<PAGE> 1
[NEW ENGLAND FUNDS LOGO]
SEMIANNUAL REPORT AND PERFORMANCE UPDATE
NEW ENGLAND
MASSACHUSETTS TAX
FREE INCOME FUND
[ARTWORK APPEARS HERE]
JUNE 30, 1995
<PAGE> 2
July 20, 1995
DEAR SHAREHOLDER:
We have good news to present in this Semiannual Report for New England
Massachusetts Tax Free Income 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
<PAGE> 3
professional can help you design an asset allocation program suitable to your
goals and risk tolerance. Most important, during times of market volatility or
uncertainty, your adviser can help you avoid making costly mistakes, such as
trying to "time" the market. Investors who go it alone can overreact to
short-term market events, buying and selling on the basis of this week's
headlines, or chasing the latest "hot" investment. Such behavior can derail an
otherwise prudent investment program. But investors who work with a financial
adviser receive guidance throughout the market's ups and downs. Your adviser
will help you place short-term market swings in their proper perspective and
keep you focused on your long-term investment program.
Your adviser is just one of the experts whose talents we have tapped in our
effort to bring the best minds in the business to the task of managing your
money. These experts are a vital part of the investment process at New England
Funds, and we encourage you to take advantage of their skills to the fullest.
We invite you to read the accompanying management commentary and financial
highlights. If you have any questions or comments, please contact your financial
adviser or New England Funds directly at 800-225-5478. Once again, we appreciate
your continued confidence and investment in New England Funds.
Sincerely,
/s/ PETER S. VOSS /s/ HENRY L.P. SCHMELZER
----------------- ------------------------
Peter S. Voss Henry L.P. Schmelzer
Chairman President
<PAGE> 4
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
INVESTMENT RESULTS THROUGH JUNE 30, 1995
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
A $10,000 INVESTMENT IN CLASS A SHARES
COMPARED TO LEHMAN MUNICIPAL INDEX (4) AND THE COST OF LIVING (5)
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Lehman Municipal Index(4) and
the Cost of Living(5). The data points from the graph are as follows:]
New England Massachusetts Tax Free Income Fund - Net Asset Value(1)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
6/30/85 $10,000
6/86 $11,328
6/87 $12,184
6/88 $13,042
6/89 $14,293
6/90 $14,888
6/91 $16,068
6/92 $17,987
6/93 $20,224
6/94 $19,854
6/95 $21,369
</TABLE>
New England Massachusetts Tax Free Income Fund - With Maximum Sales Charge(2)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
6/30/85 $ 9,575
6/86 $10,847
6/87 $11,667
6/88 $12,488
6/89 $13,685
6/90 $14,255
6/91 $15,385
6/92 $17,222
6/93 $19,365
6/94 $19,010
6/95 $20,461
</TABLE>
Lehman Municipal Index(4)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
6/30/85 $10,000
6/86 $11,651
6/87 $12,655
6/88 $13,594
6/89 $15,143
6/90 $16,174
6/91 $17,631
6/92 $19,706
6/93 $22,063
6/94 $22,107
6/95 $24,051
</TABLE>
Cost of Living(5)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
6/30/85 $10,000
6/86 $10,174
6/87 $10,552
6/88 $10,968
6/89 $11,535
6/90 $12,074
6/91 $12,641
6/92 $13,031
6/93 $13,421
6/94 $13,710
6/95 $14,099
</TABLE>
This illustration represents past performance of Class A shares and cannot
predict future results. Investment return and principal value may vary,
resulting in a gain or loss on the sale of shares. Class B share performance
will be greater or less than that shown based on differences in inception date,
fees and sales charges. All Index and Fund performance assumes reinvested
distributions.
1
<PAGE> 5
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS 6/30/95*
<TABLE>
<CAPTION>
CLASS A (Inception 3/23/84) YEAR TO DATE 1 YEAR 5 YEARS 10 YEARS
--------------------------- ------------ ------ ------- --------
<S> <C> <C> <C> <C>
Net Asset Value(1) 9.45% 7.64% 7.49% 7.89%
With Max. Sales Charge(2) 4.80 3.07 6.57 7.42
Lipper MA Municipal Average(6) 8.89 9.43 7.98 7.99
<CAPTION>
CLASS B (Inception 9/13/93) YEAR TO DATE 1 YEAR SINCE INCEPTION
--------------------------- ------------ ------ ---------------
<S> <C> <C> <C>
Net Asset Value(1) 9.11% 7.02% 0.47%
With CDSC(3) 5.11 3.02 (1.04)
Lehman Municipal Index(4) 9.65 8.79 3.00
Lipper MA Municipal Average(6) 8.89 9.43 n/a
<CAPTION>
YIELDS AS OF 6/30/95*
CLASS A CLASS B
------- -------
<S> <C> <C>
SEC 30-day Yield 5.29% 4.87%
Taxable Equivalent Yield 9.95 9.16
SEC Yield is based on the Fund's net investment income over a 30-day period and
is calculated in accordance with Securities and Exchange Commission guidelines.
