<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
Capital Growth Fund
[Graphic Omitted]
Where
The Best
Minds
Meet(R)
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December 31, 1998
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<PAGE>
February 1999
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[Photo of Bruce R. Speca]
"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."
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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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.
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NEW ENGLAND CAPITAL GROWTH FUND
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Investment Results Through December 31, 1998
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Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown 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 does not have 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, the Standard & Poor's Composite Index of 500 stocks (S&P 500(R))4
served as the benchmark for New England Capital Growth Fund. Going forward, the
Fund's performance will be compared against a new benchmark -- the Russell 1000
Growth Index.6 While no benchmark is a perfect match for a managed fund, the
Russell 1000 Growth Index better reflects the broader range of capitalizations
and other 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 a $10,000
investment in the Fund since inception 8/3/92, compared to the S&P Index over
the same period. The data for this chart are as follows:]
August 1992 (Inception) through December 1998
With
Net Maximum Russell
Asset Sales 1000
Value(1) Charge(2) Growth(6) S&P 500(4)
-------- --------- --------- ----------
8/92 $10,000 $ 9,425 $10,000 $10,000
12/92 $11,491 $10,830 $10,689 $10,422
12/93 $12,398 $11,685 $10,999 $11,470
12/94 $12,194 $11,493 $11,292 $11,626
12/95 $15,937 $15,020 $15,491 $15,979
12/96 $18,654 $17,581 $19,072 $19,639
12/97 $21,868 $20,611 $24,888 $26,180
12/98 $28,212 $26,590 $34,522 $33,647
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 and Class C share
performance differs from that shown based on differences in inception date, fees
and sales charges. All Index and Fund performance assumes reinvestment of
distributions.
<PAGE>
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NEW ENGLAND CAPITAL GROWTH FUND
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<TABLE>
Average Annual Total Returns -- 12/31/98
<CAPTION>
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Class A (Inception 8/3/92) 1 Year 5 Years Since Inception
<S> <C> <C> <C> <C> <C>
Net Asset Value(1) 29.0% 17.9% 17.6%
With Max. Sales Charge(2) 21.6 16.5 16.5
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Class B (Inception 9/13/93) 1 Year 5 Years Since Inception
Net Asset Value(1) 28.2% 17.0% 16.7%
With CDSC(3) 23.2 16.7 16.6
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Class C (Inception 12/30/94) 1 Year Since Inception
Net Asset Value(1) 28.1% 22.3%
With CDSC3 27.1 22.3
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Since Fund's Since Fund's Since Fund's
Class A Class B Class C
Comparative Performance 1 Year 5 Years Inception Inception Inception
Standard & Poor's 500 Stock Index(4) 28.5% 24.0% 20.8% 23.1% 30.4%
Lipper Growth Fund Average(5) 22.9 18.7 17.6 18.1 24.4
Russell 1000 Growth Index(6) 38.7 25.7 21.3 25.2 32.2
Morningstar Large Growth Average(7) 35.8 20.6 19.3 20.6 28.0
- -----------------------------------------------------------------------------------------------------
</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.
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) 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 (S&P 500(R)) 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. Investors cannot
purchase an index directly.
(5) 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 Inc., an independent mutual
fund ranking service. Class A since inception return is calculated from
8/6/92. Class B since inception return is calculated from 9/30/93.
(6) Russell 1000 Growth Index is an unmanaged index measuring the performance of
those Russell 1000 companies with higher price-to-book ratios and higher
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 A since inception return is
calculated from 7/31/92. Class B since inception return is calculated from
9/30/93. Investors cannot purchase an index directly.
(7) Morningstar Large Growth Average is an average of the total return
performance (calculated on the basis of net asset value) of funds with
similar investment objectives as calculated by Morningstar, an independent
mutual fund ranking service. Class A since inception return is calculated
from 7/31/92. Class B since inception return is calculated from 9/30/93.
