<PAGE>
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SEMIANNUAL REPORT
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[logo](R)
NEW ENGLAND FUNDS(R)
Where The Best Minds Meet(R)
- --------------------------------------------------------------------------------
New England
Intermediate Term
Tax Free Fund of California
WHERE
THE BEST
MINDS
MEET(R)
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JUNE 30, 1999
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<PAGE>
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AUGUST 1999
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[Photo of Bruce R. Speca]
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"Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing."
- --------------------------------------------------------------------------------
Dear Shareholder,
Performance results for the New England Family of Funds were driven mainly by
two important changes that took place in our financial markets during the first
half of 1999. First, the long, upward climb of large-capitalization stocks
slowed dramatically as attention turned to stocks with more reasonable
valuations. Then, bond investors grew fearful that our persistently strong
economy would lead the Federal Reserve Board to impose higher interest rates.
Your manager's commentary on the following pages details how these trends
affected your fund's strategy and performance.
As I watch investments come in and out of favor, I'm reminded of the importance
of asset allocation - the practice of dividing your portfolio among different
kinds of stocks and bonds. The idea is to own more or less of each investment
type according to your feelings about risk and your investment time horizon.
Most investment professionals I know agree that proper asset allocation is a
bedrock principle of sound investing. In addition to broadening diversification,
it seeks to avoid exposure to narrow market segments and can help reduce
volatility.
While a diversified portfolio may have given solid returns during the past year,
many investors were disappointed when they compared those returns to the
performance of large-company growth stocks or to the soaring returns of Internet
stocks. Suddenly, investors were asking: Is asset allocation dead?
Certainly not! Like so much in life, market cycles are inevitable. Different
categories of investments will be popular at different times, and a sensible
asset allocation program can help you as market trends change.
I know it can be tempting to jump on a bandwagon and go after "easy money." But
I encourage you, instead, to maintain a rational, long-term perspective and to
consult your financial representative regularly to review and fine-tune your
investments, including a well-diversified asset allocation program.
Thank you for your continued interest. We look forward to helping you achieve
your long-term financial objectives.
Sincerely,
/s/ Bruce R. Speca
Bruce R. Speca
President and CEO
<PAGE>
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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INVESTMENT RESULTS THROUGH JUNE 30, 1999
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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 below 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 and does not have expenses that affect the results.
It is not possible to invest directly in an index. In addition, few investors
could purchase all of the securities necessary to match the index and would
incur transaction costs and other expenses even if they could.
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. The data for
this chart are as follows:]
APRIL 1993 (INCEPTION) THROUGH JUNE 1999
Lehman Municipal
Net Asset Value(1) Maximum Sales Charge(2) Bond Index(5)
------------------ ----------------------- ----------------
4/93 $10,000 $ 9,750 $10,000
6/93 9,966 9,717 10,224
6/94 10,160 9,906 10,244
6/95 10,676 10,410 11,145
6/96 11,530 11,241 11,885
6/97 12,397 12,087 12,955
6/98 13,221 12,890 14,076
6/99 13,945 13,597 14,465
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 reinvestment of
distributions.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AND YIELDS -- 6/30/99
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (Inception 4/23/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1),(4) -0.1% 2.5% 5.9% 5.5%
With Maximum Sales Charge(2),(4) -2.6 -0.1 5.4 5.1
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS B (Inception 9/13/93) 6 MONTHS 1 YEAR 5 YEARS SINCE INCEPTION
Net Asset Value(1),(4) -0.5% 1.7% 5.1% 3.8%
With CDSC(3),(4) -5.4 -3.2 4.8 3.6
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SINCE SINCE
FUND'S FUND'S
CLASS A CLASS B
COMPARATIVE PERFORMANCE 6 MONTHS 1 YEAR 5 YEARS INCEPTION INCEPTION
<S> <C> <C> <C> <C> <C>
Lehman Municipal Bond Index(5) -0.9% 2.8% 7.0% 6.1% 5.5%
Lipper CA Municipal Debt Avg.(6) -1.1 2.4 5.7 5.0 4.4
Morningstar Muni CA Interm. Avg.(7) -1.3 2.1 5.7 5.0 4.4
- -------------------------------------------------------------------------------------------------
</TABLE>
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.
