-----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, HqsE11IgIStQ9FdsCmsOeFeXushnoPRKQbDhIh9OCY4UxNNiNiB1SE+76+5gGd+W qUN7R2vWPlIGUAUFMg8Wdw== 0000915707-96-000046.txt : 19960314 0000915707-96-000046.hdr.sgml : 19960314 ACCESSION NUMBER: 0000915707-96-000046 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960312 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND FUNDS TRUST II CENTRAL INDEX KEY: 0000052136 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 041990692 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00242 FILM NUMBER: 96533911 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 8002831155 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET STREET 2: 4TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: INVESTMENT TRUST OF BOSTON FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WORLD INVESTMENT TRUST DATE OF NAME CHANGE: 19680529 N-30D 1 NEW ENGLAND HIGH INCOME FUND [LOGO] NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET ANNUAL REPORT AND PERFORMANCE UPDATE NEW ENGLAND HIGH INCOME FUND [ARTWORK APPEARS HERE] DECEMBER 31, 1995 JANUARY 31, 1996 DEAR SHAREHOLDER, ItOs a real pleasure to present to you the 1995 Annual Report for New England High Income Fund, containing your portfolio managerOs commentary and complete financial information. FAVORABLE ECONOMIC CONDITIONS IN 1995 In 1995 subdued economic growth with little or no inflation created a very favorable backdrop for the bond and stock markets. Long term interest rates dipped on the positive inflation news, with the yield on the 30-year Treasury bond falling to a low of 5.95% at year end. The stock market, fueled by lower interest rates and solid corporate earnings growth, advanced 37.6%, as measured by the Standard & PoorOs 500 Index,* for its best showing since 1958. In July and in December, the Federal Reserve Board lowered short term rates, signaling its belief that the economy was indeed on a path towards slow, non-inflationary growth. NEW ENGLAND FUNDS - WHERE THE BEST MINDS MEET Over this past year we launched our new corporate identity - Where the Best Minds Meet -which we believe reflects the essence of New England Funds. Our unique multiple adviser structure brings together some of the best investment minds in the business. As recent examples, consider New England Star Advisers Fund, managed by four prominent equity advisers, and New England Star Worldwide Fund, a global fund introduced this January which builds off the Star Advisers concept. In addition, last May we launched New England Strategic Income Fund, under the management of Dan Fuss of Loomis Sayles. One of the industryOs most respected managers, Dan Fuss was named 1995Os OBond Fund Manager of the YearO by Morningstar for his past record of accomplishment in fund management at Loomis Sayles.** * Standard & PoorOs 500 is an unmanaged index representing 500 major companies, the majority of which are listed on the New York Stock Exchange. ** Morningstar is a third party, independent mutual fund rating service. 1995 DALBAR AWARD FOR SERVICE EXCELLENCE Where the Best Minds Meet also refers to your financial adviser and all the people at New England Funds who provide you with quality service. We are proud to report that in recognition of our ongoing quality initiatives, New England Funds has been named a 1995 Quality Tested Service Seal Winner by DALBAR, an independent mutual fund service rating company. The coveted DALBAR award was given to only seven companies for Oproviding the highest tier of service excellence in the mutual fund industry.O OUTLOOK FOR 1996 Looking ahead, we believe interest rates are likely to remain flat as the economy continues on its slow, steady, non-inflationary growth path. While this scenario is extremely positive for the long term, it is unlikely that 1996 will see a repeat of last yearOs stellar performance. At this time itOs worth reiterating that long-term investors should not focus on one yearOs performance. Instead, we recommend that you review your asset allocation program with your financial adviser, then remain committed to that program to carry out its objectives. We believe you will find your portfolio managerOs commentary informative. If you have any questions or comments, please contact your financial representative or New England Funds directly at 800-225- 5478. Also, please contact New England Funds for a prospectus on any of the funds mentioned above. The