<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[Logo]
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England Intermediate Term
Tax Free Fund of California
[graphic omitted]
- --------------
JUNE 30, 1998
- --------------
<PAGE>
August 1998
[Photo of Henry L.P. Schmelzer]
DEAR SHAREHOLDER:
Investors had reason for comfort during the first half of 1998.
After stunning gains in each of the last three years, the stock market behaved
more like its customary self: Major market indicators moved up for a time, slid
back and were once again in recovery mode at the end of the period. This pattern
largely reflected investors' responses to fast-changing events in Asia.
Unpredictable markets call to mind the long-term experience of millions of
mutual fund investors; those of us who held firm to our plans as markets entered
difficult periods were often rewarded as markets recovered. The longer you stay
invested the less interim ups and downs -- here or overseas -- should concern
you.
News from the Far East drove bond market sentiment as well. In the United
States, faltering Asian economies meant lower prices on many imported goods,
putting pressure on prices and corporate earnings. With slower growth now a real
possibility and with little immediate evidence of inflation, the Federal Reserve
Board left short-term interest rates unchanged, while long-term rates fell to
record lows in mid-June.
In the pages that follow, you can read about how your Fund's management dealt
with the disruptions in the Pacific region and their impact on our domestic
economy. But beyond Asia's present problems, and notwithstanding the inevitable
ebb and flow of our own business cycle, there are reasons to be optimistic about
investment prospects over the next several years. For example, vast,
under-served populations in China and elsewhere represent huge potential demand
for consumer goods. Here in the United States, there is the prospect of a
demography-driven spending wave, as millions of baby-boomers enter their peak
consumption years. Events may turn out differently -- volatility will always be
part of investing -- but as much as the markets may waver, the watchwords for
many long-term investors are constant: diversify and persist.
While you are thinking about your investments, take a few minutes to review your
portfolio. It's possible that three years of strong market gains have tilted
your holdings disproportionately toward aggressive stock funds. If so, you and
your financial representative can adjust the balance easily using some of New
England Funds' more conservative equity or bond funds to reallocate your assets
in line with your long-term goals and comfort level. Once you are satisfied with
your portfolio's balance, be sure to stay in touch with your financial
professional, invest regularly and don't try to guess what the market will do
next.
Thank you for your continued support of New England Funds.
Sincerely,
/s/ Henry L.P. Schmelzer
Henry L.P. Schmelzer
President
PREPARING FOR THE YEAR 2000
- --------------------------------------------------------------------------------
New England Funds continues to work to provide high quality service as we move
into the new century. Since last year we have devoted significant resources to
identifying, analyzing and resolving computer issues related to Year 2000. As a
further measure, we have focused on year-end 1998 as a target for preparedness
by vendor and service agency systems that we rely on for support. We expect
major systems to be ready before the end of the year, with a year of quality
assurance to follow.
- --------------------------------------------------------------------------------
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
- --------------------------------------------------------------------------------
Investment Results Through June 30, 1998
- --------------------------------------------------------------------------------
Putting Performance in Perspective
The charts comparing your Fund's performance to a benchmark index provide you
with a general sense of how your Fund performed. To put this information in
context, it may be helpful to understand the special differences between the
two. Your Fund's total return for the period shown appears with and without
sales charges and includes Fund expenses and management fees. A securities index
measures the performance of a theoretical portfolio. Unlike a fund, the index is
unmanaged; there are no expenses that affect the results. In addition, few
investors could purchase all of the securities necessary to match the index.
And, if they could, they would incur transaction costs and other expenses.
GROWTH OF A $10,000 INVESTMENT IN CLASS A SHARES
[A chart in the form of a line graph appears here, illustrating the growth of a
$10,000 investment in the New England Intermediate Term Tax Free Fund of
California's Class A Shares compared to the Lehman Municipal Index and the Cost
of Living. The data for this chart are as follows:]
With
Maximum Lehman
Net Asset Sales Municipal Cost of
Value(1) Charge(2) Index (4) Living(5)
4/23/93 $10,000 $ 9,750 $10,000 $10,000
6/93 $10,258 $10,002 $10,224 $10,028
6/94 $10,458 $10,197 $10,244 $10,277
6/95 $10,989 $10,715 $11,145 $10,590
6/96 $11,867 $11,571 $11,885 $10,881
6/97 $12,760 $12,441 $12,955 $11,131
6/98 $13,608 $13,268 $14,076 $11,305
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 differ from that shown based on differences in inception date, fees and
sales charges. All Index and Fund performance assumes reinvested distributions.
