-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iw4hhegb+GR91otRk3DM4nokKiMdW4E5GH8yX7nALElEy9aCFgekl8vx1lrKj/uC E+vguI+Xaa6jJpJ8F1urjQ== 0000950156-96-000795.txt : 19960910 0000950156-96-000795.hdr.sgml : 19960910 ACCESSION NUMBER: 0000950156-96-000795 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960909 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND FUNDS TRUST I CENTRAL INDEX KEY: 0000770540 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04323 FILM NUMBER: 96627229 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND GOVERNMENT SECURITIES FUND DATE OF NAME CHANGE: 19861111 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND LIFE GOVERNMENT SECURITIES TRUST DATE OF NAME CHANGE: 19860930 N-30D 1 NEF TRUST I - STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- [logo] NEW ENGLAND FUNDS Where The Best Minds Meet(TM) - -------------------------------------------------------------------------------- SEMIANNUAL REPORT AND PERFORMANCE UPDATE - -------------------------------------------------------------------------------- NEW ENGLAND STRATEGIC INCOME FUND - ------------- JUNE 30, 1996 - ------------- July 25, 1996 DEAR SHAREHOLDER, New England Funds welcomes the opportunity to present you with the 1996 Semiannual Report for New England Strategic Income Fund, containing your portfolio manager commentary and complete financial information. ECONOMIC GROWTH IN THE FIRST HALF OF 1996 Moderate growth with low inflation was the economic story during the first half of 1996. U.S. Gross Domestic Product (GDP), a bellwether of economic growth, remained strong at 2.3% through June, just shy of what most economists consider optimal growth. As a result, the Federal Reserve Board opted not to tinker with interest rates through the first half of the year, save for a quarter-point ease in short-term rates in late January. The relatively calm economic waters had a stimulating effect on the domestic equity market, boosting stocks 537 points to 5,654 at the end of June, as measured by the Dow Jones Industrial Average. Bond yields did not fare as well, rising to 7.00% at the end of June from 6.65% earlier in the year. Money market yields remained stable, falling back only slightly during the past six months. THE BENEFITS OF MAINTAINING A LONG-TERM FOCUS But the market volatility of the first three weeks in July claimed 5.5% of the Dow Jones Industrial Average's first-half gains. Again, we are reminded that no bull market lasts forever. Long-term financial goals are key in times like these and it's important to anticipate this type of market volatility and remain committed to your financial plan. It's also a good idea to ask your financial representative for help. A financial representative can guide you through volatile markets and help you meet your long-term financial goals. A recent study by Dalbar, Inc., a mutual fund monitoring and analytical service, shows that, on average, mutual fund investors who bought and held shares, with the assistance of a financial representative, enjoyed the benefits of a long-term commitment. Consequently, they benefitted from higher returns than direct investors and others who bought and sold, although this does not occur in every case. CELEBRATING THE BIRTHDAYS OF THREE NEW ENGLAND FUNDS During the past two months, we've celebrated the birthdays of three of our most popular funds: New England Growth Opportunities Fund; New England Strategic Income Fund and New England Star Advisers Fund. Demonstrating the remarkable scope and breadth of our funds, the Growth Opportunities Fund celebrated its 65th birthday in May while the fast-growing Strategic Income and Star Advisers Funds marked their first and second birthdays, respectively. We're proud of all of our funds, but take special pride in recognizing that, whether six months or 65-years-old, all New England Funds are designed to help investors achieve their goals. NEW ENGLAND FUNDS: THE PLACE "WHERE THE BEST MINDS MEET"(TM) The longevity of our more seasoned funds and the potential for growth of our newer ones illustrates the ongoing progress of New England Funds. Our unique multiple-adviser approach brings together some of the best minds in the investment business. The ability to attract top-notch investment advisers and our multiple-adviser approach to fund management are the cornerstones of New England Funds' investment philosophy and the essence of our corporate logo, Where The Best Minds Meet(TM). OUTLOOK FOR THE REST OF 1996 Going forward, we anticipate that the economy will continue to grow moderately and that inflationary pressures will not be excessive. While we estimate the GDP may rise somewhat from its current level of 2.3%, the Federal Reserve should be reluctant to tighten the money supply by raising short-term interest rates. We also believe that the equity markets will continue to be volatile through the rest of the year. We believe that you will find your portfolio manager commentary informative. If you have any questions or comments, please contact your financial representative or New England Funds directly at 800-225-5478. Sincerely, /s/ Henry L.P. Schmelzer ------------------------------- Henry L.P. Schmelzer, President - -------------------------------------------------------------------------------- NEW ENGLAND STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- INVESTMENT RESULTS THROUGH JUNE 30, 1996 Putting Performance into Perspective The graph comparing your Fund's performance to a benchmark index provides you with a general sense of how your Fund performed. To put this information in context, it may be helpful to understand the special differences between the two. Your Fund's total return for the period shown appears with and without sales charges and includes Fund expenses and management fees. A securities index measures the performance of a theoretical portfolio. Unlike a fund, the index is unmanaged; there are no expenses that affect the results. In addition, few investors could purchase all of the securities necessary to match the index. And, if they could, they would incur transaction costs and other expenses. - -------------------------------------------------------------------------------- NOTE TO SHAREHOLDERS - -------------------------------------------------------------------------------- Morningstar(TM), an independent mutual fund rating service, named your Fund's manager, Daniel J. Fuss, "Bond Fund Manager of the Year" for 1995, in recognition of his past record of accomplishment in fund management at Loomis Sayles. [A chart in the form of a line graph appears here illustrating the growth of a $10,000 investment in New England Strategic Income Fund's Class A, B and C shares since inception 5/1/95 compared to the Lehman Aggregate Bond Index(4). The data points from the graph are as follows:] - -------------------------------------------------------------------------------- A $10,000 INVESTMENT COMPARED TO LEHMAN AGGREGATE BOND INDEX(4) - -------------------------------------------------------------------------------- Class A Shares NAV POP Lehman* Inception 5/1/95 1 $10,000 $ 