-----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, SrRvSAbEABT+nFE+klsryHYXhMGVV6YVO0WobzyKJVAKgZq+P/3Cn8uA4454/mJO hfVNOxOTHD+PGYYsLFHObA== 0000915707-96-000063.txt : 19960315 0000915707-96-000063.hdr.sgml : 19960315 ACCESSION NUMBER: 0000915707-96-000063 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960314 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: 96534885 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 ADJUSTABLE RATE U.S. GOVERNMENT FUND [LOGO OF NEW ENGLAND FUNDS APPEARS HERE] Were the Best Minds Meet(TM) - ------------------------------------ Annual Report and Performance Update - ------------------------------------ NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND - ----------------- December 31, 1995 - ----------------- January 31, 1996 DEAR SHAREHOLDER, It's a real pleasure to present to you the 1995 Annual Report for New England Adjustable Rate U.S. Government Fund, containing your portfolio manager's 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 & Poor's 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 industry's most respected managers, Dan Fuss was named 1995's "Bond Fund Manager of the Year" by Morningstartrademark for his past record of accomplishment in fund management at Loomis Sayles.** * Standard & Poor's 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, Ne w 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 "providing the highest tier of service excellence in the mutual fund industry." 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. Whil e this scenario is extremely positive for the long term, it is unlikely that 1996 will see a repeat of last year's stellar performance. At this time it's worth reiterating that long-term investors should not focus on one year's 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 manager's 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 Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ INVESTMENT RESULTS THROUGH DECEMBER 31, 1995 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 ex-penses and management fees. A securities index measures the perfor-mance 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 LEHMAN ADJUSTABLE RATE MORTGAGE INDEX(ARM)(4) AND THE COST OF LIVING(5) [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 Adjustable Rate Mortgage Index (4) and the Cost of Living (5). The data points from the graph are as follows:] NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND - NET ASSET VALUE(1) Year Amount - ---- ------ 1995 $11,948 1994 $11,000 1993 $10,916 1992 $10,494 12/31/91 $10,000 NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND - WITH MAXIMUM SALES CHARGE(2) Year Amount - ---- ------ 1995 $11,829 1994 $10,890 1993 $10,807 1992 $10,389 12/31/91 $ 9,900 LEHMAN ADJUSTABLE RATE MORTGAGE INDEX(4) Year Amount - ---- ------ 1995 $12,437 1994 $11,132 1993 $11,131 1992 $10,502 12/31/91 $10,000 COST OF LIVING(5) Year Amount - ---- ------ [S] [C] 1995 $11,140 1994 $10,856 1993 $10,573 1992 $10,290 12/31/91 $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 Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS 12/31/95
CLASS A (INCEPTION 10/18/91) 1 YEAR 3 YEAR SINCE INCEPTION Net Asset Value(1) 8.62% 4.42 4.63% With Max. Sales Charge(2) 7.57 4.05 4.36 Lipper ARM Average(6) 4.73 6.36 CLASS B (INCEPTION 9/13/93) 1 YEAR SINCE INCEPTION Net Asset Value(1) 7.81% 3.32% With CDSC(3) 3.81 2.09 Lehman Adj. Rate Index(4) 11.72 5.29 Lipper ARM Average(6) 4.73 1.26 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 1% 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 Adjustable Rate Mortgage Index (ARM) is an unmanaged index of adjustable rate mortgages of short to intermediate maturities. 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 Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ [PHOTO] NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND Portfolio Manager: Scott Nicholson, Back Bay Advisors, L.P. Entering 1995, concerns over the possibility of further interest rate increases continued to depress the prices of short-term securities. However, a sharp reversal in market psychology occurred when first quarter economic reports revealed a less robust economic picture, allaying inflation fears. Interest rates dropped significantly, reversing 1994's trend. In fact, the market got dramatically ahead of the Federal Reserve which waited until July to lower the Federal Funds Rate, and then dropped it by