[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
ANNUAL REPORT AND PERFORMANCE UPDATE
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND
OF CALIFORNIA
[ARTWORK APPEARS HERE]
DECEMBER 31, 1995
<PAGE>
DEAR SHAREHOLDER,
ItOs a real pleasure to present to you the 1995 Annual Report for New
England Intermediate Term Tax Free Fund of California, containing your
portfolio managerOs 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 & PoorOs
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
industryOs most respected managers, Dan Fuss was named 1995Os OBond
Fund Manager of the YearO by Morningstar for his past record of
accomplishment in fund management at Loomis Sayles.**
* Standard & PoorOs 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, New 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 Oproviding the highest tier of service excellence
in the mutual fund industry.O
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. While this scenario is extremely positive for the long term, it
is unlikely that 1996 will see a repeat of last yearOs stellar
performance. At this time itOs worth reiterating that long-term
investors should not focus on one yearOs 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 managerOs 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>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
INVESTMENT RESULTS THROUGH DECEMBER 31, 1995
Putting Performance into Perspective
The graph comparing your FundOs 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 FundOs 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 atheoretical 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)
Year Amount
- ----- ------
1995 $11,756
1994 $10,322
1993 $10,864
4/23/93 $10,000
New England Intermediate Term Tax Free Fund of California
- With Maximum Sales Charge(2)
Year Amount
- ----- ------
1995 $11,462
1994 $10,064
1993 $10,592
4/23/93 $E9,750
Lehman Municipal Index(4)
Year Amount
- ----- ------
1995 $11,938
1994 $10,164
1993 $10,718
4/23/93 $10,000
Cost of Living(5)
Year Amount
- ----- ------
1995 $10,668
1994 $10,396
1993 $10,125
4/23/93 $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>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
<TABLE><CAPTION>
<S> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95*
CLASS A 1 YEAR SINCE INCEPTION (4/23/93)
Net Asset Value(1) 13.89% 6.20%
With Max. Sales Charge(2) 11.07 5.21
Lipper CA Municipal Average(6) 13.27 5.57
CLASS B (INCEPTION 9/13/93) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 12.91% 3.05%
With CDSC(3) 8.91 1.83
Lehman Municipal Index(4) 17.46 5.63
Lipper CA Municipal Average(6) 13.27 4.34
YIELDS AS OF 12/31/95*
CLASS A CLASS B
SEC 30-day Yield 4.93% 4.33%
Taxable Equivalent Yield 9.17 8.05
<FN>
SEC Yield is based on the FundOs 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.
</TABLE>
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
[PHOTO]
Portfolio Manager: James Welch
Back Bay Advisers, L.P.
For investors in both stocks and bonds, 1995 was an outstanding year.
The stock market, as measured by the Dow Jones Industrial Average1,
repeatedly reached record highs, and the bond market provided
attractive yields and total returns. In large measure, this reflected
the Federal Reserve BoardOs success at bringing the economy in for a
Osoft landingO - economic growth has been moderate, and inflation is
under control.
Almost all sectors of the bond market participated in a rally that
sustained itself for most of the year. There was a modest pull back
during the second quarter, as investors turned their attention to the
stock market, but momentum was regained over the final six months of
the year. The rally was driven by a sharp decline in interest rates.
From the beginning to the end of the FundOs fiscal year, the yield on
30-year Treasury bonds fell by 1.75 percentage points, from 7.70% to
5.95%. Although U.S. government bonds were the biggest beneficiaries
of this decline, most other fixed-income securities, including
municipal bonds, received a significant boost as well.
How Your Fund Performed
The FundOs Class A shares posted a positive total return of 13.89% for
the 12-month period, based on net asset value. We had anticipated the
economyOs soft landing, and had positioned the Fund early on to take
advantage of such an environment. We began upgrading the quality of
the securities in the FundOs portfolio during the prior fiscal year,
and continued to do so throughout 1995. As
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
interest rates declined, the Oyield gapO between bonds of higher and
lower quality narrowed, making it possible to invest in relatively
high quality bonds without sacrificing performance. This strategy
also helped the Fund perform very well relative to other funds with
similar objectives. The FundOs total return stands up nicely when
compared to the 13.27% return from the Lipper California Municipal
Average(2).
