<PAGE>
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ANNUAL REPORT
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[Logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
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New England Value Fund
Where
The Best Minds
Meet(R)
[graphic omitted]
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December 31, 1998
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<PAGE>
February 1999
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[Photo of Bruce R. Speca]
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"Research indicates that saving for retirement is the number one goal for
investors. Yet, surprisingly often, investors behave like short-term traders
looking for a quick score."
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In September 1998, I became President of New England Funds. As an 18-year
veteran of the mutual fund industry, I was pleased and honored to accept this
important post. In my first message to you, I hope to present what I believe
you, our valued shareholders, really want to know and to offer it in a
straightforward manner.
How did my fund perform?
There's no question that long-term performance is the bottom line of your
investment program. With that in mind, please review the other sections of this
report. You'll see your fund's performance and commentary from your fund manager
that summarizes the fund's successes and shortcomings and the outlook for the
year ahead.
Our assessment of New England Funds' overall performance in 1998 is that we had
a solid, but not spectacular year. While extremely pleased with both absolute
and relative returns in many of our stock and bond portfolios, we were
disappointed by the results of those equity funds that pursue a `value' rather
than a `growth' strategy. Value stocks were largely ignored in 1998, as
investors focused on very large, high visibility growth stocks (indeed, 45% of
the gain in the Standard & Poor's 500 Stock Index -- a market value-weighted,
unmanaged index of common stock prices for 500 selected stocks -- came from just
10 stocks!) and select technology companies.
Much of the underperformance in value-oriented funds can be attributed to market
cycles, but we continue to pursue strategies to increase returns in these funds.
Can the stock market keep going up?
Like any winning streak, sooner or later the market will experience setbacks.
Does that mean 1999 will see the last burst of energy from the bull market? It's
easy to argue both sides of this question. Employment is high, inflation is low
and economic growth is continuing. But corporate profits may start to lag and
commodity prices, notably oil, are depressed around the world. The conclusion?
Economists, like weathermen and other forecasters, can only hope to be right
more often than they are wrong.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
My Own Two Cents
All too often investors lament, "What I could have made if only . . ." instead
of "What I actually made." But experience has taught me that the more important
question is, "Did I stick with my investment program and make progress toward my
financial goals?"
Research indicates that saving for retirement is the number one goal for
investors. Yet, surprisingly often, investors behave like short-term traders
looking for a quick score.
The mutual fund industry has become extremely complex, with more funds, new
strategies and approaches to analyzing performance. What hasn't changed is your
financial representative's primary objective: to help you sort it all out and
increase your returns in line with your goals.
Your financial adviser can help you avoid being distracted by the daily noise
and avoid what I view as the most important risk that investors face. It's the
risk of not staying invested and possibly falling short of your long-term goals.
Your adviser will help you stick with your investment program during periods of
uncertainty.
One last thought: All of us at New England Funds appreciate the trust that you
and your representative have placed in us. We look forward to serving you in the
years ahead.
Sincerely,
/s/ Bruce R. Speca
Bruce R. Speca
President and CEO
PROGRESS ON THE Y2K FRONT
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New England Funds has been and continues to engage in initiatives aimed at
having our computer systems tested and ready to function capably for the Year
2000. We are insisting on the same standard from vendors whose systems must
interact reliably with ours as well as from the subadvisers to our funds. We are
monitoring their progress and pursuing assurances of their readiness. Our
systems are being tested on a four-digit format (2000, not 00) and updated as
needed to perform competently. Additionally, we are developing contingency plans
to diminish the possibility of inconvenience related to Year 2000. Stay informed
on our Year 2000 readiness by visiting our Web site at www.mutualfunds.com.
This material represents Year 2000 Readiness disclosure pursuant to the Year
2000 Information and Readiness Act.
<PAGE>
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NEW ENGLAND VALUE FUND
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INVESTMENT RESULTS THROUGH DECEMBER 31, 1998
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 below 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, and has no expenses that affect the results. It is
not possible to invest directly in an index. In addition, few investors could
purchase all of the securities necessary to match the index and would incur
transaction costs and other expenses even if they could.
In the past, Standard & Poor's Composite Index of 500 Stocks (the S&P 500)
served as the benchmark for New England Value Fund. GOING FORWARD, THE FUND'S
PERFORMANCE WILL BE COMPARED AGAINST A NEW BENCHMARK -- THE RUSSELL 1000 VALUE
INDEX.(6) While no benchmark is a perfect match for a managed fund, the Russell
1000 Value Index better reflects the stock characteristics that may be
represented in the Fund than does the S&P 500.
