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NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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SEMIANNUAL REPORT AND PERFORMANCE UPDATE
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NEW ENGLAND
STRATEGIC INCOME
FUND
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JUNE 30, 1996
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<PAGE>
July 25, 1996
DEAR SHAREHOLDER,
New England Funds welcomes the opportunity to present you with the 1996
Semiannual Report for New England Strategic Income Fund, containing your
portfolio manager commentary and complete financial information.
ECONOMIC GROWTH IN THE FIRST HALF OF 1996
Moderate growth with low inflation was the economic story during the first
half of 1996. U.S. Gross Domestic Product (GDP), a bellwether of economic
growth, remained strong at 2.3% through June, just shy of what most economists
consider optimal growth. As a result, the Federal Reserve Board opted not to
tinker with interest rates through the first half of the year, save for a
quarter-point ease in short-term rates in late January. The relatively calm
economic waters had a stimulating effect on the domestic equity market, boosting
stocks 537 points to 5,654 at the end of June, as measured by the Dow Jones
Industrial Average. Bond yields did not fare as well, rising to 7.00% at the end
of June from 6.65% earlier in the year. Money market yields remained stable,
falling back only slightly during the past six months.
THE BENEFITS OF MAINTAINING A LONG-TERM FOCUS
But the market volatility of the first three weeks in July claimed 5.5% of
the Dow Jones Industrial Average's first-half gains. Again, we are reminded that
no bull market lasts forever. Long-term financial goals are key in times like
these and it's important to anticipate this type of market volatility and remain
committed to your financial plan.
It's also a good idea to ask your financial representative for help. A
financial representative can guide you through volatile markets and help you
meet your long-term financial goals. A recent study by Dalbar, Inc., a mutual
fund monitoring and analytical service, shows that, on average, mutual fund
investors who bought and held shares, with the assistance of a financial
representative, enjoyed the benefits of a long-term commitment. Consequently,
they benefitted from higher returns than direct investors and others who bought
and sold, although this does not occur in every case.
CELEBRATING THE BIRTHDAYS OF THREE NEW ENGLAND FUNDS
During the past two months, we've celebrated the birthdays of three of our
most popular funds: New England Growth Opportunities Fund; New England Strategic
Income Fund and New England Star Advisers Fund. Demonstrating the remarkable
scope and breadth of our funds, the Growth Opportunities Fund celebrated its
65th birthday in May while the fast-growing Strategic Income and Star Advisers
Funds marked their first and second birthdays, respectively. We're proud of all
of our funds, but take special pride in recognizing that, whether six months or
65-years-old, all New England Funds are designed to help investors achieve their
goals.
NEW ENGLAND FUNDS: THE PLACE "WHERE THE BEST MINDS MEET"(TM)
The longevity of our more seasoned funds and the potential for growth of our
newer ones illustrates the ongoing progress of New England Funds. Our unique
multiple-adviser approach brings together some of the best minds in the
investment business. The ability to attract top-notch investment advisers and
our multiple-adviser approach to fund management are the cornerstones of New
England Funds' investment philosophy and the essence of our corporate logo,
Where The Best Minds Meet(TM).
OUTLOOK FOR THE REST OF 1996
Going forward, we anticipate that the economy will continue to grow
moderately and that inflationary pressures will not be excessive. While we
estimate the GDP may rise somewhat from its current level of 2.3%, the Federal
Reserve should be reluctant to tighten the money supply by raising short-term
interest rates. We also believe that the equity markets will continue to be
volatile through the rest of the year.
We believe that you will find your portfolio manager commentary informative.
If you have any questions or comments, please contact your financial
representative or New England Funds directly at 800-225-5478.
Sincerely,
/s/ Henry L.P. Schmelzer
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Henry L.P. Schmelzer, President
<PAGE>
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NEW ENGLAND STRATEGIC INCOME FUND
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INVESTMENT RESULTS THROUGH
JUNE 30, 1996
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 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.
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NOTE TO SHAREHOLDERS
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Morningstar(TM), an independent mutual fund rating service, named your Fund's
manager, Daniel J. Fuss, "Bond Fund Manager of the Year" for 1995, in
recognition of his past record of accomplishment in fund management at Loomis
Sayles.
<PAGE>
[A chart in the form of a line graph appears here illustrating the growth of a
$10,000 investment in New England Strategic Income Fund's Class A, B and C
shares since inception 5/1/95 compared to the Lehman Aggregate Bond Index(4).
The data points from the graph are as follows:]
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A $10,000 INVESTMENT COMPARED TO LEHMAN AGGREGATE BOND INDEX(4)
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Class A Shares NAV POP Lehman*
Inception 5/1/95
1 $10,000 $ 9,550 $10,000
2 $10,015 $ 9,564 $10,463
3 $10,409 $ 9,940 $10,669
4 $11,027 $10,531 $11,124
5 $11,071 $10,573 $10,926
6 $11,318 $10,809 $10,988
Class B Shares NAV CDSC Lehman*
Inception 5/1/95
1 $10,000 $10,000 $10,000
2 $10,003 $10,003 $10,463
3 $10,376 $10,376 $10,669
4 $10,973 $10,973 $11,124
5 $10,997 $10,997 $10.926
6 $11,214 $10,814 $10,988
Class C Shares NAV Lehman*
Inception 5/1/95
1 $10,000 $10,000
2 $ 9,996 $10,463
3 $10,369 $10,669
4 $10,965 $11,124
5 $10,989 $10,926
6 $11,206 $10,988
These illustrations represent past performance and cannot predict future
results. Investment return and principal value may vary, resulting in a gain
or loss when shares are sold. All Index and Fund performance assumes
reinvested distributions.
