[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
ANNUAL REPORT AND PERFORMANCE UPDATE
NEW ENGLAND
STRATEGIC INCOME
FUND
[ARTWORK APPEARS HERE]
DECEMBER 31, 1995
January 31, 1996
DEAR SHAREHOLDER,
ItOs a real pleasure to present to you the 1995 Annual Report for New
England Strategic Income Fund, containing your portfolio managerOs
commentary and complete financial information.
FAVORABLE ECONOMIC CONDITIONS IN 1995
In 1995 subdued economic growth with little or no inflation created a
very favorable backdrop for the bond and stock markets. Long term
interest rates dipped on the positive inflation news, with the yield
on the 30-year Treasury bond falling to a low of 5.95% at year end.
The stock market, fueled by lower interest rates and solid corporate
earnings growth, advanced 37.6%, as measured by the Standard & PoorOs
500 Index,* for its best showing since 1958. In July and in
December, the Federal Reserve Board lowered short term rates,
signaling its belief that the economy was indeed on a path towards
slow, non-inflationary growth.
NEW ENGLAND FUNDS - WHERE THE BEST MINDS MEET
Over this past year we launched our new corporate identity - Where the
Best Minds Meet -which we believe reflects the essence of New England
Funds. Our unique multiple adviser structure brings together some of
the best investment minds in the business. As recent examples,
consider New England Star Advisers Fund, managed by four prominent
equity advisers, and New England Star Worldwide Fund, a global fund
introduced this January which builds off the Star Advisers concept.
In addition, last May we launched New England Strategic Income Fund,
under the management of Dan Fuss of Loomis Sayles. One of the
industryOs most respected managers, Dan Fuss was named 1995Os OBond
Fund Manager of the YearO by Morningstar for his past record of
accomplishment in fund management at Loomis Sayles.**
* Standard & PoorOs 500 is an unmanaged index representing 500
major companies, the majority of which are listed on the New York
Stock Exchange.
** Morningstar is a third party, independent mutual fund rating
service.
<PAGE>
1995 DALBAR AWARD FOR SERVICE EXCELLENCE
Where the Best Minds Meet also refers to your financial adviser and
all the people at New England Funds who provide you with quality
service. We are proud to report that in recognition of our ongoing
quality initiatives, New England Funds has been named a 1995 Quality
Tested Service Seal Winner by DALBAR, an independent mutual fund
service rating company. The coveted DALBAR award was given to only
seven companies for Oproviding the highest tier of service excellence
in the mutual fund industry.O
OUTLOOK FOR 1996
Looking ahead, we believe interest rates are likely to remain flat as
the economy continues on its slow, steady, non-inflationary growth
path. While this scenario is extremely positive for the long term, it
is unlikely that 1996 will see a repeat of last yearOs stellar
performance. At this time itOs worth reiterating that long-term
investors should not focus on one yearOs performance. Instead, we
recommend that you review your asset allocation program with your
financial adviser, then remain committed to that program to carry out
its objectives.
We believe you will find your portfolio managerOs commentary
informative. If you have any questions or comments, please contact
your financial representative or New England Funds directly at 800-225-
5478. Also, please contact New England Funds for a prospectus on any
of the funds mentioned above. The prospectus details investment
objectives and risks, as well as management fees and expenses. You
should read it carefully before investing or sending money.
Sincerely,
/s/PETER S. VOSS /s/HENRY L.P. SCHMELZER
Peter S. Voss Henry L.P. Schmelzer
Chairman President
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
INVESTMENT RESULTS THROUGH
DECEMBER 31, 1995
Putting Performance into Perspective
The graph comparing your FundOs performance to a benchmark index
provides 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 FundOs total return for the period
shown appears with and without sales charges and includes Fund
expenses and management fees. A securities index measures the
performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition,
few investors could purchase all of the securities necessary to match
the index. And, if they could, they would incur transaction costs and
other expenses.
NOTE TO SHAREHOLDERS
Morningstar, an independent mutual fund rating service, named your
FundOs manager, Daniel J. Fuss, OBond Fund Manager of the YearO for
1995, in recognition of his past record of accomplishment in fund
management at Loomis, Sayles.
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
A $10,000 INVESTMENT COMPARED TO LEHMAN AGGREGATE BOND INDEX(4)
CLASS A SHARES, INCEPTION 5/1/95
[A Chart in the form of a line graph apears here, illustrating the
growth of a $10,000 investment in Class A Shares compared to Lehman
Aggregate Bond Index(4).]
New England Strategic Income Fund - Net Asset Value(1)
Date Amount
- ----- ------
Dec-95 $11,027
Nov-95 $10,645
Oct-95 $10,352
Sep-95 $10,408
Aug-95 $10,190
Jul-95 $10,094
Jun-95 $10,015
May-95 $10,012
1-May-95 $10,000
New England Strategic Income Fund - With Maximum Sales Charge(2)
Date Amount
- ----- ------
Dec-95 $10,531
Nov-95 $10,166
Oct-95 $E9,886
Sep-95 $E9,940
Aug-95 $E9,731
Jul-95 $E9,640
Jun-95 $E9,564
May-95 $E9,561
1-May-95 $E9,550
Lehman Aggregate Bond Index(4)
Date Amount
- ----- ------
Dec-95 $11,123
Nov-95 $10,969
Oct-95 $10,807
Sep-95 $10,669
Aug-95 $10,566
Jul-95 $10,440
Jun-95 $10,463
May-95 $10,387
1-May-95 $10,000
CLASS B SHARES, INCEPTION 5/1/95
[A Chart in the form of a line graph apears here, illustrating the
growth of a $10,000 investment in Class B Shares compared to Lehman
Aggregate Bond Index(4).]