YIELDS AS OF 6/30/99
- --------------------------------------------------------------------------------
CLASS A CLASS B
SEC 30-day Yield(8) 4.6% 3.9%
Taxable Equivalent Yield(9) 8.3 7.2
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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.
Returns would have been lower had sales charges been reflected.
(2) With Maximum Sales Charge performance assumes reinvestment of all
distributions and reflects the maximum sales charge of 2.50% at the time of
purchase of Class A shares.
(3) With Contingent Deferred Sales Charge (CDSC) performance assumes
reinvestment of all distributions and, for Class B shares, assumes that a
maximum 5.00% sales charge is applied to redemptions. The sales charge will
decrease over time, declining to zero six years after the purchase of
shares. With CDSC performance for Class C shares assumes a maximum 1% sales
charge on redemptions within the first year of purchase.
(4) This Fund waived certain fees and expenses during the period indicated and
the Fund's average annual total returns and yields would have been lower
had these not been waived.
(5) Lehman Municipal Bond Index is an unmanaged index of bonds issued by
states, municipalities and other government entities having maturities of
more than one year. The performance of the index has not been adjusted for
ongoing management, distribution and operating expenses and sales charges
applicable to mutual fund investments. It is not possible to invest
directly in an index. Class A since inception return is calculated from
4/30/93. Class B since inception return is calculated from 9/30/93.
(6) Lipper California Intermediate Average is an average (calculated on the
basis of net asset value) of funds with similar investment objectives as
calculated by Lipper Inc., an independent mutual fund ranking service.
Class A since inception return is calculated from 4/30/93. Class B since
inception return is calculated from 9/30/93.
(7) Morningstar Muni CA Intermediate Debt Average is an average (calculated on
the basis of net asset value) of funds with similar investment objectives
as calculated by Morningstar, Inc., an independent mutual fund ranking
service. Class A since inception return is calculated from 4/30/93. Class B
since inception return is calculated from 9/30/93.
(8) 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.
(9) Taxable equivalent yield is based on the maximum combined federal and
California state income tax bracket of 45.22%. A portion of income may be
subject to federal, state and/or alternative minimum tax. Capital gains, if
any, are subject to capital gains tax.
<PAGE>
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NEW ENGLAND INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA
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QUESTIONS & ANSWERS WITH YOUR PORTFOLIO MANAGER
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[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?
New England Intermediate Term Tax Free Fund of California delivered a total
return of -0.1% for Class A shares at net asset value for the six months ended
June 30, 1999, including a $0.20 per share loss to $7.63 and the reinvestment of
$0.19 per share in dividend distributions. Although disappointing, your Fund's
performance was comparable with that of its peer group of 28 California
Intermediate Municipal Debt Funds, which posted a return of -1.1% for the
period, as tracked by Lipper Inc.
In addition, your Fund provided a high level of tax-free income. At the end of
the period, your Fund's 30-day SEC yield for Class A shares was 4.6%, which
translates into a taxable equivalent yield of 8.3%, based on the maximum
combined federal and California state income tax rate of 45.22%.
Q. What was the investment environment for California municipal bonds during the
period?
Uncertainty surrounding interest rates was the biggest factor challenging
fixed-income markets, as a climate of rising interest rates depressed the prices
of most types of bonds, including municipal bonds. However, a generally
favorable environment in California helped mute the effects of rising rates and
declining bond prices.
A positive economic climate at the national level laid the groundwork for
continued economic health in California. The state's robust economy, coupled
with low inflation, contributed to the improved fiscal health and
creditworthiness of many municipalities. The economy's strength helped generate
higher tax revenues, which in turn increased the cash flow of state and local
governments.
In addition, as we entered 1999, municipal bond yields were at historically high
levels compared to U.S. Treasury yields. On both an absolute and relative basis,
municipal bond yields were at times higher than those of their U.S. government
counterparts -- providing individual investors more income than U.S. Treasuries
both before and after taxes.
