<PAGE>
- -------------------------------------------------------------------------------
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
[graphic omitted]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
New England
Bond Income Fund
[graphic omitted]
- -------------
June 30, 1997
- -------------
<PAGE>
August 1997
- -------------------------------------------------------------------------------
[Photo of Henry L.P. Schmelzer]
Dear New England Funds Shareholder,
Spurred by bright economic prospects, the broader U.S. stock market continued
its record run during the first half of the year, experiencing only short-lived
setbacks along the way. These fresh gains come on top of significant increases
in 1995 and 1996, leaving many investors wary of what might come next. Bond
markets, meanwhile, contended with some volatility in interest rates, but have
been relatively stable this year.
Building a portfolio for variable markets
Investors should not abandon well-conceived financial programs for fear of a
down market. Whether today's market levels are excessive -- only hindsight will
tell. So you should remain patient and realistic, alert to the possibility of
periodic market declines. Consultation with your financial representative should
be a regular part of your planning. Your representative can help you take
prudent steps to adjust your portfolio, whatever the next trend may bring.
Strategic initiatives deliver shareholder benefits
Four years ago New England Funds embarked on a new strategic direction.
Expressed in our corporate slogan Where The Best Minds Meet(R), this new thrust
has meant improved performance for many of our funds, award-winning service and
a host of behind-the-scenes enhancements designed to help our shareholders and
their financial representatives.
Our sights, like yours, are focused on the long term. At the same time, we work
to enhance service every day. We also keep a disciplined eye on the performance
that each fund manager achieves. Through these persistent efforts we're
convinced we'll merit your continued commitment and loyalty. Thank you for your
confidence in New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BOND INCOME FUND
- --------------------------------------------------------------------------------
AWARD WINNING SERVICE -- TWO YEARS RUNNING
- --------------------------------------------------------------------------------
- --------------------- For two years running we're proud to announce that
DALBAR, an independent evaluator of mutual fund service,
QUALITY 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 JUNE 30, 1997
- --------------------------------------------------------------------------------
Putting Performance into Perspective
The charts 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.
See next page o
<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 6/30/87 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)
JUNE 1987 THROUGH JUNE 1997
NET WITH LEHMAN COST
ASSET MAXIMUM INTERMEDIATE OF
VALUE(1) SALES CHARGE(2) GOV'T/CORP.(4) LIVING(5)
----- -------------- -------------- ---------
6/30/87 $10,000 $ 9,550 $10,000 $10,000
6/88 $10,715 $10,233 $10,777 $10,396
6/89 $11,795 $11,264 $11,879 $10,933
6/90 $12,533 $11,969 $12,807 $11,444
6/91 $13,789 $13,169 $14,156 $11,982
6/92 $15,925 $15,209 $16,019 $12,352
6/93 $18,128 $17,312 $17,692 $12,722
6/94 $17,723 $16,926 $17,646 $13,039
6/95 $20,261 $19,350 $19,475 $13,435
6/96 $21,303 $20,344 $20,449 $13,804
6/97 $23,570 $22,509 $21,928 $14,104
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 -- 6/30/97
- -------------------------------------------------------------------------------
AAA 23.6%
AA 16.9%
A 5.9%
BBB 33.6%
BB 20.0%
Quality is based on ratings provided by Standard & Poor's.
Portfolio composition will change with market and economic conditions.
