[LOGO OF NEW ENGLAND FUNDS APPEARS HERE]
Were the Best Minds Meet(TM)
- ------------------------------------
Annual Report and Performance Update
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NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
- -----------------
December 31, 1995
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<PAGE>
January 31, 1996
DEAR SHAREHOLDER,
It's a real pleasure to present to you the 1995 Annual Report for New
England Adjustable Rate U.S. Government Fund, containing your portfolio
manager's commentary and complete financial information.
FAVORABLE ECONOMIC CONDITIONS IN 1995
In 1995 subdued economic growth with little or no inflation created a
very favorable backdrop for the bond and stock markets. Long term interest
Rates dipped on the positive inflation news, with the yield on the 30-year
Treasury bond falling to a low of 5.95% at year end. The stock market, fueled
by lower interest rates and solid corporate earnings growth, advanced 37.6%,
as measured by the Standard & Poor's 500 Index,* for its best showing since
1958. In July and in December, the Federal Reserve Board lowered short term
rates, signaling its belief that the economy was indeed on a path towards
slow, non-inflationary growth.
NEW ENGLAND FUNDS - WHERE THE BEST MINDS MEET
Over this past year we launched our new corporate identity - Where
the Best Minds Meet -which we believe reflects the essence of New England
Funds. Our unique multiple adviser structure brings together some of the best
investment minds in the business. As recent examples, consider New England
Star Advisers Fund, managed by four prominent equity advisers, and New
England Star Worldwide Fund, a global fund introduced this January which
builds off the Star Advisers concept. In addition, last May we launched New
England Strategic Income Fund, under the management of Dan Fuss of Loomis
Sayles. One of the industry's most respected managers, Dan Fuss was named
1995's "Bond Fund Manager of the Year" by Morningstartrademark for his past
record of accomplishment in fund management at Loomis Sayles.**
* Standard & Poor's 500 is an unmanaged index representing 500 major
companies, the majority of which are listed on the New York Stock Exchange.
** Morningstar is a third party, independent mutual fund rating service.
<PAGE>
1995 DALBAR AWARD FOR SERVICE EXCELLENCE
Where the Best Minds Meet also refers to your financial adviser and
all the people at New England Funds who provide you with quality service. We
are proud to report that in recognition of our ongoing quality initiatives, Ne
w England Funds has been named a 1995 Quality Tested Service Seal Winner by
DALBAR, an independent mutual fund service rating company. The coveted
DALBAR award was given to only seven companies for "providing the highest
tier of service excellence in the mutual fund industry."
OUTLOOK FOR 1996
Looking ahead, we believe interest rates are likely to remain flat as
the economy continues on its slow, steady, non-inflationary growth path. Whil
e this scenario is extremely positive for the long term, it is unlikely that
1996 will see a repeat of last year's stellar performance. At this time it's
worth reiterating that long-term investors should not focus on one year's
performance. Instead, we recommend that you review your asset allocation
program with your financial adviser, then remain committed to that program to
carry out its objectives.
We believe you will find your portfolio manager's commentary
informative. If you have any questions or comments, please contact your
financial representative or New England Funds directly at 800-225-5478.
Also, please contact New England Funds for a prospectus on any of the funds
mentioned above. The prospectus details investment objectives and risks, as
well as management fees and expenses. You should read it carefully before
investing or sending money.
Sincerely,
/S/Peter S. Voss /S/Henry L.P. Schmelzer
Peter S. Voss Henry L.P. Schmelzer
Chairman President
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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INVESTMENT RESULTS THROUGH DECEMBER 31, 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 ex-penses and management fees. A securities
index measures the perfor-mance of a theoretical portfolio. Unlike a fund, the
index is unmanaged; there are no expenses that affect the results. In addition,
few investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
A $10,000 INVESTMENT IN CLASS A SHARES
COMPARED TO LEHMAN ADJUSTABLE RATE MORTGAGE INDEX(ARM)(4) AND THE COST OF
LIVING(5)
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in Class A Shares compared to Lehman Adjustable Rate Mortgage
Index (4) and the Cost of Living (5). The data points from the graph are as
follows:]
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND - NET ASSET VALUE(1)
Year Amount
- ---- ------
1995 $11,948
1994 $11,000
1993 $10,916
1992 $10,494
12/31/91 $10,000
NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND - WITH MAXIMUM SALES CHARGE(2)
Year Amount
- ---- ------
1995 $11,829
1994 $10,890
1993 $10,807
1992 $10,389
12/31/91 $ 9,900
LEHMAN ADJUSTABLE RATE MORTGAGE INDEX(4)
Year Amount
- ---- ------
1995 $12,437
1994 $11,132
1993 $11,131
1992 $10,502
12/31/91 $10,000
COST OF LIVING(5)
Year Amount
- ---- ------
[S] [C]
1995 $11,140
1994 $10,856
1993 $10,573
1992 $10,290
12/31/91 $10,000
This illustration represents past performance of Class A shares and cannot
predict
future results. Investment return and principal value may vary, resulting in a
gain
or loss on the sale of shares. Class B share performance will be greater or less
than
that shown based on differences in inception date, fees and sales charges. All
Index
and Fund performance assumes reinvested distributions.
