[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
ANNUAL REPORT AND PERFORMANCE UPDATE
NEW ENGLAND
BALANCED FUND
[ARTWORK APPEARS HERE]
DECEMBER 31, 1995
<PAGE>
January 31, 1996
DEAR SHAREHOLDER,
ItOs a real pleasure to present to you the 1995 Annual Report for New
England Balanced 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(tm) 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 BALANCED 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.
A $10,000 INVESTMENT IN CLASS A SHARES
COMPARED TO STANDARD & POOR'S 500 INDEX(4) AND A BLEND OF STANDARD &
POOR'S 500 AND LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND
INDICES(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 Standard
& PoorOs 500 Index(4) and a blend of Standard & PoorOs 500 and Lehman
Intermediate Government/Corporate Bond Indices(5). The data points
from the graph are as follows:]
New England Balanced Fund - Net Asset Value(1)
Date Amount
- ---- ------
1995 $27,603
1994 $21,851
1993 $22,451
1992 $19,663
1991 $17,259
1990 $13,357
1989 $14,941
1988 $13,537
1987 $12,304
1986 $12,210
12/31/85 $10,000
New England Balanced Fund - With Maximum Sales Charge(2)
Date Amount
- ---- ------
1995 $26,015
1994 $20,595
1993 $21,160
1992 $18,532
1991 $16,266
1990 $12,589
1989 $14,082
1988 $12,759
1987 $11,597
1986 $11,508
12/31/85 $9,425
S&P/Lehman Interm. GovOt./Corp.(5)
Date Amount
- ---- ------
1995 $34,197
1994 $26,511
1993 $22,488
1992 $21,565
1991 $18,925
1990 $15,083
1989 $15,022
1988 $11,903
1987 $11,022
1986 $9,948
12/31/85 $10,000
S&P 500(4)
Date Amount
- ---- ------
1995 $27,603
1994 $21,851
1993 $22,451
1992 $19,663
1991 $17,259
1990 $13,357
1989 $14,941
1988 $13,537
1987 $12,304
1986 $12,210
12/31/85 $10,000
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, Class C and Class 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>
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95
CLASS A (Inception 11/27/68)1 YEAR 3 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 26.32% 11.97% 15.62% 10.69%
With Max. Sales Charge(2) 19.03 9.78 14.27 10.03
Lipper Balanced Average(6) 25.16 10.77 13.11 11.47
CLASS B (Inception 9/13/93) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 25.32% 10.22%
With CDSC(3) 21.32 9.06
Standard & PoorOs 500(4) 37.44 16.50
Lipper Balanced Average(6) 25.16 9.84
CLASS C (Inception 12/30/94)1 YEAR
Net Asset Value(1) 25.19%
Standard & PoorOs 500(4) 37.44
CLASS Y (Inception 3/8/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 26.84% 12.25%
Standard & PoorOs 500(4) 37.44 19.88
<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. The Fund was
changed from an equity income fund to a balanced fund on March 1,
1990. Results for periods prior to that date reflect former
investment policies and are not necessarily representative of
results that would have been achieved had the FundOs current
investment policies then been in effect.
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 5.75% 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 Standard & PoorOs 500 Index (S&P 500) is an unmanaged index
representing the performance of 500 major companies, most of
which are listed on the New York Stock Exchange. The S&P 500
performance has not been adjusted for ongoing management,
distribution and operating expenses and sales charges applicable
to mutual fund investments.
5 Represented by a 65% weighting in the Standard & PoorOs 500 Index
(S&P 500) and a 35% weighting in the Lehman Intermediate
Government/Corporate Bond Index. Indices are rebalanced to
65%/35% at the end of each year. 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
indicesO performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
6 Lipper Average is an average of the total return performance
(calculated on the basis of net asset value) of funds withsimilar
investment objectives as calculated by Lipper Analytical
Services, an independent mutual fund ranking service.
</TABLE>
<PAGE>
NEW ENGLAND BALANCED FUND
Portfolio Managers: Doug Ramos, Meri Anne Beck;
Loomis, Sayles & Co.
[PHOTO]
[PHOTO]
In a dramatic turnaround from 1994, 1995 proved to be an excellent
year for both stocks and bonds. Both markets recorded their best
performance of the decade as measured by the major indices. Driven by
lower interest rates, bonds produced a 19% total rate of return as
measured by the Merrill Lynch Corporate/Government Index. Stocks
benefited from both lower interest rates and solid corporate earnings
growth, and produced a 37.4% total rate of return as measured by the
Standard & PoorOs 500 Stock Index.
HOW YOUR FUND PERFORMED
Against this backdrop, your Fund delivered a net asset value return of
26.32% for Class A shares for the twelve months ended December 31,
1995. This performance compared favorably to the average Lipper
Balanced Fund Index of 25.16%.
HOW WE MANAGED YOUR FUND
While our ongoing concerns about the slowing economy and corporate
earnings growth caused us to maintain a 60% weighting in stocks and
40% in bonds, asset allocation was a positive factor in your FundOs
performance.
