pitney Bowes, Inc. ............................... 674,625
-------------
16,864,572
-------------
CONSUMER GOODS & SERVICES -- 0.8%
18,000 Clorox Co. ....................................... 1,922,625
-------------
DRUGS -- 8.8%
85,400 Amgen, Inc. (c) .................................. 5,198,725
12,800 Biogen, Inc. (c) ................................. 823,200
80,300 Bristol-Myers Squibb ............................. 5,656,131
8,350 Cardinal Health, Inc. ............................ 535,444
46,600 Merck & Co. ...................................... 3,448,400
24,200 Pfizer, Inc. ..................................... 2,655,950
40,000 Schering-Plough Corp. ............................ 2,120,000
22,800 Warner-Lambert Co. ............................... 1,581,750
-------------
22,019,600
-------------
DRUGS & HEALTH CARE -- 2.3%
53,100 PacifiCare Health Systems ........................ 3,823,200
55,500 Trigon Healthcare, Inc. .......................... 2,018,812
-------------
5,842,012
-------------
ELECTRONICS -- 1.2%
57,000 Waters Corp. (c) ................................. 3,028,125
-------------
FINANCIAL SERVICES -- 10.9%
12,800 American Express Co. ............................. 1,665,600
73,700 Countrywide Credit Industries, Inc. .............. 3,150,675
36,000 Federal National Mortgage Association ............ 2,461,500
91,600 Finova Group, Inc. ............................... 4,820,450
132,300 General Electric Co. ............................. 14,949,900
10,100 Household International .......................... 478,487
-------------
27,526,612
-------------
FOOD & BEVERAGES -- 1.8%
39,000 Coca-Cola Co. .................................... 2,437,500
56,781 Tootsie Roll Industries .......................... 2,193,166
-------------
4,630,666
-------------
FOREST PRODUCTS -- 2.1%
94,700 Kimberly-Clark Corp. ............................. 5,397,900
-------------
HEALTH CARE - PRODUCTS-- 5.5%
83,600 Abbott Laboratories .............................. 3,803,800
54,700 Johnson & Johnson ................................ 5,360,600
132,000 Patterson Dental Co. ............................. 4,587,000
-------------
13,751,400
-------------
HOTELS & RESTAURANTS -- 0.7%
19,400 Brinker International, Inc. ...................... 527,438
23,900 MGM Grand, Inc. (c) .............................. 1,171,100
-------------
1,698,538
-------------
INDUSTRIAL PARTS -- 0.4%
42,400 Mettler Toledo International, Inc. ............... 1,052,050
-------------
INDUSTRIAL SERVICES -- 0.2%
6,400 Hertz Corp. ...................................... 396,800
-------------
INSURANCE -- 2.4%
231,900 First American Financial Corp. ................... 4,145,212
33,500 Hartford Life, Inc. .............................. 1,762,938
-------------
5,908,150
-------------
LEISURE -- 0.1%
4,000 Eastman Kodak Co. ................................ 271,000
-------------
MANUFACTURING -- 1.7%
73,800 Briggs & Stratton Corp. .......................... 4,261,950
-------------
MANUFACTURING - DIVERSIFIED -- 1.1%
50,450 Crane Co. ........................................ 1,586,022
27,400 Teleflex, Inc. ................................... 1,190,187
-------------
2,776,209
-------------
PUBLISHING -- 2.6%
54,200 Central Newspapers, Inc. ......................... 2,039,275
91,900 Harte-Hanks, Inc. ................................ 2,492,787
30,500 Knight-Ridder, Inc. .............................. 1,675,594
8,600 Viacom, Inc., Class B (c) ........................ 378,400
-------------
6,586,056
-------------
RETAIL - CLOTHING -- 1.0%
31,500 Gap, Inc. ........................................ 1,586,813
20,400 Ross Stores, Inc. ................................ 1,027,650
-------------
2,614,463
-------------
RETAIL - DEPARTMENT STORE -- 5.8%
50,400 Dayton Hudson Corp. .............................. 3,276,000
25,600 TJX Companies, Inc. .............................. 852,800
215,600 Wal-Mart Stores, Inc. ............................ 10,402,700
-------------
14,531,500
-------------
RETAIL - GROCERY -- 0.6%
50,000 Kroger Co. (c) ................................... 1,396,875
-------------
RETAIL - SPECIALTY -- 2.2%
52,700 Furniture Brands International ................... 1,469,012
62,500 Home Depot, Inc. ................................. 4,027,344
-------------
5,496,356
-------------
SECURITIES & ASSET MANAGEMENT -- 2.3%
25,800 Lehman Brothers Holdings, Inc. ................... 1,606,050
41,900 Morgan Stanley Dean Witter ....................... 4,294,750
