-----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, V/tQU78hFMhHNC93pUbl3e6CXyvU9W3wnZKIRPeICH/FybgEEoBafV6Swzi1RXsv lP5DrrY3d1gAcPrkROP66A== 0000915707-96-000053.txt : 19960315 0000915707-96-000053.hdr.sgml : 19960315 ACCESSION NUMBER: 0000915707-96-000053 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: 96534607 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 INTERMEDIATE TERM TAX FREE FUND OF NEW YORK [LOGO] NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET ANNUAL REPORT AND PERFORMANCE UPDATE NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK [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 Intermediate Term Tax Free Fund of New York, 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(tm) 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 INTERMEDIATE TERM TAX FREE FUND OF NEW YORK 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 LEHMAN MUNICIPAL INDEX(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 Municipal Index(4) and the Cost of Living(5). The data points from the graph are as follows:] New England Intermediate Term Tax Free Fund of New York - Net Asset Value(1) Year Amount - ----- ------ 1995 $11,800 1994 $10,304 1993 $10,738 4/23/93 $10,000 New England Intermediate Term Tax Free Fund of New York - With Maximum Sales Charge(2) Year Amount - ----- ------ 1995 $11,505 1994 $10,047 1993 $10,470 4/23/93 $9,750 Lehman Municipal Index(4) Year Amount - ----- ------ 1995 $11,938 1994 $10,164 1993 $10,718 4/23/93 $10,000 Cost of Living(5) Year Amount - ----- ------ 1995 $10,668 1994 $10,396 1993 $10,125 4/23/93 $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 INTERMEDIATE TERM TAX FREE FUND OF NEW YORK AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95*
CLASS A 1 YEAR SINCE INCEPTION (4/23/93) Net Asset Value(1) 14.52% 6.34% With Max. Sales Charge(2) 11.68 5.36 Lipper NY Municipal Average(6) 12.71 5.49 CLASS B (Inception 9/13/93) 1 YEAR SINCE INCEPTION Net Asset Value(1) 13.68% 3.69% With CDSC(3) 9.68 2.47 Lehman Municipal Index(4) 17.46 5.63 Lipper NY Municipal Average(6) 12.71 4.60 12/31/95 YIELDS* CLASS A CLASS B SEC 30-day Yield 4.73% 4.12% NY State Taxable Equivalent Yield 8.48 7.38 NY City Taxable Equivalent Yield 8.90 7.76 SEC Yield is based on the FundOs net investment income over a 30-day period and is calculated in accordance with Securities and Exchange Commission guidelines. Taxable equivalent yield is based on the maximum combined federal and New York state income tax bracket of 44.19% or the combined Federal, New York State and New York City income tax bracket of 46.88%. The alternative minimum tax and some federal and state taxes may apply. * These returns represent past performance. Investment return and principal value will fluctuate so that shares, upon redemption, may be worth more or less than original cost. NOTES TO CHARTS AND PERFORMANCE UPDATE 1 Net Asset Value (NAV) performance assumes reinvestment of all distributions and does not reflect the payment of a sales charge at the time of purchase. 2 With Maximum Sales Charge performance assumes reinvestment of all distributions and reflects the maximum sales charge of 2.5% at the time of purchase of Class A shares. 3 With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 4% sales charge is applied to a redemption of Class B shares. The sales charge will decrease over time, declining to zero five years after the purchase of shares. 4 Lehman Municipal Index is an unmanaged index of bonds issued by states, municipalities and other governmental entities having maturities of more than one year. The Index performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. 