New England Equity Income Fund
Portfolio Composition as of December 31, 1995
Common Stocks - 99.7% of Total Net Assets
Shares Description Value (a)
- --------- ------------------------ ---------
Automobiles & Related-6.0%
1,100 Chrysler Corp. $60,913
1,200 General Motors Corp. 63,450
------
124,363
------
Banks-Money Center-5.5%
1,200 Bank of New York, Inc. 58,500
1,500 MBNA Corp. 55,312
-------
113,812
-------
Chemical-5.6%
800 E.I duPont de Nemours & Co. 55,900
1,300 PPG Industries, Inc. 59,475
------
115,375
------
Computers & Business
Equipment-2.7%
400 Xerox Corp. 54,800
------
Construction Materials-2.9%
1,900 Masco Corp. 59,612
------
Cosmetics & Toiletries-2.9%
800 Avon Products, Inc. 60,300
------
Domestic Oil-2.8%
1,700 Phillips Petroleum Co. 58,013
------
Electric Utilities-3.1%
3,600 SCE Corp 63,900
------
Electrical Equipment-5.8%
900 General Electric Co. 64,800
1,500 Philips Electronics NV 53,813
------
118,613
------
Financial Services-5.3%
1,100 Beneficial Corp. 51,288
1,400 Fleet Financial Group, Inc. 57,050
------
108,338
------
See accompanying notes to financial statements.
Common Stock - continued
Shares Description Value (a)
- --------- ------------------------ ---------
Food & Beverages-5.3%
4,300 Flowers Industries, Inc. $52,137
1,000 General Mills, Inc. 57,750
------
109,887
------
Health Care - Drugs-8.8%
1,600 Pharmacia & Upjohn, Inc. 62,000
1,100 Smithkline Beecham PLC
(ADR) (c) 61,050
600 Warner Lambert Co. 58,275
------
181,325
------
Household Appliances -
Furnishings-2.6%
1,000 Whirlpool Corp. 53,250
------
Insurance-3.1%
1,200 Lincoln National Corp.,
Inc. 64,500
Multi-Industry-5.7%
1,200 Tenneco, Inc." 59,550
600 United Technologies Corp. 56,925
------
116,475
------
Petroleum Services-5.9%
3,000 McDermott International,
Inc. 66,000
2,200 Ultramar Corp. 56,650
------
122,650
------
Photography-2.6%
800 Eastman Kodak Co. 53,600
------
Real Estate-5.8%
2,000 Developers Diversified
Realty 60,000
1,700 Health Care Property
Investments, Inc., 59,712
------
119,712
------
Retail-2.8%
1,500 Sears Roebuck & Co. 58,500
------
Telephone-9.2%
1,500 Bellsouth Corp. 65,250
1,900 Pacific Telesis Group 63,887
1,900 Telefonos de Mexico SA
(ADR) (c) 60,563
------
189,700
------
See accompanying notes to financial statements.
Common Stocks - continued
Shares Description Value (a)
- --------- ------------------------ ---------
Tobacco-2.6%
600 Philip Morris Cos., Inc. $54,300
------
Trucking & Freight-2.7%
2,400 Teekay Shipping Corp. 56,700
------
Total Common Stocks
(Identified Cost
$1,999,812) 2,057,725
---------
Short-Term Investments-0.0%
Face Amount
- ------------------------------------------------------------
992 Seven Seas U.S. Government
Money Market Fund 992
--------
Total Short-Term
Investments
(Identified Cost $992) 992
--------
Total Investments - 99.7%
(Identified Cost
$2,000,804) (b) 2,058,717
Receivables and other
assets 23,087
Liabilities (17,358)
--------
Total Net Assets - 100% $2,064,446
========
(a) See Note 1A.
(b) Federal Tax
Information:
At December 31, 1995 the
net unrealized appreciation
on investments based on tax
cost of $2,000,804 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. 81,245
Aggregate gross unrealized
depreciation for all
investments in which there
is an excess of tax cost
over value (23,332)
---------
Net unrealized appreciation $57,913
===========
(c) An American Depository
Receipt (ADR) is a
certificate issued by a
U.S. bank representing the
right to receive securities
of the foreign issuer
described. The value of
ADRs are significantly
influenced by trading on
exchanges not located in
the United States or
Canada.
See accompanying notes to financial statements.
NEW ENGLAND EQUITY INCOME FUND
Statement of Assets & Liabilities
December 31, 1995
ASSETS
Investments at value 2,058,717
Receivable for dividends and interest 8,466
Unamortized organization expenses 14,621
----------
2,081,804
LIABILITIES
Payable for:
Organization expenses 15,000
Accrued expenses:
Other expenses 2,358
----------
17,358
----------
NET ASSETS $2,064,446
==========
Net Assets consist of:
Capital paid in 2,006,560
Distibutions in excess of net
investment income (27)
Unrealized appreciation on
investments 57,913
----------
NET ASSETS $2,064,446
==========
Computation of net asset value and offering
price:
Net asset value and redemption price of
Class A shares
(2,064,446 divided by 160,510 shares of
beneficial interest) $12.86
==========
Offering price per share (100/94.25 of
$12.86) $13.64*
==========
Identified cost of investments $2,000,804
==========
* Based upon single purchases of less than $50,000.
