-----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, Vy2w5ECM11VigNUxWbs+IloJosH0RmD1xnEFETeTmFkvI7pDHxRtEd6YRi3w9ETW YsNTuBHEQV4u0xfUAUd9iA== 0000915707-96-000062.txt : 19960315 0000915707-96-000062.hdr.sgml : 19960315 ACCESSION NUMBER: 0000915707-96-000062 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: 96534887 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 LIMITED TERM U.S. GOVERNMENT FUND [LOGO OF NEW ENGLAND FUNDS APPEARS HERE] Where the Best Minds Meet(TM) - ------------------------------------ Annual Report and Performance Update - ------------------------------------ NEW ENGLAND LIMITED TERM 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 Limited Term 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, 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 "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. While 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 Limited Term 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 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 INTERMEDIATE GOVERNMENT BOND 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 Intermediate Government Bond Index (4) and the Cost of Living (5). The data points from the graph are as follows:
NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND - NET ASSET VALUE(1) Year Amount - ---- ------ 1995 $17,248 1994 $15,262 1993 $15,618 1992 $14,676 1991 $13,891 1990 $12,205 1989 $11,041 1/3/89 $10,000 NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND - WITH MAXIMUM SALES CHARGE(2) Year Amount - ---- ------ 1995 $16,731 1994 $14,805 1993 $15,150 1992 $14,236 1991 $13,475 1990 $11,839 1989 $10,710 1/3/89 $ 9,700 LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX(4) Year Amount - ---- ------ 1995 $18,317 1994 $16,008 1993 $16,293 1992 $15,062 1991 $14,086 1990 $12,346 1989 $11,269 1/3/89 $10,000 COST OF LIVING(5) Year Amount - ---- ------ 1995 $12,748 1994 $12,424 1993 $12,100 1992 $11,776 1991 $11,444 1990 $11,104 1989 $10,465 1/3/89 $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, C and Y 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 Limited Term U.S. Government Fund - -------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS 12/31/95 CLASS A (INCEPTION 1/3/89) 1 YEAR 5 YEARS SINCE INCEPTION Net Asset Value(1) 13.01% 7.16 8.11 With Max. Sales Charge(2) 9.57 6.52 7.64 Lehman Intermediate Gov't Bond Index(4) 14.43 5.42 n/a Lipper Short US Gov't(6) 11.25 6.62 n/a CLASS B (INCEPTION 9/24/93) 1 YEAR SINCE INCEPTION Net Asset Value(1) 12.30% 3.60 With CDSC(3) 8.30 2.48 Lehman Intermediate Gov't. Bond Index(4) 14.43 5.42 Lipper Short US Gov't(6) 11.25 4.19 CLASS C (INCEPTION 12/30/94) 1 YEAR Net Asset Value(1) 11.35% Lehman Intermediate Gov't. Bond Index(4) 14.43 CLASS Y (INCEPTION 3/31/94) 1 YEAR SINCE INCEPTION Net Asset Value(1) 13.33% 7.25 Lehman Intermediate Gov't. Bond Index(4) 14.43 8.11 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. Class Y shares are available only to certain institutional investors. Share price and return may vary. 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 3% 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 Intermediate Government Bond Index is an unmanaged index of bonds issued by the U.S. Government and its agencies having maturities between one and ten years. The Index's 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 Limited Term U.S. Government Fund - -------------------------------------------------------------------------- [PHOTO] NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND Portfolio Manager: Eric Gutterson Back Bay Advisors, L.P. THE MARKET Despite predictions for a mediocre 1995, the bond market rallied strongly last year, offering fixed income investors handsome returns. After a disappointing 1994, it was a spectacular comeback, fueled by slow economic growth, low inflation and an accommodative Federal Reserve. American business, consumers and the federal government each played a dynamic role. In the corporate sector, growing computerization increased productivity, adding value without contributing to inflation. The spending and saving patterns of consumers began to change. The aging baby boom generation spent less and saved more, creating an ample, inexpensive source of long-term capital to fund non-inflationary economic growth. Lower consumer spending also helped ease inflationary pressure. The federal government's initial moves toward a balanced budget sparked foreign confidence and investment in the U.S. market. Additionally, interest rate cuts by the Federal Reserve helped maintain slow, steady non-inflationary economic growth. HOW YOUR FUND PERFORMED New England Limited Term U.S. Government Fund participated in the rise of the bond market in 1995. The Fund had a total return of 13.01% on net asset value for Class A shares, compared to 14.43% for the Lehman Intermediate - -------------------------------------------------------------------------- New England Limited Term U.S. Government Fund - -------------------------------------------------------------------------- Government Bond Index.4 We increased dividends four times during the year, in February, May, June and July. YOUR FUND'S INVESTMENT STRATEGY Beginning in January, we managed the Fund with the belief that interest rates would decline in 1995 and produce a market rally. This led us to overweight non-callable Treasuries and to maintain a portfolio duration longer than that of comparable mutual funds.