-----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, L8bBM5rI07s1ExAAln+3aF1eqHUDPJV2qtOrF9zRWH2UzvUcirtQdm9C+P+D6hpb ZNR+dW0MttisjHhirl3s+w== 0000950156-96-000796.txt : 19960910 0000950156-96-000796.hdr.sgml : 19960910 ACCESSION NUMBER: 0000950156-96-000796 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: 96627230 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 - MUNICIPAL INCOME FUND [LOGO] NEW ENGLAND FUNDS Where The Best Minds Meet(TM) - ------------------------------------------------------------------------------- SEMIANNUAL REPORT AND PERFORMANCE UPDATE - ------------------------------------------------------------------------------- NEW ENGLAND MUNICIPAL 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 Municipal 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 MUNICIPAL 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. [A chart in the form of a line graph appears here illustrating a $10,000 investment in New England Municipal Income Fund's Class A Shares since 6/30/86 compared to the Lehman Municipal Index(4) and the Cost of Living(5). The data points for this chart are as follows: - -------------------------------------------------------------------------------- A $10,000 Investment in Class A Shares - -------------------------------------------------------------------------------- Cost of Date Range NAV POP Lehman* Living 6/30/86 $10,000 $ 9,550 $10,000 $10,000 1987 $10,490 $10,018 $10,862 $10,372 1988 $11,257 $10,750 $11,668 $10,780 1989 $12,635 $12,066 $12,997 $11,338 1990 $13,275 $12,687 $13,882 $11,868 1991 $14,246 $13,605 $15,133 $12,425 1992 $16,078 $15,354 $16,914 $12,808 1993 $17,997 $17,187 $18,937 $13,192 1994 $17,754 $16,955 $18,975 $13,476 1995 $19,142 $18,280 $20,643 $13,859 1996 $20,325 $19,410 $22,013 $14,231 *Lehman Aggregate Index 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 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. Average Annual Total Returns as of 6/30/96* Class A YTD 1 Year 3 Years 5 Years 10 Years Net Asset Value(1) -0.07% 6.18% 4.13% 7.36% 7.35% With Max. Sales Charge(2) -4.59 1.36 2.54 6.38 6.86 Lipper General Muni. Average(6) -1.38 5.67 4.13 7.34 7.61 Class B (Inception 9/13/93) YTD 1 Year Since Inception Net Asset Value(1) -0.45% 5.50% 2.38% With CDSC(3) -4.34 1.50 1.42 Lehman Municipal(4) 6.64 4.08 Lipper General Muni. Average(6) -1.38 5.67 n/a Yields as of 6/30/96* Class A Class B SEC Yield 5.37% 4.88% Taxable Equivalent Yield 8.89 8.08 SEC Yield is based on the Fund's net investment income over a 30-day period and is calculated in accordance with Securities and Exchange Commission guidelines. Taxable equivalent yield is based on the maximum federal income tax bracket of 39.6%. The alternative minimum tax may apply. Some federal and state taxes may apply. * 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 performance assumes reinvestment of all distributions and reflects the maximum sales charge of 4.50% 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 Municipal Index is an unmanaged index of bonds issued by states, municipalities and other governmental entities having maturities of more than one year. 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. - ---------------- Photo of Nathan Wentworth - ---------------- NEW ENGLAND MUNICIPAL INCOME FUND (FORMERLY NEW ENGLAND TAX EXEMPT INCOME FUND) Portfolio Manager: Nathan Wentworth Back Bay Advisors, L.P.(R) The Market The first six months of 1996 were challenging for fixed-income investments, and municipal bonds were no exception. The strong bond market rally of 1995 quickly lost steam early this year as unexpectedly strong economic activity caused interest rates to reverse direction and move sharply higher. From the beginning to the end of the period, long-term interest rates, as measured by the yield on the 30-year U.S. Treasury bond, climbed almost a full percentage point, from 5.95% to 6.89%. The good news for the municipal bond market was the easing of fears generated by tax reform proposals, particularly those promoting a flat tax. Triple-A rated, 30-year municipal bonds had yields close to 90% of comparable Treasury bonds at the end of 1995. This ratio declined during the first half of 1996 to about 85%, indicating that municipal bonds had appreciated relative to Treasury bonds, losing less value than Treasury bonds during the market sell-off. How Your Fund Performed The New England Municipal Income Fund had excellent performance on a relative basis. For the six month period, the Fund had a total return of -0.07% for Class A shares, based on net asset value. This performance is better than the average return of -1.38% for the 225 municipal bond funds tracked by Lipper. As of June 28, 1996, the Fund's SEC yield was 5.37% and 4.88% for Class A and Class B shares respectively, which translates into taxable equivalent yields of 8.89% and 8.08% for a fully taxable investment, assuming the maximum federal tax rate of 39.6%.