Reduced sales charges apply for purchases in excess of
these amounts.
See accompanying notes to financial statements.
NEW ENGLAND EQUITY INCOME FUND
Statement of Operations
The Period November 15, 1995 (*) through December 31, 1995
INVESTMENT INCOME
Dividends $6,934
Interest 2,336
--------
9,270
Expenses
Management fees 1,277
Service fees - A 456
Custodian 3,000
Transfer agent 500
Audit and tax services 5,000
Legal 500
Amortization of organization
expenses 379
--------
Total expenses 11,112
Less expenses waived by the investment
adviser and distributor (8,375) 2,737
-------- --------
Net investment income 6,533
UNREALIZED GAIN on INVESTMENTS
Unrealized appreciation on:
Investments - net 57,913
Net gain on investment transactions 57,913
--------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $64,446
========
(*) Commencement of Operations
See accompanying notes to financial statements.
NEW ENGLAND EQUITY INCOME FUND
Statement of Changes in Net Assets
The Period
November 15,
1995(*)
through
December 31,
1995
FROM OPERATIONS
Net investment income $6,533
Unrealized appreciation on investments 57,913
----------
Increase in net assets from operations 64,446
----------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (6,560)
----------
(6,560)
----------
Proceeds from sale of shares 1,900,000
Net asset value of shares issued in
connection with the reinvestment of:
Dividends from net investment income 6,560
----------
1,906,560
Cost of shares redeemed 0
----------
Increase in net assets derived from 1,906,560
capital share transactions
----------
Total increase in net assets 1,964,446
NET ASSETS
Beginning of the period 100,000
----------
End of the period 2,064,446
============
UNDISTRIBUTED (OVERDISTRIBUTED) NET INVESTMENT
INCOME
Beginning of the period $0
============
End of the period ($27)
============
NUMBER OF SHARES OF THE FUND:
Issued from the sale of shares 152,000
Issued in connection with the reinvestment of:
Dividends from net investment income 510
----------
152,510
Redeemed 0
----------
Net change 152,510
============
(*) Commencement of Operations
See accompanying notes to financial statements.
NEW ENGLAND EQUITY INCOME FUND
Financial Highlights
Class A
The Period
November 15, 1995(a)
through
December 31, 1995
Net Asset Value, Beginning of Period 12.50
---------------
Income From Investment Operations -
Net Investment Income 0.04
Net Realized and Unrealized Gain
(Loss) on Investments 0.36
---------------
Total From Investment Operations 0.40
---------------
Less Distributions -
Dividends From Net Investment Income (0.04)
---------------
Total Distributions (0.04)
---------------
Net Asset Value, End of Period 12.86
============
Total Return (%) 3.20(c)
Ratio of Operating Expenses
to Average Net Assets (%) 1.50(b)(d)
Ratio of Net Investment Income
to Average Net Assets (%) 3.58(b)
Portfolio Turnover Rate (%) 0(b)
Net Assets, End of Period (000) $2,064
(a) Commencement of operations.
(b) Computed on an annualized basis.
(c) Not computed on an annualized basis.
(d) The ratio of operating expenses to average net assets
without giving effect to this expense limitation would have
been 5.97% (annualized) for the period ended Dec. 31, 1995.
See accompanying notes to financial statements.
NEW ENGLAND EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. The Fund is a Series of New England Funds Trust III, a
Massachusetts business trust (the "Trust"), and is
registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management
investment company. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares of the Trust
in multiple series (each such series of shares a "Fund").
The Fund commenced operations on November 15, 1995.
Previously, the Fund had no transactions other than those
relating to organizational matters and the sale of 8,000
shares of the Fund for $100,000.
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. Equity securities are valued on the
basis of valuations furnished by a pricing service,
authorized by the Board of Trustees, which service provides
the last reported sale price for securities listed on an
applicable securities exchange or on the NASDAQ national
market system, or, if no sale was reported and in the case
of over-the-counter securities not so listed, the last
reported bid price. Short-term obligations with a remaining
maturity of less than sixty days are stated at amortized
cost, which approximates market value.
b. Security Transactions and Related Investment Income.
