<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT AND PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
(Logo)
NEW ENGLAND FUNDS
Where The Best Minds Meet(TM)
- --------------------------------------------------------------------------------
New England
Bond Income Fund
[graphic omitted]
December 31, 1996
<PAGE>
FEBRUARY 1997
- --------------------------------------------------------------------------------
[Photo of Henry L.P. Schmelzer]
Dear New England Funds Shareholder,
Taken together, 1995 and 1996 constituted the sixth strongest back-to-back years
for the U.S. stock market since 1915, as measured by percentage gain in the Dow
Jones Industrial Average (according to Bloomberg Business News).
Most New England Funds portfolio managers believe that the forces behind this
rally -- low inflation, relatively stable interest rates and strong corporate
profits -- will persist, at least for a time. Nevertheless, bull markets can
suddenly turn quiet; they can decline modestly; or they can reverse course
sharply. No one can predict what is ahead, nor can anyone guarantee whether the
market's strength will extend even further in 1997 and beyond.
Maintain a Long-Term Perspective
Whatever the market's direction, you should be prepared to consider any
short-term trends in the broader context of your long-term personal goals,
including the accumulation of financial assets. One way to manage this important
process is by diversifying your investments. While U.S. stocks have historically
been the strongest performers, you may, depending on your financial goals and
needs, also benefit from investing in various types of bond funds, and by
participating in growing overseas markets.
Remember that each investment has its own unique risks. What's more, no strategy
can assure a profit or protect against a loss. However, one time-tested approach
is to invest regularly and stay invested -- in good times and bad -- to avoid
the pitfall of guessing what the market might do in the short run.
Our Multiple-Adviser Approach Sets Us Apart
Many financial representatives recommend New England Funds to their clients
because of our distinctive multiple-adviser approach. For each fund, we
hand-pick a specific subadviser or subadvisers with significant experience and
demonstrated skill in selecting investments that are in tune with that fund's
stated objective. We call it matching the talent to the task.
Finally, it may interest you to learn that you are part of a major national
trend. In 1996, nearly 37 million U.S. households owned mutual funds, according
to the Investment Company Institute, an industry trade organization. Mutual
funds are now a cornerstone of retirement, college and other investment plans
for millions of Americans.
New England Funds has grown with the industry and is now over $6 billion in
size. We thank you for helping us reach this important milestone, and look
forward to serving your investment needs well into the future.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
For more information, including a prospectus for any New England Fund, please
contact your financial representative or call the Investor Services and
Marketing Group at 800-225-5478. Please read the prospectus carefully, including
the information on charges and expenses, before you invest.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BOND INCOME FUND
- --------------------------------------------------------------------------------
AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
[Logo] DALBAR, an independent evaluator of mutual fund
QUALITY service, has awarded New England Funds its Quality
TESTED SERVICE Tested Service Seal for "providing the highest
1996 tier of service excellence in the mutual fund
- --------------------- industry." New England Funds is one of just three
DALBAR mutual fund companies to earn this distinction in
HONORS COMMITMENT TO: each of the last two years -- another reason why
INVESTORS we are becoming known as the mutual fund company
- --------------------- Where The Best Minds Meet(TM).
INVESTMENT RESULTS THROUGH DECEMBER 31, 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.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BOND INCOME FUND
- --------------------------------------------------------------------------------
[A chart in the form of a line graph appears here illustrating the growth of a
$10,000 investment in the New England Bond Income Fund from 12/31/86 compared to
the Lehman Government/Corporate Bond Index(4) and the Cost of Living(5). The
data points from the graph are as follows:]
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
- --------------------------------------------------------------------------------
COMPARED TO LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE
BOND INDEX(4) AND THE COST OF LIVING(5)
DECEMBER 1986 THROUGH DECEMBER 1996
COST OF
DATE NAV(1) POP(2) LEHMAN(4) LIVING(5)
- ---- -------- ------- --------- ---------
12/31/86 $10,000 $9,550 $10,000 $10,000
12/31/87 $10,141 $9,685 $10,367 $10,443
12/31/88 $10,887 $10,397 $11,070 $10,905
12/31/89 $12,182 $11,634 $12,482 $11,412
12/31/90 $13,093 $12,504 $13,627 $12,109
12/31/91 $15,467 $14,771 $15,621 $12,479
12/31/92 $16,618 $15,870 $16,741 $12,841
12/31/93 $18,618 $17,781 $18,212 $13,194
12/31/94 $17,829 $17,027 $17,861 $13,548
12/31/95 $21,532 $20,563 $20,595 $13,902
12/31/96 $22,522 $21,509 $21,431 $14,363
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will be greater or less than that shown based on differences in
inception date, fees and sales charges. All Index and Fund performance assumes
reinvested distributions.
