0000950135-95-001937.txt : 19950919
0000950135-95-001937.hdr.sgml : 19950919
ACCESSION NUMBER: 0000950135-95-001937
CONFORMED SUBMISSION TYPE: N-30D
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950918
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: 95574545
BUSINESS ADDRESS:
STREET 1: 399 BOYLSTON ST
STREET 2: 4TH FLOOR
CITY: BOSTON
STATE: MA
ZIP: 02116
BUSINESS PHONE: 8002831155
MAIL ADDRESS:
STREET 1: 399 BOYLSTON STREET
STREET 2: 4TH FLOOR
CITY: BOSTON
STATE: MA
ZIP: 02116
FORMER COMPANY:
FORMER CONFORMED NAME: INVESTMENT TRUST OF BOSTON FUNDS
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: WORLD INVESTMENT TRUST
DATE OF NAME CHANGE: 19680529
N-30D
1
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
1
[NEW ENGLAND LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
SEMIANNUAL REPORT AND PERFORMANCE UPDATE
NEW ENGLAND
ADJUSTABLE RATE
U.S. GOVERNMENT FUND
[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
Adjustable Rate U.S. Government 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
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
4
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT 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 LEHMAN ADJUSTABLE RATE MORTGAGE INDEX (ARM)(4)
AND THE COST OF LIVING(5)
A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Lehman Adjustable Rate
Mortgage Index (ARM)(4) and the Cost of Living(5). The data points from the
graph are as follows:
New England Adjustable Rate U.S. Government Fund--Net Asset Value(1)
Year Amount
---- ------
12/91 $10,000
6/92 $10,282
6/93 $10,789
6/94 $10,936
6/95 $11,588
New England Adjustable Rate U.S. Government Fund--With Maximum Sales Charge(2)
Year Amount
---- ------
12/91 $ 9,700
6/92 $ 9,974
6/93 $10,465
6/94 $10,608
6/95 $11,241
Lehman Intermediate Gov't./Corp.(4)
Year Amount
---- ------
12/91 $10,000
6/92 $10,285
6/93 $10,956
6/94 $11,037
6/95 $11,959
Cost of Living(5)
Year Amount
---- ------
12/91 $10,000
6/92 $10,167
6/93 $10,471
6/94 $10,697
6/95 $11,000
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B share performance
will be greater or less than that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
1
5
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
AVERAGE ANNUAL TOTAL RETURN 6/30/95
Class A (Inception 10/18/91) Year to Date 1 Year Since Inception
Net Asset Value(1) 5.34% 5.97% 4.40%
With Max. Sales Charge(2) 4.34 4.97 4.11
Lipper ARM Average(6) 2.99 1.53 n/a
Class B (Inception 9/13/93) Year to Date 1 Year Since Inception
Net Asset Value(1) 4.94% 5.18% 2.72%
With CDSC(3) 0.95 1.18 1.12
Lehman Adj. Rate Index(4) 7.45 8.36 4.21
Lipper ARM Average(6) 2.99 1.53 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 1% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(4) Lehman Adjustable Rate Mortgage Index (ARM) is an unmanaged index of
adjustable rate mortgages of short to intermediate maturities. The Index
performance has not been adjusted for ongoing management, distribution and
operating expenses and sales charges applicable to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, calculated
by the U.S. Bureau of Labor Statistics.
(6) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives
as calculated by Lipper Analytical Services, an independent mutual fund
ranking service.
2
6
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
[PHOTO]
NEW ENGLAND ADJUSTABLE RATE
U.S. GOVERNMENT FUND
Portfolio Manager: Scott Nicholson
Back Bay Advisors, L.P.(R)
ECONOMIC OVERVIEW
In the first quarter of 1995, the consensus among economists was that the
economy might slow for a short period, with the consumer taking a pause from
spending, but then would quickly pick up steam again, leading the Federal
Reserve Board to impose further interest rate hikes. However, as we went into
March and April, declining housing starts and weak automobile sales indicated
that the economy might instead be headed for a slowdown. Market consensus
quickly changed. Instead of expecting the Fed to raise rates to restrain
inflationary growth, the markets began to anticipate Fed easing to prevent a
slowing economy from slipping into recession.
The bond market experienced a strong rally at the prospect that the Fed might
loosen its grip on interest rates. Indeed, the short-term market actually got
ahead of the Fed, with the 1-year Treasury bill trading as low as 5.51% in June,
well below the Federal Funds level of 6.00% (the Federal Funds rate is the
overnight rate that is directly controlled by the Federal Reserve Board).