* As we expected, rates did decline and direct U.S. Treasury obligations performed well throughout the year. We increased the Fund's position in these securities substantially during the first quarter and made no reductions until the fall. Our focus on high coupons contributed to the Fund's increasing yield, while our decision to overweight Treasuries provided added protection against credit risk. Simultaneously, we de-emphasized callable securities, such as asset- and mortgage-backed instruments, which perform poorly in a strongly rallying market. We began the year with a duration of 3.4 years, then in mid-summer assumed a more bullish posture by pushing it out to the Fund's allowable maximum of 4 years. We grew more cautious in the fourth quarter, reducing duration to 3.6 years in the belief that the majority of current interest rate moves was near completion. During the fourth quarter, we owned securities across the yield curve, but overweighted short and long maturities * Non-callable bonds cannot be "called in" when rates drop, to be reissued at lower rates. Duration is a commonly used measure of the Fund's sensitivity to interest rate changes. The longer the duration, the more the Fund's price will fluctuate in response to interest rate moves. - -------------------------------------------------------------------------- New England Limited Term U.S. Government Fund - -------------------------------------------------------------------------- while underweighting intermediate maturities. This action positioned the Fund more defensively in a period of market consolidation. INVESTMENT OUTLOOK We do not believe the bond market will be as strong in 1996 as it was this past year, but look for rates to fall further if factors such as corporate cost cutting, higher consumer savings rates and diminished projected government spending continue to dominate the market. Initially, we expect to see a saw tooth performance pattern where interest rates may fluctuate within a limited range before declining again. A balanced budget would probably slow the economy further because it will reduce the economic stimulus that government spending sometimes provides. A recession is unlikely, but the economy may grow weaker by the middle of 1996, as it reacts to sluggish domestic demand, slowing world wide growth and ongoing consumer concerns about corporate downsizing. As a result, we will be less inclined to extend duration as much as we did in 1995. We anticipate that rates will fall somewhat further, so we will continue to maintain a duration that is longer than our peer group's. Other potential actions include lowering the percentage of non-callable Treasury securities and increasing the weighting of callable asset- and mortgage- backed securities. The latter may outperform Treasuries in the less volatile interest rate environment we anticipate. As always, the Fund will seek to meet the goals of shareholders by pursuing positive total returns and attractive dividend yields. - -------------------------------------------------------------------------- New England Limited Term U.S. Government Fund - -------------------------------------------------------------------------- TREASURY YIELD CURVE The "yield curve" illustrates the yields available on U.S. Treasury securities of varying maturities, ranging from 3-month Treasury bills to 30-year Treasury bonds. Under normal conditions, a security with a longer maturity will offer a higher yield than a shorter term security, to compensate the bond holder for tying up money for longer periods of time. The chart below illustrates the yield curve at the beginning and at the end of 1995. As you can see, long-term rates dropped substantially, with the 30-year bond falling almost two percentage points, from 7.88% to 5.95%. THE YIELD CURVE JANUARY-DECEMBER, 1995 [A chart in the form of a line graph appears here, illustrating the yield curve of U.S. Treasury securities as of the beginning of 1995 and as of December 29, 1995. The data points from the graph are as follows:] As of 1/2/95: Maturity Yield - --------- ------ 3 Month 5.68% 6 Month 6.50% 1 Year 7.16% 3 Year 7.78% 5 Year 7.83% 10 Year 7.83% 30 Year 7.88% As of 12/29/95: Maturity Yield - --------- ------ 3 Month 5.07% 6 Month 5.15% 1 Year 5.13% 3 Year 5.21% 5 Year 5.37% 10 Year 5.57% 30 Year 5.95% Source: Bloomberg What caused this dramatic drop? Over the year it became apparent that the economy was growing at a more subdued pace and that inflation