only 25 basis points to 5.75%. Bond prices continued to climb throughout the year, motivated by slow,steady economic growth and low inflation. Optimism prevailed and by October, the market had moved up to anticipate about one-half of one percent of additional easing. As events played out, the Fed took no further action until late December, lowering the Funds target rate to 5.50%. In this market environment, adjustable rate mortgages delivered strong returns, making up for their disappointing 1994 results. - ------------------------------------------------------------------------ New England Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ HOW YOUR FUND PERFORMED New England Adjustable Rate U.S. Government Fund posted a total return on net asset value of 8.62% for Class A shares for the year, versus 11.72% for the L ehman Adjustable Rate Mortgage Index.4 Your Fund outperformed the Lipper Adjustable Rate Fund Average6, which returned 4.73% over the same period. Your Fund's Class A shares ranked 20 out of 64 in its Lipper peer group for the 1 year period and 12 out of 44 for the 3-year period ending 12/29/95.* HOW WE MANAGED YOUR FUND Going into 1995, the Fund's holdings of adjustable rate mortgages (ARMs) were near the minimum permitted by the Fund's investment policies, with a mortgage market characterized by depressed prices, reduced liquidity and adverse publicity regarding derivatives. Consequently, we were overweighted in short-duration U.S. Treasury securities which offered good yields, high liquidity and no credit risk. Although ARMs appeared to offer a buying opportunity in the early part of the year, the rapid decline in interest rates and the favorable absolute level of fixed-rate mortgages caused us to limit our ARM investments due to concerns ov er rising prepayments and the resulting principal erosion. *Past performance is no guarantee of future results. - ------------------------------------------------------------------------ New England Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ However, we did extend the duration of our Treasury holdings to take greater advantage of the declining interest rate environment and to offset the sharp decrease in ARM duration due to the accelerating prepayments. This investment strategy proved quite successful for the Fund.** INVESTMENT OUTLOOK Given our outlook for lower interest rates in the first half of 1996, it is likely that ARM prepayments will remain high and continue to restrain returns. However, ARMs may provide a favorable spread over money market securities, especially if the Federal Reserve is aggressive in lowering short-term rates to lessen the possibility of recession. Looking forward, we plan to maintain our conservative strategy, investing only in high quality U.S. government and agency securities. ** Duration measures the sensitivity of a bond or bond fund to interest rate moves, taking into account the amount and timing of interest payments as well as "maturity," or how much time remains before return of principal is due. The longer the duration, the more value of the bond will fluctuate in response to interest rate moves. It follows that accelerating prepayments will decrease duration because interest and principal are being returned sooner than anticipated. - ------------------------------------------------------------------------ New England Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ Your Fund's Portfolio Allocation 12/31/95* [A pie chart appears here, depicting New England Adjustable Rate U.S. Government FundOs portfolio composition at 12/31/95 by security type. The pie chart is broken in pieces representing security types in the following percentages:] Security Type Percentage - ------------- ---------- COLLATERALIZED MORTGAGE OBLIGATIONS 1.4% NET CASH/EQUIVALENT 9.3% TOTAL ARM SECURITIES 66.1% U.S. TREASURY NOTES 23.2% * Portfolio composition is based on total net assets and is subject to change. - ------------------------------------------------------------------------ New England Adjustable Rate U.S. Government Fund - ------------------------------------------------------------------------ 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 OF NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET(TM) APPEARS HERE] - -------------------------------------------------------------------------------- Portfolio Composition, Financial Statements and Highlights - -------------------------------------------------------------------------------- NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND - ----------------- December 31, 1995 - ----------------- - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- Investments as of December 31, 1995 Bonds and Notes--90.7% of Total Net Assets