Throughout 1995 interest rates and inflation expectations declined, in
sharp contrast to the environment in 1994. The long-term Treasury
bond fell to less than 6% in 1995 after reaching more than 8% in
November 1994. Purchases of corporate bonds in the following sectors
benefited the Fund: foreign bonds denominated in U.S. dollars,
Airline,
<PAGE>
NEW ENGLAND BALANCED FUND
Media, Lodging, Travel, and Brokerage. Individual bonds such as
Avalon Properties 7.375 9/15/02, Carnival Cruise 7.05% 5/15/95 and
Columbia Health Care 8.02% 8/5/02 were positive consumer holdings. An
emphasis on higher yielding bonds, although beneficial on a current
income basis, did not help price performance. R.J. Reynolds 9.25%
8/15/2013 lagged in performance as negative news about the breakup of
the food and tobacco segments of the company caused yield spreads to
widen. We increased the FundOs holdings of mortgage bonds in the
second half of 1995 as corporate bond yield spreads continued to
narrow.
As mentioned above, stocks also had an outstanding year, and one of
the primary drivers of performance during the year was the interest-
rate sensitive sector of the market. Lower interest rates helped
boost the performance of insurance and financial service stocks, while
bank stocks enjoyed a boost from the ongoing consolidation in the
banking industry. Fund holdings during 1995 such as ACE Ltd.,
American International Group, Fannie Mae, Freddie Mac, MBNA Corp.,
Chemical Bank, and First Interstate are prime examples of these
developments. Other noteworthy sectors include: industrials, helped
by investments in AMR Corp., Allied-Signal, Inc. and ITT Corp.;
capital goods, propelled by Case Corp., Lockheed Martin, Raytheon, and
General Electric, and technology, aided by Intel Corp., Texas
Instruments, Hewlett-Packard, and Xerox. One sector that did not fare
as well during the year was energy, with most of the FundOs holdings
concentrated in natural gas including El Paso Natural Gas and Mapco,
and refining and marketing such as Sun and Ultramar.
<PAGE>
NEW ENGLAND BALANCED FUND
Looking ahead to 1996, we see a gradual pickup in the growth rate of
GDP, good news on the inflation front, and a solid chance for lower
interest rates. One other factor that could have a positive influence
on the economy and the financial markets is the upcoming presidential
election. The one concern that keeps us at 60% equity weighting,
slightly below our long-term target of 65%, is the expected slowdown
in corporate earnings growth and the increased chance for earnings
disappointments. This development may contribute to stock market
volatility in the first half of the year.
<PAGE>
NEW ENGLAND BALANCED FUND
YOUR FUNDOS ASSET DIVERSIFICATION 12/31/95*
[A graph in the form of a pie chart appears here, illustrating the
asset diversification of New England Balanced Fund as of December 31,
1995. The pie chart is broken in pieces representing the asset
diversification in the following percentages:
STOCKS BONDS CASH
60.4% 39.4% .8%
<PAGE>
NEW ENGLAND BALANCED FUND
YOUR FUND'S FIVE LARGEST STOCK HOLDINGS 12/31/95*
PERCENTAGE OF
COMPANY NET ASSETS
1. LOCKHEED MARTIN CORP. 1.6%
Aircraft, missile, and space manufacturer
2. PRAXAIR, INC. 1.5%
Industrial gas manufacturers
3. WESTAM FINANCIAL CORP. 1.4%
Financial corporation
4. GTE CORP. 1.4%
Largest independent telephone manufacturer
5. COASTAL CORP. 1.4%
Refiners and marketers of oil and natural gas
*Portfolio holdings and asset allocations will vary.
