As filed with the Securities and Exchange Commission
on December 29, 2000
Registration Nos. 333-37314
811-09945
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 2 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 2 [ X ]
(Check appropriate box or boxes)
NVEST COMPANIES TRUST I
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(Exact Name of Registrant as Specified in Charter)
399 Boylston Street, Boston, Massachusetts 02116
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(Address of Principal Executive Offices) (Zip Code)
(617) 578-1132
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Registrant's Telephone Number, including Area Code
John E. Pelletier, Esq.
Executive Vice President and General Counsel
Nvest Services Company, Inc.
399 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agent for service)
Copy to:
John Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate box)
[ X ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date from the
previously filed post-effective amendment.
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[Nvest Funds Logo goes here]
NVEST AEW REAL ESTATE FUND
AEW Management and Advisors, L.P.
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PROSPECTUS
January 2, 2001
WHAT'S INSIDE
GOALS, STRATEGIES & RISKS
PAGE 2
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FUND FEES & EXPENSES
PAGE 3
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MANAGEMENT TEAM
PAGE 5
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FUND SERVICES
PAGE 7
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-----------------------------------
The Securities and
Exchange Commission (the
"SEC") has not approved
the Fund's shares or
determined whether this
Prospectus is accurate
or complete. Anyone who
tells you otherwise is
committing a crime.
For general information
about the Fund or any of
its services and for
assistance in opening an
account, contact your
financial representative
or call Nvest Funds.
NVEST FUNDS
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
www.nvestfunds.com
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TABLE OF CONTENTS
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GOALS, STRATEGIES & RISKS
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Nvest AEW Real Estate Fund ................................................. 2
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FUND FEES & EXPENSES
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Fund Fees & Expenses ....................................................... 3
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MORE ABOUT RISK
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More About Risk ............................................................ 4
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MANAGEMENT TEAM
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Meet the Fund's Investment Adviser ......................................... 5
Meet the Fund's Portfolio Manager .......................................... 5
Adviser's Past Performance ................................................. 6
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FUND SERVICES
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Investing in the Fund ..................................................... 7
How Sales Charges Are Calculated .......................................... 8
Ways to Reduce or Eliminate Sales Charges ................................. 9
It's Easy to Open an Account .............................................. 10
Buying Shares ............................................................. 11
Selling Shares ............................................................ 12
Selling Shares in Writing ................................................. 13
Exchanging Shares ......................................................... 14
Restrictions on Buying, Selling and Exchanging Shares ..................... 14
How Fund Shares Are Priced ................................................ 15
Dividends and Distributions ............................................... 16
Tax Consequences .......................................................... 16
Compensation to Securities Dealers ........................................ 17
Additional Investor Services .............................................. 18
Glossary of Terms ......................................................... 19
If you have any questions about any of the terms used in this Prospectus, please
refer to the "Glossary of Terms."
To learn more about the possible risks of investing in the Fund, please refer to
the section entitled "More About Risk." This section details the risks of
practices in which the Fund may engage. Please read this section carefully
before you invest.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
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GOALS, STRATEGIES & RISKS
-------------------------
NVEST AEW REAL ESTATE FUND
ADVISER: AEW Management and Advisors, L.P. ("AEW")
MANAGER: Matthew A. Troxell, CFA
CATEGORY: All-Cap Equity
FUND FOCUS
Stability Income Growth
| |
High | X |
-------------------------
Mod. X | | X
-------------------------
Low | |
| |
INVESTMENT GOAL
The Fund seeks to provide investors with above-average income and long-term
growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 65% of its assets
in publicly traded equity securities issued by real estate investment trusts
("REITs") or real estate-related companies. REITs are generally dedicated to
owning, and usually operating, income-producing real estate, or dedicated to
financing real estate. The Fund primarily invests in equity REITs, which own or
lease real estate and derive their income primarily from rental income. Real
estate-related companies are those companies whose principal activity involves
the development, ownership, construction, management or sale of real estate;
companies with significant real estate holdings; and companies that provide
products or services related to the real estate industry.
AEW employs a value-oriented investment strategy designed to identify securities
that are priced below what it believes is their intrinsic value. AEW believes
that ultimately the performance of real estate equity securities is dependent
upon the performance of the underlying real estate assets and company management
as well as the overall influence of capital markets. Consequently, when
selecting securities for the Fund, AEW draws upon the combined expertise of its
real estate, research and securities professionals.
When selecting investments for the Fund, AEW generally considers the following
factors that it believes helps to identify those companies whose shares
represent the greatest value and price appreciation potential:
o VALUATION: AEW has developed a proprietary model to assess the relative
value of each stock in the Fund's investment universe. This model is
designed to estimate what an issuer's anticipated cash flows are worth to a
stock investor (a capital markets value) and to a direct real estate
investor (a real estate value). The model helps AEW to identify stocks that
it believes trade at discounts to either or both of these model values
relative to similar stocks. AEW will generally sell a security once it is
considered overvalued or when AEW believes that there is greater relative
value in other securities in the Fund's investment universe.
o PRICE: AEW examines the historic pricing of each company in the Fund's
universe of potential investments. Those stocks that have underperformed in
price, either in absolute terms or relative to the Fund's universe in
general, are generally given greater weight than those that have
overperformed.
o INCOME: AEW further evaluates companies and REITs by analyzing their
dividend yields as well as other factors that influence the sustainability
and growth of dividends. These factors include cash flow, leverage and
payout ratios.
o CATALYSTS: When evaluating a security, AEW also seeks to identify potential
catalysts that, in its opinion, could cause the marketplace to re-value the
security upwards in the near term. These catalysts can be macro-economic,
market-driven or company-specific in nature.
The Fund may also:
o Hold cash and/or invest up to 100% of its assets in U.S. government
securities or money market instruments for temporary defensive purposes in
response to adverse market, economic or political conditions. These
investments may prevent the Fund from achieving its investment goal.
PRINCIPAL INVESTMENT RISKS
EQUITY SECURITIES: Securities of real estate-related companies and REITs in
which the Fund may invest may be considered equity securities, thus subjecting
the Fund to market risks. This means that you may lose money on your investment
due to sudden, unpredictable drops in value or periods of below-average
performance in a given stock or in the stock market as a whole.
REAL ESTATE SECURITIES/REITS: Because the Fund concentrates its investments in
the real estate industry, the Fund's performance will be dependent in part on
the performance of the real estate market and the real estate industry in
general. The real estate industry is particularly sensitive to economic
downturns. Securities of companies in the real estate industry, including REITs,
are sensitive to factors such as changes in real estate values, property taxes,
interest rates, cash flow of underlying real estate assets, occupancy rates,
government regulations affecting zoning, land use and rents, and the management
skill and creditworthiness of the issuer. Companies in the real estate industry
may also be subject to liabilities under environmental and hazardous waste laws.
In addition, the value of a REIT is affected by changes in the value of the
properties owned by the REIT or securing mortgage loans held by the REIT. REITs
are dependent upon cash flow from their investments to repay financing costs and
also on the ability of the REITs' managers. The Fund will indirectly bear its
proportionate share of expenses, including management fees, paid by each REIT in
which it invests in addition to the expenses of the Fund.
SMALL-CAP COMPANIES: Companies in the real estate industry, including REITs, in
which the Fund may invest may have relatively small market capitalizations.
Small-cap companies and REITs, which AEW considers to be those with market
capitalization of $1 billion or less, tend to have more limited markets and
resources than companies with larger market capitalizations. Consequently, share
prices of small-cap companies and REITs can be more volatile than, and perform
differently from, larger company stocks.
2
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FUND FEES & EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
---------------------------
CLASS A CLASS B CLASS C
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Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price)(1)(2) 5.75% None 1.00%(4)
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Maximum deferred sales charge (load) (as a
percentage of original purchase price or
redemption proceeds, as applicable)(2) (3) 5.00% 1.00%
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Redemption fees None* None* None*
(1) A reduced sales charge on Class A and Class C shares applies in some cases.
See "Ways to Reduce or Eliminate Sales Charges" within the section entitled
"Fund Services."
(2) Does not apply to reinvested distributions.
(3) A 1.00% contingent deferred sales charge applies with respect to certain
purchases of Class A shares greater than $1,000,000 redeemed within 1 year
after purchase, but not to any other purchases or redemptions of Class A
shares. See "How Sales Charges are Calculated" within the section entitled
"Fund Services."
(4) Accounts established prior to December 1, 2000 will not be subject to the
1.00% sales charge for exchanges or additional purchases of Class C shares.
* Generally, a transaction fee will be charged for expedited payment of
redemption proceeds such as by wire or overnight delivery.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average daily
net assets)
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REAL ESTATE FUND
CLASS A CLASS B CLASS C
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Management fees 0.80% 0.80% 0.80%
Distribution and/or service (12b-1) fees 0.25% 1.00%* 1.00%*
Other expenses** 1.37% 1.37% 1.37%
Total annual fund operating expenses 2.42% 3.17% 3.17%
Fee waiver and/or expense reimbursement*** 0.92% 0.92% 0.92%
Net expenses 1.50% 2.25% 2.25%
* Because of the higher 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
rules of the National Association of Securities Dealers, Inc.
** Other expenses are based on estimated amounts for the current fiscal year.
*** AEW has given a binding undertaking to the Fund to limit the amount of the
Fund's total fund operating expenses to 1.50%, 2.25% and 2.25% of the
Fund's average daily net assets for Class A, B and C shares, respectively.
This binding undertaking will be in effect until May 31, 2002 and will be
reevaluated on an annual basis thereafter.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the Fund for the time periods indicated;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
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REAL ESTATE FUND
CLASS A CLASS B CLASS C
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(1) (2) (1) (2)
1 year $ 719 $ 728 $ 228 $ 426 $ 326
3 years $1,168 $1,155 $ 855 $ 946 $ 946
(1) Assumes redemption at end of period.
(2) Assumes no redemption at end of period.
3
<PAGE>
MORE ABOUT RISK
The Fund has principal investment strategies that come with inherent risks. The
following is a list of risks to which the Fund may be subject by investing in
various types of securities or engaging in various practices.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably, based upon a change in an issuer's
financial condition as well as overall market and economic conditions.
MANAGEMENT RISK The risk that a strategy used by the Fund's portfolio management
may fail to produce the intended result.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
INTEREST RATE Risk The risk of market losses attributable to changes in interest
rates. A rise in interest rates typically causes a fall in value. Rising
interest rates may cause investors in REITs or real estate operating companies
to demand a higher annual yield, which may in turn decrease market prices for
equity securities issued by REITs or real estate operating companies. Rising
interest rates also generally increase the costs of obtaining financing, which
could cause the value of the Fund's investments to decline. Also, during periods
of declining interest rates, many mortgages may be refinanced, which may reduce
the yield from REITs that invest primarily in loans secured by real estate and
generally derive their income primarily from interest payments on mortgage
loans.
INFORMATION RISK The risk that key information about a security is inaccurate or
unavailable.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and at the price that the seller would like. This may result
in a loss or may otherwise be costly to the Fund.
VALUATION RISK The risk that the Fund has valued certain securities at a higher
price than it can sell them for.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the
value of mortgage- or asset-backed securities or REITs.
POLITICAL RISK The risk of losses directly attributable to government or
political actions.
4
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MANAGEMENT TEAM
---------------
MEET THE FUND'S INVESTMENT ADVISER
The Nvest Funds family includes 26 mutual funds with a total of over $7 billion
in assets under management as of September 30, 2000. Nvest Funds are distributed
through Nvest Funds Distributor, L.P. (the "Distributor"). This Prospectus
covers Nvest AEW Real Estate Fund (the "Fund"), which along with the other Nvest
Stock Funds, Nvest Bond Funds, Nvest Star Funds, Kobrick Funds and Nvest State
Tax-Free Funds, constitute the "Nvest Funds." Nvest Cash Management Trust Money
Market Series and Nvest Tax Exempt Money Market Trust constitute the "Money
Market Funds."
AEW MANAGEMENT AND ADVISORS, L.P.
AEW, located at World Trade Center East, Two Seaport Lane, Boston, Massachusetts
02210, serves as the adviser to the Fund. AEW, together with other AEW adviser
affiliates, manages approximately $6 billion of client capital as of September
30, 2000. AEW and the Distributor are subsidiaries of Nvest Companies, L.P.
("Nvest Companies"), which is a subsidiary of CDC Asset Management. CDC Asset
Management is the investment management arm of France's Caisse des Depots et
Consignations ("CDC"), a major diversified financial institution. As of
September 30, 2000, Nvest Companies' 18 principal subsidiary or affiliated asset
management firms, collectively, had more than $130 billion in assets under
management. AEW manages the Fund's investments and also provides general
business management and administration to the Fund.
The Fund pays advisory fees at the annual rate of 0.80% of the first $500
million of the Fund's average daily net assets and 0.75% of such assets in
excess of $500 million.
PORTFOLIO TRADES
In placing portfolio trades, AEW may use brokerage firms that market the Fund's
shares or are affiliated with Nvest Companies or AEW. In placing trades, AEW
will seek to obtain the best combination of price and execution, which involves
a number of judgmental factors. Such portfolio trades are subject to applicable
regulatory restrictions and related procedures adopted by the Fund's Board of
Trustees.
MEET THE FUND'S PORTFOLIO MANAGER
MATTHEW A. TROXELL, CFA
Matthew Troxell has managed the Fund since its inception. Mr. Troxell joined AEW
in 1994 and is a Principal of the company. Prior to joining AEW, Mr. Troxell was
a Vice President and Assistant to the President of Landmark Land Company, and an
equity analyst at A.G. Becker Paribas. He holds the designation of Chartered
Financial Analyst (CFA) and is a member of the National Association of Real
Estate Investment Trusts (NAREIT). Mr. Troxell earned a B.A. from Tufts
University and has over 19 years of experience in investment analysis and
portfolio management.
5
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MANAGEMENT TEAM
---------------
ADVISER'S PAST PERFORMANCE
The account returns shown below represent composite returns derived from
performance data furnished by AEW (the "AEW Composite") relating to all accounts
managed by AEW Capital Management, L.P. with substantially similar investment
objectives, strategies and policies as the Fund (the "Accounts"). (AEW is a
wholly-owned subsidiary of AEW Capital Management, L.P.) Matthew Troxell, the
Fund's portfolio manager, has been the lead manager for the Accounts since July
1999.
The Accounts have not been subject to the same types of expenses to which the
Fund is subject nor to the diversification requirements, investment limitations
and other restrictions to which the Fund is subject under the Investment Company
Act and the Internal Revenue Code. The Accounts' performance results may have
been less favorable had they been subject to these expenses or restrictions or
to other restrictions applicable to investment companies under relevant laws.
THE INFORMATION REGARDING THE PERFORMANCE OF THE ACCOUNTS DOES NOT REPRESENT THE
FUND'S PERFORMANCE. SUCH INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF
THE FUTURE PERFORMANCE OF THE FUND. THE FUND COMMENCED OPERATIONS ON SEPTEMBER
1, 2000 AND HAS A LIMITED PERFORMANCE RECORD.
The table below shows the average annual total return of the Accounts managed by
AEW Capital Management, L.P. for the one-year period ending September 30, 2000
and for the period from July 1, 1999 until September 30, 2000. The Account
returns are also compared against the Morgan Stanley REIT Index. The past
performance data for the Accounts has been adjusted to reflect the management
fees and other expenses actually paid by the Accounts and assumes the
reinvestment of all dividends and distributions. THE FEES AND EXPENSES PAID BY
THE FUND WILL BE HIGHER THAN THE FEES AND EXPENSES PAID BY THE ACCOUNTS. THE
PERFORMANCE OF THE ACCOUNTS WOULD HAVE BEEN LOWER THAN THAT SHOWN BELOW IF THEY
HAD BEEN SUBJECT TO THE FEES AND EXPENSES OF THE FUND.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
(for the period ended September 30, 2000)
--------------------------------------------------------------------------------
1 YEAR SINCE JULY 1, 1999
--------------------------------------------------------------------------------
AEW COMPOSITE 26.18% 13.13%
--------------------------------------------------------------------------------
MORGAN STANLEY
REIT INDEX 21.25% 9.05%
--------------------------------------------------------------------------------
(1) The AEW Composite consists of all client accounts whose portfolios were
managed by Matthew Troxell at AEW Capital Management, L.P. for one-year
period ending September 30, 2000 and for the period from July 1, 1999 until
September 30, 2000 using investment policies and strategies substantially
similar to those that are used to manage the Fund. The average annual total
return for the Accounts was calculated using a time-weighted rate of return
which differs in part from the prescribed formula used by mutual funds to
calculate their returns. The Morgan Stanley REIT Index is a market
capitalization-weighted, unmanaged, total-return index of REITs that meet
certain liquidity requirements. The index was designed to track the
total-return performance of a broad group of REIT stocks assuming dividend
reinvestment in the index. You cannot invest directly in an index.
6
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FUND SERVICES
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INVESTING IN THE FUND
CHOOSING A SHARE CLASS
The Fund offers Class A, Class B and Class C shares to the public. Each class
has different costs associated with buying, selling and holding Fund shares,
which allow you to choose the class that best meets your needs. Which class you
choose will depend upon the size of your investment and how long you intend to
hold your shares. Class B shares, Class C shares and certain shareholder
features may not be available to you if you hold your shares in a street name
account. Your financial representative can help you decide which class of shares
is most appropriate for you.
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
o You pay a sales o You do not pay a o You pay a sales
charge when you sales charge when charge when you
buy Fund shares. you buy Fund buy Fund shares.
There are several shares. All of There are several
ways to reduce your money goes ways to reduce
this charge. See to work for you this charge. See
the section right away. the section
entitled "Ways to entitled "Ways to
Reduce or o You pay higher Reduce or
Eliminate Sales annual expenses Eliminate Sales
Charges." than Class A Charges."
shares.
o You pay lower o You pay higher
annual expenses o You will pay a annual expenses
than Class B and charge on than Class A
Class C shares, redemptions if shares.
giving you the you sell your
potential for shares within 6 o You will pay a
higher returns years of charge on
per share. purchase, as redemptions if
described in the you sell your
o You do not pay a section "How shares within 1
sales charge on Sales Charges are year of purchase.
orders of $1 Calculated."
million or more, o Your Class C
but you may pay a o Your Class B shares will not
charge on shares will automatically
redemption if you automatically convert into
redeem these convert into Class A shares.
shares within 1 Class A shares If you hold your
year of purchase. after 8 years, shares for longer
which reduces than 8 years,
your annual you'll pay higher
expenses. expenses than
other classes.
o We will not
accept an order o We will not
for $1 million or accept an order
more of Class B for $1 million or
shares. You may, more of Class C
however, purchase shares. You may,
$1 million or however, purchase
more of Class A $1 million or
shares, which more of Class A
will have no shares, which
sales charge as will have no
well as lower sales charge as
annual expenses. well as lower
You may pay a annual expenses.
charge on You may pay a
redemption if you charge on
redeem these redemption if you
shares within 1 redeem these
year of purchase. shares within 1
year of purchase.
For expenses associated with Class A, B and C shares of the Fund, see the
section entitled "Fund Fees & Expenses" in this Prospectus.
CERTIFICATES
Certificates will not be automatically issued for any class of shares. Upon
written request, you may receive certificates for Class A shares only.
7
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FUND SERVICES
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HOW SALES CHARGES ARE CALCULATED
CLASS A SHARES
The price that you pay when you buy Class A shares (the "offering price") is
their net asset value plus a sales charge (sometimes called a "front-end sales
charge") which varies depending upon the size of your purchase.
CLASS A SALES CHARGES
YOUR INVESTMENT AS A % OF OFFERING PRICE AS A % OF YOUR INVESTMENT
--------------------------------------------------------------------------------
Less than $ 50,000 5.75% 6.10%
$ 50,000 - $ 99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 or more* 0.00% 0.00%
* For purchases of Class A shares of the Fund of $1 million or more or
purchases by Retirement Plans (Plans under Sections 401(a) or 401(k) of the
Internal Revenue Code with investments of $1 million or more or that have
100 or more eligible employees), there is no front-end sales charge, but a
contingent deferred sales charge of 1.00% may apply to redemptions of your
shares within one year of the date of purchase. See the section entitled
"Ways to Reduce or Eliminate Sales Charges."
CLASS B SHARES
The offering price of Class B shares is their net asset value, without a
front-end sales charge. However, there is a contingent deferred sales charge
("CDSC") on shares that you sell within 6 years of buying them. The amount of
the CDSC, if any, declines each year that you own your shares. The holding
period for purposes of timing the conversion to Class A shares and determining
the CDSC will continue to run after an exchange to Class B shares of another
Nvest Fund. The CDSC equals the following percentages of the dollar amounts
subject to the charge:
CLASS B CONTINGENT DEFERRED SALES CHARGES
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
--------------------------------------------------------------------------------
1st 5.00%
2nd 4.00%
3rd 3.00%
4th 3.00%
5th 2.00%
6th 1.00%
thereafter 0.00%
CLASS C SHARES
The offering price of Class C shares is their net asset value plus a front-end
sales charge of 1.00% (1.01% of your investment). Class C shares are also
subject to a CDSC of 1.00% on redemptions made within one year of the date of
purchase. The holding period for determining the CDSC will continue to run after
an exchange to Class C shares of another Nvest Fund.
CLASS C CONTINGENT DEFERRED SALES CHARGES
YEAR SINCE PURCHASE CDSC ON SHARES BEING SOLD
--------------------------------------------------------------------------------
1st 1.00%
thereafter 0.00%
HOW THE CDSC IS APPLIED TO YOUR SHARES
The CDSC is a sales charge you pay when you redeem certain Fund shares.The CDSC:
o is calculated based on the number of shares you are selling;
o is based on either your original purchase price or the then-current net
asset value of the shares being sold, whichever is lower;
o is deducted from the proceeds of the redemption, not from the amount
remaining in your account; and
o for year one applies to redemptions through the day one year after the date
on which your purchase was accepted, and so on for subsequent years.
A CDSC WILL NOT BE CHARGED ON:
o increases in net asset value above the purchase price; or
o shares you acquired by reinvesting your dividends or capital gains
distributions.
To keep your CDSC as low as possible, each time that you place a request to sell
shares we will first sell any shares in your account that carry no CDSC. If
there are not enough of these shares available to meet your request, we will
sell the shares with the lowest CDSC.
EXCHANGES INTO SHARES OF A MONEY MARKET FUND
If you exchange shares of the Fund into shares of the Money Market Funds, the
holding period for purposes of determining the CDSC and conversion to Class A
shares stops until you exchange back into shares of another Nvest Fund. If you
choose to redeem those Money Market Fund shares, a CDSC may apply.
8
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FUND SERVICES
-------------
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
CLASS A or C SHARES
REDUCING SALES CHARGES
There are several ways you can lower your sales charge for Class A shares
utilizing the chart on the previous page, including:
o LETTER OF INTENT-- allows you to purchase Class A shares of any Nvest Fund
over a 13-month period but pay sales charges as if you had purchased all
shares at once. This program can save you money if you plan to invest
$50,000 or more over 13 months. Purchases in Class B and Class C shares may
be used toward meeting the letter of intent.
o COMBINING ACCOUNTS -- allows you to combine shares of multiple Nvest Funds
and classes for purposes of calculating your sales charge. You may combine
your purchases with those of qualified accounts of a spouse, parents,
children, siblings, grandparents, grandchildren, in-laws, individual
fiduciary accounts, sole proprietorships, single trust estates and any
other group of individuals acceptable to the Distributor.
These privileges do not apply to the Money Market Funds unless shares are
purchased through an exchange from another Nvest Fund.
ELIMINATING SALES CHARGES AND CDSC
Class A shares may be offered without front-end sales charges or a CDSC, and
Class C shares may be offered without a front-end sales charge, to the following
individuals and institutions:
o Any government entity that is prohibited from paying a sales charge or
commission to purchase mutual fund shares;
o Selling brokers, sales representatives or other intermediaries under
arrangements with the Distributor;
o Fund trustees and other individuals who are affiliated with any Nvest Fund
or Money Market Fund (this also applies to any spouse, parents, children,
siblings, grandparents, grandchildren and in-laws of those mentioned);
o Participants in certain Retirement Plans with at least 100 eligible
employees (one-year CDSC may apply);
o Non-discretionary and non-retirement accounts of bank trust departments or
trust companies only if they principally engage in banking or trust
activities; and
o Investments of $25,000 or more in the Nvest Funds or Money Market Funds by
clients of an adviser or subadviser to any Nvest Fund or Money Market Fund.
REPURCHASING FUND SHARES
You may apply proceeds from redeeming Class A or Class C shares of the Fund
WITHOUT PAYING A FRONT-END SALES CHARGE to repurchase Class A or Class C shares,
respectively, of any Nvest Fund. To qualify, you must reinvest some or all of
the proceeds within 120 days after your redemption and notify Nvest Funds or
your financial representative at the time of reinvestment that you are taking
advantage of this privilege. You may reinvest your proceeds either by returning
the redemption check or by sending a new check for some or all of the redemption
amount. Please note: For federal income tax purposes, A REDEMPTION IS A SALE
THAT INVOLVES TAX CONSEQUENCES, EVEN IF THE PROCEEDS ARE LATER REINVESTED.
Please consult your tax adviser for how a redemption would affect you.
If you repurchase Class A shares of $1 million or more within 30 days after you
redeem such shares, the Distributor will rebate the amount of the CDSC charged
on the redemption.
CLASS A, B OR C SHARES
ELIMINATING THE CDSC
As long as we are notified at the time you sell, the CDSC for any share class
may generally be eliminated in the following cases:
o to make distributions from a retirement plan (a plan termination or total
plan redemption may incur a CDSC);
o to make payments through a systematic withdrawal plan; or
o due to shareholder death or disability.
If you think you may be eligible for a sales charge elimination or reduction,
contact your financial representative or Nvest Funds. Check the Statement of
Additional Information for details.
9
<PAGE>
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FUND SERVICES
--------------
IT'S EASY TO OPEN AN ACCOUNT
TO OPEN AN ACCOUNT WITH NVEST FUNDS:
1. Read this Prospectus carefully.
2. Determine how much you wish to invest. The following chart shows the
investment minimums for various types of accounts:
MINIMUM TO OPEN
MINIMUM TO AN ACCOUNT USING MINIMUM FOR
OPEN AN INVESTMENT EXISTING
TYPE OF ACCOUNT ACCOUNT BUILDER ACCOUNTS
--------------------------------------------------------------------------------
Any account other than
those listed below $2,500 $100 $100
--------------------------------------------------------------------------------
Accounts registered under
the Uniform Gifts to Minors
Act or the Uniform
Transfers to Minors Act $2,500 $100 $100
--------------------------------------------------------------------------------
Individual Retirement
Accounts (IRAs) $500 $100 $100
--------------------------------------------------------------------------------
Retirement plans with
tax benefits such as
corporate pension, profit
sharing and Keogh plans $250 $100 $100
--------------------------------------------------------------------------------
Payroll Deduction Investment
Programs for SARSEP*, SEP,
SIMPLE IRA, 403(b)(7) and
certain other retirement plans $25 N/A $25
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees
of Small Employers (SIMPLE) IRA became available replacing SARSEP plans.
SARSEP plans established prior to January 1, 1997 may remain active and
continue to add new employees.
3. Complete the appropriate parts of the account application, carefully
following the instructions. If you have any questions, please call your
financial representative or Nvest Funds at 800-225-5478. For more
information on Nvest Funds' investment programs, refer to the section
entitled "Additional Investor Services" in this Prospectus.
4. Use the following sections as your guide for purchasing shares.
SELF-SERVICING YOUR ACCOUNT
Buying or selling shares is easy with the services described below:
NVEST FUNDS PERSONAL ACCESS LINE(R) NVEST FUNDS WEB SITE
800-225-5478, PRESS 1 WWW.NVESTFUNDS.COM
You have access to your account 24 hours a day by calling Personal Access
Line(R) from a touch-tone telephone or by visiting us online. By using these
customer service options, you may:
o purchase, exchange or redeem shares in your existing accounts (certain
restrictions may apply);
o review your account balance, recent transactions, Fund prices and recent
performance;
o order duplicate account statements; and
o obtain tax information.
Please see the following pages for other ways to buy, exchange or sell your
shares.
10
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
THROUGH YOUR INVESTMENT DEALER
o Call your investment o Call your investment
dealer for information. dealer for information.
--------------------------------------------------------------------------------
BY MAIL
[GRAPHIC OMITTED]
o Make out a check in o Make out a check in
U.S. dollars for the U.S. dollars for the
investment amount, investment amount,
payable to "Nvest payable to "Nvest
Funds." Third party Funds." Third party
and "starter" checks and "starter" checks
will generally not be will generally not be
accepted. accepted.
o Mail the check with o Fill out the
your completed detachable investment
application to Nvest slip from an account
Funds, P.O. Box 8551, statement. If no slip
Boston, MA 02266-8551. is available, include
with the check a
letter specifying the
Fund name, your class
of shares, your
account number and the
registered account
name(s). To make
investing even easier,
you can order more
investment slips by
calling 800-225-5478.
--------------------------------------------------------------------------------
BY EXCHANGE
[GRAPHIC OMITTED]
o The exchange must be o The exchange must be
for a minimum of for a minimum of
$1,000 or for all of $1,000 or for all of
your shares. your shares.
o Obtain a current o Call your investment
prospectus for the dealer or Nvest Funds
Fund into which you at 800-225-5478 or
are exchanging by visit nvestfunds.com
calling your to request an
investment dealer or exchange.
Nvest Funds at
800-225-5478. o See the section
entitled "Exchanging
o Call your investment Shares."
dealer or Nvest Funds
to request an
exchange.
o See the section
entitled "Exchanging
Shares."
--------------------------------------------------------------------------------
BY WIRE
[GRAPHIC OMITTED]
o Call Nvest Funds at o Instruct your bank to
800-225-5478 to obtain transfer funds to
an account number and State Street Bank &
wire transfer Trust Company, ABA#
instructions. Your 011000028, DDA#
bank may charge you 99011538.
for such a transfer.
o Specify the Fund name,
your class of shares,
your account number
and the registered
account name(s). Your
bank may charge you
for such a transfer.
--------------------------------------------------------------------------------
AUTOMATIC INVESTING THROUGH INVESTMENT BUILDER
[GRAPHIC OMITTED]
o Indicate on your o Visit nvestfunds.com
application that you to add shares to your
would like to begin an account by wire.
automatic investment
plan through o Please call Nvest
Investment Builder and Funds at 800-225-5478
the amount of the for a Service Options
monthly investment Form. A signature
($100 minimum). guarantee may be
required to add this
o Send a check marked privilege.
"Void" or a deposit
slip from your bank o See the section
account along with entitled "Additional
your application. Investor Services."
--------------------------------------------------------------------------------
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[GRAPHIC OMITTED]
o Ask your bank or o Call Nvest Funds at
credit union whether 800-225-5478 or visit
it is a member of the nvestfunds.com to add
ACH system. shares to your account
through ACH.
o Complete the
"Telephone Withdrawal o If you have not signed
and Exchange" and up for the ACH system,
"Bank Information" please call Nvest
sections on your Funds for a Service
account application. Options Form. A
signature guarantee
o Mail your completed may be required to add
application to Nvest this privilege.
Funds, P.O. Box 8551,
Boston, MA 02266-8551.
11
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
--------------------------------------------------------------------------------
Certain restrictions may apply. See section entitled "Restrictions on Buying,
Selling and Exchanging Shares."
--------------------------------------------------------------------------------
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for information.
--------------------------------------------------------------------------------
BY MAIL
[GRAPHIC OMITTED]
o Write a letter to request a redemption specifying the name of the Fund, the
class of shares, your account number, the exact registered account name(s),
the number of shares or the dollar amount to be redeemed and the method by
which you wish to receive your proceeds. Additional materials may be
required. See the section entitled "Selling Shares in Writing."
o The request must be signed by all of the owners of the shares, including
the capacity in which they are signing, if appropriate.
o Mail your request to Nvest Funds, P.O. Box 8551, Boston, MA 02266-8551.
o Your proceeds (less any applicable CDSC) will be delivered by the method
chosen in your letter. If you choose to have your proceeds delivered by
mail, they will generally be mailed to you on the business day after the
request is received. You may also choose to redeem by wire or through ACH
(see below).
