-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ecz8OdCgzBwehOL8NZxD/9Q+X60clQC7f/sxTs5vtuutjDIdyOtdxn4pggLlVQV6 Rs01QcLSHhtXxFDSMClN6w== 0000950156-98-000556.txt : 19980831 0000950156-98-000556.hdr.sgml : 19980831 ACCESSION NUMBER: 0000950156-98-000556 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980828 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND FUNDS TRUST I CENTRAL INDEX KEY: 0000770540 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04323 FILM NUMBER: 98699930 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND GOVERNMENT SECURITIES FUND DATE OF NAME CHANGE: 19861111 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND LIFE GOVERNMENT SECURITIES TRUST DATE OF NAME CHANGE: 19860930 N-30D 1 STAR WORLDWIDE FUND - NEF TRUST I - -------------------------------------------------------------------------------- SEMIANNUAL REPORT - -------------------------------------------------------------------------------- [Logo] NEW ENGLAND FUNDS(R) Where The Best Minds Meet(R) - -------------------------------------------------------------------------------- New England Star Worldwide Fund [graphic omitted] - -------------- JUNE 30, 1998 - -------------- AUGUST 1998 - -------------------------------------------------------------------------------- [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 - -------------------------------------------------------------------------------- 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. NEW ENGLAND STAR WORLDWIDE FUND - -------------------------------------------------------------------------------- INVESTMENT RESULTS THROUGH JUNE 30, 1998 Putting Performance in Perspective The charts comparing your Fund's performance to a benchmark index provide you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. Your Fund's total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. The performance benchmark for New England Star Worldwide Fund is the MSCI World Index4. In the past, the MSCI EAFE Index5 had served as the benchmark for the Fund. While no benchmark is a perfect match for a managed fund, the World Index contains a higher proportion of the markets that could be represented in the Fund than does the EAFE Index, including U.S. and major foreign markets. However, the Fund can invest in emerging markets, which are not represented in the World Index but are represented in the EAFE Index. NEW ENGLAND STAR WORLDWIDE FUND - -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT [A chart in the form of a line graph appears here, illustrating the growth of a $10,000 investment in Class A Shares compared to Morgan Stanley Capital International World Index(4) and to Morgan Stanley EAFE Index(5).] DECEMBER 1995 (INCEPTION) THROUGH JUNE 1998 CLASS A INDEX NAV(1) MSC MSCI WORLD EAFE - ------- --------- ---------- ---------- ------- 12/29/95 $10,000 $ 9,425 $10,000 $10,000 1Q96 $10,528 $ 9,923 $10,419 $10,296 2Q96 $11,177 $10,534 $10,733 $10,467 3Q96 $11,136 $10,496 $10,888 $10,462 4Q96 $11,667 $10,997 $11,399 $10,636 1Q97 $12,267 $11,562 $11,444 $10,477 2Q97 $13,629 $12,445 $13,181 $11,845 3Q97 $14,083 $12,460 $13,571 $11,769 4Q97 $13,148 $11,232 $13,249 $10,855 1Q98 $14,568 $12,045 $15,161 $12,460 2Q98 $14,049 $11,217 $15,482 $12,601 [A chart in the form of a line graph appears here, illustrating the growth of a $10,000 investment in Class B Shares compared to Morgan Stanley Capital International World Index(4) and to Morgan Stanley EAFE Index(5).] CLASS B INDEX NAV MSC MSCI WORLD EAFE - ------- --------- ---------- ---------- ------- 12/29/95 $10,000 $10,000 $10,000 $10,000 1Q96 $10,512 $10,512 $10,419 $10,296 2Q96 $11,136 $11,136 $10,733 $10,467 3Q96 $11,081 $11,081 $10,888 $10,462 4Q96 $11,587 $11,587 $11,399 $10,636 1Q97 $12,163 $12,163 $11,444 $10,477 2Q97 $13,484 $13,484 $13,181 $11,845 3Q97 $13,906 $13,906 $13,571 $11,769 4Q97 $12,962 $12,962 $13,249 $10,855 1Q98 $14,332 $14,332 $15,161 $12,460 2Q98 $13,796 $13,496 $15,482 $12,601 [A chart in the form of a line graph appears here, illustrating the growth of a $10,000 investment in Class C Shares compared to Morgan Stanley Capital International World Index(4) and to Morgan Stanley EAFE Index(5).] CLASS C INDEX NAV MSCI WORLD EAFE - ------- --------- ---------- ------- 12/29/95 $10,000 $10,000 $10,000 1Q96 $10,520 $10,419 $10,296 2Q96 $11,144 $10,733 $10,467 3Q96 $11,088 $10,888 $10,462 4Q96 $11,595 $11,399 $10,636 1Q97 $12,170 $11,444 $10,477 2Q97 $13,490 $13,181 $11,845 3Q97 $13,913 $13,571 $11,769 4Q97 $12,968 $13,249 $10,855 1Q98 $14,346 $15,161 $12,460 2Q98 $13,801 $15,482 $12,601 Returns represent past performance. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than their original cost. NEW ENGLAND STAR WORLDWIDE FUND - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98 CLASS A (Inception 12/29/95) 6 MONTHS 1 YEAR SINCE INCEPTION Net Asset Value(1) 6.92% 3.15% 14.59% With Max. Sales Charge(2) 0.79 -2.80 11.02 - -------------------------------------------------------------------------------- CLASS B (Inception 12/29/95) 6 MONTHS 1 YEAR SINCE INCEPTION Net Asset Value(1) 6.50% 2.37% 13.76% With CDSC(3) 1.50 -2.57 12.76 - -------------------------------------------------------------------------------- CLASS C (Inception 12/29/95) 6 MONTHS 1 YEAR SINCE INCEPTION Net Asset Value(1) 6.50% 2.37% 13.78% With CDSC(3) 5.50 1.40 13.78 - -------------------------------------------------------------------------------- COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR SINCE 12/29/95 MSCI World(4) 16.85% 17.46% 19.02% MSCI EAFE(5) 16.08 6.38 9.65 Lipper Global Average(6) 14.06 14.05 17.89 - -------------------------------------------------------------------------------- Returns represent past performance. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than their original cost. NOTES TO CHARTS (PAGES 2 & 3) (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) 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 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) Morgan Stanley Capital International (MSCI) World Index is a market cap-weighted index comprised of the performance of 1,560 (as of 12/31/97) companies representing stock markets in 23 developed markets including the U.S., Canada, Australia, New Zealand and those in Europe and the Far East. The unmanaged Index is not available for direct investment and its performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. (5) Morgan Stanley Capital International (MSCI) Europe Australasia Far East Index (EAFE) is an arithmetical average (weighted by market value) of the performance (in U.S. dollars) of 1,036 companies representing stock markets in Europe, Australia, New Zealand and the Far East. The Index performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. (6) Lipper Global 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. NEW ENGLAND STAR WORLDWIDE FUND - -------------------------------------------------------------------------------- OVERVIEW: HOW YOUR FUND PERFORMED - -------------------------------------------------------------------------------- New England Star Worldwide Fund is composed of five different portfolio segments managed by some of the leading investment management companies in the country. This multiple-adviser approach -- the essence of the Star concept -- provides a means to diversify not just among individual securities, but among investment styles and strategies. For the six months ending June 30, 1998, New England Star Worldwide Fund's Class A shares produced a total return of 6.92% reflecting a $1.07 per share gain in net asset value to $16.53. Despite heightened volatility caused by economic and political tensions in Asia, the MSCI World Index posted a strong gain of 16.85% for the first six months of the year. That gain, however, masks divergent extremes in world markets. Performance in U.S. and European stock markets was strong while Asia and other emerging markets, which are not represented in the World Index, suffered losses. In the United States, stocks produced double-digit gains for the first three-months of 1998. In the second quarter, however, some U.S. manufacturers began to feel the pinch of Asia's deepening economic problems. As demand for U.S. products slowed in the Far East, earnings forecasts for many U.S. companies - -- particularly those in the semiconductor and commodities sectors -- were revised downward and stock prices declined. Even though Asia's problems created uncertainty in the financial markets, investors could not have asked for a better economic environment. Economic growth was strong, inflation remained low, and interest rates declined. In this nearly ideal environment, investors favored the quality and liquidity of large-company stocks over small-company stocks -- and large- company stocks continued their more-than-three-year run as market leaders. Returns in most stock markets of continental Europe far exceeded those of other world markets. Europe had several factors in its favor. Economic expansion continued at a robust pace, supported by strong consumer spending and low interest rates. The approach of the European Monetary Union (EMU) supported consumer confidence, drove mergers and acquisitions, and provided companies with the economies of scale to invest in new technology. In addition, Europe benefited from a wave of restructuring and consolidation that has produced more productive and efficient companies. Privatization initiatives and a new emphasis on shareholder value also added to the attractiveness of European stocks. As most European markets surged ahead, the emerging markets of Asia and Latin America struggled. For the first three months of the year, some Asian markets seemed to be recovering from the currency and financial problems that had arisen in late 1997, and Asian stocks rallied. In April, however, the realization set in that Asia's problems were getting worse. Political and social unrest in Indonesia, recession in Japan and concerns of currency devaluation in China led to steep declines in Asian stocks. What is sometimes referred to as the "Asian flu" triggered downturns in other emerging markets -- most notably in Latin America. Fearing that instability in Asia would affect Latin American stocks, investors opted to ignore the region's attractive features -- such as relatively good economic growth, ongoing financial reforms, and trends toward restructuring and privatization -- and sold their stocks. Most Latin American markets ended the six-month period with significant declines. Though the five portfolio segments of the Fund are managed autonomously, the chart below gives you a general profile of the portfolio as a whole. In the next several pages, New England Star Worldwide Fund's portfolio managers discuss how they managed their segments during the six-month period. NEW ENGLAND STAR WORLDWIDE FUND - -------------------------------------------------------------------------------- --------------------------------------------------- COUNTRY DIVERSIFICATION -- 6/30/98 % OF TOP 10 COUNTRIES NET ASSETS --------------------------------------------------- 1. United States 37.39 --------------------------------------------------- 2. United Kingdom 11.28 --------------------------------------------------- 3. France 5.72 --------------------------------------------------- 4. Netherlands 4.96 --------------------------------------------------- 5. Germany 4.75 --------------------------------------------------- 6. Japan 4.66 --------------------------------------------------- 7. Brazil 4.22 --------------------------------------------------- 8. Finland 2.71 --------------------------------------------------- 9. Italy 2.51 --------------------------------------------------- 10. South Africa 2.40 Portfolio holdings and asset allocations will vary. --------------------------------------------------- NEW ENGLAND STAR WORLDWIDE FUND - -------------------------------------------------------------------------------- Founders Asset Management LLC -- Michael Gerding - -------------------------------------------------------------------------------- In covering the world in our search of