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 12/31/88, compared to the S&P 500
Index. The data points for this chart are as follows:]
DECEMBER 1988 -- DECEMBER 1998
With
Maximum
Net Asset Sales Russell 1000
Value(1) Charge(2) Value(6) S&P 500(4)
-------- --------- -------- ----------
12/31/88 $10,000 $ 9,425 $10,000 $10,000
1989 $12,257 $11,552 $12,519 $13,159
1990 $10,586 $ 9,978 $11,507 $12,748
1991 $13,456 $12,683 $14,339 $16,616
1992 $15,693 $14,790 $16,320 $17,881
1993 $18,359 $17,303 $19,277 $19,680
1994 $18,104 $17,063 $18,893 $19,947
1995 $23,955 $22,578 $26,139 $27,416
1996 $30,257 $28,518 $31,795 $33,694
1997 $36,596 $34,492 $42,981 $44,917
1998 $39,184 $36,931 $49,699 $57,727
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, C and Y share
performance will differ from that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
<PAGE>
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NEW ENGLAND VALUE FUND
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AVERAGE ANNUAL TOTAL RETURNS -- 12/31/98
CLASS A (INCEPTION 6/5/70) 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 7.1% 16.4% 14.6%
With Max. Sales Charge2 0.9 15.0 14.0
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CLASS B (INCEPTION 9/13/93) 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 6.3% 15.5% 15.9%
With CDSC3 1.6 15.3 15.8
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CLASS C (INCEPTION 12/30/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 6.3% 20.4%
With CDSC3 5.3 20.4
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CLASS Y (INCEPTION 3/31/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 7.4% 18.5%
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<TABLE>
<CAPTION>
Since Since Since
Fund's Fund's Fund's
Class B Class C Class Y
Comparative Performance 1 Year 5 Years 10 Years Inception Inception Inception
<S> <C> <C> <C> <C> <C> <C>
Russell 1000 Value Index(6) 15.6% 20.9% 17.4% 19.7% 27.4% 23.0%
Standard & Poor's 500 Index(4) 28.5 24.0 19.2 23.1 30.4 26.4
Lipper Growth & Income Avg.(5) 15.6 18.4 15.5 17.9 23.7 20.3
Morningstar Large Value Avg.(7) 12.3 17.9 15.5 17.3 22.8 19.6
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</TABLE>
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. The Fund's current subadviser began managing the Fund on July 1,
1996. Results for earlier periods reflect performance under previous
subadvisers. 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 for Class B shares
assumes that a maximum 5% sales charge is applied to redemptions. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares. With CDSC performance for Class C shares assumes a
maximum 1% sales charge on redemptions within the first year of purchase.
(4) Standard & Poor's Composite Index of 500 stocks(R) (S&P 500) is an unmanaged
index representing the performance of 500 major companies, most of which are
listed on the New York Stock Exchange. The S&P 500 performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(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, Inc., an independent mutual
fund ranking service. Class B since inception return is calculated from
9/30/93.
(6) Russell 1000 Value Index is an unmanaged index measuring the performance of
those Russell 1000 companies with lower price-to-book ratios and lower
forecasted growth values. The Index performance has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. Class B since inception return is
calculated from 9/30/93.
(7) Morningstar Large Value 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 Morningstar Inc., an
independent mutual fund ranking service. Class B since inception return is
calculated from 9/30/93.
<PAGE>
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NEW ENGLAND VALUE FUND
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[Photo of Jeff Wardlow]
[Photo of Lauriann Kloppenburg]
Jeff Wardlow
Lauriann Kloppenburg
Loomis & Sayles Company
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGERS
Q. Please tell us about New England Value Fund's performance during 1998.
For the 12 months ending December 31, 1998, New England Value Fund's Class A
shares had a total return of 7.1% at net asset value, a $0.46 per share loss,
and reinvested distributions of $1.08 per share.
For the same period, the Standard & Poor's Composite Index of 500 Stocks (the
S&P 500), which has been the Fund's benchmark, or point of reference, returned
28.5%, while the Russell 1000 Value Index returned 15.6%. During the year, we
changed your Fund's benchmark to the Russell 1000 Value Index. We think the new
benchmark provides a more useful comparison to the Fund because stocks we
consider for the portfolio must appear in either the Russell 1000 Value Index or
Barra Value Index.* The S&P 500, on the other hand, comprises primarily
so-called growth stocks of large companies, which the Fund tends to avoid.
Q. What was the environment, and how did you respond?
Large-capitalization growth stocks drove the major market averages to
double-digit returns again in 1998. Repeating a four-year pattern, returns on
most individual stocks failed to reflect strong gains in the averages. As an
example of the very narrow range of stocks that defined the strong performance,
just ten stocks out of 500 -- the ten largest in the S&P 500 -- accounted for
nearly half of the Index's return last year. In addition, sharp drops and
recoveries were more frequent than we have seen in several years, as the
investment mood swung from near euphoria to uneasiness. Behind this volatility
was the question that had caused so much uncertainty in 1997: Would upheavals in
Asia and elsewhere take a severe toll on corporate earnings in the United
States? That concern applied not only to exporters, whose sales are directly
affected by weak economies and falling currency values overseas, but also to
manufacturers and others whose pricing might be undercut by low-cost,
competitive imports.