5 Cost of Living is based on the Consumer Price Index, a widely recognized measure of the cost of goods and services in the United States, as 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 INTERMEDIATE TERM TAX FREE FUND OF NEW YORK NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK [PHOTO] Portfolio Manager: James Welch Back Bay Advisers, L.P. For investors in both stocks and bonds, 1995 was an outstanding year. The stock market, as measured by the Dow Jones Industrial Average(1), repeatedly reached record highs, and the bond market provided attractive yields and total returns. In large measure, this reflected the Federal Reserve BoardOs success at bringing the economy in for a Osoft landingO: At year-end, economic growth was moderate, and inflation under control. Almost all sectors of the bond market participated in a rally that sustained itself for most of the year. There was a modest pull back during the second quarter, as investors turned their attention to the stock market, but momentum was regained over the final six months of the year. The rally was driven by a sharp decline in interest rates. From the beginning to the end of the FundOs fiscal year, the yield on 30-year Treasury bonds fell by 1.75 percentage points, from 7.70% to 5.95%. Although U.S. government bonds were the biggest beneficiaries of this decline, most other fixed-income securities, including municipal bonds, received a significant boost as well. HOW YOUR FUND PERFORMED The FundOs Class A shares posted a positive total return of 14.52% for the 12-month period, based on net asset value. We had anticipated the economyOs soft landing, and had positioned the Fund early on to take advantage of such an environment. We began upgrading the quality of the securities in the FundOs portfolio during the prior fiscal year, and continued to do so throughout 1995. As interest rates NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK declined, the Oyield gapO between bonds of higher and lower quality narrowed, making it possible to invest in relatively high quality bonds without sacrificing performance. This strategy also helped the Fund perform very well relative to other funds with similar objectives. The FundOs total return stands up nicely when compared to the 12.71% return from the Lipper New York Municipal Average(2). NUMBER ONE RANKED FUND WE ARE VERY PLEASED TO NOTE THAT YOUR FUND WAS THE TOP PERFORMER IN 1995 AMONG THE 24 FUNDS INCLUDED IN THE LIPPER NEW YORK MUNICIPAL AVERAGE. IN ADDITION, THE FUND IS RANKED NUMBER ONE SINCE ITS APRIL 1993 INCEPTION, AMONG THE 11 PEER FUNDS IN EXISTENCE SINCE THAT DATE. In addition to its strong total return, your Fund continued to provide a high level of tax-exempt income during the year. On December 31, 1995, the FundOs yields for Class A and Class B shares were 4.73% and 4.12%, respectively.a. These translate into taxable equivalent yields of 8.48% for Class A shares and 7.38% for Class B shares, based on the maximum combined federal and New York state income tax rate of 44.19%. For New York City residents in the maximum combined tax bracket of 46.88%, the taxable equivalent yields were 8.90% for Class A shares and 7.76% for Class B shares(3). HOW WE MANAGED YOUR FUND Overall, the stateOs economy continued to strengthen during 1995, while New York City remained a source of concern. We had already reduced our exposure to the a. 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 and Class B shares during the 30 days ending December 31, 1995. NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK CityOs general obligation bonds before its debt rating was downgraded from A- to BBB+, the lowest tier of the investment grade rating spectrum. When selecting City debt, we have emphasized higher coupon bonds - these tend to hold their value during periods of economic uncertainty. We sold our remaining City investments in the healthcare sector, prompted by the CongressOs stated desire to reform Medicare and Medicaid. The state as a whole, and regions along the Canadian border in particular, benefited from the North American Free Trade Agreement. We took advantage of the favorable climate by giving some state and local general obligation bonds greater exposure, although revenue bonds issued to fund essential services remain prominent in the portfolio. The transportation sector, which includes highway and airport revenue bonds, showed particular improvement as the economy picked up steam. Airport bonds especially benefited - usage fees increased along with passenger traffic. OUTLOOK FOR THE MUNICIPAL MARKET We believe the long-term outlook for New YorkOs municipal bond market is positive. The impact from events such as