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND BOND INCOME FUND
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- 6/30/97
- -------------------------------------------------------------------------------
CLASS A (Inception 11/7/73) YTD 1 YEAR 5 YEARS 10 YEARS
Net Asset Value(1) 3.99% 10.64% 8.16% 8.95%
With Max. Sales Charge(2) -0.71 5.68 7.17 8.45
Lehman Intermediate
Govt./Corp.(4) 2.83 7.23 6.49 8.16
Lipper Intermediate Investment
Grade Debt Average(6) 2.74 7.54 6.40 8.14
- -------------------------------------------------------------------------------
SINCE
CLASS B (Inception 9/13/93) YTD 1 YEAR 3 YEARS INCEPTION
Net Asset Value(1) 3.69% 9.83% 9.16% 5.28%
With CDSC(3) -1.31 4.83 8.31 4.64
Lehman Intermediate
Govt./Corp.(4) 2.83 7.23 7.51 5.26
Lipper Intermediate Investment
Grade Debt Average(6) 2.74 7.54 7.62 4.83
- -------------------------------------------------------------------------------
CLASS C (Inception 12/30/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 3.60% 9.91% 10.08%
Lehman Intermediate
Govt./Corp.(4) 2.83 7.23 8.77
Lipper Intermediate Investment
Grade Debt Average(6) 2.74 7.54 8.91
- -------------------------------------------------------------------------------
CLASS Y (Inception 12/30/94) YTD 1 YEAR SINCE INCEPTION
Net Asset Value(1) 4.20% 10.80% 11.70%
Lehman Intermediate
Govt./Corp.(4) 2.83 7.23 8.77
Lipper Intermediate Investment
Grade Debt Average(6) 2.74 7.54 8.91
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
(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 5% sales
charge is applied to a redemption of Class B shares. The sales charge will
decrease over time, declining to zero six 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. What was the investment backdrop for New England Bond Income Fund during the
period?
[Photo of Cathy Bunting]
Cathy Bunting
Back Bay
Advisors, L.P.
Interest rates were relatively volatile on the heels of the Federal Reserve's
March hike in short-term interest rates, though fluctuations were generally
contained within a narrow range. Rising interest rates during the first quarter
tended to push bond prices lower and yields higher, as reflected in the Fund's
total return of -0.26% (Class A shares at net asset value) for the first three
months of this year. As interest rates stabilized during the second quarter,
your Fund more than made up for lost ground, finishing the six-month period
ended June 30, 1997 with a positive total return of 3.99% (Class A shares at net
asset value). This return reflects the reinvestment of $0.42 per share in
dividend income and a change in share price to $12.10 on June 30, from $12.05
six months ago. Select investments in corporate bonds also helped the Fund's
performance, which was significantly better than the 2.74% average total return
of the Fund's peer group of Intermediate Investment-Grade Debt funds, as
measured by Lipper Analytical Services.
Q. How did you structure the Fund during the period?
Corporate bonds encompassed 70% of the portfolio and were the biggest
contributor to your Fund's performance. Strong economic conditions helped these
bonds perform better than U.S. government securities. Among the portfolio's
standout corporate issues were those whose credit ratings had been upgraded to
what major ratings agencies, such as Standard & Poor's, consider
investment-grade terrain -- the four highest bond ratings categories.
(Lower-quality bonds are limited to no more than 20% of the portfolio.)
Improving fundamentals in certain industries and companies fostered credit
upgrades in select holdings, subsequently translating into higher bond prices.
Utility bonds also contributed positively to your Fund's performance. These
bonds, which constituted about 20% of the portfolio at the end of the period,
recently completed a round of consolidation, paving the way for credit upgrade
opportunities.
We also maintained holdings in Canadian dollar securities, whose prices rose as
yields fell across the maturity spectrum. Thanks to Canada's low inflation rate,
these bonds provided better inflation-adjusted returns than comparable U.S.
securities. Mortgage-backed securities and Treasury issues continued to make up
the high-quality component of your Fund. During the period, lower volatility
levels enhanced their performance.
Q. Where do you see opportunity in the months ahead?
We continue to favor Yankee bonds (U.S. dollar-denominated bonds issued by
foreign companies), which worked well for the Fund during the period. The
universe of Yankees continues to look promising, having expanded from primarily
Canadian issues to a competitive market that now covers the globe. Yankee bonds
represent an opportunity to participate in global bond markets without exposure
to currency risk. Other investments that remain attractive include the Fund's
cable/media holdings, given our expectations for credit upgrades in the cable
industry. This industry continues to benefit from global consolidation.