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TOTAL RETURNS FOR PERIOD ENDED 6/30/96
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Since
CLASS A (INCEPTION 5/1/95) YTD 1 Year Inception
Net Asset Value(1) 3.21% 13.63% 11.69%
With Max. Sales Charge(2) -1.42 8.53 7.37
Lipper Multi Sector Income Average(5) 3.25 10.62 11.53
Since
CLASS B (INCEPTION 5/1/95) YTD 1 Year Inception
Net Asset Value(1) 2.74% 12.71% 10.80%
With CDSC(3) -1.21 8.71 8.27
Lehman Aggregate(4) -1.22 5.01 8.40
Lipper Multi Sector Income Average(5) 3.25 10.62 11.53
Since
CLASS C (INCEPTION 5/1/95) YTD 1 Year Inception
Net Asset Value(1) 2.75% 12.71% 10.73%
Lehman Aggregate(4) -1.22 5.01 8.40
Lipper Multi Sector Income Average(5) 3.25 10.62 11.53
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These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge (MSC) performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 4.5% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(4) Lehman Aggregate Bond Index is a market-weighted, aggregate index which
includes nearly all debt issued by the U.S. Treasury, U.S. Government
agencies and U.S. corporations rated investment-grade, and U.S. agency debt
backed by mortgage pools.
(5) 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.
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Photo of Dan Fuss
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NEW ENGLAND STRATEGIC INCOME FUND
Portfolio Manager: Dan Fuss
Loomis, Sayles & Co., L.P.
How Your Fund Performed
Despite sluggish bond market performance, New England Strategic Income Fund
posted a total return of 3.2% for Class A shares at net asset value. As of June
28, 1996, the Fund's distribution rate, representing the annualized amount of
your June dividend, stood at 8.50% (Class A shares at NAV).
How Your Fund is Structured
The Fund continues to be invested primarily in long-term bonds, priced at a
discount to face value. These bonds offer both higher capital appreciation
potential and stronger income protection. Bonds purchased at a discount have the
potential to rise in value. In addition, they offer "call protection," a primary
consideration in the way that fixed income funds are managed at Loomis Sayles.
In the event of a decline in interest rates, issuers often "call away" bonds
before they mature, so they can issue new bonds at lower prevailing rates.
Discount bonds, however, offer built-in protection: their value would have to
rise substantially before reaching their call price, making them an unlikely
candidate to be called if interest rates decline.
Where Your Fund is Invested
The Fund's current composition is as follows: 53% below investment-grade fixed
income securities, 6% dividend-paying common stocks and 41% investment-grade
fixed income securities. The portfolio's average maturity is 20 years and
continues to be composed entirely of discount bonds.
Noteworthy among non-market-related characteristics of the Fund's portfolio are
credit turnarounds (bonds currently rated below investment-grade which we
believe may be strong credit upgrade candidates); busted converts (convertible
bonds whose conversion price -- the price at which the bonds may be converted to
stock -- is significantly below the company's current stock price); and sinking
fund bonds (established to provide money to redeem a portion of a particular
bond issue, providing a stabilizing factor in the event of a market decline).
The Fund also has important holdings in Canadian provincial debt and Brady
bonds.* Two thirds of the common stock position is in shares of Real Estate
Investment Trusts (REITs).
Outlook for the Future
Contrary to what the newspaper headlines might indicate, the current environment
for fixed income investing is rather placid. A quick glance at the nominal (as
opposed to inflation-adjusted) economic statistics indicate very little
volatility in the U.S. economic activity. There certainly has been some market
volatility, but it masks strong fundamentals. Rather, it is a case of "markets
being markets." This sort of environment is ideal for the Fund which can make
changes, normally in small increments, that may add to its potential value and
earning power. The Fund continues its eclectic and opportunistic approach, with
no particular investment style predominating. It continues to show extremely
strong protection against call risk.
We believe that the Fund is currently well structured. We intend to maintain our
current emphasis on deep discount, call-protected securities showing good yields
and potential for future improvement.
*Brady bonds, named for former U.S. Treasury Secretary Nicholas Brady, are
foreign government bonds backed by U.S. Treasury securities.
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PORTFOLIO QUALITY AS OF JUNE 30, 1996
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Cash/Equiv 1.5%
Govt/Agency 1.9%
AAA 9.2%
AA 6.5%
A 8.8%
BAA 20.6%
BA 22.4%
B 22.4%
CAA 6.7%
AVERAGE PORTFOLIO QUALITY - Ba1 AVERAGE PORTFOLIO MATURITY - 18 YEARS
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Quality ratings provided by Moody's Investor Service.
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PORTFOLIO COMPOSITION AS OF JUNE 30, 1996
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Bonds Percentage of Assets
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U.S. Corporate/High Yield 50.7%
Foreign/Canada/Yankee $ 40.1%
Yield Common Stocks 5.7%
Governments/Cash 3.3%
Portfolio composition is subject to change.
