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ANNUAL REPORT AND PERFORMANCE UPDATE
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NEW ENGLAND
MONEY MARKET FUNDS
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JUNE 30, 1996
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<PAGE>
July 25, 1996
DEAR SHAREHOLDER,
New England Funds welcomes the opportunity to present you with the 1996
Annual Report for New England Money Market Funds, containing your portfolio
manager commentary and complete financial information.
ECONOMIC GROWTH IN THE FIRST HALF OF 1996
Moderate growth with low inflation was the economic story during the first
half of 1996. U.S. Gross Domestic Product (GDP), a bellwether of economic
growth, remained strong at 2.3% through June, just shy of what most economists
consider optimal growth. As a result, the Federal Reserve Board opted not to
tinker with interest rates through the first half of the year, save for a
quarter-point hike in short-term rates in late January. The relatively calm
economic waters had a stimulating effect on the domestic equity market, boosting
stocks 537 points to 5,654 at the end of June, as measured by the Dow Jones
Industrial Average. Bond yields did not fare as well, rising to 7.00% at the end
of June from 6.65% earlier in the year. Money market yields remained stable,
falling back only slightly during the past six months.
THE BENEFITS OF MAINTAINING A LONG-TERM FOCUS
But the market volatility of the first three weeks in July claimed 5.5% of
the Dow Jones Industrial Average's first-half gains. Again, we are reminded that
no bull market lasts forever. Long-term financial goals are key in times like
these and it's important to anticipate this type of market volatility and remain
committed to your financial plan.
It's also a good idea to ask your financial representative for help. A
financial representative can guide you through volatile markets and help you
meet your long-term financial goals. A recent study by Dalbar, Inc., a mutual
fund monitoring and analytical service, shows that, on average, mutual fund
investors who bought and held shares, with the assistance of a financial
representative, enjoyed the benefits of a long-term commitment. Consequently,
they benefitted from higher returns than direct investors and others who bought
and sold, although this does not occur in every case.
CELEBRATING THE BIRTHDAYS OF THREE NEW ENGLAND FUNDS
During the past two months, we've celebrated the birthdays of three of our
most popular funds: New England Growth Opportunities Fund; New England Strategic
Income Fund and New England Star Advisers Fund. Demonstrating the remarkable
scope and breadth of our funds, the Growth Opportunities Fund celebrated its
65th birthday in May while the fast-growing Strategic Income and Star Advisers
Funds mark their first and second birthdays, respectively. We're proud of all of
our funds, but take special pride in recognizing that, whether six months or
65-years-old, all New England Funds are designed to help investors achieve their
goals.
NEW ENGLAND FUNDS: THE PLACE "WHERE THE BEST MINDS MEET"(TM)
The longevity of our more seasoned funds and the potential for growth of
our newer ones illustrates the ongoing progress of New England Funds. Our unique
multiple-adviser approach brings together some of the best minds in the
investment business. The ability to attract top-notch investment advisers and
our multiple-adviser approach to fund management are the cornerstones of New
England Funds' investment philosophy and the essence of our corporate logo,
Where The Best Minds Meet(TM).
OUTLOOK FOR THE REST OF 1996
Going forward, we anticipate that the economy will continue to grow
moderately and that inflationary pressures will not be excessive. While we
estimate the GDP may rise somewhat from its current level of 2.3%, the Federal
Reserve should be reluctant to tighten the money supply by raising short-term
interest rates. We also believe that the equity markets will continue to be
volatile through the rest of the year.
We believe that you will find your portfolio manager commentary
informative. If you have any questions or comments, please contact your
financial representative or New England Funds directly at 800-225-5478.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer, President
<PAGE>
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NEW ENGLAND MONEY MARKET FUNDS
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NEW ENGLAND MONEY MARKET FUNDS
1996 ECONOMIC OVERVIEW
The interest rate environment during the first half of 1996 was notable for its
high level of volatility. Responding to 1995's low fourth-quarter Gross Domestic
Product (GDP) annualized growth rate of only 0.5% and a January economy plagued
by severe winter weather, the Federal Reserve lowered short-term interest rates
by 25 basis points (to 5.25%) in late January. That pushed one-year Treasury
yields down to 4.79% and ten-year Treasury notes to 5.53% by mid-February.
Economic activity picked up in March, posting a respectable 2.2% GDP after the
first quarter, causing the one-year Treasury bill and ten-year Treasury note to
rise to 5.41% and 6.34% respectively.
The second quarter saw continued economic expansion, fueled by strong growth in
the housing and auto sectors, despite higher interest rates. Job growth was
surprisingly solid and employee wages were at an all-time high. With second
quarter GDP expected to exceed 4%, expectations have risen for the Federal
Reserve to increase interest rates moderately. By the end of June, the markets
drove yields even higher, with the one-year note and ten-year note yielding
5.95% and 7.02%, respectively.
<PAGE>
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NEW ENGLAND MONEY MARKET FUNDS
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NEW ENGLAND TAX EXEMPT
MONEY MARKET TRUST
[photo John Maloney]
Portfolio Manager: John Maloney
Back Bay Advisors, L.P.
How Your Fund Performed
Fund performance through the first half of 1996 continued to compare favorably
with other tax exempt money market funds. As of June 30, the yield of the Tax
Exempt Money Market Trust was 3.32%, which is equivalent to a 5.50% taxable
yield for an investor in the maximum federal bracket of 39.6%. The seven-day
compounded yield of 3.13% was equivalent to a taxable 5.18% yield for a taxpayer
in the 39.6% bracket. This performance placed the Fund in the top quarter of the
135 tax exempt money market funds tracked by Lipper Analytical Services, a
leading mutual fund monitoring service.*
How We Managed Your Funds
Tax exempt money markets are not driven by interest rate fluctuations as much as
by supply/demand dynamics. At no time was this more evident than in June, the
largest month of the year for issuance of short-term paper. It's a time of year
when participation in the market is critical and one where the availability of
one-year notes can evaporate quickly.
In order to increase yield we purchased newly issued tax exempt notes during
June. Increased activity in tax exempt money markets during June helped the Fund
capture higher yields, but not so much as to reduce our flexibility to
capitalize on future interest rate and market changes. As rates were still
relatively low through the last six months, we increased the portfolio's average
days-to-maturity from 14 days in April to 55 days at the end of June. Extending
maturity helped us lock in higher yields for a longer period of time. We also
continued to increase the Fund's investment in floating rate instruments, whose
yields reset daily or weekly and are extremely sensitive to changes in the
interest rate environment.
Economic Outlook
We estimate that second quarter GDP numbers may rise above current trends. To
respond to investor concerns about an overheating economy and rising inflation,
the Federal Reserve will likely tighten short-term interest rates. If not, look
for the bond market to act on its own and raise yields to slow economic growth
by year-end. We already witnessed an example of that in June, when long bond
yields rose from 6.65% to 7.05% in a matter of weeks.
As interest rates rise, we will seek to maintain high yields by tightening up
the Fund's average maturity and keeping weekly and daily floater levels high to
take advantage of their sensitivity to interest rates. We also intend to
maintain the Fund's high credit quality, investing only in top tier municipal
securities. You can have peace of mind of knowing that no matter what the
direction of the political and economic winds, your Fund will seek to continue
offering a competitive level of income free from federal income taxes. [Some
shareholders may be subject to the Alternative Minimum Tax (AMT).]
