0000950135-95-001918.txt : 19950915
0000950135-95-001918.hdr.sgml : 19950915
ACCESSION NUMBER: 0000950135-95-001918
CONFORMED SUBMISSION TYPE: N-30D
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950914
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: 95573950
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
N.E. INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
1
[LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
----------------------------------------
SEMIANNUAL REPORT AND PERFORMANCE UPDATE
----------------------------------------
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND OF
NEW YORK
[ARTWORK APPEARS HERE]
JUNE 30, 1995
2
July 20, 1995
DEAR SHAREHOLDER:
We have good news to present in this Semiannual Report for New England
Intermediate Term Tax Free Fund of New York, 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 500Registration Mark 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
3
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
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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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 a ffect 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.
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A $10,000 INVESTMENT IN CLASS A SHARES
-----------------------------------------------------------------------------
COMPARED TO LEHMAN MUNICIPAL INDEX(4) AND THE COST OF LIVING(5)
A chart in the form of a line graph appears here, illustrating the growth of
a $10,000 investment in Class A Shares compared to Lehman Municipal
Index(4) and the Cost of Living(5). The data points from the graph are as
follows:
New England Intermediate Term Tax Free Fund of New York - Net Asset Value(1)
Year Amount
4/23/93 $10,000
6/93 $10,256
6/94 $10,387
6/95 $11,039
New England Intermediate Term Tax Free Fund of New York - With Maximum
Sales Charge(2)
Year Amount
4/23/93 $ 9,750
6/93 $10,000
6/94 $10,128
6/95 $10,763
Lehman Municipal Index(4)
Year Amount
4/23/93 $10,000
6/93 $10,224
6/94 $10,244
6/95 $11,145
Cost of Living(5)
Year Amount
4/23/93 $10,000
6/93 $10,028
6/94 $10,243
6/95 $10,534
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B share performance
will be greater or less than that shown based on differences in inception
date, fees and sales charges. All Index and Fund performance assumes
reinvested distributions.
1
5
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 6/30/95*
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CLASS A (INCEPTION 4/23/93) YEAR TO DATE 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Net Asset Value(1) 7.12% 6.27% 4.61%
With Max. Sales Charge(2) 4.48 3.58 3.43
Lipper NY Municipal Average(6) 7.14 6.20 4.21
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CLASS B (Inception 9/13/93) YEAR TO DATE 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Net Asset Value(1) 6.58% 5.35% 1.06%
With CDSC(3) 2.61 1.35 -0.49
Lehman Municipal Index(4) 9.65 8.79 3.00
Lipper NY Municipal Average(6) 7.14 6.20 n/a
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6/30/95 YIELDS* CLASS A CLASS B
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SEC 30-day Yield 4.93% 4.31%
NY State Taxable Equivalent Yield 8.83 7.72
NY City Taxable Equivalent Yield 9.28 8.11
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SEC Yield is based on the Fund's net investment income over a 30-day period
and is calculated in accordance with Securities and Exchange Commission
guidelines. Taxable equivalent yields are based on the maximum combined
federal and New York state income tax bracket of 44.19% or the combined
Federal, New York State and New York City income tax bracket of 46.88%.
The alternative minimum tax and some federal and state taxes may apply.
* These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 2.5% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(4) Lehman Municipal Index is an unmanaged index of bonds issued by states,
municipalities and other governmental entities having maturities of more
than one year. The Index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, as
calculated by the U.S. Bureau of Labor Statistics.
(6) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives
as calculated by Lipper Analytical Services, an independent mutual fund
ranking service.
2
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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[PHOTO] NEW ENGLAND INTERMEDIATE TERM
TAX FREE FUND OF NEW YORK
Portfolio Manager: James Welch
Back Bay Advisors, L.P. [Registration Mark]
Buoyed by falling interest rates and diminishing inflation
concerns, the stock and bond markets shook off their memories of
1994, and greeted the new year with an enthusiastic rally. But
for municipal bonds, the market's upbeat mood was akin to being
invited to a dinner party, and being offered only part of
the meal. Although munis led the rally in the first three months
of 1995, they lost momentum in the second quarter, as investors
were deterred from tax-exempt investing by the stock market's
strength and widespread talk of tax reform.