New England Strategic Income Fund - Net Asset Value(1)
Date Amount
- ----- ------
Dec-95 $10,973
Nov-95 $10,599
Oct-95 $10,314
Sep-95 $10,376
Aug-95 $10,165
Jul-95 $10,076
Jun-95 $10,003
May-95 $10,006
1-May-95 $10,000
New England Strategic Income Fund - With Maximum Sales Charge(2)
Date Amount
- ----- ------
Dec-95 $10,547
Nov-95 $10,187
Oct-95 $E9,914
Sep-95 $10,376
Aug-95 $10,165
Jul-95 $10,076
Jun-95 $10,003
May-95 $10,006
1-May-95 $10,000
Lehman Aggregate Bond Index(4)
Date Amount
- ----- ------
Dec-95 $11,123
Nov-95 $10,969
Oct-95 $10,807
Sep-95 $10,669
Aug-95 $10,566
Jul-95 $10,440
Jun-95 $10,463
May-95 $10,387
1-May-95 $10,000
CLASS C SHARES, INCEPTION 5/1/95
[A Chart in the form of a line graph apears here, illustrating the
growth of a $10,000 investment in Class C Shares compared to Lehman
Aggregate Bond Index(4).]
New England Strategic Income Fund - Net Asset Value(1)
Date Amount
- ----- -------
Dec-95 $10,973
Nov-95 $10,583
Oct-95 $10,307
Sep-95 $10,369
Aug-95 $10,158
Jul-95 $10,069
Jun-95 $E9,996
May-95 $E9,999
1-May-95 $10,000
Lehman Aggregate Bond Index(4)
Date Amount
- ----- -------
Dec-95 $11,123
Nov-95 $10,969
Oct-95 $10,807
Sep-95 $10,669
Aug-95 $10,566
Jul-95 $10,440
Jun-95 $10,463
May-95 $10,387
1-May-95 $10,000
These illustrations represent past performance and cannot predict
future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. All Index and
Fund performance assumes reinvested distributions.
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
<TABLE><CAPTION>
<S> <C> <C> <C>
TOTAL RETURNS FOR PERIOD ENDED 12/31/95
NAV(1) WITH MSC(2) WITH CDSC(3)
Class A (Inception 5/1/95) 10.27% 5.30% n/a
Class B (Inception 5/1/95) 9.73 n/a 5.73%
Class C (Inception 5/1/95) 9.65 n/a n/a
NAV(1) WITH MSC(2) WITH CDSC(3)
Lehman Aggregate Index(4) 11.23% n/a n/a
Lipper General Bond Average(5) 9.83 n/a n/a
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.
<FN>
NOTES TO CHARTS AND PERFORMANCE UPDATE
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 (MSC) performance assumes reinvestment
of all distributions and reflects the maximum sales charge of
4.5% at the time of purchase of Class A shares.
3 With Contingent Deferred Sales Charge (CDSC) performance assumes
a maximum 4% sales charge is applied to a redemption of Class B
shares. The sales charge will decrease over time, declining to
zero 5 years after the purchase of shares.
4 Lehman Aggregate Bond Index is a market-weighted, aggregate index
which includes nearly all debt issued by the U.S. Treasury, U.S.
Government agencies, U.S. corporations rated investment grade,
and U.S. agency debt backed by mortgage pools.
5 Lipper General Bond Fund Average is an average of the total
return performance (calculated on the basis of net asset value)
of funds with similar investment objectives as calculated by
Lipper Analytical Services, an independent mutual fund ranking
service.
</TABLE>
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
[PHOTO]
NEW ENGLAND STRATEGIC INCOME FUND
Portfolio Manager: Daniel J. Fuss
Loomis, Sayles & Co., L.P.
We are pleased to report that your Fund was a solid performer in
1995Os market rally and also enjoyed a very favorable reception in the
marketplace, attracting $88 million in assets from its May 1 inception
through Dec. 29, 1995. In fact, the Fund was the second best selling
new bond fund of 1995 (according to Strategic Insight, an independent
industry tracking source).
HOW YOUR FUND PERFORMED
From its May 1, 1995 inception through Dec. 29, 1995, New England
Strategic Income Fund posted a total return of 10.27% for Class A
shares, 9.73% for Class B shares and 9.65% for Class C shares (at net
asset value). As of Dec. 29, 1995 the FundOs distribution rate,
representing the annualized amount of your December dividend, stood at
8.48% (Class A shares at NAV) while the FundOs SEC 30-day yield for
Class A shares stood at 8.32%.
HOW YOUR FUND IS STRUCTURED
At the end of the year, the Fund consisted primarily of long term
bonds, priced at a discount to par value. Longer maturity bonds,
although more volatile than shorter-term issues, offer greater capital
appreciation potential. Bonds purchased at a discount also offer the
opportunity to go up in value. (In the accompanying OPortfolio
CompositionO report, you will notice the current market value of many
bonds is below the face
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
amount, which may reflect their purchase at a discount.) Discount
bonds also offer Ocall protection,O a key consideration to the way we
run fixed-income portfolios at Loomis Sayles. Issuers often Ocall
awayO bonds before they mature if interest rates have dropped, so that
they can issue new bonds at lower rates. The bond holder must
surrender the bond with the higher income stream and reinvest the
proceeds at lower rates. But discount bonds, which would have to rise
substantially in value before reaching their call price, are unlikely
to be called in the event rates drop.
WHERE YOUR FUND IS INVESTED
The FundOs current composition is as follows: 52% below investment
grade fixed income, 9% dividend paying common stocks and 39%
investment grade fixed income securities. The FundOs fixed income
portfolio has an average maturity of 18 years and continues to be
composed almost entirely of discount bonds. This latter attribute,
after 1995Os strong market rally, is obviously harder to maintain.
