[LOGO]
NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
ANNUAL REPORT AND PERFORMANCE UPDATE
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND OF NEW YORK
[ARTWORK APPEARS HERE]
DECEMBER 31, 1995
<PAGE>
January 31, 1996
DEAR SHAREHOLDER,
ItOs a real pleasure to present to you the 1995 Annual Report for New
England Intermediate Term Tax Free Fund of New York, 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(tm) 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 NEW YORK
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 a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition,
few investors could purchase all of the securities necessary to match
the index. And, if they could, they would incur transaction costs and
other expenses.
A $10,000 INVESTMENT IN CLASS A SHARES
COMPARED TO LEHMAN MUNICIPAL INDEX(4) AND THE COST OF LIVING(5)
[A chart in the form of a line graph appears here, illustrating the
growth of a $10,000 investment in Class A Shares compared to Lehman
Municipal Index(4) and the Cost of Living(5). The data points from the
graph are as follows:]
New England Intermediate Term Tax Free Fund of New York
- Net Asset Value(1)
Year Amount
- ----- ------
1995 $11,800
1994 $10,304
1993 $10,738
4/23/93 $10,000
New England Intermediate Term Tax Free Fund of New York
- With Maximum Sales Charge(2)
Year Amount
- ----- ------
1995 $11,505
1994 $10,047
1993 $10,470
4/23/93 $9,750
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 NEW YORK
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/95*
<TABLE><CAPTION>
<S> <C> <C>
CLASS A 1 YEAR SINCE INCEPTION (4/23/93)
Net Asset Value(1) 14.52% 6.34%
With Max. Sales Charge(2) 11.68 5.36
Lipper NY Municipal Average(6) 12.71 5.49
CLASS B (Inception 9/13/93) 1 YEAR SINCE INCEPTION
Net Asset Value(1) 13.68% 3.69%
With CDSC(3) 9.68 2.47
Lehman Municipal Index(4) 17.46 5.63
Lipper NY Municipal Average(6) 12.71 4.60
12/31/95 YIELDS* CLASS A CLASS B
SEC 30-day Yield 4.73% 4.12%
NY State Taxable Equivalent Yield 8.48 7.38
NY City Taxable Equivalent Yield 8.90 7.76
<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 New York state income tax bracket of
44.19% or the combined Federal, New York State and New York City
income tax bracket of 46.88%. 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 2.5% at
the time of purchase of Class A shares.
3 With Contingent Deferred Sales Charge (CDSC) performance assumes
a maximum 4% sales charge is applied to a redemption of Class B
shares. The sales charge will decrease over time, declining to
zero five years after the purchase of shares.
4 Lehman Municipal Index is an unmanaged index of bonds issued by
states, municipalities and other governmental entities having
maturities of more than one year. The Index performance has not
been adjusted for ongoing management, distribution and operating
expenses and sales charges applicable to mutual fund investments.
5 Cost of Living is based on the Consumer Price Index, a widely
recognized measure of the cost of goods and services in the
United States, 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 NEW YORK
NEW ENGLAND INTERMEDIATE TERM
TAX FREE FUND OF NEW YORK
[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 Average(1), 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: At year-end, economic
growth was moderate, and inflation 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 14.52% 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 interest rates
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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 12.71% return from the Lipper New York Municipal Average(2).
NUMBER ONE RANKED FUND
WE ARE VERY PLEASED TO NOTE THAT YOUR FUND WAS THE TOP PERFORMER IN
1995 AMONG THE 24 FUNDS INCLUDED IN THE LIPPER NEW YORK MUNICIPAL
AVERAGE. IN ADDITION, THE FUND IS RANKED NUMBER ONE SINCE ITS APRIL
1993 INCEPTION, AMONG THE 11 PEER FUNDS IN EXISTENCE SINCE THAT DATE.
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 4.73% and
4.12%, respectively.a. These translate into taxable equivalent yields
of 8.48% for Class A shares and 7.38% for Class B shares, based on the
maximum combined federal and New York state income tax rate of 44.19%.