*Past performance is no guarantee of future results.
<PAGE>
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NEW ENGLAND MONEY MARKET FUNDS
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New England Money Market Funds
[photo Scott Nicholson]
Portfolio Manager: Scott Nicholson
Back Bay Advisors, L.P.
Economic Overview
The interest rate environment during the first half of 1996 was notable for its
high level of volatility, as the economic releases presented conflicting views
about the strength of the domestic economy, and political events in Washington
raised hopes of imminent fiscal policy reform, which subsequently faded away.
Based on 1995's fourth quarter Gross Domestic Product (GDP) of only 0.5% and a
January economy plagued by severe winter storms, the Federal Reserve lowered
short-term interest rates by 25 basis points to 5.25% in late January, pushing
the three-month treasury bill yield to 4.89% and the one-year Treasury bill
yield to 4.79% by mid-February on market expectations of further rate cuts.
However, with the return of milder weather and the end of the General Motors
strike, economic activity picked up significantly, resulting in a respectable
first quarter GDP of 2.2%. At this point, the market's outlook for Federal
Reserve policy turned to neutral with the three-month and one-year bill yields
rising to 5.13% and 5.41%, respectively.
The second quarter saw continued economic expansion; as the important housing
and automobile sectors remained strong despite the pressures of higher interest
rates. Job growth was surprisingly solid in spite of the ongoing trend toward
downsizing in many prominent corporations, and wage pressures began to appear in
certain industries and areas of the country. In addition, expectations of a
fiscal drag on the economy through a balanced budget agreement evaporated as
Washington returned to politics as usual. With second quarter GDP expected to
exceed 4%, the interest rate outlook has come full circle to where participants
are now expecting an imminent Federal Reserve tightening and have significantly
pushed up rates to a point where the three-month and one-year bills are yielding
5.30% and 5.95%, respectively.
How We Managed Your Fund
As indicated in our 1995 Annual Report, we entered 1996 with an average maturity
of approximately 75 days for both our Money Market and U.S. Government Series
based on our expectations for lower short-term rates in the first quarter. Rates
did move lower through mid-February, but as economic activity picked up in late
February and March, we reversed our strategy to some degree, reducing the
average maturity of the Money Market Series and U.S. Government Series to 62
days and 52 days, respectively. We have periodically taken advantage of climbing
interest rates to buy longer-maturing instruments to increase the Funds'
returns, ending the quarter with 64-day and 68-day average maturities for the
respective series.
Outlook
The short term interest rate picture remains murky as we enter the second half
of 1996. Although concerns have arisen about a strong economy leading to
increased inflation, it is unclear whether the Federal Reserve will necessarily
have to raise rates aggressively to slow down economic growth. Market prices
already reflect a possible half-percentage point increase in short-term interest
rates by the Federal Reserve but could certainly expect more if inflation
concerns persist. At present, both funds are well positioned to take advantage
of the spike in rates.
<PAGE>
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NEW ENGLAND MONEY MARKET FUNDS
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INVESTMENT RESULTS THROUGH June 30, 1996
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AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 6/30/96*
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6-month 1-year 5-year
(Class A&B) (Class A&B) (Class A)
- -----------------------------------------------------------------------------
New England Cash Management Trust-- 2.31% 4.95% 3.96%
Money Market Series
IBC All-Taxable Peer Group Average
New England Cash Management Trust-- 2.25 4.86 3.89
U.S. Government Series
IBC U.S. Treasury Peer Group Average
New England Tax Exempt 1.58 3.32 2.84
Money Market Trust
IBC Tax Free Peer Group Average
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* Investment results in this table are from IBC Money Fund Report(R) for the
period ended 6/30/96. Donoghue's taxable, U.S. Treasury and tax-free peer
group averages are unmanaged indices that rank the performance of several
categories of money market funds. Investment results in this table represent
annual returns reinvestment of dividends. Figures quoted above represent past
performance and are not a guarantee of future results. Yields will fluctuate
with changes in market conditions. The Trust's annualized yields for Class A
and B for the 7-day period ended June 30, 1996 were 4.47% (Money Market
Series), 4.43% (U.S. Government Series) and 3.53% (Tax Exempt Money Market
Trust).
<PAGE>
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PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
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NEW ENGLAND
MONEY MARKET FUNDS
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JUNE 30, 1996
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<PAGE>
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CASH MANAGEMENT TRUST -- MONEY MARKET SERIES
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Investments as of June 30, 1996
<TABLE>
<CAPTION>
INVESTMENTS--99.8% OF TOTAL NET ASSETS
FACE INTEREST MATURITY
AMOUNT DESCRIPTION RATE DATE VALUE (A)
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<C> <S> <C> <C> <C>
BANK NOTE--1.5%
$10,000,000 First Union National Bank of North
Carolina (b) ....................... 5.300% 07/01/96 $ 10,000,000
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Total Bank Note (Cost $10,000,000) ............................. 10,000,000
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CERTIFICATES OF DEPOSIT--8.3%
5,000,000 Royal Bank of Canada ................. 5.330% 07/01/96 5,000,000
5,000,000 Societe Generale ..................... 5.330% 07/02/96 5,000,000
5,000,000 Rabobank Nederland ................... 5.310% 07/05/96 5,000,143
5,000,000 Commerzbank AG ....................... 5.410% 09/06/96 4,999,166
5,000,000 Commerzbank AG ....................... 5.420% 10/17/96 4,997,966
10,000,000 Commerzbank AG ....................... 5.470% 12/02/96 10,000,416
10,000,000 Societe Generale ..................... 5.520% 12/03/96 10,000,838
5,000,000 ABN Amro Bank ........................ 5.660% 12/10/96 5,000,244
5,000,000 Deutsche Bank AG ..................... 5.620% 01/15/97 5,000,938
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Total Certificates of Deposit (Cost $54,999,711) ............... 54,999,711
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CERTIFICATES OF DEPOSIT (EURODOLLARS)--9.0%
5,000,000 Morgan Guaranty Trust ................ 5.350% 07/15/96 5,000,019
10,000,000 ABN Amro Bank ........................ 5.290% 07/22/96 10,000,170
10,000,000 Rabobank Nederland ................... 5.250% 07/25/96 10,000,320
10,000,000 Banque National De Paris ............. 5.170% 07/26/96 10,000,203
10,000,000 Morgan Guaranty Trust ................ 5.400% 10/16/96 10,000,000
10,000,000 Toronto Dominion Bank ................ 5.390% 10/25/96 9,998,340
5,000,000 ABN Amro Bank ........................ 5.460% 11/15/96 5,000,540
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Total Certificates of Deposit (Eurodollars) (Cost $59,999,592) . 59,999,592
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COMMERCIAL PAPER--81.0%
AUTOMOBILES--9.0%
9,000,000 General Motors Acceptance Corp. ...... 5.340% 07/02/96 8,998,665
5,100,000 Ford Motor Credit Corp. .............. 5.360% 07/05/96 5,096,963
3,000,000 Ford Motor Credit Corp. .............. 5.290% 07/08/96 2,996,914
5,000,000 American Honda Finance ............... 5.330% 07/09/96 4,994,078