* How We Managed Your Fund The Fund had been positioned defensively since late 1995, reflecting our belief that weakening demand for municipal bonds and a potentially volatile interest rate environment would depress values and erase much of the gain generated during the market rally of 1995. We lowered the Fund's duration to about 6 years in order to reduce the Fund's sensitivity to interest rate changes. This defensive restructuring proved very successful when the market sold off sharply early in the period. The Fund is currently positioned to be market neutral. Near the end of the period, we extended the Fund's duration to about 7 3/4 years based, in part, on the substantial ground that the bond market gave up over a short period. In addition, as more economic data became available, we did not see any significant wage and price or commodity price increases, which should calm the market's fears of inflation. The Fund's holdings of high-coupon bonds and selected investments in lower-quality credits will continue to support shareholder value in a rising interest rate environment. We also pursued strategies designed to enhance the Fund's yield. About 11% of the Fund is invested in bonds that are considered below investment grade and another 54% is invested in BBB-rated bonds, the lowest investment grade rating category. Our internal credit research team permits us to add significant value in this area through ongoing analysis. We have been very successful selecting investments of this kind, particularly in the airport and independent power production (IPP) sectors. We had a significant holding in Delta Airlines-backed airport bonds that were rated below investment grade at the time of purchase. These bonds performed very well when Delta received an investment grade rating during the period. In the IPP arena, we used a careful selection process to identify the strongest situations in this sector. Because this sector was relatively new to the tax exempt universe, and many investors were unfamiliar with these types of projects, we were able to purchase bonds at very attractive levels. Several of these investments, including two cogeneration plants in Pennsylvania and one in Florida, have provided exceptional performance. Our Investment Outlook We see nothing in the economy over the next six months that should fundamentally change our investment strategy. While benign inflation should be a positive for the market, the stronger-than-expected growth continues to alarm investors. As a result, we expect to see continued volatility as the market seesaws between each economic release. We expect to maintain the Fund's market neutral position and to look for value on a case-by-case basis. Supply and demand dynamics in the municipal market will also be important to watch. Current low levels of supply and fairly limited demand have made selecting attractive bonds more difficult. Likewise, the increase in the percentage of new bonds that are issued with bond insurance limits the number of appealing yield-oriented opportunities as these issues carry low yielding, triple-A ratings. While tax reform is currently not a material factor in the market, that could all change based on the presidential election in November. Should the Republicans win and retain control of the House of Representatives, tax reform proposals may reappear. Until such time, however, municipal bonds provide attractive opportunities for individuals subject to high federal tax rates. * The alternative minimum tax may apply. Some federal and state taxes may apply. Yield is calculated using a standard formula established by the Securities and Exchange Commission, and is an annualized percentage rate based on the yield earned by each of the Fund's share classes during the 30 days ended June 28, 1996. Portfolio Quality as of 6/30/96 AAA 14.30% AA 8.10% A 13.06% BBB 53.13% Other 11.41% Average Portfolio Quality = A Average Portfolio Maturity = 21.5 years Quality ratings provided by Standard & Poor's Corporation. 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 or bond fund'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 fund is expected to fluctuate in value as indicated by its duration. For example, if interest rates fall by 1%, a fund with a duration of 4 years should rise in value 4%. Conversely, the fund 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. - -------------------------------------------------------------------------------- [LOGO] NEW ENGLAND FUNDS Where The Best Minds Meet(TM) - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS - -------------------------------------------------------------------------------- NEW ENGLAND MUNICIPAL INCOME FUND - ------------- JUNE 30, 1996 - ------------- - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- Investments as of June 30, 1996 (unaudited) TAX EXEMPT BONDS--98.9% OF TOTAL NET ASSETS
RATINGS (c) -------------------- FACE STANDARD AMOUNT ISSUER MOODY'S & POOR'S VALUE (a) - ----------------------------------------------------------------------------------------------------------------- ALABAMA--0.8% $1,500,000 Mobile Solid Waste Disposal Revenue Bond, 6.950%, 1/01/20 ..................................... Baa3 BBB- $ 1,546,155 ------------ ALASKA--0.8% 1,535,000 Alaska State Housing Finance Corp., 6.500%, 6/01/34 ... Aaa AAA 1,556,459 ------------ ARIZONA--2.5% 2,500,000 Navajo County Pollution Control, 5.875%, 8/15/28 ...... Baa1 BBB 2,387,175 2,300,000 University of Arizona, 6.350%, 6/01/14 ................ A1 AA 2,387,170 ------------ 4,774,345 ------------ CALIFORNIA--8.1% 1,500,000 California Housing Finance Agency Revenue Bond, 8.100%, 8/01/07 ..................................... Aa AA- 1,557,075 465,000 California Housing Finance Agency Revenue Bond, 8.125%, 8/01/19 .................................... Aa AA- 483,939 4,300,000 Foothills/Eastern Transportation Corridor, 6.500%, 1/01/32 ............................................. Baa BBB- 4,299,957 2,000,000 Los Angeles Convention & Exhibition Authority, 9.000%, 12/01/20 ................................... AAA AAA 2,577,120 2,000,000 Los Angeles Regional Airports Revenue Bond, 6.350%, 11/01/25 ................................... Baa3 BB+ 2,008,020 2,000,000 Sacramento California Cogeneration Authority, 6.500%, 7/01/21 ..................................... -- BBB- 2,017,160 3,000,000 Sacramento California Power Authority, 6.000%, 7/01/22 -- BBB- 2,852,550 ------------ 15,795,821 ------------ COLORADO--5.7% 1,500,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/06 .................................... Baa AAA 1,724,100 1,500,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/12 ................................... Baa AAA 1,724,100 5,000,000 Denver City & County Airport Revenue Bond, 7.750%, 11/15/21 ................................... Baa BBB 5,526,950 2,000,000 Denver City & County Airport Revenue Bond, 7.500%, 11/15/23 ................................... Baa BBB 2,180,540 ------------ 11,155,690 ------------ CONNECTICUT--1.0% 2,000,000 Connecticut State Housing Finance Authority, 6.125%, 5/15/18 ..................................... Aa AA 2,011,640 ------------ FLORIDA--7.4% 3,000,000 Escambia County Pollution Control, 6.900%, 8/01/22 ... Baa1 BBB 3,160,020 1,430,000 Florida State, Jacksonville Transportation, 6.400%, 7/01/22 .................................... Aa AA 1,520,319 1,000,000 Martin County Industrial Development Authority, 7.875%, 12/15/25 ................................... Baa3 BBB- 1,119,370 1,500,000 Palm Beach County Solid Waste Revenue, 8.750%, 7/01/10 .................................... A A 1,617,450 2,000,000 Palm Beach County Solid Waste Revenue, 6.850%, 1/01/14 .................................... -- -- 1,921,380 2,500,000 Palm Beach County Solid Waste Revenue, 6.950%, 1/01/22 .................................... -- -- 2,371,775 2,500,000 Pasco County, Pollution Control Revenue, 6.350%, 2/01/22 ..................................... Aaa AAA 2,610,450 ------------ 14,320,764 ------------ GEORGIA--1.4% 2,500,000 Atlanta Special Purpose Facilities Revenue, 7.900%, 12/01/18 ................................... Ba2 BB+ 2,654,175 ------------ GUAM--1.4% 3,000,000 Guam Government, Series A, 5.400%, 11/15/18 ........... -- BBB 2,623,020 ------------ ILLINOIS--6.0% 2,250,000 Chicago O'Hare International Airport Special Facilities, 8.200%, 12/01/24 ........................ Baa2 BB+ 2,585,858 6,000,000 Illinois Development Financial Authority Pollution Control, 7.250%, 6/01/11 ............................ Baa2 BBB 6,375,240 2,500,000 Illinois Development Financial Authority Pollution Control, 7.375%, 7/01/21 ............................ Baa1 BBB 2,761,325 ------------ 11,722,423 ------------ INDIANA--3.3% 3,500,000 Indiana State Development Financial Authority Pollution, 6.850%, 12/01/12 ......................... Ba3 BB- 3,556,105 2,800,000 Indianapolis Airport Authority, 7.100%, 1/15/17 ...... Baa2 BBB 2,949,716 ------------ 6,505,821 ------------ KENTUCKY--1.8% 2,000,000 Kenton County Airport Board Revenue, 7.500%, 2/01/12 . Baa3 BB+ 2,129,840 1,500,000 Kenton County Airport Board Revenue, 6.125%, 2/01/22 . Baa3 BB+ 1,415,970 ------------ 3,545,810 ------------ MASSACHUSETTS--5.9% 3,000,000 Massachusetts Bay Transportation Authority, 6.100%, 3/01/23 .................................... A1 A+ 3,039,930 2,605,000 Massachusetts State Health & Educational Facilities, 5.750%, 7/01/24 .................................... Aa AA- 2,530,914 2,500,000 Massachusetts State Housing Finance Agency, 6.300%, 10/01/13 ................................... A1 A+ 2,516,375 3,315,000 Massachusetts State Housing Finance Agency, 6.375%, 4/01/21 .................................... A1 A+ 3,320,072 ------------ 11,407,291 ------------ MICHIGAN--1.4% 2,765,000 Dickinson County Economic Development, 5.850%, 10/01/18 .................................... Baa1 BBB 2,658,382 ------------ NEW YORK--19.2% 2,000,000 Metropolitan Transportation Authority Service Center, 5.750%, 7/01/15 .................................... Baa1 BBB 1,891,820 2,450,000 New York City General Obligation, 7.500%, 2/01/05 .... Baa1 BBB+ 2,639,826 1,000,000 New York City General Obligation, 7.100%, 2/01/10. .... Baa1 BBB+ 1,043,270 4,860,000 New York City General Obligation, 7.000%, 10/01/13 .... Baa1 BBB+ 5,037,584 4,000,000 New York State Dormitory Authority, 5.500%, 5/15/13 .. Baa1 BBB+ 3,749,000 1,350,000 New York State Dormitory Authority, 5.625%, 5/15/13 .. Baa1 BBB+ 1,261,359 1,880,000 New York State Dormitory Authority, 7.500%, 5/15/13 .. Baa1 BBB+ 2,150,344 2,740,000 New York State Dormitory Authority, 5.750%, 7/01/13 .. Baa1 BBB 2,639,387 2,040,000 New York State Dormitory Authority, 5.375%, 5/15/16 .. Baa1 BBB+ 1,836,184 2,500,000 New York State Dormitory Authority, 5.500%, 5/15/23 ... Baa1 BBB+ 2,239,325 575,000 New York State Medical Care Facilities, 7.300%, 8/15/11 Baa1 BBB+ 631,166 1,955,000 New York State Medical Care Facilities, 6.500%, 8/15/12 Aaa AAA 2,045,008 2,500,000 New York State Medical Care Facilities, 5.375%, 2/15/14 Baa1 BBB+ 2,275,625 4,150,000 New York State Medical Care Facilities. 5.250%, 8/15/14 Baa1 BBB+ 3,711,719 3,430,000 New York State Urban Development Corp., 5.500%, 1/01/18 .................................... Baa1 BBB 3,120,477 1,000,000 Port Authority of New York & New Jersey, 7.000%, 10/1/07 ..................................... -- -- 1,054,830 ------------ 37,326,924 ------------ NORTH CAROLINA--2.1% 2,545,000 North Carolina Eastern Municipal Power, 6.125%, 1/01/09 ..................................... A BBB+ 2,572,664 1,500,000 North Carolina Eastern Municipal Power, 6.000%, 1/01/22 ..................................... A BBB+ 1,465,560 ------------ 4,038,224 ------------ OHIO--1.7% 3,000,000 Cleveland Public Power Systems Revenue, 7.000%, 11/15/24 ................................... Aaa AAA 3,334,230 ------------ OREGON--0.5% 1,000,000 Western Generation Agency, 7.400%, 1/01/16 ............ -- -- 1,054,860 ------------ PENNSYLVANIA--10.3% 3,000,000 Delaware County Pollution Control, 7.375%, 4/01/21 ... Baa1 BBB+ 3,198,960 2,725,000 Pennsylvania Convention Center, 6.700%, 9/01/14 ....... Baa BBB- 2,842,965 2,000,000 Pennsylvania Convention Center, 6.750%, 9/01/19 ....... Baa BBB- 2,086,380 4,000,000 Pennsylvania Economic Development Financing Authority, 7.150%, 12/01/18 ................................... -- BBB- 4,087,920 3,000,000 Pennsylvania Economic Development Financing Authority, 6.600%, 1/01/19 .................................... -- -- 2,823,090 1,500,000 Pennsylvania Economic Development Financing Authority, 7.600%, 12/01/20 ................................... Baa2 BBB 1,646,715 3,000,000 Pennsylvania Economic Development Financing Authority, 7.600%, 12/01/24 ................................... Baa1 BBB+ 3,313,980 ------------ 20,000,010 ------------ PUERTO RICO--5.4% 2,845,000 Puerto Rico Commonwealth Highway & Trans. Authority, 6.625%, 7/01/18 ..................................... Baa1 A 3,136,954 3,750,000 Puerto Rico Electric Power Authority, 6.000%, 7/01/14 Baa1 A- 3,777,975 1,250,000 Puerto Rico Public Building Authority, 5.750%, 7/01/16 Baa1 A 1,213,875 2,500,000 Puerto Rico Public Building Authority, 5.500%, 7/01/21 Baa1 A 2,323,950 ------------ 10,452,754 ------------ SOUTH DAKOTA--0.5% 1,000,000 South Dakota Student Loan Financing, 7.700%, 8/01/07 .. -- A+ 1,061,550 ------------ TENNESSEE--1.3% 2,500,000 Maury County, Induustrial Development Board, 6.500%, 9/01/24 ..................................... A3 A- 2,576,550 ------------ TEXAS--4.0% 2,000,000 Alliance Airport Authority, 6.375%, 4/01/21 ........... Baa2 BBB 1,976,440 2,825,000 Dallas Fort Worth International Airport, 7.250%, 11/01/30 ............................................ Baa2 BB+ 2,964,781 3,000,000 Texas State Turnpike Authority, 5.250%, 01/01/23 ...... Aaa AAA 2,751,540 ------------ 7,692,761 ------------ UTAH--1.1% 2,000,000 Intermountain Power Agency, 8.625%, 7/01/21 .......... Aa AA 2,127,740 ------------ VIRGIN ISLANDS--2.4% 4,500,000 Virgin Islands Public Finance Authority, 7.250%, 10/01/18 ............................................ -- -- 4,753,260 ------------ WASHINGTON--2.9% 1,000,000 Washington Public Power Supply, 6.800%, 7/01/07 ...... Aa AA- 1,074,530 1,270,000 Washington Public Power Supply, 7.000%, 7/01/11 ...... Aa AA- 1,332,496 3,000,000 Washington Public Power Supply, 7.000%, 7/01/12 ...... Aa AA- 3,214,410 ------------ 5,621,436 ------------ Total Tax Exempt Bonds (Identified Cost $182,946,439) ........................... 192,318,095 ------------ SHORT-TERM INVESTMENT -- 0.7% - ----------------------------------------------------------------------------------------------------------------- 1,400,000 American Express Credit Corp., 5.390%, 7/01/96 .................................. 1,400,000 ------------ Total Short-Term Investment (Identified Cost $1,400,000) ........................ 1,400,000 ------------ Total Investments -- 99.6% (Identified Cost $184,346,439) (b) ................... 193,718,095 Other assets less liabilities ................................................... 608,704 ------------ Total Net Assets - 100% ......................................................... $194,326,799 ============ (a) See Note 1a. (b) Federal Tax Information: At June 30, 1996 the net unrealized appreciation on investments based on cost of $184,346,439 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 .................................................................... $9,942,300 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value .................................................................... (570,644) ---------- Net unrealized appreciation ............................................................... $9,371,656 ========== (c) The ratings shown are believed to be the most recent ratings available at June 30, 1996. Securities are generally rated at the time of issuance. The rating agencies may revise their ratings from time to time. As a result, there can be no assurance that the same ratings would be assigned if the securities were rated at June 30, 1996. The Fund's adviser independently evaluates the fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies.
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENT OF ASSETS & LIABILITIES - -------------------------------------------------------------------------------- June 30, 1996 (unaudited) ASSETS Investments at value ....................... $193,718,095 Cash ....................................... 4,554 Receivable for: Fund shares sold ......................... 103,651 Accrued interest ......................... 3,787,079 Prepaid registration expense ............... 4,000 ------------ 197,617,379 LIABILITIES Payable for: Securities purchased ..................... $2,500,800 Fund shares redeemed ..................... 367,927 Dividends declared ....................... 267,512 Accrued expenses: Management fees .......................... 69,596 Deferred trustees' fees .................. 43,231 Accounting and administrative ............ 3,533 Other expenses ........................... 