remained under control. (Inflation is the bond market's primary enemy because it eats away at the value of fixed income investments). The markets responded enthusiastically, driving down long term rates. Bond prices, which move in the opposite direction from interest rates, moved sharply higher in an impressive rebound from 1994's market decline. - -------------------------------------------------------------------------- New England Limited Term 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 LIMITED TERM U.S. GOVERNMENT FUND - ----------------- December 31, 1995 - ----------------- - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION - -------------------------------------------------------------------------------- Investments as of December 31, 1995 Medium & Long Term Bonds and Notes--97.5% of Total Net Assets
Face Amount Description Value (a) - -------------------------------------------------------------------------------- - --------- Asset Backed--4.0% $ 10,000,000 Case Equipment Loan Trust 8.100%, 6/15/01...................... $ 10,425,000 5,000,000 Conti Mortgage Home Equity Trust 8.700%, 04/15/10.............. 5,287,500 --- - --------- 15,712,500 --- - --------- Government Agencies--26.3% 8,000,000 Federal Farm Credit, 11.900%, 10/20/97......................... 8,884,960 5,000,000 Federal Farm Credit, 8.130%, 12/02/99.......................... 5,094,100 10,000,000 Federal Home Loan Mortgage Corporation, 8.600%, 01/26/00....... 10,593,100 6,491,461 Federal Home Loan Mortgage Corporation, 8.360%, 02/28/00....... 5,023,450 22,970,150 Federal Home Loan Mortgage Corporation, 9.500%, 11/01/05....... 24,290,934 6,145,762 Federal Home Loan Mortgage Corporation, 8.7500%, 05/01/09...... 6,491,461 18,429,478 Federal Home Loan Mortgage Corporation, 9.000%, 02/01/17....... 19,443,099 83,973 Federal Home Loan Mortgage Corporation, 10.000%, 07/01/19...... 91,687 13,049,828 Federal Home Loan Mortgage Corporation, 11.5%,with various maturities to 2020(b)..................... 14,721,773 4,699,861 Government National Mortgage Association, 8.000% with various maturities to 2008(b).................... 4,952,893 179,485 Government National Mortgage Association, 12.500% with various maturities to 2015(b)................... 211,510 2,258,206 Government National Mortgage Association, 16.000% with various maturities to 2013(b)................... 2,263,326 838,056 Government National Mortgage Association, 17.000% with various maturities to 2012(b)................... 989,425 --- - --------- 103,051,718 --- - --------- U.S. Government--67.2% 12,000,000 U.S. Treasury Note, 9.375%, 04/15/96........................... 12,136,920 91,000,000 U.S. Treasury Note, 9.250%, 08/15/98........................... 99,815,170 35,000,000 U.S. Treasury Note, 9.125%, 05/15/99........................... 39,057,900 13,000,000 U.S. Treasury Bond, 11.750%, 02/15/01.......................... 16,694,860 21,000,000 U.S. Treasury Bond, 13.750%, 08/15/04.......................... 32,563,020 20,000,000 U.S. Treasury Bond, 10.625%, 08/15/15.......................... 30,634,400 22,000,000 U.S. Treasury Bond, 9.875%, 11/15/15........................... 31,821,020 --- - --------- 262,723,290 --- - --------- Total Medium & Long Term Bonds and Notes (Identified Cost $371,960,400)............................... 381,487,508 --- - --------- - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION--continued - -------------------------------------------------------------------------------- Investments as of December 31, 1995 Face Amount Description Value (a) - -------------------------------------------------------------------------------- - --------- Short-Term Investment--0.3% $ 1,335,000 Household Finance Corp. 5.650%, 1/02/96........................ $ 1,334,791 --- - --------- Total Short-Term Investment (Identified Cost $1,334,791)....... 1,334,791 --- - --------- Total Investments--97.9% (Identified Cost $373,295,191)(b)..... $382,822,299 Cash and Receivables........................................... 10,196,194 Liabilities.................................................... (1,783,350) --- - --------- Total Net Assets--100%......................................... $391,235,143 ============ - -------------------------------------------------------------------------------- - --------- (a) See Note 1a to the financial statements. (b) The Fund's investments in mortgage backed securities of the Federal Home Loan Mortgage Corporation and Government National Mortgage Association are interests in separate pools of mortgages. All separate investments in securities of these issuers 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 appreciation on investments based on cost for federal income tax purposes of $373,295,191 was as follows: Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost............................ $ 9,850,207 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value............................ (323,099) ----- - ------- Net unrealized appreciation.......................................... $ 9,527,108 ============ As of December 31, 1995, the fund had a net tax basis capital loss carryforward as follows: Expiring December 31, 2002.......................................... $ 30,053,756 December 31, 2003.......................................... 1,477,734