- --------------
* The Barra Value Index is a market capitalization weighted index of the stocks
in the S&P 500 Index having the lowest price-to-book ratios.
Before the year was very old, anxiety developed that a drop in corporate profits
was imminent. In fact, several companies alerted analysts that their
optimistic earnings forecasts might need to be revised. But a decline in
interest rates gave the market a solid underpinning, and investors came to
expect continued economic expansion.
Q. Given this environment, what was your strategy during the period?
Early in 1998 we positioned the Fund to emphasize cyclical sectors, including
basic industries and consumer cyclicals, because of their attractive valuations.
Cyclical companies are those whose fortunes rise and fall with swings in the
nation's economy.
As the year evolved and the corporate earnings outlook began to deteriorate, we
cut back exposure to cyclical industries and built up the Fund's holdings in
consumer staples as well as financial and energy stocks. Staple industries
supply services or products that are in relatively constant demand regardless of
economic ups and downs, such as food and healthcare. In chemicals, we reduced
positions in W.R. Grace and Solutia.
YOUR FUND'S 10 LARGEST HOLDINGS -- 12/31/98
% OF
COMPANY NET ASSETS
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1. BellSouth Corp. 4.0
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2. Exxon Corp. 3.9
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3. Ameritech Corp. 3.8
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4. International Business Machines 3.3
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5. Time Warner, Inc. 2.6
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6. Associates First Capital 2.5
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7. Bell Atlantic Corp. 2.4
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8. Fleet Financial Group, Inc. 2.4
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9. ACE, Ltd. 2.3
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10. TJX Companies, Inc. 2.3
Portfolio holdings and asset allocations will vary.
In view of the uncertain climate overseas, we added Federated Department Stores
and TJX, parent of the T.J. Maxx and Marshall's discount chains. Retailers are
generally well insulated from foreign economic problems; nearly all their
revenues originate domestically. Moreover, retail is a natural beneficiary of
the nation's sustained low unemployment rate and resulting high levels of
consumer confidence.
We added Black & Decker Corporation because of its strong value characteristics,
including a renewed focus on its core business -- the do-it-yourself industry --
and a history of innovative products.
Q. What were the principal factors affecting performance?
It was a difficult year for our value-focused investment style. With investors
focused on a few large-cap growth stocks, other sectors, including those with a
value orientation, where New England Value Fund concentrates, were largely
neglected. Nevertheless, the Fund benefited from its commitment to the Regional
Bell Companies, Ameritech, Bell Atlantic, BellSouth and SBC Communications, all
of which scored impressive gains during the year. About 7% of the Fund was
invested in technology stocks, another sector that produced solid results.
Individual technology companies that helped performance included IBM and Sun
Microsystems. We took profits in the stock of Gateway 2000, a direct marketer of
computer systems for homes and businesses.
Performance suffered principally because our investment style excludes stocks
with very high valuations -- like those that dominated market activity in 1998.
Investments in energy and oil-related sectors also disappointed, due in large
part to falling oil prices.
Q. What is your current outlook for 1999?
Although we do not anticipate a recession, we believe a restrained economic
environment will make it difficult for companies to raise prices, allowing only
modest profit growth. Furthermore, the impact of uncertainties abroad has yet to
be felt fully here, in our opinion. As a result, more companies may experience
difficulties living up to analysts' expectations.
We believe our value approach is appropriate to the economic landscape that
we expect in 1999. We may have seen the peak of the outperformance of growth
stocks over value stocks for this market cycle, as we believe that economics
will inevitably dictate more rational pricing. If we are correct, the Fund is
positioned to benefit from its basic orientation as investors turn their
attention to value stocks.
Stock selection for the Fund will continue to rely on Loomis Sayles' proprietary
research. We will seek additional opportunities in the stock markets based on
the ideas supplied by our analysts. Because of our bottom-up approach -- we
mainly choose securities, not sectors -- industry diversification and other
portfolio characteristics will be a result of our analytical work.