--------------------------------------------------------------------------------
BY EXCHANGE
[GRAPHIC OMITTED]
o Obtain a current prospectus for the Fund into which you are exchanging by
calling your investment dealer or Nvest Funds at 800-225-5478.
o Call Nvest Funds or visit nvestfunds.com to request an exchange.
o See the section entitled "Exchanging Shares" for more details.
--------------------------------------------------------------------------------
BY WIRE
[GRAPHIC OMITTED]
o Fill out the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o Call Nvest Funds at 800-225-5478; visit nvestfunds.com or indicate in your
redemption request letter (see above) that you wish to have your proceeds
wired to your bank.
o Proceeds (less any applicable CDSC) will generally be wired on the next
business day. A wire fee (currently $5.00) will be deducted from the
proceeds.
--------------------------------------------------------------------------------
THROUGH AUTOMATED CLEARING HOUSE (ACH)
[GRAPHIC OMITTED]
o Ask your bank or credit union whether it is a member of the ACH system.
o Complete the "Telephone Withdrawal and Exchange" and "Bank Information"
sections on your account application.
o If you have not signed up for the ACH system on your application, please
call Nvest Funds at 800-225-5478 for a Service Options Form.
o Call Nvest Funds or visit nvestfunds.com to request a redemption through
this system.
o Proceeds (less any applicable CDSC) will generally arrive at your bank
within three business days.
--------------------------------------------------------------------------------
BY SYSTEMATIC WITHDRAWAL PLAN
[GRAPHIC OMITTED]
o Please refer to the section entitled "Additional Investor Services" or call
Nvest Funds at 800-225-5478 or your financial representative for
information.
o Because withdrawal payments may have tax consequences, you should consult
your tax adviser before establishing such a plan.
--------------------------------------------------------------------------------
BY TELEPHONE
[GRAPHIC OMITTED]
o You may receive your proceeds by mail, by wire or through ACH (see above).
o Call Nvest Funds at 800-225-5478 to choose the method you wish to use to
redeem your shares.
12
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
SELLING SHARES IN WRITING
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations we also may require a signature guarantee or additional
documentation.
A signature guarantee protects you against fraudulent orders and is necessary
if:
o your address of record has been changed within the past 30 days;
o you are selling more than $100,000 worth of shares and you are requesting
the proceeds by check; or
o a proceeds check for any amount is mailed to an address other than the
address of record or not payable to the registered owner(s).
A notary public CANNOT provide a signature guarantee.
A signature guarantee can be obtained from one of the following sources:
o a financial representative or securities dealer;
o a federal savings bank, cooperative or other type of bank;
o a savings and loan or other thrift institution;
o a credit union; or
o a securities exchange or clearing agency.
The table shows situations in which additional documentation may be necessary.
Please call your financial representative or Nvest Funds regarding requirements
for other account types.
SELLER (ACCOUNT TYPE) REQUIREMENTS FOR WRITTEN REQUESTS
--------------------------------------------------------------------------------
INDIVIDUAL, JOINT, SOLE o The signatures on the
PROPRIETORSHIP, UGMA/UTMA letter must include all
(MINOR ACCOUNTS) persons authorized to sign,
including title, if
applicable.
o Signature guarantee, if
applicable (see above).
--------------------------------------------------------------------------------
CORPORATE OR ASSOCIATION o The signatures on the
ACCOUNTS letter must include all
persons authorized to sign,
including title.
--------------------------------------------------------------------------------
OWNERS OR TRUSTEES OF TRUST o The signature on the letter
ACCOUNTS must include all trustees
authorized to sign,
including title.
o If the names of the
trustees are not registered
on the account, please
provide a copy of the trust
document certified within
the past 60 days.
o Signature guarantee, if
applicable (see above).
--------------------------------------------------------------------------------
JOINT TENANCY WHOSE CO-TENANTS o The signatures on the
ARE DECEASED letter must include all
surviving tenants of the
account.
o Copy of the death
certificate.
o Signature guarantee if
proceeds check is issued to
other than the surviving
tenants.
--------------------------------------------------------------------------------
POWER OF ATTORNEY (POA) o The signatures on the
letter must include the
attorney-in-fact,
indicating such title.
o A signature guarantee.
o Certified copy of the POA
document stating it is
still in full force and
effect, specifying the
exact Fund and account
number, and certified
within 30 days of receipt
of instructions.*
--------------------------------------------------------------------------------
QUALIFIED RETIREMENT BENEFIT o The signature on the letter
PLANS (EXCEPT NVEST FUNDS must include all signatures
PROTOTYPE DOCUMENTS) of those authorized to
sign, including title.
o Signature guarantee, if
applicable (see above).
--------------------------------------------------------------------------------
EXECUTORS OF ESTATES, o The signature on the letter
ADMINISTRATORS, GUARDIANS, must include those
CONSERVATORS authorized to sign,
including capacity.
o A signature guarantee.
o Certified copy of court
document where signer
derives authority, e.g.:
Letters of Administration,
Conservatorship, Letters
Testamentary.*
--------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT ACCOUNTS o Additional documentation
(IRAS) and distribution forms are
required.
*Certification may be made on court documents by the court, usually certified by
the clerk of the court. POA certification may be made by a commercial bank,
broker/member of a domestic stock exchange or a practicing attorney.
13
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
EXCHANGING SHARES
In general, you may exchange shares of your Fund for shares of the same class of
another Nvest Fund without paying a sales charge or a CDSC (see the sections
entitled "Buying Shares" and "Selling Shares"). The exchange must be for a
minimum of $1,000 (or the total net asset value of your account, whichever is
less), or $100 if made under the Automatic Exchange Plan (see the section
entitled "Additional Investor Services"). All exchanges are subject to the
eligibility requirements of the Nvest Fund or Money Market Fund into which you
are exchanging. The exchange privilege may be exercised only in those states
where shares of the Fund may be legally sold. For federal income tax purposes,
an exchange of Fund shares for shares of another Nvest Fund or Money Market Fund
is treated as a sale on which gain or loss may be recognized. Please refer to
the Statement of Additional Information (the "SAI") for more detailed
information on exchanging Fund shares.
RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES
PURCHASE AND EXCHANGE RESTRICTIONS
Although the Fund does not anticipate doing so, it reserves the right to suspend
or change the terms of purchasing or exchanging shares. The Fund and the
Distributor reserve the right to refuse or limit any purchase or exchange order
by a particular purchaser (or group of related purchasers) if the transaction is
deemed harmful to the best interest of the Fund's other shareholders or would
disrupt the management of the Fund. The Fund and the Distributor reserve the
right to restrict purchases and exchanges for the accounts of "market timers" by
limiting the transaction to a maximum dollar amount. An account will be deemed
to be one of a market timer if: (i) more than two exchange purchases of a given
Fund are made for the account in a calendar quarter or (ii) the account makes
one or more exchange purchases of a given Fund in a calendar quarter in an
aggregate amount in excess of 1% of the Fund's total net assets.
SELLING RESTRICTIONS
The table below describes restrictions placed on selling shares of the Fund:
RESTRICTION SITUATION
--------------------------------------------------------------------------------
The Fund may suspend the right of o When the New York Stock
redemption or postpone payment for more Exchange is closed (other
than 7 days: than a weekend/holiday)
o During an emergency
o Any other period permitted
by the SEC
--------------------------------------------------------------------------------
The Fund reserves the right to suspend o With a notice of a dispute
account services or refuse transaction between registered owners
requests:
o With suspicion/evidence of
a fraudulent act
--------------------------------------------------------------------------------
The Fund may pay the redemption price in o When it is detrimental for
whole or part by a distribution in kind of the Fund to make cash
readily marketable securities in lieu of payments as determined in
cash or may take up to 7 days to pay a the sole discretion of the
redemption request in order to raise adviser
capital:
--------------------------------------------------------------------------------
The Fund may withhold redemption proceeds o When redemptions are made
until the check or funds have cleared: within 10 calendar days of
purchase by check or ACH of
the shares being redeemed
--------------------------------------------------------------------------------
Telephone redemptions are not accepted for tax-qualified retirement accounts. If
you hold certificates representing your shares, they must be sent with your
request for it to be honored.
The Fund recommends that certificates be sent by registered mail.
SMALL ACCOUNT REDEMPTION
When the Fund account falls below a set minimum (currently $1,000 as set by the
Fund's Board of Trustees), the Fund may close your account and send you the
proceeds. You will have 60 days after being notified of the Fund's intention to
close your account to increase its amount to the set minimum. This does not
apply to certain qualified retirement plans or accounts that have fallen below
the minimum solely because of fluctuations in the Fund's net asset value per
share.
14
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
HOW FUND SHARES ARE PRICED
"Net asset value" is the price of one share of the Fund without a sales charge,
and is calculated each business day using this formula:
NET TOTAL MARKET VALUE OF SECURITIES + CASH AND OTHER ASSETS - LIABILITIES
ASSET = -----------------------------------------------------------------------
VALUE NUMBER OF OUTSTANDING SHARES
The net asset value of Fund shares is determined according to this schedule:
o A share's net asset value is determined at the close of regular trading on
the Exchange on the days the Exchange is open for trading. This is normally
4:00 p.m. Eastern time. Fund shares will not be priced on the days on which
the Exchange is closed for trading.
o The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated after your order is received
"in good order" by State Street Bank and Trust Company, the Fund's
custodian (plus or minus applicable sales charges as described earlier in
this Prospectus).
o Requests received by the Distributor after the Exchange closes will be
processed based upon the net asset value determined at the close of regular
trading on the next day that the Exchange is open, with the exception that
those orders received by your investment dealer before the close of the
Exchange and received by the Distributor before 5:00 p.m. Eastern time* on
the same day will be based on the net asset value determined on that day.
o A Fund heavily invested in foreign securities may have net asset value
changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement where it may accept orders after 5:00 p.m., but not later than
8:00 p.m.
Generally, during times of substantial economic or market change, it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
"Buying Shares" and "Selling Shares."
Generally, Fund securities are valued as follows:
o EQUITY SECURITIES -- most recent sales or quoted bid price or as provided
by a pricing service if a sales or quoted bid price is unavailable.
o DEBT SECURITIES (OTHER THAN SHORT-TERM OBLIGATIONS) -- based upon pricing
service valuations.
o SHORT-TERM OBLIGATIONS (REMAINING MATURITY OF LESS THAN 60 DAYS) --
amortized cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES -- most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the close of the exchange
will materially affect its value. In that case, it is given fair value as
determined by or under the direction of the Fund's Board of Trustees at the
close of regular trading on the Exchange.
o OPTIONS -- last sale price, or if not available, last offering price.
o FUTURES -- unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be
valued at their fair value as determined by or under the direction of the
Fund's Board of Trustees.
o ALL OTHER SECURITIES -- fair market value as determined by the adviser or
subadviser of the Fund under the direction of the Fund's Board of Trustees.
The effect of fair value pricing as described above under "Securities traded on
foreign exchanges" and "All other securities" is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded, but rather, may be priced by another method that the Fund's Board of
Trustees believes accurately reflects fair value.
15
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
DIVIDENDS AND DISTRIBUTIONS
The Fund generally distributes most or all of its net investment income (other
than capital gains) in the form of dividends on a quarterly basis. The Fund
distributes all net realized long- and short-term capital gains annually, after
applying any available capital loss carryovers. The Fund's Board of Trustees may
adopt a different schedule as long as payments are made at least annually.
Depending on your investment goals and priorities, you may choose to:
o Participate in the Dividend Diversification Program, which allows you to
have all dividends and distributions automatically invested at net asset
value in shares of the same class of another Nvest Fund registered in your
name. Certain investment minimums and restrictions may apply. For more
information about this program, see the section entitled "Additional
Investor Services."
o Receive distributions from dividends and interest in cash while reinvesting
distributions from capital gains in additional shares of the same class of
the Fund or in the same class of another Nvest Fund.
o Receive all distributions in cash.
Unless you select one of the above options, distributions will automatically be
reinvested in shares of the same class of the Fund at net asset value.
For more information or to change your distribution option, contact Nvest Funds
in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income from a non-retirement plan
Fund, you will receive a Form 1099 to help you report the prior calendar year's
distributions on your federal income tax return. Be sure to keep the 1099 as a
permanent record. A fee may be charged for any duplicate information requested.
TAX CONSEQUENCES
The Fund intends to meet all requirements of the Internal Revenue Code necessary
to qualify as a "regulated investment company" and thus does not expect to pay
any federal income tax on income and capital gains distributed to shareholders.
Fund distributions paid to you are taxable whether you received them in cash or
reinvested them in additional shares. Distributions derived from short-term
capital gains or investment income are taxable at ordinary income rates. If you
are a corporation investing in the Fund, a portion of these dividends may
qualify for the dividends-received deduction provided that you meet certain
holding period requirements. Any distributions received by the Fund from REITs
will not qualify, however, for the corporate dividends-received deduction.
Distributions of gains from investments that the Fund owned for more than one
year that are designated by the Fund as capital gain dividends will generally be
taxable to a shareholder receiving such distributions as long-term capital
gains, regardless of how long the shareholder has held Fund shares.
An exchange of shares for shares of another Nvest Fund or Money Market Fund is
treated as a sale, and any resulting gain or loss may be subject to federal
income tax. If you purchase shares of the Fund shortly before it declares a
capital gain distribution or a dividend, a portion of the purchase price may be
returned to you as a taxable distribution.
Dividends derived from interest on securities issued by the U.S. government or
its agencies or instrumentalities may be exempt from state and local income
taxes. The Fund advises shareholders of the proportion of the Fund's dividends
that are derived from such interest. Also, REITs attempt to qualify for
beneficial tax treatment by distributing 95% of their taxable income to their
interest holders. If a REIT fails to qualify for such beneficial tax treatment,
it would be taxed as a corporation, and distributions to its shareholders
(including the Fund) would bear not only a proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REIT. The Fund's
investments in REIT equity securities may require the Fund to accrue and
distribute income not yet received or may result in the Fund making
distributions that constitute a return of capital to Fund shareholders for
federal income tax purposes. You should consult your tax adviser about any
federal, state and local taxes that may apply to the distributions you receive.
16
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
COMPENSATION TO SECURITIES DEALERS
As part of their business strategies, the Fund pays securities dealers that sell
its shares. This compensation originates from two sources: sales charges
(front-end or deferred) and 12b-1 fees (comprising the annual service and/or
distribution fees of a plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940). The sales charges are detailed in the section entitled
"How Sales Charges are Calculated." Each class of Fund shares pays an annual
service fee of 0.25% of its average daily net assets. In addition to this
service fee, Class B shares pay an annual distribution fee of 0.75% of their
average daily net assets for 8 years (at which time they automatically convert
into Class A shares). Class C shares are subject to a distribution fee of 0.75%
of their average daily net assets. Generally, the 12b-1 fees are paid to
securities dealers on a quarterly basis. The Distributor retains the first year
of such fees for Class C shares. Because these distribution fees are paid out of
the Fund's assets on an ongoing basis, over time these fees for Class B and
Class C shares will increase the cost of your investment and may cost you more
than paying the front-end sales charge on Class A shares.
The Distributor may, at its expense, pay concessions in addition to the payments
described above to dealers which satisfy certain criteria established from time
to time by the Distributor relating to increasing net sales of shares of the
Nvest Funds over prior periods, and certain other factors. See the SAI for more
details.
17
<PAGE>
FUND SERVICES
-------------
ADDITIONAL INVESTOR SERVICES
RETIREMENT PLANS
Nvest Funds offer a range of retirement plans, including IRAs, SEPs, SARSEPs*,
SIMPLE IRAs, 403(b) plans and other pension and profit sharing plans. Refer to
the section entitled "It's Easy to Open an Account" for investment minimums. For
more information about our Retirement Plans, call us at 800-225-5478.
INVESTMENT BUILDER PROGRAM
Program This is Nvest Funds' automatic investment plan. You may authorize
automatic monthly transfers of $100 or more from your bank checking or savings
account to purchase shares of one or more Nvest Funds. To join the Investment
Builder Program, please refer to the section entitled "Buying Shares."
DIVIDEND DIVERSIFICATION PROGRAM
This program allows you to have all dividends and any other distributions
automatically invested in shares of the same class of another Nvest Fund or
Money Market Fund, subject to the eligibility requirements of that other Fund
and to state securities law requirements. Shares will be purchased at the
selected Fund's net asset value without a front-end sales charge or CDSC on the
dividend record date. Before establishing a Dividend Diversification Program
into any other Nvest Fund or Money Market Fund, please read its Prospectus
carefully.
AUTOMATIC EXCHANGE PLAN
Nvest Funds have an automatic exchange plan under which shares of a class of a
Fund are automatically exchanged each month for shares of the same class of
other Nvest Funds or Money Market Funds. There is no fee for exchanges made
under this plan, but there may be a sales charge in certain circumstances.
Please refer to the SAI for more information on the Automatic Exchange Plan.
SYSTEMATIC WITHDRAWAL PLAN
This plan allows you to redeem shares and receive payments from your Fund on a
regular schedule. Redemption of shares that are part of the Systematic
Withdrawal Plan are not subject to a CDSC. However, the amount or percentage
that you specify in the plan may not exceed, on an annualized basis, 10% of the
value of your Fund account based upon the value of your Fund account on the day
you establish your plan. To establish a Systematic Withdrawal Plan, please refer
to the section entitled "Selling Shares."
NVEST FUNDS PERSONAL ACCESS LINE(R)
This automated customer service system allows you to have access to your account
24 hours a day by calling 800-225-5478, press 1. With a touch-tone telephone,
you can obtain information about your current account balance, recent
transactions, Fund prices and recent performance. You may also use Personal
Access Line(R) to purchase, exchange or redeem shares in any of your existing
accounts. Certain restrictions may apply.
NVEST FUNDS WEB SITE
Visit us at WWW.NVESTFUNDS.COM to review your account balance and recent
transactions, to view daily prices and performance information or to order
duplicate account statements and tax information. You may also go online to
purchase, exchange or redeem shares in any of your existing accounts. Certain
restrictions may apply.
ELECTRONIC MAIL DELIVERY
This delivery option allows you to receive important fund documents via the
Internet instead of in paper form through regular U.S. mail. Eligible documents
include confirmation statements, quarterly statements, prospectuses, annual and
semiannual reports and proxies. Electronic Delivery will cut down on the amount
of paper mail you receive; speed up the availability of your documents; and
lower expenses to your fund. To establish this option on your account(s),
complete the appropriate section of your new account application or visit us at
www.nvestfunds.com.
* Effective January 1, 1997, the Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) IRA became available replacing SARSEP plans. SARSEP
plans established prior to January 1, 1997 may remain active and continue to add
new employees.
18
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GLOSSARY OF TERMS
BID PRICE -- The price a prospective buyer is ready to pay. This term is used by
traders who maintain firm bid and offer prices in a given security by standing
ready to buy or sell security units at publicly quoted prices.
BOTTOM-UP ANALYSIS -- The search for outstanding performance of individual
stocks before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS -- Payments to a Fund's shareholders of profits
earned from selling securities in a Fund's portfolio. Capital gain distributions
are usually paid once a year.
CREDIT RATING -- Independent evaluation of a bond's creditworthiness. This
measurement is usually calculated through an index compiled by companies such as
Standard & Poor's Rating Services, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Fitch Investors Services, Inc. Bonds with a credit rating of BBB
or higher by S&P or Fitch, or Baa or higher by Moody's are generally considered
investment grade.
DERIVATIVE -- A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument.
DISCOUNTED PRICE -- The difference between a bond's current market price and its
face or redemption value.
DIVERSIFICATION -- The strategy of investing in a wide range of securities
representing different market sectors to reduce the risk if an individual
company or one sector suffers losses.
DIVIDEND YIELD -- The current or estimated annual dividend divided by the market
price per share of a security.
DURATION -- An estimate of how much a bond's price fluctuates with changes in
comparable interest rates.
EARNINGS GROWTH -- A pattern of increasing rate of growth in earnings per share
from one period to another, which usually causes a stock's price to rise.
FFO MULTIPLE - The price per share of a REIT divided by its Funds from
Operations (FFO). The FFO of a REIT is the measure of its operating performance
showing its net income plus depreciation of real estate and excluding gains or
losses from sales of property or debt restructuring.
FUNDAMENTAL ANALYSIS -- An analysis of the balance sheet and income statements
of a company in order to forecast its future stock price movements. Fundamental
analysis considers past records of assets, earnings, sales, products, management
and markets in predicting future trends in these indicators of a company's
success or failure. By appraising a company's prospects, analysts using such an
approach assess whether a particular stock or group of stocks is undervalued or
overvalued at its current market price.
GROWTH INVESTING -- An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from the net interest
or dividend income earned by a Fund's portfolio.
INFLATION -- A general increase in prices coinciding with a fall in the real
value of money, as measured by the Consumer Price Index.
INTEREST RATE -- Rate of interest charged for the use of money, usually
expressed at an annual rate.
MARKET CAPITALIZATION -- Market price multiplied by number of shares
outstanding. Large capitalization companies generally have over $5 billion in
market capitalization; medium cap companies between $1.5 billion and $5 billion;
and small cap companies less than $1.5 billion. These capitalization figures may
vary depending upon the index being used and/or the guidelines used by the
portfolio manager.
19
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GLOSSARY OF TERMS (CONTINUED)
MATURITY -- The final date on which the payment of a debt instrument (e.g.
bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds
generally have maturities of up to 5 years; intermediate-term bonds between 5
and 15 years; and long-term bonds over 15 years.
NET ASSET VALUE (NAV) -- The market value of one share of a Fund on any given
day without taking into account any front-end sales charge or CDSC. It is
determined by dividing a Fund's total net assets by the number of shares
outstanding.
PRICE-TO-BOOK VALUE RATIO -- Current market price of a stock divided by its book
value, or net asset value.
PRICE-TO-EARNINGS RATIO -- Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price-to-earnings ratio
gives investors an idea of how much they are paying for a company's earning
power and is a useful tool for evaluating the costs of different securities.
Some firms use the inverse ratio for this calculation (i.e. earnings-to-price
ratio).
QUALITATIVE ANALYSIS -- An analysis of the qualities possessed by a company,
including its management, products and competitive positions, to help determine
if the company can execute its strategy.
RETURN ON EQUITY -- The amount, expressed as a percentage, earned on a company's
common stock investment for a given period. It is calculated by dividing common
stock equity (net worth) at the beginning of the accounting period into net
income for the period after preferred stock dividends but before common stock
dividends. This tells common shareholders how effectively their money is being
employed.
RULE 144A SECURITIES -- Rule 144A securities are privately offered securities
that can be resold only to certain qualified institutional buyers. Rule 144A
securities are treated as illiquid, unless a manager has determined, under
guidelines established by a Fund's trustees, that a particular issue of Rule
144A securities is liquid.
TARGET PRICE -- Price that an investor is hoping a stock he or she has just
bought will rise to within a specified period of time. An investor may buy XYZ
at $20, with a target price of $40 in one year's time, for instance.
TECHNICAL ANALYSIS -- The research into the demand and supply for securities,
options, mutual funds and commodities based on trading volume and price studies.
Technical analysis uses charts or computer programs to identify and project
price trends in a market, security, mutual fund or futures contract.
TOP-DOWN APPROACH -- The method in which an investor first looks at trends in
the general economy, and next selects attractive industries and then companies
that should benefit from those trends.
TOTAL RETURN -- The change in value of an investment in a Fund over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of a Fund.
VALUE INVESTING -- A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets are
not fully reflected in their stock prices. Value stocks will tend to have a
lower price-to-earnings ratio than growth stocks.
VOLATILITY -- The general variability of a portfolio's value resulting from
price fluctuations of its investments. In most cases, the more diversified a
portfolio is, the less volatile it will be.
YIELD - The rate at which a Fund earns income, expressed as a percentage. Mutual
fund yield calculations are standardized, based upon a formula developed by the
Securities and Exchange Commission.
YIELD-TO-MATURITY -- The concept used to determine the rate of return an
investor will receive if a long-term, interest-bearing investment, such as a
bond, is held to its maturity date. It takes into account purchase price,
redemption value, time to maturity, coupon yield (the interest rate on a debt
security the issuer promises to pay to the holder until maturity, expressed as
an annual percentage of face value) and the time between interest payments.
20
<PAGE>
NOTES
21
<PAGE>
IF YOU WOULD LIKE MORE INFORMATION ABOUT
THE FUND, THE FOLLOWING DOCUMENT IS
AVAILABLE FREE UPON REQUEST:
STATEMENT OF ADDITIONAL INFORMATION
(SAI) - The SAI provides more detailed
information about the Fund, has been
filed with the SEC and is incorporated
into this Prospectus by reference.
TO ORDER A FREE COPY OF THE FUND'S SAI,
CONTACT YOUR FINANCIAL REPRESENTATIVE,
OR THE FUND AT:
Nvest Funds Distributor, L.P. NVEST AEW REAL ESTATE FUND
399 Boylston Street
Boston, Massachusetts 02116
Telephone: 800-225-5478
Internet: www.nvestfunds.com
Your financial representative or Nvest
Funds will also be happy to answer your
questions or to provide any additional
information that you may require.
You can review and copy the Fund's SAI
at the SEC's Public Reference Room in
Washington, D.C. Information on the
operation of the Public Reference Room
may be obtained by calling the SEC at
202-942-8090. The SAI and other
information about the Fund are available
on the EDGAR database on the SEC's
website at www.sec.gov.
Copies of the SAI are also available
after payment of a duplication fee by
electronic request at the following
e-mail address: [email protected], or
by writing the Public Reference Room of
the SEC, Washington, D.C. 20549-0102.
The Distributor and other firms selling
shares of the Fund 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.
(Investment Company Act File No. 811-09945)
XRE51-0101
<PAGE>
[Nvest Funds Logo goes here]
NVEST AEW REAL ESTATE FUND - CLASS Y SHARES
AEW Management and Advisors, L.P.
--------------------------------------------------------------------------------
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Prospectus
January 2, 2001
WHAT'S INSIDE
GOALS, STRATEGIES & RISKS
Page 2
[GRAPHIC OMITTED]
-----------------------------------
FUND FEES & EXPENSES
Page 3
[GRAPHIC OMITTED]
-----------------------------------
MANAGEMENT TEAM
Page 5
[GRAPHIC OMITTED]
-----------------------------------
FUND SERVICES
Page 7
[GRAPHIC OMITTED]
-----------------------------------
The Securities and
Exchange Commission (the
"SEC") has not approved
the Fund's shares or
determined whether this
Prospectus is accurate
or complete. Anyone who
tells you otherwise is
committing a crime.
For general information
about the Fund or any of
its services and for
assistance in opening an
account, contact your
financial representative
or call Nvest Funds.
NVEST FUNDS
399 Boylston Street, Boston, Massachusetts 02116
800-225-5478
www.nvestfunds.com
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GOALS, STRATEGIES & RISKS
--------------------------------------------------------------------------------
Nvest AEW Real Estate Fund.....................................................2
--------------------------------------------------------------------------------
FUND FEES & EXPENSES
--------------------------------------------------------------------------------
Fund Fees & Expenses..........................................................3
--------------------------------------------------------------------------------
MORE ABOUT RISK
--------------------------------------------------------------------------------
More About Risk...............................................................4
--------------------------------------------------------------------------------
MANAGEMENT TEAM
--------------------------------------------------------------------------------
Meet the Fund's Investment Adviser............................................5
Meet the Fund's Portfolio Manager.............................................5
Adviser's Past Performance....................................................6
--------------------------------------------------------------------------------
FUND SERVICES
--------------------------------------------------------------------------------
It's Easy to Open an Account..................................................7
Buying Shares.................................................................8
Selling Shares................................................................9
Selling Shares in Writing.....................................................10
Exchanging Shares.............................................................11
Restrictions on Buying, Selling and Exchanging Shares.........................11
How Fund Shares Are Priced....................................................12
Dividends and Distributions...................................................13
Tax Consequences..............................................................13
Compensation to Securities Dealers ...........................................14
Glossary of Terms.............................................................15
If you have any questions about any of the terms used in the Prospectus, please
refer to the "Glossary of Terms."
To learn more about the possible risks of investing in the Fund, please refer to
the section entitled "More About Risk." This section details the risks of
practices in which the Fund may engage. Please read this section carefully
before you invest.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
the Federal Deposit Insurance Corporation or any other government agency, and
are subject to investment risks, including possible loss of the principal
invested.
<PAGE>
[GRAPHIC OMITTED]
GOALS, STRATEGIES & RISKS
-------------------------
NVEST AEW REAL ESTATE FUND
ADVISER: AEW Management and Advisors, L.P. ("AEW")
MANAGER: Matthew A. Troxell, CFA
CATEGORY: All-Cap Equity
FUND FOCUS
Stability Income Growth
| |
High | X |
-------------------------
Mod. X | | X
-------------------------
Low | |
| |
INVESTMENT GOAL
The Fund seeks to provide investors with above-average income and long-term
growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 65% of its assets
in publicly traded equity securities issued by real estate investment trusts
("REITs") or real estate-related companies. REITs are generally dedicated to
owning, and usually operating, income-producing real estate, or dedicated to
financing real estate. The Fund primarily invests in equity REITs, which own or
lease real estate and derive their income primarily from rental income. Real
estate-related companies are those companies whose principal activity involves
the development, ownership, construction, management or sale of real estate;
companies with significant real estate holdings; and companies that provide
products or services related to the real estate industry.
AEW employs a value-oriented investment strategy designed to identify securities
that are priced below what it believes is their intrinsic value. AEW believes
that ultimately the performance of real estate equity securities is dependent
upon the performance of the underlying real estate assets and company management
as well as the overall influence of capital markets. Consequently, when
selecting securities for the Fund, AEW draws upon the combined expertise of its
real estate, research and securities professionals.
When selecting investments for the Fund, AEW generally considers the following
factors that it believes helps to identify those companies whose shares
represent the greatest value and price appreciation potential:
o VALUATION - AEW has developed a proprietary model to assess the relative
value of each stock in the Fund's investment universe. This model is
designed to estimate what an issuer's anticipated cash flows are worth to a
stock investor (a capital markets value) and to a direct real estate
investor (a real estate value). The model helps AEW to identify stocks that
it believes trade at discounts to either or both of these model values
relative to similar stocks. AEW will generally sell a security once it is
considered overvalued or when AEW believes that there is greater relative
value in other securities in the Fund's investment universe.
o PRICE - AEW examines the historic pricing of each company in the Fund's
universe of potential investments. Those stocks that have underperformed in
price, either in absolute terms or relative to the Fund's universe in
general, are generally given greater weight than those that have
overperformed.
o INCOME - AEW further evaluates companies and REIT's by analyzing their
dividend yields as well as other factors that influence the sustainability
and growth of dividends. These factors include cash flow, leverage and
payout ratios.
o CATALYSTS - When evaluating a security, AEW also seeks to identify
potential catalysts that, in its opinion, could cause the marketplace to
re-value the security upwards in the near term. These catalysts can be
macro-economic, market-driven or company-specific in nature.
The Fund may also:
o Hold cash and/or invest up to 100% of its assets in U.S.
government securities or money market instruments for temporary
defensive purposes in response to adverse market, economic or
political conditions. These investments may prevent the Fund from
achieving its investment goal.
PRINCIPAL INVESTMENT RISKS
EQUITY Securities of real estate-related companies and REITs in which
SECURITIES: the Fund may invest may be considered equity securities, thus
subjecting the Fund to market risks. This means that you may lose
money on your investment due to sudden, unpredictable drops in
value or periods of below-average performance in a given stock or
in the stock market as a whole.
REAL ESTATE Because the Fund concentrates its investments in the real estate
SECURITIES/ industry, the Fund's performance will be dependent in part on the
REITS: performance of the real estate market and the real estate
industry in general. The real estate industry is particularly
sensitive to economic downturns. Securities of companies in the
real estate industry, including REITs, are sensitive to factors
such as changes in real estate values, property taxes, interest
rates, cash flow of underlying real estate assets, occupancy
rates, government regulations affecting zoning, land use and
rents, and the management skill and creditworthiness of the
issuer. Companies in the real estate industry may also be subject
to liabilities under environmental and hazardous waste laws. In
addition, the value of a REIT is affected by changes in the value
of the properties owned by the REIT or securing mortgage loans
held by the REIT. REITs are dependent upon cash flow from their
investments to repay financing costs and the ability of the
REITs' managers. The Fund will indirectly bear its proportionate
share of expenses, including management fees, paid by each REIT
in which it invests in addition to the expenses of the Fund.