Face Amount Description Value (a) - -------------------------------------------------------------------------------- - --------- Government Agencies--66.1% $ 2,024,137 Federal Home Loan Mortgage Corporation, 7.500%, 2/01/16, (d)... $ 2,064,620 425,358 Federal Home Loan Mortgage Corporation, 6.336%, 8/01/17, (d)... 428,016 4,511,661 Federal Home Loan Mortgage Corporation, 7.736%, 1/01/19, (d)... 4,644,192 549,948 Federal Home Loan Mortgage Corporation, 6.361%, 2/01/19, (d)... 554,072 1,489,750 Federal Home Loan Mortgage Corporation, 6.374%, 4/01/19, (d)... 1,502,785 4,339,728 Federal Home Loan Mortgage Corporation, 7.834%, 5/01/19, (d)... 4,464,495 7,030,449 Federal Home Loan Mortgage Corporation, 7.510%, 1/01/20, (d)... 7,195,226 1,274,639 Federal Home Loan Mortgage Corporation, 8.074%, 9/01/21, (d)... 1,322,438 2,651,652 Federal Home Loan Mortgage Corporation, 7.875%, 10/01/21, (d).. 2,709,657 2,005,316 Federal Home Loan Mortgage Corporation, 7.750%, 1/01/22, (d)... 2,072,996 2,353,105 Federal Home Loan Mortgage Corporation, 7.618%, 2/01/22, (d)... 2,422,227 5,698,295 Federal Home Loan Mortgage Corporation, 7.694%, 3/01/22, (d)... 5,826,506 3,148,447 Federal Home Loan Mortgage Corporation, 7.358%, 4/01/22, (d)... 3,195,674 4,293,936 Federal Home Loan Mortgage Corporation, 8.000%, 4/01/22, (d)... 4,406,652 3,654,383 Federal Home Loan Mortgage Corporation, 7.846%, 5/01/22, (d)... 3,791,423 3,162,472 Federal Home Loan Mortgage Corporation, 8.074%, 6/01/22, (d)... 3,261,300 2,318,978 Federal Home Loan Mortgage Corporation, 8.104%, 6/01/22, (d)... 2,385,648 1,975,046 Federal Home Loan Mortgage Corporation, 8.246%, 6/01/22, (d)... 2,014,547 2,093,801 Federal Home Loan Mortgage Corporation, 8.250%, 7/01/22, (d)... 2,173,627 1,881,687 Federal Home Loan Mortgage Corporation, 7.875%, 8/01/22, (d)... 1,921,672 4,719,305 Federal Home Loan Mortgage Corporation, 8.045%, 8/01/22, (d)... 4,893,329 3,419,961 Federal Home Loan Mortgage Corporation, 8.126%, 8/01/22, (d)... 3,514,010 1,841,395 Federal Home Loan Mortgage Corporation, 8.045%, 9/01/22, (d)... 1,921,956 4,767,364 Federal Home Loan Mortgage Corporation, 7.632%, 12/01/22, (d).. 4,877,609 3,506,378 Federal Home Loan Mortgage Corporation, 7.668%, 1/01/23, (d)... 3,586,367 5,056,578 Federal Home Loan Mortgage Corporation, 7.954%, 1/01/23, (d)... 5,233,559 4,508,192 Federal Home Loan Mortgage Corporation, 8.010%, 4/01/23, (d)... 4,637,803 4,454,416 Federal Home Loan Mortgage Corporation, 7.946%, 5/01/23, (d)... 4,526,800 4,412,807 Federal Home Loan Mortgage Corporation, 7.934%, 9/01/23, (d)... 4,542,433 4,805,389 Federal Home Loan Mortgage Corporation, 7.375%, 8/01/24, (d)... 4,949,550 10,009,025 Federal Home Loan Mortgage Corporation, 7.906%, 9/01/24, (d)... 10,315,551 8,135,324 Federal Home Loan Mortgage Corporation, 7.563%, 4/01/25, (d)... 8,353,961 997,045 Federal Home Loan Mortgage Corporation, 6.884%, 7/01/30, (d)... 1,016,986 1,776,478 Federal Home Loan Mortgage Corporation, 6.411%, 10/01/30, (d).. 1,789,801 1,486,085 Federal National Mortgage Association, 6.375%, 6/01/17, (d).... 1,498,159 2,028,878 Federal National Mortgage Association, 8.001%, 7/01/17, (d).... 2,092,281 354,378 Federal National Mortgage Association, 7.858%, 8/01/17, (d).... 363,681 2,533,524 Federal National Mortgage Association, 7.677%, 12/01/17, (d)... 2,606,363 8,580,201 Federal National Mortgage Association, 8.000%, 10/01/18, (d)... 8,923,409 779,057 Federal National Mortgage Association, 6.759%, 6/01/19, (d).... 792,204 2,298,111 Federal National Mortgage Association, 6.622%, 7/01/19, (d).... 2,319,656 - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION--continued - -------------------------------------------------------------------------------- Investments as of December 31, 1995 Bonds and Notes--continued Face Amount Description Value (a) - -------------------------------------------------------------------------------- - --------- $ 1,898,692 Federal National Mortgage Association, 6.589%, 1/01/20, (d).... $ 1,933,106 752,392 Federal National Mortgage Association, 7.742%, 5/01/20, (d).... 772,142 3,406,878 Federal National Mortgage Association, 7.697%, 9/01/20, (d).... 