strong growth companies, we continued to find the most opportunity in Europe. As we saw company after company delivering solid earnings reports, our confidence in the growth of the European economy was reaffirmed. This confidence led us to increase the European portion of the segment to its highest level ever -- more than 50% of the segment's assets. One factor that makes European companies so attractive is their continued commitment to corporate restructuring. European managers have gradually come to realize that to be competitive in the global marketplace they must run their businesses more efficiently. Volkswagen is an example of a company that is benefiting from restructuring. In a recent meeting with Volkswagen's management, we learned of the company's plans to streamline its assembly process by reducing the number of automobile frames from sixteen to four. This means that 60% of the parts that Volkswagen uses in its cars will be the same. This one change will have an enormously positive impact on Volkswagen's manufacturing costs and reflects the sound business decisions made by strong management. European companies are also paying more attention to shareholder value. As Europe slowly develops an equity-oriented culture, companies realize they must satisfy their shareholders to gain further access to the capital markets. For instance, an increasing number of European companies are using share options as employee incentives. This is similar to the changes we saw a few years ago in the United States, when employees at Chrysler, General Motors and other companies became share owners through 401(k) or stock option plans. LARGEST HOLDINGS IN FOUNDERS SEGMENT --------------------------------------------------- % OF % OF SEGMENT ASSETS FUND ASSETS --------------------------------------------------- Marschollek Lauten 3.00 0.63 --------------------------------------------------- Groupe Danone 2.53 0.53 --------------------------------------------------- Merita, Ltd. 2.52 0.53 --------------------------------------------------- Compass Group 2.22 0.47 --------------------------------------------------- Oce NV 2.20 0.46 --------------------------------------------------- While Europe held opportunity for us during the six-month period, Asia pres-ented problems. Economic indicators in Asia were dismal. Asian banks were not making loans, which meant companies could not get money to buy raw materials to manufacture products for export. While Asia's problems continue to be serious, we haven't written it off for investment in the future. We believe there are many good companies in Asia, but it is difficult to project corporate earnings. We expect that after the Asian crisis settles down, investors will no longer view Asia as a homogeneous region. Instead, they will focus more on individual countries. This could be a great advantage, because we use a bottom-up strategy to select individual stocks on a company-by-company basis instead of making country or region allocations. OAKMARK/HARRIS ASSOCIATES L.P. (INTERNATIONAL SEGMENT) -- DAVID HERRO AND MICHAEL WELSH - -------------------------------------------------------------------------------- During the six-month period, we diversified investments in Europe, Asia and Latin America. By far, the best performing region was Europe and, at the end of the period, European stocks accounted for approximately 45% of the segment's assets. While European stocks were strong performers for more than a year, U.K. stocks continued to underperform those of continental Europe. It was in the United Kingdom, however, where we found the most attractive relative value. At the end of the period, the portfolio's top three positions were in U.K. companies. These included Tomkins, an industrial conglomerate, Cordiant, a communications company, and Saatchi & Saatchi, an advertising company. Latin American stocks composed the segment's third-largest regional weighting. While Latin American markets struggled during the period, we think the economic fundamentals of select countries and individual companies are strong. We believe that a bias against all emerging market stocks resulting from the currency and financial troubles of Asia affected Latin American stocks. At the end of the period, our holdings in Latin America included Quilmes, a brewery in Argentina, Bladex, a trade finance bank in Panama, and Unibanco, one of Brazil's biggest banks. LARGEST HOLDINGS IN OAKMARK/HARRIS (INTERNATIONAL) SEGMENT ------------------------------------------------------- % OF % OF SEGMENT ASSETS FUND ASSETS ------------------------------------------------------- Tomkins PLC 5.20 0.89 ------------------------------------------------------- Cordiant Communications Group PLC 4.83 0.83 ------------------------------------------------------- Saatchi & Saatchi PLC 4.61 0.79 ------------------------------------------------------- Quilmes Industrial S.A. (ADR) 4.47 0.77 ------------------------------------------------------- Chargeurs S.A. 4.00 0.69 ------------------------------------------------------- At the end of the period, about 30% of the segment's assets were invested in Asia. Being an investor in Asia during the first six months of 1998 was like riding a roller coaster. After declining significantly during the final months of 1997, Asian stocks rallied strongly during the first quarter of the year only to plummet in the second quarter. Because we are value investors, we believed price declines in Asian stocks presented attractive buying opportunities. We invested in select Asian companies that we think have the financial strength to weather what could be difficult times over the next year or two. We purchased high quality companies that are industry leaders and that are globally competitive. We bought stocks with the idea of holding them for at least three or four years, so while some of our Asian investments may experience difficulties in the short term, we believe many of them have the potential for significant gains in value over the long term. We believe the stocks in which we invested are undervalued and that the risk and uncertainty of the emerging markets were already reflected in the prices we paid for them. Over the next three to four years, we believe these investments could produce attractive gains. OAKMARK/HARRIS ASSOCIATES L.P. (DOMESTIC SEGMENT) -- ROBERT SANBORN - -------------------------------------------------------------------------------- We continued to manage the U.S. portion of Star Worldwide Fund in our consistent bottom-up, one-stock-at-a-time way. We remained admirers of the "sweet spot" economy. The ongoing Asian economic crisis had salutary implications for U.S. inflation, and investors around the world favored U.S. companies. We used the same value-oriented philosophy we have always used and made no major changes in the segment during the past six months. We eliminated U.S. West Media Group and Tele-Communications, two cable companies that were holdings in the portfolio. Each stock had reached our price target, which is 90% of its underlying value. The one new position we added was Washington Mutual, a large West Coast thrift institution. The company is undergoing a major restructuring, which we believe will be successful and boost its stock price. High quality companies, such as Philip Morris, Heinz, Nabisco, Knight-Ridder, Nike, Black & Decker, Anheuser Busch, and Mattel, composed nearly 35% of the segment. LARGEST HOLDINGS IN OAKMARK/HARRIS (DOMESTIC) SEGMENT ------------------------------------------------------- % OF % OF SEGMENT ASSETS FUND ASSETS ------------------------------------------------------- Black & Decker Corp. 6.17 1.45 ------------------------------------------------------- Banc One Corp. 5.88 1.38 ------------------------------------------------------- NIKE, Inc., Class B 5.57 1.31 ------------------------------------------------------- Philip Morris Cos. 4.99 1.17 ------------------------------------------------------- Boeing Co. 4.89 1.15 ------------------------------------------------------- At the end of the six-month period, there were no new themes in the segment. Individual company performance dominated the results. Black & Decker rose more than 50% because the stock was modestly valued at the beginning of the period. Financial services businesses accounted for nearly 20% of assets. We had no technology, utility or energy investments. Some of the financial stocks continued to be strong performers. For example, Banc One and Mellon Bank appreciated more than 15%. Poor performers included Nabisco, which declined more than 25% because of weak sales; Polaroid declined more than 25% because of restructuring; and Philip Morris declined 14% because of the news surrounding the tobacco industry. We are positive about the performance of most of our holdings and their attractiveness in the overall market, even though the segment had a difficult time during the first six months of 1998. Because of our focused value style and philosophy, there will be periods when we lag the market, especially during buoyant times. Nevertheless, we intend to stick with our strategy and not change our methods just to be in synch with current market trends. We believe the segment will soon benefit from our value approach. MONTGOMERY ASSET MANAGEMENT, LLC -- JOSEPHINE JIMENEZ AND BRYAN SUDWEEKS - -------------------------------------------------------------------------------- During the period that ended June 30, 1998, we used a long-term value strategy in managing the segment, which emphasizes emerging market investments. We sought internationally competitive companies with attractive valuations, excellent managements, strong balance sheets and little or no debt. In Latin America, Brazil accounted for the segment's largest country weighting. Brazil was attractive because the country continued to benefit from widespread privatization efforts and government economic reforms. During the period, the Brazilian stock market was inexpensive, and there were many attractively priced companies with solid fundamentals and strong potential earnings growth. Like other emerging markets, Brazil was affected by the negative market sentiment that resulted from the economic problems in Japan and in the emerging markets of Asia. We believe this is a short-term situation and the fundamental picture and long-term prospects for Brazil are positive. Although we continued to find great Russian companies at attractive prices, we reduced the allocation in this area. With so many of Russia's publicly traded companies in oil-related industries, the falling price of oil significantly affected our holdings. Rising political and financial risk have also put significant pressure on Russia's ability to gain short-term financing. The segment's significant underweighting in Asia held back performance in January and February when Asian markets rallied, but later worked to the segment's advantage when those markets again faltered. Our assessment continues to be that the fundamental case for Asia is weak, with the exception of China and India, and that Asian economies will shrink in the near term. LARGEST HOLDINGS IN MONTGOMERY SEGMENT ------------------------------------------------------- % OF % OF SEGMENT ASSETS FUND ASSETS ------------------------------------------------------- Telebras 4.22 0.49 ------------------------------------------------------- De Beers Consolidated Mines, Ltd. 3.03 0.35 ------------------------------------------------------- Liberty Life Association of Africa, Ltd. 2.11 0.24 ------------------------------------------------------- Barlow, Ltd. 2.01 0.23 ------------------------------------------------------- Sasol, Ltd. 1.97 0.23 ------------------------------------------------------- Because of continued infrastructure spending and significant government efforts to spur the domestic economy, we are positive on prospects for China, thereby overweighting positions in the area. At the beginning of the period, we added to our investments in South Africa. South African companies were attractively priced and many are benefiting from