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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AVERAGE ANNUAL TOTAL RETURNS 12/31/95
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A (INCEPTION 10/18/91) 1 YEAR 3 YEAR SINCE INCEPTION
Net Asset Value(1) 8.62% 4.42 4.63%
With Max. Sales Charge(2) 7.57 4.05 4.36
Lipper ARM Average(6) 4.73 6.36
CLASS B (INCEPTION 9/13/93) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 7.81% 3.32%
With CDSC(3) 3.81 2.09
Lehman Adj. Rate Index(4) 11.72 5.29
Lipper ARM Average(6) 4.73 1.26
<FN>
These returns represent past performance. Investment return and principal
value will fluctuate so that shares, upon redemption, may be worth more or
less than original cost.
NOTES TO CHARTS AND PERFORMANCE UPDATE
1 Net Asset Value (NAV) performance assumes reinvestment of all distributions
and does not reflect the payment of a sales charge at the time of purchase.
2 With Maximum Sales Charge performance assumes reinvestment of all
distributions
and reflects the maximum sales charge of 1% at the time of purchase of Class
A
shares.
3 With Contingent Deferred Sales Charge (CDSC) performance assumes a maximum 4%
sales charge is applied to a redemption of Class B shares. The sales charge
will decrease over time, declining to zero five years after the purchase of
shares.
4 Lehman Adjustable Rate Mortgage Index (ARM) is an unmanaged index of
adjustable
rate mortgages of short to intermediate maturities. The Index performance has
not
been adjusted for ongoing management, distribution and operating expenses and
sales
charges applicable to mutual fund investments.
5 Cost of Living is based on the Consumer Price Index, a widely recognized
measure of
the cost of goods and services in the United States, calculated by the U.S.
Bureau
of Labor Statistics.
6 Lipper Average is an average of the total return performance (calculated on
the basis
of net asset value) of funds with similar investment objectives as calculated
by Lipper
Analytical Services, an independent mutual fund ranking service.
</TABLE>
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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[PHOTO]
NEW ENGLAND ADJUSTABLE RATE
U.S. GOVERNMENT FUND
Portfolio Manager: Scott Nicholson,
Back Bay Advisors, L.P.
Entering 1995, concerns over the possibility of further interest rate
increases continued to depress the prices of short-term securities. However,
a sharp reversal in market psychology occurred when first quarter economic
reports revealed a less robust economic picture, allaying inflation fears.
Interest rates dropped significantly, reversing 1994's trend. In fact, the
market got dramatically ahead of the Federal Reserve which waited until July
to lower the Federal Funds Rate, and then dropped it by only 25 basis points to
5.75%.
Bond prices continued to climb throughout the year, motivated by slow,steady
economic growth and low inflation. Optimism prevailed and by October, the
market had moved up to anticipate about one-half of one percent of additional
easing. As events played out, the Fed took no further action until late
December, lowering the Funds target rate to 5.50%.
In this market environment, adjustable rate mortgages delivered strong
returns, making up for their disappointing 1994 results.
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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HOW YOUR FUND PERFORMED
New England Adjustable Rate U.S. Government Fund posted a total return on net
asset value of 8.62% for Class A shares for the year, versus 11.72% for the L
ehman Adjustable Rate Mortgage Index.4 Your Fund outperformed the Lipper
Adjustable Rate Fund Average6, which returned 4.73% over the same period.
Your Fund's Class A shares ranked 20 out of 64 in its Lipper peer group for
the 1 year period and 12 out of 44 for the 3-year period ending 12/29/95.*
HOW WE MANAGED YOUR FUND
Going into 1995, the Fund's holdings of adjustable rate mortgages (ARMs) were
near the minimum permitted by the Fund's investment policies, with a mortgage
market characterized by depressed prices, reduced liquidity and adverse
publicity regarding derivatives. Consequently, we were overweighted in
short-duration U.S. Treasury securities which offered good yields, high
liquidity and no credit risk.
Although ARMs appeared to offer a buying opportunity in the early part of the
year, the rapid decline in interest rates and the favorable absolute level of
fixed-rate mortgages caused us to limit our ARM investments due to concerns ov
er rising prepayments and the resulting principal erosion.
*Past performance is no guarantee of future results.
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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However, we did extend the duration of our Treasury holdings to take greater
advantage of the declining interest rate environment and to offset the sharp
decrease in ARM duration due to the accelerating prepayments. This investment
strategy proved quite successful for the Fund.**
INVESTMENT OUTLOOK
Given our outlook for lower interest rates in the first half of 1996, it is
likely that ARM prepayments will remain high and continue to restrain
returns. However, ARMs may provide a favorable spread over money
market securities, especially if the Federal Reserve is aggressive in
lowering short-term rates to lessen the possibility of recession. Looking
forward, we plan to maintain our conservative strategy, investing only in
high quality U.S. government and agency securities.
** Duration measures the sensitivity of a bond or bond fund to
interest rate moves, taking into account the amount and timing
of interest payments as well as "maturity," or how much time remains before
return of principal is due. The longer the duration, the more value of the
bond will fluctuate in response to interest rate moves. It follows that
accelerating prepayments will decrease duration because interest and
principal are being returned sooner than anticipated.