SMALL-CAP Companies in the real estate industry, including REITs, in which
COMPANIES: the Fund may invest may have relatively small market
capitalizations. Small-cap companies and REITs, which AEW
considers to be those with market capitalization of $1 billion
or less, tend to have more limited markets and resources than
companies with a larger market capitalizations. Consequently,
share prices of small-cap companies and REITs can be more
volatile than, and perform differently from, larger company
stocks.
2
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FUND FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
---------------------------------------------- ------------------------------
REAL ESTATE FUND
---------------------------------------------- ------------------------------
Maximum sales charge (load) imposed on None
purchases
--------------------------------------------------------------------------------
Maximum deferred sales charge (load) None
--------------------------------------------------------------------------------
Redemption fees None*
* Generally, a transaction fee will be charged for expedited payment of
redemption proceeds such as by wire or overnight delivery.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets, as a percentage of average daily
net assets)
----------------------------------------------- -----------------------------
REAL ESTATE FUND
----------------------------------------------- -----------------------------
Management Fees 0.80%
Distribution and/or Service (12b-1) Fees 0.00%
Other Expenses* 1.15%
Total Annual Fund Operating Expenses 1.95%
Fee Waiver/Expense Reimbursement** 0.70%
Net Expenses 1.25%
* Other expenses are based on estimated amounts for the current fiscal year.
** AEW has given a binding undertaking to the Fund to limit the amount of the
Fund's total fund operating expenses to 1.25% of the Fund's average daily
net assets. This binding undertaking will be in effect until May 31, 2002
and will be reevaluated on an annual basis thereafter.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that:
o You invest $10,000 in the Fund for the time periods indicated;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs and returns may be higher or lower, based on these
assumptions your costs would be:
----------------------------------------------- -----------------------------
REAL ESTATE FUND
----------------------------------------------- -----------------------------
1 year $ 127
3 years $ 532
3
<PAGE>
MORE ABOUT RISK
The Fund has principal investment strategies that come with inherent risks. The
following is a list of risks to which the Fund may be subject by investing in
various types of securities or engaging in various practices.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably, based upon a change in an issuer's
financial condition as well as overall market and economic conditions.
MANAGEMENT RISK The risk that a strategy used by the Fund's portfolio management
may fail to produce the intended result.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. A rise in interest rates typically causes a fall in value. Rising
interest rates may cause investors in REITs or real estate operating companies
to demand a higher annual yield, which may in turn decrease market prices for
equity securities issued by REITs or real estate operating companies. Rising
interest rates also generally increase the costs of obtaining financing, which
could cause the value of the Fund's investments to decline. Also, during periods
of declining interest rates, many mortgages may be refinanced, which may reduce
the yield from REITs that invest primarily in loans secured by real estate and
generally derive their income primarily from interest payments on mortgage
loans.
INFORMATION RISK The risk that key information about a security is inaccurate or
unavailable.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and at the price that the seller would like. This may result
in a loss or may otherwise be costly to the Fund.
VALUATION RISK The risk that the Fund has valued certain securities at a higher
price than it can sell them for.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the
value of mortgage- or asset-backed securities or REITs.
POLITICAL RISK The risk of losses directly attributable to government or
political actions.
4
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MANAGEMENT TEAM
---------------
MEET THE FUND'S INVESTMENT ADVISER
The Nvest Funds family includes 26 mutual funds with a total of over $7 billion
in assets under management as of September 30, 2000. Nvest Funds are distributed
through Nvest Funds Distributor, L.P. (the "Distributor"). This Prospectus
covers Nvest AEW Real Estate Fund (the "Fund"), which along with the other Nvest
Stock Funds, Nvest Bond Funds, Nvest Star Funds, Kobrick Funds and Nvest State
Tax-Free Funds, constitute the "Nvest Funds." Nvest Cash Management Trust Money
Market Series and Nvest Tax Exempt Money Market Trust constitute the "Money
Market Funds."
AEW MANAGEMENT AND ADVISORS, L.P.
AEW, located at World Trade Center East, Two Seaport Lane, Boston, Massachusetts
02210, serves as the adviser to the Fund. AEW, together with other AEW adviser
affiliates, manages approximately $6 billion of client capital as of September
30, 2000. AEW and the Distributor are subsidiaries of Nvest Companies, L.P.
("Nvest Companies"), which is a subsidiary of CDC Asset Management. CDC Asset
Management is the investment management arm of France's Caisse des Depots et
Consignations ("CDC"), a major diversified financial institution. As of
September 30, 2000, Nvest Companies' 18 principal subsidiary or affiliated asset
management firms, collectively, had more than $130 billion in assets under
management. AEW manages the Fund's investments and also provides general
business management and administration to the Fund.
The Fund pays advisory fees at the annual rate of 0.80% of the first $500
million of the Fund's average daily net assets and 0.75% of such assets in
excess of $500 million.
PORTFOLIO TRADES
In placing portfolio trades, AEW may use brokerage firms that market the Fund's
shares or are affiliated with Nvest Companies or AEW. In placing trades, AEW
will seek to obtain the best combination of price and execution, which involves
a number of judgmental factors. Such portfolio trades are subject to applicable
regulatory restrictions and related procedures adopted by the Fund's Board of
Trustees.
MEET THE FUND'S PORTFOLIO MANAGER
MATTHEW A. TROXELL, CFA
Matthew Troxell has managed the Fund since its inception. Mr. Troxell joined AEW
in 1994 and is a Principal of the company. Prior to joining AEW, Mr. Troxell was
a Vice President and Assistant to the President of Landmark Land Company, and an
equity analyst at A.G. Becker Paribas. He holds the designation of Chartered
Financial Analyst (CFA) and is a member of the National Association of Real
Estate Investment Trusts (NAREIT). Mr. Troxell earned a B.A. from Tufts
University and has over 19 years of experience in investment analysis and
portfolio management.
5
<PAGE>
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MANAGEMENT TEAM
---------------
ADVISER'S PAST PERFORMANCE
The account returns shown below represent composite returns derived from
performance data furnished by AEW ("AEW Composite") relating to all accounts
managed by AEW Capital Management, L.P. with substantially similar investment
objectives, strategies and policies as the Fund (the "Accounts"). (AEW is a
wholly-owned subsidiary of AEW Capital Management, L.P.). Matthew Troxell, the
Fund's portfolio manager, has been the lead manager for the Accounts since July
1999.
The Accounts have not been subject to the same types of expenses to which the
Fund is subject nor to the diversification requirements, investment limitations
and other restrictions to which the Fund is subject under the Investment Company
Act and the Internal Revenue Code. The Accounts' performance results may have
been less favorable had they been subject to these expenses or restrictions or
to other restrictions applicable to investment companies under relevant laws.
THE INFORMATION REGARDING THE PERFORMANCE OF THE ACCOUNTS DOES NOT REPRESENT THE
FUND'S PERFORMANCE. SUCH INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF
THE FUTURE PERFORMANCE OF THE FUND. THE FUND COMMENCED OPERATIONS ON SEPTEMBER
1, 2000 AND HAS A LIMITED PERFORMANCE RECORD.
The table below shows the average annual total return of the Accounts managed by
AEW Capital Management, L.P. for the one-year period ending September 30, 2000
and for the period from July 1, 1999 until September 30, 2000. The Account
returns are also compared against the Morgan Stanley REIT Index. The past
performance data for the Accounts has been adjusted to reflect the management
fees and other expenses actually paid by the Accounts and assumes the
reinvestment of all dividends and distributions. THE FEES AND EXPENSES PAID BY
THE FUND WILL BE HIGHER THAN THE FEES AND EXPENSES PAID BY THE ACCOUNTS. THE
PERFORMANCE OF THE ACCOUNTS WOULD HAVE BEEN LOWER THAN THAT SHOWN BELOW IF THEY
HAD BEEN SUBJECT TO THE FEES AND EXPENSES OF THE FUND.
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
(for the period ended September 30, 2000)
--------------------------------------------------------------------------------
1 YEAR SINCE JULY 1, 1999
--------------------------------------------------------------------------------
AEW COMPOSITE 26.18% 13.13%
--------------------------------------------------------------------------------
MORGAN STANLEY
REIT INDEX 21.25% 9.05%
--------------------------------------------------------------------------------
1. The AEW Composite consists of all client accounts whose portfolios were
managed by Matthew Troxell at AEW Capital Management, L.P. for the one-year
period ending September 30, 2000 and for the period from July 1, 1999 until
September 30, 2000 using investment policies and strategies substantially
similar to those that are used to manage the Fund. The average annual total
return for the Accounts was calculated using a time-weighted rate of
return, which differs in part from the proscribed formula used by mutual
funds to calculate their returns. The Morgan Stanley REIT Index is a market
capitalization-weighted, unmanaged, total-return index of REITs that meet
certain liquidity requirements. The index was designed to track the
total-return performance of a broad group of REIT stocks assuming dividend
reinvestment in the index. You cannot invest directly in an index.
6
<PAGE>
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FUND SERVICES
-------------
IT'S EASY TO OPEN AN ACCOUNT
TO OPEN AN ACCOUNT WITH NVEST FUNDS:
1. Read this Prospectus carefully.
2. Read the following eligibility and minimum investment requirements to
determine if you may purchase Class Y shares.
Class Y shares of the Fund may be purchased by the following entities at the
following investment minimums.
A minimum initial investment is $1 million and $10,000 is the minimum subsequent
investment for:
o Other mutual funds, endowments, foundations, bank trust departments or
trust companies.
There is no initial or subsequent investment minimum for:
o RETIREMENT PLANS (401(a), 401(k), 457 or 403(b) plans) that have total
investment assets of at least $10 million. Plan sponsor accounts can be
aggregated to meet this minimum.
o INSURANCE COMPANY ACCOUNTS of New England Financial, Metropolitan Life
Insurance Company ("MetLife") or their affiliates.
o SEPARATE ACCOUNTS of New England Financial, MetLife or their affiliates.
o WRAP FEE PROGRAMS of certain broker-dealers not being paid by the Fund, AEW
or the Distributor. Such wrap fee programs may be subject to additional or
different conditions, including a wrap account fee. Each broker-dealer is
responsible for transmitting to its customer a schedule of fees and other
information regarding any such conditions. If the participant who purchased
Class Y shares through a wrap fee program should terminate the wrap fee
arrangement with the broker-dealer, then the Class Y shares will, at the
discretion of the broker-dealer, automatically be converted to a number of
Class A shares of the same Fund having the same dollar value of the shares
converted, and the broker-dealer may thereafter be entitled to receive from
that Fund an annual service fee of 0.25% of the value of Class A shares
owned by that shareholder.
o CERTAIN INDIVIDUAL RETIREMENT ACCOUNTS if the amounts invested represent
rollover distributions from investments by any of the Retirement Plans set
forth above.
o DEFERRED COMPENSATION PLAN ACCOUNTS of New England Life Insurance Company
("NELICO"), MetLife, Nvest Companies or their affiliates ("Deferred
Compensation Accounts").
o SERVICE ACCOUNTS through an omnibus account by investment advisers,
financial planners, broker-dealers or other intermediaries who have entered
into a service agreement with a Fund. A fee may be charged to shareholders
purchasing through a service account if they effect transactions through
such parties and they should contact such parties regarding information
regarding such fees.
3. You should contact Nvest Funds at 800-225-5478 for an application or if you
have any questions about purchasing Fund shares.
4. Use the sections of this Prospectus that follow as your guide for
purchasing shares.
CERTIFICATES
You will not receive certificates representing Class Y Shares.
NVEST FUNDS WEB SITE
You may have access to your account 24 hours a day by visiting us online at
WWW.NVESTFUNDS.COM.
7
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
--------------
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------------------------------------------------------------
THROUGH YOUR INVESTMENT DEALER
o Call your investment o Call your investment
dealer for information. dealer for information.
--------------------------------------------------------------------------------
BY MAIL
[GRAPHIC OMITTED]
o Make out a check in U.S. o Make out a check in U.S.
dollars for the dollars for the
investment amount, investment amount,
payable to "Nvest Funds." payable to "Nvest Funds."
Third party checks and Third party checks and
"starter" checks will not "starter" checks will not
be accepted. be accepted.
o Mail the check with your o Fill out the detachable
completed application to investment slip from an
Nvest Funds, P.O. Box account statement. If no
8551, Boston, MA slip is available,
02266-8551. include with the check a
letter specifying the
Fund name, your class of
shares, your account
number and the registered
account name(s). To make
investing even easier,
you can order more
investment slips by
calling 800-225-5478.
--------------------------------------------------------------------------------
BY EXCHANGE
[GRAPHIC OMITTED]
o Obtain a current o Call your investment
prospectus for the Fund dealer or Nvest Funds at
into which you are 800-225-5478 to request
exchanging by calling an exchange.
your investment dealer or
Nvest Funds at o See the section entitled
800-225-5478. "Exchanging Shares".
o Call your investment
dealer or Nvest Funds to
request an exchange.
o See the section entitled
"Exchanging Shares".
--------------------------------------------------------------------------------
BY WIRE
[GRAPHIC OMITTED]
o Call Nvest Funds at o Visit nvestfunds.com to
800-225-5478 to obtain an add shares to your
account number and wire account by wire.
transfer instructions.
Your bank may charge you o Instruct your bank to
for such a transfer. transfer funds to State
Street Bank & Trust
Company, ABA# 011000028,
DDA# 99011538.
o Specify the Fund name,
your class of shares,
your account number and
the registered account
name(s). Your bank may
charge you for such a
transfer.
--------------------------------------------------------------------------------
THROUGH AUTOMATED CLEARING HOUSE ("ACH")
[GRAPHIC OMITTED]
o Ask your bank or credit o Call Nvest Funds at
union whether it is a 800-225-5478 to add
member of the ACH system. shares to your account
through ACH.
o Complete the "Telephone
Withdrawal and Exchange" o If you have not signed up
and "Bank Information" for the ACH system,
sections on your account please call Nvest Funds
application. for a Service Options
Form. A signature
o Mail your completed guarantee may be required
application to Nvest to add this privilege.
Funds, P.O. Box 8551,
Boston, MA 02266-8551.
8
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
Certain restrictions may apply. See section entitled "Restrictions on Buying,
Selling and Exchanging Shares."
--------------------------------------------------------------------------------
THROUGH YOUR INVESTMENT DEALER
o Call your investment dealer for information.
--------------------------------------------------------------------------------
BY MAIL
[GRAPHIC OMITTED]
o Write a letter to request a redemption specifying the name of the
Fund, the class of shares, your account number, the exact
registered account name(s), the number of shares or the dollar
amount to be redeemed and the method by which you wish to receive
your proceeds. Additional materials may be required. See the
section entitled "Selling Shares in Writing."
o The request must be signed by all of the owners of the shares and
must include the capacity in which they are signing, if
appropriate.
o Mail your request by REGULAR mail to Nvest Funds, P.O. Box 8551,
Boston, MA 02266-8551 or by REGISTERED, EXPRESS OR CERTIFIED mail
to Nvest Funds, 66 Brooks Drive, Braintree, MA 02184.
o Your proceeds will be delivered by the method chosen in your
letter. If you choose to have your proceeds delivered by mail,
they will generally be mailed to you on the business day after
the request is received in good order. You may also choose to
redeem by wire or through ACH (see below).
--------------------------------------------------------------------------------
BY EXCHANGE
[GRAPHIC OMITTED]
o Obtain a current prospectus for the Fund into which you are
exchanging by calling your investment dealer or Nvest Funds at
800-225-5478.
o Call Nvest Funds or visit nvestfunds.com to request an exchange.
o See the section entitled "Exchanging Shares" for more details.
--------------------------------------------------------------------------------
BY WIRE
[GRAPHIC OMITTED]
o Fill out the "Telephone Withdrawal and Exchange" and "Bank
Information" sections on your account application.
o Call Nvest Funds at 800-225-5478 or indicate in your redemption
request letter (see above) that you wish to have your proceeds
wired to your bank.
o Proceeds will generally be wired on the next business day. A wire
fee (currently $5.00) will be deducted from the proceeds.
--------------------------------------------------------------------------------
THROUGH AUTOMATED CLEARING HOUSE ("ACH")
[GRAPHIC OMITTED]
o Ask your bank or credit union whether it is a member of the ACH
system.
o Complete the "Telephone Withdrawal and Exchange" and "Bank
Information" sections on your account application.
o If you have not signed up for the ACH system on your application,
please call Nvest Funds at 800-225-5478 for a Service Options
Form.
o Call Nvest Funds or visit www.nvestfunds.com to request a
redemption through this system.
o Proceeds will generally arrive at your bank within three business
days.
--------------------------------------------------------------------------------
BY TELEPHONE
[GRAPHIC OMITTED]
o You may receive your proceeds by mail, by wire or through ACH
(see above).
o Call Nvest Funds at 800-225-5478 to choose the method you wish to
use to redeem your shares.
9
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
SELLING SHARES IN WRITING
If you wish to redeem your shares in writing, all owners of the shares must sign
the redemption request in the exact names in which the shares are registered and
indicate any special capacity in which they are signing. In certain situations,
you will be required to make your request to sell shares in writing. In these
instances, a letter of instruction signed by the authorized owner is necessary.
In certain situations, we also may require a signature guarantee or additional
documentation.
A signature guarantee protects you against fraudulent orders and is necessary
if:
o your address of record has been changed within the past 30 days;
o you are selling more than $100,000 worth of shares and you are requesting
the proceeds by check; or
o a proceeds check for any amount is either mailed to an address other than
the address of record or not payable to the registered owner(s).
A notary public CANNOT provide a signature guarantee.
A signature guarantee can be obtained from one of the following sources:
o a financial representative or securities dealer;
o a federal savings bank, cooperative, or other type of bank;
o a savings and loan or other thrift institution;
o a credit union; or
o a securities exchange or clearing agency.
10
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
EXCHANGING SHARES
You may exchange Class Y shares of your Fund for Class Y shares of any other
Nvest Fund which offers Class Y shares or for Class A shares of the Money Market
Funds. Agents, general agents, directors and senior officers of NELICO and its
insurance company subsidiaries may, at the discretion of NELICO, elect to
exchange Class Y shares of any Nvest Fund in a NELICO Deferred Compensation
Account for Class A shares of any other Nvest Fund which does not offer Class Y
shares. Class A shares of any Nvest Fund in a NELICO Deferred Compensation
Account may also be exchanged for Class Y shares of any Nvest Fund. All
exchanges are subject to the eligibility requirements of the Nvest Fund or Money
Market Fund into which you are exchanging. The exchange privilege may be
exercised only in those states where shares of the Funds may be legally sold.
For federal income tax purposes, an exchange of Fund shares for shares of
another Nvest Fund or Money Market Fund is treated as a sale on which gain or
loss may be recognized. Please refer to the Statement of Additional Information
(the "SAI") for more detailed information on exchanging Fund shares.
RESTRICTIONS ON BUYING, SELLING AND EXCHANGING SHARES
PURCHASE AND EXCHANGE RESTRICTIONS
Although the Fund does not anticipate doing so, it reserves the right to suspend
or change the terms of purchasing or exchanging shares. The Fund and the
Distributor reserve the right to refuse or limit any purchase or exchange order
by a particular purchaser (or group of related purchasers) if the transaction is
deemed harmful to the best interest of the Fund's other shareholders or would
disrupt the management of the Fund. The Fund and the Distributor reserve the
right to restrict purchases and exchanges for the accounts of "market timers" by
limiting the transaction to a maximum dollar amount. An account will be deemed
to be one of a market timer if: (i) more than two exchange purchases of a given
Fund are made for the account in a calendar quarter or (ii) the account makes
one or more exchange purchases of a given Fund in a calendar quarter in an
aggregate amount in excess of 1% of the Fund's total net assets.
SELLING RESTRICTIONS
The table below describes restrictions placed on selling shares of the Fund:
RESTRICTION SITUATION
--------------------------------------------------------------------------------
The Fund may suspend the right of o When the Exchange is closed
redemption or postpone payment for more (other than a weekend/holiday)
than 7 days:
o During an emergency
o Any other period permitted by
the SEC
--------------------------------------------------------------------------------
The Fund reserves the right to suspend o With a notice of a dispute
account services or refuse transaction between registered owners
requests:
o With suspicion/evidence of a
fraudulent act
--------------------------------------------------------------------------------
The Fund may pay the redemption price in o When it is detrimental for the
whole or part by a distribution in kind Fund to make cash payments as
of readily marketable securities in lieu determined in the sole
of cash or may take up to 7 days to pay discretion of the adviser
a redemption request in order to raise
capital:
--------------------------------------------------------------------------------
The Fund may withhold redemption o When redemptions are made
proceeds until the check or funds have within 10 calendar days of
cleared: purchase by check or ACH of
the shares being redeemed
--------------------------------------------------------------------------------
Telephone redemptions are not accepted for tax-qualified retirement accounts.
11
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
HOW FUND SHARES ARE PRICED
"Net asset value" is the price of one share of the Fund without a sales charge,
and is calculated each business day using this formula:
NET TOTAL MARKET VALUE OF SECURITIES + CASH AND OTHER ASSETS - LIABILITIES
ASSET = -----------------------------------------------------------------------
VALUE NUMBER OF OUTSTANDING SHARES
The net asset value of Fund shares is determined according to this schedule:
o A share's net asset value is determined at the close of regular trading on
the Exchange on the days the Exchange is open for trading. This is normally
4:00 p.m. Eastern time. Fund shares will not be priced on the days on which
the Exchange is closed for trading.
o The price you pay for purchasing, redeeming or exchanging a share will be
based upon the net asset value next calculated after your order is received
"in good order" by State Street Bank and Trust Company, the Fund's
custodian (plus or minus applicable sales charges as described earlier in
this Prospectus).
o Requests received by the Distributor after the Exchange closes will be
processed based upon the net asset value determined at the close of regular
trading on the next day that the Exchange is open, with the exception that
those orders received by your investment dealer before the close of the
Exchange and received by the Distributor before 5:00 p.m. Eastern time* on
the same day will be based on the net asset value determined on that day.
o A Fund heavily invested in foreign securities may have net asset value
changes on days when you cannot buy or sell its shares.
* Under limited circumstances, the Distributor may enter into a contractual
agreement pursuant to which it may accept orders after 5:00 p.m., but not
later than 8:00 p.m.
Generally, during times of substantial economic or market change it may be
difficult to place your order by phone. During these times, you may deliver your
order in person to the Distributor or send your order by mail as described in
"Buying Shares" and "Selling Shares."
Generally, Fund securities are valued as follows:
o EQUITY SECURITIES-- most recent sales or quoted bid price or as provided by
a pricing service if a sales or quoted bid price is unavailable.
o DEBT SECURITIES (other than short-term obligations) -- based upon pricing
service valuations.
o SHORT-TERM OBLIGATIONS (remaining maturity of less than 60 days) --
amortized cost (which approximates market value).
o SECURITIES TRADED ON FOREIGN EXCHANGES -- most recent sale/bid price on the
non-U.S. exchange, unless an occurrence after the close of the exchange
will materially affect its value. In that case, it is given fair value as
determined by or under the direction of the Fund's Board of Trustees at the
close of regular trading on the Exchange.
o OPTIONS -- last sale price, or if not available, last offering price.
o FUTURES -- unrealized gain or loss on the contract using current settlement
price. When a settlement price is not used, futures contracts will be
valued at their fair value as determined by or under the direction of the
Fund's Board of Trustees.
o ALL OTHER SECURITIES -- fair market value as determined by the adviser of
the Fund under the direction of the Fund's Board of Trustees.
The effect of fair value pricing as described above for "Securities traded on
foreign exchanges" and "All other securities" is that securities may not be
priced on the basis of quotations from the primary market in which they are
traded, but rather, may be priced by another method that each Fund's Board of
Trustees believes actually reflects fair value.
12
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
DIVIDENDS AND DISTRIBUTIONS
The Fund generally distributes most or all of its net investment income (other
than capital gains) in the form of dividends on a quarterly basis. The Fund
distributes all net realized long- and short-term capital gains annually, after
applying any available capital loss carryovers. The Fund's Board of Trustees may
adopt a different schedule as long as payments are made at least annually.
Depending on your investment goals and priorities, you may choose to:
o Receive distributions from dividends and interest in cash while reinvesting
distributions from capital gains in additional Class Y shares of the Fund
or in Class Y shares of another Nvest Fund.
o Receive all distributions in cash.
Unless you select one of the above options, distributions will automatically be
reinvested in Class Y shares of the Fund.
For more information or to change your distribution option, contact Nvest Funds
in writing or call 800-225-5478.
If you earn more than $10 annually in taxable income you will receive a Form
1099 to help you report the prior calendar year's distributions on your federal
income tax return. Be sure to keep the 1099 as a permanent record. A fee may be
charged for any duplicate information requested.
TAX CONSEQUENCES
The Fund intends to meet all requirements of the Internal Revenue Code necessary
to qualify as a "regulated investment company" and thus does not expect to pay
any federal income tax on income and capital gains distributed to shareholders.
Fund distributions paid to you are taxable whether you received them in cash or
reinvested them in additional shares. Distributions derived from short-term
capital gains or investment income are taxable at ordinary income rates. If you
are a corporation investing in the Fund, a portion of these dividends may
qualify for the dividends-received deduction provided that you meet certain
holding period requirements. Any distributions received by the Fund from REITs
will not qualify, however, for the corporate dividends-received deduction.
Distributions of gains from investments that the Fund owned for more than one
year that are designated by the Fund as capital gain dividends will generally be
taxable to a shareholder receiving such distributions as long-term capital
gains, regardless of how long the shareholder has held Fund shares.
An exchange of shares for shares of another Nvest Fund or Money Market Fund is
treated as a sale, and any resulting gain or loss may be subject to federal
income tax. If you purchase shares of the Fund shortly before it declares a
capital gain distribution or a dividend, a portion of the purchase price may be
returned to you as a taxable distribution.
Dividends derived from interest on securities issued by the U.S. government or
its agencies or instrumentalities may be exempt from state and local income
taxes. The Fund advises shareholders of the proportion of the Fund's dividends
that are derived from such interest. Also, REITs attempt to qualify for
beneficial tax treatment by distributing 95% of their taxable income to their
interest holders. If a REIT fails to qualify for such beneficial tax treatment,
it would be taxed as a corporation, and distributions to its shareholders
(including the Fund) would bear not only a proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REIT. The Fund's
investments in REIT equity securities may require the Fund to accrue and
distribute income not yet received or may result in the Fund making
distributions that constitute a return of capital to Fund shareholders for
federal income tax purposes. You should consult your tax adviser about any
federal, state and local taxes that may apply to the distributions you receive.
13
<PAGE>
[GRAPHIC OMITTED]
FUND SERVICES
-------------
COMPENSATION TO SECURITIES DEALERS
The Distributor may, at its expense, pay concessions to dealers which satisfy
certain criteria established from time to time by the Distributor relating to
increasing net sales of shares of the Nvest Funds over prior periods, and
certain other factors. See the SAI for more details.
14
<PAGE>
[GRAPHIC OMITTED]
GLOSSARY OF TERMS
BID PRICE -- The price a prospective buyer is ready to pay. This term is used by
traders who maintain firm bid and offer prices in a given security by standing
ready to buy or sell security units at publicly quoted prices.
BOTTOM-UP ANALYSIS -- The search for outstanding performance of individual
stocks before considering the impact of economic trends. Such companies may be
identified from research reports, stock screens or personal knowledge of the
products and services.
CAPITAL GAIN DISTRIBUTIONS -- Payments to a Fund's shareholders of profits
earned from selling securities in a Fund's portfolio. Capital gain distributions
are usually paid once a year.
CREDIT RATING -- Independent evaluation of a bond's creditworthiness. This
measurement is usually calculated through an index compiled by companies such as
Standard & Poor's Ratings Service, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Fitch Investors Services, Inc. Bonds with a credit rating of BBB
or higher by S&P or Fitch, or Baa or higher by Moody's are generally considered
investment grade.
DERIVATIVE -- A financial instrument whose value and performance are based on
the value and performance of another security or financial instrument.
DISCOUNTED PRICE -- The difference between a bond's current market price and its
face or redemption value.
DIVERSIFICATION -- The strategy of investing in a wide range of securities
representing different market sectors to reduce the risk if an individual
company or one sector suffers losses.
DIVIDEND YIELD -- The current or estimated annual dividend divided by the market
price per share of a security.
DURATION -- An estimate of how much a bond's price fluctuates with changes in
comparable interest rates.
EARNINGS GROWTH -- A pattern of increasing rate of growth in earnings per share
from one period to another, which usually causes a stock's price to rise.
FFO MULTIPLE - The price per share of a REIT divided by its Funds from
Operations (FFO). The FFO of a REIT is the measure of its operating performance
showing its net income plus depreciation of real estate and excluding gains or
losses from sales of property or debt restructuring.
FUNDAMENTAL ANALYSIS -- An analysis of the balance sheet and income statements
of a company in order to forecast its future stock price movements. Fundamental
analysis considers past records of assets, earnings, sales, products, management
and markets in predicting future trends in these indicators of a company's
success or failure. By appraising a company's prospects, analysts using such an
approach assess whether a particular stock or group of stocks is undervalued or
overvalued at its current market price.
GROWTH INVESTING -- An investment style that emphasizes companies with strong
earnings growth. Growth investing is generally considered more aggressive than
"value" investing.
INCOME DISTRIBUTIONS -- Payments to shareholders resulting from the net interest
or dividend income earned by a Fund's portfolio.
INFLATION -- A general increase in prices coinciding with a fall in the real
value of money, as measured by the Consumer Price Index.
INTEREST RATE -- Rate of interest charged for the use of money, usually
expressed at an annual rate.
MARKET CAPITALIZATION -- Market price multiplied by number of shares
outstanding. Large capitalization companies generally have over $5 billion in
market capitalization; medium cap companies between $1.5 billion and $5 billion;
and small cap companies less than $1.5 billion. These capitalization figures may
vary depending upon the index being used and/or the guidelines used by the
portfolio manager.
15
<PAGE>
[GRAPHIC OMITTED]
GLOSSARY OF TERMS (CONTINUED)
MATURITY -- The final date on which the payment of a debt instrument (e.g.
bonds, notes, repurchase agreements) becomes due and payable. Short-term bonds
generally have maturities of up to 5 years; intermediate-term bonds between 5
and 15 years; and long-term bonds over 15 years.
NET ASSET VALUE (NAV) -- The market value of one share of a Fund on any given
day without taking into account any front-end sales charge or CDSC. It is
determined by dividing a Fund's total net assets by the number of shares
outstanding.
PRICE-TO-BOOK VALUE RATIO -- Current market price of a stock divided by its book
value, or net asset value.
PRICE-TO-EARNINGS RATIO -- Current market price of a stock divided by its
earnings per share. Also known as the "multiple," the price-to-earnings ratio
gives investors an idea of how much they are paying for a company's earning
power and is a useful tool for evaluating the costs of different securities.
Some firms use the inverse ratio for this calculation (i.e. earnings-to-price
ratio).
QUALITATIVE ANALYSIS -- An analysis of the qualities possessed by a company,
including its management, products and competitive positions, to help determine
if the company can execute its strategy.
RETURN ON EQUITY -- The amount, expressed as a percentage, earned on a company's
common stock investment for a given period. It is calculated by dividing common
stock equity (net worth) at the beginning of the accounting period into net
income for the period after preferred stock dividends but before common stock
dividends. This tells common shareholders how effectively their money is being
employed.
RULE 144A SECURITIES -- Rule 144A securities are privately offered securities
that can be resold only to certain qualified institutional buyers. Rule 144A
securities are treated as illiquid, unless a manager has determined, under
guidelines established by a Fund's trustees, that a particular issue of Rule
144A securities is liquid.
TARGET PRICE -- Price that an investor is hoping a stock he or she has just
bought will rise to within a specified period of time. An investor may buy XYZ
at $20, with a target price of $40 in one year's time, for instance.
TECHNICAL ANALYSIS -- The research into the demand and supply for securities,
options, mutual funds and commodities based on trading volume and price studies.
Technical analysis uses charts or computer programs to identify and project
price trends in a market, security, mutual fund or futures contract.
TOP-DOWN APPROACH -- The method in which an investor first looks at trends in
the general economy, and next selects attractive industries and then companies
that should benefit from those trends.