the impasse over the federal governmentOs debt ceiling and ongoing discussions about tax reform should prove to be short-term in nature. In fact, lower prices that resulted from the marketOs concerns about tax reform were taken as a buying opportunity for the Fund. Municipal bonds may also continue to enjoy their current attractiveness compared to Treasury securities. With some municipal bonds yielding as much as 90% of Treasuries at year-end, they offer exceptional value for NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK investors. This becomes even more apparent when municipal bond yields are compared to Treasuries on a taxable-equivalent basis. In recent years, there has been a steady decline in the volume of new issue municipal bonds in New York - $18.7 billion were issued in 1995, a slight decline from 1994. This trend should continue in the future. The combination of relatively low supply and steady demand from investors seeking relief from federal and state income taxes suggests a favorable environment for New York municipal bonds and for the Fund. 1. The Dow Jones Industrial Average is an unmanaged index of the price of 30 stocks, all of which are traded on the New York Stock Exchange. 2. The Lipper Average is an average of the total return performance (calculated on the basis of net asset value) of funds with similar objectives, as calculated by Lipper Analytical Services, an independent mutual fund ranking service. 3. The alternative minimum tax (AMT) may apply. Some federal and state taxes may apply. PORTFOLIO QUALITY AS OF DECEMBER 31, 1995 [A pie chart appears here, illustrating the portfolio quality of New England Intermediate Term Tax Free Fund of New York at December 31, 1995. The pie chart is broken in pieces representing credit ratings in the following percentages.] Credit Rating Percentage - ------------- ---------- AAA 17% AA 5.7% A 18.7% BBB 57% CASH 1.6% - -------------------------------------------- AVERAGE PORTFOLIO QUALITY =A- AVERAGE PORTFOLIO MATURITY = 10 YEARS Quality rating provided by Standard & PoorOs. NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK Glossary for Mutual Fund Investors TOTAL RETURN D 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 D Payments to shareholders resulting from the net interest or dividend income earned by a fundOs portfolio. CAPITAL GAINS DISTRIBUTIONS D Payments to shareholders of profits earned from selling securities in a fundOs portfolio. Capital gains distributions are usually paid once a year. YIELD D 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 D Refers to the period of time before principal repayment on a bond is due. A bond fundOs Oaverage maturityO refers to the weighted average of the maturities of all the individual bonds in the portfolio. DURATION D A measure, stated in years, of a bond or bond fundOs 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 D 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 3D12 months), Notes (maturity of 1D10 years) and Bonds (maturity of 10D30 years). MUNICIPAL BOND D 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 APPEARS HERE] NEW ENGLAND FUNDS Where The Best Minds Meet (TM) PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK December 31, 1995 PORTFOLIO COMPOSITION Investments as of December 31, 1995 TAX EXEMPT BONDS--99.8% OF TOTAL NET ASSETS
RATINGS (C) (UNAUDITED) ------------------ FACE STANDARD AMOUNT ISSUER MOODY'S& POOR'S VALUE (A) - ---------------------------------------------------------------------- NEW YORK--78.2% $250,000 Albany, NY, Housing Authority, 6.250%, 10/01/12 Baa1 -- $258,165 500,000 Buffalo, NY, Sewer Authority Revenue, 07/01/12 (FGIC) 5.000% AAA AAA 491,730 750,000 Hempstead Town Industrial Development Agency, 7.400%, 12/01/10 Baa1 A- 782,197 700,000 Metropolitan Transportation Authority, 7.125%, 07/01/09 Baa1 BBB 783,468 685,000 New York City, 8.00%, 08/01/03 Baa1 BBB+ 786,264 500,000 New York City, 7.25%, 08/15/07 Baa1 BBB+ 564,220 500,000 New York City, 5.75%, 02/01/08 Baa1 BBB+ 496,965 1,065,000 New York, Prerefunded, 8.400%, 11/15/08 AAA AAA 1,298,448 250,000 New York City Municipal Water, Prerefunded, 7.000%, 06/15/09 AAA AAA 284,445 