<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT AND PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
(Logo)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
New England Value 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>
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NEW ENGLAND VALUE 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>
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NEW ENGLAND VALUE FUND
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares, since 12/31/86, compared to the S&P 500
Index. The data points from the graph are as follows:]
- --------------------------------------------------------------------------------
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 $11,161 $10,519 $10,521
12/31/88 $10,918 $10,290 $12,257
12/31/89 $13,382 $12,612 $16,129
12/31/90 $11,558 $10,893 $15,626
12/31/91 $14,691 $13,846 $20,367
12/31/92 $17,133 $16,148 $21,916
12/31/93 $20,044 $18,891 $24,121
12/31/94 $19,765 $18,629 $24,449
12/31/95 $26,153 $24,649 $33,603
12/31/96 $33,026 $31,135 $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, Class C and Class Y
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 VALUE FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS* 12/31/96
- --------------------------------------------------------------------------------
CLASS A (Inception 6/5/70) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Net Asset Value(1) 26.31% 18.12% 17.59% 12.69%
With Max. Sales Charge(2) 18.99 15.81 16.20 12.03
Lipper Growth & Income Avg.(5) 20.77 16.19 13.96 13.24
- --------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) 1 YEAR 3 YEARS SINCE INCEPTION
Net Asset Value(1) 25.35% 17.28% 17.76
With CDSC(3) 21.35 16.55 17.34
Standard & Poor's 500(4) 22.90 19.63 18.40
Lipper Growth & Income Avg.(5) 20.77 16.19 n/a
- --------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 25.23% 28.24%
Standard & Poor's 500(4) 22.90 30.27
- --------------------------------------------------------------------------------
CLASS Y (Inception 3/31/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 26.43% 21.73%
Standard & Poor's 500(4) 22.90 23.21
* These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost. Class Y shares are available only to certain
institutional investors. Share price and return may vary.
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 VALUE FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Q. How did New England Value Fund perform in 1996?
[Photos of Doug Ramos, Carol McMurtrie, Tricia Mills
Loomis, Sayles & Company, L.P.]
Your Fund generated a 26.31% total return for the year ended December 31,
1996 (Class A shares at net asset value). This return compares positively to
the 22.90% return posted by the Fund's benchmark, the Standard & Poor's
Composite Index of 500 Stocks (S&P 500).(4)
We're also pleased to report that Lipper Analytical Services, an independent
mutual fund ranking service, ranked New England Value Fund #53 out of 522
growth and income funds for the year ended December 31, 1996, placing it in
the top 11% of its class. Longer term, Lipper ranked the Fund 13th out of
212 peers for five-year performance and 77th of 123 peers for 10-year
performance through 12/31/96. Past performance is no guarantee of future
return, but we are gratified by the Fund's performance achievements to date.
Q. How did you manage the Fund in 1996?
The key to performance in 1996 was stock selection. In the technology area,
strong demand for personal computers and computer networks resulted in
outstanding performance for companies such as EMC Corp. and Intel Corp.
Solid business fundamentals and higher energy prices powered investments in
Tosco and PanEnergy. In the financial sector, where the portfolio had a
large weighting, ongoing consolidation in the banking industry benefited our
holdings in NationsBank and Chase Manhattan. Attractive business
fundamentals also helped produce strong performance in other financial
services holdings such as Ace Ltd., a liability insurer; Federal Home Loan
Mortgage Corporation (Freddie Mac); and Green Tree, a financial services
company.
In the capital goods sector, McDonnell-Douglas and Northrop Grumman were
solid performers that benefited from the ongoing consolidation in the
defense industry. Specific company events also contributed to performance in
the case of Eckerd, a drugstore chain, that was bought out by JCPenny.
Allied Signal, a large multinational conglomerate in the businesses of
aerospace, automotive and engineered materials, and Carnival Corp., the
popular cruise line operator, performed well as they continued to execute
their business strategies.*
Higher interest rates and new telecommunications legislation contributed to
weak performance in the Fund's utilities and communications holdings. It
should be noted, however, that the Fund was significantly underweighted in
this area relative to the S&P 500 Index.