TOTAL RETURN -- The change in value of an investment in a Fund over a specific
time period expressed as a percentage. Total returns assume all earnings are
reinvested in additional shares of a Fund.
VALUE INVESTING -- A relatively conservative investment approach that focuses on
companies that may be temporarily out of favor or whose earnings or assets are
not fully reflected in their stock prices. Value stocks will tend to have a
lower price-to-earnings ratio than growth stocks.
VOLATILITY -- The general variability of a portfolio's value resulting from
price fluctuations of its investments. In most cases, the more diversified a
portfolio is, the less volatile it will be.
YIELD - The rate at which a Fund earns income, expressed as a percentage. Mutual
fund yield calculations are standardized, based upon a formula developed by the
Securities and Exchange Commission.
YIELD-TO-MATURITY -- The concept used to determine the rate of return an
investor will receive if a long-term, interest-bearing investment, such as a
bond, is held to its maturity date. It takes into account purchase price,
redemption value, time to maturity, coupon yield (the interest rate on a debt
security the issuer promises to pay to the holder until maturity, expressed as
an annual percentage of face value) and the time between interest payments.
16
<PAGE>
NOTES
17
<PAGE>
IF YOU WOULD LIKE MORE INFORMATION ABOUT
THE FUND, THE FOLLOWING DOCUMENT IS
AVAILABLE FREE UPON REQUEST:
STATEMENT OF ADDITIONAL INFORMATION
(SAI) - The SAI provides more detailed
information about the Fund, has been
filed with the SEC and is incorporated
into this Prospectus by reference.
TO ORDER A FREE COPY OF THE FUND'S SAI,
CONTACT YOUR FINANCIAL REPRESENTATIVE,
OR THE FUND AT:
CLASS Y SHARES OF:
Nvest Funds Distributor, L.P. NVEST AEW REAL ESTATE FUND
399 Boylston Street
Boston, Massachusetts 02116
Telephone: 800-225-5478
Internet: www.nvestfunds.com
Your financial representative or Nvest
Funds will also be happy to answer your
questions or to provide any additional
information that you may require.
You can review and copy the Fund's SAI
at the SEC's Public Reference Room in
Washington, D.C. Information on the
operation of the Public Reference Room
may be obtained by calling the SEC at
202-942-8090. The SAI and other
information about the Fund are available
on the EDGAR database on the SEC's
website at www.sec.gov.
Copies of the SAI are also available
after payment of a duplication fee by
electronic request at the following
e-mail address: [email protected], or
by writing the Public Reference Room of
the SEC, Washington, D.C. 20549-0102.
The Distributor and other firms selling
shares of the Fund 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.
(Investment Company Act File No. 811-09945)
YRE51-0101
<PAGE>
[NVEST FUNDS LOGO APPEARS HERE]
--------------------------------------------------------------------------------
NVEST AEW REAL ESTATE FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 2001
This Statement of Additional Information (the "Statement") contains
information that may be useful to investors but which is not included in the
Prospectus of the Nvest AEW Real Estate Fund (the "Fund"). This Statement is not
a prospectus and is authorized for distribution only when accompanied or
preceded by the Prospectus of the Fund dated January 2, 2001 for Class A, Class
B and Class C shares or the Prospectus of the Fund dated January 2, 2001 for
Class Y shares (the "Prospectus" or "Prospectuses"). The Statement should be
read together with the Prospectuses. Investors may obtain a free copy of the
Prospectus from Nvest Funds Distributor, L.P., Prospectus Fulfillment Desk, 399
Boylston Street, Boston, MA 02116, by calling Nvest Funds at 800-225-5478 or by
placing an order online at www.nvestfunds.com.
The Fund is a diversified fund of Nvest Companies Trust I, a registered
open-end management investment company (the "Trust"). Nvest Funds Trust I, Nvest
Funds Trust II, Nvest Funds Trust III, Nvest Cash Management Trust and Nvest Tax
Exempt Money Market Trust are collectively referred to in this Statement as the
"Nvest Funds Trusts."
TABLE OF CONTENTS
Page
----
Investment Restrictions 1
Fund Charges and Expenses 2
Ownership of Fund Shares 3
Miscellaneous Investment Practices 3
Management of the Trust 9
Portfolio Transactions and Brokerage 16
Description of the Trust and Ownership of Shares 17
How to Buy Shares 19
Net Asset Value and Public Offering Price 19
Reduced Sales Charges 20
Shareholder Services 23
Redemptions 29
Standard Performance Measures 31
Income Dividends, Capital Gain Distributions and Tax Status 34
Financial Statements 37
Appendix A - Description of Bond Ratings 42
Appendix B - Publications That May Contain Fund Information 44
Appendix C - Advertising and Promotional Literature 47
i
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
The following is a description of restrictions on the investments to be
made by the Fund. Except in the case of those restrictions marked with a dagger
(+) below, the percentages set forth below and the percentage limitations set
forth in the Prospectus will apply at the time of the purchase of a security and
shall not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of a purchase of such security.
FUNDAMENTAL RESTRICTIONS
------------------------
The following restrictions may not be changed without the vote of a majority of
the outstanding voting securities of the Fund (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")).
The Fund may not:
(1) with respect to 75% of the Fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities ("U.S. Government
Securities")) if, as a result, (a) more than 5% of the Fund's total assets
would be invested in the securities of that issuer, or (b) the Fund would
hold more than 10% of the outstanding voting securities of that issuer;
(2) purchase the securities of any issuer (other than U.S. Government
Securities) if, as a result, 25% or more of the Fund's total assets would
be invested in the securities of companies whose principal business
activities are in the same industry, except that the Fund will invest more
than 25% of its total assets in securities of companies primarily engaged
in the real estate industry;
(3) issue senior securities, except as otherwise permitted by the 1940 Act;
(4)+ borrow money or pledge its assets; PROVIDED, HOWEVER, that the Fund may
borrow money as a temporary measure for extraordinary or emergency purposes
or to meet redemptions, in amounts not exceeding 33 1/3% of its total
assets and pledge its assets to secure such borrowings; and, PROVIDED,
FURTHER, that the Fund will not purchase any additional portfolio
securities at any time that its borrowings exceed 5% of its total assets;
for the purpose of this restriction, collateral arrangements with respect
to the writing of options, interest rate futures contracts, options on
interest rate futures contracts, and collateral arrangements with respect
to initial and variation margin are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures or related
options are deemed to be the issuance of a senior security;
(5) underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended (the
"1933 Act"), in the disposition of restricted securities;
(6) purchase and sell real estate unless acquired as a result of ownership of
securities or other instruments; PROVIDED, HOWEVER, that this limitation
shall not prevent the Fund from investing in securities or other
instruments backed by real estate or securities of companies engaged in the
real estate business;
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; PROVIDED, HOWEVER, that this
limitation shall not prevent the Fund from purchasing or selling options
and futures contracts or from investing in securities or other instruments
backed by physical commodities; or
(8) lend any portfolio security or make any other loan, if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, it being
understood that this limitation does not apply to purchases of debt
securities or to repurchase agreements.
The Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company managed by AEW Management and Advisors, L.P. or an
affiliate or successor with substantially the same fundamental investment
objective, policies and limitations as the Fund.
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<PAGE>
NON-FUNDAMENTAL RESTRICTIONS
----------------------------
The following investment restrictions are not fundamental, and may be changed
without shareholder approval.
The Fund may not:
(1) purchase any security on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions;
for this purpose, the deposit or payment by the Fund of initial or
variation margin in connection with interest rate futures contracts or
related options transactions is not considered the purchase of a security
on margin;
(2) make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short, and unless not more than 10%
of the Fund's net assets (taken at market value) is held as collateral for
such sales at any one time;
(3)+ invest more than 15% of the Fund's net assets in illiquid securities
(excluding Rule 144A securities and certain Section 4(2) commercial paper
deemed to be liquid under guidelines established by the Fund's Board of
Trustees);
(4) write, purchase or sell puts, calls or combinations thereof, except that
the Fund may write, purchase and sell puts, calls or combinations thereof
with respect to U.S. Government Securities and with respect to interest
rate futures contracts; or
(5) invest in the securities of other investment companies, except by purchases
in the open market involving only customary brokers' commissions, or in
connection with a merger, consolidation or similar transaction; under the
1940 Act, the Fund may not (a) invest more than 10% of its total assets
(taken at current value) in such securities, (b) own securities of any one
investment company having a value in excess of 5% of the Fund's total
assets taken at current value, or (c) own more than 3% of the outstanding
voting stock of any one investment company.
The Fund does not currently intend to invest all of its assets in the securities
of a single open-end management investment company managed by AEW Management and
Advisors, L.P. or an affiliate or successor with substantially the same
fundamental investment objective, policies and limitations as the Fund.
--------------------------------------------------------------------------------
FUND CHARGES AND EXPENSES
--------------------------------------------------------------------------------
MANAGEMENT FEES
Pursuant to an advisory agreement dated October 30, 2000 (the "Advisory
Agreement"), AEW Management and Advisors, L.P. ("AEW" or the "Adviser") has
agreed, subject to the supervision of the Trust's Board of Trustees, to manage
the investment and reinvestment of the assets of the Fund and to provide a range
of administrative services to the Fund. For the services described in the
Advisory Agreement, the Fund pays AEW a gross management fee at the annual rate
of 0.80% of the average daily net assets of the Fund for the first $500 million
in assets and 0.75% of the average daily net assets of amounts in excess of $500
million.
AEW has given a binding undertaking to the Fund to reduce its management
fee, and, if necessary, to bear certain expenses related to operating the Fund,
to the extent necessary to limit the Fund's total operating expenses to the
annual rate of 1.50% of average daily net assets for Class A shares, 2.25% of
such assets for Class B shares, 2.25% of such assets for Class C shares and
1.25% of such assets for Class Y shares. The undertaking will be binding on AEW
until May 31, 2002 and will be reevaluated on an annual basis thereafter
(subject to the obligation of the Fund to pay such deferred fees or expense
reimbursement in later periods to the extent that the Fund's expenses fall below
the annual rate of 1.50% of average daily net assets for Class A shares, 2.25%
of such assets for Class B and Class C shares, or 1.25% of such assets for Class
Y shares; provided, however, that the Fund is not obligated to pay any such
deferred fees or expense reimbursement more than one year after the end of the
fiscal year in which the fee was deferred.)
2
<PAGE>
--------------------------------------------------------------------------------
OWNERSHIP OF FUND SHARES
--------------------------------------------------------------------------------
As of December 29, 2000, to the Trust's knowledge, the following persons
owned of record or beneficially 5% or more of the outstanding shares of the
indicated classes of the Fund. In addition, each person that has direct or
indirect beneficial ownership of more than 25% of the outstanding shares of the
Fund may be deemed to control the Fund as defined in the 1940 Act.
<TABLE>
<CAPTION>
Shareholder and Address Ownership Percentage
----------------------- --------------------
<S> <C> <C>
Class A Shares Nvest Funds Distributor, L.P. 100%
399 Boylston Street
Boston, MA 02116
Class B Shares Nvest Funds Distributor, L.P. 100%
399 Boylston Street
Boston, MA 02116
Class C Shares Nvest Funds Distributor, L.P. 100%
399 Boylston Street
Boston, MA 02116
Class Y Shares AEW Capital Management, L.P. 100%
World Trade Center East
Two Seaport Lane
Boston, MA 02210
</TABLE>
--------------------------------------------------------------------------------
MISCELLANEOUS INVESTMENT PRACTICES
--------------------------------------------------------------------------------
The following is a list of certain investment practices in which the Fund
may engage as SECONDARY investment strategies. The Fund's primary strategies are
detailed in its Prospectus.
Mortgage Real Estate Investment Trusts
Hybrid Real Estate Investment Trusts
Foreign Securities (Foreign Equity Securities and Depository Receipts)
Certificates of Deposit, Demand and Time Deposits and Banker's Acceptances
Prime Commercial Paper, including Master Demand Notes
Repurchase Agreements secured by U.S. Government Securities
When-issued Securities
Zero Coupon Securities
Convertible Securities
Illiquid Securities and Restricted Securities (including Rule 144A Securities)
Loans of Portfolio Securities
Short-term Investments
Fixed-Income Securities
Collateralized Mortgage Obligations
Collateralized Mortgage-backed Securities
Money Market Instruments
The following is a description of the various investment practices in which
the Fund may engage, whether as a primary or secondary strategy, and a summary
of certain attendant risks:
3
<PAGE>
EQUITY SECURITIES The Fund may invest in equity securities. Equity securities
are securities that represent an ownership interest (or the right to acquire
such an interest) in a company and include common and preferred stocks and
securities exercisable for or convertible into common or preferred stocks (such
as warrants, convertible debt securities and convertible preferred stock). While
offering great potential for long-term growth, equity securities are more
volatile and more risky than other forms of investment. Therefore, the value of
your investment in the Fund may sometimes decrease instead of increase. The Fund
may invest in equity securities of companies with relatively small market
capitalizations. Securities of such companies may be more volatile than the
securities of larger, more established companies and the broad equity market
indices See "Small Companies" below. The Fund's investments may include
securities traded "over-the-counter" as well as those traded on a securities
exchange. Some over-the-counter securities may be more difficult to sell under
some market conditions.
O SMALL COMPANIES - The Fund may invest in companies and REITs with
relatively smaller market capitalizations, which AEW considers to be those
with market capitalizations of $1 billion or less. Investments in companies
with relatively small capitalization may involve greater risk than is
usually associated with larger, more established companies. These companies
often have sales and earnings growth rates that exceed those of companies
with larger capitalization. Such growth rates may in turn be reflected in
more rapid share price appreciation. However, companies with smaller
capitalization often have limited product lines, markets or financial
resources and may be dependent upon a relatively small management group.
The securities may have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of companies with
larger capitalization or market averages in general. The net asset value of
the Fund therefore may fluctuate more widely than market averages.
O WARRANTS - The Fund may invest in warrants. A warrant is an instrument that
gives the holder a right to purchase a given number of shares of a
particular security at a specified price until a stated expiration date.
Buying a warrant generally can provide a greater potential for profit or
loss than an investment of equivalent amounts in the underlying common
stock. The market value of a warrant does not necessarily move with the
value of the underlying securities. If a holder does not sell the warrant,
it risks the loss of its entire investment if the market price of the
underlying security does not, before the expiration date, exceed the
exercise price of the warrant plus the cost thereof. Investment in warrants
is a speculative activity. Warrants pay no dividends and confer no rights
(other than the right to purchase the underlying securities) with respect
to the assets of the issuer.
O REAL ESTATE INVESTMENT TRUSTS (REITS) - The Fund may invest in REITs. REITs
are pooled investment vehicles that invest primarily in either real estate
or real estate-related loans. REITs may be characterized as equity REITs,
mortgage REITs or hybrid REITs. An equity REIT owns or leases real estate
and derives its income primarily from rental income. A mortgage REIT
invests primarily in loans secured by real estate and generally derives its
income primarily from interest payments on its mortgage loans. A hybrid
REIT combines the characteristics of both equity REITs and mortgage REITs,
generally by holding both ownership and mortgage interests in real estate.
The Fund anticipates that under normal circumstances a majority of its REIT
investments will consist of equity REITs, but this is not a requirement of
the Fund.
O REAL ESTATE SECURITIES - The Fund invests primarily in securities of
companies in the real estate industry, including REITs, and is, therefore,
subject to the special risks associated with the real estate market and the
real estate industry in general. Companies in the real estate industry are
those that (i) have principal activity involving the development,
ownership, construction management or sale of real estate; (ii) have
significant real estate holdings, such as hospitality companies,
supermarkets and mining, lumber and paper companies; and/or (iii) provide
products or services related to the real estate industry, such as financial
institutions that make and/or service mortgage loans and manufacturers or
distributors of building supplies. Securities of companies in the real
estate industry are sensitive to factors such as changes in real estate
values, property taxes, interest rates, cash flow of underlying real estate
assets, occupancy rates, government regulations affecting zoning, land use,
and rents, and the management skill and creditworthiness of the issuer.
Companies in the real estate industry may also be subject to liabilities
under environmental and hazardous waste laws.
U.S. GOVERNMENT SECURITIES The Fund may invest in some or all of the following
U.S. Government Securities:
O U.S. TREASURY BILLS - Direct obligations of the United States Treasury that
are issued in maturities of one year or less. No interest is paid on
Treasury bills; instead, they are issued at a discount and repaid at full
face value when they mature. These obligations are backed by the full faith
and credit of the United States government.
4
<PAGE>
O U.S. TREASURY NOTES AND BONDS - Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with
interest normally payable every six months. These obligations are backed by
the full faith and credit of the United States government.
O "GINNIE MAES" - Debt securities issued by a mortgage banker or other
mortgagee, which represent an interest in a pool of mortgages insured by
the Federal Housing Administration or the Farmer's Home Administration or
guaranteed by the Veterans Administration. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of principal and
interest when such payments are due, whether or not these amounts are
collected by the issuer of these certificates on the underlying mortgages.
An assistant attorney general of the United States has rendered an opinion
that the guarantee by GNMA is a general obligation of the United States
backed by its full faith and credit. Mortgages included in single family or
multi-family residential mortgage pools backing an issue of Ginnie Maes
have a maximum maturity of up to 30 years. Scheduled payments of principal
and interest are made to the registered holders of Ginnie Maes (such as the
Fund) each month. Unscheduled prepayments may be made by homeowners, or as
a result of a default. Prepayments are passed through to the registered
holder (such as the Fund, which reinvests any prepayments) of Ginnie Maes
along with regular monthly payments of principal and interest.
O "FANNIE MAES" - The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders
that purchases residential mortgages from a list of approved
seller/servicers. Fannie Maes are pass-through securities issued by FNMA
that are guaranteed as to timely payment of principal and interest by FNMA,
but are not backed by the full faith and credit of the United States
government.
O "FREDDIE MACS" - The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but
Freddie Macs are not backed by the full faith and credit of the United
States government.
U.S. Government Securities generally do not involve the credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government Securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities, but
will be reflected in the Fund's net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Fund's average maturity
is longer, under certain market conditions the Fund may accept lower current
income from short-term investments rather than investing in higher-yielding
long-term securities. Such shorter term investments may lower the Fund's return.
FOREIGN INVESTMENTS Investments in foreign securities present risks not
typically associated with investments in comparable securities of U.S. issuers.
Since most foreign securities are denominated in foreign currencies or
traded primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for distribution to shareholders of the Fund may be affected favorably
or unfavorably by changes in currency exchange rates or exchange control
regulations. Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and the
Fund's income available for distribution. In addition, many European countries
have adopted a single European currency, the "euro." The consequences of this
conversion for foreign exchange rates, interest rates and the value of European
securities are presently unclear. Such consequences may adversely affect the
value and/or increase the volatility of securities held by the Fund.
In addition, although the Fund's income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute its
income in U.S. dollars. Therefore, if the value of a currency relative to the
U.S. dollar declines after the Fund's income has been earned in that currency,
translated into U.S. dollars and declared as a dividend, but before payment of
such dividend, the Fund could be required to liquidate portfolio securities to
pay such dividend. Similarly, if the value of a currency relative to the U.S.
dollar declines between the time the Fund incurs expenses in U.S. dollars and
the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater than the equivalent amount in such currency of such expenses at the
time they were incurred.
5
<PAGE>
There may be less information publicly available about a foreign corporate
or government issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than those in the United States, and judgments against
foreign entities may be more difficult to obtain and enforce. With respect to
certain foreign countries, there is a possibility of governmental expropriation
of assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries. The receipt of interest on foreign government securities may depend
on the availability of tax or other revenues to satisfy the issuer's
obligations.
The Fund may invest in foreign equity securities either by purchasing such
securities directly or by purchasing "depository receipts." Depository receipts
are instruments issued by a bank that represent an interest in equity securities
held by arrangement with the bank. Depository receipts can be either "sponsored"
or "unsponsored." Sponsored depository receipts are issued by banks in
cooperation with the issuer of the underlying equity securities. Unsponsored
depository receipts are arranged without involvement by the issuer of the
underlying equity securities. Less information about the issuer of the
underlying equity securities may be available in the case of unsponsored
depository receipts.
In determining whether to invest in securities of foreign issuers, the
Advisor will consider the likely effects of foreign taxes on the net yield
available to the Fund and its shareholders. Compliance with foreign tax law may
reduce the Fund's net income available for distribution to shareholders.
WHEN-ISSUED SECURITIES The Fund may purchase "when-issued" equity securities,
which are traded on a price basis prior to actual issuance. Such purchases will
only be made to achieve the Fund's investment objective and not for leverage.
The when-issued trading period generally lasts from a few days to months, or a
year or more; during this period dividends on equity securities are not payable.
No dividend income accrues to the Fund prior to the time it takes delivery. A
frequent form of when-issued trading occurs when corporate securities to be
created by a merger of companies are traded prior to the actual consummation of
the merger. Such transactions may involve a risk of loss if the value of the
securities fall below the price committed to prior to actual issuance. The
Trust's custodian will establish a segregated account for the Fund when it
purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements, by which
the Fund purchases a security and obtains a simultaneous commitment from the
seller to repurchase the security at an agreed-upon price and date. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
the Fund the opportunity to earn a return on temporarily available cash at
relatively low market risk. While the underlying security may be a bill,
certificate of indebtedness, note or bond issued by an agency, authority or
instrumentality of the United States government, the obligation of the seller is
not guaranteed by the United States government, and there is a risk that the
seller may fail to repurchase the underlying security. In such event, the Fund
would attempt to exercise rights with respect to the underlying security,
including possible disposition in the market. However, the Fund may be subject
to various delays and risks of loss, including (a) possible declines in the
value of the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income and lack of
access to income during this period and (c) inability to enforce rights and the
expenses involved in the attempted enforcement.
CONVERTIBLE SECURITIES The Fund may invest in convertible securities, including
corporate bonds, notes or preferred stocks of U.S. issuers that can be converted
into (that is, exchanged for) common stock or other equity securities.
Convertible securities also include other securities, such as warrants, that
provide an opportunity for equity participation. Because convertible securities
can be converted into equity securities, their values will normally vary in some
proportion with those of the underlying equity securities. Convertible
securities usually provide a higher yield than the underlying equity, however,
so that the price decline of a convertible security may sometimes be less
substantial than that of the underlying equity security.
ILLIQUID SECURITIES, RESTRICTED SECURITIES, RULE 144 SECURITIES AND SECTION 4(2)
COMMERCIAL PAPER Illiquid securities include those that are not readily
resalable (restricted securities), which may include securities whose
disposition is restricted by federal securities laws or those that are not
readily marketable.
Rule 144A securities are privately offered securities that can be resold
only to certain qualified institutional buyers pursuant to Rule 144A under the
1933 Act. The Fund may also purchase commercial paper issued under Section 4(2)
of the 1933 Act. Investing in Rule 144A securities and Section 4(2) commercial
paper could have the effect of increasing the level
6
<PAGE>
of the Fund's illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. Rule 144A
securities and Section 4(2) commercial paper are treated as illiquid, unless the
adviser has determined, under guidelines established by the Fund's Board of
Trustees, that the particular issue of Rule 144A securities is liquid. The Fund
may also invest in securities that are subject to restrictions relating to
resale. Investment in restricted or other illiquid securities involves the risk
that the Fund may be unable to sell such a security at the desired time. Also,
the Fund may incur expenses, losses or delays in the process of registering
restricted securities prior to resale.
LOANS OF PORTFOLIO SECURITIES The Fund may lend up to 33 1/3% of its total
assets in the form of its portfolio securities to broker-dealers under contracts
calling for collateral equal to at least the market value of the securities
loaned, marked to market on a daily basis. The Fund will continue to benefit
from interest or dividends on the securities loaned and may also receive
interest through investment of the cash collateral in short-term liquid
investments, which may include shares of money market funds subject to any
investment restriction listed in this Statement. Any voting rights or rights to
consent relating to securities loaned pass to the borrower. However, if a
material event affecting the investment occurs, such loans will be called so
that the securities may be voted by the Fund. The Fund pays various fees in
connection with such loans, including shipping fees and reasonable custodian and
placement fees approved by the Fund's Board of Trustees or persons acting
pursuant to the direction of the Board.
These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party should default on its
obligation and the Fund is delayed in or prevented from recovering the
collateral.
SHORT-TERM TRADING The Fund may, consistent with its investment objectives,
engage in portfolio trading in anticipation of, or in response to, changing
economic or market conditions and trends. These policies may result in higher
turnover rates in the Fund's portfolio, which may produce higher transaction
costs and a higher level of taxable capital gains. Portfolio turnover
considerations will not limit the adviser's investment discretion in managing
the Fund's assets. The Fund anticipates that its portfolio turnover rate will
vary significantly from time to time depending on the volatility of economic and
market conditions.
FIXED-INCOME SECURITIES The Fund may invest in real estate related fixed-income
securities. The Fund will typically invest in fixed-income securities that are
rated by an independent ratings service, such as Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"). For a detailed
description of the ratings assigned by S&P and Moody's, please refer to the
Statement's "Appendix A -- Description of Bond Ratings."
Fixed-income securities in which the Fund may invest include a broad array of
short, medium and long term obligations issued by the U.S. or foreign
governments, government or international agencies and instrumentalities, and
corporate issuers whose primary business is in the real estate industry. Some
fixed-income securities represent uncollateralized obligations of their issuers;
in other cases, the securities may be backed by specific assets (such as
mortgages or other receivables) that have been set aside as collateral for the
issuer's obligation. Fixed-income securities generally involve an obligation of
the issuer to pay interest or dividends on either a current basis or at the
maturity of the securities, as well as the obligation to repay the principal
amount of the security at maturity.
Fixed-income securities are subject to market and credit risk. Credit risk
relates to the ability of the issuer to make payments of principal and interest
and includes the risk of default. In the case of municipal bonds, the issuer may
make these payments from money raised through a variety of sources, including
(1) the issuer's general taxing power, (2) a specific type of tax such as a
property tax, or (3) a particular facility or project such as a highway. The
ability of an issuer of municipal bonds to make these payments could be affected
by litigation, legislation or other political events, or the bankruptcy of the
issuer. U.S. Government Securities do not involve the credit risks associated
with other types of fixed-income securities; as a result, the yields available
from U.S. Government Securities are generally lower than the yields available
from corporate fixed-income securities. Market risk is the risk that the value
of the security will fall because of changes in market rates of interest.
(Generally, the value of fixed-income securities falls when market rates of
interest are rising.) Some fixed-income securities also involve prepayment or
call risk. This is the risk that the issuer will repay the Fund the principal on
the security before it is due, thus depriving the Fund of a favorable stream of
future interest payments.
Because interest rates vary, it is impossible to predict the income of a fund
that invests in fixed-income securities for any particular period. Fluctuations
in the value of the Fund's investments in fixed-income securities will cause the
Fund's net asset value to increase or decrease.
MORTGAGE-RELATED SECURITIES Mortgage-related securities, such as GNMA or FNMA
certificates, differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly,
7
<PAGE>
and that principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if the Fund purchases
these assets at a premium, a faster-than-expected prepayment rate will reduce
yield to maturity, and a slower-than-expected prepayment rate will have the
opposite effect of increasing yield to maturity. If the Fund purchases
mortgage-related securities at a discount, faster-than-expected prepayments will
increase, and slower-than-expected prepayments will reduce, yield to maturity.
Prepayments, and resulting amounts available for reinvestment by the Fund, are
likely to be greater during a period of declining interest rates and, as a
result, are likely to be reinvested at lower interest rates. Accelerated
prepayments on securities purchased at a premium may result in a loss of
principal if the premium has not been fully amortized at the time of prepayment.
Although these securities will decrease in value as a result of increases in
interest rates generally, they are likely to appreciate less than other
fixed-income securities when interest rates decline because of the risk of
prepayments. In addition, an increase in interest rates would also increase the
inherent volatility of the Fund by increasing the average life of the Fund's
portfolio securities.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") A CMO is a security backed by a
portfolio of mortgages or mortgage securities held under an indenture. The
underlying mortgages or mortgage securities are issued or guaranteed by the U.S.
government or an agency or instrumentality thereof. The issuer's obligation to
make interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage securities. CMOs are issued with a number of classes or
series,which have different maturities and which may represent interests in some
or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in sequence
as the underlying mortgage loans in the mortgage pool are repaid. In the event
of sufficient early prepayments on such mortgages, the class or series of CMO
first to mature generally will be retired prior to its maturity. Thus, the early
retirement of a particular class or series of CMO held by the Fund would have
the same effect as the prepayment of mortgages underlying a mortgage
pass-through security. CMOs may be considered derivative securities.
MONEY MARKET INSTRUMENTS The Fund may seek to minimize risk by investing in
money market instruments, which are high-quality, short-term securities.
Although changes in interest rates can change the market value of a security,
the Fund expects those changes to be minimal, although this value cannot be
guaranteed.
Money market obligations of foreign banks or of foreign branches or
subsidiaries of U.S. banks may be subject to different risks than obligations of
domestic banks, such as foreign economic, political and legal developments and
the fact that different regulatory requirements apply.
TEMPORARY STRATEGIES The Fund has the flexibility to respond promptly to changes
in market and economic conditions. In the interest of preserving shareholders'
capital, the adviser may employ a temporary defensive strategy if it determines
such a strategy to be warranted. Pursuant to such a defensive strategy, the Fund
temporarily may hold cash (U. S. dollars, foreign currencies, or multinational
currency units) and/or invest up to 100% of its assets in U.S. Government
Securities or money market instruments. It is impossible to predict whether,
when or for how long the Fund will employ defensive strategies. The use of
defensive strategies may prevent the Fund from achieving its goal.
In addition, pending investment of proceeds from new sales of Fund shares
or to meet ordinary daily cash needs, the Fund may temporarily hold cash (U.S.
dollars, foreign currencies or multinational currency units) and may invest any
portion of its assets in money market instruments.
8
<PAGE>
--------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
--------------------------------------------------------------------------------
The Fund is governed by a Board of Trustees, which is responsible for generally
overseeing the conduct of Fund business and for protecting the interests of the
shareholders. The Trustees meet periodically throughout the year to oversee the
Fund's activities, review contractual arrangements with companies that provide
services to the Fund and review the Fund's performance.
Trustees
--------
Trustees of the Trust and their ages (in parentheses), address and
principal occupations during at least the past five years are listed below.
Those Trustees marked with an asterisk (*) may be deemed to be an "interested
person" of the Trust as defined in the 1940 Act.
GRAHAM T. ALLISON, JR.- TRUSTEE (60); 79 John F. Kennedy Street, Cambridge,
Massachusetts 02138 -- Member of the Contract Review and Governance
Committee for the Trust -- Douglas Dillon Professor and Director for the
Belfer Center of Science and International Affairs, John F. Kennedy School
of Government, Harvard University; Special Advisor to the United States
Secretary of Defense; formerly, Assistant Secretary of Defense; formerly,
Dean, John F. Kennedy School of Government.
DANIEL M. CAIN - TRUSTEE (55); 452 Fifth Avenue, New York, New York 10018 --
Chairman of the Audit Committee for the Trust -- President and CEO, Cain
Brothers & Company, Incorporated (investment banking); Trustee, Universal
Health Realty Income Trust (NYSE), eBenX, Inc. (NASDAQ); and Board Member,
Norman Rockwell Museum; Sharon Hospital, National Committee for Quality
Healthcare, and Columbia University School of Business.
KENNETH J. COWAN - TRUSTEE (68); One Beach Drive, S.E. #2103, St. Petersburg,
Florida 33701 -- Chairman of the Contract Review and Governance Committee
for the Trust -- Retired; formerly, Senior Vice President-Finance and Chief
Financial Officer, Blue Cross of Massachusetts, Inc. and Blue Shield of
Massachusetts, Inc.; formerly, Director, Neworld Bank for Savings and
Neworld Bancorp.
RICHARD DARMAN - TRUSTEE (57); 1001 Pennsylvania Avenue, N.W., Washington, D.C.
20004 -- Member of the Contract Review and Governance Committee for the
Trust -- Partner, The Carlyle Group (investments); Public Service
Professor, John F. Kennedy School of Government, Harvard University;
Trustee, Council for Excellence in Government (a not-for- profit
organization); Director, Frontier Ventures (personal investment); Director,
Telcom Ventures (telecommunications); Director, Prime Communications (cable
communications); Director, Neptune Communications (undersea cable systems);
formerly, Director of the U.S. Office of Management and Budget and a member
of President Bush's Cabinet; formerly, Managing Director, Shearson Lehman
Brothers (investments).
