<PAGE>
ANNUAL REPORT
[logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
NEW ENGLAND VALUE FUND
[graphic omitted]
DECEMBER 31, 1997
<PAGE>
FEBRUARY 1998
"Even in 1997 . . . investors saw some sharp, short-term drops, whether they
were invested in the United States or overseas, in bonds or stocks."
[photo]
Dear Shareholder:
In 1997, many investors once again had reason to be pleased with the performance
of their mutual fund holdings. However, in times such as these, expectations
tend to grow along with prices. It pays to remind ourselves that no trend is
permanent, and we should keep our goals realistic and long-term needs in focus.
In the third straight year of outstanding returns, the Dow Jones Industrial
Average and the Standard & Poor's 500 Stock Index -- two widely followed
indicators of the performance of large-company stocks -- gained 24.9% and 33.3%
respectively. At the same time, smaller-company stocks, as measured by the
Russell 2000 Index, were up 22.4%. Meanwhile, bond investors also were rewarded
as declining interest rates and rising prices meant solid gains. The Lehman Long
Treasury Index, for example, posted a 15.1% return for the year. Results were
less favorable for international investors, especially those exposed to emerging
markets or the financial turmoil in Asia.
Gratifying though it has been, the markets' surge of the past few years obscures
the historic norm: Downturns and volatility also are regular features of
investing. Even in 1997, notwithstanding the impressive overall results,
investors saw some sharp, short-term drops, whether they were invested in the
United States or overseas, in bonds or stocks. Market fluctuations remind us of
some valuable lessons.
First, volatility is inevitable, and should not disrupt long-term programs
without sufficient evaluation. Those who sold in response to downturns --
October 1987 is an obvious example -- may have missed out on the subsequent
uptrend. Second, sound diversification can reduce risk. A useful exercise is to
review your asset allocation regularly with your financial representative.
Starting in 1998, you have one more reason to consult with your representative:
Newly expanded retirement options, including the new Roth IRA, could play an
important role in your retirement and tax planning for years to come. With this
in mind, New England Funds has introduced programs specially designed to help
you make the most of the newest retirement vehicles.
[Dalbar Logo]
1995 o 1996 o 1997
In addition to offering quality mutual fund choices and tax-advantaged plans, we
focus on providing the highest quality customer service. This is why I am
pleased to report that we have received DALBAR's Mutual Fund Service Award 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 receive this
award for the third consecutive year from DALBAR, an independent evaluator of
mutual fund service. We are continuing to work to provide even more effective
services. Two examples are: the Personal Access Line(a) -- our enhanced
automated telephone account service (800-346-5984) -- and the account
information section of the New England Funds web site (www.mutualfunds.com).
Each provides convenient, 24-hour access to current information about your New
England Funds accounts.
All of us at New England Funds thank you for your continued support and look
forward to serving you in the years ahead.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
<PAGE>
NEW ENGLAND VALUE FUND
INVESTMENT RESULTS THROUGH DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
Growth of a $10,000 Investment in Class A Shares
NEW ENGLAND VALUE FUND
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares since 12/31/97, compared to the S&P 500
Index. The data points from the graph are as follows:]
NAV MSC S&P 500
12/31/1987 $10,000 $ 9,425 $10,000
1988 $ 9,782 $ 9,220 $11,650
1989 $11,990 $11,300 $15,330
1990 $10,356 $ 9,760 $14,852
1991 $13,163 $12,406 $19,358
1992 $15,351 $14,468 $20,831
1993 $17,959 $16,926 $22,927
1994 $17,709 $16,691 $23,239
1995 $23,433 $22,085 $31,939
1996 $29,598 $27,896 $39,253
1997 $35,799 $33,740 $52,328
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, Class C and Class Y
share performance will be greater or less than that shown based on differences
in inception date, fees and sales charges. All Index and Fund performance
assumes reinvested distributions.
Average Annual Total Returns -- 12/31/97
- --------------------------------------------------------------------------------
Class A (Inception 6/5/70) 1 Year 5 Years 10 Years
Net Asset Value(1) 20.95% 18.45% 13.60%
With Max. Sales Charge(2) 13.94 17.07 12.93
Standard & Poor's 5004 33.31 20.22 18.00
Lipper Growth & Income Avg.(5) 26.99 17.53 15.72
- --------------------------------------------------------------------------------
Class B (Inception 9/13/93) 1 Year 3 Years Since Inception
Net Asset Value(1) 19.99% 25.47% 18.27%
With CDSC(3) 14.99 24.83 18.00
Standard & Poor's 500(4) 33.31 31.08 21.81
Lipper Growth & Income Avg.(5) 26.99 26.48 18.48
(calculated from 9/30/93)
- --------------------------------------------------------------------------------
Class C (Inception 12/30/94) 1 Year Since Inception
Net Asset Value(1) 20.22% 25.51%
Standard & Poor's 500(4) 33.31 31.08
Lipper Growth & Income Avg.(5) 26.99 26.48
(calculated from 12/30/94)
- --------------------------------------------------------------------------------
Class Y (Inception 3/31/94) 1 Year 3 Years Since Inception
Net Asset Value(1) 21.34% 26.75% 21.62%
Standard & Poor's 500(4) 33.31 31.08 25.82
Lipper Growth & Income Avg.(5) 26.99 26.48 21.43
(calculated from 3/31/94)
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost. Class Y shares are available only to certain institutional
investors. Share price and return may vary.
