0000950109-95-003854.txt : 19950920 0000950109-95-003854.hdr.sgml : 19950920 ACCESSION NUMBER: 0000950109-95-003854 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950919 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: 95574838 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 SEMI ANNUAL REPORT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [LOGO OF NEW ENGLAND FUNDS APPEARS HERE] New England Funds Where The Best Minds Meet --------------------------------------------------------------------------- Semiannual Report and Performance Update --------------------------------------------------------------------------- New England Growth Opportunities Fund [ARTWORK APPEARS HERE] ------------- June 30, 1995 ------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- July 20, 1995 Dear Shareholder: We have good news to present in this Semiannual Report for New England Growth Opportunities Fund, which includes your Portfolio Manager's commentary and complete financial information. Market Overview Investors who stayed the course in 1995 were amply rewarded. Major U.S. stock market indices soared to record highs and the bond market staged a spectacular comeback from its 1994 lows. Fueling the rally was clear evidence that the economy had begun to slow down as a result of the interest rate hikes engineered by the Federal Reserve Board to keep inflation in check. Indeed, with declining housing starts and rising unemployment numbers reported in the first half of 1995, expectations grew that the Fed's next move would be downward, to prevent the slowing economy from slipping into recession. The bond market surged at the prospect of lower rates, and the stock market followed suit, with the Standard & Poor's 500/(R)/ Index gaining 20.14% during the first half of the year. The large, blue-chip companies led the way, in part because a weak U.S. dollar gave them a competitive advantage overseas and contributed to surprisingly healthy earnings reports. Finally, on July 6, just after this reporting period ended, the Fed lowered a key short-term rate by 0.25%, a relatively modest move, but a significant psychological change in direction. Your Financial Adviser -- A Trusted Ally As a shareholder in New England Funds, you have a valuable ally you can turn to at all times -- your financial adviser. This experienced -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- professional can help you design an asset allocation program suitable to your goals and risk tolerance. Most important, during times of market volatility or uncertainty, your adviser can help you avoid making costly mistakes, such as trying to "time" the market. Investors who go it alone can overreact to short- term market events, buying and selling on the basis of this week's headlines or chasing the latest "hot" investment. Such behavior can derail an otherwise prudent investment program. But investors who work with a financial adviser receive guidance throughout the market's ups and downs. Your adviser will help you place short-term market swings in their proper perspective and keep you focused on your long-term investment program. Your adviser is just one of the experts whose talents we have tapped in our effort to bring the best minds in the business to the task of managing your money. These experts are a vital part of the investment process at New England Funds, and we encourage you to take advantage of their skills to the fullest. We invite you to read the accompanying management commentary and financial highlights. If you have any questions or comments, please contact your financial adviser or New England Funds directly at 800-225-5478. Once again, we appreciate your continued confidence and investment in New England Funds. Sincerely, /s/ Peter S. Voss /s/ Henry L.P. Schmelzer Peter S. Voss Henry L.P. Schmelzer Chairman President -------------------------------------------------------------------------------- New England Growth Opportunities Fund -------------------------------------------------------------------------------- INVESTMENT RESULTS THROUGH JUNE 30, 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 Standard & Poor's 500/4/ 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 Standard and Poor's 500 Index /4/. The data points from the graph as follows:
New England Growth Opportunities Fund - Net Asset Value/1/ Year Amount ---- ------ 6/30/85 $10,000 6/87 $14,755 6/89 $15,682 6/91 $19,279 6/93 $24,847 6/95 $30,881
New England Growth Opportunities Fund - With Maximun Sales Charge/2/ Year Amount ---- ------ 6/30/85 $ 9,425 6/87 $13,907 6/89 $14,780 6/91 $18,170 6/93 $23,418 6/95 $29,105
Standard and Poor's 500 Index/4/ Year Amount ---- ------ 6/30/85 $10,000 6/87 $16,991 6/89 $19,065 6/91 $23,831 6/93 $30,714 6/95 $39,381
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 and Class C 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. 1 -------------------------------------------------------------------------------- New England Growth Opportunities Fund --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Average Annual Total Returns 6/30/95 -------------------------------------------------------------------------------- Class A (Inception 5/6/31) Year to Date 1 Year 5 Years 10 Years Net Asset Value/1/ 18.49% 23.58% 11.48% 11.94% With Max. Sales Charge/2/ 11.65 16.49 10.17 11.28 Standard & Poor's 500/4/ 20.14 25.99 12.03 14.60 Lipper Growth & Income Avg./5/ 16.75 19.74 11.18 12.60 Class B (Inception 9/13/93) Year to Date 1 Year Since Inception Net Asset Value/1/ 18.12% 23.04% 10.41% With CDSC/3/ 14.13 19.04 8.85 Standard & Poor's 500/4/ 20.14 25.99 12.80 Lipper Growth & Income Avg./5/ 16.75 19.74 n/a Class C (Inception 5/1/95) Since Inception Net Asset Value/1/ 5.72% Standard & Poor's 500/4/ 6.54 Lipper Growth & Income Avg./5/ n/a
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 5.75% 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/Standard & Poor's 500 Index (S&P 500) is an unmanaged index representing the performance of 500 major companies, most of which are listed on the New York Stock Exchange. The S&P 500 performance has not been adjusted for ongoing management, distribution and operating expenses and sales charges applicable to mutual fund investments. /5/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. 2 -------------------------------------------------------------------------------- New England Growth Opportunities Fund -------------------------------------------------------------------------------- REWARDING SHAREHOLDERS FOR MORE THAN 60 YEARS Through good times and bad, investors have come to depend on New England Growth Opportunities Fund. This Fund is designed to pursue long-term growth from investments in common stocks similar to those in the S&P 500/4/. Its focus on large, well-established companies has produced a long history of solid performance achieved by various portfolio managers. Please see pages 1 and 2 for the Fund's most recent results. [BAR CHART TITLE] -------------------------------------------------------------------------------- Growth Opportunities Fund - Class A Shares* -------------------------------------------------------------------------------- A $10,000 Investment Compared to the Standard & Poor's 500 Index/4/ May 1931 - June 30, 1995 Cumulative Return A bar chart appears here, illustrating the cumulative return of an investment in Class A Shares* compared to the Standard & Poor's 500 Index /4/ from May 1931 through June 30, 1995. The bar chart data is as follows: New England Growth Opportunities Fund: $24,832,989 Standard & Poor's 500 Index/4/: $6,323,193