3,498,438 3,737,349 Federal National Mortgage Association, 7.921%, 11/01/20, (d)... 3,863,484 2,137,997 Federal National Mortgage Association, 8.028%, 5/01/22, (d).... 2,206,146 5,190,251 Federal National Mortgage Association, 8.128%, 6/01/22, (d).... 5,371,910 4,334,378 Federal National Mortgage Association, 7.924%, 11/01/22, (d)... 4,491,500 3,622,296 Federal National Mortgage Association, 7.806%, 4/01/23, (d).... 3,708,325 2,803,086 Federal National Mortgage Association, 7.967%, 7/01/23, (d).... 2,869,659 582,180 Federal National Mortgage Association, 6.111%, 9/01/23, (d).... 589,821 6,515,274 Federal National Mortgage Association, 7.764%, 4/01/24, (d).... 6,670,012 482,446 Federal National Mortgage Association, 6.780%, 1/01/29, (d).... 472,797 4,049,973 Government National Mortgage Association, 7.375%, 4/20/16, (d). 4,158,816 6,576,735 Government National Mortgage Association, 7.000%, 4/20/22, (d). 6,704,159 4,365,830 Government National Mortgage Association, 7.375%, 6/20/22, (d). 4,458,604 3,934,585 Government National Mortgage Association, 7.000%, 7/20/22, (d). 4,013,276 8,111,523 Government National Mortgage Association, 7.375%, 5/20/23, (d). 8,233,196 4,791,668 Government National Mortgage Association, 7.375%, 6/20/23, (d). 4,863,543 10,150,633 Government National Mortgage Association, 7.250%, 7/20/23, (d). 10,315,580 --- - --------- 220,307,755 --- - --------- CMO--1.4% 4,689,674 Federal Home Loan Mortgage Pc Guaranteed, 6.700%, 10/15/23, (d) 4,736,289 --- - --------- U.S. Government--23.2% 15,000,000 United States Treasury Notes, 9.375%, 4/15/96.................. 15,173,850 10,000,000 United States Treasury Notes, 7.875%, 7/15/96.................. 10,138,200 35,000,000 United States Treasury Notes, 7.375%, 11/15/97................. 36,311,100 5,000,000 United States Treasury Notes, 5.375%, 11/30/97................. 5,015,450 10,000,000 United States Treasury Notes, 9.000%, 5/15/98.................. 10,828,800 --- - --------- 77,467,400 --- - --------- Total Bonds and Notes (Identified Cost $303,743,507)........... 302,511,444 --- - ---------
- -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION--continued - -------------------------------------------------------------------------------- Investments as of December 31, 1995 Short Term Investment--7.2%
Face Amount Description Value (a) - -------------------------------------------------------------------------------- - -------- $24,100,000 Repurchase agreement with State Street Bank and Trust dated 12/29/95 at 5.75% to be repurchased at $24,115,397 on 1/2/96 collateralized by US Treasury Note 6.125% due 5/15/98 valued at $24,243,762............................................... $ 24,100,000 --- - --------- Total Short Term Investment (Identified Cost $24,100,000)...... 24,100,000 --- - --------- Total Investments--100% (Identified Cost $327,843,507)......... 326,611,444 Cash and Receivables........................................... 8,296,183 Liabilities.................................................... (1,427,229) --- - --------- Total Net Assets--100%......................................... $333,480,398 ============ (a) See Note 1a to the financial statements. (b) The Fund's investments in mortgage backed securities of the Government National Mortgage Association, Federal Home Loan Bank and Federal National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of these issues which have the same coupon rate have been aggregated for the purpose of presentation in the schedule of investments. (c) Federal Tax Information: At December 31, 1995 the net unrealized depreciation on investments based on cost for federal income tax purposes of $327,843,507 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost............................. $ 878,120 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value............................. (2,110,183) --- - --------- Net unrealized depreciation........................................... $ (1,232,063) ============ As of December 31, 1995 the fund has a net tax basis capital loss carry forward as follows: Expiring December 31, 2002............................................ $ 5,625,994 December 31, 2003............................................ $ 6,075,626 (d) Variable rate mortgage backed securities. The interest rates change on these instruments monthly based on changes in a designated base rate. The rates shown were those in effect at December 31, 1995.
