<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT AND PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
(Logo)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
New England
Growth Opportunities Fund
[graphic omitted]
December 31, 1996
<PAGE>
FEBRUARY 1997
- --------------------------------------------------------------------------------
[Photo of Henry L.P. Schmelzer]
Dear New England Funds Shareholder,
Taken together, 1995 and 1996 constituted the sixth strongest back-to-back years
for the U.S. stock market since 1915, as measured by percentage gain in the Dow
Jones Industrial Average (according to Bloomberg Business News).
Most New England Funds portfolio managers believe that the forces behind this
rally -- low inflation, relatively stable interest rates and strong corporate
profits -- will persist, at least for a time. Nevertheless, bull markets can
suddenly turn quiet; they can decline modestly; or they can reverse course
sharply. No one can predict what is ahead, nor can anyone guarantee whether the
market's strength will extend even further in 1997 and beyond.
Maintain a Long-Term Perspective
Whatever the market's direction, you should be prepared to consider any
short-term trends in the broader context of your long-term personal goals,
including the accumulation of financial assets. One way to manage this important
process is by diversifying your investments. While U.S. stocks have historically
been the strongest performers, you may, depending on your financial goals and
needs, also benefit from investing in various types of bond funds, and by
participating in growing overseas markets.
Remember that each investment has its own unique risks. What's more, no strategy
can assure a profit or protect against a loss. However, one time-tested approach
is to invest regularly and stay invested -- in good times and bad -- to avoid
the pitfall of guessing what the market might do in the short run.
Our Multiple-Adviser Approach Sets Us Apart
Many financial representatives recommend New England Funds to their clients
because of our distinctive multiple-adviser approach. For each fund, we
hand-pick a specific subadviser or subadvisers with significant experience and
demonstrated skill in selecting investments that are in tune with that fund's
stated objective. We call it matching the talent to the task.
Finally, it may interest you to learn that you are part of a major national
trend. In 1996, nearly 37 million U.S. households owned mutual funds, according
to the Investment Company Institute, an industry trade organization. Mutual
funds are now a cornerstone of retirement, college and other investment plans
for millions of Americans.
New England Funds has grown with the industry and is now over $6 billion in
size. We thank you for helping us reach this important milestone, and look
forward to serving your investment needs well into the future.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
For more information, including a prospectus for any New England Fund, please
contact your financial representative or call the Investor Services and
Marketing Group at 800-225-5478. Please read the prospectus carefully, including
the information on charges and expenses, before you invest.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
[Logo] DALBAR, an independent evaluator of mutual fund
QUALITY service, has awarded New England Funds its Quality
TESTED SERVICE Tested Service Seal for "providing the highest
1996 tier of service excellence in the mutual fund
- --------------------- industry." New England Funds is one of just three
DALBAR mutual fund companies to earn this distinction in
HONORS COMMITMENT TO: each of the last two years -- another reason why
INVESTORS we are becoming known as the mutual fund company
- --------------------- Where The Best Minds Meet(TM).