- --------------------------------------------------------------------------------
CREDIT QUALITY COMPOSITION -- 12/31/96*
- --------------------------------------------------------------------------------
AAA 28%
AA 17%
A 10%
BBB 25%
BB 20%
* Portfolio composition will change with market and economic conditions.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BOND INCOME FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- 12/31/96
- --------------------------------------------------------------------------------
CLASS A (Inception 11/7/73) 1 YEAR 5 YEAR 10 YEAR
Net Asset Value(1) 4.60% 7.81% 8.46%
With Max. Sales Charge(2) -0.09 6.82 7.96
Lipper Intermediate Investment
Grade Debt Average(6) 3.12 6.53 7.68
- --------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) 1 YEAR 3 YEAR SINCE INCEPTION
Net Asset Value(1) 3.73% 5.73% 4.94%
With CDSC(3) -0.27 4.84 4.44
Lehman Intermediate Govt./Corp.(4) 4.06 5.57 5.19
Lipper Intermediate Investment
Grade Debt Average(6) 3.12 5.19 n/a
- --------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 3.90% 10.78%
Lehman Intermediate Govt./Corp.(4) 4.06 9.54
Lipper Intermediate Investment
Grade Debt Average(6) 3.12 n/a
- --------------------------------------------------------------------------------
CLASS Y (Inception 12/30/94) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 4.59% 12.49%
Lehman Intermediate Govt./Corp.(4) 4.06 9.54
Lipper Intermediate Investment
Grade Debt Average(6) 3.12 n/a
These returns represent past performance. Investment return and principal value
will fluctuate so that shares, upon redemption, may be worth more or less than
original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) -- 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 -- 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) -- assumes a maximum 4% sales
charge is applied to a redemption of Class B shares. The sales charge will
decrease over time, declining to zero five years after the purchase of
shares.
(4) Lehman Intermediate Government/Corporate Bond Index is an unmanaged index of
investment-grade bonds with one- to ten-year maturities issued by the U.S.
government and U.S. corporations. The Index performance has not been
adjusted for ongoing management, distribution and operating expenses and
sales charges applicable to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, calculated
by the U.S. Bureau of Labor Statistics.
(6) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BOND INCOME FUND
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
Q. How did New England Bond Income Fund perform in 1996?
[Photo of Cathy Bunting
Back Bay Advisors, L.P.]
New England Bond Income Fund continued to deliver consistently strong
results, despite the challenging conditions that pervaded bond markets.
Rising long-term interest rates early in 1996 along with weak bond market
returns stood in vivid contrast to the remarkable strength of bonds in 1995.
Concerned that robust economic growth might cause inflationary pressures to
escalate, bond investors pushed down fixed-income prices and drove up
yields. By the second half of the year, steady -- if slower -- economic
growth, continued low inflation and strong demand for U.S. government bonds
from foreign investors fostered better performance from bonds.
After a disappointing first half in 1996, your Fund more than made up for
lost ground by the year's end. For the 12 months ended December 31, 1996,
the Fund generated a total return of 4.60% for Class A shares, based on net
asset value. This return reflects the reinvestment of $0.84 per share in
income distributions paid during the year and a decline in share price to
$12.05 on December 31, 1996, from $12.36 a year ago. By comparison, the 176
Intermediate Investment Grade Debt funds tracked by Lipper Analytical
Services returned an average of 3.12% for the same period. Your Fund also
outperformed the Lehman Intermediate Government/Corporate Index, the Fund's
benchmark, which posted a return of 4.06%. The Fund's Class A 30-day net
annualized SEC yield at the end of December was 6.76% - up from its 6.09%
yield a year ago.
Q. What was behind the Fund's strong performance?
An emphasis on corporate bonds -- ranging between 60% and 70% of the
portfolio -- worked well for your Fund. When economic activity is strong, as
was the case last year, improving company fundamentals can help cushion
price declines of corporate bonds from rising interest rates. Supply and
demand relationships also worked to the advantage of the corporate sector.
Institutional investors kept demand at healthy levels, which helped support
bond prices even as interest rates rose and prices of government securities
fell. Government issues are particularly sensitive to changes in interest
rates, in part because they gain no additional benefit from improving credit
conditions -- they already enjoy the distinction as the most creditworthy
fixed-income instruments available.
