<PAGE>
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SEMIANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England Bullseye Fund
[Graphic Omitted]
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June 30, 1998
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<PAGE>
August 1998
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[Photo of Henry L.P. Schmelzer]
- ------------------------------
Dear Shareholder:
Investors had reason for comfort during the first half of 1998.
After stunning gains in each of the last three years, the stock market behaved
more like its customary self: Major market indicators moved up for a time, slid
back and were once again in recovery mode at the end of the period. This pattern
largely reflected investors' responses to fast-changing events in Asia.
Unpredictable markets call to mind the long-term experience of millions of
mutual fund investors; those of us who held firm to our plans as markets entered
difficult periods were often rewarded as markets recovered. The longer you stay
invested the less interim ups and downs -- here or overseas -- should concern
you.
News from the Far East drove bond market sentiment as well. In the United
States, faltering Asian economies meant lower prices on many imported goods,
putting pressure on prices and corporate earnings. With slower growth now a real
possibility and with little immediate evidence of inflation, the Federal Reserve
Board left short-term interest rates unchanged, while long-term rates fell to
record lows in mid-June.
In the pages that follow, you can read about how your Fund's management dealt
with the disruptions in the Pacific region and their impact on our domestic
economy. But beyond Asia's present problems, and notwithstanding the inevitable
ebb and flow of our own business cycle, there are reasons to be optimistic about
investment prospects over the next several years. For example, vast,
under-served populations in China and elsewhere represent huge potential demand
for consumer goods. Here in the United States, there is the prospect of a
demography-driven spending wave, as millions of baby-boomers enter their peak
consumption years. Events may turn out differently -- volatility will always be
part of investing -- but as much as the markets may waver, the watchwords for
many long-term investors are constant: diversify and persist.
While you are thinking about your investments, take a few minutes to review your
portfolio. It's possible that three years of strong market gains have tilted
your holdings disproportionately toward aggressive stock funds. If so, you and
your financial representative can adjust the balance easily using some of New
England Funds' more conservative equity or bond funds to reallocate your assets
in line with your long-term goals and comfort level. Once you are satisfied with
your portfolio's balance, be sure to stay in touch with your financial
professional, invest regularly and don't try to guess what the market will do
next.
Thank you for your continued support of New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
PREPARING FOR THE YEAR 2000
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New England Funds continues to work to provide high quality service as we move
into the new century. Since last year we have devoted significant resources to
identifying, analyzing and resolving computer issues related to Year 2000. As a
further measure, we have focused on year-end 1998 as a target for preparedness
by vendor and service agency systems that we rely on for support. We expect
major systems to be ready before the end of the year, with a year of quality
assurance to follow.
<PAGE>
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NEW ENGLAND BULLSEYE FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1998
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Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
A $10,000 INVESTMENT IN CLASS A SHARES
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[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 Bullseye Fund's
inception 3/31/98, compared to the S&P 500 Index. The data points from the
graph are as follows:]
MARCH 1998 (INCEPTION) THROUGH JUNE 1997
Net With Maximum S&P
Asset Value(1) Sales Charge(2) 500(4)
-------------- --------------- ------
3/31/98 $10,000 $9,425 $10,000
4/98 $10,280 $9,689 $10,091
5/98 $ 9,608 $9,055 $ 9,901
6/98 $ 9,672 $9,116 $10,330
- --------------------------------------------------------------------------------
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 Class C
share performance will vary based on differences in inception date, fees and
sales charges. All Index and Fund performance assumes reinvested distributions.
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
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CLASS A (Inception 3/31/98) SINCE INCEPTION
Net Asset Value(1) -3.28%
With Max. Sales Charge(3) -8.82
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Class B (Inception 3/31/98) SINCE INCEPTION
Net Asset Value(1) -3.44%
With CDSC(3) -8.27
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CLASS C (Inception 3/31/98) SINCE INCEPTION
Net Asset Value(1) -3.44%
With CDSC(3) -4.41
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COMPARATIVE PERFORMANCE SINCE INCEPTION
Standard & Poor's 500(4) 3.29%
Lipper Growth Fund Average(5) 1.83
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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.