Taxable equivalent yield is based on the maximum combined federal and
Massachusetts state income tax bracket of 46.85%. The alternative minimum tax
may apply. Some federal and state taxes may apply.
* These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost.
<FN>
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 4.25% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero five years after the
purchase of shares.
(4) Lehman Municipal Index is an unmanaged index of bonds issued by states,
municipalities and other governmental entities having maturities of more
than one year. The Index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges
applicable to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, 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.
</TABLE>
2
<PAGE> 6
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
[PHOTO OF JAMES WELCH IN UPPER RIGHT-HAND CORNER]
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
Portfolio Manager: James Welch,
Back Bay Advisors, L.P.(R)
Buoyed by falling interest rates and diminishing concerns about inflation, the
stock and bond markets shook off the painful memory of 1994, and greeted the new
year with an enthusiastic rally. But for municipal bonds, the market's upbeat
mood was akin to being invited to a dinner party and being offered only part of
the meal. Although munis led the rally in the first three months of 1995, they
lost momentum in the second quarter, as investors were diverted from tax-exempt
bonds by the stock market's strength and widespread talk of tax reform.
How Your Fund Performed
Despite the twists and turns in the municipal bond market, your Fund's
performance was outstanding in absolute terms as well as within its peer group,
thanks in a large measure to successful planning on our part. We anticipated the
upturn months in advance and positioned the portfolio to benefit from falling
yields and rising prices. This preemptive move helped generate a 7.65% total
return, for Class A shares at net asset value, for just the first three months
of 1995. And despite the slowdown in the second quarter, the Fund's Class A
share total return for the first six months of 1995 was 9.45%, placing New
England Massachusetts Tax Free Income Fund in the top 25% of its Lipper peer
group of 48 funds.
3
<PAGE> 7
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
We are also pleased to report that your Fund generated an attractive level of
current income over the six-month period. On June 30, the Fund's 30-day SEC
yield was 5.29% for Class A shares, based on net asset value, which is
equivalent to a 9.95% taxable yield for Massachusetts taxpayers in the combined
maximum federal and state bracket of 46.85%.*
How We Managed Your Fund
Carefully guarding the quality of your fund's holdings and maintaining a solid
measure of call protection are two important goals of our investment process. We
have been able to purchase high-quality bonds while maintaining an attractive
yield because these bonds are currently inexpensive relative to lower-rated
issues. The portfolio is currently overweighted in essential-purpose revenue
bonds with their own revenue streams; examples are water and sewer, municipal
utility, higher education, and transportation issues. We also hold high-quality
state general obligation bonds. Although Massachusetts has a high concentration
of hospitals, we have reduced our hospital exposure due to uncertainties
surrounding the future of Medicare and Medicaid, the outlook for reform, and a
market that is overcrowded with health care providers. Currently, about 17% of
the portfolio is invested in Massachusetts health care bonds, approximately 10%
of which are insured.
* The alternative minimum tax may apply. Some federal and state taxes may apply.
4
<PAGE> 8
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
Unlike individual bond holders who face billions of dollars in early call
redemptions in June and July, your Fund is very well protected against early
bond calls. Call protection is an ongoing focus for us, not a sporadic effort.
The portfolio holds bonds with 10-12 years of call protection, as well as some
non-callable bonds. The supply of non-callable bonds is now plentiful, and we
have been taking full advantage of their low prices. Mindful of your need to
reduce taxes, we have a minimal exposure to bonds that are subject to the
alternative minimum tax (AMT).
To allow your Fund to benefit from what we believe is a very favorable bond
market environment, we have positioned the portfolio's duration at around eight
years, reflecting our basically constructive outlook. Duration is a measure of
the fund's sensitivity to interest-rate moves.
Outlook for the Municipal Market
The current economic and business climate bodes well for the overall bond
market, and we believe municipal bonds are poised to regain investors' favor
over the next several months. First, the Federal Reserve Board has piloted the
economy into a "soft landing," which has brought a slowing economy and
diminished inflation concerns. Second, our predictions of dwindling municipal
bond supply are materializing, with forward supply down 46.9 % year over year,
and year-to-date at less than half of issuance in 1993.* We expect the scarcity
may already be evident, as billions in muni bonds were
* Source: BusinessWeek, June 19, 1995.
