<PAGE>
- -------------------------------------------------------------------------------
ANNUAL REPORT AND PERFORMANCE UPDATE
- -------------------------------------------------------------------------------
(Logo)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- -------------------------------------------------------------------------------
New England
Capital Growth Fund
[graphic omitted]
December 31, 1996
<PAGE>
February 1997
- -------------------------------------------------------------------------------
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 CAPITAL GROWTH 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 CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------
[A chart in the form of a line graph appears here illustrating a $10,000
investment in the Fund since inception 8/3/92, compared to the S&P Index over
the same period. The data for this chart are as follows:]
A $10,000 INVESTMENT IN CLASS A SHARES
DATE NAV POP S&P
- ---- --------- --------- ---------
8/3/92 $10,000 $ 9,425 $10,000
12/31/92 $11,491 $10,830 $10,422
12/31/93 $12,398 $11,685 $11,470
12/31/94 $12,194 $11,493 $11,626
12/31/95 $15,937 $15,020 $15,979
12/31/96 $18,654 $17,581 $19,639
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.
- -------------------------------------------------------------------------------
YOUR FUND'S FIVE LARGEST INVESTMENTS 12/31/96
- -------------------------------------------------------------------------------
PERCENTAGE
COMPANY OF ASSETS
- -------------------------------------------------------------------------------
1. GENERAL ELECTRIC CO. CONSUMER/INDUSTRIAL PRODUCTION, BROADCAST 2.56%
- -------------------------------------------------------------------------------
2. MERCK & CO. DRUGS AND HEALTHCARE 2.39%
- -------------------------------------------------------------------------------
3. ANADARKO PETROLEUM CORP. OIL AND GAS DEVELOPERS AND PRODUCERS 2.17%
- -------------------------------------------------------------------------------
4. MICROSOFT CORP. COMPUTER SOFTWARE 2.17%
- -------------------------------------------------------------------------------
5. FISERV, INC. BUSINESS SERVICES 2.06%
- -------------------------------------------------------------------------------
Portfolio holdings subject to change.
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 12/31/96
- -------------------------------------------------------------------------------
CLASS A (INCEPTION 8/3/92) 1 YEAR 3 YEAR SINCE INCEPTION
NET ASSET VALUE(1) 17.05% 14.61% 15.20%
WITH MAX. SALES CHARGE(2) 10.34 12.37 13.67
LIPPER GROWTH AVERAGE(5) 19.22 15.36 15.19
- -------------------------------------------------------------------------------
CLASS B (INCEPTION 9/13/93) 1 YEAR 3 YEAR SINCE INCEPTION
NET ASSET VALUE(1) 16.17% 13.77% 13.66%
WITH CDSC(3) 12.11 12.97 13.18
STANDARD & POOR'S 500(4) 22.90 19.63 18.40
LIPPER GROWTH AVERAGE(5) 19.22 15.36 N/A
- -------------------------------------------------------------------------------
CLASS C (INCEPTION 12/30/94) 1 YEAR SINCE INCEPTION
NET ASSET VALUE(1) 16.24% 22.77%
STANDARD & POOR'S 500(4) 22.90 30.27
LIPPER GROWTH AVERAGE(5) 19.22 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) Maximum Sales Charge performance assumes reinvestment of all distributions
and reflects the maximum sales charge of 5.75% at the time of purchase of
Class A shares.
(3) Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 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 500(R) Index (S&P 500) is an unmanaged index representing
the performance of 500 major companies, most of which are listed on the New
York Stock Exchange. The S&P 500 performance has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Lipper 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.
(6) Lipper Growth Fund Index is an equally-weighted performance index, adjusted
for capital gains distributions and income dividends of the 30 largest
qualifying funds in the growth investment objective.
(7) The Dow Jones Industrial Average, the most widely reported market indicator,
reflects stock prices of 30 major companies worth about 25% of the total
value of all stocks listed on the New York Stock Exchange.
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
Q. How did New England Capital Growth Fund perform in 1996?
[Photo of Scott Pape
and Bruce Ebel,
Loomis, Sayles
& Co., L.P.]