*JOHN T. HAILER - PRESIDENT AND TRUSTEE (40); President and Chief Executive
Officer, Nvest Funds Distributor, L.P.; President and Chief Executive
Officer, Nvest Distribution Corporation; President and Chief Executive
Officer, Nvest Funds Management, L.P.; formerly, Senior Vice President,
Fidelity Investments Institutional Services Company; formerly, Senior Vice
President and Director of Retail Business Development, Putnam Investments;
Director, Home for Little Wanderers.
SANDRA O. MOOSE - TRUSTEE (58); Exchange Place, Boston, Massachusetts 02109 --
Member of the Audit Committee for the Trust -- Senior Vice President and
Director, The Boston Consulting Group, Inc. (management consulting);
Director, Verizon Communications (communications services); Director, Rohm
and Haas Company (specialty chemicals); Trustee, Boston Public Library
Foundation; Board of Overseers, Museum of Fine Arts and Beth Israel/New
England Deaconess Hospital; Director, Alfred P. Sloan Foundation, Harvard
Graduate School Society Council; Member, Visiting Committee, Harvard School
of Public Health.
JOHN A. SHANE - TRUSTEE (67); 200 Unicorn Park Drive, Woburn, Massachusetts
01801 -- Member of the Audit Committee for the Trust -- President, Palmer
Service Corporation (venture capital organization); Director, Arch
Communications Group, Inc. (paging service); Director, Eastern Bank
Corporation; Director, Gensym Corporation (developer of expert system
software); Director, Overland Data, Inc. (manufacturer of computer tape
drives); Director, United Asset Management Corporation (holding company for
institutional money management firms).
9
<PAGE>
*PETER S. VOSS - CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND TRUSTEE
(54); Director, President and Chief Executive Officer, Nvest Companies,
L.P. ("Nvest Companies"); Director, Nvest Services Company; Director, Nvest
Distribution Corporation; Director of various affiliates of Nvest
Management; Board Member, Investment Company Institute and United Way of
Massachusetts Bay; Committee Member, New York Stock Exchange Listed Company
Advisory Committee.
PENDLETON P. WHITE - TRUSTEE (69); 6 Breckenridge Lane, Savannah, Georgia 31411;
Member of the Contract Review and Governance Committee for the Trust;
Retired; formerly, President and Chairman of the Executive Committee,
Studwell Associates (executive search consultants); formerly, Trustee, The
Faulkner Corporation (community hospital corporation).
The Contract Review and Governance Committee of the Fund is comprised solely of
disinterested Trustees and considers matters relating to advisory and
distribution arrangements, potential conflicts of interest between the adviser
and the Fund, and governance matters relating to the Fund.
The Audit Committee of the Fund is comprised solely of disinterested Trustees
and considers matters relating to the scope and results of the Fund's audits and
serves as a forum in which the independent accountants can raise any issues or
problems identified in the audit with the Board of Trustees. This Committee also
reviews and monitors compliance with stated investment objectives and policies,
regulations of the Securities and Exchange Commission ("SEC") and Internal
Revenue Service ("IRS") as well as operational issues relating to the transfer
agent.
OFFICERS
Officers of the Trust, in addition to Mr. Voss and Mr. Hailer, and their
ages (in parentheses) and principal occupations during at least the past five
years are listed below.
THOMAS P. CUNNINGHAM - TREASURER (54); Senior Vice President, Nvest Services
Company, Inc.; Senior Vice President, Nvest Funds Management, L.P.;
formerly, Vice President, Allmerica Financial Life Insurance and Annuity
Company; formerly, Treasurer, Allmerica Investment Trust; formerly, Vice
President, First Data Investor Services Group.
JOHN E. PELLETIER - SECRETARY AND CLERK (36); Executive Vice President, General
Counsel, Secretary and Clerk, Nvest Services Company, Inc.; Director, Nvest
Distribution Corporation; Senior Vice President, General Counsel, Secretary
and Clerk, Nvest Funds Distributor, L.P.; Senior Vice President, General
Counsel, Secretary and Clerk, Nvest Funds Management, L.P.; formerly,
Senior Vice President and General Counsel, Funds Distributor, Inc. (mutual
funds service company); formerly, Vice President and General Counsel,
Boston Institutional Group (mutual funds service company); formerly, Senior
Vice President and General Counsel, Financial Research Corporation.
Each person listed above holds the same position(s) with the Nvest Funds
Trusts (the Trust and the Nvest Funds Trusts collectively, the "Trusts").
Previous positions during the past five years with Nvest Funds Distributor, L.P.
or Nvest Funds Management, L.P. are omitted, if not materially different from a
Trustee's or officer's current position with such entity. As indicated below
under "Trustee Fees," each of the Trust's trustees is also a trustee of certain
other investment companies for which Nvest Funds Distributor, L.P. acts as
principal underwriter. Except as indicated above, the address of each Trustee
and officer of the Trust is 399 Boylston Street, Boston, Massachusetts 02116.
TRUSTEE FEES
The Trust pays no compensation to its officers or to its Trustees who are
interested persons thereof.
Each trustee who is not an interested person of the Trusts receives in the
aggregate for serving on the Board of Trustees of the Trusts, comprising as of
September 30, 2000 a total of 23 mutual fund portfolios, 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 that he or she attends for the Trusts. Each committee
member receives an additional retainer fee at the annual rate of $6,000.
Furthermore, each committee chairman receives an additional retainer fee (beyond
the $6,000 fee) at the annual rate of $4,000. These fees are allocated among the
Fund and the mutual fund portfolios in the Nvest Funds Trusts based on a formula
that takes into account, among other factors, the relative net assets of each
fund.
10
<PAGE>
During the calendar year ended December 31, 1999, the trustees of the
Trusts received the amounts set forth in the following table for serving as a
trustee of the Trusts.
Pension or
Aggregate Retirement
Compensation Benefits Estimated Total
from Accrued as Annual Compensation
the Part of Fund Benefits from the
Trusts Expenses Upon Trusts
Name of Trustee in 1999* in 1999 Retirement in 1999*
--------------- -------- ------- ---------- --------
Graham T. Allison, Jr. $60,000 $0 $0 $60,000
Daniel M. Cain $64,000 $0 $0 $64,000
Kenneth J. Cowan $64,000 $0 $0 $64,000
Richard Darman $60,000 $0 $0 $60,000
Sandra O. Moose $60,000 $0 $0 $60,000
John A. Shane $60,000 $0 $0 $60,000
Pendleton P. White $60,000 $0 $0 $60,000
* Amounts include payments deferred by Trustees for 1999. The total amount of
deferred compensation for all periods to date accrued for the trustees
follows: Allison ($810, 057); Cain ($16,000); Cowan ($55,777); and Darman
($15,000).
The Fund provides no pension or retirement benefits to trustees, but has
adopted a deferred payment arrangement under which each trustee may elect not to
receive fees from the Fund on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have been if they had
been invested in a Fund or Funds selected by the trustee on the normal payment
date for such fees. The Fund posts a deferred trustee fee liability in an amount
equal to its pro rata share of the deferred fees. As a result of this
arrangement, each Fund, upon making the deferred payments, will be in
substantially the same financial position as if the deferred fees had been paid
on the normal payment dates.
At December 1, 2000, the officers and trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Fund.
ADVISORY AGREEMENT
------------------
The Fund's Advisory Agreement between the Fund and AEW provides that AEW
will furnish or pay the expenses of the Fund for office space, facilities and
equipment, services of executive and other personnel of the Trust and certain
administrative services. AEW is responsible for obtaining and evaluating such
economic, statistical and financial data and information and performing such
additional research as is necessary to manage the Fund's assets in accordance
with its investment objectives and policies.
The Fund pays all expenses not borne by its Adviser, including, but not
limited to, the charges and expenses of the Fund's custodian and transfer agent,
independent auditors and legal counsel for the Fund and the Trust's independent
trustees, 12b-1 fees, all brokerage commissions and transfer taxes in connection
with portfolio transactions, all taxes and filing fees, the fees and expenses
for registration or qualification of its shares under federal and state
securities laws, all expenses of shareholders' and trustees' meetings and of
preparing, printing and mailing reports to shareholders and the compensation of
Trustees who are not directors, officers or employees of the Fund's Adviser or
its affiliates, other than affiliated registered investment companies. Certain
expenses may be allocated differently between the Fund's Class A, Class B and
Class C shares, on the one hand, and Class Y shares on the other hand (See
"Description of the Trust and Ownership of Shares").
The Advisory Agreement provides that it will continue in effect for two
years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Fund and (ii) by
vote of a majority of the trustees who are not "interested persons" of the
Trust, as that term is defined in the 1940 Act, cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated without penalty by vote of the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund, upon 60
days' written notice, or by the Adviser upon 90 days' written notice, and
terminates automatically in the event of its assignment.
11
<PAGE>
The Advisory Agreement provides that the Adviser shall not be subject to
any liability in connection with the performance of its services thereunder in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
AEW is a registered investment adviser whose origins date back to 1981. AEW
is a limited partnership that is a wholly-owned subsidiary of AEW Capital
Management, L.P., which in turn is a wholly-owned subsidiary of Nvest Holdings,
L.P. ("Nvest Holdings"). It is currently anticipated that AEW will convert from
a limited partnership into a limited liability company subsequent to the launch
of the Fund. Nvest Holdings is a wholly-owned subsidiary of Nvest Companies,
L.P. Nvest Distribution Corporation is also the sole general partner of Nvest
Funds Distributor, L.P. (the "Distributor") and the sole shareholder of Nvest
Services Company, Inc. ("Nvest Services Company"), the transfer and
dividend-disbursing agent of the Fund. Nvest Companies owns the entire limited
partnership interest in each of AEW and the Distributor. Nvest Services Company
may subcontract certain of its obligations as the transfer and
dividend-disbursing agent of the Fund to third parties. Nvest Services Company,
Inc. will also do business as Nvest Services Company and Nvest Services Co.
Nvest Companies is part of the investment management arm of France's Caisse
des Depots et Consignations ("CDC"), a major diversified financial institution,
which, in turn, is wholly-owned by the French government. Nvest Companies is
owned by CDC AM - North America, which is wholly-owned by CDC Asset Management,
a French entity that is part of Caisse des Depots et Consignations.
Nvest Companies' advising general partner is Nvest, L.P. Nvest Corporation
is the sole general partner of Nvest, L.P. The eighteen principal subsidiary or
affiliated asset management firms of Nvest Companies, collectively, have more
than $130 billion in assets under management or administration as of September
30, 2000.
Certain officers of AEW have responsibility for the management of other
client portfolios. The other clients served by AEW sometimes invest in
securities in which the Fund also invests. If the Fund and such other clients
advised by AEW desire to buy or sell the same portfolio securities at about the
same time, purchases and sales will be allocated, to the extent practicable, on
a pro rata basis in proportion to the amounts desired to be purchased or sold
for each. It is recognized that in some cases the practices described in this
paragraph could have a detrimental effect on the price or amount of the
securities, which the Fund purchases or sells. In other cases, however, it is
believed that these practices may benefit the Fund. It is the opinion of the
Fund's trustees that the desirability of retaining AEW as Adviser outweighs the
disadvantages, if any, which might result from these practices.
DISTRIBUTION AGREEMENTS AND RULE 12B-1 PLANS. Under an agreement with the
Fund (the "Distribution Agreement"), the Distributor serves as the principal
underwriter of each class of shares of the Fund. Under this agreement, the
Distributor conducts a continuous offering and is not obligated to sell a
specific number of shares. The Distributor bears the cost of making information
about the Fund available through advertising and other means and the cost of
printing and mailing Prospectuses to persons other than shareholders. The Fund
pays the cost of registering and qualifying its shares under state and federal
securities laws and the distribution of Prospectuses to existing shareholders.
The Distributor is compensated under each agreement through receipt of the
sales charges on Class A and Class C shares described below under "Net Asset
Value and Public Offering Price" and is paid by the Fund the service and
distribution fees described in the Prospectus. The Distributor may, at its
discretion, reallow the entire sales charge imposed on the sale of Class A and
Class C shares of the Fund to investment dealers from time to time. The SEC is
of the view that dealers receiving all or substantially all of the sales charge
may be deemed underwriters of a fund's shares.
The Fund has adopted Rule 12b-1 plans (the "Plans") for its Class A, Class
B and Class C shares which, among other things, permit it to pay the Fund's
Distributor monthly fees out of its net assets. These fees consist of a service
fee and a distribution fee. Any such fees that are paid by a distributor to
securities dealers are known as "trail commissions." Pursuant to Rule 12b-1
under the 1940 Act, each Plan was approved by the shareholders of the Fund, and
(together with the related Distribution Agreement) by the Board of Trustees,
including a majority of the trustees who are not interested persons of the
relevant Trust (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan or the Distribution Agreement
(the "Independent Trustees").
Under the Plans, the Fund pays the Distributor a monthly service fee at an
annual rate not to exceed 0.25% of the Fund's average daily net assets
attributable to the Class A, Class B and Class C shares. In the case of the
Class B shares, the Distributor pays investment dealers the first year's service
12
<PAGE>
fee at the time of sale, in the amount of up to 0.25% of the amount invested. In
the case of Class C shares, the Distributor retains the first year's service fee
of 0.25% assessed against such shares. For Class A and, after the first year for
Class B and Class C shares, the Distributor may pay up to the entire amount of
this fee to securities dealers who are dealers of record with respect to the
Fund's shares, on a quarterly basis, unless other arrangements are made between
the Distributor and the securities dealer, for providing personal services to
investors in shares of the Fund and/or the maintenance of shareholder accounts.
This service fee will accrue to securities dealers of record immediately with
respect to reinvested income dividends and capital gain distributions of the
Fund's Class A and Class B shares.
The service fee may be paid only to reimburse the Distributor for expenses
of providing personal services to investors, including, but not limited to, (i)
expenses (including overhead expenses) of the Distributor for providing personal
services to investors in connection with the maintenance of shareholder accounts
and (ii) payments made by the Distributor to any securities dealer or other
organization (including, but not limited to, any affiliate of the Distributor)
with which the Distributor has entered into a written agreement for this
purpose, for providing personal services to investors and/or the maintenance of
shareholder accounts, which payments to any such organization may be in amounts
in excess of the cost incurred by such organization in connection therewith.
To the extent that the Distributor's reimbursable expenses in any year
exceed the maximum amount payable under the relevant Plan for that year, such
expenses may be carried forward for reimbursement in future years in which the
Plan remains in effect.
The Fund's Class B and Class C shares also pay the Distributor a monthly
distribution fee at an annual rate not to exceed 0.75% of the average net assets
of the Fund's Class B and Class C shares. The Distributor retains the 0.75%
distribution fee assessed against both Class B and Class C shares during the
first year of investment. After the first year for Class B shares, the
Distributor retains the annual distribution fee as compensation for its services
as distributor of such shares. After the first year for Class C shares, the
Distributor may pay up to the entire amount of this fee to securities dealers
who are dealers of record with respect to the Fund's shares, as distribution
fees in connection with the sale of the Fund's shares on a quarterly basis,
unless other arrangements are made between the Distributor and the securities
dealer.
Each Plan may be terminated by vote of a majority of the relevant
Independent Trustees, or by vote of a majority of the outstanding voting
securities of the relevant class of shares of the Fund. Each Plan may be amended
by vote of the relevant trustees, including a majority of the relevant
Independent Trustees, cast in person at a meeting called for that purpose. Any
change in any Plan that would materially increase the fees payable thereunder by
the relevant class of shares of the Fund requires approval by vote of the
holders of a majority of such shares outstanding. The Trust's trustees review
quarterly a written report of such costs and the purposes for which such costs
have been incurred. For so long as a Plan is in effect, selection and nomination
of those trustees who are not interested persons of the relevant Trust shall be
committed to the discretion of such disinterested persons.
The Distributor has entered into selling agreements with investment
dealers, including affiliates of the Distributor, for the sale of the Fund's
shares. The Distributor may, at its expense, pay an amount not to exceed 0.50%
of the amount invested to dealers who have selling agreements with the
Distributor. Class Y shares of the Fund may be offered by registered
representatives of certain affiliates of Nvest Companies and may receive
compensation from the Fund's adviser with respect to sales of Class Y shares.
The Distribution Agreement for the Fund may be terminated at any time on 60
days' written notice without payment of any penalty by the Distributor or by
vote of a majority of the outstanding voting securities of the Fund or by vote
of a majority of the Independent Trustees.
The Distribution Agreement and the Plans will continue in effect for
successive one-year periods, provided that such continuance is specifically
approved (i) by the vote of a majority of the Independent Trustees and (ii) by
the vote of a majority of the entire Board of Trustees cast in person at a
meeting called for that purpose or by a vote of a majority of the outstanding
securities of the Fund (or the relevant class, in the case of the Plans).
With the exception of the Distributor and its direct and indirect parent
companies, no interested person of the Trust or any trustee of the Trust had any
direct or indirect financial interest in the operation of the Plans or any
related agreement.
Benefits to the Fund and its shareholders resulting from the Plans are
believed to include (1) enhanced shareholder service, (2) asset retention, (3)
enhanced bargaining position with third party service providers and economies of
13
<PAGE>
scale arising from having higher asset levels and (4) portfolio management
opportunities arising from having an enhanced positive cash flow.
The Distributor controls the words "Nvest" in the name of the Trust and if
it should cease to be the principal underwriter of the Fund's shares, the Trust
may be required to change its name and delete these words or letters. The
Distributor also acts as principal underwriter for Nvest Funds Trust I, Nvest
Funds Trust II, Nvest Funds Trust III, Nvest Cash Management Trust and Nvest Tax
Exempt Money Market Trust as well as the Kobrick Capital Fund, Kobrick Emerging
Growth Fund and Kobrick Growth Fund (the "Kobrick Funds"). The address of the
Distributor is 399 Boylston Street, Boston, Massachusetts, 02116.
The portion of the various fees and expenses for Class A, B, and C shares
that are paid (reallowed) to securities dealers are shown below:
For Class A shares, the service fee is payable only to reimburse the
Distributor for amounts it pays in connection with providing personal services
to investors and/or maintaining shareholder accounts. To the extent that the
Distributor's reimbursable expenses in any year exceed the maximum amount
payable for that year under the relevant service plan, these expenses may be
carried forward for reimbursement in future years as long as the plan remains in
effect. The portion of the various fees and expenses for Class A shares of the
Fund that are paid to securities dealers are shown below:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM MAXIMUM
SALES CHARGE REALLOWANCE OR FIRST YEAR FIRST YEAR
PAID BY INVESTORS COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75% 5.00% 0.25% 5.25%
$50,000 - $99,999 4.50% 4.00% 0.25% 4.25%
$100,000 - $249,999 3.50% 3.00% 0.25% 3.25%
$250,000 - $499,999 2.50% 2.15% 0.25% 2.40%
$500,000 - $999,999 2.00% 1.70% 0.25% 1.95%
INVESTMENTS OF $1 MILLION OR MORE
First $3 Million none 1.00%(2) 0.25% 1.25%
Excess over $3 Million (1) none 0.50%(2) 0.25% 0.75%
INVESTMENTS WITH NO SALES CHARGE(3) none 0.00% 0.25% 0.25%
</TABLE>
(1) For investments by Retirement Plans (Plans under Sections 401(a) or 401(k)
of the Internal Revenue Code, as amended (the "Code") with investments of
$1 million or more that have 100 or more eligible employees), the
Distributor may pay a 0.50% commission for investments in excess of $3
million and up to $10 million. Those Plans with investments of over $10
million are eligible to purchase Class Y shares of the Fund, which are
described in a separate prospectus.
(2) These commissions are not payable if the purchase represents the
reinvestment of a redemption made during the previous 12 calendar months.
(3) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members as described earlier in the Prospectus
under the section entitled "Ways to Reduce or Eliminate Sales Charges."
The Class B and Class C service fees are payable regardless of the amount
of the Distributor's related expenses. The portion of the various fees and
expenses for Class B and Class C shares of the Fund that are paid to securities
dealers are shown below:
<TABLE>
<CAPTION>
MAXIMUM FRONT-END SALES MAXIMUM REALLOWANCE MAXIMUM FIRST YEAR MAXIMUM FIRST YEAR
CHARGE PAID BY INVESTORS OR COMMISSION SERVICE FEE COMPENSATION
INVESTMENT (% OF OFFERING PRICE) (% OF OFFERING PRICE) (% OF NET INVESTMENT) (% OF OFFERING PRICE)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
All amounts for Class B None 3.75% 0.25% 4.00%
Class C amounts purchased at NAV(1) None 1.00% 0.00% 1.00%
All other amounts for Class C 1.00% 2.00% 0.00% 2.00%
</TABLE>
(1) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members as described earlier in the Prospectus under
the section entitled "Ways to Reduce or Eliminate Sales Charges." Also refers to
any Class C share accounts established prior to December 1, 2000.
Each transaction receives the net asset value next determined after an
order is received on sales of each class of shares. The sales charge is
allocated between the investment dealer and the Distributor. The Distributor
receives the Contingent Deferred Sales Charge (the "CDSC"). Proceeds from the
CDSC on Class A and C shares are paid to the Distributor and are used by the
Distributor to defray the expenses for services the Distributor provides the
Trust. Proceeds from the CDSC on Class B shares are paid to the Distributor and
are remitted to FEP Capital, L.P. to compensate FEP Capital, L.P. for financing
the sale of Class B shares pursuant to certain Class B financing and servicing
agreements between the Distributor and FEP Capital, L.P. The Distributor may, at
its discretion, pay (reallow) the entire sales charge imposed on the sale of
Class A or Class C shares to investment dealers from time to time.
14
<PAGE>
For new amounts invested at net asset value by an eligible governmental
authority, the Distributor may, at its expense, pay investment dealers a
commission of 0.025% of the average daily net assets of an account at the end of
each calendar quarter for up to one year. These commissions are not payable if
the purchase represents the reinvestment of redemption proceeds from any other
Nvest Fund or if the account is registered in street name.
The Distributor may at its expense provide additional concessions to
dealers who sell shares of the Fund, including: (i) full reallowance of the
sales charge of Class A or Class C shares, (ii) additional compensation with
respect to the sale of Class A, B and C shares and (iii) financial assistance
programs to firms who sell or arrange for the sale of Fund shares including, but
not limited to, remuneration for: the firm's internal sales contests and
incentive programs, marketing and sales fees, expenses related to advertising or
promotional activity and events, and shareholder record keeping or miscellaneous
administrative services. Payment for travel, lodging and related expenses may be
provided for attendance at Nvest Funds' seminars and conferences, e.g., due
diligence meetings held for training and educational purposes. The payment of
these concessions and any other compensation offered will conform with state and
federal laws and the rules of any self-regulatory organization, such as the
National Association of Securities Dealers, Inc. The participation of such firms
in financial assistance programs is at the discretion of the firm.
CUSTODIAL ARRANGEMENTS. State Street Bank and Trust Company ("State Street
Bank" or the "Custodian"), 225 Franklin Street, Boston, Massachusetts 02110, is
the Trust's custodian. As such, State Street Bank holds in safekeeping
certificated securities and cash belonging to the Fund and, in such capacity, is
the registered owner of securities in book-entry form belonging to the Fund.
Upon instruction, State Street Bank receives and delivers cash and securities of
the Fund in connection with Fund transactions and collects all dividends and
other distributions made with respect to Fund portfolio securities. State Street
Bank also maintains certain accounts and records of the Trust and calculates the
total net asset value, total net income and net asset value per share of the
Fund on a daily basis.
INDEPENDENT ACCOUNTANTS. The Trust's independent accountant is
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts 02110. The
independent accountants conduct an annual audit of the Fund's financial
statements, assist in the preparation of federal and state income tax returns
and consult with the Trust as to matters of accounting and federal and state
income taxation.
OTHER ARRANGEMENTS
------------------
Pursuant to a contract between the Trust and Nvest Services Company, Nvest
Services Company acts as shareholder servicing and transfer agent for the Fund
(in such capacity, the "Transfer Agent") and is responsible for services in
connection with the establishment, maintenance and recording of shareholder
accounts, including all related tax and other reporting requirements and the
implementation of investment and redemption arrangements offered in connection
with the sale of the Fund's shares. The Fund pays account services fees for
Classes A, B and C shares representing the higher dollar amount which is based
upon either of the following calculations: (1) the annualized rate of 0.184% on
the pro rata portion of the Fund's average daily net assets to the extent that
the Total Eligible Nvest Assets (defined below) are equal to or less than $5.7
billion; 0.180% on the pro rata portion of the Fund's average daily net assets
to the extent that the Total Eligible Assets are greater than $5.7 billion and
up to $10.7 billion; and 0.175% on the pro rata portion of the Fund's average
daily net assets to the extent that the Total Eligible Assets are in excess of
$10.7 billion (subject to an annual portfolio/class minimum of $18,000); or (2)
the annual aggregate minimum fee of $10.5 million. "Total Eligible Nvest Assets"
means the average daily net assets of all equity funds offered within the Nvest
Family of Funds for which there are exchange privileges among the funds
(currently the Nvest Stock Funds, the Kobrick Funds and the Fund). The Fund pays
account services fees for Class Y shares at an asset-based flat fee of 0.10% of
the average daily net assets of such class. Nvest Services Company has
subcontracted with State Street Bank for it to provide, through its subsidiary,
Boston Financial Data Services, Inc. ("BFDS"), transaction processing, mail and
other services. For these services, Nvest Services Company pays BFDS a monthly
per account fee.
In addition, pursuant to an Administrative Services Agreement among the
Trust, the Nvest Funds Trusts and Nvest Services Company, Nvest Services Company
performs certain accounting and administrative services for the Fund. Subject to
certain minimums, the Trusts pay Nvest Services Company an aggregate fee of
0.0350% of the first $5 billion of the Trusts' average daily net assets, 0.0325%
of the next $5 billion of the average daily net assets and 0.0300% of the
average daily net assets in excess of $10 billion for these services. The Fund
also reimburses Nvest Services Company for all or part of Nvest Service
Company's expenses of providing these services, which include the following: (i)
expenses for personnel performing bookkeeping, accounting, internal auditing and
financial reporting functions and clerical functions relating to the Fund; (ii)
15
<PAGE>
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; and (iii) registration, filing and other fees
in connection with requirements of regulatory authorities.
--------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE
--------------------------------------------------------------------------------
In placing orders for the purchase and sale of equity securities, the
Adviser selects only brokers that it believes are financially responsible, will
provide efficient and effective services in executing, clearing and settling an
order and will charge commission rates that, when combined with the quality of
the foregoing services, will produce best price and execution for the
transaction. This does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. The Adviser will use its best efforts to obtain
information as to the general level of commission rates being charged by the
brokerage community from time to time and will evaluate the overall
reasonableness of brokerage commissions paid on transactions by reference to
such data. In making such evaluation, all factors affecting liquidity and
execution of the order, as well as the amount of the capital commitment by the
broker in connection with the order, are taken into account.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate brokerage transactions to
affiliated brokers. Any such transactions will comply with Rule 17e-1 under the
1940 Act. In order for the affiliated broker to effect portfolio transactions
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker must be reasonable and fair compared to the commissions, fees
and other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period. Furthermore, the Fund's Board of
Trustees, including a majority of those Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act have adopted procedures that
are reasonably designed to provide that any commissions, fees or other
remuneration paid to an affiliated broker are consistent with the foregoing
standard.
GENERAL
-------
Subject to procedures adopted by the Board of Trustees of the Trust, the
Fund's brokerage transactions may be executed by brokers that are affiliated
with Nvest Companies or the Adviser. Any such transactions will comply with Rule
17e-1 under the 1940 Act.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Fund as principals in the purchase and sale of securities.
Since transactions in the over-the-counter market usually involve transactions
with dealers acting as principals for their own accounts, affiliated persons of
the Trust may not serve as the Fund's dealer in connection with such
transactions.
To the extent permitted by applicable law, and in all instances subject to
the foregoing policy of best execution, the Adviser may allocate brokerage
transactions in a manner that takes into account the sale of shares of one or
more Funds distributed by the Distributor. In addition, the Adviser may allocate
brokerage transactions to broker-dealers (including affiliates of the
Distributor) that have entered into arrangements in which the broker-dealer
allocates a portion of the commissions paid by the Fund toward the reduction of
the Fund's expenses, subject to the requirement that the adviser will seek best
execution.
It is expected that the portfolio transactions in fixed-income securities,
if any, will generally be with issuers or dealers on a net basis without a
stated commission. Securities firms may receive brokerage commissions on
transactions involving options, futures and options on futures and the purchase
and sale of underlying securities upon exercise of options. The brokerage
commissions associated with buying and selling options may be proportionately
higher than those associated with general securities transactions.
16
<PAGE>
--------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
--------------------------------------------------------------------------------
The Trust is organized as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust (a "Declaration of
Trust") dated March 17, 2000, and is a "series" company as described in Section
18(f)(2) of the 1940 Act. The Fund commenced operations on September 1, 2000.
The Declaration of Trust permits the Fund's trustees to issue an unlimited
number of full and fractional shares of each series. The Fund is represented by
a particular series of shares. The Declaration of Trust further permits the
Fund's Board of Trustees to divide the shares of each series into any number of
separate classes, each having such rights and preferences relative to other
classes of the same series as the Fund's Board of Trustees may determine. When
you invest in the Fund, you acquire freely transferable shares of beneficial
interest that entitle you to receive annual or quarterly dividends as determined
by the Fund's Board of Trustees and to cast a vote for each dollar of net asset
value you own at shareholder meetings. Shares of the Fund do not have any
preemptive rights. The Declaration of Trust also permits the Board of Trustees
to charge shareholders directly for custodial, transfer agency and servicing
expenses.
The shares of the Fund are divided into four classes: Class A, Class B,
Class C and Class Y. The Fund offers such classes of shares as set forth in its
Prospectuses. Class Y shares are available for purchase only by certain eligible
institutional investors and have higher minimum purchase requirements than
Classes A, B and C. All expenses of the Fund (excluding transfer agency fees and
expenses of printing and mailing Prospectuses to shareholders ("Other
Expenses")) are borne by its Class A, B, C and Y shares on a pro rata basis,
except for 12b-1 fees, which are borne only by Classes A, B and C and may be
charged at a separate rate to each such class. Other Expenses of Classes A, B
and C are borne by such classes on a pro rata basis, but Other Expenses relating
to the Class Y shares may be allocated separately to the Class Y shares. The
Class A, Class B, Class C and Class Y structure could be terminated should
certain IRS rulings be rescinded.
The assets received by each class of the Fund for the issue or sale of its
shares and all income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of the creditors, are allocated to, and constitute the
underlying assets of, that class of the Fund. The underlying assets of each
class of the Fund are segregated and are charged with the expenses with respect
to that class of the Fund and with a share of the general expenses of the Trust.
Any general expenses of the Trust that are not readily identifiable as belonging
to a particular class of the Fund are allocated by or under the direction of the
trustees in such manner as the trustees determine to be fair and equitable.
While the expenses of the Trust are allocated to the separate books of account
of the Fund, certain expenses may be legally chargeable against the assets of
all of the Funds in a Trust.
The Declaration of Trust also permits the Trust's Board of Trustees,
without shareholder approval, to subdivide any series or class of shares or fund
into various sub-series or sub-classes with such dividend preferences and other
rights as the Trustees may designate. While the Trust's Board of Trustees has no
current intention to exercise this power, it is intended to allow them to
provide for an equitable allocation of the impact of any future regulatory
requirements that might affect various classes of shareholders differently. The
Trust's Board of Trustees may also, without shareholder approval unless as
provided therein, amend or supplement the Declaration of Trust so as to add to,
delete, replace or otherwise modify any provisions contained in the Declaration
of Trust, including, but not limited to, adding one or more additional series or
classes or merge two or more existing series or classes.
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or the Fund, however, may be terminated at any time, subject to
applicable federal and state law, by (i) vote of at least two-thirds of the
outstanding shares of the Fund or (ii) without the vote or consent of
shareholders by a majority of the Trustees either at a meeting or by written
consent. The trustees shall provide written notice to the affected shareholders
of a termination effected under clause (ii) above. The trust also permits the
Board of Trustees, subject to applicable federal and state law, to reorganize
the Trust or any series thereof without shareholder approval. The trustees shall
provide written notice to the affected shareholders of such reorganization.