For New York City residents in the maximum combined tax bracket of
46.88%, the taxable equivalent yields were 8.90% for Class A shares
and 7.76% for Class B shares(3).
HOW WE MANAGED YOUR FUND
Overall, the stateOs economy continued to strengthen during 1995,
while New York City remained a source of concern. We had already
reduced our exposure to 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
shares and Class B shares during the 30 days ending December 31,
1995.
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
CityOs general obligation bonds before its debt rating was downgraded
from A- to BBB+, the lowest tier of the investment grade rating
spectrum. When selecting City debt, we have emphasized higher coupon
bonds - these tend to hold their value during periods of economic
uncertainty. We sold our remaining City investments in the healthcare
sector, prompted by the CongressOs stated desire to reform Medicare
and Medicaid.
The state as a whole, and regions along the Canadian border in
particular, benefited from the North American Free Trade Agreement.
We took advantage of the favorable climate by giving some state and
local general obligation bonds greater exposure, although revenue
bonds issued to fund essential services remain prominent in the
portfolio. The transportation sector, which includes highway and
airport revenue bonds, showed particular improvement as the economy
picked up steam. Airport bonds especially benefited - usage fees
increased along with passenger traffic.
OUTLOOK FOR THE MUNICIPAL MARKET
We believe the long-term outlook for New YorkOs 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 some municipal
bonds yielding as much as 90% of Treasuries at year-end, they offer
exceptional value for
<PAGE>
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
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 New York - $18.7 billion were issued in 1995,
a slight decline 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 New York 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 New York at December 31,
1995. The pie chart is broken in pieces representing credit ratings in
the following percentages.]
Credit Rating Percentage
- ------------- ----------
AAA 17%
AA 5.7%
A 18.7%
BBB 57%
CASH 1.6%
- --------------------------------------------
AVERAGE PORTFOLIO QUALITY =A-
AVERAGE PORTFOLIO MATURITY = 10 YEARS
Quality rating provided by Standard & PoorOs.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW YORK
Glossary for Mutual Fund Investors
TOTAL RETURN D 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 D Payments to shareholders resulting from the net
interest or dividend income earned by a fundOs portfolio.
CAPITAL GAINS DISTRIBUTIONS D Payments to shareholders of profits
earned from selling securities in a fundOs portfolio. Capital gains
distributions are usually paid once a year.
YIELD D 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 D 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 D 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 D 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 3D12 months), Notes (maturity of 1D10 years) and Bonds
(maturity of 10D30 years).
MUNICIPAL BOND D 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 APPEARS HERE]
NEW ENGLAND FUNDS
Where The Best Minds Meet (TM)
PORTFOLIO COMPOSITION, FINANCIAL STATEMENTS AND HIGHLIGHTS
NEW ENGLAND
INTERMEDIATE TERM
TAX FREE FUND
OF NEW YORK
December 31, 1995
<PAGE>
PORTFOLIO COMPOSITION
Investments as of December 31, 1995
TAX EXEMPT BONDS--99.8% OF TOTAL NET ASSETS
<TABLE><CAPTION>
RATINGS (C)
(UNAUDITED)
------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S& POOR'S VALUE (A)