A number of non-market related characteristics of the FundOs portfolio
are noteworthy, specifically credit turnarounds, busted converts and
sinking fund bonds (to a limited degree). Credit turnarounds are
bonds currently rated below investment grade which we believe may be
strong candidates for credit upgrade. OBusted convertsO are
convertible bonds whose conversion price (that is the price at which
the bonds may be converted to stock) is well below the companyOs
current stock price. Sinking
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
funds are set up to provide money to redeem a portion of a particular
bond issue, providing a stabilizing factor in the event of a market
decline.
The Fund also has important holdings in Canadian provincial debt and
Brady bonds.* Two thirds of the common stock position is in shares of
Real Estate Investment Trusts (REITs).
OUTLOOK FOR THE FUTURE
The general characteristics of yield advantage, reasonable credit
dynamics, price discount and non-market relatedness may allow the
portfolio to produce reasonable results in a fairly wide range of
market environments. It is fair to say that this Fund is less
sensitive to the general bond market than most funds. As such the
Fund will lag in a straight-up price rally, but will probably tend to
do better during periods of price decline unless there is a severe
negative liquidity type market. The fund is eclectic and
opportunistic with no particular style predominating. There is a
strong aversion to call risk that cuts across nearly all of the
portfolio.
We believe the fund is well structured at the present time. We intend
to maintain an emphasis on deep discount, call-protected securities
offering significant credit upgrade potential.
* Brady bonds, named for former U.S. Treasury Secretary Nicholas
Brady, are foreign government bonds backed by U.S. Treasury
securities.
<PAGE>
NEW ENGLAND STRATEGIC INCOME FUND
PORTFOLIO QUALITY AS OF DECEMBER 31, 1995
[A graph in the form of a pie chart appears here, illustrating the
portfolio quality of New England Strategic Income Fund as of December
31, 1995. The data points of the graph are as follows:]
Aaa 8.5%
Aa 6.6%
A 9.3%
Baa 23.2%
Ba 17.3%
B 19.8%
Caa 14.8%
GovOt. 0.5%
Average Portfolio Quality=Ba1 Average Portfolio Maturity=18 Years
Quality ratings provided by MoodyOs Investor Service.
PORTFOLIO COMPOSITION AS OF DECEMBER 31, 1995
BONDS PERCENTAGE OF
ASSETS
U.S. Corporate 39.5%
Foreign/Yankee $ 17.4%
Canada 16.0%
Foreign/Foreign Currency 9.7%
Government/Municipal 1.0%
STOCKS
Common 9.1%
Preferred 4.5%
NET CASH/EQUIVALENTS 2.8%
Portfolio Composition is subject to change
<PAGE>
[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
NEW ENGLAND
STRATEGIC INCOME
FUND
DECEMBER 31, 1995
<PAGE>
PORTFOLIO COMPOSITION
Investments as of December 31, 1995
BONDS AND NOTES--83.6% OF TOTAL NET ASSETS
<TABLE><CAPTION>
<C> <S> <C>
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
NON-CONVERTIBLE BONDS--70.1%
AEROSPACE--0.4%
$425,000 Rohr Industries, Inc., 9.250%, 3/01/17 $391,000
-----------
CANADIAN--16.0%
3,725,000 Canada Government, 8.000%, 6/01/23, (d) 2,861,629
10,700,000 Hydro Quebec, Zero Coupon, 8/15/20, (d) 967,453
3,175,000 Hydro Quebec, 9.625%, 7/15/22, (d) 2,638,950
1,000,000 Manitoba Province, 7.750%, 12/22/25, (d) 718,494
3,385,000 Ontario Hydro, 8.900%, 8/18/22, (d) 2,734,439
750,000 Ontario Province of Canada, Zero Coupon, 7/13/22, (d)65,944
3,205,000 Province of Saskatchewan, 8.750%, 5/30/25, (d) 2,547,703
2,375,000 Rogers Cablesystems Limited, 9.650%, 1/15/14, (d) 1,518,309
-----------
14,052,921
-----------
COMMUNICATION--3.2%
250,000 CBS Inc., 7.125%, 11/01/23 215,908
500,000 Century Communications Corp., Zero Coupon, 3/15/03 265,000
2,350,000 Nextel Communications Inc., Zero Coupon,
8/15/04, (c) 1,274,875
1,000,000 Tele-Communications, Inc., 7.875%, 8/01/13 1,028,510
-----------
2,784,293
-----------
COMPUTERS--2.2%
250,000 Computervision Corp., 8.000%, 12/01/09 180,000
950,000 Digital Equipment Corp., 7.750%, 4/01/23 944,727
1,000,000 Unisys Corp., 9.750%, 9/15/16 840,000
-----------
1,964,727
-----------
ELECTRONICS--0.5%
500,000 Westinghouse Electric Corp., 7.875%, 9/01/23 466,935
-----------
Entertainment--0.0%
50,000 Time Warner, Inc., 9.150%, 2/01/23 56,702
-----------
ENVIRONMENTAL--1.9%
1,000,000 Envirotest Systems Corp., 9.125%, 3/15/01 817,500
1,250,000 Envirotest Systems Corp., 9.625%, 4/01/03 825,000
-----------
1,642,500
-----------
FOOD & BEVERAGES--3.3%
1,150,000 RJR Nabisco, Inc., 7.625%, 9/15/03 1,127,011
1,750,000 RJR Nabisco, Inc., 9.250%, 8/15/13 1,804,005