<PAGE>
[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEETTM
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
NEW ENGLAND
BALANCED FUND
DECEMBER 31, 1995
<PAGE>
PORTFOLIO COMPOSITION
Investments as of December 31, 1995
COMMON STOCKS-56.9% OF TOTAL NET ASSETS
<TABLE><CAPTION>
<C> <S> <C>
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
AEROSPACE-2.5%
59,600 Lockheed Martin Corp $4,708,400
58,600 Raytheon Co. 2,768,850
------------
7,477,250
------------
AUTOMOBILE & RELATED-2.3%
60,214 Chrysler Corp 3,334,350
67,000 General Motors Corp. 3,542,625
------------
6,876,975
------------
BANKS/SAVINGS & LOAN-3.2%
65,200 Chemical Banking Corp. 3,830,500
13,600 First Interstate Bancorp. 1,856,400
94,700 Fleet Financial Group, Inc. 3,859,025
------------
9,545,925
------------
CHEMICALS-4.5%
45,000 E.I. DuPont de Nemours & Co. 3,144,375
77,100 Georgia Gulf Corp. 2,370,825
75,200 PPG Industries, Inc. 3,440,400
131,900 Praxair, Inc. 4,435,138
------------
13,390,738
------------
ELECTRONIC COMPONENTS-2.7%
49,100 Intel Corp 2,786,425
55,200 Micron Technology, Inc. 2,187,300
56,700 Texas Instruments, Inc. 2,934,225
------------
7,907,950
------------
ELECTRICAL EQUIPMENT-1.6%
42,700 General Electric Co. 3,074,400
34,800 Honeywell, Inc. 1,692,150
------------
4,766,550
------------
ENGINEERING & CONSTRUCTION-0.7%
95,600 McDermott International Inc. 2,103,200
------------
FINANCIAL SERVICES-MISC.-2.7%
44,800 Federal Home Loan Mortgage Corp. 3,740,800
30,500 Federal National Mortgage Association 3,785,813
14,600 MBNA Corp. 538,375
------------
8,064,988
------------
<PAGE>
PORTFOLIO COMPOSITION-Continued
Investments as of December 31, 1995
COMMON STOCKS-CONTINUED
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
- -
FREIGHT-TRANSPORTATION-3.0%
190,900 Canadian Pacific Ltd. $3,460,063
65,400 Consolidated Freightways, Inc 1,733,100
48,900 Federal Express Corp. (c). 3,612,488
------------
8,805,651
------------
HEALTH CARE-MEDICAL TECHNOLOGY-1.2%
114,000 C. R. Bard, Inc. 3,676,500
------------
HEALTH CARE-SERVICES-0.8%
224,500 Beverly Enterprises, Inc. (c) 2,385,312
------------
HOME PRODUCTS-1.2%
72,000 Premark International Inc. 3,645,000
------------
HOUSING & BUILDING MATERIALS-1.8%
27,600 Armstrong World Industries, Inc 1,711,200
112,900 Masco Corp. 3,542,238
------------
5,253,438
------------
INSURANCE-5.5%
94,600 ACE, Ltd. 3,760,350
35,718 American International Group, Inc. 3,303,915
35,300 Chubb Corp. 3,415,275
83,000 Providian Corp 3,382,250
100,600 Prudential Reinsurance Holdings, Inc. 2,351,525
------------
16,213,315
------------
LEISURE-1.8%
75,600 American Greetings Corp. 2,088,450
127,800 Carnival Corp. 3,115,125
------------
5,203,575
------------
MACHINERY-0.8%
48,900 Case Corp 2,237,175
29,300 Consorcio Grupo Dina SA DE ADR (d). 54,937
127,800 Consorcio Grupo Dina SA DE Series L ADR (d) 175,725
------------
2,467,837
------------
METALS-0.3%
29,700 AK Steel Holding Corp 1,017,225
------------
MULTI INDUSTRY-2.3%
73,000 Allied Signal, Inc. 3,467,500
90,300 Philips Electronics N.V. 3,239,513
------------
6,707,013
------------
<PAGE>
PORTFOLIO OF INVESTMENTS-Continued
Investments as of December 31, 1995
COMMON STOCKS-CONTINUED
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
NATURAL GAS-PIPELINES-1.5%
83,100 El Paso Natural Gas Co. $2,357,962
38,700 Mapco, Inc. 2,113,987
------------
4,471,949
------------
OFFICE EQUIPMENT-2.9%
183,200 EMC Corp. (c). 2,816,700
26,100 International Business Machines 2,394,675
25,600 Xerox Corp. 3,507,200
------------
8,718,575
------------
OIL-MAJOR INTEGRATED-2.2%
94,500 Repsol S.A., ADR (d). 3,106,687
19,684 Sun, Inc 538,849
115,600 Ultramar Corp 2,976,700
------------
6,622,236
------------
PAPER PRODUCTS-1.4%
82,300 Crown Cork and Seal Co., Inc. (c) 3,436,025
13,000 Mead Corp. 679,250
------------
4,115,275
------------
REAL ESTATE INVESTMENT TRUST-1.0%
83,700 Meditrust 2,919,038
------------
RETAIL-FOOD/DRUG-1.2%
81,300 Eckerd Corp. (c). 3,628,013
------------
TELECOMMUNICATIONS-1.9%
92,300 GTE Corp 4,061,200
46,500 Telefonos de Mexico SA ADR (d). 1,482,187
------------
5,543,387
------------
TOBACCO-3.6%
46,200 Loews Corp. 3,620,925
37,200 Philip Morris Companies, Inc 3,366,600
114,300 UST, Inc 3,814,763
------------
10,802,288
------------
UTILITIES-ELECTRIC-2.3%
109,700 Pacific Gas & Electric Co. 3,112,737
200,100 SCE Corp 3,551,775
------------
6,664,512
------------
Total Common Stocks
(Identified Cost $138,021,901). 168,993,715
------------
<PAGE>
PORTFOLIO-Continued
Investments as of December 31, 1995
PREFERRED STOCK-0.8%
SHARES DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
TOBACCO-0.5%
242,300 RJR Nabisco Holdings Corp., Series C. $1,544,662
------------
OIL-MAJOR INTEGRATED-0.3%
30,316 Sun, Inc., Series A 841,269
------------
Total Preferred Stocks
(Identified Cost $2,338,546). 2,385,931
------------
<PAGE>
PORTFOLIO COMPOSITION-CONTINUED
MEDIUM & LONG TERM BONDS & NOTES-39.4%
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
BANKS-1.8%
$2,400,000 Bankers Trust New York Corp. 8.125%, 4/01/02.
