[LOGO OF NEW ENGLAND FUNDS APPEARS HERE]
Where the Best Minds Meet(TM)
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Annual Report and Performance Update
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NEW ENGLAND BOND INCOME FUND
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December 31, 1995
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<PAGE>
January 31, 1996
DEAR SHAREHOLDER,
It's a real pleasure to present to you the 1995 Annual Report for New
England Bond Income Fund, containing your portfolio manager's
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 & Poor's 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 industry's most respected managers, Dan Fuss was named
1995's "Bond Fund Manager of the Year" by Morningstar(TM) for his past
record of accomplishment in fund management at Loomis Sayles.**
* Standard & Poor's 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 "providing the highest
tier of service excellence in the mutual fund industry."
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 year's stellar performance. At this time it's
worth reiterating that long-term investors should not focus on one year's
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 manager's 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>
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New England Bond Income Fund
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INVESTMENT RESULTS THROUGH DECEMBER 31, 1995
Putting Performance into Perspective
The graph comparing your Fund's 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 Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities
index measures the perfor-mance 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.
A $10,000 INVESTMENT IN CLASS A SHARES
COMPARED TO GOVT/CORP. BOND INDEX(4) AND THE COST OF LIVING(5)
A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Lehman Intermediate
Government/Corporate
Bond Index (4) and the Cost of Living (5). The data points from the graph are as
follows:
<TABLE>
<CAPTION>
NEW ENGLAND BOND INCOME FUND - NET ASSET VALUE(1)
Year Amount
- ---- ------
<S> <C>
1995 $24,893
1994 $20,612
1993 $21,525
1992 $19,212
1991 $17,881
1990 $15,137
1989 $14,083
1988 $12,587
1987 $11,724
1986 $11,561
12/31/84 $10,000
NEW ENGLAND BOND INCOME FUND - WITH MAXIMUM SALES CHARGE(2)
Year Amount
- ---- ------
<S> <C>
1995 $23,773
1994 $19,685
1993 $20,556
1992 $18,347
1991 $17,077
1990 $14,456
1989 $13,450
1988 $12,020
1987 $11,196
1986 $11,041
12/31/84 $ 9,550
LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX(4)
Year Amount
- ---- ------
<S> <C>
1995 $23,297
1994 $20,204
1993 $20,602
1992 $18,937
1991 $17,670
1990 $15,415
1989 $14,120
1988 $12,522
1987 $11,727
1986 $11,312
12/31/84 $10,000
COST OF LIVING(5)
Year Amount
- ---- ------
<S> <C>
1995 $14,055
1994 $13,697
1993 $13,340
1992 $12,983
1991 $12,617
1990 $12,242
1989 $11,537
1988 $11,025
1987 $10,558
1986 $10,110
12/31/84 $10,000
<FN>
Class Y shares are available only to certain institutional investors. This
illustration represents past performance of Class A shares and cannot predict
future results. Investment return and principal value may vary, resulting in a
gain or loss on the sale of shares. Class B, C and Y share performance will be
greater or less than that shown based on differences in inception date, fees
and
sales charges. All Index and Fund performance assumes reinvested
distributions.
<PAGE>
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New England Bond Income Fund
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AVERAGE ANNUAL TOTAL RETURNS 12/31/95
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A (INCEPTION 11/7/73) 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 20.77% 10.47% 9.55%
With Max. Sales Charge(2) 15.29 9.46 9.05
Lipper Intermediate Investment
Grade Debt Average(6) 16.62 8.88 8.87
CLASS B (INCEPTION 9/13/93) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 19.89% 5.48%
With CDSC(3) 15.89 4.31
Lehman Intermediate Gov't./Corp.(4) 15.31 5.68
Lipper Intermediate Investment
Grade Debt Average(6) 16.62 5.06
CLASS C (INCEPTION 12/30/94) 1 YEAR
Net Asset Value(1) 18.11%
Lehman Intermediate Gov't./Corp.(4) 15.31
Lipper Intermediate Investment
Grade Debt Average(6) 16.62
Class Y (Inception 12/30/94) 1 Year
Net Asset Value(1) 20.99%
Lehman Intermediate Gov't./Corp.(4) 15.31
Lipper Intermediate Investment
Grade Debt Average(6) 16.62
<FN>
These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost. Class Y shares are available only to certain
institutional investors.
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 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 five years after the purchase of
shares.
4 Lehman Intermediate Government/Corporate Bond Index is an unmanaged index
of investment grade bonds issued by the U.S. Government and U.S. corporations
having maturities between one and ten years. The Index performance has not
been
adjusted for ongoing management, distribution and operating expenses and
sales
charges applicable to mutual fund investments.
5 Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, calculated by
the U.S. Bureau of Labor Statistics.
6 Lipper 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>
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New England Bond Income Fund
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[PHOTO]
NEW ENGLAND BOND INCOME FUND
Portfolio Manager: Cathy Bunting,
Back Bay Advisors, L.P.
The bond market staged a strong rally in 1995, bouncing back from a
disappointing 1994. Early in the year it was clear that investors were
optimistic about the outlook for fixed-income securities. That optimism was
justified, as the Fed reversed course and lowered rates in July and December.