5,000,000 General Motors Acceptance Corp. ...... 5.340% 07/12/96 4,991,842
5,000,000 General Motors Acceptance Corp. ...... 5.360% 07/18/96 4,987,344
5,000,000 American Honda Finance ............... 5.320% 07/30/96 4,978,572
5,000,000 General Motors Acceptance Corp. ...... 5.330% 07/30/96 4,978,532
8,000,000 General Motors Acceptance Corp. ...... 5.400% 08/05/96 7,958,000
5,000,000 Ford Motor Credit Corp. .............. 5.380% 08/08/96 4,971,606
5,000,000 Ford Motor Credit Corp. .............. 5.410% 10/10/96 4,924,109
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59,876,625
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BANKING--14.5%
$ 7,000,000 Royal Bank of Canada ................. 5.090% 07/01/96 $ 7,000,000
4,189,000 UBS Finance Delaware, Inc. ........... 5.580% 07/01/96 4,189,000
3,000,000 UBS Finance Delaware, Inc. ........... 5.420% 07/05/96 2,998,193
5,000,000 Societe Generale ..................... 4.900% 07/09/96 4,994,556
4,500,000 J. P. Morgan & Co., Inc. ............. 5.450% 07/10/96 4,493,869
5,000,000 Societe Generale ..................... 4.920% 07/10/96 4,993,850
10,000,000 Dresdner US Finance .................. 5.090% 07/17/96 9,977,378
6,000,000 BNP Bank Canada ...................... 5.360% 09/03/96 5,942,827
10,000,000 BNP Bank Canada ...................... 5.350% 11/01/96 9,817,208
5,000,000 ABN Amro Bank ........................ 5.290% 11/07/96 4,905,221
5,000,000 ABN Amro Bank ........................ 5.340% 11/07/96 4,904,325
5,000,000 BNP Bank Canada ...................... 5.320% 11/21/96 4,894,339
8,000,000 Dresdner US Finance .................. 5.410% 12/05/96 7,811,251
10,000,000 SBC Finance Delaware, Inc. ........... 5.480% 12/27/96 9,727,522
10,000,000 Toronto Dominion Holdings USA, Inc. .. 5.470% 12/27/96 9,728,019
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96,377,558
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BEVERAGES--1.5%
10,000,000 Pepsico, Inc. ........................ 5.280% 09/03/96 9,906,133
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DRUGS--4.5%
5,000,000 American Home Products Corp. ......... 5.350% 07/11/96 4,992,569
6,000,000 American Home Products Corp. ......... 5.320% 07/19/96 5,984,040
9,000,000 American Home Products Corp. ......... 5.300% 07/24/96 8,969,525
5,000,000 American Home Products Corp. ......... 5.370% 07/26/96 4,981,354
5,000,000 American Home Products Corp. ......... 5.310% 08/02/96 4,976,400
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29,903,888
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FINANCE--21.6%
6,000,000 Dillard Investment Co. ............... 5.380% 07/02/96 5,999,103
4,500,000 Household Finance Corp. .............. 5.360% 07/10/96 4,493,970
5,000,000 CIT Group Holdings ................... 5.330% 07/11/96 4,992,597
5,000,000 Beneficial Corp. ..................... 5.250% 07/16/96 4,989,062
4,000,000 American Express Credit Corp. ........ 5.120% 07/19/96 3,989,760
4,000,000 Associates Corp. of North America .... 5.080% 07/29/96 3,984,196
5,000,000 Associates Corp. of North America .... 5.370% 07/31/96 4,977,625
5,000,000 Avco Financial Services. Inc. ........ 5.290% 08/05/96 4,974,285
6,000,000 Avco Financial Services. Inc. ........ 5.390% 08/06/96 5,967,660
5,000,000 American Express Credit Corp. ........ 4.880% 08/09/96 4,973,567
8,000,000 Beneficial Corp. ..................... 5.270% 08/12/96 7,950,813
5,000,000 Associates Corp. of North America .... 5.280% 08/16/96 4,966,267
8,000,000 Transamerica Financial Group ......... 5.400% 08/26/96 7,932,800
5,000,000 General Electric Capital Corp. ....... 5.260% 08/30/96 4,956,167
6,500,000 Transamerica Financial Group ......... 5.290% 09/05/96 6,436,961
7,000,000 Avco Financial Services. Inc. ........ 5.320% 09/11/96 6,925,520
5,000,000 American Express Credit Corp. ........ 5.270% 09/18/96 4,942,176
8,000,000 American Express Credit Corp. ........ 5.290% 09/23/96 7,901,253
5,000,000 Transamerica Financial Group ......... 5.300% 10/15/96 4,921,972
7,000,000 General Electric Capital Corp. ....... 5.230% 10/17/96 6,890,170
5,050,000 Transamerica Financial Group ......... 5.320% 10/31/96 4,958,954
5,000,000 General Electric Capital Corp. ....... 5.470% 11/12/96 4,898,197
6,000,000 American Express Credit Corp. ........ 5.300% 11/18/96 5,876,333
6,000,000 General Electric Capital Corp. ....... 5.390% 01/10/97 5,826,622
5,000,000 General Electric Capital Corp. ....... 5.600% 02/10/97 4,825,778
4,000,000 General Electric Capital Corp. ....... 5.600% 02/24/97 3,851,911
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143,403,719
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INSURANCE--3.0%
5,000,000 Prudential Funding Corp. ............. 5.320% 07/03/96 4,998,522
5,000,000 Prudential Funding Corp. ............. 5.320% 07/18/96 4,987,439
10,000,000 Prudential Funding Corp. ............. 5.420% 10/23/96 9,828,367
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19,814,328
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PAPER--0.9%
6,000,000 Weyerhauser Mortgage ................. 5.350% 07/19/96 5,983,950
------------
POLLUTION CONTROL--2.5%
5,000,000 WMX Technologies, Inc. ............... 5.230% 08/01/96 4,977,482
5,000,000 WMX Technologies, Inc. ............... 5.270% 10/08/96 4,927,538
7,000,000 WMX Technologies, Inc. ............... 5.350% 10/15/96 6,889,731
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16,794,751
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RETAIL--5.0%
12,000,000 Sears Roebuck Acceptance Corp. ....... 5.320% 07/23/96 11,960,987
5,000,000 Sears Roebuck Acceptance Corp. ....... 5.310% 07/25/96 4,982,300
5,000,000 Sears Roebuck Acceptance Corp. ....... 5.330% 07/31/96 4,977,792
4,000,000 Sears Roebuck Acceptance Corp. ....... 5.400% 08/13/96 3,974,200
7,000,000 Sears Roebuck Acceptance Corp. ....... 5.390% 08/19/96 6,948,645
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32,843,924
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SECURITIES--18.5%
10,000,000 Lehman Brothers Holdings, Inc. ....... 5.420% 07/01/96 10,000,000
5,000,000 Goldman Sachs Group .................. 5.400% 07/03/96 4,998,500
5,000,000 Lehman Brothers Holdings, Inc. ....... 5.420% 07/03/96 4,998,494
7,000,000 Smith Barney Shearson, Inc. .......... 5.300% 07/03/96 6,997,939
6,000,000 Lehman Brothers Holdings, Inc. ....... 5.500% 07/08/96 5,993,583
6,000,000 Merrill Lynch & Co. .................. 5.330% 07/08/96 5,993,782
2,000,000 Goldman Sachs Group .................. 5.370% 07/09/96 1,997,613
5,000,000 Merrill Lynch & Co. .................. 5.350% 07/12/96 4,991,826
4,250,000 Morgan Stanley Group, Inc. ........... 5.400% 07/16/96 4,240,438
5,000,000 Smith Barney Shearson, Inc. .......... 5.350% 07/24/96 4,982,910
5,000,000 Merrill Lynch & Co. .................. 5.290% 07/29/96 4,979,428
10,000,000 Smith Barney Shearson, Inc. .......... 5.350% 07/29/96 9,958,389
5,000,000 Smith Barney Shearson, Inc. .......... 5.370% 08/01/96 4,976,879
10,000,000 Morgan Stanley Group, Inc. ........... 5.060% 08/02/96 9,955,022
8,000,000 Merrill Lynch & Co. .................. 5.400% 09/04/96 7,922,000
5,000,000 Goldman Sachs Group .................. 5.220% 09/20/96 4,941,275
6,000,000 Merrill Lynch & Co. .................. 5.430% 10/01/96 5,916,740
8,000,000 Goldman Sachs Group .................. 5.350% 10/04/96 7,887,056
6,000,000 Goldman Sachs Group .................. 5.370% 11/05/96 5,886,335
5,000,000 Goldman Sachs Group .................. 5.370% 11/07/96 4,903,788
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122,521,997
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Total Commercial Paper (Cost $537,426,873) ..................... 537,426,873
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Total Investments--99.8% (Cost $662,426,176) (c) ............... 662,426,176
Other assets less liabilities .................................. 1,194,410
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Total Net Assets--100% ......................................... $663,620,586
============
<FN>
(a) See note 1a.