In addition to its strong total return, your Fund continued to provide
a high level of tax-exempt income during the year. On December 31,
1995, the FundOs yields for Class A and Class B shares were 4.93% and
4.33%, respectively.a. These translate into taxable equivalent yields
of 9.17% for Class A shares and 8.05% for Class B shares, based on the
maximum combined federal and California state income tax rate of
46.24%(3).
How We Managed Your Fund
The stateOs economy showed modest improvement during 1995, although
events in Orange County continue to influence CaliforniaOs municipal
bond market. We had identified Orange County as a potential trouble
spot before its well-publicized fiscal problems, and had eliminated
its debt from the portfolio by the end of 1994. Orange CountyOs
problems have had a negative impact on the bonds of local
municipalities throughout California - as a consequence, we have
avoided local general obligation (GO) bonds. The stateOs GOs, on the
other hand, became more attractive as CaliforniaOs economic prospects
improved. From no exposure at the
a. Yield is calculated using a standard formula established by the
Securities and Exchange Commission, and is an annualized
percentage based on the yield earned for the FundOs Class A and
Class B shares during the 30 days ending December 31, 1995.
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
beginning of 1995, we added some carefully selected state general
obligation bonds during the year.
Overall, we continue to emphasize essential service
revenue bonds, including utility bonds, because of their potential for
steady income. The transportation sector, which includes highway and
airport revenue bonds, showed particular improvement as the economy
picked up steam. In this sector, many bonds are backed by a voter-
approved allocation from state sales tax. Airport bonds especially
benefited - usage fees increased along with passenger traffic.
Given the CongressOs stated desire to reform Medicare and Medicaid, we
have avoided investments in the health care sector. One exception was
Valley Health Systems, a three-hospital county health care complex.
When this credit was originally issued, it was unrated. Our internal
analysis identified it as a good prospect, and we realized significant
appreciation when the credit was rated BBB by Standard & PoorOs
Corporation.
Outlook For the Municipal Market
We believe the long-term outlook for CaliforniaOs municipal bond
market is positive. The impact from events such as the impasse over
the federal governmentOs debt ceiling and ongoing discussions about
tax reform should prove to be short-term in nature. In fact, lower
prices that resulted from the marketOs concerns about tax reform were
taken as a buying opportunity for the Fund.
Municipal bonds may also continue to enjoy their current
attractiveness compared to Treasury securities. With
<PAGE>
some municipal bonds yielding as much as 90% of Treasuries at year-
end, they offer exceptional value for investors. This becomes even
more apparent when municipal bond yields are compared to Treasuries on
a taxable-equivalent basis.
In recent years, there has been a steady decline in the volume of new
issue municipal bonds in California - $20 billion were issued in 1995,
a decline of 21% from 1994. This trend should continue in the future.
The combination of relatively low supply and steady demand from
investors seeking relief from federal and state income taxes suggests
a favorable environment for California municipal bonds and for the
Fund.
1. The Dow Jones Industrial Average is an unmanaged index of the
price of 30 stocks, all of which are traded on the New York Stock
Exchange.
2. The Lipper Average is an average of the total return performance
(calculated on the basis of net asset value) of funds with similar
objectives, as calculated by Lipper Analytical Services, an
independent mutual fund ranking service.
3. The alternative minimum tax (AMT) may apply. Some federal and
state taxes may apply.
PORTFOLIO QUALITY AS OF DECEMBER 31, 1995
[A pie chart appears here, illustrating the portfolio quality of New
England Intermediate Term Tax Free Fund of California at December 31,
1995. The pie chart is broken in pieces representing credit ratings in
the following percentages.]
- --------------------------------------------
AAA 28.6%
AA 8.4%
A 25.9%
BBB 30%
BELOW BBB 7%
- --------------------------------------------
AVERAGE PORTFOLIO QUALITY =A+
AVERAGE PORTFOLIO MATURITY = 10.5 YEARS
Quality rating provided by Standard & PoorOs
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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 fundOs portfolio.