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
BONDS AND NOTES--CONTINUED
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- --
FOREIGN ISSUES--16.4%
$ 8,000,000 Republic of Argentina, 5.000%, 3/31/23 (c) $ 4,570,000
1,600,000 Banco Central Costa Rica, 6.250%, 5/21/10 976,000
1,326,511 Federal Republic of Brazil, 8.000%, 4/15/14 756,111
6,375,000 Federal Republic of Brazil, 4.250%, 4/15/24 (c) 3,370,781
1,276,858 Republic of Ecuador, 6.813%, 2/27/15 (l) 426,151
3,500,000 Republic of Ecuador, 3.000%, 2/28/25 (c) 1,264,375
800,000 United Mexican States, 6.250%, 12/31/19, (h) 524,000
2,500,000 Republic of Poland, 3.750%, 10/27/14 (c) 1,621,875
1,000,000 Transportacion Maritima Mexicana, 9.250%, 5/15/03 895,000
-----------
14,404,293
-----------
FOREIGN CURRENCY--9.7%
1,205,000 Republic of Ireland, 6.250%, 10/18/04, (e) 1,780,726
750,000 Republic of Ireland, 8.250%, 8/18/15, (e) 1,273,777
8,000,000 Mexican Cetes, Zero Coupon, 7/18/96, (f) 831,564
3,840,480 Mexican Cetes, Zero Coupon, 10/03/96, (f) 369,882
3,078,000 Mexican Cetes, Zero Coupon, 11/07/96, (f) 287,023
5,805,000 New Zealand, 8.000%, 11/15/06, (g) 4,014,864
-----------
8,557,836
-----------
GOVERNMENT TREASURIES--0.5%
400,000 United States Treasury Bond, 6.250%, 8/15/23 411,564
-----------
HOME BUILDERS--1.2%
500,000 Hovnanian K Enterprises, Inc., 11.250%, 4/15/02 455,000
750,000 Hovnanian K Enterprises, Inc., 9.750%, 6/01/05 645,000
-----------
1,100,000
-----------
METAL--0.2%
220,000 Midland Ross Corp., 6.000%, 2/15/07 140,800
-----------
MUNICIPAL--0.5%
3,750,000 Foothill/Eastern Transportation Corridor,
Zero Coupon, 1/01/30 435,862
-----------
OIL--0.7%
75,000 Forest Oil Corp., 11.250%, 9/01/03 71,250
500,000 Mobile Energy Services Co. LLC, 8.665%, 1/01/17 543,250
-----------
614,500
-----------
RESTAURANTS--1.3%
1,000,000 Flagstar Corp., 11.250%, 11/01/04 712,500
500,000 Foodmaker Incorporated New, 9.750%, 6/01/02 462,500
-----------
1,175,000
-----------
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
BONDS AND NOTES--CONTINUED
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- --
RETAIL--2.8%
$ 1,250,000 Bradlees, Inc., 9.250%, 3/01/03 (i) $293,750
750,000 K Mart Corp., 7.950%, 2/01/23 525,142
1,250,000 K Mart Corp. Pass Through Trust, 9.350%,
1/02/20 868,750
1,000,000 Service Merchandise, 9.000%, 12/15/04. 812,500
-----------
2,500,142
-----------
RETAIL GROCERY--1.8%
2,000,000 Penn Traffic Co., 9.625%, 4/15/05 1,560,000
-----------
STEEL--2.7%
250,000 Geneva Steel Co., 11.125%, 3/15/01 207,500
2,750,000 Geneva Steel Co., 9.500%, 1/15/04 2,145,000
-----------
2,352,500
-----------
TRANSPORTATION--1.8%
300,000 Delta Air Lines, Inc., 9.250%, 3/15/22 354,375
65,000 United Air Lines, Inc. Pass Through,
9.560%, 10/19/18 75,680
1,000,000 United Air Lines, Inc., 9.125%, 1/15/12 1,117,500
-----------
1,547,555
-----------
UTILITIES--3.0%
487,000 Beaver Valley II FDG Corp., 8.250%, 6/01/03 431,161
1,750,000 Beaver Valley II FDG Corp., 9.000%, 6/01/17 1,476,090
250,000 Ohio Edison, 8.890%, 6/01/17 256,713
500,000 Niagara Mohawk, 7.875%, 4/01/24 463,620
-----------
2,627,584
-----------
Total Non-Convertible Bonds
(Identified Cost $59,473,811) 61,717,730
-----------
CONVERTIBLE BONDS--13.5%
AEROSPACE--0.6%
665,000 Rohr Industries, Inc., 7.000%, 10/01/12 565,250
-----------
AUTO PARTS--0.4%
400,000 Mascotech, Inc., 4.500%, 12/15/03 311,000
-----------
COMPUTERS--2.5%
2,300,000 Ast Research, Inc., Zero Coupon, 12/14/13 782,000
100,000 Data General Corp., 7.750%, 6/01/01 97,500
618,000 Maxtor Corp., 5.750%, 3/01/12 478,950
693,000 Micropolis, 6.000%, 3/15/12 332,640
600,000 Unisys Corp., 8.250%, 8/01/00 534,000
-----------
2,225,090
-----------
ELECTRONICS--1.2%
300,000 Edo Corp., 7.000%, 12/15/11 210,000
500,000 National Semiconductor Corporation,
6.500%, 10/01/02 144A (j) 469,790
500,000 Zenith Electric Convertible Sub. Deb.,
6.250%, 4/01/11 355,000
-----------
1,034,790
-----------
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
BONDS AND NOTES--CONTINUED
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- --
ENTERTAINMENT--1.2%
$ 2,050,000 Discovery Zone, Inc., Zero Coupon, 10/14/13 $533,000
1,400,000 Time Warner, Inc., Zero Coupon, 12/17/12 491,750
-----------
1,024,750
-----------
ENVIRONMENTAL--0.7%
760,000 Air & Water Technologies Corp., 8.000%, 5/15/15 649,800
-----------
FOREIGN ISSUES--1.0%
400,000 Empresas ICA, 5.000%, 3/15/04 208,000
250,000 Telekom Malaysia Berhad, 4.000%, 10/03/04 (j) 241,250
500,000 Tubos De Acero Mexico, 7.500%, 6/12/97 452,500
-----------
901,750
-----------
HEALTH CARE--3.3%