37,981 ---------- 3,290,580 ------------ NET ASSETS ................................... $194,326,799 ============ Net Assets consist of: Capital paid in .......................... $192,631,389 Undistributed net investment income ...... 298,401 Accumulated net realized losses .......... (7,974,647) Unrealized appreciation on investments ... 9,371,656 ------------ NET ASSETS ................................... $194,326,799 ============ Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($182,211,891 divided by 24,666,498 shares of beneficial interest) ............. $7.39 ===== Offering price per share (100/95.50 of $7.39) $7.74* ===== Net asset value and offering price of Class B shares ($12,114,908 divided by 1,640,133 shares of beneficial interest) ............. $7.39** ===== Identified cost of investments ............... $184,346,439 ============ * 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 Interest ................................... $6,371,979 Expenses Management fees .......................... $ 434,697 Service fees--Class A .................... 233,195 Service and distribution fees--Class B ... 60,733 Trustees' fees and expenses .............. 10,428 Accounting and administrative ............ 26,484 Custodian ................................ 42,834 Transfer agent ........................... 88,823 Audit and tax services ................... 24,000 Legal .................................... 10,499 Printing ................................. 17,824 Registration ............................. 14,884 Miscellaneous ............................ 4,306 ----------- Total expenses ............................. 968,707 ---------- Net investment income ...................... 5,403,272 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS AND FUTURES CONTRACTS Realized gain (loss) on: Investments--net ......................... 722,924 Options--net ............................. (245,975) Futures contracts--net ................... (99,412) ----------- Total realized gain on investments, options and futures contracts .......... 377,537 ----------- Unrealized appreciation (depreciation) on: Investments--net ......................... (6,834,780) Options--net ............................. 251,100 Futures contracts--net ................... 258,712 ----------- Total unrealized depreciation on investments, options and futures contracts ...................... (6,324,968) ----------- Net loss on investment transactions ........ (5,947,431) ---------- NET DECREASE IN NET ASSETS FROM OPERATIONS ... $ (544,159) ========== See accompanying notes to financial statements. - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- (unaudited) YEAR ENDED SIX MONTHS DECEMBER 31, ENDED 1995 JUNE 30, 1996 ------------ ------------- FROM OPERATIONS Net investment income ...................... $ 11,178,967 $ 5,403,272 Net realized gain (loss) on investment transactions ............................. (1,398,807) 377,537 Unrealized appreciation (depreciation) on investment transactions .................. 22,279,474 (6,324,968) ------------ ------------ Increase (decrease) in net assets from operations ............................... 32,059,634 (544,159) ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A .................................. (10,706,960) (5,037,253) Class B .................................. (506,948) (282,374) ------------ ------------ (11,213,908) (5,319,627) ------------ ------------ Decrease in net assets derived from capital share transactions ....................... (5,674,559) (7,179,261) ------------ ------------ Total increase (decrease) in net assets .... 15,171,167 (13,043,047) NET ASSETS Beginning of the period .................... 192,198,679 207,369,846 ------------ ------------ End of the period .......................... $207,369,846 $194,326,799 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period .................... $ 46,584 $ 214,756 ============ ============ End of the period .......................... $ 214,756 $ 298,401 ============ ============ See accompanying notes to financial statements. - --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------------------------------------------------- (unaudited)
CLASS A --------------------------------------------------------------------------- SIX MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------------------------ JUNE 30, 1991 1992 1993 1994 1995 1996 ----- ----- ----- ----- ----- ----- Net Asset Value, Beginning of Period ............. $7.21 $7.53 $7.54 $7.87 $6.85 $7.60 ----- ----- ----- ----- ----- ----- Income From Investment Operations Net Investment Income ............................ 0.45 0.44 0.40 0.39 0.42 0.21 Net Realized and Unrealized Gain (loss) on Investments ................................. 0.35 0.21 0.53 (1.01) 0.74 (0.22) ----- ----- ----- ----- ----- ----- Total From Investment Operations ................. 0.80 0.65 0.93 (0.62) 1.16 (0.01) ----- ----- ----- ----- ----- ----- Less Distributions Dividends From Net Investment Income ............. (0.43) (0.46) (0.42) (0.40) (0.41) (0.20) Distributions From Net Realized Capital Gains .................................. (0.01) (0.18) (0.18) 0.00 0.00 0.00 Distributions From Paid-in Capital ............... (0.04) 0.00 0.00 0.00 0.00 0.00 ----- ----- ----- ----- ----- ----- Total Distributions .............................. (0.48) (0.64) (0.60) (0.40) (0.41) (0.20) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period ................... $7.53 $7.54 $7.87 $6.85 $7.60 $7.39 ===== ===== ===== ===== ===== ===== Total Return (%) (b) ............................. 11.6 8.9 12.7 (8.0) 17.2 (0.1) Ratio of Operating Expenses to Average Net Assets (%) ......................... 0.95 0.95 0.91 0.92 0.93 0.93(a) Ratio of Net Investment Income to Average Net Assets (%) ......................... 6.18 5.80 5.27 5.44 5.52 5.44(a) Portfolio Turnover Rate (%) ...................... 126 85 86 88 93 31(a) Net Assets, End of Period (000) .................. $162,991 $183,276 $226,881 $184,202 $195,301 $182,212 (a) Computed on an annualized basis. (b) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