5
<PAGE> 9
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
called by their issuers this summer, forcing their holders back into the market
to reinvest their proceeds. Finally, municipals currently offer exceptional
value relative to Treasury bonds, with some tax-exempt yields as high as 90% of
taxable yields.*
A spate of recent economic reports has indicated the early onset of an economic
slowdown, which prompted the Federal Reserve Board in early July to make its
first rate cut in three years, in an effort to stave off a recession. In our
opinion, the chances of recession this year are small. So far the economic
softness has been concentrated in a few industries. Much of the economy is
perking along nicely, with powerful support from stock and bond market rallies,
declining long-term interest rates, and the export-enhancing weakness of the
dollar.
We think the talk of federal tax reform that has unsettled the municipal market
during the broader bond rally is creating premature concern. Overhauling our
current tax system is a monumental task that could take years. In the meantime,
we are finding solid buying opportunities and we remain optimistic on the
long-term outlook for the Massachusetts municipal market.
* Source: Wall Street Journal, June 15, 1995.
6
<PAGE> 10
NEW ENGLAND MASSACHUSETTS TAX FREE INCOME FUND
PORTFOLIO QUALITY AS OF 6/30/95
[A pie chart appears here, illustrating the portfolio quality of New England
Massachusetts Tax Free Income Fund at June 30, 1995. The pie chart is broken in
pieces representing credit ratings in the following percentages:]
<TABLE>
<CAPTION>
Credit Ratings Percentage
<S> <C>
AAA 37%
AA 10%
A 37%
BBB 11%
BB/not rated 5%
</TABLE>
Average Credit Quality = AA- Average Portfolio Maturity = 11 Years
Credit ratings supplied by Standard & Poor's.
7
<PAGE> 11
[NEW ENGLAND FUNDS LOGO]
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
NEW ENGLAND
MASSACHUSETTS
TAX FREE INCOME
FUND
JUNE 30, 1995
<PAGE> 12
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--100.0% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS STATE GENERAL OBLIGATION--3.1%
$ 2,000,000 Massachusetts State Consolidated Loan, Series A,
7.625%, 06/01/08................................ AAA AAA $ 2,328,780
1,500,000 Massachusetts State Consolidated Loan, Series A,
5.000%, 01/01/13................................ A1 A+ 1,344,885
------------
3,673,665
------------
MASSACHUSETTS STATE HEALTH & EDUCATION FACILITY
AUTHORITY--23.6%
1,000,000 Berkshire Health System, Series C, 5.900%,
10/01/11........................................ -- BBB- 862,000
3,000,000 Boston University Ribs, Series L, 8.838%, 10/01/31
(MAIA).......................................... Aaa AAA 3,273,900
2,500,000 Central Massachusetts Medical Center, Series A,
7.100%, 07/01/21 (AMBAC)........................ Aaa AAA 2,736,425
1,750,000 Charlton Memorial Hospital, Series B, 7.250%,
07/01/13........................................ A A- 1,836,275
1,500,000 Children's Hospital, Series E, 6.125%, 10/01/12... Aa AA 1,509,795
2,250,000 Dana Farber, Series G-1, 5.500%, 12/01/27......... A1 A 1,904,850
1,410,000 Faulkner Hospital, Series C, 6.000%, 07/01/13..... Baa1 BBB+ 1,293,915
2,400,000 Medical Center of Central Mass, Issue A, 7.000%,
07/01/12........................................ A1 A- 2,481,336
1,000,000 New England Baptist Hospital, Series B, 7.300%,
07/01/11........................................ A BBB+ 1,026,070
1,220,000 New England Deaconess Hospital, Series D,
6.875%, 04/01/22 (AMBAC)........................ Aaa AAA 1,299,288
1,190,000 New England Medical Center, Series F,
6.625%, 07/01/25 (FGIC)......................... Aaa AAA 1,235,208
400,000 Newton-Wellesley Hospital, Series C,
8.000%, 07/01/18 (BIGI)......................... Aaa AAA 440,036
1,000,000 Tufts University, Series D, 7.750%, 08/01/13...... A1 A+ 1,081,390
1,500,000 Valley Regional Health System, Series B, 8.000%,
07/01/18........................................ AAA -- 1,746,645
1,000,000 Valley Regional Health System, Series C,
6.250%, 07/01/11 (CONNIE LEE)................... -- AAA 1,023,390
1,000,000 Wentworth Institute of Technology Series A,
7.400%, 04/01/10................................ Aaa AAA 1,133,970
1,500,000 Wentworth Institute of Technology Series B
5.500%,10/01/23 (CONNIE LEE).................... -- AAA 1,355,160
1,500,000 Wentworth Institute of Technology Series B
5.625%, 10/01/13 (CONNIE LEE)................... -- AAA 1,422,075
------------
27,661,728
------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 13
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION--CONTINUED
Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS STATE HOUSING FINANCE AGENCY--16.3%
$ 215,000 Housing Revenue, Series A., 9.000%, 12/01/18...... -- A+ $ 225,971
635,000 Housing Revenue, Series A., 7.750%, 12/01/19...... -- A 654,729
4,750,000 Housing Revenue, Series A, 6.375%, 04/01/21....... A1 A+ 4,722,640