Capital Gains Distributions - Payments to shareholders of profits
earned from selling securities in a fundOs 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 fundOs Oaverage maturityO 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 fundOs
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]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND
OF CALIFORNIA
DECEMBER 31, 1995
<PAGE>
PORTFOLIO COMPOSITION
Investments as of December 31, 1995
TAX EXEMPT BONDS--95.9% OF TOTAL NET ASSETS
<TABLE><CAPTION>
<C> <S> <C> <C> <C>
RATINGS (
C)
(UNAUDITE
D)
----------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------
- -------------
CALIFORNIA--82.0%
$1,000,000 California Educational Facilities Authority
(Stanford Univ.), 7.000%, 01/01/04 Aaa AAA $ 1,098,870
995,000 California Housing Finance Agency 6.000%, 02/01/24 Aa AA- 1,025,577
1,000,000 California Housing Finance Agency
6.050%, 08/01/15 (MBIA). AAA AAA 1,019,690
1,000,000 California Pollution Control Financing Authority
6.900%, 09/01/06 -- A+/A-1+ 1,079,760
1,000,000 California Pollution Control Financing Authority
8.750%, 01/01/07 A2 A 1,103,940
1,000,000 California State Department of Water Resources
5.000%, 12/01/12 AA AA 979,830
1,000,000 California State 7.000%, 06/01/02 (FGIC) Aaa AAA 1,142,560
1,000,000 California State 5.250%, 10/01/14 A1 A 982,360
1,000,000 California State Zero Coupon Bond, 10/01/06 A1 A 577,330
1,000,000 California State Public 6.400%, 09/01/08 A A- 1,065,180
1,500,000 Duarte City of Hope, CA, 5.100%, 04/01/98. Baa1 -- 1,506,810
2,030,000 Fresno United School District 7.250%, 03/01/07 A -- 2,248,103
1,295,000 Fresno United School District 6.600%, 03/01/99 A -- 1,378,450
1,000,000 Los Angeles County Transportation Sales Tax Revenue,
6.500%, 07/01/13 A1 AA- 1,063,240
1,000,000 Pleasanton Financing Authority 5.600 09/02/00 Baa -- 1,039,330
1,000,000 Sacramento California Power Authority
6.500%, 07/01/07 -- BBB- 1,072,890
1,000,000 Sacramento Utility District 6.870%, 11/15/06 (d) (FSA) Aaa AAA 1,081,110
1,000,000 Sacramento Utility District 4.130%, 11/15/06 (d) (FSA) Aaa AAA 999,990
2,700,000 San Diego Port Facilities 6.600%, 12/01/02 -- -- 2,605,500
1,000,000 Southern California Public Power Authority
5.000%, 07/01/15 (FSA).. AAA AAA 964,980
1,000,000 Southern California Rapid Transit District
7.500%, 07/01/05 (MBIA). Aaa AAA 1,149,400
1,975,000 Stanislaus Solid Waste Authority 7.625%, 01/01/10 -- BBB+ 2,148,701
1,000,000 Valley Health Systems 6.250%, 5/15/99 -- BBB- 1,023,280
1,000,000 Yorba Linda, CA Redevelopment Agency,
5.250%, 09/01/13 (MBIA). AAA AAA 994,230
2,000,000 Western & Central Basin Finance Authority
6.470%, 08/01/06 (AMBAC) Aaa AAA 2,062,080
-----------
31,413,191
-----------
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
TAX EXEMPT BONDS--CONTINUED
RATINGS (
C)
(UNAUDITE
D)
----------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (A)
-------------------------------------------------------------------------------
- -------------
OTHER OBLIGATIONS--13.9%
$1,200,000Guam Airport Authority Revenue 6.600%, 10/01/10 -- BBB $ 1,230,144
1,000,000 Puerto Rico Commonwealth Highway Authority
6.750%, 07/01/05 Baa1 A 1,098,790
1,750,000 Virgin Islands Public Finance Authority
7.700%, 10/01/04 -- BBB 1,951,040
945,000 Virgin Islands Territory
7.750%, 10/01/06 -- -- 1,061,197
-----------
5,341,171
-----------
Total Tax Exempt Bonds
(Identified Cost $35,716,490) 36,754,362
-----------
Total Investments--95.9%
(Identified Cost $35,716,490)(b). 36,754,362
Cash and receivables 2,639,946
Liabilities (1,070,440)
-----------
Total Net Assets--100% $38,323,868
==========
<FN>
(a) See Note 1a.
(b) Federal Tax Information: At December 31, 1995 the net
unrealized appreciation on investments based on Cost of
$35,718,360 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 $ 1,270,121
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value. (234,119)
-----------
Net unrealized appreciation $ 1,036,002
==========
As of December 31, 1995, the Fund had a net tax basis capital loss
carryforward as follows:
Expiring December 31, 2002 $1,488,957
(c) The ratings shown are believed to be the most recent ratings available at
December 31, 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 December 31, 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. The rates shown were those in effect
at December 31, 1995.