Q. What is your outlook for the Fund?
Slowing economic growth and well-contained inflation levels will probably keep
the Fed from raising interest rates -- this translates into a stable environment
for bonds, especially select corporate securities.
Going forward, we expect to increase emphasis on higher-grade securities. The
yield gap between bonds at different credit levels has narrowed substantially --
so investors are not compensated for taking added credit risk. This means your
Fund can invest in better-quality securities, such as investment-grade corporate
bonds and Treasury securities, without giving up much in yield.
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
Investments as of June 30, 1997
(unaudited)
BONDS AND NOTES--98.1% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
FACE
AMOUNT DESCRIPTION VALUE (a)
- --------------------------------------------------------------------------------------------
<C> <S> <C>
BROADCASTING--6.8%
$ 5,700,000 Cablevision Industries, 9.250%, 4/01/08 ................. $ 6,042,000
4,500,000 Continental Cablevision, Inc., 9.500%, 8/01/13 .......... 5,107,860
3,700,000 Continental Cablevision, Inc., 11.000%, 6/01/07 ......... 4,146,294
------------
15,296,154
------------
CONTAINERS & GLASS--0.5%
1,200,000 Owens Illinois Inc., 8.100%, 5/15/07 .................... 1,224,276
------------
ELECTRIC UTILITIES--20.4%
9,800,000 Arizona Public Service Corp., 8.000%, 12/30/15 .......... 10,151,134
500,000 Cleveland Electric Illuminating Co., 8.170%, 11/30/98 ... 510,075
4,800,000 Long Island Lighting Co., 8.200%, 3/15/23 ............... 4,924,320
5,104,000 Long Island Lighting Co., 9.000%, 11/01/22 .............. 5,600,058
3,962,000 New Mexico Public Service Corp., 10.250%, 10/01/12 ...... 4,496,751
7,400,000 New York Electric & Gas Corp., 8.875%, 11/01/21 ......... 7,832,160
2,000,000 Ohio Edison Corp., 8.680%, 6/01/17 ...................... 2,071,340
5,000,000 Tennessee Valley Authority, 6.125%, 7/15/03 ............. 4,849,400
2,800,000 Texas Utilities Electric Co., 8.875%, 2/01/22 ........... 2,961,252
2,100,000 Toledo Edison Co., 7.875%, 8/01/04 ...................... 2,130,954
------------
45,527,444
------------
FEDERAL AGENCIES--13.5%
249,312 Federal Home Loan Mortgage Corp., 9.000%, 5/1/01 ........ 257,961
3,500,000 Federal National Mortgage Association, 6.450%, 6/10/03 .. 3,424,050
812,174 Federal National Mortgage Association, 7.500%, 2/1/24 ... 814,456
10,260,394 Government National Mortgage Association, 7.000%, with
various maturities to 2025 (c) ....................... 10,084,018
10,865,967 Government National Mortgage Association, 7.500%, with
various maturities to 2025 (c) ....................... 10,906,715
3,718,206 Government National Mortgage Association, 8.500%, with
various maturities to 2023 (c) ....................... 3,866,934
271,258 Government National Mortgage Association, 9.000%, with
various maturities to 2016 (c) ....................... 286,856
385,070 Government National Mortgage Association, 11.500%, with
various maturities to 2018 (c) ....................... 432,603
------------
30,073,593
------------
FINANCE & BANKING--7.9%
4,075,000 American General Finance Corp., 8.450%, 10/15/09 ........ 4,530,830
5,750,000 Associates Corp. North America, 8.550%, 7/15/09 ......... 6,410,387
4,000,000 Intermediate American Development Bank, 6.950%, 8/01/26 . 4,110,080
2,400,000 Pitney Bowes Credit Corp., 8.550%, 9/15/09 .............. 2,701,440
------------
17,752,737
------------
FOREIGN ISSUES--7.2%