corporate restructuring and expectations of a consumer spending boom in late 1998 and into 1999. With the exception of the commodities sector, the South African economy is largely insulated from problems in Asia. Nevertheless, a scheduled $3 billion in debt repayment and Asia's woes did put downward pressure on the rand, the South African currency. In response, South Africa's central bank raised interest rates, but we believe high rates are a relatively short-term concern. Our outlook for South African companies remains strong. Going forward, we will continue to employ a long-term value approach with the recognition that short-term volatility may hold back performance and seek opportunities outside of Asia. Just as the U.S. market crash of 1987 now looks like a blip on a long-term price chart, we believe the emerging markets will recover from this calamity and share in the powerful trends toward long-term global prosperity. Attractive valuations, structural changes designed to improve long-term economic growth and overvalued developed markets are helping investors keep faith in the emerging markets asset class. An Important Notice to Shareholders On July 31, 1998, your Fund's Trustees approved an important change to the Fund. The Montgomery portion has broadened its investment policy, shifting from an emerging market focus to a global approach. As a result, Oscar Castro and John Boich have replaced Josephine Jimenez and Bryan Sudweeks as Fund co-managers. Both changes became effective August 3, 1998. The Montgomery segment of the Fund now has greater flexibility to pursue the most attractive investment opportunities worldwide. We believe these changes will result in greater performance potential and improved risk management. The supplement to the Fund's prospectus detailing these changes is included in the back of this report. JANUS CAPITAL CORPORATION -- HELEN YOUNG HAYES AND LAURENCE CHANG - -------------------------------------------------------------------------------- During the period, the segment outperformed its benchmark, the MSCI World Index. We remained overweighted in European markets, where consolidation and restructuring continued to be the dominant themes behind many of our investments. As regulation and monetary unification intensify competition, firms have been taking steps to shed unproductive businesses and enhance shareholder value. Our longtime position in Philips Electronics demonstrates this evolution. Philips continues to restructure its business portfolio, spinning off underperforming units and concentrating on higher margin businesses that produce a better return on corporate assets. Recently, the company accelerated its transformation with the announced sale of its entertainment wing, Polygram. The company also announced a share repurchase program, further demonstrating its commitment on shareholder value. Consolidation and restructuring also affected the financial services industry. European banks and financial companies have been capitalizing on the "equitization" of Europe, where stock ownership is on the rise. UBS (United Bank of Switzerland) and Zurich Versicherun (Zurich Insurance) both made inroads into the asset management business and are well positioned to dominate these markets throughout Europe. Additionally, the prospect of lower interest rates created a favorable climate for Italian bank stocks, including BCO di Roma and Banca Commerciale Italiana. Our focus on market leaders with visible earnings helped us navigate the rough waters that capsized many technology stocks during the second quarter. European holdings, such as Cap Gemini, have taken advantage of the robust investment climate and preparation for the Year 2000. Among the U.S. positions, dominant firms like Microsoft and Cisco Systems shook off the Asian chill to post strong gains. Cisco Systems, in particular, is exploiting the growing trends of telecom-munications deregulation and the emerging voice-over-Internet market. Telecommunications deregulation also opened opportunities in many European markets. Cellular service providers are expanding across national borders, and challenging traditional wire networks for business. German conglomerate Mannesman is a newer position that is taking advantage of these growing trends. Mannesman's established cellular network has given it a head start in expanding beyond the German borders into other European telecommunications markets. Cellular equipment makers such as Nokia and Ericsson have also benefited from the expansion of cellular service. Despite strong portfolio gains, we had a few disappointments. The strength of the European economies led investors to favor cyclical stocks, which left many pharmaceutical stocks treading water. Nonetheless, our outlook for European drug stocks remains positive. Many drug companies are set for phenomenal growth supported by favorable demographics and rising global use of existing drugs. Moreover, technological innovation is broadening and accelerating the product pipeline, setting the stage for many exciting drug launches over the next few years. Among our other holdings, Sony and Nippon Telegraph and Telephone lost ground because of weakness in the Japanese market. LARGEST HOLDINGS IN JANUS SEGMENT ------------------------------------------------------- % OF % OF SEGMENT ASSETS FUND ASSETS ------------------------------------------------------- Microsoft Corp. 2.98 0.80 ------------------------------------------------------- Cisco Systems 2.78 0.74 ------------------------------------------------------- Rentokil Initial PLC 2.28 0.61 ------------------------------------------------------- Tele-Communications, Inc. 2.23 0.60 ------------------------------------------------------- TYCO International, Ltd. 2.08 0.56 ------------------------------------------------------- Looking ahead, lower interest rates and modest inflation have created a favorable climate for stocks. The risk that the Asian weakness could derail economic growth elsewhere seems slim, given the benefits of restructuring and monetary convergence in Europe and the resilience of consumer spending in the United States. We see little hope for near-term improvement in Asia. Unless the Japanese government takes steps to prop up the failing economy, a Chinese currency devaluation remains a significant risk for global markets. Even if the Japanese do act, there are minimal signs of improvement in Asia, and the road to recovery is sure to be long and difficult. Additionally, the shadow from the Far East has also extended across Latin America; however, longer-term prospects there are better as long as market reforms continue. Portfolio commentaries reflect 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. PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- Investments as of June 30, 1998 (unaudited) COMMON STOCK--92.8% OF TOTAL NET ASSETS SHARES(A) DESCRIPTION VALUE(B) - -------------------------------------------------------------------------------- ARGENTINA--2.2% 10,500 Banco de Galicia y Buenos Aires S.A. de C.V. (ADR) . $ 191,625 61,500 Cresud (c) ......................................... 98,414 50,300 Irsa ............................................... 147,904 1,832 Irsa (GDR) ......................................... 53,357 17,725 Nortel Inversora S.A. (ADR) (c) .................... 440,909 220,000 Quilmes Industrial S.A. (ADR) ...................... 2,145,000 54,900 Siderar S.A. (c) ................................... 208,650 17,100 Supermercados Unimarc S.A. (ADR) (c) ............... 132,525 4,450 Telecom de Argentina (ADR) ......................... 132,666 32,875 Telefonica de Argentina (ADR) ...................... 1,066,383 47,175 YPF Sociedad Anonima (ADR) ......................... 1,418,198 ------------- 6,035,631 ------------- AUSTRALIA--0.2% 440,000 Qantas Airways ..................................... 663,706 ------------- AUSTRIA--0.3% 6,453 Bank Austria AG (d) ................................ 525,344 2,276 Erste Bank Der Osterreichischen Sparkassen AG (c) .. 138,130 1,700 VA Technologie AG .................................. 211,704 ------------- 875,178 ------------- BELGIUM--0.0% 125 Credit Communal Holdings/Dexia, 144A (c) ........... 18,822 ------------- BRAZIL--4.2% 8,700,000 BCO Est Sao Paulo .................................. 402,522 2,850 Celesc (GDR) 144A .................................. 234,090 9,994,905 Cemig PN ........................................... 311,112 9,913 Cemig S.A. (ADR) ................................... 306,818 400 Centrais Electricas de Santa Catarina (GDR) ........ 32,855 14,800,000 Centrais Eletricas Brasileira S.A.-Electrobras ..... 435,087 14,800,000 Centrais Geradoras do Sul do Brasil S.A. (c) ....... 20,219 13,115 Companhia Cerveja Ria Brahma (ADR) ................. 163,937 473,000 Companhia de Saneamento Basico do Estado de Sao Paulo 56,847 235,000 Companhia Riograndense do Telecominicacoes- CRT (c) 256,223 305,000 Itausa Investimentos Itau S.A ...................... 192,512 12,026,000 Odebrecht S.A ...................................... 38,473 20,783,000 Paranaense de Energia-Copel, Preferred B ........... 194,074 2,920,400 Petroleo Brasileiro, 144A .......................... 542,896 31,563,000 Telebras ........................................... 2,510,740 9,625 Telebras (ADR) ..................................... 1,050,930 3,474,607 Telecom do Rio Janeiro S.A., Preferred ............. 261,373 3,262 Telecomunicacoes de Minas Gerais-Telemig (Rights) .. 10 5,305,000 Telecomunicacoes de Minas Gerais- Telemig, Preferred B ............................. 369,247 33,685 Telecomunicacoes do Sao Paulo S.A.-TELESP (Rights) . 280 716,747 Telecomunicacoes do Sao Paulo S.A.-TELESP, Preferred 168,566 1,800,000 Telecomunicaoes do Rio de Janeiro S.A.-Telerj ...... 73,927 5,305,000 Telemig Celular S.A. (c) ........................... 160,542 3,474,607 Telerj Celular S.A. (c) ............................ 206,665 1,800,000 Telerj Celular S.A. (c) ............................ 54,472 2,016,747 Telesp Celular S.A. (c) ............................ 167,401 46,475 Uniao de Bancos Brasileiros S.A. (GDR) (c) ......... 1,371,012 12,400,000 Uniao de Bancos Brasileiros S.A. Units (c) ......... 733,353 294,800 USIMINAS ........................................... 1,503,887 ------------- 11,820,070 ------------- CANADA--0.4% 73,000 Gulf Canada Resources, Ltd. ........................ 360,437 15,215 Newcourt Credit Group, Inc. ........................ 748,388 1,763 Royal Bank of Canada ............................... 106,441 ------------- 1,215,266 ------------- CHILE--0.1% 10,030 Compania de Telecom de Chile S.A. (ADR) ............ 203,734 8,600 Linea Aerea Nacional Chile S.A. (ADR) (c) .......... 69,875 3,200 Sociedad Quimica Minera de Chile (ADR) ............. 107,200 ------------- 380,809 ------------- CHINA--0.1% 105,000 Shanghai Industrial Holdings, Ltd. ................. 247,322 8,000 Yanzhou Coal Mining Company, Ltd. (ADR) ............ 78,000 ------------- 325,322 ------------- CZECH REPUBLIC--0.2% 7,695 Ceske Radiokomunikace (GDR) 144A (c) ............... 164,865 20,000 Czech Value Fund ................................... 135,050 17,000 Vynosovy I.F ....................................... 118,782 ------------- 418,697 ------------- DENMARK--0.3% 2,192 BG Bank ............................................ 135,911 843 Novo Nordisk AS .................................... 116,335 21,946 SAS Danmark AS ..................................... 440,869 ------------- 693,115 ------------- EGYPT--0.4% 6,700 Al-Ahram Beverage Co. S.A.E. (c) ................... 213,060 10,700 Al-Ahram Beverage Co. S.A.E. (GDR) (c) ............. 340,260 18,800 Misr International Bank S.A.E. (GDR) ............... 219,960 19,000 Paints & Chemicals Industries Co. S.A.E. (GDR) 144A (c) ................................... 177,650 12,700 Suez Cement Co. S.A.E. (GDR) 144A .................. 230,505 ------------- 1,181,435 ------------- FINLAND--2.7% 245,052 Merita, Ltd. ....................................... 1,618,464 46,275 Metsa-Serla OY ..................................... 447,464 17,568 Nokia AB OY ........................................ 