Essentially, it was a year of slow but steady economic growth and a low
inflationary environment. Combined with the actions of the Federal Reserve,
all conditions were right for an extremely robust bond market.
Most fixed-income securities benefited. Corporate bonds fared particularly
well, outperforming both U.S. government securities and mortgage-backed
securities, due in large part to rising corporate profits.
HOW YOUR FUND PERFORMED
With its emphasis on the corporate issues, New England Bond Income Fund
turned in a strong performance in 1995. For the year ending December 31,
1995, the Fund had a total return on net asset value of 20.77% for Class A sha
res. This compares favorably with a return of 15.31% for the Lehman
Intermediate Government/Corporate Bond Index,4 and 16.62% for the Lipper
Intermediate Investment Grade Debt Average6 for the same period. We are
pleased to report that your Fund has posted consistently high rankings
compared to its Lipper peer group.
<PAGE>
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New England Bond Income Fund
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For the periods ending December 29, 1995, Class A shares ranked 5 out of 157
for 1 year, 4 out of 37 for 5 years, and 3 out of 10 for 10 years. Class B
shares ranked 11 out of 157 for the one-year period ending December 29, 1995.6
HOW WE MANAGED YOUR FUND
Many sectors of the corporate bond market contributed to the Fund's positive
results. Several were star performers, especially the cable/media industry,
where we committed a considerable percentage of the Fund's assets. This
sector profited from an improving corporate financial picture and an overall
ratings upgrade that took place over the course of the year.
Another strong portfolio performer was our investment in Canadian
dollar-denominated bonds. These bonds benefited both from currency
appreciation and the Canadian market's outperformance of the U.S. government
market. The Fund's U.S. dollar-denominated Canadian bonds also fared well due
in part to the resolution of the Quebec sovereignty issue in October.
Approximately 10% of Fund assets were invested in oil- and-gas issues.
Coastal Corp. and Oryx Energy offered especially good returns. Both have
improved their balance sheets and are potential credit upgrade candidates in
1996.
A significant portion of the portfolio was and continues to be invested in
utilities, including telephone companies. As a sector, utilities held their
own throughout 1995. Today they remain attractively priced, especially when
<PAGE>
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New England Bond Income Fund
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compared to bank obligations, industrials and financials. As utilities go
through a period of transition, selecting specific issues on a geographic
basis is critical to success.
From a credit quality standpoint, we started the year
by emphasizing BB and BBB grade bonds which outperformed higher rated
corporates. For the first half of 1995, we were well compensated for
assuming the additional credit risk. During the early summer, we grew
more conservative and upgraded the portfolio's overall quality to the
lower AA range.
Duration also contributed to the Fund's positive results.* Low inflation
prompted us to be bullish and to extend the average duration out to between
5.5 and 5.7 years - a year longer than the Lehman Aggregate Index.
The portfolio was intentionally structured toward the long end of the yield
curve, with emphasis on 10-30 year maturities. This positioning worked to
our advantage, as prices of long-term securities moved up significantly.
INVESTMENT OUTLOOK
We still foresee a declining interest rate picture in 1996, with low
inflation and slow growth. A recession in late 1996 or early 1997 is
possible, but the chances seem remote. As a result, we are emphasizing
credit quality
[FN]
* Duration measures the sensitivity of a bond or bond fund to interest rate
moves, taking into account the amount and timing of interest payments as well
as "maturity," or how much time remains before return of principal is due.
The longer the duration, the more the value of the holding will fluctuate in
response to interest rate moves.
<PAGE>
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New England Bond Income Fund
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and concentrating on sectors such as utilities, telephones, cable/media and
oil and gas, which are less likely to be adversely affected if a recession
does occur.
Corporate bonds closed out the year at historically tight spreads when
compared to U.S.Treasury bonds. That means investors were not picking up
enough of a yield advantage in the corporate sector to compensate for the
higher risk of corporate bonds. This situation led us to upgrade our overall
credit quality. As the spread narrows further, we will emphasize corporates
in the A or AA category.
We expect further declines in interest rates, which makes us optimistic about
the bond market in general. Accordingly, we intend to maintain a duration of
about 5.7 years.
In conclusion, we do not expect to see a repeat of 1995's bond market rally,
but we do believe market conditions are favorable for fixed-income investors.
As is our practice, we will continue to manage the Fund actively with the
goal of delivering attractive income with
reasonable risk to our shareholders.
<PAGE>
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New England Bond Income Fund
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PORTFOLIO COMPOSITION 12/31/95*
[A pie chart appears here, depicting New England Bond Income FundOs portfolio
composition at 12/31/95 by security type. The pie chart is broken in pieces
representing security types in the following percentages:]
Security Type Percentage
- ------------- -----------
- -UTILITIES 18.4%
- -FOREIGN CANADIAN GOVERNMENT BONDS 3.7%
- -U.S. GOVERNMENT AND FEDERAL AGENCIES 25.6%
- -CORPORATE BONDS INCLUDES FINANCIAL
COMPANIES, BANKS, PUBLISHING, OIL & GAS,
LEISURE, CHEMICALS, TELECOMMUNICATIONS,
BROADCASTING 35.3%
- -YANKEE BONDS FOREIGN BONDS
TRADED IN U.S. DOLLARS 11.9%
- -NET CASH & EQUIVALENTS 5.1%
* Portfolio Composition will change with market and economic conditions.