- -------------------------------------------------------------------------------- STATEMENT OF ASSETS & LIABILITIES - -------------------------------------------------------------------------------- December 31, 1995 ASSETS Investments at value....................................... $326,611,444 Cash....................................................... 95,157 Receivable for: Fund shares sold......................................... 1,864,573 Securities sold.......................................... 142,741 Accrued interest......................................... 6,175,287 Unamortized organization expense......................... 11,425 Prepaid registration expense............................... 7,000 ---- - -------- 334,907,627 LIABILITIES Payable for: Fund shares redeemed..................................... $450,089 Dividends declared....................................... 624,631 Accrued expenses: Management fees.......................................... 287,467 Deferred trustees' fees.................................. 1,723 Other expenses........................................... 63,319 -------- 1,427,229 ---- - -------- NET ASSETS................................................... $333,480,398 ============ Net Assets consist of: Capital paid in.......................................... $347,752,936 Overdistributed net investment income.................... (204,379) Accumulated net realized losses.......................... (12,836,096) Unrealized depreciation on investments................... (1,232,063) ---- - -------- NET ASSETS................................................... $333,480,398 ============ Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($331,112,011 divided by 44,898,904 shares of beneficial interest).................................................. $7.37 ===== Offering price per share (100/99 of $7.37)................... $7.44* ===== Net asset value and offering price of Class B shares ($2,368,387 divided by 321,189 shares of beneficial interest).................................................. $7.37** ===== Identified cost of investments............................... $327,843,507 ============ * Based upon single purchases of less than $1,000,000. 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 Interest................................................. $29,064,705 -- - --------- Expenses Management fees........................................ $1,619,477 Service fees--Class A.................................. 1,040,897 Service and distribution fees--Class B................. 21,684 Trustees' fees and expenses............................ 22,151 Administrative Services................................ 595,013 Custodian.............................................. 136,813 Transfer agent......................................... 156,123 Audit and tax services................................. 22,000 Legal.................................................. 20,322 Printing............................................... 23,019 Registration........................................... 56,219 Miscellaneous.......................................... 27,503 ---------- Total expenses........................................... 3,741,221 Less expenses waived by the investment adviser and distributor............................................ (968,528) 2,772,693 ---------- -- - --------- Net investment income.................................... 26,292,012 REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS Realized loss on Investments--net........................ (9,361,220) Unrealized appreciation on investments--net.............. 18,622,227 ---------- Net gain on investment transactions.................... 9,261,007 -- - --------- NET INCREASE IN NET ASSETS FROM OPERATIONS................. $35,553,019 ===========