250,000 New York City Municipal Water, 7.000%, 06/15/09 A A 281,462 1,000,000 New York State Certificates, 6.000%, 09/01/98 Baa1 BBB 1,044,500 500,000 New York State Dorm. Authority, 5.750%, 7/01/07. Baa1 BBB+ 514,400 350,000 New York State Dorm. Authority, 5.50%, 05/15/10 Baa1 BBB 346,209 500,000 New York State Dorm. Authority, 6.250%, 05/15/14 Baa1 BBB+ 520,460 500,000 New York State Housing Finance Agency, 5.375%, 03/15/11 Baa1 BBB 481,610 500,000 New York State Local Government Assistance, 7.250%, 04/01/07 A A 569,925 200,000 New York State Local Government Assistance, 6.00%, 04/01/08 A A 215,088 500,000 New York State Mortgage Revenue 6.250%, 04/01/10 AA -- 532,800 500,000 New York State Urban Development Corp., 6.2500%, 01/01/09. Baa1 BBB 533,045 650,000 New York State Urban Development Corp., 5.700%, 04/01/05 Baa1 BBB 674,512 500,000 Niagara Falls, NY Bridge Commission, 5.125%, 10/01/08 Aaa AAA 504,350 560,000 Oneida, Herkimer, 6.600%, 04/01/04. Baa BBB 597,643 500,000 Oneida, Herkimer, 6.650%, 04/01/05. Baa BBB 536,300 500,000 Syracuse, NY Industrial Development Agency, 5.125%,10/15/02 -- AA 506,960 500,000 Yonkers, NY, 6.000%, 08/01/03. Aaa AAA 554,435 ----------- 14,159,601 ----------- PORTFOLIO COMPOSITION--continued Investments as of December 31, 1995 TAX EXEMPT BONDS--CONTINUED FACE STANDARD AMOUNT ISSUER MOODY'S& POOR'S VALUE (A) - ---------------------------------------------------------------------- OTHER OBLIGATIONS--21.6% $500,000 Guam Airport Authority, 6.400%, 10/01/05 -- BBB $514,530 500,000 Guam Airport Authority, 6.600%, 10/01/10 -- BBB 512,560 1,000,000 Puerto Rico Highway & Transportation Auth., 7.162%, 07/01/04. Baa1 A- 1,071,370 500,000 Puerto Rico Electric Power Authority, 5.900%, 07/01/03 Baa1 A- 534,590 1,135,000 Virgin Islands Public Finance Authority, 7.750%, 10/01/06. -- BBB 1,274,560 ----------- 3,907,610 ----------- Total Tax Exempt Bonds (Identified Cost $17,242,353) 18,067,211 ----------- SHORT-TERM INVESTMENTS--1.1% 191,000 Household Finance Corp., 5.500%, 01/03/96 190,942 ----------- Total Short-Term Investments (Identified Cost $190,942). 190,942 ----------- Total Investments--100.8% (Identified Cost $17,433,295)(b) 18,258,153 Cash, receivables and other assets. 472,350 Liabilities (624,740) ----------- Total Net Assets--100%. $18,105,763 =========== (a) See Note 1a. (b)Federal Tax Information: At December 31, 1995 the net unrealized appreciation on investments based on cost of $17,433,295 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. $847,199 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value. $(22,341) -------- Net unrealized appreciation. $824,858 ======== As of December 31, 1995, the Fund had a net tax basis capital loss carryforward as follows: Expiring December 31, 2002 $783,505 (c)The ratings shown are believed to be the most recent ratings available at December 31, 1995. Securities are generally rated at the time of issuance. The rating agencies may revise their ratings from time to time. As a result there can be no assurance that the same ratings would be assigned if the securities were rated at December 31, 1995. The Fund's adviser independently evaluates the Fund's portfolio securities and in making investment decisions does not rely solely on the ratings of agencies.
STATEMENT OF ASSETS & LIABILITIES December 31, 1995 ASSETS Investments at value $18,258,153 Cash. 1,035 Receivable for: Fund shares sold 19,492 Accrued interest 308,658 Unamortized organization expense 20,761 Due from investment adviser 116,404 Prepaid registration expense 6,000 ----------- 18,730,503 LIABILITIES Payable for: Securities purchased $489,355 Fund shares redeemed 82,716 Dividends declared 17,410 Accrued expenses: Deferred trustees' fees 814 Other expenses 34,445 -------- 624,740 ---------- NET ASSETS $18,105,763 =========== Net Assets consist of: Capital paid in. $18,072,718 Distributions in excess of net investment income (8,308) Accumulated net realized losses. (783,505) Unrealized appreciation on investments 824,858 ---------- NET ASSETS $18,105,763 =========== Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($16,387,604 divided by 2,133,260 shares of beneficialinterest) $7.68 ======= Offering price per share (100/97.50 of 7.68) $7.88* ======= Net asset value and offering price of Class B shares ($1,718,159 divided by 224,156 shares of beneficial interest) $7.67** ======= Identified cost of investments $17,433,295 =========== * 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 Interest $1,040,359 - ---------- Expenses Management fees $70,795 Service fees--Class A 40,659 Service and distribution fees--Class B 14,352 Trustees' fees and expenses 12,249 Administrative Services 22,124 Custodian 64,745 Transfer agent 36,659 Audit and tax services 15,000 Legal. 