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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Your Fund's Portfolio Allocation 12/31/95*
[A pie chart appears here, depicting New England Adjustable Rate U.S. Government
FundOs portfolio composition at 12/31/95 by security type. The pie chart is
broken in pieces representing security types in the following percentages:]
Security Type Percentage
- ------------- ----------
COLLATERALIZED MORTGAGE OBLIGATIONS 1.4%
NET CASH/EQUIVALENT 9.3%
TOTAL ARM SECURITIES 66.1%
U.S. TREASURY NOTES 23.2%
* Portfolio composition is based on total net assets and is subject to
change.
<PAGE>
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New England Adjustable Rate U.S. Government Fund
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GLOSSARY FOR MUTUAL FUND INVESTORS
TOTAL RETURN - The change in value of a mutual fund investment over a
specific time period, assuming all earnings are reinvested in additional
shares of the fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net
interest or dividend income earned by a fund's portfolio. Capital Gains
DISTRIBUTIONS - Payments to shareholders of profits earned from selling
securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by
the Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond
is due. A bond fund's "average maturity" refers to the weighted average of
the maturities of all the individual bonds in the portfolio.
DURATION - A measure, stated in years, of a bond or bond fund's sensitivity
to interest rates. Duration is a means to directly compare the volatility of
different instruments. As a general rule, for every 1% move in interest
rates, a fund is expected to fluctuate in value as indicated by its duration.
For example, if interest rates fall by 1%, a fund with a duration of 4 years
should rise in value 4%. Conversely, the fund should decline 4% if interest
rates rise 1%.
TREASURIES - Negotiable debt obligations of the U.S. government, secured by
its full faith and credit. The income from treasury securities is exempt from
state and local income taxes, but not from federal income taxes. There are
three types of treasuries: Bills (maturity of 3-12 months), Notes (maturity
of 1-10 years) and Bonds (maturity of 10-30 years).
MUNICIPAL BOND - A debt security issued by a state or municipality to finance
public expenditures. Interest payments are exempt from federal taxes and in
most cases from state and local income taxes. The two main types are General
Obligation (GO) Bonds, which are backed by the full faith and credit and
taxing powers of the municipality; and Revenue Bonds, supported by the
revenues from a municipal enterprise, such as airports and toll bridges.
<PAGE>
[LOGO OF NEW ENGLAND FUNDS WHERE THE BEST MINDS MEET(TM) APPEARS HERE]
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Portfolio Composition, Financial Statements and Highlights
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NEW ENGLAND
ADJUSTABLE RATE
U.S. GOVERNMENT
FUND
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December 31, 1995
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<PAGE>
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
Investments as of December 31, 1995
Bonds and Notes--90.7% of Total Net Assets
<TABLE>
<CAPTION>
Face
Amount Description
Value (a)
- --------------------------------------------------------------------------------
- ---------
Government Agencies--66.1%
<S> <C> <C>
$ 2,024,137 Federal Home Loan Mortgage Corporation, 7.500%, 2/01/16, (d)... $
2,064,620
425,358 Federal Home Loan Mortgage Corporation, 6.336%, 8/01/17, (d)...
428,016
4,511,661 Federal Home Loan Mortgage Corporation, 7.736%, 1/01/19, (d)...
4,644,192
549,948 Federal Home Loan Mortgage Corporation, 6.361%, 2/01/19, (d)...
554,072
1,489,750 Federal Home Loan Mortgage Corporation, 6.374%, 4/01/19, (d)...
1,502,785
4,339,728 Federal Home Loan Mortgage Corporation, 7.834%, 5/01/19, (d)...
4,464,495
7,030,449 Federal Home Loan Mortgage Corporation, 7.510%, 1/01/20, (d)...
7,195,226
1,274,639 Federal Home Loan Mortgage Corporation, 8.074%, 9/01/21, (d)...
1,322,438
2,651,652 Federal Home Loan Mortgage Corporation, 7.875%, 10/01/21, (d)..
2,709,657
2,005,316 Federal Home Loan Mortgage Corporation, 7.750%, 1/01/22, (d)...
2,072,996
2,353,105 Federal Home Loan Mortgage Corporation, 7.618%, 2/01/22, (d)...
2,422,227
5,698,295 Federal Home Loan Mortgage Corporation, 7.694%, 3/01/22, (d)...
5,826,506
3,148,447 Federal Home Loan Mortgage Corporation, 7.358%, 4/01/22, (d)...
3,195,674
4,293,936 Federal Home Loan Mortgage Corporation, 8.000%, 4/01/22, (d)...
4,406,652
3,654,383 Federal Home Loan Mortgage Corporation, 7.846%, 5/01/22, (d)...
3,791,423
3,162,472 Federal Home Loan Mortgage Corporation, 8.074%, 6/01/22, (d)...
3,261,300
2,318,978 Federal Home Loan Mortgage Corporation, 8.104%, 6/01/22, (d)...
2,385,648
1,975,046 Federal Home Loan Mortgage Corporation, 8.246%, 6/01/22, (d)...
2,014,547
2,093,801 Federal Home Loan Mortgage Corporation, 8.250%, 7/01/22, (d)...
2,173,627
1,881,687 Federal Home Loan Mortgage Corporation, 7.875%, 8/01/22, (d)...
1,921,672
4,719,305 Federal Home Loan Mortgage Corporation, 8.045%, 8/01/22, (d)...
4,893,329
3,419,961 Federal Home Loan Mortgage Corporation, 8.126%, 8/01/22, (d)...