prospectus details investment objectives and risks, as well as management fees and expenses. You should read it carefully before investing or sending money. Sincerely, /s/PETER S. VOSS /s/HENRY L. P. SCHMELZER Peter S. Voss Henry L.P. Schmelzer Chairman President NEW ENGLAND HIGH INCOME FUND INVESTMENT RESULTS THROUGH DECEMBER 31, 1995 Putting Performance into Perspective The graph comparing your FundOs 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 FundOs 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 $10,000 INVESTMENT IN CLASS A SHARES COMPARED TO THE FIRST BOSTON HIGH YIELD INDEX4 AND THE COST OF LIVING5 [A chart in the form of a line graph appears here, illustrating the growth of a $10,000 investment in Class A Shares compared to Lehman Municipal Index(4) and the Cost of Living(5). The data points from the graph are as follows:] New England High Income Fund - Net Asset Value(1) Year Amount - ----- ------ 1995 $20,003 1994 $17,895 1993 $18,508 1992 $15,885 1991 $13,721 1990 $10,054 1989 $11,586 1988 $11,215 1987 $10,933 1986 $11,096 12/31/84 $10,000 New England High Income Fund - With Maximum Sales Charge(2) Year Amount - ----- ------ 1995 $19,103 1994 $17,090 1993 $17,675 1992 $15,170 1991 $13,104 1990 $9,602 1989 $1,065 1988 $10,710 1987 $10,441 1986 $10,597 12/31/84 $9,550 First Boston High Yield(4) Year Amount - ----- ------ 1995 $29,908 1994 $25,477 1993 $25,727 1992 $21,636 1991 $18,546 1990 $12,902 1989 $13,781 1988 $13,727 1987 $12,319 1986 $11,564 12/31/84 $10,000 Cost of Living(5) Year Amount - ----- ------ 1995 $14,055 1994 $13,697 1993 $13,340 1992 $12,983 1991 $12,617 1990 $12,242 1989 $11,537 1988 $11,025 1987 $10,558 1986 $10,110 13/31/84 $10,000 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. NEW ENGLAND HIGH INCOME FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95
CLASS A (INCEPTION 2/22/84) 1 YEAR 5 YEARS 10 YEARS Net Asset Value(1) 11.78% 14.75% 7.18% With Max. Sales Charge(2) 6.73 13.69 6.68 Lipper High Yield Average(6) 16.44 16.70 CLASS B (INCEPTION 9/20/93) 1 YEAR SINCE INCEPTION Net Asset Value(1) 11.19% 4.83% With CDSC(3) 7.19 3.70 First Boston High Yield(4) 17.39 Lipper High Yield Average(6) 16.44 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 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 First Boston High Yield Index is an unmanaged index of bonds rated below investment grade by Standard and PoorOs or MoodyOs Investors Service issued by U.S. corporations. The Index performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. 5 Cost of Living is based on the Consumer Price Index, a widely recognized measure of the cost of goods and services in the United States, calculated by the U.S. Bureau of Labor Statistics. 6 Lipper Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar investment objectives as calculated by Lipper Analytical Services, an independent mutual fund ranking service.
NEW ENGLAND HIGH INCOME FUND [PHOTO] NEW ENGLAND HIGH INCOME FUND 1995 ANNUAL REPORT Portfolio Manager: Charles Glueck Back Bay Advisors, L.P. Optimism about declining interest rates and continued low inflation fueled a strong rally in the bond markets, in 1995, while prospects for economic growth sent the stock market to new highs. U.S. Treasury securities and corporate bonds were the principal beneficiaries of the fixed-income marketOs exuberance. While the performance of high-income bonds was positive for the year, it was inhibited by the lagging effect of 1994Os economic slowdown and interest rate increases. How Your Fund Performed For the 12 months ended December 31, 1995, New England High Income Fund provided a total return on net asset value of 11.78% for Class A shares. By historical standards, this is a solid return; however, it does reflect the overall underperformance of high-income bonds versus Treasury securities during 1995. We are pleased to report that the Fund generated a high level of current income over the 12-month period. On December 31, the FundOs 30- day yield was 9.48% for Class A shares.1 Past performance does not guarantee future results. 