(b) Variable rate interest certificates are instruments whose interest rates
vary with changes in a designated base rate on a specific date. This
certificate resets interest daily based on the prime interest rate. The
maturity date shown is the next interest reset date. The final maturity on
this certificate is 6/03/97.
(c) The aggregate cost for federal income tax purposes was $662,426,176.
</TABLE>
Percentage of Net Assets invested in obligations of foreign banks or foreign
branches of U.S. Banks at June 30, 1996:
Canada 4.78% Netherlands 6.75%
France 8.38% Switzerland 2.55%
Germany 6.45%
See accompanying notes to financial statements.
<PAGE>
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CASH MANAGEMENT TRUST -- U.S. GOVERNMENT SERIES
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Investments as of June 30, 1996
<TABLE>
<CAPTION>
INVESTMENTS--98.4% OF TOTAL NET ASSETS
FACE INTEREST MATURITY
AMOUNT DESCRIPTION RATE DATE VALUE (A)
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT--50.4%
<C> <S> <C> <C> <C>
$ 4,000,000 U.S. Treasury Bill .................... 4.950% 07/05/96 $ 3,997,787
4,000,000 U.S. Treasury Bill .................... 5.120% 09/19/96 3,954,489
5,000,000 U.S. Treasury Bill .................... 5.095% 11/14/96 4,903,761
5,000,000 U.S. Treasury Bill .................... 5.240% 12/05/96 4,885,739
4,000,000 U.S. Treasury Bill .................... 5.120% 12/12/96 3,906,702
5,000,000 U.S. Treasury Bill .................... 5.265% 01/09/97 4,859,600
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Total U.S. Government (Cost $26,508,078) ........................ 26,508,078
-----------
REPURCHASE AGREEMENTS--48.0%
12,600,000 Repurchase Agreement with Goldman Sachs & Co. dated 6/28/96 at
5.35% to be repurchased at $12,605,618 on 7/01/96 collateralized
by $12,055,000 U.S. Treasury Notes, 7.625% due 11/15/22, with a
value of $13,003,392 .......................................... 12,600,000
12,600,000 Repurchase Agreement with Merrill Lynch dated 6/28/96 at 5.25% to
be repurchased at $12,605,513 on 7/01/96 collateralized by
$12,650,000 U.S. Treasury Notes 6.875% due 5/15/06, with a
value of $12,897,963 .......................................... 12,600,000
-----------
Total Repurchase Agreements (Cost $25,200,000) .................. 25,200,000
-----------
Total Investments--98.4% (Cost $51,708,078) (b) ................. 51,708,078
Other assets less liabilities ................................... 838,866
-----------
Total Net Assets--100% .......................................... $52,546,944
===========
<FN>
(a) See note 1a.
(b) The aggregate cost for federal income tax purposes was $51,708,078.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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TAX EXEMPT MONEY MARKET TRUST
- ------------------------------------------------------------------------------
Investments as of June 30, 1996
<TABLE>
<CAPTION>
TAX EXEMPT OBLIGATIONS--103.1% OF TOTAL NET ASSETS
FACE
AMOUNT ISSUER VALUE (A)
- -----------------------------------------------------------------------------------------
<C> <S> <C>
ALABAMA--4.6%
$2,000,000 Port City Medical Clinic Board Commercial Paper
3.750%, 7/09/96 .................................. $ 2,000,000
1,000,000 Port City Medical Clinic Board Commercial Paper
3.850%, 7/16/96 .................................. 1,000,000
-----------
3,000,000
-----------
CALIFORNIA--9.3%
1,500,000 Los Angeles County Transportation 4.500%, 7/01/96 (d) 1,500,000
2,000,000 San Bernardino County Transportation 4.500%, 7/05/96 2,000,115
2,500,000 Contra Costa Community College 4.500%, 6/30/97 (c) .. 2,516,800
-----------
6,016,915
-----------
DISTRICT OF COLUMBIA--1.7%
1,100,000 District of Columbia Floating Rate 3.750% (b) ....... 1,100,000
-----------
FLORIDA--20.5%
1,500,000 Sunshine State Governmental Financing Commercial Paper
3.450%, 7/10/96 ................................... 1,500,000
500,000 Alachua County Health Facilities Commercial Paper
3.650%, 7/12/96 ................................... 500,000
2,420,000 Sarasota County Public Hospital District
Commercial Paper 3.550%, 7/15/96 .................. 2,420,000
600,000 Alachua County Health Facilities Commercial Paper
3.800%, 8/01/96 ................................... 600,000
1,000,000 Alachua County Health Facilities Commercial Paper
3.650%, 9/04/96 ................................... 1,000,000
600,000 Alachua County Health Facilities Commercial Paper
3.800%, 9/11/96 ................................... 600,000
500,000 Alachua County Health Facilities Commercial Paper
3.750%, 9/24/96 ................................... 500,000
3,100,000 Dade County Special Obligation Floating Rate 3.600% (b)(d) 3,100,000
3,100,000 Broward County Housing Finance Authority Floating Rate
3.350% (b)(d) ..................................... 3,100,000
-----------
13,320,000
-----------
HAWAII--8.5%
2,410,000 State Department of Budget and Finance Floating Rate
3.900% (b) ........................................ 2,410,000
3,100,000 State Housing Finance & Development Corp. Floating Rate
3.650% (b) ........................................ 3,100,000
-----------
5,510,000
-----------
ILLINOIS--8.5%
1,000,000 City of Chicago Commercial Paper 3.650%, 10/31/96 .. 1,000,000
2,000,000 Health Facilities Authority Floating Rate
3.750% (b) ....................................... 2,000,000
1,000,000 Health Facilities Authority Floating Rate
3.400% (b) ....................................... 1,000,000
1,500,000 Jackson/Union Counties Floating Rate 3.650% (b) .... 1,500,000
-----------
5,500,000
-----------
INDIANA--7.5%
1,000,000 Jasper Industrial Pollution Control Revenue