Q. How did you manage the Fund during the year?
We took steps to make the most of mixed conditions in the bond markets. For
example, we focused on corporate bonds from select industries. We favored
fundamentally solid -- though undervalued -- corporate sectors. Careful
credit research was critical in enabling us to identify attractive issues in
areas such as utilities, oil and gas, and cable and media. Utility bonds,
for instance, benefited from a combination of technical factors, including
low levels of bond issuance and expanded debt repurchase programs, which
tipped the supply/demand balance toward higher bond prices. The sector's
fundamentals were also attractive, thanks to merger activity that improved
the operating and financial strength of formerly separate entities. We
invested in utility bonds that offered favorable price and yield
characteristics, namely those with a 15-year maturity structure. These
holdings contributed positively to the Fund's performance, as did energy
investments. Severe winter weather across the country significantly
increased oil prices, providing a windfall for the energy industry and price
gains for the Fund's holdings in Oryx Energy, Mitchell Energy, Pemex and
Transgas.
The cable/media sector, meanwhile, experienced setbacks. During the first
half of the year, Moody's - an independent bond rating agency - downgraded
the credit rating of Tele-Communications, Inc. to below investment grade.
(Bonds rated BBB and above are considered "investment grade.") This event
raised concerns about the industry's financial condition as a whole, taking
a toll on the Fund's cable bond holdings. However, many companies, including
Tele-Communications, Inc. have begun programs to improve their financial
position by reducing their debt loads. We remain invested in cable bonds,
believing that industry fundamentals are essentially sound and that bond
prices should recover.
Nearly 7% of the Fund's assets were invested in the Canadian bond market.
Canada's lower inflation rates and moderate economic growth, compared to
that of the United States, enabled Canadian bonds to outperform their U.S.
counterparts. Further, the postponement of Quebec's Separatist referendum to
1998 improved investor sentiment and attracted foreign investors, further
buoying the market.
The Fund's approach to duration worked both for and against it during the
year. Duration, measured in years, is a more precise gauge than maturity of
a bond's sensitivity to interest rate changes. Essentially, the longer a
bond's duration, the more its price reacts to changes in interest rates -
rising when interest rates fall and declining when interest rates rise. The
portfolio's average duration at the beginning of the period was relatively
long - about six years - boosting the Fund's current yield but hampering its
price performance when interest rates rose. As market conditions improved,
however, the Fund's longer duration enhanced its performance by capturing
price gains and offsetting losses sustained earlier in 1996.
During 1996, we selectively invested in lower-grade bonds. Given the
strength of the economy, taking a measure of credit risk was amply rewarded
with higher yields and additional price gains relative to higher-grade
issues. Nevertheless, the average quality of the portfolio overall remains
high at A.
Q. What is your investment outlook for the months ahead?
Going forward, we believe the ingredients that foster positive bond market
performance - moderate economic growth, low inflation, and stable interest
rates - will remain in place. As always, thorough credit research continues
to be instrumental in helping us sort through opportunities in the bond
markets. And we will closely monitor the investment landscape to help gauge
the direction of interest rates over the short term and adjust portfolio
strategy to take advantage of market changes.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of December 31, 1996
BONDS AND NOTES--96.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------------
<C> <S> <C>
BROADCASTING--6.0%
$ 2,700,000 Cablevision Industries, 9.250%, 4/1/08 .................. $ 2,885,625
5,500,000 Continental Cablevision, Inc., 9.500%, 8/1/13 ......... 6,317,025
3,700,000 Continental Cablevision, Inc., 11.000%, 6/1/07 ........ 4,215,521
-------------
13,418,171
-------------
ELECTRIC UTILITIES--18.7%
11,000,000 Arizona Public Service Corp., 8.000%, 12/30/15 ........ 11,294,470
6,500,000 Long Island Lighting Co., 9.000%, 11/1/22 ............. 6,885,970
4,000,000 New Mexico Public Service Corp., 10.250%, 10/1/12 ..... 4,495,000
6,500,000 New York Electric & Gas Corp., 8.875%, 11/1/21 ........ 6,860,685
1,249,000 New York Electric & Gas Corp., 9.875%, 2/1/20 ......... 1,252,360
2,000,000 Ohio Edison Corp., 8.680%, 6/1/17 ..................... 1,984,060
5,000,000 Tennessee Valley Authority, 6.125%, 7/15/03 ........... 4,862,700
2,300,000 Texas Utilities Electric Co., 8.875%, 2/1/22 .......... 2,479,331
2,100,000 Toledo Edison Co., 7.875%, 8/1/04 ..................... 2,080,428
-------------
42,195,004
-------------