How Your Fund Performed
Despite the twists and turns in the municipal bond market, your
Fund's performance was excellent, thanks in a large measure to
foresight on our part. Unlike most municipal bond fund managers,
who were caught off guard by the 1995 rally and missed some of
its early force, we anticipated the upturn months in advance and
positioned the portfolio to benefit from falling yields and
rising prices. This preemptive action helped generate a 4.99%
total return for just the first three months of 1995. Despite
the slowdown in the second quarter, the Fund's total return, at
net asset value, for the first six months of 1995 was 7.12%,
tracking the Lipper New York Municipal Average6 of 7.14% over
the same period.
3
7
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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We are pleased to report that your Fund generated a high level
of current tax-free income over the six-month period. On June
30, the Fund's 30-day SEC yield was 4.93% for Class A shares,
which is equivalent to an 8.83% taxable yield for New York State
taxpayers in the combined maximum federal and state tax bracket
of 44.19%.* For residents of New York City in the maximum
combined tax bracket of 46.88%, the Fund's 30-day SEC-yield
translates into a 9.28% taxable equivalent yield.
How We Managed Your Fund
The New York State government has markedly improved its
financial management, and we are confident about the quality
of the State's debt. Consequently, we have been buying state
general obligation bonds and state agency bonds, which are
high-quality, liquid positions. We continue to invest in
essential-purpose revenue bonds, such as water, sewer, and
transportation issues. However, we are cautious about the
economic situation in New York City and have significantly
reduced New York City holdings. Our City exposure is defensive,
limited to high-coupon bonds, which tend to perform well in
volatile markets. We also drastically reduced our health care
holdings in New York because of the uncertain future of Medicare
and Medicaid. Our overall focus is on high-quality issues
because they are now in plentiful supply and are liquid.
Moreover, there's not enough yield incentive in lower-rated
bonds to assume added risk. Mindful of your objective to reduce
taxes, we have minimal exposure to bonds that are subject to
alternative minimum tax (AMT).
* The alternative minimum tax and some federal and state taxes
may apply.
4
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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To allow your Fund to benefit from what we believe is a
favorable bond market environment, we have positioned the
portfolio's duration at around 5.8 years. Duration is a measure
of the fund's sensitivity to interest-rate moves. The New
England Intermediate Term Tax Free Fund of New Yorkshorter the
duration, the less volatility you can expect from the portfolio.
Outlook for the Municipal Market
The current economic and business climate bodes well for the
overall bond market, and we believe municipal bonds are poised
to regain investors' favor over the next several months. First,
the Federal Reserve Board piloted the economy into a "soft
landing," which resulted in a slowing economy and diminished
inflation concerns. Second, our predictions of diminishing
municipal bond supply are materializing. In New York State,
actual supply has dropped 36% so far this year, and in New
York City, the drop-off has been 43%. Overall, new issues in
1995 are projected to be less than half of the issuance in
1993.* The scarcity is being felt mid-year, as billions of
dollars in municipal bonds are due to be redeemed early by their
issuers. Finally, municipals currently offer exceptional value
relative to Treasury bonds, with some tax-exempt yields as high
as 90% of taxable yields creating buying opportunities for
taxpayers.**
A spate of recent economic reports has indicated the early onset
of an economic slowdown, which prompted the Federal Reserve
Board in early July to make its first
* Source: BusinessWeek, June 19, 1995.
** Source: Wall Street Journal, June 15, 1995.
5
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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rate cut in three years, in an effort to stave off a recession.
In our opinion, the chances of recession this year are slim. So
far the economic softness has been concentrated in certain
industries. Much of the economy is perking along nicely, with
powerful support from stock and bond market rallies, the decline
in long-term interest rates, and the export-enhancing weakness
of the dollar.