<PAGE>
[LOGO OF NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET(TM) APPEARS HERE]
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Portfolio Composition, Financial Statements and Highlights
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NEW ENGLAND
BOND INCOME FUND
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December 31, 1995
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<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of December 31, 1995
Bonds and Notes--94.9% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Description
Value (a)
- --------------------------------------------------------------------------------
- ---------
<S> <C> <C>
Broadcasting--0.9%
$ 2,000,000 Viacom Inc. 7.625%, 1/15/16.................................... $
2,023,540
---
- ---------
Chemicals--3.6%
6,988,000 Dow Chemical Co. 8.550%, 10/15/09..............................
8,277,915
---
- ---------
Federal Agencies--19.8%(c)
415,106 Federal Home Loan Bank 9.000%, 5/01/01.........................
433,528
3,500,000 Federal National Mortgage Association 6.450%, 6/10/03..........
3,532,655
8,000,000 Federal National Mortgage Association 7.850%, 9/10/04..........
8,493,040
1,000,000 Federal National Mortgage Association 7.875%, 2/24/05..........
1,137,930
951,333 Federal National Mortgage Association 7.500%, 11/01/24.........
975,715
11,525,317 Government National Mortgage Association 7.000%, with various
11,672,956
maturities to 2025...........................................
12,320,072 Government National Mortgage Association 7.500%, with various
12,682,035
maturities to 2025...........................................
4,725,851 Government National Mortgage Association 8.500%, with various
4,965,120
maturities to 2023...........................................
333,569 Government National Mortgage Association 9.000%, with various
353,687
maturities to 2016...........................................
577,906 Government National Mortgage Association 11.500%, with various
655,841
maturities to 2018...........................................
---
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44,902,507
---
- ---------
Finance and Banking--6.5%
6,075,000 American General Financial Corp. 8.450%, 10/15/09..............
7,190,795
4,750,000 Associates Corp. of North America 8.550%, 7/15/09..............
5,703,658
1,700,000 Toronto Dominion Bank Ontario 7.875%, 8/15/04..................
1,859,188
---
- ---------
14,753,641
---
- ---------
Foreign--3.7%
3,500,000 Government of Canada 7.500%, 9/01/00 (d).......................
2,659,308
2,400,000 Ontario Hydro, 8.875%, 10/25/05 (d)............................
1,893,812
5,000,000 Province of British Columbia 7.750%, 6/16/03 (d)...............
3,793,775
---
- ---------
8,346,895
---
- ---------
Leisure--3.7%
2,500,000 ITT Corp. 7.750%, 11/15/25.....................................
2,562,500
5,000,000 Time Warner Entertainment Co. LP 9.150%, 2/01/23...............
5,730,700
---
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8,293,200
---
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<PAGE>
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PORTFOLIO COMPOSITION--continued
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Investments as of December 31, 1995
Bonds and Notes--continued
Face
Amount Description
Value (a)
- --------------------------------------------------------------------------------
- ---------
Oil and Gas--9.0%
$ 4,000,000 ANR Pipeline Co. 7.000%, 6/01/25............................... $
4,239,840
900,000 Coastal Corp. 10.000%, 2/01/01.................................
1,043,919
2,375,000 Oryx Energy Co. 10.000%, 6/15/99...............................
2,583,668
4,400,000 Oryx Energy Co. 10.000%, 4/01/01...............................
4,886,640
1,000,000 Oryx Energy Co. 8.000%, 10/15/03...............................
1,022,400
3,200,000 Southern California Gas 8.750%,10/01/21........................
3,751,360
2,500,000 USX Marathon Group 9.125%, 1/15/13.............................
2,874,350
---
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20,402,177
---
- ---------
Publishing--4.2%
5,500,000 News America Holdings, Inc. 9.500%, 7/15/24....................
6,809,935
4,000,000 Western Publishing Group, Inc. 7.650%, 9/15/02.................
2,840,000
---
- ---------
9,649,935
---
- ---------
Telecommunication--7.4%
3,500,000 AT&T Corp. 8.350%, 1/15/25.....................................
3,991,855
5,280,000 Tele-Communications, Inc. 9.250%, 1/15/23......................
5,768,242
6,000,000 US West Communication 8.875%, 6/01/31..........................
6,992,700
---
- ---------
16,752,797
---
- ---------
U.S. Government--5.8%
2,000,000 U.S. Treasury Bonds, 10.750%, 5/15/03..........................
2,627,480
1,000,000 U.S. Treasury Bonds, 11.125%, 8/15/03..........................
1,343,930
1,000,000 U.S. Treasury Notes, 6.875%, 7/31/99...........................
1,050,690
4,500,000 U.S. Treasury Notes, 8.500%, 11/15/00..........................
5,096,025
3,000,000 U.S. Treasury Notes, 5.750%, 8/15/03...........................