INVESTMENT RESULTS THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides 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.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A $10,000 Investment in Class A Shares
- --------------------------------------------------------------------------------
COMPARED TO STANDARD & POOR'S 500(R) INDEX(4)
DATE NAV(1) POP(2) S&P 500(4)
- ---- -------- ------- ----------
12/31/86 $10,000 $9,425 $10,000
12/31/87 $10,014 $9,438 $10,521
12/31/88 $10,996 $10,364 $12,257
12/31/89 $14,032 $13,226 $16,169
12/31/90 $13,435 $12,662 $15,626
12/31/91 $17,547 $16,538 $20,367
12/31/92 $19,175 $18,073 $21,916
12/31/93 $20,700 $19,510 $24,121
12/31/94 $20,905 $19,703 $24,449
12/31/95 $28,247 $26,622 $33,603
12/31/96 $33,108 $31,204 $41,298
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B and Class C share
performance will be greater or less than that shown based on differences in
inception date, fees and sales charges. All Index and Fund performance assumes
reinvested distributions.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 12/31/96
- --------------------------------------------------------------------------------
Class A (Inception 5/6/91) 1 Year 5 Years 10 Years
Net Asset Value(1) 17.21% 13.53% 12.72%
With Max. Sales Charge(2) 10.45 12.20 12.05
Lipper Growth & Income Avg.(5) 20.77 13.96 13.24
- --------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 3 Years Since Inception
Net Asset Value(1) 16.34% 16.27% 14.89%
With CDSC(3) 12.48 15.53 14.45
Standard & Poor's 500 Index(4) 22.90 19.63 18.40
Lipper Growth & Income Avg.(5) 20.77 16.19 n/a
- --------------------------------------------------------------------------------
Class C (Inception 5/1/95) 1 Year Since Inception
Net Asset Value(1) 16.27% 22.19%
Standard & Poor's 500 Index(4) 22.90 27.37
Lipper Growth & Income Avg.(5) 20.77 n/a
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(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
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(4) Standard & Poor's Composite Index of 500 stocks(R) (S&P 500) is an unmanaged
index representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(5) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
REWARDING SHAREHOLDERS FOR MORE THAN 60 YEARS
- --------------------------------------------------------------------------------
Through good times and bad, investors have come to depend on New England Growth
Opportunities Fund. This Fund is designed to pursue long-term growth from
investments in common stocks similar to those in the S&P 500 Index(4). Its focus
on large, well-established companies has produced a long history of solid
performance. Please see pages 2 and 3 for the Fund's most recent results.
[A chart in the form of a bar graph appears here, illustrating a $10,000
investment in Class A Shares of New England Growth Opportunities Fund compared
to a $10,000 investment in the Standard & Poor's 500 Index(4) from May, 1931
through December 31, 1996. The values of the cumulative returns are as follows:]
- --------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND -- CLASS A SHARES*
- --------------------------------------------------------------------------------
A $10,000 INITIAL INVESTMENT COMPARED
TO THE STANDARD & POOR'S 500 INDEX(4)
MAY 1931 - DECEMBER 31, 1996 CUMULATIVE RETURN
YOUR FUND $33,191,861
S&P 500 INDEX(4) $8,890,190
* This information represents past performance only and cannot predict future
returns. Investment return and principal value will vary and may result in a
gain or loss on sale. Results assume sales charge of 7.25% in effect in 1931
and reinvestment of all dividend and capital gains distributions for period
through 12/31/96. Generally, this was a period of rising stock prices.
Effective 10/1/90, the maximum sales charge was reduced to 5.75%. Five
advisers have managed the Fund, with changes occurring in 1968, 1983, 1988 and
1995.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Q. How did New England Growth Opportunities Fund perform in 1996?
[Photo of Gerald Scriver
Westpeak Investment Advisors, L.P.]
For the year ended December 31, 1996, Growth Opportunities Fund delivered a
total return of 17.21%, based on Class A shares at net asset value. This
compares with 22.90% for the Standard and Poor's Composite Index of 500
Stocks (S&P 500)(4), the Fund's benchmark. Most of this relative
underperformance occurred in the first half of the year. As the year
progressed, your Fund began to close the gap, outperforming the S&P 500 in
six of the last seven months of 1996.
Q. How did you manage the Fund in 1996?
Entering the year, our outlook for the U.S. economy was positive. As events
played out, however, particularly in the first half of the year, the
economy's continued vigor surpassed our expectations.
The strong economy produced rising interest rates, accompanied by notable
volatility in the nation's securities markets. These factors led us to
believe that a continued rise in stock prices was limited. What's more,
these conditions implied a weaker market environment ahead, one more
favorable to value stocks -- companies whose market prices appear low
relative to their potential worth -- than to growth stocks -- those with
expanding earnings. We therefore moved cautiously, tilting the Fund's
portfolio toward value investments and away from growth.
By July our view had changed somewhat. Interest rates seemed likely to
remain flat -- although higher than in late 1995 -- as the economy's
expansionary trend began to cool. Therefore we maintained a cautious
position, focusing the portfolio on stocks that, while carrying lower
price/earnings ratios (a measure of a stock's price relative to the
company's earning power) than our S&P 500 benchmark, appeared to offer
attractive prospects for price appreciation.