<PAGE>
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[logo]
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
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PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
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NEW ENGLAND
STRATEGIC INCOME
FUND
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JUNE 30, 1996
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<PAGE>
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1996
(unaudited)
BONDS AND NOTES--87.9% OF TOTAL NET ASSETS
FACE
AMOUNT DESCRIPTION VALUE (A)
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NON-CONVERTIBLE BONDS--78.2%
AEROSPACE--0.4%
$ 500,000 Rohr Industries, Inc., 9.250%, 3/01/17 ..... $ 452,500
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AIRLINES--0.1%
65,000 United Air Lines Pass Through Trust, 7.870%,
1/30/18 .................................... 61,680
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BROADCASTING--0.2%
250,000 CBS, Inc., 7.125%, 11/01/23 ................ 196,218
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CANADIAN--16.2%
35,000,000 British Columbia Province Certificate, Zero
Coupon, 8/23/24, (e) ....................... 2,528,049
6,200,000 British Columbia Province Deposit, Zero
Coupon, 6/09/22, (e) ....................... 536,027
5,000,000 British Columbia, Province of Canada, Zero
Coupon, 8/23/13, (e) ....................... 877,392
2,900,000 British Columbia, Province of Canada,
8.000%, 9/08/23, (e) ....................... 2,055,689
1,000,000 Canada Government, 8.000%, 6/01/23, (e) .... 724,500
10,700,000 Hydro Quebec, Zero Coupon, 8/15/20, (e) .... 951,756
3,175,000 Hydro Quebec, 9.625%, 7/15/22, (e) ......... 2,523,213
1,385,000 Ontario Hydro, 8.900%, 8/18/22, (e) ........ 1,068,430
750,000 Ontario, Province of Canada, Zero Coupon,
7/13/22, (e) ............................. 62,862
5,900,000 Province of Manitoba, 7.750%, 12/22/25, (e) 4,054,932
15,000,000 Province of Manitoba, Zero Coupon, 3/05/31, (e) 631,371
2,375,000 Rogers Cablesystems Limited, 9.650%,
1/15/14, (e) ............................. 1,515,179
3,205,000 Saskatchewan, Province of Canada, 8.750%,
5/30/25, (e) ............................. 2,434,829
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19,964,229
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COMPUTERS--3.7%
2,000,000 Apple Computer, Inc., 6.500%, 2/15/04 ...... 1,650,000
250,000 Computervision Corp., 8.000%, 12/01/09 ..... 203,750
950,000 Digital Equipment Corp., 7.750%, 4/01/23 ... 858,876
2,000,000 Unisys Corp., 9.750%, 9/15/16 .............. 1,840,000
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4,552,626
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ELECTRIC UTILITIES--0.7%
1,000,000 Long Island Lighting Co., 9.000%, 11/01/22 . 918,070
--------------
ELECTRONICS--0.4%
500,000 Westinghouse Electric Corp., 7.875%, 9/01/23 425,225
--------------
ENTERTAINMENT--1.9%
2,500,000 Time Warner, Inc., 8.050%, 1/15/16 ......... 2,376,275
--------------
ENVIRONMENTAL CONTROL--1.5%
1,000,000 Envirotest Systems Corp., 9.125%, 3/15/01 .. 875,000
1,250,000 Envirotest Systems Corp., 9.625%, 4/01/03 .. 962,500
--------------
1,837,500
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FOOD & BEVERAGES--3.3%
1,400,000 RJR Nabisco, Inc., 7.625%, 9/15/03 ......... 1,333,892
2,750,000 RJR Nabisco, Inc., 9.250%, 8/15/13 ......... 2,759,817
--------------
4,093,709
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FOOD PROCESSING--1.3%
$ 2,000,000 Borden, Inc., 7.875%, 2/15/23 .............. $ 1,636,640
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FOREIGN ISSUES--17.2%
2,600,000 Banco Central Costa Rica, 6.250%, 5/21/10 .. 1,852,500
8,325,000 Federal Republic of Brazil, 5.000%,
4/15/24, (c) ............................. 4,573,588
5,000,000 Groupo Televisa SA De CV, 144A, Zero Coupon,
5/15/08, (c), (j) .......................... 2,712,500
1,000,000 Petroleos Mexicanos, 144A, 8.625%,
12/01/23, (j)............................. 750,000
9,900,000 Republic of Argentina, 5.250%, 3/31/23, (c) 5,420,250
1,301,588 Republic of Ecuador, 6.063%, 2/27/15, (c) .. 580,834
6,000,000 Republic of Ecuador, 3.250%, 2/28/25, (c) .. 2,152,500
3,050,000 Republic of Poland, 3.750%, 10/27/14, (c) .. 2,340,875
1,000,000 Transportacion Maritima Mexicana, 9.250%,
5/15/03 .................................. 922,500
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21,305,547
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FOREIGN DENOMINATED--11.0%
9,405,000 New Zealand, 8.000%, 11/15/06, (f) ......... 6,137,205
1,205,000 Republic of Ireland, 6.250%, 10/18/04, (g) . 1,778,672
1,880,000 Republic of Ireland, 8.250%, 8/18/15, (g) .. 3,136,332
13,000,000 Republic of South Africa, 12.000%, 2/28/05,
(h) ...................................... 2,586,425
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13,638,634
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GOVERNMENT TREASURIES--1.8%
2,500,000 United States Treasury Bonds, 6.250%, 8/15/23 2,266,400
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HOME BUILDERS--0.9%