2,634,456
1,140,000 Chase Manhattan Corp. 10.000%, 6/15/99 1,287,163
600,000 First Interstate Bancorp. 12.750%, 5/01/97. 653,688
600,000 First National Tennessee Corp. 10.375%, 6/01/99 673,992
------------
5,249,299
------------
CABLE & MEDIA-0.7%
2,000,000 TCI Communications Inc. 7.390%, 8/28/01. 2,095,300
------------
ENERGY-2.9%
3,700,000 Coastal Corp. 8.125%, 9/15/02. 4,046,949
1,000,000 Colorado Interstate Gas Co. 10.000%, 6/15/05. 1,193,270
2,975,000 Standard Oil Co. 9.000%, 6/01/19. 3,339,348
------------
8,579,567
------------
FINANCE-5.8%
2,000,000 American General Corp. 9.625%, 7/15/00 2,289,720
2,375,000 Associates Corp. of North America 8.350%,
12/22/98 2,550,156
1,000,000 Avalon Properties, Inc. 7.375%, 9/15/02. 1,031,480
1,000,000 General Motors Acceptance Corp. 5.500%,
12/15/01 965,750
1,650,000 Hertz Corp. 9.000%, 7/24/00. 1,841,565
2,430,000 International Lease Finance Corp. 8.040%,
12/01/97 2,538,986
2,000,000 International Lease Finance Corp. 8.125%,
1/15/98. 2,097,660
940,000 International Lease Finance Corp. 6.350%,
11/07/01 945,640
2,425,000 Secured Finance 9.050%, 12/15/04. 2,862,131
------------
17,123,088
------------
GOVERNMENT-3.7%
2,900,000 U.S. Treasury Notes 5.875%, 5/31/96 2,907,250
3,000,000 U.S. Treasury Notes 8.750%, 10/15/97. 3,179,520
1,300,000 U.S. Treasury Notes 5.125%, 3/31/98 1,297,764
3,500,000 U.S. Treasury Notes 6.875%, 8/31/99 3,678,290
------------
11,062,824
------------
<PAGE>
PORTFOLIO COMPOSITION-Continued
Investments as of December 31, 1995
MEDIUM & LONG TERM BONDS & NOTES-Continued
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
GOVERNMENT AGENCY-2.8%
$2,575,000 Federal Home Loan Bank, Inverse Floating Rate
Note 3.133%, 11/23/98 (e). $2,414,578
2,735,000 Federal Home Loan Bank 7.151%, 9/13/05 2,776,873
1,000,000 Federal Home Loan Bank, 8.750%, 2/03/05. 1,064,060
1,165,000 Federal National Mortgage Association,
Principal Only, 10/10/01 1,117,666
1,000,000 Federal National Mortgage Association 8.050%,
5/20/04 1,038,040
------------
8,411,217
------------
HEALTH CARE-1.4%
1,775,000 Columbia/HCA Healthcare Co. 8.020%, 8/05/02 1,946,678
3,050,000 Hospital Corp. of America, Zero Coupon, 6/01/00. 2,312,327
------------
4,259,005
------------
INDUSTRIALS-1.3%
1,735,000 RJR Nabisco, Inc. 9.250%, 8/15/13 1,788,542
2,000,000 Tektronix, Inc. 7.625%, 8/15/02. 2,097,320
------------
3,885,862
------------
INSURANCE-0.8%
1,095,000 Progressive Corp. 10.000%, 12/15/00 1,272,981
1,000,000 USF&G Corp. 8.375%, 6/15/01. 1,098,140
------------
2,371,121
------------
LEISURE & LODGING-1.8%
1,750,000 Carnival Cruise Lines, Inc. 7.050%, 5/15/05 1,832,215
1,200,000 La Quinta Inns, Inc. 7.400%, 9/15/05. 1,236,000
2,000,000 Royal Caribbean Cruise Line 8.125% 7/28/04 2,155,500
------------
5,223,715
------------
MORTGAGE BACKED-7.7%
750,000 Federal Home Loan Mortgage Corp. 7.750%, 10/15/98 772,500
2,100,000 Federal Home Loan Mortgage Corp. 7.500%, 7/15/20 2,170,875
500,000 Federal Home Loan Mortgage Corp. 8.000%, 7/15/21 529,060
1,000,000 Federal Home Loan Mortgage Corp. 6.500%, 3/15/23 959,060
3,000,000 Federal National Mortgage Association 9.000%,
7/25/06 3,121,860
1,750,000 Federal National Mortgage Association 7.000%,
4/25/07 1,816,185
709,551 Federal National Mortgage Association 7.000%,
8/25/16 708,217
321,194 Federal National Mortgage Association 7.500%,
6/01/15 331,469
846,113 Federal National Mortgage Association 8.500%,
6/25/24 845,055
2,065,000 General Electric Capital Mortgage Services, Inc.
