<PAGE>
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SEMIANNUAL REPORT
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[Logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England Growth Fund
[graphic omitted]
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JUNE 30, 1998
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<PAGE>
August 1998
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[Photo of Henry L.P. Schmelzer]
Dear Shareholder:
Investors had reason for comfort during the first half of 1998.
After stunning gains in each of the last three years, the stock market behaved
more like its customary self: Major market indicators moved up for a time, slid
back and were once again in recovery mode at the end of the period. This pattern
largely reflected investors' responses to fast-changing events in Asia.
Unpredictable markets call to mind the long-term experience of millions of
mutual fund investors; those of us who held firm to our plans as markets entered
difficult periods were often rewarded as markets recovered. The longer you stay
invested the less that interim ups and downs -- here or overseas -- should
concern you.
News from the Far East drove bond market sentiment as well. In the United
States, faltering Asian economies meant lower prices on many imported goods,
putting pressure on prices and corporate earnings. With slower growth now a real
possibility and with little immediate evidence of inflation, the Federal Reserve
Board left short-term interest rates unchanged, while long-term rates fell to
record lows in mid-June.
In the pages that follow, you can read about how your Fund's management dealt
with the disruptions in the Pacific region and their impact on our domestic
economy. But beyond Asia's present problems, and notwithstanding the inevitable
ebb and flow of our own business cycle, there are reasons to be optimistic about
investment prospects over the next several years. For example, vast,
under-served populations in China and elsewhere represent huge potential demand
for consumer goods. Here in the United States, there is the prospect of a
demography-driven spending wave, as millions of baby-boomers enter their peak
consumption years. Events may turn out differently -- volatility will always be
part of investing -- but as much as the markets may waver, the watchwords for
many long-term investors are constant: diversify and persist.
While you are thinking about your investments, take a few minutes to review your
portfolio. It's possible that three years of strong market gains have tilted
your holdings disproportionately toward aggressive stock funds. If so, you and
your financial representative can adjust the balance easily using some of New
England Funds' more conservative equity or bond funds to reallocate your assets
in line with your long-term goals and comfort level. Once you are satisfied with
your portfolio's balance, be sure to stay in touch with your financial
professional, invest regularly and don't try to guess what the market will do
next.
Thank you for your continued support of New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
PREPARING FOR THE YEAR 2000
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New England Funds continues to work to provide high quality service as we move
into the new century. Since last year we have devoted significant resources to
identifying, analyzing and resolving computer issues related to Year 2000. As a
further measure, we have focused on year-end 1998 as a target for preparedness
by vendor and service agency systems that we rely on for support. We expect
major systems to be ready before the end of the year, with a year of quality
assurance to follow.
<PAGE>
NEW ENGLAND GROWTH FUND
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INVESTMENT RESULTS THROUGH JUNE 30, 1998
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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.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since 6/30/78, compared to the S&P 500.
The data points from the graph are as follows:]
NAV(1) MSC(2) S&P 500(3)
06/30/1978 $ 10,000 $ 9,425 $ 10,000
1979 $ 11,490 $ 10,829 $ 11,355
1980 $ 14,553 $ 13,716 $ 13,310
1981 $ 22,875 $ 21,559 $ 16,042
1982 $ 22,872 $ 21,557 $ 17,870
1983 $ 46,850 $ 44,156 $ 28,757
1984 $ 36,154 $ 34,075 $ 27,417
1985 $ 47,673 $ 44,931 $ 35,872
1986 $ 66,131 $ 62,329 $ 48,668
1987 $ 83,028 $ 78,254 $ 60,903
1988 $ 76,834 $ 72,416 $ 56,670
1989 $ 82,397 $ 77,659 $ 68,254
1990 $101,711 $ 95,862 $ 79,440
1991 $114,780 $108,181 $ 85,310
1992 $135,039 $127,274 $ 96,708
1993 $145,667 $137,291 $109,831
1994 $146,861 $138,417 $111,402
1995 $184,605 $173,990 $140,355
1996 $210,505 $198,401 $176,749
1997 $287,339 $270,817 $237,957
1998 $378,224 $356,476 $309,558
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.