FINANCE & BANKING--11.4%
4,075,000 American General Finance Corp., 8.450%, 10/15/09 ...... 4,556,869
2,000,000 Asian Development Bank, 11.125%, 5/1/98 ............... 2,130,160
5,750,000 Associates Corp. North America, 8.550%, 7/15/09 ....... 6,485,137
4,000,000 Intermediate American Development Bank, 6.950%, 8/1/26 4,135,120
2,400,000 Pitney Bowes Credit Corp., 8.550%, 9/15/09 ............ 2,733,048
5,500,000 Toronto Dominion Bank Ontario, 7.875%, 8/15/04 ........ 5,680,840
-------------
25,721,174
-------------
FEDERAL AGENCIES--15.1% (C)
305,809 Federal Home Loan Mortgage Corp., 9.000%, 5/1/01 ...... 318,234
3,500,000 Federal National Mortgage Association, 6.450%, 6/10/03 3,436,755
849,656 Federal National Mortgage Association, 7.500%, 12/1/24 849,656
1,500,000 Federal National Mortgage Association, 7.850%, 9/10/04 1,521,375
1,000,000 Federal National Mortgage Association, 7.875%, 2/24/05 1,075,950
10,745,436 Government National Mortgage Association 7.00%, with
various maturities to 2025 .......................... 10,513,764
11,383,294 Government National Mortgage Association 7.50%, with
various maturities to 2025 .......................... 11,393,994
4,023,857 Government National Mortgage Association 8.50%, with
various maturities to 2023 .......................... 4,170,969
307,177 Government National Mortgage Association 9.00%, with
various maturities to 2016 .......................... 323,688
414,289 Government National Mortgage Association 11.50%, with
various maturities to 2018 ........................... 468,789
-------------
34,073,174
-------------
FOREIGN ISSUES--7.0%
6,500,000 Government of Canada, 8.000%, 6/1/23 (d) ............. 5,276,236
20,000,000 Ontario Hydro, Zero Coupon, 11/27/20 (d) .............. 2,424,596
21,400,000 Ontario Hydro, Zero Coupon, 8/06/21 (d) ............... 2,461,477
7,000,000 Province of British Columbia, 7.750%, 6/16/03 (d) .... 5,549,135
-------------
15,711,444
-------------
U.S. GOVERNMENT--3.1%
2,000,000 United States Treasury Notes 6.875%, 7/31/99 .......... 2,041,600
4,500,000 United States Treasury Notes 8.500%, 11/15/00 ......... 4,863,510
-------------
6,905,110
-------------
OIL & GAS--1.0%
2,100,000 Mitchell Energy & Development Corp., 9.250%, 1/15/02 .. 2,268,693
-------------
PUBLISHING--6.6%
4,000,000 Golden Books Publishing, Inc., 7.650%, 9/15/02 ........ 3,620,000
2,000,000 News America Holdings, Inc., 7.750%, 2/1/24 ........... 1,912,940
1,700,000 News America Holdings, Inc., 8.250%, 8/10/18 .......... 1,736,091
7,000,000 Time Warner, Inc., 9.150%, 2/1/23 ..................... 7,606,200
-------------
14,875,231
-------------
TELECOMMUNICATION--13.5%
4,800,000 360 Communications, 7.125%, 3/1/03 .................... 4,739,664
9,700,000 AT&T Corp., 8.350%, 1/15/25 ........................... 10,234,567
4,000,000 Bellsouth Telecomm, Inc., 5.850%, 11/15/45 ............ 3,952,240
5,280,000 Tele-Communications, Inc., 9.250%, 1/15/23 ............ 5,253,970
2,000,000 Tele-Communications, Inc., 9.800%, 2/1/12 ............. 2,163,180
4,000,000 Total Access Communication Public, 144A 8.375%,
11/4/06 (f) ........................................... 4,024,440
-------------
30,368,061
-------------
YANKEE--13.7%
1,200,000 British Columbia Hydro & Power, 12.500%, 9/01/13 ...... 1,360,800
1,600,000 British Columbia Hydro & Power, 12.500%, 1/15/14 ...... 1,844,352
5,159,000 Gulf Canada Resources, Ltd., 9.000%, 8/15/99 .......... 5,429,847
3,000,000 Hydro Quebec, 8.050%, 7/7/24 .......................... 3,294,570
3,310,000 Ontario Province, 11.500%, 3/10/13 .................... 3,640,305
6,800,000 Petroleos Mexicanos, 144A, 8.625%, 12/1/23 (f) ....... 5,576,000
3,000,000 Quebec Province, 8.625%, 12/1/26 ...................... 3,351,810
2,300,000 Republic of Colombia, 144A, 8.660%, 10/7/16 (f) ...... 2,437,126
3,600,000 Transgas de Occidente S.A. 144A, 9.790%, 11/1/10 (f) ... 3,816,000
-------------
30,750,810
-------------
Total Bonds and Notes (Identified Cost $214,887,901) ... 216,286,872
-------------
<CAPTION>
SHORT TERM INVESTMENTS--2.5%
FACE
AMOUNT DESCRIPTION VALUE (a)
- -------------------------------------------------------------------------------------
<C> <S> <C>
$ 5,713,000 Household Finance Corp. 6.250%, 1/02/97 ............... $ 5,712,008
-------------
Total Short Term Investments (Identified Cost $5,712,008) 5,712,008
-------------
Total Investments--98.6% (Identified Cost $220,599,909)(b) 221,998,880
Other assets less liabilities (e) ...................... 3,112,804
-------------
Total Net Assets--100% .................................. $ 225,111,684
=============
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1996 the net unrealized
appreciation on investments based on cost of $220,642,859 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. ................. $4,187,967
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value. ................. (2,831,946)
----------
Net unrealized appreciation. ..................................... $1,356,021
==========
(c) The Fund's investments in Government National Mortgage Association, which