1,293,308 8,705 Nokia Corp. (ADR) .................................. 631,657 18,000 Outokumpu Oyj ...................................... 229,883 9,137 Pohjola Insurance Co., Series B .................... 455,096 27,970 Raison Tehtaat ..................................... 505,201 18,000 Rauma Group OY ..................................... 369,455 9,325 Sampo Insurance Company, Ltd. ...................... 442,342 75,400 Sponda Oyj (c) ..................................... 529,625 11,772 Tietotehdas OY, B Shares ........................... 895,617 10,025 Valmet OY .......................................... 173,026 ------------- 7,591,138 ------------- FRANCE--5.7% 2,759 Alcatel Alsthom .................................... 561,776 945 Alcatel Alsthom (ADR) .............................. 38,450 24,171 Alstom (c) ......................................... 795,612 3,038 Altos S.A .......................................... 728,633 7,772 Capital Gemini S.A ................................. 1,221,265 386 Castorama Dubois ................................... 67,933 25,019 Chargeurs S.A ...................................... 2,067,087 587 CLF Dexia France ................................... 79,034 1,790 Compagnie Francaise d'Etudes et de Construction Techni 218,802 1,875 Credit Commerical de France ........................ 157,860 8,567 Elf Aquitaine ...................................... 1,204,484 3,300 Europe 1 Communication ............................. 753,263 7,056 Groupe Danone ...................................... 1,945,573 10,250 Groupe Legris Industries S.A ....................... 479,804 3,700 ISIS ............................................... 452,884 4,528 L'Air Liquide ...................................... 748,962 1 Lyonnaise des Eaux S.A ............................. 165 16,500 Pernod Ricard ...................................... 1,143,540 23,197 Renault S.A ........................................ 1,319,524 8,842 Rhone Poulenc ...................................... 498,722 2,643 Total S.A .......................................... 343,616 9,150 Total S.A. (ADR) ................................... 598,181 1,981 Valeo .............................................. 202,501 1,770 Vivendi ............................................ 377,966 ------------- 16,005,637 ------------- GERMANY--4.8% 5,000 Adidas AG .......................................... 871,940 623 Allianz AG ......................................... 207,787 18 Allianz AG ......................................... 5,954 218 Bayer Motoren Werk ................................. 220,605 64 Bayer Motoren Werk ................................. 63,168 10,378 Depfa Bank ......................................... 830,954 10,528 Deutsche Bank AG ................................... 890,833 35,625 Deutsche Lufthansa AG .............................. 897,810 12,223 Dresdner Bank AG ................................... 660,813 2,039 ERGO Versicherungs Gruppe AG ....................... 366,318 8,343 Hoechst AG ......................................... 419,822 4,600 Hornbach Holdings AG ............................... 420,860 12,810 Mannesmann AG ...................................... 1,317,616 3,704 Marschollek Lauten, Preferred ...................... 1,807,380 6,101 Merck KGaA ......................................... 273,681 564 Muenchener Rueckver-sicherungs-Gesellschaft AG ..... 280,210 34 Preussag AG ........................................ 12,179 13,800 Prosieben Media AG, Preferred ...................... 715,462 800 SAP-Vorzug AG, Preferred ........................... 543,403 2,449 Schering AG ........................................ 288,565 10,250 Schwarz Pharma AG .................................. 801,381 4,379 Siemens AG ......................................... 267,458 190 Volkswagen AG ...................................... 183,631 1,350 Volkswagen, Preferred .............................. 931,215 ------------- 13,279,045 ------------- GREECE--0.6% 3,600 Alpha Credit Bank .................................. 292,162 6,000 Delta Dairy S.A .................................... 69,295 30,934 Hellenic Telecommunication Organization S.A.- OTE (GDR) 144A ............................. 793,910 6,900 Heracles General Cement S.A ........................ 160,967 2,160 National Bank of Greece ............................ 277,107 4,800 STET Hellas Telecommunications S.A. (ADR) (c) ...... 199,200 ------------- 1,792,641 ------------- HONG KONG--1.4% 10,325 China Telecom Hong Kong, Ltd. (ADR) (c) ............ 356,858 184,000 China Telecom, Ltd. (c) ............................ 319,411 56,000 CLP Holdings ....................................... 255,137 386,360 First Pacific Company, Ltd. ........................ 162,064 4,184,000 Giordano International, Ltd. ....................... 847,816 365,300 Hong Kong Aircraft Engineering Co., Ltd. ........... 565,772 1,330,000 Hongkong Shanghai Hotels, Ltd. ..................... 665,172 8,188 HSBC Holdings, Ltd. ................................ 200,261 225,000 Tan Chong International, Ltd. (c) .................. 31,444 140,000 Varitronix International, Ltd. ..................... 280,072 138,000 Yue Yuen Industrial Holdings ....................... 246,683 ------------- 3,930,690 ------------- HUNGARY--0.2% 10,400 BorsodChem RT (c) .................................. 304,176 2,500 EGIS Rt. (c) ....................................... 88,040 4,000 Magyar Olaj es Gazipari Kt. (c) .................... 107,935 9,400 Zalakeramia Reszvenytarsasag (GDR) (c) ............. 73,038 ------------- 573,189 ------------- INDIA--0.6% 13,700 Bajaj Auto (GDR) ................................... 185,635 12,750 Bajaj Auto (GDR) 144A .............................. 172,762 8,000 BSES, Ltd. (c) ..................................... 82,560 9,000 BSES, Ltd. (GDR) ................................... 99,398 14,000 Hindalco Industries, Ltd. (GDR) .................... 196,000 35,000 Indian Hotels Company, Ltd. (GDR) .................. 275,625 30,000 State Bank of India (GDR) .......................... 355,500 35,000 Videsh Sanchar Nigam, Ltd. (GDR) (c) ............... 374,500 ------------- 1,741,980 ------------- IRELAND--0.4% 11,400 CBT Group Public, Ltd. (ADR) (c) ................... 609,900 4,960 Elan PLC (ADR) (c) ................................. 318,990 3,200 Saville Systems PLC (c) ............................ 160,400 ------------- 1,089,290 ------------- ISRAEL--0.4% 120,000 Bank Leumi Le-Israel ............................... 239,248 20,000 DOR Energy (1988), Ltd. (ADR) (c) .................. 144,000 8,400 ECI Telecom, Ltd. .................................. 318,150 3,000 Formula Systems (1985), Ltd. (ADR) (c) ............. 104,625 41,222 Makhteshim-Agam Industries, Ltd. (c) ............... 131,137 88,000 Super-Sol, Ltd. (c) ................................ 289,778 ------------- 1,226,938 ------------- ITALY--2.5% 13,755 Assicurazioni Generali ............................. 447,468 132,846 Banca Commerciale Italiana ......................... 794,796 697,871 BCO di Roma ........................................ 1,453,284 119,582 Credito Italiano ................................... 626,262 8,250 ENI S.p.A. WI (ADR) ................................ 536,250 101,400 Fila Holdings S.p.A. (ADR) ......................... 1,521,000 8,900 Industrie Natuzzi S.p.A. (ADR) ..................... 231,400 57,000 Telecom Italia ..................................... 276,057 32,630 Telecom Italia Mobil ............................... 199,627 128,238 Telecom Italia S.p.A ............................... 944,418 ------------- 7,030,562 ------------- JAPAN--4.7% 95,200 Amway Japan, Ltd. .................................. 1,012,107 44,000 Canon, Inc. ........................................ 1,002,387 110,000 Citizen Watch Co. .................................. 910,899 3,000 Doutor Coffee ...................................... 76,806 76,900 Enix Corp. ......................................... 1,501,627 11,000 Honda Motor Co. .................................... 392,999 4,000 Ito-Yokado Co., Ltd. ............................... 188,906 53,000 Kao Corp. .......................................... 820,279 43,000 Kirin Brewery Co. .................................. 407,391 27,500 Konami Co., Ltd. ................................... 593,675 11,100 Meitec Corp. ....................................... 385,333 160 Nippon Telegraph & Telephone ....................... 1,330,730 17,000 Nomura Securities .................................. 198,561 13 NTT Data Communications Systems Corp. .............. 471,035 2,000 Rohm ............................................... 206,119 56,200 Sankyo Co., Ltd. ................................... 914,515 14,900 Sony Corp. ......................................... 1,287,734 6,000 Square Co., Ltd. ................................... 160,555 23,000 Takeda Chemical .................................... 613,799 12,200 Takefuji Corp. ..................................... 564,692 ------------- 13,040,149 ------------- JORDAN--0.1% 600 Arab Banking Corp. (c) ............................. 164,557 ------------- KAZAKHSTAN--0.0% 1,800 Kazkommerts Bank (ADR) 144A (c) .................... 38,700 ------------- KOREA--0.6% 6,000 Dongah Tire Industry Co. ........................... 161,690 28,040 Keumkang, Ltd. ..................................... 240,985 25,000 L.G. Chemicals ..................................... 138,929 16,000 LG Semiconductor Co. (c) ........................... 125,856 5,000 Lotte Chilsung Beverage Co. ........................ 149,308 6,000 Pusan City Gas Co., Ltd. ........................... 74,727 3,300 Seoul City Gas Co., Ltd ............................ 49,271 35,000 Shinhan Bank (c) ................................... 116,242 5,950 Sindo Ricoh ........................................ 162,076 669 SK Telecom Co., Ltd. ............................... 208,545 26,610 Tae Young Corp. .................................... 224,818 6,000 Youngone Corp. ..................................... 117,553 ------------- 1,770,000 ------------- LUXEMBOURG--0.0% 15 Millicom International Cellular .................... 656 ------------- MALAYSIA--0.3% 74,500 Berjaya Sports ..................................... 110,397 85,000 Powertek BHD ....................................... 90,115 75,000 Tan Chong Motor Holdings BHD ....................... 13,644 891,000 Technology Resources Industries BHD ................ 611,855 135,000 YTL Power International BHD (c) .................... 73,513 ------------- 899,524 ------------- MEXICO--0.7% 320,000 Accel S.A. Series B (c) ............................ 40,599 50,000 Acer Computer Latino America S.A. (c) .............. 29,492 90,433 Cifra S.A. (ADR) ................................... 126,605 10,300 Cifra S.A., Series C ............................... 14,306 4,274 Cifra S.A., Series V ............................... 6,421 4,300 Coca Cola Femsa S.A. (ADR) ......................... 74,713 8,000 Corporacion GEO, S.A. de C.V. (c) .................. 44,694 67,716 Corporacion Interamericana de Entretenimiento S.A. (c) 188,404 6,388 Corporacion Interamericana de Entretenimiento S.A. (c) 14,929 4,580 Fomento Economico Mexicano, S.A. de C.V. (c) ....... 144,758 3,714 Grupo Casa Autrey S.A. (ADR) ....................... 24,141 260,000 Grupo Financiero Banorte S.A., Series B (c) ........ 289,355 11,600 Grupo Radio Centro S.A ............................. 129,050 10,060 Grupo Televisa S.A. (ADR) .......................... 378,507 1,800 Kimberly Clark de Mexico, S.A ...................... 6,360 11,300 Moderna ............................................ 65,646 16,000 Sanluis Corp. de S.A ............................... 62,323 6,870 Telefonos de Mexico S.A. de C.V. (ADR) 144A ........ 330,189 ------------- 1,970,492 ------------- NETHERLANDS--5.0% 6,069 Akzo Nobel, 144A ................................... 1,350,093 1,955 ASM Lithography Holding (ADR) (c) .................. 56,817 16,925 Benckiser NV (c) ................................... 1,041,603 70,150 European Vinyls Corp. International NV ............. 1,225,101 9,448 Getronics NV ....................................... 