We think the talk of tax reform that has unsettled the
municipal market during the broader bond rally is creating
premature concern. Overhauling our current tax system is a
monumental task that could take years. In the meantime, we are
finding solid buying opportunities and we remain optimistic on
the long-term outlook for the New York municipal market.
6
10
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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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.
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[LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
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PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
----------------------------------------------------------
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND
OF NEW YORK
-------------
JUNE 30, 1995
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12
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--96.9% OF TOTAL NET ASSETS
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------------
NEW YORK--80.1%
$ 750,000 Hempstead Town Industrial Dev. Agency,
7.400%, 12/01/10........................... Baa1 A- $ 784,176
700,000 Metropolitan Transportation Authority,
6.800%, 07/01/04........................... Baa1 BBB 746,529
1,160,000 New York, 8.400%, 11/15/08................... Baa1 A- 1,315,150
500,000 New York City Municipal Water, 7.000%,
6/15/09.................................... A A- 548,625
1,000,000 New York State Certificates, 6.000%,
09/01/98................................... Baa1 BBB 1,033,760
270,000 New York State Dorm. Authority, 6.900%,
5/15/99.................................... Baa1 BBB+ 284,680
700,000 New York State Dorm. Authority, 7.750%,
07/01/02................................... Baa1 BBB 777,574
700,000 New York State Dorm. Authority,
5.500%, 07/01/03 (FGIC).................... Aaa AAA 714,490
700,000 New York State Dorm. Authority,
5.100%, 05/15/04........................... Baa1 BBB+ 677,187
500,000 New York State Dorm. Authority,
5.750%, 07/01/07........................... Baa1 BBB 486,920
600,000 New York State Dorm. Authority, 5.500%,
05/15/10................................... Baa1 BBB+ 553,524
500,000 New York State Housing Finance Agency,
5.750%, 03/15/05........................... Baa1 BBB 497,750
500,000 New York State Local Government Assistance,
7.250%, 04/01/07........................... A A 551,630
500,000 New York State Medical Care Facilities,
5.250%, 08/15/08 (FSA)..................... Aaa AAA 485,675
500,000 New York State Power Authority, 5.000%,
01/01/07................................... Aa AA- 476,865
750,000 New York State Urban Development Corp.,
5.100%, 01/01/01........................... Baa1 BBB 738,383
650,000 New York State Urban Development Corp.,
5.700%, 04/01/05........................... Baa1 BBB 643,247
500,000 Niagara Falls, NY Bridge Commission,
5.125%, 10/01/08 (FGIC).................... Aaa AAA 480,215
560,000 Oneida Herkimer, 6.600%, 04/01/04............ Baa BBB 582,904
500,000 Oneida Herkimer, 6.650%, 04/01/05............ Baa BBB 519,900
300,000 Rensselaer County, NY, 5.400%, 05/01/09
(FGIC)..................................... Aaa AAA 293,688
500,000 Triborough Bridge and Tunnel Authority,
5.000%, 01/01/12........................... Aa A+ 453,455
500,000 Yonkers, NY, 6.000%, 08/01/03 (AMBAC)........ Aaa AAA 538,000
-----------
14,184,327
-----------
See accompanying notes to financial statements.
