<PAGE>
ANNUAL REPORT
[logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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NEW ENGLAND GROWTH FUND
[graphic omitted]
DECEMBER 31, 1997
<PAGE>
February 1998
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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 & Poors 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 DALBARs 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 services. We are continuing to work to provide even more effective
services. Two examples are: the Personal Access Line[TM] -- our enhanced
automated telephone account service (800-346-5984) -- and the account
information section of the New England Funds website (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 GROWTH FUND
INVESTMENT RESULTS THROUGH DECEMBER 31, 1997
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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.
<PAGE>
NEW ENGLAND GROWTH FUND
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 12/31/77, compared to the S&P 500.
The data points from the graph are as follows:]
NAV MSC S&P 500
12/31/1977 $ 10,000 $ 9,425 $ 10,000
1978 $ 12,687 $ 11,957 $ 10,652
1979 $ 16,153 $ 15,224 $ 12,617
1980 $ 24,044 $ 22,661 $ 16,712
1981 $ 24,799 $ 23,373 $ 15,896
1982 $ 44,283 $ 41,737 $ 19,314
1983 $ 49,270 $ 46,437 $ 23,652
1984 $ 46,097 $ 43,446 $ 25,123
1985 $ 62,189 $ 58,613 $ 33,072
1986 $ 73,744 $ 69,503 $ 39,229
1987 $ 87,364 $ 82,341 $ 41,273
1988 $ 88,631 $ 83,535 $ 48,083
1989 $108,227 $102,004 $ 63,273
1990 $113,920 $107,370 $ 61,299
1991 $178,535 $168,270 $ 79,897
1992 $166,699 $157,113 $ 85,977
1993 $185,519 $174,851 $ 94,626
1994 $172,440 $162,524 $ 95,913
1995 $238,070 $224,381 $131,823
1996 $287,779 $271,232 $162,011
1997 $355,523 $335,080 $215,977
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. All Index and Fund
performance assumes reinvested distributions.
Notes to Charts (pages 2 and 3)
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 & Poors 500 Index (S&P 500) is an unmanaged index representing the
performance of 500 major companies, most of which are listed on the New York
Stock Exchange. The S&P 500 performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable to
mutual fund investments. 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
Average Annual Total Returns -- 12/31/97
Class A (Inception 11/27/68) 1 Year 5 Years 10 Years
Net Asset Value(1) 23.54% 16.35% 15.07%
With Max. Sales Charge(2) 16.43 15.00 14.39
Standard & Poors 500(3) 33.31 20.22 18.00
Lipper Growth Fund Avg.(4) 25.18 16.44 15.93
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Class B (Inception 2/28/97) Since Inception
Net Asset Value(1) 14.40%
With CDSC(5) 10.26
Standard & Poors 500(3) 24.87
Lipper Growth Fund Avg.(4) 20.56
Calendar Year Total Returns (Based on Net Asset Value)
1988 -- 1997
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
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N. E. GROWTH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Class A) 1.45% 22.11% 5.26% 56.72% -6.63% 11.29% -7.05% 38.06% 20.88% 23.54%
- -------------------------------------------------------------------------------------------------------
LIPPER GROWTH AVG.4 13.96% 25.44% -5.48% 36.09% 7.79% 10.61% -2.17% 30.79% 19.22% 25.18%
- -------------------------------------------------------------------------------------------------------
S&P 5003 16.50% 31.59% -3.12% 30.34% 7.61% 10.06% 1.36% 37.44% 22.90% 33.31%
</TABLE>
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.
<PAGE>
NEW ENGLAND GROWTH FUND
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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Q. How did New England Growth Fund perform in 1997?
[Photo of G. Kenneth Heebner]
G. Kenneth Heebner
Capital Growth
Management
The Fund performed well in a year during which the stock market -- in my opinion
enjoyed the best of all worlds. A strong economy, low inflation and a benign
interest rate environment provided a favorable investment climate for equities
- -- many of which delivered double-digit returns for the year.