500,000 Hovnanian K Enterprises, Inc., 11.250%,
4/15/02 .................................. 460,000
750,000 Hovnanian K Enterprises, Inc., 9.750%,
6/01/05 .................................. 637,500
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1,097,500
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METAL--0.2%
289,000 Midland Ross Corp., 6.000%, 2/15/07 ........ 179,180
--------------
RESTAURANTS--0.5%
1,000,000 Flagstar Corp., 11.250%, 11/01/04 .......... 660,000
--------------
RETAIL--DEPARTMENT STORE--4.9%
1,250,000 Bradlees, Inc., 9.250%, 3/01/03, (i) ....... 150,000
925,648 Dillon Read Structured Finance, 6.660%,
8/15/10 .................................. 726,634
250,000 Dillon Read Structured Finance Corp.,
8.550%, 8/15/19 .......................... 198,750
2,000,000 Kmart Corp., 7.950%, 2/01/23 ............... 1,520,000
750,000 Kmart Corp. Pass Through Trust, 8.540%,
1/02/15 .................................. 611,250
1,250,000 Kmart Corp. Pass Through Trust, 9.350%,
1/02/20 .................................. 1,018,750
500,000 Kmart Corp. Pass Through Trust, 9.780%,
1/05/20 .................................. 415,000
1,000,000 Service Merchandise, 9.000%, 12/15/04 ...... 880,000
500,000 Woolworth Corp., 8.500%, 1/15/22 ........... 481,950
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6,002,334
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RETAIL--GROCERY--1.6%
2,750,000 Penn Traffic Co., 9.625%, 4/15/05 .......... 1,993,750
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STEEL--1.9%
250,000 Geneva Steel Co., 11.125%, 3/15/01 ......... $ 217,187
2,750,000 Geneva Steel Co., 9.500%, 1/15/04 .......... 2,145,000
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2,362,187
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TELECOMMUNICATION--4.3%
500,000 Century Communications Corp., Zero Coupon,
3/15/03 .................................. 245,000
2,350,000 Nextel Communications, Inc., Zero Coupon,
8/15/04, (c) ............................. 1,380,625
4,250,000 TCI Communications, Inc., 7.875%, 2/15/26 .. 3,743,145
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5,368,770
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TEXTILE--0.2%
250,000 Fruit of the Loom, Inc., 7.375%, 11/15/23 .. 222,493
--------------
UTILITIES--4.0%
455,000 Beaver Valley II Funding Corp., 8.250%,
6/01/03 .................................. 399,931
2,341,000 Beaver Valley II Funding Corp., 9.000%,
6/01/17 .................................. 1,910,795
1,000,000 Niagara Mohawk Power Corp., 5.875%, 9/01/02 836,920
250,000 Niagara Mohawk Power Corp., 6.625%, 7/01/05 202,385
2,000,000 Niagara Mohawk Power Corp., 7.875%, 4/01/24 1,642,540
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4,992,571
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TOTAL NON-CONVERTIBLE BONDS (Identified Cost
$95,644,425) ............................. 96,604,038
--------------
CONVERTIBLE BONDS--9.7%
AEROSPACE--0.5%
665,000 Rohr Industries, Inc., 7.000%, 10/01/12 .... 578,550
--------------
AUTO PARTS--0.4%
400,000 Exide Corp., 144A, 2.900%, 12/15/05 (j) .... 221,000
400,000 MascoTech, Inc., 4.500%, 12/15/03 .......... 316,000
--------------
537,000
--------------
BROADCASTING--0.1%
75,000 Fuqua Industries, 6.500%, 8/04/02 .......... 58,312
--------------
COMPUTERS--2.0%
2,800,000 AST Research, Inc., Zero Coupon, 12/14/13 .. 896,000
427,000 Cray Research, Inc., 6.125%, 2/01/11 ....... 339,465
407,000 LTX Corporation, 7.250%, 4/15/11 ........... 260,480
883,000 Maxtor Corp., 5.750%, 3/01/12 .............. 609,270
693,000 Streamlogic Corp., 6.000%, 3/15/12 ......... 415,800
--------------
2,521,015
--------------
ELECTRONICS--0.8%
300,000 Edo Corp., 7.000%, 12/15/11 ................ 240,000
1,000,000 Zenith Electric, 6.250%, 4/01/11 ........... 782,500
--------------
1,022,500
--------------
ENTERTAINMENT--1.4%
4,680,000 Time Warner, Inc., Zero Coupon, 12/17/12 ... 1,696,500
--------------
ENVIRONMENTAL--0.5%
$ 760,000 Air & Water Technologies Corp., 8.000%,
5/15/15 .................................. $ 672,600
--------------
FOOD PROCESSING--0.1%
100,000 Burns Philp Treasury, 5.500%, 4/30/04 ...... 85,125
--------------
FOREIGN ISSUES--0.4%
400,000 Empresas ICA Soc. Contro., 5.000%, 3/15/04 . 254,000
250,000 Inti Indorayon Uta, 7.000%, 5/02/06 ........ 198,750
--------------
452,750
--------------
HOME BUILDERS--0.4%
200,000 Builders Transport, Inc., 6.500%, 5/01/11 .. 138,000
500,000 Schuler Homes, Inc., 6.500%, 1/15/03 ....... 401,875
--------------
539,875
--------------
OIL--0.3%
395,000 Oryx Energy Co., 7.500%, 5/15/14 ........... 347,600
--------------
OIL & GAS--0.1%
125,000 NorAm Energy Corp., 6.000%, 3/15/12 ........ 100,625
--------------
PHARMACEUTICAL--0.2%
325,000 Glycomed, Inc., 7.500%, 1/01/03 ............ 289,250
--------------
REAL ESTATE--0.2%
250,000 Federal Realty Investor Trust, 5.250%,
10/28/03 ................................. 213,750
125,000 Rockefeller Properties, Zero Coupon,
12/31/00 ................................. 74,844
--------------
288,594
--------------