Commercial Paper 3.500%, 7/09/96 ................. 1,000,000
1,035,000 Rockport Pollution Control Revenue Floating
Rate 3.150% (b) .................................. 1,035,000
2,800,000 Fort Wayne Hospital Floating Rate 3.350% (b) ....... 2,800,000
-----------
4,835,000
-----------
IOWA--8.5%
2,500,000 Iowa Municipalities Workers Bond Anticipation
Note 4.100%, 7/01/96 ............................. 2,500,000
3,000,000 Iowa School Corps Warrant Certificates
4.750%, 6/27/97 .................................. 3,022,817
-----------
5,522,817
-----------
KENTUCKY--0.8%
500,000 Pendleton County Revenue Bonds 4.000%, 7/01/96 ..... 500,000
-----------
LOUISIANA--4.8%
$3,100,000 Louisiana Public Facilities Hospital Authority
Floating Rate 3.600% (b) ......................... 3,100,000
-----------
MARYLAND--3.9%
2,500,000 State Health & Higher Educational Facilities
Floating Rate 3.30% (b) ......................... 2,500,000
-----------
MINNESOTA--6.4%
1,200,000 St. Paul Housing & Redevelopment Authority
Floating Rate 3.800% (b) ........................ 1,200,000
1,770,000 Mendota Heights Floating Rate 3.450% (b) .......... 1,770,000
1,200,000 Mendota Heights Floating Rate 3.800% (b) .......... 1,200,000
-----------
4,170,000
-----------
MONTANA--0.6%
400,000 Forsyth Pollution Control Revenue Floating Rate
3.900% (b) ...................................... 400,000
-----------
NEW YORK--4.9%
3,200,000 New York City Floating Rate 3.800% (b) ........... 3,200,000
-----------
PENNSYLVANIA--5.4%
500,000 Northeastern Hospital Authority Revenue
Commercial Paper 3.400%, 7/08/96 (b) ........... 500,000
3,000,000 Emmaus General Authority Revenue Floating
Rate 3.350% (b) ................................ 3,000,000
-----------
3,500,000
-----------
TEXAS--3.4%
1,500,000 State Bond Anticipation Notes 4.750%, 8/30/96 .... 1,501,657
700,000 Nueces County Health Facilities Floating
Rate 3.150% (b) ................................ 700,000
-----------
2,201,657
-----------
WASHINGTON--2.3%
1,500,000 Snohomish County Public Utilities 4.450%, 1/1/97 1,505,312
-----------
WISCONSIN--1.5%
1,000,000 State Health & Educational Facility 4.250%,6/01/97 1,003,555
-----------
Total Investments--103.1% (Identified Cost
$66,885,256) (e) ............................... 66,885,256
Other assets less liabilities ................... (1,987,973)
-----------
Total Net Assets--100% ........................... $64,897,283
===========
<FN>
(a) See Note 1a.
(b) Floating rate notes are instruments whose interest rates vary with changes
in a designated base rate (such as the prime interest rate) on a specified
date (such as coupon date or interest payment date). These instruments are
payable on demand and are secured by letters of credit or other credit
support agreements from major banks.
(c) Purchased on a when-issued basis. See Note 1d.
(d) These securities, or a portion thereof, are being used to collateralize the
when-issued purchase indicated in note (c) above.
(e) The aggregate cost for federal income tax purposes was $66,885,256.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- ------------------------------------------------------------------------------
June 30, 1996
CASH MANAGEMENT TRUST TAX
--------------------------- EXEMPT
MONEY U.S. MONEY
MARKET GOVERNMENT MARKET
SERIES SERIES TRUST
------------- ------------ -----------
ASSETS
Investments at value
Securities ..................... $662,426,176 $26,508,078 $66,885,256
Repurchase agreements .......... -- 25,200,000 --
------------ ----------- -----------
Total investments ................ 662,426,176 51,708,078 66,885,256
Cash ............................. 530,643 191,175 87,039
Receivable for:
Shares of the Trust sold ....... 4,197,391 430,001 724,706
Security paydowns .............. 392,546 435,558 --
Interest ....................... 1,756,426 85,167 474,709
Prepaid registration ............. 14,000 14,000 7,000
------------ ----------- -----------
669,317,182 52,863,979 68,178,710
------------ ----------- -----------
LIABILITIES
Payable for:
Shares of the Trust redeemed ... 5,261,052 237,213 691,257
Securities purchased ........... -- -- 2,516,800
Dividends declared ............. 26,851 1,492 628
Accrued expenses:
Management fees ................ 231,358 18,672 --
Deferred trustees' fees ........ 30,445 28,388 33,283
Other expenses ................. 146,890 31,270 39,459
------------ ----------- -----------
5,696,596 317,035 3,281,427
------------ ----------- -----------
NET ASSETS ......................... $663,620,586 $52,546,944 $64,897,283
============ =========== ===========
Net Assets consist of:
Capital paid in Class A shares . $ 655,516,274 $ 51,675,020 $64,675,292
Capital paid in Class B shares . 7,989,246 810,983 221,991
Undistributed realized gain .... 115,066 60,941 --
------------ ----------- -----------
NET ASSETS ......................... $663,620,586 $52,546,944 $64,897,283
============ =========== ===========
Shares of beneficial interest
outstanding, no par value
Class A shares ................... 655,516,274 51,675,020 64,675,292
Class B shares ................... 7,989,246 810,983 221,991
------------ ----------- -----------
Shares of beneficial interest
outstanding ....................... 663,505,520 52,486,003 64,897,283
============ =========== ===========
Net asset value per share Class A
and Class B shares * ............ $1.00 $1.00 $1.00
===== ===== =====
Cost of investments ................ $662,426,176 $51,708,078 $66,885,256
============ =========== ===========
*Shares of the Series are sold and redeemed at net asset value.
(Net assets / Shares of beneficial interest outstanding).