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<PAGE>
VOTING RIGHTS
-------------
Shareholders of a series or class are entitled to one vote for each dollar
of net asset value (number of shares owned multiplied by net asset value per
share) of such series or class thereof, on any matter on which such shareholder
is entitled to vote, and each fractional dollar amount shall be entitled to a
proportionate fractional vote.
The Declaration of Trust provides that on any matter submitted to a vote of
all shareholders of the Trust, all Trust shares entitled to vote shall be voted
together irrespective of series or class unless the rights of a particular
series or class would be adversely affected by the vote, in which case a
separate vote of that series or class shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule 18f-2 under the 1940 Act provides in effect that a
series or class shall be deemed to be affected by a matter unless it is clear
that the interests of each series or class in the matter are substantially
identical or that the matter does not affect any interest of such series or
class. On matters affecting an individual series or class, only shareholders of
that series or class are entitled to vote. Consistent with the current position
of the SEC, shareholders of all series and classes vote together, irrespective
of series or class, on the election of trustees and the selection of the Fund's
independent accountants, but shareholders of each series vote separately on
other matters requiring shareholder approval, such as certain changes in
investment policies of that series or the approval of the investment advisory
and subadvisory agreement relating to that series, and shareholders of each
class within a series vote separately as to the Rule 12b-1 plan (if any)
relating to that class.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if there is a vacancy on the Board of Trustees, such
vacancy may be filled only by a vote of the shareholders unless, after filing
such vacancy by other means, at least two-thirds of the trustees holding office
shall have been elected by the shareholders. In addition, trustees may be
removed from office by a written consent signed by the holders of two-thirds of
the outstanding shares and filed with the Fund's Custodian or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for
that purpose, which meeting shall be held upon the written request of the
holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value of
at least $25,000 or at least 1% of the outstanding shares stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Trust will undertake to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
Except as set forth above, the Trustees shall continue to hold office and
may appoint successor Trustees. Shareholder voting rights are not cumulative.
SHAREHOLDER AND TRUSTEE LIABILITY
---------------------------------
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of the
Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund by reason of owning shares of such Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and the Fund itself would be unable to
meet its obligations.
The Declaration of Trust further provides that the Board of Trustees will
not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Declaration of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The By-Laws of the Trust provide for
indemnification by the Trust of Trustees and officers of the Trust, except with
respect to any matter as to which any such person did not act in good faith in
the reasonable belief that his or her action was in, or not opposed to, the best
interests of the Trust. Such persons may not be indemnified against any
liability to the Trust or the Fund's shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
18
<PAGE>
CODE OF ETHICS
--------------
The Trust, AEW and the Distributor have adopted Codes of Ethics pursuant to
Rule 17j-1 under the 1940 Act. The Codes of Ethics permits employees to invest
in securities for their own accounts, including securities that may be purchased
or held by the Funds. The Codes of Ethics are on public file with, and are
available from, the SEC.
--------------------------------------------------------------------------------
HOW TO BUY SHARES
--------------------------------------------------------------------------------
The procedures for purchasing shares of the Fund are summarized in the
Prospectus. All purchases made by check should be in U.S. dollars and made
payable to Nvest Funds, or, in the case of a retirement account, a custodian or
trustee.
For purchase of Fund shares by mail, the settlement date is the first
business day after receipt of the check by the transfer agent so long as it is
received by the close of regular trading of the Exchange on a day when the
Exchange is open; otherwise the settlement date is the following business day.
For telephone orders, the settlement date is the third business day after the
order is made.
Shares may also be purchased either in writing, by phone or, in the case of
Class A, B and C shares, by electronic funds transfer using Automated Clearing
House ("ACH"), or by exchange as described in the Prospectus through firms that
are members of the National Association of Securities Dealers, Inc. and that
have selling agreements with the Distributor. You may also use Nvest Funds
Personal Access Line(R) (800-225-5478, press 1) or Nvest Funds Web site
(www.nvestfunds.com) to purchase Fund shares. For more information, see the
section entitled "Shareholder Services" in this Statement.
A shareholder may purchase additional shares electronically through the ACH
system so long as the shareholder's bank or credit union is a member of the ACH
system and the shareholder has a completed, approved ACH application on file.
Banks may charge a fee for transmitting funds by wire. With respect to shares
purchased by federal funds, shareholders should bear in mind that wire transfers
may take two or more hours to complete.
The Distributor may at its discretion accept a telephone order for the
purchase of $5,000 or more of the Fund's Class A, B and C shares. Payment must
be received by the Distributor within three business days following the
transaction date or the order will be subject to cancellation. Telephone orders
must be placed through the Distributor or your investment dealer.
If you wish transactions in your account to be effected by another person
under a power of attorney from you, special rules as summarized in the
Prospectus may apply.
--------------------------------------------------------------------------------
NET ASSET VALUE AND PUBLIC OFFERING PRICE
--------------------------------------------------------------------------------
The method for determining the public offering price and net asset value
per share is summarized in the Prospectus.
The total net asset value of each class of shares of a Fund (the excess of
the assets of the Fund attributable to such class over the liabilities
attributable to such class) is determined at the close of regular trading
(normally 4:00 p.m. Eastern time) on each day that the Exchange is open for
trading. The weekdays that the Exchange is expected to be closed are New Year's
Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Securities
listed on a national securities exchange or on the NASDAQ National Market System
are valued at their last sale price, or, if there is no reported sale during the
day, the last reported bid price estimated by a broker. Unlisted securities
traded in the over-the-counter market are valued at the last reported bid price
in the over-the-counter market or on the basis of yield equivalents as obtained
from one or more dealers that make a market in the securities. U.S. Government
Securities are traded in the over-the-counter market. Options, interest rate
futures and options thereon that are traded on exchanges are valued at their
last sale price as of the close of such exchanges. Securities for which current
market quotations are not readily available and all other assets are taken at
fair value as determined in
19
<PAGE>
good faith by the Board of Trustees, although the actual calculations may be
made by persons acting pursuant to the direction of the Board.
Generally, trading in foreign government securities and other fixed-income
securities, as well as trading in equity securities in markets outside the
United States, is substantially completed each day at various times prior to the
close of the Exchange. Securities traded on a non-U.S. exchange will be valued
at their last sale price (or the last reported bid price, if there is no
reported sale during the day), on the exchange on which they principally trade,
as of the close of regular trading on such exchange. The value of other
securities principally traded outside the United States will be computed as of
the completion of substantial trading for the day on the markets on which such
securities principally trade. Securities principally traded outside the United
States will generally be valued several hours before the close of regular
trading on the Exchange, generally 4:00 p.m. Eastern Time, when the Fund
computes the net asset value of their shares. Occasionally, events affecting the
value of securities principally traded outside the United States may occur
between the completion of substantial trading of such securities for the day and
the close of the Exchange, which events will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of the
Fund's securities occur during such period, then these securities will be valued
at their fair value as determined in good faith by or in accordance with
procedures approved by the Trusts' trustees. The effect of fair value pricing is
that securities may not be priced on the basis of quotations from the primary
market in which they are traded but rather, may be priced by another method that
the Board of Trustees believes accurately reflects fair value.
Trading in some of the portfolio securities of the Fund takes place in
various markets outside the United States on days and at times other than when
the Exchange is open for trading. Therefore, the calculation of the Fund's net
asset value does not take place at the same time as the prices of many of its
portfolio securities are determined, and the value of the Fund's portfolio may
change on days when the Fund is not open for business and its shares may not be
purchased or redeemed.
The per share net asset value of a class of the Fund's shares is computed
by dividing the number of shares outstanding into the total net asset value
attributable to such class. The public offering price of a Class A or a Class C
share of the Fund is the net asset value per share next-determined after a
properly completed purchase order is accepted by Nvest Services Company or State
Street Bank, plus a sales charge as set forth in the Fund's Prospectus. The
public offering price of a Class B or Y share of the Fund is the next-determined
net asset value.
--------------------------------------------------------------------------------
REDUCED SALES CHARGES
--------------------------------------------------------------------------------
The following special purchase plans are summarized in the Prospectus and are
described in greater detail below.
CUMULATIVE PURCHASE DISCOUNT. A Fund shareholder may make an initial or an
additional purchase of Class A shares and be entitled to a discount on the sales
charge payable on that purchase. This discount will be available if the
shareholder's "total investment" in the Fund reaches the breakpoint for a
reduced sales charge in the table under "How Sales Charges Are Calculated-Class
A shares" in the Prospectus. The total investment is determined by adding the
amount of the additional purchase, including sales charge, to the current public
offering price of all classes of shares of the Fund or all series and classes of
shares of the Nvest Funds Trusts and Kobrick Funds held by the shareholder in
one or more accounts. If the total investment exceeds the breakpoint, the lower
sales charge applies to the entire additional investment even though some
portion of that additional investment is below the breakpoint to which a reduced
sales charge applies. For example, if a shareholder who already owns shares of
one or more of the Nvest Funds with a value at the current public offering price
of $30,000 makes an additional purchase of $20,000 of Class A shares of another
Nvest Fund, the reduced sales charge of 4.5% of the public offering price will
apply to the entire amount of the additional investment.
LETTER OF INTENT. A Letter of Intent (a "Letter"), which can be effected at
any time, is a privilege available to investors which reduces the sales charge
on investments in Class A shares. Ordinarily, reduced sales charges are
available for single purchases of Class A shares only when they reach certain
breakpoints (e.g., $50,000, $100,000, etc.). By signing a Letter, a shareholder
indicates an intention to invest enough money in Class A shares within 13 months
to reach a breakpoint. If the shareholder's intended aggregate purchases of all
classes of shares of the Fund or all series and classes of the Nvest Funds
Trusts and Kobrick Funds over a defined 13-month period will be large enough to
qualify for a reduced sales charge, the shareholder may invest the smaller
individual amounts at the public offering price calculated using the sales load
applicable to the 13-month aggregate investment.
20
<PAGE>
A Letter is a non-binding commitment, the amount of which may be increased,
decreased or canceled at any time. The effective date of a Letter is the date it
is received in good order by the Distributor, or, if communicated by a telephone
exchange or order, at the date of telephoning provided a signed Letter, in good
order, reaches the Distributor within five business days.
A reduced sales charge is available for aggregate purchases of all classes
of shares of the Fund and all series and classes of shares of the Nvest Funds
Trusts pursuant to a written Letter effected within 90 days after any purchase.
In the event the account was established prior to 90 days before the effective
date of the Letter, the account will be credited with the Rights of Accumulation
("ROA") towards the breakpoint level that will be reached upon the completion of
the 13 months' purchases. The ROA credit is the value of all shares held as of
the effective dates of the Letter based on the "public offering price computed
on such date."
The cumulative purchase discount, described above, permits the aggregate
value at the current public offering price of Class A shares of any accounts
with the Fund or Nvest Funds Trusts held by a shareholder to be added to the
dollar amount of the intended investment under a Letter, provided the
shareholder lists them on the account application.
State Street Bank will hold in escrow shares with a value at the current
public offering price of 5% of the aggregate amount of the intended investment.
The amount in escrow will be released when the commitment stated in the Letter
is completed. If the shareholder does not purchase shares in the amount
indicated in the Letter, the shareholder agrees to remit to State Street Bank
the difference between the sales charge actually paid and that which would have
been paid had the Letter not been in effect, and authorizes State Street Bank to
redeem escrowed shares in the amount necessary to make up the difference in
sales charges. Reinvested dividends and distributions are not included in
determining whether the Letter has been completed.
COMBINING ACCOUNTS. Purchases of all classes of the Fund and all series and
classes of the Nvest Funds Trusts and Kobrick Funds (excluding the Nvest Cash
Management Trust and Nvest Tax Exempt Money Market Trust (the "Money Market
Funds") unless the shares were purchased through an exchange of another Nvest
Fund or Kobrick Fund) by or for an investor, the investor's spouse, parents,
children, siblings, in-laws, grandparents or grandchildren and any other account
of the investor, including sole proprietorships, in any Trust may be treated as
purchases by a single individual for purposes of determining the availability of
a reduced sales charge. Purchases for a single trust estate or a single
fiduciary account may also be treated as purchases by a single individual for
this purpose, as may purchases on behalf of a participant in a tax-qualified
retirement plan and other employee benefit plans, provided that the investor is
the sole participant in the plan. Any other group of individuals acceptable to
the Distributor may also combine accounts for such purpose. The values of all
accounts are combined to determine the sales charge.
COMBINING WITH OTHER SERIES AND CLASSES OF THE NVEST FUNDS. A shareholder's
total investment for purposes of the cumulative purchase discount includes the
value at the current public offering price of any shares of any class of the
Fund or any series and classes of the Nvest Funds Trusts and Kobrick Funds that
the shareholder owns (which excludes shares of the Money Market Funds unless
such shares were purchased by exchanging shares of any other Nvest Fund or
Kobrick Fund). Shares owned by persons described in the preceding paragraph may
also be included.
UNIT HOLDERS OF UNIT INVESTMENT TRUSTS. Unit investment trust distributions
may be invested in Class A shares of the Fund at a reduced sales charge of 1.50%
of the public offering price (or 1.52% of the net amount invested); for large
purchases on which a sales charge of less than 1.50% would ordinarily apply,
such lower charge also applies to investments of unit investment trust
distributions.
CLIENTS OF ADVISERS OR SUBADVISERS. No front-end sales charge or CDSC
applies to investments of $25,000 or more in Class A shares and no front-end
sales charge applies to investments of $25,000 or more in Class C shares of the
Fund by (1) clients of an adviser or subadviser to the Fund or any series of the
Nvest Funds Trusts or Kobrick Funds; any director, officer or partner of a
client of an adviser or subadviser to the Fund or any series of the Nvest Funds
Trusts or Kobrick Funds; or the spouse, parents, children, siblings, in-laws,
grandparents or grandchildren of the foregoing; (2) any individual who is a
participant in a Keogh or IRA Plan under a prototype of an adviser or subadviser
to the Fund or any series of the Nvest Funds Trusts or Kobrick Funds if at least
one participant in the plan qualifies under category (1) above; and (3) an
individual who invests through an IRA and is a participant in an employee
benefit plan that is a client of an adviser or subadviser to the Fund or any
series of the Nvest Funds Trusts or Kobrick Funds. Any investor eligible for
this arrangement should so indicate in writing at the time of the purchase.
21
<PAGE>
OFFERING TO EMPLOYEES OF METROPOLITAN LIFE INSURANCE COMPANY ("METLIFE")
AND ASSOCIATED ENTITIES. There is no front-end sales charge, CDSC or initial
investment minimum related to investments in Class A shares of the Fund by the
Fund's Adviser or any of the Nvest Funds Trusts' or Kobrick Funds' advisers or
subadvisers, the Distributor or any other company affiliated with New England
Financial or MetLife; current and former directors and trustees of the Trust,
Nvest Funds Trusts or Kobrick Funds; agents and general agents of New England
Financial or MetLife and their insurance company subsidiaries; current and
retired employees of such agents and general agents; registered representatives
of broker-dealers who have selling arrangements with the Distributor; the
spouse, parents, children, siblings, in-laws, grandparents or grandchildren of
the persons listed above and any trust, pension, profit sharing or other benefit
plans for any of the foregoing persons and any separate account of New England
Financial or MetLife or any insurance company affiliated with New England
Financial or MetLife.
ELIGIBLE GOVERNMENTAL AUTHORITIES. There is no sales charge or CDSC related
to investments in Class A shares and there is no front-end sales charge related
to investments in Class C shares of the Fund by any state, county or city or any
instrumentality, department, authority or agency thereof that has determined
that the Fund is a legally permissible investment and that is prohibited by
applicable investment laws from paying a sales charge or commission in
connection with the purchase of shares of any registered investment company.
INVESTMENT ADVISORY ACCOUNTS. Class A or Class C shares of the Fund may be
purchased at net asset value by investment advisers, financial planners or other
intermediaries who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
clients of such investment advisers, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment adviser, financial planner or other intermediary on
the books and records of the broker or agent; and retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Sections 401(a), 403(b), 401(k) and 457 of the Code
and "rabbi trusts." Investors may be charged a fee if they effect transactions
through a broker or agent.
CERTAIN BROKER-DEALERS AND FINANCIAL SERVICES ORGANIZATIONS. Class A or
Class C shares of the Fund may be purchased at net asset value through certain
broker-dealers and/or financial services organizations without any transaction
fee. Such organizations may also receive compensation based upon the average
value of the Fund shares held by their customers. This compensation may be paid
by certain advisors out of its own assets, and/or be paid indirectly by the Fund
in the form of servicing, distribution or transfer agent fees. Class C shares
may also be purchased at net asset value by an investor who buys through a
Merrill Lynch omnibus account. However, a CDSC will apply if shares are sold
within 12 months of purchase.
CERTAIN RETIREMENT PLANS. Class A and Class C shares of the Fund are
available at net asset value for investments by participant-directed 401(a) and
401(k) plans that have 100 or more eligible employees or by retirement plans
whose third party administrator or dealer has entered into a service agreement
with the Distributor to perform certain administrative services, subject to
certain operational and minimum size requirements specified from time to time by
the Distributor. This compensation may be paid indirectly by the Fund in the
form of service and/or distribution fees.
BANK TRUST DEPARTMENTS OR TRUST COMPANIES. Class A and Class C shares of
the Fund are available at net asset value for investments by non-discretionary
and non-retirement accounts of bank trust departments or trust companies, but
are unavailable if the trust department or institution is part of an
organization not principally engaged in banking or trust activities.
SHAREHOLDERS OF REICH AND TANG GOVERNMENT SECURITIES TRUST. Shareholders of
Reich and Tang Government Securities Trust may exchange their shares of that
fund for Class A shares of the Fund at net asset value and without imposition of
a sales charge.
The reduction or elimination of the sales charges in connection with
special purchase plans described above reflects the absence or reduction of
expenses associated with such sales.
22
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
OPEN ACCOUNTS
-------------
A shareholder's investment is automatically credited to an open account
maintained for the shareholder by the Transfer Agent. Following each transaction
in the account, a shareholder will receive a confirmation statement disclosing
the current balance of shares owned and the details of recent transactions in
the account. After the close of each calendar year, the Transfer Agent will send
each shareholder a statement providing federal tax information on dividends and
distributions paid to the shareholder during the year. This statement should be
retained as a permanent record. The Transfer Agent may charge a fee for
providing duplicate information.
The open account system provides for full and fractional shares expressed
to three decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates. Certificates will not be issued for Class B, Class C or Class Y
shares.
The costs of maintaining the open account system are paid by the Fund and
no direct charges are made to shareholders. Although the Fund has no present
intention of making such direct charges to shareholders, it reserves the right
to do so. Shareholders will receive prior notice before any such charges are
made.
AUTOMATIC INVESTMENT PLANS (CLASS A, B AND C SHARES)
----------------------------------------------------
Subject to the Fund's investor eligibility requirements, investors may
automatically invest in additional shares of the Fund on a monthly basis by
authorizing the Distributor to draw checks on an investor's bank account. The
checks are drawn under the Investment Builder Program, a program designed to
facilitate such periodic payments, and are forwarded to Nvest Services Company
for investment in the Fund. A plan may be opened with an initial investment of
$100 or more and thereafter regular monthly checks of $100 or more will be drawn
on the investor's account. The reduced minimum initial investment pursuant to an
automatic investment plan is referred to in the Prospectus. An Investment
Builder application must be completed to open an automatic investment plan. An
application may be found in the Prospectus or may be obtained by calling the
Distributor at 800-225-5478 or your investment dealer.
This program is voluntary and may be terminated at any time by Nvest
Services Company upon notice to existing plan participants.
The Investment Builder Program plan may be discontinued at any time by the
investor by written notice to Nvest Services Company, which must be received at
least five business days prior to any payment date. The plan may be discontinued
by State Street Bank at any time without prior notice if any check is not paid
upon presentation; or by written notice to the shareholder at least thirty days
prior to any payment date. State Street Bank is under no obligation to notify
shareholders as to the nonpayment of any check.
RETIREMENT PLANS OFFERING TAX BENEFITS (CLASS A, B AND C SHARES)
----------------------------------------------------------------
The federal tax laws provide for a variety of retirement plans offering tax
benefits. These plans may be funded with shares of the Fund or with certain
other investments. The plans include H.R. 10 (Keogh) plans for self-employed
individuals and partnerships, individual retirement accounts (IRAs), corporate
pension trust and profit sharing plans, including 401(k) plans, and retirement
plans for public school systems and certain tax exempt organizations, i.e.,
403(b) plans.
The reduced minimum initial investment available to retirement plans
offering tax benefits is referred to in the Prospectus. For these plans, initial
investments in the Fund must be at least $250 for each participant in corporate
pension and profit sharing plans and Keogh plans, at least $500 for IRAs and at
least $100 for any subsequent investments. There is a special initial and
subsequent investment minimum of $25 for payroll deduction investment programs
for SARSEP, SEP, SIMPLE Plans, 403(b) and certain other retirement plans. Income
dividends and capital gain distributions must be
23
<PAGE>
reinvested (unless the investor is over age 59 1/2 or disabled). These types of
accounts may be subject to fees. Plan documents and further information can be
obtained from the Distributor.
An investor should consult a competent tax or other adviser as to the
suitability of a Fund's shares as a vehicle for funding a plan, in whole or in
part, under the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and as to the eligibility requirements for a specific plan and its
state as well as federal tax aspects.
Certain retirement plans may also be eligible to purchase Class Y shares.
See the Prospectus relating to Class Y shares.
SYSTEMATIC WITHDRAWAL PLANS (CLASS A, B AND C SHARES)
-----------------------------------------------------
An investor owning the Fund's shares having a value of $5,000 or more at
the current public offering price may establish a Systematic Withdrawal Plan
providing for periodic payments of a fixed or variable amount. An investor may
terminate the plan at any time. A form for use in establishing such a plan is
available from the servicing agent or your investment dealer. Withdrawals may be
paid to a person other than the shareholder if a signature guarantee is
provided. Please consult your investment dealer or the Distributor.
A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.). The initial payment under a variable payment option may be
$50 or more.
In the case of shares subject to a CDSC, the amount or percentage you
specify may not, on an annualized basis, exceed 10% of the value, as of the time
you make the election, of your account with the Fund with respect to which you
are electing the Plan. Withdrawals of Class B shares of the Fund under the Plan
will be treated as redemptions of shares purchased through the reinvestment of
Fund distributions, or, to the extent such shares in your account are
insufficient to cover Plan payments, as redemptions from the earliest purchased
shares of such Fund in your account. No CDSC applies to a redemption pursuant to
the Plan.
All shares under the Plan must be held in an open (uncertificated) account.
Income dividends and capital gain distributions will be reinvested (without a
sales charge in the case of Class A and Class C shares) at net asset value
determined on the record date.
Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the value of the account,
particularly in the event of a decline in net asset value. Accordingly, a
shareholder should consider whether a Systematic Withdrawal Plan and the
specified amounts to be withdrawn are appropriate in the circumstances. The Fund
or the Distributor makes no recommendations or representations in this regard.
It may be appropriate for a shareholder to consult a tax adviser before
establishing such a plan. See "Redemptions" and "Tax Status" below for certain
information as to federal income taxes.
It may be disadvantageous for a shareholder to purchase on a regular basis
additional Fund shares with a sales charge while redeeming shares under a
Systematic Withdrawal Plan. Accordingly, the Fund and the Distributor do not
recommend additional investments in Class A and Class C shares by a shareholder
who has a withdrawal plan in effect and who would be subject to a sales load on
such additional investments. Nvest Funds may modify or terminate this program at
any time.
Because of statutory restrictions this plan is not available to pension or
profit-sharing plans, IRAs or 403(b) plans that have State Street Bank as
trustee.
DIVIDEND DIVERSIFICATION PROGRAM
--------------------------------
You may also establish a Dividend Diversification Program, which allows you
to have all dividends and any other distributions automatically invested in
shares of the same class of another Nvest Fund, subject to the investor
eligibility requirements of that other Nvest Fund and to state securities law
requirements. Shares will be purchased at the selected Nvest Fund's net asset
value (without a sales charge or CDSC) on the dividend record date. A dividend
diversification
24
<PAGE>
account must be in the same registration (shareholder name) as the distributing
Fund account and, if a new account in the purchased Nvest Fund is being
established, the purchased Nvest Fund's minimum investment requirements must be
met. Before establishing a Dividend Diversification Program into any other Nvest
Fund, you must obtain and carefully read a copy of that Nvest Fund's Prospectus.
EXCHANGE PRIVILEGE
------------------
A shareholder may exchange the shares of any Nvest Fund (except that Class
A shares of the Nvest Intermediate Term Tax Free Fund of California (the
"California Fund") may only be exchanged if such shares have been held for at
least six months) for shares of the same class of any other Nvest Fund (subject
to the investor eligibility requirements, if any, of the Nvest Fund into which
the exchange is being made) on the basis of relative net asset values at the
time of the exchange without any sales charge. An exchange of shares in one
Nvest Fund for shares of another Nvest Fund is a taxable event on which gain or
loss may be recognized. In the case of Class A shares of the California Fund
held less than six months, if exchanged for shares of any other Fund that has a
higher sales charge, shareholders will pay the difference between any sales
charge already paid on their shares and the higher sales charge of the Nvest
Fund into which they are exchanging at the time of the exchange. Exchanges of
Class A shares of Nvest Short Term Corporate Income Fund (formerly Adjustable
Rate U.S. Government Fund) purchased before December 1, 1998 will also pay the
difference between any sales charge already paid on their shares and the higher
sales charge of the Nvest Fund into which they are exchanging. When an exchange
is made from the Class A, Class B or Class C shares of one Nvest Fund to the
same class of shares of another Nvest Fund, the shares received by the
shareholder in the exchange will have the same age characteristics as the shares
exchanged. The age of the shares determines the expiration of the CDSC and, for
the Class B shares, the conversion date. If you own Class A, Class B or Class C
shares, you may also elect to exchange your shares of any Nvest Fund for shares
of the same class of the Money Market Funds. On all exchanges of Class A or C
shares subject to a CDSC and Class B shares into the Money Market Funds, the
exchange stops the aging period relating to the CDSC, and, for Class B shares
only, conversion to Class A shares. The aging period resumes only when an
exchange is made back into Class B shares of an Nvest Fund. Shareholders may
also exchange their shares in the Money Market Funds for shares of the same
class of any other Nvest Fund subject to those funds' eligibility requirements
and sales charges. Class C shares in accounts of Nvest Cash Management Trust
Money Market Series established on or after December 1, 2000 may exchange into
Class C shares of an Nvest Fund subject to its sales charge and CDSC schedule.
Class C shares in accounts of Cash Management Trust Money Market Series
established prior to December 1, 2000 or that have been previously subject to a
front-end sales charge may exchange into Class C shares of an Nvest Fund without
paying a front-end sales charge. If you own Class Y shares, you may exchange
those shares for Class Y shares of other Nvest Funds or for Class A shares of
the Money Market Funds. These options are summarized in the Prospectus. An
exchange may be effected, provided that neither the registered name nor address
of the accounts are different and provided that a certificate representing the
shares being exchanged has not been issued to the shareholder, by (1) a
telephone request to the Fund or Nvest Services Company at 800-225-5478 or (2) a
written exchange request to the Fund or Nvest Services Company, P.O. Box 8551,
Boston, MA 02266-8551. You must acknowledge receipt of a current Prospectus for
an Nvest Fund or Money Market Fund before an exchange for that Nvest Fund or
Money Market Fund can be effected. The minimum amount for an exchange is $1,000.
Agents, general agents, directors and senior officers of New England
Financial and its insurance company subsidiaries may, at the discretion of New
England Financial, elect to exchange Class A shares of the Fund or any series of
the Nvest Funds Trusts and Kobrick Funds acquired in connection with deferred
compensation plans offered by New England Financial for Class Y shares of the
Fund or any series of the Nvest Funds Trusts and Kobrick Funds which offer Class
Y shares. To obtain a prospectus and more information about Class Y shares,
please call the Distributor toll free at 800-225-5478.
Except as otherwise permitted by SEC rule, shareholders will receive at
least 60 days advance notice of any material change to the exchange privilege.
The investment objectives of the Nvest Funds (including the Kobrick Funds)
and the Money Market Funds as set forth in the Prospectuses are as follows:
STOCK FUNDS:
-----------
NVEST GROWTH FUND seeks long-term growth of capital through investments in
equity securities of companies whose earnings are expected to grow at a faster
rate than the United States economy.
25
<PAGE>
NVEST CAPITAL GROWTH FUND seeks long-term growth of capital.
NVEST BALANCED FUND seeks a reasonable long-term investment return from a
combination of long-term capital appreciation and moderate current income.
NVEST GROWTH AND INCOME FUND seeks opportunities for long-term growth of
capital and income.
NVEST INTERNATIONAL EQUITY FUND seeks total return from long-term growth of
capital and dividend income primarily through investment in a diversified
portfolio of marketable international equity securities.
NVEST STAR ADVISERS FUND seeks long-term growth of capital.
NVEST STAR WORLDWIDE FUND seeks long-term growth of capital.
NVEST STAR SMALL CAP FUND seeks capital appreciation.
NVEST STAR VALUE FUND seeks a reasonable long-term investment return from a
combination of market appreciation and dividend income from equity securities.
NVEST EQUITY INCOME FUND seeks current income and capital growth.
NVEST BULLSEYE FUND seeks long-term growth of capital.
KOBRICK FUNDS:
--------------
KOBRICK CAPITAL FUND seeks maximum capital appreciation by investing
primarily in equity securities of companies with small, medium and large
capitalizations.
KOBRICK EMERGING GROWTH FUND seeks to provide growth of capital by
investing primarily in equity securities of emerging growth companies, with an
emphasis on companies with small capitalizations.
KOBRICK GROWTH FUND seeks long-term growth of capital by investing
primarily in equity securities of companies with large capitalizations that may
have better than average long-term growth potential.
BOND FUNDS:
----------
NVEST GOVERNMENT SECURITIES FUND seeks a high level of current income
consistent with safety of principal by investing in U.S. government securities
and engaging in transactions involving related options, futures and options on
futures.
NVEST LIMITED TERM U.S. GOVERNMENT FUND seeks a high current return
consistent with preservation of capital.
NVEST SHORT TERM CORPORATE INCOME FUND seeks a high level of current income
consistent with preservation of capital.
NVEST STRATEGIC INCOME FUND seeks high current income with a secondary
objective of capital growth.
NVEST BOND INCOME FUND seeks a high level of current income consistent with
what the Fund considers reasonable risk.
NVEST HIGH INCOME FUND seeks high current income plus the opportunity for
capital appreciation to produce a high total return.
NVEST MUNICIPAL INCOME FUND seeks as high a level of current income exempt
from federal income taxes as is consistent with reasonable risk and protection
of shareholders' capital.
26
<PAGE>
NVEST MASSACHUSETTS TAX FREE INCOME FUND seeks as high a level of current
income exempt from federal income tax and Massachusetts personal income taxes as
the Fund's subadviser believes is consistent with preservation of capital.
NVEST INTERMEDIATE TERM TAX FREE FUND OF CALIFORNIA seeks as high a level
of current income exempt from federal income tax and its state personal income
tax as is consistent with preservation of capital.
MONEY MARKET FUNDS:
------------------
NVEST CASH MANAGEMENT TRUST - MONEY MARKET SERIES seeks maximum current
income consistent with preservation of capital and liquidity.
NVEST TAX EXEMPT MONEY MARKET TRUST - seeks current income exempt from
federal income taxes consistent with preservation of capital and liquidity.
As of September 30, 2000, the net assets of the Nvest Funds (including the
Kobrick Funds) and the Money Market Funds totaled over $7 billion.
AUTOMATIC EXCHANGE PLAN (CLASS A, B AND C SHARES)
-------------------------------------------------
As described in the Prospectus following the caption "Additional Investor
Services," a shareholder may establish an Automatic Exchange Plan under which
shares of the Fund are automatically exchanged each month for shares of the same
class of one or more of the other Nvest Funds or Money Market Funds.
Registration on all accounts must be identical. The two dates each month on
which exchanges may be made are the 15th and 28th (or the first business day
thereafter if either the 15th or the 28th is not a business day) until the
account is exhausted or until Nvest Services Company is notified in writing to
terminate the plan. Exchanges may be made in amounts of $100 or more. The
Service Options Form is available from Nvest Services Company or your financial
representative to establish an Automatic Exchange Plan.