We also underestimated the remarkably strong and persistent cash flows into
mutual funds. This record influx, coupled with an underlying tone of
speculation and excitement over new issues, helped to drive the stock market
higher.
A heavy commitment to the regional telephone operating companies -- the
so-called Baby Bells -- as well as some large international oil companies,
hindered performance early in the year. These companies, selected for their
value characteristics, underperformed despite their size and quality.
Our decision to emphasize value stocks came too early. But during the second
half of the year the market favored such stocks, enabling the Fund to close
part of the performance gap. We took advantage of downturns to build
positions in IBM, Intel and Compaq Computer while they were available at
attractive prices. These selections were very positive contributors to Fund
performance as the year progressed.
Overall, our conservative approach held Fund performance back somewhat this
year. But we prefer to stick to our established philosophy rather than
deviate from it as markets ebb and flow. This commitment to avoid timing the
market will allow us to reduce the effects of risk on your Fund's portfolio
over the long-term.
Q. What is your investment outlook for the months ahead?
As is often the case, changes in interest rates are the most powerful
influence on the stock market's direction. And a pickup in inflation, which
has been modest by historical measures in recent years, would almost
certainly bring Fed tightening.
But taking a longer term view, we see a continued favorable investment
scenario, marked by low inflation and good earnings growth. While there is
some risk built into the current market environment, a drop in stock prices
would cause investors' expectations to fall. This would create a very
positive situation for long-term investors.
- ------------------------------------------------
TOP FIVE PORTFOLIO HOLDINGS 12/31/96*
- ------------------------------------------------
PERCENTAGE
COMPANY OF NET ASSETS
- ------------------------------------------------
1. EXXON CORP. 3.88%
World`s leading oil company
- ------------------------------------------------
2. JOHNSON & JOHNSON 3.02%
Health care products manufacturer
- ------------------------------------------------
3. AMERITECH CORP. 2.68%
Regional telephone company
- ------------------------------------------------
4. UNILEVER NV 2.61%
International producer of food and
cleanliness products
- ------------------------------------------------
5. NATIONSBANK CORP. 2.51%
Large financial services company
- ------------------------------------------------
* Portfolio holdings are subject to change.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of December 31, 1996
COMMON STOCK--98.5% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- -----------------------------------------------------------------------------
AEROSPACE--0.9%
19,400 Boeing Co. ......................................... $ 2,063,675
------------
AIRLINES--0.5%
16,800 UAL Corp. (c) ...................................... 1,050,000
------------
AUTOMOTIVE & RELATED--1.9%
64,400 Chrysler Corp. ..................................... 2,125,200
37,700 General Motors Corp. ............................... 2,101,775
------------
4,226,975
------------
BANKS--8.0%
26,300 BankAmerica Corp. .................................. 2,623,425
25,600 Bankers Trust New York Corp. ....................... 2,208,000
120,700 Banponce Corp. ..................................... 4,073,625
56,000 NationsBank Corp. .................................. 5,474,000
37,800 Republic New York Corp. ............................ 3,085,425
------------
17,464,475
------------
BUSINESS SERVICES--1.2%
83,700 Comdisco, Inc. ..................................... 2,657,475
------------
CHEMICALS--3.5%
62,100 Dow Chemical Co. ................................... 4,867,087
29,500 El du Pont de Nemours & Co. ........................ 2,784,063
------------
7,651,150
------------
COMPUTER SOFTWARE & SERVICES--0.4%
4,000 BMC Software, Inc. (c) ............................. 165,500
13,500 Compuware Corp. (c) ................................ 676,688
------------
842,188
------------