<PAGE>
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NEW ENGLAND CAPITAL GROWTH FUND
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Questions & Answers with Your Portfolio Manager
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[Photo of Gerald Scriver
Gerald Scriver
Westpeak Investment Advisors, L.P.
Q. Please tell us about New England Capital Growth Fund's performance during
1998.
For the 12 months ending December 31, 1998, New England Capital Growth
Fund's Class A shares at net asset value had a total return of 29.0%. This
return includes a $0.72 per share gain and reinvested distributions of $4.33 per
share. This performance lagged the 38.7% return of the Russell 1000 Growth
Index(R) during the period.
Q. What was the investment environment during 1998?
Extending what is by now a familiar story, 1998's market results were defined by
the performance of a relative handful of very large capitalization stocks. The
markets adjusted to the ongoing tumult in Asia and recorded a fourth consecutive
year of double-digit returns in the Dow Jones Industrial Average and the
Standard & Poor's Composite Index of 500 Stocks, two widely followed indicators
of market activity. Along the way, U.S. markets displayed remarkable resilience,
snapping back smartly from a sharp summer decline. The market's July plunge had
its origins in Moscow, where the Russian government failed to repay debt that it
owed to other countries. Fears of parallel events in Brazil -- and therefore
much of Latin America -- extended the slide. Bond markets were especially
affected, as a flight from overseas markets into the reassuring quality of U.S.
government securities left other fixed-income sectors adrift in search of
buyers.
The Federal Reserve Board took an assertive stance against the looming credit
crunch with three interest rate cuts between September and November, lowering
short-term interest rates by an aggregate three-quarters of a percentage point.
These steps encouraged buyers to return to the markets for both stocks and
bonds, and the Dow Jones Industrial Average closed the year at 9181, not far
from its then record high of 9374, set on November 23.
Q. Given this environment, what was your investment strategy during the period?
Our portfolio-building style is based on the analysis of dozens of fundamental
and technical measures that we use to identify stocks that may be candidates for
purchase. To that quantitative information we apply our professional judgment
and the lessons of experience to make final investment selections. Because we
always keep the Fund fully invested and never try to gauge the market's next
moves, the overall investment environment does not influence our positioning of
the Fund.
We kept the Fund underweighted (relative to the Russell 1000 Stock Index) in
overvalued growth sectors and in very expensive technology stocks. In both
instances we thought prospects for earnings expansion were fully reflected in
market valuations. We emphasized investments in technology and
telecommunications, favoring those stocks with potential growth at reasonable
prices.
Q. What were the principal factors affecting performance?
Our underweighted position in the largest-cap growth stocks left the Fund
underrepresented in one of the year's most productive sectors. Nevertheless,
selections in a variety of sectors helped boost performance. Successful
investments included: Intel Corporation, a major manufacturer of computer chips;
United Technologies, whose subsidiaries provide products and services to the
aerospace, building and automotive industries; Bergen Brunswig, a distributor of
drug and healthcare products; and EMC Corporation, which manufactures computer
storage devices. However, investments in NL Industries and Eastman Kodak hurt
the Fund's performance.
Your Fund's 10 Largest Investments -- 12/31/98
% of
Company Net Assets
---------------------------------------------------
1. Intel Corp. 5.0
---------------------------------------------------
2. Microsoft Corp. 4.4
---------------------------------------------------
3. Wal-Mart Stores, Inc. 4.1
---------------------------------------------------
4. Lucent Technologies, Inc. 3.6
---------------------------------------------------
5. General Electric Co. 3.2
---------------------------------------------------
6. Cisco Systems 2.9
---------------------------------------------------
7. Amgen, Inc. 2.8
---------------------------------------------------
8. Abbott Laboratories 2.7
---------------------------------------------------
9. Federal National Mortgage Association 2.6
---------------------------------------------------
10. Cardinal Health, Inc. 2.3
---------------------------------------------------
Portfolio holdings and asset allocations will vary.