Against this backdrop, New England Growth Fund (Class A shares) posted a return
of 23.54% for the 12 months ending December 31, 1997, reflecting a $1.22 dip in
net asset value to $10.41 on December 31, 1997, and the reinvestment of $4.015
in capital gains distributions. This one-year performance is slightly less than
that of similar growth funds, which delivered an average return of 25.18% as
tracked by Lipper Analytical Services, and trails that of the S&P 500 Index,
which returned 33.31%. Although the overall market was strong in 1997, the bulk
of returns came from the largest stocks, which dominated the market for much of
the year. Most of the market -- including the more aggressive, growth-oriented
issues in which I invest -- posted modest returns. The Funds Class B shares
returned 14.40% at net asset value for the period from the Class's inception
(February 28, 1997) through December 31, 1997.
Q. How did you manage the fund during the year?
During 1997, I kept the Fund fully invested to capitalize on a near-perfect in
- -- my view -- investment environment. Throughout the year, I remained committed
to my stock selection discipline of choosing well-managed, moderate growth
companies that are attractively valued.
Some of my favorites over the past 12 months included Allstate Insurance, Eli
Lilly, Warner-Lambert and Pfizer.
I also maintained a substantial weighting in oil services stocks but eliminated
positions late in the year in the face of falling oil prices.
In addition, the technology sector provided attractive investment opportunities
- -- as well as several disappointments. Compaq Computer was a significant
contributor to performance, while a handful of other holdings failed to live up
to expectations.
Finally, over the course of the year, I shied away from many sectors including
utilities, biotechnology and basic industries such as steel, paper, chemicals
and aluminum. I failed to find issues that met my demanding investment criteria
- -- specifically, the potential to produce greater-than-average increases in
earnings.
<PAGE>
NEW ENGLAND GROWTH FUND
YOUR FUND'S TOP 10 HOLDINGS -- 12/31/97
% of
Net Assets
1. Hershey Foods 6.23
2. Philip Morris Companies 6.01
3. AMR Corp. 5.89
4. American International Group, Inc 5.55
5. Eli Lilly 5.36
6. Delta Air Lines 5.24
7. Warner-Lambert Co. 5.22
8. Dell Computer Corp. 5.19
9. Computer Sciences Corp. 5.19
10. Citicorp 5.11
Portfolio holdings and asset allocations will vary.
Q. How do you describe your stock selection process?
When selecting stocks for the Fund, I combine a top-down and bottom-up approach.
I first look at the overall economic picture, including the level and direction
of interest rates, the pace of economic growth as well as the potential impact
of inflation. I then conduct a thorough analysis of industries and companies --
evaluating the fundamentals of each on a case-by-case basis.
The end result is a carefully selected portfolio of 20 to 30 stocks that I
believe will deliver earnings growth in excess of investor expectations -- at
reasonable prices. Why focus on earnings? Because I believe over time a stocks
price will follow the direction of earnings.
Q. What factors helped or hurt Fund performance during the year?
The Funds emphasis on oil services, insurance, and drug and health care-related
stocks contributed positively to performance while several of the Funds
technology issues lagged.
Q. What is your outlook for 1998?
Looking ahead, I expect a continuation of moderate economic growth and low
inflation -- an environment favorable for equities. Growth in production
capacity remains vigorous -- welcome news amidst an unemployment rate thats near
a 25-year low. This growth in capacity can allow production to expand while
keeping inflation under control.
Surprisingly, economic problems in Asia could prove beneficial to our economy
here in the United States. Lower-priced Asian imports could help keep inflation
pressures in check, offsetting the potential inflationary impact of extremely
high employment levels.