6,500,000 Government of Canada, 8.000%, 6/01/23 (d) .............. 5,342,337
20,000,000 Ontario Hydro, Zero Coupon, 11/27/20 (d) ............... 2,650,349
21,400,000 Ontario Hydro, Zero Coupon, 8/06/21 (d) ................ 2,696,405
7,000,000 Province of British Columbia, 7.750%, 6/16/03 (d) ...... 5,498,316
------------
16,187,407
------------
U.S. GOVERNMENT--3.7%
1,800,000 United States Treasury Notes, 6.875%, 7/31/99 ........... 1,826,352
6,000,000 United States Treasury Notes, 8.500%, 11/15/00 .......... 6,397,800
------------
8,224,152
------------
OIL & GAS--1.0%
2,100,000 Mitchell Energy & Development Corp., 9.250%, 1/15/02 .... 2,268,105
------------
PAPER--0.9%
2,000,000 Pope and Talbot Inc., 8.375%, 6/01/13 ................... 1,906,360
------------
PUBLISHING--5.7%
4,000,000 Golden Books Publishing, Inc., 7.650%, 9/15/02 .......... 3,780,000
2,000,000 News America Holdings, Inc., 7.750%, 2/01/24 ............ 1,898,880
4,700,000 News America Holdings, Inc., 8.250%, 8/10/18 ............ 4,736,848
2,000,000 Time Warner, Inc., 9.150%, 2/01/23 ...................... 2,201,800
------------
12,617,528
------------
RAILROADS & EQUIPMENT--0.9%
2,000,000 Norfolk Southern Corp., 7.050%, 5/01/37 ................. 2,028,860
------------
TELECOMMUNICATION--13.0%
4,400,000 AT&T Corp., 8.350%, 1/15/25 ............................. 4,600,332
4,000,000 BellSouth Telecomm, Inc., 5.850%, 11/15/45 .............. 3,949,360
2,000,000 LCI International, Inc., 7.250%, 6/15/07 ................ 1,981,000
9,570,000 MFS Communications, Inc., Zero Coupon, 1/15/06 .......... 7,536,375
5,280,000 Tele-Communications, Inc., 9.250%, 1/15/23 .............. 5,536,344
2,000,000 Tele-Communications, Inc., 9.800%, 2/01/12 .............. 2,281,980
1,000,000 Worldcom Inc., 7.750%, 4/01/07 .......................... 1,022,680
2,000,000 Worldcom Inc., 7.750%, 4/01/27 .......................... 2,045,060
------------
28,953,131
------------
YANKEE--16.6%
1,200,000 British Columbia Hydro & Power, 12.500%, 9/01/13 ........ 1,325,736
1,600,000 British Columbia Hydro & Power, 12.500%, 1/15/14 ........ 1,800,848
2,540,000 Gulf Canada Resources, Ltd., 8.350%, 8/01/06 ............ 2,692,400
3,000,000 Hydro Quebec, 8.050%, 7/07/24 ........................... 3,255,840
3,310,000 Ontario Province, 11.500%, 3/10/13 ...................... 3,564,671
4,000,000 Petroleos Mexicanos, 9.000%, 6/01/07 .................... 4,035,000
5,800,000 Petroleos Mexicanos, 144A, 8.625%, 12/01/23 (e) ........ 5,140,250
1,000,000 Republic of Argentina, 11.375%, 1/30/17 ................. 1,125,000
3,900,000 Republic of Colombia, 144A, 8.660%, 10/07/16 (e) ....... 4,135,599
3,000,000 Republic of Columbia, 7.250%, 2/23/04 ................... 2,917,560
5,500,000 Toronto Dominion Bank, Ontario, 7.875%, 8/15/04 ......... 5,577,935
1,500,000 Total Access Communication Public, 144A, 8.375%, 11/04/06 (e) 1,449,540
------------
37,020,379
------------
Total Bonds and Notes (Identified Cost $217,105,544) .... 219,080,126
------------
SHORT TERM INVESTMENT--0.5%
-------------------------------------------------------------------------------------------
1,015,000 Household Finance Corp., 6.080%, 7/01/97 ................ 1,015,000
------------
Total Short Term Investment (Identified Cost $1,015,000) 1,015,000
------------
Total Investments--98.6% (Identified Cost $218,120,544) (b) 220,095,126
Other assets less liabilities ........................... 3,220,562
------------
Total Net Assets--100% ................................... $223,315,688
============
(a) See Note 1a.