Q. What is your current outlook for the market and the Fund?
We believe that business conditions in Asia and elsewhere are stabilizing, and
that some overseas economies may have already begun to climb out of their
troughs. Without the drag of crisis-weakened export markets, growth in our Gross
Domestic Product should continue, but at a lower rate than in 1998. Inflation
represents no immediate threat, and we think there is enough momentum in the
economy to forestall any likelihood of a recession, especially given the current
climate of lower interest rates.
But the Federal Reserve Board will continue to have a huge impact on market
psychology, and any rise in interest rates could represent a significant risk
for the market. Therefore, we believe that markets in 1999 will oscillate
between optimism over continued low rates and concern that continued growth
could trigger a rate hike on the part of the Federal Reserve Board, cutting
short any earnings expansion and darkening the mood of investors.
Perhaps most importantly, we expect that investors will finally put aside their
obsession with the very largest capitalization growth companies as prices for
these stocks become more and more unrealistic -- there must come a point where
valuations mean something, in our opinion. Reflecting that view, at year-end the
Fund's average price-earnings ratio -- an objective measure that allows
investors to compare the costs of different stocks -- was below that of the
Russell 1000 Index, while the portfolio's projected average five-year growth
rate was higher than that of the Index.
A shift in market interest to stocks with more reasonable valuations is a
possibility for 1999. We believe we can address that eventuality successfully
through the proprietary stock selection techniques that we have been fine-
tuning for over 25 years.
The portfolio manager's commentary reflects the conditions and actions taken
during the reporting period and is subject to change. A shift in opinion may
result in strategic and other portfolio changes. The Fund may invest in
small-company stocks, which carry risks including, trading in narrower markets,
limited financial and management resources, less liquidity and greater
volatility than large-company stocks.
<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1998
COMMON STOCK--97.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (a)
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AIRLINES--1.4%
85,950 Southwest Airlines .................................. $ 1,928,503
27,000 US Airways Group, Inc. (c) .......................... 1,404,000
------------
3,332,503
------------
BANKS--0.2%
12,100 First Source Corp. .................................. 405,350
------------
BANKS & THRIFTS--0.7%
17,200 CNB Bancshares ...................................... 801,950
10,000 Firstar Corp. ....................................... 932,500
------------
1,734,450
------------
BUILDING CONSTRUCTION--0.9%
96,300 D.R.Horton .......................................... 2,214,900
------------
BUILDING & RELATED--0.5%
43,300 Champion Enterprises (c) ............................ 1,185,338
------------
BUSINESS SERVICES--1.1%
89,200 HBO & Co. ........................................... 2,558,925
------------
CHEMICALS--0.9%
148,500 Nl Industries, Inc. ................................. 2,106,844
------------
COMPUTER SOFTWARE & SERVICES--6.0%
49,100 Compuware Corp. (c) ................................. 3,835,937
74,000 Microsoft Corp. (c) ................................. 10,262,875
------------
14,098,812
------------
COMPUTERS & BUSINESS EQUIPMENT--11.8%
77,600 Bell & Howell (c) ................................... 2,934,250
72,225 Cisco Systems (c) ................................... 6,703,383
64,000 Dell Computer Corp. (c) ............................. 4,684,000
54,000 EMC Corp. (c) ....................................... 4,590,000
28,400 Ingram Micro, Inc. (c) .............................. 990,450
27,600 International Business Machines ..................... 5,099,100
21,300 Lexmark International Group (c) ..................... 2,140,650
10,500 Pitney Bowes, Inc. .................................. 693,656
------------
27,835,489
------------
CONSTRUCTION--0.7%
45,900 Johns Manville Corporation .......................... 754,481
33,000 Lennar Corp. ........................................ 833,250
------------
1,587,731
------------
CONSTRUCTION MATERIALS--0.3%