As always, I continue to focus on well established, reasonably priced
companies in industries that appear to offer the greatest potential for growth.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1997
COMMON STOCKS--99.6% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE (a)
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AIRLINES--14.4%
<C> <S> <C>
677,500 AMR Corp. (c) ........................................... $ 87,058,750
650,000 Delta Air Lines ......................................... 77,350,000
519,200 UAL Corp. (c) ........................................... 48,026,000
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212,434,750
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AUTOMOTIVE--5.0%
655,000 Volkswagen AG (ADR) (d) ................................. 73,196,250
-------------
BANKS--10.0%
1,270,000 Bank of New York ........................................ 73,421,875
1,025,000 BankAmerica Corp. ....................................... 74,825,000
-------------
148,246,875
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BANKS -- MONEY CENTER--10.2%
686,000 Chase Manhattan ......................................... 75,117,000
597,000 Citicorp ................................................ 75,483,187
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150,600,187
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BEVERAGES & TOBACCO--6.0%
1,959,000 Philip Morris Companies ................................. 88,767,188
-------------
COMPUTER SOFTWARE & SERVICES--15.4%
1,325,000 Compaq Computer Corp. ................................... 74,779,687
918,000 Computer Sciences Corp. (c) ............................. 76,653,000
913,000 Dell Computer Corp. (c) ................................. 76,692,000
-------------
228,124,687
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DRUGS & HEALTH CARE--15.6%
1,138,000 Eli Lilly ............................................... 79,233,250
997,000 Pfizer, Inc. ............................................ 74,338,812
622,000 Warner-Lambert Co. ...................................... 77,128,000
-------------
230,700,062
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ELECTRONICS--3.9%
940,000 Philips Electronics NV (ADR) (d) ........................ 56,870,000
-------------
FOOD -- RETAILERS/WHOLESALERS--6.2%
1,485,000 Hershey Foods ........................................... 91,977,188
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INSURANCE--8.8%
753,450 American International Group, Inc. ...................... 81,937,688
613,000 Jefferson Pilot ......................................... 47,737,375
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129,675,063
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MACHINERY--4.1%
1,038,000 Deere & Co. ............................................. 60,528,375
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Total Common Stocks (Identified Cost $1,321,028,501) .... 1,471,120,625
-------------
</TABLE>
<PAGE>
SHORT TERM INVESTMENT--0.6%
<TABLE>
<CAPTION>
FACE
AMOUNT DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 9,575,000 Chevron Oil Finance Co., 6.750%, 1/02/98 ................ $ 9,575,000
--------------
Total Short Term Investment (Identified Cost $9,575,000) 9,575,000
--------------
Total Investments--100.2% (Identified Cost
$1,330,603,501) (b) ................................... 1,480,695,625
Other assets less liabilities ........................... (3,192,321)
--------------
Total Net Assets--100% .................................. $1,477,503,304
--------------
(a) See Note 1a.
(b) Federal Tax Information:
At December 31, 1997 the net unrealized appreciation on investments based
on cost of $1,340,230,434 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 ..................................... $ 202,064,594
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ..................................... (61,599,403)
--------------
Net unrealized appreciation ............................................... $ 140,465,191
==============
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The value of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at value ................................... $1,480,695,625
Cash ................................................... 4,399
Receivable for:
Fund shares sold ..................................... 1,563,178
Securities sold ...................................... 6,957,248
Dividends and interest ............................... 1,064,506
Foreign taxes ........................................ 43,863
Miscellaneous ........................................ 11,614
Prepaid registration expense ........................... 22,500
--------------
1,490,362,933
LIABILITIES
Payable for:
Securities purchased ................................. $9,809,136
Fund shares redeemed ................................. 1,897,011
Accrued expenses:
Management fees ...................................... 840,902
Deferred trustees' fees .............................. 100,491
Accounting and administrative ........................ 15,770
Other ................................................ 196,319
-----------
12,859,629
--------------
NET ASSETS ............................................... $1,477,503,304
==============
Net Assets consist of:
Capital paid in ...................................... $1,273,889,006
Undistributed net investment income .................. 1,071,333
Accumulated net realized gains ....................... 52,450,841
Unrealized appreciation on investments ............... 150,092,124
--------------
NET ASSETS ............................................... $1,477,503,304
==============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($1,459,746,533 divided by 140,188,629 shares of
beneficial interest) ................................. $10.41
======
Offering price per share (100/94.25 of $10.41) ........... $11.05*
======
Net asset value and offering price of Class B shares
($17,756,771 divided by 1,720,302 shares of beneficial
interest) ............................................ $10.32**