-------------
5,900,800
-------------
SEMI-CONDUCTORS -- 5.3%
225,000 Intel Corp. ...................................... 13,387,500
-------------
TELECOMMUNICATION -- 3.7%
46,900 Ameritech Corp. .................................. 3,447,150
8,550 AT&T Corp. ....................................... 477,197
60,600 BellSouth Corp. .................................. 2,840,625
24,500 SBC Communications, Inc. ......................... 1,421,000
22,300 U.S. Cellular Corp. (c) .......................... 1,193,050
-------------
9,379,022
-------------
TELECOMMUNICATION EQUIPMENT -- 5.1%
153,600 Lucent Technologies, Inc. ........................ 10,358,400
35,000 Tellabs, Inc. (c) ................................ 2,364,687
-------------
12,723,087
-------------
TOBACCO -- 1.6%
98,600 Philip Morris Cos ................................ 3,962,488
-------------
TRANSPORTATION -- 1.3%
58,000 CNF Transportation, Inc. ......................... 2,225,750
21,000 FDX Corp. (c) .................................... 1,139,250
-------------
3,365,000
-------------
Total Common Stock (Identified Cost $194,414,961) 247,549,400
-------------
Short Term Investment -- 1.5%
Principal
Amount
$3,750,000 Repurchase Agreement with State Street Bank and
Trust Co. dated 6/30/1999 at 4.000% to be
repurchased at $3,750,416 on 7/1/1999,
collateralized by $3,885,000 U.S. Treasury Bond,
at 6.000%, due 2/15/26 valued at $3,826,849 3,750,000
------------
Total Short Term Investment
(Identified Cost $3,750,000) .................. 3,750,000
------------
Total Investments-- 99.9%
(Identified Cost $198,164,961) (b) ............ 251,299,400
Other assets less liabilities ............... 286,227
------------
Total Net Assets-- 100% ......................... $251,585,627
============
--------------------
(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 $198,164,961 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. .............................................. $ 58,608,645
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ............................................. (5,474,206)
------------
Net unrealized appreciation $ 53,134,439
============
(c) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value (Identified cost $198,164,961) ........ $ 251,299,400
Cash ....................................................... 698
Receivable for:
Fund shares sold ......................................... 589,491
Dividends, interest and securities lending fees .......... 179,525
Miscellaneous ............................................ 3,719
-------------
252,072,833
-------------
LIABILITIES
Payable for:
Fund shares redeemed ..................................... $ 208,134
Accrued expenses:
Management fees .......................................... 145,829
Deferred trustees' fees .................................. 22,551
Accounting and administrative ............................ 12,298
Other expenses ........................................... 98,394
-------------
487,206
-------------
NET ASSETS ................................................... $ 251,585,627
=============
Net Assets consist of:
Capital paid in .......................................... $ 175,811,446
Undistributed net investment income (loss) ............... (970,138)
Accumulated net realized gains (losses) .................. 23,609,880
Unrealized appreciation (depreciation) on investments .... 53,134,439
-------------
NET ASSETS ................................................... $ 251,585,627
=============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($183,434,479 / 8,309,828 shares of beneficial interest) .. $ 22.07
=======
Offering price per share (100/94.25 of $22.07) ............. $ 23.42*
=======
Net asset value and offering price of Class B shares
($65,535,305 / 3,179,466 shares of beneficial interest) ... $ 20.61**
=======
Net asset value and offering price of Class C shares
($2,577,668 / 125,064 shares of beneficial interest) ...... $ 20.61**
=======
Net asset value, offering and redemption price of Class Y
shares ($38,175 / 1,729 shares of beneficial interest) ... $ 22.08
=======
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1999
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends .................................................. $ 884,000
Interest ................................................... 79,155
Securities lending fees .................................... 15,982
-------------
979,137
Expenses
Management fees .......................................... $ 886,673