12,800 USG Corp. ........................................... 652,000
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DEFENSE & AEROSPACE--3.0%
23,600 Alliant Techsystems (c) ............................. 1,945,525
29,500 Gulfstream Aerospace Corp. (c) ...................... 1,570,875
66,800 Sundstrand Corp. .................................... 3,465,250
------------
6,981,650
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DRUGS--12.7%
61,700 Amgen, Inc. (c) ..................................... 6,451,506
3,800 Biogen, Inc. (c) .................................... 315,400
72,150 Cardinal Health, Inc. ............................... 5,474,381
32,300 Eli Lilly ........................................... 2,870,662
23,300 Merck & Co. ......................................... 3,441,119
37,300 Pfizer, Inc. ........................................ 4,678,819
31,000 Schering-Plough Corp. ............................... 1,712,750
66,000 Warner-Lambert Co. .................................. 4,962,375
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29,907,012
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DRUGS & HEALTH CARE--0.4%
25,200 Bergen Brunswig Corp. ............................... 878,850
------------
ELECTRIC UTILITIES--0.1%
7,100 Texas Utilities Co. ................................. 331,481
------------
ELECTRONICS--7.3%
1,800 Comverse Technology (c) ............................. 127,800
20,800 Honeywell, Inc. ..................................... 1,566,500
76,800 Lucent Technologies, Inc. ........................... 8,448,000
66,800 Tellabs, Inc. (c) ................................... 4,579,975
28,500 Waters Corp. (c) .................................... 2,486,625
------------
17,208,900
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FINANCIAL SERVICES--7.6%
31,000 Countrywide Credit Industries, Inc. ................. 1,555,812
32,800 Federal Home Loan Mortgage Corp. .................... 2,113,550
83,700 Federal National Mortgage Association ............... 6,193,800
73,200 General Electric Co. ................................ 7,470,975
9,400 Metris Cos .......................................... 472,938
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17,807,075
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FOOD & BEVERAGES--4.5%
55,000 Coca-Cola Co. ....................................... 3,678,125
28,300 H.J. Heinz Co. ...................................... 1,602,487
57,500 Philip Morris Cos ................................... 3,076,250
55,128 Tootsie Roll Industries Inc. ........................ 2,156,883
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10,513,745
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HEALTH CARE--PRODUCTS--3.7%
131,200 Abbott Laboratories ................................. 6,428,800
26,000 Johnson & Johnson ................................... 2,180,750
------------
8,609,550
------------
HEALTH CARE--SERVICES--1.4%
57,100 Hillenbrand Industries, Inc. ........................ 3,247,563
------------
HOME BUILDERS--0.0%
500 Rouse Co. ........................................... 13,750
------------
HOUSEHOLD PRODUCTS--2.0%
38,600 Estee Lauder Companies, Inc. ........................ 3,300,300
81,700 Tupperware Corp. .................................... 1,342,944
------------
4,643,244
------------
INDUSTRIAL PARTS & MACHINERY--5.5%
50,450 Crane Co. ........................................... 1,522,959
9,000 Illinois Tool Works, Inc. ........................... 522,000
19,000 JLG Industries, Inc. ................................ 296,875
19,000 Nacco Industries, Inc. .............................. 1,748,000
63,600 SPS Technologies (c) ................................ 3,601,350
48,200 United Technologies Corp. ........................... 5,241,750
------------
12,932,934
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INDUSTRIAL SERVICES--0.8%
42,300 Hertz Corp. ......................................... 1,929,938
------------
LEISURE--0.6%
11,800 Eastman Kodak Co. ................................... 849,600
16,700 Polaris Industries, Inc. ............................ 654,431
------------
1,504,031
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PROPERTY & CASUALTY INSURANCE--1.6%
5,775 American International Group ........................ 558,009
78,760 Fidelity National Financial ......................... 2,402,180
22,600 First American Financial ............................ 726,025
