0000950135-95-001894.txt : 19950914
0000950135-95-001894.hdr.sgml : 19950914
ACCESSION NUMBER: 0000950135-95-001894
CONFORMED SUBMISSION TYPE: N-30D
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950912
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: 95573327
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
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N.E. LIMITED TERM U.S. GOVERNMENT FUND S/A
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[NEW ENGLAND FUNDS LOGO]
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SEMIANNUAL REPORT AND PERFORMANCE UPDATE
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NEW ENGLAND
LIMITED TERM
U.S. GOVERNMENT FUND
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JUNE 30, 1995
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July 20, 1995
DEAR SHAREHOLDER:
We have good news to present in this Semiannual Report for New England
Limited Term 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
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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 LIMITED TERM U.S. GOVERNMENT FUND
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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 perfor-mance 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.
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A $10,000 Investment in Class A Shares
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COMPARED TO LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX(4)
AND THE COST OF LIVING(5)
A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Lehman Intermediate Government
Bond Index(4) and the Cost of Living(5)
New England Limited Term U.S. Government Fund - Net Asset Value(1)
Year Amount
---- -------
1/89 $10,000
6/89 $10,568
6/90 $11,504
6/91 $12,606
6/92 $14,161
6/93 $15,339
6/94 $15,264
6/95 $16,410
New England Limited Term U.S. Government Fund - With Maximum Sales Charge(2)
Year Amount
---- -------
1/89 $ 9,700
6/89 $10,251
6/90 $11,159
6/91 $12,228
6/92 $13,736
6/93 $14,879
6/94 $14,806
6/95 $15,918
Lehman Intermediate Government(4)
Year Amount
---- -------
1/89 $10,000
6/89 $10,775
6/90 $11,608
6/91 $12,830
6/92 $14,479
6/93 $15,932
6/94 $15,903
6/95 $17,339
Cost of Living(5)
Year Amount
---- -------
1/89 $10,000
6/89 $10,299
6/90 $10,780
6/91 $11,286
6/92 $11,635
6/93 $11,983
6/94 $12,241
6/95 $12,589
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B, C and Y share
performance will be greater or less than that shown based on differences in
inception date, fees and sales charges. All Index and Fund performance assumes
reinvested distributions.
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NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
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AVERAGE ANNUAL TOTAL RETURNS 6/30/95
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CLASS A (Inception 1/3/89) YEAR TO DATE 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 7.52% 7.51% 7.36% 7.93%
With Max. Sales Charge(2) 4.25 4.26 6.72 7.42
Lipper Short US Gov't(6) 6.77 7.33 6.79 n/a
CLASS B (Inception 9/21/93) YEAR TO DATE 1 YEAR SINCE INCEPTION
Net Asset Value(1) 7.18% 6.85% 1.89%
With CDSC(3) 3.18 2.85 0.46
Lehman Gov't. Bond Index(4) 9.75 9.03 4.04
Lipper Short US Gov't(6) 6.77 7.33 n/a
CLASS C (Inception 12/31/94) SINCE INCEPTION
Net Asset Value(1) 6.28%
Lehman Gov't. Bond Index(4) 9.75
Lipper Short US Gov't(6) 6.77
CLASS Y (Inception 3/31/94) YEAR TO DATE 1 YEAR SINCE INCEPTION
Net Asset Value(1) 7.68% 7.95% 5.87%
Lehman Gov't. Bond Index(4) 9.75 9.03 6.68
Lipper Short US Gov't(6) 6.77 7.33 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. Class Y shares are available only to certain institutional
investors. Share price and return may vary.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 3% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(4) Lehman Intermediate Government Bond Index is an unmanaged index of bonds
issued by the U.S. Government and its agencies having maturities between
one and ten years. The Index's performance has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, calculated
by the U.S. Bureau of Labor Statistics.
(6) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives
as calculated by Lipper Analytical Services, an independent mutual fund
ranking service.