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
Year Ended June 30, 1996
CASH MANAGEMENT TRUST TAX
------------------------- EXEMPT
MONEY U.S. MONEY
MARKET GOVERNMENT MARKET
SERIES SERIES TRUST
------------ ----------- ----------
INVESTMENT INCOME
Interest ............................ $38,072,583 $3,281,373 $2,563,249
----------- ---------- ----------
Expenses
Management fees ................... 2,784,663 245,885 267,906
Trustees' fees .................... 25,267 19,128 18,915
Accounting and administrative ..... 21,912 22,044 22,044
Custodian ......................... 127,289 34,184 47,585
Transfer agent .................... 2,678,241 127,116 133,362
Audit and tax services ............ 27,000 27,000 29,000
Legal ............................. 18,704 18,704 18,704
Printing .......................... 145,123 7,138 8,615
Registration ...................... 95,404 50,286 42,202
Insurance ......................... 7,761 697 817
Miscellaneous ..................... 13,226 1,162 6,219
----------- ---------- ----------
5,944,590 553,344 595,369
Less--waiver of fee by investment
adviser or distributor ............... -- (22,044) (218,617)
----------- ---------- ----------
Net investment income ................. 32,127,993 2,750,073 2,186,497
REALIZED GAIN (LOSS) ON INVESTMENTS--
NET .................................. 118,639 60,941 (44)
----------- ---------- ----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS ........................... $32,246,632 $2,811,014 $2,186,453
=========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
CASH MANAGEMENT TRUST
---------------------------------
MONEY MARKET SERIES
---------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1996
--------------- ---------------
FROM OPERATIONS
Net investment income ................ $ 31,204,115 $ 32,127,993
Net realized gain from investments ... 794 118,639
--------------- ---------------
Increase in net assets from operations 31,204,909 32,246,632
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................ (31,204,115) (32,127,993)
Realized gain on investments ......... (794) (3,574)
--------------- ---------------
(31,204,909) (32,131,567)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares ..... 1,103,481,598 1,049,919,978
Net asset value of shares issued in
connection with the reinvestment of
dividends from net investment income 30,418,561 31,392,637
Cost of shares redeemed .............. (1,183,461,017) (1,067,615,550)
--------------- ---------------
Increase (decrease) in net assets
derived from capital share
transactions ....................... (49,560,858) 13,697,065
--------------- ---------------
Total increase (decrease) in net
assets ............................. (49,560,858) 13,812,130
NET ASSETS
Beginning of the year ................ 699,369,314 649,808,456
--------------- ---------------
End of the year ...................... $ 649,808,456 $ 663,620,586
=============== ===============
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS -- CONTINUED
- ------------------------------------------------------------------------------
CASH MANAGEMENT TRUST
-----------------------------
U.S. GOVERNMENT SERIES
-----------------------------
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
FROM OPERATIONS
Net investment income .................... $ 2,727,079 $ 2,750,073
Net realized gain from investments ....... -- 60,941
------------- -------------
Increase in net assets from operations ... 2,727,079 2,811,014
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................... (2,727,079) (2,750,073)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares ......... 107,616,822 96,446,537
Net asset value of shares issued in
connection with the reinvestment of
dividends from net investment income ... 2,654,498 2,691,938
Cost of shares redeemed .................. (109,491,682) (106,394,965)
------------- -------------
Increase (decrease) in net assets derived
from capital share transactions ........ 779,638 (7,256,490)
------------- -------------
Total increase (decrease) in net assets .. 779,638 (7,195,549)
NET ASSETS
Beginning of the year .................... 58,962,855 59,742,493
------------- -------------
End of the year .......................... $ 59,742,493 $ 52,546,944
============= =============
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS -- CONTINUED
- ------------------------------------------------------------------------------
TAX EXEMPT
MONEY MARKET TRUST
-----------------------------
YEAR ENDED YEAR ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
FROM OPERATIONS
Net investment income .................... $ 2,218,561 $ 2,186,497
Net realized loss from investments ....... (415) (44)
------------- -------------
Increase in net assets from operations ... 2,218,146 2,186,453
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income .................... (2,218,146) (2,186,453)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from the sale of shares ......... 114,083,133 96,882,833
Net asset value of shares issued in
connection with the reinvestment of
dividends from net investment income ... 2,176,771 2,152,160
Cost of shares redeemed .................. (115,082,758) (101,935,023)
------------- -------------
Increase (decrease) in net assets derived
from capital share transactions ........ 1,177,146 (2,900,030)
------------- -------------
Total increase (decrease) in net assets .. 1,177,146 (2,900,030)
NET ASSETS
Beginning of the year .................... 66,620,167 67,797,313
------------- -------------
End of the year .......................... $ 67,797,313 $ 64,897,283
============= =============
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
FROM INVESTMENT OPERATIONS
-----------------------------------------
NET NET
ASSET REALIZED AND TOTAL
VALUE AT NET UNREALIZED FROM
BEGINNING INVESTMENT GAIN ON INVESTMENT
OF YEAR INCOME INVESTMENTS OPERATIONS
---------- ----------- --------------- -----------
CASH MANAGEMENT TRUST--
MONEY MARKET SERIES
Year Ended June 30,
1992 .............. $1.00 $0.0450 -- $0.0450
1993 .............. 1.00 0.0275 -- 0.0275
1994 .............. 1.00 0.0264 -- 0.0264
1995 .............. 1.00 0.0469 -- 0.0469
1996 .............. 1.00 0.0482 $0.0002 0.0484
CASH MANAGEMENT TRUST--
U.S. GOVERNMENT SERIES
Year Ended June 30,
1992 .............. 1.00 0.0449 -- 0.0449
1993 .............. 1.00 0.0271 -- 0.0271
1994 .............. 1.00 0.0257 -- 0.0257
1995 .............. 1.00 0.0454 -- 0.0454
1996 .............. 1.00 0.0465 0.0010 0.0475
TAX EXEMPT MONEY MARKET
TRUST
Year Ended June 30,
1992 .............. 1.00 0.0337 -- 0.0337
1993 .............. 1.00 0.0214 -- 0.0214
1994 .............. 1.00 0.0208 -- 0.0208
1995 .............. 1.00 0.0314 -- 0.0314
1996 .............. 1.00 0.0327 -- 0.0327
(a) Including net realized gain on investments.
(b) The ratio of operating expenses to average net assets without giving effect
to the voluntary expense limitation and voluntary fee waiver described in
Note 3 to the Financial Statements would have been 0.76%, 0.83%, 0.89%,
0.85% and 0.90% for the years ended June 30, 1992, 1993, 1994, 1995, and
1996, for Tax Exempt Money Market Trust, and 0.96% for the U.S. Government
Series for the year ended June 30, 1996.
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS RATIOS/SUPPLEMENTAL DATA
-------------------------------- --------------------------------------
RATIO OF RATIO OF
NET NET OPERATING NET
DIVIDENDS ASSET ASSETS EXPENSES TO INCOME TO
FROM NET VALUE AT TOTAL END OF AVERAGE AVERAGE
INVESTMENT TOTAL END OF RETURN YEAR NET ASSETS NET ASSETS
INCOME DISTRIBUTIONS YEAR (%) (000) (%)(B) (%)
--------------- ------------- ------------ -------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH MANAGEMENT TRUST--
MONEY MARKET SERIES
Year Ended June 30,
1992 .............. $(0.0450) $(0.0450) $1.00 4.58 $925,077 0.73 4.56
1993 .............. (0.0275) (0.0275) 1.00 2.84 775,914 0.79 2.78
1994 .............. (0.0264) (0.0264) 1.00 2.68 699,369 0.84 2.65
1995 .............. (0.0469) (0.0469) 1.00 4.79 649,808 0.88 4.67
1996 .............. (0.0484)(a) (0.0484) 1.00 4.95 663,621 0.90 4.85
CASH MANAGEMENT TRUST--
U.S. GOVERNMENT SERIES
Year Ended June 30,
1992 .............. (0.0449) (0.0449) 1.00 4.57 79,218 0.73 4.50
1993 .............. (0.0271) (0.0271) 1.00 2.80 64,595 0.78 2.73
1994 .............. (0.0257) (0.0257) 1.00 2.60 58,963 0.84 2.54
1995 .............. (0.0454) (0.0454) 1.00 4.64 59,742 0.92 4.53
1996 .............. (0.0475) (0.0475) 1.00 4.86 52,547 0.93 4.80
TAX EXEMPT MONEY MARKET TRUST
Year Ended June 30,
1992 .............. (0.0337) (0.0337) 1.00 3.41 65,753 0.56 3.38
1993 .............. (0.0214) (0.0214) 1.00 2.20 56,555 0.56 2.14
1994 .............. (0.0208) (0.0208) 1.00 2.10 66,620 0.56 2.08
1995 .............. (0.0314) (0.0314) 1.00 3.18 67,797 0.56 3.15
1996 .............. (0.0327) (0.0327) 1.00 3.32 64,897 0.56 3.29
<FN>
(a) Including net realized gain on investments.