COMPUTERS & BUSINESS EQUIPMENT--5.3%
46,300 Compaq Computer Corp. (c) .......................... 3,437,775
31,800 International Business Machines Corp. .............. 4,801,800
22,800 Seagate Technology (c) ............................. 900,600
42,700 Western Digital Corp. (c) .......................... 2,428,562
------------
11,568,737
------------
CONSTRUCTION--0.2%
10,300 Centex Corp. ....................................... 387,538
------------
DOMESTIC OIL--4.2%
66,500 Amoco Corp. ........................................ 5,353,250
28,500 National Fuel Gas .................................. 1,175,625
60,200 Phillips Petroleum Co. ............................. 2,663,850
------------
9,192,725
------------
DRUGS & HEALTH CARE--12.7%
46,400 Abbott Laboratories ................................ 2,354,800
19,300 Amgen, Inc. (c) .................................... 1,049,438
21,200 Bristol Myers Squibb Co. ........................... 2,305,500
132,300 Johnson & Johnson .................................. 6,581,925
41,700 Merck & Co. ........................................ 3,304,725
72,000 Ornda Healthcorp (c) ............................... 2,106,000
20,600 Pfizer, Inc. ....................................... 1,707,225
41,100 Rhone Poulenc Rorer, Inc. .......................... 3,210,937
31,900 Schering-Plough Corp. .............................. 2,065,525
131,600 Tenet Healthcare Corp. (c) ......................... 2,878,750
------------
27,564,825
------------
ELECTRIC UTILITIES--4.2%
94,600 Entergy Corp. ...................................... 2,625,150
108,300 Pinnacle West Capital Corp. ........................ 3,438,525
116,500 Unicom Corp. ....................................... 3,160,062
------------
9,223,737
------------
ELECTRONICS--3.2%
12,700 Honeywell, Inc. .................................... 835,025
9,600 Intel Corp. ........................................ 1,257,000
95,300 KLA Instruments Corp. (c) .......................... 3,383,150
17,500 SCI Systems, Inc. (c) .............................. 780,937
20,000 Tellabs, Inc. (c) .................................. 752,500
------------
7,008,612
------------
ENTERTAINMENT--1.0%
58,800 King World Productions, Inc. (c) ................... 2,168,250
------------
FINANCE--3.4%
64,225 Bear Stearns Co., Inc. ............................. 1,790,272
28,100 Green Tree Financial Corp. ......................... 1,085,363
128,900 Lehman Brothers Holdings, Inc. ..................... 4,044,237
5,800 Merrill Lynch & Company, Inc. ...................... 472,700
------------
7,392,572
------------
FOOD & BEVERAGES--8.0%
106,400 Archer Daniels Midland Co. ......................... 2,340,800
40,300 Coca-Cola Co. ...................................... 2,120,787
18,000 CPC International, Inc. ............................ 1,395,000
17,600 H. J. Heinz Co. .................................... 629,200
16,800 Hershey Foods Corp. ................................ 735,000
94,400 IBP, Inc. .......................................... 2,289,200
21,800 Sara Lee Corp. ..................................... 812,050
40,900 Tyson Foods, Inc. .................................. 1,400,825
32,400 Unilever NV, 144A (d) .............................. 5,678,100
------------
17,400,962
------------
HOTELS & RESTAURANTS--0.5%
20,400 Marriot International, Inc. ........................ 1,127,100
------------
HOUSEHOLD PRODUCTS--0.6%
18,200 Gillette Co. ....................................... 1,415,050
------------
INSURANCE--4.6%
19,200 AMBAC, Inc. ........................................ 1,274,400
13,500 Cigna Corp. ........................................ 1,844,437
30,100 Conseco, Inc. ...................................... 1,918,875
53,100 Loews Corp. ........................................ 5,004,675
------------
10,042,387
------------
INTERNATIONAL OIL--5.3%
4,700 Chevron Corp. ...................................... 305,500
86,200 Exxon Corp. ........................................ 8,447,600
22,500 Mobil Corp., Rights ................................ 2,750,625
------------
11,503,725
------------
METAL--1.3%
42,200 Asarco, Inc. ....................................... 1,049,725
26,100 Phelps Dodge Corp. ................................. 1,761,750
------------