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NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
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[PHOTO]
NEW ENGLAND LIMITED TERM
U.S. GOVERNMENT FUND
Portfolio Manager: Eric Gutterson
Back Bay Advisors, L.P.(R)
THE MARKET
The bond market rallied strongly in the first six months of 1995 as fixed-income
investors drew reassurance from evidence of a slowing U.S. economy. The Federal
Reserve Board's interest rate increase, in February, came one year after the
first of seven hikes the Fed made to cool an economy it feared was growing at an
excessive, inflationary pace. Inflation represents a major negative for bond
investors. Sluggish economic activity, which implies low inflation, led bond
prices higher beginning early in the year in anticipation of lower rates to
come.
The economic scenario that has been playing out is essentially the soft landing
-- a slackening without a recession -- that the investment community had been
hoping for. A drop in consumer demand for autos, housing and manufactured goods
has led the slowdown. In the latter part of 1994, manufacturers were expanding,
thanks to strong export sales and positive consumer sentiment. They boosted
production and increased employment to meet anticipated demand for goods. In
part because of fastrising interest rates, the demand did not materialize.
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NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
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This year, firms have allowed inventories to contract to a point where they
roughly match current sales levels. Companies do not add to production in a
slowing economy. They are inclined toward caution at such times, and will wait
for stronger consumer buying patterns to emerge before committing to higher
levels of production. Consumers, on the other hand, are still carrying high debt
burdens that they are not paying down; rather, they are lowering monthly
expenses by exchanging high-cost for low-cost debt.
HOW YOUR FUND PERFORMED
From January through June, the bond market delivered positive returns in
virtually all sectors. New England Limited Term U.S. Government Fund had a total
return of 7.52% on net asset value for Class A shares, compared to 9.75% for the
Lehman Intermediate Government Index4. An increased income stream permitted us
to increase dividends, with two increases in the monthly rate during the period,
and another scheduled for July.
YOUR FUND'S INVESTMENT STRATEGY
To take advantage of the developing soft landing and in anticipation of
declining rates, we extended the Fund's duration -- a measure of its sensitivity
to interest rate changes -- to 3 years. This means that the Fund's price
movements would be akin to those of a 3.5-year U.S. Treasury note, a
substantially more bullish posture than the 2-year duration that we maintained
at year-end.
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NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
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We also increased the Fund's emphasis on U.S. Treasury issues over the period
from 77% to 86% of the portfolio. Treasuries are not callable, so the Fund's
income flow has the potential to be steadier and more predictable.
Finally, we have taken a more bullish approach to our exposure along the yield
curve, moving out of some of the Fund's shortest maturity positions, replacing 1
- 2 year maturities with issues maturing in the 3 - 5 year range. We also
increased the portion of the portfolio invested in longer maturity Treasuries.
INVESTMENT OUTLOOK
In our December 1994 report to shareholders, we expressed confidence in the
steps the Federal Reserve was taking to keep inflation under control. We now
feel that Fed policy is too restrictive for current, slower economic conditions.
The U.S. economy will need some stimulus to regain its momentum, and there is no
better stimulus than lower interest rates. A first step, a modest 0.25% cut in
the Fed Funds rate, occurred just after the close of the period.
The challenge for the Fed is to avoid reheating the economy and sparking
inflation by allowing rates to fall too far. Ideally, they will time their moves
so as to facilitate a more measured economic expansion. A moderately expanding,
only mildly inflationary economy would represent a very positive environment for
investors.
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NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
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TREASURY YIELD CURVE
The "yield curve" illustrates the yields available on U.S. Treasury securities
of varying maturities, ranging from 3-month Treasury bills to 30-year Treasury
bonds. Under normal conditions, a security with a longer maturity will offer a
higher yield than a shorter term security, to compensate the bond holder for
tying up money for longer periods of time. The chart below illustrates the yield
curve as of the beginning of 1995 and as of June 30, 1995. As you can see,
long-term rates dropped substantially, with the 30-year bond falling more than
1.25 percentage points, from 7.88% to 6.62%.
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The Yield Curve January - June, 1995
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A chart in the form of a line graph appears here, illustrating the yield curve
of U.S. Treasury securities as of the beginning of 1995 and as of June 30, 1995.