- -------------------------------------------------------------------------------- STATEMENT OF ASSETS & LIABILITIES - -------------------------------------------------------------------------------- December 31, 1995 ASSETS Investments at value.......................................... $382,822,299 Cash.......................................................... 5,772 Receivable for: Fund shares sold............................................ 778,540 Accrued interest............................................ 9,400,882 Prepaid registration expense.................................. 11,000 --- - --------- 393,018,493 LIABILITIES Payable for: Fund shares redeemed........................................ $ 992,844 Dividends declared.......................................... 481,303 Accrued expenses: Management fees............................................. 209,997 Deferred trustees' fees..................................... 3,719 Other expenses.............................................. 95,487 --------- 1,783,350 --- - --------- NET ASSETS...................................................... $391,235,143 ============ Net Assets consist of: Capital paid in............................................. $414,054,062 Undistributed net investment income......................... 67,682 Accumulated net realized losses............................. (32,413,709) Unrealized appreciation on investments...................... 9,527,108 --- - --------- NET ASSETS...................................................... $391,235,143 ============ Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($361,519,661 divided by 29,865,887 shares of beneficial interest)................................................. $12.10 ====== Offering price per share (100/97 of $12.10)..................... $12.47* ====== Net asset value and offering price of Class B shares ($18,056,381 divided by 1,493,894 shares of beneficial interest)................................................. $12.09** ====== Net asset value and offering price of Class C shares ($5,935,913 divided by 490,559 shares of beneficial interest)................................................. $12.10 ====== Net asset value and offering price of Class Y shares ($5,723,188 divided by 471,856 shares of beneficial interest)................................................. $12.13 ====== Identified cost of investments.................................. $373,295,191 ============
* 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.................................................. $33,735,703 Expenses Management fees......................................... $ 2,560,201 Service and distribution fees--Class A.................. 1,332,412 Service and distribution fees--Class B.................. 147,768 Service and distribution fees--Class C.................. 15,410 Trustees' fees and expenses............................. 23,999 Custodian............................................... 171,335 Transfer agent.......................................... 596,249 Audit and tax services.................................. 22,000 Legal................................................... 17,496 Printing................................................ 52,704 Registration............................................ 44,975 Miscellaneous........................................... 13,114 ----------- Total expenses............................................ 4,997,663 --- - ------- Net investment income..................................... 28,738,040 REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS, OPTIONS and FUTURES CONTRACTS Realized gain (loss) on: Investments--net.......................................... (2,933,878) Futures contracts--net.................................... 63,025 Options contracts--net.................................... (228,224) ----------- Total realized loss on investments........................ (3,099,077) ----------- Unrealized appreciation on: Investments--net.......................................... 23,699,408 ----------- Net gain on investment transactions....................... 20,600,331 ---- - ------- NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $49,338,371 ===========