20,147 Printing 15,049 Registration. 21,554 Amortization of organization expenses 4,543 Miscellaneous 6,103 --------- Total expenses 343,979 Less expenses waived by the investment adviser and distributor (209,323) 134,656 --------- ---------- Net investment income 905,703 REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS, OPTIONS AND FUTURES CONTRACTS Realized gain (loss) on: Investments--net 362,457 Futures contracts--net (199,524) Options contracts--net. 38,662 --------- Total realized gain on investment transactions 201,595 --------- Unrealized appreciation (depreciation) on: Investments--net1,287,916 Futures contracts--net. (1,615) Options contracts--net 6,354 --------- Total unrealized appreciation on investments, futures and options contracts 1,292,655 --------- Net gain on investment transactions 1,494,250 ---------- NET INCREASE IN NET ASSETS FROM OPERATIONS $2,399,953 ==========
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ FROM OPERATIONS Net investment income $1,044,073$ 905,703 Net realized gain (loss) on investment transactions. (982,288) 201,595 Unrealized appreciation (depreciation) on investment transactions (973,749) 1,292,655 --------- ----------- Increase (decrease) in net assets from operations (911,964) 2,399,953 --------- ----------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A (1,010,186) (842,470) Class B (45,810) (63,237) In excess of net investment income Class A (6,397) (16,706) Class B (1,642) (1,206) --------- ----------- (1,064,035) (923,619) Decrease in net assets derived from capital share transactions (2,674,079) (397,301) ---------- ---------- Total increase (decrease) in net assets (4,650,078) 1,079,033 NET ASSETS Beginning of the year 21,676,808 17,026,730 --------- ----------- End of the year. $17,026,730 $18,105,763 =========== =========== UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME Beginning of the year $11,923 $ 9,143 ============== ========== End of the year. $9,143 $(8,308) =============== ==========
FINANCIAL HIGHLIGHTS
CLASS A ------------------------------------- APRIL 23,(A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31,DECEMBER 31, DECEMBER 31, 1993 1994 1995 ----- ----- ----- Net Asset Value, Beginning of Period. $7.50 $7.76 $7.07 ------- ------- -------- Income From Investment Operations Net Investment Income 0.26 0.37 0.38 Net Realized and Unrealized Gain (Loss) on Investments. 0.29 (0.68) 0.62 ------- ------- ------- Total From Investment Operations. 0.55 (0.31) 1.00 ------- ------- ------- Less Distributions Distributions From Net Investment Income (0.25) (0.38) (0.39) Distributions in Excess of Net Investment Income. (0.04) 0.00 0.00 Total Distributions (0.29) (0.38) (0.39) ------- ------- ------- Net Asset Value, End of Period. $7.76 $7.07 $ 7.68 ======= ======= ======= Total Return (%)(d). 7.4 (4.1) 14.5 Ratio of Operating Expenses to Average Net Assets (%)(b) 0.70(c) 0.70 0.70 Ratio of Net Investment Income to Average Net Assets (%). 4.88(c) 5.13 5.18 Portfolio Turnover Rate (%). 121(c) 219 155 Net Assets, End of Period (000) $ 21,122 $ 15,875 $16,388 (a) Commencement of operations. (b) Commencing April 23, 1993 expenses were voluntarily limited to 0.70% 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 2.11% (annualized) for the period ended December 31, 1993, 1.79% for the year ended December 31, 1994 and 1.88% for the year ended December 31, 1995. (c) Computed on an annualized basis. (d) A sales charge of 2.50% (maximum) was not reflected in total return calculations. Periods less than one year are not annualized.