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
Average Annual Total Returns and Yields -- 6/30/98
- --------------------------------------------------------------------------------
CLASS A (Inception 4/23/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1) 1.82% 6.65% 5.82% 6.12%
With Max. Sales Charge(2) -0.70 3.95 5.27 5.61
- --------------------------------------------------------------------------------
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR SINCE INCEPTION
Net Asset Value(1) 1.45% 5.88% 4.19%
With CDSC(3) -3.52 0.88 3.84
- --------------------------------------------------------------------------------
SINCE SINCE
INCEPTION INCEPTION
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS CLASS A* CLASS B**
Lehman Municipal Index(4) 2.69% 8.66% 6.46% 6.70% 6.06%
Lipper CA Inter.
Municipal Avg.(6) 1.92 6.44 5.31 5.51 4.92
- --------------------------------------------------------------------------------
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.
*calculated from 4/30/93
**calculated from 9/30/93
- --------------------------------------------------------------------------------
CLASS A CLASS B
SEC 30-day Yield7 4.40% 3.78%
Taxable Equivalent Yield(8) 8.04 6.90
- --------------------------------------------------------------------------------
NOTES TO CHARTS
(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
5% sales charge is applied to a redemption of Class B shares. The sales
charge will decrease over time, declining to zero six years after the
purchase of shares.
(4)Lehman Municipal Index is an unmanaged index of bonds having maturities of
more than one year issued by states, municipalities and other governmental
entities. 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 California Intermediate 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.
(7)SEC Yield is based on the Fund's net investment income over a 30-day period
and is calculated in accordance with Securities and Exchange Commission
guidelines.
(8)Taxable equivalent yield is based on the maximum combined federal and
California state income tax bracket of 45.22%. The alternative minimum tax
and some other federal and state taxes may apply but are not reflected here.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
[Photo of James Welch]
James Welch
Back Bay Advisors, L.P.
Q. How did New England Intermediate Term Tax Free Fund of California perform
over the past six months?
For the six months ending June 30, 1998, the Fund's Class A shares produced a
total return of 1.82%, reflecting a $0.05 per share decline in net asset value
to $7.82 and the reinvestment of $0.192 per share in dividend distributions.
Q. What was the investment environment for California municipal bonds?
California's economy continued its dramatic turnaround from the severe recession
it experienced earlier in the decade. As a result of the state's healthy
economic and fiscal conditions, investor demand for California municipal bonds
remained strong.
During a period when investors were watching the effects of Asia's economic
difficulties on the U.S. economy, interest rates in the United States remained
generally steady. The yield on the 30-year U.S. Treasury bond moved between
5.65% and 5.90%, its narrowest range in 20 years. In the United States, economic
growth was robust and inflation remained low. Measured by gross domestic
product, the economy grew at a 5.4% annualized rate in the first quarter,
unemployment reached a 28-year low and consumer confidence was high. Typically,
strength of this magnitude stimulates investor concern about inflation. However,
investors believed that a slowdown in the Asian economies could offset some of
the economy's vigor -- a development that would be positive for the bond market.
The economy's strength helped to improve the creditworthiness of municipalities
by generating higher tax revenue. Some municipalities took advantage of the
interest rate environment to refinance outstanding debt at lower rates or to
finance new projects. As a result, municipal bond issuance rose substantially in
the first half of your Fund's fiscal year. In the face of stable demand, the
heavy supply in the tax-exempt market -- compared to a reduced supply of U.S.
Treasuries -- kept municipal bond yields relatively high compared to their
taxable counterparts as issuers competed for investors' dollars.
Q. What strategies did you use in managing the Fund?
We took advantage of the positive investment environment for California
municipal bonds, emphasizing quality, income and value. As of June 30, 1998, the
Fund's average credit quality was A+, while maintaining an average maturity in
the 11-year vicinity and an average duration of nearly six years. Maturity and
duration are two measures of interest rate sensitivity. In general, the longer a
bond's maturity or duration, the greater the tendency that the bond would
increase in value as interest rates decline. During the six-month period, the
Fund's maturity and duration were relatively long for an intermediate-term fund.
CREDIT QUALITY COMPOSITION -- 6/30/98
AAA 40.5%
A 26.2%
BBB 18.8%
AA 7.4%
NR/Other 7.1%
Average Portfolio Quality = A+
Quality is based on ratings provided by Standard & Poor's, and Moody's
Investors Service. Portfolio holdings are subject to change.