1,850,000 Centocor, Inc., 7.250%, 2/01/01 2,164,500
425,000 Centocor, Inc., 6.750%, 10/16/01 382,500
100,000 Chiron Corp., 1.900%, 11/17/00 101,250
325,000 Glycomed, Inc., 7.500%, 1/01/03 253,500
-----------
2,901,750
-----------
MANUFACTURING--0.1%
75,000 Fuqua Industries, 6.500%, 8/04/02 62,250
-----------
OIL--1.2%
345,000 Oryx Energy Co., 7.500%, 5/15/14 307,050
750,000 Pennzoil Co., 4.750%, 10/01/03 759,375
-----------
1,066,425
-----------
REAL ESTATE--0.1%
125,000 Rockefeller Properties, Zero Coupon, 12/31/00 70,625
-----------
RESTAURANTS--0.3%
250,000 Flagstar Corp., 10.000%, 11/01/14 140,000
100,000 TPI Enterprises, Inc., 8.250%, 7/15/02 92,000
-----------
232,000
-----------
RETAIL--0.3%
250,000 Bell Sports Corp., 4.250%, 11/15/00 173,437
100,000 Eagle Hardware & Garden, Inc., 6.250%,
3/15/01 72,250
-----------
245,687
-----------
TEXTILE--0.2%
250,000 Dixie Yarns, Inc., 7.000%, 5/15/12 188,750
-----------
TRUCKING & FREIGHT FORWARDING--0.4%
500,000 Preston Corp., 7.000%, 5/01/11 350,000
-----------
Total Convertible Bonds
(Identified Cost $11,044,620) 11,829,917
-----------
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
PREFERRED STOCK--4.5%
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- --
COMPUTERS--0.3%
10,000 Unisys Corp. Series A. $268,750
-----------
HOME BUILDERS--1.8%
105,200 Kaufman & Broad Home Corp 1,564,850
-----------
REAL ESTATE--0.6%
10,000 Rouse Co. Series A 516,250
-----------
STEEL--1.0%
21,000 Bethlehem Steel Corp. (j) 929,250
-----------
OIL--0.0%
500 Kaneb Services, Inc. Class A 4,313
-----------
UTILITIES--0.8%
30 Cleveland Electric Illuminating Co 28,012
250 Cleveland Electric Illuminating Co 220,625
4,686 Long Island Lighting Co. Series UU 94,891
150 New York State Electric & Gas Corp 8,438
150 Niagara Mohawk Power Corp 5,419
10,900 Niagara Mohawk Power Corp. Series B 204,375
5,000 Niagara Mohawk Power Corp. Series C 94,375
672 Texas Utilities Electric Co 39,648
-----------
695,783
-----------
Total Preferred Stock
(Identified Cost $3,983,219) 3,979,196
-----------
COMMON STOCK--9.1%
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- --
CONSTRUCTION--0.4%
15,000 McDermott International, Inc $330,000
-----------
FOREIGN ISSUES--0.2%
25,000 Transportacion Maritima Mexicana, ADR (k) 209,375
-----------
OIL--1.3%
10,000 Atlantic Richfield Co. 1,107,500
-----------
REAL ESTATE--6.2%
75,800 Developers Diversified Realty 2,274,000
32,000 Meditrust 1,116,000
85,000 Simon Property Group, Inc 2,071,875
-----------
5,461,875
-----------
TELECOMMUNICATION--1.0%
27,000 Pacific Telesis Group. 907,875
-----------
Total Common Stock
(Identified Cost $7,466,459) 8,016,625
-----------
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
SHORT-TERM INVESTMENT--1.2%
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- --
$ 1,075,000 Repurchase Agreement with State Street Bank &
Trust Company dated 12/29/95 at 5.000% to be
repurchased at $1,075,589 on
1/02/96, collateralized by $940,000 U.S.
Treasury Note 8.750% due 8/15/00, with a value
of $1,099,172 $ 1,075,000
-----------
Total Short Term Investment
(Identified Cost $1,075,000) 1,075,000
-----------
Total Investments--98.4%
(Identified Cost $83,043,109) 86,618,468
Cash, receivables and other assets 2,595,628
Liabilities (1,256,763)
-----------
Total Net Assets--100% $87,957,333
===========
<FN>
(a) See Note 1A.
(b) Federal Tax Information: At December 31, 1995 the net unrealized
appreciation on investments based on cost for federal income tax
purposes of $83,043,109 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $ 5,286,979
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value (1,711,620)
-----------
Net unrealized appreciation $ 3,575,359
==========
(c) Step Bond; Coupon rate is zero or below market for an initial
period and then increases to a higher coupon rate at a specified
date and rate.
(d) Denominated in Canadian dollars.
(e) Denominated in Irish pounds.
(f) Denominated in Mexican pesos.
(g) Denominated in New Zealand dollars.
(h) Issued with Mexico value recovery rights, face amount $800,000,
6 1/4% with $0 value.
(I) Non-income producing security.
(j) Securities exempt from registration under rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
(k) An American Depository Receipt (ADR) is a certificate issued by a
U.S. bank representing the right to receive securities of the
foreign issuer described. The values of ADRs are significantly
influenced by trading on exchanges not located in the United
States or Canada.
(l) Variable or floating rate security. Rate disclosed is as of
December 31, 1995.
