<PAGE> 1
[NEW ENGLAND FUNDS LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
----------------------------------------
SEMIANNUAL REPORT AND PERFORMANCE UPDATE
----------------------------------------
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND OF
CALIFORNIA
[ARTWORK APPEARS HERE]
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JUNE 30, 1995
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<PAGE> 2
July 20, 1995
DEAR SHAREHOLDER:
We have good news to present in this Semiannual Report for New England
Intermediate Term Tax Free Fund of California, 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
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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INVESTMENT RESULTS THROUGH JUNE 30, 1995
Putting Performance into Perspective
The graph comparing your Fund's performance to a benchmark index provides you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that 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 Intermediate Term Tax Free Fund of California - Net Asset Value(1)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
4/93 $10,000
6/93 $10,258
6/94 $10,459
6/95 $10,990
</TABLE>
New England Intermediate Term Tax Free Fund of California - With Maximum Sales
Charge(2)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
4/93 $9,750
6/93 $10,002
6/94 $10,198
6/95 $10,716
</TABLE>
Lehman Municipal Index(4)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
4/93 $10,000
6/93 $10,224
6/94 $10,244
6/95 $11,145
</TABLE>
Cost of Living(5)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
4/93 $10,000
6/93 $10,028
6/94 $10,243
6/95 $10,534
</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
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS 6/30/95*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A (Inception 4/23/93) YEAR TO DATE 1 YEAR SINCE INCEPTION
<S> <C> <C> <C>
Net Asset Value(1) 6.46% 5.07% 4.40%
With Max. Sales Charge(2) 3.84 2.44 3.22
Lipper CA Municipal Average(6) 7.46 6.35 4.29
</TABLE>
<TABLE>
<CAPTION>
CLASS B (Inception 9/13/93) YEAR TO DATE 1 YEAR SINCE INCEPTION
<S> <C> <C> <C>
Net Asset Value(1) 5.92% 4.01% 0.29%
With CDSC(3) 2.01 0.11 -1.21
Lehman Municipal Index(4) 9.65 8.79 3.00
Lipper CA Municipal Average(6) 7.46 6.35 n/a
</TABLE>
-------------------------------------------------------------------------------
YIELDS AS OF JUNE 30, 1995*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
SEC 30-day Yield 5.13% 4.52%
Taxable Equivalent Yield 9.54 8.41
</TABLE>
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 California
state income tax bracket of 46.24%. The alternative minimum tax and some federal
and state taxes may apply.
* These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
(1) Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 2.50% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum
4% sales charge applied to a redemption of Class B shares. The sales charge
will decrease over time, declining to zero five years after the purchase of
shares.
(4) Lehman Municipal Index is an unmanaged index of bonds issued by states,
municipalities and other governmental entities having maturities of more
than one year. The Index performance has not been adjusted for ongoing
management, distribution and operating expenses and sales charges applicable
to mutual fund investments.
(5) Cost of Living is based on the Consumer Price Index, a widely recognized
measure of the cost of goods and services in the United States, as
calculated by the U.S. Bureau of Labor Statistics.
(6) Lipper Average is an average of the total return performance (calculated on
the basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Analytical Services, an independent mutual fund ranking
service.
2
<PAGE> 6
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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[PHOTO OF JAMES WELCH]
NEW ENGLAND INTERMEDIATE TERM
TAX FREE FUND OF CALIFORNIA
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 memories of 1994, and greeted the new year with
an enthusiastic rally. But for municipal bonds, the market's upbeat mood was
akin to being invited to a dinner party, and being offered only part of the
meal. Although munis led the rally in the first three months of 1995, they lost
momentum in the second quarter, as investors were deterred from tax-exempt
investing by the stock market's strength and widespread talk of tax reform. In
California, acrimonious negotiations on restructuring the debt of bankrupt
Orange County have cast a pall over the state's entire muni market. We wish to
remind our shareholders that we do not now, and did not last year, hold any
Orange County debt.
How Your Fund Performed
Your Fund's performance for the first six months of 1995 reflects the ups and
downs of California's municipal market. The Fund's Class A-share total return
for the first six months of 1995 was 6.46% at net asset value. Part of that
return was the attractive level of income your Fund generated over the six-month
period. On June 30, the Fund's 30-day SEC yield was 5.13% for Class A shares,
based on net asset value, which is equivalent to a
3
<PAGE> 7
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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9.54% taxable yield for California taxpayers in the combined maximum federal and
state bracket of 46.24%.*
How We Managed Your Fund
We are cautious about both the economy and credit problems in California.