The Fund's total return of 17.05% (Class A shares at net asset value) was
right in line with the performance of the Lipper Growth Fund Index6, which
gained 17.48% for the year, and not far behind the Lipper Growth Average5 of
19.22%. Meanwhile, the widely-followed large-cap indices -- the Dow Jones
Industrial Average7 and the Standard & Poor's 500 Stock Index4 -- gained
28.84% and 22.90%, respectively. These strong returns by the major indices
masked underperformance by the broader marketplace.
In absolute terms, the Fund's 1996 total returns of 17.05%, 16.17% and
16.24% at net asset value for Class A, B and C shares, respectively, came on
top of 1995's figure of 30.68% (Class A). In both cases, shareholders
profited from a positive foundation for equities: a strong profit picture
coupled with modest inflation. In addition, fairly stable interest rates
favored investors through most of the year. Long-term rates began the year
at around 6%, moved up briefly to the 7% range during the summer, and had
settled back down to around 6% by the end of December.
The U.S. economy was more vigorous than we expected, especially in the first
two quarters. Later, a slowdown that we had anticipated began to
materialize, as first-half growth of over 3% in the nation's Gross Domestic
Product had shrunk to less than 2% by the third quarter. The market then
grew defensive, favoring larger cap issues for their greater liquidity and
lower risk potential. This shift drove the major large cap indices higher,
creating relative underperformance in the rest of the marketplace.
Q. How did you manage the Fund this year?
We took advantage of corporate earnings trends that tracked the economic
pattern; higher first-half growth rates gave way to a slowdown in growth --
not a downturn -- later in the year. As a result, the market's leadership
group became narrower, as investors were willing to pay more for those
companies whose earnings met or exceeded expectations.
The Fund benefited from this blue-chip trend because of its positions in
General Electric, Coca Cola, Merck and Microsoft, all industry leaders and
good examples of our long-standing strategy.
Using a bottom-up approach, we look for America's premier companies:
dominant well-managed concerns whose earnings potential should reward
shareholders with above-average long-term returns. We make few assumptions
about sectors; the Fund's industry allocation is chiefly the result of our
stock selection process.
Performance also benefited from our technology holdings, including positions
in Cisco Systems, Oracle, Hewlett Packard and Intel. Strength in financial
issues also favored the Fund. These interest rate sensitive companies did
particularly well in the second half of the year, as rates began to fall.
Our financial holdings included American International Group, First Bank
Systems and MGIC. Two mergers also boosted performance: the acquisition of
Duracell by Gillette and St. Jude Medical's purchase of Ventritex.
We increased our defensive stance with a commitment to consumer staples --
health care, food and beverage and consumer products companies. Better than
expected earnings from these less economically sensitive companies added
value to the portfolio. Our focus on energy stocks was also beneficial, as
an improved supply/demand balance led to a pickup in drilling and
exploration, after years of underinvestment in this sector. Meanwhile, our
exposure to emerging growth companies hampered performance. Although many of
these fast-growing companies did well, their stock prices lagged as the
market focus began to favor more established names.
Late in the year we took profits in -- but did not eliminate -- some of our
blue chips, where prices seemed overextended. We reinvested part of the
proceeds into emerging companies like Amgen, Informix, Idexx Labs and Thermo
Electron, which we judged to offer attractive growth prospects.
Q. What is your economic and investment outlook?
For the next several months, the economy should continue to slow, putting
pressure on profit growth. In a more sluggish environment, investors will
probably be willing to pay a premium for companies with strong potential for
earnings increases. Over the next six to 12 months, we believe interest
rates will remain stable or decline.
Historically, markets are not as strong following presidential elections.
Also, the increase in stock prices over the last two years has pushed
overall valuations to the high end of historical ranges, making stock
selection even more important in 1997. Large cap stocks are unlikely to
outrun the rest of the market again, a view which favors mid-cap and
emerging growth companies.
American companies continue to do a good job of bringing money to the bottom
line. Productivity is up. U.S. firms have become more competitive globally;
many are leaders in a wide range of industries, including semiconductors,
medical devices, telecommunications products, software and semiconductor
capital equipment.
The cost of technology goods and services is declining steadily.