10.000%, 3/25/24 2,166,309
122,790 Mortgage Securities III Trust 9.000%, 4/01/10 124,929
3,000,000 Paine Webber CMO Trust 9.000%, 10/20/03. 3,093,750
1,464,119 Residential Funding Mortgage Securities Co., Inc.
6.000%, 12/25/08. 1,390,533
<PAGE>
PORTFOLIO COMPOSITION-Continued
Investments as of December 31, 1995
MEDIUM & LONG TERM BONDS & NOTES-CONTINUED
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
MORTGAGE BACKED-CONTINUED
$575,000 Westam Mortgage Financial Corp. 8.950%, 8/01/18. $ 617,584
4,000,000 Westam Mortgage Financial Corp. 9.400%, 12/01/18 4,266,240
------------
22,913,626
------------
PAPER-0.4%
500,000 Westvaco Corp. 9.650%, 3/01/02. 583,070
500,000 Westvaco Corp. 10.300%, 1/15/19 534,340
------------
1,117,410
------------
RAILROADS-0.4%
1,000,000 CSX, Inc. 6.800%, 6/01/09. 1,061,100
------------
RETAIL STORES-0.6%
500,000 Sears Roebuck & Co. 9.300%, 4/15/98. 538,440
1,300,000 Toys R Us, Inc. 8.250%, 2/01/17 1,364,714
------------
1,903,154
------------
SECURITIES-3.4%
1,500,000 Donaldson Lufkin & Jenrette, 6.875%, 11/01/05. 1,537,515
1,500,000 Lehman Brothers Holdings, Inc. 8.875%, 11/01/98. 1,597,725
3,770,000 Paine Webber Group, Inc. 7.750%, 9/01/02. 3,942,364
3,150,000 Smith Barney Holdings, Inc. 5.500%, 1/15/99 3,123,477
------------
10,201,081
- ------------
TELECOMMUNICATIONS-0.6%
500,000 Central Telephone Co. 9.280%, 11/27/00 569,480
1,300,000 Southern Bell Telephone & Telegraph Co. 7.625%,
3/15/13. 1,336,816
------------
1,906,296
------------
TRANSPORTATION-1.8%
2,000,000 American Airlines 10.180%, 1/02/13. 2,395,520
1,000,000 Delta Air Lines, Inc. 7.790%, 12/01/98 1,037,710
500,000 Delta Air Lines, Inc. 9.530%, 11/17/99 543,170
600,000 Delta Air Lines, Inc. 9.200%, 9/23/14. 681,726
232,000 U.S. Air, Inc. 10.550%, 1/15/05 238,426
350,000 U.S. Air, Inc. 10.700%, 1/15/07 364,357
------------
5,260,909
- ------------
YANKEE/SUPRANATIONAL-1.5%
1,100,000 Export, Import Bank of Japan 9.500%, 6/29/00. 1,256,062
600,000 Hydro Quebec 6.520%, 2/23/06 608,046
2,450,000 SKF AB 7.625%, 7/15/03. 2,608,344
------------
4,472,452
------------
Total Medium & Long Term Bonds & Notes
(Identified Cost $112,870,108) 117,097,026
------------
<PAGE>
PORTFOLIO COMPOSITION-Continued
Investments as of December 31, 1995
SHORT-TERM INVESTMENTS-2.3%
FACE
AMOUNT DESCRIPTION VALUE (A)
- ----------------------------------------------------------------------
$6,883,000
Associates Corp. of North America 5.950%,
1/02/96 $6,883,000
-------------
Total Short-Term Investments
(Identified Cost $6,883,000). 6,883,000
-------------
Total Investments-99.4%
(Identified Cost $260,113,555) (b) 295,359,672
Cash, receivables and other assets. 4,243,036
Liabilities. (2,598,958)
-------------
Total Net Assets-100% $297,003,750
=============
<FN>
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1995 the
net unrealized appreciation on investments based
on cost of $260,204,793 for federal income tax
purposes was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an
excess of value over tax cost. $41,316,673
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over value. (6,161,794)
-------------
Net unrealized appreciation $35,154,879
=============
(c) Non-income producing security.
(d) An American Depository Receipt (ADR) is a certificate issued by a
U.S. bank representing the right to receive securities of the
foreign issuer described. The values of ADRs are significantly
influenced by trading on exchanges not located in the United
States or Canada.
(e) Floating rate notes are instruments whose interest rates vary
with changes in a designated base rate on a specific date. These
notes reset quarterly based upon a specific index.