2
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PORTFOLIO COMPOSITION--CONTINUED
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Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--CONTINUED
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------------
OTHER OBLIGATIONS -- 16.8%
$ 700,000 Guam Airport Authority, 6.600%, 10/01/10..... NR BBB $ 701,967
1,000,000 Puerto Rico Highway & Transportation Auth.,
7.162%, 07/01/04........................... Baa1 A 995,930
500,000 Puerto Rico Electric Power Authority,
5.900%, 07/01/03........................... Baa1 A- 511,480
250,000 Puerto Rico Electric Power Authority,
5.000%, 07/01/12........................... Baa1 A- 221,403
500,000 Virgin Islands Public Finance Authority,
7.700%, 10/01/04........................... NR BBB 546,960
-----------
2,977,740
-----------
Total Tax Exempt Bonds
(Identified Cost $16,955,078).............. 17,162,067
-----------
SHORT-TERM INVESTMENTS--1.1% OF TOTAL NET ASSETS
100,000 New York State Energy Resources Floating Rate
4.500%(d).................................. 100,000
100,000 New York State Energy Resources Floating Rate
4.500%(d).................................. 100,000
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Total Short-Term Investments
(Identified Cost $200,000)................. 200,000
-----------
Total Investments--98.0%
(Identified Cost $17,155,078)(b)........... 17,362,067
Receivables.................................. 538,577
Liabilities.................................. (194,888)
-----------
Total Net Assets--100%....................... $17,705,756
===========
(a) See Note 1a.
(b) Federal Tax Information: At June 30, 1995 the net unrealized
appreciation on investments based on cost of $17,155,078 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........................... $ 294,047
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value........................... (87,058)
-----------
Net unrealized appreciation......................................... $ 206,989
===========
See accompanying notes to financial statements.
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PORTFOLIO COMPOSITION--CONTINUED
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Investments as of June 30, 1995
(unaudited)
As of December 31, 1994, the Fund had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002 $988,909
(c) The ratings shown are believed to be the most recent ratings
available at June 30, 1995. Securities are generally rated at the
time of issuance. The rating agencies may revise their ratings from
time to time. As a result there can be no assurance that the same
ratings would be assigned if the securities were rated at June 30,
1995. The Fund's adviser independently evaluates the Fund's
portfolio securities and in making investment decisions does not
rely solely on the ratings of agencies.
(d) Floating rate notes are instruments whose interest rates vary with
changes in a designated base rate (such as the prime interest rate)
on a specified date (such as coupon date or interest payment date).
These instruments are payable on demand and are secured by letters
of credit or other credit support agreements from major banks.
See accompanying notes to financial statements.
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STATEMENT OF ASSETS & LIABILITIES
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June 30, 1995
(unaudited)
ASSETS
Investments at value........................................ $17,362,067
Cash........................................................ 52,561
Receivable for:
Fund shares sold.......................................... 67,215
Due from investment adviser............................... 69,809
Accrued interest.......................................... 325,406
Unamortized organization expense............................ 23,586
-----------
17,900,644
LIABILITIES
Payable for:
Fund shares redeemed...................................... $134,817
Dividends declared........................................ 26,143
Accrued expenses:
Deferred trustees' fees................................... 814
Other expenses............................................ 33,114
--------
194,888
-----------
NET ASSETS.................................................... $17,705,756
===========
Net Assets consist of:
Capital paid in........................................... $18,424,313
Distributions in excess of net investment income.......... (5,687)
Accumulated net realized losses........................... (919,859)
Unrealized appreciation on investments.................... 206,989
-----------
NET ASSETS.................................................... $17,705,756
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($16,256,850 divided by 2,205,943 shares of beneficial
interest)................................................... $7.37
=====
Offering price per share (100/97.5 of $7.37).................. $7.56*
=====
Net asset value and offering price of Class B shares
($1,448,906 divided by 196,988 shares of beneficial
interest)................................................... $7.36**
=====
Identified cost of investments................................ $17,155,078
===========
* Based upon single purchases of less than $100,000. Reduced sales charges
apply for purchases in excess of this amount.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
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STATEMENT OF OPERATIONS
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Six Months Ended June 30, 1995
(unaudited)
INVESTMENT INCOME
Interest..................................................... $ 513,485