- ----------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK--78.2%
$250,000 Albany, NY, Housing Authority,
6.250%, 10/01/12 Baa1 -- $258,165
500,000 Buffalo, NY, Sewer Authority
Revenue, 07/01/12 (FGIC)
5.000% AAA AAA 491,730
750,000 Hempstead Town Industrial
Development Agency,
7.400%, 12/01/10 Baa1 A- 782,197
700,000 Metropolitan Transportation
Authority,
7.125%, 07/01/09 Baa1 BBB 783,468
685,000 New York City, 8.00%, 08/01/03 Baa1 BBB+ 786,264
500,000 New York City, 7.25%, 08/15/07 Baa1 BBB+ 564,220
500,000 New York City, 5.75%, 02/01/08 Baa1 BBB+ 496,965
1,065,000 New York, Prerefunded,
8.400%, 11/15/08 AAA AAA 1,298,448
250,000 New York City Municipal Water,
Prerefunded,
7.000%, 06/15/09 AAA AAA 284,445
250,000 New York City Municipal Water,
7.000%, 06/15/09 A A 281,462
1,000,000 New York State Certificates, 6.000%,
09/01/98 Baa1 BBB 1,044,500
500,000 New York State Dorm. Authority,
5.750%, 7/01/07. Baa1 BBB+ 514,400
350,000 New York State Dorm. Authority,
5.50%, 05/15/10 Baa1 BBB 346,209
500,000 New York State Dorm. Authority,
6.250%, 05/15/14 Baa1 BBB+ 520,460
500,000 New York State Housing Finance
Agency, 5.375%, 03/15/11 Baa1 BBB 481,610
500,000 New York State Local Government
Assistance, 7.250%, 04/01/07 A A 569,925
200,000 New York State Local Government
Assistance, 6.00%, 04/01/08 A A 215,088
500,000 New York State Mortgage Revenue
6.250%, 04/01/10 AA -- 532,800
500,000 New York State Urban Development
Corp., 6.2500%, 01/01/09. Baa1 BBB 533,045
650,000 New York State Urban Development
Corp., 5.700%, 04/01/05 Baa1 BBB 674,512
500,000 Niagara Falls, NY Bridge Commission,
5.125%, 10/01/08 Aaa AAA 504,350
560,000 Oneida, Herkimer, 6.600%, 04/01/04. Baa BBB 597,643
500,000 Oneida, Herkimer, 6.650%, 04/01/05. Baa BBB 536,300
500,000 Syracuse, NY Industrial Development
Agency, 5.125%,10/15/02 -- AA 506,960
500,000 Yonkers, NY, 6.000%, 08/01/03. Aaa AAA 554,435
-----------
14,159,601
-----------
<PAGE>
PORTFOLIO COMPOSITION--continued
Investments as of December 31, 1995
TAX EXEMPT BONDS--CONTINUED
FACE STANDARD
AMOUNT ISSUER MOODY'S& POOR'S VALUE (A)
- ----------------------------------------------------------------------
OTHER OBLIGATIONS--21.6%
$500,000 Guam Airport Authority,
6.400%, 10/01/05 -- BBB $514,530
500,000 Guam Airport Authority,
6.600%, 10/01/10 -- BBB 512,560
1,000,000 Puerto Rico Highway &
Transportation Auth.,
7.162%, 07/01/04. Baa1 A- 1,071,370
500,000 Puerto Rico Electric Power
Authority, 5.900%, 07/01/03 Baa1 A- 534,590
1,135,000 Virgin Islands Public
Finance Authority,
7.750%, 10/01/06. -- BBB 1,274,560
-----------
3,907,610
-----------
Total Tax Exempt Bonds
(Identified Cost $17,242,353) 18,067,211
-----------
SHORT-TERM INVESTMENTS--1.1%
191,000 Household Finance Corp.,
5.500%, 01/03/96 190,942
-----------
Total Short-Term Investments
(Identified Cost $190,942). 190,942
-----------
Total Investments--100.8%
(Identified Cost $17,433,295)(b) 18,258,153
Cash, receivables and other assets. 472,350
Liabilities (624,740)
-----------
Total Net Assets--100%. $18,105,763
===========
<FN>
(a) See Note 1a.
(b)Federal Tax Information: At December 31,
1995 the net unrealized appreciation on
investments based on cost of $17,433,295
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. $847,199
Aggregate gross unrealized depreciation for
all investments in which there is an excess of
tax cost over value. $(22,341)
--------
Net unrealized appreciation. $824,858
========
As of December 31, 1995, the Fund had a net tax basis capital loss
carryforward as follows: Expiring December 31, 2002 $783,505
(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.