*This information represents past performance only and cannot predict future returns. Investment return and principal value will vary and may result in a gain or loss on sale. Results assume sales charge of 7.25% in effect in 1931 and reinvestment of all dividend and capital gains distributions for period through 6/30/95. Generally, this was a period of rising stock prices. Effective 10/1/90, the maximum sales charge was reduced to 5.75%. Five advisers have managed the Fund, with changes occurring in 1968, 1983, 1988, and 1995. 3 -------------------------------------------------------------------------------- New England Growth Opportunities Fund -------------------------------------------------------------------------------- [ART WORK APPEARS HERE] NEW ENGLAND GROWTH OPPORTUNITIES FUND Portfolio Manager: Gerald H. Scriver Westpeak Investment Advisors, L.P./(R)/ Shareholders of New England Growth Opportunities Fund approved a change in investment adviser, effective on May 1, 1995. The following report is a blend of the observations and activities of Back Bay Advisors, managers until April 30, and of Westpeak Investment Advisors, the Fund's new investment sub-adviser. Both Back Bay and Westpeak are affiliates of New England Investment Companies, L.P., parent of New England Funds. Although 1994's interest rate concerns and other uncertainties carried over into the new year, the nation's financial markets enjoyed vigorous rallies in the first half of 1995. The seventh and last of the Federal Reserve Board's year- long series of interest rate hikes took place in February. These hikes were aimed at slowing the growth of the U.S. economy and at averting what the Fed saw as a real danger of inflation generated by too-rapid economic expansion. Despite the unmistakable impact of the rate hikes--sluggishness in key manufacturing sectors, housing and retail sales--the stock market was in a positive mood, repeatedly setting new records in the popular averages. This enthusiasm stemmed from the signs of a slowdown, from unexpectedly strong profits at many companies, and from the expectation that the economy would 4 -------------------------------------------------------------------------------- New England Growth Opportunities Fund -------------------------------------------------------------------------------- achieve a "soft landing" from its earlier heights. All of these, in turn, implied an easing of interest rates, which in fact came about a few days after the period closed. How Your Fund Performed New England Growth Opportunities Fund took advantage of the market's strength to produce a total return on net asset value of 18.49% for Class A shares. This compares with returns of 20.14% for the Standard & Poor's 500 Stock Index/4/ and 16.75% for the Lipper Growth and Income Average/5/. How We Managed Your Fund At the end of 1994, we felt that investors would favor quality investments in the new year. Therefore, continuing the portfolio structure that was in place late last year, we emphasized the largest, most stable companies in each sector of the Standard & Poor's 500 Index/4/. As events played out, the market was especially rewarding to holders of large-capitalization stocks early in 1995. The Fund was fully invested and well-diversified, with representation in every industry sector found in the S&P 500/4/. Well-established companies, like those that have long made up the core of the Growth Opportunities Fund's portfolio, for years have been mainstays of the U.S. economy. Today, many are also important participants in expanding world markets. As has been the case in recent years, we also devoted 20% of the portfolio to companies with low price-to-earnings ratios, and those that appeared to offer solid value, to provide a potential cushion for market volatility. 5 -------------------------------------------------------------------------------- New England Growth Opportunities Fund -------------------------------------------------------------------------------- Later in the period, growth stocks, especially technology issues, were a major factor in the market's almost daily leaps to new highs. We positioned the portfolio to take advantage of this strength. We have also been stressing interest-sensitive issues that we believe can do well as the economy remains subdued and inflationary concerns abate. Given persistent sluggishness in the economy, the Federal Reserve Board may feel justified in lowering short-term rates again. Continued cuts, should they occur, may fuel an extension of the bond market's 1995 rally. Outlook for Our Shareholders The outstanding performance of growth stocks has widely outdistanced value stocks, for both the six-month and twelve-month periods that ended in June. Much of this outperformance came from the technology sector. We feel this phase of the market's cycle still holds potential, so we remain overweighted in technology and interest sensitive stocks, and hold below average weightings in consumer stocks. For the next few months, we think growth stocks will continue to drive the market, with leadership shifting to value stocks later in the year. Strength in bonds, deriving from falling long-term rates, has also provided impetus for stocks. We do not believe that the bond market's strength will persist into 1996. We also think technology stocks will be increasingly vulnerable to a sharp pullback, should speculation become more widespread. Under these circumstances, we will scale back these issues if they move into a stage of excessive valuations. 