2,811,475
------------
MORTGAGE--0.5%
27,700 Federal National Mortgage Association .............. 1,031,825
------------
OIL--2.0%
26,000 Royal Dutch Petroleum Co. .......................... 4,439,500
------------
PAPER & FOREST PRODUCTS--3.3%
16,300 Champion International Corp. ....................... 704,975
13,200 Georgia Pacific Corp. .............................. 950,400
76,700 Mead Corp. ......................................... 4,458,187
25,900 Rayonier, Inc. ..................................... 993,913
------------
7,107,475
------------
PETROLEUM SERVICES--0.3%
11,000 Noble Drilling Corp. (c) ........................... 218,625
15,500 Rowan Companies, Rights (c) ........................ 350,688
------------
569,313
------------
PHOTOGRAPHY--1.3%
34,300 Eastman Kodak Co. .................................. 2,752,575
------------
PRODUCER OF GOODS--6.4%
30,300 Applied Materials, Inc. (c) ........................ 1,088,906
17,800 Case Corp. ......................................... 970,100
64,700 Caterpillar, Inc. .................................. 4,868,675
9,500 Harnischfeger Industries, Inc. ..................... 457,188
6,300 Harsco Corp. ....................................... 431,550
25,900 Illinois Tool Works, Inc. .......................... 2,068,762
62,400 United Technologies Corp. .......................... 4,118,400
------------
14,003,581
------------
PUBLISHING--0.6%
59,800 Moore Corporation, Ltd. ........................... 1,218,425
------------
RAILROADS & EQUIPMENT--1.1%
54,300 CSX Corp, .......................................... 2,294,175
------------
RETAIL--2.8%
37,700 Dayton Hudson Corp. ................................ 1,479,725
32,900 Gap, Inc. .......................................... 991,113
38,700 Mercantile Stores, Inc. ............................ 1,910,812
7,200 Tiffany & Co. ...................................... 263,700
30,500 TJX Companies, Inc. ................................ 1,444,938
------------
6,090,288
------------
RETAIL - GROCERY--0.2%
10,200 Safeway, Inc. (c) .................................. 436,050
------------
SAVINGS & LOAN--0.9%
19,100 Golden West Financial Corp. ........................ 1,205,687
12,100 Standard Federal BanCorp. .......................... 688,188
------------
1,893,875
------------
STEEL--1.1%
79,200 USX-U.S. Steel Group ............................... 2,484,900
------------
TELECOMMUNICATION--6.4%
96,300 Ameritech Corp. .................................... 5,838,187
83,600 Bell Atlantic Corp. ................................ 5,413,100
16,700 Bellsouth Corp. .................................... 674,263
42,800 MCI Communications ................................. 1,399,025
14,200 Sprint Corp. ....................................... 566,225
------------
13,890,800
------------
TIRES & RUBBER--0.4%
15,000 Goodyear Tire & Rubber ............................. 770,625
------------
TOBACCO--0.3%
15,100 American Brands, Inc. .............................. 749,338
------------
Total Common Stock (Identified Cost $182,449,554) .. 214,496,378
------------
SHORT TERM INVESTMENTS--1.4%
FACE
AMOUNT
- ------------------------------------------------------------------------------
$ 3,125,000 Repurchase agreement with State Street Bank &
Trust Co. dated 12/31/96 at 4.750% to be
repurchased at $3,125,825 on 1/02/97
collateralized by $2,490,000 U.S. Treasury Bonds
8.875% due 8/15/17, with a value of $3,191,092 3,125,000
------------
Total Short Term Investments (Identified Cost
$3,125,000) ..................................... 3,125,000
------------
Total Investments--99.9% (Identified Cost
$185,574,554)(b) ................................ 217,621,378
Other assets less liabilities ................... 110,514
------------
Total Net Assets--100% ........................... $217,731,892
============
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1996 the net
unrealized appreciation on investments based on cost of
$185,625,185 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 ......... $ 34,919,975
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ......... (2,923,782)
------------
Net unrealized appreciation ................................ $ 31,996,193
============
(c) Non-income producing security.