Expenses
Management fees............................................ $ 34,633
Service fees--Class A...................................... 20,099
Service and distribution fees--Class B..................... 6,188
Trustees' fees and expenses................................ 6,969
Administrative Services.................................... 10,823
Custodian.................................................. 30,789
Transfer agent............................................. 18,478
Audit and tax services..................................... 7,000
Legal...................................................... 12,993
Printing................................................... 12,838
Registration............................................... 14,932
Amortization of organization expenses...................... 1,611
Miscellaneous.............................................. 3,162
---------
180,515
Less expenses waived by the investment adviser and
distributor.............................................. (115,265) 65,250
--------- ----------
Net investment income........................................ 448,235
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS AND
FUTURES CONTRACTS
Realized gain (loss) on:
Investments--net............................................. 233,530
Futures contracts closed--net................................ (182,544)
Options closed--net.......................................... 13,325
---------
Total realized gain on investment transactions............. 64,311
---------
Unrealized appreciation (depreciation) on:
Investments--net............................................. 670,047
Futures contracts--net....................................... 6,354
Options--net................................................. (1,615)
---------
Total unrealized appreciation on investment transactions... 674,786
---------
Net gain on investment transactions.......................... 739,097
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $1,187,332
==========
See accompanying notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------
(unaudited)
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1994 1995
----------- --------------
FROM OPERATIONS
Net investment income..................................... $ 1,044,073 $ 448,235
Net realized gain (loss) on investment transactions....... (982,288) 64,311
Unrealized appreciation (depreciation) on investments..... (973,749) 674,786
----------- -----------
Increase (decrease) in net assets from operations......... (911,964) 1,187,332
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A................................................. (1,016,583) (434,420)
Class B................................................. (47,452) (28,645)
----------- -----------
(1,064,035) (463,065)
----------- -----------
Decrease from capital share transactions.................. (2,674,079) (45,241)
----------- -----------
Total increase (decrease) in net assets................... (4,650,078) 679,026
NET ASSETS
Beginning of the period................................... 21,676,808 17,026,730
----------- -----------
End of the period......................................... $17,026,730 $17,705,756
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period................................... $ 11,923 $ 9,143
=========== ===========
End of the period......................................... $ 9,143 $ (5,687)
=========== ===========
See accompanying notes to financial statements.
7
18
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FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------
(unaudited)
CLASS A
----------------------------
APRIL 23,(A) SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
------------ ------------ ----------
Net Asset Value, Beginning of Period............ $ 7.50 $ 7.76 $ 7.07
-------- -------- --------
Income From Investment Operations
Net Investment Income........................... 0.26 0.37 0.19
Net Realized and Unrealized Gain (Loss)
on Investments................................ 0.29 (0.68) 0.31
-------- -------- --------
Total From Investment Operations................ 0.55 (0.31) 0.50
-------- -------- --------
Less Distributions
Distributions From Net Investment Income........ (0.25) (0.38) (0.20)
Distributions From Net Realized Capital Gains... (0.04) 0.00 0.00
-------- -------- --------
Total Distributions............................. (0.29) (0.38) (0.20)
-------- -------- --------
Net Asset Value, End of Period.................. $ 7.76 $ 7.07 $ 7.37
======== ======== ========
Total Return (%)(d)............................. 7.4 (4.1) 7.1
Ratio of Operating Expenses to
Average Net Assets (%)(b)..................... 0.70(c) 0.70 0.70(c)
Ratio of Net Investment Income to
Average Net Assets (%)........................ 4.88(c) 5.13 5.53(c)
Portfolio Turnover Rate (%)..................... 121(c) 219 168(c)
Net Assets, End of Period (000)................. $ 21,122 $ 15,875 $ 16,257
(a) Commencement of operations.
(b) Commencing April 23, 1993 expenses were voluntarily limited to 0.70% of Class A average net assets.
See Note 4. The ratio of operating expenses to average net assets without giving effect to this expense
limitation would have been 2.11% (annualized) for the period ended December 31, 1993, 1.79% for the
year ended December 31, 1994 and 2.03% for the six months ended June 30, 1995.
(c) Computed on an annualized basis.
(d) A sales charge of 2.50% (maximum) was not reflected in total return calculations. Periods less than one
year are not annualized.
See accompanying notes to financial statements.