Notes to Charts
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 5.75% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares.
(4) Standard & Poor's Composite Index of 500 stocks* (S&P 500) is an
unmanaged index representing the performance of 500 major companies, most of
which are listed on the New York Stock Exchange. The S&P 500 performance has
not been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments.
(5) Lipper Growth & Income 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.
NEW ENGLAND VALUE FUND
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
[Photo of Carol McMurtrie]
[Photo of Tricia Mills]
[Photo of Roderick H. Dillon]
Carol McMurtrie,
Tricia Mills and
Roderick H. Dillon
Loomis, Sayles & Company, L.P.
Q. Please tell us about New England Value Fund's 1997 performance.
FOR the year ending DEcember 31, 1997, New England Value Fund's Class A shares
had a total return of 20.95%, reflecting a $0.54 per share gain in net asset
value to $10.14 on December 31, 1997, and the reinvestment of $1.43 per share in
capital gains distributions. These results put the Fund slightly behind the
Lipper Growth and Income Fund average, which was 26.99% for the same period. The
Fund's Class B and C shares had total returns (based on net asset value) in 1997
of 19.99% and 20.22%, respectively.
Q. What was the investment environment like?
Early in 1997, investors concentrated on a few very large companies that were
expected to do well despite the economic slowdown that many foresaw. This
large-capitalization bias fed sharp rises in the major market indicators -- the
Standard & Poor's 500 Index and the Dow Jones Industrial Average.
But the economy did not slow. instead, it kept expanding, shifting institutional
focus to large cyclical companies that might benefit from an upturn. In March,
the Federal Reserve Board raised short-term interest rates a quarter-percentage
point, the only increase in 1997, despite the economy's growth mode.
Sustained economic vigor and low inflation encouraged investors to seek wider
opportunities. Consequently, in the second and third quarters, value stocks and
mid-sized companies, categories that the Fund emphasizes, outperformed the
large-cap sector. Then, as the Asian economic crisis began to unsettle the
region's markets, capital once again poured into big, highly liquid holdings
with defensive characteristics.
Your Fund's 10 Largest Holdings -- 12/31/97
% of
Company Net Assets
-------------------------------------------------------------------
1. Norwest Corp. 2.51
-------------------------------------------------------------------
2. Ameritech Corp. 2.50
-------------------------------------------------------------------
3. BellSouth Corp. 2.48
-------------------------------------------------------------------
4. SBC Communications, Inc. 2.48
-------------------------------------------------------------------
5. Kroger Co. 2.46
-------------------------------------------------------------------
6. UST, Inc. 2.42
-------------------------------------------------------------------
7. Hasbro, Inc. 2.40
-------------------------------------------------------------------
8. Federal National Mortgage Association 2.36
-------------------------------------------------------------------
9. Office Depot, Inc. 2.34
-------------------------------------------------------------------
10. Federal Home Loan Mortgage Corp. 2.33
-------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
Your Fund's Five Largest Stock Sectors -- 12/31/97
% of
Net Assets
-------------------------------------------------------------------
1. Banks 10.9
-------------------------------------------------------------------
2. Insurance 10.2
-------------------------------------------------------------------
3. Telephone 9.5
-------------------------------------------------------------------
4. Chemicals 8.8
-------------------------------------------------------------------
5. Housing & Building Materials 7.6
-------------------------------------------------------------------
Portfolio holdings and asset allocations will vary.
Q. Given this environment, what was your strategy during the year?
We used a bottom-up approach to portfolio building, choosing securities that we
believed have the greatest total return potential -- sector weightings, in fact,
are a result of the stock selection process. Early in 1997, the portfolio was
structured conservatively to take advantage of earnings visibility and stability
in an economic environment where corporate profit growth might be slowing. We
were obviously early in committing to this posture; when the energetic economy
generated growth well above consensus expectations, many of the FUnd's
Conservative Holdings Were Ignored By Investors Who Preferred To Own Stocks With
High Earnings Momentum.
However, we feel the portfolio is well positioned going into 1998 -- although
the outlook for next year is now clouded by the Asian economic crisis as well as
the fact that we are in year eight of an economic expansion.
Q. What were some of the factors that affected performance, either positively or
negatively?
The Fund benefited from its focus on banks and its underweighting in utilities.
The economic background -- low inflation and declining interest rates -- favors
earnings growth for banks. Meanwhile, the new, competitive operating environment
introduces uncertainty into earnings estimates for utilities and holds back
their dividend growth. Elsewhere, the portfolio's telecommunications holdings
underperformed until late in the fourth quarter, while stocks in the healthcare
services sector were disappointing. Our commitment to technology stocks, while
small, served the Fund well.
Because we emphasize value-based stock selection, the Fund was underexposed to
the large-cap growth stocks that the market favored. The Fund benefited from the
summer rally in mid-sized stocks, especially those with lower price-to-earnings
ratios that more closely fit our value-investing mission.
Q. What do you see ahead for the stock market, and what does it imply for the
Fund?