715,000 Multifamily Residential Development, Series A,
7.650%, 02/01/28 (FNMA)......................... Aaa AAA 745,838
2,000,000 Residential Development, Series F,
6.250%, 11/15/12 (FNMA)......................... Aaa AAA 2,030,920
1,300,000 Residential Development, Series I,
6.900%, 11/15/25 (FNMA)......................... AAA AAA 1,352,520
2,000,000 Residential Development-FNMA COLL-A, 6.900%,
11/15/24........................................ Aaa AAA 2,072,060
1,000,000 Residential Development-FNMA COLL-D, 6.800%,
11/15/12........................................ Aaa AAA 1,040,320
3,000,000 Single Family Mortgage, Series A., 6.300%,
10/01/13........................................ A A+ 2,993,190
415,000 Single Family Mortgage, Series 4, 7.375%,
06/01/14........................................ Aa A+ 428,185
160,000 Single Family Mortgage, Series A., 9.500%,
12/01/16........................................ Aa A+ 165,618
1,590,000 Single Family Mortgage, Series 13, 7.950%,
06/01/23........................................ Aa A+ 1,674,954
1,000,000 Single Family Mortgage, Series 32, 6.600%,
12/01/26........................................ Aa A+ 1,000,700
------------
19,107,645
------------
MASSACHUSETTS STATE INDUSTRIAL FINANCE AGENCY--7.0%
1,000,000 Harvard Community Health Plan, Series B,
7.750%, 10/01/08................................ Aaa AAA 1,099,420
3,000,000 Holy Cross College, 6.450%, 01/01/12.............. A1 A+ 3,094,740
1,500,000 First Healthcare Corp Project, 7.750%, 04/01/19... -- -- 1,511,415
475,000 Ogden Haverhill Project, 7.250%,12/01/06
(AMBAC)......................................... Aaa AAA 500,593
1,000,000 Ogden Haverhill Project, 7.375%, 12/01/11
(AMBAC)......................................... Aaa AAA 1,046,480
1,000,000 Refusetech Inc., Series A, 6.300%, 07/01/05....... Baa1 BBB 1,019,200
------------
8,271,848
------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 14
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION--CONTINUED
Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER MASSACHUSETTS OBLIGATIONS--28.9%
$ 3,125,000 Massachusetts Bay Transportation Authority, Series
A, 5.500%, 03/01/12............................. A1 A+ $ 3,006,125
115,000 Massachusetts College Student Loan Authority,
10.000%, 05/01/01............................... -- AAA 116,796
1,310,000 Massachusetts Educational Loan Authority,
7.250%, 01/01/09 (MBIA)......................... Aaa AAA 1,367,483
1,000,000 Massachusetts Educational Loan Authority,
6.300%, 07/01/12 (AMBAC)........................ Aaa AAA 1,013,430
1,500,000 Massachusetts Municipal Wholesale Electric,
6.750%, 07/01/08................................ A BBB+ 1,600,845
2,500,000 Massachusetts Municipal Wholesale Electric,
6.750%, 07/01/11................................ A BBB+ 2,598,850
2,400,000 Massachusetts Municipal Wholesale Electric,
5.000%, 07/01/14 (AMBAC)........................ Aaa AAA 2,120,232
1,450,000 Massachusetts Municipal Wholesale Electric,
5.000%, 07/01/17 (AMBAC)........................ Aaa AAA 1,259,847
1,000,000 Massachusetts Pollution Control, Eastern Edison,
5.875%, 08/01/08................................ Baa2 BBB- 951,370
605,000 Massachusetts Port Authority, Series B,
9.375%, 07/01/15................................ Aa AA- 617,100
2,000,000 Massachusetts Turnpike Authority, Series A,
5.000%, 01/01/13................................ A1 A+ 1,789,180
2,000,000 Massachusetts Turnpike Authority, Series A,
5.000%, 01/01/20................................ A1 A+ 1,726,680
1,645,000 Massachusetts Water Pollution Abatement, Series A,
5.450%, 02/01/13................................ Aa A+ 1,552,600
2,100,000 Massachusetts Water Pollution Abatement, Series B,
5.250%, 08/01/14................................ Aa A+ 1,922,424
1,250,000 Massachusetts Water Resource Authority, Series A,
6.750%, 07/15/12................................ Aaa AAA 1,415,800
3,870,000 Massachusetts Water Resource Authority, Series B,
5.500%, 03/01/17................................ A A 3,549,178
2,500,000 Massachusetts Water Resource Authority, Series B,
5.250%, 03/01/13................................ A A 2,272,025
2,345,000 Massachusetts Water Resource Authority, Series B,
5.500%, 11/01/15................................ A A 2,156,579
3,200,000 Massachusetts Water Resource Authority, Series B,
5.000%, 03/01/22 (MBIA)......................... Aaa AAA 2,754,016
------------
33,790,560
------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 15
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION--CONTINUED
Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--CONTINUED
<TABLE>
<CAPTION>
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS MUNICIPALITIES--7.8%
$ 2,500,000 Boston City Hospital Series B., 5.750%, 02/15/13
(FHA)........................................... Aa AA $ 2,408,775
3,635,000 Boston Water & Sewer Commission 5.250%, 11/01/11