Consequently, we continue to de-emphasize state and local general obligation
bonds. This strategy served your Fund well as events in Orange County unfolded.
The portfolio holds primarily essential-purpose revenue bonds, such as municipal
utilities, highway, and airport issues. These bonds rely primarily on a
dedicated revenue stream for debt repayment and are consequently more insulated
from political debates.
We have also reduced our exposures to health care bonds due to the uncertainties
surrounding Medicare and Medicaid. Our overall focus has been to maintain the
quality and liquidity of the portfolio. Mindful of your objective to reduce
taxes, we have only minimal exposure to bonds that are subject to the
alternative minimum tax (AMT).
To allow your Fund to participate in what we believe is
a very favorable environment for bonds, we have positioned the portfolio's
duration at around 5.8 years. Duration is a measure of the fund's sensitivity to
interest-rate moves. This longer duration reflects our general optimism for the
bond market.
* The alternative minimum tax and some federal and state taxes
may apply.
4
<PAGE> 8
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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We will continue to monitor closely the events in Orange County and their effect
on other local California issues and on the state. For the time being, we will
continue to de-emphasize state and local government obligations until we see
evidence of greater fiscal responsibility from California officials.
Outlook for the Municipal Market
The current economic and business climate bodes well for the bond market; we
believe municipal bonds are poised to regain popularity with investors over the
next several months. First, the Federal Reserve has piloted the economy into a
"soft landing," which has resulted in a slowing economy and diminished inflation
concerns. Second, our expectations of shrinking municipal-bond supply are
materializing, with forward supply down 46.1%, year over year, and year to date
at less than half of new issuance in 1993.(1) California supply is especially
tight. The scarcity may already be felt as billions in muni bonds were redeemed
early by their issuers this summer. Finally, municipals currently offer
exceptional value relative to Treasury bonds, with some tax-exempt yields as
high as 90% of taxable yields,(2) creating opportunities for large numbers of
taxpayers.
A spate of recent economic reports has indicated the early onset of an economic
slowdown, which prompted the Federal Reserve Board in early July to make its
first rate cut in three years, in an effort to stave off a
(1) Source: Business Week, June 19, 1995.
(2) Source: Wall Street Journal, June 15, 1995.
5
<PAGE> 9
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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recession. In our opinion, the chances of recession this year are slim. So far
the economic softness has been concentrated in a narrow range of industries.
Much of the economy continues to perk along nicely, with powerful support from
stock and bond market rallies, the decline in long-term interest rates, and the
export-enhancing weakness of the dollar.
We think the talk of tax reform that has unsettled the muni market during the
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
California municipal market.
PORTFOLIO QUALITY as of June 30, 1995
A pie chart appears here, illustrating the portfolio quality of New England
Intermediate Term Tax Free Fund of California at June 30, 1995. The pie chart is
broken in pieces representing credit ratings in the following percentages:
<TABLE>
<CAPTION>
Credit Rating Percentage
------------- ----------
<S> <C>
AAA 34%
AA 13%
A 20%
BBB 26%
BB/not rated 7%
</TABLE>
AVERAGE PORTFOLIO QUALITY = A+ AVERAGE PORTFOLIO MATURITY = 7 YEARS
Quality rating provided by Standard & Poor's.
6
<PAGE> 10
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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Glossary for Mutual Fund Investors
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by the
Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond or bond fund's sensitivity to
interest rates. Duration is a means to directly compare the volatility of
different instruments. As a general rule, for every 1% move in interest rates, a
fund is expected to fluctuate in value as indicated by its duration. For
example, if interest rates fall by 1%, a fund with a duration of 4 years should
rise in value 4%. Conversely, the fund should decline 4% if interest rates rise
1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by its
full faith and credit. The income from treasury securities is exempt from state
and local income taxes, but not from federal income taxes. There are three types
of treasuries: Bills (maturity of 3-12 months), Notes (maturity of 1-10 years)
and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and in most
cases from state and local income taxes. The two main types are General
Obligation (GO) Bonds, which are backed by the full faith and credit and taxing
powers of the municipality; and Revenue Bonds, supported by the revenues from a
municipal enterprise, such as airports and toll bridges.