8
19
-----------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED
-----------------------------------------------------------------------------------------------
(unaudited)
CLASS B
--------------------------------
SEPTEMBER 13,(A) SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
---------------- ------------ ----------
Net Asset Value, Beginning of Period......... $ 7.85 $ 7.76 $ 7.06
------ ------ ------
Income From Investment Operations
Net Investment Income........................ 0.10 0.32 0.16
Net Realized and Unrealized Gain (Loss)
on Investments............................. (0.05) (0.69) 0.31
------ ------ ------
Total From Investment Operations............. 0.05 (0.37) 0.47
------ ------ ------
Less Distributions
Distributions From Net Investment Income..... (0.10) (0.33) (0.17)
Distributions From Net Realized Capital
Gains...................................... (0.04) 0.00 0.00
------ ------ ------
Total Distributions.......................... (0.14) (0.33) (0.17)
------ ------ ------
Net Asset Value, End of Period............... $ 7.76 $ 7.06 $ 7.36
====== ====== ======
Total Return (%)(d).......................... 0.5 (4.9) 6.6
Ratio of Operating Expenses to
Average Net Assets (%)(b).................. 1.45(c) 1.45 1.45(c)
Ratio of Net Investment Income to
Average Net Assets (%)..................... 3.68(c) 4.38 4.78(c)
Portfolio Turnover Rate (%).................. 121(c) 219 168(c)
Net Assets, End of Period (000).............. $ 555 $1,152 $1,449
(a) Commencement of operations.
(b) Commencing September 13, 1993 expenses were voluntarily limited to 1.45% of Class B average net assets.
See Note 4. The ratio of operating expenses to average net assets without giving effect to this expense
limitation would have been 2.86% (annualized) for the period ended December 31, 1993, 2.54% for the year
ended December 31, 1994, and 2.78% for the six months ended June 30, 1995.
(c) Computed on an annualized basis.
(d) Periods less than one year are not annualized.
See accompanying notes to financial statements.
9
20
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NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
1. The Fund is a series of New England Funds Trust II, a Massachusetts business
trust (the "Trust"), which is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company.
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of the Trust in multiple series (each series of shares a "Fund").
The Fund offers both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on September 13, 1993. Class A shares are sold with a
maximum front end sales charge of 2.50%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares, 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. The Fund's investment adviser, Back Bay Advisors, L.P.
("Back Bay Advisors"), under the supervision of the Fund's trustees, determines
the value of the Fund's portfolio of securities, using valuations provided by a
pricing service selected by Back Bay Advisors and other information with respect
to transactions in securities, including quotations from securities dealers.
Valuations of securities and other assets owned by the Fund for which market
quotations are readily available are based on those quotations. Short-term
obligations that will mature in 60 days or less are stated at amortized cost,
which, when combined with accrued interest or discount earned, approximates
market value. All other securities and assets are valued at their fair value as
determined in good faith by Back Bay Advisors under the supervision of the
Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income is increased by the accretion of
original issue discount. Interest income is reduced by the amortization of
premium. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
10
21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
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 future, buying puts, and
writing calls tend to decrease the Fund's exposure to the underlying instrument,
or hedge other Fund investments. When a Fund writes a call or put option, an
amount equal to the premium received by the Fund is included in the fund's
statement of assets and liabilities as an asset and as an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. The current value of a written
option is the closing price on the principal exchange on which such option is
traded. If an option which the Fund has written either expires on its stipulated
expiration date, or if the Fund enters into a closing purchase transaction, the
Fund realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a put option which the Fund has written is exercised,
the amount of the premium originally received will reduce the cost of the
security which the Fund purchases upon exercise of the option.
The premium paid by a Fund for the purchase of a call or a put option is
included in the asset section of the Fund's statement of assets and liabilities
as an investment and subsequently adjusted to the current market value of the
option. The current value of a purchased option is the closing price on the
principal exchange on which such option is traded. If an option which the Fund
has purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount of the cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gain or loss, depending on whether the
sales proceeds from the closing sale transaction are greater or less than the
cost of the option it will realize a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the cost
of the security which the fund purchases upon exercise will be increased by the
premium originally paid.