3,040,350
---
- ---------
13,158,475
---
- ---------
Utilities--Diversified--9.2%
3,000,000 Arizona Public Service Co. 10.250%, 5/15/20....................
3,477,480
2,600,000 Long Island Lighting Co. 8.900%, 7/15/19.......................
2,664,740
2,500,000 New York State Electric & Gas Corp. 9.875%, 2/01/20............
2,652,500
6,500,000 New York State Electric & Gas Corp. 8.875%, 11/01/21...........
7,131,085
5,000,000 Tennessee Valley Authority, 6.125%, 7/15/03....................
5,055,350
---
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20,981,155
---
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<PAGE>
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PORTFOLIO COMPOSITION--continued
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Investments as of December 31, 1995
Bonds and Notes--continued
Face
Amount Description
Value (a)
- --------------------------------------------------------------------------------
- ---------
Utilities--Electric--9.2%
$ 2,000,000 Alabama Power Co. 8.750%, 12/01/21............................. $
2,133,300
6,000,000 Arizona Public Service Co. 8.000%, 12/30/15....................
6,445,980
4,392,000 Ohio Edison, 9.120%, 5/30/16...................................
4,510,804
1,200,000 Texas Utilities Electric Co. 10.150%, 3/01/99..................
1,342,992
2,300,000 Texas Utilities Electric Co. 8.875%, 2/01/22...................
2,728,651
3,200,000 Texas Utilities Electric Co. 8.500%, 8/01/24...................
3,615,712
---
- ---------
20,777,439
---
- ---------
Yankee--11.9%
2,000,000 Asian Development Bank, 11.125%, 5/01/98.......................
2,238,820
1,200,000 British Columbia Hydro & Petroleum, 12.500%, 9/01/13...........
1,442,784
3,500,000 Canadian Pacific Ltd. 8.850%, 6/01/22..........................
4,062,975
500,000 Columbia Republic, 8.750%, 10/06/99............................
528,875
6,000,000 Hydro Quebec, 8.050%, 7/07/24..................................
6,877,740
1,000,000 Maxus Energy Corp. YPF 10.190%, 5/09/96........................
1,005,000
2,000,000 Maxus Energy Corp. YPF 11.500%, 11/15/15.......................
2,080,000
2,250,000 Mexico (United Mexico State) 6.250%, 12/31/19 (e)..............
1,473,750
600,000 Petroleos Mexicanos, 7.988%, 4/07/97...........................
601,500
3,800,000 Petroleos Mexicanos, 8.625%, 12/01/23..........................
2,816,750
3,310,000 Province of Ontario CDA, 11.500%, 3/10/13......................
3,835,231
---
- ---------
26,963,425
---
- ---------
Total Bonds and Notes (Identified Cost $206,576,919)...........
215,283,101
---
- ---------
Short-Term Investment--3.4%
7,845,000 Household Financial Corp. 5.650%, 1/02/96......................
7,843,769
---
- ---------
Total Short-Term Investment (Identified Cost $7,843,769).......
7,843,769
---
- ---------
Total Investments -- 98.3% (Identified Cost $214,420,688)
223,126,870
(b)..........................................................
Cash, Receivables and other assets.............................
4,684,580
Liabilities....................................................
(878,629)
---
- ---------
Total Net Assets -- 100%.......................................
$226,932,821
============
<PAGE>
PORTFOLIO COMPOSITION--continued
- --------------------------------------------------------------------------------
Investments as of December 31, 1995
Bonds and Notes--continued
<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 $214,420,688 was as follows:
Aggregate unrealized appreciation for all investments in which there
is an excess of value over tax cost.................................. $
10,325,074
Aggregate unrealized depreciation for all investments in which there
is an excess of tax cost over value..................................
(1,618,892)
-----
- -------
Net unrealized appreciation.......................................... $
8,706,182
============
(c) The Fund's investments in mortgaged backed securities of the Federal
Home Loan Bank, Federal National Mortgage Association and the
Government National Mortgage Association are interests in separate
pool of mortgages. All separate investments of each of these issues,
which have the same coupon rate, have been aggregated for the purpose
of presentation in the schedule of investments.
(d) Denominated in Canadian dollars.
(e) With rights attached.
</TABLE>
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value..........................................
$223,126,870
Cash..........................................................
8,809
Receivable for:
Fund shares sold............................................
453,104
Accrued interest............................................
4,211,667
Prepaid registration expense..................................
11,000
---
- ---------
227,811,450
LIABILITIES
Payable for:
Fund shares redeemed........................................ 427,808
Dividends declared.......................................... 214,767
Accrued expenses:
Management fees............................................. 82,139
Deferred trustees' fees..................................... 66,988
Accounting and administrative............................... 3,790
Other expenses.............................................. 83,137
---------
878,629
---
- ---------
NET ASSETS......................................................
$226,932,821
============
Net Assets consist of:
Capital paid in.............................................
$217,941,815
Undistributed net investment income.........................
150,070
Accumulated net realized gains..............................
135,531
Unrealized appreciation on investments and foreign currency
transactions..............................................
8,705,405
---
- ---------
NET ASSETS......................................................
$226,932,821
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($200,284,925 divided by 16,200,959 shares of beneficial
interest).....................................................