</TABLE>
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value $295,359,672
Cash. 290
Receivable for:
Fund shares sold 429,168
Securities sold1,391,015
Dividends and interest.2,407,408
Foreign taxes 6,155
Prepaid registration expense 9,000
--------------
299,602,708
LIABILITIES
Payable for:
Securities purchased $1,668,161
Fund shares redeemed 511,039
Dividends declared 81,705
Accrued expenses:
Management fees 182,999
Deferred trustees' fees 49,766
Accounting and administrative 4,676
Other expenses. 100,612
--------------
2,598,958
--------------
$297,003,750
==============
NET ASSETS
Net Assets consist of:
Capital paid in $255,589,489
Undistributed net investment income 297,609
Accumulated net realized gains5,870,535
Unrealized appreciation on investments 35,246,117
--------------
NET ASSETS $297,003,750
==============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($196,514,108 divided by 14,953,036 shares of
beneficial interest) $13.14
==============
Offering price per share (100/94.25 of $13.14). $13.94*
==============
Net asset value and offering price of Class B shares
($40,360,749 divided by 3,085,377 shares of
beneficial interest) $13.08**
==============
Net asset value and offering price of Class C
shares ($717,789 divided by 54,990 shares of
beneficial interest) $13.05
==============
Net asset value and offering price of Class Y shares
($59,411,104 divided by 4,517,302 shares of
beneficial interest) $13.15
==============
Identified cost of investments $260,113,555
==============
<FN>
* Based upon single purchases of less than $50,000. 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
Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $3,972,548(a)
Interest 8,235,327
----------------
12,207,875
Expenses
Management fees $1,906,665
Service fees-Class A 445,951
Service and distribution fees-Class B 301,592
Service and distribution fees-Class C 3,017
Trustees' fees and expenses 23,463
Accounting and administrative 49,574
Custodian 128,565
Transfer agent 548,254
Audit and tax services 41,000
Legal. 19,589
Printing 57,619
Registration. 56,721
Miscellaneous 23,040
----------
Total expenses 3,605,050
----------------
Net investment income 8,602,825
----------------
REALIZED and UNREALIZED GAIN on INVESTMENTS
Realized gain on Investments-net 19,279,791
Unrealized appreciation on Investments-net 31,334,849
----------------
Net gain on investment transactions 50,614,640
----------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $59,217,465
================
<FN>
(a) Net of foreign taxes of: $23,267.
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
FROM OPERATIONS
Net investment income $5,939,028 $8,602,825
Net realized gain on investments. 3,627,356 19,279,791
Unrealized appreciation
(depreciation) on investments (15,017,290) 31,334,849
------------- -------------
Increase (decrease) in net assets from
operations (5,450,906) 59,217,465
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (4,538,717) (5,712,466)
Class B (369,316) (810,141)
Class C -0- (10,773)
Class Y (935,325) (1,783,679)
Net realized gain on investments
Class A (2,833,357) (8,998,651)
Class B. (376,051) (1,694,413)
Class C -0- (23,154)
Class Y (703,988) (2,594,417)
------------- -------------
(9,756,754) (21,627,694)
------------- -------------
Increase in net assets derived from
capital share transactions 71,331,610 40,291,424
------------- -------------
Total increase in net assets 56,123,950 77,881,195
NET ASSETS
Beginning of the year 162,998,605 219,122,555
------------- -------------
End of the year $219,122,555 $297,003,750
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year $10,949 $-0-
============= =============
End of the year. $-0- $297,609
============= =============
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A
------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1991 1992 1993 1994 1995
-------- -------- --------- --------- ---------
Net Asset Value,
Beginning of Year $8.11 $10.15 $11.16 $12.13 $11.27
-------- -------- --------- --------- ---------
Income From
Investment Operations
Net Investment Income 0.30 0.30 0.31 0.33 0.42
Net Realized and
Unrealized Gain
(Loss) on
Investments 2.05 1.10 1.26 (0.65) 2.49
-------- -------- --------- --------- ---------
Total From Investment
Operations 2.35 1.40 1.57 (0.32) 2.91
-------- -------- --------- --------- ---------
Less Distributions
Dividends From
Net Investment
Income (0.30) (0.30) (0.31) (0.33) (0.40)
Distributions From
Net Realized
Capital Gains 0.00 (0.09) (0.29) (0.21) (0.64)
Distributions
From Paid-in Capital (0.01) 0.00 0.00 0.00 0.00
-------- -------- --------- --------- ---------
Total Distributions (0.31) (0.39) (0.60) (0.54) (1.04)
-------- -------- --------- --------- ---------
Net Asset Value,
End of Year $10.15 $11.16 $12.13 $11.27 $13.14
======== ======== ========= ========= =========
Total Return (%). 29.2 13.9 14.2 (2.7) 26.3
Ratio of Operating
Expenses to Average
Net Assets
(%). 1.53 1.48 1.40 1.40 1.36
Ratio of Net Investment
Income to Average
Net Assets (%) 3.18 2.84 2.66 2.91 3.37
Portfolio Turnover
Rate (%) 51 38 50 36 54
Net Assets,
End of Year (000) $67,467 $90,527 $158,308 $158,332 $196,514
</TABLE>
<PAGE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS B CLASS C CLASS Y
-------------------------------- ---------- -------------
SEPTEMBER 13(*) YEAR YEAR YEAR MARCH 8(*) YEAR
THROUGH ENDED ENDED ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31,DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995 1994 1995
--------- --------- --------- --------- --------- ---------
Net Asset Value,
Beginning of
Period $12.16 $12.11 $11.24 $11.24 $12.20 $11.27
--------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income 0.16 0.26 0.34 0.35 0.38 0.46
Net Realized and
Unrealized Gain
(Loss) on
Investments 0.24 (0.66) 2.46 2.44 (0.72) 2.51
--------- --------- --------- --------- --------- ---------
Total From
Investment
Operations 0.40 (0.40) 2.80 2.79 (0.34) 2.97
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net
Investment Income (0.16) (0.26) (0.32) (0.34) (0.38) (0.45)
Distributions From
Net Realized
Capital Gains (0.29) (0.21) (0.64) (0.64) (0.21) (0.64)
--------- --------- --------- --------- --------- ---------
Total Distributions. (0.45) (0.47) (0.96) (0.98) (0.59) (1.09)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End
of Period $12.11 $11.24 $13.08 $13.05 $11.27 $13.15
========= ======= ======= ======= ======= =======
Total Return (%) 3.3*** (3.4) 25.3 25.2 (2.8)*** 26.8
Ratio of Operating
Expenses to
Average Net
Assets (%) 2.36** 2.15 2.11 2.11 0.99** 1.11
Ratio of Net
Investment Income
to Average Net
Assets (%) 1.92** 2.16 2.62 2.62 3.69** 3.62
Portfolio Turnover
Rate (%) 50 36 54 54 36 54
Net Assets, End of
Period (000) $4,691 $21,607 $40,361 $718 $39,183 $59,411
<FN>
* Commencement of operations.