490,353 13,100 Gucci Group NV (ADR) ............................... 694,300 5,405 Hagemeyer NV ....................................... 233,988 20,483 ING Groep NV ....................................... 1,342,189 9,360 Koninkijke Numico NV ............................... 293,313 30,400 Oce NV ............................................. 1,295,113 12,085 Philips Electronics NV ............................. 1,016,620 24,241 Philips Electronics NV (ADR) ....................... 2,060,485 1,230 PolyGram NV ........................................ 62,809 2,022 Simac Techniek NV .................................. 424,742 32,875 VNU ................................................ 1,195,161 8,040 Wolters Kluwer ..................................... 1,104,301 ------------- 13,886,988 ------------- NEW ZEALAND--1.1% 630,000 Fernz Corp., Ltd. .................................. 1,409,628 1,022,950 Sanford, Ltd. ...................................... 1,559,616 ------------- 2,969,244 ------------- NORWAY--0.4% 13,850 Aker Maritime ASA .................................. 243,949 13,857 Den Norske Bank .................................... 72,680 11,965 Merkantildata ASA .................................. 151,426 16,300 Petroleum Geo Services (ADR) (c) ................... 497,150 8,367 Storebrand ASA (c) ................................. 74,233 ------------- 1,039,438 ------------- PAKISTAN--0.0% 65,000 Fauji Fertilizer Company, Ltd. (c) ................. 70,491 22,800 Pakistan State Oil Company, Ltd. (c) ............... 36,570 ------------- 107,061 ------------- PANAMA--1.0% 57,700 Banco Latinoamericano de Exportacion S.A., Class E (GDR) .................................... 1,774,275 27,525 Panamerican Beverages, Inc. ........................ 865,317 ------------- 2,639,592 ------------- PERU--0.0% 3,428 Ferryros S.A. (ADR) 144A (c) ....................... 92,556 ------------- PHILIPPINES--0.2% 18,000 Benpres Holdings Corp .............................. 49,500 200,000 Jollibee Food (Warrants) ........................... 61,151 39,500 Manila Electric Co., Class B ....................... 104,197 6,700 Philippine Long Distance Telephone (ADR) ........... 151,588 1,100,000 Pilipino Telephone Corp. (c) ....................... 87,050 ------------- 453,486 ------------- POLAND--0.1% 5,500 Bank Handlowy W Warszawie (GDR) .................... 105,050 10,000 Prokom Software (GDR) 144A (c) ..................... 172,500 ------------- 277,550 ------------- PORTUGAL--0.9% 23,400 Brisa-Auto Estradas de Portugal, S.A ............... 1,001,408 14,885 Cimpor Cimentos de Portugal ........................ 523,313 8,500 Companhia de Seguros Tranquilidade ................. 230,228 15,000 Filmes Lusomundo ................................... 197,942 3,800 Portugal Telecom ................................... 201,528 8,800 Sonae Investimentos-Sociedade Gestora de Participacoes Sociais S.A ........................................ 480,949 ------------- 2,635,368 ------------- RUSSIA--0.3% 34,800 AO Tatneft (ADR) ................................... 269,700 52,100 Irkutskenergo (ADR) ................................ 234,450 630 LukOil Holdings (ADR) .............................. 20,800 28,100 LukOil Holdings, Preferred (ADR) ................... 224,800 1,415 Mosenergo (ADR) 144A ............................... 6,721 ------------- 756,471 ------------- SINGAPORE--0.6% 1,350,000 Mandarin Oriental International, Ltd. .............. 769,500 70,000 Singapore Press Holdings ........................... 469,436 100,000 United Overseas Bank ............................... 311,573 ------------- 1,550,509 ------------- SOUTH AFRICA--2.4% 122,563 Barlow, Ltd. ....................................... 645,884 92,000 C.G. Smith ......................................... 252,884 810,000 Consolidated African Mines, Ltd. ................... 176,206 120,000 De Beers Centenary AG (ADR) ........................ 2,100,000 55,500 De Beers Consolidated Mines, Ltd. .................. 975,228 43,000 Engen, Ltd. ........................................ 118,921 53,326 JCI, Ltd. .......................................... 277,421 1,000 Liberty Holdings, Ltd. ............................. 52,445 34,846 Liberty Life Association of Africa, Ltd. ........... 679,291 120,000 Molope Foods, Ltd. (c) ............................. 143,676 25,000 Nasionale Pers Beperk .............................. 164,418 179,000 NBS Boland Group, Ltd. ............................. 232,428 118,000 Orion Selections ................................... 146,256 109,423 Sasol, Ltd. ........................................ 633,842 50,000 Wooltru, Ltd. ...................................... 64,924 30,000 Wooltru, Ltd., Class N ............................. 38,449 ------------- 6,702,273 ------------- SPAIN--0.6% 742 Banco Bilbao Vizcaya, S.A .......................... 38,080 6,899 Banco Central Hispanoamericano S.A ................. 216,845 10,700 Corporacion Bancaria de Espana S.A ................. 240,026 6,832 Endesa S.A ......................................... 149,471 2,547 Tabacalera S.A ..................................... 52,152 5,410 Telefonica ......................................... 250,127 75,439 Telepizza .......................................... 799,402 ------------- 1,746,103 ------------- SWEDEN--2.3% 25,494 Assa-Abloy AB, Series B ............................ 1,002,052 27,745 Astra AB ........................................... 567,005 62,095 Electrolux AB, Series B ............................ 1,066,577 16,850 Ericsson LM Telephone AB, Series B ................. 492,233 12,986 Ericsson LM Telephone Co. (ADR) (c) ................ 371,724 14,820 Orvitus ............................................ 232,259 15,474 Securitas AB, Series B ............................. 757,597 23,388 Skandinaviska Enskilda Bank ........................ 400,259 46,100 Volvo AB, Series B ................................. 1,372,712 3,310 WM Data AB, Series B ............................... 114,954 ------------- 6,377,372 ------------- SWITZERLAND--1.9% 73 Aero Serono Group .................................. 101,717 186 Baloise Holding, Ltd. (c) .......................... 152,554 372 Baloise Holding, Ltd. (Rights) ..................... 304,862 1,995 Credit Suisse ...................................... 444,636 64 Kuoni Reisen Holdings, Series B .................... 318,246 749 Novartis AG ........................................ 1,248,416 8 Roche Holdings AG (c) .............................. 78,690 855 Schweizerische Lebensver-sicherungs-Swiss Life ..... 724,968 21 Sulzer AG, 144A .................................... 16,600 3,735 UBS AG ............................................. 1,391,098 999 Zurich Versicherun ................................. 638,600 ------------- 5,420,387 ------------- TAIWAN--0.5% 12,817 Advanced Semiconductor Engineering (GDR) ........... 113,751 80,000 China Development .................................. 185,096 84,000 Compal Electronics, Inc. (c) ....................... 226,132 38,000 Hon Hai Precision Industry (c) ..................... 192,430 150,000 Kindom Construction Co., Ltd. (c) .................. 229,188 16,000 Synnex Technology (GDR) ............................ 276,595 101,500 Taiwan Semiconductor Manufacturing Co. (c) ......... 209,732 ------------- 1,432,924 ------------- THAILAND--0.2% 91,700 BEC World Public Co., Ltd. ......................... 354,197 202,000 Industrial Finance Corp. of Thailand (c) ........... 41,644 20,400 PTT Exploration & Production ....................... 154,692 155,000 The Cogeneration Public Company, Ltd. .............. 62,441 ------------- 612,974 ------------- TURKEY--0.9% 5,100,000 Dogan Sirketler Grubu Holding A.S. (c) ............. 311,209 1,100,000 Eregli Demir Ve Celik Fabrikalari T.A.S. (c) ....... 171,423 9,020,000 Haci Omer Sabanci Holdings AS ...................... 558,881 7,000,000 T Is Bankasi ....................................... 282,576 15,806,762 Turk Sise Ve Cam Fabrikalani (c) ................... 522,342 24,731,398 Yapi Ve Kredi Bankasi .............................. 631,519 ------------- 2,477,950 ------------- UNITED KINGDOM--11.3% 22,881 Amvescap PLC ....................................... 225,788 109,146 Capita Group PLC ................................... 939,453 46,000 Charter PLC ........................................ 481,959 158,435 Compass Group ...................................... 1,826,641 48,275 Computacenter PLC (c) .............................. 603,730 1,048,000 Cordiant Communications Group PLC .................. 2,318,545 13,630 Diageo PLC ......................................... 161,582 43,275 Dixons Group ....................................... 347,191 9,000 Dr. Solomon's Group PLC (ADR) (c) .................. 313,875 43,883 Electrocomponents .................................. 353,535 45,888 Energis PLC (c) .................................... 699,150 30,200 Gallaher Group PLC (ADR) ........................... 660,625 46,284 General Electric ................................... 399,926 54,516 Hays PLC ........................................... 914,805 3,190 ICON PLC (ADR) (c) ................................. 80,548 10,550 Imperial Chemical Industies PLC (ADR) .............. 680,475 22,181 Imperial Chemical Industries PLC (c) ............... 357,764 46,265 J.D. Wetherspoon PLC ............................... 225,952 6,273 JBA Holdings PLC ................................... 63,892 229,275 Ladbroke Group PLC ................................. 1,269,050 81,406 Lloyds TSB Group PLC ............................... 1,140,399 28,530 Logica PLC ......................................... 922,958 6,702 National Westminster ............................... 120,184 53,500 Pearson ............................................ 982,618 237,306 Rentokil Initial PLC ............................... 1,712,703 365,000 Rolls-Royce PLC .................................... 1,512,936 80,359 Royal & Sun Alliance Insurance Group PLC ........... 831,888 798,000 Saatchi & Saatchi PLC (c) .......................... 2,211,818 2,199 Schroders PLC ...................................... 57,021 759,000 Sedgwick Group PLC ................................. 1,622,147 10,348 Sema Group PLC ..................................... 122,501 53,159 Siebe .............................................. 1,064,227 6,150 SmithKline Beecham PLC (ADR) ....................... 372,075 188,000 Tate & Lyle PLC .................................... 1,494,181 191,125 Thomson Travel Group ............................... 590,375 463,220 Tomkins PLC ........................................ 2,519,476 2,377 Williams Holdings .................................. 15,350 180,000 WPP Group PLC ...................................... 1,184,151 3,784 Zeneca Group ....................................... 162,755 ------------- 31,564,249 ------------- UNITED STATES--28.9% 100,366 ACNielson Corp. .................................... 2,534,242 3,070 American Management Systems ........................ 91,908 55,400 Anheuser-Busch Cos ................................. 2,614,187 22,850 Apache Corp. ....................................... 719,775 69,052 Banc One Corp. ..................................... 3,853,965 3,260 BankAmerica Corp. .................................. 281,786 66,300 Black & Decker Corp. ............................... 4,044,300 72,000 Boeing Co. ......................................... 3,208,500 62,000 Brunswick Corp. .................................... 1,534,500 17,945 CBS Corp. .......................................... 569,754 22,637 Cisco Systems (c) .................................. 2,084,019 65,000 Columbia/HCA Healthcare ............................ 1,893,125 20,490 Comcast ............................................ 831,766 2,770 Costco Companies (c) ............................... 174,683 30,825 Digital Microwave (c) .............................. 223,481 6,450 Dresser Industries, Inc. ........................... 284,203 59,100 Dun & Bradstreet ................................... 2,134,987 6,765 El duPont deNemours ................................ 