9,550 $10,000 2 $10,015 $ 9,564 $10,463 3 $10,409 $ 9,940 $10,669 4 $11,027 $10,531 $11,124 5 $11,071 $10,573 $10,926 6 $11,318 $10,809 $10,988 Class B Shares NAV CDSC Lehman* Inception 5/1/95 1 $10,000 $10,000 $10,000 2 $10,003 $10,003 $10,463 3 $10,376 $10,376 $10,669 4 $10,973 $10,973 $11,124 5 $10,997 $10,997 $10.926 6 $11,214 $10,814 $10,988 Class C Shares NAV Lehman* Inception 5/1/95 1 $10,000 $10,000 2 $ 9,996 $10,463 3 $10,369 $10,669 4 $10,965 $11,124 5 $10,989 $10,926 6 $11,206 $10,988 These illustrations represent past performance and cannot predict future results. Investment return and principal value may vary, resulting in a gain or loss when shares are sold. All Index and Fund performance assumes reinvested distributions. - -------------------------------------------------------------------------------- TOTAL RETURNS FOR PERIOD ENDED 6/30/96 - -------------------------------------------------------------------------------- Since CLASS A (INCEPTION 5/1/95) YTD 1 Year Inception Net Asset Value(1) 3.21% 13.63% 11.69% With Max. Sales Charge(2) -1.42 8.53 7.37 Lipper Multi Sector Income Average(5) 3.25 10.62 11.53 Since CLASS B (INCEPTION 5/1/95) YTD 1 Year Inception Net Asset Value(1) 2.74% 12.71% 10.80% With CDSC(3) -1.21 8.71 8.27 Lehman Aggregate(4) -1.22 5.01 8.40 Lipper Multi Sector Income Average(5) 3.25 10.62 11.53 Since CLASS C (INCEPTION 5/1/95) YTD 1 Year Inception Net Asset Value(1) 2.75% 12.71% 10.73% Lehman Aggregate(4) -1.22 5.01 8.40 Lipper Multi Sector Income Average(5) 3.25 10.62 11.53 - -------------------------------------------------------------------------------- These returns represent past performance. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than original cost. NOTES TO CHARTS AND PERFORMANCE UPDATE (1) Net Asset Value (NAV) performance assumes reinvestment of all distributions and does not reflect the payment of a sales charge at the time of purchase. (2) With Maximum Sales Charge (MSC) performance assumes reinvestment of all distributions and reflects the maximum sales charge of 4.5% at the time of purchase of Class A shares. (3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 4% sales charge is applied to a redemption of Class B shares. The sales charge will decrease over time, declining to zero five years after the purchase of shares. (4) Lehman Aggregate Bond Index is a market-weighted, aggregate index which includes nearly all debt issued by the U.S. Treasury, U.S. Government agencies and U.S. corporations rated investment-grade, and U.S. agency debt backed by mortgage pools. (5) Lipper Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service. - --------------------- Photo of Dan Fuss - --------------------- NEW ENGLAND STRATEGIC INCOME FUND Portfolio Manager: Dan Fuss Loomis, Sayles & Co., L.P. How Your Fund Performed Despite sluggish bond market performance, New England Strategic Income Fund posted a total return of 3.2% for Class A shares at net asset value. As of June 28, 1996, the Fund's distribution rate, representing the annualized amount of your June dividend, stood at 8.50% (Class A shares at NAV). How Your Fund is Structured The Fund continues to be invested primarily in long-term bonds, priced at a discount to face value. These bonds offer both higher capital appreciation potential and stronger income protection. Bonds purchased at a discount have the potential to rise in value. In addition, they offer "call protection," a primary consideration in the way that fixed income funds are managed at Loomis Sayles. In the event of a decline in interest rates, issuers often "call away" bonds before they mature, so they can issue new bonds at lower prevailing rates. Discount bonds, however, offer built-in protection: their value would have to rise substantially before reaching their call price, making them an unlikely candidate to be called if interest rates decline. Where Your Fund is Invested The Fund's current composition is as follows: 53% below investment-grade fixed income securities, 6% dividend-paying common stocks and 41% investment-grade fixed income securities. The portfolio's average maturity is 20 years and continues to be composed entirely of discount bonds. Noteworthy among non-market-related characteristics of the Fund's portfolio are credit turnarounds (bonds currently rated below investment-grade which we believe may be strong credit upgrade candidates); busted converts (convertible bonds whose conversion price -- the price at which the bonds may be converted to stock -- is significantly below the company's current stock price); and sinking fund bonds (established to provide money to redeem a portion of a particular bond issue, providing a stabilizing factor in the event of a market decline). The Fund also has important holdings in Canadian provincial debt and Brady bonds.* Two thirds of the common stock position is in shares of Real Estate Investment Trusts (REITs). Outlook for the Future Contrary to what the newspaper headlines might indicate, the current environment for fixed income investing is rather placid. A quick glance at the nominal (as opposed to inflation-adjusted) economic statistics indicate very little volatility in the U.S. economic activity. There certainly has been some market volatility, but it masks strong fundamentals. Rather, it is a case of "markets being markets." This sort of environment is ideal for the Fund which can make changes, normally in small increments, that may add to its potential value and earning power. The Fund continues its eclectic and opportunistic approach, with no particular investment style predominating. It continues to show extremely strong protection against call risk. We believe that the Fund is currently well structured. We intend to maintain our current emphasis on deep discount, call-protected securities showing good yields and potential for future improvement. *Brady bonds, named for former U.S. Treasury Secretary Nicholas Brady, are foreign government bonds backed by U.S. Treasury securities. - -------------------------------------------------------------------------------- PORTFOLIO QUALITY AS OF JUNE 30, 1996 - -------------------------------------------------------------------------------- Cash/Equiv 1.5% Govt/Agency 1.9% AAA 9.2% AA 6.5% A 8.8% BAA 20.6% BA 22.4% B 22.4% CAA 6.7% AVERAGE PORTFOLIO QUALITY - Ba1 AVERAGE PORTFOLIO MATURITY - 18 YEARS - -------------------------------------------------------------------------------- Quality ratings provided by Moody's Investor Service. - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 1996 - -------------------------------------------------------------------------------- Bonds Percentage of Assets - -------------------------------------------------------------------------------- U.S. Corporate/High Yield 50.7% Foreign/Canada/Yankee $ 40.1% Yield Common Stocks 5.7% Governments/Cash 3.3% Portfolio composition is subject to change. - -------------------------------------------------------------------------------- [logo] NEW ENGLAND FUNDS Where The Best Minds Meet(TM) - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS - -------------------------------------------------------------------------------- NEW ENGLAND STRATEGIC INCOME FUND - ------------- JUNE 30, 1996 - ------------- - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- Investments as of June 30, 1996 (unaudited) BONDS AND NOTES--87.9% OF TOTAL NET ASSETS FACE AMOUNT DESCRIPTION VALUE (A) - -------------------------------------------------------------------------------- NON-CONVERTIBLE BONDS--78.2% AEROSPACE--0.4% $ 500,000 Rohr Industries, Inc., 9.250%, 3/01/17 ..... $ 452,500 -------------- AIRLINES--0.1% 65,000 United Air Lines Pass Through Trust, 7.870%, 1/30/18 .................................... 