1 Yield is calculated using a standard formula established by the Securities and Exchange Commission, and is an annualized percentage based on the yield earned for the FundOs Class A shares during the 30 days ending December 31, 1995. NEW ENGLAND HIGH INCOME FUND How We Managed Your Fund In response to 1994Os rate increases and the slowdown in overall credit improvement, the Fund assumed a defensive posture in the first half of 1995 by increasing credit quality and decreasing portfolio duration, the measure of overall sensitivity to changes in interest rates. We changed emphasis in the early summer as rates dropped, and it became increasingly evident that the U.S. economy would achieve the hoped for soft landing. At that time, we added to our holdings of B- rated bonds in anticipation of improving credit quality; we also lengthened the duration of the Fund by including more zero coupon and deferred interest bonds and Treasury strips. Duration, which averaged 4.5 years in the first six months, was extended to a slightly more bullish 4.64 years by December. Given the volatility in the high-income market, diversification is essential to successful investing. Throughout the year, the Fund continued to be broadly diversified, holding more than 100 issues across nearly 30 sectors. Please refer to OPortfolio CompositionO in the attached financial report for a more complete listing of all the sectors and individual holdings. NEW ENGLAND HIGH INCOME FUND Economic Outlook As we enter 1996, we anticipate a continuation of interest rate declines and low inflation an environment that historically has been favorable to high-yield bonds. In light of this economic outlook, we expect to continue lengthening portfolio duration gradually and assuming a more aggressive posture as we seek strong returns with high current yields for shareholders. NEW ENGLAND HIGH INCOME TOP TEN SECTORS AS OF 12/31/95 SECTOR PERCENTAGE 1. COMMUNICATIONS 9.6% 2. MANUFACTURING 7.1 3. PAPER & FOREST PRODUCTS 6.7 4. FOOD/TOBACCO 6.0 5. OIL & GAS 5.7 6. STEEL & IRON 5.6 7. RETAIL STORES 5.4 8. CHEMICALS 4.6 9. ENTERTAINMENT 4.0 10. GOVERNMENT ISSUES 3.4 *Portfolio holdings and asset allocations may change. [LOGO] NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS NEW ENGLAND HIGH INCOME FUND DECEMBER 31, 1995 PORTFOLIO COMPOSITION Investments as of December 31, 1995 BONDS AND NOTES--94.2% OF TOTAL NET ASSETS
FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- - -- ADVERTISING--0.5% $250,000 Lamar Advertising 11.000%, 05/15/2003 $260,000 ----------- AIR TRANSPORT--0.1% 250,000 People Express Airlines, Inc., secured equip. cts., 14.375%, 04/15/1996 (e) 30,000 ----------- AUTOMOTIVE--2.7% 500,000 Am General Corp., 12.875%, 05/01/2002 500,000 500,000 Johnstown America Industries, 11.750%, 08/15/2005 450,000 250,000 Motor Wheel Corp. 11.500%, 03/01/2000 225,000 150,000 SPX Corp. 11.750%, 06/01/2002 159,000 ----------- 1,334,000 ----------- AVIATION/PARTS & SERVICE--0.7% 350,000 Fairchild Corp. 13.125%, 03/15/2006 332,500 ----------- BUILDING MATERIALS--3.2% 500,000 Beazer USA Inc. 9.000%, 03/01/2004 485,000 750,000 Color Tile, Inc. 10.750%, 12/15/2001 (e) 75,000 250,000 NVR, Inc. 11.000%, 04/15/2003 251,562 250,000 Pacific Lumber Co. 10.500%, 03/01/2003 236,875 500,000 Schuller International Group, Inc. 10.875%, 12/15/2004 561,250 ----------- 1,609,687 ----------- CHEMICALS--4.6% 250,000 Agriculture Minerals & Chemicals 10.750%, 09/30/2003 276,250 400,000 Harris Chemical North America, Inc. 10.750%, 10/15/2003 366,000 250,000 Huntsman Corp. 11.000%, 04/15/2004 286,500 1,000,000 Indspec Chemical Corp., 0/11.500, 12/01/2003 (f) 800,000 500,000 Waters Corp. 12.750%, 09/30/2004 565,000 ----------- 2,293,750 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 BONDS AND NOTES--continued FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- COMMUNICATIONS--9.6% $900,000 Bell Cablemedia PLC, 0/11.875%, 09/15/2005 (f) $562,500 200,000 Cablevision Industries Corp. 10.750%, 01/30/2002 216,000 500,000 Cablevision System Corp. 9.250%, 11/01/2005 522,500 250,000 Cencall Communications Corp., 0/10.125, 01/15/2004 (f) 141,250 500,000 Continental Cablevision Inc. 11.000%, 06/01/2007 558,575 500,000 Diamond Cable Communication, 0/11.75%, 12/15/2005 (f). 293,750 500,000 Dictaphone Corp. 11.750%, 08/01/2005. 495,000 200,000 International Cabletel, Inc., 0/10.875%, 10/15/2003 (f) 144,000 500,000 Jones Intercable Inc. 9.625%, 03/15/2002 537,500 200,000 Katz Corp. 12.750%, 11/15/2002. 221,000 350,000 Metrocall Inc. 10.375%, 10/01/2007 371,175 500,000 Nextel Communications, Inc., 0/9.75%, 08/15/2004 (f) 271,250 750,000 Telewest PLC, 0/11%, 10/01/2007 (f) 452,813 ----------- 4,787,313 ----------- COMPUTERS--1.3% 310,000 Anacomp, Inc. 15.000%, 11/01/2000. 217,000 500,000 Merisel, Inc. 12.500%, 12/31/2004. 