Technology's share of the economy continues to grow -- it now represents 15%
of GDP -- producing a disinflationary effect and a positive impact on
productivity. Labor costs have increased slightly, but this rise is not
unusual at this stage in the economic cycle. Thus, these costs present very
little threat of future inflation.
Q. How have you positioned the Fund in light of these assumptions?
We believe the Fund is well-positioned in view of our outlook for a more
positive tone in the broader stock market. We are emphasizing consumer
nondurables and have increased exposure to emerging growth stocks. We have
also built a strong position in technology to take advantage of a long-term
trend toward expanded spending in this area.
Either a pickup in consumer spending, or an acceleration of economic
activity abroad could counter our thesis of a slowing economy.
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK--99.6% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
AEROSPACE--1.9%
31,700 Boeing Co. ............................................... $ 3,372,088
-------------
AIRLINES--0.9%
75,000 Southwest Airlines ....................................... 1,659,375
-------------
APPAREL & TEXTILES--0.6%
16,400 NIKE, Inc., Class B ...................................... 979,900
-------------
BANKS--1.8%
6,400 Chase Manhattan Corp. .................................... 571,200
40,000 First Bank Systems, Inc. ................................. 2,730,000
-------------
3,301,200
-------------
BEVERAGES--2.8%
54,000 Coca-Cola Co. ............................................ 2,841,750
72,000 PepsiCo, Inc. ............................................ 2,106,000
-------------
4,947,750
-------------
BUSINESS SERVICES--11.2%
30,000 ABR Information Services, Inc. (c) ....................... 1,181,250
67,000 Automatic Data Processing, Inc. .......................... 2,872,625
80,000 Checkfree Corp. (c) ...................................... 1,370,000
55,600 Cintas Corp. ............................................. 3,266,500
50,000 Danka Business Systems (ADR) (d) ......................... 1,768,750
87,600 First Data Corp. ......................................... 3,197,400
100,250 Fiserv, Inc. (c) ......................................... 3,684,187
49,000 Paychex, Inc. ............................................ 2,520,438
3,750 Sykes Enterprises, Inc. (c) .............................. 140,625
-------------
20,001,775
-------------
CHEMICALS--1.7%
78,800 Monsanto Co. ............................................. 3,063,350
-------------
COMPUTER SOFTWARE & SERVICES--7.2%
11,800 Computer Associates International, Inc. .................. 587,050
41,400 HBO & Co. ................................................ 2,458,125
36,400 HNC Software, Inc. (c) ................................... 1,137,500
110,000 Informix Corp. (c) ....................................... 2,241,250
47,000 Microsoft Corp. (c) ...................................... 3,883,375
61,900 Oracle Systems Corp. (c) ................................. 2,584,325
-------------
12,891,625
-------------
CONGLOMERATES--1.3%
58,300 Thermo Electron Corp. (c) ................................ 2,404,875
-------------
ELECTRICAL EQUIPMENT--2.6%
46,500 General Electric Co. ..................................... 4,597,688
-------------
ELECTRONIC COMPONENTS--6.7%
65,000 Glenayre Technologies, Inc. (c) .......................... 1,401,563
27,200 Intel Corp. .............................................. 3,561,500
60,000 LSI Logic Corp. (c) ...................................... 1,605,000
25,000 Molex, Inc. .............................................. 978,125
64,500 Molex, Inc., Class A ..................................... 2,297,812
41,200 Solectron Corp. (c) ...................................... 2,199,050
-------------
12,043,050
-------------
FINANCIAL SERVICES--2.4%
37,500 Charles Schwab Corp. ..................................... 1,200,000
40,000 MGIC Investment Corp. .................................... 3,040,000
-------------
4,240,000
-------------
GAS & PIPELINE UTILITIES--0.5%
21,900 Enron Corp. .............................................. 944,438
-------------
HEALTH CARE-DRUGS--9.0%
40,000 Abbott Laboratories ...................................... 2,030,000
55,300 Amgen, Inc. (c) .......................................... 3,006,937
48,600 Biogen, Inc., (c) ........................................ 1,883,250
15,200 Eli Lilly & Co. .......................................... 1,109,600
44,300 Johnson & Johnson ........................................ 2,203,925
54,000 Merck & Co. .............................................. 4,279,500
230,000 Oncor, Inc. (c) .......................................... 905,625
65,000 Somatogen, Inc. (c) ...................................... 715,000
-------------
16,133,837
-------------
HEALTH CARE - MEDICAL TECHNOLOGY--5.1%