Average Portfolio Maturity = 11 Years
We focused on bonds that we believed would benefit the most from the state's
strong economic and financial position, such as state and local general
obligation bonds. We targeted higher- rated bonds with intermediate maturities
of 10 to 15 years. In our opinion, these bonds offered the most attractive
relative value because they provided nearly the same yield as lower-rated,
longer-term bonds -- with much less price volatility. We selected either bonds
with lower coupons (fixed rates of interest) or those with higher coupons that
were non-callable (cannot be retired prior to maturity). The combination helped
the Fund to balance potential price appreciation -- in the event of falling
interest rates -- while providing a secure stream of income.
Q. What is your outlook for California municipal bonds?
We expect California's investment environment to remain extremely attractive.
The state's economy continues to flourish, which should produce rising tax
receipts for municipalities and benefit shareholders. State and local officials
appear to be managing the fiscal recovery well, and voters seem to support a
reduction in municipal borrowing. This combination should strengthen the state's
financial operations even further and limit the supply of new bonds, which would
be positive for California municipal bond prices.
Meanwhile, we believe the Asian economic situation and its impact on the U.S.
economy will dictate the overall direction of interest rates. Near term,
however, we think interest rates could head lower as demand for U.S. Treasury
securities remains steady.
Portfolio commentary reflects the conditions and actions taken during the
reporting period, which are subject to change. A shift in opinion may result in
strategic and other portfolio changes.
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------------------------------
Investments as of June 30, 1998
(unaudited)
TAX EXEMPT OBLIGATIONS--103.7% OF TOTAL NET ASSETS
<CAPTION>
RATINGS (c)
(UNAUDITED)
------------------------
FACE STANDARD
AMOUNT ISSUER MOODY'S & POOR'S VALUE (a)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA--90.8%
$ 1,000,000 Alameda Public Financing Revenue, 6.125%,
9/02/09 ................................. -- -- $ 1,023,030
1,000,000 Anaheim Public Financing Authority, Series
C, 6.000%, 9/01/16, (FSA) ................ Aaa AAA 1,124,720
1,000,000 Berkeley Health Facility, Pre-refunded,
6.500%, 12/01/11 ........................ Aaa AAA 1,101,800
1,000,000 California Educational Facilities Authority,
7.000%, 1/01/04 ......................... Aaa AAA 1,036,130
1,120,000 California Housing Finance Agency, 6.250%,
8/01/16 ................................. Aa2 AA- 1,211,224
2,750,000 California Pollution Control Financing
Authority, 5.900%, 6/01/14 ............... A2 A 3,022,305
1,000,000 California Pollution Control Financing
Authority, Series A, 6.900%, 9/01/06 .... -- A+ 1,051,270
1,250,000 California Pollution Control Solid Waste,
5.800%, 12/01/16 ........................ A3 A- 1,309,600
1,000,000 California State, 7.000%, 6/01/02, (FGIC) . Aaa AAA 1,101,660
1,000,000 California State Public Works, 5.500%,
6/01/10 .................................. Aa3 A+ 1,076,980
1,000,000 California State Public Works Board Revenue,
5.500%, 6/01/14, (MBIA) .................. Aaa AAA 1,071,420
1,540,000 Duarte Certificates of Participation,
6.125%, 4/01/13 ......................... Baa1 -- 1,620,819
1,295,000 Fresno United School District, 6.600%,
3/01/99 .................................. A3 -- 1,318,698
2,030,000 Fresno United School District, 7.250%,
3/01/07 .................................. A3 -- 2,222,160
2,000,000 Midpeninsula Regional Open Space, Zero
Coupon, 9/01/16, (AMBAC) ................ Aaa AAA 790,400
725,000 Pleasanton Financing Authority, 5.600%,
9/02/00 ................................. Baa3 -- 744,155
1,000,000 Riverside County Asset Lease, Series B,
5.700%, 6/01/16, (MBIA) ................. Aaa AAA 1,081,850
1,000,000 Sacramento Utility District, 3.850%, 11/15/
06, (FSA) (d) ........................... Aaa AAA 1,000,000
1,000,000 Sacramento Utility District, Series D,
6.670%, 11/15/06, (FSA) (d) Aaa AAA 1,134,800
1,040,000 San Bernardino Joint Powers Financing,
5.750%, 7/01/15 ......................... Aaa AAA 1,134,817
2,000,000 San Diego Port Facilities, 6.600%,
12/01/02 ................................. -- -- 2,117,640
2,000,000 Santa Monica Malibu School District, 5.250%,
8/01/17 ................................. Aa3 -- 2,065,900
1,000,000 Southern California Rapid Transit District,
7.500%, 7/01/05, (MBIA) .................. Aaa AAA 1,102,180
1,285,000 Stanislaus Solid Waste Authority, 7.500%,
