<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
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[logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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NEW ENGLAND GROWTH FUND
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JUNE 30, 1997
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<PAGE>
AUGUST 1997
- -------------------------------------------------------------------------------
DEAR NEW ENGLAND FUNDS SHAREHOLDER,
[Photo of Henry L.P. Schmelzer]
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives.
Our sights, like yours, are focused on the long term. At the same time, we work
to enhance service every day. We also keep a disciplined eye on the performance
that each fund manager achieves. Through these persistent efforts we're
convinced we'll merit your continued commitment and loyalty. Thank you for your
confidence in New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
<PAGE>
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NEW ENGLAND GROWTH FUND
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AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
DALBAR, an independent evaluator of mutual fund service,
QUALITY 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.
INVESTMENT RESULTS THROUGH JUNE 30, 1997
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
See next page [symbol - hand pointing right]
<PAGE>
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NEW ENGLAND GROWTH FUND
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[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since 6/30/82, compared to the S&P 500. The
data points from the graph are as follows:]
A $10,000 INVESTMENT IN NEW ENGLAND GROWTH FUND
- --------------------------------------------------------------------------------
Net Asset With Maximum S&P Lipper Growth
Value(1) Sales Charge(2) 500(3) Fund Average(4)
6/30/82 $10,000 $ 9,425 $10,000 $10,000
6/83 $20,483 $19,305 $16,092 $17,068
6/84 $15,807 $14,898 $15,342 $14,564
6/85 $20,843 $19,644 $20,074 $18,004
6/86 $28,913 $27,251 $27,234 $23,949
6/87 $36,300 $34,213 $34,080 $27,417
6/88 $33,592 $31,661 $31,712 $25,703
6/89 $36,024 $33,953 $38,194 $29,803
6/90 $44,469 $41,912 $44,454 $33,886
6/91 $50,183 $47,297 $47,738 $35,601
6/92 $59,040 $55,645 $54,116 $39,880
6/93 $63,686 $60,025 $61,460 $46,289
6/94 $64,209 $60,517 $62,339 $46,738
6/95 $80,710 $76,070 $78,541 $57,142
6/96 $92,034 $86,742 $98,906 $69,827
6/97 $125,626 $118,403 $133,157 $86,557
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. All Index and Fund
performance assumes reinvested distributions.
NOTES TO CHARTS
* 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.
(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.
(3) Standard & Poor's 500 Index(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. An index cannot be purchased
directly.
(4) Lipper Growth Fund Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
(5) Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 5%
sales charge is applied to a redemption of Class B shares. The charge will
decrease over time, declining to zero six years after the purchase of
shares.
<PAGE>
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NEW ENGLAND GROWTH FUND
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 6/30/97*
- --------------------------------------------------------------------------------
CLASS A YTD 1 YEAR 5 YEARS 10 YEARS 15 YEARS
Net Asset Value(1) 18.92% 36.50% 6.30% 13.22% 18.38%
With Max. Sales Charge(2) 12.07 28.63 14.94 12.55 17.91
Standard & Poor's 500(3) 20.59 34.63 19.73 14.60 18.84
Lipper Growth Fund Avg.(4) 14.28 23.96 16.89 12.72 16.02
- --------------------------------------------------------------------------------
CLASS B (Inception 3/1/97) SINCE INCEPTION
Net Asset Value(1) 10.58%
With CDSC(5) 5.58
Standard & Poor's 500(3) 12.95
Lipper Growth Fund Avg.(4) 10.35
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE(1) ANNUAL TOTAL RETURNS*
- -------------------------------------------------------------------------------------------------
6/30/87 -- 6/30/97
- -------------------------------------------------------------------------------------------------
6/88 6/89 6/90 6/91 6/92 6/93 6/94 6/95 6/96 6/97
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N. E. GROWTH FUND
(Class A) -7.46% 7.24% 23.44% 12.85% 17.65% 7.87% 0.82% 25.70% 14.03% 36.50%
- -------------------------------------------------------------------------------------------------
Lipper Growth Avg.(4) -5.36% 17.27% 15.50% 6.08% 13.09% 16.49% 1.43% 22.90% 22.17% 24.07%
- -------------------------------------------------------------------------------------------------
S&P 500(3) -6.95% 20.44% 16.39% 7.39% 13.36% 13.57% 1.43% 25.99% 25.93% 34.63%
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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NEW ENGLAND GROWTH FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of G. Kenneth Heebner]
G. Kenneth Heebner
Capital Growth Management
Q. How did New England Growth Fund perform for the first six months of 1997?
The first half of 1997 provided an optimal investment scenario for New England
Growth Fund: a strong economy, low inflation and a stable interest rate
environment. The Fund returned 18.92% on Class a shares at net asset value (NAV)
during the first half of 1997. This return compares favorably to the average
growth fund total return of 14.28%, As tracked by Lipper Analytical Services.