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/98
Class A (Inception 11/27/68) 6 Months 1 Year 5 Years 10 Years
Net Asset Value(1) 26.70% 31.63% 21.03% 17.28%
With Max. Sales Charge(2) 19.37 24.10 19.60 16.58
Standard & Poor's 500(3) 17.67 30.09 23.03 18.51
Lipper Growth Fund Avg.(4) 15.10 25.38 18.91 16.13
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Class B (Inception 2/28/97) 6 Months 1 Year Since Inception
Net Asset Value(1) 26.16% 30.52% 31.50%
With CDSC(5) 21.16 25.80 28.77
Standard & Poor's 500(3) 17.67 30.09 33.27
Lipper Growth Fund Avg.(4) 15.10 25.38 27.77
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Notes to Charts
(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>
NEW ENGLAND GROWTH FUND
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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[Photo of G. Kenneth Heebner]
G. Kenneth Heebner
Capital Growth Management
Q. How did New England Growth Fund perform for the first half of 1998?
For the six months ending June 30, 1998, New England Growth Fund posted a return
of 26.70% for Class A shares -- performance well above that of the average
growth fund's 15.10% return (as measured by Lipper Analytical Services, an
independent mutual fund ranking company). The Fund's return reflects a $2.78 per
share gain in net asset value to $13.19 on June 30.
Q. What was the investment environment like, and how did it influence your
investment strategy?
A continuing strong economy, low inflation and a relatively stable interest rate
environment contributed to a strong stock market overall for the first half of
the year.
During the period, your Fund remained fully invested, keeping your money hard at
work in the marketplace. I continued to look for well managed, moderate growth
companies that are attractively valued. I see opportunity in what, in my view,
remains a near perfect investment climate.
Over the past six months, I built a significant position in American Depository
Receipts (ADRs) of European companies,* which I believe are well positioned to
benefit from continued growth in Europe over the next several years. There has
been a trend recently toward corporate restructuring, deregulation and mergers
among companies in major European countries. The push toward leaner, meaner
companies may continue as the move toward a common currency approaches. Holdings
that represent these trends are Nokia, Volkswagen, Philips Electronics and
Daimler Benz.
I also maintained a substantial weighting in financial services stocks,
including banks, insurance companies and savings and loans. Many of these issues
are enjoying visible earnings growth yet are reasonably priced.
In addition, the retail sector provided several attractive investment
opportunities, including Wal-Mart, Kmart and Gap. These familiar retailers
earned a spot in the portfolio because they share common traits: They are well
managed companies, benefiting from robust consumer spending, a reflection of the
favorable economic climate.
- ----------
* Investing in foreign (including emerging market) securities involves special
risks. See a prospectus for details.
Finally, I decreased my position in airline stocks as I found more attractive
opportunities in other sectors of the market. I was also careful to avoid
investing in companies that appeared overpriced and in companies I considered to
be speculative whose earning power is currently stagnant.
Q. How would you describe the Fund's investment approach?
New England Growth Fund takes a concentrated approach, focusing on established,
reasonably priced companies in industries that offer the greatest potential for
growth. This generally means that I pursue the Fund's objective of capital
appreciation by investing more money in a smaller number of stocks instead of
maintaining smaller positions across a greater number of issues. My core
portfolio will typically number 20 to 30 issues. This allows me to use my stock
selection abilities to take full advantage of the stock market's growth
potential. Of course, a concentrated portfolio can involve greater potential for
price fluctuations than larger, more diversified portfolios.
YOUR FUND'S 10 LARGEST INVESTMENTS -- 6/30/98
% of
Company Net Assets
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1. Volkswagen 6.93
2. Nokia Corp. 6.60
3. Warner-Lambert Co. 6.42
4. Computer Sciences 6.07
5. Wal-Mart Stores, Inc. 5.83
6. American International Group 5.71
7. Chase Manhattan 5.46
8. Philips Electronics 5.43
9. Hershey Foods 5.17
10. Mattel, Inc. 5.07
Portfolio holdings and asset allocations will vary.