(b) The ratio of operating expenses to average net assets without giving effect
to the voluntary expense limitation and voluntary fee waiver described in
Note 3 to the Financial Statements would have been 0.76%, 0.83%, 0.89%,
0.85% and 0.90% for the years ended June 30, 1992, 1993, 1994, 1995, and
1996, for Tax Exempt Money Market Trust, and 0.96% for the U.S. Government
Series for the year ended June 30, 1996.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
June 30, 1996
1. SIGNIFICANT ACCOUNTING POLICIES. New England Cash Management Trust and
New England Tax Exempt Money Market Trust (the "Trusts") are registered under
the Investment Company Act of 1940, as amended, as diversified, open-end
investment companies.
NEW ENGLAND CASH MANAGEMENT TRUST--The Trust's Agreement and Declaration of
Trust permits the issuance of an unlimited number of shares of beneficial
interest, no par value, in separate Series, with shares of each Series
representing interests in a separate portfolio of assets. Effective September
13, 1993, each Series began offering two classes of shares, Class A and Class B,
in order to enable investors in either class of the New England Stock or Bond
Funds to invest in money market shares. Class A and B shares are identical
except that Class B shares may be subject to a contingent deferred sales charge
upon redemption if the shares were acquired by exchange of Class B shares of a
stock or bond fund. Each Series is separately managed and has its own objectives
and policies. The Trust is comprised of the Money Market Series and the U.S.
Government Series.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST--The Trust's Agreement and Declaration
of Trust permits the issuance of an unlimited number of shares of beneficial
interest, no par value. Effective September 13, 1993, the Trust began offering
two classes of shares, Class A and Class B, in order to enable investors in
either class of the New England Stock or Bond Funds to invest in money market
shares. Class A and B shares are identical except that Class B shares may be
subject to a contingent deferred sales charge upon redemption if the shares were
acquired by exchange of Class B shares of a stock or bond fund.
The following is a summary of significant accounting policies followed by the
Trusts in the preparation of the financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION. The Trusts employ the amortized cost method of security
valuation as set forth in Rule 2a-7 under the Investment Company Act of 1940
which, in the opinion of the trustees of each Trust, represents the fair value
of the particular security. The amortized cost of a security is determined by
valuing it at original cost and thereafter amortizing any discount or premium on
a straight-line basis.
B. REPURCHASE AGREEMENTS. The Trusts, through their custodian, receive delivery
of the underlying securities collateralizing repurchase agreements. It is the
Trusts' policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors, L.P. ("Back Bay Advisors") is
responsible for determining that the value of the collateral is at all times at
least equal to the repurchase price. In connection with transactions in
repurchase agreements, if the seller defaults and the value of the collateral
declines or if the seller enters an insolvency proceeding, realization of the
collateral by the Trusts may be delayed or limited.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed) and interest income is recorded on the accrual basis. In determining
the net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis.
D. WHEN-ISSUED SECURITIES. Delivery and payment for securities purchased on a
when-issued or delayed delivery basis can take place one month or more after the
date of the transaction. The securities so purchased are subject to market
fluctuation during this period. At June 30, 1996, the cost of when issued
purchase commitments for the Tax Exempt Money Market Trust amounted to
$2,516,800.
E. FEDERAL INCOME TAXES. Each Series of the Cash Management Trust and the Tax
Exempt Money Market Trust intends to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies, and to distribute
to its shareholders all of its taxable and tax exempt income. Accordingly, no
provision for federal income tax has been made.
The Tax Exempt Money Market Trust has designated 100% of dividends paid from net
investment income during the fiscal year as tax exempt for federal income tax
purposes.
The Form 1099 you receive in January 1997 will show the tax status of all
distributions paid to your account in calendar year 1996.
F. DIVIDENDS TO SHAREHOLDERS. Dividends are declared daily to shareholders of
record at the time and are paid monthly. Long term gain distributions, if any,
will be made annually.
G. OTHER. Each of the Trusts invests primarily in a portfolio of money market
instruments maturing in 397 days or less whose ratings are within the two
highest ratings categories of a nationally recognized rating agency or, if not
rated, are believed to be of comparable quality. The ability of the issuers of
the securities held by the Trusts to meet their obligations may be affected by
foreign economic, political and legal developments in the case of foreign banks
or foreign branches or subsidiaries of U.S. banks, or domestic economic
developments in a specific industry, state or region.
2. INVESTMENT TRANSACTIONS.
For the year ended June 30, 1996:
NEW ENGLAND CASH MANAGEMENT TRUST--Purchase and sales or maturities of
short-term obligations, including securities purchased subject to repurchase
agreements, aggregated $4,639,794,863 and $4,656,488,220, respectively, for the
Money Market Series. Purchases and sales or maturities of United States
government obligations, including securities purchased subject to repurchase
agreements, aggregated $5,842,368,378 and $5,850,027,772, respectively, for the
U.S. Government Series.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST--Purchases and sales or maturities of
short-term obligations aggregated $256,286,390 and $260,567,660, respectively.
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
During the year ended June 30, 1996 the Trusts operated under two management fee
contracts. Prior to January 1, 1996 Back Bay Advisors was the Trusts' investment
adviser. Effective January 1, 1996 New England Funds Management L.P. ("NEFM")
became the investment adviser to the Trusts and Back Bay Advisors became the
subadviser.
NEW ENGLAND CASH MANAGEMENT TRUST
Under the management agreements, each series pays to its investment adviser, New
England Funds Management L.P. ("NEFM"), a monthly fee based on the annual
percentage rates of the corresponding levels of that series' average daily net
asset values set forth below:
Under the same management agreements, NEFM pays to its investment subadviser,
Back Bay Advisors L.P. ("BBA"), a monthly fee based on the annual percentage
rates of the corresponding levels of that series' average daily net asset values
set forth below:
<TABLE>
<CAPTION>
ADVISORY FEES PAID BY NEFM TO THE SUBADVISER BBA
ADVISORY FEES PAID BY ------------------------------------------------
THE SERIES TO NEFM CASH MANAGEMENT TRUST CASH MANAGEMENT TRUST
ANNUAL PERCENTAGE RATE MONEY MARKET SERIES U.S. GOVERNMENT SERIES
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
the first $500 million 0.425% 0.205% 0.2125%
the next $500 million 0.400% 0.180% 0.2000%
the next $500 million 0.350% 0.160% 0.1750%
the next $500 million 0.300% 0.140% 0.1500%
amounts in excess of $2 billion 0.250% 0.120% 0.1250%
</TABLE>
FEES EARNED FROM MONEY MARKET SERIES
- -------------------------------------
$ 726,741 New England Funds Management, L.P.
$2,057,922 Back Bay Advisors, L.P.
FEES EARNED FROM U.S. GOVERNMENT SERIES
- ---------------------------------------
$ 59,718 New England Funds Management, L.P.
$186,167 Back Bay Advisors, L.P.