</TABLE>
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value $36,754,362
Cash 853,273
Receivable for:
Fund shares sold 77,429
Securities sold 981,657
Accrued interest 671,950
Unamortized organization expense. 20,498
Due from investment advise 30,139
Prepaid registration expense 5,000
-----------
39,394,308
LIABILITIES
Payable for:
Securities purchased$983,527
Fund shares redeemed 2,651
Dividends declared 49,434
Accrued expenses:
Deferred trustees' fees 205
Other expenses 34,623
--------
1,070,440
-----------
$38,323,868
==========
NET ASSETS
Net Assets consist of:
Capital paid in $38,755,920
Undistributed net investment income 20,903
Accumulated net realized losses (1,490,827)
Unrealized appreciation on investments 1,037,872
-----------
NET ASSETS $38,323,868
==========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($32,707,195 divided by 4,272,840 shares of beneficial
interest) $7.65
======
Offering price per share (100/97.50 of 7.65) $7.85*
======
Net asset value and offering price of Class B shares
($5,616,673 divided by 735,844 shares of beneficial
interest) $7.63**
======
Identified cost of investments $35,716,490
===========
<FN>
* Based upon single purchases of less than $100,000. Reduced sales
charges apply for purchases in excess of these amounts.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charges.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $2,233,235
Expenses
Management fees $150,341
Service fees--Class A 79,472
Service and distribution fees--Class B 57,947
Trustees' fees and expenses 11,485
Administrative Services 46,879
Custodian 66,655
Transfer agent 40,289
Audit and tax services 15,000
Legal 20,148
Printing 15,595
Registration 20,751
Amortization of organization expenses 4,472
Miscellaneous 4,909
----------
Total expenses 533,943
Less expenses waived by the
investment adviser and
distributor (227,359) 306,584
---------- ----------
Net investment income 1,926,651
REALIZED and UNREALIZED GAIN (LOSS)
on INVESTMENTS, OPTIONS AND
FUTURES CONTRACTS
Realized gain (loss) on:
Investments--net 391,557
Futures contracts--net (403,228)
Options contracts--net 92,643
----------
Total realized gain on investments 80,972
----------
Unrealized appreciation (depreciation) on:
Investments--net 2,828,977
Futures contracts--net (3,634)
Options contracts--net 14,646
----------
Total unrealized appreciation on investments,
futures contracts 2,839,989
----------
Net gain on investment transactions 2,920,961
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,847,612
=========
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
----------- -----------
FROM OPERATIONS
Net investment income$ 1,954,991 $1,926,651
Net realized gain (loss) on investments,
options and
futures transactions (1,563,819) 80,972
Unrealized appreciation (depreciation)
on investments,
options and futures transactions (2,499,562) 2,839,989
Increase (decrease) in net assets
from operations (2,108,390) 4,847,612
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (1,743,720) (1,665,974)
Class B (214,696) (260,677)
In excess of net investment income
Class A (1,353) (9,744)
Class B (737) (1,589)
------------- ---------------
(1,960,506) (1,937,984)
------------- ---------------
Increase (decrease) in net assets
derived from capital
share transactions 9,287,642 (591,705)
------------- ---------------
Total increase (decrease) in net assets 5,218,746 2,317,923
NET ASSETS
Beginning of the year 30,787,199 36,005,945
------------- ---------------
End of the year $36,005,945 $ 38,323,868
============= ===============
UNDISTRIBUTED NET INVESTMENT INCOME
Beginning of the year $ 3,178 $ 29,558
=========== ============
End of the year $29,558 $ 20,903
=========== ============
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS A
---------------------------------------
APRIL 23,(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
---------- ---------- ----------
Net Asset Value,
Beginning of Period $7.50 $ 7.84 $ 7.08
---------- ---------- ----------
Income From Investment Operations
Net Investment Income 0.26 0.38 0.39
Net Realized and Unrealized Gain
(Loss) on
Investments 0.38 (0.76) 0.57
---------- ---------- ----------
Total From Investment
Operations 0.64 (0.38) 0.96
---------- ---------- ----------
Less Distributions
Distributions From Net
Investment Income. (0.26) (0.38) (0.39)
Distributions in Excess
of Net Investment Income (0.04) 0.00 0.00
---------- ---------- ----------
Total Distributions (0.30) (0.38) (0.39)
---------- ---------- ----------
Net Asset Value,
End of Period $7.84 $ 7.08 $ 7.65