======
Identified cost of investments ........................... $1,330,603,501
==============
</TABLE>
* 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
- --------------------------------------------------------------------------------
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividends ............................................... $16,946,953(a)
Interest ................................................ 431,767
-----------
17,378,720
Expenses
Management fees ....................................... $9,757,792
Service fees - Class A ................................ 3,600,444
Service and distribution fees - Class B ............... 71,751
Trustees' fees and expenses ........................... 20,887
Accounting and administrative ......................... 196,489
Custodian ............................................. 210,771
Transfer agent ........................................ 2,106,834
Audit and tax services ................................ 30,490
Legal ................................................. 10,521
Printing .............................................. 163,597
Registration .......................................... 33,513
Miscellaneous ......................................... 66,874
----------
Total expenses .......................................... 16,269,963
------------
Net investment income ................................... 1,108,757
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain on investments - net ...................... 423,636,925
Unrealized depreciation on investments - net ............ (129,419,929)
------------
Net gain on investment transactions ..................... 294,216,996
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $295,325,753
============
</TABLE>
(a) Net of foreign taxes of: $115,489.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- --------------
FROM OPERATIONS
<S> <C> <C>
Net investment income ............................... $ 4,079,560 $ 1,108,757
Net realized gain on investments .................... 115,816,541 423,636,925
Unrealized appreciation (depreciation) on investments 115,368,685 (129,419,929)
-------------- --------------
Increase in net assets from operations .............. 235,264,786 295,325,753
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ........................................... (4,046,753) 0
Net realized gain on investments
Class A ........................................... (105,301,576) (411,198,356)
Class B ........................................... 0 (3,125,361)
-------------- --------------
(109,348,329) (414,323,717)
-------------- --------------
Increase (decrease) in net assets derived from
capital share transactions ............................ (30,485,091) 299,959,511
-------------- --------------
Total increase in net assets ........................ 95,431,366 180,961,547
NET ASSETS
Beginning of the year ............................... 1,201,110,391 1,296,541,757
-------------- --------------
End of the year ..................................... $1,296,541,757 $1,477,503,304
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year ............................... $ 0 $ 12,887
============== ==============
End of the year ..................................... $ 12,887 $ 1,071,333
============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------- ------------------
MARCH 1,
1997(a)
YEAR ENDED DECEMBER 31, THROUGH
------------------------------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ........................... $10.08 $10.44 $ 8.87 $ 10.55 $ 11.63 $12.47
------ ------ ------- ------- ------ -------
Income From Investment Operations
Net Investment Income (Loss) .......... 0.02 0.11 0.05 0.04 0.01 (0.07)(b)
Net Realized and Unrealized
Gain (Loss) on Investments .......... 1.12 (0.84) 3.30 2.07 2.79 1.94
------ ------ ------- ------- ------ -------
Total From Investment Operations ...... 1.14 (0.73) 3.35 2.11 2.80 1.87
------ ------ ------- ------- ------ -------
Less Distributions
Dividends From Net Investment Income .. (0.01) (0.11) (0.05) (0.04) 0.00 0.00
Distributions From Net Realized
Capital Gains ........................ (0.77) (0.73) (1.62) (0.99) (4.02) (4.02)
------ ------ ------- ------- ------ -------
Total Distributions ................... (0.78) (0.84) (1.67) (1.03) (4.02) (4.02)
------ ------ ------- ------- ------ -------
Net Asset Value, End of Period ........ $10.44 $ 8.87 $ 10.55 $ 11.63 $10.41 $10.32
====== ====== ======= ======= ====== ======
Total Return (%) (c) .................. 11.3 (7.1) 38.1 20.9 23.5 14.4
Ratio of Operating Expenses
to Average Net Assets (%) .......... 1.18 1.19 1.20 1.18 1.12 1.87 (d)
Ratio of Net Investment Income to
Average Net Assets (%) .............. 0.16 1.05 0.42 0.33 0.08 (0.67)(d)
Portfolio Turnover Rate (%) 145 141 235 199 214 214
Average Commission Rate (e) -- -- -- $0.0668 $0.0688 $0.0688
Net Assets, End of Period (000,000) ... $1,201 $ 988 $ 1,201 $ 1,297 $ 1,460 $ 18
</TABLE>
(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.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades upon
which commissions are charged. This rate generally does not reflect mark-
ups, mark-downs, or spreads on shares traded on a principal basis.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
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 both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on March 1, 1997. Class A shares are sold with a
maximum front end sales charge of 5.75%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares
for eight years (at which point they automatically convert to Class A shares),
and are subject to a contingent deferred sales charge if those shares are
redeemed within six years of purchase (or five years if purchased before May
1, 1997). Expenses of the Fund are borne pro-rata by the holders of both
classes of shares, except that each class bears expenses unique to that class
(including the Rule 12b-1 service and distribution fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 Plan.