410,000 ----------- 627,000 ----------- CONGLOMERATES--1.9% 250,000 Kaiser Aluminum & Chemical Corp. 12.750%, 2/01/2003 273,750 500,000 Talley Industries, Inc., 0/12.250, 10/15/2005 (f) 368,750 300,000 Talley Manufacturing & Technology, Inc. 10.750%, 10/15/2003 300,750 ----------- 943,250 ----------- CONSUMER PRODUCTS--3.2% 750,000 Apparel Retailers, Inc., 0/12.750, 08/15/2005 (f) 457,500 200,000 Revlon, Inc. 10.875%, 07/15/2010 203,000 500,000 Revlon, Inc., Zero Coupon Bond, 03/15/1998 371,250 750,000 U.S. Leather, Inc. 10.250%, 07/31/2003 562,500 ----------- 1,594,250 ----------- CONTAINERS--2.2% 250,000 Calmar, Inc. 11.500%, 8/15/05 253,125 750,000 Owens Illinois, Inc. 11.000%, 12/01/2003 847,500 ----------- 1,100,625 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 BONDS AND NOTES--continued FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- ELECTRIC UTILITIES--1.4% $500,000 Consolidated Hydropower, Inc., 0/12.00%, 07/15/2003 (f).$320,545 1,000,000 Kenetech Corp. 12.750%, 12/15/2002 370,000 ----------- 690,545 ----------- ENTERTAINMENT--4.0% 400,000 ACT III Theaters, Inc. 11.875%, 02/01/2003 434,000 2,000 Capital Gaming International Inc. Zero Coupon Bond,08/01/1995 0 204,450 Capital Gaming International Inc. 11.500%, 02/01/2001 (d)80,091 250,000 Grand Casino Inc. 10.125%,12/01/2003. 262,188 500,000Lady Luck Gaming Financing Corp. 10.500%, 03/01/2001 385,000 500,000 Players International Inc, 10.875%, 04/15/2005 470,000 500,000 Roadmaster Industries, Inc. 11.750%, 07/15/2002. 340,000 ----------- 1,971,279 ----------- FOOD/TOBACCO--6.0% 750,000 Carrols Corp. 11.500%, 08/15/2003. 757,500 250,000 Dr. Pepper Bottling Co., 0/11.625, 02/15/2003 (f) 205,000 500,000 Family Restaurants Inc., 0/10.875%, 02/01/2004 (f) 60,000 1,000,000 Grand Union Co. 12.000%, 09/01/2004 865,000 200,000 PMI Acquisition Corp. 10.250%, 09/01/2003. 205,500 400,000 Ralph's Grocery Co., 13.750%, 06/15/2005 426,500 250,250 Smitty's Super Value, Inc. 12.750%, 06/15/2004 (d).240,000 500,000 Specialty Foods Acquisition Corp., 0/13%, 08/15/2005 (f) 230,000 ----------- 2,989,500 ----------- HEALTH SERVICES--2.8% 293,419 Amerisource DistrIbution Corp. 11.250%, 7/15/2005 (c). 318,360 500,000 Dade International, Inc. 13.000%, 02/01/2005. 560,000 450,000 Ornda Healthcorp 12.250%, 05/15/2002. 495,000 ----------- 1,373,360 ----------- HOTELS--0.5% 250,000 Trump Plaza Funding, Inc. 10.875%, 06/15/2001 258,750 ----------- INSURANCE--2.1% 1,000,000 Reliance Group Holdings, Inc. 9.750%, 11/15/200 31,030,000 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 BONDS AND NOTES--continued FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- MANUFACTURING--7.1% $1,000,000 American Standard, Inc., 0/10.50%, 06/01/2005 (f).$857,500 227,000 Carbide/Graphite Group, Inc. 11.500%, 09/01/2003 245,160 500,000 Eagle Industries, Inc., 0/10.50%, 07/15/2003 (f) 418,750 800,000 Fairfield Manufacturing 11.375%, 07/01/2001 780,000 250,000 HS Res., Inc. 9.875%, 12/01/2003 246,250 750,000 Mafco, Inc. 11.875%, 11/15/2002 772,500 250,000 Reeves Industries, Inc. 11.000%, 07/15/2002 213,750 ----------- 3,533,910 ----------- METALS/MINING--1.8% 1,000,000 Jorgensen Earle 10.750%, 03/01/2000 917,500 ----------- OIL & GAS--5.7% 500,000 Clark R & M Holdings, Zero Coupon Bond, 02/15/2000.332,500 500,000 Maxus Energy Corp., 9.375%, 11/01/2003 490,000 400,000 Nuevo Energy Co. 12.500%, 06/15/2002. 435,000 500,000 Petroleum Heat & Power, Inc. 10.125%, 04/01/2003 490,000 250,000 Petroleum Heat & Power, Inc. 12.250%, 02/01/2005 275,625 200,000 Santa Fe Energy Resource, Inc. 11.000%, 05/15/2004.218,000 300,000 Tesoro Petroleum Corp., sub. deb., 13.000%, 12/01/2000 309,000 250,000 United Meridian Corp. 10.375%, 10/15/2005. 264,375 ----------- 2,814,500 ----------- PAPER & FOREST PRODUCTS--6.7% 500,000 Ivex Holdings Corp., 0/13.25%, 03/15/2005 (f) 280,000 200,000 Ivex Packaging 12.500%, 12/15/2002 212,000 500,000 P.T. Indorayon Utama 9.125%, 10/15/2000 .465,000 250,000 SD Warren Co. 12.000%, 12/15/2004. 275,625 500,000 Stone Container Corp. 11.500%, 09/01/1999. 502,500 500,000 Stone Container Corp. 10.750%, 10/01/2002. 