------------
3,686,214
------------
PUBLISHING--0.7%
30,500 Knight-Ridder, Inc. ................................. 1,559,313
------------
RETAIL--CLOTHING--0.5%
21,000 Gap, Inc. ........................................... 1,181,250
3,400 Limited, Inc. ....................................... 99,025
------------
1,280,275
------------
RETAIL--DEPARTMENT STORES--5.3%
50,400 Dayton Hudson Corp. ................................. 2,734,200
118,200 Wal-Mart Stores, Inc. ............................... 9,625,912
------------
12,360,112
------------
RETAIL--FOOD & DRUG--2.6%
70,500 Albertson's, Inc. ................................... 4,489,969
25,000 Kroger Co. (c) ...................................... 1,512,500
------------
6,002,469
------------
RETAIL--SPECIALTY--1.6%
62,500 Home Depot, Inc. .................................... 3,824,219
------------
SECURITIES & ASSET MANAGEMENT--1.8%
25,800 Lehman Brothers Holdings ............................ 1,136,813
41,900 Morgan Stanley Dean Witter .......................... 2,974,900
------------
4,111,713
------------
SEMI-CONDUCTORS--5.0%
99,500 Intel Corp. ......................................... 11,796,969
------------
TELECOMMUNICATION--4.5%
46,900 Ameritech Corp. ..................................... 2,972,287
62,200 AT&T Corp. .......................................... 4,680,550
60,600 BellSouth Corp. ..................................... 3,022,425
------------
10,675,262
------------
Total Common Stock (Identified Cost $169,973,995) ... 229,518,611
------------
Total Investments--97.7% (Identified Cost
$169,973,995) (b) ................................. 229,518,611
Other assets less liabilities ....................... 5,397,081
------------
Total Net Assets--100% .............................. $234,915,692
============
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1998 the net unrealized
appreciation on investments based on cost of $169,973,995 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 ...... $ 62,927,960
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ...... (3,383,344)
------------
Net unrealized appreciation ............................... $ 59,544,616
============
(c) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
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STATEMENT OF ASSETS & LIABILITIES
- ---------------------------------------------------------------------------------------------------
December 31, 1998
ASSETS
<S> <C> <C>
Investments at value (Identified cost $169,973,995) ...... $229,518,611
Receivable for:
Fund shares sold ....................................... 4,520,741
Securities sold ........................................ 2,579,912
Dividends .............................................. 171,263
Miscellaneous .......................................... 12,543
------------
236,803,070
LIABILITIES
Payable for:
Fund shares redeemed ................................... $ 431,388
Due custodian bank ..................................... 1,176,024
Accrued expenses:
Management fees ........................................ 140,035
Deferred trustees' fees ................................ 19,548
Accounting and administrative .......................... 4,583
Other .................................................. 115,800
----------
1,887,378
------------
NET ASSETS ................................................. $234,915,692
============
Net Assets consist of:
Capital paid in ........................................ $174,710,624
Undistributed net investment income (loss) ............. (18,123)
Accumulated net realized gains (losses) ................ 678,575
Unrealized appreciation (depreciation) on investments .. 59,544,616
------------
NET ASSETS ................................................. $234,915,692
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($175,510,609 divided by 8,493,002 shares of beneficial
interest) .............................................. $20.67
======
Offering price per share (100/94.25 of $20.67) ............. $21.93*
======
Net asset value and offering price of Class B shares
($57,795,628 divided by 2,984,109 shares of beneficial
interest) .............................................. $19.37**
======
Net asset value and offering price of Class C shares
($1,609,455 divided by 83,097 shares of beneficial
interest) .............................................. $19.37**
======
* 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.