Portfolio managers' commentary reflects the conditions and actions taken during
the reporting period, which are subject to change. A shift in opinion may result
in strategic and other portfolio changes. The Fund may invest in foreign
securities, which can involve special risks. See a prospectus for details.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1998
COMMON STOCK--98.1% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.9%
82,200 Northrop Grumman Corp. ......................... $ 6,010,875
125,000 Sundstrand Corp. ............................... 6,484,375
------------
12,495,250
------------
AUTO & RELATED--2.4%
110,000 Ford Motor Co. ................................. 6,455,625
63,500 Magna International, Inc. ...................... 3,937,000
------------
10,392,625
------------
BANKS--12.7%
86,003 BankAmerica Corp. .............................. 5,170,930
171,000 Charter One Financial, Inc. .................... 4,745,250
95,000 Chase Manhattan ................................ 6,465,938
153,700 CIT Group, Inc. ................................ 4,889,581
70,000 Comerica, Inc. ................................. 4,773,125
229,400 Fleet Financial Group, Inc. .................... 10,251,313
125,000 National City Corp. ............................ 9,062,500
230,000 Wells Fargo & Co. .............................. 9,185,625
------------
54,544,262
------------
BROADCASTING--1.0%
70,000 Comcast ........................................ 4,108,125
------------
BUILDING & RELATED--3.6%
116,100 Black & Decker Corp. ........................... 6,508,856
180,000 Leggett & Platt, Inc. .......................... 3,960,000
168,000 Masco Corp. .................................... 4,830,000
------------
15,298,856
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CHEMICALS-MAJOR--1.6%
50,000 E.l. du Pont de Nemours ........................ 2,653,125
193,000 Solutia, Inc. .................................. 4,318,375
------------
6,971,500
------------
CHEMICALS-SPECIALTY--2.8%
315,000 Crompton & Knowles Corp. ....................... 6,516,562
350,000 W.R. Grace & Co. (c) ........................... 5,490,625
------------
12,007,187
------------
COMPUTERS & BUSINESS EQUIPMENT--3.3%
77,000 International Business Machines ................ 14,225,750
------------
COMPUTER HARDWARE--1.2%
125,000 Compaq Computer Corp. .......................... 5,242,188
------------
DRUGS & HEALTH CARE--1.0%
75,000 American Home Products Corp. ................... 4,223,438
------------
ELECTRIC COMPANIES--5.7%
170,000 CMS Energy Corp. ............................... 8,234,375
55,000 Energy East Corp. .............................. 3,107,500
90,000 Pinnacle West Capital Corp. .................... 3,813,750
200,000 Texas Utilities Co. ............................ 9,337,500
------------
24,493,125
------------
ELECTRONICS--1.9%
150,000 Raytheon Co., Class B .......................... 7,987,500
------------
ENTERTAINMENT--2.6%
180,000 Time Warner, Inc. .............................. 11,171,250
------------
FINANCIAL-CONSUMER/DIVERSIFIED--8.3%
250,000 Associates First Capital ....................... 10,593,750
140,000 Corrections Corporation America ................ 2,467,500
125,000 Federal Home Loan Mortgage Corp. ............... 8,054,687
94,000 Federal National Mortgage Association .......... 6,956,000
160,000 ReliaStar Financial Corp. ...................... 7,380,000
------------
35,451,937
------------
HEALTH CARE-SERVICES--3.0%
220,000 Tenet Healthcare Corp. (c) ..................... 5,775,000
80,000 Wellpoint Health Networks, Inc. ................ 6,960,000
------------
12,735,000
------------
HOUSEHOLD PRODUCTS--0.9%
90,000 Newell Co. ..................................... 3,712,500
------------
INSURANCE--6.7%
288,900 ACE, Ltd. ...................................... 9,948,994
140,000 Allstate Corp. ................................. 5,407,500
175,000 Citigroup, Inc. ................................ 8,662,500
120,200 Everest Reinsurance Holdings ................... 4,680,287
------------
28,699,281
------------
INVESTMENT BANKING/BROKER/MANAGEMENT--1.0%
109,900 Paine Webber Group, Inc. ....................... 4,244,888
------------
NATURAL GAS--1.0%
78,000 Columbia Gas Systems, Inc. ..................... 4,504,500
------------
OIL & GAS/MAJOR INTEGRATED--7.3%
344,000 Conoco, Inc. ................................... 7,181,000
230,000 Exxon Corp. .................................... 16,818,750
149,400 Royal Dutch Petroleum Co. ...................... 7,152,525
------------
31,152,275
------------
OIL & GAS/REFINING/MARKETING--1.6%
260,000 Tosco Corp. .................................... 6,727,500
------------
PHOTOGRAPHY-IMAGING--1.9%
70,000 Xerox Corp. .................................... 8,260,000
------------
RETAIL-FOOD & DRUG--2.3%
160,000 Kroger Co. (c) ................................. 9,680,000
------------
RETAIL-GENERAL MERCHANDISE--2.8%
215,000 Federated Department Stores, Inc.(c) ........... 9,365,938
161,600 Kmart (c) ...................................... 2,474,500
------------
11,840,438
------------
RETAIL-SPECIALTY--3.7%
165,000 Office Depot, Inc. ............................. 6,094,687
335,000 TJX Companies, Inc. ............................ 9,715,000
------------
15,809,687
------------
TELEPHONE--12.2%
255,000 Ameritech Corp. ................................ 16,160,625