</TABLE>
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments at value $18,258,153
Cash. 1,035
Receivable for:
Fund shares sold 19,492
Accrued interest 308,658
Unamortized organization expense 20,761
Due from investment adviser 116,404
Prepaid registration expense 6,000
-----------
18,730,503
LIABILITIES
Payable for:
Securities purchased $489,355
Fund shares redeemed 82,716
Dividends declared 17,410
Accrued expenses:
Deferred trustees' fees 814
Other expenses 34,445
--------
624,740
----------
NET ASSETS $18,105,763
===========
Net Assets consist of:
Capital paid in. $18,072,718
Distributions in excess of net
investment income (8,308)
Accumulated net realized losses. (783,505)
Unrealized appreciation on investments 824,858
----------
NET ASSETS $18,105,763
===========
Computation of net asset value and
offering price:
Net asset value and redemption price
of Class A shares ($16,387,604 divided
by 2,133,260 shares of beneficialinterest) $7.68
=======
Offering price per share (100/97.50 of 7.68) $7.88*
=======
Net asset value and offering price of
Class B shares ($1,718,159 divided by
224,156 shares of beneficial
interest) $7.67**
=======
Identified cost of investments $17,433,295
===========
<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 $1,040,359
- ----------
Expenses
Management fees $70,795
Service fees--Class A 40,659
Service and distribution fees--Class B 14,352
Trustees' fees and expenses 12,249
Administrative Services 22,124
Custodian 64,745
Transfer agent 36,659
Audit and tax services 15,000
Legal. 20,147
Printing 15,049
Registration. 21,554
Amortization of organization expenses 4,543
Miscellaneous 6,103
---------
Total expenses 343,979
Less expenses waived by the investment adviser
and distributor (209,323) 134,656
--------- ----------
Net investment income 905,703
REALIZED and UNREALIZED GAIN (LOSS) on
INVESTMENTS,
OPTIONS AND FUTURES CONTRACTS
Realized gain (loss) on:
Investments--net 362,457
Futures contracts--net (199,524)
Options contracts--net. 38,662
---------
Total realized gain on investment
transactions 201,595
---------
Unrealized appreciation (depreciation) on:
Investments--net1,287,916
Futures contracts--net. (1,615)
Options contracts--net 6,354
---------
Total unrealized appreciation on investments,
futures and options contracts 1,292,655
---------
Net gain on investment transactions 1,494,250
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,399,953
==========
</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 $1,044,073$ 905,703
Net realized gain (loss) on
investment transactions. (982,288) 201,595
Unrealized appreciation (depreciation) on
investment
transactions (973,749) 1,292,655
--------- -----------
Increase (decrease) in net assets from
operations (911,964) 2,399,953
--------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (1,010,186) (842,470)
Class B (45,810) (63,237)
In excess of net investment income
Class A (6,397) (16,706)
Class B (1,642) (1,206)
--------- -----------
(1,064,035) (923,619)
Decrease in net assets derived from capital
share transactions (2,674,079) (397,301)
---------- ----------
Total increase (decrease) in net assets (4,650,078) 1,079,033
NET ASSETS
Beginning of the year 21,676,808 17,026,730
--------- -----------
End of the year. $17,026,730 $18,105,763
=========== ===========
UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF)
NET INVESTMENT INCOME
Beginning of the year $11,923 $ 9,143
============== ==========
End of the year. $9,143 $(8,308)
=============== ==========
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE> <CAPTION>
CLASS A
-------------------------------------
APRIL 23,(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31,DECEMBER 31, DECEMBER 31,
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period. $7.50 $7.76 $7.07
------- ------- --------
Income From Investment Operations
Net Investment Income 0.26 0.37 0.38
Net Realized and Unrealized Gain
(Loss) on Investments. 0.29 (0.68) 0.62
------- ------- -------
Total From Investment Operations. 0.55 (0.31) 1.00
------- ------- -------
Less Distributions
Distributions From Net Investment
Income (0.25) (0.38) (0.39)
Distributions in Excess of Net
Investment Income. (0.04) 0.00 0.00
Total Distributions (0.29) (0.38) (0.39)
------- ------- -------
Net Asset Value, End of Period. $7.76 $7.07 $ 7.68
======= ======= =======
Total Return (%)(d). 7.4 (4.1) 14.5
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) 5.13 5.18
Portfolio Turnover Rate (%). 121(c) 219 155
Net Assets, End of Period (000) $ 21,122 $ 15,875 $16,388