FINANCIAL HIGHLIGHTS
CLASS B ------------------------------------------- SEPTEMBER 13,(A) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31,DECEMBER 31, 1993 1994 1995 ------- ------- ------- Net Asset Value, Beginning of Period $ 7.85 $ 7.76 $ 7.06 ------- ------- ------- Income From Investment Operations Net Investment Income 0.10 0.32 0.33 Net Realized and Unrealized Gain (Loss) on Investments (0.05) (0.69) 0.62 ------- ------- ------- Total From Investment Operations. 0.05 (0.37) 0.95 ------- ------- ------- Less Distributions Distributions From Net Investment Income (0.10) (0.33) (0.34) Distributions in Excess of Net Investment Income (0.04) 0.00 0.00 ------- ------- ------- Total Distributions (0.14) (0.33) (0.34) ------- ------- ------- Net Asset Value, End of Period $ 7.76 $ 7.06 $ 7.67 ======= ======= ======= Total Return (%)(d) 0.5 (4.9) 13.7 Ratio of Operating Expenses to Average Net Assets (%)(b) 1.45(c) 1.45 1.45 Ratio of Net Investment Income to Average Net Assets (%) 3.68(c) 4.38 4.43 Portfolio Turnover Rate (%). 121(c) 219 155 Net Assets, End of Period (000) $555 $1,152 $1,718 (a) Commencement of operations. (b) Commencing September 13, 1993 expenses were voluntarily limited to 1.45% 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 2.86% (annualized) for the period ended December 31, 1993, 2.54% for the year ended December 31, 1994 and 2.63% for the year ended December 31, 1995. (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"), which 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 2.50%. 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 original issue discount. Interest income is reduced by the amortization of premium. In determining net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. C. OPTIONS AND FUTURES. CALLS AND PUTS. The Fund may write (sell) call and put options on securities to manage its exposure to interest rates and the bond market. Buying futures, writing puts, and buying calls tend to increase the fund's exposure to the underlying instrument. Selling futures, buying puts, and writing calls tend to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. When a Fund writes a call or put option, an amount equal to the premium received by the Fund is included in the fund's statement of assets and liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to- market to reflect the current market value of the option written. The current value of a written option is the closing price on the principal exchange on which such option is traded. If an option which the Fund has written either expires on its stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a put option which the Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which the Fund purchases upon exercise of the option. The premium paid by a Fund for the purchase of a call or a put option is included in the asset section of the Fund's statement of assets and liabilities as an investment and subsequently adjusted to the current market value of the option. The current value of a purchased option is the closing price on the principal exchange on which such option is traded. If an option which the Fund has purchased expires on the stipulated expiration date, the Fund will realize a loss in the amount of the cost of the option. If the Fund enters into a closing sale transaction, the Fund will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a purchased call option, the cost of the security which the fund purchases upon exercise will be increased by the premium originally paid. NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 INTEREST RATE FUTURES CONTRACTS The Fund may enter into interest rate futures contracts to hedge against changes in the values of tax exempt municipal securities the Fund owns or expects to purchase. An interest rate futures contract is an agreement between two parties to buy and sell a security for a set price (or to deliver an amount of cash) on a future date. Upon entering into such a contract, the purchasing Fund is required to pledge to the broker an amount of cash, U.S. Government securities or other high quality debt securities equal to the minimum "initial margin" requirements of the exchange, currently up to $3,000 per contract. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin," and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The potential risk to the Fund is that the change in value of futures contracts primarily corresponds with the value of underlying instruments which may not correspond to the change in the value of the hedged instruments. In addition, there is a risk that the fund may not be able to close out its futures positions due to an illiquid secondary market. The risk in writing a call option is that the fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the fund assumes the risk of incurring a loss if the market price decreases and the option is exercised. In addition, there is the risk the fund may not be able to enter into a closing transaction because of an illiquid secondary market. D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders all of its income and any net realized capital gains at least annually. Accordingly, no provision for federal income tax has been made. E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to shareholders of record 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 market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid in capital. NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price. Back Bay Advisors is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. G. ORGANIZATION EXPENSE. Costs incurred in 1993 in connection with the Fund's organization and initial registration amounted to $27,000 and were paid by the Fund. These costs are being amortized over 60 months beginning April 23, 1993. 2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the Fund for the year ended December 31, 1995 were $26,527,248 and $26,384,568, respectively. Investments in written options and futures contracts for the Fund for the year ended December 31, 1995 are summarized as follows:
SALES OF FUTURES CONTRACTS ------------------------------------ NUMBER OF AGGREGATE FACE CONTRACTS VALUE OF CONTRACTS --------------- ------------------ Open December 31, 1994. 40 $ 3,997,396 Contracts opened 183 20,099,186 Contracts closed (223) (24,096,582) --------------- ------------------ Open at December 31, 1995 0 $ 0 =============== ==================
WRITTEN OPTIONS ---------------------------------- NUMBER OF PREMIUMS CONTRACTS RECEIVED --------------- ------------------ Open December 31, 1994 40 $ 10,990 Contracts opened 345 138,539 Contracts closed (385) (149,529) --------------- ------------------ Open at December 31, 1995. 0 $ 0 =============== ==================
NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 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 are also officers or trustees of the Trust. 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 - ----------- ---------------------- ----------------------------- $70,795 (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 Fund 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 $40,659 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 $222,162. 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 NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 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 $3,588 in service fees under the Class B Plan. Also under the Class B Plan, the Fund pays New England Funds a monthly distribution fee at the annual rate of up to 0.75% of the average daily net assets attributable to the Fund's Class B shares, as compensation for services provided and expenses (including certain payments to securities dealers, who may be affiliated with New England Funds) incurred by New England Funds in connection with the marketing or sale of Class B shares. For the year ended December 31, 1995, the Fund paid New England Funds $10,764 in distribution fees under the Class B Plan. Commissions (including contingent deferred sales charges) on Fund shares paid to New England Funds by investors of shares of the Fund during the year ended December 31, 1995 amounted to $47,388. 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 $28,729 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 0.125% of the Fund's average daily net assets. New England Funds waived its entire fee of $22,124 for the year ended December 31, 1995 because total Fund expenses exceeded the Fund's 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, New England Investment Companies 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. NOTES TO FINANCIAL STATEMENTS--continued December 31, 1995 4. EXPENSE LIMITATIONS. Commencing April 23, 1993 and until further notice to the Fund, Back Bay Advisors and New England Funds have voluntarily agreed to reduce management and administrative services fees 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 effective September 13, 1993, 1.45% of Class B average daily net assets. As a result of the Fund's expenses exceeding the foregoing voluntary limitation during the year ended December 31, 1995 Back Bay Advisors waived its entire management fee of $70,795 and New England Funds waived its entire administrative services fee of $22,124. 5. CONCENTRATION OF CREDIT. The Fund primarily invests in debt obligations issued by the State of New York and its political subdivisions, agencies and public authorities to obtain funds for various public purposes. The Fund is more susceptible to factors adversely affecting issuers of New York municipal securities than is a comparable municipal bond fund that is not as concentrated. Uncertain economic and fiscal conditions may affect the ability of issuers of New York municipal securities to meet their financial obligations. 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 757,009 $5,624,5 18 328,489 $ 2,436,764 Shares issued in connection with the reinvestment of: Distributions from net investment income 68,560 502,549 76,60356 9,995 ----------- ----------- -------- ---------- 825,569 6,127,067 405,092 3,006,759 Shares repurchased (1,300,616) (9,499,367) (518,447) (3,851,270) ----------- ----------- -------- ---------- Net decrease (475,047) $(3,372,300) (113,355) $(844,511) ========== =========== ========= ========== YEAR ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ------------------ ------------------ CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ------- ------- ------- ------- Shares sold. 112,717 $850,564 106,519 $788,060 Shares issued in connection with the reinvestment of: Distributions from net investment income 4,774 34,778 6,181 45,940 ----------- ----------- -------- ---------- 117,491 885,342 112,700 834,000 Shares repurchased. (25,760) (187,121) (51,795) (386,790) ----------- ----------- -------- ---------- Net increase 91,731 $698,221 60,905 $447,210 =========== =========== ======== ========= Decrease derived from capital shares transactions. (383,316) $(2,674,079) (52,450) $(397,301) =========== =========== ======== =========
- ---------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees of New England Funds Trust II and the Shareholders of the NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK. We have audited the accompanying statement of assets and liabilities, including the schedule of portfolio investments of the New England Intermediate Term Tax Free Fund of New York as of December 31, 1995, and the related statement of operations for the year 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 Intermediate Term Tax Free Fund of New York as of December 31, 1995 the results of its operations for the year then ended and the statements of changes in its net assets for each of 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 ofthe Intermediate Term Tax Free Fund of New York voted for the following proposals:
VOTED ABSTAINED BROKER VOTED FOR AGAINST VOTESNON-VOTES TOTAL 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 1,246,275.807 59,277.788 16,367.723 1,321,921.318 ============= ========== ========== 2. To approve a new Advisory Agreement between the Fund and New England Funds Management, L.P. ("NEFM") 1,242,574.743 60,941.666 18,404.909 1,321,921.318 ============= ========== ========== 3. To approve a related Sub-Advisory Agreement between NEFM and such Fund's current investment adviser 1,244,283.179 61,942.213 15,695.926 1,321,921.318 ============= ========== ==========
SAVING FOR RETIREMENT AN EARLY START CAN MAKE A BIG DIFFERENCE With todayOs lengthening life spans, you may be retired for 20 years or more after you complete your working career. Living these retirement years the way youOve dreamed of will require considerable financial resources. While itOs never too late to start a retirement savings program, itOs certainly never too early: The sooner you begin, the longer the time your money has to grow. The chart below illustrates this point dramatically. One investor starts at age 30, saves for just 10 years, then leaves the investment to grow. The second investor starts 10 years later but saves much longer - for 25 years, in fact. Can you guess which investor accumulates the greater retirement nest egg? For the answer, look at the chart. AN EARLY START CAN MAKE A BIG DIFFERENCE [A chart in the form of a line graph appears here, comparing the growth of investments made for 10 years by an investor who begins investing at age 30 to the growth of investments made for twenty-five years by an investor who begins investing at age 40. A hypothetical appreciation of 10% is assumed. The data points from the graph are as follows:] Investor A - Begins at age 30 for 10 years: Age Growth of Investments 30 $2,000 35 $15,431 40 $35,062 45 $90,943 55 $146,464 60 $235,882 65 $379,890 Investor B - Begins investing at age 40 for 25 years: Age Growth of Investments 40 $2,000 45 $15,431 50 $37,062 55 $71,899 60 $128,005 65 $216,364 Assumes 10% hypothetical appreciation. For illustrative purposes only and not indicative of future performance of any New England Fund. Investor A invested $20,000, less than half of investor BOs commitment - - and for less than half the time. Yet investor A wound up with a much greater retirement nest egg. The reason? ItOs all thanks to an early start. New England Funds has prepared a number of informative retirement planning guides. Call your financial representative or New England Funds today, and ask for the guide that best fits your personal needs. REGULAR INVESTING PAYS FIVE GOOD REASONS TO INVEST REGULARLY 1. ItOs an easy way to build assets 2. ItOs convenient and effortless 3. It requires a low minimum to get started 4. It can help you reach important long-term goals like retirement or college funding 5. It can help you benefit from the ups and downs of the market With Investment Builder, New England FundsO automatic investment program, you can invest as little as $50 a month in your New England Fund automatically - without even writing a check. And, as you can see from the chart below, your monthly investments can really add up over time. THE POWER OF MONTHLY INVESTING [A line graph appears here, illustrating the hypothetical accumulation of monthly investments at an 8% annual rate of return. The data points of the graph are as follows:] Monthly investments of $50 Years Growth of Monthly Investments 0 $0 5 $3,661 10 $9,040 15 $16,943 20 $28,555 25 $45,618 Monthly investments of $100 Years Growth of Monthly Investments 0 $0 5 $7,322 10 $18,079 15 $33,886 20 $57,111 25 $91,236 Monthly investments of $200 Years Growth of Monthly Investments 0 $0 5 $14,643 10 $36,158 15 $67,772 20 $114,222 25 $182,472 Monthly investments of $500 Years Growth of Monthly Investments 0 $0 5 $36,608 10 $90,396 15 $169,429 20 $285,555 25 $456,181 For illustrative purposes only. These figures represent hypothetical accumulation at an 8% annual rate of return, and are not indicative of future performance of any New England Fund. The value of a New England Fund will fluctuate with changing market conditions. This program cannot assure a profit nor protect against a loss in a declining market. It does, however, ensure that you buy more shares when the price is low and fewer shares when the price is high. You can start an Investment Builder program with your current New England Fund account, or with any of our other funds. To open an Investment Builder account today, call your financial representative or New England Funds at 1-800-225-5478. INFORMATION ON CALL YOU CAN CALL NEW ENGLAND FUNDS DAY OR NIGHT Do you like to keep on top of your New England Funds but canOt always call us during regular business hours? With Tele#Facts, New England FundsO 24-hours a day automated telephone system, you can call us any time thatOs convenient for you - day or night! By calling 1-800-346-5984 from any Touch-Tone" telephone, you can: - - Check the current value of your New England Fund account - - Find out the current yield and total return on any New England Fund - - Buy, sell or exchange fund shares Just remember to have these four items with you before calling: 1.YOUR PERSONAL IDENTIFICATION NUMBER which is the last four digits of your Social Security number 2.THE FUND NUMBER - two- or three-digit number listed on the Tele#Facts wallet card 3.FUNCTION NUMBER - listed on the Tele#Facts wallet card 4.ACCOUNT NUMBER - listed on all your statements You can get the information you need to use Tele#Facts from the back of your statement. If you need another Tele#Facts wallet card or have questions about getting started, please call us at 1-800-225-5478. So go ahead and give Tele#Facts a try. We think youOll enjoy this easy- to-use and convenient service from New England Funds! 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 NY56 [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-----