</TABLE>
<PAGE>
<TABLE>
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STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes of: $112) ................ $ 1,559,666
Interest ................................................. 176,959
-----------
1,736,625
Expenses
Management fees ......................................... $1,546,360
Service fees - Class A .................................. 390,355
Service and distribution fees - Class B ................. 494,856
Service and distribution fees - Class C ................. 10,564
Trustees' fees and expenses ............................. 14,573
Accounting and administrative ........................... 50,067
Custodian ............................................... 91,802
Transfer agent .......................................... 548,133
Audit and tax services .................................. 31,500
Legal ................................................... 23,458
Printing ................................................ 102,066
Registration ............................................ 70,933
Miscellaneous ........................................... 28,473
----------
Total expenses ........................................... 3,403,140
-----------
Net investment loss ...................................... (1,666,515)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) on Investments - net ................ 38,149,843
Unrealized appreciation (depreciation) on Investments - net 17,491,799
-----------
Net gain (loss) on investment transactions ............... 55,641,642
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ...... $53,975,127
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) .............................. $ (1,989,202) $ (1,666,515)
Net realized gain (loss) on investments ................... 25,264,485 38,149,843
Unrealized appreciation (depreciation) on investments ..... 6,522,743 17,491,799
------------ ------------
Increase (decrease) in net assets from operations ......... 29,798,026 53,975,127
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments
Class A ................................................. (17,900,884) (31,038,092)
Class B ................................................. (5,549,923) (10,585,195)
Class C ................................................. (113,371) (250,102)
------------ ------------
(23,564,178) (41,873,389)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions ...................................... 10,756,577 26,554,677
------------ ------------
Total increase (decrease) in net assets ................... 16,990,425 38,656,415
NET ASSETS
Beginning of the year ..................................... 179,268,852 196,259,277
------------ ------------
End of the year ........................................... $196,259,277 $234,915,692
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)
End of the year ........................................... $ (11,514) $ (18,123)
============ ============
See accompanying notes to financial statements.
</TABLE>
<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 .. $15.27 $15.02 $18.41 $19.27 $19.95
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ............ (0.08) (0.11)(b) (0.14)(c) (0.18)(c) (0.13)(c)
Net Realized and Unrealized Gain (Loss)
on Investments ........................ (0.17) 4.74 3.22 3.43 5.18
------ ------ ------ ------ ------
Total From Investment Operations ........ (0.25) 4.63 3.08 3.25 5.05
------ ------ ------ ------ ------
Less Distributions
Distributions From Net Realized Capital
Gains ................................. 0.00 (1.24) (2.22) (2.57) (4.33)
------ ------ ------ ------ ------
Total Distributions ..................... 0.00 (1.24) (2.22) (2.57) (4.33)
------ ------ ------ ------ ------
Net Asset Value, End of the Year ........ $15.02 $18.41 $19.27 $19.95 $20.67
====== ====== ====== ====== ======
Total Return (%) (a) .................... (1.6) 30.7 17.1 17.2 29.0
Ratio of Operating Expenses to Average
Net Assets (%) ........................ 1.63 1.61 1.50 1.45 1.46
Ratio of Net Investment Income (loss)
to Average Net Assets (%) ............. (0.45) (0.67) (0.71) (0.87) (0.62)
Portfolio Turnover Rate (%) ............. 82 69 74 48 136
Net Assets, End of the Year (000) ..... $95,803 $123,504 $141,326 $149,734 $175,511
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles & Company, L.P. Effective February 14,
1998 Westpeak Investment Advisers, L.P. became subadviser to the Fund.
(a) A sales charge is not reflected in total return calculations.
(b) Per share net investment income (loss) does not reflect the period's reclassification of permanent differences
between book and tax basis net investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the
year.
See accompanying notes to financial statements.