have the same coupon rate, have been aggregated for the purpose of
presentation in the schedule of investments.
(d) Denominated in Canadian Dollars.
(e) Including deposits in foreign denominated currencies with a value of $183
and a cost of $185.
(f) 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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments at value ....................................... $221,998,880
Cash ....................................................... 2,614
Foreign cash at value (Cost $185) .......................... 183
Receivable for:
Fund shares sold ......................................... 204,759
Accrued interest ......................................... 4,244,486
Prepaid registration expense ............................... 11,000
------------
226,461,922
LIABILITIES
Payable for:
Securities purchased ..................................... $532,710
Fund shares redeemed ..................................... 364,529
Dividends declared ....................................... 219,433
Accrued expenses:
Management fees .......................................... 82,190
Deferred trustees' fees .................................. 74,003
Accounting and administrative ............................ 3,449
Other expenses ........................................... 73,924
--------
1,350,238
------------
NET ASSETS ................................................... $225,111,684
============
Net Assets consist of:
Capital paid in .......................................... $223,237,039
Overdistributed net investment income .................... (87,621)
Accumulated net realized gains ........................... 563,487
Unrealized appreciation on investments and foreign
currency transactions .................................. 1,398,779
------------
NET ASSETS ................................................... $225,111,684
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($189,684,849 divided by 15,746,309 shares of beneficial
interest) .................................................. $12.05
======
Offering price per share (100/95.50 of $12.05) ............... $12.62*
======
Net asset value and offering price of Class B shares
($31,191,270 divided by 2,589,876 shares of beneficial
interest) .................................................. $12.04**
======
Net asset value and offering price of Class C shares
($2,391,484 divided by 198,379 shares of beneficial interest) $12.06
======
Net asset value and offering price of Class Y shares
($1,844,081 divided by 152,862 shares of beneficial interest) $12.06
======
Identified cost of investments ............................... $220,599,909
============
* 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.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ................................................. $17,972,526
Expenses
Management fees ........................................ $ 962,307
Service fees - Class A ................................. 480,362
Service and distribution fees - Class B ................ 273,249
Service and distribution fees - Class C ................ 16,367
Trustees' fees and expenses ............................ 22,679
Accounting and administrative .......................... 44,322
Custodian .............................................. 110,319
Transfer agent ......................................... 466,128
Audit and tax services ................................. 44,800
Legal .................................................. 27,758
Printing ............................................... 49,847
Registration ........................................... 52,675
Miscellaneous .......................................... 8,232
-----------
Total expenses ........................................... 2,559,045
-----------
Net investment income .................................... 15,413,481
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ...................................... 1,541,170
Foreign currency transactions - net .................... (6,558)
-----------
Net realized gain on investments and foreign currency
transactions ......................................... 1,534,612
-----------
Unrealized appreciation (depreciation) on:
Investments - net ...................................... (7,307,211)
Foreign currency transactions - net .................... 586
-----------
Net unrealized depreciation on investments and foreign
currency transactions ................................ (7,306,625)
-----------
Net loss on investment transactions ...................... (5,772,013)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 9,641,468
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................... $ 13,460,532 $ 15,413,481
Net realized gain on investments and foreign currency
transactions ........................................... 3,375,468 1,534,612
Unrealized appreciation (depreciation) on investments and
foreign currency transactions .......................... 21,417,541 (7,306,625)
------------ ------------
Increase in net assets from operations ................... 38,253,541 9,641,468
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (12,389,368) (13,542,980)