1/01/05 ................................. -- BBB+ 1,360,031
2,000,000 Stanislaus Solid Waste Authority, 7.625%,
1/01/10 ................................. -- BBB+ 2,120,040
270,000 Valley Health Systems, Series 1993, 6.250%,
5/15/99 ................................. -- BBB- 272,576
2,000,000 Valley Health Systems, Series A, 6.500%,
5/15/15 ................................. -- BBB- 2,183,020
2,000,000 West & Central Basin Financing Authority,
Series C, 6.220%, 8/01/06, (AMBAC) ...... Aaa AAA 2,187,820
-----------
38,587,045
-----------
PUERTO RICO--6.4%
1,000,000 Commonwealth Highway & Transportation,
Series Z,
6.250%, 7/01/14, (MBIA) ................. Aaa AAA 1,169,140
1,500,000 Commonwealth Highway & Transportation,
Series Y,
5.500%, 7/01/26 ......................... Baa1 A 1,544,115
-----------
2,713,255
-----------
U.S. VIRGIN ISLANDS--6.5%
1,750,000 U.S. Virgin Islands Public Finance
Authority, 7.700%, 10/01/04 -- BBB $ 1,868,212
825,000 U.S. Virgin Islands Territory, Public
Finance Authority,
7.750%, 10/01/06 ........................ -- -- 906,502
-----------
2,774,714
-----------
Total Tax Exempt Obligations
(Identified Cost $42,422,837) ............ 44,075,014
-----------
Total Investments--103.7% (Identified Cost
$42,422,837) (b) 44,075,014
Other assets less liabilities ............. (1,568,403)
-----------
Total Net Assets--100% .................... $42,506,611
===========
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1998 the net unrealized appreciation
on investments based on cost of $42,422,837 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 ....................................... $ 1,728,426
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over value ....................................... (76,249)
-----------
Net unrealized appreciation ............................................... $ 1,652,177
===========
As of December 31, 1997, the Fund had a net capital loss carryforward of
$792,200 expiring December 31, 2002.
(c) The ratings shown are believed to be the most recent ratings available at
June 30, 1998. Securities are generally rated at the time of issuance. The
rating agencies may revise their ratings from time to time. As a result
there can be no assurance that the same ratings would be assigned if the
securities were rated at June 30, 1998. The Fund's subadviser independently
evaluates the Fund's portfolio securities and in making investment
decisions does not rely solely on the ratings of agencies.
(d) Variable rate demand note or floating rate security. The rate disclosed is
as of June 30, 1998.
</TABLE>
Legend of Portfolio abbreviations:
AMBAC American Municipal Bond Assurance Corp.
FGIC Financial Guarantee Insurance Company
FSA Financial Security Assurance
MBIA Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at value (Identified cost $42,422,837) ........ $44,075,014
Cash ...................................................... 13,582
Receivable for:
Fund shares sold ........................................ 11,342
Dividends and interest .................................. 685,750
Prepaid registration expense .............................. 5,000
-----------
44,790,688
LIABILITIES
Payable for:
Securities purchased .................................... $2,078,361
Fund shares redeemed .................................... 91,036
Dividends declared ...................................... 73,413
Accrued expenses:
Management fee .......................................... 11,134
Deferred trustees' fees ................................. 5,534
Accounting and administrative ........................... 1,841
Other ................................................... 22,758
--------------
2,284,077
-----------
NET ASSETS .................................................. $42,506,611
===========
Net Assets consist of:
Capital paid in ......................................... $41,949,086
Undistributed net investment income ..................... 128,143
Accumulated net realized loss ........................... (1,222,795)
Unrealized appreciation on investments .................. 1,652,177
-----------
NET ASSETS .................................................. $42,506,611
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A shares
($32,921,692 divided by 4,207,283 shares of beneficial
interest) ............................................... $7.82
=====
Offering price per share (100/97.50 of $7.82) ............... $8.02*
=====
Net asset value and offering price of Class B shares
($9,584,919 divided by 1,228,610 shares of beneficial
interest) ............................................... $7.80**
=====
</TABLE>
*Based upon single purchases of less than $100,000.
Reduced sales charges apply for purchases in excess of this amount.
**Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Interest .................................................... $1,187,755
Expenses
Management fees ........................................... $ 109,604
Service fees - Class A .................................... 40,587
Service and distribution fees - Class B ................... 46,417
Trustees' fees and expenses ............................... 3,867
Accounting and administrative ............................. 10,400
Custodian ................................................. 32,135
Transfer agent ............................................ 28,875
Audit and tax services .................................... 9,080
Legal ..................................................... 1,221
Printing .................................................. 14,591
Registration .............................................. 7,963
Amortization of organization expenses ..................... 2,870
Miscellaneous ............................................. 3,126
---------
Total expenses .............................................. 310,736
Less expenses waived by the investment adviser and subadviser (98,470) 212,266
--------- ----------
Net investment income ....................................... 975,489
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
WRITTEN OPTIONS AND FUTURES CONTRACTS
Realized gain (loss) on:
Investments - net ......................................... 181,679
Futures contracts - net ................................... (27,462)
Written options contracts - net ........................... (126,284)
---------
Total realized gain on investments, written options and
futures contracts ......................................... 27,933
---------
Unrealized depreciation on investments - net ................ (276,616)
---------
Net loss on investment transactions ......................... (248,683)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $ 726,806
==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
--------------- ---------------
FROM OPERATIONS
<S> <C> <C>
Net investment income .................................... $ 2,006,993 $ 975,489
Net realized gain on investments, written options and
futures transactions ................................... 150,648 27,933
Unrealized appreciation (depreciation) on investments .... 883,350 (276,616)
------------ ------------
Increase in net assets from operations ................... 3,040,991 726,806
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A ................................................ (1,630,169) (783,254)
Class B ................................................ (347,491) (190,484)
------------ ------------
(1,977,660) (973,738)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS DERIVED FROM CAPITAL
SHARE TRANSACTIONS ...................................... (3,687,976) 1,815,901
------------ ------------
Total increase (decrease) in net assets .................. (2,624,645) 1,568,969
NET ASSETS
Beginning of the period .................................. 43,562,287 40,937,642
------------ ------------
End of the period ........................................ $ 40,937,642 $ 42,506,611
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period ........................................ $ 126,392 $ 128,143
============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------
APRIL 23 (a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, --------------------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------------ ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $ 7.50 $ 7.84 $ 7.08 $ 7.65 $ 7.66 $ 7.87
------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income .... 0.26 0.38 0.39 0.39 0.39 0.19
Net Realized and
Unrealized Gain
(Loss) on Investments .. 0.38 (0.76) 0.57 0.00 0.20 (0.05)
------- ------- ------- ------- ------- -------
Total From Investment
Operations 0.64 (0.38) 0.96 0.39 0.59 0.14
------- ------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income ...... (0.26) (0.38) (0.39) (0.38) (0.38) (0.19)
Distributions in Excess of
Net Investment Income .. (0.04) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- -------
Total Distributions ...... (0.30) (0.38) (0.39) (0.38) (0.38) (0.19)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period ................. $ 7.84 $ 7.08 $ 7.65 $ 7.66 $ 7.87 $ 7.82
======= ======= ======= ======= ======= =======
Total Return (%) (d) ..... 8.6 (4.9) 13.9 5.3 8.0 1.8
Ratio of Operating
Expenses to Average Net
Assets (%) (b) ......... 0.70(c) 0.70 0.70 0.75 0.85 0.85(c)
Ratio of Net Investment
Income to Average Net
Assets (%) ............. 4.88(c) 5.07 5.24 5.18 5.06 4.83(c)
Portfolio Turnover Rate
(%) .................... 121(c) 212 167 161 120 188(c)
Net Assets, End of Period
(000) .................. $28,938 $30,293 $32,707 $35,972 $32,057 $32,922
(a) Commencement of operations.
(b) The ratio of operating
expenses to average
net assets without giving
effect to voluntary
expense limitations
described in Note 4 to
the financial
statements would have
been (%) ............. 1.49(c) 1.33 1.31 1.34 1.33 1.32(c)
(c) Computed on an annualized basis.
(d) A sales charge is not reflected in total return calculations. Periods less than one year are not annualized.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------------
SEPTEMBER 13 (a) SIX MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, ------------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $ 7.92 $ 7.84 $ 7.07 $ 7.63 $ 7.64 $ 7.85
------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net Investment Income .... 0.10 0.32 0.33 0.33 0.34 0.16
Net Realized and
Unrealized Gain (Loss)
on Investments ......... (0.04) (0.77) 0.56 0.01 0.20 (0.05)
------- ------- ------- ------- ------- -------
Total From Investment
Operations 0.06 (0.45) 0.89 0.34 0.54 0.11
------- ------- ------- ------- ------- -------
Less Distributions
Distributions From Net
Investment Income ...... (0.10) (0.32) (0.33) (0.33) (0.33) (0.16)
Distributions in Excess of
Net Investment Income .. (0.04) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- -------
Total Distributions ...... (0.14) (0.32) (0.33) (0.33) (0.33) (0.16)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period ................. $ 7.84 $ 7.07 $ 7.63 $ 7.64 $ 7.85 $ 7.80
======= ======= ======= ======= ======= =======
Total Return (%) (d) ..... 0.8 (5.8) 12.9 4.6 7.2 1.5
Ratio of Operating
Expenses to Average Net
Assets (%) (b) ......... 1.45(c) 1.45 1.45 1.50 1.60 1.60(c)
Ratio of Net Investment
Income to Average Net
Assets (%) ............. 3.68(c) 4.32 4.49 4.43 4.31 4.08(c)
Portfolio Turnover Rate
(%) .................... 121(c) 212 167 161 120 188(c)
Net Assets, End of Period
(000) .................. $ 1,849 $ 5,713 $ 5,617 $ 7,590 $ 8,881 $ 9,585
(a) Commencement of operations.