Q. Did supply and demand impact the California municipal market?
In contrast to taxable bonds, tax exempt issues are greatly influenced by supply
and demand. Throughout the period, investors were attracted to California
municipal securities because of their extremely attractive yields as well as
their total return potential.
In fact, demand for California municipal bonds exceeded supply, supporting
prices. This imbalance of supply and demand prevented greater loss in the Fund's
net asset value in a generally rising interest rate environment. Remember, as
interest rates rise, bond prices fall. Over the past six months, municipal
securities continued to provide investors with a smart alternative to taxable
investments, which were impacted to a greater degree by rising rates.
Q. What strategies did you use in managing the Fund?
As always, we follow a three-pronged approach when managing the Fund: we seek
high current income, with reasonable risk, and the potential for positive total
return.
Early in 1999, as inflation fears began to surface, the Federal Reserve Board
began to give advance warning of its eventual June decision to raise short-term
interest rates. As a result, long-term rates gradually rose, impacting municipal
bond performance.
In response, we adopted a more defensive policy -- gradually shortening the
Fund's average maturity and lowering duration. Duration and average maturity are
two measures of a bond's price sensitivity to interest rate changes. In general,
the shorter a bond's duration or average maturity, the lower the risk of price
loss when interest rates rise and conversely, the lower the potential for price
appreciation when interest rates fall.
As of June 30, 1999, the Fund's average maturity was 11.1 years while duration
stood at 7.0 years.
Amid an uncertain interest rate climate, we also upgraded the Fund's credit
quality. As we added new positions during the period, we emphasized higher-
quality bonds that we believe offer better relative value due to their greater
creditworthiness and stable yield characteristics. On June 30, 1999, the average
credit quality was "AA," as rated by Standard & Poor's.
Finally, our focus over the past six months was on revenue bonds and on bond
issues or sectors where we felt we could add value through our credit research.
Revenue bonds are securities whose interest payments are derived from specific
streams of revenue, such as highway tolls. They differ from general obligation
bonds whose interest payments come from the general revenues, such as taxes, of
a governmental agency.
Q. What is your outlook for California municipal bonds over the next few months?
Our outlook for California municipal bonds is quite positive. We expect the
national economy to continue on its slow, steady, non-inflationary growth path,
which should in our opinion support municipal bond prices.
In addition, the California economy has been one of the strongest in the nation
- -- with many of the state's municipalities poised for future credit upgrades.
Finally, we think that the supply of California municipal issues will trend
further downward and that demand will remain strong -- keeping the door open for
further price appreciation potential.
The portfolio manager's 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.
A portion of income may be subject to federal, state and/or the alternative
minimum tax. Capital gains, if any, are subject to capital gains tax. See the
Fund's prospectus for details.
U.S. Treasury bills and U.S. government bonds fluctuate in value, but they are
guaranteed as to the timely payment of interest and, if held to maturity,
provide a guaranteed return of principal. Government guarantees apply to
individual securities only and not to prices and yields of shares in a managed
portfolio.