$12.36
======
Offering price per share (100/95.50 of $12.36)..................
$12.94*
======
Net asset value and offering price of Class B shares
($23,398,486 divided by 1,893,007 shares of beneficial
interest).....................................................
$12.36**
======
Net asset value and offering price of Class C shares ($1,008,822
divided by 81,589 shares of beneficial interest)..............
$12.36
======
Net asset value and offering price of Class Y shares ($2,240,588
divided by 180,721 shares of beneficial interest).............
$12.40
======
Identified cost of investments..................................
$214,420,688
============
<FN>
* Based upon single purchases of less than $100,000. Reduced sales charges
apply for purchases in excess of the these amounts.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
</TABLE>
<PAGE>
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STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1995
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME
Interest.....................................................
$15,841,259
Expenses
Management fees............................................ $ 872,560
Service fees -- Class A.................................... 453,844
Service and distribution fees -- Class B................... 158,962
Service and distribution fees -- Class C................... 2,428
Trustees' fees and expenses................................ 27,706
Accounting and administrative.............................. 51,226
Custodian.................................................. 141,249
Transfer agent............................................. 468,342
Audit and tax services..................................... 50,000
Legal...................................................... 33,583
Printing................................................... 59,993
Registration............................................... 35,526
Miscellaneous.............................................. 25,308
2,380,727
----------- -
- ----------
Net investment income........................................
13,460,532
REALIZED and UNREALIZED GAIN on INVESTMENTS and FOREIGN
CURRENCY TRANSACTIONS
Realized gain on:
Investments -- net........................................... 3,097,553
Foreign currency transactions -- net......................... 277,915
-----------
Total realized gain on investments and foreign currency
transactions............................................... 3,375,468
-----------
Unrealized appreciation on:
Investments -- net........................................... 21,412,279
Foreign currency transactions -- net......................... 5,262
-----------
Total unrealized appreciation on investments and foreign
currency transactions...................................... 21,417,541
-----------
Net gain on investment transactions..........................
24,793,009
-
- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.....................
$38,253,541
===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Year Ended
December 31,
December 31,
1994
1995
------------ ---
- ---------
<S> <C> <C>
FROM OPERATIONS
Net investment income..................................... $ 11,141,142 $
13,460,532
Net realized gain (loss) on investment transactions....... (3,105,994)
3,375,468
Unrealized appreciation (depreciation) on investments, and
foreign currency........................................ (15,742,553)
21,417,541
----------- --
- ---------
Increase (decrease) in net assets from operations......... (7,707,405)
38,253,541
----------- --
- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A................................................. (10,609,441)
(12,389,368)
Class B................................................. (362,940)
(971,501)
Class C................................................. --
(15,073)
Class Y................................................. --
(116,130)
----------- --
- ---------
(10,972,381)
(13,492,072)
----------- --
- ---------
Increase in net assets derived from capital share
transactions............................................ 1,551,627
37,374,309
----------- --
- ---------
Total increase (decrease) in net assets................... (17,128,159)
62,135,778
NET ASSETS
Beginning of the year..................................... 181,925,202
164,797,043
----------- --
- ---------
End of the year........................................... $164,797,043
$226,932,821
============
============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year..................................... $ 11,424 $
43,998
============
============
End of the year........................................... $ 43,998 $
150,070
============
============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------
- ------------
Year Ended December 31,
1991 1992 1993 1994
1995
-------- -------- -------- ------
- -- --------
<S> <C> <C> <C> <C>
<C>
Net Asset Value, Beginning of Period....... $ 11.12 $ 12.14 $ 12.12 $
12.18 $ 10.95
-------- -------- -------- ------
- -- --------
Income From Investment Operations
Net Investment Income...................... 0.88 0.85 0.77
0.72 0.81
Net Realized and Unrealized Gain (Loss) on
Investments.............................. 1.04 0.01 0.66
(1.23) 1.40
-------- -------- -------- ------
- -- --------
Total From Investment Operations........... 1.92 0.86 1.43
(0.51) 2.21
-------- -------- -------- ------
- -- --------
Less Distributions
Distributions From Net Investment Income... (0.90) (0.86) (0.78)
(0.72) (0.80)
Distributions From Net Realized Capital
Gains.................................... 0.00 (0.02) (0.59)
0.00 0.00
-------- -------- -------- ------
- -- --------
Total Distributions........................ (0.90) (0.88) (1.37)
(0.72) (0.80)
-------- -------- -------- ------
- -- --------
Net Asset Value, End of Period............. $ 12.14 $ 12.12 $ 12.18 $
10.95 $ 12.36
======== ======== ========
======== ========
Total Return (%)........................... 18.1 7.5 12.1
(4.2) 20.8
Ratio of Operating Expenses to Average
Net Assets (%)........................... 1.15 1.08 1.04
1.08 1.14
Ratio of Net Investment Income to Average
Net Assets (%)........................... 7.69 7.08 6.10
6.46 6.81
Portfolio Turnover Rate (%)................ 218 89 202
77 81
Net Assets, End of Period (000)............ $113,759 $145,184 $179,264
$155,362 $200,285
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------------------
- --------
September 13,(a) Year
Year
through Ended
Ended
December 31, December 31,
December 31,
1993 1994
1995
---------------- ------------ -----
- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $13.06 $12.18 $
10.95
------ ------ --
- -----
Income From Investment Operations
Net Investment Income..................... 0.20 0.63
0.72
Net Realized and Unrealized Gain (Loss) on
Investments............................. (0.30) (1.23)
1.40
------ ------ --
- -----
Total From Investment Operations.......... (0.10) (0.60)
2.12
------ ------ --
- -----
Less Distributions
Distributions From Net Investment
Income.................................. (0.19) (0.63)
(0.71)
Distributions From Net Realized Capital