3,514,010
1,841,395 Federal Home Loan Mortgage Corporation, 8.045%, 9/01/22, (d)...
1,921,956
4,767,364 Federal Home Loan Mortgage Corporation, 7.632%, 12/01/22, (d)..
4,877,609
3,506,378 Federal Home Loan Mortgage Corporation, 7.668%, 1/01/23, (d)...
3,586,367
5,056,578 Federal Home Loan Mortgage Corporation, 7.954%, 1/01/23, (d)...
5,233,559
4,508,192 Federal Home Loan Mortgage Corporation, 8.010%, 4/01/23, (d)...
4,637,803
4,454,416 Federal Home Loan Mortgage Corporation, 7.946%, 5/01/23, (d)...
4,526,800
4,412,807 Federal Home Loan Mortgage Corporation, 7.934%, 9/01/23, (d)...
4,542,433
4,805,389 Federal Home Loan Mortgage Corporation, 7.375%, 8/01/24, (d)...
4,949,550
10,009,025 Federal Home Loan Mortgage Corporation, 7.906%, 9/01/24, (d)...
10,315,551
8,135,324 Federal Home Loan Mortgage Corporation, 7.563%, 4/01/25, (d)...
8,353,961
997,045 Federal Home Loan Mortgage Corporation, 6.884%, 7/01/30, (d)...
1,016,986
1,776,478 Federal Home Loan Mortgage Corporation, 6.411%, 10/01/30, (d)..
1,789,801
1,486,085 Federal National Mortgage Association, 6.375%, 6/01/17, (d)....
1,498,159
2,028,878 Federal National Mortgage Association, 8.001%, 7/01/17, (d)....
2,092,281
354,378 Federal National Mortgage Association, 7.858%, 8/01/17, (d)....
363,681
2,533,524 Federal National Mortgage Association, 7.677%, 12/01/17, (d)...
2,606,363
8,580,201 Federal National Mortgage Association, 8.000%, 10/01/18, (d)...
8,923,409
779,057 Federal National Mortgage Association, 6.759%, 6/01/19, (d)....
792,204
2,298,111 Federal National Mortgage Association, 6.622%, 7/01/19, (d)....
2,319,656
<PAGE>
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PORTFOLIO COMPOSITION--continued
- --------------------------------------------------------------------------------
Investments as of December 31, 1995
Bonds and Notes--continued
Face
Amount Description
Value (a)
- --------------------------------------------------------------------------------
- ---------
$ 1,898,692 Federal National Mortgage Association, 6.589%, 1/01/20, (d).... $
1,933,106
752,392 Federal National Mortgage Association, 7.742%, 5/01/20, (d)....
772,142
3,406,878 Federal National Mortgage Association, 7.697%, 9/01/20, (d)....
3,498,438
3,737,349 Federal National Mortgage Association, 7.921%, 11/01/20, (d)...
3,863,484
2,137,997 Federal National Mortgage Association, 8.028%, 5/01/22, (d)....
2,206,146
5,190,251 Federal National Mortgage Association, 8.128%, 6/01/22, (d)....
5,371,910
4,334,378 Federal National Mortgage Association, 7.924%, 11/01/22, (d)...
4,491,500
3,622,296 Federal National Mortgage Association, 7.806%, 4/01/23, (d)....
3,708,325
2,803,086 Federal National Mortgage Association, 7.967%, 7/01/23, (d)....
2,869,659
582,180 Federal National Mortgage Association, 6.111%, 9/01/23, (d)....
589,821
6,515,274 Federal National Mortgage Association, 7.764%, 4/01/24, (d)....
6,670,012
482,446 Federal National Mortgage Association, 6.780%, 1/01/29, (d)....
472,797
4,049,973 Government National Mortgage Association, 7.375%, 4/20/16, (d).
4,158,816
6,576,735 Government National Mortgage Association, 7.000%, 4/20/22, (d).
6,704,159
4,365,830 Government National Mortgage Association, 7.375%, 6/20/22, (d).
4,458,604
3,934,585 Government National Mortgage Association, 7.000%, 7/20/22, (d).
4,013,276
8,111,523 Government National Mortgage Association, 7.375%, 5/20/23, (d).
8,233,196
4,791,668 Government National Mortgage Association, 7.375%, 6/20/23, (d).
4,863,543
10,150,633 Government National Mortgage Association, 7.250%, 7/20/23, (d).
10,315,580
---
- ---------
220,307,755
---
- ---------
CMO--1.4%
4,689,674 Federal Home Loan Mortgage Pc Guaranteed, 6.700%, 10/15/23, (d)
4,736,289
---
- ---------
U.S. Government--23.2%
15,000,000 United States Treasury Notes, 9.375%, 4/15/96..................
15,173,850
10,000,000 United States Treasury Notes, 7.875%, 7/15/96..................
10,138,200
35,000,000 United States Treasury Notes, 7.375%, 11/15/97.................
36,311,100
5,000,000 United States Treasury Notes, 5.375%, 11/30/97.................
5,015,450
10,000,000 United States Treasury Notes, 9.000%, 5/15/98..................
10,828,800
---
- ---------
77,467,400
---
- ---------
Total Bonds and Notes (Identified Cost $303,743,507)...........