<PAGE>
NOTES TO CHARTS
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) 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) Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 5%
sales charge is applied to a redemption of Class B shares. The sales charge
will decrease over time, declining to zero six years after the purchase of
shares. CDSC for Class C shares assumes a maximum 1% sales charge on
redemptions within the first year of purchase.
(4) Standard & Poor's 500(R) Index (S&P 500) is an unmanaged index representing
the performance of 500 major companies, most of which are listed on the New
York Stock Exchange. The S&P 500 performance has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lipper Growth Fund Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
investment objectives, as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
<PAGE>
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NEW ENGLAND BULLSEYE FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
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[Photo of William K. Jurika]
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- ----------------------------
[Photo of Peter A. Goetz]
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William K. Jurika,
Peter A. Goetz
Jurika & Voyles, L.P.
New England Funds is pleased to present the first shareholder report for New
England Bullseye Fund. In the few short months since its introduction on March
31, 1998 through the end of the reporting period on June 30, 1998, your Fund has
grown to $17 million, with nearly 2,300 shareholders. We thank you for your
confidence in this newest member of the New England Funds family.
Q. How did New England Bullseye Fund perform for the second quarter of 1998?
The Fund delivered a total return of -3.28% (for Class A shares) for the three
months ending June 30, 1998, reflecting a $0.41 per share drop in net asset
value to $12.09 at the end of the period. This performance lagged the 3.29%
return of the S&P 500 Index. By design, your Fund's composition differs markedly
from the S&P 500 Index. Because the Fund's strategy by nature is concentrated
and flexible, its performance could deviate measurably -- either up or down --
from the Index, which is more oriented toward larger-company stocks. Still, the
S&P provides a useful point of reference for performance. During the past three
months your Fund targeted medium-sized companies, which were available at
attractive prices. These investments were generally overlooked by investors
during the period. Consequently medium-sized stocks as well as those with
exposure to Asia worked against the Fund's performance. Technology stocks were a
mixed bag, representing some of the Fund's top and bottom performers.
Q. What was the investment environment, and how did it influence your
investment strategy?
During the first half of 1998, the U.S. economy continued to deliver
above-average growth without triggering inflationary pressures. Strength from
U.S. consumers offset a general slowdown in manufacturing activity.
Uncertainties surrounding the Asian financial crisis dominated investors'
attention throughout the period. Reflecting these conditions, the market tended
to reward large companies whose earnings are perceived to be less susceptible to
U.S. economic conditions.
When managing the Fund, we seek to identify companies with attractive
valuations, predominantly among medium-sized companies. We believe the market's
preference for large companies created some outstanding buying opportunities
among the medium-sized firms. We have constructed the portfolio with an emphasis
on financial services and technology, two sectors where we find a compelling
trade-off between risk and return.
Q. How do you describe your investment process?
The key defining characteristic is concentration -- meaning we typically will
invest in just 15 to 20 stocks. This level of focus will likely result in
greater price volatility over the short term. However, we hope that the
potential for greater long-term rewards will outweigh that volatility.
During the period, we remained committed to our vigorous stock selection
discipline. We search for what we call quality business investments -- companies
that appear undervalued and have strong potential for future earnings growth.
Exhaustive research is critical to our stock selection process. Before investing
in a stock, we test the underlying company for characteristics we believe are
common to all good businesses: a competitive advantage, a clear business focus,
a catalyst for growth, strong financial health and experienced, quality
management. Still, these attributes alone aren't enough. A company must also be
considered a good business investment -- that is, the stock's price must be
reasonable relative to its earnings potential.
Among our favorite holdings are Synopsys Inc. -- an electronic design automation
firm, EMC Corporation -- a manufacturer of high-density data storage, and Santa
Fe International -- a deep water oil rig company.
Our analytical efforts, however, don't stop with individual holdings. We manage
the overall portfolio's risk as well -- by evaluating how each stock can
complement others in the portfolio.
Q. What factors helped or hurt Fund performance during the period?
As mentioned earlier, investors continued to seek out the so-called safer
markets, favoring the largest of the large-company growth stocks, in spite of
the escalating prices. Despite the flexibility to choose stocks of any size, the
Fund invested primarily in medium-sized stocks, which were generally overlooked
by investors. In addition, the investments in technology and energy stocks that
had exposure to Asia hampered performance.