7
<PAGE> 11
[NEW ENGLAND FUNDS LOGO]
NEW ENGLAND FUNDS
Where The Best Minds Meet
----------------------------------------------------------
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
----------------------------------------------------------
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND
OF CALIFORNIA
-------------
JUNE 30, 1995
-------------
<PAGE> 12
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
--------------------------------------------------------------------------------
Investments as of June 30, 1995
(unaudited)
TAX EXEMPT BONDS--99.6% OF TOTAL NET ASSETS
<TABLE>
<CAPTION>
RATINGS (C)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA--87.7%
$1,000,000 California Educational Facilities Auth.
7.000%, 01/01/04........................... Aaa AAA $ 1,080,750
1,000,000 California Housing Finance Agency 6.000%,
02/01/24................................... Aa AA- 1,014,480
1,000,000 California Pollution Control Financing Auth.
6.900%, 09/01/06........................... NR A+ 1,056,890
1,000,000 California Pollution Control Financing Auth.
8.750%, 01/01/07........................... A2 A 1,102,310
1,000,000 California State FGIC 7.000%, 06/01/02....... Aaa AAA 1,116,710
1,000,000 California State Public Works Board
7.000%, 09/01/00........................... A A- 1,073,360
1,500,000 Central Valley Financing Authority 5.800%,
07/01/04................................... NR BBB- 1,470,210
1,000,000 Contra Costa, CA Water District 9.000%,
10/01/17................................... A1 AA- 1,105,680
1,500,000 Duarte, CA 5.100%, 04/01/98.................. Baa1 NR 1,484,070
2,030,000 Fresno United School District 7.250%,
03/01/07................................... A NR 2,158,093
1,000,000 Los Angeles Convention & Exhibition
5.100%, 08/15/07........................... Aaa AAA 963,200
1,000,000 Los Angeles County Public Works Authority
5.000%, 03/01/11........................... Aa1 AA- 901,200
1,350,000 Northern California Power Agency
5.600%, 07/01/06 AMBAC..................... Aaa AAA 1,369,899
1,500,000 Pleasanton Financing Authority 5.600%,
09/02/00................................... Baa NR 1,524,375
1,000,000 Riverside, CA Electric 5.100%, 10/01/07...... Aa AA- 965,490
1,290,000 Sacramento City Financing Authority
6.000%, 12/01/07 FGIC...................... Aaa AAA 1,344,993
1,000,000 Sacramento Cogeneration Authority
6.375%, 07/01/10........................... NR BBB- 989,070
1,000,000 Sacramento Utility District
7.720%, 11/15/06 (d) FSA................... Aaa AAA 999,990
1,000,000 Sacramento Utility District
4.500%, 11/15/06 (d) FSA................... Aaa AAA 1,008,630
2,700,000 San Diego Port Facilities 6.600%, 12/01/02... NR BB+ 2,477,493
1,000,000 San Francisco City & County
8.000% 06/15/97 MBIA....................... Aaa AAA 1,065,680
1,000,000 San Francisco City Sewer Zero Coupon Bond,
10/01/06 FGIC.............................. Aaa AAA 529,470
200,000 San Francisco Bay Transportation
6.600%, 07/01/12 FGIC...................... Aaa AAA 210,892
1,000,000 Southern California Public Power Auth.
5.000%, 07/01/15........................... Aa AA 864,590
1,000,000 Southern California Rapid Transit District
7.500%, 07/01/05 MBIA...................... Aaa AAA 1,126,390
975,000 Stanislaus State Waste Authority 7.625%,
01/01/10................................... NR BBB+ 1,037,195
1,000,000 Valley Health Systems 6.250%, 05/15/99....... NR NR 999,560
</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>
$2,000,000 Western & Central Basin Finance Authority
5.470%, 08/01/06 AMBAC..................... Aaa AAA $ 1,902,700
-----------
32,943,370
-----------
OTHER OBLIGATIONS--11.9%
1,000,000 Guam Airport Authority Revenue 6.600%,
10/01/10................................... NR BBB 1,002,810
1,500,000 Puerto Rico Commonwealth Highway Authority
6.750%, 07/01/05........................... Baa1 A 1,600,965
500,000 Puerto Rico Electric Power Authority
5.900%, 07/01/03........................... Baa1 A- 511,480
1,250,000 Virgin Islands Public Finance Authority
7.700%, 10/01/04........................... NR BBB 1,367,400
-----------
4,482,655
-----------
Total Tax Exempt Bonds
(Identified Cost $37,488,915).............. 37,426,025
-----------
Total Investments -- 99.6%
(Identified Cost $37,488,915)(b)........... 37,426,025
Cash, receivables and other assets........... 2,597,438
Liabilities.................................. (2,441,363)
-----------
Total Net Assets -- 100%..................... $37,582,100
===========
(a) See Note 1a.