The outlook for the stock market is uncertain -- valuation levels seem to
suggest that the broad market is "priced for perfection," which allows for the
possibility of a decline should earnings not meet expectations for too many
bellwether companies. However, we do not engage in market timing, believing
there are investment opportunities in all market conditions. We will continue to
focus on areas where Loomis Sayles' Analysts Expect Above-market Growth Rates.
In many different industries, such as the telecom stocks, issues can be found
that indicate better-than-average near-term earnings growth prospects, good
dividend yield potential (in many cases) and, most importantly, appear to be
selling at attractive price-to-earnings ratios.
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of December 31, 1997
COMMON STOCK--96.4% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (a)
- ------------------------------------------------------------------------------------------
AEROSPACE--2.3%
<C> <S> <C>
91,500 Northrop Grumman Corp. ................................ $ 10,522,500
-------------
APPAREL & TEXTILES--2.9%
148,100 Reebok International, Ltd. (c) ......................... 4,267,131
285,400 Warnaco Group .......................................... 8,954,425
-------------
13,221,556
-------------
BANKS--10.9%
144,800 BankAmerica Corp. ...................................... 10,570,400
162,500 Charter One Financial, Inc. ............................ 10,257,812
70,500 Chase Manhattan ........................................ 7,719,750
69,400 Fleet Financial Group, Inc. ............................ 5,200,663
76,000 NationsBank Corp. ...................................... 4,621,750
298,800 Norwest Corp. .......................................... 11,541,150
-------------
49,911,525
-------------
CHEMICALS--8.8%
370,400 Crompton & Knowles Corp. ............................... 9,815,600
146,400 El duPont deNemours & Co. .............................. 8,793,150
283,900 IMC Global, Inc., Rights (c) ........................... 9,297,725
62,700 PPG Industries, Inc. ................................... 3,581,737
339,200 Solutia, Inc. (c) ...................................... 9,052,400
-------------
40,540,612
-------------
COMPUTERS & BUSINESS EQUIPMENT--3.3%
166,900 3Com Corp. (c) ......................................... 5,831,069
279,200 Gateway 2000, Inc. ..................................... 9,108,900
-------------
14,939,969
-------------
CONSUMER--JEWELRY/NOVELTY/GIFTS--2.1%
252,500 American Greetings Corp. ............................... 9,879,063
-------------
ELECTRIC COMPANIES--0.0%
4,300 CMS Energy Corp. ....................................... 189,469
-------------
ELECTRONICS--2.0%
184,100 Raytheon Co., Class B .................................. 9,297,050
-------------
FINANCIAL SERVICES--4.7%
255,800 Federal Home Loan Mortgage Corp. ....................... 10,727,613
190,100 Federal National Mortgage Association .................. 10,847,581
-------------
21,575,194
-------------
FREIGHT TRANSPORTATION--3.0%
271,300 Canadian Pacific, Ltd. ................................. 7,392,925
106,600 Federal Express Corp. (c) .............................. 6,509,262
-------------
13,902,187
-------------
HEALTH CARE--SERVICES--3.9%
65,900 Aetna, Inc. ............................................ 4,650,069
268,600 Columbia/HCA Healthcare Corp. .......................... 7,957,275
245,270 Foundation Health Systems, Inc. (c) .................... 5,487,916
-------------
18,095,260
-------------
HOUSING & BUILDING MATERIALS--7.6%
136,400 Armstrong World Industries, Inc. ....................... 10,195,900
226,200 Leggett & Platt, Inc. .................................. 9,472,125
206,600 Masco Corp. ............................................ 10,510,775
81,900 Philips Electronics NV (ADR) (d) ....................... 4,954,950
-------------
35,133,750
-------------
INSURANCE--10.2%
96,300 ACE, Ltd. .............................................. 9,292,950
87,800 Allstate Corp. ......................................... 7,978,825
252,400 Everest Reinsurance Holdings, Inc. ..................... 10,411,500
92,000 Loews Corp. ............................................ 9,763,500
282,100 TIG Holdings, Inc. ..................................... 9,362,194
-------------
46,808,969
-------------
LEISURE TIME--2.4%
350,500 Hasbro, Inc. ........................................... 11,040,750
-------------
MACHINERY--4.3%
84,900 Case Corp. ............................................. 5,131,144
86,200 Deere & Co. ............................................ 5,026,537
268,600 Dover Corp. ............................................ 9,703,175
-------------
19,860,856
-------------
MANUFACTURING--DIVERSIFIED--2.1%
248,000 Allied Signal, Inc. .................................... 9,656,500
-------------
MANUFACTURING--SPECIAL--1.0%
119,000 York International Corp. ............................... 4,707,938
-------------
OIL & GAS--5.4%
56,300 British Petroleum PLC (ADR) (d) ........................ 4,486,406
273,500 Tosco Corp. ............................................ 10,341,719
121,900 United Meridian Corp. (c) .............................. 3,428,437
165,500 Unocal Corp. ........................................... 6,423,469
-------------
24,680,031
-------------
PAPER & FOREST PRODUCTS--0.7%
30,500 Georgia Pacific Corp. .................................. 1,852,875
30,500 Georgia Pacific Timber Corp. ........................... 691,969
30,000 Mead Corp. ............................................. 840,000
-------------
3,384,844
-------------
RETAIL--4.4%
263,425 Dillard's, Inc. ........................................ $ 9,285,731
449,600 Office Depot, Inc. ..................................... 10,762,300
-------------
20,048,031
-------------
RETAIL--FOOD & DRUG--2.5%
306,200 Kroger Co. (c) ......................................... 11,310,262
-------------
TELEPHONE--9.5%
142,500 Ameritech Corp. ........................................ 11,471,250
101,300 Bell Atlantic Corp. .................................... 9,218,300
202,800 BellSouth Corp. ........................................ 11,420,175
155,323 SBC Communications, Inc. ............................... 11,377,410
-------------
43,487,135
-------------
TOBACCO--2.4%
300,600 UST, Inc. .............................................. 11,103,413
-------------
Total Common Stock (Identified Cost $338,852,208) ...... 443,296,864
-------------
</TABLE>
<PAGE>
SHORT TERM INVESTMENTS--4.8%
<TABLE>
<CAPTION>
FACE
AMOUNT
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 20,000,000 American Express Credit Corp., 6.650%, 1/02/98 ......... 20,000,000
1,873,000 Repurchase Agreement with State Street Bank & Trust Co.