Certain officers and directors of NEFM and Back Bay Advisors are also officers
or trustees of the Trusts. NEFM and Back Bay Advisors are wholly owned
subsidiaries of New England Investment Companies, L.P. which is a subsidiary of
New England Mutual Life Insurance Company.
NEW ENGLAND TAX EXEMPT MONEY MARKET TRUST
The Trust pays management fees to its investment adviser, New England Funds
Management L.P. ("NEFM") at the annual rate of 0.40% of the first $100 million
of the Trust's average daily net assets and 0.30% of such assets in excess of
$100 million. NEFM pays the Trust's investment subadviser, Back Bay Advisors, at
the rate of 0.20% of the first $100 million of the Trust's average daily net
assets and 0.15% of such assets in excess of $100 million. Certain officers and
directors of NEFM and Back Bay Advisors are also officers or trustees of the
Trust. NEFM and Back Bay Advisors are wholly owned subsidiaries of New England
Investment Companies, L.P. ("NEIC") which is a subsidiary of New England Mutual
Life Insurance Company. Fees earned by NEFM and Back Bay Advisors under the
management agreements in effect during the year ended June 30, 1996 are as
follows:
FEES EARNED
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$ 66,677 New England Funds Management, L.P.
$201,229 Back Bay Advisors, L.P.
NEFM and Back Bay Advisors have voluntarily agreed, until further notice, to
reduce the management fee and, if necessary, to assume Trust expenses in order
to limit the expenses to 0.5625 of 1% of average net assets per year. As a
result of exceeding the expense limitation, management fees for the year ended
June 30, 1996 were reduced by $54,887 and $163,730, respectively.
B. ACCOUNTING AND ADMINISTRATIVE EXPENSE. New England Funds, L.P. ("New England
Funds"), the Trusts' distributor, is a wholly owned subsidiary of NEIC and
performs certain accounting and administrative services for the Trusts. Each
Trust reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following (i) expenses
for personnel performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to the Trusts,
(ii) expenses for services required in connection with the preparation of
registration statements and prospectuses, shareholder reports and notices, proxy
solicitation material furnished to shareholders of the Trusts or regulatory
authorities and reports and questionnaires for SEC compliance, and (iii)
registration, filing and other fees in connection with requirements of
regulatory authorities. For the year ended June 30, 1996, these expenses
amounted to $21,912 for the Cash Management Trust Money Market, $22,044 for the
Cash Management Trust U.S. Government Series and $22,044 for the Tax Exempt
Money Market Trust.
New England Funds has voluntarily agreed to waive accounting and administrative
fees for the Cash Management Trust U.S. Government Series until further notice.
As a result of this voluntary waiver, New England Funds waived its entire fee of
$22,044 for the year ended June 30, 1996.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent for the Trusts. For the year ended June 30, 1996, the New
England Cash Management Trust Money Market Series, U.S. Government Series and
Tax Exempt Money Market Trust paid $1,986,402, $98,617 and $76,498,
respectively, to New England Funds as compensation for its services in that
capacity.
4. TRUSTEES FEES AND EXPENSES. The Trusts do not pay any compensation to
officers or trustees who are directors, officers, or employees of Back Bay
Advisors, NEIC, New England Funds or their affiliates, other than registered
investment companies.
Each disinterested trustee is compensated by each series of the Cash Management
Trust and by the Tax Exempt Money Market Trust as follows:
MONEY MARKET U.S. GOV'T TAX EXEMPT MONEY
SERIES SERIES MARKET TRUST
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Annual Retainer .............. $2,412 $1,451 $1,455
Meeting Fee .................. $114/meeting $114/meeting $114/meeting
Committee Meeting Fee ........ $68/meeting $68/meeting $68/meeting
Committee Chairman
Annual Retainer ............ $ 314 $ 26 $ 31
A deferred compensation plan is available to members of the boards of trustees.
A trustee's participation in the plan is voluntary. Each participating trustee
will receive an amount equal to the value that such deferred compensation would
have been, had it been invested in the relevant series or Trust on the normal
payment date.
5. CONCENTRATION OF CREDIT. The Tax Exempt Money Market Trust had the following
industry concentrations in excess of 10% on June 30, 1996 as a percentage of the
Trust's total net assets: Education (13.9%), Government (22.0%), Hospitals
(30.8%), and Housing (16.0%). The Trust also had more than 10% of its total net
assets invested in Florida (20.5%) and had more than 10% of its net assets
backed by letters of credit with Sumitomo Bank (15.3%).
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Board of Trustees and Shareholders of New England Cash Management Trust
and New England Tax Exempt Money Market Trust
In our opinion, the accompanying statements of assets & liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the two series of the New
England Cash Management Trust and New England Tax Exempt Money Market Trust
(hereafter referred to as "the Trusts") at June 30, 1996, the results of each of
their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trusts' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 8, 1996
<PAGE>
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SAVING FOR RETIREMENT
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AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. While it's
never too late to start a retirement savings program, it's certainly never too
early: The sooner you begin, the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor starts at age
30, saves for just 10 years, then leaves the investment to grow. The second
investor starts 10 years later but saves much longer -- for 25 years, in fact.
Can you guess which investor accumulates the greater retirement nest egg? For
the answer, look at the chart.
[A chart in the form of a line graph appears here, comparing the growth of
investments made for 10 years by an investor who begins investing at age 30 to
the growth of investments made for twenty-five years by an investor who begins
investing at age 40. A hypothetical appreciation of 10% is assumed. The data
points from the graph are as follows:]
Investor A - Begins at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only and not
indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of investor B's commitment -- and
for less than half the time. Yet investor A wound up with a much greater
retirement nest egg. The reason? It's all thanks to an early start.
New England Funds has prepared a number of informative retirement planning
guides. Call your financial representative or New England Funds today, and ask
for the guide that best fits your personal needs.
<PAGE>
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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
retirememt or college funding
5. It can help you benefit from the ups and downs of the market
With Investment Builder, New England Funds' automatic investment program, you
can invest as little as $50 a month in your New England Fund automatically --
without even writing a check. And, as you can see from the chart below, your
monthly investments can really add up over time.
THE POWER OF MONTHLY INVESTING
[A line graph appears here, illustrating the hypothetical accumulation of
monthly investments at an 8% annual rate of return. The data points of the
graph are as follows:]
Monthly investments of $50
Years Growth of Monthly Investments
0 $0
5 $3,661
10 $9,040
15 $16,943
20 $28,555
25 $45,618
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of future
performance of any New England Fund. The value of a New England Fund will
fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a declining
market. It does, however, ensure that you buy more shares when the price is low
and fewer shares when the price is high.
You can start an Investment Builder program with your current New England Fund
account, or with any of our other funds. To open an Investment Builder account
today, call your financial representative or New England Funds at
1-800-225-5478.
<PAGE>
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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:
o Check the current value of your New England Fund account
o Find out the current yield and total return on any New England Fund
o 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!
<PAGE>
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NEW ENGLAND FUNDS
- -----------------------------------------------------------------------------
STOCK FUNDS
Growth Fund
Star Advisers Fund
Capital Growth Fund
Value Fund
Growth Opportunities Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
Growth Fund of Israel
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Government Securities Fund
Bond Income Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
-- Money Market Series
-- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT HTTP://WWW.MUTUALFUNDS.COM
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.
<PAGE>
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