195,000 Bell Atlantic Corp. ............................ 10,335,000
340,000 BellSouth Corp. ................................ 16,957,500
65,000 GTE Corp. ...................................... 4,225,000
90,000 SBC Communications, Inc. ....................... 4,826,250
------------
52,504,375
------------
TELECOMMUNICATION-LONG DISTANCE--1.1%
57,000 Sprint Corp. (c) ............................... 4,795,125
------------
WASTE MANAGEMENT--1.6%
150,000 Waste Management, Inc. ......................... 6,993,750
------------
Total Common Stock (Identified
Cost $332,374,111) ........................... 420,272,312
------------
SHORT TERM INVESTMENT--1.6%
FACE
AMOUNT
- -------------------------------------------------------------------------------
$6,704,272 Associates First Capital, 5.000%, 1/04/1999 .... 6,704,272
------------
Total Short Term Investment (Identified
Cost $6,704,272) ............................. 6,704,272
------------
Total Investments--99.7% (Identified
Cost $339,078,383) (b) ....................... 426,976,584
Other assets less liabilities .................. 1,402,348
------------
Total Net Assets--100% ......................... $428,378,932
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information:
At December 31, 1998 the net unrealized appreciation on
investments based on cost of $339,396,985 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 ..................................... $ 97,394,996
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value ................................... (9,815,397)
------------
Net unrealized appreciation ......................... $ 87,579,599
============
(c) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- -------------------------------------------------------------------------------
December 31, 1998
ASSETS
Investments at value (Identified cost
$339,078,383) ................................ $426,976,584
Receivable for:
Fund shares sold ............................. 481,637
Securities sold .............................. 2,788,238
Dividends and interest ....................... 494,857
Tax reclaims ................................. 2,886
------------
430,744,202
LIABILITIES
Payable for:
Securities purchased ......................... $1,125,315
Fund shares redeemed ......................... 761,341
Withholding taxes ............................ 2,026
Accrued expenses:
Management fees .............................. 257,555
Deferred trustees' fees ...................... 82,571
Accounting and administrative ................ 8,022
Other ........................................ 128,440
----------
2,365,270
------------
NET ASSETS ....................................... $428,378,932
============
Net Assets consist of:
Capital paid in .............................. $334,060,912
Undistributed net investment income .......... 87,947
Accumulated net realized gains (losses) ...... 6,331,697
Unrealized appreciation (depreciation)
on investments ............................. 87,898,376
------------
NET ASSETS ....................................... $428,378,932
============
Computation of net asset value and offering
price:
Net asset value and redemption price of Class
A shares ($317,902,464 divided by 32,831,639
shares of beneficial interest) ................. $ 9.68
======
Offering price per share (100/94.25 of $9.68) .... $10.27*
======
Net asset value and offering price of Class
B shares ($86,242,767 divided by 9,191,053
shares of beneficial interest) ................. $ 9.38**
======
Net asset value and offering price of Class
C shares ($6,444,770 divided by 686,042
shares of beneficial interest) ................. $ 9.39**
======
Net asset value, offering and redemption price of
Class Y shares ($17,788,931 divided by 1,843,282
shares of beneficial interest) ................. $ 9.65
======
* 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, 1998
INVESTMENT INCOME
Dividends (net of foreign taxes of: $65,902) .... $ 6,301,747
Interest ........................................ 675,252
-----------
6,976,999
Expenses
Management fees ............................... $3,260,867
Service fees - Class A ........................ 840,948
Service and distribution fees - Class B ....... 840,370
Service and distribution fees - Class C ....... 70,069
Trustees' fees and expenses ................... 26,392
Accounting and administrative ................. 90,930
Custodian ..................................... 117,797
Transfer agent ................................ 807,399
Audit and tax services ........................ 31,500
Legal ......................................... 28,128
Printing ...................................... 76,586
Registration .................................. 87,477
Miscellaneous ................................. 25,265
----------
Total expenses .................................. 6,303,728
-----------
Net investment income ........................... 673,271
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on Investments - net ....... 43,925,834
Unrealized appreciation (depreciation) on
Investments - net ............................. (16,546,350)
-----------
Net gain (loss) on investment transactions ...... 27,379,484
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS .................................... $28,052,755
===========
See accompanying notes to financial statements.