(FGIC).......................................... Aaa AAA 3,436,565
1,000,000 Haverhill, Series A, 7.000%, 06/15/12 (FGIC)...... Aaa AAA 1,071,080
1,000,000 Nantucket 6.800%, 12/01/11........................ A -- 1,067,750
1,000,000 Worcester 6.900%, 05/15/07 (MBIA)................. Aaa AAA 1,095,190
------------
9,079,360
------------
PUERTO RICO OBLIGATIONS--2.6%
750,000 Puerto Rico Aqueduct & Sewer Authority 10.250%,
07/01/09........................................ Aaa AAA 1,049,993
2,000,000 Puerto Rico Electric Power Authority, 6.250%,
07/01/17........................................ Baa1 A- 2,006,780
------------
3,056,773
------------
OTHER OBLIGATIONS--10.6%
2,300,000 Guam Airport Authority Revenue Bond, Series B,
6.600%, 10/01/10................................ -- BBB 2,306,463
2,925,000 Guam Power Authority Revenue Bond, Series A,
5.250%, 10/01/13................................ -- BBB 2,545,831
4,000,000 Guam Government, Series A, 5.375%, 11/15/13....... -- BBB 3,576,400
3,850,000 Virgin Islands Public Financial Authority, Series
A, 7.250%, 10/01/18............................. -- -- 3,977,435
------------
12,406,129
------------
Total Investments--100.0% (Identified Cost $115,107,893) (b)........ 117,047,708
Receivables......................................................... 2,550,156
Liabilities......................................................... (2,494,693)
------------
Total Net Assets--100%.............................................. $117,103,171
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 16
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION--CONTINUED
Investments as of June 30, 1995
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(a) See Note 1a to the financial statements.
Federal Tax Information: At June 30, 1995 the net unrealized appreciation on
(b) investments based on cost of $115,107,893 for federal income tax purposes was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost............................. $ 3,669,478
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value............................. (1,729,663)
-----------
Net unrealized appreciation........................................... $ 1,939,815
==========
As of December 31, 1994 the Fund had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002............................................ $ 3,516,324
(c) The ratings shown are believed to be the most recent ratings available at June 30,
1995. Securities are generally rated at the time of issuance. The rating agencies
may revise their ratings from time to time. As a result there can be no assurance
that the same ratings would be assigned if the securities were rated at June 30,
1995. The Fund's adviser independently evaluates the Fund's portfolio securities
and in making investment decisions does not rely solely on the ratings of agencies.
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 17
--------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
June 30, 1995
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value........................................ $117,047,708
Receivable for:
Fund shares sold.......................................... 275,822
Accrued interest.......................................... 2,274,334
------------
119,597,864
LIABILITIES
Payable for:
Securities purchased...................................... $1,008,107
Fund shares redeemed...................................... 1,130,876
Dividends declared........................................ 138,969
Due to Custodian Bank..................................... 123,906
Accrued expenses:
Management fees........................................... 42,296
Deferred trustees' fees................................... 1,451
Other expenses............................................ 49,088
----------
2,494,693
------------
NET ASSETS.................................................... $117,103,171
============
Net Assets consist of:
Capital paid in........................................... $117,814,968
Distributions in excess of net investment income.......... (44,878)
Accumulated net realized losses........................... (2,606,734)
Unrealized appreciation on investments.................... 1,939,815
------------
NET ASSETS.................................................... $117,103,171
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($111,543,001 divided by 6,941,199 shares of beneficial
interest)................................................... $16.07
======
Offering price per share (100/95.75 of $16.07)................ $16.78*
======
Net asset value and offering price of Class B shares
($5,560,170 divided by 346,525 shares of beneficial
interest)................................................... $16.05**
======
Identified cost of investments................................ $115,107,893
============
<FN>
* 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.