</TABLE>
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value $86,618,468
Cash 280
Receivable for:
Fund shares sold 923,854
Dividends and interest 1,604,542
Deferred organization expense 56,952
Prepaid registration expense 10,000
-----------
89,214,096
LIABILITIES
Payable for:
Securities purchased $899,603
Fund shares redeemed 142,203
Dividends declared 148,910
Accrued expenses:
Deferred trustees' fees 1,693
Accounting and administrative 3,826
Other expenses 60,528
--------
1,256,763
-----------
NET ASSETS $87,957,333
===========
Net Assets consist of:
Capital paid in $84,147,682
Undistributed net investment income 28,653
Accumulated net realized gains 207,393
Unrealized appreciation on investments and foreign
currency transactions 3,573,605
-----------
NET ASSETS $87,957,333
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($36,938,609 divided by 2,843,085 shares of beneficial
interest) $12.99
=======
Offering price per share (100/95.50 of $12.99) $13.60*
=======
Net asset value and offering price of Class B shares
($38,767,146 divided by 2,983,861 shares of beneficial
interest) $12.99**
========
Net asset value and offering price of Class C shares
($12,251,578 divided by 943,010 shares of beneficial
interest) $12.99
======
Identified cost of investments $83,043,109
===========
<FN>
* Based upon single purchases of less than $100,000. Reduced sales
charges apply for purchases in excess of these amounts.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charges.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the period May 1* through December 31,1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $433,641
Interest 3,140,410
----------
3,574,051
Expenses
Management fees $241,019
Service fees--Class A 39,089
Service and distribution fees--Class B 155,888
Service and distribution fees--Class C 58,548
Trustees' fees and expenses .8,356
Accounting and administrative 35,874
Custodian 75,796
Transfer agent 61,997
Audit and tax services 25,200
Legal 10,177
Printing 10,465
Registration 9,911
Amortization of organization expenses 10,968
Miscellaneous 3,244
----------
Total expenses 746,532
Less expenses waived by the investment adviser (241,019) 505,513
---------- ----------
Net investment income 3,068,538
REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS, FORWARD
CURRENCY CONTRACTS and FOREIGN CURRENCY TRANSACTIONS
Realized gain on:
Investments--net 232,870
Foreign currency transactions--net (5,310)
----------
Total realized gain on investment and foreign currency
transactions 227,560
----------
Unrealized appreciation (depreciation) on:
Investments--net 3,575,359
Foreign currency transactions--net (1,754)
----------
Total unrealized appreciation on investments and foreign
currency transactions 3,573,605
----------
Net gain on investment transactions 3,801,165
- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $6,869,703
==========
<FN>
* Commencement of operations.
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C>
FOR THE
PERIOD
MAY 1,*
THROUGH
DECEMBER 31,
1995
-----------
FROM OPERATIONS
Net investment income $ 3,068,538
Net realized gain on investment transactions. 227,560
Unrealized appreciation on investments, and foreign
currency transactions 3,573,605
-----------
Increase in net assets from operations 6,869,703
-----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (1,369,404)
Class B (1,236,649)
Class C (462,485)
In excess of net investment income
Class A (22,615)
Class B (20,422)
Class C (7,638)
-----------
(3,119,213)
-----------
Increase in net assets derived from capital
share transactions 84,206,843
-----------
Total increase in net assets. 87,957,333
NET ASSETS
Beginning of the period 0
-----------
End of the period $87,957,333
==========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period $ 0
==========
End of the period $28,653
==========
<FN>
* Commencement of operations.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
------------ ------------ ------------
MAY 1,(A) MAY 1,(A) MAY 1,(A)
THROUGH THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1995
------------ ------------ ------------
Net Asset Value,
Beginning of Period $12.50 $12.50 $12.50
------- -------- --------
Income From Investment Operations
Net Investment Income 0.74 0.68 0.67
Net Realized and Unrealized
Gain (Loss) on
Investments 0.49 0.49 0.49
------- -------- --------
Total From Investment Operations 1.23 1.17 1.16
------- -------- --------
Less Distributions
Distributions From Net Investment
Income (0.73) (0.67) (0.66)
Distributions In Excess
of Net Investment
Income (0.01) (0.01) (0.01)
------- -------- --------
Total Distributions (0.74) (0.68) (0.67)
------- -------- --------
Net Asset Value, End of Period $12.99 $12.99 $12.99
======= ======== ========
Total Return (%) 10.3(c) 9.7(c) 9.7(c)
Ratio of Operating Expenses to
Average Net Assets (%) (d) 0.93(b) 1.68(b) 1.68(b)
Ratio of Net Investment Income to
Average Net Assets (%) 8.75(b) 8.00(b) 8.00(b)
Portfolio Turnover Rate (%) 22(b) 22(b) 22(b)
Net Assets, End of Period (000) $36,939 $38,767 $12,252
<FN>
(a) Commencement of operations
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) The ratio of operating expenses
to average net assets without giving
effect to the voluntary expense
limitations described in Note 4
to the Financial Statements
would have been (%) 1.58(b) 2.33(b) 2.33(b)
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1.The Fund is a series of The New England Funds Trust I, a
Massachusetts business trust (the "Trust"), and is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company. The Declaration of Trust
permits the Trustees to issue an unlimited number of shares of the
Trust in multiple series (each series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund
commenced its public offering of Class A, Class B and Class C shares
on May 1, 1995. Class A shares are sold with a maximum front end sales
charge of 4.50%. 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 five years of purchase. Class C
shares do not pay front end or contingent deferred sales charges and
do not convert to any class of shares, but they do pay a higher
ongoing distribution fee than Class A shares. Class Y shares do not
pay a front end sales charge, a contingent deferred sales charge or
distribution 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 all classes of shares, except that each class
bears expenses unique to that class (including the Rule 12b-1 service
and distribution fees applicable to such class), and votes as a class
only with respect to its own Rule 12b-1 plan. Shares of each class
would receive their pro-rata share of the net assets of the Fund, if
the Fund were liquidated. In addition, the Trustees approve separate
dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. SECURITY VALUATION.The Fund's investment subadviser, Loomis Sayles
& Company, L.P. ("Loomis Sayles") under the supervision of the Fund's
trustees, determines the value of the Fund's portfolio of securities,
using valuations provided by a pricing service selected by Loomis
Sayles and other information with respect to transactions in
securities, including quotations from securities dealers. Valuations
of securities and other assets owned by the Fund for which market
quotations are readily available are based on those quotations. Short-
term obligations that will mature in 60 days or less are stated at
amortized cost, which approximates market value. All other securities
and assets are valued at their fair value as determined in good faith
by Loomis Sayles under the supervision of the Fund's trustees.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
B. FOREIGN CURRENCY TRANSLATION.The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and
other assets and liabilities denominated in currencies other than U.S.