For the first time, the Fund offered Class B shares, which returned 10.58% At
NAV since their inception on March 1.
Q. How did you manage the Fund during the period?
The success of New England Growth Fund over the years is due in large part to a
continued commitment to quality, long-term investments in well-established
companies that are reasonably priced. During the first half of 1997, we
continued to invest in these types of companies -- with modest valuations and
strong prospects for growth.
The industry concentration focused mainly in the areas of insurance, computers
and pharmaceuticals. Notable among the strong performers were American
International Group, Allstate and Eli Lilly. We remained fully invested,
concentrating in companies which provided significant opportunities for
appreciation.
As the market reached new highs, we kept watch on price-to-earnings ratios,
which help indicate how much we pay for a company's earnings power. Many stocks
in the Fund featured lower price-to-earnings ratios than that of the market --
giving us room to grow, even with market peaks, and cushioning us somewhat from
possible declines. Consequently, New England Growth Fund is in a good position
to take full advantage of the overall market's continued strength.
Q. What is your economic outlook for the second half of 1997?
For the second half of 1997, we anticipate moderate economic growth with
relatively low inflation. And, after a one-quarter percent interest rate
increase in March, the Federal Reserve seems content to maintain a stable
interest rate environment. We feel that these factors should provide the basis
for a favorable investment climate.
Accordingly, we will continue to invest in growth companies at reasonable prices
with a long-term investment horizon in mind. We further believe that our
strategy of carefully selecting the companies we invest in and focusing on a
long view of performance will compensate for any periodic bursts of market
volatility along the way.
<PAGE>
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
COMMON STOCKS--99.2% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (a)
- ------------------------------------------------------------------------------------------
AUTOMOTIVE & RELATED--3.0%
<C> <S> <C>
280,000 Volkswagen AG (ADR) (d) .............................. $ 42,560,000
--------------
BEVERAGES & TOBACCO--9.4%
1,585,000 Anheuser-Busch Companies, Inc. ....................... 66,470,938
1,569,000 Philip Morris Companies, Inc. ........................ 69,624,375
--------------
136,095,313
--------------
COMPUTER SOFTWARE & SERVICES--18.8%
709,000 Compaq Computer Corp. (c) ............................ 70,368,250
782,000 Computer Sciences Corp. (c) .......................... 56,401,750
601,000 Dell Computer Corp. (c) .............................. 70,579,937
584,000 Microsoft Corp. (c) .................................. 73,803,000
--------------
271,152,937
--------------
DRUGS & HEALTH CARE--14.0%
764,000 Eli Lilly & Co. ...................................... 83,514,750
221,000 Pfizer, Inc. ......................................... 26,409,500
737,000 Warner-Lambert Co. ................................... 91,572,250
--------------
201,496,500
--------------
FOOD - RETAILERS/WHOLESALERS--6.8%
1,245,000 Hershey Foods Corp. .................................. 68,864,062
445,000 Nestle S.A. (ADR) (d) ................................ 29,592,500
--------------
98,456,562
--------------
HOUSEHOLD PRODUCTS--3.6%
395,000 Clorox Co. ........................................... 52,140,000
--------------
INSURANCE--17.7%
679,000 Aetna, Inc. .......................................... 69,512,625
1,240,000 Allstate Corp. ....................................... 90,520,000
640,300 American International Group, Inc. (c) ............... 95,644,812
--------------
255,677,437
------------
MACHINERY--10.0%
665,000 Caterpillar, Inc. .................................... 71,404,375
1,313,000 Deere & Co. .......................................... 72,050,875
--------------
143,455,250
--------------
OFFICE EQUIPMENT & SUPPLIES--4.8%
775,000 International Business Machines ...................... 69,895,313
--------------
OIL SERVICES--6.1%
555,000 Halliburton Co. ...................................... 43,983,750
352,000 Schlumberger, Ltd. ................................... 44,000,000
--------------
87,983,750
--------------
TELECOMMUNICATION--5.0%
475,000 Telebras (ADR) (d) ................................... 72,081,250
--------------
Total Common Stocks (Identified Cost $1,160,100,572) . 1,430,994,312
--------------
SHORT TERM INVESTMENT--0.6%
FACE
AMOUNT
- ----------------------------------------------------------------------------------------
$7,680,000 Chevron Oil Finance Co., 5.800%, 7/01/97 .............. 7,680,000
--------------
Total Short Term Investment (Identified Cost
$7,680,000) ........................................... 7,680,000
--------------
Total Investments--99.8% (Identified Cost
$1,167,780,572) (b) ................................... 1,438,674,312
Other assets less liabilities ........................ 3,387,954
--------------
Total Net Assets--100% ................................ $1,442,062,266
==============
(a) See Note 1a.