RESTAURANTS--0.3%
250,000 Flagstar Corp., 10.000%, 11/01/14 .......... 148,750
250,000 Shoneys, Inc., Zero Coupon, 4/11/04 ........ 117,500
100,000 TPI Enterprises, Inc., 8.250%, 7/15/02 ..... 89,000
--------------
355,250
--------------
RETAIL--0.5%
250,000 Bell Sports Corp., 4.250%, 11/15/00 ........ 188,750
515,000 Kmart Funding Corp., Series F, 8.800%,
7/01/10 .................................. 437,750
--------------
626,500
--------------
RETAIL--SPECIALTY--0.6%
850,000 General Host Corp., 8.000%, 2/15/02 ........ 680,000
--------------
TEXTILE--0.5%
325,000 Dixie Yarns, Inc., 7.000%, 5/15/12 ......... 247,000
500,000 Fieldcrest Cannon, Inc., 6.000%, 3/15/12 ... 392,500
--------------
639,500
--------------
TRUCKING & FREIGHT FORWARDING--0.4%
500,000 Preston Corp., 7.000%, 5/01/11 ............. 356,250
250,000 Worldway Corp., 6.250%, 4/15/11 ............ 170,000
--------------
526,250
--------------
TOTAL CONVERTIBLE BONDS (Identified Cost
$11,743,208) ............................. 12,017,796
--------------
COMMON STOCK--5.7%
SHARES
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FOREIGN ISSUES--0.1%
25,000 Transportacion Maritima Mexicana, ADR (k) . 184,375
------------
OIL & GAS--0.3%
15,000 McDermott International, Inc. ............. 313,125
------------
REAL ESTATE--5.3%
75,800 Developers Diversified Reality ............ 2,416,125
45,400 Meditrust ................................. 1,515,225
108,200 Simon Property Group, Inc. ................ 2,650,900
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6,582,250
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TOTAL COMMON STOCK (Identified Cost
$6,668,468) .............................. 7,079,750
------------
PREFERRED STOCK--2.9%
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COMPUTERS--0.3%
10,000 Unisys Corp. .............................. 305,000
--------------
ENTERTAINMENT--0.2%
250 Time Warner, Inc. ......................... 245,313
--------------
GAS & PIPELINE UTILITIES--0.1%
5,000 Western Gas Resources, Inc. ............... 173,750
--------------
OIL--0.0%
500 Kaneb Services, Inc. ...................... 4,625
--------------
STEEL--0.9%
26,000 Bethleham Steel Corp. ..................... 1,079,000
--------------
TRUCKING & FREIGHT FORWARDING--0.3%
12,500 Arkansas Best ............................. 401,562
--------------
UTILITIES--1.1%
30 Cleveland Electric Illuminating Co. ....... 27,000
208 Cleveland Electric Illuminating Co. ....... 173,680
10,000 Long Island Lighting Co. .................. 195,000
150 New York State Electric & Gas Corp. ....... 8,400
150 Niagara Mohawk Power Corp. ................ 5,025
200 Niagara Mohawk Power Corp. ................ 7,600
5,500 Niagara Mohawk Power Corp. Series A ........ $ 88,000
10,000 Niagara Mohawk Power Corp. ................ 231,250
10,000 Niagara Mohawk Power Corp. Series C ........ 177,500
20,900 Niagara Mohawk Power Corp. ................ 370,975
836 Texas Utilities Electric Co. .............. 47,276
--------------
1,331,706
--------------
TOTAL PREFERRED STOCK (Identified Cost
$3,656,885) .............................. 3,540,956
--------------
SHORT TERM INVESTMENT--1.5%
FACE
AMOUNT
- ------------------------------------------------------------------------------
$ 1,882,000 Repurchase Agreement with State Street Bank
& Trust Company dated 6/28/96 at 4.750% to
be repurchased at $1,882,745 on 7/01/96
collateralized by $1,970,000 U.S.
Treasury Bill due 12/19/96, with a value
of $1,920,391 ............................ 1,882,000
--------------
TOTAL SHORT TERM INVESTMENT (Identified Cost
$1,882,000) .............................. 1,882,000
--------------
Total Investments--98.0% (Identified Cost
$119,594,986) (b) ........................ 121,124,540
Other assets less liabilities ............. 2,488,382
--------------
Total Net Assets--100% ..................... $ 123,612,922
=== ==============
(a) See Note 1a.
(b) Federal Tax Information:
At June 30, 1996 the net unrealized appreciation on
investments based on cost of $119,594,986 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. ...............,,,,,,,,,,............... $ 4,595,494
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over value. ...................................... (3,065,940)
-----------
Net unrealized appreciation. ............................. $ 1,529,554
===========
(c) Step Bond: Coupon rate is zero or below market for an initial period and
then increases to a higher coupon rate at a specified date and rate.
(d) Variable or floating rate security. Rate disclosed is as of June 30, 1996.
(e) Denominated in Canadian Dollars.
(f) Denominated in New Zealand Dollars.
(g) Denominated in Irish Pounds.
(h) Denominated in South African Rand.
(i) Non-income producing security.
(j) Securities exempt from registration under rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(k) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank
representing the right to receive securities of the foreign issuer
described. The values of ADRs are significantly influenced by trading on
exchanges not located in the United States or Canada.