Security transactions are accounted for on the trade date
(the date the buy or sell is executed). Dividend income is
recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Interest income for the Fund
is increased by the accretion of discount. In determining
net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
c. Federal Income Taxes. The Fund intends to meet the
requirements of the Internal Revenue Code applicable to
regulated investment companies, and to distribute to its
shareholders all of its income and any net realized capital
gains, at least annually. Accordingly, no provision for
federal income tax has been made.
d. Dividends and Distributions to Shareholders. Dividends
and distributions are recorded on the ex- dividend date.
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 will result in reclassification to the
capital accounts.
NOTES TO FINANCIAL STATEMENTS - continued
e. Repurchase Agreements. The Fund, through its custodian,
receives delivery of the underlying securities
collateralizing repurchase agreements. It is the Fund's
policy that the market value of the collateral be at least
equal to 100% of the repurchase price. The Fund's sub-
adviser is responsible for determining that the value of the
collateral is at all times at least equal to the repurchase
price. Repurchase agreements could involve certain risks in
the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities.
f. Organization Expense. Costs incurred in fiscal 1995 in
connection with the Fund's organization and registration,
amounting to approximately $15,000 in the aggregate, will be
paid by the Fund and are being amortized by the Fund over 60
months.
In the event that at any time during the five-year period
beginning with the date of the commencement of operations,
the initial shares acquired by the Advisor prior to such
date are redeemed by any holder thereof, the redemption
proceeds payable in respect of such shares will be
reduced by the prorata share (based on the proportionate
share of the original shares redeemed to the total number of
original shares outstanding at the time of redemption) of
the then unamortized deferred organizational expenses as of
the date of such redemption.
2. Purchases and Sales of Securities (excluding short-term
investments) for the Fund for the period November 15 through
December 31, 1995, were $1,999,812 and $0 respectively.
3a. Management Fees and Other Transactions With Affiliates.
The Fund pays management fees to its adviser, New England
Funds Management, L.P. ("NEFM") at the annual rate of 0.70%
of the first $200 million of the Fund's average daily net
assets, 0.65% of the next $300 million of such assets and
0.60% of such assets in excess of $500 million. NEFM pays
Loomis Sayles for providing sub-advisory services to the
Fund at the annual rate of 0.40% of the first $200 million
of the average daily net assets of the Fund, 0.325% of the
next $300 million of such assets and 0.275% of such assets
in excess of $500 million. Certain officers and directors
of NEFM and Loomis Sayles are also officers or trustees of
the Fund. NEFM and Loomis Sayles are wholly owned
subsidiaries of New England Investment Companies, L.P.,
which is a majority owned subsidiary of New England Mutual
Life Insurance Company.
Fees retained by the NEFM and paid to Loomis Sayles under
the management agreement in effect during the period
November 15 through December 31, 1995, are as follows:
Fees Earned (a)
$547 New England Funds Management, L.P.
730 Loomis, Sayles & Company, L.P.
(a) Before reduction pursuant to voluntary expense
limitation. See Note 4.
NOTES TO FINANCIAL STATEMENTS - continued
b. Service Fees. Pursuant to Rule 12b-1 under the 1940
Act, the Trust has adopted a Service Plan relating to the
Fund (the "Plan"). Under the Plan, the Fund pays New
England Funds a monthly service fee at the annual rate of up
to 0.25% of the average daily net assets of the Fund, 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 the Fund and/or the maintenance of
shareholder accounts. For the period November 15 through
December 31, 1995, New England Funds waived its entire fee
of $456 under the Plan. If the expenses of New England
Funds that are otherwise reimbursable under the Plan
incurred in any year exceed the amounts payable by the Fund
under the Plan, the unreimbursed amount (together with
unreimbursed amounts from prior years) may be carried
forward for reimbursement in future years in which the Plan
remains in effect.
4. Expense Limitations. Effective November 15, 1995,
Loomis Sayles and New England Funds have voluntarily agreed
to reduce their fees and, if necessary, to assume expenses
of the Fund in order to limit the Fund's expenses to an
annual rate of 1.50% of the Fund's average daily net assets.
As a result of the Fund's expenses exceeding the voluntary
expense limitation during the period November 15 through
December 31, 1995, NEFM & Loomis Sayles waived their entire
management fee of $1,277 and New England Funds waived its
entire service fee of $456 and assumed additional expenses
of $6,642.
5. Beneficial Interest. At December 31, 1995 all
outstanding shares of the Fund were held by the Loomis
Sayles Funded Pension Plan.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of New England
Equity Fund:
In our opinion, the accompanying statement of assets &
liabilities, including the portfolio composition, and the
related statements of operations and of changes in net
assets and the financial highlights present fairly, in all
material respects, the financial position of New England
Equity Income Fund ("the Fund") at December 31, 1995 and the
results of its operations, the changes in its net assets and
the financial highlights for the period November 15, 1995
(commencement of operations) through December 31, 1995, in
conformity with generally accepted accounting principles.
These financial statements and the financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audit, which included confirmation of securities owned at
December 31, 1995 by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 16, 1996