** Computed on an annualized basis.
*** Not computed on an annualized basis.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. The Fund is a Series of New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares of the Trust in
multiple series (each such series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund
commenced its public offering of Class B shares on September 13, 1993,
of Class C shares on December 30, 1994 and of its Class Y shares on
March 8, 1994. Class A shares are sold with a maximum front end sales
charge of 5.75%. Class B shares do not pay 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
a front end or contingent deferred sales charge and do not convert to
any other 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 each class of shares, except that each class
bears expenses unique to that class (including the Rule 12b-1 service
and distribution fees applicable to such class), and votes as a class
only with respect to its own Rule 12b-1 plan. Shares of each class
would receive their pro-rata share of the net assets of the Fund, if
the Fund were liquidated. In addition, the Trustees approve separate
dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles for investment companies.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those
estimates.
A. SECURITY VALUATION. Equity securities are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which service provides the last reported sale price for
securities listed on an applicable securities exchange or on the
NASDAQ national market system, or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported
bid price. Debt securities (other than short-term obligations with a
remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service, selected by the Fund's
adviser as authorized by the Board of Trustees, which service
determines valuations for normal, institutional-size trading units of
such securities
<PAGE>
NOTES TO FINANCIAL STATEMENTS-Continued
December 31, 1995
using market information, transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized
cost, which approximates value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security
transactions are accounted for on the trade date (the date the buy or
sell is executed). Dividend income is recorded on the ex-dividend date
and interest income is recorded on the accrual basis. Interest income
for the Fund is increased by the accretion of discount. In determining
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
c. Federal Income Taxes. The Fund intends to meet the requirements of
the Internal Revenue Code applicable to regulated investment
companies, and to distribute to its shareholders all of its income and
any net realized capital gains, at least annually. Accordingly, no
provision for federal income tax has been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and
distributions are recorded on the ex-dividend date. The timing and
characterization of certain income and capital gains distributions are
determined in accordance with federal tax regulations which may differ
from generally accepted accounting principles. Permanent book and tax
differences are primarily due to differing treatments for mortgage
backed securities, real estate limited partnership investments and
market discount transactions.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives
delivery of the underlying securities collateralizing repurchase
agreements. It is the Fund's policy that the market value of the
collateral be at least equal to 100% of the repurchase price. The
Fund's adviser is responsible for determining that the value of the
collateral is at all times at least equal to the repurchase price.
Repurchase agreements could involve certain risks in the event of
default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying
securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term
investments) for the Fund for the year ended December 31, 1995 were as
follows:
<TABLE><CAPTION>
<C> <C> <C> <C>
PURCHASES SALES
- -------------------------------- ---------------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
- --------------- ------------ --------------- -----------
$30,170,553 $129,539,837 $15,957,390 $119,835,586
</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, Loomis, Sayles & Company, L.P.
("Loomis, Sayles"). Certain officers and directors of the adviser and
its affiliated companies are also officers or
<PAGE>
NOTES TO FINANCIAL STATEMENTS-Continued
December 31, 1995
trustees of the Fund. Loomis, Sayles 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 for the Fund in effect during the year ended
December 31, 1995 provided for fees as set forth below:
<TABLE><CAPTION>
<C> <C> <C>
FEES EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
- ----------- ---------------------- -----------------------------
$1,906,665 0.750% the first $200 million
0.700% the next $300 million
0.650% the excess over $500 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 expenses amounted to $49,574 and are
shown separately in the financial statements as accounting and
administrative.