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into interest rate futures contracts to hedge against changes
in the values of tax exempt municipal securities the Fund owns or expects to
purchase. An interest rate futures contract is an agreement between two parties
to buy and sell a security for a set price (or to deliver an amount of cash) on
a future date. Upon entering into such a contract, the purchasing Fund is
required to pledge to the broker
11
22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
an amount of cash, U.S. Government securities or other high quality debt
securities equal to the minimum "initial margin" requirements of the exchange,
currently up to $3,000 per contract. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
"variation margin," and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
The potential risk to the Fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in the value of the hedged instruments. In addition,
there is a risk that the fund may not be able to close out its futures positions
due to an illiquid secondary market.
The risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price decreases and the option is exercised. In
addition, there is the risk the fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record at the time and are paid monthly.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
relate primarily to market discount. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassification to paid in
capital.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors is responsible for determining that
the value of the collateral is at all times at least equal to the repurchase
price. Repurchase agreements could involve certain risks in the event of default
or insolvency of the other party including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
12
23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
G. ORGANIZATION EXPENSE. Costs incurred in 1993 in connection with the Fund's
organization and initial registration amounted to $27,000 and were paid by the
Fund. These costs are being amortized over 60 months beginning April 23, 1993.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1995 were $14,072,674 and $14,275,195,
respectively.
Investments in written options and futures contracts for the Fund for the six
months ended June 30, 1995 are summarized as follows:
SALES OF FUTURES CONTRACTS
---------------------------------------------
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ----------------------
Open 12/31/94.......................... 40 $ 3,997,396
Contracts opened....................... 120 12,443,758
Contracts closed....................... (160) (16,441,154)
------ ------------
Open at June 30, 1995.................. 0 $ 0
====== ============
WRITTEN OPTIONS
--------------------------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
------------------ ----------------------
Open 12/31/94.......................... 40 $ 10,990
Contracts opened....................... 115 40,699
Contracts closed....................... (155) (51,689)
------ ----------
Open at June 30, 1995.................. 0 $ 0
====== ==========
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the six
months ended June 30, 1995, the Fund incurred management fees payable to its
investment adviser, Back Bay Advisors. Certain officers and directors of the
adviser are also officers or trustees of the Trust. Back Bay Advisors is a
wholly owned subsidiary of New England Investment Companies L.P., which is a
majority owned subsidiary of New England Mutual Life Insurance Company ("NEIC").
The management agreement in effect during the six months ended June 30, 1995
provided for fees as set forth below:
FEES EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
----------- ---------------------- -----------------------------
$34,633 (a) 0.400% the first $200 million
0.375% the next $300 million
0.350% the excess over $500 million
(a) Before reduction pursuant to voluntary expense limitations. See Note 4.
13
24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
B. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Fund has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and a Service and Distribution Plan relating to the Fund's Class
B shares (the "Class B Plan").
Under the Class A Plan, the Fund pays New England Funds, L.P. ("New England
Funds") a monthly service fee at the annual rate of up to 0.25% of the average
daily net assets attributable to the Fund's Class A shares, as reimbursement for
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class A shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 1995, the Fund paid New
England Funds $20,099 in fees under the Class A Plan. If the expenses of New
England Funds that are otherwise reimbursable under the Class A Plan incurred in
any year exceed the amounts payable by the Fund under the Class A Plan, the
unreimbursed amount (together with unreimbursed amounts from prior years) may be
carried forward for reimbursement in future years in which the Class A Plan
remains in effect. The amount of unreimbursed expenses carried forward into 1995
is $222,162.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class B shares, as compensation for services provided and expenses
(including certain payments to securities dealers, who may be affiliated with
New England Funds) incurred by New England Funds in providing personal services
to investors in Class B shares and/or the maintenance of shareholder accounts.
For the six months ended June 30, 1995, the Fund paid New England Funds $1,547
in service fees under the Class B Plan.