The Fund's results, while disappointing, were not surprising given the
investment climate and our investment philosophy. We would not expect to own the
largest growth companies in the market -- few such issues meet our demanding
risk/reward criteria. That's why the Fund's performance will tend to differ from
that of the S&P 500 Index to a greater extent than would stock funds with a
greater number of holdings, and a larger company stock approach.
Q. What is your outlook for the rest of the year?
We see signs of a likely slowdown in the U.S. economy, although a recession may
not be imminent. The consumer remains the critical variable in this equation.
Time will tell if consumer spending can continue to deliver the strength
necessary to keep the economy on track.
We also expect the months ahead to be peppered with market volatility. Questions
remain about the eventual impact of the Asian economic crisis, which has already
begun to hinder corporate earnings. At some point, investors will migrate out of
large-company issues in search of more compelling values in the small- and
mid-sized company universe. At what point this will occur is impossible to
predict.
Despite the concerns, we look for the remainder of 1998 to be challenging, yet
rewarding. We will continue to manage New England Bullseye Fund in keeping with
our common sense philosophy: Buying a stock is essentially buying ownership in a
business. That's why it's important to look at investments from the perspective
of a business owner, focusing on high-quality companies with a history of steady
earnings growth that are available at attractive prices.
Portfolio commentary reflects the conditions and actions taken during the
reporting period, which are subject to change. A shift in opinion may result in
strategic and other portfolio changes.
<PAGE>
YOUR FUND'S TOP TEN INVESTMENTS -- 6/30/98
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% of
Company Net Assets
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1. Lockheed Martin 7.96
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2. Adobe Systems, Inc. 7.45
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3. Citicorp 7.44
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4. Federal Express Corp. 7.23
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5. 3Com Corp. 6.60
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6. Synopsys, Inc. 6.14
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7. Electronic Data Systems 5.07
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8. ReliaStar Financial Corp. 4.95
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9. KN Energy, Inc. 4.90
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10. Tenet Healthcare Corp. 4.86
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Portfolio holdings and asset allocation will vary.
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<PAGE>
<TABLE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1998
(unaudited)
COMMON STOCK--95.4% OF TOTAL NET ASSETS
<CAPTION>
SHARES DESCRIPTION VALUE (a)
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<S> <C> <C>
AEROSPACE--8.0%
12,900 Lockheed Martin ............................................. $ 1,365,787
-----------
BANKS--7.4%
8,550 Citicorp .................................................... 1,276,087
-----------
COMPUTER SOFTWARE & SERVICES--5.1%
21,725 Electronic Data Systems ..................................... 869,000
-----------
COMPUTERS & BUSINESS EQUIPMENT--14.0%
36,900 3Com Corp. (c) .............................................. 1,132,369
16,800 EMC Corp. (c) ............................................... 752,850
5,000 Xerox Corp. ................................................. 508,125
-----------
2,393,344
-----------
DRUGS & HEALTH CARE--4.9%
26,650 Tenet Healthcare Corp. (c) .................................. 832,813
-----------
ELECTRONICS--4.6%
25,250 Dallas Semiconductor Corp. .................................. 782,750
-----------
GAS & PIPELINE UTILITIES--4.9%
15,500 KN Energy, Inc. ............................................. 839,906
-----------
INSURANCE--4.9%
17,675 ReliaStar Financial Corp. ................................... 848,400
-----------
INTERNATIONAL OIL--4.5%
25,750 Santa Fe International Corp. (c) ............................ 778,938
-----------
OIL & GAS--4.6%
18,000 Vastar Resources, Inc. ...................................... 786,375
-----------
REAL ESTATE INVESTMENT TRUSTS--2.5%
9,200 Equity Residential Properties Trust ......................... 436,425
-----------
RETAIL -- GROCERY--4.5%
32,200 American Stores Co. ......................................... 778,838
-----------
SAVINGS & LOAN--4.7%
18,500 Washington Mutual, Inc. ..................................... 803,594
-----------
SERVICES--7.2%
19,750 Federal Express Corp. (c) ................................... 1,239,312
-----------
SOFTWARE--13.6%
30,100 Adobe Systems, Inc. ......................................... 1,277,369
23,000 Synopsys, Inc. (c) .......................................... 1,052,250
-----------
2,329,619
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Total Common Stock (Identified Cost $16,803,005) ............ 16,361,188
-----------
<PAGE>
SHORT TERM INVESTMENT--3.8%
FACE
AMOUNT VALUE (a)
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$645,000 Repurchase Agreement with State Street Corp. dated 6/30/98 at
5.00% to be repurchased at $645,090 on 7/01/98
collateralized by $650,000 U.S. Treasury Note 5.75% due
10/31/00 with a value of $658,125 ......................... $ 645,000
-----------
Total Short Term Investment (Identified Cost $645,000) ...... 645,000
-----------
Total Investments--99.2% (Identified Cost $17,448,005) (b) .. 17,006,188
Other assets less liabilities ............................... 141,811
-----------
Total Net Assets--100% ...................................... $17,147,999