dated 12/31/97 at 5.000% to be repurchased at
$1,873,520 on 1/02/98 collateralized by $1,865,000
U.S. Treasury Note 5.875% due 7/31/99 with a value of
$1,914,342 ........................................... 1,873,000
--------------
Total Short Term Investments (Identified Cost
$21,873,000) ......................................... 21,873,000
--------------
Total Investments--101.2%
(Identified Cost $360,725,208)(b) .................... 465,169,864
Other assets less liabilities .......................... (5,482,753)
--------------
Total Net Assets--100% ................................. $ 459,687,111
==============
(a)See Note 1a.
(b)Federal Tax Information: At December 31, 1997 the net unrealized
appreciation on investments based on cost of $361,204,627 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............... $ 118,600,228
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value. ............. (14,634,991)
--------------
Net unrealized appreciation .................................... $ 103,965,237
==============
(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.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at value ..................................... $465,169,864
Cash ..................................................... 464
Receivable for:
Fund shares sold ....................................... 608,957
Securities sold ........................................ 1,498,175
Dividends and interest ................................. 327,731
Foreign taxes .......................................... 2,886
Prepaid registration expense ............................. 8,000
------------
467,616,077
LIABILITIES
Payable for:
Securities purchased ................................... $6,076,080
Fund shares redeemed ................................... 1,360,749
Withholding taxes ...................................... 8,782
Accrued expenses:
Management fees ........................................ 278,156
Deferred trustees' fees ................................ 92,009
Accounting and administrative .......................... 5,638
Other .................................................. 107,552
----------
7,928,966
------------
NET ASSETS ................................................. $459,687,111
============
Net Assets consist of:
Capital paid in ........................................ $347,501,461
Undistributed net investment income .................... 226,792
Accumulated net realized gains ......................... 7,514,132
Unrealized appreciation on investments ................. 104,444,726
------------
NET ASSETS ................................................. $459,687,111
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($348,988,195 divided by 34,424,572 shares of beneficial
interest) .............................................. $ 10.14
============
Offering price per share (100/94.25 of $10.14) ............. $ 10.76*
============
Net asset value and offering price of Class B shares
($80,007,647 divided by 8,073,924 shares of
beneficial interest) ...................................... $ 9.91**
============
Net asset value and offering price of Class C shares
($6,527,218 divided by 657,865 shares of beneficial
interest) .............................................. $ 9.92
============
Net asset value and offering price of Class Y shares
($24,164,051 divided by 2,392,920 shares of beneficial
interest) .............................................. $ 10.10
============
Identified cost of investments ............................. $360,725,208
============
* Based upon single purchases of less than $50,000. Reduced sales charges apply
for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends ................................................ $ 5,510,438(a)
Interest ................................................. 873,870
------------
6,384,308
Expenses
Management fees ........................................ $3,030,220
Service fees - Class A ................................. 819,872
Service and distribution fees - Class B ................ 661,091
Service and distribution fees - Class C ................ 52,413
Trustees' fees and expenses ............................ 21,079
Accounting and administrative .......................... 67,088
Custodian .............................................. 136,533
Transfer agent ......................................... 720,794
Audit and tax services ................................. 31,490
Legal .................................................. 12,568
Printing ............................................... 60,539
Registration ........................................... 56,760
Miscellaneous .......................................... 37,579
----------
Total expenses ........................................... 5,708,026
-----------
Net investment income .................................... 676,282
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on Investments - net ....................... 57,286,408
Unrealized appreciation on Investments - net ............. 20,117,409
-----------
Net gain on investment transactions ...................... 77,403,817
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $78,080,099
===========
</TABLE>
(a) Net of foreign taxes of: $37,809
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997
