<PAGE>
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ANNUAL REPORT AND PERFORMANCE UPDATE
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[logo]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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NEW ENGLAND GROWTH FUND
[graphic omitted]
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DECEMBER 31, 1996
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<PAGE>
FEBRUARY 1997
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[Photo of Henry L.P. Schmelzer]
Dear New England Funds Shareholder,
Taken together, 1995 and 1996 constituted the sixth strongest back-to-back years
for the U.S. stock market since 1915, as measured by percentage gain in the Dow
Jones Industrial Average (according to Bloomberg Business News).
Most New England Funds portfolio managers believe that the forces behind this
rally -- low inflation, relatively stable interest rates and strong corporate
profits -- will persist, at least for a time. Nevertheless, bull markets can
suddenly turn quiet; they can decline modestly; or they can reverse course
sharply. No one can predict what is ahead, nor can anyone guarantee whether the
market's strength will extend even further in 1997 and beyond.
Maintain a Long-Term Perspective
Whatever the market's direction, you should be prepared to consider any
short-term trends in the broader context of your long-term personal goals,
including the accumulation of financial assets. One way to manage this important
process is by diversifying your investments. While U.S. stocks have historically
been the strongest performers, you may also benefit, depending on your financial
goals and needs, from investing in various types of bond funds and by
participating in growing overseas markets.
Remember that each investment has its own unique risks. What's more, no strategy
can assure a profit or protect against a loss. However, one time-tested approach
is to invest regularly and stay invested -- in good times and bad -- to avoid
the pitfall of guessing what the market might do in the short run.
Our Multiple-Adviser Approach Sets Us Apart
Many financial representatives recommend New England Funds to their clients
because of our distinctive multiple-adviser approach. For each fund, we
hand-pick a specific subadviser or subadvisers with significant experience and
demonstrated skill in selecting investments that are in tune with that fund's
stated objective. We call it matching the talent to the task.
Finally, it may interest you to learn that you are part of a major national
trend. In 1996, nearly 37 million U.S. households owned mutual funds, according
to the Investment Company Institute, an industry trade organization. Mutual
funds are now a cornerstone of retirement, college and other investment plans
for millions of Americans.
New England Funds has grown with the industry and is now over $6 billion in
size. We thank you for helping us reach this important milestone, and look
forward to serving your investment needs well into the future.
Sincerely,
/s/ Henry L.P. Schmelzer
-------------------------------
Henry L.P. Schmelzer, President
For more information, including a prospectus for any New England Fund, please
contact your financial representative or call the Investor Services and
Marketing Group at 800-225-5478. Please read the prospectus carefully, including
the information on charges and expenses, before you invest.
<PAGE>
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NEW ENGLAND GROWTH FUND
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AWARD WINNING SERVICE -- TWO YEARS RUNNING
[Dalbar Graphic]
For two years running we're proud to announce that DALBAR, an independent
evaluator of mutual fund service, has awarded New England Funds its Quality
Tested Service Seal for "providing the highest tier of service excellence in the
mutual fund industry." New England Funds is one of just three mutual fund
companies to earn this distinction in each of the last two years -- another
reason why we are becoming known as the mutual fund company Where The Best Minds
Meet(TM).
INVESTMENT RESULTS THROUGH DECEMBER 31, 1996
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Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
<PAGE>
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NEW ENGLAND 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 12/31/76, compared to the S&P 500.
The data points from the graph are as follows:]
A $10,000 INVESTMENT IN NEW ENGLAND GROWTH FUND
COMPARED TO STANDARD & POOR'S 500(RM) INDEX(3)
DECEMBER 1976 -- DECEMBER 1996
NET ASSET WITH MAXIMUM S&P
VALUE(1) SALES CHARGE(2) 500(3)
--------- ------------- --------
1996 $287,348 $268,670 $150,362
1995 $237,713 $222,262 $122,345
1994 $172,181 $160,989 $ 89,017
1993 $185,240 $173,200 $ 87,823
1992 $166,448 $155,629 $ 79,795
1991 $178,268 $166,680 $ 74,152
1990 $113,749 $106,355 $ 56,892
1989 $108,065 $101,041 $ 58,724
1988 $ 88,498 $ 82,746 $ 44,626
1987 $ 87,233 $ 81,563 $ 38,306
1986 $ 73,633 $ 68,847 $ 36,409
1985 $ 62,096 $ 58,059 $ 30,694
1984 $ 46,027 $ 43,036 $ 23,316
1983 $ 49,196 $ 45,998 $ 21,951
1982 $ 44,217 $ 41,343 $ 17,925
1981 $ 24,762 $ 23,152 $ 14,753
1980 $ 24,008 $ 22,447 $ 15,510
1979 $ 16,129 $ 15,080 $ 11,710
1978 $ 12,668 $ 11,845 $ 9,886
1977 $ 9,985 $ 9,336 $ 9,281
12/31/76 $ 10,000 $ 9,350 $ 10,000
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.