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- ------------------------------------------------------------------------------
June 30, 1996
(unaudited)
ASSETS
Investments at value ............................ $121,124,540
Cash ............................................ 603
Receivable for:
Fund shares sold .............................. 495,888
Securities sold ............................... 407,681
Dividends and interest ........................ 2,577,198
Unamortized organization expense ................ 49,534
Prepaid registration expense .................... 10,000
------------
124,665,444
LIABILITIES
Payable for:
Securities purchased .......................... $426,653
Fund shares redeemed .......................... 210,522
Dividends declared ............................ 274,288
Accrued expenses:
Management fees ............................... 60,150
Deferred trustees' fees ....................... 2,800
Accounting and administrative ................. 3,297
Other expenses ................................ 74,812
--------
1,052,522
------------
NET ASSETS ........................................ $123,612,922
============
Net Assets consist of:
Capital paid in ............................... $120,830,959
Distributions in excess of net investment
income ...................................... (111,984)
Accumulated net realized gains ................ 1,360,664
Unrealized appreciation on investments and
foreign currency transactions 1,533,283
-----------
NET ASSETS ........................................ $123,612,922
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($53,017,916 divided by 4,125,287 shares
of beneficial interest) ......................... $12.85
======
Offering price per share (100/95.50 of $12.85) .... $13.46*
======
Net asset value and offering price of Class B shares
($54,902,599 divided by 4,272,700 shares
of beneficial interest) ......................... $12.85**
======
Net asset value and offering price of Class C shares
($15,692,407 divided by 1,221,389 shares
of beneficial interest) ......................... $12.85
======
Identified cost of investments .................... $119,594,986
============
*Based upon single purchases of less than $100,000. Reduced sales charges apply
for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996
(unaudited)
INVESTMENT INCOME
Dividends ...................................... $ 408,524
Interest ....................................... 4,514,304
----------
4,922,828
Expenses
Management fees .............................. $ 374,629
Service fees--Class A ........................ 55,886
Service and distribution fees--Class B ....... 234,606
Service and distribution fees--Class C ...... 70,909
Trustees' fees and expenses .................. 8,088
Accounting and administrative ................ 25,611
Custodian .................................... 54,182
Transfer agent ............................... 66,311
Audit and tax services ....................... 24,000
Legal ........................................ 9,394
Printing ..................................... 22,510
Registration ................................. 70,095
Amortization of organization expenses ........ 6,891
Miscellaneous ................................ 2,174
------------
Total expenses ................................. 1,025,286
Less expenses waived by the investment sub
adviser ..................................... (185,174) 840,112
------------ ----------
Net investment income .......................... 4,082,716
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on:
Investments--net ............................. 1,394,902
Foreign currency transactions--net ........... (241,630)
------------
Total realized gain on investments and foreign
currency transactions ...................... 1,153,272
------------
Unrealized appreciation (depreciation) on:
Investments--net ............................. (2,045,155)
Foreign currency transactions--net ........... 4,834
------------
Total unrealized depreciation on investments
and foreign currency transactions .......... (2,040,321)
------------
Net loss on investment transactions ............ (887,049)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....... $3,195,667
==========
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(unaudited)
MAY 1, * SIX MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------- -------------
FROM OPERATIONS
Net investment income ........................ $ 3,068,538 $ 4,082,716
Net realized gain on investments and foreign
currency transactions ...................... 227,560 1,153,272
Unrealized appreciation (depreciation) on
investments, and foreign
currency transactions ...................... 3,573,605 (2,040,321)
------------ ------------
Increase in net assets from operations ......... 6,869,703 3,195,667
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .................................... (1,369,404) (1,883,355)
Class B .................................... (1,236,649) (1,797,960)
Class C .................................... (462,485) (542,038)
In excess of net investment income
Class A .................................... (22,615) 0
Class B .................................... (20,422) 0
Class C .................................... (7,638) 0
------------ ------------
(3,119,213) (4,223,353)
------------ ------------
Increase in net assets derived from capital
share transactions ......................... 84,206,843 36,683,275
------------ ------------
Total increase in net assets ................. 87,957,333 35,655,589
NET ASSETS
Beginning of the period ...................... 0 87,957,333
------------ ------------
End of the period ............................ $ 87,957,333 $123,612,922
============ ============
(OVER)/UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period ...................... $ 0 $ 28,653
============ ============
End of the period ............................ $ 28,653 $ (111,984)
============ ============
* Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(unaudited)
CLASS A CLASS B
------------------------------- ----------------------------
MAY 1, (A) SIX MONTHS MAY 1, (A) SIX MONTHS
THROUGH ENDED THROUGH ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1995 1996
--------------- -------------- ------------- -------------
Net Asset Value,
Beginning of
Period ...... $12.50 $12.99 $12.50 $12.99
------ ------ ------ ------
Income From Investment Operations
Net Investment
Income ...... 0.74 0.53 0.68 0.48
Net Realized and
Unrealized
Gain (Loss) on
Investments . 0.49 (0.12) 0.49 (0.12)
------ ------ ------ ------
Total From
Investment
Operations .. 1.23 0.41 1.17 0.36
------ ------ ------ ------
Less Distributions
Distributions
From Net
Investment
Income ...... (0.73) (0.55) (0.67) (0.50)
Distributions
in Excess of
Net Investment
Income ...... (0.01) 0.00 (0.01) 0.00
------ ------ ------ ------
Total
Distributions (0.74) (0.55) (0.68) (0.50)
------ ------ ------ ------
Net Asset Value,
End of Period $12.99 $12.85 $12.99 $12.85
====== ====== ====== ======
Total Return(%) (c) 10.3 3.2 9.7 2.8
Ratio of
Operating
Expenses to
Average Net
Assets (%) (d) 0.93(b) 1.15(b) 1.68(b) 1.90(b)
Ratio of Net
Investment
Income to
Average Net
Assets (%) .. 8.75(b) 8.13(b) 8.00(b) 7.38(b)
Portfolio
Turnover Rate (%) 22(b) 54(b) 22(b) 54(b)
Net Assets, End
of Period
(000) ....... $36,969 $53,018 $38,767 $54,903
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A sales charge in the case of Class A shares and a contingent deferred sales
charge in the case of Class B shares are not reflected in total return
calculations. Periods less than one year are not annualized.