6 -------------------------------------------------------------------------------- New England Growth Opportunities Fund -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Top Ten Portfolio Holdings 6/30/95* -------------------------------------------------------------------------------- Company Percentage of Net Assets ------------------------------------------------------------------------------ 1. Exxon Corp. 3.0% World's leading oil company ------------------------------------------------------------------------------ 2. Mobil Corp. 2.5% International oil and gas, exploration, and development company ------------------------------------------------------------------------------ 3. McDonnell Douglas Corp. 2.3% Aircraft and aerospace manufacturer ------------------------------------------------------------------------------ 4. Intel Corp. 2.3% Manufacturer of semiconductors and memory circuits ------------------------------------------------------------------------------ 5. CIGNA Corp. 2.2% Multiline insurance holding company ------------------------------------------------------------------------------ 6. Hewlett-Packard Co. 2.1% Leading electronic data and equipment company ------------------------------------------------------------------------------ 7. Medtronic, Inc. 1.8% Manufacturer of cardiac and healthcare equipment ------------------------------------------------------------------------------ 8. General Electric Co. 1.8% Manufactures consumer and industrial products, also owns the NBC network ------------------------------------------------------------------------------ 9. AMR Corp. 1.6% Holding company for American Airlines ------------------------------------------------------------------------------ 10. Coca-Cola Co. 1.6% Leading soft drink and juice company ------------------------------------------------------------------------------ --------------------------------------------------------------------------------
*Portfolio holdings are subject to change. 7 [LOGO OF NEW ENGLAND FUNDS APPEARS HERE] New England Funds Where The Best Minds Meet Portfolio Composition, Financial Statements and Highlights NEW ENGLAND GROWTH OPPORTUNITIES FUND June 30, 1995 PORTFOLIO COMPOSITION Investments as of June 30, 1995 (Unaudited) COMMON STOCK--96.7% OF TOTAL NET ASSETS
SHARES DESCRIPTION VALUE (A) -------------------------------------------------------------------------------- AEROSPACE--5.0% 15,800 Allied Signal, Inc. ..................................... $ 703,100 10,250 Boeing Co. .............................................. 641,906 18,600 Lockheed Martin Corp. ................................... 1,174,125 39,400 McDonnell Douglas Corp. ................................. 3,023,950 10,600 United Technologies Corp. ............................... 828,125 ------------ 6,371,206 ------------ AGRICULTURE & FOOD--4.6% 42,336 Archer Daniels Midland Co. .............................. 788,508 11,600 Campbell Soup Co. ....................................... 568,400 11,600 HJ Heinz Co. ............................................ 514,750 8,400 Hershey Foods Co. ....................................... 464,100 7,200 Kellogg Co. ............................................. 513,900 20,000 Philip Morris Co., Inc. ................................. 1,487,500 21,600 Sara Lee Corp. .......................................... 615,600 7,600 Unilever NV.............................................. 988,950 ------------ 5,941,708 ------------ AIR--1.9% 28,000 AMR Corp. (c)............................................ 2,089,500 9,800 Northwest Airlines Corp. ................................ 346,675 ------------ 2,436,175 ------------ BANKING--7.8% 13,887 Banc One Corp. .......................................... 447,856 21,700 Bank of Boston Corp. .................................... 813,750 24,000 Bank of New York, Inc. .................................. 969,000 9,000 BankAmerica Corp. ....................................... 473,625 5,500 Chase Manhattan Corp. ................................... 258,500 19,500 Chemical Banking Corp. .................................. 921,375 27,500 Citicorp (c)............................................. 1,591,565 4,900 First Chicago Corp. ..................................... 293,387 7,600 Fleet Financial Group, Inc. ............................. 282,150 5,050 Mellon Bank Corp. ....................................... 210,206 10,700 J.P. Morgan & Co., Inc. ................................. 750,338 8,700 NationsBank Corp. ....................................... 466,537 43,000 Union Bank of San Francisco.............................. 1,816,750 3,900 Wells Fargo & Co. ....................................... 702,975 ------------ 9,998,014 ------------ BEVERAGES--1.6% 32,200 Coca Cola Co. ........................................... 2,052,750 ------------
See accompanying notes to financial statements. 2 PORTFOLIO COMPOSITION--Continued Investments as of June 30, 1995 (Unaudited) COMMON STOCK--CONTINUED
SHARES DESCRIPTION VALUE (A) -------------------------------------------------------------------------------- BUSINESS MANUFACTURES--4.6% 36,200 Hewlett Packard Co. ...................................... $ 2,696,900 12,700 International Business Machines Corp...................... 1,219,200 24,000 Pitney Bowes, Inc. ....................................... 921,000 5,100 Seagate Technology........................................ 200,175 7,100 Xerox Corp. .............................................. 832,475 ------------ 5,869,750 ------------ CHEMICALS--4.1% 5,000 Air Products & Chemicals, Inc. ........................... 278,750 30,000 Cabot Corp. .............................................. 1,582,500 14,100 Dow Chemical Co. ......................................... 1,013,435 14,300 E.I. du Pont de Nemours & Co. ............................ 983,125 6,200 Monsanto Co. ............................................. 558,775 14,600 PPG Industries, Inc. ..................................... 627,800 6,000 Union Carbide Corp. ...................................... 200,250 ------------ 5,244,635 ------------ CONTAINERS--0.2% 6,700 Ball Corp. ............................................... 233,663 ------------ COSMETICS--1.5% 13,600 Johnson & Johnson......................................... 919,700 13,800 Procter & Gamble Co. ..................................... 991,875 ------------ 1,911,575 ------------ DOMESTIC OIL RESOURCES--0.9% 6,600 Atlantic Richfield Co. ................................... 724,350 12,800 Phillips Petroleum Co. ................................... 427,200 ------------ 1,151,550 ------------ DRUGS & HEALTH CARE--4.0% 19,200 Abbott Labs............................................... 777,600 6,900 Amgen, Inc. (c)........................................... 555,019 15,100 Bristol Myers Squibb Co. ................................. 1,028,688 6,400 Eli Lilly & Co. .......................................... 502,400 33,800 Merck & Co., Inc. ........................................ 1,656,200 7,100 Pfizer, Inc. ............................................. 655,863 ------------ 5,175,770 ------------ ELECTRIC UTILITIES--3.0% 22,900 Consolidated Edison Co. NYC............................... 675,550 10,700 Duke Power Co. ........................................... 444,050 15,000 FPL Group, Inc. .......................................... 579,375
See accompanying notes to financial statements. 3 PORTFOLIO COMPOSITION--Continued Investments as of June 30, 1995 (Unaudited) COMMON STOCK--CONTINUED