Q. What is your outlook for 1997?
Although we continue to expect moderate economic growth, low inflation and a
stable interest rate environment, we believe that equity markets will
experience increased volatility in 1997. An increase in the possibility of
earnings disappointments and investor concerns over lower corporate earnings
growth than last year should contribute to this volatility. We believe these
concerns will make stock selection an important factor in performance in
1997.
* As of December 31, 1996, McDonnell-Douglas and Eckerd were no longer held by
the Fund.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VALUE FUND
- --------------------------------------------------------------------------------
- -----------------------------------------------------
YOUR FUND'S FIVE LARGEST INVESTMENTS 12/31/96*
- -----------------------------------------------------
PERCENTAGE
COMPANY OF ASSETS
- -----------------------------------------------------
1. TOSCO CORP. 2.42%
Oil & Gas
- -----------------------------------------------------
2. PANENERGY CORP. 2.24%
Gas & Pipeline Utilities
- -----------------------------------------------------
3. LEGGETT & PLATT, INC. 2.22%
Housing & Building Materials
- -----------------------------------------------------
4. AETNA, INC. 2.18%
Liability insurance
- -----------------------------------------------------
5. CROWN CORK & SEAL CO., INC. 2.15%
Packaging
- -----------------------------------------------------
- -----------------------------------------------------
YOUR FUND'S TEN LARGEST STOCK SECTORS AS OF 12/31/96*
- -----------------------------------------------------
PERCENTAGE
INDUSTRY OF ASSETS
- -----------------------------------------------------
1. Insurance 7.7%
- -----------------------------------------------------
2. Banks 7.6%
- -----------------------------------------------------
3. Housing & Building Materials 6.8%
- -----------------------------------------------------
4. Health Care Services 6.8%
- -----------------------------------------------------
5. Freight Transportation 5.7%
- -----------------------------------------------------
6. Financial Services 5.5%
- -----------------------------------------------------
7. Conglomerates 5.3%
- -----------------------------------------------------
8. Telecommunications 5.1%
- -----------------------------------------------------
9. Chemicals 4.9%
- -----------------------------------------------------
10. Aerospace 4.9%
- -----------------------------------------------------
*Portfolio holdings and asset allocations will vary.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of December 31, 1996
COMMON STOCK--97.6% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------
AEROSPACE--4.9%
41,500 Lockheed Martin Corp. ........................... $ 3,797,250
86,200 Northrop Grumman Corp. .......................... 7,133,050
138,500 Raytheon Co. .................................... 6,665,312
------------
17,595,612
------------
APPAREL & TEXTILES--1.9%
167,800 Reebok International, Ltd. ...................... 7,047,600
------------
AUTOMOTIVE & RELATED--1.4%
90,500 General Motors Corp. ............................ 5,045,375
------------
BANKS--7.6%
71,700 BankAmerica Corp. ............................... 7,152,075
76,200 Chase Manhattan Corp. ........................... 6,800,850
70,100 NationsBank Corp. ............................... 6,852,275
152,700 Norwest Corp. ................................... 6,642,450
------------
27,447,650
------------
BEVERAGES--1.8%
279,900 Whitman Corp. ................................... 6,402,713
------------
CHEMICALS--4.9%
284,100 Crompton & Knowles Corp. ........................ 5,468,925
72,500 El du Pont de Nemours & Co. ..................... 6,842,187
99,700 PPG Industries, Inc. ............................ 5,595,663
------------
17,906,775
------------
COMPUTERS & BUSINESS EQUIPMENT--1.9%
210,500 EMC Corp. (c) ................................... 6,972,813
------------
CONGLOMERATES--5.3%
98,600 Allied Signal, Inc. ............................. 6,606,200
137,600 Dover Corp. ..................................... 6,914,400
145,400 Philips Electronics NV (ADR) (d) ................ 5,816,000
------------
19,336,600
------------
ELECTRIC UTILITIES--1.8%
324,300 Edison International ............................ 6,445,463
------------
ELECTRICAL EQUIPMENT--1.9%
122,700 York International Corp. ........................ 6,855,863
------------
ELECTRONIC COMPONENTS--1.7%
46,600 Intel Corp. ..................................... 6,101,688
------------
FINANCIAL SERVICES--5.5%
63,300 Federal Home Loan Mortgage Corp. ................ 6,970,912
174,000 Federal National Mortgage Association ........... 6,481,500
170,200 Green Tree Financial Corp. ...................... 6,573,975
------------
20,026,387
------------
FOOD-AGRIBUSINESS--1.7%
256,500 IBP, Inc. ....................................... 6,220,125
------------
FREIGHT TRANSPORTATION--5.7%
78,600 Burlington Northern Santa Fe .................... 6,789,075
268,500 Canadian Pacific, Ltd. .......................... 7,115,250