<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 2.11% (annualized) for
the period ended December 31, 1993, 1.79% for the year ended
December 31, 1994 and 1.88% 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
<TABLE> <CAPTION>
CLASS B
-------------------------------------------
SEPTEMBER 13,(A)
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,DECEMBER 31,
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 7.85 $ 7.76 $ 7.06
------- ------- -------
Income From Investment Operations
Net Investment Income 0.10 0.32 0.33
Net Realized and Unrealized Gain
(Loss) on Investments (0.05) (0.69) 0.62
------- ------- -------
Total From Investment Operations. 0.05 (0.37) 0.95
------- ------- -------
Less Distributions
Distributions From Net Investment
Income (0.10) (0.33) (0.34)
Distributions in Excess
of Net Investment Income (0.04) 0.00 0.00
------- ------- -------
Total Distributions (0.14) (0.33) (0.34)
------- ------- -------
Net Asset Value, End of Period $ 7.76 $ 7.06 $ 7.67
======= ======= =======
Total Return (%)(d) 0.5 (4.9) 13.7
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) 4.38 4.43
Portfolio Turnover Rate (%). 121(c) 219 155
Net Assets, End of Period (000) $555 $1,152 $1,718
<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 2.86% (annualized) for
the period ended December 31, 1993, 2.54% for the year ended
December 31, 1994 and 2.63% 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 New England Funds Trust II, a Massachusetts
business trust (the "Trust"), which 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 income is recorded on the ex-dividend date
and interest income is recorded on the
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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 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 which
the fund purchases upon exercise will be increased by the premium
originally paid.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into 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.
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.
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 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 market discount. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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 $27,000 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
$26,527,248 and $26,384,568, respectively.
Investments in written options and futures contracts for the Fund for
the year ended December 31, 1995 are summarized as follows:
<TABLE> <CAPTION>
SALES OF FUTURES CONTRACTS
------------------------------------
NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS
--------------- ------------------
<S> <C> <C>
Open December 31, 1994. 40 $ 3,997,396
Contracts opened 183 20,099,186
Contracts closed (223) (24,096,582)
--------------- ------------------
Open at December 31, 1995 0 $ 0
=============== ==================
</TABLE>
<TABLE><CAPTION>
WRITTEN OPTIONS
----------------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------------- ------------------
<S> <C> <C>
Open December 31, 1994 40 $ 10,990
Contracts opened 345 138,539
Contracts closed (385) (149,529)
--------------- ------------------
Open at December 31, 1995. 0 $ 0
=============== ==================
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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
Trust. 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:
<TABLE> <CAPTION>
<S> <C> <C>
FEES EARNED ANNUAL PERCENTAGE RATE ANNUAL NET ASSET VALUE LEVELS
- ----------- ---------------------- -----------------------------
$70,795 (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 Fund 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 $40,659 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 $222,162.
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
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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 $3,588 in service fees under the Class B Plan.
Also under the Class B Plan, the Fund pays New England Funds a monthly
distribution fee at the annual rate of up to 0.75% of the average
daily net assets attributable to the Fund's Class B shares, as
compensation for services provided and expenses (including certain
payments to securities dealers, who may be affiliated with New England
Funds) incurred by New England Funds in connection with the marketing
or sale of Class B shares. For the year ended December 31, 1995, the
Fund paid New England Funds $10,764 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 $47,388.