SHARES DESCRIPTION VALUE (A) ------------------------------------------------------------------------------- ELECTRIC UTILITIES--CONTINUED 24,600 Pacific Gas & Electric Co. ......................... $ 713,400 16,600 Public Service Enterprise Group..................... 460,650 23,800 SCE Corp. .......................................... 407,575 23,600 Southern Co. ....................................... 528,050 ------------ 3,808,650 ------------ ELECTRONICS--6.7% 9,400 Advanced Micro Devices, Inc. (c).................... 341,925 16,600 AMP, Inc. .......................................... 701,350 10,500 Andrew Corp. (c).................................... 607,688 8,400 Emerson Electric Co. ............................... 600,600 5,100 Harris Corp. ....................................... 263,287 12,700 Honeywell, Inc. .................................... 547,688 47,200 Intel Corp. ........................................ 2,988,350 7,000 Micron Technology, Inc. ............................ 384,125 9,800 Raytheon Co. ....................................... 760,725 6,900 Tektronix, Inc. .................................... 339,825 2,800 Texas Instruments, Inc. ............................ 374,850 19,200 Vishay Intertechnology, Inc. ....................... 693,600 ------------ 8,604,013 ------------ FINANCIAL SERVICES--4.0% 33,300 Beneficial Corp. ................................... 1,465,200 5,152 Dean Witter Discover & Co. ......................... 242,144 10,800 Federal Home Loan Mortgage Corp. ................... 742,500 5,500 Household International, Inc. ...................... 272,250 29,900 Merrill Lynch & Co., Inc. .......................... 1,569,750 5,500 Student Loan Marketing Association.................. 257,812 13,867 Travelers Group, Inc. .............................. 606,681 ------------ 5,156,337 ------------ GOLD--0.4% 12,600 Barrick Gold Corp. ................................. 318,150 7,600 Placer Dome, Inc. .................................. 198,550 ------------ 516,700 ------------ GAS UTILITIES--0.4% 13,900 Williams Co. Inc. .................................. 484,763 ------------ HEALTH CARE--2.4% 11,400 Baxter International, Inc. ......................... 414,675 29,600 Medtonic, Inc. ..................................... 2,282,900 7,200 St. Jude Medicine, Inc. (c) ........................ 360,900 ------------ 3,058,475 ------------
See accompanying notes to financial statements. 4 PORTFOLIO COMPOSITION--Continued Investments as of June 30, 1995 (Unaudited) COMMON STOCK--CONTINUED
SHARES DESCRIPTION VALUE (A) -------------------------------------------------------------------------------- HOTELS & RESTAURANTS--1.3% 20,200 Marriot International, Inc. ............................. $ 724,675 23,500 McDonalds Corp. ......................................... 919,437 ------------ 1,644,112 ------------ INTERNATIONAL OIL--6.4% 24,200 Chevron Corp. ........................................... 1,128,325 54,400 Exxon Corp. ............................................. 3,842,000 33,300 Mobil Corp. ............................................. 3,196,800 ------------ 8,167,125 ------------ LIFE INSURANCE--0.9% 7,700 American General Corp. .................................. 259,875 12,200 American National Insurance Co. ......................... 744,200 4,800 Lincoln National Corp. .................................. 210,000 ------------ 1,214,075 ------------ MEDIA--2.3% 2,720 CBS, Inc. ............................................... 182,240 16,000 Capital Cities ABC, Inc. ................................ 1,728,000 5,000 Clear Channel Communication.............................. 321,875 12,800 Walt Disney Productions.................................. 712,000 ------------ 2,944,115 ------------ MORTGAGE--1.4% 39,900 Green Tree Financial Corp. .............................. 1,770,562 ------------ MOTOR VEHICLES--2.0% 21,100 Chrysler Corp. .......................................... 1,010,162 27,200 Ford Motor Corp. ........................................ 809,200 16,900 General Motors Corp. .................................... 792,188 ------------ 2,611,550 ------------ OIL REFINING DISTRIBUTORS--1.8% 13,800 Amco Corp. .............................................. 919,425 7,200 Royal Dutch Petroleum Co. ............................... 877,500 17,500 Unocal Corp. ............................................ 483,438 ------------ 2,280,363 ------------ OTHER INSURANCE--5.7% 7,100 Aflac, Inc. ............................................. 310,625 10,100 Allmerica Property & Casualty, Inc. ..................... 223,463 10,500 American International Group, Inc. ...................... 1,197,000 8,200 Chubb Corp. ............................................. 657,025 35,600 Cigna Corp. ............................................. 2,763,450 4,000 General Re-Insurance Corp. .............................. 535,500
See accompanying notes to financial statements. 5 PORTFOLIO COMPOSITION--Continued Investments as of June 30, 1995 (Unaudited) COMMON STOCK--CONTINUED
SHARES DESCRIPTION VALUE (A) -------------------------------------------------------------------------------- OTHER INSURANCE--CONTINUED 7,300 ITT Corp. ............................................... $ 857,750 3,400 Safeco Corp. ............................................ 195,287 2,400 Transatlantic Holdings, Inc. ............................ 156,000 30,000 USF & G Corp. ........................................... 487,500 ------------ 7,383,600 ------------ PAPER--1.3% 11,800 Champion International Corp. ............................ 615,075 16,600 Federal Paper Board, Inc. ............................... 587,225 10,000 Weyerhaeuser Co. ........................................ 471,250 ------------ 1,673,550 ------------ PHOTOGRAPHY--0.4% 9,100 Eastman Kodak Co. ....................................... 551,688 ------------ PRODUCER OF GOODS--7.6% 14,900 American Brand, Inc. .................................... 592,275 12,700 Briggs & Stratton Corp. ................................. 438,150 18,100 Caterpillar, Inc. ....................................... 1,162,925 18,000 Cummins Engine, Inc. .................................... 785,250 10,000 Deere & Co. ............................................. 856,250 40,000 General Electric Co. .................................... 2,255,000 16,100 Genuine Parts Co. ....................................... 609,788 9,500 Harnischfeger Industry, Inc. ............................ 328,937 17,100 McDermott International, Inc. ........................... 412,538 14,300 Modine Manufacturer Co. ................................. 525,525 5,800 Premark International, Inc. ............................. 300,875 11,400 TRW, Inc. ............................................... 910,575 10,200 Varian Associates, Inc. ................................. 563,550 ------------ 9,741,638 ------------ PROPERTY--0.1% 5,700 Pulte Corp. ............................................. 159,600 ------------ PUBLISHING--0.8% 3,400 McGraw Hill, Inc. ....................................... 257,975 11,200 Moore Corp. Ltd. ........................................ 247,800 21,000 Times Mirror Co. ........................................ 501,375 ------------ 1,007,150 ------------ RAILROADS & EQUIPMENT--2.1% 12,700 Burlington Northern, Inc. ............................... 804,862 10,100 CSX Corp. ............................................... 758,762 6,000 Norfolk Southern Corp. .................................. 404,250