154,800 Federal Express Corp. (c) ....................... 6,888,600
------------
20,792,925
------------
GAS & PIPELINE UTILITIES--2.9%
35,100 Columbia Gas Systems, Inc. ...................... 2,233,238
180,500 Panenergy Corp. ................................. 8,122,500
------------
10,355,738
------------
HEALTH CARE-SERVICES--6.8%
98,700 Aetna, Inc. ..................................... 7,896,000
497,600 Beverly Enterprises, Inc. ....................... 6,344,400
181,300 Columbia/HCA Healthcare Corp. ................... 7,387,975
93,500 Foundation Health Corp. (c) ..................... 2,968,625
------------
24,597,000
------------
HOUSEHOLD PRODUCTS--4.1%
55,100 Kimberly-Clark Corp. ............................ 5,248,275
112,000 Premark International, Inc. ..................... 2,492,000
135,300 Tupperware Corp. ................................ 7,255,462
------------
14,995,737
------------
HOUSING & BUILDING MATERIALS--6.8%
103,400 Armstrong World Industries, Inc. ................ 7,186,300
74,200 Black & Decker Corp. ............................ 2,235,275
232,500 Leggett & Platt, Inc. ........................... 8,050,312
202,500 Masco Corp. ..................................... 7,290,000
------------
24,761,887
------------
INSURANCE--7.8%
124,300 ACE, Ltd. ....................................... 7,473,537
120,900 Allstate Corp. .................................. 6,997,088
120,500 Chubb Corp. ..................................... 6,476,875
247,600 Everest Reinsurance Holdings, Inc. .............. 7,118,500
------------
28,066,000
------------
LEISURE TIME--3.8%
215,500 American Greetings Corp. ........................ 6,114,812
231,500 Carnival Corp. .................................. 7,639,500
------------
13,754,312
------------
OIL & GAS--4.5%
110,800 Tosco Corp. ..................................... 8,767,050
141,900 United Meridian Corp.(c) ........................ 7,343,325
------------
16,110,375
------------
PACKAGING--2.2%
143,300 Crown Cork & Seal Co., Inc. ..................... 7,791,938
------------
RETAIL-FOOD & DRUG--2.0%
154,600 Kroger Co. (c) .................................. 7,188,900
------------
TELECOMMUNICATION--5.1%
89,700 Ameritech Corp. ................................. 5,438,062
143,200 GTE Corp. ....................................... 6,515,600
182,000 Pacific Telesis Group ........................... 6,688,500
------------
18,642,162
------------
TOBACCO--3.6%
75,900 Loews Corp. ..................................... 7,153,575
180,500 UST, Inc. ....................................... 5,843,687
------------
12,997,262
------------
Total Common Stock (Identified Cost $269,131,583) 353,458,900
------------
SHORT TERM INVESTMENTS--3.0%
FACE
AMOUNT DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------
$11,108,000 Associates Corp. North America 6.550%, 1/02/97 . $ 11,108,000
------------
Total Short Term Investments (Identified Cost
$11,108,000) ................................. 11,108,000
------------
Total Investments--100.6% (Identified Cost
$280,239,583)(b) ............................. 364,566,900
Other assets less liabilities ................. (2,324,940)
------------
Total Net Assets--100% ......................... $362,241,960
============
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on
investments based on cost of $280,300,421 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 ........ $ 84,637,308
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ........ (370,829)
------------
Net unrealized appreciation ............................... $ 84,266,479
============
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued
by a U.S. bank representing the right to receive securities
of the foreign issuer described. The value of ADRs are
significantly influenced by trading on exchanges not located
in the United States or Canada.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value ..................................... $364,566,900
Cash ..................................................... 348
Receivable for:
Fund shares sold ....................................... 707,794
Dividends and interest ................................. 506,863
Foreign taxes .......................................... 2,886
Prepaid registration expense ........................... 8,000
------------
365,792,791
LIABILITIES
Payable for:
Securities purchased ................................... $ 998,513
Fund shares redeemed ................................... 2,159,596
Withholding Taxes ...................................... 258
Accrued expenses:
Management fees ........................................ 219,669
Deferred trustees' fees ................................ 73,923
Accounting and administrative .......................... 4,725
Other expenses ......................................... 94,147
-----------
3,550,831
------------
NET ASSETS ................................................. $362,241,960
============
Net Assets consist of:
Capital paid in ........................................ $269,109,127