Finally, on July 6 the Fed responded, cutting the Federal Funds rate by 0.25%.
This is a relatively cautious move downward, but it nonetheless marks a clear
change in direction by the Fed and should help reduce volatility in the months
ahead.
3
7
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
HOW YOUR FUND PERFORMED
For the first six months of 1995, New England Adjustable Rate posted a total
return of 5.35% for Class A shares at net asset value, underperforming the
Lehman Adjustable Rate Mortgage Index(4), which returned 7.45%, and
outperforming the Lipper Adjustable Rate Fund Average(6), which returned 2.99%
over the same period.
HOW WE POSITIONED YOUR FUND
Buyers in the adjustable rate mortgage (ARM) market just about disappeared as
the bond market fell throughout 1994. But in January and February as the markets
began to rebound, buyers reappeared and brought liquidity back to the market. We
began to shift from our defensive stance, which served us well in 1994, to a
moderately constructive one. Our view was that it was more likely that the Fed
would not raise rates further and might even stimulate the economy in the coming
months. We took advantage of the market upswing to reposition the portfolio. We
increased the ARM position to 70% of the portfolio from 65% at year-end, while
slightly extending the duration of our Treasury position from its very short
stance at year-end. (Duration is a key measure of a portfolio's interest rate
sensitivity. A portfolio with a longer duration is more aggressively postured
than one with a short duration.)
4
8
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
IMPACT OF PREPAYMENTS
As interest rates headed downward throughout the first quarter, reset rates on
adjustable rate mortgages began to approach the level of fixed rate mortgages.
Prepayment concerns grew as it became probable that many adjustable rate
mortgage holders would refinance to lock in a competitive fixed rate mortgage.
These prepayment concerns weighed heavily on the market. The same buyers who
reappeared earlier in the year began selling out their positions, thus further
reducing demand and depressing prices. How long will prepayment worries hold
back the market? Much depends upon the Fed's policies over the next few months.
If the Fed continues to ease and both long and short rates move down in tandem,
then the prepayment threat could persist. However, if rates should edge upwards
on concerns that Fed easing may reignite growth and inflation, there would be
less motivation to refinance, and the prepayment scenario would change.
Adjustable rate securities perform best in a period of stable interest rates,
during which the market can adequately gauge the prepayment risks and level of
interest rate resets. In contrast, during a period of rapidly fluctuating rates,
such as we have experienced since early 1994, mortgage securities tend to
perform less well.
OUTLOOK FOR OUR SHAREHOLDERS
Over the longer term, New England Adjustable Rate Fund should continue to
represent a high-quality alternative for the conservative, income-oriented
investor. Over the near term, the Fed could continue cutting rates from
5
9
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
here, which would certainly bring demand back into the ARMs market. However,
until the interest rate picture is clearer, we will maintain our somewhat
cautious stance in light of concerns about prepayments and volatility, and their
effects on ARM valuations.
Your Fund's Portfolio Allocation 6/30/95*
A pie chart appears here, depicting New England Adjustable Rate U.S. Government
Fund's portfolio composition at June 30, 1995 by security type. The pie chart
is broken in pieces representing security types in the following percentages:
Security Type Percentage
------------- ----------
CMT Arms 66%
COFI Arms 4%
U.S. Treasury Notes 24%
U.S. Agency 3%
Cash & Equivalent 3%
*Portfolio composition is subject to change.
The Cost of Funds Index (COFI) reflects what banks in the 11th district in
California must pay for funds, and as such may not be as immediately responsive
to interest rate fluctuations as the Constant Maturity Treasury Index (CMT),
which reflects the yield on a one-year Treasury security. The CMT index is more
responsive to interest rate changes and more closely corresponds to current
rates, although it does lag by roughly 6 weeks.
6
10
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
GLOSSARY FOR MUTUAL FUND INVESTORS
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by
the Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond or bond fund's sensitivity to
interest rates. Duration is a means to directly compare the volatility of
different instruments. As a general rule, for every 1% move in interest rates, a
fund is expected to fluctuate in value as indicated by its duration. For
example, if interest rates fall by 1%, a fund with a duration of 4 years should
rise in value 4%. Conversely, the fund should decline 4% if interest rates rise
1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of treasuries: Bills (maturity of 3 - 12 months), Notes (maturity of 1 - 10
years) and Bonds (maturity of 10 - 30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and in most
cases from state and local income taxes. The two main types are General
Obligation (GO) Bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and Revenue Bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges.