See accompanying notes to financial statements. 6 PORTFOLIO COMPOSITION--Continued Investments as of June 30, 1995 (Unaudited) COMMON STOCK--CONTINUED
SHARES DESCRIPTION VALUE (A) -------------------------------------------------------------------------------- RAILROADS & EQUIPMENT--CONTINUED 11,500 Santa Fe Pacific Corp. .................................. $ 293,250 8,400 Union Pacific Corp. ..................................... 465,150 ------------ 2,726,274 ------------ RETAIL FOOD--0.5% 20,600 Albertson's Inc. ........................................ 612,850 ------------ RETAIL OTHER--0.7% 7,400 J.C. Penney and Company, Inc. ........................... 355,200 9,700 Rite Aid Corp. .......................................... 248,562 6,300 Tandy Corp. ............................................. 326,813 ------------ 930,575 ------------ SERVICES--3.0% 10,000 Automatic Data Processing................................ 628,750 13,200 H & R Block, Inc......................................... 542,850 19,200 Computer Associated International, Inc. ................. 1,300,800 14,700 Microsoft Corp. (c)...................................... 1,328,512 ------------ 3,800,912 ------------ SOAPS--1.5% 8,100 Colgate Palmolive Co. ................................... 592,312 18,000 Gillette Co. ............................................ 803,250 23,600 Newell Co. .............................................. 578,200 ------------ 1,973,762 ------------ TELEPHONE--3.3% 28,600 Ameritech Corp. ......................................... 1,258,400 11,700 Bell Atlantic Corp. ..................................... 655,200 20,200 GTE Corp. ............................................... 689,325 35,600 SBC Communications, Inc. ................................ 1,695,450 ------------ 4,298,375 ------------ TIRES--0.5% 15,600 Goodyear Tire and Rubber................................. 643,500 ------------ Total Common Stocks (Identified Cost $87,839,744)........ $124,151,110 ============
See accompanying notes to financial statements. 7 PORTFOLIO COMPOSITION--Continued Investments as of June 30, 1995 SHORT-TERM INVESTMENT--1.6%
FACE AMOUNT DESCRIPTION VALUE (A) ------------------------------------------------------------------------------- $2,125,000 Repurchase Agreement with State Street Bank & Trust Co. dated 6/30/95 at 5.5% to be repurchased at $2,125,974 on 7/03/95. Collateralized by $2,165,000 U.S. Treasury Notes, 4.375% due 8/15/96, with a value of $2,168,525............... $ 2,125,000 ------------ Total Short Term Investments (Identified Cost $2,125,000)........................................ 2,125,000 ------------ Total Investments--98.3% (Identified Cost $89,964,745)....................................... 126,276,110 Cash, receivables and other assets................. 6,994,857 Liabilities........................................ (4,859,463) ------------ Total Net Assets--100.0%........................... $128,411,504 ============ (a) See Note 1a to the financial statements. (b) Federal Tax Information: At June 30, 1995 the net unrealized appreciation on investments based on cost of $89,964,745 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........... $ 36,826,340 Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value........... (514,975) ------------ Net Unrealized appreciation.................................. $ 36,311,365 ============
(c) Non-income producing security. See accompanying notes to financial statements. 8 STATEMENT OF ASSETS & LIABILITIES June 30, 1995 (unaudited) ASSETS Investments at value........ $126,276,110 Cash.......... 381 Receivable for: Fund shares sold......... 45,167 Securities sold......... 6,642,406 Dividends and interest..... 304,656 Dividend tax reclaim...... 2,247 ------------ 133,270,967 LIABILITIES Payable for: Securities purchased.... $4,503,212 Fund shares redeemed..... 157,965 Dividends declared..... 55,031 Miscellaneous. 12,028 Accrued expenses: Management fees......... 72,921 Deferred trustees' fees......... 1,534 Other expenses..... 56,772 ---------- 4,859,463 ------------ NET ASSETS..... $128,411,504 ============ Net Assets consist of: Capital paid in........... $ 81,012,246 Undistributed net investment income....... 14,221 Accumulated net realized gains........ 11,073,672 Unrealized appreciation on investments.. 36,311,365 ------------ NET ASSETS..... $128,411,504 ============ Computation of net asset value and offering price: Net asset value and redemption price of Class A shares ($119,945,945 divided by 8,223,863 shares of beneficial interest)....... $14.59 ====== Offering price per share (100/94.25 of $14.59)....... $15.48* ====== Net asset value and offering price of Class B shares ($8,425,977 divided by 577,198 shares of beneficial interest)..... $14.60** ====== Net asset value and offering price of Class C shares ($39,582 divided by 2,710 shares of beneficial interest)..... $14.61 ====== Identified cost of investments... $ 89,964,745 ============
* Based upon single purchases of less than $50,000. 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. See accompanying notes to financial statements. 9 STATEMENT OF OPERATIONS Six Months Ended June 30, 1995 (unaudited) INVESTMENT INCOME Dividends............................................. $ 1,605,069(a) Interest.............................................. 91,276 ----------- 1,696,345 Expenses Management fees....................................... $334,321 Service and distribution fees--Class A................ 173,812 Service and distribution fees--Class B................ 32,539 Trustees' fees and expenses........................... 12,151 Custodian............................................. 47,628 Transfer agent........................................ 125,623 Audit and tax services................................ 11,000 Legal................................................. 26,421 Printing.............................................. 38,885 Registration.......................................... 27,680 Miscellaneous......................................... 18,714 -------- Total expenses........................................ 848,774 ----------- Net investment income................................. 847,571 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain on Investments--net..................... 11,073,867 Unrealized appreciation on Investments--net........... 7,981,845 ----------- Net gain on investment transactions................... 19,055,712 ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS............. $19,903,283 ===========