(d) 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.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value ....................................... $217,621,378
Cash ....................................................... 290
Receivable for:
Fund shares sold ......................................... 139,572
Dividends and interest ................................... 338,989
Prepaid registration expense ............................. 14,000
------------
218,114,229
LIABILITIES
Payable for:
Fund shares redeemed ..................................... $173,508
Withholding Taxes ........................................ 1,152
Accrued expenses:
Management fees .......................................... 128,485
Deferred trustees' fees .................................. 7,124
Accounting and administrative ............................ 3,376
Other expenses ........................................... 68,692
--------
382,337
------------
NET ASSETS ................................................... $217,731,892
============
Net Assets consist of:
Capital paid in .......................................... $176,643,911
Undistributed net investment income ...................... 2,484
Accumulated net realized gains ........................... 9,038,673
Unrealized appreciation on investments ................... 32,046,824
------------
NET ASSETS ................................................... $217,731,892
============
Net asset value and redemption price of Class A shares ($166,963,294 divided
by 12,034,587 shares of beneficial interest) ........... $13.87
======
Offering price per share ( 100/94.25 of $13.87) .......... $14.72*
======
Net asset value and offering price of Class B shares ($46,856,405 divided by
3,377,978 shares of beneficial interest) ............... $13.87**
======
Net asset value and offering price of Class C shares ($3,912,193 divided by
282,519 shares of beneficial interest) ................. $13.85
======
Identified cost of investments ........................... $185,574,554
============
* Based upon single purchases of less than $50,000. Reduced sales charges apply
for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ............................................... $ 4,277,460(a)
Interest ................................................ 222,826
-----------
4,500,286
Expenses
Management fees ....................................... $1,414,997
Service fees - Class A ................................ 397,330
Service and distribution fees - Class B ............... 389,526
Service and distribution fees - Class C ............... 45,844
Trustees' fees and expenses ........................... 21,783
Accounting and administrative ......................... 41,562
Custodian ............................................. 91,532
Transfer agent ........................................ 408,232
Audit and tax services ................................ 25,500
Legal ................................................. 24,373
Printing .............................................. 48,048
Registration .......................................... 50,769
Miscellaneous ......................................... 5,801
----------
Total Expenses .......................................... 2,965,297
-----------
Net investment income ................................... 1,534,989
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on Investments - net .................... 42,996,716
Unrealized depreciation on Investments - net .......... (12,326,308)
-----------
Net gain on investment transactions ................... 30,670,408
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $32,205,397
===========
(a)Net of foreign taxes of: $27,245
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 1,655,576 $ 1,534,989
------------ ------------
Net realized gain on investments ......................... 21,443,541 42,996,716
Unrealized appreciation (depreciation) on investments .... 16,043,612 (12,326,308)
------------ ------------
Increase in net assets from operations ................... 39,142,729 32,205,397
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (1,549,436) (1,516,167)
Class B ................................................ (74,015) (104,841)
Class C ................................................ (4,516) (7,388)
Net realized gain on investments
Class A ................................................ (17,435,536) (27,979,217)
Class B ................................................ (1,801,248) (7,295,607)
Class C ................................................ (120,627) (769,349)
------------ ------------
(20,985,378) (37,672,569)
------------ ------------
Increase in net assets derived from capital share
transactions ........................................... 57,002,658 38,773,337
------------ ------------
Total increase in net assets ............................. 75,160,009 33,306,165
NET ASSETS
Beginning of the year .................................... 109,265,718 184,425,727
------------ ------------
End of the year .......................................... $184,425,727 $217,731,892
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year .................................... $ 106,169 $ 95,891
============ ============
End of the year .......................................... $ 95,891 $ 2,484
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .... $11.79 $12.20 $12.67 $12.41 $14.39
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................. 0.23 0.21 0.22 0.18 0.13
Net Realized and Unrealized Gain (Loss)
on Investments ...................... 0.86 0.75 (0.10) 4.01 2.07
------ ------ ------ ------ ------
Total From Investment Operations ...... 1.09 0.96 0.12 4.19 2.20
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .. (0.23) (0.21) (0.21) (0.18) (0.13)
Distributions in Excess of Net
Investment Income ..................... 0.00 (0.01) 0.00 0.00 0.00
Distributions From Net Realized Capital
Gains ............................... (0.45) (0.27) (0.17) (2.03) (2.59)
------ ------ ------ ------ ------
Total Distributions ................... (0.68) (0.49) (0.38) (2.21) (2.72)
------ ------ ------ ------ ------
Net Asset Value, End of Year .......... $12.20 $12.67 $12.41 $14.39 $13.87
====== ====== ====== ====== ======
Total Return (%)(a) ................... 9.3 8.0 1.0 35.1 17.2
Ratio of Operating Expenses to
Average Net Assets (%) .............. 1.94 1.21 1.28 1.38 1.30
Ratio of Net Investment Income to
Average Net Assets (%) .............. 1.18 1.70 1.75 1.31 0.92
Portfolio Turnover Rate (%) ........... 10 4 6 69 127
Average Commission Rate (b) ........... -- -- -- -- $0.0348
Net Assets, End of Year (000) ......... $90,945 $109,168 $104,081 $150,693 $166,963
(a) A sales charge is not reflected in total return calculations.