(b) Federal Tax Information:
At June 30, 1997 the net unrealized appreciation on investments based on cost
of $1,167,780,572 for federal income tax purposes was as follows:
<CAPTION>
<C> <S> <C>
Aggregate gross unrealized appreciation for all investments in which there is
an excess of value over tax cost .......................................... $276,481,479
Aggregate gross unrealized depreciation for all investments in which there is
an excess of tax cost over value .......................................... (5,587,739)
-----------
Net unrealized appreciation ................................................. $270,893,740
============
(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 ADR's are significantly influenced by trading on exchanges not
located in the United States or Canada.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ................................... $1,438,674,312
Cash ................................................... 3,658
Receivable for:
Fund shares sold ..................................... 2,375,077
Securities sold ...................................... 8,190,286
Dividends and interest ............................... 1,606,033
Foreign taxes ........................................ 43,284
Miscellaneous ........................................ 5,990
Prepaid registration expense ........................... 22,500
--------------
1,450,921,140
LIABILITIES
Payable for:
Securities purchased ................................. $4,466,005
Fund shares redeemed ................................. 3,283,010
Withholding taxes .................................... 36,926
Accrued expenses:
Management fees ...................................... 804,389
Deferred trustees' fees .............................. 95,499
Accounting and administrative ........................ 17,955
Other expenses ....................................... 155,090
----------
8,858,874
--------------
NET ASSETS ............................................... $1,442,062,266
==============
Net Assets consist of:
Capital paid in ...................................... $ 881,060,213
Undistributed net investment income .................. 2,644,416
Accumulated net realized gains ....................... 287,463,897
Unrealized appreciation on investments ............... 270,893,740
--------------
NET ASSETS ............................................... $1,442,062,266
==============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($1,435,732,975 divided by 103,795,550 shares of
beneficial interest) ................................... $13.83
======
Offering price per share ( 100/94.25 of $13.83) .......... $14.67*
======
Net asset value and redemption price of Class B shares
($6,329,291 divided by 458,900 shares of beneficial
interest) .............................................. $13.79**
======
Identified cost of investments ........................... $1,167,780,572
==============
*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
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends .............................................. $ 10,255,093 (a)
Interest ............................................... 242,912
-------------
10,498,005
Expenses
Management fees ...................................... $4,622,253
Service fees - Class A ............................... 1,708,617
Service and distribution fees - Class B .............. 9,670
Trustees' fees and expenses .......................... 10,847
Accounting and administrative ........................ 106,824
Custodian ............................................ 101,061
Transfer agent ....................................... 1,152,700
Audit and tax services ............................... 16,000
Legal ................................................ 9,962
Printing ............................................. 87,863
Registration ......................................... 22,777
Miscellaneous ........................................ 17,902
----------
Total expenses ......................................... 7,866,476
------------
Net investment income .................................. 2,631,529
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on Investments - net ..................... 244,376,575
Unrealized depreciation on Investments - net ........... (8,618,313)
------------
Net gain on investment transactions .................... 235,758,262
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $238,389,791
============
</TABLE>
(a) Net of foreign taxes of: $112,727.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------------ ------------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ............................... $ 4,079,560 $ 2,631,529
Net realized gain on investments .................... 115,816,541 244,376,575
Unrealized appreciation (depreciation)
on investments .................................... 115,368,685 (8,618,313)
-------------- --------------
Increase in net assets from operations .............. 235,264,786 238,389,791
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ............................... (4,046,753) 0