Undistributed net investment income .................... 121,261
Accumulated net realized gains ......................... 8,684,255
Unrealized appreciation on investments ................. 84,327,317
------------
NET ASSETS ................................................. $362,241,960
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($297,581,000 divided by 31,010,724 shares of
beneficial interest) ................................. $ 9.60
======
Offering price per share (100/94.25 of $9.60) .......... $10.19*
======
Net asset value and offering price of Class B shares
($48,209,683 divided by 5,092,567 shares of beneficial
interest) ............................................ $ 9.47**
======
Net asset value and offering price of Class C shares
($3,735,265 divided by 395,019 shares of beneficial
interest) ............................................ $ 9.46
======
Net asset value and offering price of Class Y shares
($12,716,012 divided by 1,331,232 shares of beneficial
interest) ............................................ $ 9.55
======
Identified cost of investments ......................... $280,239,583
============
* 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 ................................................ $ 5,973,994(a)
Interest ................................................. 397,414
-----------
6,371,408
Expenses
Management fees ........................................ $2,241,498
Service fees - Class A ................................. 646,962
Service and distribution fees - Class B ................ 359,799
Service and distribution fees - Class C ................ 21,301
Trustees' fees and expenses ............................ 22,873
Accounting and administrative .......................... 54,574
Custodian .............................................. 109,035
Transfer agent ......................................... 616,555
Audit and tax services ................................. 35,000
Legal .................................................. 24,357
Printing ............................................... 55,217
Registration ........................................... 49,042
Miscellaneous .......................................... 22,078
----------
Total Expenses ........................................... 4,258,291
-----------
Net investment income .................................... 2,113,117
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ..................... 41,007,345
Unrealized appreciation on Investments - net ........... 30,101,917
-----------
Net gain on investment transactions .................... 71,109,262
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $73,222,379
===========
(a) Net of foreign taxes of: $97,469.
</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
------------- -------------
FROM OPERATIONS
<S> <C> <C>
Net investment income .................................... $ 2,841,943 $ 2,113,117
Net realized gain on investments ......................... 31,424,701 41,007,345
Unrealized appreciation on investments ................... 33,283,879 30,101,917
------------ ------------
Increase in net assets from operations ................... 67,550,523 73,222,379
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .............................................. (2,497,665) (1,859,247)
Class B .............................................. (159,658) (44,342)
Class C .............................................. (6,440) (3,710)
Class Y .............................................. (86,275) (105,836)
Net realized gain on investments
Class A .............................................. (18,292,636) (35,730,736)
Class B .............................................. (1,952,478) (5,470,122)
Class C .............................................. (53,531) (360,682)
Class Y .............................................. (467,103) (1,371,598)
------------ ------------
(23,515,786) (44,946,273)
------------ ------------
Increase in net assets derived from capital share
transactions ........................................... 24,206,907 57,024,198
------------ ------------
Total increase in net assets ............................. 68,241,644 85,300,304
NET ASSETS
Beginning of the year .................................... 208,700,012 276,941,656
------------ ------------
End of the year .......................................... $276,941,656 $362,241,960
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
Beginning of the year .................................... $ (12,653) $ 91,904
============ ============
End of the year .......................................... $ 91,904 $ 121,261
============ ============
</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 .... $ 6.69 $ 7.28 $ 7.87 $ 7.27 $ 8.78
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................. 0.09 0.07 0.08 0.10 0.06
Net Realized and Unrealized Gain (Loss)
on Investments ...................... 1.02 1.16 (0.19) 2.21 2.12
------ ------ ------ ------ ------
Total From Investment Operations ...... 1.11 1.23 (0.11) 2.31 2.18
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .. (0.09) (0.07) (0.08) (0.09) (0.06)