[GRAPHIC]Pie Chart
AAA 45.6%
AA 4.6%
A 31.9%
BBB 13.4%
BB 4.5%
<PAGE>
<TABLE>
<CAPTION>
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PORTFOLIO COMPOSITION
- ---------------------------------------------------------------------------------------------------
Investments as of June 30, 1999
(unaudited)
TAX EXEMPT OBLIGATIONS -- 101.1% OF TOTAL NET ASSETS
RATINGS (C)
------------------
PRINCIPAL STANDARD
AMOUNT DESCRIPTION MOODY'S & POOR'S VALUE (A)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA -- 80.6%
$ 1,000,000 Anaheim Public Financing Authority, Series C,
6.000%,9/01/2016, (FSA) ......................... Aaa AAA $ 1,092,380
1,000,000 Berkeley Health Facility, Pre-refunded,
6.500%,12/01/2011 (d) ........................... A2 A+ 1,066,490
1,030,000 Beverly Hills California Public Finance Authority,
5.125%, 6/01/2018 ............................... Aaa AAA 1,006,186
1,750,000 California Educational Facilities Authority,
Zero Coupon, 10/01/2018 ......................... Aaa -- 620,900
1,000,000 California Educational Facilities Authority,
5.250%,12/01/2013 ............................... Aaa AAA 1,023,330
1,000,000 California Educational Facilities Authority
Revenue, 5.500%, 10/01/2027 ..................... Aa2 AA 1,007,000
1,370,000 California Health Facilities Financing,
5.250%,10/01/2016 ............................... A3 A 1,318,762
1,120,000 California Housing Finance Agency,
6.250%, 8/01/2016 ............................... Aa2 AA- 1,162,291
2,750,000 California Pollution Control Financing
Authority, Series A, 5.900%, 6/01/2014 .......... A2 A-1 2,977,562
1,000,000 California Pollution Control Financing
Authority, Series A, 6.900%, 9/01/2006 .......... -- A+ 1,023,710
1,000,000 California State, 7.000%, 6/01/2002, (FGIC) ...... Aaa AAA 1,079,690
1,000,000 California State Public Works, 5.500%, 6/01/2010 . Aa3 A+ 1,049,300
1,000,000 California State Public Works, 5.500%,
6/01/2014, (MBIA) ............................... Aaa AAA 1,043,480
1,250,000 California Statewide Community Development
Authority, 5.375%, 4/01/2017 .................... -- BBB 1,204,913
1,540,000 Duarte California, City of Hope National
Medical Center, 6.125%, 4/01/2013 ............... Baa2 -- 1,664,986
1,250,000 Fontana California Redevelopment Agency,
5.500%, 10/01/2017 .............................. -- BBB+ 1,234,313
2,030,000 Fresno United School District, 7.250%, 3/01/2007 . A3 -- 2,161,240
715,000 Pleasanton Financing Authority, 5.600%, 9/02/2000 Baa1 -- 727,992
1,000,000 Riverside County Asset Lease, Series B,
5.700%, 6/01/2016, (MBIA) ....................... Aaa AAA 1,055,540
1,000,000 Sacramento Utility District, 3.150%,
11/15/2006, (FSA) (e) ........................... Aaa AAA 1,000,000
1,000,000 Sacramento Utility District, 7.370%,
11/15/2006, (FSA) (e) ........................... Aaa AAA 1,100,340
2,000,000 San Diego Port Facilities, 6.600%, 12/01/2002 .... -- -- 2,105,260
1,000,000 Southern California Rapid Transit District,
7.500%, 7/01/2005, (MBIA) ........................ Aaa AAA 1,071,160
1,140,000 Stanislaus Solid Waste Authority, 7.500%,
1/01/2005 ....................................... -- A- 1,177,996
1,960,000 Stanislaus Solid Waste Authority, 7.625%,
1/01/2010 (d) ................................... -- A- 2,027,365
1,500,000 University California Revenues,
5.125%, 9/01/2017 ............................... Aaa AAA 1,469,535
2,000,000 Valley Health Systems, Series A,
6.500%, 5/15/2015 ............................... -- BBB- 2,109,900
2,000,000 West & Central Basin Financing Authority,
Series C, 6.820%, 8/01/2006, (AMBAC) ............ Aaa AAA 2,129,700
------------
37,711,321
------------
GUAM -- 2.3%
1,000,000 Guam Airport Authority, 6.400%, 10/01/2005 ....... -- BBB 1,066,610
------------
PUERTO RICO -- 12.6%
2,010,000 Puerto Rico Commonwealth, 6.500%, 7/01/2015 ...... Baa1 A 2,298,395
1,000,000 Puerto Rico Commonwealth Highway &
Transportation, 6.458%, 7/01/2004 ............... Baa1 A1+ 1,071,210
2,500,000 Puerto Rico Electric Power Authority,
5.400%, 7/01/2013 ............................... Aaa AAA 2,558,100
------------
5,927,705
------------
US VIRGIN ISLANDS -- 5.6%
1,750,000 U.S. Virgin Islands Public Finance Authority,
7.700%,10/01/2004 ............................... -- AAA 1,802,920
760,000 U.S. Virgin Islands Public Finance Authority,
7.750%,10/01/2006 ............................... -- -- 819,409
------------
2,622,329
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Total Tax Exempt Obligations
(Identified Cost $46,455,496) .................... 47,327,965
------------
SHORT TERM INVESTMENT -- 0.9%
- ---------------------------------------------------------------------------------------------------
$ 420,000 Household Finance Corp., 5.500%, 7/01/1999 ....... 420,000
------------
Total Short Term Investment
(Identified Cost $420,000) ...................... 420,000
------------
Total Investments -- 102.0%
(Identified Cost $46,875,496) (b) ............... 47,747,965
Other assets less liabilities .................... (954,013)
------------
Total Net Assets -- 100% ......................... $ 46,793,952
============
(a) See Note 1a of Notes to Financial Statements.