(b) Federal Tax Information: At June 30,1995 the net unrealized
depreciation on investments based on cost of $37,488,915 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........................... $ 565,219
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value........................... (628,109)
-----------
Net unrealized depreciation.............................................. $ (62,890)
===========
As of December 31, 1994, the Fund had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002 $1,759,438
(c) The ratings shown are believed to be the most recent ratings
available at June 30, 1995. Securities are generally rated at the
time of issuance. The rating agencies may revise their ratings from
time to time. As a result there can be no assurance that the same
ratings would be assigned if the securities were rated at June 30,
1995. The Fund's adviser independently evaluates the Fund's
portfolio securities and in making investment decisions does not
rely solely on the ratings of agencies.
(d) Floating rate demand notes are instruments whose interest rates
change on a specific date (such as coupon date or interest payment
date). These instruments are payable on demand and are secured by a
letter of credit or other support agreements from banks.
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 14
--------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
--------------------------------------------------------------------------------
June 30, 1995
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value........................................ $37,426,025
Cash........................................................ 499,377
Receivable for:
Fund shares sold.......................................... 68,246
Securities sold........................................... 1,288,512
Due from investment adviser............................... 29,066
Accrued interest.......................................... 688,964
Unamortized organization expense............................ 23,273
-----------
40,023,463
LIABILITIES
Payable for:
Fund shares redeemed...................................... $ 966,282
Securities purchased...................................... 1,366,361
Dividends declared........................................ 73,092
Accrued expenses:
Deferred trustees' fees................................... 814
Other expenses............................................ 34,814
----------
2,441,363
-----------
$37,582,100
===========
NET ASSETS
Net Assets consist of:
Capital paid in........................................... $39,605,342
Undistributed net investment income....................... 33,131
Accumulated net realized losses........................... (1,993,483)
Unrealized depreciation on investments.................... (62,890)
-----------
NET ASSETS.................................................... $37,582,100
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($31,853,958 divided by 4,339,943 shares of beneficial
interest)................................................... $7.34
=====
Offering price per share (100/97.5 of $7.34).................. $7.53*
=====
Net asset value and offering price of Class B shares
($5,728,142 divided by 782,631 shares of beneficial
interest)................................................... $7.32**
=====
Identified cost of investments................................ $37,488,915
===========
</TABLE>
* Based upon single purchases of less than $100,000. Reduced sales charges
apply for purchases in excess of these amounts.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
4
<PAGE> 15
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Six Months Ended June 30, 1995
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest..................................................... $1,106,101
Expenses
Management fees............................................ $ 73,920
Service fees--Class A...................................... 38,945
Service and distribution fees--Class B..................... 29,009
Trustees' fees and expenses................................ 7,003
Administrative Services.................................... 23,100
Custodian.................................................. 31,545
Transfer agent............................................. 21,007
Audit and tax services..................................... 7,500
Legal...................................................... 12,993
Printing................................................... 14,130
Registration............................................... 13,540
Amortization of organization expenses...................... 1,697
Miscellaneous.............................................. 2,842
---------
277,231
Less expenses waived by the investment adviser and
distributor.............................................. (126,086) 151,145
--------- ----------
Net investment income...................................... 954,956
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS AND
FUTURES CONTRACTS
Realized gain(loss) on:
Investments--net........................................... (79,720)
Futures contracts closed--net.............................. (370,838)
Options closed--net........................................ 26,196
---------
Total realized loss on investment transactions............. (424,362)