dollars are translated into U.S. dollars based upon foreign exchange
rates prevailing at the end of the period. Purchases and sales of
investment securities, income and expenses are translated on the
respective dates of such transactions. Since the values of
investment securities are presented at the foreign exchange rates
prevailing at the end of the period, it is not practical to isolate
that portion of the results of operations arising from changes in
exchange rates from fluctuations arising from changes in market prices
of the investment securities. Such fluctuations are included with the
net realized and unrealized gain or loss on investments.
Reported net realized foreign exchange gains or losses arise from:
sales of foreign currency, currency gains or losses realized between
the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of
assets and liabilities resulting from changes in the exchange rate.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT Income.Security
transactions are accounted for on the trade date (the date the buy or
sell is executed). Dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual basis. Interest income
is increased by the accretion of discount. Interest income is
decreased by the amortization of acquisition premium on original issue
discount securities. In determining net gain or loss on securities
sold, the cost of securities has been determined on the identified
cost basis.
D. 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS.Dividends are declared
daily to shareholders of record at the time and are paid monthly.
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
principals. These differences are primarily due to differing
treatments for mortgage backed securities and foreign currency
transactions for book and tax purposes. Permanent book and tax basis
differences will result in reclassifications to capital accounts.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
F. 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. Loomis
Sayles 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.
G. ORGANIZATION EXPENSE.Costs incurred in 1995 in connection with the
Fund's organization and initial registration amounting to $67,920 were
paid by the Fund and are being amortized over 60 months beginning May
1, 1995.
2.PURCHASES AND SALES OF SECURITIES (excluding short-term investments)
for the period ended December 31, 1995 were as follows:
PURCHASES SALES
----------- ---------
$94,037,840 $12,884,097
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES.The Fund
pays management fees payable to its investment adviser, New England
Funds Management L.P. ("NEFM") at the annual rate of 0.65% of the
first $200 million Fund's average daily net assets and 0.60% of such
assets in excess of $200 million. NEFM pays the Fund's investment
subadviser, Loomis Sayles at the rate of 0.35% of the first $200
million of the Fund's average daily net assets and 0.30% of such
assets in excess of $200 million. Certain officers and directors of
the NEFM and Loomis Sayles are also officers or trustees of the Fund.
NEFM and Loomis Sayles are wholly owned subsidiaries of New England
Investment Companies, L.P. ("NEIC") which is a majority owned
subsidiary of New England Mutual Life Insurance Company. Fees earned
by NEFM and Loomis Sayles under the management agreement in effect
during the period ended December 31, 1995 are as follows:
FEES EARNED
$111,240(a) New England Fund's Management, L.P.
$129,779(a) Loomis, Sayles & Company, L.P.
(a) Before reduction pursuant to voluntary expense limitations. See
Note 4.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE.New England Funds, L.P. ("New
England Funds"), the Fund's distributor, 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, internal auditing and
financial reporting functions and clerical functions relating to the
Fund, (ii) expenses for services required in connection with the
preparation of registration statements and prospectuses, shareholder
reports and notices, proxy solicitation
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
material furnished to shareholders of the Fund or regulatory
authorities and reports and questionnaires for SEC compliance, and
(iii) registration, filing and other fees in connection with
requirements of regulatory authorities. For the period ended December
31, 1995, these expenses amounted to $35,874 and are shown separately
in the financial statements as accounting and administrative services.
C. TRANSFER AGENT FEES.New England Funds is the transfer and
shareholder
servicing agent to the Fund. For the period ended December 31, 1995,
the Fund paid New England Funds $33,413 as compensation for its
services in that capacity.
D. SERVICE AND DISTRIBUTION FEES.Pursuant to Rule 12b-1 under the 1940
Act, the Trust has adopted a Service Plan relating to the Fund's Class
A shares (the "Class A Plan") and Service and Distribution Plans
relating to the Fund's Class B and Class C shares (the "Class B and
Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net
assets attributable to the Fund's Class A shares, as reimbursement for
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in
providing personal services to investors in Class A shares and/or the
maintenance of shareholder accounts. For the period ended December 31,
1995, the Fund paid New England Funds $39,089 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.
Under the Class B and Class C Plans, the Fund pays New England Funds a
monthly service fee at the annual rate of up to 0.25% of the average
daily net assets attributable to the Fund's Class B and Class C
shares, as compensation for services provided and expenses (including
certain payments to securities dealers, who may be affiliated with New
England Funds) incurred by New England Funds in providing personal
services to investors in Class B and Class C shares and/or the
maintenance of shareholder accounts. For the period ended December 31,
1995, the Fund paid New England Funds $38,972 and $14,637 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 a monthly distribution fee at the annual rate of up to 0.75% of
the average daily net assets attributable to the Fund's Class B shares
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
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
connection with the marketing or sale of Class B and Class C shares.
For the period ended December 31, 1995, the Fund paid New England
Funds $116,916 and $43,911 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 of shares of the Fund
during the period ended December 31, 1995 amounted to $866,505.
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 Loomis Sayles, NEFM, New England Funds, NEIC or their
affiliates, other than registered investment companies. Each other
trustee is compensated by the Fund as follows:
Annual Retainer $800
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Annual Retainer $125
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 had, had
it been invested in the Fund on the normal payment date.