- -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 1994 1995 ------------ --- - --------- FROM OPERATIONS Net investment income.................................. $ 30,179,124 $ 26,292,012 Net realized loss on investments....................... (9,494,871) (9,361,220) Unrealized appreciation (depreciation) on investments,......................................... (15,177,477) 18,622,227 ------------ --- - --------- Increase in net assets from operations................. 5,506,776 35,553,019 ------------ --- - --------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A.............................................. (25,947,145) (24,684,115) Class B.............................................. (49,777) (112,561) ------------ --- - --------- (25,996,922) (24,796,676) ------------ --- - --------- Decrease in net assets derived from capital share transactions......................................... (222,923,039) (168,968,965) ------------ --- - --------- Total decrease in net assets........................... (243,413,185) (158,212,622) NET ASSETS Beginning of the year.................................. 735,106,205 491,693,020 ------------ --- - --------- End of the year........................................ $491,693,020 $333,480,398 ============ ============ UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME Beginning of the year.................................. $ 0 $ 313,893 ============ ============ End of the year........................................ $ 313,893 $ (204,379) ============ ============
- -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Class A ------------------------------------------- - ------------- October 18(a) through Year ended December 31, December 31, ------------------------- - ------------- 1991 1992 1993 1994 1995 ------------- ----- ----- --- - -- ----- Net Asset Value, Beginning of Period............................ $7.50 $7.50 $7.46 $7.45 $7.20 ----- ----- ----- --- - -- ----- Income From Investment Operations Net Investment Income.......... 0.09 0.42 0.33 0.37 0.47 Net Realized and Unrealized Gain (Loss) on Investments.......... 0.00 (0.06) (0.03) (0.31) 0.14 ----- ----- ----- --- - -- ----- Total From Investment Operations..................... 0.09 0.36 0.30 0.06 0.61 ----- ----- ----- --- - -- ----- Less Distributions Distributions From Net Investment Income......................... (0.09) (0.40) (0.31) (0.31) (0.44) ----- ----- ----- --- - -- ----- Total Distributions.............. (0.09) (0.40) (0.31) (0.31) (0.44) ----- ----- ----- --- - -- ----- Net Asset Value, End of Period..... $7.50 $7.46 $7.45 $7.20 $7.37 ===== ===== ===== ===== ===== Total Return (%)(d)................ 1.2 4.9 4.0 0.8 8.6 Ratio of Operating Expenses to Average Net Assets (%)(b)........ 0.50(c) 0.57 0.60 0.60 0.66 Ratio of Net Investment Income to Average Net Assets (%)........... 6.43(c) 5.39 4.39 4.85 6.29 Portfolio Turnover Rate (%)........ 52(c) 49 54 17 73 Net Assets, End of Period (000).... $60,684 $294,687 $734,251 $489,637 $331,112 (a) Commencement of operations. (b) Commencing June 1, 1995 expenses were voluntarily limited to 0.70% of Class A average net assets. From May 1, 1995 through June 1, 1995 expenses were voluntarily limited to 0.65% of Class A average net assets. See Note 4. The ratio of operating expenses to average net assets without giving effect to this expense limitation would have been 0.89% for the year ended December 31, 1995. From April 1, 1992 through May 1, 1995 expenses were voluntarily limited to 0.60% of Class A average net assets. The ratio of operating expenses to average net assets without giving effect to this expense limitation would have been 0.96%, 0.86% and 0.88% for the years ended December 31, 1992, 1993 and 1994, respectively. From October 19, 1991 through March 31, 1992, expenses were voluntarily limited to 0.50% of average net assets. The ratio of operating expenses to average net assets without giving effect to this expense limitation would have been 1.26% for the period ended December 31, 1991. (c) Computed on an annualized basis. (d) A sales charge of 1.00% (maximum) was not reflected in total return calculations. Periods less than one year are not annualized.