Gains................................... (0.59) 0.00
0.00
------ ------ --
- -----
Total Distributions....................... (0.78) (0.63)
(0.71)
------ ------ --
- -----
Net Asset Value, End of Period............ $12.18 $10.95 $
12.36
====== ======
=======
Total Return (%).......................... (0.8)(c) (4.9)
19.9
Ratio of Operating Expenses to Average
Net Assets (%).......................... 1.81(b) 1.83
1.89
Ratio of Net Investment Income to Average
Net Assets (%).......................... 4.79(b) 5.71
6.06
Portfolio Turnover Rate (%)............... 202 77
81
Net Assets, End of Period (000)........... $2,661 $9,435
$23,398
<FN>
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
Class Y
------------ ----
- --------
Year
Year
Ended
Ended
December 31,
December 31,
1995
1995
------------ ----
- --------
<S> <C> <C>
Net Asset Value, Beginning of Period......................... $10.95
$10.95
------ -
- -----
Income From Investment Operations
Net Investment Income........................................ 0.56
0.80
Net Realized and Unrealized Gain (Loss) on Investments....... 1.40
1.44
------ -
- -----
Total From Investment Operations............................. 1.96
2.24
------ -
- -----
Less Distributions
Distributions From Net Investment Income..................... (0.55)
(0.79)
------ -
- -----
Total Distributions.......................................... (0.55)
(0.79)
------ -
- -----
Net Asset Value, End of Period............................... $12.36
$12.40
======
======
Total Return (%)............................................. 18.1
21.0
Ratio of Operating Expenses to Average Net Assets (%)........ 1.89
0.89
Ratio of Net Investment Income to Average Net Assets (%)..... 6.06
7.06
Portfolio Turnover Rate (%).................................. 81
81
Net Assets, End of Period (000).............................. $1,009
$2,241
</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 such series of shares a
"Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund
commenced its public offering of Class B shares on September 13, 1993 and
Class C and Class Y shares on December 30, 1994. 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 adviser, Back Bay Advisors, L.P.
("Back Bay Advisors"), 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 Back Bay Advisors 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 Back Bay Advisors 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 from 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.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage the
Fund's currency exposure. Contracts to buy generally are used to acquire
exposure to foreign currencies, while contracts to sell are used to hedge the
Fund's investments against currency fluctuations. Also, a contract to buy or
sell can offset a previous contract. These contracts involve market risk in
excess of the unrealized gain or loss reflected in the Fund's Statement of
Assets and Liabilities. The U.S. dollar value of the currencies the Fund has
committed to buy or sell is shown in the schedule of investments under the
caption "Forward Foreign Currency Contracts." This amount represents the
aggregate exposure to each currency the Fund has acquired or hedged through
currency contracts at period end. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contracts terms. The U.S. dollar value of forward foreign currency contracts
is determined using forward currency exchange rates supplied by a quotation
service.
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.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
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 principles. 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.
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. Back Bay Advisors is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for
the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------------------------- --------------------------------
- -
U.S. Government Other U.S. Government Other
--------------- ------------- --------------- ------------
- -
<S> <C> <C> <C>
$19,834,486 $142,966,980 $ 6,944,567
$137,669,163
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
Transactions in forward currency contracts of the Fund for the year ended
December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Sales of
Forward
Currency
Contracts
------------
Aggregate
Face Value
of Contracts
------------
<S> <C>
Contracts opened........................................ $ 12,697,635
Contracts closed........................................ (12,697,635)
------------
Open at December 31, 1995............................... $0
============
</TABLE>
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the year
ended December 31, 1995, the Fund incurred management fees payable to its
investment adviser, Back Bay Advisors. Certain officers and directors of the
adviser and its affiliated companies are also officers or trustees of the
Fund. Back Bay Advisors is a wholly owned subsidiary of New England Investment
Companies, L.P. ("NEIC"), which is a majority owned subsidiary of New England
Mutual Life Insurance Company. The management agreement in effect during the
year ended December 31, 1995 provided for fees as set forth below:
<TABLE>
<CAPTION>
Annual Percentage
Fees Earned Rate Annual Net Asset Value Levels
- ---------- ------------------ ------------------------------
<S> <C> <C>
$872,560 0.500% the first $100 million
0.375% the excess over $100 million
</TABLE>
Effective January 1, 1996, New England Funds Management, L.P. became the
adviser for the Fund with the aforementioned adviser being retained as the
Fund's sub-adviser.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of NEIC
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting, 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 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 year ended December 31, 1995, these
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
expenses amounted to $51,226 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 for the Fund. For the year ended December 31, 1995, the Fund
paid New England Funds $318,142 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 year
ended December 31, 1995, the Fund paid New England Funds $453,844 in fees under
the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward into 1996 is $1,919,349.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C
shares and/or the maintenance of shareholder accounts. For the year ended
December 31, 1995, the Fund paid New England Funds $39,741 and $607 in service
fees under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds
monthly distribution fees at the annual rate of up to 0.75% of the average
daily net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and
Class C shares. For the year ended December 31, 1995, the Fund paid New
England Funds $119,221 and $1,821 in distribution fees under the Class B and
Class C Plans, respectively.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
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, 1995 amounted to $490,912.