(b) The ratio of operating
expenses to average
net assets without
giving effect to
voluntary expense
limitations described
in Note 4 to the
financial statements
would have been (%) . 2.24(c) 2.08 2.06 2.09 2.08 2.07(c)
(c) Computed on an annualized basis.
(d) A contingent deferred sales charge is not reflected in total return calculations. Periods less than one year are not
annualized.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998
(unaudited)
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 seeks a high level of current income exempt from federal
income tax and California personal income tax.
The Fund offers both Class A and Class B shares. 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 six years of purchase (or five years if purchased before
May 1, 1997). 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. Debt securities (other than short-term obligations
with a remaining maturity of less than sixty days) are valued on the basis of
valuations furnished by a pricing service, authorized by the Board of
Trustees, which service determines valuations for normal, institutional-size
trading units of such securities using market information, transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Short-term obligations with a
remaining maturity of less than sixty days are stated at amortized cost, which
approximates value. All other securities and assets are valued at their fair
value as determined in good faith by the Fund's adviser, and subadviser, under
the supervision of the Fund's trustees.
b. SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are
accounted for on the trade date (the date the buy or sell is executed).
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. The Fund uses options to hedge against changes in the values of
securities the Fund owns or expects to purchase. Writing puts and buying calls
tends to increase the Fund's exposure to the underlying instrument and writing
calls or buying puts tends to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
For options purchased to hedge the Fund's investments, the potential risk to
the Fund is that the change in value of options contracts may not correspond
to the change in value of the hedged instruments. In addition, losses may
arise from changes in the value of the underlying instruments, if there is an
illiquid secondary market for the contracts, or if the counterparty is unable
to perform. The maximum loss for purchased options is limited to premium
initially paid for the option. For options written by the Fund, the maximum
loss is not limited to the premium initially received for the option.
Exchange traded options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask price for
written options. Options traded over the counter are valued using prices
supplied by dealers.
d. 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. 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.
e. 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.
f. 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 to
differing treatments for trustee fees. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid in capital.
g. 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. The subadviser 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.
h. ORGANIZATION EXPENSE. Costs incurred in 1993 in connection with the Fund's
organization and initial registration amounted to $26,500 and were paid and
were amortized over 60 months.
2. PURCHASE AND SALES OF SECURITIES. For the six months ended June 30, 1998
purchases and sales of securities (excluding short-term investments) were
$43,000,993 and $40,132,753, respectively.
Investments in written options for the six months ended June 30, 1998 are
summarized as follows:
WRITTEN OPTIONS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Open at December 31, 1997 ......................... 0 $ 0
Contracts opened .................................. 300 108,706
Contracts closed .................................. (300) (108,706)
---- --------
Open at June 30, 1998 ............................. 0 $ 0
==== ========
3a. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays
management fees to its investment adviser, New England Funds Management, L.P.
("NEFM") at the annual rate of 0.525% of the first $200 million of the Fund's
average daily net assets, 0.50% of the next $300 million and 0.475% of such
assets in excess of $500 million. NEFM pays the Fund's investment subadviser,
Back Bay Advisors, L.P. ("Back Bay Advisors") at the rate of 0.2625% of the
first $200 million of the Fund's average daily net assets, 0.25% of the next
$300 million and 0.2375% of such assets in excess of $500 million. Certain
officers and directors of NEFM are also officers or trustees of the Fund. NEFM
and Back Bay Advisors are wholly owned subsidiaries of Nvest Companies, L.P.