(d) The ratio of operating expenses to average net assets without giving effect
to the voluntary expense limitations described in Note 4 to the Financial
Statements would have
been (%) .. 1.58(b) 1.50(b) 2.33(b) 2.25(b)
See accompanying notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(unaudited)
CLASS C
-------------------------------
MAY 1, (a) SIX MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1995 1996
--------------- --------------
Net Asset Value,
Beginning of
Period ...... $12.50 $12.99
------ ------
Income From Investment Operations
Net Investment
Income ...... 0.67 0.48
Net Realized and
Unrealized
Gain (Loss) on
Investments . 0.49 (0.12)
------ ------
Total From
Investment
Operations .. 1.16 0.36
------ ------
Less Distributions
Distributions
From Net
Investment
Income ...... (0.66) (0.50)
Distributions
in Excess of
Net Investment
Income ...... (0.01) (0.00)
------ ------
Total
Distributions (0.67) (0.50)
------ ------
Net Asset Value,
End of Period $12.99 $12.85
====== ======
Total Return(%) (c) 9.7 2.8
Ratio of
Operating
Expenses to
Average Net
Assets (%) (d) 1.68(b) 1.90(b)
Ratio of Net
Investment
Income to
Average Net
Assets (%) .. 8.00(b) 7.38(b)
Portfolio
Turnover Rate (%) 22(b) 54(b)
Net Assets, End
of Period
(000) ....... $12,252 $15,692
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets without giving effect
to the voluntary expense limitations described in Note 4 to the Financial
Statements would have
been (%) .. 2.33(b) 2.25(b)
See accompanying notes to financial statements.
<PAGE>
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
June 30, 1996
(unaudited)
1. The Fund is a series of The New England Funds Trust I, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each series of shares a
"Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced
its public offering of Class A, Class B and Class C shares on May 1, 1995. Class
A shares are sold with a maximum front end sales charge of 4.50%. Class B shares
do not pay a front end sales charge, but pay a higher ongoing distribution fee
than Class A shares for eight years (at which point they automatically convert
to Class A shares), and are subject to a contingent deferred sales charge if
those shares are redeemed within five years of purchase. Class C shares do not
pay front end or contingent deferred sales charges and do not convert to any
class of shares, but they do pay a higher ongoing distribution fee than Class A
shares. Class Y shares do not pay a front end sales charge, a contingent
deferred sales charge or distribution fees. They are intended for institutional
investors with a minimum of $1,000,000 to invest. Expenses of the Fund are borne
pro-rata by the holders of all classes of shares, except that each class bears
expenses unique to that class (including the Rule 12b-1 service and distribution
fees applicable to such class), and votes as a class only with respect to its
own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of
the net assets of the Fund, if the Fund were liquidated. In addition, the
Trustees approve separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. The Fund's investment subadviser, Loomis Sayles &
Company, L.P. ("Loomis Sayles") under the supervision of the Fund's trustees,
determines the value of the Fund's portfolio of securities, using valuations
provided by a pricing service selected by Loomis Sayles and other information
with respect to transactions in securities, including quotations from securities
dealers. Valuations of securities and other assets owned by the Fund for which
market quotations are readily available are based on those quotations.
Short-term obligations that will mature in 60 days or less are stated at
amortized cost, which approximates market value. All other securities and assets
are valued at their fair value as determined in good faith by Loomis Sayles
under the supervision of the Fund's trustees.
B. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
on investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities resulting from changes in the exchange rate.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income is increased by the accretion of
discount. Interest income is decreased by the amortization of acquisition
premium on original issue discount securities. In determining net gain or loss
on securities sold, the cost of securities has been determined on the identified
cost basis.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily
to shareholders of record at the time and are paid monthly.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principals. These differences are
primarily due to differing treatments for mortgage backed securities and foreign
currency transactions for book and tax purposes. Permanent book and tax basis
differences will result in reclassifications to capital accounts.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Loomis Sayles is responsible for determining that the
value of the collateral is at all times at least equal to the repurchase price.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
G. ORGANIZATION EXPENSE. Costs incurred in 1995 in connection with the Fund's
organization and initial registration amounting to $67,920 were paid by the
Fund and are being amortized over 60 months beginning May 1, 1995.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
six months ended June 30, 1996 were as follows:
PURCHASES SALES
-------------------------------------- ----------------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
---------------------- -------------- ------------------ --------------
$6,700,859 $55,191,508 $4,693,406 $23,333,767
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management L.P.
("NEFM") at the annual rate of 0.65% of the first $200 million of the Fund's
average daily net assets and 0.60% of such assets in excess of $200 million.
NEFM pays the Fund's investment subadviser, Loomis Sayles at the rate of 0.35%
of the first $200 million of the Fund's average daily net assets and 0.30% of
such assets in excess of $200 million. Certain officers and directors of the
NEFM and Loomis Sayles are also officers or trustees of the Fund. NEFM and
Loomis Sayles are wholly owned subsidiaries of New England Investment Companies,
L.P. ("NEIC") which is a majority owned subsidiary of New England Mutual Life
Insurance Company. Fees earned by NEFM and Loomis Sayles under the management
agreement in effect during the six months ended June 30, 1996 are as follows:
FEES EARNED
---------------
$189,455 New England Fund's Management, L.P.
$185,174(a) Loomis, Sayles & Company, L.P.
(a) Before reduction pursuant to voluntary expense limitations. See Note 4.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Fund's distributor, performs certain accounting and administrative
services for the Fund. The Fund reimburses New England Funds for all or part of
New England Funds' expenses of providing these services which include the
following: (i) expenses for personnel performing bookkeeping, accounting,
internal auditing and financial reporting functions and clerical functions
relating to the Fund, (ii) expenses for services required in connection with the
preparation of registration statements and prospectuses, shareholder reports and
notices, proxy solicitation 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 six months ended June 30, 1996, these expenses
amounted to $25,611 and are shown separately in the financial statements as
accounting and administrative.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent to the Fund. For the six months ended June 30, 1996, the Fund
paid New England Funds $51,092 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 six
months ended June 30, 1996, the Fund paid New England Funds $55,886 in fees
under the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect.