61,680 -------------- BROADCASTING--0.2% 250,000 CBS, Inc., 7.125%, 11/01/23 ................ 196,218 -------------- CANADIAN--16.2% 35,000,000 British Columbia Province Certificate, Zero Coupon, 8/23/24, (e) ....................... 2,528,049 6,200,000 British Columbia Province Deposit, Zero Coupon, 6/09/22, (e) ....................... 536,027 5,000,000 British Columbia, Province of Canada, Zero Coupon, 8/23/13, (e) ....................... 877,392 2,900,000 British Columbia, Province of Canada, 8.000%, 9/08/23, (e) ....................... 2,055,689 1,000,000 Canada Government, 8.000%, 6/01/23, (e) .... 724,500 10,700,000 Hydro Quebec, Zero Coupon, 8/15/20, (e) .... 951,756 3,175,000 Hydro Quebec, 9.625%, 7/15/22, (e) ......... 2,523,213 1,385,000 Ontario Hydro, 8.900%, 8/18/22, (e) ........ 1,068,430 750,000 Ontario, Province of Canada, Zero Coupon, 7/13/22, (e) ............................. 62,862 5,900,000 Province of Manitoba, 7.750%, 12/22/25, (e) 4,054,932 15,000,000 Province of Manitoba, Zero Coupon, 3/05/31, (e) 631,371 2,375,000 Rogers Cablesystems Limited, 9.650%, 1/15/14, (e) ............................. 1,515,179 3,205,000 Saskatchewan, Province of Canada, 8.750%, 5/30/25, (e) ............................. 2,434,829 -------------- 19,964,229 -------------- COMPUTERS--3.7% 2,000,000 Apple Computer, Inc., 6.500%, 2/15/04 ...... 1,650,000 250,000 Computervision Corp., 8.000%, 12/01/09 ..... 203,750 950,000 Digital Equipment Corp., 7.750%, 4/01/23 ... 858,876 2,000,000 Unisys Corp., 9.750%, 9/15/16 .............. 1,840,000 -------------- 4,552,626 -------------- ELECTRIC UTILITIES--0.7% 1,000,000 Long Island Lighting Co., 9.000%, 11/01/22 . 918,070 -------------- ELECTRONICS--0.4% 500,000 Westinghouse Electric Corp., 7.875%, 9/01/23 425,225 -------------- ENTERTAINMENT--1.9% 2,500,000 Time Warner, Inc., 8.050%, 1/15/16 ......... 2,376,275 -------------- ENVIRONMENTAL CONTROL--1.5% 1,000,000 Envirotest Systems Corp., 9.125%, 3/15/01 .. 875,000 1,250,000 Envirotest Systems Corp., 9.625%, 4/01/03 .. 962,500 -------------- 1,837,500 -------------- FOOD & BEVERAGES--3.3% 1,400,000 RJR Nabisco, Inc., 7.625%, 9/15/03 ......... 1,333,892 2,750,000 RJR Nabisco, Inc., 9.250%, 8/15/13 ......... 2,759,817 -------------- 4,093,709 -------------- FOOD PROCESSING--1.3% $ 2,000,000 Borden, Inc., 7.875%, 2/15/23 .............. $ 1,636,640 -------------- FOREIGN ISSUES--17.2% 2,600,000 Banco Central Costa Rica, 6.250%, 5/21/10 .. 1,852,500 8,325,000 Federal Republic of Brazil, 5.000%, 4/15/24, (c) ............................. 4,573,588 5,000,000 Groupo Televisa SA De CV, 144A, Zero Coupon, 5/15/08, (c), (j) .......................... 2,712,500 1,000,000 Petroleos Mexicanos, 144A, 8.625%, 12/01/23, (j)............................. 750,000 9,900,000 Republic of Argentina, 5.250%, 3/31/23, (c) 5,420,250 1,301,588 Republic of Ecuador, 6.063%, 2/27/15, (c) .. 580,834 6,000,000 Republic of Ecuador, 3.250%, 2/28/25, (c) .. 2,152,500 3,050,000 Republic of Poland, 3.750%, 10/27/14, (c) .. 2,340,875 1,000,000 Transportacion Maritima Mexicana, 9.250%, 5/15/03 .................................. 922,500 -------------- 21,305,547 -------------- FOREIGN DENOMINATED--11.0% 9,405,000 New Zealand, 8.000%, 11/15/06, (f) ......... 6,137,205 1,205,000 Republic of Ireland, 6.250%, 10/18/04, (g) . 1,778,672 1,880,000 Republic of Ireland, 8.250%, 8/18/15, (g) .. 3,136,332 13,000,000 Republic of South Africa, 12.000%, 2/28/05, (h) ...................................... 2,586,425 -------------- 13,638,634 -------------- GOVERNMENT TREASURIES--1.8% 2,500,000 United States Treasury Bonds, 6.250%, 8/15/23 2,266,400 -------------- HOME BUILDERS--0.9% 500,000 Hovnanian K Enterprises, Inc., 11.250%, 4/15/02 .................................. 460,000 750,000 Hovnanian K Enterprises, Inc., 9.750%, 6/01/05 .................................. 637,500 -------------- 1,097,500 -------------- METAL--0.2% 289,000 Midland Ross Corp., 6.000%, 2/15/07 ........ 179,180 -------------- RESTAURANTS--0.5% 1,000,000 Flagstar Corp., 11.250%, 11/01/04 .......... 660,000 -------------- RETAIL--DEPARTMENT STORE--4.9% 1,250,000 Bradlees, Inc., 9.250%, 3/01/03, (i) ....... 150,000 925,648 Dillon Read Structured Finance, 6.660%, 8/15/10 .................................. 726,634 250,000 Dillon Read Structured Finance Corp., 8.550%, 8/15/19 .......................... 198,750 2,000,000 Kmart Corp., 7.950%, 2/01/23 ............... 1,520,000 750,000 Kmart Corp. Pass Through Trust, 8.540%, 1/02/15 .................................. 611,250 1,250,000 Kmart Corp. Pass Through Trust, 9.350%, 1/02/20 .................................. 1,018,750 500,000 Kmart Corp. Pass Through Trust, 9.780%, 1/05/20 .................................. 415,000 1,000,000 Service Merchandise, 9.000%, 12/15/04 ...... 880,000 500,000 Woolworth Corp., 8.500%, 1/15/22 ........... 481,950 -------------- 6,002,334 -------------- RETAIL--GROCERY--1.6% 2,750,000 Penn Traffic Co., 9.625%, 4/15/05 .......... 1,993,750 -------------- STEEL--1.9% 250,000 Geneva Steel Co., 11.125%, 3/15/01 ......... $ 217,187 2,750,000 Geneva Steel Co., 9.500%, 1/15/04 .......... 2,145,000 -------------- 2,362,187 -------------- TELECOMMUNICATION--4.3% 500,000 Century Communications Corp., Zero Coupon, 3/15/03 .................................. 245,000 2,350,000 Nextel Communications, Inc., Zero Coupon, 8/15/04, (c) ............................. 1,380,625 4,250,000 TCI Communications, Inc., 7.875%, 2/15/26 .. 3,743,145 -------------- 5,368,770 -------------- TEXTILE--0.2% 250,000 Fruit of the Loom, Inc., 7.375%, 11/15/23 .. 222,493 -------------- UTILITIES--4.0% 455,000 Beaver Valley II Funding Corp., 8.250%, 6/01/03 .................................. 399,931 2,341,000 Beaver Valley II Funding Corp., 9.000%, 6/01/17 .................................. 1,910,795 1,000,000 Niagara Mohawk Power Corp., 5.875%, 9/01/02 836,920 250,000 Niagara Mohawk Power Corp., 6.625%, 7/01/05 202,385 2,000,000 Niagara Mohawk Power Corp., 7.875%, 4/01/24 1,642,540 -------------- 4,992,571 -------------- TOTAL NON-CONVERTIBLE BONDS (Identified Cost $95,644,425) ............................. 96,604,038 -------------- CONVERTIBLE BONDS--9.7% AEROSPACE--0.5% 665,000 Rohr Industries, Inc., 7.000%, 10/01/12 .... 578,550 -------------- AUTO PARTS--0.4% 400,000 Exide Corp., 144A, 2.900%, 12/15/05 (j) .... 221,000 400,000 MascoTech, Inc., 4.500%, 12/15/03 .......... 316,000 -------------- 537,000 -------------- BROADCASTING--0.1% 75,000 Fuqua Industries, 6.500%, 8/04/02 .......... 