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 18
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest..................................................... $ 3,756,367
-----------
Expenses
Management fees............................................ $ 340,886
Service and distribution fees--Class A..................... 195,130
Service and distribution fees--Class B..................... 25,081
Trustees' fees and expenses................................ 12,157
Custodian.................................................. 46,793
Transfer agent............................................. 80,416
Audit and tax services..................................... 11,405
Legal...................................................... 12,993
Printing................................................... 20,278
Registration............................................... 8,579
Miscellaneous.............................................. 3,591
----------
757,309
Less expenses waived by the investment adviser............. (245,802) 511,507
---------- -----------
Net investment income........................................ 3,244,860
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain on investments--net............................ 947,100
Unrealized appreciation on investments--net.................. 6,119,651
----------
Net gain on investment transactions.......................... 7,066,751
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $10,311,611
==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 19
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1994 1995
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income................................. $ 6,848,147 $ 3,244,860
Net realized gain (loss) on investment transactions... (3,539,373) 947,100
Unrealized appreciation (depreciation) on
investments......................................... (12,872,878) 6,119,651
------------ ----------------
Increase (decrease) in net assets from operations..... (9,564,104) 10,311,611
------------ ----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A............................................. (6,682,041) (3,110,242)
Class B............................................. (166,109) (123,971)
In excess of net investment income
Class A............................................. (142,043) --
Class B............................................. (3,669) --
------------ ----------------
(6,993,862) (3,234,213)
------------ ----------------
Decrease from capital share transactions.............. (1,440,896) (2,061,548)
------------ ----------------
Total increase (decrease) in net assets............... (17,998,862) 5,015,850
NET ASSETS
Beginning of the period............................... 130,086,183 112,087,321
------------ ----------------
End of the period..................................... $112,087,321 $117,103,171
=========== =============
DISTRIBUTION IN EXCESS OF NET INVESTMENT INCOME
Beginning of the period............................... $ 40,189 $ (55,525)
=========== =============
End of the period..................................... $ (55,525) $ (44,878)
=========== =============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 20
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(unaudited)
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1990 1991 1992 1993 1994 1995
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 16.27 $ 16.01 $ 16.37 $ 16.62 $ 17.27 $ 15.10
------- ------- ------- -------- -------- --------
Income From Investment
Operations
Net Investment Income......... 1.04 1.08 1.03 0.97 0.89 0.45
Net Realized and Unrealized
Gain (Loss) on
Investments................. (0.24) 0.69 0.40 1.05 (2.15) 0.97
------- ------- ------- -------- -------- --------
Total From Investment
Operations.................. 0.80 1.77 1.43 2.02 (1.26) 1.42
------- ------- ------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income........... (1.03) (1.07) (1.03) (0.97) (0.89) (0.45)
Distributions in excess of net
investment income........... 0.00 0.00 0.00 0.00 (0.02) 0.00
Distributions From Net
Realized Capital Gains...... (0.03) (0.34) (0.15) (0.40) 0.00 0.00
------- ------- ------- -------- -------- --------
Total Distributions........... (1.06) (1.41) (1.18) (1.37) (0.91) (0.45)
------- ------- ------- -------- -------- --------
Net Asset Value, End of
Period...................... $ 16.01 $ 16.37 $ 16.62 $ 17.27 $ 15.10 $ 16.07
======= ======= ======= ======== ======== ========
Total Return (%) (c).......... 5.2 11.5 9.1 12.4 (7.4) 9.5
Ratio of Operating Expenses to
Average Net Assets (%) a)... 1.35 1.00 0.85 0.85 0.85 0.85(b)
Ratio of Net Investment Income
to Average Net Assets (%)... 6.48 6.62 6.25 5.58 5.63 5.79(b)
Portfolio Turnover Rate (%)... 21 86 29 42 48 145(b)
Net Assets, End of Year
(000)....................... $55,903 $68,534 $91,932 $128,797 $107,565 $111,543
<FN>
(a) Commencing May 1, 1991 expenses were voluntarily limited to 0.85% of Class A
average net assets. See Note 4. The ratio of operating expenses to average
net assets, without giving effect to this expense limitation would have been
1.34%, 1.26%, 1.21% and 1.24% for the years ended December 31, 1991, 1992,
1993 and 1994 respectively and 1.27% for the six months ended June 30, 1995.