BROKER TRADING PRIVILEGES
-------------------------
The Distributor may, from time to time, enter into agreements with one or more
brokers or other intermediaries to accept purchase and redemption orders for
Fund shares until the close of regular trading on the Exchange (normally, 4:00
p.m. Eastern Time on each day that the Exchange is open for trading); such
purchase and redemption orders will be deemed to have been received by the Fund
when the authorized broker or intermediary accepts such orders; and such orders
will be priced using the Fund's net asset value next computed after the orders
are placed with and accepted by such brokers or intermediaries. Any purchase and
redemption orders received by a broker or intermediary under these agreements
will be transmitted daily to the Distributor or the Transfer Agent, as the case
may be, no later than the time specified in such agreement; but, in any event,
no later than 6:00 a.m. following the day that such purchase or redemption
orders are received by the broker or intermediary.
SELF-SERVICING YOUR ACCOUNT WITH NVEST FUNDS PERSONAL ACCESS LINE(R) AND WEB
--------------------------------------------------------------------------------
SITE
----
Nvest Funds shareholders may access account information, including share
balances and recent account activity online, by visiting our Web site at
www.nvestfunds.com. Transactions may also be processed online for certain
accounts (restrictions may apply). Such transactions include purchases,
redemptions and exchanges, and shareholders are automatically eligible for these
features. Nvest Funds has taken measures to ensure the security of shareholder
accounts, including the encryption of data and the use of personal
identification (PIN) numbers. In addition, you may restrict these privileges
from your account by calling Nvest Funds at 800-225-5478, or writing to us at
P.O. Box 8551, Boston, MA 02116. More information regarding these features may
be found on our Web site at www.nvestfunds.com.
Investor activity through these mediums are subject to the terms and conditions
outlined in the following NVEST FUNDS ONLINE AND TELEPHONIC CUSTOMER AGREEMENT.
This agreement is also posted on our Web site. The initiation of any activity
through the Nvest Funds Personal Access Line(R), or Web site at
www.nvestfunds.com by an investor shall indicate agreement with the following
terms and conditions:
27
<PAGE>
NVEST FUNDS ONLINE AND TELEPHONIC CUSTOMER AGREEMENT
NOTE: ACCESSING OR REQUESTING ACCOUNT INFORMATION OR TRANSACTIONS THROUGH THIS
SITE CONSTITUTES AND SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE FOLLOWING TERMS
AND CONDITIONS.
The accuracy, completeness and timeliness of all mutual fund information
provided is the sole responsibility of the mutual fund company which provides
the information. No party which provides a connection between this web site and
a mutual fund or its transfer agency system can verify or ensure the receipt of
any information transmitted to or from a mutual fund or its transfer agent, or
the acceptance by, or completion of any transaction with, a mutual fund.
THE ONLINE ACKNOWLEDGMENTS OR OTHER MESSAGES WHICH APPEAR ON YOUR SCREEN FOR
TRANSACTIONS ENTERED DO NOT MEAN THAT THE TRANSACTIONS HAVE BEEN RECEIVED,
ACCEPTED OR REJECTED BY THE MUTUAL FUND. THESE ACKNOWLEDGMENTS ARE ONLY AN
INDICATION THAT THE TRANSACTIONAL INFORMATION ENTERED BY YOU HAS EITHER BEEN
TRANSMITTED TO THE MUTUAL FUND, OR THAT IT CANNOT BE TRANSMITTED. IT IS THE
RESPONSIBILITY OF THE MUTUAL FUND TO CONFIRM TO YOU THAT IT HAS RECEIVED THE
INFORMATION AND ACCEPTED OR REJECTED A TRANSACTION. IT IS THE RESPONSIBILITY OF
THE MUTUAL FUND TO DELIVER TO YOU A CURRENT PROSPECTUS, CONFIRMATION STATEMENT
AND ANY OTHER DOCUMENTS OR INFORMATION REQUIRED BY APPLICABLE LAW.
NO TRANSACTION SHALL BE DEEMED ACCEPTED UNTIL YOU RECEIVE A WRITTEN CONFIRMATION
FROM THE FUND COMPANY.
You are responsible for reviewing all mutual fund account statements received by
you in the mail in order to verify the accuracy of all mutual fund account
information provided in the statement and transactions entered through this
site. You are also responsible for promptly notifying the mutual fund of any
errors or inaccuracies relating to information contained in, or omitted from
your mutual fund account statements, including errors or inaccuracies arising
from the transactions conducted through this site.
TRANSACTIONS ARE SUBJECT TO ALL REQUIREMENTS, RESTRICTIONS AND FEES AS SET FORTH
IN THE PROSPECTUS OF THE SELECTED FUND.
THE CONDITIONS SET FORTH IN THIS AGREEMENT EXTEND NOT ONLY TO TRANSACTIONS
TRANSMITTED VIA THE INTERNET BUT TO TELEPHONIC TRANSACTIONS INITIATED THROUGH
THE NVEST FUNDS PERSONAL ACCESS LINE(R)
You are responsible for the confidentiality and use of your personal
identification numbers, account numbers, social security numbers and any other
personal information required to access the site or transmit telephonically. Any
individual that possesses the information required to pass through all security
measures will be presumed to be you. All transactions submitted by an individual
presumed to be you will be solely your responsibility.
You agree that Nvest Funds does not have the responsibility to inquire as to the
legitimacy or propriety of any instructions received from you or any person
believed to be you, and is not responsible or liable for any losses that may
occur from acting on such instructions.
Nvest Funds is not responsible for incorrect data received via the Internet or
telephonically from you or any person believed to be you. Transactions submitted
over the Internet and telephonically are solely your responsibility and Nvest
Funds makes no warranty as to the correctness, completeness, or the accuracy of
any transmission. Similarly Nvest Funds bears no responsibility for the
performance of any computer hardware, software, or the performance of any
ancillary equipment and services such as telephone lines, modems, or Internet
service providers.
The processing of transactions over this site or telephonically will involve the
transmission of personal data including social security numbers, account numbers
and personal identification numbers. While Nvest Funds has taken reasonable
security precautions including data encryption designed to protect the integrity
of data transmitted to and from the areas of our Web site that relate to the
processing of transactions, we disclaim any liability for the interception of
such data.
You agree to immediately notify Nvest Funds if any of the following occurs:
1. You do not receive confirmation of a transaction submitted via the Internet
or telephonically within five (5) business days.
2. You receive confirmation of a transaction of which you have no knowledge
and was not initiated or authorized by you.
28
<PAGE>
3. You transmit a transaction for which you do not receive a confirmation
number.
4. You have reason to believe that others may have gained access to your
personal identification number (PIN) or other personal data.
5. You notice an unexplained discrepancy in account balances or other changes
to your account, including address changes, and banking instructions on any
confirmations or statements.
Any costs incurred in connection with the use of the Nvest Funds Personal Access
Line(R) or the Nvest Funds Internet site including telephone line costs, and
Internet service provider costs are solely your responsibility. Similarly Nvest
Funds makes no warranties concerning the availability of Internet services, or
network availability.
Nvest Funds reserves the right to suspend, terminate or modify the Internet
capabilities offered to shareholders without notice.
YOU HAVE THE ABILITY TO RESTRICT INTERNET AND TELEPHONIC ACCESS TO YOUR ACCOUNTS
BY NOTIFYING NVEST FUNDS OF YOUR DESIRE TO DO SO.
Written notifications to Nvest Funds should be sent to:
Nvest Funds
P.O. Box 8551
Boston, MA 02266-8551
Notification may also be made by calling 800-225-5478 during normal business
hours.
--------------------------------------------------------------------------------
REDEMPTIONS
--------------------------------------------------------------------------------
The procedures for redemption of shares of a Fund are summarized in the
Prospectus. As described in the Prospectus, a CDSC may be imposed on certain
purchases of Class A, Class B and Class C shares. For purposes of the CDSC, an
exchange of shares from one fund to another fund is not considered a redemption
or a purchase. For federal tax purposes, however, such an exchange is considered
a sale and a purchase and, therefore, would be considered a taxable event on
which you may recognize a gain or loss. In determining whether a CDSC is
applicable to a redemption of Class A, Class B or Class C shares, the
calculation will be determined in the manner that results in the lowest rate
being charged. Therefore, for Class B shares it will be assumed that the
redemption is first of any Class A shares in the shareholder's fund account,
second of shares held for over six years, third of shares issued in connection
with dividend reinvestment and fourth of shares held longest during the six-year
period. For Class C shares and Class A shares subject to CDSC, it will be
assumed that the redemption is first of any shares that have been in the
shareholder's fund account for over a year, and second of any shares that have
been in the shareholder's fund account for under a year. The charge will not be
applied to dollar amounts representing an increase in the net asset value of
shares since the time of purchase or reinvested distributions associated with
such shares. Unless you request otherwise at the time of redemption, the CDSC is
deducted from the redemption, not the amount remaining in the account.
To illustrate, assume an investor purchased 100 Class B shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares under dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in the net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 4%
(the applicable rate in the second year after purchase).
Signatures on redemption requests must be guaranteed by an "Eligible
Guarantor Institution," as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). However, a signature guarantee will
not
29
<PAGE>
be required if the proceeds of the redemption do not exceed $100,000 and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address.
If you select the telephone redemption service in the manner described in
the next paragraph, shares of the Fund may be redeemed by calling toll free
800-225-5478. A wire fee, currently $5.00, will be deducted from the proceeds.
Telephone redemption requests must be received by the close of regular trading
on the Exchange. Requests made after that time or on a day when the Exchange is
not open for business cannot be accepted and a new request on a later day will
be necessary. The proceeds of a telephone withdrawal will normally be sent on
the first business day following receipt of a proper redemption request, which
complies with the redemption procedures established by the Fund from time to
time.
In order to redeem shares by telephone, a shareholder must either select
this service when completing the Fund application or must do so subsequently on
the Service Options Form, available from the Transfer Agent or your investment
dealer. When selecting the service, a shareholder may have their withdrawal
proceeds sent to their bank, in which case the shareholder must designate a bank
account on their application or Service Options Form to which the redemption
proceeds should be sent as well as provide a check marked "VOID" and/or a
deposit slip that includes the routing number of their bank. Any change in the
bank account so designated may be made by furnishing to the Transfer Agent or
your investment dealer a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone redemptions may only
be made if the designated bank is a member of the Federal Reserve System or has
a correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Fund, the Distributor and State Street Bank are not responsible for
the authenticity of withdrawal instructions received by telephone, subject to
established verification procedures. Nvest Services Company, in agreement with
the Fund, will employ reasonable procedures to confirm that your telephone
instructions are genuine, and if it does not, it may be liable for any losses
due to unauthorized or fraudulent instructions. Such verification procedures
include, but are not limited to, requiring a form of personal identification
prior to acting on an investor's telephone instructions and recording an
investor's instructions.
The redemption price will be the net asset value per share (less any
applicable CDSC) next determined after the redemption request and any necessary
special documentation are received by the Transfer Agent or your investment
dealer in proper form. Payment normally will be made by the Transfer Agent on
behalf of the Fund within seven days thereafter. However, in the event of a
request to redeem shares for which the Fund has not yet received good payment,
the Fund reserves the right to withhold payments of redemption proceeds until
the check or funds have cleared (which may take up to 15 days) if the purchase
of shares was made by check within 10 calendar days prior to the redemption
request.
The CDSC may be waived on redemptions made from IRA accounts due to
attainment of age 59 1/2 for IRA shareholders who established accounts prior to
January 3, 1995. The CDSC may also be waived on redemptions made from IRA
accounts due to death, disability, return of excess contribution, required
minimum distributions at age 70 1/2 (waivers apply only to amounts necessary to
meet the required minimum amount), certain withdrawals pursuant to a systematic
withdrawal plan, not to exceed 10% annually of the value of the account, and
redemptions made from the account to pay custodial fees.
The CDSC may be waived on redemptions made from 403(b)(7) custodial
accounts due to attainment of age 59 1/2 for shareholders who established
custodial accounts prior to January 3, 1995.
The CDSC may also be waived on redemptions necessary to pay plan
participants or beneficiaries from qualified retirement plans under Section 401
of the Code, including profit sharing plans, money purchase plans, 401(k) and
custodial accounts under Section 403(b)(7) of the Code. Distributions necessary
to pay plan participants and beneficiaries include payment made due to death,
disability, separation from service, normal or early retirement as defined in
the plan document, loans from the plan and hardship withdrawals, return of
excess contributions, required minimum distributions at age 70 1/2 (waivers only
apply to amounts necessary to meet the required minimum amount), certain
withdrawals pursuant to a systematic withdrawal plan, not to exceed 10% annually
of the value of your account, and redemptions made from qualified retirement
accounts or Section 403(b)(7) custodial accounts necessary to pay custodial
fees.
A CDSC will apply in the event of plan level transfers, including transfers
due to changes in investment where assets are transferred outside of Nvest
Funds, including IRA and 403(b)(7) participant-directed transfers of assets to
other custodians (except for the reasons given above) or qualified transfers of
assets due to trustee-directed movement of plan assets due to merger,
acquisition or addition of additional funds to the plan.
30
<PAGE>
In order to redeem shares electronically through the ACH system, a
shareholder's bank or credit union must be a member of the ACH system and the
shareholder must have a completed, approved ACH application on file. In
addition, the telephone request must be received no later than 4:00 p.m.
(Eastern Time). Upon receipt of the required information, the appropriate number
shares will be redeemed and the monies forwarded to the bank designated on the
shareholder's application through the ACH system. The redemption will be
processed the day the telephone call is made and the monies generally will
arrive at the shareholder's bank within three business days. The availability of
these monies will depend on the individual bank's rules.
The Fund will normally redeem shares for cash; however, the Fund reserves
the right to pay the redemption price wholly or partially in kind if the Fund's
Board of Trustees determines it to be advisable and in the interest of the
remaining shareholders of the Fund. The redemptions in kind will be selected by
the Adviser in light of the Fund's objective and will not generally represent a
pro rata distribution of each security held in the Fund's portfolio. If
portfolio securities are distributed in lieu of cash, the shareholder will
normally incur brokerage commissions upon subsequent disposition of any such
securities. However, the Fund has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Fund is obligated to redeem shares solely in
cash for any shareholder during any 90-day period up to the lesser of $250,000
or 1% of the total net asset value of the Fund at the beginning of such period.
The Fund does not currently intend to impose any redemption charge (other than
the CDSC imposed by the Fund's Distributor), although it reserves the right to
charge such a fee. A redemption constitutes a sale of shares for federal income
tax purposes on which the investor may realize a long- or short-term capital
gain or loss. See also "Income Dividends, Capital Gain Distributions and Tax
Status," below.
The Fund may also close your account and send you the proceeds if the
balance in your account falls below a minimum amount set by the Fund's Board of
Trustees (currently $1,000 for all accounts except Keogh, pension and profit
sharing plans, automatic investment plans, IRA Accounts and accounts that have
fallen below the minimum solely because of fluctuations in the net asset value
per share). Shareholders who are affected by this policy will be notified of the
Fund's intention to close the account and will have 60 days immediately
following the notice to bring the account up to the minimum.
REINSTATEMENT PRIVILEGE (CLASS A AND CLASS C SHARES ONLY)
---------------------------------------------------------
The Prospectus describes redeeming shareholders' reinstatement privileges
for Class A and Class C shares. Written notice and the investment check from
persons wishing to exercise this reinstatement privilege must be received by
your investment dealer within 120 days after the date of the redemption. The
reinstatement or exchange will be made at net asset value next determined after
receipt of the notice and the investment check and will be limited to the amount
of the redemption proceeds or to the nearest full share if fractional shares are
not purchased.
Even though an account is reinstated, the redemption will constitute a sale
for federal income tax purposes. Investors who reinstate their accounts by
purchasing shares of the Fund should consult with their tax advisers with
respect to the effect of the "wash sale" rule if a loss is realized at the time
of the redemption.
--------------------------------------------------------------------------------
STANDARD PERFORMANCE MEASURES
--------------------------------------------------------------------------------
CALCULATION OF TOTAL RETURN. Total return is a measure of the change in
value of an investment in the Fund over the period covered, which assumes that
any dividends or capital gains distributions are automatically reinvested in
shares of the same class of the Fund rather than paid to the investor in cash.
The Fund may show each class' average annual total return for the one-year,
five-year and ten-year periods (or for the life of the Fund, if shorter) through
the end of the most recent calendar quarter. The formula for total return used
by the Fund is prescribed by the SEC and includes three steps: (1) adding to the
total number of shares that would be purchased by a hypothetical $10,000
investment in the Fund (with or without giving effect to the deduction of sales
charge or CDSC, if applicable) all additional shares that would have been
purchased if all dividends and distributions paid or distributed during the
period had been automatically reinvested; (2) calculating the value of the
hypothetical initial investment as of the end of the period by multiplying the
total of shares owned at the end of the period by the net asset value per share
on the last trading day of the period; and (3) dividing this account value for
the hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total return may be
stated with or without giving effect to any expense limitations in effect for
the Fund.
31
<PAGE>
If the Fund presents returns reflecting an expense limitation or waiver, its
total return would be been lower if no limitation or waiver were in effect.
PERFORMANCE COMPARISONS
-----------------------
TOTAL RETURN. Total returns will generally be higher for Class A shares
than for Class B and Class C shares of the Fund, because of the higher levels of
expenses borne by the Class B and Class C shares. Because of its lower operating
expenses, Class Y shares of the Fund can be expected to achieve a higher total
return than the Fund's Class A, Class B and Class C shares. The Fund may from
time to time include its total return in advertisements or in information
furnished to present or prospective shareholders. The Fund may from time to time
include in advertisements its total return and the ranking of those performance
figures relative to such figures for groups of mutual funds categorized by
Morningstar, Inc. ("Morningstar") or Lipper, Inc. ("Lipper") as having similar
investment objectives.
The Fund may cite its ratings, recognition, or other mention by Morningstar
or any other entity. Morningstar's rating system is based on risk-adjusted total
return performance and is expressed in a star-rating format. The risk-adjusted
number is computed by subtracting a Fund's risk score (which is a function of
the fund's monthly returns less the 3-month T-bill return) from the Fund's load
adjusted total return score. This numerical score is then translated into rating
categories with the top 10% labeled five star, the next 22.5% labeled four star,
the next 35% labeled three star, the next 22.5% labeled two star and the bottom
10% one star. A high rating reflects either above-average returns or
below-average risk or both. Each Fund may also compare its performance or
ranking against all funds tracked by Morningstar or another independent service,
including Lipper.
Lipper Indices and Averages are calculated and published by Lipper, an
independent service that monitors the performance of more than 30,000 funds. The
Fund may also use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify the Fund to a different category or develop
(and place the Fund into) a new category, the Fund may compare its performance
or ranking against other funds in the newly assigned category, as published by
the service.
Total return may also be used to compare the performance of the Fund
against certain widely acknowledged standards or indices for stock and bond
market performance or against the U.S. Bureau of Labor Statistics' Consumer
Price Index.
The Consumer Price Index, published by the U.S. Bureau of Labor Statistics,
is a statistical measure of changes, over time, in the prices of goods and
services in major expenditure groups.
The Morgan Stanley REIT Index is a market capitalization-weighted,
unmanaged, total-return index of REITs that meet certain liquidity requirements.
The index was designed to track the total-return performance of a broad group of
REIT stocks assuming dividend reinvestment in the index on the ex-dividend date.
The index is composed only of publicly traded equity REITs and does not include
REITs that invest primarily in healthcare facilities, real estate mortgages, or
debt securities.
The Wilshire REIT Index is a market capitalization-weighted and unmanaged
index of U.S. publicly traded REITs. This index is a subset of the Wilshire Real
Estate Securities Index.
The Wilshire Real Estate Securities Index is a market
capitalization-weighted and unmanaged index of equity securities whose primary
business is equity ownership of commercial real estate, equity (non-health)
REITs, and storage properties.
The NAREIT Equity Index is a market capitalization-weighted, unmanaged
index of equity REITs, which are defined as REITs with 75% or greater of their
gross invested book assets invested directly or indirectly in the equity
ownership of real estate.
The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is a
market capitalization-weighted and unmanaged index showing the changes in the
aggregate market value of 500 stocks relative to the base period 1941-43. The
S&P 500 is composed almost entirely of common stocks of companies listed on the
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included.
32
<PAGE>
Articles and releases, developed by Nvest Funds and other parties, about
the Nvest Funds regarding performance, rankings, statistics and analyses and the
fund group's asset levels and sales volumes, numbers of Nvest Fund shareholders,
statistics and analyses of industry sales volumes and asset levels, and other
characteristics may appear in advertising, promotional literature, publications,
including, but not limited to, those publications listed in Appendix B to this
Statement, and on various computer networks, including, the Internet. In
particular, some or all of these publications may publish their own rankings or
performance reviews of mutual funds, including, but not limited to, Lipper and
Morningstar. References to these rankings or reviews or reprints of such
articles may be used in Nvest Funds' advertising and promotional literature.
Such advertising and promotional material may refer to Nvest Companies, its
structure, goals and objectives and the advisory subsidiaries of Nvest
Companies, including their portfolio management responsibilities, portfolio
managers and their categories and background; their tenure, styles and
strategies and their shared commitment to fundamental investment principles and
may identify specific clients, as well as discuss the types of institutional
investors who have selected the advisers to manage their investment portfolios
and the reasons for that selection. The references may discuss the independent,
entrepreneurial nature of each advisory organization and allude to or include
excerpts from articles appearing in the media regarding Nvest Companies, its
advisory subsidiaries and their personnel. For additional information about
Nvest Funds' advertising and promotional literature, see Appendix C.
The Fund may use the accumulation charts below in its advertisements to
demonstrate the benefits of monthly savings at an 8% and 10% rate of return,
respectively.
<TABLE>
<CAPTION>
INVESTMENTS AT 8% RATE OF RETURN
5 YRS. 10 15 20 25 30
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$50 3,698 9,208 17,417 29,647 47,868 75,015
75 5,548 13,812 26,126 44,471 71,802 112,522
100 7,396 18,417 34,835 59,295 95,737 150,029
150 11,095 27,625 52,252 88,942 143,605 225,044
200 14,793 36,833 69,669 118,589 191,473 300,059
500 36,983 92,083 174,173 296,474 478,683 750,148
</TABLE>
INVESTMENTS AT 10% RATE OF RETURN
<TABLE>
<CAPTION>
5 yrs. 10 15 20 25 30
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$50 3,904 10,328 20,896 38,285 66,895 113,966
75 5,856 15,491 31,344 57,427 100,342 170,949
100 7,808 20,655 41,792 76,570 133,789 227,933
150 11,712 30,983 62,689 114,855 200,684 341,899
200 15,616 41,310 83,585 153,139 267,578 455,865
500 39,041 103,276 208,962 382,848 668,945 1,139,663
</TABLE>
The Nvest Funds' advertising and sales literature may refer to historical,
current and prospective political, social, economic and financial trends and
developments that affect domestic and international investment as it relates to
the Nvest Funds. Nvest Funds' advertising and sales literature may include
historical and current performance and total returns of investment alternatives
to the Nvest Funds. Articles, releases, advertising and literature may discuss
the range of services offered by the Trust, the Nvest Funds Trusts, the
Distributor, and the Transfer Agent of the Nvest Funds, with respect to
investing in shares of the Nvest Funds and customer service. Such materials may
discuss the multiple classes of shares available through the Trusts and their
features and benefits, including the details of the pricing structure.
The Distributor may make reference in its advertising and sales literature
to awards, citations and honors bestowed on it by industry organizations and
other observers and raters. Such reference may explain the criteria for the
award, indicate the nature and significance of the honor and provide statistical
and other information about the award and the Distributor's selection including,
but not limited to, the scores and categories in which the Distributor excelled,
the names of funds and fund companies that have previously won the award and
comparative information and data about those against whom the Distributor
competed for the award, honor or citation.
33
<PAGE>
The Distributor may publish, allude to or incorporate in its advertising
and sales literature testimonials from shareholders, clients, brokers who sell
or own shares, broker-dealers, industry organizations and officials and other
members of the public, including, but not limited to, fund performance, features
and attributes, or service and assistance provided by departments within the
organization, employees or associates of the Distributor.
Advertising and sales literature may also refer to the beta coefficient of
the Nvest Funds. A beta coefficient is a measure of systematic or
undiversifiable risk of a stock. A beta coefficient of more than 1 means that
the company's stock has shown more volatility than the market index (e.g., the
S&P 500) to which it is being related. If the beta is less than 1, it is less
volatile than the market average to which it is being compared. If it equals 1,
its risk is the same as the market index. High variability in stock price may
indicate greater business risk, instability in operations and low quality of
earnings. The beta coefficients of the Nvest Funds may be compared to the beta
coefficients of other funds.
Nvest Funds may enter into arrangements with banks exempted from
broker-dealer registration under the 1934 Act. Advertising and sales literature
developed to publicize such arrangements will explain the relationship of the
bank to the Nvest Funds and the Distributor as well as the services provided by
the bank relative to the Nvest Funds. The material may identify the bank by name
and discuss the history of the bank including, but not limited to, the type of
bank, its asset size, the nature of its business and services and its status and
standing in the industry.
In addition, sales literature may be published concerning topics of general
investor interest for the benefit of registered representatives and the Fund's
prospective shareholders. These materials may include, but are not limited to,
discussions of college planning, retirement planning and reasons for investing
and historical examples of the investment performance of various classes of
securities, securities markets and indices.
--------------------------------------------------------------------------------
INCOME DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAX STATUS
--------------------------------------------------------------------------------
As described in the Prospectus, it is the policy of the Fund to pay its
shareholders, as dividends, substantially all net investment income and to
distribute annually all net realized long-term capital gains, if any, after
offsetting any capital loss carryovers.
Ordinary income dividends and capital gain distributions are payable in
full and fractional shares of the particular Fund based upon the net asset value
determined as of the close of the Exchange on the record date for each dividend
or distribution. Shareholders, however, may elect to receive their ordinary
income dividends or capital gain distributions, or both, in cash. The election
may be made at any time by submitting a written request directly to Nvest Funds.
In order for a change to be in effect for any dividend or distribution, it must
be received by Nvest Funds on or before the record date for such dividend or
distribution.
If you elect to receive your dividends in cash and the dividend checks sent
to you are returned "undeliverable" to the Fund or remain uncashed for six
months, your cash election will automatically be changed and your future
dividends will be reinvested. No interest will accrue on amounts represented by
uncashed dividend or redemption checks.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986. In order to qualify,
the Fund must, among other things, (i) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to certain
securities loans, gains from the sale of securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (ii) distribute at least 90% of its dividend,
interest and certain other taxable income each year; and (iii) diversify its
holdings so that at the end of each fiscal quarter, (a) at least 50% of the
value of its total assets consists of cash, U.S. Government Securities,
securities of other regulated investment companies, and other securities limited
generally, with respect to any one issuer, to no more than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of its assets is invested in the
securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the
34
<PAGE>
same, similar or related trades or businesses. So long as it qualifies for
treatment as a regulated investment company, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form of dividends
or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over its actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 (or December 31, if the Fund is
so permitted to elect and so elects) plus undistributed amounts from prior
years. The Fund intends to make distributions sufficient to avoid imposition of
the excise tax. Distributions declared and payable by the Fund during October,
November or December to shareholders of record on a date in any such month and
paid by the Fund during the following January will be treated for federal tax
purposes as paid by the Fund and received by shareholders on December 31 of the
year in which declared.
Fund distributions paid to you are taxable whether you received them in
cash or reinvested them in additional shares. Distributions derived from
short-term capital gains or investment income are taxable at ordinary income
rates. If you are a corporation investing in a Fund, a portion of these
dividends may qualify for the dividends-received deduction provided that you
meet certain holding period requirements. However, any distributions received by
the Fund from REITs will not qualify for the corporate dividends-received
deduction. Distributions of net long-term capital gains (i.e., the excess of net
gains from capital assets held for more than one year over net losses from
capital assets held for not more than one year) that are designated by a Fund as
capital gain dividends will generally be taxable to a shareholder receiving such
distributions as long-term capital gain (generally taxed at a 20% tax rate for
noncorporate shareholders) regardless of how long the shareholder has held Fund
shares. To avoid an excise tax, the Fund intends to distribute dividends prior
to calendar year-end. Some dividends paid in January may be taxable as if they
were received in the previous December.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when the Fund's net asset value also reflects unrealized
losses.
The Fund's transactions, if any, in foreign currencies and foreign currency
denominated bonds and hedging activities are likely to result in a difference
between the Fund's book income and taxable income. This difference may cause a
portion of the Fund's income distributions to constitute a return of capital or
capital gain for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
Redemptions and exchanges of the Fund's shares is a taxable event and,
accordingly, shareholders may realize gains and losses on such transactions.
Currently, if shares have been held for more than one year, gain or loss
realized will be taxed at long-term federal tax rates (generally 20% for
noncorporate shareholders), provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the same Fund within 30
days prior to the sale of the loss shares or 30 days after such sale.
A loss on the sale of shares held for six months or less will be disallowed
for federal income tax purposes to the extent of exempt-interest dividends
received with respect to such shares and thereafter treated as a long-term
capital loss to the extent of any long-term capital gain dividend paid to the
shareholder with respect to such shares.
The Fund's investments in REIT equity securities may require the Fund to
accrue and distribute income not yet received. In order to generate sufficient
cash to make required distributions, the Fund may be required to sell securities
in its portfolio that it otherwise would have continued to hold (including when
it is advantageous to do so). The Fund's investments in REIT equity securities
may at other times result in the Fund's receipt of cash in excess of the REIT's
earnings; if the Fund distributes such amounts, such distribution could
constitute a return of capital to Fund shareholders for federal income tax
purposes.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions.
35
<PAGE>
Dividends and distributions also may be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
The Fund is required to withhold 31% of all income dividends and capital
gains distributions it pays to you if you do not provide a correct, certified
taxpayer identification number, if the Fund is notified that you have
underreported income in the past or if you fail to certify to the Fund that you
are not subject to such withholding. If you are a tax-exempt shareholder,
however, these backup withholding rules will not apply so long as you furnish
the Fund with an appropriate certification.
The foregoing discussion relates solely to U.S. federal income tax law.
Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility that
distributions may be subject to a 30% U.S. withholding tax (or a reduced rate of
withholding provided by treaty).
36
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following financial statements are for the Nvest Real Estate Fund (formerly,
the AEW Real Estate Securities Fund) as of August 31, 2000.
STATEMENT OF ASSETS AND LIABILITIES
AEW Real Estate Securities Fund
Statement of Assets and Liabilities
August 31, 2000
ASSETS
Cash $100,000
Expense reimbursement receivable due from
investment adviser 28,694
--------
TOTAL ASSETS 128,694
--------
LIABILITIES
Accounts payable and accrued expenses 28,694
--------
TOTAL LIABILITIES 28,694
--------
NET ASSETS 100,000
=======
NET ASSETS CONSIST OF:
Paid-in capital $100,000
---------
NET ASSETS $100,000
----------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE:
Net assets $100,000
=======
Shares of beneficial interest 10,000
=======
Net asset value, offering and redemption
price per share $ 10.00
=======
See accompanying notes to financial statements.
37
<PAGE>
STATEMENT OF OPERATIONS
AEW Real Estate Securities Fund
Statement of Operations
Period ended August 31, 2000
INVESTMENT INCOME $ 0
Expenses
Audit services 4,500
Legal fees 19,600
Registration fees 4,500
Other 94
-----------
Total expenses 28,694
-----------
Fees waived and/or reimbursed by
investment adviser (28,694)
-----------
Net expenses 0
-----------
Net investment loss 0
-----------
NET INCREASE/DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 0
=========
38
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AEW Real Estate Securities Fund
August 31, 2000
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. The Fund is a series of
Nvest Companies Trust I (the "Trust"), a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company. The Fund seeks to provide
investors with above-average income and long-term growth of capital. The
Declaration of Trust permits the Fund's Trustees to issue an unlimited number of
shares of the Trust in multiple series (each such series is a "Fund"). The
Declaration of Trust further permits the Fund's Trustees to divide the shares of
each series into any number of separate classes of shares.