Class B ................................................ (971,501) (1,725,391)
Class C ................................................ (15,073) (102,907)
Class Y ................................................ (116,130) (158,575)
------------ ------------
(13,492,072) (15,529,853)
------------ ------------
Increase in net assets derived from capital share
transactions ......................................... 37,374,309 4,067,248
------------ ------------
Total increase (decrease) in net assets ................ 62,135,778 (1,821,137)
NET ASSETS
Beginning of the year .................................... 164,797,043 226,932,821
------------ ------------
End of the year .......................................... $226,932,821 $225,111,684
============ ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
Beginning of the year .................................... $ 43,998 $ 150,070
============ ============
End of the year .......................................... $ 150,070 $ (87,621)
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .... $12.14 $12.12 $12.18 $10.95 $12.36
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income ................. 0.85 0.77 0.72 0.81 0.84
Net Realized and Unrealized Gain (Loss)
on Investments ...................... 0.01 0.66 (1.23) 1.40 (0.31)
------ ------ ------ ------ ------
Total From Investment Operations ...... 0.86 1.43 (0.51) 2.21 0.53
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income .. (0.86) (0.78) (0.72) (0.80) (0.84)
Distributions From Net Realized Capital
Gains ............................... (0.02) (0.59) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions ................... (0.88) (1.37) (0.72) (0.80) (0.84)
------ ------ ------ ------ ------
Net Asset Value, End of Year .......... $12.12 $12.18 $10.95 $12.36 $12.05
====== ====== ====== ====== ======
Total Return (%) (a) .................. 7.5 12.1 (4.2) 20.8 4.6
Ratio of Operating Expenses to
Average Net Assets (%) .............. 1.08 1.04 1.08 1.14 1.05
Ratio of Net Investment Income to
Average Net Assets (%) .............. 7.08 6.10 6.46 6.81 7.00
Portfolio Turnover Rate (%) ........... 89 202 77 81 104
Net Assets, End of Year (000) ......... $145,184 $179,264 $155,362 $200,285 $189,685
(a) A sales charge is not reflected in total return calculations.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
SEPTEMBER 13(a)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------
1993 1994 1995 1996
--------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $13.06 $12.18 $10.95 $12.36
------ ------ ------ ------
Income From Investment Operations
Net Investment Income ..................... 0.20 0.63 0.72 0.75
Net Realized and Unrealized Gain (Loss) on
Investments ............................. (0.30) (1.23) 1.40 (0.32)
------ ------ ------ ------
Total From Investment Operations .......... (0.10) (0.60) 2.12 0.43
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income ...... (0.19) (0.63) (0.71) (0.75)
Distributions From Net Realized Capital
Gains ................................... (0.59) 0.00 0.00 0.00
------ ------ ------ ------
Total Distributions ....................... (0.78) (0.63) (0.71) (0.75)
------ ------ ------ ------
Net Asset Value, End of Period ............ $12.18 $10.95 $12.36 $12.04
====== ====== ====== ======
Total Return (%)(c) ....................... (0.8) (4.9) 19.9 3.7
Ratio of Operating Expenses to
Average Net Assets (%) .................. 1.81(b) 1.83 1.89 1.80
Ratio of Net Investment Income to
Average Net Assets (%) .................. 4.79(b) 5.71 6.06 6.25
Portfolio Turnover Rate (%) ............... 202 77 81 104
Net Assets, End of Period (000) ........... $2,661 $9,435 $23,398 $31,191
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) A contingent deferred sales charge is not reflected in total return calculations. Periods less than
one year are not annualized.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C CLASS Y
------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .. $10.95 $12.36 $10.95 $12.40
------ ------ ------ ------
Income From Investment Operations
Net Investment Income ............... 0.56 0.75 0.80 0.87
Net Realized and Unrealized Gain
(Loss) on Investments ............. 1.40 (0.30) 1.44 (0.34)
------ ------ ------ ------
Total From Investment Operations .... 1.96 0.45 2.24 0.53
------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income (0.55) (0.75) (0.79) (0.87)
------ ------ ------ ------
Total Distributions ................. (0.55) (0.75) (0.79) (0.87)
------ ------ ------ ------
Net Asset Value, End of Year ........ $12.36 $12.06 $12.40 $12.06
====== ====== ====== ======
Total Return (%) .................... 18.1 3.9 21.0 4.6
Ratio of Operating Expenses to
Average Net Assets (%) ............ 1.89 1.80 0.89 0.80
Ratio of Net Investment Income to
Average Net Assets (%) ............ 6.06 6.25 7.06 7.25
Portfolio Turnover Rate (%) ......... 81 104 81 104
Net Assets, End of Year (000) ....... $1,009 $2,391 $2,241 $1,844
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996