7
11
[NEW ENGLAND LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
NEW ENGLAND
ADJUSTABLE RATE
U.S. GOVERNMENT
FUND
JUNE 30, 1995
12
PORTFOLIO COMPOSITION
Investments as of June 30, 1995
(unaudited)
BONDS AND NOTES--95.7% OF TOTAL NET ASSETS
FACE
AMOUNT DESCRIPTION VALUE (a)
-------------------------------------------------------------------------------------
GOVERNMENT AGENCIES (b) -- 72.1%
$ 2,359,824 Federal Home Loan Mortgage Corporation, 7.500%, 2/1/16 $ 2,402,596
(d).........................................................
4,719,349 Federal Home Loan Mortgage Corporation, 7.375%, 3/1/17 4,781,290
(d).........................................................
3,055,533 Federal Home Loan Mortgage Corporation, 7.375%, 3/1/17 3,095,637
(d).........................................................
441,314 Federal Home Loan Mortgage Corporation, 6.125%, 12/1/17 439,935
(d).........................................................
3,769,222 Federal Home Loan Mortgage Corporation, 7.362%, 10/1/18 3,844,606
(d).........................................................
674,041 Federal Home Loan Mortgage Corporation, 6.053%, 1/1/19 668,564
(d).........................................................
574,929 Federal Home Loan Mortgage Corporation, 6.257%, 2/1/19 573,492
(d).........................................................
1,648,907 Federal Home Loan Mortgage Corporation, 5.615%, 4/1/19 1,632,417
(d).........................................................
4,818,194 Federal Home Loan Mortgage Corporation, 7.461%, 5/1/19 4,938,649
(d).........................................................
5,142,362 Federal Home Loan Mortgage Corporation, 7.393%, 10/1/19 5,245,209
(d).........................................................
7,519,061 Federal Home Loan Mortgage Corporation, 7.413%, 1/1/20 7,631,847
(d).........................................................
1,551,724 Federal Home Loan Mortgage Corporation, 7.569%, 9/1/21 1,606,034
(d).........................................................
3,376,957 Federal Home Loan Mortgage Corporation, 7.625%, 10/1/21 3,448,717
(d).........................................................
6,100,980 Federal Home Loan Mortgage Corporation, 7.583%, 12/1/21 6,238,252
(d).........................................................
2,250,732 Federal Home Loan Mortgage Corporation, 7.750%, 1/1/22 2,323,880
(d).........................................................
3,331,605 Federal Home Loan Mortgage Corporation, 7.452%, 1/1/22 3,394,072
(d).........................................................
3,393,271 Federal Home Loan Mortgage Corporation, 7.610%, 2/1/22 3,488,707
(d).........................................................
6,617,228 Federal Home Loan Mortgage Corporation, 7.694%, 3/1/22 6,807,473
(d).........................................................
5,297,656 Federal Home Loan Mortgage Corporation, 8.000%, 4/1/22 5,426,786
(d).........................................................
3,320,991 Federal Home Loan Mortgage Corporation, 7.358%, 4/1/22 3,347,974
(d).........................................................
4,507,559 Federal Home Loan Mortgage Corporation, 7.843%, 5/1/22 4,670,958
(d).........................................................
2,607,237 Federal Home Loan Mortgage Corporation, 8.166%, 6/1/22 2,716,415
(d).........................................................
2,886,038 Federal Home Loan Mortgage Corporation, 8.054%, 6/1/22 2,965,404
(d).........................................................
4,752,991 Federal Home Loan Mortgage Corporation, 7.971%, 6/1/22 4,895,580
(d).........................................................
2,481,702 Federal Home Loan Mortgage Corporation, 7.500%, 7/1/22 2,563,908
(d).........................................................
5,735,537 Federal Home Loan Mortgage Corporation, 7.552%, 8/1/22 5,925,527
(d).........................................................
2,329,093 Federal Home Loan Mortgage Corporation, 7.250%, 8/1/22 2,378,586
(d).........................................................
4,325,378 Federal Home Loan Mortgage Corporation, 7.387%, 8/1/22 4,419,996
(d).........................................................
2,316,369 Federal Home Loan Mortgage Corporation, 7.348%, 9/1/22 2,369,935
(d).........................................................
5,857,126 Federal Home Loan Mortgage Corporation, 7.625%, 12/1/22 5,974,269
(d).........................................................
4,085,099 Federal Home Loan Mortgage Corporation, 7.575%, 1/1/23 4,174,460
(d).........................................................
5,872,022 Federal Home Loan Mortgage Corporation, 7.539%, 1/1/23 6,055,523
(d).........................................................