516,250 1,000,000 Tjiwi Kimia International Finance 13.250%, 08/01/200 11,072,500 ----------- 3,323,875 ----------- REAL ESTATE--2.7% 340,000 Continental Homes 12.000%, 08/01/1999 367,200 500,000 Engle Homes 11.750%, 12/15/2000 470,000 150,000 Oriole Homes Corp. 12.500%, 01/15/2003 124,500 250,000 Ryland Group, Inc. 9.625%, 06/01/2004 241,250 154,296 U.D.C. Homes, Inc. 12.500%, 05/01/2000 148,004 ----------- 1,350,954 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 BONDS AND NOTES--continued FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- RETAIL STORES--5.4% $500,000 Cole National Group. Inc. 11.250%, 10/01/2001 $501,250 1,000,000 Finlay Enterprises, Inc., 0/12.00%, 05/01/2005 (f).660,000 200,000 Levitz Furniture 12.375%, 04/15/1997. 181,000 250,000 Levitz Furniture 9.625%, 07/15/2003 137,500 500,000 Loehmanns Holdings, Inc. 13.750%, 02/15/1999. 470,000 200,000 Pace Industries, Inc. 10.625%, 12/01/2002. 176,000 200,000 Repap Wis, Inc. 9.875%, 05/01/2006 189,000 350,000 Waban, Inc. 11.000%, 05/15/2004 358,750 ----------- 2,673,500 ----------- STEEL & IRON--5.6% 750,000 AK Steel Corp. 10.750%, 04/01/2004 832,500 750,000 Acme Metals, Inc. 12.500%, 08/01/2002 757,500 750,000 GS Technologies Oper. Inc. 12.000%, 09/01/2004 741,562 500,000 Wheeling Pittsburgh Corp. 9.375%, 11/15/2003. 472,500 ----------- 2,804,062 ----------- TEXTILES & APPAREL--0.6% 250,000Bibb Co. 14.000%, 10/01/1999 97,500 200,000Dan River, Inc. 10.125%, 12/15/2003 182,000 100,000NTC Group, Inc. 13.875%, 08/01/1999 38,000 ----------- 317,500 ----------- TRUCKING--0.2% 500,000 Burlington Motor Holdings, Inc. 11.500%, 11/01/2003 (e) 80,000 ----------- MISCELLANEOUS--8.4% 250,000 Alliant Techsystems Inc, 11.750%, 03/01/2003. 275,625 1,000,000 Cemex SA & Tolmex, 9.5000% 906,250 200,000 Day International Group, 11.125%, 06/01/2005. 204,000 500,000 MVE Inc., 12.500%, 02/15/2002 515,000 500,000 Primeco Inc., 12.750%, 03/01/2005. 515,000 500,000 RBX Corp. 11.250%, 10/15/2005 495,000 250,000 Sherritt Inc. SR Notes 10.500%, 03/31/2014 272,813 500,000 Terex Corp., 13.750%, 05/15/2002 433,750 265,000 UCAR Global Enterprises, 12.000%, 01/15/2005. 306,075 250,000 Webcraft Technologies, Inc. 9.375%, 02/15/2002 240,000 ----------- 4,163,513 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 BONDS AND NOTES--continued FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- U.S. Government--3.4% $300,000U.S. Treasury Notes 8.250%, 07/15/1998 $321,092 6,405,000U.S. Treasury Bond Strip, Zero Coupon, 08/15/2020.1,394,240 ----------- 1,715,332 ----------- Total Bonds and Notes (Identified Cost $49,857,407) 46,920,455 ----------- COMMON STOCKS--0.4% SHARES DESCRIPTION - ---------------------------------------------------------------------- 6,713 Bucyrus Erie Co. 52,865 5,334 Capital Gaming International, Inc 667 66 Continental Airlines Inc. Cl A 2,805 181 Continental Airlines Inc. Cl B 7,874 667 Finlay Enterprises Inc. 7,837 9,887 Grand Union Co.(d) 66,294 2,688 Great Bay Power Corp 21,504 376 Host Marriott Corp 4,982 376 Marriott International, Inc 14,382 7,500 Specialty Foods Acquisition Corp 30,000 ----------- Total Common Stocks (Identified Cost $1,072,518). 209,210 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 BONDS AND NOTES--continued FACE AMOUNT DESCRIPTION VALUE (A) - ---------------------------------------------------------------------- $1,260,000 Repurchase agreement with State Street Bank & Trust Company dated 12/29/95 at 5.00% to be repurchased at $1,260,700 on 01/02/95 collateralized by $1,195,000 U.S. Treasury Note 7.125% due 09/30/99 with a value of $1,287,450 1,260,000 ----------- Total Short-Term Investment (Identified Cost $1,260,000) 1,260,000 ----------- Total Investments--97.2% (Identified Cost $52,189,925) (b). 48,389,665 Cash and Receivables 1,716,086 Liabilities (332,677) ----------- Total Net Assets--100% $49,773,074 =========== - ---------------------------------------------------------------------- (a) See Note 1a. (b) Federal Tax Information: At December 31, 1995 the net unrealized depreciation on investments based on cost of $52,168,611 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 $ 1,985,122 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value (5,764,068) ------------- Net unrealized depreciation $(3,778,946) ============= As of December 31, 1995, the Fund had a net tax basis capital loss carryforward as follows: Expiring December 31, 1996 $253,489 Expiring December 31, 1997 $1,341,040 Expiring December 31, 1998 $527,465 Expiring December 31, 1999 $1,300,610 (c) Pay-in-kind securities. (d) Warrants attached. (e) Non-income producing; issuer filed petition under Chapter 11 of the Federal Bankruptcy Code. (f) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date.