</TABLE>
<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 .. $15.24 $14.89 $18.09 $18.74 $19.10
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) ............ (0.08) (0.16)(b) (0.28)(c) (0.32)(c) (0.27)(c)
Net Realized and Unrealized Gain (Loss)
on Investments ........................ (0.27) 4.60 3.15 3.25 4.87
------ ------ ------ ------ ------
Total From Investment Operations ........ (0.35) 4.44 2.87 2.93 4.60
------ ------ ------ ------ ------
Less Distributions
Distributions From Net Realized Capital
Gains ................................. 0.00 (1.24) (2.22) (2.57) (4.33)
------ ------ ------ ------ ------
Total Distributions ..................... 0.00 (1.24) (2.22) (2.57) (4.33)
------ ------ ------ ------ ------
Net Asset Value, End of the Year ........ $14.89 $18.09 $18.74 $19.10 $19.37
====== ====== ====== ====== ======
Total Return (%) (a) .................... (2.3) 29.7 16.2 15.9 28.2
Ratio of Operating Expenses to Average
Net Assets (%) ........................ 2.38 2.36 2.25 2.20 2.21
Ratio of Net Investment Income (loss)
to Average Net Assets (%) ............. (1.20) (1.42) (1.46) (1.62) (1.37)
Portfolio Turnover Rate (%) ............. 82 69 74 48 136
Net Assets, End of the Year (000) ..... $15,390 $26,234 $37,439 $45,546 $57,796
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles &
Company, L.P. Effective February 14, 1998 Westpeak Investment Advisers, L.P.
became subadviser to the Fund.
(a) A contingent deferred sales charge is not reflected in total return calculations.
(b) Per share net investment income (loss) does not reflect the period's reclassification of permanent differences
between book and tax basis net investment income (loss). See Note 1d.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the
year.
See accompanying notes to financial statements.
</TABLE>
<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 .................... $14.89 $18.08 $18.74 $19.11
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss) .............................. (0.09)(a) (0.28)(c) (0.34)(c) (0.27)(c)
Net Realized and Unrealized Gain (Loss) on Investments .... 4.52 3.16 3.28 4.86
------ ------ ------ ------
Total From Investment Operations .......................... 4.43 2.88 2.94 4.59
------ ------ ------ ------
Less Distributions
Distributions from Net Realized Capital Gains ............. (1.24) (2.22) (2.57) (4.33)
------ ------ ------ ------
Total Distributions ....................................... (1.24) (2.22) (2.57) (4.33)
------ ------ ------ ------
Net Asset Value, End of the Year .......................... $18.08 $18.74 $19.11 $19.37
====== ====== ====== ======
Total Return (%) (b) ...................................... 29.7 16.2 15.9 28.1
Ratio of Operating Expenses to Average Net Assets (%) ..... 2.36 2.25 2.20 2.21
Ratio of Net Investment Income (Loss) to Average Net
Assets (%) .............................................. (1.42) (1.46) (1.62) (1.37)
Portfolio Turnover Rate (%) ............................... 69 74 48 136
Net Assets, End of the year (000) ......................... $ 354 $ 504 $ 979 $1,609
The subadviser to the Fund prior to February 14, 1998 was Loomis Sayles & Company, L.P. Effective February 14, 1998
Westpeak Investment Advisers, L.P. became subadviser to the Fund.
(a) Per share net investment income (loss) does not reflect the period's reclassification of permanent differences
between book and tax basis net investment income (loss). See Note 1d.
(b) A contingent deferred sales charge is not reflected in total return calculations.
(c) Per share net investment income (loss) has been calculated using the average shares outstanding during the year.
See accompanying notes to financial statements.