5,400,259 Federal Home Loan Mortgage Corporation, 8.010%, 4/1/23 5,511,640
(d).........................................................
5,652,696 Federal Home Loan Mortgage Corporation, 7.951%, 5/1/23 5,769,283
(d).........................................................
5,397,548 Federal Home Loan Mortgage Corporation, 6.110%, 9/1/23 5,525,740
(d).........................................................
4,689,674 Federal Home Loan Mortgage Corporation, 6.793%, 10/15/23 4,578,294
(d).........................................................
11,261,573 Federal Home Loan Mortgage Corporation, 7.352%, 9/1/24 11,546,631
(d).........................................................
9,630,700 Federal Home Loan Mortgage Corporation, 7.093%, 4/1/25 9,859,429
(d).........................................................
1,110,938 Federal Home Loan Mortgage Corporation, 7.791%, 7/1/30 1,135,935
(d).........................................................
1,852,485 Federal Home Loan Mortgage Corporation, 6.010%, 10/1/30 1,847,854
(d).........................................................
See accompanying notes to financial statements.
2
13
PORTFOLIO COMPOSITION--CONTINUED
Investments as of June 30, 1995
(unaudited)
BONDS AND NOTES--CONTINUED
FACE
AMOUNT DESCRIPTION VALUE (a)
-------------------------------------------------------------------------------------
$ 1,562,796 Federal National Mortgage Association, 6.375%, 6/1/17 (d)... $ 1,550,098
2,380,368 Federal National Mortgage Association, 7.010%, 7/1/17 (d)... 2,447,316
380,602 Federal National Mortgage Association, 7.432%, 8/1/17 (d)... 388,928
4,363,624 Federal National Mortgage Association, 7.410%, 9/1/17 (d)... 4,439,987
2,837,066 Federal National Mortgage Association, 7.489%, 12/1/17(d)... 2,909,766
1,476,814 Federal National Mortgage Association, 7.750%, 10/1/18(d)... 1,530,349
928,436 Federal National Mortgage Association, 5.821%, 12/1/18(d)... 920,312
5,000,000 Federal National Mortgage Association, 5.000%, 4,890,800
12/25/18(d).................................................
1,167,596 Federal National Mortgage Association, 5.839%, 5/1/19(d).... 1,153,001
870,913 Federal National Mortgage Association, 6.106%, 6/1/19(d).... 870,913
2,392,938 Federal National Mortgage Association, 6.029%, 7/1/19(d).... 2,373,496
2,067,495 Federal National Mortgage Association, 7.377%, 10/1/19(d)... 2,123,059
3,222,084 Federal National Mortgage Association, 7.580%, 11/1/19(d)... 3,318,746
2,103,137 Federal National Mortgage Association, 5.893%, 1/1/20(d).... 2,101,823
826,589 Federal National Mortgage Association, 7.335%, 5/1/20(d).... 844,671
3,964,265 Federal National Mortgage Association, 7.507%, 9/1/20(d).... 4,060,894
4,452,615 Federal National Mortgage Association, 7.719%, 11/1/20(d)... 4,569,496
2,713,472 Federal National Mortgage Association, 8.013%, 5/1/22(d).... 2,783,005
1,863,982 Federal National Mortgage Association, 7.981%, 6/1/22(d).... 1,902,427
5,810,137 Federal National Mortgage Association, 8.035%, 6/1/22(d).... 6,006,230
5,647,824 Federal National Mortgage Association, 7.672%, 11/1/22(d)... 5,817,259
4,605,456 Federal National Mortgage Association, 7.797%, 4/1/23(d).... 4,706,200
3,289,545 Federal National Mortgage Association, 6.670%, 7/1/23(d).... 3,334,776
603,769 Federal National Mortgage Association, 6.007%, 9/1/23(d).... 603,769
8,228,936 Federal National Mortgage Association, 7.485%, 4/1/24(d).... 8,434,659
845,482 Federal National Mortgage Association, 6.257%, 5/1/27(d).... 850,767
491,699 Federal National Mortgage Association, 6.202%, 1/1/29(d).... 481,865
4,360,907 Government National Mortgage Association, 6.750%, 4/20/16... 4,469,930
7,172,586 Government National Mortgage Association, 6.000%, 4/20/22... 7,320,521
4,204,976 Government National Mortgage Association, 6.000%, 7/20/22... 4,273,307
30,734,852 Government National Mortgage Association, 6.500%, with 31,292,884
various maturities to 7/20/23...............................