---------------- ----------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ................................... $ 2,113,117 $ 676,282
Net realized gain on investments ........................ 41,007,345 57,286,408
Unrealized appreciation on investments .................. 30,101,917 20,117,409
------------ -------------
Increase in net assets from operations .................. 73,222,379 78,080,099
------------ -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (1,859,247) (496,325)
Class B ............................................... (44,342) 0
Class C ............................................... (3,710) 0
Class Y ............................................... (105,836) (69,086)
Net realized gain on investments
Class A ............................................... (35,730,736) (44,590,500)
Class B ............................................... (5,470,122) (10,037,715)
Class C ............................................... (360,682) (837,785)
Class Y ............................................... (1,371,598) (2,990,531)
------------ -------------
(44,946,273) (59,021,942)
------------ -------------
Increase in net assets derived from capital share
transactions .......................................... 57,024,198 78,386,994
------------ -------------
Total increase in net assets ............................ 85,300,304 97,445,151
NET ASSETS
Beginning of the year ................................... 276,941,656 362,241,960
------------ -------------
End of the year ......................................... $362,241,960 $ 459,687,111
============ =============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year ................................... $ 91,904 $ 121,261
============ =============
End of the year ......................................... $ 121,261 $ 226,792
============ =============
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year.................... $ 7.28 $ 7.87 $ 7.27 $ 8.78 $ 9.60
------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income ................ 0.07 0.08 0.10 0.06 0.03(c)
Net Realized and Unrealized
Gain (Loss) on Investments ......... 1.16 (0.19) 2.21 2.12 1.96
------ ------ ------ ------ ------
Total From Investment Operations ..... 1.23 (0.11) 2.31 2.18 1.99
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income . (0.07) (0.08) (0.09) (0.06) (0.02)
Distributions From Net Realized
Capital Gains ...................... (0.57) (0.41) (0.71) (1.30) (1.43)
------ ------ ------ ------ ------
Total Distributions .................. (0.64) (0.49) (0.80) (1.36) (1.45)
------ ------ ------ ------ ------
Net Asset Value, End of Year ......... $ 7.87 $ 7.27 $ 8.78 $ 9.60 $10.14
====== ====== ====== ====== ======
Total Return (%)(a) .................. 17.0 (1.4) 32.3 26.3 21.0
Ratio of Operating
Expenses to Average Net
Assets (%) ..... ................... 1.34 1.37 1.37 1.31 1.25
Ratio of Net Investment Income to
Average Net Assets (%) ............. 0.83 1.00 1.22 0.78 0.28
Portfolio Turnover Rate (%) .......... 40 29 52 64 55
Average Commission Rate (b) .......... -- -- -- $ 0.0574 $ 0.0589
Net Assets, End of Year (000) ........ $189,779 $190,869 $241,038 $297,581 $348,988
</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.
(c) Per share net investment income has been calculated using the
average shares outstanding during the year.
See accompaning notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
September 13(a)
through YEAR ENDED DECEMBER 31,
December 31, ---------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period.................. $ 7.97 $ 7.85 $ 7.23 $ 8.70 $ 9.47
------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income ................ 0.11 0.04 0.05 0.01 (0.05)(e)
Net Realized and Unrealized
Gain (Loss) on Investments ......... 0.39 (0.20) 2.18 2.07 1.92
------ ------ ------ ------ ------
Total From Investment Operations ..... 0.50 (0.16) 2.23 2.08 1.87
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income . (0.05) (0.05) (0.05) (0.01) 0.00
Distributions From Net Realized
Capital Gains ...................... (0.57) (0.41) (0.71) (1.30) (1.43)
------ ------ ------ ------ ------
Total Distributions .................. (0.62) (0.46) (0.76) (1.31) (1.43)
------ ------ ------ ------ ------
Net Asset Value, End of Period ....... $ 7.85 $ 7.23 $ 8.70 $ 9.47 $ 9.91
====== ====== ====== ====== ======
Total Return (%)(c) .................. 6.5 (2.0) 31.3 25.4 20.0
Ratio of Operating
Expenses to Average Net
Assets (%) ......................... 2.16(b) 2.12 2.12 2.06 2.00
Ratio of Net Investment Income to
Average Net Assets (%) ............. 0.05(b) 0.25 0.47 0.03 (0.47)
Portfolio Turnover Rate (%) .......... 40 29 52 64 55
Average Commission Rate (d) .......... -- -- -- $0.0574 $80,008
Net Assets, End of Year (000) ........ $2,182 $13,830 $27,941 $48,210 $80,008
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return
calculations. Periods less than one year are not annualized.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades
upon which commissions are charged. This rate generally does not
reflect mark-ups, mark-downs, or spreads on shares traded on a
principal basis.
(e) Per share net investment loss has been calculated using the average shares
outstanding during the year.