("Nvest"), which is a subsidiary of Metropolitan Life Insurance Company
("MetLife"). Fees earned by NEFM and Back Bay Advisors under the management
agreement in effect during the six months ended June 30, 1998 are as follows:
FEES EARNED(a)
--------------
$54,802 NEFM
$54,802 Back Bay Advisors
(a) Before reduction pursuant to voluntary expense limitations. See Note 4.
b. ACCOUNTING AND ADMINISTRATION EXPENSE. New England Funds L.P. ("New
England Funds"), the Fund's distributor, is a wholly owned subsidiary of Nvest
and performs certain accounting and administrative services for the Fund. The
Fund reimburses New England Funds for all or part of New England Funds'
expenses of providing these services which include the following: (i) expenses
for personnel performing bookkeeping, accounting and financial reporting
functions and related clerical functions relating to the Fund, and (ii)
expenses for services required in connection with the preparation of
registration statements and prospectuses, registration of shares in various
states, shareholder reports and notices, proxy solicitation material furnished
to shareholders of the Fund or regulatory authorities and reports and
questionnaires for SEC compliance. For the six months ended June 30, 1998
these expenses amounted to $10,400 and are shown separately in the financial
statements as accounting and administrative.
c. 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 0.25% of the average daily
net assets attributable to the Fund's Class A shares, as reimbursement for
expenses (including certain payments to securities dealers, who may be
affiliated with New England Funds) incurred by New England Funds in providing
personal services to investors in Class A shares and/or the maintenance of
shareholder accounts. For the six months ended June 30, 1998, the Fund paid
New England Funds $40,587 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 1998 is $222,162.
Under the Class B Plan, the Fund pays New England Funds a monthly service fee
at the annual rate of 0.25% of the average daily net assets attributable to
the Fund's Class B shares, as compensation for services provided and expenses
(including certain payments to securities dealers, who may be affiliated with
New England Funds) incurred by New England Funds in providing personal
services to investors in Class B shares and/or the maintenance of shareholder
accounts. For the six months ended June 30, 1998, the Fund paid New England
Funds $11,604 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 0.75% of the average daily net assets
attributable to the Fund's Class B shares, as compensation for services
provided and expenses (including certain payments to securities dealers, who
may be affiliated with New England Funds) incurred by New England Funds in
connection with the marketing or sale of Class B shares. For the six months
ended June 30, 1998, the Fund paid New England Funds $34,813 in distribution
fees under the Class B Plan.
Commissions (including contingent deferred sales charges) on Fund shares paid
to New England Funds by investors of shares of the Fund during the six months
ended June 30, 1998 amounted to $40,695.
d. TRANSFER AGENT FEES. New England Funds Services Corporation ("NEFSCO") is
the transfer and shareholder servicing agent to the Fund. For the six months
ended June 30, 1998, the Fund paid NEFSCO $15,117 as compensation for its
services in that capacity. For the six months ended June 30, 1998, the Fund
received $438 in transfer agent credits. The transfer agent expense in the
Statement of Operations is net of these credits.
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 NEFSCO, Nvest, NEFM, New England Funds or their affiliates, other than
registered investment companies. Each other trustee is compensated by the Fund
as follows:
Annual Retainer $231
Meeting Fee 159/meeting
Annual Committee Member Retainer 35
Annual Committee Chairman Retainer 23
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. Effective September 1, 1996 until further notice to
the Fund, Back Bay Advisors and NEFM have voluntarily agreed to reduce
management fees in order to limit the Fund's expenses to an annual rate of
0.85% of the Fund's Class A average daily net assets and 1.60% of Class B
average daily net assets. Prior to September 1, 1996 Back Bay Advisors and
NEFM voluntarily agreed to reduce management 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 six months ended June 30, 1998 Back Bay Advisors reduced
it's subadvisory fee of $54,802 by $49,235 and NEFM reduced it's advisory fee
of $54,802 by $49,235.
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 as
concentrated. Uncertain economic and fiscal conditions may affect the ability
of issuers of California municipal securities to meet their financial
obligations. The Fund had the following industry concentrations in excess of
10% on June 30, 1998 as a percentage of the Fund's total net assets: Pollution
Control (17.48%), Hospitals (11.70%) and Airports Bridges & Tunnels (10.96%).