The data points from the graph are as follows:
As of 1/2/95
Maturity Yield
-------- -----
3 Month 5.68%
6 Month 6.50%
1 Year 7.16%
3 Year 7.78%
5 Year 7.83%
10 Year 7.83%
30 Year 7.88%
As of 6/30/95
Maturity Yield
-------- -----
3 Month 5.56%
6 Month 5.58%
1 Year 5.62%
3 Year 5.85%
5 Year 5.97%
10 Year 6.20%
30 Year 6.62%
Source: Bloomberg
What caused this dramatic drop in just six months? During the first half of the
year the economy showed clear signs of a slowdown, which indicated that
inflation was under control and would not resurface as a threat. (Inflation is
the bond market's primary enemy because it eats away at the value of fixed
income investments). The markets responded enthusiastically, driving down long
term rates. Bond prices, which move in the opposite direction from interest
rates, moved sharply upwards in an impressive rebound from last year's sell-off.
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NEW ENGLAND LIMITED TERM U.S. GOVERNMENT FUND
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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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[NEW ENGLAND FUNDS LOGO]
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PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
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NEW ENGLAND
LIMITED TERM
U.S. GOVERNMENT
FUND
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JUNE 30, 1995
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PORTFOLIO COMPOSITION
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Investments as of June 30, 1995
(unaudited)
BONDS AND NOTES--97.8% OF TOTAL NET ASSETS
FACE
AMOUNT DESCRIPTION VALUE (a)
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ASSET BACKED--2.6%
$ 10,000,000 Case Equipment Loan Trust 8.10%, 6/15/01....................... $ 10,437,500
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GOVERNMENT AGENCIES--19.1%(B)
8,000,000 Federal Farm Credit, 11.900%, 10/20/17......................... 8,984,480
5,000,000 Federal Farm Credit, 8.130%, 12/02/99.......................... 5,025,000
6,000,000 Federal Home Loan Mortgage Corporation, 8.360%, 02/28/00....... 6,067,500
10,000,000 Federal Home Loan Mortgage Corporation, 8.600%, 01/26/00....... 10,402,000
20,000,000 Federal Home Loan Mortgage Corporation, 9.000%, 02/01/17....... 20,906,250
101,720 Federal Home Loan Mortgage Corporation, 10.000%, 07/01/19...... 109,412
14,660,158 Federal Home Loan Mortgage Corporation,
11.500%, with various maturities to 2020..................... 15,891,606
5,099,937 Government National Mortgage Association,
8.000% with various maturities to 2008....................... 5,258,203
196,715 Government National Mortgage Association,
12.500% with various maturities to 2015...................... 223,149
2,339,410 Government National Mortgage Association,
16.000% with various maturities to 2013...................... 2,713,715
936,777 Government National Mortgage Association,
17.000% with various maturities to 2012...................... 1,096,029
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76,677,344
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U.S. GOVERNMENT--76.1%
40,000,000 U.S. Treasury Note, 8.500%, 07/15/95........................... 42,000,000
35,000,000 U.S. Treasury Note, 9.125%, 05/15/99........................... 38,740,450
100,000,000 U.S. Treasury Note, 9.250%, 08/15/98........................... 109,359,000
17,000,000 U.S. Treasury Note, 9.375%, 04/15/96........................... 17,470,220
15,000,000 U.S. Treasury Bond, 10.750%, 02/15/03.......................... 19,101,600
10,000,000 U.S. Treasury Bond, 10.750%, 05/15/03.......................... 12,782,800
35,000,000 U.S. Treasury Bond, 11.250%, 02/15/15.......................... 52,510,850
10,000,000 U.S. Treasury Bond, 11.750%, 02/15/01.......................... 12,695,300
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304,660,220
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Total Bonds and Notes
(Identified Cost $390,138,498)............................... 391,775,064
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Total Investments--97.8% (Identified Cost $390,377,435)(c)..... 391,775,064
Cash and Receivables........................................... 10,454,754
Liabilities.................................................... (1,647,059)
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Total Net Assets--100%......................................... $400,582,759
============
See accompanying notes to financial statements.
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PORTFOLIO COMPOSITION--CONTINUED
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Investments as of June 30, 1995
(unaudited)
WRITTEN U.S. TREASURY CALL OPTION
NET UNREALIZED
CONTRACTS EXPIRATION STRIKE PRICE DEPRECIATION
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500 August 1995 107.5 $ (34,500)
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(a) See Note 1a to the financial statements.