504,838 4,860 Eli Lilly .......................................... 321,064 13,200 Emerson Electric Co. ............................... 796,950 3,270 Estee Lauder Companies, Inc. ....................... 227,878 50,000 Federal National Mortgage Association .............. 3,037,500 60,200 Fortune Brands, Inc. ............................... 2,313,937 25,825 Green Tree Financial ............................... 1,105,633 29,575 Guitar Center, Inc. (c) ............................ 890,947 8,000 H & R Block, Inc. .................................. 337,000 27,300 H.J. Heinz Co. ..................................... 1,532,213 4,055 Household International ............................ 201,736 5,700 Intuit, Inc. (c) ................................... 349,125 17,500 Jacor Communications (c) ........................... 1,032,500 50,400 Knight-Ridder, Inc. ................................ 2,775,150 25,000 Lockheed Martin .................................... 2,646,875 27,975 Manpower, Inc. ..................................... 802,533 72,070 Mattel, Inc. ....................................... 3,049,462 3,090 MediaOne Group, Inc. (c) ........................... 135,767 2,560 Medimmune, Inc. (c) ................................ 159,680 18,000 Mellon Bank Corp. .................................. 1,253,250 20,600 Microsoft Corp. (c) ................................ 2,232,525 23,030 Monsanto Co. ....................................... 1,286,801 1,295 Morgan Stanley Dean Witter ......................... 118,331 49,600 Nabisco Holdings ................................... 1,788,700 75,000 NIKE, Inc., Class B ................................ 3,651,562 104,625 Old Republic International Co. ..................... 3,066,820 33,215 Parametric Technology Corp. (c) .................... 900,957 10,385 PeopleSoft, Inc. (c) ............................... 488,095 23,175 PepsiCo, Inc. ...................................... 954,520 2,725 Pfizer, Inc. ....................................... 296,173 4,940 Pharmacia & Upjohn, Inc. ........................... 227,858 83,000 Philip Morris Cos .................................. 3,268,125 44,000 Polaroid Corp. ..................................... 1,564,750 17,000 Quorum Health Group (c) ............................ 450,500 16,640 Solutia, Inc. (c) .................................. 477,360 2,260 Starbucks Corp. (c) ................................ 120,769 43,450 Tele-Communications, Inc. (c) ...................... 1,670,109 14,055 Texas Instruments, Inc. ............................ 819,582 10,315 Time Warner, Inc. .................................. 881,288 24,700 TYCO International, Ltd. ........................... 1,556,100 800 United States Surgical Corp. ....................... 36,500 24,975 Warnaco Group ...................................... 1,059,877 11,715 Warner-Lambert Co. ................................. 812,728 33,943 Wolverine Worldwide ................................ 736,139 39,650 WorldCom, Inc. (c) ................................. 1,920,547 ------------- 80,939,935 ------------- VENEZUELA--0.1% 5,700 CANTV (ADR) (c) .................................... 142,500 50,873 Electricidad de Caracas ............................ 22,991 ------------- 165,491 ------------- Total Common Stock (Identified Cost $235,999,466) ................... 259,621,160 ------------- BONDS AND NOTES -- 0.2% FACE AMOUNT - -------------------------------------------------------------------------------- MEXICO--0.1% $ 200,000 Alfa S.A., Convertible Note, 144A, 8.000%, 9/15/00 . 216,000 ------------- UNITED STATES--0.1% 400,000 United States Treasury Bills, 5.474%, 10/01/98 ..... 394,884 ------------- Total Bonds And Notes (Identified Cost $610,324) ....................... 610,884 ------------- SHORT TERM INVESTMENTS -- 8.3% - -------------------------------------------------------------------------------- 200,000 Federal Home Loan Mortgage Discount Notes, 5.850%, 7/01/98 ................... $ 200,000 $10,208,000 Repurchase Agreement with State Street Corp. dated 6/30/98 at 5.00% to be repurchased at, $10,209,418 on 7/01/98 collateralized by $7,930,000 U.S. Treasury Note, 8.125% due 8/15/19 valued at $10,416,705 ...................................... $ 10,208,000 12,864,000 Repurchase Agreement with State Street Corp. dated 6/30/98 at 5.650% to be repurchased at, $12,866,019 on 7/01/98 collateralized by $9,873,000 U.S. Treasury Note, 8.750% due 5/15/17 valued at $10,075,663 and $2,991,000 U.S. Treasury Note, 8.125% due 8/15/19 valued at $3,060,646 .......... 12,864,000 ------------- Total Short Term Investments (Identified Cost $23,272,000) ..................................... 23,272,000 ------------- Total Investments--101.3% (Identified Cost $259,881,790) (e) ................................ 283,504,044 Other assets less liabilities ...................... (3,703,589) ------------- Total Net Assets--100% ............................. $ 279,800,455 =============
FORWARD CURRENCY CONTRACTS OUTSTANDING at June 30, 1998 LOCAL AGGREGATE UNREALIZED DELIVERY CURRENCY FACE TOTAL APPRECIATION/ DATE AMOUNT VALUE VALUE DEPRECIATION) --------- --------- --------- --------- ------------- Deutsch Mark (sold) ......... 7/10/98 325,000 155,946 180,319 $(24,373) Dutch Guilder (sold) ........ 7/17/98 900,000 439,007 443,213 (4,206) Dutch Guilder (sold) ........ 7/23/98 125,000 61,419 61,580 (161) Dutch Guilder (sold) ........ 7/31/98 25,000 1,178 9,858 (8,680) Dutch Guilder (sold) ........ 7/31/98 105,000 42,445 51,753 (9,308) Dutch Guilder (sold) ........ 7/31/98 300,000 142,184 147,865 (5,681) Dutch Guilder (sold) ........ 7/31/98 650,000 318,620 320,375 (1,755) French Franc (sold) ......... 7/23/98 400,000 58,213 66,256 (8,043) French Franc (sold) ......... 7/31/98 550,000 80,575 91,146 (10,571) French Franc (sold) ......... 7/31/98 1,355,000 223,185 224,552 (1,367) French Franc (sold) ......... 7/31/98 1,095,000 182,973 181,464 1,509 French Franc (sold) ......... 7/31/98 1,300,000 214,186 215,437 (1,251) French Franc (sold) ......... 10/21/98 300,000 47,659 49,946 (2,287) British Pounds (sold) ....... 7/10/98 230,000 377,890 383,823 (5,933) British Pounds (sold) ....... 8/7/98 1,300,000 2,097,940 2,166,143 (68,203) British Pounds (sold) ....... 8/7/98 175,000 289,167 291,596 (2,429) British Pounds (sold) ....... 8/7/98 175,000 288,895 291,596 (2,701) British Pounds (sold) ....... 8/7/98 175,000 287,361 291,596 (4,235) British Pounds (sold) ....... 8/13/98 300,000 484,800 499,714 (14,914) British Pounds (sold) ....... 10/7/98 220,000 358,072 365,316 (7,244) British Pounds (sold) ....... 10/7/98 185,000 300,536 307,197 (6,661) British Pounds (sold) ....... 10/7/98 240,000 397,490 398,526 (1,036) Japanese Yen (sold) ......... 7/23/98 17,000,000 143,921 123,372 20,549 Japanese Yen (sold) ......... 8/7/98 36,590,000 281,798 266,117 15,681 Japanese Yen (sold) ......... 10/7/98 10,000,000 103,808 73,368 30,440 Japanese Yen (sold) ......... 10/21/98 56,160,000 452,266 412,891 39,375 Japanese Yen (sold) ......... 10/21/98 72,250,000 560,371 531,186 29,185 Japanese Yen (sold) ......... 11/4/98 18,000,000 142,631 132,612 10,019 Japanese Yen (sold) ......... 11/4/98 23,000,000 174,242 169,449 4,793 Japanese Yen (sold) ......... 11/4/98 42,000,000 301,713 309,429 (7,716) Swedish Krona (sold) ....... 8/14/98 750,000 88,004 94,201 (6,197) Swedish Krona (sold) ....... 10/7/98 2,950,000 374,696 371,347 3,349 Swedish Krona (sold) ....... 11/4/98 2,300,000 301,442 289,875 11,567 Swiss Franc (sold) .......... 7/17/98 400,000 277,008 264,600 12,408 Swiss Franc (sold) .......... 7/23/98 140,000 98,550 92,666 5,884 Swiss Franc (sold) .......... 7/31/98 100,000 69,444 66,243 3,201 Swiss Franc (sold) .......... 10/7/98 350,000 236,167 233,391 2,776 Swiss Franc (sold) .......... 11/4/98 220,000 152,460 147,121 5,339 Swiss Franc (sold) .......... 12/2/98 690,000 467,163 462,742 4,421 South African Rand (bought) . 10/2/98 778,000 149,806 126,182 (23,624) South African Rand (sold) ... 10/2/98 778,000 151,631 126,182 25,449 ------- $(2,631) ========
TEN LARGEST INDUSTRY HOLDINGS AT JUNE 30, 1998 (UNAUDITED) Banks 9.7% Apparel & Textiles 4.2% Food & Beverage 6.7% Drugs & Health Care 3.6% Insurance 4.9% Business Services 3.6% Conglomerates 4.6% Chemicals 3.0% Telecommunications 4.3% Aerospace 2.8% (a)Ordinary shares unless otherwise noted. (b)See Note 1a of Notes to Financial Statements. (c)Non-income producing security. (d)Rights attached. (e)Federal Tax Information: At June 30, 1998 the net unrealized appreciation on investments based on cost of $259,881,790 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. ......... $48,846,061 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value. ......... (25,223,807) ---------- Net unrealized appreciation ................................. $23,622,254 =========== ADR/GDR -- An American Depository Receipt (ADR) or Global Depository Receipt (GDR) is a certificate issued by a Custodian Bank representing the right to receive securities of the foreign issuer described. The values of ADRs and GDRs are significantly influenced by trading on exchanges not located in the United States or Canada. 144A -- Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At period end, the value of these securities amounted to $4,558,859 or 1.6% of net assets. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENT OF ASSETS & LIABILITIES - -------------------------------------------------------------------------------- June 30, 1998 (unaudited) ASSETS Investments at value (Identified cost $259,881,790) ................................... $283,504,044 Cash ............................................. 73,713 Foreign cash at value (Identified cost $828,951) .. 803,188 Receivable for: Fund shares sold ................................ 349,247 Securities sold ................................. 2,136,434 Dividends and interest .......................... 444,436 Tax reclaims .................................... 205,776 Prepaid registration expense ...................... 12,500 Unamortized organization expense .................. 33,051 ------------ 287,562,389 LIABILITIES Payable for: Securities purchased ............................ $6,641,033 Open forward currency contracts - net ........... 2,631 Fund shares redeemed ............................ 591,905 Foreign withholding taxes ....................... 30,794 Accrued expenses: Management fees ................................. 242,238 Deferred trustees' fees ......................... 7,026 Accounting and administrative ................... 5,296 Other ........................................... 241,011 ---------- 7,761,934 ------------ NET ASSETS .......................................... $279,800,455 ============ Net Assets consist of: Capital paid in ................................. $244,640,513 Undistributed net investment income ............. 82,580 Accumulated net realized gains .................. 11,477,300 Unrealized appreciation on investments, forward currency contracts and foreign currency transactions ......... ............... 23,600,062 ------------ NET ASSETS .......................................... $279,800,455 ============ Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($121,571,414 divided by 7,356,515 shares of beneficial interest) ....................................... $16.53 ====== Offering price per share (100/94.25 of $16.53) ...... $17.54* ====== Net asset value and offering price of Class B shares ($131,785,228 divided by 8,124,114 shares of beneficial interest) ....................................... $16.22** ====== Net asset value and offering price of Class C shares ($26,443,813 divided by 1,629,076 shares of beneficial interest) ....................................... $16.23** ====== *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. - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- Six Months Ended June 30, 1998 (unaudited) INVESTMENT INCOME Dividends ................................... $ 2,865,192(a) Interest ................................... 536,282 ----------- 3,401,474 Expenses Management fees .......................... $ 1,469,441 Service fees - Class A ................... 153,634 Service and distribution fees - Class B .. 651,677 Service and distribution fees - Class C .. 133,099 Trustees' fees and expenses .............. 9,684 Accounting and administrative ............ 27,075 Custodian ................................ 360,388 Transfer agent ........................... 423,313 Audit and tax services ................... 23,045 Legal .................................... 1,553 Printing ................................. 47,385 Registration ............................. 34,133 Amortization of organization expenses .... 6,460 Miscellaneous ............................ 6,196 ----------- Total expenses ............................. 3,347,083 ----------- Net investment income ..................... 54,391 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS, AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments - net ........................ 12,098,828 Futures contracts - net .................. (44,444) Foreign currency transactions - net ...... (90,635) ----------- Net realized gain on investments, futures contracts and foreign currency transactions ................ 11,963,749 ----------- Unrealized appreciation on: Investments - net ........................ 5,686,235 Foreign currency transactions - net ...... 94,097 ----------- Net unrealized appreciation on investments, and foreign currency transactions ........... 5,780,332 ----------- Net gain on investment transactions ........ 17,744,081 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $17,798,472 =========== (a) Net of foreign taxes of: $264,265 See accompanying notes to financial statements. STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- (unaudited)