- -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 1994 1995 ------------- --- - --------- FROM OPERATIONS Net investment income................................... $ 33,871,995 $ 28,738,040 Net realized loss on investments........................ (33,235,907) (3,099,077) Unrealized appreciation (depreciation) on investments... (12,496,351) 23,699,408 ------------- --- - --------- Increase (decrease) in net assets from operations....... (11,860,263) 49,338,371 ------------- --- - --------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A............................................... (29,623,496) (26,920,664) Class B............................................... (542,209) (963,746) Class C............................................... 0 (96,628) Class Y............................................... (123,393) (343,941) In excess of net investment income Class C............................................... 0 (6,999) ------------- --- - --------- (30,289,098) (28,331,978) ------------- --- - --------- Decrease in net assets derived from capital share transactions.......................................... (100,124,500) (55,882,399) ------------- --- - --------- Total decrease in net assets............................ (142,273,861) (34,876,006) NET ASSETS Beginning of the year................................... 568,385,010 426,111,149 ------------- --- - --------- End of the year......................................... $ 426,111,149 $391,235,143 ============= ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the year................................... $ 0 $ 400,474 ============= ============ End of the year......................................... $ 400,474 $ 67,682 ============= ============
- -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Class A ----------------------------------------- - -------- Year Ended December 31, ----------------------------------------- - -------- 1991 1992 1993 1994 1995 ------- ------- ------- ------- - ------- Net Asset Value, Beginning of Period........................... $ 12.44 $ 12.86 $ 12.54 $ 12.49 $ 11.49 -------- -------- -------- -------- - -------- Income From Investment Operations Net Investment Income.............. 0.93 0.80 0.71 0.82 0.86 Net Realized and Unrealized Gain (Loss) on Investments................... 0.69 (0.11) 0.08 (1.10) 0.59 -------- -------- -------- -------- - -------- Total From Investment Operations... 1.62 0.69 0.79 (0.28) 1.45 -------- -------- -------- -------- - -------- Less Distributions Distributions From Net Investment Income........................... (0.94) (0.80) (0.71) (0.72) (0.84) Distributions in Excess of Net Investment Income................ 0.00 0.00 (0.01) 0.00 0.00 Distributions From Net Realized Capital Gains.................... (0.26) (0.21) (0.12) 0.00 0.00 -------- -------- -------- -------- - -------- Total Distributions................ (1.20) (1.01) (0.84) (0.72) (0.84) -------- -------- -------- -------- - -------- Net Asset Value, End of Period..... $ 12.86 $ 12.54 $ 12.49 $ 11.49 $ 12.10 ======== ======== ======== ======== ======== Total Return (%)(b)................ 13.8 5.7 6.4 (2.3) 13.0 Ratio of Operating Expenses to Average Net Assets (%)(a)........ 1.25 1.16 1.14 1.18 1.22 Ratio of Net Investment Income to Average Net Assets (%)........... 7.24 6.24 5.64 6.80 7.18 Portfolio Turnover Rate (%)........ 277 323 124 244 247 Net Assets, End of Period (000).... $271,966 $477,396 $562,164 $412,399 $361,520 (a) Commencing May 18, 1989 through March 31,1992 expenses were voluntarily limited to 1.25% of average daily net assets. (b) A sales charge of 3% maximum was not reflected in Class A total return calculations.
- -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--continued - --------------------------------------------------------------------------------
Class B ---------------------------------- - -------------- September 27,(a) through Year Ended Year ended December 31, December 31, December 31, 1993 1994 1995 ---------------- ------------ - ------------ Net Asset Value, Beginning of Period......... $12.76 $ 12.49 $ 11.48 ------ ------ - ------ Income From Investment Operations Net Investment Income........................ 0.17 0.71 0.76 Net Realized and Unrealized Gain (Loss) on Investments................................ (0.24) (1.08) 0.61 ------ ------ - ------ Total From Investment Operations............. (0.07) (0.37) 1.37 ------ ------ - ------ Less Distributions Distributions From Net Investment Income..... (0.16) (0.64) (0.76) Distributions in Excess of Net Investment Income..................................... (0.01) 0.00 0.00 Distributions From Net Realized Capital Gains...................................... (0.03) 0.00 0.00 ------ ------ - ------ Total Distributions.......................... (0.20) (0.64) (0.76) ------ ------ - ------ Net Asset Value, End of Period............... $12.49 $ 11.48 $ 12.09 ====== ====== ====== Total Return (%)(c).......................... (0.6) (2.9) 12.3 Ratio of Operating Expenses to Average Net Assets (%)............................. 1.96(b) 1.83 1.87 Ratio of Net Investment Income to Average Net Assets (%)............................. 4.30(b) 6.15 6.53 Portfolio Turnover Rate (%).................. 124 244 247 Net Assets, End of Period (000).............. $6,221 $11,891 $18,056 (a) Commencement of operations. (b) Computed on an annualized basis. (c) Periods less than one year are not annualized.