========== ========== ==========
Total Return (%)(d) 8.6 (4.9) 13.9
Ratio of Operating Expenses
to Average Net Assets
(%)(b). 0.70(c) 0.70 0.70
Ratio of Net Investment
Income to Average Net
Assets (%) 4.88(c) 5.07 5.24
Portfolio Turnover Rate (%). 121(c) 212 167
Net Assets, End of Period (000) $28,938 $ 30,293 $ 32,707
<FN>
(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 1.31% for the year ended December 31, 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.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS--Continued
<TABLE><CAPTION>
<S> <C> <C> <C>
CLASS B
-------------------------------------------
SEPTEMBER 13,(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31,DECEMBER 31, DECEMBER 31,
1993 1994 1995
------ ------ ------
Net Asset Value, Beginning of Period $7.92 $ 7.84 $ 7.07
------ ------ ------
Income From Investment Operations
Net Investment Income. 0.10 0.32 0.33
Net Realized and Unrealized Gain
(Loss)
on Investments (0.04) (0.77) 0.56
------ ------ ------
Total From Investment Operations 0.06 (0.45) 0.89
------ ------ ------
Less Distributions
Distributions From Net Investment
Income (0.10) (0.32) (0.33)
Distributions in Excess of Net
Investment
Income (0.04) 0.00 0.00
------ ------ ------
Total Distributions (0.14) (0.32) (0.33)
------ ------ ------
Net Asset Value, End of Period $7.84 $ 7.07 $ 7.63
====== ====== ======
Total Return (%)(d) 0.8 (5.8) 12.9
Ratio of Operating Expenses to
Average Net
Assets (%)(b) 1.45(c) 1.45 1.45
Ratio of Net Investment Income
to Average Net
Assets (%) 3.68(c) 4.32 4.49
Portfolio Turnover Rate (%) 121(c) 212 167
Net Assets, End of Period (000) $1,849 $5,713 $5,617
<FN>
(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 2.06% for the year ended December 31, 1995.
(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 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 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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.
C. OPTIONS AND FUTURES. CALLS AND PUTS.The Fund may write (sell) call
and put options on securities to manage its exposure to interest rates
and the bond market. Buying futures, writing puts, and buying calls
tend to increase the Fund's exposure to the underlying instrument.
Selling futures, buying puts, and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund
investments. When a Fund writes a call or put option, an amount equal
to the premium received by the Fund is included in the Fund's
statement of assets and liabilities as an asset and as an equivalent
liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. The
current value of a written option is the closing price on the
principal exchange on which such option is traded. If an option which
the Fund has written either expires on its stipulated expiration date,
or if the Fund enters into a closing purchase transaction, the Fund
realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a call option
which the Fund has written is exercised, the Fund realizes a capital
gain or loss from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received. If a
put option which the Fund has written is exercised, the amount of the
premium originally received will reduce the cost of the security which
the Fund purchases upon exercise of the option.
The premium paid by a Fund for the purchase of a call or a put option
is included in the asset section of the Fund's statement of assets and
liabilities as an investment and subsequently adjusted to the current
market value of the option. The current value of a purchased option is
the closing price on the principal exchange on which such option is
traded. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund will realize a loss in the amount
of the cost of the option. If the Fund enters into a closing sale
transaction, the Fund will realize a gain or loss, depending on
whether the sales proceeds from the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a
purchased put option, it will realize a gain or loss from the sale of
the underlying security and the proceeds from such sale will be
decreased by the premium originally paid. If the Fund exercises a
purchased call option, the cost of the security
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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.
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
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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.
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 year ended December 31, 1995 were $61,401,046 and
$63,735,206, respectively.