CLASS B --------------------------------------------------------------------------- SEPTEMBER 13(a) YEAR YEAR THROUGH ENDED ENDED SIX MONTHS DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED 1993 1994 1995 JUNE 30, 1996 --------------- ------------ ------------ ------------- Net Assset Value, Beginning of Period ............ $8.03 $7.86 $6.85 $7.60 ----- ----- ----- ----- Income From Investment Operations Net Investment Income ............................ 0.07 0.34 0.36 0.18 Net Realized and Unrealized Gain (loss) on Investments ................................. 0.01 (1.01) 0.74 (0.21) ----- ----- ----- ----- Total From Investment Operations ................. 0.08 (0.67) 1.10 (0.03) ----- ----- ----- ----- Less Distributions Dividends From Net Investment Income ............. (0.07) (0.34) (0.35) (0.18) Distributions From Net Realized Capital Gains .... (0.18) 0.00 0.00 0.00 ----- ----- ----- ----- Total Distributions .............................. (0.25) (0.34) (0.35) (0.18) ----- ----- ----- ----- Net Asset Value, End of Period ................... $7.86 $6.85 $7.60 $7.39 ===== ===== ===== ===== Total Return(%) (c) .............................. 1.0 (8.6) 16.3 (0.5) Ratio of Operating Expenses to Average Net Assets (%) ......................... 1.65(b) 1.67 1.68 1.68(b) Ratio of Net Investment Income to Average Net Assets (%) ......................... 3.91(b) 4.69 4.77 4.69(b) Portfolio Turnover Rate (%) ...................... 86 88 93 31(b) Net Assets, End of Period (000) .................. $3,395 $7,997 $12,069 $12,115 (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.
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 such series of shares a "Fund"). The Fund offers both Class A and Class B shares. The Fund commenced its public offering of Class B shares on September 13, 1993. 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. Expenses of the Fund are borne pro-rata by the holders of both 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. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are accounted for on the trade date (the date the buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Interest income for the Fund is increased by the accretion of original issue discount. Interest income is reduced by the amortization of premium. In determining net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. C. WHEN-ISSUED SECURITIES. Delivery and payment for securities purchased on a when-issued or delayed delivery basis can take place one month or more after the date of the transaction. The securities so purchased are subject to market fluctuation during this period. At June 30, 1996 the Fund held no such securities. D. OPTIONS AND FUTURES CALLS AND PUTS The Fund may write (sell) call and put options on securities to manage its exposure to interest rates and the bond market. Buying futures, writing puts, and buying calls tend to increase the fund's exposure to the underlying instrument. Selling futures, buying puts, and writing calls tend to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. When a fund writes a call or put option, an amount equal to the premium received by the fund is included in the fund's statement of assets and liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The current value of a written option is the closing price on the principal exchange on which such option is traded. If an option which the fund has written either expires on its stipulated expiration date, or if the fund enters into a closing purchase transaction, the fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the fund has written is exercised, the fund realizes a capital gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a put option which the fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which the fund purchases upon exercise of the option. The premium paid by a fund for the purchase of a call or a put option is included in the asset section of the fund's statement of assets and liabilities as an investment and subsequently adjusted to the current market value of the option. The current value of a purchased option is the closing price on the principal exchange on which such option is traded. If an option which the fund has purchased expires on the stipulated expiration date, the fund will realize a loss in the amount of the cost of the option. If the fund enters into a closing sale transaction, the fund will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If the fund exercises a purchased put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. If the fund exercises a purchased call option, the cost of the security which the fund purchases upon exercise will be increased by the premium originally paid. The risk in writing a call option is that the fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the fund assumes the risk of incurring a loss if the market price decreases and the option is exercised. In addition, there is the risk the fund may not be able to enter into a closing transaction because of an illiquid secondary market. E. INTEREST RATE FUTURES CONTRACTS The Fund may enter into interest rate futures contracts to hedge against changes in the values of securities the fund owns or expects to purchase. An interest rate futures contract is an agreement between two parties to buy and sell a security for a set price (or to deliver an amount of cash) on a future date. Upon entering into such a contract, the purchasing fund is required to pledge to the broker an amount of cash, U.S. Government securities or other high quality debt securities equal to the minimum "initial margin" requirements of the exchange, currently up to $3,000 per contract. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin," and are recorded by the fund as unrealized gains or losses. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include the possibility that there may be an illiquid market and that changes in the value of the contract may not correlate with changes in the value of the underlying securities. F. 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. G. 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. Permanent book and tax basis differences will result in reclassification to the capital accounts. 2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the Fund for the six months ended June 30, 1996 were $30,752,008 and $34,157,375 respectively. Transactions in written options and futures contracts for the Fund for the six months ended June 30, 1996 are summarized as follows: SALES OF FUTURES CONTRACTS ---------------------------- AGGREGATE NUMBER OF FACE VALUE CONTRACTS OF CONTRACTS --------- ------------ Open at December 31, 1995 ...................... 100 $ 11,844,413 Contracts opened ............................... 100 12,012,475 Contracts closed ............................... (200) (23,856,888) --- -------------- Open at June 30, 1996 .......................... 0 $ 0 === ============== WRITTEN OPTIONS ---------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- -------- Open at December 31, 1995 ...................... 200 $ 258,275 Contracts opened ............................... 300 174,131 Contracts closed ............................... (500) (432,406) --- -------------- Open at June 30, 1996 .......................... 0 $ 0 === ============== 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 and Back Bay Advisors 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 New England Mutual Life Insurance Company. Fees earned by NEFM and Back Bay Advisors under the management agreement in effect during the six months ended June 30, 1996 are as follows: FEES EARNED - ----------- $217,349 New England Funds Management, L.P. $217,348 Back Bay Advisors, L.P. B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds L.P. ("New England Funds"), the Fund's distributor, is a 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 related 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 $26,484 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 $63,797 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 a Service and Distribution Plan relating to the Fund's Class B shares (the "Class B Plan"). 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 $233,195 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 1996 is $1,700,600. Under the Class B 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 B 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 shares and/or the maintenance of shareholder accounts. For the six months ended June 30, 1996, the Fund paid New England Funds $15,183 in service fees under the Class B Plan. Also under the Class B Plan, the Fund pays New England Funds a monthly distribution fee at the annual rate of up to 0.75% of the average daily net assets attributable to the Fund's Class B 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 shares. For the six months ended June 30, 1996, the Fund paid New England Funds $45,550 in distribution fees under the Class B Plan. 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 $135,858. 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, Back Bay Advisors, New England Funds, NEIC or their affiliates, other than registered investment companies. Each other trustee is compensated by the Fund as follows: Annual Retainer $2,227 Meeting Fee $114/meeting Committee Meeting Fee $68/meeting Committee Chairman Retainer $98/year A deferred compensation plan is available to the trustees on a voluntary basis. Each participating trustee will receive an amount equal to the value that such deferred compensation would have had, had it been invested in the Fund on the normal payment date. 4. CONCENTRATION OF CREDIT. The Fund had the following industry concentrations in excess of 10% at June 30, 1996 as a percentage of the Fund's total net assets: Airports 12.3%. The Fund also had more than 10% of its total net assets invested in: Pennsylvania 10.3% and New York 19.2% at June 30, 1996. Certain risks arise from concentrating investments in any state. Certain revenue or tax related events in a state may impair the ability of issuers of municipal securities to pay principal and interest on their obligations. 5. CAPITAL SHARES. At June 30, 1996 there was an unlimited number of shares of beneficial interest authorized, divided into two classes, Class A and Class B capital stock. Transactions in capital shares were as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1995 JUNE 30, 1996 --------------------------- ---------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- -------- ------------ -------- ------------ Shares sold ........................................ 