Service fees - Class A ................................... 219,878
Service and distribution fees - Class B .................. 304,011
Service and distribution fees - Class C .................. 9,960
Trustees' fees and expenses .............................. 8,113
Accounting and administrative ............................ 37,865
Custodian and securities lending ......................... 48,399
Transfer agent ........................................... 318,641
Audit and tax services ................................... 15,750
Legal .................................................... 7,026
Printing ................................................. 18,763
Registration ............................................. 42,568
Miscellaneous ............................................ 13,503
-------------
Total expenses ............................................. 1,931,150
-------------
Net investment income (loss) .............................. (952,013)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on investments -- net ................. 22,931,301
Unrealized appreciation (depreciation) on investments -- net (6,410,177)
-------------
Net gain (loss) on investment transactions ................. 16,521,124
-------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ........ $ 15,569,111
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) ............................ $ (1,666,515) $ (952,013)
Net realized gain (loss) on investments ................. 38,149,843 22,931,301
Net unrealized appreciation (depreciation) on investments 17,491,799 (6,410,177)
------------- -------------
Increase (decrease) in net assets from operations ....... 53,975,127 15,569,111
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ............................................... (31,038,092) 0
Class B ............................................... (10,585,195) 0
Class C ............................................... (250,102) 0
------------- -------------
(41,873,389) 0
------------- -------------
INCREASE (DECREASE IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................ 26,554,677 1,100,824
------------- -------------
Total increase (decrease) in net assets .................. 38,656,415 16,669,935
NET ASSETS
Beginning of the period ................................ 196,259,277 234,915,692
------------- -------------
End of the period ...................................... $ 234,915,692 $ 251,585,627
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the period ...................................... $ (18,123) $ (970,138)
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<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 .... $ 15.27 $ 15.02 $ 18.41 $ 19.27 $ 19.95 $ 20.67
------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ................ (0.08) (0.11)(b) (0.14)(c) (0.18)(c) (0.13)(c) (0.06)(c)
Net Realized and Unrealized Gain (Loss)
on Investments ............................. (0.17) 4.74 3.22 3.43 5.18 1.46
------- -------- -------- -------- -------- --------
Total From Investment Operations ............ (0.25) 4.63 3.08 3.25 5.05 1.40
------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net Realized Capital Gains 0.00 (1.24) (2.22) (2.57) (4.33) 0.00
------- -------- -------- -------- -------- --------
Total Distributions ......................... 0.00 (1.24) (2.22) (2.57) (4.33) 0.00
------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period .......... $ 15.02 $ 18.41 $ 19.27 $ 19.95 $ 20.67 $ 22.07
======= ======== ======== ======== ======== ========
Total Return (%) (a) ........................ (1.6) 30.7 17.1 17.2 29.0 6.8
Ratio of Operating Expenses to Average
Net Assets (%) ............................. 1.63 1.61 1.50 1.45 1.46 1.42(d)
Ratio of Net Investment Income (loss)
to Average Net Assets (%) .................. (0.45) (0.67) (0.71) (0.87) (0.62) (0.61)(d)
Portfolio Turnover Rate (%) ................. 82 69 74 48 136 118
Net Assets, End of the Period (000) ......... $95,803 $123,504 $141,326 $149,734 $175,511 $183,435
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles & Company, L.P. Effective February 14, 1998 Westpeak
Investment Advisers, L.P. became subadviser to the Fund.
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income (loss) does not reflect the period's reclassification of permanent differences between book
and tax basis net investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the period.