Investments in written options and futures contracts for the Fund for
the year ended December 31, 1995 are summarized as follows:
<TABLE><CAPTION>
<S> <C> <C>
SALES OF FUTURES CONTRACTS
--------------------------
NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS
--------------- -------------
Open at December 31, 1994 90 $8,993,790
Contracts opened 395 43,510,011
Contracts closed (485) (52,503,801)
--------- -------------
Open at December 31, 1995 0 0
======= ============
WRITTEN OPTIONS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Open at December 31, 1994 90 $24,728
Contracts opened 1,110 589,698
Contracts closed (1,200) (614,426)
--------- ---------
Open at December 31, 1995 0$ 0
======= ========
</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 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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:
FEES EARNED ANNUAL PERCENTAGE RATE FUND ANNUAL NET ASSET VALUE LEVELS
- ----------- ---------------------- ----------------------------------
$150,341(a) 0.400% the first $200 million
0.375% the next $300 million
0.350% the excess over $500 million
(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 $79,472 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 $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 year ended December 31, 1995, the Fund paid New
England Funds $14,486 in service fees under the Class B Plan.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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 year ended December 31, 1995, the
Fund paid New England Funds $43,461 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 year ended December 31, 1995 amounted to $131,882.
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 $32,033 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 0.125% of the Fund's
average daily net assets. New England Funds waived its entire fee of
$46,879 for the year ended December 31, 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:
Annual Retainer $800
Meeting Fee $125/meeting
Committee Meeting Fee $75/meeting
Committee Chairman Retainer $125/year
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
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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 year ended December 31, 1995, Back Bay
Advisors waived its entire management fee of $150,341 and New England
Funds waived its entire administrative fee of $46,879.
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.
6.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>
<S> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- --------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
-------- ------- ------- -------
Shares sold. 2,302,625$17,416,312 788,727 $ 5,839,073
Shares issued in
connection
with the
reinvestment of:
Distributions from net
investment
income 130,833 965,605 125,283 929,591
-------- ------- ------- -------
2,433,458 18,381,917 914,010 6,768,664
Shares repurchased (1,842,280)(13,458,803) (922,790) (6,815,110)
----------- ----------- --------- -----------
Net increase (decrease) 591,178 $4,923,114 (8,780) $ (46,446)
=========== ========== ========= ===========
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- --------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
-------- ------- ------- -------
Shares sold 745,373 $5,588,462 93,955 $ 683,998
Shares issued in
connection with the
reinvestment of:
Distributions from
net investment
income 11,253 82,70 714,354 106,386
-------- ------- ------- -------
756,626 5,671,169 108,309 790,384
Shares repurchased (184,681) (1,306,641) (180,341) (1,335,643)
----------- ----------- --------- -----------
Net increase (decrease) 571,945 $4,364,528 (72,032) $(545,259)
=========== ========== ========= ===========
Increase (decrease)
derived from
capital shares
transactions 1,163,123 $9,287,642 (80,812) $(591,705)
=========== ========== ========= ===========
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of New England Trust II and the Shareholders
of the NEW ENGLAND INTERMEDIATE TERM TAX FREE OF CALIFORNIA
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the New England
Intermediate Term Tax Free Fund of California as of December 31, 1995,
and the related statement of operations for the year 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 Fund's 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 Intermediate Term Tax Free Fund
of California as of December 31, 1995 the results of its operations
for the year ended December 31, 1995 and the statements of changes in
its net assets for each of the two years in the period then ended and
the financial highlights for 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 Intermediate Term Tax Free Fund of California voted for the following
proposals:
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
VOTED VOTED ABSTAINED BROKER TOTAL
FOR AGAINST VOTES NON-VOTES VOTES
- --------------------------------------------------------------------------------
- ----------------
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 2,666,391.488 14,129.860 164,604.924 2,845,126.272
============= =========== ===========
2. To approve a new Advisory
Agreement between the Fund
and New England Funds
Management, L.P.
("NEFM") 2,664,383.543 14,677.531 166,065.198 2,845,126.272
============= ========== ===========
3. To approve a related Sub-
Advisory Agreement between
NEFM and such Fund's
current investment
adviser. 2,570,499.618 18,047.531 256,579.123 2,845,126.272
============= ========== ===========
SAVING FOR RETIREMENT
AN EARLY START CAN MAKE A BIG DIFFERENCE
With todayOs lengthening life spans, you may be retired for 20 years
or more after you complete your working career. Living these
retirement years the way youOve dreamed of will require considerable
financial resources. While itOs never too late to start a retirement
savings program, itOs certainly never too early: The sooner you begin,
the longer the time your money has to grow.