45,000 Boston Scientific Corp. (c) .............................. 2,700,000
86,000 Idexx Laboratories (c) ................................... 3,096,000
49,200 Medtronic, Inc. .......................................... 3,345,600
-------------
9,141,600
-------------
HEALTH CARE-SERVICES--3.8%
71,700 Columbia/HCA Healthcare Corp. ............................ 2,921,775
77,200 Healthsouth Corp. (c) .................................... 2,981,850
33,500 Phycor, Inc. (c) ......................................... 950,562
-------------
6,854,187
-------------
HOTELS & RESTAURANTS--4.6%
31,600 Boston Chicken, Inc. (c) ................................. 1,133,650
18,600 Circus Circus Enterprises, Inc. (c) ...................... 639,375
20,000 Einstein Noah Bagel Corp. (c) ............................ 595,000
65,000 Lone Star Steakhouse & Saloon (c) ........................ 1,738,750
40,000 Primadonna Resorts, Inc. (c) ............................. 680,000
120,100 Starbucks Corp. (c) ...................................... 3,437,862
-------------
8,224,637
-------------
HOUSEHOLD PRODUCTS--5.0%
52,500 Duracell International, Inc. ............................. 3,668,437
38,000 Gillette Co. ............................................. 2,954,500
4,300 Kimberly-Clark Corp. ..................................... 409,575
50,000 Newell Co. ............................................... 1,575,000
3,600 Procter & Gamble Co. ..................................... 387,000
-------------
8,994,512
-------------
INSURANCE--1.7%
28,000 American International Group, Inc. (c) ................... 3,031,000
-------------
LEISURE TIME--1.3%
30,000 Eastman Kodak Co. ........................................ 2,407,500
-------------
MACHINERY--1.6%
35,300 Illinois Tool Works, Inc. ................................ 2,819,588
-------------
MEDIA & ENTERTAINMENT--1.4%
3,800 TCI Satellite Entertainment, Inc. (c) .................... 37,525
38,000 Tele-Communications, Inc. (c) ........................... 496,375
28,500 Walt Disney Co. .......................................... 1,984,313
-------------
2,518,213
-------------
METAL--0.2%
8,400 Nucor Corp. .............................................. 428,400
-------------
OFFICE EQUIPMENT & SUPPLIES--7.3%
49,900 Cascade Communications Corp. (c) ......................... 2,750,738
56,100 Cisco Systems, Inc. (c) .................................. 3,569,362
49,200 Hewlett-Packard Co. ...................................... 2,472,300
60,000 Parametric Technology Corp. (c) .......................... 3,082,500
17,500 U.S. Robotics Corp. (c) .................................. 1,260,000
-------------
13,134,900
-------------
OIL - INDEPENDENT PRODUCERS--2.4%
60,100 Anadarko Petroleum Corp. ................................. 3,891,475
14,800 Enron Oil & Gas Co. ...................................... 373,700
-------------
4,265,175
-------------
OIL - MAJOR INTEGRATED--0.3%
7,000 Amoco Corp. .............................................. 563,500
-------------
OIL SERVICES--2.3%
31,100 Baker Hughes, Inc. ....................................... $ 1,072,950
30,700 Rowan Companies (c) ...................................... 694,588
23,500 Schlumberger, Ltd. ....................................... 2,347,062
-------------
4,114,600
-------------
RETAIL--0.2%
18,900 Wal-Mart Stores, Inc. .................................... 432,337
-------------
RETAIL - SPECIALTY--5.3%
142,000 CUC International, Inc. (c) .............................. 3,372,500
49,000 Home Depot, Inc. ......................................... 2,456,125
165,000 Petsmart, Inc. (c) ....................................... 3,609,375
-------------
9,438,000
-------------
TELECOMMUNICATION--4.5%
17,600 MCI Communications ....................................... 575,300
20,600 Paging Network, Inc. (c) ................................. 314,150
37,800 PairGain Technologies, Inc. (c) .......................... 1,150,537
66,000 QUALCOMM, Inc. (c) ....................................... 2,631,750
62,000 Tellabs, Inc. (c) ........................................ 2,332,750
18,800 U.S. West Media Group (c) ................................ 347,800
25,500 Worldcom, Inc. (c) ....................................... 664,594
-------------
8,016,881
-------------
TOBACCO--2.0%
31,000 Philip Morris Companies, Inc. ............................ 3,491,375
-------------
Total Common Stock (Identified Cost $142,927,282) ........ 178,457,356
-------------
SHORT TERM INVESTMENT--0.9%
FACE
AMOUNT DESCRIPTION VALUE (A)
- ------------------------------------------------------------------------------------------------
$ 1,687,909 Associates Corp. of North America 6.550%, 1/02/97 ......... $ 1,687,909
-------------
Total Short Term Investment (Identified Cost $1,687,909) . 1,687,909
-------------
Total Investments--100.5% (Identified Cost $144,615,191)
(b) ....................................................... 180,145,265