Q. What factors helped or hurt Fund performance during the six months?
Positive market reaction to many of the stocks in the portfolio contributed to
your Fund's strong performance -- specifically, large-cap growth companies that
maintained solid earnings momentum. In addition, several individual holdings --
Volkswagen, Nokia and Philips Electronics, in particular -- helped fuel the
Fund's performance.
Q. What is your outlook for the rest of 1998?
I am optimistic -- the U.S. economy remains strong. Although the Federal Reserve
Board is concerned about Asia's financial crisis, I expect interest rates to
stay where they are in the near future as inflation will likely remain subdued.
All in all, I believe this is a recipe for continued stock market success.
As always, it is my belief that outstanding companies with superior earnings and
revenue growth can outperform the broader market over time. As a result, I will
continue to focus on finding those companies that I believe can deliver earnings
growth in excess of investor expectations -- and that are available at
reasonable prices. This means paying strict attention to the fundamentals and
valuations of individual companies that the Fund currently owns -- and those
that I'm looking to buy. It is my goal to be invested in the most promising
growth stocks, whatever the market sector.
Portfolio commentary reflects the conditions and actions taken during the
reporting period, which are subject to change. A shift in opinion may result in
strategic and other portfolio charges.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1998
(unaudited)
COMMON STOCK--99.6% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
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AIRLINES--1.3%
280,000 AMR Corp. (c) ............................... $ 23,310,000
--------------
APPAREL & TEXTILES--4.0%
1,190,000 Gap, Inc. ................................... 73,333,750
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AUTOMOTIVE--11.9%
920,000 Daimler-Benz AG (ADR) ....................... 89,527,500
920,000 Daimler-Benz AG (Rights) (c) ................ 1,207,500
645,000 Volkswagen AG (ADR) ......................... 125,775,000
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216,510,000
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BANKS--9.4%
1,450,000 Bank of New York ............................ 87,996,875
1,902,500 Washington Mutual, Inc. ..................... 82,639,844
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170,636,719
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BANKS -- MONEY CENTER--5.5%
1,312,000 Chase Manhattan ............................. 99,056,000
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BEVERAGES & TOBACCO--4.9%
2,275,000 Philip Morris Cos ........................... 89,578,125
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COMPUTER SOFTWARE & SERVICES--6.1%
1,720,000 Computer Sciences ........................... 110,080,000
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DRUGS--10.3%
645,000 Pfizer, Inc. ................................ 70,103,437
1,680,000 Warner-Lambert Co. .......................... 116,550,000
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186,653,437
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ELECTRONIC COMPONENTS--12.0%
1,650,000 Nokia Corp. (ADR) ........................... 119,728,125
1,160,000 Philips Electronics NV (ADR) ................ 98,600,000
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218,328,125
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FOOD -- RETAILERS/WHOLESALERS--5.2%
1,360,000 Hershey Foods ............................... 93,840,000
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FREIGHT TRANSPORTATION--4.9%
900,000 Burlington Northern Santa Fe ................ 88,368,750
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INSURANCE--5.7%
709,450 American International Group ................ 103,579,700
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LEISURE & LODGING--7.6%
1,140,000 Carnival Corp. .............................. 45,172,500
2,175,000 Mattel, Inc. ................................ 92,029,688
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137,202,188
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RETAIL--10.8%
4,740,000 Kmart ....................................... $ 91,245,000
1,740,000 Wal-Mart Stores, Inc. ....................... 105,705,000
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196,950,000
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Total Common Stock (Identified Cost
$1,504,782,975) .......................... 1,807,426,794
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SHORT TERM INVESTMENT--0.2%
FACE
AMOUNT
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$ 3,565,000 American Express, 5.950%, 7/01/98 ........... 3,565,000
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Total Short Term Investment (Identified Cost
$3,565,000) ............................... 3,565,000
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Total Investments--99.8% (Identified Cost
$1,508,347,975) (b) ....................... 1,810,991,794
Other assets less liabilities ............... 3,567,937
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Total Net Assets--100% ...................... $1,814,559,731
==============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1998 the net
unrealized appreciation on investments based on cost
of $1,508,347,975 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 ............................................ $ 314,612,587
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .......................................... (11,968,768)
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Net unrealized appreciation.......................... $ 302,643,819
==============
(c) Non-income producing security.