1,603,141 $ 11,755,869 639,118 $ 4,823,879 Shares issued in connection with the reinvestment of: Dividends from net investment income ............. 1,035,922 7,650,069 486,170 3,622,825 --------- ------------ --------- ------------ 2,639,063 19,405,938 1,125,288 8,446,704 Shares repurchased ................................. (3,825,037) (28,129,585) (2,149,436) (16,011,383) --------- ------------ --------- ------------ Net decrease ....................................... (1,185,974) (8,723,647) (1,024,148) (7,564,679) --------- ------------ --------- ------------ YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1995 JUNE 30, 1996 --------------------------- ---------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- -------- ------------ -------- ------------ Shares sold ........................................ 594,737 4,335,541 236,465 1,753,579 Shares issued in connection with the reinvestment of: Dividends from net investment income ............. 46,353 342,707 25,818 192,337 --------- ------------ --------- ------------ 641,090 4,678,248 262,283 1,945,916 Shares repurchased ................................. (220,882) (1,629,160) (209,759) (1,560,498) --------- ------------ --------- ------------ Net increase ....................................... 420,208 3,049,088 52,524 385,418 --------- ------------ --------- ------------ Decrease derived from capital share transactions ... (765,766) $ (5,674,559) (971,624) $ (7,179,261) ========= ============ ========= ============
- -------------------------------------------------------------------------------- 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. - ------------------------------------------------------------------------------- SAVING FOR RETIREMENT - ------------------------------------------------------------------------------- AN EARLY START CAN MAKE A BIG DIFFERENCE With today's lengthening life spans, you may be retired for 20 years or more after you complete your working career. Living these retirement years the way you've dreamed of will require considerable financial resources. While it's never too late to start a retirement savings program, it's certainly never too early: The sooner you begin, the longer the time your money has to grow. The chart below illustrates this point dramatically. One investor starts at age 30, saves for just 10 years, then leaves the investment to grow. The second investor starts 10 years later but saves much longer -- for 25 years, in fact. Can you guess which investor accumulates the greater retirement nest egg? For the answer, look at the chart. [A chart in the form of a line graph appears here, comparing the growth of investments made for 10 years by an investor who begins investing at age 30 to the growth of investments made for twenty-five years by an investor who begins investing at age 40. A hypothetical appreciation of 10% is assumed. The data points from the graph are as follows:] Investor A - Begins at age 30 for 10 years: Age Growth of Investments 30 $2,000 35 $15,431 40 $35,062 45 $90,943 55 $146,464 60 $235,882 65 $379,890 Investor B - Begins investing at age 40 for 25 years: Age Growth of Investments 40 $2,000 45 $15,431 50 $37,062 55 $71,899 60 $128,005 65 $216,364 Assumes 10% hypothetical appreciation. For illustrative purposes only and not indicative of future performance of any New England Fund. Investor A invested $20,000, less than half of investor B's commitment -- and for less than half the time. Yet investor A wound up with a much greater retirement nest egg. The reason? It's all thanks to an early start. New England Funds has prepared a number of informative retirement planning guides. Call your financial representative or New England Funds today, and ask for the guide that best fits your personal needs. - ----------------------------------------------------------------------------- INFORMATION ON CALL - ----------------------------------------------------------------------------- YOU CAN CALL NEW ENGLAND FUNDS DAY OR NIGHT Do you like to keep on top of your New England Funds but can't always call us during regular business hours? With Tele#Facts, New England Funds' 24-hours a day automated telephone system, you can call us any time that's convenient for you -- day or night! By calling 1-800-346-5984 from any Touch-Tone(R) telephone, you can: o Check the current value of your New England Fund account o Find out the current yield and total return on any New England Fund o Buy, sell or exchange fund shares Just remember to have these four items with you before calling: 1. YOUR PERSONAL IDENTIFICATION NUMBER which is the last four digits of your Social Security number 2. THE FUND NUMBER -- two- or three-digit number listed on the Tele#Facts wallet card 3. FUNCTION NUMBER -- listed on the Tele#Facts wallet card 4. ACCOUNT NUMBER -- listed on all your statements You can get the information you need to use Tele#Facts from the back of your statement. If you need another Tele#Facts wallet card or have questions about getting started, please call us at 1-800-225-5478. So go ahead and give Tele#Facts a try. We think you'll enjoy this easy-to-use and convenient service from New England Funds! - ----------------------------------------------------------------------------- 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) MU58-0896 Printed On Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----