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AVERAGE ANNUAL TOTAL RETURNS 12/31/96
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CLASS A 1 YEAR 5 YEAR 10 YEAR
Net Asset Value(1) 20.88% 10.02% 14.58%
With Max. Sales Charge(2) 13.05 8.54 13.82
Lipper Growth Average(4) 19.22 13.34 13.88
- --------------------------------------------------------------------------------
These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 6.5% 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.
(4) Lipper Growth Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
investment objectives as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
<PAGE>
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NEW ENGLAND GROWTH FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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Q. HOW DID THE FUND PERFORM IN 1996?
[Photo of G. Kenneth Heebner
Capital Growth
Management]
A continuing strong economy, low to moderate inflation, and a relatively
stable interest rate environment contributed to a strong stock market
overall. The Fund posted solid performance of 20.88% (at NAV) for the year
comparing favorably to the Lipper Growth Average(4) of 19.22%. This return
comes on top of 1995's return of 38.06% (at NAV). Well-managed, moderate
growth companies, which the Fund favors, continued to be steady, long-term
performers. Many offered double-digit growth rates, yet still sold at deep
discounts, particularly in the first half of the year. Sectors that fueled
the Fund's performance included energy, banks, insurance and computers.
Growth companies within these sectors, most notably Citicorp, Intel, Dell
Computers and Chase Manhattan, performed admirably, benefiting from
sustained, positive economic and market conditions.
Q. How did you manage the Fund in 1996?
Throughout 1996, we remained confident about the economy. We therefore
maintained substantial positions in banking, energy and computing stocks,
which held up well throughout the year after a strong start.
While 1996 may have presented an uphill battle for business in terms of
earnings growth, nothing on the horizon seriously challenges this optimal
business scenario. In recent years, price to earnings ratios for companies,
especially exotic technology firms, have risen to high levels not seen since
the late 1960s. While some attractive values remain, they now are difficult
to find. The Fund's concentrated investment approach is well-suited to this
type of market environment.
Our overall strategy of buying quality, long-term investments in
well-established companies at reasonable prices remains in place.
Q. What is your investment outlook for 1997?
For the economy, we expect to see moderate growth with relatively low
inflation, an environment that favors the type of growth companies that
constitute the Fund's portfolio. We will continue to avoid companies with
high price/earnings ratios relative to high growth rates. Many investors, we
believe, continue to be over enthusiastic about growth without closely
examining valuations.
More specifically, we will continue to invest in industry leaders that have
reasonable valuations and proven track records. While periodic bursts of
volatility may surface along the way, we feel that the companies we select
using this approach continue to hold potential for investor rewards over the
long term.
ATTENTION: In response to continued interest on the part of investors and
financial representatives, New England Growth Fund will reopen to new
investors on February 28, 1997. For more information, please refer to the
prospectus supplement following the financial section of this report.
<PAGE>
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NET ASSET VALUE(1) ANNUAL TOTAL RETURNS
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<TABLE>
<CAPTION>
12/31/86-12/31/96
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1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N. E. GROWTH FUND 18.47% 1.45% 22.30% 5.10% 56.72% -6.63% 11.29% -7.05% 38.06% 20.88%
LIPPER GROWTH AVG.(2) 1.10% 13.96% 25.44% -5.48% 36.09% 7.79% 10.61% -2.17% 30.79% 19.22%
S&P 500(3) 5.21% 16.50% 31.59% -3.12% 30.34% 7.61% 10.06% 1.36% 37.44% 22.90%
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO CHART
(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) Lipper Growth 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.