Net realized gain on investments .................... (105,301,576) 0
-------------- --------------
(109,348,329) 0
-------------- --------------
Decrease in net assets derived from capital share
transactions ...................................... (30,485,091) (92,869,282)
-------------- --------------
Total increase in net assets ........................ 95,431,366 145,520,509
NET ASSETS
Beginning of the period ............................. 1,201,110,391 1,296,541,757
-------------- --------------
End of the period ................................... $1,296,541,757 $1,442,062,266
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period ............................. $ 0 $ 12,887
============== ==============
End of the period ................................... $ 12,887 $ 2,644,416
============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------------------------- --------
MARCH 1,
SIX MONTHS 1997(a)
YEAR ENDED DECEMBER 31, ENDED THROUGH
------------------------------------------------------- JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 11.19 $ 10.08 $ 10.44 $ 8.87 $ 10.55 $ 11.63 $ 12.47
------- ------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income (Loss) ........... 0.09 0.02 0.11 0.05 0.04 0.03 (0.01)
Net Realized and Unrealized Gain (Loss)
on Investments ....................... (0.83) 1.12 (0.84) 3.30 2.07 2.17 1.33
------- ------- ------- ------- ------- ------- -------
Total From Investment Operations ....... (0.74) 1.14 (0.73) 3.35 2.11 2.20 1.32
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income ... (0.09) (0.01) (0.11) (0.05) (0.04) 0.00 0.00
Distributions From Net Realized
Capital Gains ........................ (0.28) (0.77) (0.73) (1.62) (0.99) 0.00 0.00
------- ------- ------- ------- ------- ------- -------
Total Distributions .................... (0.37) (0.78) (0.84) (1.67) (1.03) 0.00 0.00
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ......... $ 10.08 $ 10.44 $ 8.87 $ 10.55 $ 11.63 $ 13.83 $ 13.79
======= ======= ======= ======= ======= ======= =======
Total Return (%)(b) .................... (6.6) 11.3 (7.1) 38.1 20.9 18.9 10.6
Ratio of Operating Expenses to
Average Net Assets (%) ............... 1.15 1.18 1.19 1.20 1.18 1.15(c) 1.90(c)
Ratio of Net Investment Income to
Average Net Assets (%) ............... 0.89 0.16 1.05 0.42 0.33 0.39(c) (0.36)(c)
Portfolio Turnover Rate (%) ............ 218 145 141 235 199 231(c) 231(c)
Average Commission Rate (d) ............ -- -- -- -- $0.0668 $0.0692 $0.0692
Net Assets, End of Period (000,000) .... $ 1,174 $ 1,201 $ 988 $ 1,201 $ 1,297 $ 1,436 $ 6
</TABLE>
(a) Commencement of operations.
(b) A sales charge in the case of Class A shares and a contingent deferred
sales charge in the case of Class B are not reflected in total return
calculations. Periods less than one year are not annualized.
(c) 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.
See accompanying notes to financials.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997
(unaudited)
1. The Fund is a Series of New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The 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 both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on March 1, 1997. Class A shares are sold with a
maximum front end sales charge of 5.75%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares
for eight years (at which point they automatically convert to Class A shares),
and are subject to a contingent deferred sales charge if those shares are
redeemed within six years of purchase (or five years if purchased before May
1, 1997). Expenses of the Fund are borne pro-rata by the holders of both
classes 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 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 adviser 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 the six months ended June 30, 1997 were $1,566,637,765 and
$1,649,239,465 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the six
months ended June 30, 1997, the Fund incurred management fees payable to its
investment adviser, Capital Growth Management Limited Partnership ("Capital
Growth Management"). Capital Growth Management is a subsidiary of New England
Investment Companies, L.P., ("NEIC") which is a subsidiary of Metropolitan
Life Insurance Company ("Met Life"). The management agreement in effect during
the six months ended June 30, 1997 provided for fees as set forth below:
EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
------ ---------------------- -----------------------------
$4,622,253 0.750% the first $200 million
0.700% the next $300 million
0.650% the excess over $500 million
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 related 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 six months ended June 30, 1997 these expenses
amounted to $106,824 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 six months ended June 30, 1997, the Fund
paid New England Funds $825,664 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 a Service and Distribution Plan relating to the
Fund's Class B shares (the "Class B Plan").