302,511,444
---
- ---------
</TABLE>
<PAGE>
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PORTFOLIO COMPOSITION--continued
- --------------------------------------------------------------------------------
Investments as of December 31, 1995
Short Term Investment--7.2%
<TABLE>
<CAPTION>
Face
Amount Description
Value (a)
- --------------------------------------------------------------------------------
- --------
<S> <C> <C>
$24,100,000 Repurchase agreement with State Street Bank and Trust dated
12/29/95 at 5.75% to be repurchased at $24,115,397 on 1/2/96
collateralized by US Treasury Note 6.125% due 5/15/98 valued
at $24,243,762............................................... $
24,100,000
---
- ---------
Total Short Term Investment (Identified Cost $24,100,000)......
24,100,000
---
- ---------
Total Investments--100% (Identified Cost $327,843,507).........
326,611,444
Cash and Receivables...........................................
8,296,183
Liabilities....................................................
(1,427,229)
---
- ---------
Total Net Assets--100%.........................................
$333,480,398
============
<FN>
(a) See Note 1a to the financial statements.
(b) The Fund's investments in mortgage backed securities of the Government
National Mortgage Association, Federal Home Loan Bank and Federal National
Mortgage Association are interests in separate pools of mortgages. All
separate investments in securities of these issues which have the same
coupon rate have been aggregated for the purpose of presentation in the
schedule of investments.
(c) Federal Tax Information: At December 31, 1995 the net unrealized
depreciation on investments based on cost for federal income tax purposes
of $327,843,507 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there is an excess of value over tax cost............................. $
878,120
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over value.............................
(2,110,183)
---
- ---------
Net unrealized depreciation........................................... $
(1,232,063)
============
As of December 31, 1995 the fund has a net tax basis capital loss
carry forward as follows:
Expiring December 31, 2002............................................ $
5,625,994
December 31, 2003............................................ $
6,075,626
(d) Variable rate mortgage backed securities. The interest rates change on
these instruments monthly based on changes in a designated base rate. The
rates shown were those in effect at December 31, 1995.
</TABLE>
<PAGE>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value.......................................
$326,611,444
Cash.......................................................
95,157
Receivable for:
Fund shares sold.........................................
1,864,573
Securities sold..........................................
142,741
Accrued interest.........................................
6,175,287
Unamortized organization expense.........................
11,425
Prepaid registration expense...............................
7,000
----
- --------
334,907,627
LIABILITIES
Payable for:
Fund shares redeemed..................................... $450,089
Dividends declared....................................... 624,631
Accrued expenses:
Management fees.......................................... 287,467
Deferred trustees' fees.................................. 1,723
Other expenses........................................... 63,319
--------
1,427,229
----
- --------
NET ASSETS...................................................
$333,480,398
============
Net Assets consist of:
Capital paid in..........................................
$347,752,936
Overdistributed net investment income....................
(204,379)
Accumulated net realized losses..........................
(12,836,096)
Unrealized depreciation on investments...................
(1,232,063)
----
- --------
NET ASSETS...................................................
$333,480,398
============
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($331,112,011 divided by 44,898,904 shares of beneficial
interest)..................................................
$7.37
=====
Offering price per share (100/99 of $7.37)...................
$7.44*
=====
Net asset value and offering price of Class B shares
($2,368,387 divided by 321,189 shares of beneficial
interest)..................................................
$7.37**
=====
Identified cost of investments...............................
$327,843,507
============
<FN>
* Based upon single purchases of less than $1,000,000. 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>
<PAGE>
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STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1995
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME
Interest.................................................
$29,064,705
--
- ---------
Expenses
Management fees........................................ $1,619,477
Service fees--Class A.................................. 1,040,897
Service and distribution fees--Class B................. 21,684
Trustees' fees and expenses............................ 22,151
Administrative Services................................ 595,013
Custodian.............................................. 136,813
Transfer agent......................................... 156,123
Audit and tax services................................. 22,000
Legal.................................................. 20,322
Printing............................................... 23,019
Registration........................................... 56,219
Miscellaneous.......................................... 27,503
----------
Total expenses........................................... 3,741,221
Less expenses waived by the investment adviser and
distributor............................................ (968,528)
2,772,693
---------- --
- ---------
Net investment income....................................
26,292,012
REALIZED and UNREALIZED GAIN (LOSS) on INVESTMENTS
Realized loss on Investments--net........................ (9,361,220)
Unrealized appreciation on investments--net.............. 18,622,227
----------
Net gain on investment transactions....................
9,261,007
--
- ---------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................