STATEMENT OF ASSETS & LIABILITIES December 31, 1995 ASSETS Investments at value $48,389,665 Cash 3,793 Receivable for: Fund shares sold 32,359 Securities sold 411,776 Dividends and interest 1,264,158 Prepaid registration expense. 4,000 ----------- 50,105,751 ----------- LIABILITIES Payable for: Fund shares redeeme. $ 80,520 Dividends declared 117,262 Accrued expenses: Management fees 86,102 Deferred trustees' fees 836 Other expenses. 47,957 -------- 332,677 ----------- NET ASSETS $49,773,074 =========== Net Assets consist of: Capital paid in $57,039,956 Distributions in excess of net investment income (44,018) Accumulated net realized losses (3,422,604) Unrealized depreciation on investments (3,800,260) ----------- NET ASSETS $49,773,074 =========== Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($39,147,716 divided by 4,358,261 shares of beneficial interest) $8.98 ====== Offering price per share (100/95.50 of $8.98) $9.40* ====== Net asset value and offering price of Class B shares ($10,625,358 divided by 1,183,866 shares of beneficial interest) $8.98** ======= Identified cost of investments. $52,189,925 =========== * Based upon single purchases of less than $100,000. Reduced sales charges apply for purchases in excess of these amounts. ** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges.
STATEMENT OF OPERATIONS Year Ended December 31, 1995 INVESTMENT INCOME Dividends. $57,312 Interest 5,100,949 ---------- 5,158,261 Expenses Management fees $342,554 Service and distribution fees--Class A 130,876 Service and distribution fees--Class B 82,798 Trustees' fees and expenses 12,291 Custodian 83,075 Transfer agent 91,461 Audit and tax services. 22,000 Legal 18,480 Printing 23,337 Registration 21,713 Miscellaneous. 9,859 ---------- Total expenses 838,444 Less expenses waived by the investment adviser (53,843) 784,601 ---------- ---------- Net investment income. 4,373,660 REALIZED and UNREALIZED GAIN on INVESTMENTS Realized gain on: Investments--net. 357,087 Unrealized appreciation on Investments--net. 165,613 ---------- Net gain on investment transactions 522,700 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $4,896,360 ==========
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1994 1995 ------------------------ FROM OPERATIONS Net investment income $ 3,332,558 $ 4,373,660 Net realized gain on investments 1,911 357,087 Unrealized appreciation (depreciation) on investments (4,649,556) 165,613 ----------- ----------- Increase (decrease) in net assets from operations (1,315,087) 4,896,360 ----------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A (3,033,987) (3,631,062) Class B (259,930) (742,598) In excess of net investment income Class A 0 (172,611) Class B (2,275) (42,339) ----------- ----------- (3,296,192) (4,588,610) ----------- ----------- Increase in net assets derived from capital share transactions. 11,109,456 10,559,256 ----------- ----------- Total increase in net assets. 6,498,177 10,867,006 NET ASSETS Beginning of the year 32,407,891 38,906,068 ----------- ----------- End of the year $38,906,068 $49,773,074 =========== =========== UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME Beginning of the year $(236,676) $101,090 =========== =========== End of the year $101,090 $(44,018) =========== ===========
FINANCIAL HIGHLIGHTS
Class A ----------------------------------------------- Year ended December 31, ----------------------------------------------- 1991 1992 1993 1994 1995 ----- ------ ------ ------ ------ Net Asset Value, Beginning of Period $7.56 $9.07 $9.46$ 10.06 $8.89 ----- ------ ------ ------ ------ Income From Investment Operations Net Investment Income 1.02 0.94 0.90 0.88 0.88 Net Realized and Unrealized Gain (Loss) on Investments 1.58 0.44 0.61 (1.19) 0.13 ----- ------ ------ ------ ------ Total From Investment Operations 2.60 1.38 1.51 (0.31) 1.01 ----- ------ ------ ------ ------ Less Distributions Distributions From Net Investment Income (1.02) (0.94) (0.90) (0.86) (0.88) Distributions in Excess of Net Investment Income. 0.00 0.00 (0.01) 0.00 (0.04) Distributions From Paid-in Capital (0.07) (0.05) 0.00 0.00 0.00 ------ ------ ------ ------ ------ Total Distributions (1.09) (0.99) (0.91) (0.86) (0.92) ------ ------ ------ ------ ------ Net Asset Value, End of Period $9.07 $9.46 $ 10.06 $8.89 $8.98 ======= ======= ====== ====== ====== Total Return (%)(b) 36.3 15.8 16.5 (3.3) 11.8 Ratio of Operating Expenses to Average Net Assets (%)(a) 1.50 1.50 1.54 1.60 1.60 Ratio of Net Investment Income to Average Net Assets (%) 11.56 9.74 9.17 9.18 9.71 Portfolio Turnover Rate (%) 30 19 43 33 30 Net Assets, End of Period (000) $12,280 $20,992 $31,176$33,673 $39,148 (a) Commencing October 1, 1993 expenses were voluntarily limited to 1.60% of Class A average net assets. See Note 4. From May 18, 1989 through September 30, 1993 expenses were voluntarily limited to 1.50% of average net assets. The ratios of operating expenses to average net assets, assuming the foregoing expense limitations had not been in effect, would have been 3.02%, 2.63%, 2.00%, 1.83% and 1.72% for the years ended December 31, 1991, 1992, 1993, 1994, and 1995 respectively. (b) A sales charge of 4.50% (maximum) was not reflected in total return calculations. As of January 1, 1993 the fund discontinued the use of equalization accounting.