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 and Class C and
Class Y shares on December 30, 1994. Class A shares are sold with a maximum
front end sales charge of 4.50%. Class B shares do not pay a front end sales
charge, but pay a higher ongoing distribution fee than Class A shares for eight
years (at which point they automatically convert to Class A shares), and are
subject to a contingent deferred sales charge if those shares are redeemed
within five years of purchase. Class C shares do not pay front end or contingent
deferred sales charges and do not convert to any class of shares, but they do
pay a higher ongoing distribution fee than Class A shares. Class Y shares do not
pay a front end sales charge, a contingent deferred sales charge or distribution
fees. They are intended for institutional investors with a minimum of $1,000,000
to invest. Expenses of the Fund are borne pro-rata by the holders of all classes
of shares, except that each class bears expenses unique to that class (including
the Rule 12b-1 service and distribution fees applicable to such class), and
votes as a class only with respect to its own Rule 12b-1 plan. Shares of each
class would receive their pro-rata share of the net assets of the Fund, if the
Fund were liquidated. In addition, the Trustees approve separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. SECURITY VALUATION. The Fund's investment subadviser, Back Bay Advisors, L.P.
("Back Bay Advisors"), under the supervision of the Fund's trustees, determines
the value of the Fund's portfolio of securities, using valuations provided by a
pricing service selected by Back Bay Advisors and other information with respect
to transactions in securities, including quotations from securities dealers.
Valuations of securities and other assets owned by the Fund for which market
quotations are readily available are based on those quotations. Short-term
obligations that will mature in 60 days or less are stated at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value as determined in good faith by Back Bay Advisors under the
supervision of the Fund's trustees.
B. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are
maintained in U.S. dollars. The value of securities, currencies and other
assets and liabilities denominated in currencies other than U.S. dollars are
translated into U.S. dollars based upon foreign exchange rates prevailing at
the end of the period. Purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates from
fluctuations arising from changes in market prices of the investment securities.
Such fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from: sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities, resulting from changes in the exchange rate.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
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 principles. These differences are primarily due to
differing treatments for mortgage backed securities and foreign currency
transactions for book and tax purposes. Permanent book and tax basis differences
will result in reclassifications to capital accounts.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors is responsible for determining that
the value of the collateral is at all times at least equal to the repurchase
price. Repurchase agreements could involve certain risks in the event of default
or insolvency of the other party including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
year ended December 31, 1996 were as follows:
PURCHASES SALES
----------------------------- -----------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
--------------- ------------ --------------- ------------
$32,224,125 $198,911,071 $51,564,682 $172,436,520
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 0.50% of the first $100 million of the Fund's
average daily net assets and 0.375% of such assets in excess of $100 million.
NEFM pays the Fund's investment subadviser, Back Bay Advisors at the rate of
0.25% of the first $100 million of the Fund's average daily net assets and
0.1875% of such assets in excess of $100 million. Certain officers and directors
of NEFM are also officers or trustees of the Fund. NEFM and Back Bay Advisors
are wholly owned subsidiaries of New England Investment Companies, L.P. ("NEIC")
which is a subsidiary of Metropolitan Life Insurance Company ("Met Life"). Fees
earned by NEFM and Back Bay Advisors under the management agreement in effect
during the year ended December 31, 1996 are as follows:
FEES EARNED
-----------
$481,154 New England Funds Management, L.P.
$481,153 Back Bay Advisors, L.P.
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, 1996, these expenses amounted to $44,322 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 for the Fund. For the year ended December 31, 1996, the Fund
paid New England Funds $333,439 as compensation for its services in that
capacity.
D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the
Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and Service and Distribution Plans relating to the Fund's Class
B and Class C shares (the "Class B and Class C Plans").