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1997 1998 ---------------- ---------------- FROM OPERATIONS Net investment income (loss) ............................ $ (1,230,968) $ 54,391 Net realized gain on investments, futures contracts and foreign currency transactions ......................... 13,621,537 11,963,749 Unrealized appreciation on investments and foreign currency transactions ................................. 8,024,851 5,780,332 ------------- ------------ Increase in net assets from operations .................. 20,415,420 17,798,472 ------------- ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net realized gain on investments Class A ................................................. (5,347,965) 0 Class B ................................................. (5,550,098) 0 Class C ................................................. (1,229,908) 0 ------------- ------------ (12,127,971) 0 ------------- ----------- Paid in Capital Class A ................................................. (260,229) 0 Class B ................................................. (270,065) 0 Class C ................................................. (59,596) 0 ------------- ------------ (589,890) 0 ------------- ------------ INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL SHARE TRANSACTIONS ........................................ 108,430,995 (5,983,422) ------------- ------------ Total increase in net assets .......................... 116,128,554 11,815,050 NET ASSETS Beginning of the period ................................. 151,856,851 267,985,405 ------------- ------------ End of the period ....................................... $ 267,985,405 $279,800,455 ============= ============ UNDISTRIBUTED NET INVESTMENT INCOME End of the period ....................................... $ 28,189 $ 82,580 ============= ============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------------------- (unaudited) CLASS A -------------------------------------------- SIX MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1996 1997 1998 ------------ ------------ ---------- Net Asset Value, Beginning of Period .......... $12.50 $14.40 $15.46 ------ ------ ------ Income (Loss) From Investment Operations Net Investment Income (Loss) .................. (0.03)(b) (0.02)(b) 0.04 Net Realized and Unrealized Gain on Investments .............................. 2.11 1.88 1.03 ------ ------ ------ Total From Investment Operations .............. 2.08 1.86 1.07 ------ ------ ------ Less Distributions Distributions From Net Realized Capital Gains . (0.18) (0.76) 0.00 Distributions From Paid-in Capital ............ 0.00 (0.04) 0.00 ------ ------ ------ Total Distributions ........................... (0.18) (0.80) 0.00 ------ ------ ------ Net Asset Value, End of Period ................ $14.40 $15.46 $16.53 ------ ------ ------ Total Return (%) (a) .......................... 16.7 12.7 6.9 Ratio of Operating Expenses to Average Net Assets (%) .................................. 2.58 2.07 1.97(c) Ratio of Net Investment Income (Loss) to Average Net Assets (%) ...................... (0.21) (0.12) 0.46(c) Portfolio Turnover Rate (%) ................... 57 80 73(c) Net Assets, End of Period (000) ............... $68,509 $118,381 $121,571 (a)A sales charge in the case of Class A Shares is not reflected in total return calculations. Periods less than one year are not annualized. (b)Per Share net investment income (loss) has been calculated using the average shares outstanding during the year. (c)Computed on an annualized basis.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- continued - --------------------------------------------------------------------------------------------------- (unaudited) CLASS B -------------------------------------------- SIX MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1996 1997 1998 ------------ ------------ --------- Net Asset Value, Beginning of Period .......... $12.50 $14.30 $15.23 ------ ------ ------ Income (Loss) From Investment Operations Net Investment Income (Loss) .................. (0.12)(b) (0.14)(b) (0.02) Net Realized and Unrealized Gain on Investments ............................... 2.10 1.87 1.01 ------ ------ ------ Total From Investment Operations .............. 1.98 1.73 0.99 ------ ------ ------ Less Distributions Distributions From Net Realized Capital Gains . (0.18) (0.76) 0.00 Distributions From Paid-in Capital ............ 0.00 (0.04) 0.00 ------ ------ ------ Total Distributions ........................... (0.18) (0.80) 0.00 ------ ------ ------ Net Asset Value, End of Period ................ $14.30 $15.23 $16.22 ====== ====== ====== Total Return (%) (a) .......................... 15.9 11.9 6.5 Ratio of Operating Expenses to Average Net Assets (%) .................................. 3.33 2.82 2.72(c) Ratio of Net Investment Income (Loss) to Net Assets (%) .................................. (0.96) (0.87) (0.29)(c) Portfolio Turnover Rate (%) ................... 57 80 73(c) Net Assets, End of Period (000) ............... $65,367 $123,467 $131,785 (a)A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not annualized. (b)Per Share net investment income (loss) has been calculated using the average shares outstanding during the year. (c)Computed on an annualized basis. See accompanying notes to financial statements.
- --------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS -- continued - --------------------------------------------------------------------------------------------------- (unaudited) CLASS C -------------------------------------------- SIX MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1996 1997 1998 ------------ ----------- ---------- Net Asset Value, Beginning of Period .......... $12.50 $14.31 $15.24 ------ ------ ------ Income (Loss) From Investment Operations Net Investment Income (Loss) .................. (0.12)(a) (0.13)(a) (0.02) Net Realized and Unrealized Gain on Investments ............................... 2.11 1.86 1.01 ------ ------ ------ Total From Investment Operations .............. 1.99 1.73 0.99 ------ ------ ------ Less Distributions Distributions From Net Realized Capital Gains . (0.18) (0.76) 0.00 Distributions From Paid-in Capital ............ 0.00 (0.04) 0.00 ------ ------ ------ Total Distributions ........................... (0.18) (0.80) 0.00 ------ ------ ------ Net Asset Value, End of Period ................ $14.31 $15.24 $16.23 ====== ====== ====== Total Return (%) (c) .......................... 15.9 11.8 6.5 Ratio of Operating Expenses to Average Net Assets (%) .................................. 3.33 2.82 2.72(b) Ratio of Net Investment Income (Loss) to Average Net Assets (%) ...................... (0.96) (0.87) (0.29)(b) Portfolio Turnover Rate (%) ................... 57 80 73(b) Net Assets, End of Period (000) ............... $17,980 $26,137 $26,444 (a)Per Share net investment income (loss) has been calculated using the average shares outstanding during the year. (b)Computed on an annualized basis. (c)A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- June 30, 1998 (unaudited) 1. The Fund is a series of New England Funds Trust I, a Massachusetts business trust (the "Trust"), and is registered under the Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end management investment company. The Fund seeks long-term growth of capital. The Declaration of Trust permits the Trustees to issue an unlimited number of shares of the Trust in multiple series (each such series of shares a "Fund"). The Fund offers Class A, Class B, and Class C shares. Class A shares are sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a front end sales charge, but pay a higher ongoing distribution fee than Class A shares for eight years (at which point they automatically convert to Class A shares), and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase (or five years if purchased before May 1, 1997). Class C shares do not pay front end sales charges and do not convert to any other class of shares, but they do pay a higher ongoing distribution fee than Class A shares and are subject to a contingent deferred sales charge if those shares are redeemed within one year. Expenses of the Fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the Rule 12b-1 service and distribution fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of the net assets of the Fund, if the Fund were liquidated. In addition, the Trustees approve separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. SECURITY VALUATION. Equity securities are valued on the basis of valuations furnished by a pricing service, authorized by the Board of Trustees, which service provides the last reported sale price for securities listed on an applicable securities exchange or on the NASDAQ national market system, or, if no sale was reported and in the case of over-the-counter securities not so listed, the last reported bid price. Short-term obligations with a remaining maturity of less than sixty days are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value as determined in good faith by the Fund's adviser and the relevant subadviser under the supervision of the Fund's trustees. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are accounted for on the trade date (the date the buy or sell is executed). Dividend income is recorded on the ex-dividend date or when the Fund learns of the dividend, and interest income is recorded on the accrual basis. In determining net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. C. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are maintained in U.S. dollars. The value of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign exchange rates prevailing at the end of the period. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. Since the values of investment securities are presented at the foreign exchange rates prevailing at the end of the period, it is not practical to isolate that portion of the results of operations arising from changes in exchange rates from fluctuations arising from changes in market prices of the investment securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Reported net realized foreign exchange gains or losses arise from: sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities resulting from changes in the exchange rate. D. FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund's currency exposure. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund's investments against currency fluctuation. Also, a contract to buy or sell can offset a previous contract. These contracts involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. The U.S. dollar value of the currencies the Fund has committed to buy or sell (if any) is shown in the portfolio composition under the caption "Forward Currency Contracts Outstanding." These amounts represent the aggregate exposure to each currency the Fund has acquired or hedged through currency contracts outstanding at period end. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. All contracts are "marked-to-market" daily at the applicable translation rates and any gains or losses are recorded for financial statement purposes as unrealized until settlement date. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. E. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders all of its income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are recorded on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for organization costs and foreign currency transactions for book and tax purposes. Permanent book and tax basis differences will result in reclassification to capital accounts. G. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price. Each subadviser is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party including possible delays or restrictions upon the portfolio's ability to dispose of the underlying securities. H. ORGANIZATION EXPENSE. Costs incurred in connection with the Fund's organization and initial registration, amounting to approximately $64,900 in the aggregate, were paid by the Fund and are being amortized by the Fund over 60 months. 2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1998 purchase and sales of securities (excluding short-term investments) were $94,874,484 and $101,005,236 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 1.05% of the Fund's average daily net assets. NEFM pays the Fund's four investment subadvisers, Harris Associates, L.P., Founders Asset Management, Inc., Janus Capital Corporation and Montgomery Asset Management, L.P. a subadvisory fee as follows: Harris Associates, L.P., Founders Asset Management, Inc. and Janus Capital Corporation at the annual rate of 0.65% of the first $50 million of the average daily net assets of the segment of the Fund which that subadviser manages, 0.60% of the next $50 million of such assets and 0.55% of such assets in excess of $100 million. NEFM pays Montgomery Asset Management, L.P. at the annual rate of 0.90% of the first $25 million of the average daily net assets of the segment of the Fund that Montgomery Asset Management, L.P. manages, 0.70% of the next $25 million of such assets and 0.55% of such assets in excess of $50 million. Certain officers and directors of NEFM are also officers or trustees of the Fund. NEFM and Harris Associates, L.P. are wholly owned subsidiaries of Nvest Companies, L.P.("Nvest") which is a subsidiary of Metropolitan Life Insurance Company. Fees earned by NEFM and the subadvisers under the management agreement in effect during the six months ended June 30, 1998, are as follows: FEES EARNED ----------- $ 536,059 NEFM 374,349 Harris Associates, L.P. 215,509 Founders Asset Management, Inc. 181,950 Janus Capital Corporation 161,574 Montgomery Asset Management, L.P. --------- $1,469,441 ========== 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 six months ended June 30, 1998, these expenses amounted to $27,075 and are shown separately in the financial statements as accounting and administrative. C. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO") is the transfer and shareholder servicing agent for the Fund. For the six months ended June 30, 1998, the Fund paid NEFSCO $315,830 as compensation for its services in that capacity. For the six months ended June 30, 1998, the Fund received $2,941 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 up to 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, 1998, the Fund paid New England Funds $153,634 in fees under the Class A Plan. Under the Class B and Class C Plans, the Fund pays New England Funds monthly service fees at the annual rate of up to 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, 1998 the Fund paid New England Funds $162,919 and $33,275 in service fees under the Class B and Class C Plans, respectively. Also under the Class B and Class C Plan, the Fund pays New England Funds monthly distribution fees at the annual rate of up to 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, 1998, the Fund paid New England Funds $488,758 and $99,824 in distribution fees under the Class B and Class C plans, respectively. Commissions (including contingent deferred sales charges) on Fund shares paid to New England Funds by investors in shares of the Fund during the six months ended June 30, 1998 amounted to $416,570. 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 is compensated by the Fund as follows: Annual Retainer $1,586 Meeting Fee $159/meeting Annual Committee Member Retainer $238 Annual Committee Chairman Retainer $159 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. CAPITAL SHARE TRANSACTIONS. 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:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1997 JUNE 30, 1998 ----------------------------- ----------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ----------- Shares sold ........................ 7,296,933 $117,687,188 722,642 $11,924,712 Shares issued in connection with the reinvestment of: Distributions from net realized gain ............................. 335,997 5,389,391 0 0 ---------- ------------ ---------- ----------- 7,632,930 123,076,579 722,642 11,924,712 Shares repurchased ................. (4,731,745) (77,669,561) (1,024,742) (16,904,234) ---------- ------------ ---------- ----------- Net increase (decrease) ............ 2,901,185 $ 45,407,018 (302,100) $(4,979,522) ---------- ------------ ---------- ----------- YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1997 JUNE 30, 1998 ----------------------------- ----------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Shares sold ........................ 4,114,717 $ 64,706,836 764,190 $12,427,307 Shares issued in connection with the reinvestment of: Distributions from net realized gain ............................. 340,752 5,397,504 0 0 ---------- ------------ ---------- ------------ 4,455,469 70,104,340 764,190 12,427,307 Shares repurchased ................. (918,977) (14,305,295) (747,384) (12,054,522) ---------- ------------ ---------- ----------- Net increase ....................... 3,536,492 $ 55,799,045 16,806 $ 372,785 ---------- ------------ ---------- ----------- YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1997 JUNE 30, 1998 ----------------------------- ----------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Shares sold ........................ 930,980 $ 14,566,224 425,739 $ 6,938,377 Shares issued in connection with the reinvestment of: Distributions from net realized gain ............................. 78,356 1,241,162 0 0 ---------- ------------ ---------- ----------- 1,009,336 15,807,386 425,739 6,938,377 Shares repurchased ................. (550,851) (8,582,454) (511,751) (8,315,062) ---------- ------------ ---------- ----------- Net increase (decrease) ............ 458,485 $ 7,224,932 (86,012) $(1,376,685) ---------- ------------ ---------- ----------- Increase (decrease) derived from capital shares transactions ...... 6,896,162 $108,430,995 (371,306) $(5,983,422) ========== ============ ========== ===========
SUPPLEMENT DATED AUGUST 3, 1998 TO THE MAY 1, 1998 PROSPECTUSES FOR NEW ENGLAND STAR FUNDS CLASS A, B AND C (AS SUPPLEMENTED JULY 15, 1998) AND NEW ENGLAND STOCK FUNDS CLASS Y FOR NEW ENGLAND STAR WORLDWIDE FUND CHANGE IN PORTFOLIO MANAGERS Oscar Castro and John Boich of Montgomery have assumed day-to-day responsibility for the management of the Montgomery segment of the New England Star Worldwide Fund. Messrs. Castro and Boich are each a Senior Portfolio Manager and Principal of Montgomery and each has been employed by Montgomery since 1993. They have co-managed Montgomery's Global Opportunities Fund since its inception on September 30, 1993. CHANGE IN INVESTMENT STRATEGY The paragraph regarding Montgomery in the "Fund Investments - Star Worldwide Fund" section of the Prospectus is revised to read as follows: Montgomery Asset Management, LLC ("Montgomery") normally will invest at least 65% of its segment of the Fund's portfolio in equity securities of companies, which may be of any size, throughout the world. The segment of the Fund managed by Montgomery emphasizes common stocks, but may also invest up to 35% of its segment in debt securities, including up to 5% in debt securities rated below investment grade. Montgomery may invest its segment of the Fund in securities denominated in one or more foreign currencies. Montgomery invests in companies that it believes have potential for above- average growth in sales and earnings on a sustained basis and that are reasonably priced. A number of factors are considered in evaluating potential investments, including a company's per share sales and earnings growth; return on capital; balance sheet; financial and accounting policies; overall financial strength; industry sector; competitive advantages; and quality of management. Messrs. Castro and Boich have reviewed the portfolio holdings of the Montgomery segment of the Fund and expect that it will take approximately 2 to 3 months to reposition the Montgomery segment's portfolio holdings to match the new investment strategy as set forth above. REDUCTION IN SUBADVISORY FEE The subadvisory fees payable by NEFM to Montgomery are now at the annual rate of: 0.85% of the first $25 million of the average daily net assets of the segment of the Fund that Montgomery manages, 0.65% of the next $25 million of such assets, and 0.55% of such assets in excess of $50 million. This change in subadvisory fees paid by NEFM does not affect the management fee paid by the Fund. All of the above changes are effective August 3, 1998. FOR NEW ENGLAND STAR ADVISERS FUND The following supplements the disclosure found in the paragraph in the "Fund Management" section of the Prospectus describing subadvisory fees paid by NEFM to Janus Capital Corporation ("Janus Capital"): For the Star Advisers Fund, NEFM pays Janus Capital a subadvisory fee at the annual rate of 0.55% of the first $50 million of the average daily net assets of the segment of the Fund that Janus Capital manages and 0.50% of such assets in excess of $50 million. SUPPLEMENT DATED AUGUST 21, 1998 TO THE MAY 1, 1998 PROSPECTUSES FOR NEW ENGLAND STAR FUNDS CLASS A, B AND C (AS SUPPLEMENTED JULY 15, 1998 AND AUGUST 3, 1998) AND NEW ENGLAND STOCK FUNDS CLASS Y (AS SUPPLEMENTED AUGUST 3, 1998) The following supplements the paragraph entitled "Founders" in the "Fund Management" section of each Prospectus: Effective August 21, 1998, the Founders large/mid-cap investment management team, under the interim leadership of Paul LaRocco, has replaced Edward F. Keely as portfolio manager of the Founders' segment of the Star Advisers Fund. Mr. LaRocco, Vice President of Investments of Founders, is a Chartered Financial Analyst and is also the interim leader of the team managing the Founders Growth Fund. Mr. LaRocco has been serving as the lead portfolio manager for the Founders Special Fund since March 1998 and as a portfolio manager for The Dreyfus Corporation since April 1998. Prior to joining Founders in 1998, Mr. LaRocco was a vice president and portfolio manager with Oppenheimer Funds. - -------------------------------------------------------------------------------- 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. ------------------ [LOGO](R) Bulk Rate NEW ENGLAND FUNDS(R) U.S. Postage Where The Best Minds Meet(R) Paid Brockton, MA Permit No. 770 ------------------ --------------------- 399 Boylston Street Boston, Massachusetts 02116 --------------------- [Dalbar Logo] - ----------------------- 1995 o 1996 o 1997 SW58-0698 [Recycle Logo] Printed on Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----