5,089,851 Small Business Administration, 7.125%, 3/25/20.............. 5,089,851
------------
294,082,609
------------
See accompanying notes to financial statements.
3
14
PORTFOLIO COMPOSITION--CONTINUED
Investments as of June 30, 1995
(unaudited)
BONDS AND NOTES--CONTINUED
FACE
AMOUNT DESCRIPTION VALUE (a)
-------------------------------------------------------------------------------------
U.S. GOVERNMENT--23.6%
$ 20,000,000 U.S. Treasury Note 9.250%, 1/15/96.......................... $ 20,368,000
40,000,000 U.S. Treasury Note 7.875%, 7/15/96.......................... 40,831,600
15,000,000 U.S. Treasury Note 6.125%, 7/31/96.......................... 15,054,000
10,000,000 U.S. Treasury Note 6.125%, 5/31/97.......................... 10,048,400
10,000,000 U.S. Treasury Note 6.125%, 5/15/98.......................... 10,062,900
------------
96,364,900
------------
Total Bonds and Notes (Identified Cost $394,505,270)........ 390,447,509
------------
SHORT-TERM INVESTMENT--2.7%
11,000,000 Repurchase agreement with Goldman Sachs & Co. dated 6/30/95 11,000,000
at 6.000% to be repurchased at $11,005,500 on 7/3/95
collateralized by $9,455,000 U.S. Treasury Bonds 8.125% due
8/15/19 with a value of $11,227,813.........................
------------
Total Short-Term Investment (Identified Cost $11,000,000)... 11,000,000
------------
TOTAL INVESTMENTS--98.4% (Identified Cost
$405,505,270)(c)............................................ 401,447,509
Cash, Receivables and Other Assets.......................... 8,681,449
Liabilities................................................. (2,055,850)
------------
TOTAL NET ASSETS--100%...................................... $408,073,108
===========
(a) See Note 1a to the financial statements.
(b) The Fund's investments in mortgage backed securities of the
Government National Mortgage Association, Federal Home Loan Bank and
Federal National Mortgage Association are interests in separate pools
of mortgages. All separate investments in securities of these issues
which have the same coupon rate have been aggregated for the purpose
of presentation in the schedule of investments.
(c) Federal Tax Information: At June 30,1995 the net unrealized
depreciation on investments based on cost for federal income tax
purposes of $405,505,270 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost............................ $ 790,378
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value............................ (4,848,139)
-----------
Net unrealized depreciation.......................................... $(4,057,761)
==========
As of December 31, 1994 the Fund has a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002........................................... $ 5,625,994
(d) Variable rate mortgage backed securities. The interest rates change
on these instruments monthly based on changes in a designated base
rate. The coupons shown were those in effect at June 30, 1995.
See accompanying notes to financial statements.
4
15
STATEMENT OF ASSETS & LIABILITIES
June 30, 1995 (unaudited)
ASSETS
Investments at value...................................... $401,447,509
Cash...................................................... 101,451
Receivable for:
Fund shares sold........................................ 105,291
Securities sold......................................... 90,689
Accrued Interest........................................ 8,365,882
Unamortized organization expense.......................... 18,136
-----------
410,128,958
LIABILITIES
Payable for:
Fund shares redeemed.................................... $ 423,042
Dividends declared...................................... 1,267,007
Accrued expenses:
Management fees......................................... 230,763
Deferred trustees' fees................................. 719
Administrative services................................. 81,332
Other expenses.......................................... 52,987
---------
2,055,850
-----------
NET ASSETS.................................................. $408,073,108
===========
Net Assets consist of:
Capital paid in......................................... $423,061,063
Undistributed net investment income..................... 763,074
Accumulated net realized losses......................... (11,693,268)
Unrealized depreciation on investments.................. (4,057,761)
-----------
NET ASSETS.................................................. $408,073,108
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($405,888,338 divided by 55,131,754 shares of beneficial
interest)................................................. $7.36
=====
Offering price per share (100/99 of $7.36).................. $7.43*
=====
Net asset value and offering price of Class B shares
($2,184,770 divided by 296,773 shares of beneficial
interest)................................................. $7.36**
=====
Identified cost of investments.............................. $405,505,270
===========
*Based upon single purchases of less than $100,000. Reduced sales charges apply
for purchases in excess of these amounts.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
5
16
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(unaudited)
INVESTMENT INCOME
Interest.................................................. $15,171,614
Expenses
Management fees......................................... $ 867,102
Service fees--Class A................................... 558,929
Service and distribution fees--Class B.................. 10,439
Trustees' fees and expenses............................. 12,848
Administrative services................................. 318,107
Custodian............................................... 72,129
Transfer agent.......................................... 79,355
Audit and tax services.................................. 10,684
Legal................................................... 13,168
Printing................................................ 15,821
Registration............................................ 12,669
Amortization of organization expenses................... 6,968
Miscellaneous........................................... 6,835
-----------
1,985,054
Less expenses waived by the investment adviser and
distributor........................................... (578,180) 1,406,874
----------- -----------
Net investment income..................................... 13,764,740
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss on investments--net......................... (6,066,710)
Unrealized appreciation on investments--net............... 15,796,530
-----------
Net gain on investment transactions....................... 9,729,820
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $23,494,560
==========
See accompanying notes to financial statements.