(b) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades upon which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
As of January 1, 1993 the Fund discontinued the use of equalization accounting.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------------------------- ----------------------------
SEPTEMBER 13(a) MAY 1(a) YEAR
THROUGH YEAR ENDED DECEMBER 31, THROUGH ENDED
DECEMBER 31, ---------------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1995 1996
---------------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $12.95 $12.66 $12.42 $14.40 $13.84 $14.39
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ......................... 0.06 0.16 0.10 0.03 0.06 0.04
Net Realized and Unrealized Gain (Loss) on
Investments ................................. 0.01 (0.09) 4.01 2.07 2.58 2.05
------ ------ ------ ------ ------ ------
Total From Investment Operations .............. 0.07 0.07 4.11 2.10 2.64 2.09
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .......... (0.03) (0.14) (0.10) (0.04) (0.06) (0.04)
Distributions in Excess of Net Investment
Income ...................................... (0.06) 0.00 0.00 0.00 0.00 0.00
Distributions From Net Realized Capital Gains . (0.27) (0.17) (2.03) (2.59) (2.03) (2.59)
------ ------ ------ ------ ------ ------
Total Distributions ........................... (0.36) (0.31) (2.13) (2.63) (2.09) (2.63)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period ................ $12.66 $12.42 $14.40 $13.87 $14.39 $13.85
====== ====== ====== ====== ====== ======
Total Return (%)(c) ........................... 0.6 0.6 34.3 16.3 20.2 16.3
Ratio of Operating Expenses to
Average Net Assets (%) ...................... 2.08(b) 1.93 2.11 2.05 2.11(b) 2.05
Ratio of Net Investment Income to
Average Net Assets (%) ...................... 0.71(b) 1.10 0.56 0.17 0.56(b) 0.17
Portfolio Turnover Rate (%) ................... 4 6 69 127 69 127
Average Commission Rate (d) ................... -- -- -- $0.0348 -- $0.0348
Net Assets, End of Period (000) ............... $1,498 $5,185 $29,026 $46,856 $4,707 $3,912
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge in the case of Class B shares is not
reflected in total return calculations. Periods less than one year are not
annualized.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades upon which
commissions are charged. This rate generally does not reflect mark-ups,
mark-downs, or spreads on shares traded on a principal basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996
1. The Fund is a series of New England Funds Trust II (the "Trust"), a
Massachusetts business trust, registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
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. The Fund commenced its
public offering of Class B shares on September 13, 1993 and Class C Shares on
May 1, 1995. 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 five years of
purchase. Class C shares do not pay a front end or contingent deferred sales
charge and do not convert to any other class of shares, but they do pay a higher
ongoing distribution fee than Class A shares. Expenses of the Fund are borne
pro-rata by the holders of each class of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
Trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates value.
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 and interest income is
recorded on the accrual basis. Interest income is increased by the accretion of
discount. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassification to paid in capital.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASE AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the year ended December 31, 1996 were $260,863,183 and $252,359,829,
respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management L.P.
("NEFM") at the annual rate of 0.70% of the first $200 million of the Fund's
average daily net assets, 0.65% of the next $300 million and 0.60% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Westpeak Investment Advisors, L.P. at the rate of 0.50% of the first $25 million
of the Fund's average daily net assets, 0.40% of the next $75 million, 0.35% of
the next $100 million and 0.30% of such assets in excess of $200 million.