<PAGE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Year ......................... $ 7.23 $ 8.70 $ 9.46
------ ------- -------
Income From Investment Operations
Net Investment Income (Loss) ............................... 0.05 0.01 (0.05)(b)
Net Realized and Unrealized Gain on Investments ............ 2.18 2.06 1.94
------ ------- -------
Total From Investment Operations ........................... 2.23 2.07 1.89
------ ------- -------
Less Distributions
Dividends From Net Investment Income ....................... (0.05) (0.01) 0.00
Distributions From Net Realized Capital Gains .............. (0.71) (1.30) (1.43)
------ ------- -------
Total Distributions ........................................ (0.76) (1.31) (1.43)
------ ------- -------
Net Asset Value, End of Year ............................... $ 8.70 $ 9.46 $ 9.92
====== ======= =======
Total Return (%) ........................................... 31.3 25.2 20.2
Ratio of Operating Expenses to
Average Net Assets (%) ................................... 2.12 2.06 2.00
Ratio of Net Investment Income to
Average Net Assets (%) ................................... 0.47 0.03 (0.47)
Portfolio Turnover Rate (%) ................................ 52 64 55
Average Commission Rate (a) ................................ -- $0.0574 $0.0589
Net Assets, End of Year (000) .............................. $1,224 $ 3,735 $ 6,527
</TABLE>
(a) 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.
(b) Per share net investment loss has been calculated using the average shares
outstanding during the year.
<PAGE>
<TABLE>
<CAPTION>
CLASS Y
------------------------------------------------------------
MARCH 31(a)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------
1994 1995 1996 1997
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 7.57 $ 7.24 $ 8.75 $ 9.55
------ ------ ------ ------
Income From Investment Operations
Net Investment Income .................. 0.10 0.12 0.08 0.06(e)
Net Realized and Unrealized Gain on
Investments .......................... 0.08 2.21 2.10 1.95
----- ----- ----- -----
Total From Investment Operations ....... 0.18 2.33 2.18 2.01
----- ----- ----- -----
Less Distributions
Dividends From Net Investment Income ... (0.10) (0.11) (0.08) (0.03)
Distributions From Net Realized Capital
Gains ................................ (0.41) (0.71) (1.30) (1.43)
----- ----- ----- -----
Total Distributions .................... (0.51) (0.82) (1.38) (1.46)
----- ----- ----- -----
Net Asset Value, End of Period ......... $ 7.24 $ 8.75 $ 9.55 $10.10
====== ====== ====== ======
Total Return (%)(c) .................... 2.4 32.8 26.4 21.3
Ratio of Operating Expenses to
Average Net Assets (%) ............... 1.54(b) 1.12 1.06 1.00
Ratio of Net Investment Income to
Average Net Assets (%) ............... 1.05(b) 1.47 1.03 0.53
Portfolio Turnover Rate (%) ............ 29 52 64 55
Average Commission Rate (d) ............ -- -- $0.0574 $0.0589
Net Assets, End of Period (000) ........ $4,001 $6,738 $12,716 $24,164
</TABLE>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades upon
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
(e) Per share net investment income has been calculated using the average shares
outstanding during the year.
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1997
1. The Fund is a Series of New England Funds Trust I, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced
its public offering of Class B shares on September 13, 1993, of Class C shares
on December 30, 1994 and of its Class Y shares on March 31, 1994. Class A shares
are sold with a maximum front end sales charge of 5.75%. Class B shares do not
pay a front end sales charge, but pay a higher ongoing distribution fee than
Class A shares, for eight years (at which point they automatically convert to
Class A shares), and are subject to a contingent deferred sales charge if those
shares are redeemed within six years of purchase (or five years if purchased
before May 1, 1997). Class C shares do not pay front end or contingent deferred
sales charges and do not convert to any class of shares, but they do pay a
higher ongoing distribution fee than Class A shares. Class Y shares do not pay a
front end sales charge, a contingent deferred sales charge or distribution fee.
They are intended for institutional investors with a minimum of $1,000,000 to
invest. Expenses of the Fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro-rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the Trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of valuations
furnished by a pricing service, authorized by the Board of Trustees, which
service provides the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national market system, or, if
no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates value. All other securities and assets are valued at their fair
value as determined in good faith by the Fund's adviser, New England Funds
Management L.P., and the subadviser, under the supervision of the Fund's
trustees.
B. SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are accounted
for on the trade date (the date the buy or sell is executed). Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Interest income for the Fund is increased by the accretion of discount.
In determining net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The timing and characterization of certain
income and capital gains distributions are determined in accordance with federal
tax regulations which may differ from generally accepted accounting principles.
Permanent book and tax basis differences will result in reclassification to the
capital accounts.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. The Fund's subadviser is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the event
of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the year ended December 31, 1997 were $230,933,520 and $218,499,245,
respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management L.P.
("NEFM") at the annual rate of 0.75% of the first $200 million of the Fund's
average daily net assets, 0.70% of the next $300 million and 0.65% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Loomis Sayles & Company, L.P., at the rate of 0.535% of the first $200 million
of the Fund's average daily net assets, 0.350% of the next $300 million and
0.300% of such assets in excess of $500 million. Certain officers and directors
of NEFM are also officers or trustees of the Fund. NEFM and Loomis Sayles &
Company, L.P. are wholly owned subsidiaries of New England Investment Companies,
L.P. ("NEIC") which is a subsidiary of Metropolitan Life Insurance Company ("Met
Life"). Fees earned by NEFM and Loomis Sayles & Company, L.P. under the
management agreement in effect during the year ended December 31, 1997 are as
follows:
FEES EARNED
$1,195,110 New England Funds Management, L.P.