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 Back Bay Advisors, New England Funds, NEIC or their affiliates, other than
registered investment companies. Each other trustee is compensated by the Fund
as follows:
<TABLE>
<S> <C>
Annual Retainer $2,400
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Annual Retainer $125
</TABLE>
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. CAPITAL SHARES. At December 31, 1995 there was an unlimited number of
shares of beneficial interest authorized divided into four classes: Class A,
Class B, Class C and Class Y capital stock. Transactions in capital shares
were as follows:
<TABLE>
<CAPTION>
Year Ended Year
Ended
December 31, 1994 December
31, 1995
----------------------- ------------
- -----------
Class A Shares Amount Shares
Amount
- ------- --------- ----------- ---------
- -----------
<S> <C> <C> <C>
<C>
Shares sold....................... 2,782,679 $ 31,957,441 2,700,665
$ 30,791,035
Shares issued in the merger with
New England Global Government
Fund............................ 0 0 1,513,135
17,368,227
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income........................ 831,850 9,458,333 937,520
11,088,211
---------- ------------ ----------
- ------------
3,614,529 41,415,774 5,151,320
59,247,473
Shares repurchased................ (4,144,078) (47,250,851) (3,144,314)
(36,944,840)
---------- ------------ ----------
- ------------
Net increase (decrease)........... (529,549) $ (5,835,077) 2,007,006
$ 22,302,633
========== ============ =========
============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Year Ended Year
Ended
December 31, 1994 December
31, 1995
-------------------- -----------
- ----------
Class B Shares Amount Shares
Amount
- ------- ------- ---------- --------
- ----------
<S> <C> <C> <C>
<C>
Shares sold........................... 733,069 $ 8,400,341 973,948
$11,423,501
Shares issued in the merger with New
England Global Government Fund...... 0 0 132,100
$ 1,516,371
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income............................ 28,872 324,828 69,864
830,708
-------- ----------- ---------
- -----------
761,941 8,725,169 1,175,912
13,770,580
Shares repurchased.................... (118,627) (1,338,465) (144,789)
(1,723,515)
-------- ----------- ---------
- -----------
Net increase.......................... 643,314 $ 7,386,704 1,031,123
$12,047,065
======== =========== =========
===========
Year Ended
December
31, 1995
-----------
- ----------
Class C Shares
Amount
- ------- --------
- ----------
Shares sold........................... 118,121
$ 1,417,727
Shares issued in connection with the
reinvestment of:
Dividends from net investment
income............................ 1,084
13,111
---------
- -----------
119,205
1,430,838
Shares repurchased.................... (37,616)
(450,113)
---------
- -----------
Net increase.......................... 81,589
$ 980,725
=========
===========
Year Ended
December
31, 1995
------------
- -----------
Class Y Shares
Amount
- ------- ---------
- -----------
Shares sold....................... 183,755
$ 2,080,961
Shares issued in connection with
the reinvestment of:
Dividends from net investment
income........................ 9,639
114,837
----------
- ------------
193,394
2,195,798
Shares repurchased................ (12,673)
(151,912)
----------
- ------------
Net increase...................... 180,721
2,043,886
----------
- ------------
Increase derived from capital
shares transactions............. 113,765 $ 1,551,627 3,300,439
$ 37,374,309
========= ============ =========
============
</TABLE>
5. ACQUISITION OF NEW ENGLAND GLOBAL GOVERNMENT FUND. On April 28, 1995, New
England Bond Income Fund acquired all the net assets of New England Global
Government Fund pursuant to a plan of reorganization approved by New England
Global Government Fund shareholders on April 25, 1995. The acquisition was
accomplished by a tax-free exchange of 1,513,135 shares of New England Bond
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
Income Fund Class A shares (valued at $17,368,227) for 1,520,543 shares of New
England Global Government Fund Class A outstanding on April 28, 1995; and
132,100 New England Bond Income Fund Class B shares (valued at $1,516,371) for
132,855 shares of New England Global Government Fund Class B outstanding on
April 28, 1995. New England Global Government Fund's net assets at that date
($18,884,598), including $958,329 of unrealized appreciation, were combined
with those of New England Bond Income Fund. The combined net assets of New
England Bond Income Fund immediately after the acquisition were $198,180,665.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND BOND 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 Bond Income Fund
("the Fund") at December 31, 1995, the results of its operations for the year
then ended, 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, 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 Bond Income Fund voted for the following proposals:
<TABLE>
<CAPTION>
Voted Voted Abstained Broker
Total
For Against Votes Non-Votes
Votes
------------- ----------- ----------- -------------
- --------------
<S> <C> <C> <C> <C>
<C>
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........... 9,872,174.782 233,488.225 371,073.728
10,476,736.735
============= =========== ===========
2. To approve a new
Advisory Agreement
between the Fund and
New England Funds
Management, L.P.