(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.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1996
COMMON STOCK--98.6% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
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AEROSPACE--5.3%
641,000 Boeing Co. ................................ $ 68,186,375
--------------
AIRLINES--2.3%
485,000 UAL Corp. (c) ............................. 30,312,500
--------------
BANKS - MONEY CENTER--13.0%
746,000 Chase Manhattan Corp. ..................... 66,580,500
993,300 Citicorp .................................. 102,309,900
--------------
168,890,400
--------------
BEVERAGES & TOBACCO--4.2%
1,360,000 Anheuser-Busch Companies, Inc. ............ 54,400,000
--------------
COMPUTER SOFTWARE & SERVICES--3.0%
260,000 Compaq Computer Corp. (c) ................. 19,305,000
377,000 Dell Computer Corp. (c) ................... 20,028,125
--------------
39,333,125
--------------
ELECTRONIC COMPONENTS--6.7%
663,000 Intel Corp. ............................... 86,811,563
--------------
FOOD - RETAILERS/WHOLESALERS--10.0%
1,191,000 Hershey Foods Corp. ....................... 52,106,250
684,000 Philip Morris Companies, Inc. ............. 77,035,500
--------------
129,141,750
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HOME PRODUCTS & COSMETIC--2.5%
305,000 Procter & Gamble Co. ...................... 32,787,500
--------------
INSURANCE--16.3%
579,000 Aetna, Inc. ............................... 46,320,000
1,335,000 Allstate Corp. ............................ 77,263,125
683,300 American International Group, Inc. (c) .... 73,967,225
220,000 Aon Corp. ................................. 13,667,500
--------------
211,217,850
--------------
MISCELLANEOUS--5.5%
985,000 NIKE, Inc., Class B ....................... 58,853,750
185,000 United Technologies Corp. ................. 12,210,000
--------------
71,063,750
--------------
OFFICE EQUIPMENT & SUPPLIES--2.0%
169,000 International Business Machines Corp. ..... 25,519,000
--------------
OIL - MAJOR INTEGRATED--9.9%
439,500 British Petroleum PLC (ADR) (d) ........... 62,134,312
670,000 Texaco, Inc. .............................. 65,743,750
--------------
127,878,062
--------------
OIL SERVICES--13.2%
785,000 Baker Hughes, Inc. ........................ 27,082,500
1,190,000 Halliburton Co. ........................... 71,697,500
725,000 Schlumberger, Ltd. ........................ 72,409,375
--------------
171,189,375
--------------
PERIPHERALS--4.7%
1,547,000 Seagate Technology (c) .................... 61,106,500
--------------
Total Common Stock
(Identified Cost $998,325,697) .......... 1,277,837,750
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SHORT TERM INVESTMENTS--1.8%
FACE
AMOUNT
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$24,030,000 American Express Credit Corp.
6.550%, 1/02/97 .......................... 24,030,000
-------------
Total Short Term Investments
(Identified Cost $24,030,000) ............ 24,030,000
--------------
Total Investments--100.4% (Identified Cost
$1,022,355,697) (b) ...................... 1,301,867,750
Other assets less liabilities ............. (5,325,993)
--------------
Total Net Assets--100% ..................... $1,296,541,757
==============
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1996 the net unrealized appreciation on investments based on
cost of $1,022,655,797 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 ............................................ $ 283,627,877
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value .......................................... (4,415,924)
--------------
Net unrealized appreciation .............................. $ 279,211,953
==============
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The value of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments at value ................................... $1,301,867,750
Cash ................................................... 3,515
Receivable for:
Fund shares sold ..................................... 400,726
Securities sold ...................................... 13,326,760
Dividends and interest ............................... 1,743,357
Prepaid registration expense ........................... 5,000
--------------
1,317,347,108
LIABILITIES
Payable for:
Securities purchased ................................. $16,551,500
Fund shares redeemed ................................. 3,176,817
Withholding Taxes .................................... 89,945
Accrued expenses:
Management fees ...................................... 751,266
Deferred trustees' fees .............................. 80,028
Accounting and administrative ........................ 14,036
Other expenses ....................................... 141,759
-----------
20,805,351
--------------
NET ASSETS .............................................. $1,296,541,757
==============
Net Assets consist of:
Capital paid in ...................................... $ 973,929,495
Undistributed net investment income .................. 12,887
Accumulated net realized gains ....................... 43,087,322
Unrealized appreciation on investments ............... 279,512,053
--------------
NET ASSETS ............................................... $1,296,541,757
==============
Computation of net asset value and offering price: ...