58,312 -------------- COMPUTERS--2.0% 2,800,000 AST Research, Inc., Zero Coupon, 12/14/13 .. 896,000 427,000 Cray Research, Inc., 6.125%, 2/01/11 ....... 339,465 407,000 LTX Corporation, 7.250%, 4/15/11 ........... 260,480 883,000 Maxtor Corp., 5.750%, 3/01/12 .............. 609,270 693,000 Streamlogic Corp., 6.000%, 3/15/12 ......... 415,800 -------------- 2,521,015 -------------- ELECTRONICS--0.8% 300,000 Edo Corp., 7.000%, 12/15/11 ................ 240,000 1,000,000 Zenith Electric, 6.250%, 4/01/11 ........... 782,500 -------------- 1,022,500 -------------- ENTERTAINMENT--1.4% 4,680,000 Time Warner, Inc., Zero Coupon, 12/17/12 ... 1,696,500 -------------- ENVIRONMENTAL--0.5% $ 760,000 Air & Water Technologies Corp., 8.000%, 5/15/15 .................................. $ 672,600 -------------- FOOD PROCESSING--0.1% 100,000 Burns Philp Treasury, 5.500%, 4/30/04 ...... 85,125 -------------- FOREIGN ISSUES--0.4% 400,000 Empresas ICA Soc. Contro., 5.000%, 3/15/04 . 254,000 250,000 Inti Indorayon Uta, 7.000%, 5/02/06 ........ 198,750 -------------- 452,750 -------------- HOME BUILDERS--0.4% 200,000 Builders Transport, Inc., 6.500%, 5/01/11 .. 138,000 500,000 Schuler Homes, Inc., 6.500%, 1/15/03 ....... 401,875 -------------- 539,875 -------------- OIL--0.3% 395,000 Oryx Energy Co., 7.500%, 5/15/14 ........... 347,600 -------------- OIL & GAS--0.1% 125,000 NorAm Energy Corp., 6.000%, 3/15/12 ........ 100,625 -------------- PHARMACEUTICAL--0.2% 325,000 Glycomed, Inc., 7.500%, 1/01/03 ............ 289,250 -------------- REAL ESTATE--0.2% 250,000 Federal Realty Investor Trust, 5.250%, 10/28/03 ................................. 213,750 125,000 Rockefeller Properties, Zero Coupon, 12/31/00 ................................. 74,844 -------------- 288,594 -------------- RESTAURANTS--0.3% 250,000 Flagstar Corp., 10.000%, 11/01/14 .......... 148,750 250,000 Shoneys, Inc., Zero Coupon, 4/11/04 ........ 117,500 100,000 TPI Enterprises, Inc., 8.250%, 7/15/02 ..... 89,000 -------------- 355,250 -------------- RETAIL--0.5% 250,000 Bell Sports Corp., 4.250%, 11/15/00 ........ 188,750 515,000 Kmart Funding Corp., Series F, 8.800%, 7/01/10 .................................. 437,750 -------------- 626,500 -------------- RETAIL--SPECIALTY--0.6% 850,000 General Host Corp., 8.000%, 2/15/02 ........ 680,000 -------------- TEXTILE--0.5% 325,000 Dixie Yarns, Inc., 7.000%, 5/15/12 ......... 247,000 500,000 Fieldcrest Cannon, Inc., 6.000%, 3/15/12 ... 392,500 -------------- 639,500 -------------- TRUCKING & FREIGHT FORWARDING--0.4% 500,000 Preston Corp., 7.000%, 5/01/11 ............. 356,250 250,000 Worldway Corp., 6.250%, 4/15/11 ............ 170,000 -------------- 526,250 -------------- TOTAL CONVERTIBLE BONDS (Identified Cost $11,743,208) ............................. 12,017,796 -------------- COMMON STOCK--5.7% SHARES - ---------------------------------------------------------------------------- FOREIGN ISSUES--0.1% 25,000 Transportacion Maritima Mexicana, ADR (k) . 184,375 ------------ OIL & GAS--0.3% 15,000 McDermott International, Inc. ............. 313,125 ------------ REAL ESTATE--5.3% 75,800 Developers Diversified Reality ............ 2,416,125 45,400 Meditrust ................................. 1,515,225 108,200 Simon Property Group, Inc. ................ 2,650,900 ------------ 6,582,250 ------------ TOTAL COMMON STOCK (Identified Cost $6,668,468) .............................. 7,079,750 ------------ PREFERRED STOCK--2.9% - ------------------------------------------------------------------------------ COMPUTERS--0.3% 10,000 Unisys Corp. .............................. 305,000 -------------- ENTERTAINMENT--0.2% 250 Time Warner, Inc. ......................... 245,313 -------------- GAS & PIPELINE UTILITIES--0.1% 5,000 Western Gas Resources, Inc. ............... 173,750 -------------- OIL--0.0% 500 Kaneb Services, Inc. ...................... 4,625 -------------- STEEL--0.9% 26,000 Bethleham Steel Corp. ..................... 1,079,000 -------------- TRUCKING & FREIGHT FORWARDING--0.3% 12,500 Arkansas Best ............................. 401,562 -------------- UTILITIES--1.1% 30 Cleveland Electric Illuminating Co. ....... 27,000 208 Cleveland Electric Illuminating Co. ....... 173,680 10,000 Long Island Lighting Co. .................. 195,000 150 New York State Electric & Gas Corp. ....... 8,400 150 Niagara Mohawk Power Corp. ................ 5,025 200 Niagara Mohawk Power Corp. ................ 7,600 5,500 Niagara Mohawk Power Corp. Series A ........ $ 88,000 10,000 Niagara Mohawk Power Corp. ................ 231,250 10,000 Niagara Mohawk Power Corp. Series C ........ 177,500 20,900 Niagara Mohawk Power Corp. ................ 370,975 836 Texas Utilities Electric Co. .............. 47,276 -------------- 1,331,706 -------------- TOTAL PREFERRED STOCK (Identified Cost $3,656,885) .............................. 3,540,956 -------------- SHORT TERM INVESTMENT--1.5% FACE AMOUNT - ------------------------------------------------------------------------------ $ 1,882,000 Repurchase Agreement with State Street Bank & Trust Company dated 6/28/96 at 4.750% to be repurchased at $1,882,745 on 7/01/96 collateralized by $1,970,000 U.S. Treasury Bill due 12/19/96, with a value of $1,920,391 ............................ 1,882,000 -------------- TOTAL SHORT TERM INVESTMENT (Identified Cost $1,882,000) .............................. 1,882,000 -------------- Total Investments--98.0% (Identified Cost $119,594,986) (b) ........................ 121,124,540 Other assets less liabilities ............. 2,488,382 -------------- Total Net Assets--100% ..................... $ 123,612,922 === ============== (a) See Note 1a. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $119,594,986 for federal income tax purposes was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost. ...............,,,,,,,,,,............... $ 4,595,494 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value. ...................................... (3,065,940) ----------- Net unrealized appreciation. ............................. $ 1,529,554 =========== (c) Step Bond: Coupon rate is zero or below market for an initial period and then increases to a higher coupon rate at a specified date and rate. (d) Variable or floating rate security. Rate disclosed is as of June 30, 1996. (e) Denominated in Canadian Dollars. (f) Denominated in New Zealand Dollars. (g) Denominated in Irish Pounds. (h) Denominated in South African Rand. (i) Non-income producing security. (j) Securities exempt from registration under rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. (k) An American Depository Receipt (ADR) is a certificate issued by a U.S. bank representing the right to receive securities of the foreign issuer described. The values of ADRs are significantly influenced by trading on exchanges not located in the United States or Canada. See accompanying notes to financial statements. - ------------------------------------------------------------------------------ STATEMENT OF ASSETS & LIABILITIES - ------------------------------------------------------------------------------ June 30, 1996 (unaudited) ASSETS Investments at value ............................ $121,124,540 Cash ............................................ 603 Receivable for: Fund shares sold .............................. 495,888 Securities sold ............................... 407,681 Dividends and interest ........................ 2,577,198 Unamortized organization expense ................ 49,534 Prepaid registration expense .................... 10,000 ------------ 124,665,444 LIABILITIES Payable for: Securities purchased .......................... $426,653 Fund shares redeemed .......................... 210,522 Dividends declared ............................ 274,288 Accrued expenses: Management fees ............................... 60,150 Deferred trustees' fees ....................... 2,800 Accounting and administrative ................. 3,297 Other expenses ................................ 74,812 -------- 1,052,522 ------------ NET ASSETS ........................................ $123,612,922 ============ Net Assets consist of: Capital paid in ............................... $120,830,959 Distributions in excess of net investment income ...................................... (111,984) Accumulated net realized gains ................ 1,360,664 Unrealized appreciation on investments and foreign currency transactions 1,533,283 ----------- NET ASSETS ........................................ $123,612,922 ============ Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($53,017,916 divided by 4,125,287 shares of beneficial interest) ......................... $12.85 ====== Offering price per share (100/95.50 of $12.85) .... $13.46* ====== Net asset value and offering price of Class B shares ($54,902,599 divided by 4,272,700 shares of beneficial interest) ......................... $12.85** ====== Net asset value and offering price of Class C shares ($15,692,407 divided by 1,221,389 shares of beneficial interest) ......................... $12.85 ====== Identified cost of investments .................... $119,594,986 ============ *Based upon single purchases of less than $100,000. Reduced sales charges apply for purchases in excess of this amount. **Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges. See accompanying notes to financial statements. STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (unaudited) INVESTMENT INCOME Dividends ...................................... $ 408,524 Interest ....................................... 4,514,304 ---------- 4,922,828 Expenses Management fees .............................. $ 374,629 Service fees--Class A ........................ 55,886 Service and distribution fees--Class B ....... 234,606 Service and distribution fees--Class C ...... 70,909 Trustees' fees and expenses .................. 8,088 Accounting and administrative ................ 25,611 Custodian .................................... 54,182 Transfer agent ............................... 66,311 Audit and tax services ....................... 24,000 Legal ........................................ 9,394 Printing ..................................... 22,510 Registration ................................. 70,095 Amortization of organization expenses ........ 6,891 Miscellaneous ................................ 2,174 ------------ Total expenses ................................. 1,025,286 Less expenses waived by the investment sub adviser ..................................... (185,174) 840,112 ------------ ---------- Net investment income .......................... 4,082,716 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Realized gain (loss) on: Investments--net ............................. 1,394,902 Foreign currency transactions--net ........... (241,630) ------------ Total realized gain on investments and foreign currency transactions ...................... 1,153,272 ------------ Unrealized appreciation (depreciation) on: Investments--net ............................. (2,045,155) Foreign currency transactions--net ........... 4,834 ------------ Total unrealized depreciation on investments and foreign currency transactions .......... (2,040,321) ------------ Net loss on investment transactions ............ (887,049) ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS ....... $3,195,667 ========== See accompanying notes to financial statements. STATEMENT OF CHANGES IN NET ASSETS (unaudited) MAY 1, * SIX MONTHS THROUGH ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------- ------------- FROM OPERATIONS Net investment income ........................ $ 3,068,538 $ 4,082,716 Net realized gain on investments and foreign currency transactions ...................... 227,560 1,153,272 Unrealized appreciation (depreciation) on investments, and foreign currency transactions ...................... 3,573,605 (2,040,321) ------------ ------------ Increase in net assets from operations ......... 6,869,703 3,195,667 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A .................................... (1,369,404) (1,883,355) Class B .................................... (1,236,649) (1,797,960) Class C .................................... (462,485) (542,038) In excess of net investment income Class A .................................... (22,615) 0 Class B .................................... (20,422) 0 Class C .................................... (7,638) 0 ------------ ------------ (3,119,213) (4,223,353) ------------ ------------ Increase in net assets derived from capital share transactions ......................... 84,206,843 36,683,275 ------------ ------------ Total increase in net assets ................. 87,957,333 35,655,589 NET ASSETS Beginning of the period ...................... 0 87,957,333 ------------ ------------ End of the period ............................ $ 87,957,333 $123,612,922 ============ ============ (OVER)/UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period ...................... $ 0 $ 28,653 ============ ============ End of the period ............................ $ 28,653 $ (111,984) ============ ============ * Commencement of operations. See accompanying notes to financial statements. FINANCIAL HIGHLIGHTS (unaudited) CLASS A CLASS B ------------------------------- ---------------------------- MAY 1, (A) SIX MONTHS MAY 1, (A) SIX MONTHS THROUGH ENDED THROUGH ENDED DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, 1995 1996 1995 1996 --------------- -------------- ------------- ------------- Net Asset Value, Beginning of Period ...... $12.50 $12.99 $12.50 $12.99 ------ ------ ------ ------ Income From Investment Operations Net Investment Income ...... 0.74 0.53 0.68 0.48 Net Realized and Unrealized Gain (Loss) on Investments . 0.49 (0.12) 0.49 (0.12) ------ ------ ------ ------ Total From Investment Operations .. 1.23 0.41 1.17 0.36 ------ ------ ------ ------ Less Distributions Distributions From Net Investment Income ...... (0.73) (0.55) (0.67) (0.50) Distributions in Excess of Net Investment Income ...... (0.01) 0.00 (0.01) 0.00 ------ ------ ------ ------ Total Distributions (0.74) (0.55) (0.68) (0.50) ------ ------ ------ ------ Net Asset Value, End of Period $12.99 $12.85 $12.99 $12.85 ====== ====== ====== ====== Total Return(%) (c) 10.3 3.2 9.7 2.8 Ratio of Operating Expenses to Average Net Assets (%) (d) 0.93(b) 1.15(b) 1.68(b) 1.90(b) Ratio of Net Investment Income to Average Net Assets (%) .. 