(b) Federal Tax Information: At June 30, 1999 the net
unrealized appreciation on investments based on cost
of $46,875,496 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 .............................................. $ 1,139,103
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value ................................................. (266,634)
------------
Net unrealized appreciation ................................ $ 872,469
============
As of December 31, 1998, the Fund had a net capital loss carryforward of $522,150 expiring December 31, 2002.
(c) The ratings shown are believed to be the most recent ratings available at June 30, 1999. 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, 1999. 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) A portion of these securities ($2,000,000 par) has been segregated in connection with the Fund's derivative investments
at June 30, 1999.
(e) Variable rate demand note or floating rate security. The rate disclosed is as of June 30, 1999.
</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>
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STATEMENT OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999
(unaudited)
ASSETS
Investments at value (Identified Cost
$46,875,496) ..................................... $47,747,965
Cash .............................................. 409
Receivable for:
Fund shares sold ................................ 98,391
Divdiends and interest .......................... 783,890
-----------
48,630,655
LIABILITIES
Payable for:
Securities purchased ............................ $1,021,360
Fund shares redeemed ............................ 668,908
Dividends declared .............................. 84,045
Accrued expenses:
Management fees ................................. 20,554
Deferred trustees' fees ......................... 6,566
Accounting and administrative ................... 4,340
Other expenses .................................. 30,930
----------
1,836,703
-----------
NET ASSETS ........................................... $46,793,952
===========
Net Assets consist of:
Capital paid in ................................. $47,433,404
Undistributed net investment income ............. 46,249
Accumulated net realized gains (losses) ......... (1,558,170)
Unrealized appreciation (depreciation)
on investments ................................. 872,469
-----------
NET ASSETS $46,793,952
===========
Computation of net asset value and offering price:
Net asset value and redemption price of Class A
shares ($37,916,311 / 4,969,756 shares of
beneficial interest) .............................. $ 7.63
===========
Offering price per share (100 / 97.50 of $7.63) ... $ 7.83*
===========
Net asset value and offering price of Class B
shares ($8,877,641 / 1,167,294 shares of
beneficial interest) .............................. $ 7.61**
===========
*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
- --------------------------------------------------------------------------------
(unaudited)
INVESTMENT INCOME
Interest .......................................... $ 1,291,333
-----------
Expenses
Management fees ................................. $ 121,303
Service fees - Class A .......................... 46,334
Service and distribution fees - Class B ......... 45,716
Trustees' fees and expenses ..................... 4,321
Accounting and administrative ................... 13,146
Custodian ....................................... 35,772
Transfer agent .................................. 16,156
Audit and tax services .......................... 13,580
Legal ........................................... 465
Printing ........................................ 4,245
Registration .................................... 5,762
Miscellaneous ................................... 6,259
----------
Total expenses .................................... 313,059
Less expenses waived by the investment adviser
and subadviser ................................... (82,507) 230,552
---------- ----------
Net investment income ............................. 1,060,781
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS AND FUTURES CONTRACTS
Realized gain (loss) on:
Investments -- net .............................. (351,276)
Futures contracts -- net ........................ 30,851
Options contracts -- net ........................ 37,172
----------
Total realized gain (loss) on investments ....... (283,253)
----------
Unrealized appreciation (depreciation) on:
Investments -- net .............................. (922,155)
----------
Net gain (loss) on investment transactions ........ (1,205,408)
-----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ..................................... $ (144,627)
===========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------- ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income ................................... $ 1,968,798 $ 1,060,781