(b) The Fund's investments in mortgage backed securities of the Federal
Home Loan Mortgage Corporation and Government National Mortgage
Association are interests in separate pools of mortgages. All
separate investments in securities of these issuers which have the
same coupon rate have been aggregated for the purpose of presentation
in the schedule of investments.
(c) Federal Tax Information: At June 30,1995 the net unrealized
appreciation on investments based on cost for federal income tax
purposes of $390,377,435 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost............................... $ 3,478,591
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value............................... (2,080,962)
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Net unrealized appreciation............................................. $ 1,397,629
============
As of December 31, 1994, the fund had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002.............................................. $ 30,053,756
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.......................................... $391,775,064
Cash.......................................................... 62,104
Receivable for:
Securities sold............................................. 459,572
Fund shares sold............................................ 168,956
Accrued interest............................................ 9,764,122
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402,229,818
LIABILITIES
Payable for:
Fund shares redeemed........................................ $ 650,745
Dividends declared.......................................... 422,820
Written options outstanding, at market (premiums received
$238,937)................................................. 273,437
Accrued expenses:
Management fees............................................. 212,828
Deferred trustees' fees..................................... 1,769
Other expenses.............................................. 85,460
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1,647,059
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NET ASSETS...................................................... $400,582,759
============
Net Assets consist of:
Capital paid in............................................. $428,238,019
Undistributed net investment income......................... 1,669,415
Accumulated net realized losses............................. (30,687,803)
Unrealized appreciation on investments...................... 1,363,128
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NET ASSETS...................................................... $400,582,759
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($380,296,184 divided by 31,815,508 shares of beneficial
interest)..................................................... $11.95
======
Offering price per share (100/97 of $11.95)..................... $12.32*
======
Net asset value and offering price of Class B shares
($14,624,285 divided by 1,224,624 shares of beneficial
interest)..................................................... $11.94**
======
Net asset value and offering price of Class C shares
($276,085 divided by 23,109 shares of beneficial interest).... $11.95
======
Net asset and offering price of Class Y shares
($5,386,205 divided by 450,179 shares of beneficial
interest)..................................................... $11.96
======
Identified cost of investments.................................. $390,377,435
============
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* 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.
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STATEMENT OF OPERATIONS
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Six Months Ended June 30, 1995
(unaudited)
INVESTMENT INCOME
Interest..................................................... $17,314,680
Expenses
Management fees............................................ $ 1,303,507
Service and distribution fees--Class A..................... 685,843
Service and distribution fees--Class B..................... 65,650
Service and distribution fees--Class C..................... 1,869
Trustees' fees and expenses................................ 12,728
Custodian.................................................. 84,592
Transfer agent............................................. 307,178
Audit and tax services..................................... 11,405
Legal...................................................... 12,993
Printing................................................... 37,481
Registration............................................... 20,528
Miscellaneous.............................................. 5,036 2,548,810
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Net investment income........................................ 14,765,870
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS
AND FUTURES CONTRACTS
Realized gain (loss) on:
Investments--net............................................. (482,915)
Futures contracts closed--net................................ 73,700
Options closed--net.......................................... (225,102)
-----------
Total realized loss on investment transactions............... (634,317)
-----------
Unrealized appreciation (depreciation) on:
Investments--net............................................. 15,569,929
Options--net................................................. (34,500)
-----------
Total unrealized appreciation on investment transactions..... 15,535,429
-----------
Net gain on investment transactions.......................... 14,901,112
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $29,666,982
===========
See accompanying notes to financial statements.
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STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
(unaudited)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1994 1995
------------ ------------
FROM OPERATIONS
Net investment income..................................... $ 33,871,995 $ 14,765,870
Net realized loss on investment transactions.............. (33,235,907) (634,317)
Unrealized appreciation (depreciation) on investments..... (12,496,351) 15,535,429
------------ ------------
Increase (decrease) in net assets from operations......... (11,860,263) 29,666,982
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A................................................. (29,623,496) (12,957,303)
Class B................................................. (542,209) (394,667)
Class C................................................. -- (10,867)
Class Y................................................. (123,393) (134,092)
------------ ------------
(30,289,098) (13,496,929)
------------ ------------
Decrease from capital share transactions.................. (100,124,500) (41,698,443)
------------ ------------
Total decrease in net assets.............................. (142,273,861) (25,528,390)
NET ASSETS
Beginning of the period................................... 568,385,010 426,111,149
------------ ------------
End of the period......................................... $426,111,149 $400,582,759
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period................................... $ 0 $ 400,474
============ ============
End of the period......................................... $ 400,474 $ 1,669,415
============ ============
See accompanying notes to financial statements.