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 676,282 $ 673,271
Net realized gain (loss) on investments ................. 57,286,408 43,925,834
Unrealized appreciation (depreciation) on investments ... 20,117,409 (16,546,350)
------------ ------------
Increase (decrease) in net assets from operations ....... 78,080,099 28,052,755
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ............................................... (496,325) (637,468)
Class B ............................................... 0 0
Class C ............................................... 0 0
Class Y ............................................... (69,086) (71,186)
Net realized gain on investments
Class A ............................................... (44,590,500) (33,246,881)
Class B ............................................... (10,037,715) (9,056,118)
Class C ............................................... (837,785) (724,000)
Class Y ............................................... (2,990,531) (2,185,299)
------------ ------------
(59,021,942) (45,920,952)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions .................................... 78,386,994 (13,439,982)
------------ ------------
Total increase (decrease) in net assets ................. 97,445,151 (31,308,179)
NET ASSETS
Beginning of the year ................................... 362,241,960 459,687,111
------------ ------------
End of the year ......................................... $459,687,111 $428,378,932
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the year ......................................... $ 226,792 $ 87,947
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Year ................................ $ 7.87 $ 7.27 $ 8.78 $ 9.60 $10.14
------ ------ ------ ------ ------
Income From Investment Operations
Net Realized and Unrealized Gain
(Loss) on Investments ............... (0.19) 2.21 2.12 1.96 0.59
------ ------ ------ ------ ------
Total From Investment Operations ...... (0.11) 2.31 2.18 1.99 0.62
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income (0.08) (0.09) (0.06) (0.02) (0.02)
Distributions From Net Realized
Capital Gains ....................... (0.41) (0.71) (1.30) (1.43) (1.06)
------ ------ ------ ------ ------
Total Distributions ................... (0.49) (0.80) (1.36) (1.45) (1.08)
------ ------ ------ ------ ------
Net Asset Value, End of the Year ...... $ 7.27 $ 8.78 $ 9.60 $10.14 $ 9.68
====== ====== ====== ====== ======
Total Return (%) (a) .................. (1.4) 32.3 26.3 21.0 7.1
Ratio of Operating Expenses to
Average Net Assets (%) .............. 1.37 1.37 1.31 1.25 1.26
Ratio of Net Investment Income to
Average Net Assets (%) .............. 1.00 1.22 0.78 0.28 0.29
Portfolio Turnover Rate (%) ........... 29 52 64 55 75
Net Assets, End of the Year (000) .. $190,869 $241,038 $297,581 $348,988 $317,902
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year .. $ 7.85 $ 7.23 $ 8.70 $ 9.47 $ 9.91
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) .......... 0.04 0.05 0.01 (0.05) (0.05)(b)
Net Realized and Unrealized Gain (Loss)
on Investments ...................... (0.20) 2.18 2.07 1.92 0.58
------ ------ ------ ------ ------
Total From Investment Operations ...... (0.16) 2.23 2.08 1.87 0.53
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .. (0.05) (0.05) (0.01) 0.00 0.00
Distributions From Net Realized Capital
Gains ............................... (0.41) (0.71) (1.30) (1.43) (1.06)
------ ------ ------ ------ ------
Total Distributions ................... (0.46) (0.76) (1.31) (1.43) (1.06)
------ ------ ------ ------ ------
Net Asset Value, End of the Year ...... $ 7.23 $ 8.70 $ 9.47 $ 9.91 $ 9.38
====== ====== ====== ====== ======
Total Return (%) (a) .................. (2.0) 31.3 25.4 20.0 6.3
Ratio of Operating Expenses to Average
Net Assets (%) ...................... 2.12 2.12 2.06 2.00 2.01
Ratio of Net Investment Income to Average
Net Assets (%) ...................... 0.25 0.47 0.03 (0.47) (0.46)
Portfolio Turnover Rate (%) ........... 29 52 64 55 75
Net Assets, End of the Year (000) ..... $13,830 $27,941 $48,210 $80,008 $86,243
(a) A contingent deferred sales charge is not reflected in total return calculations.
(b) Per share net investment loss has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Year ................ $ 7.23 $ 8.70 $ 9.46 $ 9.92
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) .......................... 0.05 0.01 (0.05)(a) (0.05)(a)
Net Realized and Unrealized Gain on Investments ....... 2.18 2.06 1.94 0.58
------ ------ ------ ------
Total From Investment Operations ...................... 2.23 2.07 1.89 0.53
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .................. (0.05) (0.01) 0.00 0.00
Distributions From Net Realized Capital Gains ......... (0.71) (1.30) (1.43) (1.06)
------ ------ ------ ------
Total Distributions ................................... (0.76) (1.31) (1.43) (1.06)
------ ------ ------ ------
Net Asset Value, End of the Year ...................... $ 8.70 $ 9.46 $ 9.92 $ 9.39
====== ====== ====== ======
Total Return (%) (b) .................................. 31.3 25.2 20.2 6.3
Ratio of Operating Expenses to Average Net Assets (%) . 2.12 2.06 2.00 2.01
Ratio of Net Investment Income to Average Net Assets (%) 0.47 0.03 (0.47) (0.46)
Portfolio Turnover Rate (%) ........................... 52 64 55 75
Net Assets, End of the Year (000) ..................... $1,224 $3,735 $6,527 $6,445
(a) Per share net investment loss has been calculated using the average shares outstanding during the year.