FINANCIAL HIGHLIGHTS--continued
CLASS B ------------------------------------------ SEPTEMBER 20,(A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31,DECEMBER 31, DECEMBER 31, 1993 1994 1995 ------------------------------------------ Net Asset Value, Beginning of Period $ 9.87 $10.06 $8.88 ------ ------ ------- Income From Investment Operations Net Investment Income 0.23 0.79 0.83 Net Realized and Unrealized Gain (Loss) on Investments. 0.20 (1.18) 0.13 ------ ------ ------- Total From Investment Operations 0.43 (0.39) 0.96 ------ ------ ------- Less Distributions Distributions From Net Investment Income (0.23) (0.78) (0.81) Distributions in Excess of Net Investment Income (0.01) (0.01) (0.05) Distributions From Paid-in Capital 0.00 0.00 0.00 ------ ------ ------- Total Distributions (0.24) (0.79) (0.86) ------ ------ ------- Net Asset Value, End of Period $10.06 $ 8.88 $8.98 ====== ====== ======= Total Return (%) (c) 4.4 (4.0) 11.2 Ratio of Operating Expenses to Average Net Assets (%) (b) 2.25(d) 2.25 2.25 Ratio of Net Investment Income to Average Net Assets (%). 7.66(d) 8.53 8.96 Portfolio Turnover Rate (%) 43 33 30 Net Assets, End of Period (000) $1,232 $5,233 $ 10,625 (a) Commencement of operations. (b) Commencing October 1,1993 expenses were voluntarily limited to 2.25% of Class B average net assets. See Note 4. The ratios of operating expenses to average net assets, assuming the foregoing expense limitations had not been in effect for Class B shares, would have been 2.53% for the period ended December 31, 1993, 2.48% for the year ended December 31, 1994 and 2.37% for the year ended December 31, 1995. (c) Periods less than one year are not annualized. (d) Computed on an annualized basis.
NOTES TO FINANCIAL STATEMENTS December 31, 1995 1.The Fund is a series of New England Funds Trust II, 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 both Class A and Class B shares. The Fund commenced its public offering of Class B shares on September 20, 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 adviser, 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, when combined with accrued interest or discount earned, 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 NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 accrual basis. Interest income is increased by the accretion of discount. In determining net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. C. 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. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS.Dividends are declared daily to shareholders of record at the time and are paid monthly. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to interest on defaulted securities and differing treatments for income recognition on pay-in-kind securities. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid in capital. E. REPURCHASE AGREEMENTS.The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price. Back Bay Advisors is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. 2.PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the year ended December 31, 1995 were $23,036,663 and $12,840,618, respectively. 3A. MANAGEMENT FEES AND OTHER TRANSACTIONS With Affiliates.During the year ended December 31, 1995, the Fund incurred management fees payable to its investment adviser, Back Bay Advisors. Certain officers and directors of the adviser and its affiliated companies are also officers or trustees of the Fund. Back Bay Advisors is a wholly owned subsidiary of New England Investment Companies, L.P. ("NEIC") which is a majority owned subsidiary of New England Mutual Life Insurance Company. The management agreement in effect during the year ended December 31, 1995 provided for fees as set forth below:
FEES EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS - ----------- ----------------------- ----------------------------- $342,554(a) 0.750% all net assets (a) Before reduction pursuant to voluntary expense limitations. See Note 4.
NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 Effective January 1, 1996, New England Funds Management, L.P. became the adviser for the Fund with the aforementioned adviser being retained as the Fund's sub-adviser. B. SERVICE AND DISTRIBUTION FEES.Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted Service and Distribution Plans relating to the Fund's Class A and Class B shares (the "Plans"). Under the Plans, the Fund pays New England Funds, L.P. ("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 and 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 A and Class B shares and/or the maintenance of shareholder accounts. For the year ended December 31, 1995, the Fund paid New England Funds $93,472 and $15,554 in service fees under the Class A and B Plans respectively. Also under the Plans, the Fund pays New England Funds monthly distribution fees, at the annual rate of up to 0.10% of the average daily net assets attributable to the Fund's Class A shares and 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 A and Class B shares, respectively. For the year ended December 31, 1995, the Fund paid New England Funds $37,404 and $67,244 in distribution fees under the Class A and B Plans respectively. Commissions (including contingent deferred sales charges) on Fund shares paid to New England Funds by investors in shares of the Fund during the year ended December 31, 1995 amounted to $182,220. C. TRANSFER AGENT FEES.New England Funds is the transfer and shareholder servicing agent to the Fund. For the year ended December 31, 1995, the Fund paid New England Funds $67,656 as compensation for its services in that capacity. D. TRUSTEES FEES AND EXPENSES.The Fund does not pay any compensation directly to its officers or trustees who are directors, officers or employees of Back NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 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 $800 Meeting Fee $125/meeting Committee Meeting Fee $75/meeting Committee Chairman Retainer $125/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.EXPENSE LIMITATIONS.Commencing October 1, 1993 and until further notice to the Fund, Back Bay Advisors has voluntarily agreed to reduce its management fee and, if necessary, to assume expenses of the Fund in order to limit the Fund's expenses to an annual rate of 1.60% of Class A average daily net assets and 2.25% of Class B average daily net assets. From May 18, 1989 through September 30, 1993 expenses were voluntarily limited to 1.50% of the Fund's average daily net assets. As a result of the Fund's expenses exceeding the foregoing expense limitations during the year ended December 31, 1995, Back Bay Advisors reduced its management fee of $342,554 by $53,843. 