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FINANCIAL HIGHLIGHTS
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(unaudited)
CLASS A
---------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------- JUNE 30,
1990 1991 1992 1993 1994 1995
------- -------- -------- -------- -------- --------
Net Asset Value,
Beginning of Period.... $ 12.53 $ 12.44 $ 12.86 $ 12.54 $ 12.49 $ 11.49
------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.... 0.94 0.93 0.80 0.71 0.82 0.43
Net Realized and
Unrealized Gain (Loss)
on Investments......... 0.29 0.69 (0.11) 0.08 (1.10) 0.42
------- -------- -------- -------- -------- --------
Total From Investment
Operations............. 1.23 1.62 0.69 0.79 (0.28) 0.85
------- -------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income...... (0.94) (0.94) (0.80) (0.71) (0.72) (0.39)
Distributions in Excess
of Net Investment
Income................. 0.00 0.00 0.00 (0.01) 0.00 0.00
Distributions From Net
Realized Capital
Gains.................. (0.38) (0.26) (0.21) (0.12) 0.00 0.00
------- -------- -------- -------- -------- --------
Total Distributions...... (1.32) (1.20) (1.01) (0.84) (0.72) (0.39)
------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 12.44 $ 12.86 $ 12.54 $ 12.49 $ 11.49 $ 11.95
======= ======== ======== ======== ======== ========
Total Return (%)(c)...... 10.5 13.8 5.7 6.4 (2.1) 7.5
Ratio of Operating
Expenses to Average Net
Assets (%) (a)......... 1.25 1.25 1.16 1.14 1.18 1.23(b)
Ratio of Net Investment
Income to Average Net
Assets (%)............. 7.95 7.24 6.24 5.64 6.80 7.41(b)
Portfolio Turnover Rate
(%).................... 55 277 323 124 244 353(b)
Net Assets, End of
Period (000)........... $50,062 $271,966 $477,396 $562,164 $412,399 $380,296
---------------
(a) Commencing May 18, 1989 through March 31,1992 expenses were voluntarily
limited to 1.25% of average daily net assets. The ratio of operating to
average net assets without giving effect to this expense limitation would
have been 1.62% for the year ended December 31, 1990.
(b) Computed on an annualized basis.
(c) A sales charge of 3% maximum was not reflected in Class A total return
calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
7
18
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED
--------------------------------------------------------------------------------
(unaudited)
CLASS B
----------------------------------------------
SEPTEMBER 27,(a) SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
---------------- ------------ ----------
Net Asset Value, Beginning of Period........... $12.76 $ 12.49 $ 11.48
------ ------- -------
Income From Investment Operations
Net Investment Income.......................... 0.17 0.71 0.38
Net Realized and Unrealized Gain (Loss)
on Investments............................... (0.24) (1.08) 0.43
------ ------- -------
Total From Investment Operations............... (0.07) (0.37) 0.81
------ ------- -------
Less Distributions
Distributions From Net Investment Income....... (0.16) (0.64) (0.35)
Distributions in Excess of Net Investment
Income....................................... (0.01) 0.00 0.00
Distributions From Net Realized Capital
Gains........................................ (0.03) 0.00 0.00
------ ------- -------
Total Distributions............................ (0.20) (0.64) (0.35)
------ ------- -------
Net Asset Value, End of Period................. $12.49 $ 11.48 $ 11.94
====== ======= =======
Total Return (%)(c)............................ (0.6) (2.9) 7.2
Ratio of Operating Expenses to Average
Net Assets (%)................................. 1.96(b) 1.83 1.88(b)
Ratio of Net Investment Income to Average
Net Assets (%)................................. 4.30(b) 6.15 6.76(b)
Portfolio Turnover Rate (%).................... 124 244 353(b)
Net Assets, End of Period (000)................ $6,221 $11,891 $14,624
---------------
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not annualized.
See accompanying notes to financial statements.