---------
Unrealized appreciation(depreciation) on:
Investments--net........................................... 1,728,212
Futures contracts--net..................................... 14,648
Options--net............................................... (3,633)
---------
Total unrealized appreciation on investment transactions... 1,739,227
---------
Net gain on investment transactions........................ 1,314,865
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $2,269,821
==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 16
--------------------------------------------------------------------------------
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................................... $ 1,954,991 $ 954,956
Net realized loss on investment transactions............ (1,563,819) (424,362)
Unrealized appreciation (depreciation) on investments... (2,499,562) 1,739,227
----------- ----------
Increase (decrease) in net assets from operations....... (2,108,390) 2,269,821
----------- ----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A............................................... (1,745,073) (820,298)
Class B............................................... (215,433) (131,085)
----------- ----------
(1,960,506) (951,383)
----------- ----------
Increase from capital share transactions................ 9,287,642 257,717
----------- ----------
Total increase in net assets............................ 5,218,746 1,576,155
NET ASSETS
Beginning of the period................................. 30,787,199 36,005,945
----------- ----------
End of the period....................................... $36,005,945 $37,582,100
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the period................................. $ 3,178 $ 29,558
=========== ============
End of the period....................................... $ 29,558 $ 33,131
=========== ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 17
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
CLASS A
----------------------------
APRIL 23,(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............... $ 7.50 $ 7.84 $ 7.08
------- ------ ------
Income From Investment Operations
Net Investment Income.............................. 0.26 0.38 0.20
Net Realized and Unrealized Gain (Loss) on
Investments...................................... 0.38 0.76) 0.26
------- ------ ------
Total From Investment Operations................... 0.64 (0.38) 0.46
------- ------ ------
Less Distributions
Distributions From Net Investment Income........... (0.26) (0.38) (0.20)
Distributions From Net Realized Capital Gains...... (0.04) 0.00 0.00
------- ------ -------
Total Distributions................................ (0.30) (0.38) (0.20)
------- ------ ------
Net Asset Value, End of Period..................... $ 7.84 $ 7.08 $ 7.34
======= ====== ======
Total Return (%)(d)................................ 8.6 (4.9) 6.5
Ratio of Operating Expenses to Average Net Assets
(%)(b)........................................... 0.70(c) 0.70 0.70(c)
Ratio of Net Investment Income to Average Net
Assets (%)....................................... 4.88(c) 5.07 6.09(c)
Portfolio Turnover Rate (%)........................ 121(c) 212 187(c)
Net Assets, End of Period (000).................... $28,938 $30,293 $31,854
</TABLE>
(a) Commencement of operations.
(b) Commencing April 23, 1993 expenses were voluntarily limited to 0.70% of
Class A average net assets. See Note 4. The ratio of operating expenses to
average net assets without giving effect to this expense limitation would
have been 1.49% (annualized) for the period ended December 31, 1993, 1.33%
for the year ended December 31, 1994 and 1.38% for the six months ended June
30, 1995.
(c) Computed on an annualized basis.
(d) A sales charge of 2.50% (maximum) was not reflected in total return
calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
7
<PAGE> 18
--------------------------------------------------------------------------------
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............... $ 7.92 $ 7.84 $ 7.07
------ ------ ------
Income From Investment Operations
Net Investment Income.............................. 0.10 0.32 0.17
Net Realized and Unrealized Gain (Loss) on
Investments...................................... (0.04) (0.77) 0.25
------ ------ ------
Total From Investment Operations................... 0.06 (0.45) 0.42
------ ------ ------
Less Distributions
Distributions From Net Investment Income........... (0.10) (0.32) (0.17)
Distributions From Net Realized Capital Gains...... (0.04) 0.00 0.00
------ ------ ------
Total Distributions................................ (0.14) (0.32) (0.17)
------ ------ ------
Net Asset Value, End of Period..................... $ 7.84 $ 7.07 $ 7.32
====== ====== ======
Total Return (%)(d)................................ 0.8 (5.8) 5.9
Ratio of Operating Expenses to Average Net Assets
(%)(b)........................................... 1.45(c) 1.45 1.45(c)
Ratio of Net Investment Income to Average Net
Assets (%)....................................... 3.68(c) 4.32 6.84(c)
Portfolio Turnover Rate (%)........................ 121(c) 212 187(c)
Net Assets, End of Period (000).................... $1,849 $5,713 $5,728
</TABLE>
(a) Commencement of operations.