$35,553,019
===========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Year Ended
December 31,
December 31,
1994
1995
------------ ---
- ---------
<S> <C> <C>
FROM OPERATIONS
Net investment income.................................. $ 30,179,124 $
26,292,012
Net realized loss on investments....................... (9,494,871)
(9,361,220)
Unrealized appreciation (depreciation) on
investments,......................................... (15,177,477)
18,622,227
------------ ---
- ---------
Increase in net assets from operations................. 5,506,776
35,553,019
------------ ---
- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A.............................................. (25,947,145)
(24,684,115)
Class B.............................................. (49,777)
(112,561)
------------ ---
- ---------
(25,996,922)
(24,796,676)
------------ ---
- ---------
Decrease in net assets derived from capital share
transactions......................................... (222,923,039)
(168,968,965)
------------ ---
- ---------
Total decrease in net assets........................... (243,413,185)
(158,212,622)
NET ASSETS
Beginning of the year.................................. 735,106,205
491,693,020
------------ ---
- ---------
End of the year........................................ $491,693,020
$333,480,398
============
============
UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME
Beginning of the year.................................. $ 0 $
313,893
============
============
End of the year........................................ $ 313,893 $
(204,379)
============
============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------
- -------------
October 18(a)
through Year ended
December 31,
December 31, -------------------------
- -------------
1991 1992 1993
1994 1995
------------- ----- ----- ---
- -- -----
<S> <C> <C> <C> <C>
<C>
Net Asset Value, Beginning of
Period............................ $7.50 $7.50 $7.46
$7.45 $7.20
----- ----- ----- ---
- -- -----
Income From Investment Operations
Net Investment Income.......... 0.09 0.42 0.33
0.37 0.47
Net Realized and Unrealized Gain
(Loss) on Investments.......... 0.00 (0.06) (0.03)
(0.31) 0.14
----- ----- ----- ---
- -- -----
Total From Investment
Operations..................... 0.09 0.36 0.30
0.06 0.61
----- ----- ----- ---
- -- -----
Less Distributions
Distributions From Net Investment
Income......................... (0.09) (0.40) (0.31)
(0.31) (0.44)
----- ----- ----- ---
- -- -----
Total Distributions.............. (0.09) (0.40) (0.31)
(0.31) (0.44)
----- ----- ----- ---
- -- -----
Net Asset Value, End of Period..... $7.50 $7.46 $7.45
$7.20 $7.37
===== ===== =====
===== =====
Total Return (%)(d)................ 1.2 4.9 4.0
0.8 8.6
Ratio of Operating Expenses to
Average Net Assets (%)(b)........ 0.50(c) 0.57 0.60
0.60 0.66
Ratio of Net Investment Income to
Average Net Assets (%)........... 6.43(c) 5.39 4.39
4.85 6.29
Portfolio Turnover Rate (%)........ 52(c) 49 54
17 73
Net Assets, End of Period (000).... $60,684 $294,687 $734,251
$489,637 $331,112
<FN>
(a) Commencement of operations.
(b) Commencing June 1, 1995 expenses were voluntarily limited to 0.70% of
Class A average net assets. From May 1, 1995 through June 1, 1995 expenses
were voluntarily limited to 0.65% of Class A average net assets. See Note
4. The ratio of operating expenses to average net assets without giving
effect to this expense limitation would have been 0.89% for the year ended
December 31, 1995. From April 1, 1992 through May 1, 1995 expenses were
voluntarily limited to 0.60% of Class A average net assets. The ratio of
operating expenses to average net assets without giving effect to this
expense limitation would have been 0.96%, 0.86% and 0.88% for the years
ended December 31, 1992, 1993 and 1994, respectively. From October 19,
1991 through March 31, 1992, expenses were voluntarily limited to 0.50% of
average net assets. The ratio of operating expenses to average net assets
without giving effect to this expense limitation would have been 1.26% for
the period ended December 31, 1991.
(c) Computed on an annualized basis.
(d) A sales charge of 1.00% (maximum) was not reflected in total return
calculations. Periods less than one year are not annualized.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
----------------------------------
- ----------
September 13(a) Year
ended
through December
31,
December 31, ----------------
- ----------
1993 1994
1995
---------------- ------------ --
- ----------
<S> <C> <C>
<C>
Net Asset Value, Beginning of Period......... $7.52 $7.45
$7.20
----- -----
- -----
Income From Investment Operations Net
Investment Income........................ 0.08 0.29
0.41
Net Realized and Unrealized Gain (Loss) on
Investments.............................. (0.08) (0.29)
0.14
----- -----
- -----
Total From Investment Operations........... 0.00 0.00
0.55
----- -----
- -----
Less Distributions
Distributions From Net Investment Income... (0.07) (0.25)
(0.38)
----- -----
- -----
Total Distributions........................ (0.07) (0.25)
(0.38)
----- -----
- -----
Net Asset Value, End of Period............... $7.45 $7.20
$7.37
===== =====
=====
Total Return (%)(d).......................... 0.0 0.1
7.8
Ratio of Operating Expenses to Average Net
Assets (%)(b).............................. 1.35(c) 1.35
1.41
Ratio of Net Investment Income to Average Net
Assets (%)................................. 3.50(c) 4.10
5.54
Portfolio Turnover Rate (%).................. 54 17
73
Net Assets, End of Period (000).............. $855 $2,056
$2,368
<FN>
(a) Commencement of operations.
(b) Commencing June 1, 1995 expenses were voluntarily limited to 1.45% of
Class B average net assets. From May 1, 1995 through June 1, 1995 expenses
were voluntarily limited to 1.40% of Class B average net assets. See Note
4. The ratio of operating expenses to average net assets without giving
effect to this expense limitation would have been 1.65% for the year ended
December 31, 1995. From September 13, 1993 through May 1, 1995 expenses
were voluntarily limited to 1.35% of Class B average net assets. The ratio
of operating expenses for Class B shares would have been 1.61% for the
period ended December 31, 1993 and 1.63% for the year ended December 31,
1994.
(c) Computed on an annualized basis.