6. CAPITAL SHARES. At June 30, 1998 there was an unlimited number of shares
of beneficial interest authorized, divided into two classes, Class A and Class
B capital stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------------------- -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold ............................. 709,930 $ 5,476,156 340,510 $2,677,137
Shares issued in connection with
the reinvestment of:
Distributions from net investment
income .............................. 109,983 850,703 62,247 488,902
---------- ----------- -------- ----------
819,913 6,326,859 402,757 3,166,039
Shares repurchased ...................... (1,439,883) (11,091,360) (268,935) (2,110,132)
---------- ----------- -------- ----------
Net increase (decrease) ................. (619,970) $(4,764,501) 133,822 $1,055,907
---------- ----------- -------- ----------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------------------- -----------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- -------- ----------
Shares sold ............................. 243,713 $ 1,879,601 220,928 $1,732,013
Shares issued in connection with
the reinvestment of:
Distributions from net investment
income .............................. 25,454 196,528 14,833 115,940
---------- ----------- -------- ----------
269,167 2,076,129 235,761 1,847,953
Shares repurchased ...................... (130,715) (999,604) (138,892) (1,087,959)
---------- ----------- -------- ----------
Net increase ............................ 138,452 1,076,525 96,869 759,994
---------- ----------- -------- ----------
Increase (decrease) derived from capital
shares transactions ................... (481,518) $(3,687,976) 230,691 $1,815,901
========== =========== ======== ==========
</TABLE>
<PAGE>
GLOSSARY FOR MUTUAL FUND INVESTORS
- -------------------------------------------------------------------------------
TOTAL RETURN - The change in value of a mutual fund investment over a specific
time period, assuming all earnings are reinvested in additional shares of the
fund. Expressed as a percentage.
INCOME DISTRIBUTIONS - Payments to shareholders resulting from the net interest
or dividend income earned by a fund's portfolio.
CAPITAL GAINS DISTRIBUTIONS - Payments to shareholders of profits earned from
selling securities in a fund's portfolio. Capital gains distributions are
usually paid once a year.
YIELD - The rate at which a fund pays income. Yield calculations for 30-day
periods are standardized among mutual funds, based on a formula developed by
the Securities and Exchange Commission.
MATURITY - Refers to the period of time before principal repayment on a bond is
due. A bond fund's "average maturity" refers to the weighted average of the
maturities of all the individual bonds in the potfolio.
DURATION - A measure, stated in years, of a bond's sensitivity to interest
rates. Duration is a means to directly compare the volatility of different
instruments. As a general rule, for every 1% move in interest rates, a bond is
expected to fluctuate in value as indicated by its duration. For example, if
interest rates fall by 1%, a bond with a duration of 4 years should rise in
value 4%. Conversely, the bond 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>
- --------------------------------------------------------------------------------
SAVING FOR RETIREMENT
- --------------------------------------------------------------------------------
AN EARLY START CAN MAKE A BIG DIFFERENCE
With today's lengthening life spans, you may be retired for 20 years or more
after you complete your working career. Living these retirement years the way
you've dreamed of will require considerable financial resources. while it's
never too late to start a retirement savings program, it's 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 investing 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 B's commitment -- and
for less than half the time. Yet Investor A wound up with a much greater
retirement nest egg. The reason? It's 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>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
Bullseye Fund
Star Small Cap Fund
Growth Fund
Star Advisers Fund
Capital Growth Fund
Growth Opportunities Fund
Value Fund
Equity Income Fund
Balanced Fund
INTERNATIONAL STOCK FUNDS
International Equity Fund
Star Worldwide Fund
BOND FUNDS
High Income Fund
Strategic Income Fund
Bond Income Fund
Government Securities Fund
Limited Term U.S. Government Fund
Adjustable Rate U.S. Government Fund
TAX EXEMPT FUNDS
Municipal Income Fund
Massachusetts Tax Free Income Fund
Tax Free Income Fund of New York
Intermediate Term Tax Free Fund of California
MONEY MARKET FUNDS
Cash Management Trust, Money Market Series
Tax Exempt Money Market Trust
To learn more, and for a free prospectus,
contact your financial representative.
VISIT OUR WORLD WIDE WEB SITE AT WWW.MUTUALFUNDS.COM
New England Funds, L.P., Distributor
399 Boylston Street
Boston, MA 02116
Toll Free 800-225-5478
This material is authorized for distribution to prospective
investors when it is preceded or accompanied by the Fund's
current prospectus, which contains information about
distribution charges, management and other items of interest.
Investors are advised to read the prospectus carefully before investing.
New England Funds, L.P., and other firms selling shares of New England Funds
are members of the National Association of Securities Dealers, Inc.
(NASD). As a service to investors, the NASD has asked that we inform you
of the availability of a brochure on its Public Disclosure Program.
The program provides access to information about
securities firms and their representatives. Investors may obtain
a copy by contacting the NASD at 1-800-289-9999 or by
visiting their web site at www.NASDR.com.
<PAGE>
------------------
[LOGO](R) Bulk Rate
NEW ENGLAND FUNDS(R) U.S. Postage
Where The Best Minds Meet(R) Paid
Brockton, MA
Permit No. 770
------------------
---------------------
399 Boylston Street
Boston, Massachusetts
02116
---------------------
[Dalbar Logo]
- -----------------------
1995 o 1996 o 1997
CA58-0698
[Recycle Logo] Printed on Recycled Paper