</TABLE>
<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 long-term growth of capital. 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 and Class C 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. Expenses of the Fund are
borne pro-rata by the holders of each class of shares, except that each class
bears expenses unique to that class (including the Rule 12b-1 service and
distribution fees applicable to such class), and votes as a class only with
respect to its own Rule 12b-1 plan. Shares of each class would receive their
pro-rata share of the net assets of the Fund, if the Fund were liquidated. In
addition, the Trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of
valuations furnished by a pricing service authorized by the Board of Trustees,
which service provides the last reported sale price for securities listed on
an applicable securities exchange or on the NASDAQ national market system, or,
if no sale was reported and in the case of over-the-counter securities not so
listed, the last reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized cost, which
approximates value. All other securities and assets are valued at their fair
value as determined in good faith by the Fund's adviser 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 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 relating to
shareholder distributions will result in reclassification to the capital
accounts.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to
100% of the repurchase price, including interest. The Fund's 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
$276,490,055 and $298,821,172, 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. From January 1 through February 13, 1998
Loomis Sayles & Company, L.P. ("Loomis Sayles") was the Fund's investment
subadviser. NEFM paid Loomis Sayles at the rate of 0.60% of the first $25
million of the Fund's average daily net assets, 0.55% of the next $75 million
and 0.50% of the next $100 million, 0.35% of the next $300 million and 0.30%
of such assets in excess of $500 million. Effective February 14, 1998 Westpeak
Investment Advisers, L.P. ("Westpeak") became the Fund's investment
subadviser. NEFM pays Westpeak at the rate of 0.40% of the first $200 million
of the Fund's average daily net assets, 0.35% of the next $300 million and
0.30% of such assets in excess of $500 million. Certain officers and directors
of NEFM are also officers or trustees of the Fund. NEFM, Loomis Sayles and
Westpeak 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, Loomis Sayles and Westpeak under the management agreement in effect
during the year ended December 31, 1998 are as follows:
FEES EARNED PERIOD
$637,723 NEFM 1/1/98 - 12/31/98
262,382 Loomis Sayles 1/1/98 - 2/13/98
646,255 Westpeak 2/14/98 - 12/31/98
The effective management fee for the year ended December 31, 1998 was 0.75%.
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 $50,067 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 $394,963 as compensation for its
services in that capacity. For the year ended December 31, 1998, the Fund
received $4,347 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 $390,355 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
$563,284.
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 $123,714 and $2,641 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 $371,142
and $7,923 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 $425,644.
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 $1,135
Meeting Fee 152/meeting
Annual Committee Member Retainer 170
Annual Committee Chairman Retainer 113
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 TRANSACTIONS. At December 31, 1998 there was an unlimited
number of shares of beneficial interest authorized, divided into three
classes, Class A, Class B and Class C 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 ............................................ 858,626 $ 17,173,248 5,280,173 $ 103,638,373
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................. 884,046 17,485,625 1,654,600 30,368,183
---------- ------------ ------------- -------------
1,742,672 34,658,873 6,934,773 134,006,556
Shares repurchased ..................................... (1,571,461) (31,813,412) (5,945,919) (118,285,211)
---------- ------------ ------------- -------------
Net increase (decrease) ................................ 171,211 $ 2,845,461 988,854 $ 15,721,345
---------- ------------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------- ---------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ............................................ 472,600 $ 9,252,929 517,025 $ 10,206,537
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................. 282,724 5,380,519 602,457 10,304,737
---------- ------------ ------------- -------------
755,324 14,633,448 1,119,482 20,511,274
Shares repurchased ..................................... (368,337) (7,211,093) (520,591) (10,256,232)
---------- ------------ ------------- -------------
Net increase (decrease) ................................ 386,987 $ 7,422,355 598,891 $ 10,255,042
---------- ------------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------- ---------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ............................................ 138,714 $ 2,806,680 68,953 $ 1,323,118
Shares issued in connection with the reinvestment of:
Distributions from net realized gain ................. 5,797 110,303 14,104 241,925
---------- ------------ ------------- -------------
144,511 2,916,983 83,057 1,565,043
Shares repurchased ..................................... (120,139) (2,428,222) (51,202) (986,753)
---------- ------------ ------------- -------------
Net increase (decrease) ................................ 24,372 $ 488,761 31,855 $ 578,290
---------- ------------ ------------- -------------
Increase (decrease) derived from capital shares
transactions ......................................... 582,570 $ 10,756,577 1,619,600 $ 26,554,677
========== ============ ============= =============
</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 CAPITAL 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 Capital Growth 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 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,
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>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
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
------------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
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