(d) Periods less than one year are not annualized.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1995
1. The Fund is a series of New England Funds Trust II, a Massachusetts
business trust (the "Trust"), and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company. The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of the Trust in multiple series (each series of shares a
"Fund").
The Fund offers both Class A and Class B shares. The Fund commenced its public
offering of Class B shares on September 13, 1993. Class A shares are sold with
a maximum front end sales charge of 1.00%. Class B shares do not pay a front
end sales charge, but pay a higher ongoing distribution fee than Class A
shares for eight years (at which point they automatically convert to 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 of the Fund, if the Fund were liquidated. In
addition, the Trustees approve 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.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. SECURITY VALUATION. The Fund's investment adviser, Back Bay Advisors, L.P.
("Back Bay Advisors"), under the supervision of the Fund's trustees,
determines the value of the Fund's portfolio of securities, using valuations
provided by a pricing service selected by Back Bay Advisors and other
information with respect to transactions in securities, including quotations
from securities dealers. Valuations of securities and other assets owned by
the Fund for which market quotations are readily available are based on those
quotations. Short-term obligations that will mature in 60 days or less are
stated at amortized cost, which, when combined with accrued interest or
discount earned, approximates market value. All other securities and assets
are valued at their fair value as determined in good faith by Back Bay
Advisors under the supervision of the Fund's trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date (the date the buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income is increased by the accretion
of discount. In determining
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
net gain or loss on securities sold, the cost of securities has been determined
on the identified cost basis.
C. FEDERAL INCOME TAXES. The Fund intends to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies, and to
distribute to its shareholders all of its income and any net realized capital
gains at least annually. Accordingly, no provision for federal income tax has
been made.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily
to shareholders of record at the time and are paid monthly.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
relate primarily to differing treatments for income recognition for
mortgage-backed securities. Permanent book and tax basis differences relating
to shareholder distributions will result in reclassification to paid in
capital.
E. REPURCHASE AGREEMENTS. The Fund, through its custodian, receives delivery
of the underlying securities collateralizing repurchase agreements. It is the
Fund's policy that the market value of the collateral be at least equal to
100% of the repurchase price. Back Bay Advisors is responsible for determining
that the value of the collateral is at all times at least equal to the
repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
F. ORGANIZATION EXPENSE. Costs incurred in 1991 in connection with the Fund's
organization and initial registration, amounting to $57,650, were paid by the
Fund and are being amortized over 60 months beginning October 18, 1991.
2. PURCHASES AND SALES OF SECURITIES (excluding short-term investments) for
the Fund for the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
U.S. Government U.S. Government
--------------- ---------------
<S> <C>
$ 286,126,950 $ 429,840,010
</TABLE>
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. During the year
ended December 31, 1995, the Fund incurred management fees payable to its
investment adviser, Back Bay Advisors. Certain officers and directors of the
adviser and its affiliated companies are also officers or trustees of the
Fund. Back Bay Advisors is a wholly owned subsidiary of New England Investment
Companies, L.P. ("NEIC"), which is a majority owned subsidiary of New England
Mutual Life Insurance Company. The management agreement in effect during the
year ended December 31, 1995 provided for fees as set forth below:
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
Fund Annual Net Asset Value
Fees Earned Annual Percentage Rate Levels
- --------------- ----------------------- -----------------------------
<S> <C> <C>
$1,619,477(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.
Effective January 1, 1996, New England Funds Management, L.P. became the
adviser for the Fund with the aforementioned adviser being retained as the
Fund's sub-adviser.
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 year ended December 31, 1995, the Fund paid New
England Funds $1,040,897 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 1996 is $1,929,283.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of up to 0.25% of the average daily net assets attributable
to the Fund's Class B shares, as compensation for services provided and
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class B shares and/or the maintenance of
shareholder accounts. For the year ended December 31, 1995, the Fund paid New
England Funds $5,421 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
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
sale of Class B shares. For the year ended December 31, 1995, the Fund paid
New England Funds $16,263 in distribution fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid
to New England Funds by investors in shares of the Fund during the year ended
December 31, 1995 amounted to $89,528.
C. TRANSFER AGENT FEES. New England Funds is the transfer and shareholder
servicing agent to the Fund. For the year ended December 31, 1995, the Fund paid
New England Funds $122,446 as compensation for its services in that capacity.
D. ADMINISTRATIVE SERVICES FEE. New England Funds provides the Fund with office
space, facilities and equipment, services of executive and other personnel and
certain administrative services all under an Administrative Services Agreement.
Under this Agreement, the Fund pays New England Funds a fee at the annual rate
of 0.15% of the first $200 million of the Fund's average daily net assets,
0.135% of the next $300 million and 0.12% of average net assets in excess of
$500 million. New England Funds reduced its fee of $595,013 by $260,235 for the
year ended December 31, 1995 because total Fund expenses exceeded the voluntary
expense limitation. See Note 4.