6
17
STATEMENT OF CHANGES IN NET ASSETS
(unaudited)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1994 1995
------------ ----------------
FROM OPERATIONS
Net investment income.................................. $ 30,179,124 $ 13,764,740
Net realized loss on investment transactions........... (9,494,871) (6,066,710)
Unrealized appreciation (depreciation) on
investments.......................................... (15,177,477) 15,796,530
------------ ------------
Increase in net assets from operations................. 5,506,776 23,494,560
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A.............................................. (25,947,145) (13,261,004)
Class B.............................................. (49,777) (54,555)
------------ ------------
(25,996,922) (13,315,559)
------------ ------------
Decrease from capital share transactions............... (222,923,039) (93,798,913)
------------ ------------
Total decrease in net assets........................... (243,413,185) (83,619,912)
NET ASSETS
Beginning of the period................................ 735,106,205 491,693,020
------------ ------------
End of the period...................................... $491,693,020 $408,073,108
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period................................ $ 0 $ 313,893
=========== ===========
End of the period...................................... $ 313,893 $ 763,074
=========== ===========
See accompanying notes to financial statements.
7
18
FINANCIAL HIGHLIGHTS
(unaudited)
CLASS A
--------------------------------------------------------
OCTOBER 18(a) YEAR ENDED SIX MONTHS
THROUGH DECEMBER 31, ENDED
DECEMBER 31, --------------- JUNE 30,
1991 1992 1993 1994 1995
------------- ----- ----- ----- ----------
Net Asset Value, Beginning of
Period............................ $7.50 $7.50 $7.46 $7.45 $7.20
----- ----- ----- ----- -----
Income From Investment Operations
Net Investment Income.............. 0.09 0.42 0.33 0.37 0.23
Net Realized and Unrealized Gain
(Loss) on Investments.............. 0.00 (0.06) (0.03) (0.31) 0.15
----- ----- ----- ----- -----
Total From Investment Operations... 0.09 0.36 0.30 0.06 0.38
----- ----- ----- ----- -----
Less Distributions
Distributions From Net Investment
Income........................... (0.09) (0.40) (0.31) (0.31) (0.22)
----- ----- ----- ----- -----
Total Distributions................ (0.09) (0.40) (0.31) (0.31) (0.22)
----- ----- ----- ----- -----
Net Asset Value, End of Period..... $7.50 $7.46 $7.45 $7.20 $7.36
============ ===== ===== ===== ==========
Total Return (%)(d)................ 1.2 4.9 4.0 0.8 5.3
Ratio of Operating Expenses to
Average Net Assets (%)(b).......... 0.50(c) 0.57 0.60 0.60 0.62(c)
Ratio of Net Investment Income to
Average Net Assets (%)............. 6.43(c) 5.39 4.39 4.85 6.02(c)
Portfolio Turnover Rate (%)........ 52(c) 49 54 17 69(c)
Net Assets, End of Period (000).... $60,684 $294,687 $734,251 $489,637 $405,888
(a) Commencement of operations.
(b) Commencing June 1,1995 expenses were voluntarily limited to 0.70% of Class A
average net assets. From May 1, 1995 through June 1, 1995 expenses were
voluntarily limited to 0.65% of Class A average net assets.See Note 4. The
ratio of operating expenses to average net assets without giving effect to
this expense limitation would have been 0.88% for the six months ended June
30, 1995. From April 1,1992 through May 1, 1995 expenses were voluntarily
limited to 0.60% of Class A average net assets. The ratio of operating
expenses to average net assets without giving effect to this expense
limitation would have been 0.96%,0.86% and 0.88% for the years ended
December 31, 1992,1993 and 1994, respectively. From October 19,1991 through
March 31,1992, expenses were voluntarily limited to 0.50% of average net
assets. The ratio of operating expenses to average net assets without giving
effect to this expense limitation would have been 1.26% for the period ended
December 31, 1991.