Net asset value and redemption price of Class A shares
($1,296,541,757 divided by 111,449,939 shares of
beneficial interest) ............................... $11.63
======
Offering price per share (100/93.50 of $11.63) ....... $12.44*
======
Identified cost of investments ....................... $1,022,355,697
==============
</TABLE>
* Based upon single purchases of less than $25,000.
Reduced sales charges apply for purchases in excess of this amount.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends .............................................. $ 18,205,731(a)
Interest ............................................... 251,943
------------
18,457,674
Expenses
Management fees ...................................... $8,300,884
Service fees ......................................... 3,058,031
Trustees' fees and expenses .......................... 26,356
Accounting and administrative ........................ 173,071
Custodian ............................................ 178,736
Transfer agent ....................................... 2,328,462
Audit and tax services ............................... 35,000
Legal ................................................ 25,462
Printing ............................................. 179,216
Registration ......................................... 30,808
Miscellaneous ........................................ 42,088
----------
Total expenses ......................................... 14,378,114
------------
Net investment income .................................. 4,079,560
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ..................... 115,816,541
Unrealized appreciation on Investments - net ........... 115,368,685
------------
Net gain on investment transactions .................... 231,185,226
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $235,264,786
============
</TABLE>
(a) Net of foreign taxes of $84,196.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ................................ $ 4,737,773 $ 4,079,560
Net realized gain on investments ..................... 197,449,600 115,816,541
Unrealized appreciation on investments ............... 150,392,410 115,368,685
-------------- --------------
Increase in net assets from operations ............... 352,579,783 235,264,786
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................................ (5,211,996) (4,046,753)
Net realized gain on investments ..................... (165,500,915) (105,301,576)
-------------- --------------
(170,712,911) (109,348,329)
-------------- --------------
Proceeds from sale of shares ......................... 83,764,307 84,912,937
Net asset value of shares issued in connection with
the reinvestment of:
Dividends from net investment income ............... 5,040,619 3,941,982
Distributions from net realized gain ............... 162,025,252 102,695,795
-------------- --------------
250,830,178 191,550,714
Cost of shares redeemed .............................. (220,016,896) (222,035,805)
-------------- --------------
Increase (decrease) in net assets derived from
capital share transactions ......................... 30,813,282 (30,485,091)
-------------- --------------
Total increase in net assets ......................... 212,680,154 95,431,366
NET ASSETS
Beginning of the year ................................ 988,430,237 1,201,110,391
-------------- --------------
End of the year ...................................... $1,201,110,391 $1,296,541,757
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year ................................ $ 757,268 $ 0
============== ==============
End of the year ...................................... $ 0 $ 12,887
============== ==============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares ....................... 8,243,398 7,705,776
Issued in connection with the reinvestment of:
Dividends from net investment income ............... 476,462 333,501
Distributions from net realized gain ............... 15,260,562 9,546,850
-------------- --------------
23,980,422 17,586,127
Redeemed ............................................. (21,472,861) (20,016,487)
-------------- --------------
Net change ........................................... 2,507,561 (2,430,360)
============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .......... $11.19 $10.08 $10.44 $ 8.87 $10.55
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ....................... 0.09 0.02 0.11 0.05 0.04
Net Realized and Unrealized Gain (Loss) on
Investments ............................... (0.83) 1.12 (0.84) 3.30 2.07
------ ------ ------ ------ ------
Total From Investment Operations ............ (0.74) 1.14 (0.73) 3.35 2.11
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income ........ (0.09) (0.01) (0.11) (0.05) (0.04)
Distributions From Net Realized Capital Gains (0.28) (0.77) (0.73) (1.62) (0.99)
------ ------ ------ ------ ------
Total Distributions ......................... (0.37) (0.78) (0.84) (1.67) (1.03)
------ ------ ------ ------ ------
Net Asset Value, End of Year ................ $10.08 $10.44 $ 8.87 $10.55 $11.63
====== ====== ====== ====== ======
Total Return (%) (a) ........................ (6.6) 11.3 (7.1) 38.1 20.9
Ratio of Operating Expenses to Average
Net Assets (%) ............................ 1.15 1.18 1.19 1.20 1.18
Ratio of Net Investment Income to Average
Net Assets (%) ............................ 0.89 0.16 1.05 0.42 0.33
Portfolio Turnover Rate (%) ................. 218 145 141 235 199
Average Commission Rate (b) ................. -- -- -- -- $0.0668
Net Assets, End of Period (000,000) ......... $1,174 $1,201 $988 $1,201 $1,297
</TABLE>
(a) A sales charge is not reflected in total return calculations.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades upon
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
<PAGE>
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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 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 year ended December 31, 1996 were $2,426,790,037 and
$2,564,229,688 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the year
ended December 31, 1996, 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 year ended December 31, 1996 provided for fees as set forth below:
EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
- ------ ---------------------- -----------------------------
$8,300,884 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 year ended December 31, 1996 these expenses
amounted to $173,071 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 $1,692,183 as compensation for its services in that
capacity.