5.CONCENTRATION OF CREDIT; LOWER RATED SECURITIES.The Fund invests in securities offering high current income which generally will be rated below investment grade by recognized rating agencies. Certain of these lower rated securities are regarded as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligations and generally involve more credit risk than securities in the higher rating categories. In addition, the trading market for lower rated securities may be less liquid than the market for higher-rated securities. NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 6.CAPITAL SHARES.At December 31, 1995 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 YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ------------------- ------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- -------- -------- -------- Shares sold. 1,496,591$14,387,334 1,182,928 $10,739,791 Shares issued in connection with the reinvestment of: Distributions from net investment income 219,370 2,073,464 289,825 2,629,615 ---------- ---------- --------- ---------- 1,715,96116,460,798 1,472,753 13,369,406 Shares repurchased. (1,026,473) (9,770,807) (901,955) (8,189,417) ---------- ---------- --------- ---------- Net increase (decrease) 689,488 $ 6,689,991 570,798 $ 5,179,989 ========== ========== ========= ========== YEAR ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ------------------- ------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- -------- -------- -------- Shares sold. 498,542 $ 4,729,198 690,304 $ 6,247,681 Shares issued in connection with the reinvestment of: Distributions from net investment income 14,967 137,763 31,651 286,885 ---------- ---------- --------- ---------- 513,509 4,868,961 721,955 6,634,566 Shares repurchased (46,997) (447,496) (127,062) (1,155,299) ---------- ---------- --------- ---------- Net increase (decrease) 466,512 $ 4,419,465 594,893 $ 5,379,267 ---------- ---------- --------- ---------- Increase (decrease) derived from capital share transactions. 1,156,000 $11,109,456 1,165,691 $10,559,256 ========== ========== ========= ==========
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of the New England Funds Trust II and the Shareholders of the NEW ENGLAND HIGH INCOME FUND We have audited the accompanying statement of assets and liabilities, including the schedule of portfolio investments, of the New England High Income Fund as of December 31, 1995, and the related statement of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated herein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the New England High Income Fund as of December 31, 1995, the results of its operations for the year then ended, the changes in its net assets for the two years in the period then ended and the financial highlights for the periods indicated herein, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 2, 1996 SHAREHOLDER MEETING (unaudited) At a special shareholders' meeting held on December 28, 1995, shareholders of the High Income Fund voted for the following proposals:
VOTED VOTED ABSTAINED BROKER TOTAL FOR AGAINST VOTES NON-VOTES VOTES ------ ------- --------- --------- ----- 1. To approve new investment advisory arrangements to be effective upon the merger of New England Mutual Life Insurance Company into Metropolitan Life Insurance Company, such arrangements to be substantially identical to the investment advisory arrangements in effect for the Fund immediately prior to such merger 3,451,554.741 60,800.947 104,402.961 3,616,758.649 ============= =========== =========== 2. To approve a new Advisory Agreement between the Fund and New England Funds Management, L.P. ("NEFM") 3,438,612.080 75,153.787 102,992.782 3,616,758.649 ============= =========== =========== 3. To approve a related Sub- Advisory Agreement between NEFM and such Fund's current investment adviser 3,414,935.538 79,968.991 121,854.120 3,616,758.649 ============= =========== =========== 4. To approve changes in the Fund's fundamental investment restrictions, in order to permit the Fund to engage in transactions in options and futures contracts 2,482,145.457 142,273.200 117,909.992874,430.000 3,616,758.649 ============= =========== ====================== =============
NEW ENGLAND FUNDS STOCK FUNDS Growth Fund of Israel International Equity Fund Star Worldwide Fund Growth Fund Star Advisers Fund Capital Growth Fund Value Fund Growth Opportunities Fund Balanced 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. 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 FundOs 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 Permit No. 770 [LOGO] NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET 399 Boylston Street Boston, Massachusetts 02116 [LOGO] QUALITY TESTED SERVICE 1996 DALBAR HONORS COMMITMENT TO: INVESTORS HP56 [RECYCLE LOGO] PRINTED ON RECYCLED PAPER APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND EDGAR-FILED TEXTS. (1) Rule lines for tables are omitted. (2) Italic typefaces is displayed in normal type. (3) Boldface type is displayed in capital letters. (4) Headers (e.g. the names of the fund) and footers (e.g. page numbers and OSee accompanying notes to financial statementsO) are omitted. (5) Because the printed page breaks are not reflected, certain tabular and columnar headings and symbols are displayed differently in this filing. (6) Bullet points, leaders and similar graphic symbols are omitted. (7) Page numbering is different. -----END PRIVACY-ENHANCED MESSAGE-----