Also under the Class B Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.75% of the average daily net
assets attributable to the Fund's Class B shares, as compensation for services
provided and expenses (including certain payments to securities dealers, who may
be affiliated with New England Funds) incurred by New England Funds in
connection with the marketing or sale of Class B shares. For the six months
ended June 30, 1995, the Fund paid New England Funds $4,641 in distribution fees
under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors of shares of the Fund during the six months ended
June 30, 1995 amounted to $20,668.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent to the Fund. For the six months ended June 30, 1995, the Fund
paid New England Funds $18,478 as compensation for its services in that
capacity.
14
25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
D. ADMINISTRATIVE SERVICES FEE. New England Funds provides the Fund with office
space, facilities and equipment services of executive and other personnel and
certain administrative services all under an Administrative Services Agreement.
Under this agreement the Fund pays New England Funds a fee at the annual rate of
0.125% of the Fund's average daily net assets. New England Funds waived its
entire fee of $10,823 for the six months ended June 30, 1995 because total Fund
expenses exceeded the Fund's voluntary expense limitation. See Note 4.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of Back Bay
Advisors, New England Funds, New England Investment Companies or their
affiliates, other than registered investment companies. Each other trustee is
compensated by the Fund as follows:
Annual Retainer $800
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Retainer $125/year
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have had, had it been invested in the Fund on the
normal payment date.
4. EXPENSE LIMITATIONS. Commencing April 23, 1993 and until further notice to
the Fund, Back Bay Advisors and New England Funds have voluntarily agreed to
reduce management and administrative services fees in order to limit the Fund's
expenses to an annual rate of 0.70% of the Fund's Class A average daily net
assets and effective September 13, 1993, 1.45% of Class B average daily net
assets. As a result of the Fund's expenses exceeding the foregoing voluntary
limitation during the six months ended June 30, 1995 Back Bay Advisors waived
its entire management fee of $34,633 and New England Funds waived its entire
administrative services fee of $10,823.
5. CONCENTRATION OF CREDIT. The Fund primarily invests in debt obligations
issued by the State of New York and its political subdivisions, agencies and
public authorities to obtain funds for various public purposes. The Fund is more
susceptible to factors adversely affecting issuers of New York municipal
securities than is a comparable municipal bond fund that is not as concentrated.
Uncertain economic and fiscal conditions may affect the ability of issuers of
New York municipal securities to meet their financial obligations.
15
26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
6. CAPITAL SHARES. At June 30, 1995 there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, Class A and Class B
capital stock. Transactions in capital shares were as follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31,1994 JUNE 30, 1995
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----- ---------- ----------- ---------- -----------
Shares sold......................... 757,009 $ 5,624,518 163,732 $ 1,199,373
Shares issued in connection with
the reinvestment of:
Distributions from net investment
income.......................... 68,560 502,549 38,280 280,433
---------- ----------- ---------- -----------
825,569 6,127,067 202,012 1,479,806
Shares redeemed..................... (1,300,616) (9,499,367) (242,684) $(1,770,000)
---------- ----------- ---------- -----------
Net decrease........................ (475,047) $(3,372,300) (40,672) $ (290,194)
========== =========== ========== ===========
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------------- --------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
----- -------- ----------- ------- ---------
Shares sold.............................. 112,717 $ 850,564 46,465 $ 336,352
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income............................... 4,774 34,778 2,949 21,557
-------- ----------- ------- ---------
117,491 885,342 49,414 357,909
Shares redeemed.......................... (25,760) (187,121) (15,677) (112,956)
-------- ----------- ------- ---------
Net increase............................. 91,731 $ 698,221 33,737 $ 244,953
======== =========== ======= =========
Total decrease from capital
share transactions..................... (383,316) $(2,674,079) (6,935) $ (45,241)
======== =========== ======= =========
16
27
--------------------------------------------------------------------------------
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.
28
-------------------
399 Boylston Street
Boston, Massachusetts
02116
-------------------
95-0768 (NY58)
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