D. SERVICE FEES. Pursuant to Rule 12b-1 under the 1940 Act, the Trust has
adopted a Service Plan relating to the Fund (the "Plan"). Under the 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 of the Fund, 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 the Fund and/or the maintenance of
shareholder accounts. For the year ended December 31, 1996, the Fund paid New
England Funds $3,058,031 in fees under the Plan. If the expenses of New
England Funds that are otherwise reimbursable under the Plan incurred in any
year exceed the amounts payable by the Fund under the Plan, the unreimbursed
amount (together with unreimbursed amounts from prior years) may be carried
forward for reimbursement in future years in which the Plan remains in effect.
The amount of unreimbursed expenses carried forward at December 31, 1996 is
$2,030,882.
Commissions on Fund shares paid to New England Funds by investors in shares of
the Fund during the year ended December 31, 1996 amounted to $1,865,434.
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 Capital Growth Management, New England Funds, NEIC or their affiliates,
other than registered investment companies. Each other trustee is compensated
by the Fund as follows:
Annual Retainer $2,628
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Retainer $566/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND 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 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 financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1996 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1997
<PAGE>
NEW ENGLAND GROWTH FUND
SUPPLEMENT DATED FEBRUARY 28, 1997 TO
NEW ENGLAND STOCK FUNDS PROSPECTUS DATED MAY 1, 1996
(AS SUPPLEMENTED SEPTEMBER 30, 1996, JANUARY 2, 1997 AND JANUARY 31, 1997)
EFFECTIVE FEBRUARY 28, 1997, NEW ENGLAND GROWTH FUND WILL REMOVE ITS
ELIGIBILITY RESTRICTIONS ON CLASS A SHARES (OTHER THAN THE MINIMUM INVESTMENT
AMOUNT); REDUCE THE MAXIMUM INITIAL SALES CHARGE (AS A PERCENTAGE OF OFFERING
PRICE) ON CLASS A SHARES FROM 6.50% TO 5.75%; AND BEGIN OFFERING CLASS B
SHARES. ACCORDINGLY, THE FOLLOWING INFORMATION IN THE PROSPECTUS IS CHANGED.
THE THIRD PARAGRAPH ON THE COVER PAGE IS REVISED AS FOLLOWS:
New England Growth Fund currently offers only Class A and Class B shares, but
may at a later date offer Class C shares to the general public and Class Y
shares to certain institutional investors. If and when New England Growth Fund
offers such additional classes of shares for sale, the Fund will supplement
its prospectus.
THE SCHEDULE OF FEES TABLES ARE REVISED AS FOLLOWS:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ALL FUNDS
----------------------------------------
CLASS A CLASS B CLASS C
------------- ------------ -----------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase
(as a percentage of offering price)(1)(2) 5.75% None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable)(2) (3) 4.00% None
</TABLE>
(1) A reduced sales charge on Class A shares applies in some cases. See
"Buying Fund Shares -- Reduced Sales Charges (Class A Shares Only)."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to any
portion of certain purchases of Class A shares greater than $1,000,000
redeemed within 1 year after purchase, but not to any other purchases or
redemptions of Class A shares. See "Buying Fund Shares -- Sales Charges."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
NEW ENGLAND GROWTH FUND
-----------------------
CLASS A CLASS B
--------- ----------
Management Fees 0.68% 0.68%
12b-1 Fees 0.25% 1.00%*
Other Expenses 0.25% 0.25%
Total Fund Operating Expenses 1.18% 1.93%
* Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
<PAGE>
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) unless otherwise noted, redemption at period end. The 5%
return and expenses in the Example should not be considered indicative of
actual or expected Fund performance or expenses, both of which may be more or
less than those shown.