$1,835,110 Loomis, Sayles & Company, L.P.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC and
performs certain accounting and administrative services for the Fund. The Fund
reimburses New England Funds for all or part of New England Funds' expenses of
providing these services which include the following: (i) expenses for personnel
performing bookkeeping, accounting and financial reporting functions and
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 year
ended December 31, 1997 these expenses amounted to $67,088 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, 1997, the Fund
paid New England Funds $533,667 as compensation for its services in that
capacity. For the year ended December 31, 1997, the Fund received $8,218 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 Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by the New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the year
ended December 31, 1997, the Fund paid New England Funds $819,872 in fees under
the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward at December 31, 1997 is
$1,651,994.
Under the Class B and Class C Plan, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the year ended December 31,
1997, the Fund paid New England Funds $165,273 and $13,103 in service fees under
the Class B and Class C plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds
monthly distribution fees at the annual rate of up to 0.75% of the average daily
net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and Class
C shares. For the year ended December 31, 1997, the Fund paid New England Funds
$495,818 and $39,310 in distribution fees under the Class B and Class C plans,
respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors in shares of the Fund during the year ended
December 31, 1997 amounted to $1,054,803.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of NEFM,
New England Funds, NEIC or their affiliates, other than registered investment
companies. Each other trustee is compensated by the Fund as follows:
Annual Retainer $2,056
Meeting Fee $109/meeting
Committee Meeting Fee $65/meeting
Committee Chairman Retainer $152/year
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund on the
normal payment date.
4. CAPITAL SHARES. At December 31, 1997 there was an unlimited number of shares
of beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital stock. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------------- ---------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold .......................... 4,640,471 $43,287,185 5,274,284 $54,397,082
Shares issued in connection with
the reinvestment of:
Dividends from net
investment income ................ 189,563 1,810,327 49,346 485,071
Distributions from net
realized gain..................... 3,878,685 35,082,583 4,276,922 43,869,063
---------- ----------- ---------- -----------
8,708,719 80,180,095 9,600,552 98,751,216
Shares repurchased ................... (5,137,827) (47,889,236) (6,186,704) (64,085,974)
---------- ----------- ---------- -----------
Net increase ......................... 3,570,892 $32,290,859 3,413,848 $34,665,242
---------- ----------- ---------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------------- ---------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,765,384 $16,311,333 2,893,109 $29,345,774
Shares issued in connection with
the reinvestment of:
Dividends from net
investment income ................ 4,900 46,158 0 0
Distributions from net
realized gain .................... 582,246 5,194,870 959,479 9,622,907
---------- ----------- ---------- -----------
2,352,530 21,552,361 3,852,588 38,968,681
Shares repurchased ................... (471,337) (4,330,620) (871,231) (8,895,403)
---------- ----------- ---------- -----------
Net increase ......................... 1,881,193 $17,221,741 2,981,357 $30,073,278
---------- ----------- ---------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------------- ---------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- ---------------
Shares sold .......................... 289,530 $ 2,676,616 552,855 $ 5,636,175
Shares issued in connection with
the reinvestment of:
Dividends from net
investment income ................ 372 3,501 0 0
Distributions from net
realized gain .................... 37,948 339,671 80,794 811,343
---------- ------------ ---------- ------------
327,850 3,019,788 633,649 6,447,518
Shares repurchased ................... (73,512) (674,174) (370,803) (3,675,157)
---------- ------------ ---------- ------------
Net increase ......................... 254,338 $ 2,345,614 262,846 $ 2,772,361
---------- ------------ ---------- ------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------------- ---------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold .......................... 473,688 $ 4,397,728 1,035,682 $10,694,891
Shares issued in connection with
the reinvestment of:
Dividends from net
investment income ................ 11,141 105,840 7,056 69,086
Distributions from net
realized gain .................... 151,895 1,371,593 292,560 2,990,531
---------- ----------- ---------- -----------
636,724 5,875,161 1,335,298 13,754,508
Shares repurchased ................... (75,923) (709,177) (273,610) (2,878,395)
---------- ----------- ---------- -----------
Net increase ......................... 560,801 $ 5,165,984 1,061,688 $10,876,113
---------- ----------- ---------- -----------
Increase derived from capital shares
transactions ....................... 6,267,224 $57,024,198 7,719,739 $78,386,994
========== =========== ========= ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of New England Funds Trust I and Shareholders of
NEW ENGLAND VALUE FUND.
In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England Value Fund ("the
Fund"), a series of New England Funds Trust I, at December 31, 1997 and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and the financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1997 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 12, 1998
<PAGE>
NEW ENGLAND FUNDS
Supplement dated March 1, 1998 to the New England Stock Funds Prospectus for
Class A, B and C shares dated May 1, 1997 (as supplemented August 1, 1997,
November 17, 1997 and January 1, 1998); the New England Star Funds Prospectus
for Class A, B and C shares dated May 1, 1997 (as supplemented June 30, 1997,
July 28, 1997, November 17, 1997 and January 1, 1998); and the New England
Equity Income Fund Prospectus for Class A, B and C shares dated September 1,
1997 (as supplemented November 17, 1997 and January 1, 1998).