Other assets less liabilities ............................ (876,413)
-------------
Total Net Assets--100% .................................... $ 179,268,852
=============
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based
on cost of $144,957,730 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 ..................................... $ 39,900,664
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ..................................... (4,713,129)
-------------
Net unrealized appreciation ............................................... $ 35,187,535
=============
(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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value ....................................... $180,145,265
Receivable for:
Fund shares sold ......................................... 134,741
Dividends and interest ................................... 149,436
Foreign taxes ............................................ 142
Unamortized organization expense ........................... 13,860
Prepaid registration expense ............................... 8,000
------------
180,451,444
LIABILITIES
Payable for:
Securities purchased ..................................... $905,532
Fund shares redeemed ..................................... 73,616
Withholding Taxes ........................................ 820
Accrued expenses:
Management fees .......................................... 114,582
Deferred trustees' fees .................................. 8,917
Accounting and administrative ............................ 3,009
Other expenses ........................................... 76,116
--------
1,182,592
------------
NET ASSETS ................................................... $179,268,852
============
Net Assets consist of:
Capital paid in .......................................... $139,674,227
Undistributed net investment loss ........................ (7,492)
Accumulated net realized gains ........................... 4,072,043
Unrealized appreciation on investments ................... 35,530,074
------------
NET ASSETS ................................................... $179,268,852
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($141,326,111 divided by 7,332,937 shares of beneficial
interest) .................................................. $19.27
======
Offering price per share (100/94.25 of $19.27) ............... $20.45*
======
Net asset value and offering price of Class B shares
($37,439,112 divided by 1,998,231 shares of beneficial
interest) .................................................. $18.74**
======
Net asset value and offering price of Class C shares
($503,629 divided by 26,870 shares of beneficial interest) . $18.74
======
Identified cost of investments ............................... $144,615,191
============
* 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
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Year Ended December 31, 1996
INVESTMENT INCOME
Dividends ............................................... $ 1,131,596(a)
Interest ................................................ 171,979
-------------
1,303,575
Expenses
Management fees ....................................... $1,245,009
Service fees - Class A ................................ 333,455
Service and distribution fees - Class B ............... 321,106
Service and distribution fees - Class C ............... 5,079
Trustees' fees and expenses ........................... 22,392
Accounting and administrative ......................... 36,732
Custodian ............................................. 81,770
Transfer agent ........................................ 509,969
Audit and tax services ................................ 35,000
Legal ................................................. 24,357
Printing .............................................. 41,785
Registration .......................................... 44,157
Amortization of organization expenses ................. 22,724
Miscellaneous ......................................... 8,218
-----------
Total Expenses .......................................... 2,731,753
-------------
Net investment loss ..................................... (1,428,178)
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ...................... 18,744,410
Unrealized appreciation on Investments - net ............ 8,386,925
-------------
Net gain on investment transactions ..................... 27,131,335
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $ 25,703,157
=============
(a) Net of foreign taxes of: $1,210
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss ...................................... $ (1,037,488) $ (1,428,178)
Net realized gain on investments ......................... 15,135,922 18,744,410
Unrealized appreciation on investments ................... 19,442,310 8,386,925
------------ ------------