Under the Class B and Class C Plans, the Fund pays New England Funds a monthly
service fee at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the six months ended June
30, 1996 the Fund paid New England Funds $58,652 and $17,727 in service fees
under the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds a
monthly distribution fee at the annual rate of up to 0.75% of the average daily
net assets attributable to the Fund's Class B shares and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and Class
C shares. For the six months ended June 30, 1996, the Fund paid New England
Funds $175,954 and $53,182 in distribution fees under the Class B and Class C
Plans, respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors of shares of the Fund during the six months ended
June 30, 1996 amounted to $518,935.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of Loomis Sayles, NEFM, New England Funds, NEIC or their affiliates, other
than registered investment companies. Each other trustee is compensated by the
Fund as follows:
Annual Retainer $1,464
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Annual Retainer $41
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have had, had it been invested in the Fund on the
normal payment date.
4. EXPENSE LIMITATIONS. Loomis Sayles has voluntarily agreed, until further
notice to the Fund, to waive its entire subadvisory fee (which is paid by NEFM),
and NEFM has agreed to reduce its management fee (which is paid by the Fund) by
an equal amount. These agreements may be terminated by Loomis Sayles or NEFM at
any time.
In addition, under an expense deferral arrangement, which NEFM may terminate at
any time, NEFM has agreed to defer its management fees (to the extent not waived
as provided in the preceding sentences) for the Fund, to the extent necessary to
limit the Fund's expenses to the annual rate of 1.40% for Class A shares, 2.15%
for Class B shares and 2.15% for Class C shares, subject to the obligation of
the Fund to pay NEFM such deferred fees in later periods to the extent that the
Fund's expenses fall below the annual rate of 1.40% for Class A shares, 2.15%
for Class B shares and 2.15% for Class C shares; provided, however, that the
Fund is not obligated to pay any such deferred fees more than two years in which
such fee was deferred.
For the six months ended June 30, 1996, Loomis Sayles waived its entire
subadvisory fee of $185,174.
5. CAPITAL SHARES. At June 30, 1996 there was an unlimited number of shares
of beneficial interest authorized, divided into three classes, Class A, Class
B and Class C capital stock. Transactions in capital shares were as follows:
FOR THE PERIOD MAY 1, *
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ----------- ------------- ----------- ------------
Shares sold ........... 2,999,705 $ 37,336,091 1,608,551 $20,695,850
Shares issued in
connection with the
reinvestment of:
Dividends from net
investment income ... 83,928 1,050,952 111,438 1,429,150
---------- ------------ ---------- -----------
3,083,633 38,387,043 1,719,989 22,125,000
Shares repurchased .... (240,548) (3,031,993) (437,787) (5,625,765)
---------- ------------ ---------- -----------
Net increase .......... 2,843,085 35,355,050 1,282,202 16,499,235
---------- ------------ ---------- -----------
FOR THE PERIOD MAY 1, *
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ----------- ------------- ----------- ------------
Shares sold ........... 3,069,532 38,206,120 1,433,266 18,427,009
Shares issued in
connection with the
reinvestment of:
Dividends from net
investment income ... 58,814 736,795 81,470 1,044,544
---------- ------------ ---------- -----------
3,128,346 38,942,915 1,514,736 19,471,553
Shares repurchased .... (144,485) (1,810,786) (225,897) (2,886,496)
---------- ------------ ---------- -----------
Net increase .......... 2,983,861 37,132,129 1,288,839 16,585,057
---------- ------------ ---------- -----------
FOR THE PERIOD MAY 1, *
THROUGH SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ----------- ------------- ----------- ------------
Shares sold ........... 1,178,513 14,661,683 511,431 6,591,957
Shares issued in
connection with the
reinvestment of:
Dividends from net
investment income ... 23,720 296,747 28,825 369,185
---------- ------------ ---------- -----------
1,202,233 14,958,430 540,256 6,961,142
Shares repurchased .... (259,223) (3,238,766) (261,877) (3,362,159)
---------- ------------ ---------- -----------
Net increase .......... 943,010 11,719,664 278,379 3,598,983
---------- ------------ ---------- -----------
Increase derived from
capital shares
transactions 6,769,956 $ 84,206,843 2,849,420 $36,683,275
========== ============ ========== ===========
*Commencement of operations.
<PAGE>
- ------------------------------------------------------------------------------
NEW ENGLAND STRATEGIC INCOME FUND
- ------------------------------------------------------------------------------
SUPPLEMENT DATED SEPTEMBER 3, 1996 TO THE PROSPECTUS
DATED MAY 1, 1996 OF NEW ENGLAND BOND FUNDS
THE FOLLOWING ITEM RELATES TO NEW ENGLAND STRATEGIC INCOME FUND ONLY:
On orders placed beginning September 16, 1996 and continuing through October 31,
1996, the Distributor will reallow to investment dealers 100% of the sales
charge on commissionable sales of Class A shares. During the same period, the
Distributor will pay participating investment dealers a commission of 0.50% on
commissionable sales of Class B shares in addition to the commissions on sales
of Class B shares described in the prospectus under the section captioned
"Buying Fund Shares -- Sales Charges."
<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
retirememt 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>
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NEW ENGLAND FUNDS
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STOCK FUNDS
Growth Fund
Star Advisers Fund
Capital Growth Fund
Value Fund
Growth Opportunities Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
Growth Fund of Israel
International Equity Fund
Star Worldwide 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.
VISIT OUR WORLD WIDE WEB SITE AT HTTP://WWW.MUTUALFUNDS.COM
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>
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