8
19
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED
--------------------------------------------------------------------------------
CLASS C CLASS Y
---------- --------------------------
SIX MONTHS MARCH 31,(a) SIX MONTHS
ENDED THROUGH ENDED
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1995
---------- ------------ ----------
Net Asset Value, Beginning of Period................ $11.48 $12.11 $11.51
------ ------ ------
Income From Investment Operations
Net Investment Income............................. 0.30 0.71 0.42
Net Realized and Unrealized Gain (Loss) on
Investments....................................... 0.42 (0.74) 0.44
------ ------ ------
Total From Investment Operations.................... 0.72 (0.03) 0.86
------ ------ ------
Less Distributions
Distributions From Net Investment Income............ (0.25) (0.57) (0.41)
Distributions in Excess of Net Investment Income.... 0.00 0.00 0.00
Distributions From Net Realized Capital Gains....... 0.00 0.00 0.00
------ ------ ------
Total Distributions................................. (0.25) (0.57) (0.41)
------ ------ ------
Net Asset Value, End of Period...................... $11.95 $11.51 $11.96
====== ====== ======
Total Return (%)(c)................................. 6.3 (0.8) 7.7
Ratio of Operating Expenses to Average Net Assets
(%)............................................... 1.88(b) 0.83(b) 0.88(b)
Ratio of Net Investment Income to Average Net
Assets (%)........................................ 6.76(b) 7.15(b) 7.76(b)
Portfolio Turnover Rate (%)......................... 353(b) 244 353(b)
Net Assets, End of Period (000)..................... $ 276 $1,822 $5,386
---------------
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Periods less than one year are not annualized.
See accompanying notes to financial statements.
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
(the "1940 Act"), as amended, as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each series of shares a "Fund").
The Fund offers Class A, Class B, Class C and Class Y shares. The Fund commenced
its public offering of Class B shares on September 27, 1993, Class C shares on
December 30, 1994 and of Class Y shares on March 31, 1994. Class A shares are
sold with a maximum front end sales charge of 3.00%. Class B shares do not pay a
front end sales charge, but pay a higher ongoing distribution fee than Class A
shares, and are subject to a contingent deferred sales charge if those shares
are redeemed within five years of purchase. Class C shares do not pay a front
end or contingent deferred sales charge and do not convert to any class of
shares, but they do pay a higher ongoing distribution fee than Class A shares.
Class Y shares do not pay a front end sales charge, a contingent deferred sales
charge or distribution fees. They are intended for institutional investors with
a minimum of $1,000,000 to invest. Expenses of the Fund are borne pro-rata by
the holders of all classes of shares, except that each class bears expenses
unique to that class (including the Rule 12b-1 service and distribution fees
applicable to such class), and votes as a class only with respect to its own
Rule 12b-1 Plan. Shares of each class would receive their pro-rata share of the
net assets 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
10
21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
the accrual basis. Interest income for the Fund is increased by the accretion of
discount. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
c. OPTIONS AND FUTURES. CALLS AND PUTS. The Fund may write (sell) call and put
options on securities to manage its exposure to interest rates and the bond
market. Buying futures, writing puts, and buying calls tend to increase the
fund's exposure to the underlying instrument. Selling futures, buying puts, and
writing calls tend to decrease the fund's exposure to the underlying instrument,
or hedge other fund investments. When a fund writes a call or put option, an
amount equal to the premium received by the fund is included in the fund's
statement of assets and liabilities as an asset and as an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. The current value of a written
option is the closing price on the principal exchange on which such option is
traded. If an option which the fund has written either expires on its stipulated
expiration date, or if the fund enters into a closing purchase transaction, the
fund realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the fund has written is
exercised, the fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a put option which the fund has written is exercised,
the amount of the premium originally received will reduce the cost of the
security which the fund purchases upon exercise of the option.
The premium paid by a fund for the purchase of a call or a put option is
included in the asset section of the fund's statement of assets and liabilities
as an investment and subsequently adjusted to the current market value of the
option. The current value of a purchased option is the closing price on the
principal exchange on which such option is traded. If an option which the fund
has purchased expires on the stipulated expiration date, the fund will realize a
loss in the amount of the cost of the option. If the fund enters into a closing
sale transaction, the fund will realize a gain or loss, depending on whether the
sales proceeds from the closing sale transaction are greater or less than the
cost of the option. If the fund exercises a purchased put option, it will
realize a gain or loss from the sale of the underlying security and the proceeds
from such sale will be decreased by the premium originally paid. If the fund
exercises a purchased call option, the cost of the security which the fund
purchases upon exercise will be increased by the premium originally paid.
The risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price
11
22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
decreases and the option is exercised. In addition, there is the risk the fund
may not be able to enter into a closing transaction because of an illiquid
secondary market.
d. INTEREST RATE FUTURES CONTRACTS. The Fund may purchase or sell interest rate
futures contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. An interest rate futures contract is an agreement
between two parties to buy and sell a security for a set price (or to deliver an
amount of cash) on a future date. Upon entering into such a contract, the
purchasing fund is required to pledge to the broker an amount of cash, U.S.
Government securities or other high quality debt securities equal to the minimum
"initial margin" requirements of the exchange, currently up to $3,000 per
contract. Pursuant to the contract, the fund agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of the
contract.
Such receipts or payments are known as "variation margin," and are recorded by
the fund as unrealized gains or losses. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The potential risk to the fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in the value of the hedged instruments. In addition,
there is a risk that the fund may not be able to close out its futures positions
due to an illiquid secondary market.
e. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
f. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record 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.
g. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors is responsible for determining that
the value of the collateral is at all times at least equal to the repurchase
price. Repurchase agreements
12
23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
could involve certain risks in the event of default or insolvency of the other
party including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1995 were as follows:
PURCHASES SALES
---------------------------- -----------------------------
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
--------------- ---------- --------------- -----------
$704,186,634 $4,996,875 $715,539,776 $34,649,691
Investments in written options for the Fund for the six months ended June 30,
1995 are summarized as follows:
WRITTEN OPTIONS
--------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
Contracts opened.................. 1,900 $ 689,212.50
Contracts closed.................. (1,400) (450,275.00)
------ ------------
Open at June 30, 1995............. 500 $ 238,937.50
====== ============
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
year ended December 31, 1994 provided for fees as set forth below:
FEES EARNED ANNUAL PERCENTAGE RATE FUND ANNUAL NET ASSET VALUE LEVELS
----------- ---------------------- ----------------------------------
$1,303,507 0.650% the first $200 million
0.625% the next $300 million
0.600% the excess over $500 million
b. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted Service and Distribution Plans relating to the Fund's
Class A shares (the "Class A Plan") and Class B shares (the "Class B Plan") and
Class C shares (the "Class C Plan").
Under the Class A Plan, the Fund pays New England Funds, L.P. ("New England
Funds") a monthly service fee at the annual rate of up to 0.25% of the average
daily net assets attributable to the Fund's Class A shares, as reimbursement for
expenses (including certain payments to securities dealers who may be affiliated
with
13
24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
New England Funds) incurred by New England Funds in providing personal services
to investors in Class A shares and/or the maintenance of shareholder accounts.
Also under the Class A Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.10% of the average daily net
assets attributable to the Fund's Class A shares as reimbursement for expenses
(including certain payments to securities dealers who may be affiliated with New
England Funds) incurred by New England Funds in connection with the marketing or
sale of Class A shares.
For the six months ended June 30, 1995, the Fund paid New England Funds $489,888
in service fees and $195,955 in distribution fees under the Class A Plan. If the
expenses of New England Funds that are otherwise reimbursable, as service fees
or distribution fees, respectively, under the Class A Plan incurred in any year
exceed the amounts of such fees payable by the Fund under the Class A Plan, the
unreimbursed amounts (together with unreimbursed amounts from prior years) may
be carried forward for reimbursement in future years in which the Class A Plan
remains in effect. The amount of unreimbursed expense carried forward into 1995
is $2,272,723 (reimbursable as distribution fees).
Under the Class B and Class C Plans, the Fund pays New England Funds monthly
service fees at the annual rate of up to 0.25% of the average daily net assets
attributable to the Fund's Class B shares and Class C shares, as compensation
for services provided and expenses (including certain payments to securities
dealers who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class B and Class C shares
and/or the maintenance of shareholder accounts. For the six months ended June
30,1995, the Fund paid New England Funds $16,413 and $467 in service fees under
the Class B and Class C Plans, respectively.