(a) Net of foreign taxes of $8,404. See accompanying notes to financial statements. 10 STATEMENT OF CHANGES IN NET ASSETS (unaudited)
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED 1994 JUNE 30, 1995 ------------ ------------- FROM OPERATIONS Net investment income............................ $ 1,921,190 $ 847,571 Net realized gain on investments................. 1,492,900 11,073,867 Unrealized appreciation (depreciation) on invest- ments.......................................... (2,258,483) 7,981,845 ------------ ------------ Increase in net assets from operations........... 1,155,607 19,903,283 ------------ ------------ FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income Class A.......................................... (1,788,514) (904,832) Class B.......................................... (40,153) (34,600) Class C.......................................... 0 (87) Net realized gain on investments Class A.......................................... (1,426,673) 0 Class B.......................................... (69,789) 0 Class C.......................................... 0 0 ------------ ------------ (3,325,129) (939,519) ------------ ------------ Increase in net assets derived from capital share transactions................................... 769,007 182,022 ------------ ------------ Total increase (decrease) in net assets.......... (1,400,515) 19,145,786 NET ASSETS Beginning of the period.......................... 110,666,233 109,265,718 ------------ ------------ End of the period................................ $109,265,718 $128,411,504 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME Beginning of the period.......................... $ 9,653 $ 106,169 ============ ============ End of the period................................ $ 106,169 $ 14,221 ============ ============
See accompanying notes to financial statements. 11 FINANCIAL HIGHLIGHTS (unaudited)
CLASS A --------------------------------------------------------- SIX MONTHS YEAR ENDED DECEMBER 31, ENDED --------------------------------------------- JUNE 30, 1990 1991 1992 1993 1994 1995 ------- ------- ------- -------- -------- ---------- Net Asset Value, Beginning of Period.... $ 10.88 $ 9.54 $ 11.79 $ 12.20 $ 12.67 $ 12.41 ------- ------- ------- -------- -------- -------- Income From Investment Operations Net Investment Income... 0.30 0.26 0.23 0.21 0.22 0.10 Net Realized and Unrealized Gain (Loss) on Investments......... (0.76) 2.63 0.86 0.75 (0.10) 2.19 ------- ------- ------- -------- -------- -------- Total From Investment Operations............. (0.46) 2.89 1.09 0.96 0.12 2.29 ------- ------- ------- -------- -------- -------- Less Distributions Dividends From Net Investment Income...... (0.30) (0.26) (0.23) (0.21) (0.21) (0.11) Distributions in Excess of Investment Income... 0.00 0.00 0.00 (0.01) 0.00 0.00 Distributions From Net Realized Capital Gains. (0.56) (0.38) (0.45) (0.27) (0.17) 0.00 Distributions From Paid- in Capital............. (0.02) 0.00 0.00 0.00 0.00 0.00 ------- ------- ------- -------- -------- -------- Total Distributions..... (0.88) (0.64) (0.68) (0.49) (0.38) (0.11) ------- ------- ------- -------- -------- -------- Net Asset Value, End of Period................. $ 9.54 $ 11.79 $ 12.20 $ 12.67 $ 12.41 $ 14.59 ======= ======= ======= ======== ======== ======== Total Return (%)(a)(c).. (4.3) 30.6 9.3 8.0 1.0 18.4 Ratio of Operating Expenses to Average Net Assets (%)............. 1.18 1.23 1.94 1.21 1.28 1.41(b) Ratio of Net Investment Income to Average Net Assets (%)............. 2.92 2.28 1.18 1.70 1.75 1.49(b) Portfolio Turnover Rate (%).................... 6 12 10 4 6 78(b) Net Assets, End of Period (000)........... $55,726 $70,263 $90,945 $109,168 $104,081 $119,946
(a) A sales charge of 5.75% (maximum) was not reflected in total return calculations. (b) Computed on an annnualized basis. (c) Periods less than one year are not annualized. As of January 1, 1993 the Fund discontinued the use of equalization accounting. See accompanying notes to financial statements. 12 FINANCIAL HIGHLIGHTS--Continued (unaudited)
CLASS B CLASS C --------------------------------------- -------- SEPTEMBER 13(A) YEAR SIX MONTHS MAY 1(A) THROUGH ENDED ENDED THROUGH DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, 1993 1994 1995 1995 --------------- ------------ ---------- -------- Net Asset Value, Beginning of Period................. $12.95 $12.66 $12.42 $13.84 ------ ------ ------ ------ Income From Investment Operations Net Investment Income...... 0.06 0.16 0.06 0.03 Net Realized and Unrealized Gain (Loss) on Investments............... 0.01 (0.09) 2.19 0.77 ------ ------ ------ ------ Total From Investment Operations................ 0.07 0.07 2.25 0.80 ------ ------ ------ ------ Less Distributions Dividends From Net Investment Income......... (0.03) (0.14) (0.07) (0.03) Distributions in Excess of Investment Income......... (0.06) 0.00 0.00 0.00 Distributions From Net Realized Capital Gains.... (0.27) (0.17) 0.00 0.00 ------ ------ ------ ------ Total Distributions........ (0.36) (0.31) (0.07) (0.03) ------ ------ ------ ------ Net Asset Value, End of Period.................... $12.66 $12.42 $14.60 $14.61 ====== ====== ====== ====== Total Return (%)(c)........ 0.6 0.6 18.1 5.7 Ratio of Operating Expenses to Average Net Assets (%). 2.08(b) 1.93 2.11(b) 2.11(b) Ratio of Net Investment Income to Average Net Assets (%)................ 0.71(b) 1.10 0.79(b) 0.79(b) Portfolio Turnover Rate (%)....................... 4 6 78(b) 78(b) Net Assets, End of Period (000)..................... $1,498 $5,185 $8,426 $ 40