(b) Commencing September 13, 1993 expenses were voluntarily limited to 1.45% of
Class B average net assets. See Note 4. The ratio of operating expenses to
average net assets without giving effect to this expense limitation would
have been 2.24% (annualized) for the period ended December 31, 1993, 2.08%
for the year ended December 31, 1994 and 2.13% for the six months ended June
30, 1995.
(c) Computed on an annualized basis.
(d) Periods less than one year are not annualized.
See accompanying notes to financial statements.
8
<PAGE> 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
1. The Fund is a series of The New England Funds Trust II, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each series of shares a
"Fund").
The Fund offers both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on September 13, 1993. Class A shares are sold with a
maximum front end sales charge of 2.50%. Class B shares do not pay a front end
sales charge, but pay a higher ongoing distribution fee than Class A shares, and
are subject to a contingent deferred sales charge if those shares are redeemed
within five years of purchase. Expenses of the Fund are borne pro-rata by the
holders of both classes of shares, except that each class bears expenses unique
to that class (including the Rule 12b-1 service and distribution fees applicable
to such class), and votes as a class only with respect to its own Rule 12b-1
Plan. Shares of each class would receive their pro-rata share of the net assets
attributable to their classes, if the Fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
A. SECURITY VALUATION. The Fund's investment adviser, Back Bay Advisors, L.P.
("Back Bay Advisors"), under the supervision of the Fund's trustees, determines
the value of the Fund's portfolio of securities, using valuations provided by a
pricing service selected by Back Bay Advisors and other information with respect
to transactions in securities, including quotations from securities dealers.
Valuations of securities and other assets owned by the Fund for which market
quotations are readily available are based on those quotations. Short-term
obligations that will mature in 60 days or less are stated at amortized cost,
which, when combined with accrued interest or discount earned, approximates
market value. All other securities and assets are valued at their fair value as
determined in good faith by Back Bay Advisors under the supervision of the
Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income is increased by the accretion of
original issue discount. Interest income is reduced by the amortization of
premium. In determining net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
9
<PAGE> 20
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
C. OPTIONS AND FUTURES. CALLS AND PUTS. The Fund may write (sell) call and put
options on securities to manage its exposure to interest rates and the bond
market. Buying futures, writing puts, and buying calls tend to increase the
Fund's exposure to the underlying instrument. Selling futures, buying puts, and
writing calls tend to decrease the Fund's exposure to the underlying instrument,
or hedge other Fund investments. When a Fund writes a call or put option, an
amount equal to the premium received by the Fund is included in the Fund's
statement of assets and liabilities as an asset and as an equivalent liability.
The amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. The current value of a written
option is the closing price on the principal exchange on which such option is
traded. If an option which the Fund has written either expires on its stipulated
expiration date, or if the Fund enters into a closing purchase transaction, the
Fund realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a put option which the Fund has written is exercised,
the amount of the premium originally received will reduce the cost of the
security which the Fund purchases upon exercise of the option.
The premium paid by a Fund for the purchase of a call or a put option is
included in the asset section of the Fund's statement of assets and liabilities
as an investment and subsequently adjusted to the current market value of the
option. The current value of a purchased option is the closing price on the
principal exchange on which such option is traded. If an option which the Fund
has purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount of the cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gain or loss, depending on whether the
sales proceeds from the closing sale transaction are greater or less than the
cost of the option. If the Fund exercises a purchased put option, it will
realized a gain or loss from the sale of the underlying security and the
proceeds from such sale will be decreased by the premium originally paid. If the
Fund exercises a purchased call option, the cost of the security which the Fund
purchases upon exercise will be increased by the premium originally paid.
The risk in writing a call option is that the Fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the Fund assumes the risk of
incurring a loss if the market price decreases and the option is exercised. In
addition, there is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
10
<PAGE> 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
INTEREST RATE FUTURES CONTRACTS
The Fund may purchase and sell interest rate futures contracts to hedge against
changes in the values of tax exempt municipal securities the Fund owns or
expects to purchase. An interest rate futures contract is an agreement between
two parties to buy and sell a security for a set price (or to deliver an amount
of cash) on a future date. Upon entering into such a contract, the purchasing
Fund is required to pledge to the broker an amount of cash, U.S. Government
securities or other high quality debt securities equal to the minimum "initial
margin" requirements of the exchange, currently up to $3,000 per contract.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin," and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The potential risk to the Fund is that the change in value of futures contracts
primarily corresponds with the value of underlying instruments which may not
correspond to the change in the value of the hedged instruments. In addition,
there is a risk that the Fund may not be able to close out its futures positions
due to an illiquid secondary market.
D. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily to
shareholders of record at the time and are paid monthly.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
relate primarily to differing treatments for market discount. Permanent book and
tax basis differences relating to shareholder distributions will result in
reclassification to paid in capital.
F. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery of
the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to 100%
of the repurchase price. Back Bay Advisors is responsible for determining that
the value of the collateral is at all times at least equal to the repurchase
price. Repurchase agreements could involve certain risks in the event of default
or insolvency of the other party including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities.
11
<PAGE> 22
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
G. ORGANIZATION EXPENSE. Costs incurred in 1993 in connection with the Fund's
organization and initial registration amounted to $26,500 and were paid by the
Fund. These costs are being amortized over 60 months beginning April 23, 1993.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for the
Fund for the six months ended June 30, 1995 were $33,698,468 and $33,759,664,
respectively.
Investments in written options and futures contracts for the Fund for the six
months ended June 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
SALES OF FUTURES CONTRACTS
--------------------------------
NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS
--------- ------------------
<S> <C> <C>
Open at December 31, 1994................. 90 $ 8,993,790
Contracts opened.......................... 130 30,377,633
Contracts closed.......................... (220) (39,371,423)
------- ------------
Open at June 30, 1995..................... 0 0
======= ============
</TABLE>
<TABLE>
<CAPTION>
WRITTEN OPTIONS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Open at December 31, 1995.................... 90 $ 24,728
Contracts opened............................. 130 43,530
Contracts closed............................. (220) (68,258)
------- ---------
Open at June 30, 1995........................ 0 $ 0
======= =========
</TABLE>
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the six
months ended June 30, 1995, the Fund incurred management fees payable to its
investment adviser, Back Bay Advisors. Certain officers and directors of the
adviser are also officers or trustees of the Fund. Back Bay Advisors is a wholly
owned subsidiary of New England Investment Companies, L.P. ("NEIC"), which is a
majority owned subsidiary of New England Mutual Life Insurance Company. The
management agreement in effect during the six months ended June 30, 1995
provided for fees as set forth below:
<TABLE>
<CAPTION>
FEES FUND ANNUAL NET ASSET VALUE
EARNED ANNUAL PERCENTAGE RATE LEVELS
------- ----------------------- -----------------------------
<S> <C> <C>
$73,920(a) 0.400% the first $200 million
0.375% the next $300 million
0.350% the excess over $500 million
</TABLE>
(a) Before reduction pursuant to voluntary expense limitations. See Note 4.
12
<PAGE> 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
B. SERVICE AND DISTRIBUTION FEES. Pursuant to Rule 12b-1 under the 1940 Act,
the Trust has adopted a Service Plan relating to the Fund's Class A shares (the
"Class A Plan") and a Service and Distribution Plan relating to the Fund's Class
B shares (the "Class B Plan").
Under the Class A Plan, the Fund pays New England Funds, L.P. ("New England
Funds") a monthly service fee at the annual rate of up to 0.25% of the average
daily net assets attributable to the Fund's Class A shares, as reimbursement for
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class A shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 1995, the Fund paid New
England Funds $38,945 in fees under the Class A Plan. If the expenses of New
England Funds that are otherwise reimbursable under the Class A Plan incurred in
any year exceed the amounts payable by the Fund under the Class A Plan, the
unreimbursed amount (together with unreimbursed amounts from prior years) may be
carried forward for reimbursement in future years in which the Class A Plan
remains in effect. The amount of unreimbursed expenses carried forward into 1995
is $179,456.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee at
the annual rate of up to 0.25% of the average daily net assets attributable to
the Fund's Class B shares, as compensation for services provided and expenses
(including certain payments to securities dealers, who may be affiliated with
New England Funds) incurred by New England Funds in providing personal services
to investors in Class B shares and/or the maintenance of shareholder accounts.
For the six months ended June 30, 1995, the Fund paid New England Funds $7,252
in service fees under the Class B Plan.