- -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--continued - --------------------------------------------------------------------------------
Class B ---------------------------------- - ---------- September 13(a) Year ended through December 31, December 31, ---------------- - ---------- 1993 1994 1995 ---------------- ------------ -- - ---------- Net Asset Value, Beginning of Period......... $7.52 $7.45 $7.20 ----- ----- - ----- Income From Investment Operations Net Investment Income........................ 0.08 0.29 0.41 Net Realized and Unrealized Gain (Loss) on Investments.............................. (0.08) (0.29) 0.14 ----- ----- - ----- Total From Investment Operations........... 0.00 0.00 0.55 ----- ----- - ----- Less Distributions Distributions From Net Investment Income... (0.07) (0.25) (0.38) ----- ----- - ----- Total Distributions........................ (0.07) (0.25) (0.38) ----- ----- - ----- Net Asset Value, End of Period............... $7.45 $7.20 $7.37 ===== ===== ===== Total Return (%)(d).......................... 0.0 0.1 7.8 Ratio of Operating Expenses to Average Net Assets (%)(b).............................. 1.35(c) 1.35 1.41 Ratio of Net Investment Income to Average Net Assets (%)................................. 3.50(c) 4.10 5.54 Portfolio Turnover Rate (%).................. 54 17 73 Net Assets, End of Period (000).............. $855 $2,056 $2,368 (a) Commencement of operations. (b) Commencing June 1, 1995 expenses were voluntarily limited to 1.45% of Class B average net assets. From May 1, 1995 through June 1, 1995 expenses were voluntarily limited to 1.40% of Class B average net assets. See Note 4. The ratio of operating expenses to average net assets without giving effect to this expense limitation would have been 1.65% for the year ended December 31, 1995. From September 13, 1993 through May 1, 1995 expenses were voluntarily limited to 1.35% of Class B average net assets. The ratio of operating expenses for Class B shares would have been 1.61% for the period ended December 31, 1993 and 1.63% for the year ended December 31, 1994. (c) Computed on an annualized basis. (d) Periods less than one year are not annualized.
- -------------------------------------------------------------------------------- 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 13, 1993. Class A shares are sold with a maximum front end sales charge of 1.00%. 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 accrual basis. Interest income is increased by the accretion of discount. In determining - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 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 relate primarily to differing treatments for income recognition for mortgage-backed 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. F. ORGANIZATION EXPENSE. Costs incurred in 1991 in connection with the Fund's organization and initial registration, amounting to $57,650, were paid by the Fund and are being amortized over 60 months beginning October 18, 1991. 2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the Fund for the year ended December 31, 1995 were as follows:
Purchases Sales --------------- --------------- U.S. Government U.S. Government --------------- --------------- $ 286,126,950 $ 429,840,010
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: - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995
Fund Annual Net Asset Value Fees Earned Annual Percentage Rate Levels - --------------- ----------------------- ----------------------------- $1,619,477(a) 0.400% the first $200 million 0.375% the next $300 million 0.350% the excess over $500 million
(a) Before reduction pursuant to voluntary expense limitations. See Note 4. 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 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, 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, as reimbursement for expenses (including certain payments to securities dealers, who may be affiliated with New England Funds) incurred by New England Funds in providing personal services to investors in Class A shares and/or the maintenance of shareholder accounts. For the year ended December 31, 1995, the Fund paid New England Funds $1,040,897 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 $1,929,283. 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 year ended December 31, 1995, the Fund paid New England Funds $5,421 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 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 sale of Class B shares. For the year ended December 31, 1995, the Fund paid New England Funds $16,263 in distribution fees under the Class B Plan. 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 $89,528. 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 $122,446 as compensation for its services in that capacity. D. ADMINISTRATIVE SERVICES FEE. New England Funds provides the Fund with office space, facilities and equipment, services of executive and other personnel and certain administrative services all under an Administrative Services Agreement. Under this Agreement, the Fund pays New England Funds a fee at the annual rate of 0.15% of the first $200 million of the Fund's average daily net assets, 0.135% of the next $300 million and 0.12% of average net assets in excess of $500 million. New England Funds reduced its fee of $595,013 by $260,235 for the year ended December 31, 1995 because total Fund expenses exceeded the voluntary expense limitation. See Note 4. 