Net realized gain (loss) on investment, options
and futures transactions ............................... (20,967) (283,253)
Net unrealized appreciation (depreciation) on
investment transactions, options and futures
contracts .............................................. (134,169) (922,155)
------------- -------------
Increase (decrease) in net assets from operations ...... 1,813,662 (144,627)
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A .............................................. (1,643,915) (891,636)
Class B .............................................. (390,245) (187,146)
------------- -------------
(2,034,160) (1,078,782)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM CAPITAL SHARE TRANSACTIONS ................ 3,890,260 3,409,957
Total increase (decrease) in net assets ................... 3,669,762 2,186,548
NET ASSETS
Beginning of the period ................................ 40,937,642 44,607,404
------------- -------------
End of the period ...................................... $ 44,607,404 $ 46,793,952
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME
End of the period ...................................... $ 64,250 $ 46,249
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS A
----------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
----------------------------------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............................... $ 7.84 $ 7.08 $ 7.65 $ 7.66 $ 7.87 $ 7.83
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income .............................................. 0.38 0.39 0.39 0.39 0.37 0.19
Net Realized and Unrealized Gain (Loss) On Investments ............. (0.76) 0.57 0.00 0.20 (0.03) (0.20)
------- ------- ------- ------- ------- -------
Total From Investment Operations ................................... (0.38) 0.96 0.39 0.59 0.34 (0.01)
------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income ............................... (0.38) (0.39) (0.38) (0.38) (0.38) (0.19)
------- ------- ------- ------- ------- -------
Total Distributions ................................................ (0.38) (0.39) (0.38) (0.38) (0.38) (0.19)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..................................... $ 7.08 $ 7.65 $ 7.66 $ 7.87 $ 7.83 $ 7.63
======= ====== ======= ======= ======= =======
Total Return (%) (a) ............................................... (4.9) 13.9 5.3 8.0 4.5 (0.1)
Ratio of Operating Expenses to Average Net Assets (%) (b) .......... 0.70 0.70 0.75 0.85 0.85 0.85(c)
Ratio of Net Investment Income to Average Net Assets (%) ........... 5.07 5.24 5.18 5.06 4.79 4.73(c)
Portfolio Turnover Rate (%) ........................................ 212 167 161 120 215 161
Net Assets, End of Period (000) .................................... $30,293 $32,707 $35,972 $32,057 $35,348 $37,916
(a) A sales charge is not reflected in total return calculations.
(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 (%) ......... 1.33 1.31 1.34 1.33 1.35 1.21(c)
(c) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<CAPTION>
CLASS B
----------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
----------------------------------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............................... $ 7.84 $ 7.07 $ 7.63 $ 7.64 $ 7.85 $ 7.81
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income .............................................. 0.32 0.33 0.33 0.34 0.32 0.16
Net Realized and Unrealized Gain (Loss) On Investments ............. (0.77) 0.56 0.01 0.20 (0.03) (0.20)
------- ------- ------- ------- ------- -------
Total From Investment Operations ................................... (0.45) 0.89 0.34 0.54 0.29 (0.04)
------- ------- ------- ------- ------- -------
Less Distributions
Dividends From Net Investment Income ............................... (0.32) (0.33) (0.33) (0.33) (0.33) (0.16)
------- ------- ------- ------- ------- -------
Total Distributions ................................................ (0.32) (0.33) (0.33) (0.33) (0.33) (0.16)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..................................... $ 7.07 $ 7.63 $ 7.64 $ 7.85 $ 7.81 $ 7.61
======= ======= ======= ======= ======= =======
Total Return (%) (a) ............................................... (5.8) 12.9 4.6 7.2 3.7 (0.5)
Ratio of Operating Expenses to Average Net Assets (%) (b) 1.45 1.45 1.50 1.60 1.60 1.60(c)
Ratio of Net Investment Income to Average Net Assets (%) ........... 4.32 4.49 4.43 4.31 4.04 3.98(c)
Portfolio Turnover Rate (%) ........................................ 212 167 161 120 215 161
Net Assets, End of Period (000) .................................... $ 5,713 $ 5,617 $ 7,590 $ 8,881 $ 9,259 $ 8,878
(a) A contingent deferred sales charge is not reflected in total return calculations.