The chart below illustrates this point dramatically. One investor
starts at age 30, saves for just 10 years, then leaves the investment
to grow. The second investor starts 10 years later but saves much
longer - for 25 years, in fact. Can you guess which investor
accumulates the greater retirement nest egg?
For the answer, look at the chart.
AN EARLY START CAN MAKE A BIG DIFFERENCE
[A chart in the form of a line graph appears here, comparing the
growth of investments made for 10 years by an investor who begins
investing at age 30 to the growth of investments made for twenty-five
years by an inestor who begins investing at age 40. A hypothetical
appreciation of 10% is assumed. The data points from the graph are as
follow:]
Investor A - Begins at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only
and not indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of investor BOs commitment
- - and for less than half the time. Yet investor A wound up with a much
greater retirement nest egg. The reason? ItOs all thanks to an early
start.
New England Funds has prepared a number of informative retirement
planning guides. Call your financial representative or New England
Funds today, and ask for the guide that best fits your personal needs.
<PAGE>
REGULAR INVESTING PAYS
FIVE GOOD REASONS TO INVEST REGULARLY
1. ItOs an easy way to build assets
2. ItOs 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 FundsO automatic investment
program, you can invest as little as $50 a month in your New
England Fund automatically - without even writing a check. And,
as you can see from the chart below, your monthly investments can
really add up over time.
THE POWER OF MONTHLY INVESTING
[A line graph appears here, illustrating the hypothetical accumulation
of monthly investments at an 8% annual rate of return. The data points
of the graph are as follows:]
Monthly investments of $50
Years Growth of Monthly Investments
0 $0
5 $3,661
10 $9,040
15 $16,943
20 $28,555
25 $45,618
Monthly investments of $100
Years Growth of Monthly Investments
0 $0
5 $7,322
10 $18,079
15 $33,886
20 $57,111
25 $91,236
Monthly investments of $200
Years Growth of Monthly Investments
0 $0
5 $14,643
10 $36,158
15 $67,772
20 $114,222
25 $182,472
Monthly investments of $500
Years Growth of Monthly Investments
0 $0
5 $36,608
10 $90,396
15 $169,429
20 $285,555
25 $456,181
For illustrative purposes only. These figures represent hypothetical
accumulation at an 8% annual rate of return, and are not indicative of
future performance of any New England Fund. The value of a New England
Fund will fluctuate with changing market conditions.
This program cannot assure a profit nor protect against a loss in a
declining market. It does, however, ensure that you buy more shares
when the price is low and fewer shares when the price is high.
You can start an Investment Builder program with your current New
England Fund account, or with any of our other funds. To open an
Investment Builder account today, call your financial representative
or New England Funds at 1-800-225-5478.
<PAGE>
INFORMATION ON CALL
YOU CAN CALL NEW ENGLAND FUNDS DAY OR NIGHT
Do you like to keep on top of your New England Funds but canOt always
call us during regular business hours? With Tele#Facts, New England
FundsO 24-hours a day automated telephone system, you can call us any
time thatOs convenient for you - day or night!
By calling 1-800-346-5984 from any Touch-Tone" telephone, you can:
- - Check the current value of your New England Fund account
- - Find out the current yield and total return on any New England Fund
- - Buy, sell or exchange fund shares
Just remember to have these four items with you before calling:
1.YOUR PERSONAL IDENTIFICATION NUMBER which is the last four digits of
your Social Security number
2.THE FUND NUMBER - two- or three-digit number listed on the
Tele#Facts
wallet card
3.FUNCTION NUMBER - listed on the Tele#Facts wallet card
4.ACCOUNT NUMBER - listed on all your statements
You can get the information you need to use Tele#Facts from the back
of your statement. If you need another Tele#Facts wallet card or have
questions about getting started, please call us at 1-800-225-5478.
So go ahead and give Tele#Facts a try. We think youOll enjoy this easy-
to-use and convenient service from New England Funds!
<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 FundOs 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>
Bulk Rate
U.S. Postage
Paid
Brockton, MA
Permit No. 770
[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
399 Boylston Street
Boston, Massachusetts
02116
[LOGO]
QUALITY
TESTED SERVICE
1996
DALBAR
HONORS COMMITMENT TO:
INVESTORS
CA56
[RECYCLE LOGO] PRINTED ON RECYCLED PAPER
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OSee accompanying notes to financial statementsO) are
omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points, leaders and similar graphic symbols are omitted.
(7) Page numbering is different.
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