From May 18, 1989 through April 30, 1991 expenses were voluntarily limited
to 1.35% of average net assets. The ratio of operating expenses to average
net assets without giving effect to this expense limitation would have been
1.37% for the year ended December 31, 1990.
(b) Computed on an annualized basis.
(c) A sales charge of 4.25% (maximum) was not reflected in total return
calculations. Periods less than one year are not annualized.
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 21
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED
(unaudited)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------
SEPTEMBER 13,(A) SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
---------------- ------------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $17.78 $17.26 $15.08
------ ------ ------
Income From Investment Operations
Net Investment Income......................... 0.25 0.77 0.40
Net Realized and Unrealized Gain (Loss) on
Investments................................. (0.15) (2.14) 0.97
------ ------ ------
Total From Investment Operations.............. 0.10 (1.37) 1.37
------ ------ ------
Less Distributions
Distributions From Net Investment Income...... (0.22) (0.79) (0.40)
Distributions in excess of Net Investment
Income...................................... 0.00 (0.02) 0.00
Distributions From Net Realized Capital
Gains....................................... (0.40) 0.00 0.00
------ ------ ------
Total Distributions........................... (0.62) (0.81) (0.40)
------ ------ ------
Net Asset Value, End of Period................ $17.26 $15.08 $16.05
====== ====== ======
Total Return (%) (d).......................... 0.4 (8.0) 9.1
Ratio of Operating Expenses to Average Net
Assets (%) (b).............................. 1.50(c) 1.50 1.50(c)
Ratio of Net Investment Income to Average Net
Assets (%).................................. 4.26(c) 4.98 5.14(c)
Portfolio Turnover Rate (%)................... 42 48 145(c)
Net Assets, End of Period (000)............... $1,289 $4,523 $5,560
<FN>
(a) Commencement of operations.
(b) Effective September 13, 1993 expenses were voluntarily limited to 1.50% of
Class B average net assets. See Note 4. The ratio of operating expenses for
Class B shares would have been 1.86% for the period ended December 31, 1993,
1.89% for the year ended December 31, 1994 and 1.92% for the six months
ended June 30, 1995.
(c) Computed on an annualized basis.
(d) Periods less than one year are not annualized.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
(unaudited)
1. The Fund is a series of New England Funds Trust II, a Massachusetts business
trust (the "Trust"), and is registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end management investment company. The
Declaration of Trust permits the Trustees to issue an unlimited number of shares
of the Trust in multiple series (each such series of shares a "Fund").
The Fund offers both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on September 13, 1993. Class A shares are sold with a
maximum front end sales charge of 4.25%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares, and
are subject to a contingent deferred sales charge if those shares are redeemed
within five years of purchase. Expenses of the Fund are borne pro-rata by the
holders of both classes of shares, except that each class bears expenses unique
to that class (including the Rule 12b-1 service and distribution fees applicable
to such class), and votes as a class only with respect to its own Rule 12b-1
plan. Shares of each class would receive their pro-rata share of the net assets
attributable to their class, if the Fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATION. The Fund's investment adviser, Back Bay Advisors, L.P.
("Back Bay Advisors"), under the supervision of the Fund's trustees, determines
the value of the Fund's portfolio of securities, using valuations provided by a
pricing service selected by Back Bay Advisors and other information with respect
to transactions in securities, including quotations from securities dealers.
Valuations of securities and other assets owned by the Fund for which market
quotations are readily available are based on those quotations. Short-term
obligations that will mature in 60 days or less are stated at amortized cost,
which, when combined with accrued interest or discount earned, approximates
market value. All other securities and assets are valued at their fair value as
determined in good faith by Back Bay Advisors under the supervision of the
Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income for the Fund is increased by the
accretion of original issue discount. Interest income is reduced by the
amortization of premium. In determining net gain or loss on securities sold, the
cost of securities has been determined on the identified cost basis.
12
<PAGE> 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995
(unaudited)
C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends 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 the amortization of market discount. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassification to paid in capital.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors is responsible for determining that
the value of the collateral is at all times at least equal to the repurchase
price. Repurchase agreements could involve certain risks in the event of default
or insolvency of the other party including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
six months ended June 30, 1995 were $83,489,739 and $84,385,023, respectively.
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 for the Fund in effect
during the year ended December 31, 1994 provided for fees as set forth below:
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE
FEES EARNED RATE ANNUAL NET ASSET VALUE LEVELS
-------- ------------------ ------------------------------
<S> <C> <C>
$340,886(a) 0.600% the first $100 million
0.500% the excess over $100 million
<FN>
(a) Before reduction pursuant to voluntary expense limitations. See Note 4.