8.75(b) 8.13(b) 8.00(b) 7.38(b) Portfolio Turnover Rate (%) 22(b) 54(b) 22(b) 54(b) Net Assets, End of Period (000) ....... $36,969 $53,018 $38,767 $54,903 (a) Commencement of operations. (b) Computed on an annualized basis. (c) A sales charge in the case of Class A shares and a contingent deferred sales charge in the case of Class B shares are not reflected in total return calculations. Periods less than one year are not annualized. (d) The ratio of operating expenses to average net assets without giving effect to the voluntary expense limitations described in Note 4 to the Financial Statements would have been (%) .. 1.58(b) 1.50(b) 2.33(b) 2.25(b) See accompanying notes to financial statements. FINANCIAL HIGHLIGHTS (unaudited) CLASS C ------------------------------- MAY 1, (a) SIX MONTHS THROUGH ENDED DECEMBER 31, JUNE 30, 1995 1996 --------------- -------------- Net Asset Value, Beginning of Period ...... $12.50 $12.99 ------ ------ Income From Investment Operations Net Investment Income ...... 0.67 0.48 Net Realized and Unrealized Gain (Loss) on Investments . 0.49 (0.12) ------ ------ Total From Investment Operations .. 1.16 0.36 ------ ------ Less Distributions Distributions From Net Investment Income ...... (0.66) (0.50) Distributions in Excess of Net Investment Income ...... (0.01) (0.00) ------ ------ Total Distributions (0.67) (0.50) ------ ------ Net Asset Value, End of Period $12.99 $12.85 ====== ====== Total Return(%) (c) 9.7 2.8 Ratio of Operating Expenses to Average Net Assets (%) (d) 1.68(b) 1.90(b) Ratio of Net Investment Income to Average Net Assets (%) .. 8.00(b) 7.38(b) Portfolio Turnover Rate (%) 22(b) 54(b) Net Assets, End of Period (000) ....... $12,252 $15,692 (a) Commencement of operations. (b) Computed on an annualized basis. (c) Periods less than one year are not computed on an annualized basis. (d) The ratio of operating expenses to average net assets without giving effect to the voluntary expense limitations described in Note 4 to the Financial Statements would have been (%) .. 2.33(b) 2.25(b) See accompanying notes to financial statements. - ----------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- June 30, 1996 (unaudited) 1. The Fund is a series of The New England Funds Trust I, a Massachusetts business trust (the "Trust"), and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Declaration of Trust permits the Trustees to issue an unlimited number of shares of the Trust in multiple series (each series of shares a "Fund"). The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced its public offering of Class A, Class B and Class C shares on May 1, 1995. Class A shares are sold with a maximum front end sales charge of 4.50%. Class B shares do not pay a front end sales charge, but pay a higher ongoing distribution fee than Class A shares for eight years (at which point they automatically convert to Class A shares), and are subject to a contingent deferred sales charge if those shares are redeemed within five years of purchase. Class C shares do not pay front end or contingent deferred sales charges and do not convert to any class of shares, but they do pay a higher ongoing distribution fee than Class A shares. Class Y shares do not pay a front end sales charge, a contingent deferred sales charge or distribution fees. They are intended for institutional investors with a minimum of $1,000,000 to invest. Expenses of the Fund are borne pro-rata by the holders of all classes of shares, except that each class bears expenses unique to that class (including the Rule 12b-1 service and distribution fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 plan. Shares of each class would receive their pro-rata share of the net assets of the Fund, if the Fund were liquidated. In addition, the Trustees approve separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. SECURITY VALUATION. The Fund's investment subadviser, Loomis Sayles & Company, L.P. ("Loomis Sayles") under the supervision of the Fund's trustees, determines the value of the Fund's portfolio of securities, using valuations provided by a pricing service selected by Loomis Sayles and other information with respect to transactions in securities, including quotations from securities dealers. Valuations of securities and other assets owned by the Fund for which market quotations are readily available are based on those quotations. Short-term obligations that will mature in 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value as determined in good faith by Loomis Sayles under the supervision of the Fund's trustees. B. FOREIGN CURRENCY TRANSLATION. The books and records of the Fund are maintained in U.S. dollars. The value of securities, currencies and other assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon foreign exchange rates prevailing at the end of the period. Purchases and sales of investment securities, income and expenses are translated on the respective dates of such transactions. Since the values of investment securities are presented at the foreign exchange rates prevailing at the end of the period, it is not practical to isolate that portion of the results of operations arising from changes in exchange rates from fluctuations arising from changes in market prices of the investment securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Reported net realized foreign exchange gains or losses arise from: sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities resulting from changes in the exchange rate. C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are accounted for on the trade date (the date the buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Interest income is increased by the accretion of discount. Interest income is decreased by the amortization of acquisition premium on original issue discount securities. In determining net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders all of its income and any net realized capital gains at least annually. Accordingly, no provision for federal income tax has been made. E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to shareholders of record at the time and are paid monthly. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principals. These differences are primarily due to differing treatments for mortgage backed securities and foreign currency transactions for book and tax purposes. Permanent book and tax basis differences will result in reclassifications to capital accounts. F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price. Loomis Sayles is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. G. ORGANIZATION EXPENSE. Costs incurred in 1995 in connection with the Fund's organization and initial registration amounting to $67,920 were paid by the Fund and are being amortized over 60 months beginning May 1, 1995. 