(a) Commencement of operations. (b) Computed on an annualized basis. (c)Periods less than one year are not annualized. See accompanying notes to financial statements. 13 NOTES TO FINANCIAL STATEMENTS June 30, 1995 (unaudited) 1. The Fund is a series of New England Funds Trust II (the "Trust"), a Massachusetts business trust, registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Declaration of Trust permits the Trustees to issue an unlimited number of shares of the Trust in multiple series (each such series of shares a "Fund"). The Fund offers both Class A and Class B shares. The Fund commenced its public offering of Class B shares on September 13, 1993. Class A shares are sold with a maximum front end sales charge of 5.75%. Class B shares do not pay a front end sales charge, but pay a higher ongoing distribution fee than 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 attributable to their class, if the Fund were liquidated. In addition, the Trustees declare 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. A. SECURITY VALUATION. Equity securities are valued on the basis of valuations furnished by a pricing service, authorized by the Board of Trustees which service provides the last reported sale price for securities listed on an applicable securities exchange or on the NASDAQ national market system, or, if no sale was reported and in the case of over-the-counter securities not so listed, the last reported bid price. Short-term obligations with a remaining maturity of less than sixty days are stated at amortized cost, which approximates value. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are accounted for on the trade date (the date the buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Interest income is increased by the accretion of discount. In determining net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the Internal Revenue Code applicable to regulated investment companies, and to distribute to its shareholders all of its income and any net realized capital gains, at least annually. Accordingly, no provision for federal income tax has been made. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are recorded on the ex-dividend date. The timing and characterization of certain income 14 NOTES TO FINANCIAL STATEMENTS--Continued June 30, 1995 (unaudited) and capital gains distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles. Permanent book and tax basis differences relating to shareholder distributions will result in reclassification to paid in capital. E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of the underlying securities collateralizing repurchase agreements. It is the Fund's policy that the market value of the collateral be at least equal to 100% of the repurchase price. The Fund's sub-adviser 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 six months ended June 30, 1995 were $44,646,536 and $44,895,900, respectively. 3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Effective May 1, 1995 NEFM became the investment adviser to the Fund. Prior to May 1, 1995 Back Bay Advisors was the Fund's investment adviser. During the six months ended June 30, 1995 the Fund operated under two management fee contracts. The Fund incurred management fees payable to Back Bay Advisors, L.P. ("Back Bay Advisors") from January 1 through April 30, 1995 and to New England Funds Management, L.P. ("NEFM") from May 1 through June 30, 1995. Back Bay was paid at the annual rate of 0.500% of the Fund's average daily net assets. ("NEFM") is compensated at the annual rate of 0.70% of the first $200 million of the Fund's average daily net assets 0.65% of the next $300 million of such assets and 0.60% of such assets in excess of $500 million. NEFM pays the Fund's investment subadviser, Westpeak Investment Advisors, L.P. ("Westpeak Advisors") at the rate of 0.35% of the first $200 million of the Fund's average daily net assets and 0.30% of such assets in excess of $200 million. Certain officers and directors of Back Bay Advisors, NEFM, Westpeak Advisors and their affiliated companies are also officers or trustees of the Fund. Back Bay Advisors, NEFM and Westpeak Advisors are each wholly owned subsidiaries of New England Investment Companies, L.P. ("NEIC"), which is a majority owned subsidiary of New England Mutual Life Insurance Company. Fees earned by Back Bay Advisors, NEFM and Westpeak Advisors under the management agreements in effect during the six months ended June 30, 1995 are as follows: 15 NOTES TO FINANCIAL STATEMENTS--Continued June 30, 1995 (unaudited)
FEES EARNED ADVISOR PERIOD ----------- ------- ------ $188,176 Back Bay Advisors, L.P. 1/1 - 4/30/95 60,538 New England Funds Management, L.P. 5/1 - 6/30/95 85,607 Westpeak Advisors, L.P. 5/1 - 6/30/95 -------- $334,321 Total ========
B. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder servicing agent for the Fund. For the six months ended June 30, 1995, the Fund paid New England Funds $91,259 as compensation for its services in that capacity. C. SERVICES AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted Service and Distribution Plans relating to the Fund's Class A and Class B shares (the "Plans"). Under the Plans, the Fund pays New England Funds 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 and Class B shares, as compensation for services provided and expenses (including certain payments to securities dealers who may be affiliated with New England Funds) incurred by New England Funds in providing personal services to investors in Class A and Class B shares and/or the maintenance of shareholder accounts. For the six months ended June 30, 1995, the Fund paid New England Funds $132,266 in service fees under the Plans. Also under the Plans, the Fund pays New England Funds monthly distribution fees at the annual rate of up to 0.10% of the average daily net assets attributable to the Fund's Class A shares and up to 0.75% of the average daily net assets attributable to the Fund's Class B shares, as compensation for services provided and expenses (including certain payments to securities dealers, who may be affiliated with New England Funds) incurred by New England Funds in connection with the marketing or sale of Class A and Class B shares, respectively. For the six months ended June 30, 1995, the Fund paid New England Funds $74,085 in distribution fees under the Plans. Commissions (including contingent deferred sales charges) on Fund shares paid to New England Funds by investors in shares of the Fund during the six months ended June 30, 1995 amounted to $114,551. 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 Retainer $125/year
16 NOTES TO FINANCIAL STATEMENTS--Continued June 30, 1995 (unaudited) A deferred compensation plan is available to the trustees on a voluntary basis. Each participating trustee will receive an amount equal to the value that such deferred compensation would have had, had it been invested in the Fund on the normal payment date. 4. CAPITAL SHARES. At June 30, 1995 there was an unlimited number of shares of beneficial interest authorized. Divided into three classes, Class A, Class B and Class C capital stock. Transactions in capital shares were as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1994 JUNE 30, 1995 ------------------------ --------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ -------- ----------- Shares sold................... 741,304 $ 9,328,786 414,818 $ 5,658,419 Shares issued in connection with the reinvestment of: Dividends from net investment income...................... 108,264 1,344,727 48,636 682,843 Distributions from net realized gain............... 95,270 1,182,298 0 0 ---------- ------------ -------- ----------- 944,838 11,855,811 463,454 6,341,262 Shares repurchased............ (1,175,898) (14,830,647) (623,161) (8,388,417) ---------- ------------ -------- ----------- Net increase (decrease)....... (231,060) (2,974,836) (159,707) (2,047,155) ---------- ------------ -------- ----------- YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1994 JUNE 30, 1995 ------------------------ --------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ -------- ----------- Shares sold................... 324,614 4,082,014 179,333 2,433,298 Shares issued in connection with the reinvestment of: Dividends from net investment income...................... 3,181 39,511 2,421 34,053 Distributions from net realized gain............... 5,447 67,595 0 0 ---------- ------------ -------- ----------- 333,242 4,189,120 181,754 2,467,351 Shares repurchased............ (34,082) (445,277) (22,093) (276,232) ---------- ------------ -------- ----------- Net increase (decrease)....... 299,160 3,743,843 159,661 2,191,119 ---------- ------------ -------- ----------- SIX MONTHS ENDED JUNE 30, 1995 --------------------- CLASS C SHARES AMOUNT ------- -------- ----------- Shares sold................... 2,704 37,972 Shares issued in connection with the reinvestment of: Dividends from net investment income...................... 6 86 Distributions from net realized gain............... 0 0 -------- ----------- 2,710 38,058 Shares repurchased............ 0 0 -------- ----------- Net increase (decrease)....... 2,710 38,058 ---------- ------------ -------- ----------- Increase derived from capital shares transactions.......... 68,100 $ 769,007 2,664 $ 182,022 ========== ============ ======== ===========
17 As a New England Funds stock fund shareholder, it's important that you're kept up-to-date on all changes to the stock funds prospectus. Since there's been a change in management for New England Star Advisers Fund, we've included a copy of the supplement to the prospectus below. NEW ENGLAND FUNDS TRUST I NEW ENGLAND STAR ADVISERS FUND Supplement dated July 13, 1995 to New England Star Advisers Fund Prospectus dated May 1, 1995 and New England Stock Funds Prospectus dated May 1, 1995 The following information reflects changes in the investment management and policies of the Loomis, Sayles & Company, L.P. ("Loomis Sayles") segment of New England Star Advisers Fund (the "Fund"): ^ Jeffrey C. Petherick, Vice President of Loomis Sayles and New England Funds Trust I, and Mary Champagne, Vice President of Loomis Sayles, have day-to-day management responsibility for the segment of the Fund that is allocated to Loomis Sayles. Mr. Petherick has co-managed the Loomis Sayles segment of the Fund since the Fund's inception. Mr. Petherick was an investment manager at Masco Corporation prior to joining Loomis Sayles in 1990. Ms. Champagne has co-managed the Loomis Sayles segment of the Fund since July 1995. Prior to joining Loomis Sayles in 1993, Ms. Champagne served as a portfolio manager at NBD Bank for 10 years. ^ Loomis Sayles manages its segment of the portfolio by investing primarily in stocks of small cap companies with good earnings growth potential, that Loomis Sayles believes are undervalued by the market. Typically, such companies range in size from $100 million to $500 million in market capitalization, have better than average growth rates at below average price/earnings ratios and have strong balance sheets and cash flow. Loomis Sayles seeks to build a core small cap portfolio of solid growth companies' stock, with a smaller emphasis on special situations and turnarounds (companies that have experienced significant business problems but which Loomis Sayles believes have favorable prospects for recovery), as well as unrecognized stocks. 18 ------------------------------------------------------------------------------- REGULAR INVESTING PAYS -------------------------------------------------------------------------------- Five Good Reasons to Invest Regularly 1. It's an easy way to build assets 2. It's convenient and effortless 3. It requires a low minimum to get started 4. It can help you reach important long-term goals like retirement or college funding 5. It can help you benefit from the ups and downs of the market With Investment Builder, New England Funds' automatic investment program, you can invest as little as $50 a month in your New England Fund automatically -- without even writing a check. And, as you can see from the chart below, your monthly investments can really add up over time. -------------------------------------------------------------------------------- The Power of Monthly Investing -------------------------------------------------------------------------------- A line graph appears here, illustrating the hypothetical accumulation of monthly investments at an 8% annual rate of return. The data points of the graph are as follows: Monthly investments of $50:
Years Growth of Monthly Investments ----- ----------------------------- 0 $0 5 $3,661 10 $9,040 15 $16,943 20 $28,555 25 $45,618
Monthly investments of $100:
Years Growth of Monthly Investments ----- ----------------------------- 0 $0 5 $7,322 10 $18,079 15 $33,886 20 $57,111 25 $91,236
Monthly investments of $200:
Years Growth of Monthly Investments ----- ----------------------------- 0 $0 5 $14,643 10 $36,158 15 $67,772 20 $114,222 25 $182,472
Monthly investments of $500:
Years Growth of Monthly Investments ----- ----------------------------- 0 $0 5 $36,608 10 $90,396 15 $169,429 20 $285,555 25 $456,181
For illustrative purposes only. These figures represent hypothetical accumulation at an 8% annual rate of return, and are not indicative of future performance of any New England Fund. The value of a New England Fund will fluctuate with changing market conditions. This program cannot assure a profit nor protect against a loss in a declining market. It does, however, ensure that you buy more shares when the price is low and fewer shares when the price is high. You can start an Investment Builder program with your current New England Fund account, or with any of our other funds. To open an Investment Builder account today, call your financial representative or New England Funds at 1-800-225-5478. 19 ------------------------------------------------------------------------------- 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 investing at age 30 for 10 years:
Age Growth of Investments --- --------------------- 30 $2,000 35 $15,431 40 $35,062 45 $56,468 50 $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. 20 -------------------------------------------------------------------------------- New England Funds -------------------------------------------------------------------------------- Stock Funds International Equity 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 Tax Exempt 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 ------------------------- 399 Boylston Street Boston, Massachusetts 02116 ------------------------- 95-0757 (GP58) [LOGO OF RECYCLED PAPER APPEARS HERE]