Under the Class A Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class A shares, as reimbursement for expenses (including certain
payments to securities dealers, who may be affiliated with New England Funds)
incurred by New England Funds in providing personal services to investors in
Class A shares and/or the maintenance of shareholder accounts. For the year
ended December 31, 1996, the Fund paid New England Funds $480,362 in fees under
the Class A Plan. If the expenses of New England Funds that are otherwise
reimbursable under the Class A Plan incurred in any year exceed the amounts
payable by the Fund under the Class A Plan, the unreimbursed amount (together
with unreimbursed amounts from prior years) may be carried forward for
reimbursement in future years in which the Class A Plan remains in effect. The
amount of unreimbursed expenses carried forward into 1997 is $1,919,349.
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B and Class C shares, as compensation for
services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the year ended December 31,
1996, the Fund paid New England Funds $68,312 and $4,092 in service fees under
the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds
monthly distribution fees at the annual rate of up to 0.75% of the average daily
net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers, who may be affiliated with New England Funds) incurred by
New England Funds in connection with the marketing or sale of Class B and Class
C shares. For the year ended December 31, 1996, the Fund paid New England Funds
$204,937 and $12,275 in distribution fees under the Class B and Class C Plans,
respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors in shares of the Fund during the year ended
December 31, 1996 amounted to $ 529,880.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation
directly to its officers or trustees who are directors, officers or employees
of NEFM, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as
follows:
Annual Retainer $2,234
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Annual Retainer $107
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have been, had it been invested in the Fund on the
normal payment date.
<PAGE>
4. CAPITAL SHARES. At December 31, 1996 there was an unlimited number of shares
of beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y capital stock. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,700,665 $30,791,035 2,483,333 $29,456,197
Shares issued in the merger with New
England Global Government Fund ..... 1,513,135 17,368,227 0 0
Shares issued in connection with the
reinvestment of:
Dividends from net investment income . 937,520 11,088,211 1,002,951 11,931,875
--------- ----------- --------- -----------
5,151,320 59,247,473 3,486,284 41,388,072
Shares repurchased ................... (3,144,314) (36,944,840) (3,940,934) (46,845,991)
--------- ----------- --------- -----------
Net increase (decrease) .............. 2,007,006 $22,302,633 (454,650) ($ 5,457,919)
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 973,948 $11,423,501 945,735 $11,428,974
Shares issued in the merger with New
England Global Government Fund ..... 132,100 1,516,371 0 0
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 69,864 830,708 121,533 1,445,611
--------- ----------- --------- -----------
1,175,912 13,770,580 1,067,268 12,874,585
Shares repurchased ................... (144,789) (1,723,515) (370,399) (4,406,738)
--------- ----------- --------- -----------
Net increase ......................... 1,031,123 $12,047,065 696,869 $ 8,467,847
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 118,121 $ 1,417,727 190,350 $ 2,281,349
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 1,084 13,111 7,179 85,505
--------- ----------- --------- -----------
119,205 1,430,838 197,529 2,366,854
Shares repurchased ................... (37,616) (450,113) (80,739) (972,718)
--------- ----------- --------- -----------
Net increase ......................... 81,589 $ 980,725 116,790 $ 1,394,136
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
--------------------------- ---------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold .......................... 183,755 $ 2,080,961 51,948 $ 616,546
Shares issued in connection with the
reinvestment of:
Dividends from net investment income 9,639 114,837 13,302 158,563
--------- ----------- --------- -----------
193,394 2,195,798 65,250 775,109
Shares repurchased ................... (12,673) (151,912) (93,109) (1,111,925)
--------- ----------- --------- -----------
Net increase (decrease) .............. 180,721 $ 2,043,886 (27,859) ($ 336,816)
Increase derived from
capital shares transactions ........ 3,300,439 $37,374,309 331,150 $ 4,067,248
========= =========== ========= ===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF THE INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of NEW ENGLAND BOND INCOME FUND
In our opinion, the accompanying statement of assets & liabilities, including
the portfolio composition, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of New England Bond Income Fund ("the
Fund") at December 31, 1996, 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, 1996 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, 1997
<PAGE>
--------------
(Logo) BULK RATE
NEW ENGLAND FUNDS U.S. POSTAGE
Where The Best Minds Meet(TM) PAID
BROCKTON, MA
PERMIT NO. 770
--------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
- --------------------- ---------------------
[Logo] [Logo]
QUALITY QUALITY
TESTED SERVICE TESTED SERVICE
1995 1996
- --------------------- ---------------------
DALBAR DALBAR
HONORS COMMITMENT TO: HONORS COMMITMENT TO:
INVESTORS INVESTORS
- --------------------- ---------------------
BI56-1296
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