THIS SUPPLEMENT APPLIES TO ALL FUNDS OFFERING CLASS C SHARES:
The cover page of each Prospectus is revised to reflect:
o While no initial sales charge applies to Class B or Class C share purchases,
a contingent deferred sales charge (a "CDSC") is imposed upon certain
redemptions of Class B and Class C shares.
o New England Funds Trust I, New England Funds Trust II and New England Funds
Trust III are referred to in the Prospectus as the "Trusts."
THE SHAREHOLDER TRANSACTION EXPENSES CHART FOR CLASS C SHARES APPEARING IN THE
"SCHEDULE OF FEES" SECTION IS REVISED WITH RESPECT TO CLASS C SHARES TO READ
AS FOLLOWS:
CLASS C
-----------
Maximum Initial Sales Charge Imposed on a Purchase
(as a percentage of offering price)(2) .................. None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase
price or redemption proceeds, as applicable)(2) ........ 1.00%
(2) Does not apply to reinvested distributions.
In the tables that appear under "Example" in the "Schedule of Fees" section, the
expense amounts in the Prospectus for Class C shares for the 1 Year period
assume no redemption. If shares are redeemed at period end, expense amounts for
each Fund would be as follows: New England Capital Growth Fund, $33; New England
Balanced Fund, $31; New England International Equity Fund, $35; New England
Value Fund, $31; New England Growth Opportunities Fund, $31; New England Star
Advisers Fund, $35; New England Star Worldwide Fund, $44; New England Star Small
Cap Fund, $38; New England Equity Income Fund, $33.
THE SECTION ENTITLED "BUYING FUND SHARES--SALES CHARGES--CLASS C SHARES" IS
REVISED TO READ AS FOLLOWS:
Class C shares are offered at net asset value, without an initial sales charge,
are subject to a 0.25% annual service fee and a 0.75% annual distribution fee,
are subject to a CDSC of 1.00% on redemptions made within one year from the date
of purchase and do not convert into another class.
The Distributor pays to investment dealers at the time of sale a sales
commission of 1.00% of the sales price of Class C shares sold by such investment
dealer. The Distributor will retain the service and distribution fees assessed
against Class C shares in the first year of investment, and the entire amount of
the CDSC paid by Class C shareholders upon redemption in the first year, in
order to compensate the Distributor for providing distribution- related services
to the Fund in connection with the sale of Class C shares, and to reimburse the
Distributor, in whole or in part, for the commissions paid (and related
financing costs) to investment dealers at the time of a sale of Class C shares.
Unlike Class B shares, there are no conversion features associated with Class C
shares; therefore, if Class C shares are held for more than eight years Class C
shareholders will thereafter be subject to higher distribution fees than
shareholders of other classes.
The holding period for determining the CDSC will continue to run after an
exchange to Class C shares of another series of the Trusts. If an exchange is
made to Class C shares of a Money Market Fund, then the one-year holding period
for purposes of determining the expiration of the CDSC will stop and resumes
only when an exchange is made back into Class C shares of a series of the
Trusts. If the Money Market Fund shares are redeemed rather than exchanged back
into a series of the Trusts, then the CDSC applies to the redemption. For
purposes of the CDSC, it is assumed that the shares held longest are the first
to be redeemed.
The CDSC on Class C shares is not imposed on shares purchased prior to March 1,
1998.
The CDSC will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares of the
same Fund purchased with reinvested dividends or capital gain distributions. The
first year of purchase ends one year after the day on which the purchase was
accepted.
The CDSC is deducted from the proceeds of the redemption, not the amount
remaining in the account, unless otherwise requested. The CDSC may be
eliminated for certain persons and organizations. See "Sales Charges--General"
below.
THE SECTION ENTITLED "OWNING FUND SHARES--EXCHANGING AMONG NEW ENGLAND FUNDS--
CLASS C SHARES" IS REVISED TO READ AS FOLLOWS:
You may exchange Class C shares of any series of the Trusts for Class C shares
of any other series of the Trusts which offers Class C shares or for Class C
shares of New England Cash Management Trust - Money Market Series. Such
exchanges will be made at the next-determined net asset value of the shares.
IN THE SECTION ENTITLED "FUND DETAILS--PERFORMANCE CRITERIA," THE THIRD SENTENCE
IN THE FIRST PARAGRAPH IS REVISED TO READ AS FOLLOWS:
Total return is measured by comparing the value of a hypothetical $1,000
investment in a class at the beginning of the relevant period to the value of
the investment at the end of the period (assuming deduction of the current
maximum sales charge on Class A shares, automatic reinvestment of all dividends
and capital gains distributions and, in the case of Class B and C shares,
imposition of the CDSC relevant to the period quoted).
<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 35 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 at age 30 for 35 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>
NEW ENGLAND FUNDS
STOCK FUNDS
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
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
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 Funds current prospectus, which contains
information about distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
<PAGE>
---------------
Bulk Rate
U.S. Postage
Paid
Brockton, MA
Permit No. 770
---------------
[LOGO]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet (R)
- ----------------------
399 Boylston Street
Boston, Massachusetts
02116
- ----------------------
- ---------------------
[Logo]
MUTUAL FUND
SERVICE AWARD
- ---------------------
DALBAR
HONORS COMMITMENT TO:
INVESTORS
- ---------------------
1995 o 1996 o 1997
VL56-1297
[Recycle Logo] Printed On Recycled Paper