Distributions From Net Realized Capital
Gains ................................. (0.43) (0.57) (0.41) (0.71) (1.30)
------ ------ ------ ------ ------
Total Distributions ................... (0.52) (0.64) (0.49) (0.80) (1.36)
------ ------ ------ ------ ------
Net Asset Value, End of Year .......... $ 7.28 $ 7.87 $ 7.27 $ 8.78 $ 9.60
====== ====== ====== ====== ======
Total Return (%) (a) .................. 16.6 17.0 (1.4) 32.3 26.3
Ratio of Operating Expenses to
Average Net Assets (%) .............. 1.32 1.34 1.37 1.37 1.31
Ratio of Net Investment Income to
Average Net Assets (%) .............. 1.26 0.83 1.00 1.22 0.78
Portfolio Turnover Rate (%) ........... 38 40 29 52 64
Average Commission Rate (b) ........... -- -- -- -- $ 0.0574
Net Assets, End of Year (000) ......... $156,240 $189,779 $190,869 $241,038 $297,581
(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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
SEPTEMBER 13 (a)
THROUGH
DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------
1993 1994 1995 1996
----------------- ------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 7.97 $ 7.85 $ 7.23 $ 8.70
------ ------ ------ ------
Income From Investment Operations
Net Investment Income .......................... 0.11 0.04 0.05 0.01
Net Realized and Unrealized Gain (Loss) on
Investments .................................. 0.39 (0.20) 2.18 2.07
------ ------ ------ ------
Total From Investment Operations ............... 0.50 (0.16) 2.23 2.08
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income ........... (0.05) (0.05) (0.05) (0.01)
Distributions From Net Realized Capital Gains .. (0.57) (0.41) (0.71) (1.30)
------ ------ ------ ------
Total Distributions ............................ (0.62) (0.46) (0.76) (1.31)
------ ------ ------ ------
Net Asset Value, End of Period ................. $ 7.85 $ 7.23 $ 8.70 $ 9.47
====== ====== ====== ======
Total Return (%) (c) ........................... 6.5 (2.0) 31.3 25.4
Ratio of Operating Expenses to
Average Net Assets (%) ....................... 2.16(b) 2.12 2.12 2.06
Ratio of Net Investment Income to
Average Net Assets (%) ....................... 0.05(b) 0.25 0.47 0.03
Portfolio Turnover Rate (%) .................... 40 29 52 64
Average Commission Rate (d) .................... -- -- -- $0.0574
Net Assets, End of Period (000) ................ $2,182 $13,830 $27,941 $48,210
(a) Commencement of operations.
(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.
(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>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS Y
------------------------- -----------------------------------------
MARCH 31 (a)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------- ------------ ------------------------
1995 1996 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 7.23 $ 8.70 $ 7.57 $ 7.24 $ 8.75
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................. 0.05 0.01 0.10 0.12 0.08
Net Realized and Unrealized Gain (Loss)
on Investments ...................... 2.18 2.06 0.08 2.21 2.10
------ ------ ------ ------ ------
Total From Investment Operations ...... 2.23 2.07 0.18 2.33 2.18
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .. (0.05) (0.01) (0.10) (0.11) (0.08)
Distributions From Net Realized Capital
Gains ............................... (0.71) (1.30) (0.41) (0.71) (1.30)
------ ------ ------ ------ ------
Total Distributions ................... (0.76) (1.31) (0.51) (0.82) (1.38)
------ ------ ------ ------ ------
Net Asset Value, End of Period ........ $ 8.70 $ 9.46 $ 7.24 $ 8.75 $ 9.55
====== ====== ====== ====== ======
Total Return (%) (c) .................. 31.3 25.2 2.4 32.8 26.4
Ratio of Operating Expenses to
Average Net Assets (%) .............. 2.12 2.06 1.54(b) 1.12 1.06
Ratio of Net Investment Income to
Average Net Assets (%) .............. 0.47 0.03 1.05(b) 1.47 1.03
Portfolio Turnover Rate (%) ........... 52 64 29 52 64
Average Commission Rate (d) ........... -- $0.0574 -- -- $0.0574
Net Assets, End of Period (000) ....... $1,224 $ 3,735 $4,001 $6,738 $12,716
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(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 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
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced
its public offering of Class B shares on September 13, 1993, of Class C shares
on December 30, 1994 and of its Class Y shares on March 31, 1994. 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
front end or contingent deferred sales charges and do not convert to any class
of shares, but they do pay a higher ongoing distribution fee than Class A
shares. Class Y shares do not pay a front end sales charge, a contingent
deferred sales charge or distribution fee. They are intended for institutional
investors with a minimum of $1,000,000 to invest. Expenses of the Fund are borne
pro-rata by the holders of each class of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
Trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates market value.
B. SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are accounted
for on the trade date (the date the buy or sell is executed). Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Interest income for the Fund 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 will result in reclassification to the
capital accounts.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for year ended December 31, 1996 were $202,530,985 and $192,376,417,
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 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Loomis Sayles & Company, L.P. at the rate of 0.535% of the first $200 million of
the Fund's average daily net assets, 0.350% of the next $300 million and 0.300%
of such assets in excess of $500 million. Certain officers and directors of NEFM
are also officers or trustees of the Fund. NEFM and Loomis Sayles & Company,
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 Loomis Sayles & Company, L.P. under the
management agreement in effect during the year ended December 31, 1996 are as
follows:
FEES EARNED
-----------
$ 800,751 New England Funds Management, L.P.
$1,440,747 Loomis Sayles & Company, 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 Funds' 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 $54,574 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 $458,589 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 $646,962 in fees under
the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at December 31, 1996 is
$1,651,994.
Under the Class B and Class C 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 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 $89,950 and $5,325 in service fees under
the Class B and Class C plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds
monthly distribution fees at the annual rate of 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
$269,849 and $15,976 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 $737,395.
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 $2,255
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $131/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 four classes, Class A, Class B,
Class C and Class Y 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 .......................... 3,546,403 $29,882,286 4,640,471 $43,287,185
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 283,157 2,443,644 189,563 1,810,327
Distributions from net realized gain 2,099,871 18,018,417 3,878,685 35,082,583
--------- ----------- --------- -----------
5,929,431 50,344,347 8,708,719 80,180,095
Shares repurchased ................... (4,749,976) (39,580,212) (5,137,827) (47,889,236)
--------- ----------- --------- -----------
Net increase ......................... 1,179,455 $10,764,135 3,570,892 $32,290,859
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,279,784 $10,347,316 1,765,384 $16,311,333
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 16,925 144,710 4,900 46,158
Distributions from net realized gain 219,538 1,861,128 582,246 5,194,870
--------- ----------- --------- -----------
1,516,247 12,353,154 2,352,530 21,552,361
Shares repurchased ................... (218,772) (1,820,967) (471,337) (4,330,620)
--------- ----------- --------- -----------
Net increase ......................... 1,297,475 $10,532,187 1,881,193 $17,221,741
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 149,041 $ 1,267,129 289,530 $ 2,676,616
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 678 5,797 372 3,501
Distributions from net realized gain 5,998 50,896 37,948 339,671
--------- ----------- --------- -----------
155,717 1,323,822 327,850 3,019,788
Shares repurchased ................... (15,036) (131,777) (73,512) (674,174)
--------- ----------- --------- -----------
Net increase ......................... 140,681 $ 1,192,045 254,338 $ 2,345,614
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 370,103 $ 2,990,140 473,688 $ 4,397,728
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 10,044 86,275 11,141 105,840
Distributions from net realized gain 54,580 467,103 151,895 1,371,593
--------- ----------- --------- -----------
434,727 3,543,518 636,724 5,875,161
Shares repurchased ................... (216,496) (1,824,978) (75,923) (709,177)
--------- ----------- --------- -----------
Net increase ......................... 218,231 1,718,540 560,801 5,165,984
--------- ----------- --------- -----------
Increase derived from capital shares
transactions ....................... 2,835,842 $24,206,907 6,267,224 $57,024,198
========= =========== ========= ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND VALUE FUND
In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England Value Fund ("the Fund")
at December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
December 31, 1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1997
<PAGE>
- -----------------------------------------------------------------------------
NEW ENGLAND FUNDS
- -----------------------------------------------------------------------------
STOCK FUNDS
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Growth Fund
Star Advisers Fund
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INTERNATIONAL STOCK FUNDS
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BOND FUNDS
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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
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government 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 HTTP://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.
<PAGE>
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