(b) Federal Tax Information:
At June 30, 1997 the net unrealized appreciation on investments
based on cost of $218,120,544 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 ............... $ 4,382,492
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value ............... (2,407,910)
------------
Net unrealized appreciation ..................................... $ 1,974,582
===========
(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) 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
- -------------------------------------------------------------------------------
June 30, 1997
(unaudited)
ASSETS
Investments at value .............................. $220,095,126
Cash .............................................. 371
Receivable for:
Fund shares sold ................................ 684,175
Accrued interest ................................ 3,907,244
Prepaid registration expense ...................... 11,000
------------
224,697,916
LIABILITIES
Payable for:
Fund shares redeemed ............................$992,444
Dividends declared .............................. 177,805
Accrued expenses:
Management fees ................................. 78,928
Deferred trustees' fees ......................... 77,281
Accounting and administrative ................... 3,914
Other expenses .................................. 51,856
--------
1,382,228
------------
NET ASSETS .......................................... $223,315,688
============
Net Assets consist of:
Capital paid in ................................. $220,451,391
Overdistributed net investment income ........... (170,701)
Accumulated net realized gains ................. 1,060,287
Unrealized appreciation on investments and
foreign currency transactions ................. 1,974,711
------------
NET ASSETS .......................................... $223,315,688
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($186,011,107 divided by 15,371,669 shares
of beneficial interest) ........................... $12.10
======
Offering price per share (100/95.50 of $12.10) ...... $12.67*
======
Net asset value and offering price of Class B shares
($32,478,755 divided by 2,684,854 shares of
beneficial interest) .............................. $12.10**
======
Net asset value and offering price of Class C shares
($2,565,538 divided by 211,863 shares of
beneficial interest) .............................. $12.11
======
Net asset value and offering price of Class Y shares
($2,260,288 divided by 186,505 shares of
beneficial interest) .............................. $12.12
======
Identified cost of investments ...................... $218,120,544
============
* 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, 1997
(unaudited)
INVESTMENT INCOME
Interest ........................................ $8,680,715
Expenses
Management fees ............................... $471,598
Service fees - Class A ........................ 228,913
Service and distribution fees - Class B ....... 153,853
Service and distribution fees - Class C ....... 12,444
Trustees' fees and expenses ................... 10,844
Accounting and administrative ................. 23,472
Custodian ..................................... 64,719
Transfer agent ................................ 246,495
Audit and tax services ........................ 21,000
Legal ......................................... 9,956
Printing ...................................... 27,551
Registration .................................. 22,857
Miscellaneous ................................. 7,004
--------
Total expenses .................................. 1,300,706
----------
Net investment income ........................... 7,380,009
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Realized gain (loss) on:
Investments - net ............................. 551,554
Foreign currency transactions - net ........... (54,754)
--------
Total realized gain on investments and foreign
currency transactions ......................... 496,800
--------
Unrealized appreciation on:
Investments - net ............................. 575,611
Foreign currency transactions - net ........... 346
--------
Total unrealized appreciation on investments
and foreign currency transactions ............ 575,957
--------
Net gain on investment transactions ............. 1,072,757
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ........ $8,452,766
==========
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income .................................. $ 15,413,481 $ 7,380,009
Net realized gain on investments and foreign currency
transactions ......................................... 1,534,612 496,800
Unrealized appreciation (depreciation) on investments,
and foreign currency transactions .................... (7,306,625) 575,957
------------- ------------
Increase in net assets from operations ................. 9,641,468 8,452,766
------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (13,542,980) (6,356,372)
Class B ................................................ (1,725,391) (954,591)
Class C ................................................ (102,907) (77,253)
Class Y ................................................ (158,575) (74,873)
------------- ------------
(15,529,853) (7,463,089)
------------- ------------
Increase (decrease) in net assets derived from capital
share transactions ................................... 4,067,248 (2,785,673)
------------- ------------
Total decrease in net assets ........................... (1,821,137) (1,795,996)
NET ASSETS
Beginning of the period ................................ 226,932,821 225,111,684
------------- ------------
End of the period ...................................... $ 225,111,684 $223,315,688
============= ============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT INCOME
Beginning of the period ................................ $150,070 ($87,621)
============= ============
End of the period ...................................... ($87,621) ($170,701)
============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------ -------------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $12.14 $12.12 $12.18 $10.95 $12.36 $12.05
------ ------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income ... 0.85 0.77 0.72 0.81 0.84 0.42
Net Realized and
Unrealized Gain (Loss)
on Investments ........ 0.01 0.66 (1.23) 1.40 (0.31) 0.05
------ ------ ------ ------ ------ ------
Total From Investment
Operations ............ 0.86 1.43 (0.51) 2.21 0.53 0.47
------ ------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income ..... (0.86) (0.78) (0.72) (0.80) (0.84) (0.42)
Distributions From Net
Realized Capital Gains (0.02) (0.59) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total Distributions ..... (0.88) (1.37) (0.72) (0.80) (0.84) (0.42)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period ................ $12.12 $12.18 $10.95 $12.36 $12.05 $12.10
====== ====== ====== ====== ====== ======
Total Return (%) (a) .... 7.5 12.1 (4.2) 20.8 4.6 4.0
Ratio of Operating
Expenses to Average
Net Assets (%) ........ 1.08 1.04 1.08 1.14 1.05 1.08(b)
Ratio of Net Investment
Income to Average
Net Assets (%) ........ 7.08 6.10 6.46 6.81 7.00 6.87(b)
Portfolio Turnover Rate (%) 89 202 77 81 104 111(b)
Net Assets, End of Period
(000) ................. $145,184 $179,264 $155,362 $200,285 $189,685 $186,011
(a) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
(b) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------
SEPTEMBER 13(a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------ JUNE 30,
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period .................... $13.06 $12.18 $10.95 $12.36 $12.04
------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income ....... 0.20 0.63 0.72 0.75 0.36
Net Realized and Unrealized
Gain (Loss) on Investments (0.30) (1.23) 1.40 (0.32) 0.08
------ ------ ------ ------ ------
Total From Investment
Operations ................ (0.10) (0.60) 2.12 0.43 0.44
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income .................... (0.19) (0.63) (0.71) (0.75) (0.38)