===========
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At June 30, 1998 the net unrealized depreciation on investments based
on cost of $17,448,005 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 ............................ $ 354,719
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value ............................ (796,536)
-----------
Net unrealized depreciation ............................................ $ (441,817)
===========
(c) Non-income producing security.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
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STATEMENT OF ASSETS & LIABILITIES
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June 30, 1998
(unaudited)
<S> <C> <C>
ASSETS
Investments at value (Identified cost $17,448,005) .......... $17,006,188
Cash ........................................................ 315
Receivable for:
Fund shares sold .......................................... 221,912
Due from investment advisor ............................... 18,571
Dividends and interest .................................... 9,863
Miscellaneous ............................................. 1,846
Prepaid organizational expense .............................. 23,753
Prepaid registration expense ................................ 23,651
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17,306,099
LIABILITIES
Payable for:
Securities purchased ...................................... $107,564
Fund shares redeemed ...................................... 7,981
Organization expenses ..................................... 25,000
Accrued expenses:
Accounting and administrative ............................. 1,413
Other expenses ............................................ 16,142
--------
158,100
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NET ASSETS .................................................... $17,147,999
===========
Net Assets consist of:
Capital paid in ........................................... $17,621,200
Undistributed net investment loss ......................... (15,352)
Accumulated net realized loss ............................. (16,032)
Unrealized depreciation on investments .................... (441,817)
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NET ASSETS .................................................... $17,147,999
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($8,316,278 divided by 687,741 shares of beneficial
interest) ................................................... $12.09
======
Offering price per share (100/94.25 of $12.09) ................ $12.83*
======
Net asset value and offering price of Class B shares
($6,175,658 divided by 511,447 shares of beneficial
interest) ................................................... $12.07**
======
Net asset value and offering of Class C shares
($2,656,063 divided by 219,976 shares of beneficial
interest) ................................................... $12.07**
======
*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.
</TABLE>
<PAGE>
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STATEMENT OF OPERATIONS
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For the Period March 31, 1998(a) through June 30, 1998
(unaudited)
INVESTMENT INCOME
Dividends ....................................... $ 25,465
Interest ........................................ 15,989
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41,454
Expenses
Management fees ............................... $ 25,497
Service fees - Class A ........................ 3,431
Service and distribution fees - Class B ....... 9,207
Service and distribution fees - Class C ....... 3,909
Trustees' fees and expenses ................... 405
Accounting and administrative ................. 4,130
Custodian ..................................... 15,000
Transfer agent ................................ 23,062
Audit and tax services ........................ 6,900
Legal ......................................... 700
Printing ...................................... 3,723
Amortization of organization expenses ......... 1,247
Registration .................................. 2,935
Miscellaneous ................................. 728
Total expenses .................................. 100,874
Less expenses waived by the investment adviser
and subadviser ................................ (44,068) 56,806
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Net investment loss ............................. (15,352)
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Realized loss on investments - net .............. (16,032)
Unrealized depreciation on investments - net .... (441,818)
---------
Net loss on investment transactions ............. (457,850)
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NET DECREASE IN NET ASSETS FROM OPERATIONS .... $(473,202)
=========
(a) Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS
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(unaudited)
FOR THE PERIOD
MARCH 31, 1998(a)
THROUGH JUNE 30,
1998
----------------
FROM OPERATIONS
Net investment loss ...................................... $ (15,352)
Net realized loss on investments ......................... (16,032)
Unrealized depreciation on investments ................... (441,818)
-----------
Decrease in net assets from operations ................... (473,202)
-----------
INCREASE IN NET ASSETS DERIVED FROM CAPITAL SHARE
TRANSACTIONS ............................................... 17,621,201
-----------
Total increase in net assets ............................... 17,147,999
NET ASSETS
Beginning of the period .................................. 0
-----------
End of the period ........................................ $17,147,999
===========
UNDISTRIBUTED NET INVESTMENT LOSS
End of the period ........................................ $ (15,352)
===========
(a) Commencement of operations
See accompanying notes to financial statements.