("NEFM").............. 9,557,421.702 481,956.272 402,927.760 34,431.000
10,476,736.734
============= =========== =========== ============
3. To approve a related
Sub-Advisory Agreement
between NEFM and such
Fund's current
investment adviser.... 9,527,692.928 500,557.690 414,055.116 34,431.000
10,476,736.734
============= =========== =========== ============
4. To approve changes in
the Fund's fundamental
investment
restrictions, in order
to permit the Fund to
engage in transactions
in options and futures
contracts and currency
forward contracts..... 7,945,260.699 799,237.383 410,170.652 1,322,068.000
10,476,736.734
============= =========== =========== =============
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------
Regular Investing Pays
- --------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets
2. It's convenient and effortless
3. It requires a low minimum to get started
4. It can help you reach important long-term goals like
retirement or college funding
5. It can help you benefit from the ups and downs of the market
With Investment Builder, New England Funds' automatic investment program,
you can invest as little as $50 a month in your New England Fund
automatically -
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
THE POWER OF MONTHLY INVESTING
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the graph
are as follows:]
Monthly investments of $50
Years Growth of Monthly Investments
-----------------------------
0 $ 0
5 $ 3,661
10 $ 9,040
15 $ 16,943
20 $ 28,555
25 $ 45,618
Monthly investments of $100
Years Growth of Monthly Investments
-----------------------------
0 $ 0
5 $ 7,322
10 $ 18,079
15 $ 33,886
20 $ 57,111
25 $ 91,236
Monthly investments of $200
Years Growth of Monthly Investments
-----------------------------
0 $ 0
5 $ 14,643
10 $ 36,158
15 $ 67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
-----------------------------
0 $ 0
5 $ 36,608
10 $ 90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative
of future performance of any New England Fund. The value of a New
England Fund will fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is
low and fewer shares when the price is high.
You can start an Investment Builder program with your current New England
Fund account, or with any of our other funds. To open an Investment Builder
account today, call your financial representative or New England Funds at
1-800-225-5478.
<PAGE>
- -----------------------------------------------------------------------
Saving For Retirement
- -----------------------------------------------------------------------
An Early Start Can Make a Big Difference
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. While it's
never too late to start a retirement savings program, it's certainly never
too early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at
age 30, saves for just 10 years, then leaves the investment to grow. The
second investor starts 10 years later but saves much longer - for 25 years,
in fact. Can you guess which investor accumulates the greater retirement nest
egg?
For the answer, look at the chart.
AN EARLY START CAN MAKE A BIG DIFFERENCE
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 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 B's commitment - and
for less than half the time. Yet investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and
ask for the guide that best fits your personal needs.
<PAGE>
- --------------------------------------------------------------------------------
- --
INFORMATION ON CALL
- --------------------------------------------------------------------------------
- --
You Can Call New England Funds Day or Night
Do you like to keep on top of your New England Funds but can't always
call us during regular business hours? With Tele#Facts, New England Funds'
24-hours a day automated telephone system, you can call us any time that's
convenient for you - day or night!
By calling 1-800-346-5984 from any Touch-ToneRegistration Mark telephone, you
can:
- - Check the current value of your New England Fund account
- - Find out the current yield and total return on any New England Fund
- - Buy, sell or exchange fund shares
Just remember to have these four items with you before calling:
1. YOUR PERSONAL IDENTIFICATION NUMBER which is the last four digits of
your Social Security number
2. THE FUND NUMBER - two- or three-digit number listed on the Tele#Facts
wallet card
3. FUNCTION NUMBER - listed on the Tele#Facts wallet card
4. ACCOUNT NUMBER - listed on all your statements
You can get the information you need to use Tele#Facts from the back of your
statement. If you need another Tele#Facts wallet card or have questions about
getting started, please call us at 1-800-225-5478.
So go ahead and give Tele#Facts a try. We think you'll enjoy this easy-to-use
and convenient service from New England Funds!
<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 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.
<PAGE>
[LOGO OF NEW ENGLAND FUNDS APPEARS HERE]
NEW ENGLAND FUNDS
Where the best Minds Meet[TM]
399 Boylston Street
Boston, Massachusetts
02116
[ARTWORK]
QUALITY
TESTED SERVICE
1996
DALBAR
HONORS COMMITMENT TO:
INVESTORS
BI56
[LOGO] Printed On Recycled Paper
Presorted
First Class
U.S. Postage Paid
Boston, MA
Permit No. 770
399 Boylston Street
Boston, Massachusetts
02116
BI56
<PAGE>
APPENDIX TO FORM N30-D 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
"See accompanying notes to the financial statements")
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 and similar graphic symbols are omitted.
(7) Page numbering is different.