C. TRANSFER AGENT FEES. New England Funds, L.P. ("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 $402,263
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 the New England Funds
in providing personal services to investors in Class A shares and/or
the maintenance of shareholder accounts. For the year ended December
31,
<PAGE>
NOTES TO FINANCIAL STATEMENTS-Continued
December 31, 1995
1995, the Fund paid New England Funds $445,951 in fees under the Class
A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the
amounts payable by the Fund under the Class A Plan, the unreimbursed
amount (together with unreimbursed amounts from prior years) may be
carried forward for reimbursement in future years in which the Class A
Plan remains in effect. The amount of unreimbursed expenses carried
forward at December 31, 1995 is $2,041,399.
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 $75,398 and $754 in service fees
under the Class B and Class C plans, respectively.
Also under the Class B and Class C Plan, the Fund pays New England
Funds a monthly distribution fee at the annual rate of up to 0.75% of
the average daily net assets attributable to the Fund's Class B 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
$226,194 and $2,263 in distrtribution fees under the Class B and Class
C plans, respectively.
Commissions (including contingent deferred sales charges) on Fund
shares paid to New England Funds by investors in shares of the Fund
during the year ended December 31, 1995 amounted to $698,168.
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, New England Funds, NEIC or their
affiliates, other than registered investment companies. Each other
trustee is compensated by the Fund as follows:
Annual Retainer $2,400
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Retainer $125/year
A deferred compensation plan is available to the trustees on a
voluntary basis. Each participating trustee will receive an amount
equal to the value that such deferred compensation would have had, had
it been invested in the Fund on the normal payment date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS-Continued
December 31, 1995
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>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------- ------- ------
Shares sold 4,117,368 $49,373,937 2,351,242 $29,575,711
Shares issued in connection
with the
reinvestment of:
Dividends from net
investment income 374,414 4,341,420 431,380 5,458,656
Distributions from net
realized gain 242,287 2,722,897 676,500 8,677,748
-------- --------- -------- ----------
4,734,069 56,438,254 3,459,122 43,712,115
Shares repurchased (3,735,100) (44,017,575) (2,555,776) (31,998,569)
Net increase. 998,969 12,420,679 903,346 11,713,546
-------- --------- -------- ----------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------- ------- ------
Shares sold 1,610,212 19,092,139 1,299,583 16,346,011
Shares issued in connection
with the reinvestment of:
Dividends from net investment income 30,005 344,757 60,310 762,503
Distributions from net realized gain 31,737 355,643 127,576 1,630,289
---------- ---------- ---------- ----------
1,671,954 19,792,539 1,487,469 18,738,803
Shares repurchased (136,236) (1,590,989) (325,054) (4,030,921)
---------- ---------- ---------- ----------
Net increase. 1,535,718 18,201,550 1,162,415 14,707,882
---------- ----------- ---------- ----------
YEAR ENDED
DECEMBER 31, 1995
------------------
CLASS C SHARES AMOUNT
- -------- ------- -------
Shares sold 62,310 785,919
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 760 9,669
Distributions from net realized gain 1,599 20,420
------- -------
64,669 816,008
Shares repurchased (9,679) (122,769)
------- -------
Net increase. 54,990 693,239
------- -------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- -------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- ------ ------- ------- ------
Shares sold 3,533,970 41,411,129 1,420,697 17,832,342
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 82,209 942,750 140,440 1,780,695
Distributions from net realized gain 61,245 687,599 202,067 2,594,422
---------- ----------- ---------- ----------
3,677,424 43,041,478 1,763,204 22,207,459
Shares repurchased (200,251) (2,332,097) (723,075) (9,030,702)
---------- ----------- ---------- ----------
Net increase. 3,477,173 40,709,381 1,040,129 13,176,757
---------- ----------- ---------- ----------
Increase derived from capital
shares transactions. 6,011,860 $71,331,610 3,160,880 $40,291,424
============ ============== ============ ==============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of NEW ENGLAND BALANCED 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 Balanced 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 and the application of
alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 7, 1996
<PAGE>
SHAREHOLDER MEETING
At a special shareholders' meeting held on December 28, 1995, shareholders of
the Balanced Fund voted for the following proposals:
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
VOTED ABSTAINED BROKER TOTAL
VOTED 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
substantially
identical to the
investment advisory
arrangements in
effect for the Fund
immediately prior to
such merger. 12,569,127.087 191,709.556 295,300.676 13,056,137.319
============== =========== ===========
2. To approve a new
Advisory Agreement
between the Fund
and New England
Funds
Management, L.P.
("NEFM") 12,362,672.405 312,118.959 322,400.955 58,945.000 13,056,137.319
============== =========== =========== ==========
3. To approve a
related Sub-Advisory
Agreement
between NEFM and
such Fund's current
investment adviser. 12,347,823.442 310,022.149 339,346.728 58,945.000 13,056,137.319
============== =========== =========== ==========
</TABLE>
<PAGE>
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 MeetTM
399 Boylston Street
Boston, Massachusetts
02116
[LOGO]
QUALITY
TESTED SERVICE
1996
DALBAR
HONORS COMMITMENT TO:
INVESTORS
BL56
[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.