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 $28,729 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
$22,124 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, New
England Investment Companies 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
4. EXPENSE LIMITATIONS. Commencing April 23, 1993 and until
further notice to the Fund, Back Bay Advisors and New England Funds
have voluntarily agreed to reduce management and administrative
services fees in order to limit the Fund's expenses to an annual rate
of 0.70% of the Fund's Class A average daily net assets and effective
September 13, 1993, 1.45% of Class B average daily net assets. As a
result of the Fund's expenses exceeding the foregoing voluntary
limitation during the year ended December 31, 1995 Back Bay Advisors
waived its entire management fee of $70,795 and New England Funds
waived its entire administrative services fee of $22,124.
5. CONCENTRATION OF CREDIT. The Fund primarily invests in debt
obligations issued by the State of New York 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 New York municipal securities than is a
comparable municipal bond fund that is not as concentrated. Uncertain
economic and fiscal conditions may affect the ability of issuers of
New York municipal securities to meet their financial obligations.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--continued
December 31, 1995
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 757,009 $5,624,5 18 328,489 $ 2,436,764
Shares issued in
connection with
the reinvestment of:
Distributions from net
investment income 68,560 502,549 76,60356 9,995
----------- ----------- -------- ----------
825,569 6,127,067 405,092 3,006,759
Shares repurchased (1,300,616) (9,499,367) (518,447) (3,851,270)
----------- ----------- -------- ----------
Net decrease (475,047) $(3,372,300) (113,355) $(844,511)
========== =========== ========= ==========
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
------------------ ------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ------- ------- ------- -------
Shares sold. 112,717 $850,564 106,519 $788,060
Shares issued in
connection
with the reinvestment of:
Distributions from net
investment
income 4,774 34,778 6,181 45,940
----------- ----------- -------- ----------
117,491 885,342 112,700 834,000
Shares repurchased. (25,760) (187,121) (51,795) (386,790)
----------- ----------- -------- ----------
Net increase 91,731 $698,221 60,905 $447,210
=========== =========== ======== =========
Decrease derived from
capital shares
transactions. (383,316) $(2,674,079) (52,450) $(397,301)
=========== =========== ======== =========
</TABLE>
<PAGE>
- ----------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of New England Funds Trust II and the
Shareholders of the NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF NEW
YORK.
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 New York 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 New York as of December 31, 1995 the results of its operations for
the year then ended 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 ofthe
Intermediate Term Tax Free Fund of New York voted for the following proposals:
<TABLE> <CAPTION>
VOTED ABSTAINED BROKER
VOTED FOR AGAINST VOTESNON-VOTES TOTAL 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 1,246,275.807 59,277.788 16,367.723 1,321,921.318
============= ========== ==========
2. To approve a new
Advisory Agreement
between the Fund and
New England Funds
Management, L.P.
("NEFM") 1,242,574.743 60,941.666 18,404.909 1,321,921.318
============= ========== ==========
3. To approve a related
Sub-Advisory Agreement
between NEFM and such
Fund's current
investment adviser 1,244,283.179 61,942.213 15,695.926 1,321,921.318
============= ========== ==========
</TABLE>
<PAGE>
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 investor who begins investing at age 40. A hypothetical
appreciation of 10% is assumed. The data points from the graph are as
follows:]
Investor A - Begins at age 30 for 10 years:
Age Growth of Investments
30 $2,000
35 $15,431
40 $35,062
45 $90,943
55 $146,464
60 $235,882
65 $379,890
Investor B - Begins investing at age 40 for 25 years:
Age Growth of Investments
40 $2,000
45 $15,431
50 $37,062
55 $71,899
60 $128,005
65 $216,364
Assumes 10% hypothetical appreciation. For illustrative purposes only
and not indicative of future performance of any New England Fund.
Investor A invested $20,000, less than half of investor 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>
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NEW ENGLAND FUNDS
WHERE THE BEST MINDS MEET
399 Boylston Street
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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.