(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 (%) ...... 2.08 2.06 2.09 2.08 2.10 1.96(c)
(c) Computed on an annualized basis.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the Period Ended June 30, 1999
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES. 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 Fund seeks a high level of current
income exempt from federal income tax and California personal income tax. 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. 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 market 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. Interest income is recorded on the accrual basis.
Interest income is increased by the accretion of original issue discount and
market 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. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to capital accounts.
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.
2. PURCHASES AND SALES OF SECURITIES. For the six months ended June 30, 1999
purchases and sales of securities (excluding short-term investments) were
$40,055,991 and $36,566,637, respectively.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays a
gross management fee 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 reduced by the payment to the Fund's
investment subadviser Back Bay Advisors, L.P. ("Back Bay") 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 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 under the management and
subadvisory agreements in effect during the six months ended June 30, 1999 are
as follows:
Fees Earned (a)
---------------
NEFM $ 60,652
Back Bay 60,651
(a) Before reduction pursuant to voluntary expense limitations. See Note 4.
The effective annualized management fee for the six months ended June 30, 1999
was 0.525%.
B. ACCOUNTING AND ADMINISTRATION EXPENSE. Nvest Services Company, Inc. ("NSC")
is a wholly owned subsidiary of Nvest and performs certain accounting and
administrative services for the Fund. The Fund reimburses NSC for all or part of
NSC's 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, 1999 these
expenses amounted to $13,146 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"), the Fund's distributor (a wholly owned subsidiary of Nvest) 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, 1999, the Fund paid New England Funds $46,334
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 at June 30, 1999 is $179,456.
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, 1999, the Fund paid New England Funds $11,429
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,
1999, the Fund paid New England Funds $34,287 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, 1999 amounted to $46,547.
D. TRANSFER AGENT FEES. NSC is the transfer and shareholder servicing agent to
the Fund and Boston Financial Data Services serves as a sub-transfer agent for
the Fund. For the six months ended June 30, 1999, the Fund paid NSC $15,304 as
compensation for its services.
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 NEFM,
New England Funds, Nvest, NSC or their affiliates. Each other Trustee receives a
retainer fee at the annual rate of $40,000 and meeting attendance fees of $3,500
for each meeting of the Board of Trustees attended. Each committee member
receives an additional retainer fee at the annual rate of $6,000 while each
committee chairman receives a retainer fee (beyond the $6,000 fee) at the annual
rate of $4,000. These fees are allocated to the various New England Funds based
on a formula that takes into account, among other factors, the relative net
assets of each fund.
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 been, had it been invested in the Fund on the
normal payment date. Deferred amounts remain in the Fund until distributed in
accordance with the Plan.
4. EXPENSE LIMITATIONS. Effective September 1, 1996 until further notice to the
Fund, Back Bay 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 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 the Fund's 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, 1999 Back Bay reduced its subadvisory fees by $41,253 and NEFM
reduced its advisory fees by $41,254.
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, 1999 as a
percentage of the Fund's total net assets: Hospitals (12.0%).