2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the six months ended June 30, 1996 were as follows: PURCHASES SALES -------------------------------------- ---------------------------------- U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER ---------------------- -------------- ------------------ -------------- $6,700,859 $55,191,508 $4,693,406 $23,333,767 3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays management fees to its investment adviser, New England Funds Management L.P. ("NEFM") at the annual rate of 0.65% of the first $200 million of the Fund's average daily net assets and 0.60% of such assets in excess of $200 million. NEFM pays the Fund's investment subadviser, Loomis Sayles at the rate of 0.35% of the first $200 million of the Fund's average daily net assets and 0.30% of such assets in excess of $200 million. Certain officers and directors of the NEFM and Loomis Sayles are also officers or trustees of the Fund. NEFM and Loomis Sayles are wholly owned subsidiaries of New England Investment Companies, L.P. ("NEIC") which is a majority owned subsidiary of New England Mutual Life Insurance Company. Fees earned by NEFM and Loomis Sayles under the management agreement in effect during the six months ended June 30, 1996 are as follows: FEES EARNED --------------- $189,455 New England Fund's Management, L.P. $185,174(a) Loomis, Sayles & Company, L.P. (a) Before reduction pursuant to voluntary expense limitations. See Note 4. B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England Funds"), the Fund's distributor, performs certain accounting and administrative services for the Fund. The Fund reimburses New England Funds for all or part of New England Funds' expenses of providing these services which include the following: (i) expenses for personnel performing bookkeeping, accounting, internal auditing and financial reporting functions and clerical functions relating to the Fund, (ii) expenses for services required in connection with the preparation of registration statements and prospectuses, shareholder reports and notices, proxy solicitation material furnished to shareholders of the Fund or regulatory authorities and reports and questionnaires for SEC compliance, and (iii) registration, filing and other fees in connection with requirements of regulatory authorities. For the six months ended June 30, 1996, these expenses amounted to $25,611 and are shown separately in the financial statements as accounting and administrative. C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder servicing agent to the Fund. For the six months ended June 30, 1996, the Fund paid New England Funds $51,092 as compensation for its services in that capacity. D. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Service Plan relating to the Fund's Class A shares (the "Class A Plan") and Service and Distribution Plans relating to the Fund's Class B and Class C shares (the "Class B and Class C Plans"). Under the Class A Plan, the Fund pays New England Funds a monthly service fee at the annual rate of up to 0.25% of the average daily net assets attributable to the Fund's Class A shares, as reimbursement for expenses (including certain payments to securities dealers, who may be affiliated with New England Funds) incurred by New England Funds in providing personal services to investors in Class A shares and/or the maintenance of shareholder accounts. For the six months ended June 30, 1996, the Fund paid New England Funds $55,886 in fees under the Class A Plan. If the expenses of New England Funds that are otherwise reimbursable under the Class A Plan incurred in any year exceed the amounts payable by the Fund under the Class A Plan, the unreimbursed amount (together with unreimbursed amounts from prior years) may be carried forward for reimbursement in future years in which the Class A Plan remains in effect. Under the Class B and Class C Plans, the Fund pays New England Funds a monthly service fee at the annual rate of up to 0.25% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses (including certain payments to securities dealers, who may be affiliated with New England Funds) incurred by New England Funds in providing personal services to investors in Class B and Class C shares and/or the maintenance of shareholder accounts. For the six months ended June 30, 1996 the Fund paid New England Funds $58,652 and $17,727 in service fees under the Class B and Class C Plans, respectively. Also under the Class B and Class C Plans, the Fund pays New England Funds a monthly distribution fee at the annual rate of up to 0.75% of the average daily net assets attributable to the Fund's Class B shares and Class C shares, as compensation for services provided and expenses (including certain payments to securities dealers, who may be affiliated with New England Funds) incurred by New England Funds in connection with the marketing or sale of Class B and Class C shares. For the six months ended June 30, 1996, the Fund paid New England Funds $175,954 and $53,182 in distribution fees under the Class B and Class C Plans, respectively. Commissions (including contingent deferred sales charges) on Fund shares paid to New England Funds by investors of shares of the Fund during the six months ended June 30, 1996 amounted to $518,935. E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly to its officers or trustees who are directors, officers or employees of Loomis Sayles, NEFM, New England Funds, NEIC or their affiliates, other than registered investment companies. Each other trustee is compensated by the Fund as follows: Annual Retainer $1,464 Meeting Fee $114/meeting Committee Meeting Fee $68/meeting Committee Chairman Annual Retainer $41 A deferred compensation plan is available to the trustees on a voluntary basis. Each participating trustee will receive an amount equal to the value that such deferred compensation would have had, had it been invested in the Fund on the normal payment date. 4. EXPENSE LIMITATIONS. Loomis Sayles has voluntarily agreed, until further notice to the Fund, to waive its entire subadvisory fee (which is paid by NEFM), and NEFM has agreed to reduce its management fee (which is paid by the Fund) by an equal amount. These agreements may be terminated by Loomis Sayles or NEFM at any time. In addition, under an expense deferral arrangement, which NEFM may terminate at any time, NEFM has agreed to defer its management fees (to the extent not waived as provided in the preceding sentences) for the Fund, to the extent necessary to limit the Fund's expenses to the annual rate of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C shares, subject to the obligation of the Fund to pay NEFM such deferred fees in later periods to the extent that the Fund's expenses fall below the annual rate of 1.40% for Class A shares, 2.15% for Class B shares and 2.15% for Class C shares; provided, however, that the Fund is not obligated to pay any such deferred fees more than two years in which such fee was deferred. For the six months ended June 30, 1996, Loomis Sayles waived its entire subadvisory fee of $185,174. 