The Fund has had no operations other than matters relating to its organization
and registration under federal and state securities laws and regulations. The
Fund currently offers one class of shares. At August 31, 2000 there were 10,000
shares of beneficial interest outstanding that were purchased at $10.00 per
share by the parent company of the Fund's investment adviser (see Note 3).
The following is a summary of significant accounting policies that the Fund
expects to consistently follow in the preparation of its financial statements.
The policies are in conformity with accounting principles generally accepted in
the United States 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. 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 as 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. Securities for which current market quotations are
not readily available and all other assets are valued at their fair value as
determined in good faith by the Fund's investment adviser and officers, under
the supervision of the Fund's Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. In
determining net gain or loss on securities sold, the cost of securities will be
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, the Fund does not intend to make a
provision for federal income tax.
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 relating to shareholder distributions
will result in reclassification to the paid in capital account.
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, including interest. The Fund's investment 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 connection with the Fund's
organization and registration, amounting to $28,694, have been accrued by the
Fund and are shown as expenses in the Fund's Statement of Operations (see Note
5).
39
<PAGE>
2. PURCHASES AND SALES OF SECURITIES. The Fund had no purchases or sales of
portfolio securities.
3A. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The Fund pays gross
management fees to its investment adviser, AEW Management and Advisors, L. P.
("AEW"), at the annual rate of 0.80% of the first $500 million of the Fund's
average daily net assets and 0.75% of such assets in excess of $500 million. AEW
is a wholly owned subsidiary of AEW Capital Management, L. P. ("AEW Capital"),
which in turn is a wholly-owned subsidiary of Nvest Holdings, L. P. Nvest
Holdings, L. P. is a wholly-owned subsidiary of Nvest Companies, L.P. ("Nvest"),
which is a subsidiary of Metropolitan Life Insurance Company (see note 6). The
Fund has paid no fees paid to AEW.
B. ACCOUNTING AND ADMINISTRATIVE 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 pays NSC a fee for these services
equal to the annual rate of 0.0325% of the first $1 billion of average daily net
assets, 0.0225% of the next $1 billion of the average daily net assets, and
0.0175% of the average daily net assets in excess of $2 billion. The minimum
annual administrative fee is $55,000. The Fund has paid no fees paid to NSC.
C. TRANSFER AGENT FEES. NSC is also the transfer and shareholder-servicing agent
to the Fund and Boston Financial Data Services ("BFDS") serves as the
sub-transfer agent for the Fund. NSC receives from the Fund an account fee for
each shareholder account and pays BFDS for its services. NSC and BFDS are also
reimbursed by the Fund for out-of-pocket expenses. The minimum annual account
fee paid to NSC is $28,800. The Fund has made no account or expense payments to
NSC and BFDS.
D. DISTRIBUTION AGREEMENT. The Fund has entered into a distribution agreement
with Nvest Funds Distributor, L.P. ("Nvest Funds"), and a wholly owned
subsidiary of Nvest, to serve as principal underwriter of Fund shares.
E. TRUSTEE FEES AND EXPENSES. The Fund does not pay any compensation directly to
its officers or Trustees who are directors, officers or employees of AEW, AEW
Capital, Nvest Funds, Nvest, NSC or their affiliates. Each other Trustee
receives a fee at the annual rate of $100. Each other Trustee also receives
substantially higher fees for serving on the Boards of Trustees of five
affiliated Nvest Funds Trusts. These five Nvest Funds Trusts collectively have a
total of twenty-two mutual funds with total aggregate net assets of
approximately $7.4 billion on June 30, 2000.
4. CAPITAL SHARES. At August 31, 2000 there was an unlimited number of shares of
beneficial interest authorized.
5. Expense Reductions. AEW has given a binding undertaking to the Fund through
January 31, 2002 to reduce its management fees, and if necessary, to bear
certain expenses related to operating the Fund, exclusive of brokerage,
interest, taxes, and extraordinary expenses, in order to limit the Fund's total
operating expenses to an annual rate of 1.25% of the average daily net assets of
the Fund. AEW is also permitted to recover from the Fund in later periods
expenses AEW has borne through January 31, 2002 to the extent that the Fund's
total operating expenses falls below the annual rate of 1.25%. The recovery
period is limited to not more than one year after the end of the Fund's fiscal
year in which AEW had reimbursed the Fund. These one year recovery periods will
expire on January 31, 2002 and January 31, 2003, respectively.
6. Subsequent Event. Nvest, L.P., and its affiliated operating partnership,
Nvest Companies, L.P., have entered into an agreement for CDC Asset Management
to acquire all of their outstanding partnership units. CDC Asset Management is
the investment management arm of France's Caisse des Depots Group, which is a
major diversified financial institution. Nvest, L. P. will be renamed CDC Asset
Management-North America and it will continue to use the holding company
structure. Nvest affiliates will retain their investment independence, brand
names, management and operating autonomy. The transaction will not affect daily
operations of the Fund or the investment management activities of the Funds'
investment adviser, AEW.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies L.P. Under the rules for mutual funds the
transaction may result in a change of control for the Nvest affiliates.
Consequently, it is anticipated that the Nvest affiliates will seek approval of
new agreements from each Board of Trustees and shareholders prior to the
consummation of the transaction. The transaction is expected to close in the
fourth quarter of 2000.
40
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Nvest Companies Trust I and Shareholder of AEW Real Estate
Securities Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations present fairly, in all material respects, the
financial position of AEW Real Estate Securities Fund (the "Fund") at August 31,
2000, and the results of its operations for the period indicated, in conformity
with accounting principles generally accepted in the United States. These
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 auditing standards generally accepted in the United States 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 provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 31, 2000
41
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APPENDIX A
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S RATINGS SERVICES
----------------------------------
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
-------------------------------
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
42
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Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default of there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is not longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: THOSE BONDS IN THE AA, A, BAA, BA AND B GROUPS WHICH MOODY'S BELIEVES
POSSESS THE STRONGEST INVESTMENT ATTRIBUTES ARE DESIGNATED BY THE SYMBOLS
AA1, A1, BAA1, AND B1.
FITCH INVESTOR SERVICES, INC.
-----------------------------
AAA -- This is the highest rating assigned by Fitch to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-); The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
43
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APPENDIX B
MEDIA THAT MAY CONTAIN FUND INFORMATION
ABC and affiliates
Adam Smith's Money World
America OnLine
Anchorage Daily News
Arizona Republic
Atlanta Constitution
Atlanta Journal
Austin American Statesman
Baltimore Sun
Bank Investment Marketing
Barron's
Bergen County Record (NJ)
Bloomberg Business News
B'nai B'rith Jewish Monthly
Bond Buyer
Boston Business Journal
Boston Globe
Boston Herald
Broker World
Business Radio Network
Business Week
CBS and affiliates
CFO
Changing Times
Chicago Sun Times
Chicago Tribune
Christian Science Monitor
Christian Science Monitor News Service
Cincinnati Enquirer
Cincinnati Post
CNBC
CNN
Columbus Dispatch
CompuServe
Dallas Morning News
Dallas Times-Herald
Denver Post
Des Moines Register
Detroit Free Press
Donoghues Money Fund Report
Dorfman, Dan (syndicated column)
Dow Jones News Service
Economist
FACS of the Week
Fee Adviser
Financial News Network
Financial Planning
Financial Planning on Wall Street
Financial Research Corp.
Financial Services Week
Financial World
Fitch Insights
44
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Forbes
Fort Worth Star-Telegram
Fortune
Fox Network and affiliates
Fund Action
Fund Decoder
Global Finance
(the) Guarantor
Hartford Courant
Houston Chronicle
INC
Indianapolis Star
Individual Investor
Institutional Investor
International Herald Tribune
Internet
Investment Advisor
Investment Company Institute
Investment Dealers Digest
Investment Profiles
Investment Vision
Investor's Business Daily
IRA Reporter
Journal of Commerce
Kansas City Star
KCMO (Kansas City)
KOA-AM (Denver)
Los Angeles Times
Leckey, Andrew (syndicated column)
Lear's
Life Association News
Lifetime Channel
Miami Herald
Milwaukee Sentinel
Money
Money Maker
Money Management Letter
Morningstar
Mutual Fund Market News
Mutual Funds Magazine
National Public Radio
National Underwriter
NBC and affiliates
New England Business
New England Cable News
New Orleans Times-Picayune
New York Daily News
New York Times
Newark Star Ledger
Newsday
Newsweek
Nightly Business Report
Orange County Register
Orlando Sentinel
45
<PAGE>
Palm Beach Post
Pension World
Pensions and Investments
Personal Investor
Philadelphia Inquirer
Porter, Sylvia (syndicated column)
Portland Oregonian
Prodigy
Public Broadcasting Service
Quinn, Jane Bryant (syndicated column)
Registered Representative
Research Magazine
Resource
Reuters
Rocky Mountain News
Rukeyser's Business (syndicated column)
Sacramento Bee
San Diego Tribune
San Francisco Chronicle
San Francisco Examiner
San Jose Mercury
Seattle Post-Intelligencer
Seattle Times
Securities Industry Management
Smart Money
St. Louis Post Dispatch
St. Petersburg Times
Standard & Poor's Outlook
Standard & Poor's Stock Guide
Stanger's Investment Advisor
Stockbroker's Register
Strategic Insight
Tampa Tribune
Time
Tobias, Andrew (syndicated column)
Toledo Blade
UPI
US News and World Report
USA Today
USA TV Network
Value Line
Wall St. Journal
Wall Street Letter
Wall Street Week
Washington Post
WBZ
WBZ-TV
WCVB-TV
WEEI
WHDH
Worcester Telegram
World Wide Web
Worth Magazine
WRKO
46
<PAGE>
APPENDIX C
ADVERTISING AND PROMOTIONAL LITERATURE
References may be included in Nvest Funds' advertising and promotional
literature to Nvest Companies and its affiliates that perform advisory and
subadvisory functions for Nvest Funds, including, but not limited to: AEW, Back
Bay Advisors, L.P., Harris Associates L.P., Loomis, Sayles & Company, L.P.,
Capital Growth Management Limited Partnership, Westpeak Investment Advisors,
L.P., Jurika & Voyles, L.P., Vaughan, Nelson, Scarborough & McCullough, L.P. and
Kobrick Funds LLC. Reference also may be made to the Funds of their respective
fund groups, namely, the Jurika & Voyles Funds, Loomis Sayles Funds and the
Oakmark Family of Funds advised by Harris Associates.
References may be included in the Fund's advertising and promotional
literature to other Nvest Companies affiliates including, but not limited to,
AEW Capital Management, L.P., Snyder Capital Management, L.P., Reich & Tang
Capital Management, Reich and Tang Funds and their fund groups.
Nvest Funds' advertising and promotional material will include, but is not
limited to, discussions of the following information about both affiliated and
unaffiliated entities:
|X| Specific and general assessments and forecasts regarding U.S. and world
economies, and the economies of specific nations and their impact on the
Nvest Funds;
|X| Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions;
|X| Specific and general investment philosophies, strategies, processes,
techniques and types of analysis;
|X| Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services;
|X| The corporate histories, founding dates and names of founders of the
entities;
|X| Awards, honors and recognition given to the entities;
|X| The names of those with ownership interest and the percentage of ownership
interest;
|X| The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans;
|X| Current capitalizations, levels of profitability and other financial and
statistical information;
|X| Identification of portfolio managers, researchers, economists, principals
and other staff members and employees;
|X| The specific credentials of the above individuals, including, but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and degrees,
awards and honors;
|X| Specific and general reference to past and present notable and renowned
individuals including reference to their field of expertise and/or specific
accomplishments;
|X| Current and historical statistics regarding:
- total dollar amount of assets managed
- the growth of assets
- asset types managed
47
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- numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
- the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or sub-adviser;
|X| The general and specific strategies applied by the advisers in the
management of the Nvest Funds portfolios, including, but not limited to:
- the pursuit of growth, value, income oriented, risk management or
other strategies
- the manner and degree to which the strategy is pursued
- whether the strategy is conservative, moderate or extreme and an
explanation of other features and attributes
- the types and characteristics of investments sought and specific
portfolio holdings
- the actual or potential impact and result from strategy implementation
- through its own areas of expertise and operations, the value added by
sub-advisers to the management process
- the disciplines it employs, e.g., in the case of Loomis Sayles, the
strict buy/sell guidelines and focus on sound value it employs, and
goals and benchmarks that it establishes in management, e.g., CGM
pursues growth 50% above the S&P 500
- the systems utilized in management, the features and characteristics
of those systems and the intended results from such computer analysis,
e.g., Westpeak's efforts to identify overvalued and undervalued
issues; and
|X| Specific and general references to portfolio managers and funds that they
serve as portfolio manager of, other than Nvest Funds, and those families
of funds, other than Nvest Funds. Any such references will indicate that
Nvest Funds and the other funds of the managers differ as to performance,
objectives, investment restrictions and limitations, portfolio composition,
asset size and other characteristics, including fees and expenses.
References may also be made to industry rankings and ratings of the Funds
and other funds managed by the Funds' advisers and sub-advisers, including,
but not limited to, those provided by Morningstar, Lipper Analytical
Services, Forbes and Worth.
In addition, communications and materials developed by Nvest Funds will
make reference to the following information about Nvest Companies and its
affiliates:
Nvest Companies is a subsidiary of CDC Asset Management. CDC Asset
Management is part of the investment arm of France's Caisse des Depots et
Consignations ("CDC"), a major diversified financial institution. As of
September 30, 2000, Nvest Companies had more than $130 billion of assets under
management.
In addition, promotional materials may include:
|X| Specific and general references to Nvest Funds multi-manager approach
through Nvest Companies' affiliates and outside firms including, but not
limited to, the following:
- that each adviser/manager operates independently on a day-to-day basis
and maintains an image and identity separate from Nvest Companies and
the other investment managers
- other fund companies are limited to a "one size fits all" approach but
Nvest Funds draws upon the talents of multiple managers whose
expertise best matches the fund objective
- in this and other contexts reference may be made to Nvest Funds'
slogan "Where The Best Minds Meet"(R) and that Nvest Funds' ability to
match the talent to the task is one more reason it is becoming known
as "Where The Best Minds Meet."
- Nvest Management may distribute sales and advertising materials that
illustrate the Star Concept by using historical category comparisons
of a general nature. Categories from mutual fund ranking services,
such as Morningstar, Inc., are selected for each of the Fund segments
based on current investment styles and are subject to change with
market conditions. There will be differences between the performance
of the categories and the Nvest Star Fund being illustrated. The
illustrations are used for hypothetical purposes only as a general
demonstration of how the Star Concept works.
48
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Nvest Managed Account Services ("NMAS"), Nvest Advisor Services ("NAS") and
Nvest Retirement Services ("NRS"), divisions of Nvest Companies, may be
referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest Companies affiliated fund groups
including: Nvest Funds, Loomis Sayles Funds, Jurika & Voyles, Back Bay Advisors,
Oakmark Funds, Delafield Funds and Kobrick Funds.
NMAS, NAS and NRS will provide marketing support to Nvest Companies
affiliated fund groups targeting financial advisers, financial intermediaries
and institutional clients who may transact purchases and other fund-related
business directly with these fund groups. Communications will contain
information including, but not limited to: descriptions of clients and the
marketplaces to which it directs its efforts; the mission and goals of NAS, NMAS
and NRS and the types of services it provides which may include: seminars; its
1-800 number, web site, Internet or other electronic facilities; qualitative
information about the funds' investment methodologies; information about
specific strategies and management techniques; performance data and features of
the funds; institutional oriented research and portfolio manager insight and
commentary. Additional information contained in advertising and promotional
literature may include: rankings and ratings of the funds including, but not
limited to, those of Morningstar and Lipper Analytical Services; statistics
about the advisers', fund groups' or a specific fund's assets under management;
the histories of the advisers and biographical references to portfolio managers
and other staff including, but not limited to, background, credentials, honors,
awards and recognition received by the advisers and their personnel; and
commentary about the advisers, their funds and their personnel from third-party
sources including newspapers, magazines, periodicals, radio, television or other
electronic media.
References may be included in Nvest Funds' advertising and promotional
literature about 401(k) and retirement plans. The information may include, but
is not limited to:
|X| Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information, industry trends and
forecasts regarding the growth of assets, numbers of plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and other organizations involved in 401(k) and
retirement programs with whom Nvest Funds may or may not have a
relationship.
|X| Specific and general references to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the Nvest Funds as a
401(k) or retirement plan funding vehicle produced by, including, but not
limited to, Investment Company Institute and other industry authorities,
research organizations and publications.
|X| Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
- past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and
other relevant forms and documents, Department of Labor rules and
standards and other regulations. This includes past, current and
future initiatives, interpretive releases and positions of regulatory
authorities about the past, current or future eligibility,
availability, operations, administration, structure, features,
provisions or benefits of 401(k) and retirement plans;
- information about the history, status and future trends of Social
Security and similar government benefit programs including, but not
limited to, eligibility and participation, availability, operations
and administration, structure and design, features, provisions,
benefits and costs; and
- current and prospective ERISA regulation and requirements.
|X| Specific and general discussion of the benefits of 401(k) investment and
retirement plans to the participant and plan sponsor, including
explanations, statistics and other data, about:
- increased employee retention
- reinforcement or creation of morale
- deductibility of contributions for participants
49
<PAGE>
- deductibility of expenses for employers
- tax deferred growth, including illustrations and charts
- loan features and exchanges among accounts
- educational services materials and efforts, including, but not limited
to, videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers
and other personnel.
|X| Specific and general reference to the benefits of investing in mutual
funds for 401(k) and retirement plans, and Nvest Funds as a 401(k) or
retirement plan funding vehicle.
|X| Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
- access to expertise on investments
- assistance in interpreting past, present and future market trends and
economic events
- providing information to clients including participants during
enrollment and on an ongoing basis after participation
- promoting and understanding the benefits of investing, including
mutual fund diversification and professional management.
50
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Registration Nos. 333-37314
811-09945
NVEST COMPANIES TRUST I
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation.
(1) The Registrant's Agreement and Declaration of Trust dated March 17,
2000 (the "Agreement and Declaration") is incorporated by reference to
Exhibit (a)(1) to the Registration Statement filed on May 18, 2000.
(b) By-Laws.
(1) The Registrant's By-Laws are incorporated by reference to Exhibit (b)
(1) to the Registration Statement filed on May 18, 2000.
(c) Instruments Defining Rights of Security Holders.
Rights of shareholders are described in Article III (Shares), and
Article V (Shareholders' Voting Power and Meetings) of the
Registrant's Agreement and Declaration incorporated by reference to
Exhibit (a)(1) to the Registration Statement filed on May 18, 2000.
(d) Investment Advisory Contracts.
(1) Advisory Agreement between the Registrant on behalf of Nvest AEW Real
Estate Fund and AEW Management and Advisors, L.P. is incorporated by
reference to Exhibit (d)(1) to Post-Effective Amendment No. 1 to the
Registration Statement filed on October 30, 2000.
(e) Underwriting Contracts.
(1) Distribution Agreement between Registrant on behalf of Nvest AEW Real
Estate Fund and Nvest Funds Distributor, L.P. is filed herewith.
(2) Dealer Agreement used by Nvest Funds Distributor, L.P. is filed
herewith.
(f) Bonus or Profit Sharing Contracts.
Not applicable.
(g) Custodian Agreements.
(1) Custodian Contract between Registrant, on behalf of Nvest AEW Real
Estate Fund and State Street Bank and Trust Company ("State Street
Bank") is incorporated by reference to Exhibit (g)(1) to Pre-Effective
Amendment No. 2 to the Registration Statement filed on September 1,
2000.
(h) Other Material Contracts.
(1) Transfer Agency and Service Agreement between the Registrant on behalf
of Nvest
1
<PAGE>
AEW Real Estate Fund and Nvest Services Company, Inc. ("NSC") is
incorporated by reference to Exhibit (h)(1) to Pre-Effective Amendment
No. 2 to the Registration Statement filed on September 1, 2000.
(2) Administrative Services Agreement dated October 30, 2000 between Nvest
Funds Trust I, Nvest Funds Trust II, Nvest Funds Trust III, Nvest Cash
Management Trust - Money Market Series, Nvest Tax Exempt Money Market
Trust and NSC is filed herewith.
(3) Amendment dated December 1, 2000 to Administrative Services Agreement
between Nvest Funds Trust I, Nvest Funds Trust II, Nvest Funds Trust
III, Nvest Cash Management Trust - Money Market Series, Nvest Tax
Exempt Money Market Trust and NSC is filed herewith.
(4) Amendment adding Registrant on behalf of the Fund to the
Administrative Services Agreement between Nvest Funds Trust I, Nvest
Funds Trust II, Nvest Funds Trust III, Nvest Cash Management Trust -
Money Market Series, Nvest Tax Exempt Money Market Trust and NSC is
filed herewith.
(5) Fee Waiver/Reimbursement Undertakings between AEW and the Registrant
on behalf of Nvest AEW Real Estate Fund is filed herewith.
(i) Legal Opinion.
(1) Opinion and consent of counsel with respect to the Registrant's Nvest
AEW Real Estate Fund is incorporated by reference to Exhibit (i)(1) to
Pre-Effective Amendment No. 2 to the Registration Statement filed on
September 1, 2000.
(j) Other Opinions.
Consent of PricewaterhouseCoopers LLP is filed herewith.
(k) Omitted Financial Statements.
Not applicable.
(l) Initial Capital Agreements.
Subscription Agreement between Registrant on behalf of Nvest AEW Real
Estate Fund and AEW Capital Management, L.P. is incorporated by
reference to Exhibit (l) to Pre-Effective Amendment No. 2 to the
Registration Statement filed on September 1, 2000.
(m) Rule 12b-1 Plans.
(1) Service Plan for the Registrant's Class A shares is filed herewith.
(2) Distribution and Service Plan for the Registrant's Class B shares is
filed herewith.
(3) Distribution and Service Plan for the Registrant's Class C shares is
filed herewith.
(n) Rule 18f-3 Plan.
(1) Plan pursuant to Rule 18f-3 under the Investment Company Act of 1940,
as amended, is filed herewith.
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(p) Code of Ethics.
(1) Code of Ethics for Registrant is incorporated by reference to Exhibit
(p)(1) to Pre-Effective Amendment No. 2 to the Registration Statement
filed on September 1, 2000.
(2) Code of Ethics for AEW is incorporated by reference to Exhibit (p)(2)
to Pre-Effective Amendment No. 2 to the Registration Statement filed
on September 1, 2000.
(3) Code of Ethics for Nvest Funds Distributor, L.P. is incorporated by
reference to Exhibit (p)(3) to Pre-Effective Amendment No. 2 to the
Registration Statement filed on September 1, 2000.
(q) Power of Attorney is incorporated by reference to Exhibit (q) to
the Registration Statement filed on May 18, 2000.
Item 24. Persons Controlled by or under Common Control with the Fund.
None.
Item 25. Indemnification.
Under Article 4 of the Registrant's By-laws, any past or present Trustee or
officer of the Registrant (hereinafter referred to as a "Covered Person") shall
be indemnified to the fullest extent permitted by law against all liability and
all expenses reasonably incurred by him or her in connection with any claim,
action, suit or proceeding to which he or she may be a party or otherwise
involved by reason of his or her being or having been a Covered Person. That
provision does not authorize indemnification when it is determined that such
covered person would otherwise be liable to the Registrant or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. This description is modified by the provision of
Article 4 of the Registrant's By-Laws filed as Exhibit (b)(1) to Registrant's
Registration Statement and incorporated by reference herein.
The Distribution Agreement, the Custodian Contract, the Transfer Agency
Services Agreement and the Administrative Services Agreement (the "Agreements")
described in this Registration Statement provide for indemnification. The
general effect of these provisions is to indemnify entities contracting with the
Registrant against liability and expenses in certain circumstances. This
description is modified in its entirety by the provisions of the Agreements as
contained from time to time in this Registration Statement and incorporated
herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to Trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant in connection with the successful
defense of any claim, action, suit or proceeding) is asserted against the
Registrant by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
3
<PAGE>
Registrant and its Trustees, officers and employees are insured, under a
policy of insurance maintained by the Registrant in conjunction with Nvest
Companies, L.P. and its affiliates, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such Trustees or officers. The policy
expressly excludes coverage for any Trustee or officer for any claim arising out
of any fraudulent act or omission, any dishonest act or omission or any criminal
act or omission of the Trustee or officer.
Item 26. Business and Other Connections of Investment Adviser.
(a) AEW, the adviser of the Registrant's Nvest AEW Real Estate Fund,
provides investment advice to a number of other organizations,
institutional clients and individuals.
The list required by this Item 26 regarding any other business,
profession, vocation or employment of a substantial nature
engaged in by officers and directors of AEW during the past two
years is incorporated herein by reference to schedule A and D of
Form ADV filed by AEW pursuant to the Advisers Act (SEC file No.
801-48034).
Item 27. Principal Underwriters.
(a) Nvest Funds Distributor, L.P., the Registrant's principal underwriter, also
serves as principal underwriter for:
Nvest Funds Trust I
Nvest Funds Trust II
Nvest Funds Trust III
Nvest Tax Exempt Money Market Trust
Nvest Cash Management Trust
Nvest Kobrick Investment Trust
(b) The general partner and officers of the Registrant's principal underwriter,
Nvest Funds Distributor, L.P., and their address are as follows:
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
--------------------------------------------------------------------------------
Nvest Distribution Corp. General Partner None
John T. Hailer President and Chief President
Executive Officer
John E. Pelletier Senior Vice President, Secretary
General Counsel, and Clerk
Secretary and Clerk
Scott E. Wennerholm Senior Vice President, None
Treasurer, Chief
Financial Officer and
Chief Operating Officer
Coleen D. Dinneen Vice President, Associate
Counsel, Assistant Assistant
Secretary and Assistant Secretary
Clerk
Kristin S. Vigneaux Vice President, Assistant Assistant
Secretary and Assistant Secretary
Clerk
Beatriz Pina Smith Vice President and None
Assistant Treasurer
Christine Howe Controller None
4
<PAGE>
Frank S. Maselli Senior Vice President None
Kirk Williamson Senior Vice President None
Daniel Lynch Vice President None
Marla McDougall Vice President None
The principal business address of all the above persons or entities is 399
Boylston Street, Boston, MA 02116.
(c) Not applicable.
Item 28. Location of Accounts and Records
The following companies maintain possession of the documents required by the
specified rules:
(a) For all series of Registrant:
Registrant
399 Boylston Street
Boston, Massachusetts 02116
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Nvest Funds Distributor, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(b) (i) For the series of the Registrant managed by AEW:
AEW Management and Advisors, L.P.
World Trade Center East
Two Seaport Lane
Boston, Massachusetts 02210
Item 29. Management Services.
None.
Item 30. Undertakings.
The Registrant undertakes to provide the annual report of any of its
series to any person who receives a prospectus for such series and who requests
the annual report.
<PAGE>
NVEST COMPANIES TRUST I
NOTICE
A copy of the Agreement and Declaration of Trust of Nvest Companies Trust I
is on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant certifies that it meets all of the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees, officers or shareholders individually, but are binding only
upon the assets and property of the Nvest AEW Real Estate Fund series of the
Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 2 to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston, and
The Commonwealth of Massachusetts on the 29th day of December, 2000.
Nvest Companies Trust I
By: /s/ PETER S. VOSS*
------------------
Peter S. Voss
Chief Executive Officer
*By: /s/ JOHN E. PELLETIER
--------------------------
John E. Pelletier
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ PETER S. VOSS*
-------------------------
Peter S. Voss Chairman of the Board; Chief December 29, 2000
Executive Officer;
Trustee
/s/ THOMAS CUNNINGHAM
-------------------------
Thomas Cunningham Treasurer December 29, 2000
/s/ GRAHAM ALLISON*
----------------------------
Graham Allison Trustee December 29, 2000
/s/ SANDRA O. MOOSE*
----------------------------
Sandra O. Moose Trustee December 29, 2000
/s/ DANIEL M. CAIN*
----------------------------
Daniel M. Cain Trustee December 29, 2000
/s/ JOHN A. SHANE*
----------------------------
John A. Shane Trustee December 29, 2000
/s/ KENNETH J. COWAN*
----------------------------
Kenneth J. Cowan Trustee December 29, 2000
/s/ RICHARD DARMAN*
----------------------------
Richard Darman Trustee December 29, 2000
/s/ PENDLETON P. WHITE*
----------------------------
Pendleton P. White Trustee December 29, 2000
/s/ JOHN T. HAILER*
----------------------------
John T. Hailer Trustee December 29, 2000
*By: /s/ JOHN E. PELLETIER
---------------------
John E. Pelletier
Attorney-In-Fact
December 29, 2000
<PAGE>
NVEST COMPANIES TRUST I
EXHIBIT INDEX
EXHIBITS FOR ITEM 23 OF FORM N-1A
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
(a)(1) The Registrant's Agreement and Declaration of Trust dated March
17, 2000 (the "Agreement and Declaration") is incorporated by
reference to Exhibit (a)(1) to the Registration Statement filed
on May 18, 2000.
(b)(1) The Registrant's By-Laws are incorporated by reference to
Exhibit (b)(1) to the Registration Statement filed on May 18,
2000.
(c) Rights of shareholders are described in Article III (Shares) and
Article V (Shareholders' Voting Power and Meetings) of the
Registrant's Agreement and Declaration which is incorporated by
reference to Exhibit (a)(1) to the Registration Statement filed
on May 18, 2000.
(d)(1) Advisory Agreement is incorporated by reference to Exhibit (d)
(1) to Post-Effective Amendment No. 2 to the Registration
Statement filed on October 30, 2000.
(e)(1) Distribution Agreement is filed herewith.
(e)(2) Dealer Agreement is filed herewith.
(g)(1) Custodian Contract is incorporated by reference to Exhibit(g)(1)
to Pre-Effective Amendment No. 2 to the Registration Statement
filed on September 1, 2000.
(h)(1) Transfer Agency and Service Agreement is incorporated by
reference to Exhibit(h)(1) to Pre-Effective Amendment No. 2 to
the Registration Statement filed on September 1, 2000.
(h)(2) Administrative Services Agreement dated October 30, 2000 between
Nvest Funds Trust I, Nvest Funds Trust II, Nvest Funds Trust
III, Nvest Cash Management Trust - Money Market Series, Nvest
Tax Exempt Money Market Trust and NSC is filed herewith.
(h)(3) Amendment dated December 1, 2000 to Administrative Services
Agreement between Nvest Funds Trust I, Nvest Funds Trust II,
Nvest Funds Trust III, Nvest Cash Management Trust - Money
Market Series, Nvest Tax Exempt Money Market Trust and NSC is
filed herewith.
(h)(4) Amendment adding Registrant on behalf of the Fund to the
Administrative Services Agreement between Nvest Funds Trust I,
Nvest Funds Trust II, Nvest Funds Trust III, Nvest Cash
Management Trust - Money Market Series, Nvest Tax Exempt Money
Market Trust and NSC is filed herewith.
(h)(5) Fee Waiver/Reimbursement Undertaking is filed herewith.
(i)(1) Opinion and Consent of Ropes & Gray is incorporated by reference
to Exhibit(i)(l) to Pre-Effective Amendment No. 2 to the
Registration Statement filed on September 1, 2000.
(j) Consent of PricewaterhouseCoopers is filed herewith.
(l) Subscription Agreement is incorporated by reference to Exhibit
(l) to Pre-Effective Amendment No. 2 to the Registration
Statement filed on September 1, 2000.
(m)(1) Service Plan for the Registrant's Class A shares is filed
herewith.
<PAGE>
(m)(2) Distribution and Service Plan for the Registrant's Class B
shares is filed herewith.
(m)(3) Distribution and Service Plan for the Registrant's Class C
shares is filed herewith.
(n) Plan pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended, is filed herewith.
(p)(1) Code of Ethics for the Registrant is incorporated by reference
to Exhibit(p)(1) to Pre-Effective Amendment No. 2 to the
Registration Statement filed on September 1, 2000.
(p)(2) Code of Ethics for the Advisor is incorporated by reference to
Exhibit (p)(2) to Pre-Effective Amendment No. 2 to the
Registration Statement filed on September 1, 2000.
(p)(3) Code of Ethics for the Distributor is incorporated by reference
to Exhibit (p)(3) to Pre-Effective Amendment No. 2 to the
Registration Statement filed on September 1, 2000.
(q) Power of Attorney is incorporated by reference to Exhibit (q)
to the Registration Statement filed on May 18, 2000.