ADR An American Depository Receipt 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>
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STATEMENT OF ASSETS & LIABILITIES
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June 30, 1998
(unaudited)
ASSETS
Investments at value (Identified cost
$1,508,347,975) ........................ $1,810,991,794
Cash ..................................... 2,076
Receivable for:
Fund shares sold ....................... 1,284,109
Securities sold ........................ 6,530,332
Dividends and interest ................. 1,068,639
Tax reclaims ........................... 1,906,067
Miscellaneous .......................... 11,614
Prepaid registration expense ............. 22,500
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1,821,817,131
LIABILITIES
Payable for:
Securities purchased ................... $4,839,065
Fund shares redeemed ................... 1,149,259
Accrued expenses:
Management fees ........................ 967,971
Deferred trustees' fees ................ 105,879
Accounting and administrative .......... 25,751
Other .................................. 169,475
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7,257,400
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NET ASSETS ................................. $1,814,559,731
==============
Net Assets consist of:
Capital paid in ........................ $1,222,350,336
Undistributed net investment income .... 13,124,784
Accumulated net realized gains ......... 276,440,792
Unrealized appreciation on investments . 302,643,819
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NET ASSETS .................................. $1,814,559,731
==============
Computation of net asset value and offering
price:
Net asset value and redemption price of Class
A shares ($1,773,738,255 divided by
134,464,670 shares of beneficial interest) $13.19
======
Offering price per share (100/94.25 of $13.19) $13.99*
======
Net asset value and offering price of Class B
shares ($40,821,476 divided by 3,134,052
shares of beneficial interest) ............ $13.03**
======
* 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.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF OPERATIONS
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Six Months Ended June 30, 1998
(unaudited)
INVESTMENT INCOME
Dividends .................................. $ 21,122,240(a)
Interest ................................... 230,695
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21,352,935
Expenses
Management fees .......................... $5,535,663
Service fees - Class A ................... 2,028,702
Service and distribution fees - Class B .. 134,579
Trustees' fees and expenses .............. 34,396
Accounting and administrative ............ 122,557
Custodian ................................ 120,004
Transfer agent ........................... 1,048,523
Audit and tax services ................... 15,245
Legal .................................... 41,520
Printing ................................. 94,461
Registration ............................. 90,433
Miscellaneous ............................ 33,401
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Total expenses ............................. 9,299,484
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Net investment income ...................... 12,053,451
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments - net ......... 223,989,951
Unrealized appreciation on investments - net 152,551,694
------------
Net gain on investment transactions ........ 376,541,645
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NET INCREASE IN NET ASSETS FROM OPERATIONS $388,595,096
============
(a) Net of foreign taxes of: $1,503,917.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
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STATEMENT OF CHANGES IN NET ASSETS
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<CAPTION>
(unaudited)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
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<S> <C> <C>
FROM OPERATIONS
Net investment income ............................... $ 1,108,757 $ 12,053,451
Net realized gain on investments .................... 423,636,925 223,989,951
Unrealized appreciation (depreciation) on investments (129,419,929) 152,551,694
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Increase in net assets from operations .............. 295,325,753 388,595,096
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FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ........................................... (411,198,356) 0
Class B ........................................... (3,125,361) 0
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(414,323,717) 0
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INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS ................................... 299,959,511 (51,538,669)
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Total increase in net assets ........................ 180,961,547 337,056,427
NET ASSETS
Beginning of the period ............................. 1,296,541,757 1,477,503,304
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End of the period ................................... $1,477,503,304 $1,814,559,731