5. CAPITAL SHARES. At June 30, 1996 there was an unlimited number of shares of beneficial interest authorized, divided into three classes, Class A, Class B and Class C capital stock. Transactions in capital shares were as follows: FOR THE PERIOD MAY 1, * THROUGH SIX MONTHS ENDED DECEMBER 31, 1995 JUNE 30, 1996 -------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ----------- ------------- ----------- ------------ Shares sold ........... 2,999,705 $ 37,336,091 1,608,551 $20,695,850 Shares issued in connection with the reinvestment of: Dividends from net investment income ... 83,928 1,050,952 111,438 1,429,150 ---------- ------------ ---------- ----------- 3,083,633 38,387,043 1,719,989 22,125,000 Shares repurchased .... (240,548) (3,031,993) (437,787) (5,625,765) ---------- ------------ ---------- ----------- Net increase .......... 2,843,085 35,355,050 1,282,202 16,499,235 ---------- ------------ ---------- ----------- FOR THE PERIOD MAY 1, * THROUGH SIX MONTHS ENDED DECEMBER 31, 1995 JUNE 30, 1996 -------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ----------- ------------- ----------- ------------ Shares sold ........... 3,069,532 38,206,120 1,433,266 18,427,009 Shares issued in connection with the reinvestment of: Dividends from net investment income ... 58,814 736,795 81,470 1,044,544 ---------- ------------ ---------- ----------- 3,128,346 38,942,915 1,514,736 19,471,553 Shares repurchased .... (144,485) (1,810,786) (225,897) (2,886,496) ---------- ------------ ---------- ----------- Net increase .......... 2,983,861 37,132,129 1,288,839 16,585,057 ---------- ------------ ---------- ----------- FOR THE PERIOD MAY 1, * THROUGH SIX MONTHS ENDED DECEMBER 31, 1995 JUNE 30, 1996 -------------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT - ------- ----------- ------------- ----------- ------------ Shares sold ........... 1,178,513 14,661,683 511,431 6,591,957 Shares issued in connection with the reinvestment of: Dividends from net investment income ... 23,720 296,747 28,825 369,185 ---------- ------------ ---------- ----------- 1,202,233 14,958,430 540,256 6,961,142 Shares repurchased .... (259,223) (3,238,766) (261,877) (3,362,159) ---------- ------------ ---------- ----------- Net increase .......... 943,010 11,719,664 278,379 3,598,983 ---------- ------------ ---------- ----------- Increase derived from capital shares transactions 6,769,956 $ 84,206,843 2,849,420 $36,683,275 ========== ============ ========== =========== *Commencement of operations. - ------------------------------------------------------------------------------ NEW ENGLAND STRATEGIC INCOME FUND - ------------------------------------------------------------------------------ SUPPLEMENT DATED SEPTEMBER 3, 1996 TO THE PROSPECTUS DATED MAY 1, 1996 OF NEW ENGLAND BOND FUNDS THE FOLLOWING ITEM RELATES TO NEW ENGLAND STRATEGIC INCOME FUND ONLY: On orders placed beginning September 16, 1996 and continuing through October 31, 1996, the Distributor will reallow to investment dealers 100% of the sales charge on commissionable sales of Class A shares. During the same period, the Distributor will pay participating investment dealers a commission of 0.50% on commissionable sales of Class B shares in addition to the commissions on sales of Class B shares described in the prospectus under the section captioned "Buying Fund Shares -- Sales Charges." - -------------------------------------------------------------------------------- REGULAR INVESTING PAYS - -------------------------------------------------------------------------------- FIVE GOOD REASONS TO INVEST REGULARLY 1. It's an easy way to build assets 2. It's convenient and effortless 3. It requires a low minimum to get started 4. It can help you reach important long-term goals like retirememt or college funding 5. It can help you benefit from the ups and downs of the market With Investment Builder, New England Funds' automatic investment program, you can invest as little as $50 a month in your New England Fund automatically -- without even writing a check. And, as you can see from the chart below, your monthly investments can really add up over time. THE POWER OF MONTHLY INVESTING [A line graph appears here, illustrating the hypothetical accumulation of monthly investments at an 8% annual rate of return. The data points of the graph are as follows:] Monthly investments of $50 Years Growth of Monthly Investments 0 $0 5 $3,661 10 $9,040 15 $16,943 20 $28,555 25 $45,618 Monthly investments of $100 Years Growth of Monthly Investments 0 $0 5 $7,322 10 $18,079 15 $33,886 20 $57,111 25 $91,236 Monthly investments of $200 Years Growth of Monthly Investments 0 $0 5 $14,643 10 $36,158 15 $67,772 20 $114,222 25 $182,472 Monthly investments of $500 Years Growth of Monthly Investments 0 $0 5 $36,608 10 $90,396 15 $169,429 20 $285,555 25 $456,181 For illustrative purposes only. These figures represent hypothetical accumulation at an 8% annual rate of return, and are not indicative of future performance of any New England Fund. The value of a New England Fund will fluctuate with changing market conditions. This program cannot assure a profit nor protect against a loss in a declining market. It does, however, ensure that you buy more shares when the price is low and fewer shares when the price is high. You can start an Investment Builder program with your current New England Fund account, or with any of our other funds. To open an Investment Builder account today, call your financial representative or New England Funds at 1-800-225-5478. - ----------------------------------------------------------------------------- NEW ENGLAND FUNDS - ----------------------------------------------------------------------------- STOCK FUNDS Growth Fund Star Advisers Fund Capital Growth Fund Value Fund Growth Opportunities Fund Balanced Fund INTERNATIONAL STOCK FUNDS Growth Fund of Israel International Equity Fund Star Worldwide Fund BOND FUNDS High Income Fund Strategic Income Fund Government Securities Fund Bond Income Fund Limited Term U.S. Government Fund Adjustable Rate U.S. Government Fund TAX EXEMPT FUNDS Municipal Income Fund Massachusetts Tax Free Income Fund Intermediate Term Tax Free Fund of California Intermediate Term Tax Free Fund of New York MONEY MARKET FUNDS Cash Management Trust -- Money Market Series -- U.S. Government Series Tax Exempt Money Market Trust To learn more, and for a free prospectus, contact your financial representative. VISIT OUR WORLD WIDE WEB SITE AT HTTP://WWW.MUTUALFUNDS.COM New England Funds, L.P. 399 Boylston Street Boston, MA 02116 Toll Free 800-225-5478 This material is authorized for distribution to prospective investors when it is preceded or accompanied by the Fund's current prospectus, which contains information about distribution charges, management and other items of interest. Investors are advised to read the prospectus carefully before investing. -------------- BULK RATE U.S. POSTAGE PAID BROCKTON, MA (Logo) PERMIT NO. 770 NEW ENGLAND FUNDS -------------- Where The Best Minds Meet(TM) --------------------- 399 Boylston Street Boston, Massachusetts 02116 --------------------- (Logo) ST58-0896 Printed On Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----