NEW ENGLAND GROWTH FUND
-------------------------------------
CLASS A CLASS B
------- ------------------
(1) (2)
1 year $ 69 $ 60 $ 20
3 years $ 93 $ 91 $ 61
5 years $119 $114 $104
10 years* $192 $206 $206
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
* Class B shares automatically convert to Class A shares after 8 years;
therefore, Class B amounts are calculated using Class A expenses in years
9 and 10.
THE SECOND AND THIRD SENTENCES UNDER "INVESTMENT OBJECTIVES -- NEW ENGLAND
GROWTH FUND" IN THE INVESTMENT STRATEGY SECTION ON PAGE 12 AND THE SECTION ON
PAGE 29 ENTITLED "GROWTH FUND ELIGIBILITY" (CONTINUING UNTIL THE "SALES
CHARGES" SECTION) ARE DELETED.
THE SALES CHARGES SECTION BEGINNING ON PAGE 29 IS REVISED AS FOLLOWS:
CLASS A SHARES
Class A shares are offered at net asset value plus a sales charge which varies
depending on the size of your purchase. They are also subject to a 0.25%
annual service fee. Class A shares of all Funds are offered subject to the
following initial sales charges:
SALES CHARGE AS A % OF DEALER'S
---------------------- CONCESSION
NET AS A % OF
OFFERING AMOUNT OFFERING
VALUE OF TOTAL INVESTMENT PRICE INVESTED PRICE
------------------------- --------- --------- ----------
Less than $50,000+ 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 4.00%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.15%
$500,000 - $999,999 2.00% 2.04% 1.70%
$1,000,000 or more None None *
+[Growth Fund Only]. For accounts established prior to February 28, 1997 having
a total investment value of between (and including) $25,000 and $49,999, a
reduced sales charge of 5.50% as a percentage of offering price (or 5.82% of
the net amount invested), with a dealer's concession of 4.75% as a percentage
of offering price, will be charged on the sale of additional Class A shares of
the Growth Fund if the total investment value of the Growth Fund account after
such sale is between (and including) $25,000 and $49,999.
*[footnote unchanged in prospectus]
THE FIRST SENTENCE IN "EXCHANGING AMONG NEW ENGLAND FUNDS -- CLASS A SHARES"
IN THE OWNING FUND SHARES SECTION ON PAGE 34 IS REVISED TO READ AS FOLLOWS:
Except as indicated in the next two sentences, you may exchange Class A shares
of any series of the Trusts (and Class A shares of the Money Market Funds
acquired through exchanges from any series of the Trusts) for Class A shares
of any other series of the Trusts without paying a sales charge; such
exchanges will be made at the next determined net asset value of the shares.
THE FIRST SENTENCE IN "EXCHANGING AMONG NEW ENGLAND FUNDS -- AUTOMATIC
EXCHANGE PLAN" IN THE MARGIN ON PAGE 34 IN THE OWNING FUND SHARES SECTION IS
REVISED TO READ AS FOLLOWS: The Funds have an automatic exchange plan under
which shares of a class of a Fund are automatically exchanged each month for
shares of the same class of other series of the Trusts.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND GROWTH FUND
- --------------------------------------------------------------------------------
GLOSSARY FOR MUTUAL FUND INVESTORS
- --------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
PRICE/EARNINGS RATIO - Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price/earnings ratio gives
investors an idea of how much they are paying for a company's earning power and
is a useful tool for evaluating the costs of different issues.
GROWTH INVESTING - An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
VALUE INVESTING - A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets
aren't fully reflected in their stock prices. Value stocks will tend to have a
lower price/earnings ratio than that of growth stocks.
STANDARD & POOR'S 500 - Market value-weighted index showing the change in
aggregate market value of 500 stocks relative to the base period of 1941-1943.
It is composed mostly of companies listed on the New York Stock Exchange.
<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 HTTP://WWW.MUTUALFUNDS.COM
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective investors when it is
preceded or accompanied by the Fund's current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
the prospectus carefully before investing.
<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
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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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[recycle symbol] Printed On Recycled Paper