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period ................................... $ 1,071,333 $ 13,124,784
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
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FINANCIAL HIGHLIGHTS
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(unaudited)
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------------ ---------------------------------
SIX MARCH 1, SIX
MONTHS 1997(a) MONTHS
YEAR ENDED DECEMBER 31, ENDED THROUGH ENDED
--------------------------------------------------------------- JUNE 30, DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
the Period ......... $10.08 $10.44 $ 8.87 $10.55 $11.63 $10.41 $12.47 $10.32
------ ------ ------- ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income
(Loss) ............. 0.02 0.11 0.05 0.04 0.01 0.09 (0.07)(b) 0.05
Net Realized and
Unrealized Gain (Loss)
on Investments ..... 1.12 (0.84) 3.30 2.07 2.79 2.69 1.94 2.66
------ ------ ------- ------ ------ ------ ------ ------
Total From Investment
Operations ......... 1.14 (0.73) 3.35 2.11 2.80 2.78 1.87 2.71
------ ------ ------- ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income .. (0.01) (0.11) (0.05) (0.04) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital
Gains .............. (0.77) (0.73) (1.62) (0.99) (4.02) 0.00 (4.02) 0.00
------ ------ ------- ------ ------ ------ ------ ------
Total Distributions .. (0.78) (0.84) (1.67) (1.03) (4.02) 0.00 (4.02) 0.00
------ ------ ------- ------ ------ ------ ------ ------
Net Asset Value, End
of the Period ...... $10.44 $ 8.87 $10.55 $11.63 $10.41 $13.19 $10.32 $13.03
====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) (c) . 11.3 (7.1) 38.1 20.9 23.5 26.7 14.4 26.2
Ratio of Operating
Expenses to Average
Net Assets (%) ..... 1.18 1.19 1.20 1.18 1.12 1.11(d) 1.87 (d) 1.86(d)
Ratio of Net Investment
Income to Average
Net Assets (%) ..... 0.16 1.05 0.42 0.33 0.08 1.46(d) (0.67)(d) 0.71(d)
Portfolio Turnover
Rate (%) ........... 145 141 235 199 214 209(d) 214 209(d)
Net Assets, End of the
Period (000,000) ... $1,201 $988 $1,201 $1,297 $1,460 $1,774 $18 $41
(a) Commencement of operations.
(b) Per share net investment loss has been calculated using the average shares outstanding during the year.
(c) 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.
(d) Computed on an annualized basis.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
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June 30, 1998
(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 Fund seeks long-term growth of capital through investment in
equity securities of companies whose earnings are expected to grow at a faster
rate than the United States economy. 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. 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. All other securities and assets are
valued at their fair value as determined in good faith by the Fund's adviser
under the supervision of the Fund's trustees.
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 including interest. 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. For the six months ended June 30,
1998, purchases and sales of securities (excluding short-term investments)
were $1,726,858,827 and $1,767,094,304 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the six
months ended June 30, 1998, the Fund incurred management fees payable to its
investment adviser, Capital Growth Management, L.P. ("Capital Growth
Management"). Capital Growth Management is an affiliate of Nvest Companies,
L.P. ("Nvest") which is a subsidiary of Metropolitan Life Insurance Company
("MetLife"). The management agreement in effect during the six months ended
June 30, 1998 provided for fees as set forth below:
FEES EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
----------- ---------------------- -----------------------------
$5,535,663 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 Nvest
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 and financial reporting
functions and related clerical functions relating to the Fund, and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the six months ended June 30, 1998
these expenses amounted to $122,557 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Service Corp. (NEFSCO) is the
transfer and shareholder servicing agent for the Fund. For the six months
ended June 30, 1998, the Fund paid NEFSCO $815,531 as compensation for its
services in that capacity. For the six months ended June 30, 1998, the Fund
received $17,427 in transfer agent credits. The transfer agent expense in the
Statement of Operations is net of these credits.
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 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, 1998, the Fund paid New England Funds $2,028,702 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 1998 is $2,030,882.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of 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, 1998, the Fund paid New England
Funds $33,645 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 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 dealers, 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, 1998, the Fund paid New England Funds $100,934 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, 1998 amounted to $1,083,419.