<PAGE>
<TABLE>
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FINANCIAL HIGHLIGHTS
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<CAPTION>
(unaudited)
CLASS A CLASS B CLASS C
----------------- ----------------- -----------------
MARCH 31, 1998(a) MARCH 31, 1998(a) MARCH 31, 1998(a)
THROUGH THROUGH THROUGH
JUNE 30, 1998 JUNE 30, 1998 JUNE 30, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period . $12.50 $12.50 $12.50
------ ------ ------
Loss from investment operations
Net investment loss ................ 0.00 (0.02) (0.02)
Net realized and unrealized loss on
Investments ...................... (0.41) (0.41) (0.41)
------ ------ ------
Total from investment operations ... (0.41) (0.43) (0.43)
------ ------ ------
Net asset value, end of period ....... $12.09 $12.07 $12.07
====== ====== ======
Total return (%) (b) ................. (3.3) (3.4) (3.4)
Ratio of operating expenses to
average net assets (%) (c) ......... 1.75 2.50 2.50
Ratio of net investment income
(loss) to average net assets
(%) (c) ............................ (0.21) (0.96) (0.96)
Portfolio turnover rate (%) (c) ...... 18 18 18
Net assets, end of period (000) ...... $8,316 $6,176 $2,656
The ratio of operating expenses to
average net assets without giving
effect to the expense limitation
described in Note 4 would have
been (c) ........................... 3.39 4.14 4.14
(a) Commencement of operations
(b) A sales charge in the case of Class A Shares and a contingent deferred sales charge in the case of Class B and
Class C Shares is not reflected in total return calculations. Periods less than one year are not annualized.
(c) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
(unaudited)
1. The Fund is a Series of New England Funds Trust III, 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 capital growth. 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 and Class C shares. Class A shares are sold
with a maximum front end sales charge of 5.75%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to Class A
shares), and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase. 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.
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 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 (the date the buy or sell is executed).
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.
F. ORGANIZATION EXPENSE. Costs incurred in fiscal 1998 in connection with the
Fund's organization and registration, amounting to approximately $25,000 in
the aggregate, will be paid by the Fund and are being amortized by the Fund
over 60 months.
2. PURCHASES AND SALES OF SECURITIES. For the period ended June 30, 1998
purchases and sales of securities (excluding short-term investments) were
$17,953,919 and $1,134,882, 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 0.95% of the first $200 million of the Fund's
average daily net assets, 0.90% of the next $300 million and 0.85% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Jurika & Voyles L.P. ("Jurika & Voyles"), at the rate of 0.57% of the first
$200 million of the average daily net assets of the Fund, 0.50% of the next
$300 million of such assets and 0.43% of such assets in excess of $500
million. Certain officers and directors of NEFM are also officers or trustees
of the Fund. NEFM and Jurika & Voyles 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 Jurika & Voyles under the management agreement in
effect during the period ended June 30, 1998 are as follows:
FEES EARNED(a)
--------------
$10,199 NEFM
$15,298 Jurika & Voyles
(a) Before reduction pursuant to voluntary expense limitations. See note 4.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of Nvest
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting, and financial reporting
functions and clerical functions relating to the Fund and (ii) expenses for
services required in connection with the preparation of registration
statements and prospectuses, registration of shares in various states,
shareholder reports and notices, proxy solicitation material furnished to
shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the period ended June 30, 1998 these
expenses amounted to $4,130 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO") the
transfer and shareholder servicing agent for the Fund. For the period ended
June 30, 1998, the Fund paid NEFSCO $13,652 as compensation for its services
in that capacity. For the period ended June 30 1998, the Fund received $87 in
transfer agent credits. The transfer agent expense in the Statement of
Operations is net of these credits.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted a Service Plan relating to the Fund's Class A shares
(the "Class A Plan") and Service and Distribution Plans relating to the Fund's
Class B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors
in Class A shares and/or the maintenance of shareholder accounts. For the
period ended June 30, 1998, the Fund paid New England Funds $3,431 in fees
under the Class A Plan.