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 New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the six
months ended June 30, 1997, the Fund paid New England Funds $1,708,617 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 into 1997 is $2,030,882.
Under the Class B 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 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 shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 1997, the Fund paid
New England Funds $2,417 in service fees under the Class B Plan.
Also under the Class B Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.75% of the average daily net
assets attributable to the Fund's Class B shares, as compensation for services
provided and expenses (including certain payments to securities dealer, who
may be affiliated with New England Funds) incurred by New England Funds in
connection with the marketing or sale of Class B shares. For the six months
ended June 30, 1997, the Fund paid New England Funds $7,253 in distribution
fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid
to New England Funds by investors in shares of the Fund during the six months
ended June 30, 1997 amounted to $1,139,774.
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 New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $1,987
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $545/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 June 30, 1997 there was an unlimited number of shares
of beneficial interest authorized, divided into two classes, Class A and Class
B capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1997(a)
DECEMBER 31, 1996 THROUGH JUNE 30, 1997
----------------------------------- -----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Shares sold .................... 7,705,776 $ 84,912,937 3,859,918 $ 49,026,087
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ..................... 333,501 3,941,982 0 0
Distributions from net
realized gain .............. 9,546,850 102,695,795 0 0
----------- ------------- ----------- -------------
17,586,127 191,550,714 3,859,918 49,026,087
Shares repurchased ............. (20,016,487) (222,035,805) (11,514,307) (147,755,138)
----------- ------------- ----------- -------------
Net decrease ................... (2,430,360) $ (30,485,091) (7,654,389) $ (98,729,051)
----------- ------------- ----------- -------------
YEAR ENDED MARCH 1, 1997(a)
DECEMBER 31, 1996 THROUGH JUNE 30, 1997
----------------------------------- -----------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
Shares sold .................... 0 $ 0 462,251 $ 5,903,034
Shares repurchased ............. 0 0 (3,351) (43,265)
---------- ------------- ---------- -------------
Net increase ................... 0 0 458,900 5,859,769
---------- ------------- ---------- -------------
Decrease derived from capital
shares transactions .......... (2,430,360) $ (30,485,091) (7,195,489) $ (92,869,282)
========== ============= ========== =============
</TABLE>
(a) Commencement of operations.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NEW ENGLAND BALANCED FUND
NEW ENGLAND VALUE FUND
SUPPLEMENT DATED AUGUST 1, 1997
TO NEW ENGLAND STOCK FUNDS CLASSES A, B AND C PROSPECTUS DATED MAY 1, 1997
AND NEW ENGLAND STOCK FUNDS CLASS Y PROSPECTUS
DATED MAY 1, 1997 (AS SUPPLEMENTED JULY 28, 1997)
THE FOLLOWING INFORMATION SUPPLEMENTS THE SECOND PARAGRAPH IN THE "FUND
MANAGEMENT" SECTION:
Carol C. McMurtrie, Tricia H. Mills and (beginning in August 1997) Roderic
Dillon are the portfolio managers of the Value Fund. Ms. McMurtrie and Ms.
Mills have served in that capacity since 1993. Ms. McMurtrie, Ms. Mills and
(beginning in August 1997) Mr. Dillon are also the portfolio managers of the
equity portion of the Balanced Fund and are responsible for allocating the
assets of the Balanced Fund between equity and fixed-income securities. Ms.
McMurtrie and Ms. Mills have served in these capacities since July 1997. The
portfolio management team for the fixed-income portion of the Balanced Fund
consists of Meri Ann Beck, John Hyll and Barr Segal, who have had portfolio
management responsibility for the Fund's fixed-income investments since 1990,
1994 and 1996, respectively. Messrs. Dillon, Hyll and Segal are Vice
Presidents of Loomis Sayles. Mr. Hyll has been employed by Loomis Sayles for
more than five years. Mr. Segal was a Senior Portfolio Manager at TCW Group
before joining Loomis Sayles in 1996. Mr. Dillon rejoins Loomis Sayles in
August 1997 following several years as principal of Dillon Capital Management.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
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 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>
--------------
(Logo) BULK RATE
NEW ENGLAND FUNDS(R) U.S. POSTAGE
Where The Best Minds Meet(R) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
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399 Boylston Street
Boston, Massachusetts
02116
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[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
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DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
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