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, NEFSCO, Nvest or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $9,259
Meeting Fee 159/meeting
Annual Committee Member Retainer 1,389
Annual Committee Chairman Retainer 926
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, 1998 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 SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------ ------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold .................... 9,974,830 $ 120,073,996 4,293,708 $ 51,382,816
Shares issued in connection with
the reinvestment of:
Distributions from net
realized gain .............. 37,920,855 400,444,224 0 0
---------- ------------- ---------- -------------
47,895,685 520,518,220 4,293,708 51,382,816
Shares repurchased ............. (19,156,995) (241,073,215) (10,017,667) (119,938,251)
---------- ------------- ---------- -------------
Net increase (decrease) ........ 28,738,690 $ 279,445,005 (5,723,959) $ (68,555,435)
---------- ------------- ---------- -------------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------ ------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold .................... 1,493,346 $ 18,164,763 1,522,769 $ 18,331,919
Shares issued in connection with
the reinvestment of:
Distributions from net
realized gain ................ 289,708 3,041,934 0 0
---------- ------------- ---------- -------------
1,783,054 21,206,697 1,522,769 18,331,919
Shares repurchased ............. (62,752) (692,191) (109,019) (1,315,153)
---------- ------------- ---------- -------------
Net increase ................... 1,720,302 20,514,506 1,413,750 17,016,766
---------- ------------- ---------- -------------
Increase (decrease) derived from
capital shares transactions .... 30,458,992 $ 299,959,511 (4,310,209) $ (51,538,669)
========== ============= ========== =============
</TABLE>
<PAGE>
SUPPLEMENT DATED AUGUST 17, 1998 TO THE NEW ENGLAND STOCK FUNDS CLASS A, B AND
C SHARES AND CLASS Y SHARES PROSPECTUSES DATED MAY 1, 1998
FOR NEW ENGLAND VALUE FUND AND NEW ENGLAND BALANCED FUND
The following supplements the "Fund Management" section of each Prospectus:
Effective August 1998, Jeffrey Wardlow and Lauriann Kloppenberg have assumed
responsibility for the day-to-day management of the Value Fund. Also effective
August 1998, Jeffrey Wardlow and Gregg Watkins have assumed responsibility for
the day-to-day management of the equity portion of the Balanced Fund and the
responsibility for allocating the assets of the Balanced Fund between equity
and fixed-income securities. The day-to-day management of the fixed-income
portion of the Balanced Fund remains the same. Mr. Wardlow, Vice President of
Loomis Sayles, has managed the Loomis Sayles Core Value Fund since its
inception in May 1991. Ms. Kloppenberg, Vice President and Director of Equity
Research of Loomis Sayles, has been employed by Loomis Sayles for more than
five years. Mr. Watkins, Vice President of Loomis Sayles, is also a portfolio
manager of the Loomis Sayles Mid-Cap Value Fund and has been employed by
Loomis Sayles for more than five years.
FOR NEW ENGLAND GROWTH FUND
Effective September 1, 1998, New England Growth Fund offers Class C shares to
the general public in addition to Class A and Class B shares. Therefore, the
following tables supplement "Annual fund operating expenses" and "Example" in
the "Schedule of Fees" section:
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
NEW ENGLAND
GROWTH FUND
-----------
CLASS C
-----------
Management Fees ................................................ 0.67%
12b-1 Fees ..................................................... 1.00%*
Other Expenses ................................................. 0.20%
Total Fund Operating Expenses .................................. 1.87%
- ------------
*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.
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 C
-----------------------
(1) (2)
1 year ........................................... $ 29 $ 19
3 years .......................................... $ 59 $ 59
5 years .......................................... $101 $101
10 years ......................................... $219 $219
- ------------
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
<PAGE>
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>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
- --------------------------------------------------------------------------------
THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income 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
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market 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.
New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you
of the availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
<PAGE>
------------------
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Where The Best Minds Meet(R) Paid
Brockton, MA
Permit No. 770
------------------
---------------------
399 Boylston Street
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02116
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