(c) Computed on an annualized basis.
(d) A sales charge of 1.00% (maximum) was not reflected in total return
calculations. Periods less than one year are not annualized.
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........ $7.52 $7.45 $7.20
----- ----- ------
Income From Investment Operations
Net Investment Income....................... 0.08 0.29 0.20
Net Realized and Unrealized Gain
(Loss) on Investments....................... (0.08) (0.29) 0.15
----- ----- ------
Total From Investment Operations............ 0.00 0.00 0.35
----- ----- ------
Less Distributions
Distributions From Net Investment Income.... (0.07) (0.25) (0.19)
----- ----- ------
Total Distributions......................... (0.07) (0.25) (0.19)
----- ----- ------
Net Asset Value, End of Period.............. $7.45 $7.20 $7.36
=============== ============ =============
Total Return (%)(d)......................... 0.0 0.1 4.9
Ratio of Operating Expenses to
Average Net Assets (%)(b)................... 1.35(c) 1.35 1.38(c)
Ratio of Net Investment Income to
Average Net Assets (%)...................... 3.50(c) 4.10 6.77(c)
Portfolio Turnover Rate (%)................. 54 17 69(c)
Net Assets, End of Period (000)............. $855 $2,056 $2,185
(a) Commencement of operations.
(b) Commencing June 1, 1995 expenses were voluntarily limited to 1.45% of Class
B average net assets. From May 1, 1995 through June 1, 1995 expenses were
voluntarily limited to 1.40% of Class B average net assets. See Note 4. The
ratio of operating expenses to average net assets without giving effect to
this expense limitation would have been 1.63% for the six months ended June
30, 1995. From September 13, 1993 through May 1, 1995, expenses were
voluntarily limited to 1.35% of Class B average net assets. (See Note 4).
The ratio of operating expenses for Class B shares would have been 1.61% for
the period ended December 31, 1993 and 1.63% for the year ended December 31,
1994.
(c) Computed on an annualized basis.
(d) Periods less than one year are not annualized.
See accompanying notes to financial statements.
9
20
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"), and is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each series of shares a "Fund").
The Fund offers both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on September 13, 1993. Class A shares are sold with a
maximum front end sales charge of 1.00%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares, 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
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.
10
21
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995 (unaudited)
d. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record at the time and are paid monthly.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
relate primarily to differing treatments for income recognition for
mortgage-backed securities. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassification to paid in capital.
e. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors is responsible for determining that
the value of the collateral is at all times at least equal to the repurchase
price. Repurchase agreements could involve certain risks in the event of default
or insolvency of the other party including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
f. ORGANIZATION EXPENSE. Costs incurred in 1991 in connection with the Fund's
organization and initial registration, amounting to $57,650, were paid by the
Fund and are being amortized over 60 months beginning October 18, 1991.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1995 were as follows:
PURCHASES SALES
--------------- ---------------
U.S. GOVERNMENT U.S. GOVERNMENT
--------------- ---------------
$ 146,077,191 $ 202,322,067
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 and its affiliated companies are also officers or trustees of the Fund.
Back Bay Advisors is a wholly owned subsidiary of New England Investment
Companies, L.P. ("NEIC"), which is a majority owned subsidiary of New England
Mutual Life Insurance Company. The management agreement in effect during the six
months ended June 30, 1995 provided for fees as set forth below:
FUND ANNUAL NET ASSET VALUE
FEES EARNED ANNUAL PERCENTAGE RATE LEVELS
----------- ----------------------- -----------------------------
$867,102(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.
11
22
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995 (unaudited)
b. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and a Service and Distribution Plan relating to the Fund's Class
B shares (the "Class B Plan").
Under the Class A Plan, the Fund pays New England Funds, L.P. ("New England
Funds") a monthly service fee at the annual rate of up to 0.25% of the average
daily net assets attributable to the Fund's Class A shares, as reimbursement for
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class A shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 1995, the Fund paid New
England Funds $558,929 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 $1,929,283.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class B shares, as compensation for services provided and expenses
(including certain payments to securities dealers, who may be affiliated with
New England Funds) incurred by New England Funds in providing personal services
to investors in Class B shares and/or the maintenance of shareholder accounts.
For the six months ended June 30, 1995, the Fund paid New England Funds $2,610
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 $7,829 in distribution fees
under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors in shares of the Fund during the six months ended
June 30, 1995 amounted to $34,857.