Shares of each class would receive their pro-rata share of the net assets of
the Fund, if the Fund were liquidated. In addition, the trustees approve
separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which service provides the last reported sale price for securities
listed on an applicable securities exchange or on the NASDAQ national market
system, or, if no sale was reported and in the case of over-the-counter
securities not so listed, the last reported bid price. Short-term obligations
with a remaining maturity of less than sixty days are stated at amortized
cost, which approximates market value. All other securities and assets are
valued at their fair value as determined in good faith by the Fund's adviser
Capital Growth Management L.P., 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. The Fund's adviser is responsible for
determining that the value of the collateral is at all times at least equal to
the repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for
the Fund for the year ended December 31, 1997 were $3,045,028,456 and
$3,145,962,577 respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the year
ended December 31, 1997, the Fund incurred management fees payable to its
investment adviser, Capital Growth Management, L.P. ("Capital Growth
Management"). Capital Growth Management is a subsidiary of New England
Investment Companies, L.P., ("NEIC") which is a subsidiary of Metropolitan
Life Insurance Company ("Met Life"). The management agreement in effect during
the year ended December 31, 1997 provided for fees as set forth below:
EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
------ ---------------------- -----------------------------
$9,757,792 0.750% the first $200 million
0.700% the next $300 million
0.650% the excess over $500 million
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting 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 year ended December 31, 1997 these
expenses amounted to $196,489 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 $1,582,815 as compensation for its services in that
capacity. For the year ended December 31, 1997, the Fund received $28,466 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 up to 0.25% of the average daily net assets attributable
to the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the year
ended December 31, 1997, the Fund paid New England Funds $3,600,444 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 up to 0.25% of the average daily net assets attributable
to the Fund's Class B shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class B shares and/or the maintenance of
shareholder accounts. For the period ended December 31, 1997, the Fund paid
New England Funds $17,938 in service fees under the Class B Plan.
Also under the Class B Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.75% of the average daily net
assets attributable to the Fund's Class B shares, as compensation for services
provided and expenses (including certain payments to securities dealer, who
may be affiliated with New England Funds) incurred by New England Funds in
connection with the marketing or sale of Class B shares. For the period ended
December 31, 1997, the Fund paid New England Funds $53,813 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 year ended
December 31, 1997 amounted to $3,001,994.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $1,831
Meeting Fee $109/meeting
Committee Meeting Fee $65/meeting
Committee Chairman Retainer $545/year
A deferred compensation plan is available to the trustees on a voluntary
basis. Each participating trustee will receive an amount equal to the value
that such deferred compensation would have been, had it been invested in the
Fund on the normal payment date.
4. CAPITAL SHARES. At December 31, 1997 there was an unlimited number of
shares of beneficial interest authorized, divided into two classes, Class A
and Class B capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------------- -----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Shares sold .................... 7,705,776 $ 84,912,937 9,974,830 $120,073,996
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income ..................... 333,501 3,941,982 0 0
Distributions from net
realized gain .............. 9,546,850 102,695,795 37,920,855 400,444,224
----------- ------------- ----------- -------------
17,586,127 191,550,714 47,895,685 520,518,220
Shares repurchased ............. (20,016,487) (222,035,805) (19,156,995) (241,073,215)
----------- ------------- ----------- -------------
Net increase (decrease) ........ (2,430,360) (30,485,091) 28,738,690 279,445,005
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 1, 1997(a)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------------------- -----------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Shares sold .................... 0 $ 0 1,493,346 $ 18,164,763
Shares issued in connection with
the reinvestment of:
Distributions from net
realized gain ................ 0 0 289,708 3,041,934
---------- -------------- ---------- --------------
0 0 1,783,054 21,206,697
Shares repurchased ............. 0 0 (62,752) (692,191)
---------- -------------- ---------- --------------
Net increase .................. 0 0 1,720,302 20,514,506
---------- -------------- ---------- --------------
Increase (decrease) derived from
capital shares transactions .... (2,430,360) ($ 30,485,091) 30,458,992 $ 299,959,511
========== ============== ========== ==============
</TABLE>
(a) Commencement of operations.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of New England Funds Trust I and Shareholders of
NEW ENGLAND GROWTH FUND.
In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England Growth Fund ("the
Fund"), 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
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>
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