(b) A contingent deferred sales charge is not reflected in total return calculations.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS Y
-----------------------------------------------------------------------
MARCH 31(a)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period .......................... $ 7.57 $ 7.24 $ 8.75 $ 9.55 $10.10
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................. 0.10 0.12 0.08 0.06(d) 0.06(d)
Net Realized and Unrealized Gain
on Investments ...................... 0.08 2.21 2.10 1.95 0.59
------ ------ ------ ------ ------
Total From Investment Operations ...... 0.18 2.33 2.18 2.01 0.65
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income .............................. (0.10) (0.11) (0.08) (0.03) (0.04)
Distributions From Net Realized
Capital Gains ....................... (0.41) (0.71) (1.30) (1.43) (1.06)
------ ------ ------ ------ ------
Total Distributions ................... (0.51) (0.82) (1.38) (1.46) (1.10)
------ ------ ------ ------ ------
Net Asset Value, End of the
Period .............................. $ 7.24 $ 8.75 $ 9.55 $10.10 $ 9.65
====== ====== ====== ====== ======
Total Return (%) (c) .................. 2.4 32.8 26.4 21.3 7.4
Ratio of Operating Expenses to
Average Net Assets (%) .............. 1.54(b) 1.12 1.06 1.00 1.01
Ratio of Net Investment Income
to Average
Net Assets (%) ...................... 1.05(b) 1.47 1.03 0.53 0.54
Portfolio Turnover Rate (%) ........... 29 52 64 55 75
Net Assets, End of the Period
(000) ............................... $4,001 $6,738 $12,716 $24,164 $17,789
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) Per share net investment income has been calculated using the average shares outstanding during the year.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1998
1. The Fund is a Series of New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Fund seeks a reasonable long-term investment return from a
combination of market appreciation and dividend income from equity securities.
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 is a
"Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front end sales charge of 5.75%. Class B shares do not
pay a front end sales charge, but pay a higher ongoing distribution fee than
Class A shares, for eight years (at which point they automatically convert to
Class A shares), and are subject to a contingent deferred sales charge if
those shares are redeemed within six years of purchase (or five years if
purchased before May 1, 1997). Class C shares do not pay front end sales
charges and do not convert to any class of shares, but they do pay a higher
ongoing distribution fee than Class A shares and may be subject to a
contingent deferred sales charge if those shares are redeemed within one year.
Class Y shares do not pay a front end sales charge, a contingent deferred
sales charge or service and distribution fees. 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 ask 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 and
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 may result in
reclassification to the capital accounts.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to
100% of the repurchase price, including interest. The 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. For the year ended December 31, 1998
purchases and sales of securities (excluding short-term investments) were
$325,677,143 and $376,081,075, 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., ("Loomis Sayles") 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 are wholly owned subsidiaries of Nvest Companies, L.P.
("Nvest"), formerly known as New England Investment Companies, L.P., which is
a subsidiary of Metropolitan Life Insurance Company ("MetLife"). Fees earned
by NEFM and Loomis Sayles under the management agreement in effect during the
year ended December 31, 1998 are as follows:
FEES EARNED
- -----------
$1,310,439 NEFM
1,950,428 Loomis Sayles
The effective management fee for the year ended December 31, 1998 was 0.72%.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of Nvest
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting and financial reporting
functions and 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, 1998 these
expenses amounted to $90,930 and are shown separately in the financial
statements as accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO") is
the transfer and shareholder servicing agent to the Fund and Boston Financial
Data Services serves as the sub-transfer agent for the Fund. For the year
ended December 31, 1998, the Fund paid NEFSCO $611,740 as compensation for its
services in that capacity. For the year ended December 31, 1998, the Fund
received $9,482 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 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, 1998, the Fund paid New England Funds $840,948 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, 1998 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 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, 1998, the Fund paid New England Funds $210,092 and $17,517 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 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, 1998, the Fund paid New England Funds $630,278
and $52,552 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, 1998 amounted to $831,536.