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 $79,355 as compensation for its services in that
capacity.
12
23
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 0.15% of the first $200 million of the Fund's average daily net assets,
0.135% of the next $300 million and 0.12% of average net assets in excess of
$500 million. New England Funds reduced its fee of $318,107 by $155,182 for the
six months ended June 30, 1995 because total Fund expenses exceeded the
voluntary expense limitation. See Note 4.
e. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of Back Bay
Advisors, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:
Annual Retainer $2,400
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Retainer $125/year
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have had, had it been invested in the Fund on the
normal payment date.
4. EXPENSE LIMITATIONS. Commencing June 1, 1995 and until further notice to
the Fund, Back Bay Advisors has voluntarily agreed to reduce its management fee
and New England Funds has voluntarily agreed to reduce its administrative
services fee in order to limit the Fund's expenses to an annual rate of 0.70% of
the Fund's Class A average daily net assets and, 1.45% of Class B average daily
net assets. From May 1, 1995 through June 1, 1995 expenses were voluntarily
limited to 0.65% of Class A average net assets and 1.40% of Class B average net
assets. From April 1, 1992 through May 1, 1995 expenses were voluntarily limited
to 0.60% of Class A average net assets and 1.35% of Class B average net assets.
Prior to April 1, 1992 the Fund's expenses were subject to a 0.50% voluntary
expense limitation agreed to by both Back Bay Advisors and New England Funds. As
a result of the Fund's expenses exceeding the applicable voluntary expense
limitation during the six months ended June 30, 1995, Back Bay Advisors reduced
its management fee of $867,102 by $422,998 and New England Funds reduced its
administrative services fee of $318,107 by $155,182.
13
24
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995 (unaudited)
5. 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.................... 30,015,263 $ 221,799,967 5,670,881 $ 41,480,723
Shares issued in connection
with the reinvestment of:
Distributions from net
investment income.......... 1,767,245 12,970,611 695,544 5,096,441
----------- ------------- ----------- -------------
31,782,508 234,770,578 6,366,425 46,577,164
Shares redeemed................ (62,382,259) (458,943,776) (19,197,098) (140,459,897)
----------- ------------- ----------- -------------
Net increase (decrease)........ (30,599,751) $(224,173,198) (12,830,673) $ (93,882,733)
========== ============ ========== ============
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
---------------------------- ----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------------------------------- ----------- ------------- ----------- -------------
Shares sold.................... 229,537 $ 1,682,203 53,828 $ 333,192
Shares issued in connection
with the reinvestment of:
Distributions from net
investment income.......... 6,052 44,227 6,502 107,961
----------- ------------- ----------- -------------
235,589 1,726,430 60,330 441,153
Shares redeemed................ (65,035) (476,271) (48,890) (357,333)
----------- ------------- ----------- -------------
Net increase (decrease)........ 170,554 $ 1,250,159 11,440 $ 83,820
========== ============ ========== ============
Total increase (decrease from
capital share
transactions)................ (30,429,197) $(222,923,039) (12,819,233) $ (93,798,913)
========== ============ ========== ============
14
25
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 down 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.
15
26
INFORMATION ON CALL
YOU CAN CALL NEW ENGLAND FUNDS DAY OR NIGHT
Do you like to keep on top of your New England Funds but can't always call us
during regular business hours? With Tele#Facts, New England Funds' 24-hours a
day automated telephone system, you can call us any time that's convenient for
you -- day or night!
By calling 1-800-346-5984 from any Touch-Tone(R) telephone, you can:
- Check the current value of your New England Fund account
- Find out the current yield and total return on any New England Fund
- Buy, sell or exchange fund shares
Just remember to have these four items with you before calling:
1. YOUR PERSONAL IDENTIFICATION NUMBER which is the last four digits of your
Social Security number
2. THE FUND NUMBER -- two- or three-digit number listed on the Tele#Facts
wallet card
3. FUNCTION NUMBER -- listed on the Tele#Facts wallet card
4. ACCOUNT NUMBER -- listed on all your statements
You can get the information you need to use Tele#Facts from the back of your
statement. If you need another Tele#Facts wallet card or have questions about
getting started, please call us at 1-800-225-5478.
So go ahead and give Tele#Facts a try. We think you'll enjoy this easy-to-use
and convenient service from New England Funds!
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
[NEW ENGLAND LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
--------------------
399 Boylston Street
Boston, Massachusetts
02116
--------------------
95-0764 [AR 58]
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