Under the Class B and Class C Plan, the Fund pays New England Funds a monthly
service fee at the annual rate of 0.25% of the average daily net assets
attributable to the Fund's Class 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 period ended
June 30, 1998, the Fund paid New England Funds $2,302 and $977 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 period ended June 30, 1998, the Fund paid New England Funds $6,905 and
$2,932 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 period
ended June 30, 1998 amounted to $265,515.
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, NEFSCO, Nvest, or their affiliates, other than
registered investment companies. Each other trustee will be compensated
approximately by the Fund as follows:
Annual Retainer $ 90
Meeting Fee $ 15/meeting
Annual Committee Member Retainer $ 10
Annual Committee Chairman Retainer $152
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. EXPENSE LIMITATIONS. Under a fee deferral arrangement and expense
reimbursement arrangement, NEFM and Jurika & Voyles have agreed, until
December 31, 1998, to defer their respective management and sub-advisory fees
for the Fund and, if necessary, NEFM has agreed to bear certain expenses
associated with the Fund, to the extent necessary to limit the Fund's expenses
to an annual rate of 1.75% of the Fund's Class A shares, 2.50% of the Fund's
Class B and Class C shares, subject to the obligation of the Fund to pay NEFM
and/or Jurika & Voyles such deferred fees (but not expenses borne) in later
periods to the extent that the Fund's expenses fall below the annual rate of
1.75% of the Fund's Class A shares, 2.50% of the Fund's Class B and Class C
shares provided, however, that the Fund is not obligated to pay any such
deferred fees more than two years after the end of the fiscal year in which
the fee was deferred. As a result of the Fund's expenses exceeding the expense
limitation during the period ended June 30, 1998, NEFM and Jurika & Voyles
deferred their entire management fee of $25,497 and NEFM assumed additional
expenses of $18,571.
5. CAPITAL SHARES. At June 30, 1998 there was an unlimited number of shares
of beneficial interest authorized, divided into three classes, Class A, Class
B and Class C capital stock. Transactions in capital shares were as follows:
MARCH 31, 1998(a)
THROUGH JUNE 30, 1998
-------------------------
CLASS A SHARES AMOUNT
------- ------ ------
Shares sold ................................ 709,137 $ 8,825,851
--------- -----------
709,137 8,825,851
Shares repurchase .......................... (21,396) (253,907)
--------- -----------
Net increase ............................... 687,741 $ 8,571,944
--------- -----------
MARCH 31, 1998(a)
THROUGH JUNE 30, 1998
-------------------------
CLASS B SHARES AMOUNT
------- ------ ------
Shares sold ................................ 526,036 $ 6,491,085
--------- -----------
526,036 6,491,085
Shares repurchased ......................... (14,589) (176,804)
--------- -----------
Net increase ............................... 511,447 $ 6,314,281
--------- -----------
MARCH 31, 1998(a)
THROUGH JUNE 30, 1998
-------------------------
CLASS C SHARES AMOUNT
------- ------ ------
Shares sold ................................ 224,295 $ 2,785,085
--------- -----------
224,295 2,785,085
Shares repurchase .......................... (4,319) (50,109)
--------- -----------
Net increase ............................... 219,976 $ 2,734,976
--------- -----------
Increase derived from capital shares
transactions ............................. 1,419,164 $17,621,201
========= ===========
(a) Commencement of operations.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT WWW.MUTUALFUNDS.COM
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains information about
distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you
of the availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
<PAGE>
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