Also under the Class B and Class C Plans, the Fund pays New England Funds a
monthly distribution fee at the annual rate of up to 0.75% of the average daily
net assets attributable to the Fund's Class B and Class C shares, as
compensation for services provided and expenses (including certain payments to
securities dealers who may be affiliated with New England Funds) incurred by New
England Funds in connection with the marketing or sale of Class B and Class C
shares. For the six months ended June 30, 1995, the Fund paid New England Funds
$49,238 and $1,402 in distribution fees under the Class B and Class C Plans,
respectively.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors in shares of the Fund during the six months ended
June 30, 1995 amounted to $248,815.
14
25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
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 $307,178 as compensation for its services in that
capacity.
d. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of Back Bay
Advisors, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:
Annual Retainer............................ $2,400
Meeting Fee................................ $125/meeting
Committee Meeting Fee...................... $75/meeting
Committee Chairman Annual Retainer......... $125
A deferred compensation plan is available to the trustees on a voluntarily
basis. Each participating trustee will receive an amount equal to the value that
such deferred compensation would have had, had it been invested in the Fund on
the normal payment date.
4. CAPITAL SHARES. At June 30, 1995 there was an unlimited number of shares of
beneficial interest authorized, divided into four classes, Class A, Class B,
Class C and Class Y. Transactions in capital shares were as follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
--------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- ----------- ------------- ---------- ------------
Shares sold............................ 7,249,522 $ 87,450,145 1,611,222 $ 18,914,761
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income............................. 1,977,543 23,571,740 908,737 10,684,688
Distributions from net realized
gain............................... -- -- -- --
Distributions from paid-in capital... -- -- -- --
----------- ------------- ---------- ------------
9,227,065 111,021,885 2,519,959 29,599,449
Shares redeemed........................ (18,344,360) (219,584,415) (6,581,562) (77,175,845)
----------- ------------- ---------- ------------
Net increase (decrease)................ (9,117,295) $(108,562,530) (4,061,603) $(47,576,396)
=========== ============= ========== ============
15
26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
------------------------ ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
Shares sold............................ 754,998 $ 9,077,621 268,951 $ 3,141,203
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income............................. 36,690 434,371 27,846 337,500
Distributions from net realized
gain............................... -- -- -- --
Distributions from paid-in capital... -- -- -- --
-------- ----------- -------- -----------
791,688 9,511,992 296,797 3,478,703
Shares redeemed........................ (254,298) (3,025,313) (107,561) (1,260,611)
-------- ----------- -------- -----------
Net increase (decrease)................ 537,390 $ 6,486,679 189,236 $ 2,218,092
======== =========== ======== ===========
SIX MONTHS ENDED
JUNE 30, 1995
------------------------
CLASS C SHARES AMOUNT
------- -------- -----------
Shares sold............................ 124,079 $ 1,447,859
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income............................. 298 3,540
Distributions from net realized
gain............................... -- --
Distributions from paid-in capital... -- --
---------- -----------
124,377 1,451,399
Shares redeemed........................ (101,268) (1,191,261)
---------- -----------
Net increase (decrease)................ 23,109 $ 260,138
========== ===========
MARCH 31,(A) THROUGH SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
-------------------------- -------------------------
CLASS Y SHARES AMOUNT SHARES AMOUNT
------- ---------- ------------- ---------- ------------
Shares sold............................ 246,464 $ 2,978,092 295,154 $ 3,438,296
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income............................. 10,363 122,236 11,443 135,260
Distributions from net realized
gain............................... -- -- -- --
Distributions from paid-in capital... -- -- -- --
---------- ------------- ---------- ------------
256,827 3,100,328 306,597 3,573,556
Shares redeemed........................ (98,511) (1,148,977) (14,734) (173,833)
---------- ------------- ---------- ------------
Net increase (decrease)................ 158,316 $ 1,851,351 291,863 $ 3,399,723
========== ------------- ---------- ------------
Total increase (decrease) from
capital share transactions........... (8,421,589) $(100,124,500) (3,557,395) $(41,698,443)
========== ============= ========== ============
---------------
(a) Commencement of operations.
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
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