4.EXPENSE LIMITATIONS.Under an expense deferral arrangement which NEFM
and Loomis Sayles may terminate at any time, NEFM and Loomis Sayles
have agreed to waive advisory and subadvisory fees until further
notice, subject to the obligation of the Fund to pay NEFM such fees to
the extent that the Fund's expenses fall below the annual rate of
1.40% for Class A shares and 2.15% for Class B shares and Class C
shares; provided however in any period, that the Fund is not obligated
to pay any fees waived by NEFM and Loomis Sayles more than two years
after the end of the fiscal year in which such fee was waived. As a
result of the Fund's annualized expenses exceeding the foregoing
expense limitation during the period ended December 31, 1995, NEFM and
Loomis Sayles waived fees as detailed below:
<TABLE><CAPTION>
<S> <C> <C>
1995
1995 FEES DEFERRED
FEES (EXPIRES
WAIVED DECEMBER 31, 1997)
------- ------------------
NEFM $80,505 $ 30,735
Loomis Sayles $93,921 $ 35,858
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
5.CAPITAL SHARES.At December 31, 1995 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>
<S> <C> <C>
FOR THE PERIOD MAY 1,*
THROUGH
DECEMBER 31, 1995
----------------------------
CLASS A SHARES AMOUNT
- -------- --------- -----------
Shares sold 2,999,705 $37,336,091
Shares issued in connection
with the reinvestment of:
Dividends from net
investment income 83,928 1,050,952
--------- -----------
3,083,633 38,387,043
Shares repurchased. (240,548) (3,031,993)
--------- -----------
Net increase 2,843,085 35,355,050
--------- -----------
FOR THE PERIOD MAY 1,*
THROUGH
DECEMBER 31, 1995
--------------------------
CLASS B SHARES AMOUNT
- --------- --------- -----------
Shares sold 3,069,532 $38,206,120
Shares issued in connection
with the reinvestment of:
Dividends from net
investment income 58,814 736,795
--------- -----------
3,128,346 38,942,915
Shares repurchased. (144,485) (1,810,786)
--------- -----------
Net increase 2,983,861 37,132,129
--------- -----------
FOR THE PERIOD MAY 1,*
THROUGH
DECEMBER 31, 1995
-------------------------
CLASS C SHARES AMOUNT
- --------- --------- -----------
Shares sold 1,178,513 $14,661,683
Shares issued in connection
with the reinvestment of:
Dividends from net investment
income 23,720 296,747
--------- -----------
1,202,233 14,958,430
Shares repurchased. (259,223) (3,238,766)
--------- -----------
Net increase 943,010 11,719,664
--------- -----------
Increase derived from capital
shares transactions 6,769,956 $84,206,843
========= ===========
<FN>
*Commencement of operations.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of NEW ENGLAND STRATEGIC
INCOME 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 Strategic Income Fund ("the Fund") at December 31, 1995,
and the results of its operations, the changes in its net assets and
the financial highlights for the period May 1, 1995 (commencement of
operations) through December 31, 1995, 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
audit. We conducted our audit 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 audit, which included confirmation
of securities owned at December 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1996
<PAGE>
SHAREHOLDER MEETING
At a special shareholders' meeting held on December 28, 1995, shareholders of
the New England Strategic Income Fund voted for the following proposals:
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
VOTED VOTED ABSTAINED BROKER TOTAL
FOR AGAINST VOTES NON-VOTES VOTES
-------------------------------------------------------------------------------
- -----------
1. To approve new investment
advisory arrangements to
be effective upon the
merger of New England
Mutual Life Insurance
Company into Metropolitan
Life Insurance Company,
such arrangements to be
substantially identical
to the investment
advisory arrangements in
effect for the Fund
immediately prior to such
merger. 3,380,175.887 80,871.132 81,859.534 3,542,906.553
</TABLE> ============= ========== ==========
<PAGE>
SAVING FOR RETIREMENT
AN EARLY START CAN MAKE A BIG DIFFERENCE
With todayOs lengthening life spans, you may be retired for 20 years
or more after you complete your working career. Living these
retirement years the way youOve dreamed of will require considerable
financial resources. While itOs never too late to start a retirement
savings program, itOs certainly never too early: The sooner you begin,
the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor
starts at age 30, saves for just 10 years, then leaves the investment
to grow. The second investor starts 10 years later but saves much
longer - for 25 years, in fact. Can you guess which investor
accumulates the greater retirement nest egg?
For the answer, look at the chart.
AN EARLY START CAN MAKE A BIG DIFFERENCE
[A chart in the form of a line graph appears here, comparing the
growth of investments made for 10 years by an investor who begins
investing at age 30 to the growth of investments made for twenty-five
years by an investor who begins investing at age 40. A hypothetical
appreciation of 10% is assumed. The data points from the graph are as
follows:]
Investor A - Begins 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 BOs commitment
- - and for less than half the time. Yet investor A wound up with a much
greater retirement nest egg. The reason? ItOs all thanks to an early
start.
New England Funds has prepared a number of informative retirement
planning guides. Call your financial representative or New England
Funds today, and ask for the guide that best fits your personal needs.
<PAGE>
NEW ENGLAND FUNDS
STOCK FUNDS
Growth Fund of Israel
International Equity Fund
Star Worldwide Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Value Fund
Growth Opportunities Fund
Balanced Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Government Securities Fund
Bond Income Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
- Money Market Series
- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
New England Funds, L.P.
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 FundOs current prospectus,
which contains information about distribution charges, management and
other items of interest. Investors are advised to read the prospectus
carefully before investing.
<PAGE>
[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
399 Boylston Street
Boston, Massachusetts
02116
[LOGO]
QUALITY
TESTED SERVICE
1996
DALBAR
HONORS COMMITMENT TO:
INVESTORS
ST56
[LOGO] Printed on Recycled Paper
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OSee accompanying notes to financial statementsO) are
omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points, leaders and similar graphic symbols are omitted.
(7) Page numbering is different.