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 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 $2,400 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 June 1, 1995 and until further notice to the Fund, Back Bay Advisors has voluntarily agreed to reduce its management fee and New England Funds has voluntarily agreed to reduce its administrative services fee in order to limit the Fund's expenses to an annual rate of 0.70% of the Fund's Class A average daily net assets and, 1.45% of Class B average daily net assets. From May 1, 1995 through June 1, 1995 expenses were voluntarily limited to 0.65% of Class A average net assets and 1.40% of Class B average net assets. From April 1, 1992 through May 1, 1995 expenses were voluntarily limited to 0.60% of Class A average net assets and 1.35% of Class B average net assets. Prior to April 1, 1992 the Fund's - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 expenses were subject to a 0.50% voluntary expense limitation agreed to by both Back Bay Advisors and New England Funds. As a result of the Fund's expenses exceeding the applicable voluntary expense limitation during the year ended December 31, 1995, Back Bay Advisors reduced its management fee of $1,619,477 by $708,293 and New England Funds reduced its administrative services fee of $595,013 by $260,235. 5. 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.................... 30,015,263 $ 221,799,967 10,139,660 $ 74,377,759 Shares issued in connection with the reinvestment of: Distributions from net investment income.......... 1,767,245 12,970,611 1,309,593 9,615,221 ----------- ------------- ----------- - ------------- 31,782,508 234,770,578 11,449,253 83,992,980 Shares repurchased............. (62,382,259) (458,943,776) (34,512,776) (253,225,090) ----------- ------------- ----------- - ------------- Net increase (decrease)........ (30,599,751) $(224,173,198) (23,063,523) $(169,232,110) ========== ============ ========== ============ Year Ended Year Ended December 31, 1994 December 31, 1995 ---------------------------- --------------- - ------------- Class B Shares Amount Shares Amount - ------------------------------- ----------- ------------- ----------- - ------------- Shares sold.................... 229,537 $ 1,682,203 127,300 $ 934,154 Shares issued in connection with the reinvestment of: Distributions from net investment income.......... 6,052 44,227 12,997 95,443 ----------- ------------- ----------- - ------------- 235,589 1,726,430 140,297 1,029,597 Shares repurchased............. (65,035) (476,271) (104,441) (766,452) ----------- ------------- ----------- - ------------- Net increase (decrease)........ 170,554 1,250,159 35,856 263,145 ----------- ------------- ----------- - ------------- Increase (decrease) derived from capital shares transactions................. (30,429,197) $(222,923,039) (23,027,667) $(168,968,965) ========== ============ ========== ============
- -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Board of Trustees of the New England Funds Trust II and the Shareholders of the NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND We have audited the accompanying statement of assets and liabilities, including the schedule of portfolio investments, of the New England Adjustable Rate U.S. Government 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 Funds' 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 Adjustable Rate U.S. Government Fund as of December 31, 1995, the results of its operations for the year then ended the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of 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 Adjustable Rate U.S. Government 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............ 23,437,982.469 2,794,587.964 253,860.494 26,486,430.927 ============== ============= =========== 2. To approve a new Advisory Agreement between the Fund and New England Funds Management, L.P. ("NEFM")............... 23,382,105.072 2,862,318.342 230,489.513 11,518.000 26,486,430.927 ============== ============= =========== ========== 3. To approve a related Sub-Advisory Agreement between NEFM and such Fund's current investment adviser..... 23,271,349.973 2,945,123.659 258,314.295 11,643.000 26,486,430.927 ============== ============= =========== ==========
- --------------------------------------------------------------------- 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 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. [LOGO OF NEW ENGLAND FUNDS APPEARS HERE] NEW ENGLAND FUNDS Where the best Minds Meet[TM] 399 Boylston Street Boston, Massachusetts 02116 [ARTWORK] QUALITY TESTED SERVICE 1996 DALBAR HONORS COMMITMENT TO: INVESTORS AR56 [LOGO] Printed On Recycled Paper Bulk Rate U.S. Postage Paid Brockton, MA Permit No. 770 399 Boylston Street Boston, Massachusetts 02116 AR56 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 "See accompanying notes to the financial statements") 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 and similar graphic symbols are omitted. (7) Page numbering is different. -----END PRIVACY-ENHANCED MESSAGE-----