6. CAPITAL SHARES. At June 30, 1999 there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, Class A and Class B
capital shares. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
---------------------------- ------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Shares sold .............................................. 827,069 $ 6,499,675 1,558,740 $12,160,474
Shares issued in connection with the reinvestment of:
Dividends from net investment income ................... 110,552 867,672 66,728 520,008
------- ----------- --------- -----------
937,621 7,367,347 1,625,468 12,680,482
Shares repurchased ....................................... (497,875) (3,904,602) (1,168,919) (9,126,159)
------- ----------- --------- -----------
Net increase (decrease) .................................. 439,746 $ 3,462,745 456,549 $ 3,554,323
------- ----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
---------------------------- ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Shares sold .............................................. 270,727 $ 2,121,992 57,287 $ 446,686
Shares issued in connection with the reinvestment of:
Dividends from net investment income ................... 29,839 233,426 14,527 112,846
------- ----------- --------- -----------
300,566 2,355,418 71,814 559,532
Shares repurchased ....................................... (246,590) (1,927,903) (90,237) (703,898)
------- ----------- --------- -----------
Net increase (decrease) .................................. 53,976 $ 427,515 (18,423) $ (144,366)
------- ----------- --------- -----------
Increase (decrease) derived from capital
shares transactions ..................................... 493,722 $ 3,890,260 438,126 $ 3,409,957
======= =========== ======= ===========
</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 portfolio.
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. A small portion of
income may be subject to federal and/or alternative minimum tax. Capital gains,
if any, are subject to a capital gains tax.
<PAGE>
- --------------------------------------------------------------------------------
REGULAR INVESTING PAYS
- --------------------------------------------------------------------------------
FIVE GOOD REASONS TO INVEST REGULARLY
- --------------------------------------------------------------------------------
1. It's an easy way to build assets.
2. It's convenient and effortless.
3. It requires a low minimum to get started.
4. It can help you reach important long-term goals like financing retirement or
college funding.
5. It can help you benefit from the ups and downs of the market.
With Investment Builder, New England Funds' automatic investment program, you
can invest as little as $100 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 $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. Because this program involves
continuous investment in securities regardless of fluctuating prices, the
investor should consider his or her financial ability to continue purchases
during periods of high or low prices.
You can start an Investment Builder program with your current New England Funds
account. To open an Investment Builder account today, call your financial
representative or New England Funds at 1-800-225-5478.
Past performance is no guarantee of future results. Please call New England
Funds for a prospectus, which contains more information, including charges and
other ongoing expenses. Please read prospectus carefully before you invest.
<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 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 accumulated 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. Past performance is no guarantee of
future results. For illustrative purposes only and not indicative of future
performance of any New England Fund. The value of a New England fund will
fluctuate with changing market conditions.
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. We will include a prospectus,
which contains more information including charges and other ongoing expenses.
Please read the prospectus carefully before you invest.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND FUNDS
- --------------------------------------------------------------------------------
LARGE-CAP EQUITY FUNDS
Capital Growth Fund
Growth Fund
Growth and Income Fund
(formerly Growth Opportunities Fund)
Balanced Fund
Value Fund
ALL-CAP EQUITY FUNDS
Star Advisers Fund
Star Worldwide Fund
International Equity Fund
Bullseye Fund
Equity Income Fund
SMALL-CAP EQUITY FUNDS
Star Small Cap Fund
GOVERNMENT INCOME FUNDS
Limited Term U.S. Government Fund
Government Securities Fund
TAX-FREE INCOME FUNDS
Municipal Income Fund
Intermediate Term Tax Free
Fund of California
Massachusetts Tax Free Income Fund
MONEY MARKET FUNDS
Cash Management Trust,
Money Market Series
Tax Exempt Money Market Trust
CORPORATE INCOME FUNDS
Short Term Corporate Income Fund
(formerly Adjustable Rate U.S. Government Fund)
Bond Income Fund
High Income Fund
Strategic Income Fund
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 800-289-9999 or by visiting their Web site at
www.NASDR.com.
Y2K Readiness Report: New England Funds has kept pace with the Y2K
challenge. Mission critical systems have been tested and non-mission
critical systems are scheduled for completion by September 30, 1999.
Y2K is a top priority at New England Funds. For more information on
our Y2K readiness, please visit our Web site at www.mutualfunds.com.
This material represents Year 2000 Readiness Disclosure pursuant to the
Year 2000 Information and Readiness Disclosure Act.
<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
---------------------
CA58-0699
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