Increase in net asset from operations .................... 33,540,744 25,703,157
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ................................................ (7,789,254) (14,938,405)
Class B ................................................ (1,581,720) (3,853,333)
Class C ................................................ (14,547) (66,669)
------------ ------------
(9,385,521) (18,858,407)
------------ ------------
Increase in net assets derived from capital share
transactions ............................................. 14,743,856 22,332,195
------------ ------------
Total increase in net assets ............................. 38,899,079 29,176,945
NET ASSETS
Beginning of the year .................................... 111,192,828 150,091,907
------------ ------------
End of the year .......................................... $150,091,907 $179,268,852
============ ============
UNDISTRIBUTED NET INVESTMENT LOSS
Beginning of the year .................................... $ (578,964) $ 0
============ ============
End of the year .......................................... $ 0 $ (7,492)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
AUGUST 3(C)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ...................... $12.50 $14.23 $15.27 $15.02 $18.41
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) .. 0.02 0.00 (0.08) (0.11)(b) (0.14)(g)
Net Realized and Unrealized
Gain (Loss) on Investments .. 1.84 1.12 (0.17) 4.74 3.22
------ ------ ------ ------ ------
Total From Investment Operations 1.86 1.12 (0.25) 4.63 3.08
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income ...................... (0.02) 0.00 0.00 0.00 0.00
Distributions From Net Realized
Capital Gains ............... (0.11) (0.08) 0.00 (1.24) (2.22)
------ ------ ------ ------ ------
Total Distributions ........... (0.13) (0.08) 0.00 (1.24) (2.22)
------ ------ ------ ------ ------
Net Asset Value, End of Period $14.23 $15.27 $15.02 $18.41 $19.27
====== ====== ====== ====== ======
Total Return (%) (e) .......... 14.9 7.9 (1.6) 30.7 17.1
Ratio of Operating Expenses to
Average
Net Assets (%) (a) .......... 1.00(d) 1.23 1.63 1.61 1.50
Ratio of Net Investment Income
(loss) to Average Net Assets (%) 0.74(d) (0.03) (0.45) (0.67) (0.71)
Portfolio Turnover Rate (%) ... 15 77 82 69 74
Average Commission Rate (f) ... -- -- -- -- $ 0.0509
Net Assets, End of Period (000) $34,772 $98,735 $95,803 $123,504 $141,326
(a) The ratio of operating
expenses to average net
assets without giving
effect to voluntary expense
limitations would have been
(%) ....................... 2.20(d) 1.58 -- -- --
(b) Per share net investment income (loss) does not reflect the current period's reclassification of permanent
differences between book and tax basis net investment income (loss). See Note 1d.
(c) Commencement of Operations.
(d) Computed on an annualized basis.
(e) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(f) 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.
(g) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------------------------------- --------------------------------
SEPTEMBER 13(C)
THROUGH YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------- --------------------------------
1993 1994 1995 1996 1995 1996
-------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period . $14.79 $15.24 $14.89 $18.09 $14.89 $18.08
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income (Loss) 0.00 (0.08) (0.16)(b) (0.28)(g) (0.09)(b) (0.28)(g)
Net Realized and Unrealized
Gain (Loss) on Investments 0.53 (0.27) 4.60 3.15 4.52 3.16
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............... 0.53 (0.35) 4.44 2.87 4.43 2.88
------ ------ ------ ------ ------ ------
Less Distributions
Distributions From Net
Realized Capital Gains ... (0.08) 0.00 (1.24) (2.22) (1.24) (2.22)
------ ------ ------ ------ ------ ------
Total Distributions ........ (0.08) 0.00 (1.24) (2.22) (1.24) (2.22)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period ................... $15.24 $14.89 $18.09 $18.74 $18.08 $18.74
====== ====== ====== ====== ====== ======
Total Return(%)(e) ......... 3.6 (2.3) 29.7 16.2 29.7 16.2
Ratio of Operating Expenses
to Average Net Assets (%)(a) 2.29 (d) 2.38 2.36 2.25 2.36 2.25
Ratio of Net Investment
Income (loss) to Average
Net Assets (%) ........... (1.15)(d) (1.20) (1.42) (1.46) (1.42) (1.46)
Portfolio Turnover Rate (%) 77 82 69 74 69 74
Average Commission Rate (f) -- -- -- $0.0509 -- $0.0509
Net Assets, End of
Period (000) ............. $6,748 $15,390 $26,234 $37,439 $354 $504
(a) The ratio of operating
expenses to average
net assets without
giving effect to
voluntary expense
limitations would
have been(%) ........... 2.29 (d) -- -- -- -- --
(b) Per share net investment income (loss) does not reflect the current period's reclassification of permanent differences
between book and tax basis net investment income (loss). See Note 1d.