- -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS--continued - --------------------------------------------------------------------------------
Class C Class Y ------------ --------------- - ------------- Year March 31,(a) Year ended through ended December 31, December 31, December 31, 1995 1994 1995 ------------ ------------ - ------------ Net Asset Value, Beginning of Period............ $11.48 $12.11 $11.51 -------- -------- - -------- Income From Investment Operations Net Investment Income........................... 0.64 0.71 0.86 Net Realized and Unrealized Gain (Loss) on Investments................................... 0.64 (0.74) 0.63 -------- -------- - -------- Total From Investment Operations................ 1.28 (0.03) 1.49 -------- -------- - -------- Less Distributions Distributions From Net Investment Income........ (0.65) (0.57) (0.87) Distributions in Excess of Net Investment Income........................................ (0.01) 0.00 0.00 Distributions From Net Realized Capital Gains... 0.00 0.00 0.00 -------- -------- - -------- Total Distributions............................. (0.66) (0.57) (0.87) -------- -------- - -------- Net Asset Value, End of Period.................. $12.10 $11.51 $12.13 ======== ======== ======== Total Return (%)(c)............................. 11.4 (0.8) 13.3 Ratio of Operating Expenses to Average Net Assets (%)................................ 1.87 0.83(b) 0.87 Ratio of Net Investment Income to Average Net Assets (%)................................ 6.53 7.15(b) 7.53 Portfolio Turnover Rate (%)..................... 247 244 247 Net Assets, End of Period (000)................. $5,936 $1,822 $5,723 (a) Commencement of operations. (b) Computed on an annualized basis. (c) 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 (the "1940 Act"), as amended, as an open-end management investment company. The Declaration of Trust permits the Trustees to issue an unlimited number of shares of the Trust in multiple series (each series of shares a "Fund"). The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced its public offering of Class B shares on September 27, 1993, Class C shares on December 30, 1994 and of Class Y shares on March 31, 1994. Class A shares are sold with a maximum front end sales charge of 3.00%. 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. Class C shares do not pay a front end or contingent deferred sales charge and do not convert to any class of shares, but they do pay a higher ongoing distribution fee than Class A shares. Class Y shares do not pay a front end sales charge, a contingent deferred sales charge or distribution fees. They are intended for institutional investors with a minimum of $1,000,000 to invest. Expenses of the Fund are borne pro-rata by the holders of all classes of shares, except that each class bears expenses unique to that class (including the Rule 12b-1 service and distribution fees applicable to such class), and votes as a class only with respect to its own Rule 12b-1 Plan. Shares of each class would receive their pro-rata share of the net assets of the Fund, if the Fund were liquidated. In addition, the Trustees approve separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. SECURITY VALUATION. The Fund's investment 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 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 and assets are valued at their fair value as determined in good faith by Back Bay Advisors under the supervision of the Fund's trustees. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are accounted for on the trade date (the date the buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Interest income for the Fund is increased by the accretion of discount. 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. If the fund exercises a purchased put option, it will realize a gain or loss from the sale of the underlying - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 security and the proceeds from such sale will be decreased by the premium originally paid. If the fund exercises a purchased call option, the cost of the security which the fund purchases upon exercise will be increased by the premium originally paid. The risk in writing a call option is that the fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the fund assumes the risk of incurring a loss if the market price decreases and the option is exercised. In addition, there is the risk the fund may not be able to enter into a closing transaction because of an illiquid secondary market. D. INTEREST RATE FUTURES CONTRACTS. The Fund may purchase or sell interest rate futures contracts to hedge against changes in the values of securities the fund owns or expects to purchase. An interest rate futures contract is an agreement between two parties to buy and sell a security for a set price (or to deliver an amount of cash) on a future date. Upon entering into such a contract, the purchasing fund is required to pledge to the broker an amount of cash, U.S. Government securities or other high quality debt securities equal to the minimum "initial margin" requirements of the exchange, currently up to $3,000 per contract. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin," and are recorded by the fund as unrealized gains or losses. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. 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. E. 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. F. 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 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 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. G. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price. Back Bay Advisors is responsible for determining that the value of the collateral is at all times at least equal to the repurchase price. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. 2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the Fund for the year ended December 31, 1995 were as follows:
Purchases Sales ---------------------------- ---------------------------- U.S. U.S. Government Other Government Other ------------ ----------- ------------ ----------- $957,612,963 $13,187,129 $990,219,677 $37,310,384
Investments in written options and futures contracts for the Fund for the year ended December 31, 1995 are summarized as follows:
Written Options ------------------------- Number of Premiums Contracts Received --------- ----------- Contracts opened................... 6,200 $ 2,310,156 Contracts closed................... (6,200) (2,310,156) -------- ----------- Open at December 31, 1995.......... 0 $ 0 ======== ===========
Futures Contracts
Sale of Futures Contracts ------------------------------ Number of Aggregate Face Contracts Value of Contracts --------- ------------------ Open at December 31, 1994.................. 0 $ 0 Contracts opened........................... 200 21,549,737 Contracts closed........................... (200) (21,549,737) ------- ------------ 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 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:
Annual Percentage Fund Annual Net Asset Value Fees Earned Rate Levels - ---------- ------------------ ------------------------------ $2,560,201 0.650% the first $200 million 0.625% the next $300 million 0.600% the excess over $500 million
Effective January 1, 1996, New England Funds Management, L.P. became the adviser for the Fund with the aforementioned adviser being retained as the Fund's sub-adviser. B. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted Service and Distribution Plans relating to the Fund's Class A shares (the "Class A Plan") and Class B shares (the "Class B Plan") and Class C shares (the "Class C 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. Also under the Class A Plan, the Fund pays New England Funds a monthly distribution fee at the annual rate of up to 0.10% 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 connection with the marketing or sale of Class A shares. For the year ended December 31, 1995, the Fund paid New England Funds $951,742 in service fees and $380,670 in distribution fees under the Class A Plan. If the expenses of New England Funds that are otherwise reimbursable, as service fees or distribution fees, respectively, under the Class A Plan incurred in any year exceed the amounts of such fees payable by the Fund under the Class A Plan, the unreimbursed amounts (together with unreimbursed amounts from prior years) may be carried forward for reimbursement in future years in which the Class A Plan - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995 remains in effect. The amount of unreimbursed expense carried forward into 1995 is $2,272,723 (reimbursable as distribution fees). Under the Class B and Class C Plans, the Fund pays New England Funds monthly service fees at the annual rate of up to 0.25% of the average daily net assets attributable to the Fund's Class B shares and Class C shares, as compensation for services provided and expenses (including certain payments to securities dealers who may be affiliated with New England Funds) incurred by New England Funds in providing personal services to investors in Class B and Class C shares and/or the maintenance of shareholder accounts. For the year ended December 31, 1995, the Fund paid New England Funds $36,942 and $3,853 in service fees under the Class B and Class C Plans, respectively. Also under the Class B and Class C Plans, the Fund pays New England Funds a monthly distribution fee at the annual rate of up to 0.75% of the average daily net assets attributable to the Fund's Class B and Class C shares, as compensation for services provided and expenses (including certain payments to securities dealers who may be affiliated with New England Funds) incurred by New England Funds in connection with the marketing or sale of Class B and Class C shares. For the year ended December 31, 1995, the Fund paid New England Funds $110,826 and $11,557 in distribution fees under the Class B and Class C Plans, respectively. Commissions (including contingent deferred sales charges) on Fund shares paid to New England Funds by investors in shares of the Fund during the year ended December 31, 1995 amounted to $556,865. 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 $432,493 as compensation for its services in that capacity. D. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly to its officers or trustees who are directors, officers or employees of Back 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 Annual Retainer......... $125 A deferred compensation plan is available to the trustees on a voluntarily 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. CAPITAL SHARES. At December 31, 1995 there was an unlimited number of shares of beneficial interest authorized, divided into four classes, Class A, Class B, Class C and Class Y. 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.......................... 7,249,522 $ 87,450,145 3,171,114 $ 37,607,305 Shares issued in connection with the reinvestment of: Distributions from net investment income........................... 