Also under the Class B Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.75% of the average daily net
assets attributable to the Fund's Class B shares, as compensation for services
provided and expenses (including certain payments to securities dealers, who may
be affiliated with New England Funds) incurred by New England Funds in
connection with the marketing or sale of Class B shares. For the six months
ended June 30, 1995, the Fund paid New England Funds $21,757 in distribution
fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid to
New England Funds by investors of shares of the Fund during the six months ended
June 30, 1995 amounted to $51,607.
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 $21,007 as compensation for its services in that
capacity.
13
<PAGE> 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------
June 30, 1995 (unaudited)
D. ADMINISTRATIVE SERVICES FEE. New England Funds provides the Fund with office
space, facilities and equipment, services of executive and other personnel and
certain administrative services all under an Administrative Services Agreement.
Under this agreement, the Fund pays New England Funds a fee at the annual rate
of 0.125% of the Fund's average daily net assets. New England Funds waived its
entire fee of $23,100 for the six months ended June 30, 1995 because total Fund
expenses exceeded the Fund's voluntary expense limitation. See Note 4.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers, or employees of Back
Bay Advisors, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:
<TABLE>
<S> <C>
Annual Retainer $800
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Retainer $125/year
</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.
4. EXPENSE LIMITATIONS. Commencing April 23, 1993 and until further notice to
the Fund, Back Bay Advisors and New England Funds have voluntarily agreed to
reduce management and administrative services fees in order to limit the Fund's
expenses to an annual rate of 0.70% of the Fund's Class A average daily net
assets and, effective September 13, 1993, 1.45% of Class B average daily net
assets. As a result of the Fund's expenses exceeding the foregoing expense
limitation during the six months ended June 30, 1995, Back Bay Advisors waived
its entire management fee of $73,920 and New England Funds waived its entire
administrative fee of $23,100.
5. CONCENTRATION OF CREDIT. The Fund primarily invests in debt obligations
issued by the State of California 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 California 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
California municipal securities to meet their financial obligations.
14
<PAGE> 25
--------------------------------------------------------------------------------
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.
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............................. 2,302,625 $ 17,416,312 509,449 $ 3,742,028
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income.............................. 130,833 965,605 64,870 475,108
---------- ------------ -------- -----------
2,433,458 18,381,917 574,319 4,217,136
Shares redeemed......................... (1,842,280) (13,458,803) (515,996) (3,761,791)
---------- ------------ -------- -----------
Net increase (decrease)................. 591,178 $ 4,923,114 58,323 $ 455,345
========== ============ ======== ===========
</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............................. 745,373 $ 5,588,462 56,651 $ 401,200
Shares issued in connection with the
reinvestment of:
Distributions from net investment
income.............................. 11,253 82,707 7,094 51,907
--------- ----------- ------- -----------
756,626 5,671,169 63,745 453,107
Shares redeemed......................... (184,681) (1,306,641) (88,990) (650,735)
--------- ------------ ------- -----------
Net increase (decrease)................. 571,945 $ 4,364,528 (25,245) $ (197,628)
========= ============ ======= ===========
Total increase from capital
share transactions.................... 1,163,123 $ 9,287,642 33,078 $ 257,717
========= ============ ======= ===========
</TABLE>
15
<PAGE> 26
------------------------------------------------------------------------------
REGULAR INVESTING PAYS
------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
1. It's an easy way to build assets
2. It's convenient and effortless
3. It requires a low minimum to get started
4. It can help you reach important long-term goals like retirement or
college funding
5. It can help you benefit from the ups and 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:
<TABLE>
<CAPTION>
Monthly investments of $50:
Years Growth of Monthly Investments
----- -----------------------------
<S> <C>
0 $0
5 $3,661
10 $9,040
15 $16,943
20 $28,555
25 $45,618
<CAPTION>
Monthly investments of $100
Years Growth of Monthly Investments
----- -----------------------------
<S> <C>
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
<CAPTION>
Monthly investments of $200:
Years Growth of Monthly Investments
----- -----------------------------
<S> <C>
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
<CAPTION>
Monthly investments of $500:
Years Growth of Monthly Investments
----- -----------------------------
<S> <C>
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
</TABLE>
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.
16
<PAGE> 27
------------------------------------------------------------------------------
NEW ENGLAND FUNDS
------------------------------------------------------------------------------
STOCK FUNDS
International Equity Fund
Growth Funds
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]
NEW ENGLAND FUNDS
Where The Best Minds Meet
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
95-0767 (CA58)
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