Distributions From Net
Realized Capital Gains .... (0.59) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions ......... (0.78) (0.63) (0.71) (0.75) (0.38)
------ ------ ------ ------ ------
Net Asset Value, End of
Period .................... $12.18 $10.95 $12.36 $12.04 $12.10
====== ====== ====== ====== ======
Total Return (%)(c) ......... (0.8) (4.9) 19.9 3.7 3.7
Ratio of Operating Expenses
to Average Net Assets (%) 1.81(b) 1.83 1.89 1.80 1.83(b)
Ratio of Net Investment
Income to Average Net
Assets (%) ................ 4.79(b) 5.71 6.06 6.25 6.12(b)
Portfolio Turnover Rate (%).. 202 77 81 104 111(b)
Net Assets, End of Period
(000) ..................... $2,661 $9,435 $23,398 $31,191 $32,479
(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
- -------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS C CLASS Y
-------------------------------------- ---------------------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $ 10.95 $ 12.36 $ 12.06 $ 10.95 $ 12.40 $ 12.06
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ....................... 0.56 0.75 0.37 0.80 0.87 0.49
Net Realized and Unrealized
Gain (Loss) on Investments ................ 1.40 (0.30) 0.06 1.44 (0.34) 0.01
--------- --------- --------- --------- --------- ---------
Total From Investment Operations ............ 1.96 0.45 0.43 2.24 0.53 0.50
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net Investment Income ........ (0.55) (0.75) (0.38) (0.79) (0.87) (0.44)
--------- --------- --------- --------- --------- ---------
Total Distributions ......................... (0.55) (0.75) (0.38) (0.79) (0.87) (0.44)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period .............. $ 12.36 $ 12.06 $ 12.11 $ 12.40 $ 12.06 $ 12.12
========= ========= ========= ========= ========= =========
Total Return(%)(a) .......................... 18.1 3.9 3.6 21.0 4.6 4.2
Ratio of Operating Expenses to
Average Net Assets (%) .................... 1.89 1.80 1.83 0.89 0.80 0.83(b)
Ratio of Net Investment Income to
Average Net Assets (%) .................... 6.06 6.25 6.12 7.06 7.25 7.12(b)
Portfolio Turnover Rate(%) .................. 81 104 111 81 104 111(b)
Net Assets, End of Period (000) ............. $ 1,009 $ 2,391 $ 2,566 $ 2,241 $ 1,844 $ 2,260
(a) Periods less than one year are not annualized.
(b) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
June 30, 1997
(unaudited)
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 six years of purchase (or five years if purchased before
May 1, 1997). 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 six months ended June 30, 1997 were as follows:
PURCHASES SALES
- ----------------------------------------- -------------------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
- --------------------- ------------------ ------------------ -----------------
$3,613,945 $53,016,769 $6,204,259 $49,539,485
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 six months ended June 30, 1997 are as follows:
FEES EARNED
- -----------
$235,799 New England Funds Management, L.P.
$235,799 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 six months ended June 30, 1997, these expenses
amounted to $23,472 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 six months ended June 30, 1997, the Fund
paid New England Funds $174,920 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, 1997, the Fund paid New England Funds $228,913 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 six months
ended June 30,1997, the Fund paid New England Funds $38,463 and $3,111 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 six months ended June 30, 1997, the Fund paid New
England Funds $115,390 and $9,333 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 six months
ended June 30, 1997 amounted to $223,076.
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 $2,116
Meeting Fee $114/meeting
Committee Meeting Fee $68/meeting
Committee Chairman Annual Retainer $95
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.