1,977,543 23,571,740 1,847,952 21,921,032 ----------- ------------- ----------- - ------------- 9,227,065 111,021,885 5,019,066 59,528,337 Shares repurchased................... (18,344,360) (219,584,415) (11,030,290) (130,336,285) ----------- ------------- ----------- - ------------- Net increase (decrease).............. (9,117,295) $(108,562,530) (6,011,224) $ (70,807,948) =========== ============= =========== ============= Year ended Year ended December 31, 1994 December 31, 1995 --------------------------- ------------ - --------------- Class B Shares Amount Shares Amount - ------- ----------- ------------- ----------- - ------------- Shares sold.......................... 754,998 $ 9,077,621 633,142 $ 7,488,380 Shares issued in connection with the reinvestment of: Distributions from net investment income........................... 36,690 434,371 66,179 785,645 ----------- ------------- ----------- - ------------- 791,688 9,511,992 699,321 8,274,025 Shares repurchased................... (254,298) (3,025,313) (240,815) (2,850,637) ----------- ------------- ----------- - ------------- Net increase (decrease).............. 537,390 $ 6,486,679 458,506 $ 5,423,388 =========== ============= =========== ============= Year ended Year ended December 31, 1994 December 31, 1995 --------------------------- ------------ - --------------- Class C Shares Amount Shares Amount - ------- ----------- ------------- ----------- - ------------- Shares sold.......................... 0 $ 0 763,855 $ 9,083,684 Shares issued in connection with the reinvestment of: Distributions from net investment income........................... 0 0 6,338 76,069 ----------- ------------- ----------- - ------------- 0 0 770,193 9,159,753 Shares repurchased................... 0 0 (279,634) $ (3,318,226) ----------- ------------- ----------- - ------------- Net increase (decrease).............. 0 $ 0 490,559 $ 5,841,527 =========== ============= =========== =============
- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--continued - -------------------------------------------------------------------------------- December 31, 1995
Year ended Year ended December 31, 1994 December 31, 1995 --------------------------- ---------- - --------------- Class Y Shares Amount Shares Amount - ------- ----------- ------------- ---------- - ------------ Shares sold............................ 246,464 $ 2,978,092 335,944 $ 3,928,529 Shares issued in connection with the reinvestment of: Distributions from net investment income............................. 10,363 122,236 28,675 341,684 ----------- ------------- ---------- - ------------ 256,827 3,100,328 364,619 4,270,213 Shares repurchased..................... (98,511) (1,148,977) (51,079) (609,579) ----------- ------------- ---------- - ------------ Net increase (decrease)................ 158,316 $ 1,951,351 313,540 $ 3,660,634 =========== ============= ========== ============ Increase (decrease) derived from capital shares transactions.......... (8,421,589) $(100,124,500) (4,748,619) $(55,882,399) =========== ============= ========== ============
- -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Board of Trustees of New England Funds Trust II and the Shareholders of the NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND We have audited the accompanying statement of assets and liabilities, including the schedule of portfolio investments, of the New England Limited Term 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 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 Limited Term 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 - ------------------------------------------------------------------------------- At a special shareholders' meeting held on December 28, 1995, shareholders of the Limited Term 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........... 16,559,844.098 515,234.333 779,188.257 17,854,266.688 ============== ============ =========== 2. To approve a new Advisory Agreement between the Fund and New England Funds Management, L.P. ("NEFM").............. 15,783,283.329 1,115,911.435 894,034.924 61,037.000 17,854,266.688 ============== ============= =========== ========== 3. To approve a related Sub-Advisory Agreement between NEFM and such Fund's current investment adviser.... 15,785,158.289 1,047,024.438 961,046.961 61,037.000 17,854,266.688 ============== ============= =========== ==========
- ----------------------------------------------------------------------- Saving For Retirement - ----------------------------------------------------------------------- An Early Start Can Make a Big Difference With today's lengthening life spans, you may be retired for 20 years or more after you complete your working career. Living these retirement years the way you've dreamed of will require considerable financial resources. While it's never too late to start a retirement savings program, it's certainly never too early: The sooner you begin, the longer the time your money has to grow. The chart below illustrates this point dramatically. One investor starts at age 30, saves for just 10 years, then leaves the investment to grow. The second investor starts 10 years later but saves much longer - for 25 years, in fact. Can you guess which investor accumulates the greater retirement nest egg? For the answer, look at the chart. 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 B's commitment - and for less than half the time. Yet investor A wound up with a much greater retirement nest egg. The reason? It's all thanks to an early start. New England Funds has prepared a number of informative retirement planning guides. Call your financial representative or New England Funds today, and ask for the guide that best fits your personal needs. - --------------------------------------------------------------------- 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 LT56 [LOGO] Printed On Recycled Paper Bulk Rate U.S. Postage Paid Brockton, MA Permit No. 770 399 Boylston Street Boston, Massachusetts 02116 LT56 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-----