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<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 .... $ 15.24 $ 14.89 $ 18.09 $ 18.74 $ 19.10 $ 19.37
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ................ (0.08) (0.16)(b) (0.28)(c) (0.32)(c)
(0.27)(c) (0.13)
Net Realized and Unrealized Gain (Loss)
on Investments ............................. (0.27) 4.60 3.15 3.25 4.87 1.37
-------- -------- -------- -------- -------- --------
Total From Investment Operations ............ (0.35) 4.44 2.87 2.93 4.60 1.24
-------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net Realized Capital Gains 0.00 (1.24) (2.22) (2.57) (4.33) 0.00
-------- -------- -------- -------- -------- --------
Total Distributions ......................... 0.00 (1.24) (2.22) (2.57) (4.33) 0.00
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period .......... $ 14.89 $ 18.09 $ 18.74 $ 19.10 $ 19.37 $ 20.61
======== ======== ======== ======== ======== ========
Total Return (%) (a) ........................ (2.3) 29.7 16.2 15.9 28.2 6.4
Ratio of Operating Expenses to Average
Net Assets (%) .............................. 2.38 2.36 2.25 2.20 2.21 2.17(d)
Ratio of Net Investment Income (loss)
to Average Net Assets (%) .................. (1.20) (1.42) (1.46) (1.62) (1.37) (1.36)(d)
Portfolio Turnover Rate (%) ................. 82 69 74 48 136 118
Net Assets, End of the Period (000) ......... $ 15,390 $ 26,234 $ 37,439 $ 45,546 $ 57,796 $ 65,535
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles & Company, L.P. Effective February 14, 1998 Westpeak
Investment Advisers, L.P. became subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return calculations.
(b) Per share net investment income (loss) does not reflect the period's reclassification of permanent differences between book
and tax basis net investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the period.
(d) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C CLASS Y
------------------------------------------------------------- -----------
SIX MONTHS MARCH 16,
YEAR ENDED DECEMBER 31, ENDED 1999 THROUGH
---------------------------------------------- JUNE 30, JUNE 30,
1995 1996 1997 1998 1999 1999
---------------------------------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period .... $14.89 $ 18.08 $ 18.74 $ 19.11 $ 19.37 $ 21.49
------ ------- ------- ------- -------- --------
Income From Investment Operations
Net Investment Income (Loss) ................ (0.09)(a) (0.28)(c) (0.34)(c) (0.27)(c) (0.13)(c) (0.03)(c)
Net Realized and Unrealized
Gain (Loss) on Investments ................. 4.52 3.16 3.28 4.86 1.37 0.62
------ ------- ------- ------- -------- --------
Total From Investment Operations ............ 4.43 2.88 2.94 4.59 1.24 0.59
------ ------- ------- ------- -------- --------
Less Distributions
Distributions from Net Realized Capital Gains (1.24) (2.22) (2.57) (4.33) 0.00 0.00
------ ------- ------- ------- -------- --------
Total Distributions ......................... (1.24) (2.22) (2.57) (4.33) 0.00 0.00
------ ------- ------- ------- -------- --------
Net Asset Value, End of the Period .......... $18.08 $ 18.74 $ 19.11 $ 19.37 $ 20.61 $ 22.08
====== ======= ======= ======= ======== ========
Total Return (%) (b) ........................ 29.7 16.2 15.9 28.1 6.4 2.7
Ratio of Operating Expenses
to Average Net Assets (%) .................. 2.36 2.25 2.20 2.21 2.17(d) 1.17(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets (%) .................. (1.42) (1.46) (1.62) (1.37) (1.36)(d) (0.36)(d)
Portfolio Turnover Rate (%) ................. 69 74 48 136 118 118
Net Assets, End of the Period (000) ......... $ 354 $ 504 $ 979 $ 1,609 $ 2,578 $ 38
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles & Company, L.P. Effective February 14, 1998 Westpeak
Investment Advisers, L.P. became subadviser to the Fund.
(a) Per share net investment income (loss) does not reflect the period's reclassification of permanent differences between book
and tax basis net investment income (loss). See Note 1d.
(b) A contingent deferred sales charge is not reflected in total return calculations.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the period.
(d) 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 long-term growth of capital. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares is a "Fund").