4. CAPITAL SHARES. At June 30, 1997 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 SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------------------- ---------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold .......................... 2,483,333 $29,456,197 971,798 $11,641,232
Shares issued in connection with the
reinvestment of:
Dividends from net investment income . 1,002,951 11,931,875 471,294 5,648,092
--------- ----------- --------- -----------
3,486,284 41,388,072 1,443,092 17,289,324
Shares repurchased ................... (3,940,934) (46,845,991) (1,817,732) (21,776,550)
--------- ----------- --------- -----------
Net decrease ......................... (454,650) $(5,457,919) (374,640) $(4,487,226)
--------- ----------- --------- -----------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------------------- ---------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold .......................... 945,735 $11,428,974 374,527 $ 4,481,026
Shares issued in connection with the
reinvestment of:
Dividends from net investment income . 121,533 1,445,611 65,889 789,417
--------- ----------- ------- -----------
1,067,268 12,874,585 440,416 5,270,443
Shares repurchased ................... (370,399) (4,406,738) (345,438) (4,139,698)
--------- ----------- ------- -----------
Net increase ......................... 696,869 $ 8,467,847 94,978 $ 1,130,745
--------- ----------- ------- -----------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------------------- ---------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- --------------
Shares sold .......................... 190,350 $ 2,281,349 49,587 $ 596,513
Shares issued in connection with the
reinvestment of:
Dividends from net investment income . 7,179 85,505 5,678 68,069
--------- ----------- ------- -----------
197,529 2,366,854 55,265 664,582
Shares repurchased ................... (80,739) (972,718) (41,781) (501,185)
--------- ----------- ------- -----------
Net increase ......................... 116,790 $ 1,394,136 13,484 $ 163,397
--------- ----------- ------- -----------
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------------------- ---------------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
- ------- -------------- --------------- -------------- --------------
Shares sold .......................... 51,948 $ 616,546 96,455 $ 1,157,078
Shares issued in connection with the
reinvestment of:
Dividends from net investment income . 13,302 158,563 6,340 76,023
--------- ----------- ------- -----------
65,250 775,109 102,795 1,233,101
Shares repurchased ................... (93,109) (1,111,925) (69,152) (825,690)
--------- ----------- ------- -----------
Net increase (decrease) .............. (27,859) $ (336,816) 33,643 $ 407,411
--------- ----------- ------- -----------
Increase (decrease) derived from
capital shares transactions ........ 331,150 $ 4,067,248 (232,535) $(2,785,673)
========= =========== ======= ===========
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND HIGH INCOME FUND
SUPPLEMENT DATED JULY 28, 1997
TO NEW ENGLAND BOND FUNDS CLASSES A, B AND C PROSPECTUS
DATED MAY 1, 1997 (AS SUPPLEMENTED MAY 28, 1997)
ON PAGE 17 UNDER THE SECTION ENTITLED "HIGH INCOME FUND", THE FIRST SENTENCE
OF THE FIRST PARAGRAPH IS REVISED TO READ AS FOLLOWS:
The High Income Fund under normal market conditions will invest at least 65%
of its total assets in fixed-income securities which are rated BBB or lower by
S&P or Baa or lower by Moody's or unrated but are of comparable quality to
securities that are so rated.
IN THIS SAME SECTION, THE FOURTH PARAGRAPH IS REVISED TO READ AS FOLLOWS:
High Income Fund expects that under normal market conditions at least 80% of
the value of its total assets will be invested in fixed-income securities of
U.S. corporations, including preferred stock and convertible securities, and
U.S. dollar-denominated fixed-income securities issued by foreign governments
or by companies organized in foreign countries. To achieve its basic
investment objective, the Fund from time to time also may invest up to 20% of
the value of its total assets in common stocks and up to 20% of the value of
its total assets in non-U.S. dollar-denominated fixed-income securities issued
by foreign governments or by companies organized in foreign countries.
However, investments in both of these types of securities on a combined basis
generally will not exceed 20% of the value of the Fund's assets. See
"Investment Risks -- Foreign Securities" below.
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration is a means to directly compare the volatility of different
instruments. As a general rule, for every 1% move in interest rates, a bond is
expected to fluctuate in value as indicated by its duration. For example, if
interest rates fall by 1%, a bond with a duration of 4 years should rise in
value 4%. Conversely, the bond should decline 4% if interest rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from Treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of Treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and, in
most cases, from state and local income taxes. The two main types are general
obligation (GO) bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and revenue bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges.
<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 financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market. With
Investment Builder, New England Fund's automatic investment program, you can
invest as little as $100 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 $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 Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
<PAGE>
- -------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- -------------------------------------------------------------------------------
Stock Funds
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Balanced Fund
International Stock Funds
International Equity Fund
Star Worldwide Fund
Bond Funds
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities 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 www.mutualfunds.com
New England Funds, L.P., Distributor
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
<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
- --------------------- ---------------------
BI58-0697
[recycle symbol] Printed On Recycled Paper