</TABLE>
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 and Class B shares (the "Plans").
13
<PAGE> 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995
(unaudited)
Under the Plans, 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 and Class B shares, as compensation
for services provided and expenses (including certain payments to securities
dealers, who may be affiliated with New England Funds) incurred by New England
Funds in providing personal services to investors in Class A and Class B shares
and/or the maintenance of shareholder accounts. For the six months ended June
30, 1995, the Fund paid New England Funds $139,379 and $6,270 in service fees
for Class A and Class B shares respectively.
Also under the Plans, the Fund pays New England Funds monthly distribution fees
at the annual rate of up to 0.10% of the average daily net assets attributable
to the Fund's Class A shares and up to 0.75% of the average daily net assets
attributable to the Fund's Class B shares, as compensation for services provided
and expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in connection
with the marketing or sale of Class A and Class B shares, respectively. For the
six months ended June 30, 1995, the Fund paid New England Funds $55,751 and
$18,811 in distribution fees for Class A and Class B shares 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 $81,780.
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 $80,416 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:
<TABLE>
<S> <C>
Annual Retainer $2,400
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Annual Retainer $125
</TABLE>
A deferred compensation plan is available to the trustees on a voluntary basis.
Each participating trustee will receive an amount equal to the value that such
deferred compensation would have had, had it been invested in the Fund on the
normal payment date.
14
<PAGE> 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995
(unaudited)
4. EXPENSE LIMITATIONS. Commencing May 1, 1991 and until further notice to the
Fund, Back Bay Advisors has voluntarily agreed to reduce its management fee and,
if necessary, to assume expenses of the Fund in order to limit the Fund's
expenses to an annual rate of 0.85% of the Fund's Class A average daily net
assets and, effective September 13, 1993, 1.50% of Class B average daily net
assets. From May 18, 1989 through April 30, 1991 Back Bay Advisors reduced its
management fee and assumed expenses of the Fund in order to limit the Fund's
expenses to an annual rate of 1.35%. As a result of the Fund's expenses
exceeding the applicable voluntary expense limitation during the six months
ended June 30, 1995, management fees of $340,886 were reduced by $245,802.
5. CONCENTRATION OF CREDIT. The Fund primarily invests in debt obligations
issued by the Commonwealth of Massachusetts and its political subdivisions,
agencies and public authorities to obtain funds for various public purposes. The
Fund is more susceptible to factors adversely affecting issuers of Massachusetts
municipal securities than is a comparable municipal bond fund that is not so
concentrated. Uncertain economic and fiscal conditions may affect the ability of
issuers of Massachusetts municipal securities to meet their financial
obligations.
15
<PAGE> 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1995
(unaudited)
6. CAPITAL SHARES. At June 30, 1995 there was an unlimited number of shares of
beneficial interest authorized divided into two classes, Class A and Class B
capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
--------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- ---------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Shares sold...................... 1,495,711 $ 24,082,024 552,851 $ 8,883,341
Shares issued in connection with
the reinvestment of:
Distributions from net
investment income............ 319,675 5,081,475 147,173 2,354,834
Distributions from net realized
gain......................... -- -- -- --
Distributions from paid-in
capital...................... -- -- -- --
---------- ------------ -------- ------------
1,815,386 29,163,499 700,024 11,238,175
Shares redeemed.................. (2,152,761) (34,240,511) (880,702) (14,052,330)
---------- ------------ -------- ------------
Net decrease..................... (337,375) $ (5,077,012) (180,678) $ (2,814,155)
========= =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
------------------------ ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold.......................... 236,907 $ 3,824,321 53,904 $ 849,202
Shares issued in connection with the
reinvestment of:
Distributions from net
investment income................ 8,342 130,950 5,081 97,158
Distributions from net realized
gain............................. -- -- -- --
Distributions from paid-in
capital.......................... -- -- -- --
-------- ----------- -------- -----------
245,249 3,955,271 58,985 946,360
Shares redeemed...................... (19,965) (319,155) (12,453) (193,753)
-------- ----------- -------- -----------
Net increase......................... 225,284 $ 3,636,116 46,532 $ 752,607
======== ========== ======== ==========
Total decrease from capital
share transactions................. (112,091) $(1,440,896) (134,146) $(2,061,548)
======== ========== ======== ==========
</TABLE>
16
<PAGE> 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.
<PAGE> 28
[NEW ENGLAND FUNDS LOGO]
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
95-0766 (MA58)
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