(c) Commencement of Operations.
(d) Computed on an annualized basis.
(e) A contingent deferred sales charge is not reflected in total return calculations in the case of the Class B shares.
Periods less than one year are not annualized.
(f) 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.
(g) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
</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 and Class C shares. The Fund commenced its
public offering of Class B shares on September 13, 1993 and of Class C shares on
December 30, 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. 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 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 for the Funds is increased by the
accretion of discount. In determining net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences relating to shareholder distributions
will result in reclassification to the capital accounts.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
F. ORGANIZATION EXPENSE. Costs incurred in fiscal 1992 in connection with the
Fund's organization and registration, amounting to approximately $75,980 in the
aggregate, were paid by the Fund and are being amortized by the Fund based on
projected annual average net assets over 60 months.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the year ended December 31, 1996 were $127,630,050 and $120,311,228,
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 0.60% of the first $25 million of
the Fund's average daily net assets, 0.55% of the next $75 million and 0.50% of
the next $100 million, 0.35% 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
- ----------
$362,750 New England Funds Management, L.P.
$882,259 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 $36,732 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 $379,627 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 $333,455 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
$563,284.
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 $80,276 and $1,270 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
$240,830 and $3,809 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 $566,294.
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 $2,203
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $71/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.
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 .......................... 1,535,548 $ 27,180,134 1,203,520 $ 23,479,369
Shares issued in connection with the
reinvestment of:
Distributions from net realized gain 401,895 7,531,962 756,936 14,477,042
-------------- --------------- -------------- ---------------
1,937,443 34,712,096 1,960,456 37,956,411
Shares repurchased ................... (1,605,071) (27,758,920) (1,337,035) (26,121,440)
-------------- --------------- -------------- ---------------
Net increase ......................... 332,372 $ 6,953,176 623,421 $ 11,834,971
-------------- --------------- -------------- ---------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------- --------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---- -------------- --------------- -------------- ---------------
Shares sold .......................... 486,105 $ 8,582,384 567,615 $ 10,820,271
Shares issued in connection with the
reinvestment of:
Distributions from net realized gain 82,435 1,520,869 198,737 3,703,740
-------------- --------------- -------------- ---------------
568,540 10,103,253 766,352 14,524,011
Shares repurchased ................... (152,230) (2,660,581) (218,153) (4,167,995)
-------------- --------------- -------------- ---------------
Net increase ......................... 416,310 $ 7,442,672 548,199 $ 10,356,016
-------------- --------------- -------------- ---------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------- --------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ---- -------------- --------------- -------------- ---------------
Shares sold .......................... 19,788 $ 352,389 21,535 $ 414,964
Shares issued in connection with the
reinvestment of:
Distributions from net realized gain 772 14,201 3,454 64,268
-------------- --------------- -------------- ---------------
20,560 366,590 24,989 479,232
Shares repurchased ................... (997) (18,582) (17,682) (338,024)
-------------- --------------- -------------- ---------------
Net increase ......................... 19,563 348,008 7,307 141,208
-------------- --------------- -------------- ---------------
Increase derived from capital shares
transactions ....................... 768,245 $ 14,743,856 1,178,927 $ 22,332,195
============== =============== ============== ===============
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND CAPITAL GROWTH 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 Capital Growth 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>
--------------
(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
- --------------------- ---------------------
CG56-1296
[recycle symbol] Printed on Recycled Paper