The Fund offers Class A, Class B, Class C shares and Class Y shares. Class A
shares are sold with a maximum front end sales charge of 5.75%. Class B shares
do not pay a front end sales charge, but pay a higher ongoing distribution fee
than Class A shares for eight years (at which point they automatically convert
to Class A shares), and are subject to a contingent deferred sales charge if
those shares are redeemed within six years of purchase (or five years if
purchased before May 1, 1997). Class C shares do not pay front end sales charges
and do not convert to any class of shares, but they do pay a higher ongoing
distribution fee than Class A shares and may be subject to a contingent deferred
sales charge if those shares are redeemed within one year. Class Y shares do not
pay a front end sales charge, a contingent deferred sales charge or distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro-rata by the holders of each class
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro-rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the Trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. 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 INCOME. Security transactions are accounted
for on the trade date. Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis. Interest income is increased
by the accretion of discount. In determining net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
C. 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.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassification to the 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. 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 Fund'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
$141,679,133 and $140,169,470, respectively.
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 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million reduced by the payment to Westpeak Investment
Advisers, L.P. ("Westpeak") the Fund's investment subadviser at the rate of
0.40% of the first $200 million of the Fund's average daily net assets, 0.35% of
the next $300 million and 0.30% of such assets in excess of $500 million.
Certain officers and directors of NEFM are also officers or Trustees of the
Fund. NEFM and Westpeak 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 Westpeak under the management and
subadvisory agreements in effect during the six months ended June 30, 1999 are
as follows:
FEES EARNED
-----------
NEFM $ 418,498
Westpeak 468,175
The effective annualized management fee for the six months ended June 30, 1999
was 0.74%.
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 $37,865 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 $240,926 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 $219,878 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 $563,284.
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 $76,003 and $2,490 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 $228,008
and $7,470 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 month ended
June 30, 1999 amounted to $280,406.
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. 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 ................................................ 5,280,173 $ 103,638,373 3,574,205 $ 75,188,074
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 1,654,600 30,368,183 0 0
------------- ------------- ------------- -------------
6,934,773 134,006,556 3,574,205 75,188,074
Shares repurchased ......................................... (5,945,919) (118,285,211) (3,757,379) (78,816,298)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 988,854 $ 15,721,345 (183,174) $ (3,628,224)
------------- ------------- ------------- -------------
<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 ................................................ 517,025 $ 10,206,537 461,842 $ 9,127,910
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ....................... 602,457 10,304,737 0 0
------------- ------------- ------------- -------------
1,119,482 20,511,274 461,642 9,127,910
Shares repurchased ......................................... (520,591) (10,256,232) (266,485) (5,265,939)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 598,891 $ 10,255,042 195,357 $ 3,861,971
------------- ------------- ------------- -------------
<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 ................................................ 68,953 $ 1,323,118 59,433 $ 1,176,488
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 14,104 241,925 0 0
------------- ------------- ------------- -------------
83,057 1,565,043 59,433 1,176,488
Shares repurchased ......................................... (51,202) (986,753) (17,466) (346,102)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 31,855 $ 578,290 41,967 $ 830,386
------------- ------------- ------------- -------------
<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 ................................................ 0 $ 0 1,729 $ 36,691
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ..................... 0 0 0 0
------------- ------------- ------------- -------------
0 $ 0 1,729 36,691
Shares repurchased ......................................... 0 0 0 0
------------- ------------- ------------- -------------
Net increase (decrease) .................................... 0 $ 0 1,729 $ 36,691
------------- ------------- ------------- -------------
Increase (decrease) derived from capital shares transactions 1,619,600 $ 26,554,677 55,879 $ 1,100,824
============= ============= ============= =============
</TABLE>
(a) Commencement of operations.
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 six months
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 had no securities on loan.
<PAGE>
NEW ENGLAND BALANCED FUND
Supplement Dated August 15, 1999 to New England Stock Funds
Class A, B and C Prospectus
and New England Stock and Star Funds Class Y Prospectus
Each dated May 3, 1999
Effective immediately, John Hyll will remain on the Fund as the sole portfolio
manager of the fixed income portion. Meri Ann Beck and Barr Segal are no longer
acting as portfolio managers of this portion. Jeff Wardlow and Gregg Watkins
will continue to manage the equity portion of the Fund.
<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.
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[Logo](R) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
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399 Boylston Street
Boston, Massachusetts
02116
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CG58-0699
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