E. TRUSTEES FEES AND EXPENSES. The Fund does not pay any compensation directly
to its officers or trustees who are directors, officers or employees of Back Bay
Advisors, New England Funds, NEIC or their affiliates, other than registered
investment companies. Each other trustee is compensated by the Fund as follows:
<TABLE>
<S> <C>
Annual Retainer $2,400
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 June 1, 1995 and until further notice to
the Fund, Back Bay Advisors has voluntarily agreed to reduce its management
fee and New England Funds has voluntarily agreed to reduce its administrative
services fee in order to limit the Fund's expenses to an annual rate of 0.70%
of the Fund's Class A average daily net assets and, 1.45% of Class B average
daily net assets. From May 1, 1995 through June 1, 1995 expenses were
voluntarily limited to 0.65% of Class A average net assets and 1.40% of Class
B average net assets. From April 1, 1992 through May 1, 1995 expenses were
voluntarily limited to 0.60% of Class A average net assets and 1.35% of Class
B average net assets. Prior to April 1, 1992 the Fund's
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--continued
- --------------------------------------------------------------------------------
December 31, 1995
expenses were subject to a 0.50% voluntary expense limitation agreed to by
both Back Bay Advisors and New England Funds. As a result of the Fund's
expenses exceeding the applicable voluntary expense limitation during the year
ended December 31, 1995, Back Bay Advisors reduced its management fee of
$1,619,477 by $708,293 and New England Funds reduced its administrative
services fee of $595,013 by $260,235.
5. CAPITAL SHARES. At December 31, 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 Year
Ended
December 31, 1994 December
31, 1995
---------------------------- ---------------
- -------------
Class A Shares Amount Shares
Amount
- ------------------------------- ----------- ------------- -----------
- -------------
<S> <C> <C> <C>
<C>
Shares sold.................... 30,015,263 $ 221,799,967 10,139,660
$ 74,377,759
Shares issued in connection
with the reinvestment of:
Distributions from net
investment income.......... 1,767,245 12,970,611 1,309,593
9,615,221
----------- ------------- -----------
- -------------
31,782,508 234,770,578 11,449,253
83,992,980
Shares repurchased............. (62,382,259) (458,943,776) (34,512,776)
(253,225,090)
----------- ------------- -----------
- -------------
Net increase (decrease)........ (30,599,751) $(224,173,198) (23,063,523)
$(169,232,110)
========== ============ ==========
============
Year Ended Year Ended
December 31, 1994 December
31, 1995
---------------------------- ---------------
- -------------
Class B Shares Amount Shares
Amount
- ------------------------------- ----------- ------------- -----------
- -------------
Shares sold.................... 229,537 $ 1,682,203 127,300
$ 934,154
Shares issued in connection
with the reinvestment of:
Distributions from net
investment income.......... 6,052 44,227 12,997
95,443
----------- ------------- -----------
- -------------
235,589 1,726,430 140,297
1,029,597
Shares repurchased............. (65,035) (476,271) (104,441)
(766,452)
----------- ------------- -----------
- -------------
Net increase (decrease)........ 170,554 1,250,159 35,856
263,145
----------- ------------- -----------
- -------------
Increase (decrease) derived
from capital shares
transactions................. (30,429,197) $(222,923,039) (23,027,667)
$(168,968,965)
========== ============ ==========
============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees of the New England Funds Trust II and the Shareholders
of the NEW ENGLAND ADJUSTABLE RATE U.S. GOVERNMENT FUND
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the New England Adjustable Rate U.S.
Government Fund as of December 31, 1995, and the related statement of operations
for the year then ended, and the statements of changes in net assets for each of
the two years in the period then ended, and financial highlights for each of the
periods indicated herein. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
New England Adjustable Rate U.S. Government Fund as of December 31, 1995, the
results of its operations for the year then ended the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated herein, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 2, 1996
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
(unaudited)
At a special shareholders' meeting held on December 28, 1995, shareholders of
the Adjustable Rate U.S. Government Fund voted for the following proposals:
<TABLE>
<CAPTION>
Voted Voted Abstained
Broker Total
For Against Votes
Non-Votes Votes
---------- ------------- ----------- --
- -------- ---------
<S> <C> <C> <C>
<C> <C>
1. To approve new
investment advisory
arrangements to be
effective upon the
merger of New England
Mutual Life Insurance
Company into
Metropolitan Life
Insurance Company, such
arrangements to be
substantially identical
to the investment
advisory arrangements
in effect for the Fund
immediately prior to
such merger............ 23,437,982.469 2,794,587.964 253,860.494
26,486,430.927
============== ============= ===========
2. To approve a new
Advisory Agreement
between the Fund and
New England Funds
Management, L.P.
("NEFM")............... 23,382,105.072 2,862,318.342 230,489.513
11,518.000 26,486,430.927
============== ============= ===========
==========
3. To approve a related
Sub-Advisory Agreement
between NEFM and such
Fund's current
investment adviser..... 23,271,349.973 2,945,123.659 258,314.295
11,643.000 26,486,430.927
============== ============= ===========
==========
</TABLE>
<PAGE>
- ---------------------------------------------------------------------
New England Funds
- ---------------------------------------------------------------------
STOCK FUNDS
Growth Fund of Israel
International Equity Fund
Star Worldwide 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
Municipal Income Fund
Massachusetts Tax Free Income Fund
Intermediate Term Tax Free Fund of California
Intermediate Term Tax Free Fund of New York
MONEY MARKET FUNDS
Cash Management Trust
- Money Market Series
- U.S. Government Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
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>
[LOGO OF NEW ENGLAND FUNDS APPEARS HERE]
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Where the best Minds Meet[TM]
399 Boylston Street
Boston, Massachusetts
02116
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1996
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<PAGE>
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columnar headings and symbols are displayed differently in this filing.
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