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, NEFSCO, Nvest or their affiliates, other than
registered investment companies. Each other trustee is compensated by the Fund
as follows:
Annual Retainer $2,342
Meeting Fee 152/meeting
Annual Committee Member Retainer 351
Annual Committee Chairman Retainer 234
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, 1998 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, 1997 DECEMBER 31, 1998
------------------------ ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .......................... 5,274,284 $54,397,082 3,168,405 $ 32,743,000
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 49,346 485,071 69,256 643,647
Distributions from net realized gain 4,276,922 43,869,063 3,576,328 32,683,737
---------- ----------- ---------- ------------
9,600,552 98,751,216 6,813,989 66,070,384
Shares repurchased ................... (6,186,704) (64,085,974) (8,406,922) (84,819,119)
---------- ----------- ---------- ------------
Net increase (decrease) .............. 3,413,848 $34,665,242 (1,592,933) $(18,748,735)
---------- ----------- ---------- ------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ---------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,893,109 $29,345,774 627,075 $ 7,599,849
Shares issued in connection with the
reinvestment of:
Distributions from net realized gain 959,479 9,622,907 2,182,049 19,416,320
---------- ----------- ---------- ------------
3,852,588 38,968,681 2,809,124 27,016,169
Shares repurchased ................... (871,231) (8,895,403) (1,691,995) (16,635,319)
---------- ----------- ---------- ------------
Net increase (decrease) .............. 2,981,357 $30,073,278 1,117,129 $ 10,380,850
---------- ----------- ---------- ------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ---------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .......................... 552,855 $ 5,636,175 228,311 $ 2,343,603
Shares issued in connection with the
reinvestment of:
Distributions from net realized gain 80,794 811,343 77,541 687,252
---------- ----------- ---------- ------------
633,649 6,447,518 305,852 3,030,855
Shares repurchased ................... (370,803) (3,675,157) (277,675) (2,693,021)
---------- ----------- ---------- ------------
Net increase (decrease) .............. 262,846 $ 2,772,361 28,177 $ 337,834
---------- ----------- ---------- ------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ---------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .......................... 1,035,682 $10,694,891 440,251 $ 4,617,366
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 7,056 69,086 5,510 52,176
Distributions from net realized gain 292,560 2,990,531 243,400 2,204,301
---------- ----------- ---------- ------------
1,335,298 13,754,508 689,161 6,873,843
Shares repurchased ................... (273,610) (2,878,395) (1,238,799) (12,283,774)
---------- ----------- ---------- ------------
Net increase (decrease) .............. 1,061,688 $10,876,113 (549,638) $ (5,409,931)
---------- ----------- ---------- ------------
Increase (decrease) derived from
capital shares transactions ........ 7,719,739 $78,386,994 (997,265) $(13,439,982)
========== =========== ========== ============
</TABLE>
5. LINE OF CREDIT. The Fund along with the other portfolios that comprise
the New England Funds (the "Funds") participate in a $100,000,000 committed
line of credit provided by Citibank, N.A. under a credit agreement (the
"Agreement") dated March 5, 1998. Advances under the Agreement are taken
primarily for temporary or emergency purposes. Borrowings under the Agreement
bear interest at a rate tied to one of several short-term rates that may be
selected from time to time. In addition, the Funds are charged a facility fee
equal to 0.07% per annum on the unused portion of the line of credit. The
annual cost of maintaining the line of credit and the facility fee is
apportioned pro rata among the participating Funds. There were no borrowings
as of or during the period ended December 31, 1998.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of New England Funds Trust I and the Shareholders of
NEW ENGLAND VALUE FUND
In our opinion, the accompanying statement of assets and 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 the New England Value Fund
(the "Fund"), a series of New England Funds Trust I, at December 31, 1998, 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 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 at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 1999
<PAGE>
NEW ENGLAND EQUITY INCOME FUND
SUPPLEMENT DATED FEBRUARY 12, 1999
TO THE NEW ENGLAND STOCK FUNDS CLASS A, B AND C AND
CLASS Y PROSPECTUSES EACH DATED MAY 1, 1998
The following information supplements the second paragraph in the "Fund
Management" section of each Prospectus:
Effective immediately, Peter Ramsden and Tom Kolefas act as portfolio managers
of the Equity Income Fund.
<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.
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AN EARLY START CAN MAKE A BIG DIFFERENCE
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins investing at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of Investor B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
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REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 a month in your New England fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
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THE POWER OF MONTHLY INVESTING
- --------------------------------------------------------------------------------
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND VALUE FUND
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
Growth Opportunities Fund
Balanced Fund
Value Fund
ALL-CAP EQUITY FUNDS
Star Advisers Fund
Star Worldwide Fund
International Equity Fund
Bullseye Fund
Equity Income Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund
CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income Fund
GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
Government Securities Fund
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free Fund of California
Tax Free Income Fund of New York
(formerly Intermediate Term Tax Free Fund of NY)
Massachusetts Tax Free Income Fund
MONEY MARKET FUNDS
Cash Management Trust
Tax Exempt Money Market Trust
To learn more, and for a free prospectus, contact your financial representative.
Visit our World Wide Web site at www.mutualfunds.com
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to
prospective investors when it is preceded or
accompanied by the Fund's current prospectus,
which contains information about distribution
charges, management and other items of
interest. Investors are advised to read the
prospectus carefully before investing.
New England Funds, L.P., and other firms
selling shares of New England Funds are
members of the National Association of
Securities Dealers, Inc. (NASD). As a service
to investors, the NASD has asked that we
inform you of the availability of a brochure
on its Public Disclosure Program. The program
provides access to information about
securities firms and their representatives.
Investors may obtain a copy by contacting the
NASD at 800-289-9999 or by visiting their Web
site at www.NASDR.com.
<PAGE>
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NEW ENGLAND FUNDS(R) U.S. POSTAGE
WHERE THE BEST MINDS MEET(R) PAID
BROCKTON, MA
PERMIT NO. 770
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399 Boylston Street
Boston, Massachusetts
02116
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