Certain officers and directors of NEFM are also officers or trustees of the
Fund. NEFM and Westpeak Investment Advisors, L.P. are wholly owned subsidiaries
of New England Investment Companies, L.P. ("NEIC"), which is a subsidiary of
Metropolitan Life Insurance Company ("Met Life"). Fees earned by NEFM and
Westpeak Investment Advisors, L.P. under the management agreement in effect
during the year ended December 31, 1996 are as follows:
FEES EARNED
-----------
$633,644 New England Funds Management, L.P.
$781,353 Westpeak Investment Advisors, L.P.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC and
performs certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Fund's expenses of
providing these services which include the following: (i) expenses for personnel
performing bookkeeping, accounting, internal auditing and financial reporting
functions and clerical functions relating to the Fund, (ii) expenses for
services required in connection with the preparation of registration statements
and prospectuses, shareholder reports and notices, proxy solicitation material
furnished to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance, and (iii) registration, filing and other fees
in connection with requirements of regulatory authorities. For the year ended
December 31, 1996, these expenses amounted to $41,562 and are shown separately
in the financial statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Fund. For the year ended December 31, 1996, the Fund
paid New England Funds $301,010 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds 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 year
ended December 31, 1996, the Fund paid New England Funds $397,330 in fees under
the Class A Plan.
Under the Class B and Class C Plans, 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 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 year ended December 31,
1996, the Fund paid New England Funds $97,381 and $11,461 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 a
monthly distribution fee 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 year ended December 31, 1996, the Fund paid New England Funds
$292,145 and $34,383 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 year ended
December 31, 1996 amounted to $753,514.
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, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $2,217
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $87/year
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.
<PAGE>
4. CAPITAL SHARES. At December 31, 1996 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:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,225,960 $31,708,352 1,731,542 $25,137,040
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 84,290 1,188,168 87,661 1,231,609
Distributions from net realized gain 1,061,665 14,664,607 1,854,127 24,119,428
--------- ----------- --------- -----------
3,371,915 47,561,127 3,673,330 50,488,077
Shares repurchased ................... (1,286,544) (18,048,545) (2,107,684) (30,109,879)
--------- ----------- --------- -----------
Net increase ......................... 2,085,371 $29,512,582 1,565,646 $20,378,198
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,584,901 $22,623,592 1,344,894 $19,592,194
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 5,067 71,601 6,654 92,398
Distributions from net realized gain 121,353 1,687,756 526,406 6,846,049
--------- ----------- --------- -----------
1,711,321 24,382,949 1,877,954 26,530,641
Shares repurchased ................... (112,671) (1,588,699) (516,163) (7,464,628)
--------- ----------- --------- -----------
Net increase ......................... 1,598,650 $22,794,250 1,361,791 $19,066,013
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 351,596 $5,050,733 406,039 $5,734,515
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 303 4,318 724 10,172
Distributions from net realized gain 8,237 116,832 50,246 651,884
--------- ----------- --------- -----------
360,136 5,171,883 457,009 6,396,571
Shares repurchased ................... (33,071) (476,057) (501,555) (7,067,445)
--------- ----------- --------- -----------
Net increase (decrease) .............. 327,065 4,695,826 (44,546) (670,874)
--------- ----------- --------- -----------
Increase derived from capital shares
transactions ....................... 4,011,086 $57,002,658 2,882,891 $38,773,337
========= =========== ========= ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees of the New England Funds Trust II and Shareholders of
the NEW ENGLAND GROWTH OPPORTUNITIES FUND
We have audited the accompanying statement of assets & liabilities of the New
England Growth Opportunities Fund including the schedule of portfolio
investments, as of December 31, 1996, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods indicated herein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
New England Growth Opportunities Fund as of December 31, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the periods indicated herein, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 7, 1997
<PAGE>
--------------
(Logo) BULK RATE
NEW ENGLAND FUNDS U.S. POSTAGE
Where The Best Minds Meet(TM) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
- --------------------- ---------------------
[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
- --------------------- ---------------------
DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
- --------------------- ---------------------
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